This Annual Report on Form 10-K ("Report") contains "forward-looking statements". Those statements appear in a number of places in this Report and include, without limitation, statements regarding the intent, belief and current expectations of the Company, its directors or its officers, with respect to: Company's future business and financial prospects; the Company's policies regarding investments, dispositions, financings, conflicts of interest and other matters; and trends affecting the Company's financial condition or results of operations. Forward looking statements include words like "expect," "anticipate," "hope," "project," "may," "should," "could," or similar words or variants thereof. Any such forward-looking statement is not a guarantee of future performance and involves several risks and uncertainties. Actual results may differ materially from those results implied in the forward-looking statement as a result of various factors, some factors being beyond the Company's control or ability to foresee. The accompanying information contained in this Report, including the "Management's Discussion and Analysis of Results of Operations and Financial Condition" and "Risk Factors" identifies important factors that could cause such differences. With respect to any such forward-looking statement that includes a statement of its underlying assumptions or bases, the Company cautions that, while it believes such assumptions or bases to be reasonable and has formed them in good faith, assumed facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can be significant or "material" depending on the circumstances. When, in any forward-looking statement, the Company, or its management, expresses an expectation or belief as to future results, that expectation or belief is expressed in good faith and is believed to have a reasonable basis, but there can be no assurance that the stated expectation or belief will result or be achieved or accomplished. Further, the Company is a "penny stock" company with no primary market makers. Such a status makes highly risky any investment in the Company securities. The forward-looking statements in this Report are made as of the date hereof, and, unless required by law or regulation, we do not assume any obligation to update, amend or clarify them to reflect events, new information or circumstances occurring after the date hereof.

Over the last two years there has been significant LED price erosion, which has substantially driven unit sales, as homeowner’s convert to LED, but at the same time has commoditized other LED consumer products. The LED category is maturing and is no longer the innovative “must have” consumer product as in previous years.

Capstone’s success has been in its ability to identify emerging product categories where Capstone’s management experience can be fully leveraged. We demonstrated this when the Company entered the LED lighting category. Our branding and product strategies delivered the Company to a well-respected market position delivering year-over-year growth through 2017. The Company’s low-cost manufacturing and operations have provided an advantage in delivering great products affordably.

As management recognized that the growth of the LED category was maturing in 2017, we sought a business opportunity that would prove equal to or greater than the LED business. While we currently continue to develop new LED products, the revenue potential has been lessened and our new looking forward strategy was timely.

Our expectation is that the new portfolio appeals to a much larger audience, with more relevant products that will hopefully benefit from management’s proven abilities in the areas of low-cost production and operations. The new Connected Surfaces portfolio is designed to tap into consumer’s ever-expanding connected lifestyles prevalent today. The products will have both touch screen and voice interfacing, internet access and an operating system capable of running downloadable applications. The average selling prices will be comparable to that of tablets and smartphones, expected retails to start at $500.00 per unit, with the goal to deliver consumer value for middle income homes. Whereas, during the day your smartphone/tablet keeps you connected, whether it is work or personal, now when entering your home, Capstone’s new Connected Surfaces products will enable users the same level of connectivity in a more relaxed manner that does not require being tethered to these devices.

The Company competes in competitive consumer market channels that can be affected by volatility from a number of general business and economic factors such as, consumer confidence, employment levels, credit availability and commodity costs. Demand for the Company’s products is highly dependent on economic drivers such as consumer spending and discretionary income. While we believe that the markets for LED home products will remain competitive during fiscal 2019, we are confident in maintaining our revenue stream in the lighting business segment by continuing to introduce new innovative LED products. The first of these new LED products will be present in the retail market place during the first quarter of 2019. By working diligently overseas with alternate manufacturers located outside China, particularly in Thailand and Vietnam, we anticipate minimal impact to our selling prices and related margins of profit that could otherwise be impacted by ongoing trade disputes between the United States and China.

The Company oversees and controls the manufacturing of its products, which are currently made in China by OEM contract manufacturers, through three wholly-owned operating subsidiaries: CAPI, CIHK and CLTL. The Company's direct import business model requires that shipments meet minimum order quantity or "MOQ" full container loads from its factories directly to retail customers shipping brokers. This business model avoids pitfalls resulting from slow moving and obsolete product inventories. The Company's products are built to fill backlog orders and are typically not warehoused for domestic replenishment programming. CIHK continually evaluates its contract manufacturers' ability to meet the Company's growing needs. Additionally, all manufacturers must meet rigorous compliance, security and equipment evaluation audits to ensure competitive pricing for the highest quality products. Capstone’s business practices have allowed development of excellent relationships with its OEM contract manufacturers and has resulted in commercially favorable payment terms, which over the years has greatly contributed to the Company's growth. The Company continues to explore alternative manufacturing sources in Thailand, Vietnam and elsewhere in the Pacific Rim as part of its ongoing supply chain strategic planning. The Company has made no commitments to non-Chinese OEM’s as of the date of the filing of this Report.

We were incorporated on September 18, 1986 as a Delaware corporation. Our initial public offering under the Securities Act was conducted in 1987. We started as a blank check company. From 1986 until the 2006 acquisition of CAPI, we experienced several changes in management, corporate name, and primary business lines, as well as reincorporation from Delaware to Colorado and then from Colorado to Florida in 2004.

On September 13, 2006, the Company entered into a Stock Purchase Agreement with CAPI. CAPI was incorporated in Florida on May 15, 1996 and is engaged primarily in the business of wholesaling low technology 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 CAPI’s Common Stock, and recorded goodwill of $1,936,020.

On April 13, 2012, the Company established a wholly owned subsidiary in Hong Kong, named Capstone International Hong Kong Ltd ("CIHK"), which provides support services such as engineering, new product development, product sourcing, factory certification and compliance, product price negotiating, product testing and quality control and ocean freight logistics for the Company's other subsidiaries. CIHK is also engaged in selling the Company's products internationally.

The Company entered the LED consumer market eight years ago. At that time, it was clear to management that there was a significant opportunity for an innovative low-cost LED product supplier as the lighting industry was on its transition path from traditional lighting technologies to LED.

Capstone was an early innovator in the introduction of lower cost LED lighting products that have distinctive features creating strong consumer appeal. The Company's product lines consisted of decorative lighting, outdoor fixtures, lighting with built-in power failure technology and safety and security. The power failure lighting and security products were initially sold under its wholly-owned subsidiary Capstone Industries brand name through 2015.

In the latter part of 2014, the Company concluded that conventional retail was going to undergo significant change in its LED product and vendor selections. Early LED light bulbs were deemed early technologies and were seen by the Company as too expensive. The early LED products did not look like light bulbs and were not marketed effectively in the opinion of the Company. As such, buying an LED light bulb was potentially confusing to the consumer. Over the course of the next year, retail prices for early LED products eroded and negatively impacted the supply chain. Capstone forecasted this outcome and focused its primary marketing approach towards the warehouse club channel where low retail mark-ups circumvented this market condition. The Company was timely in this strategic market entry and benefited from the limited number of vendors competing in this arena at that time. The Company concluded that larger LED bulb suppliers were concerned with protecting established retail price positions and they could not, as such, effectively market their brands in both conventional retail channels and warehouse club channels.

~~The Company's operations consist of one reportable segment for financial reporting purposes: Lighting Products.~~

~~Demand for the Company’s LED lighting products sold at retail is highly dependent on economic drivers, such as consumer spending discretionary income, along with home improvement spending.~~

As a result of higher energy costs and environmental concerns (as shown by U.S. Energy Information Administration studies), consumers seek new technologies to improve product energy efficiency, provide increased lighting functionality and reduce overall energy costs. LED lighting is more efficient than fluorescent lighting and represents significant energy savings for consumers. Encouraged by support from public utility programs, LED lighting has now achieved widespread consumer use.

Since the introduction of the first visible LED in the 1960s, the technology has offered an increasingly wide variety of colored lighting, beginning with red and expanding to green, yellow and orange. In the mid-1990's, LEDs became capable of emitting blue light. With the advent of the blue LEDs combined with phosphor technology, LEDs made another technological advancement by emitting white LEDs. This breakthrough enabled LEDs, through its full color spectrum output capabilities, to compete with preferred color temperatures achieved by traditional lighting solutions.

The technological advancement of LED lighting has surpassed traditional lighting performance in terms of brightness, efficiency, lamp life, safety, maintenance reduction and color-rendering. This maturity continues to drive growing market adoption as the technology incorporates other functionalities.

Market forces, including competitive pressure, greater manufacturing efficiencies and increased technology adoption among consumers, continue to significantly drive down LED prices. U.S. Environmental Protection Agency 2018 report shows that LED lighting uses 25-80% less energy than traditional incandescent lighting, lasts up to 25 times longer and has significant savings in energy costs. LED use is projected to reduce United States lighting energy consumption by 40% in 2030, worth over $26 billion of savings at today’s energy prices.

LED lighting solutions provide a significant opportunity for consumers to meet environmental goals and to significantly reduce energy consumption. LEDs do not contain mercury, unlike fluorescent lighting, which can be harmful to the environment, do not emit ultraviolet radiation, typically do not contain glass and are 100% recyclable.

~~Capstone believes that the following competitive strengths have and will continue to serve as a foundation for its business strategy.~~

In North America, the Company is recognized as an innovator and highly efficient, low-cost manufacturer in several lighting product niches. Capstone believes that its personal relationships with retail customers combined with its innovative product offerings, strong marketing support and the high level of integrity embedded within the company, will allow the Company to successfully launch the new “Connected Surfaces” category and expand its portfolio in the Home Lighting category.

With respect to the Company's goal of sustained profitability, the challenge has been and remains to achieve greater profit margins from our product lines by either innovative products that induce consumers to pay a higher purchase price or increased efficiencies in producing and selling products that sustain attractive pricing. This challenge confronts many consumer product companies. Capstone believes that appropriate use of OEM capabilities in innovation and production coupled with design that appeals to consumers are critical factors in meeting this challenge, especially for a smaller or niche competitor.

Due to the extensive, modern manufacturing, design and engineering capabilities with the Company's OEM contract manufacturers, and the lower unit costs in China, Capstone believes that it is more economical and efficient to continue to manufacture certain products in China and have them shipped to the United States rather than to have such products produced in North America. While this resource is available to and used by large numbers of U.S. companies, including our competitors, the Company believes this Chinese manufacturing resource gives the Company the level of innovation, production cost and quality that allows Capstone to be competitive with larger competitors in the United States. However, as design technologies can influence the degree of hand labor in building its future products, the Company expects the advantages it has realized by manufacturing solely in China to be challenged.

The U.S federal government has recently imposed tariffs on certain Chinese imports. Currently the Company’s products are sourced in China and are impacted by the recently imposed tariffs. Future U.S. policy changes that maybe implemented, including further increased tariffs could have a negative consequence on the Company’s financial performance depending how the changes influence many factors, including business and consumer sentiment.

~~Management’s efforts to mitigate the impact of these added costs include a variety of activities, including the evaluation of alternative OEM manufacturing in Thailand, Vietnam and Taiwan.~~

The Company expanded CIHK's operations in Hong Kong with personnel experienced in engineering and design, product development and testing, product sourcing, international logistics and quality control. These associates work with our OEM factories to develop and prototype new product concepts and to ensure products meet consumer product regulations and rigorous quality control standards. All products are tested before and during production by Company personnel. This team also provides extensive product development, quality control and logistics support to our factory partners to ensure on time shipments.

Capstone believes that its competitive weaknesses are: (1) it does not possess the business, marketing and financial resources of its largest competitors; (2) the Company is actively building its new Social Media marketing programming and its e-commerce development but does not yet have a prominent social media presence; (3) it sells a niche consumer product that is sensitive to a drop in consumer discretionary spending and general economic conditions affecting consumer confidence; (4) its current products lines are focused on consumer LED lighting; (5) profitability may be limited by attainable profit margins from consumer lighting products as markets mature; (6) Capstone does not have the large internal research and development capability of its largest competitors; (7) Capstone operates with a limited number of employees who are dedicated to executive management, sales and marketing or administrative support; (8) we rely on OEM's for product production; (9) our international purchases can become more expensive if the U.S. Dollar weakens against the foreign currencies and (10) as we currently manufacture our products in China, the increased U.S. tariffs imposed on Chinese manufactured goods may negatively impact demand and/or increase the cost for our products at retail, which could negatively impact our business.

~~These product offerings encompass solutions for various residential lighting applications for interior and outdoor use.~~

Such product expansion involves the inherent risk of increased operating and marketing costs without a corresponding increase in operational revenues and profits. Further, some product lines may fall out of favor with consumers before we can recoup product and market development costs. While the Company makes significant investments into the 2019 Connected Surfaces portfolio, it is reasonable to expect to post losses while building the market for a new category of products which were launched at the 2019 CES. Expense categories including; molds, prototyping, engineering, advertising, public relations, tradeshows and social media platforms will all be incurred for six to nine months before shipments and related revenues occur.

The Company has established product distribution relationships with numerous leading international, national and regional retailers, including but not limited to: Amazon, Bunnings, Costco Wholesale, Home Depot, Sam's Club-Walmart, the Container Store and Firefly Buys. These distribution channels may sell the Company's products through the internet as well as through retail storefronts and catalogs/mail order. The Company believes it has developed the scale, manufacturing efficiencies, and design expertise that serves as the foundation for aggressive pursuit of niche product opportunities in our largest consumer domestic and international markets. While Capstone has traditionally generated the majority of its sales in the U.S. market, urbanization, rising family incomes and increased living standards abroad have spurred a perceived demand for small consumer appliances internationally. To capture this market opportunity, the Company has continued its international sales by leveraging relationships with our existing global retailers and by strengthening our international product offerings. CIHK assists the Company in placing more products into foreign market channels as well. The Company introduced Capstone brands to markets outside the U.S., including Australia, France, Iceland, Japan, Mexico, New Zealand, South Korea, Spain, Taiwan, Thailand and the United Kingdom. International sales for the year ended December 31, 2018 were $1.270 million or 10.0% of net revenue as compared to $1.812 million or 4.9% in fiscal 2017. The Company's performance depends on a number of assumptions and factors. Critical to growth are the economic conditions in the markets that we serve, as well as success in the Company's initiatives to distinguish its brands from competitors by design, quality, and scope of functions and new technology or features.

The Company's products are subject to general economic conditions that impact discretionary consumer spending on non-essential items. Capstone believes it will maintain its presence in the lighting category because of its proven abilities in operational excellence, the quality reputation of its products, business relationships with Capstone's retailers and the aggressive product development strategies currently in place. Such continued progress depends on a number of assumptions and factors, including ones mentioned in "Risk Factors" below. Critical to growth are economic conditions in the markets that foster greater consumer spending as well as success in the Company's initiatives to distinguish its brands from competitors by design, quality, and scope of functions and new technology or features. The Company's ability to fund the pursuit of our goals remains a constant, significant factor.

The Company believes that it will provide retailers with a broader and more diversified portfolio of consumer products across product categories, which should add diversity to the Company's revenues and cash flows sources. Within the selection of products offered, Capstone seeks to service the needs of a wide range of consumers by providing products to satisfy their different interests, preferences and budgets. The Company believes in its ability to serve retailers with an array of branded products and quickly introduce new products to continue to allow Capstone to further penetrate its existing customer bases, while also attracting new customers. The Company's primary, perceived challenge is creating sustained consumer demand for its products in a growing number of markets and attaining sustained profitability, which challenge is complicated by the cost of new product development and costs of penetrating new markets. An extensive product line, especially new product line, increases the investment in product development and, as such, increases operating overhead.

With the Company's lighting products and recently launched “Connected Surfaces” category, Capstone has developed a comprehensive product offering for its niche in the retail industry. Within the selection of products offered, Capstone seeks to service the needs of a wide range of consumers by providing products to satisfy their different interests, preferences and budgets. The Company believes in its ability to serve retailers with a broad array of innovative connected products and quickly introduce new products to continue to allow Capstone to further penetrate this developing market.

Tariffs and trade restrictions imposed or threatened by the current U.S. administration has provoked and may provoke future trade and tariff retaliation by other countries. A "trade dispute" of this nature or other governmental action related to tariffs or international trade agreements or policies has the potential to adversely impact demand for our products, our costs, customers, suppliers and/or the U.S. economy or certain sectors thereof and, thus, to adversely impact our businesses.

Our products are sold nationally and internationally through a direct independent sales force. The sales force markets the Company's products through numerous retail locations worldwide, including larger retail warehouse clubs, hardware centers and e-commerce websites. Our sales business model has been designed to support “direct import sales” made directly to the retail customer. However, we also offer “domestic sales” programs which will be further expanded in the future.

We continue to make investments to expand our sales, marketing, technical applications support and distribution capabilities to sell our product portfolio. We also continue to make investments to promote and build market awareness of the products and brands we offer. Our sales within the U.S. are primarily made by our in-house sales team and our independent sales agencies. Our independent sales agencies are paid a commission based upon sales made in their respective territories. Our sales agencies are recruited, trained and monitored by us directly. We will utilize an agency as needed to help us provide service to our retail customers as required. The sales agency agreements are generally one (1) year agreements, which automatically renew on an annual basis, unless terminated by either party on 30 days’ prior notice. Our international sales to divisions of U.S. based retailers are made by our in-house sales team. Other international sales are made by our Hong-Kong based CIHK office staff.

The Company actively promotes its products to retailers and distributors at North American trade shows, such as the Consumer Electronics Show (“CES”) or the International Hardware Show, but also relies on the retail sales channels to advertise its products directly to the end user consumers through various promotional activities.

In fiscal 2018, the Company had two customers who comprised approximately 60% and 36%, respectively, of net revenue and 57% and 42%, respectively, of net revenues in fiscal 2017. Although we have long established relationships with our customers, we do not have contractual arrangements to purchase a fixed quantity of product annually. A decrease of business or a loss of any of our major customers could have a material adverse effect on our results of operations and financial condition.

In order for continued sales growth in the retail market, the Company is focused on expanding the product portfolio currently offered into new innovative electronic categories that will also allow the Company to expand into different retail departments and channels of distribution.

The Company is also focused on establishing an on-line presence in order to support retail customers requirements and to further support the introduction of the “Connected Surfaces” launch with the ability to ship direct to consumer.

~~We enter 2019 with an expanded social media department and enhanced social media campaign strategy. We currently have a presence on the following social media platforms:~~

The consumer lighting products and small electronics businesses are highly competitive, both in the United States and on a global basis, as large manufacturers with global operations compete for consumer acceptance and, increasingly, limited retail shelf space. Competition is influenced by technological innovation, brand perceptions, product quality and performance, value perception and customer service and price. The Company's principal lighting competitors in the U.S. are Energizer, Feit Electric and Jasco (GE). The Company believes private-label sales by large retailers has some impact on the market in some parts of the world as many national retailers such as Costco, Home Depot, Target and Sam’s/Wal-Mart offer lighting as part of their private branded product lines. Many of the Company's competitors have greater resources and capabilities, including greater brand recognition, research and development budgets and broader geographical market reach. Competitors with greater resources could undermine Capstone's expansion efforts by marketing campaigns targeting its expansion efforts or price competition. Moreover, if one or more of the Company's competitors were to merge, the change in the competitive landscape could adversely affect our customer distribution channel.

With trends and technology continually evolving, Capstone will continue to invest and rapidly develop new products that are competitively priced with consumer centric features and benefits easily articulated to influence point of sale decision making. Success in the markets we serve depends upon product innovation, pricing, retailer support, responsiveness, and cost management. The Company continues to invest in developing the technologies and design critical to competing in our markets. Our ability to invest is limited by operational cash flow and funding from third parties, including members of management and the Board of Directors.

The Company's research and development department based in Hong Kong designs and engineers many of the Company's products, with collaboration from its third-party manufacturing partners. We outsource the manufacture and assembly of our products to a number of contract manufacturers overseas. Our research and development focus includes efforts to:

Capstone's research and development team enforces its proprietary manufacturing expertise by maintaining control over all outsourced production and critical production molds. In order to ensure the quality and consistency of the Company's products manufactured overseas, Capstone uses globally recognized certified testing laboratories such as United Laboratories (UL) or Intertek (ETL) to ensure all products are designed and tested to adhere to each country's individual regulatory standards. The Company also employs quality control inspectors who examine and test products to Capstone's specification(s) before shipments are released. CIHK office capabilities were expanded to include product development, project management, sourcing management, supply chain logistics, factory compliance auditing, and quality enforcement for all supplier factories located in Hong Kong and mainland China.

To successfully implement Capstone's business strategy, the Company must continually improve its current products and develop new product segments with innovative imbedded technologies to meet consumer's growing expectations.

~~Capstone will invest in more technical and innovative product categories. These costs are expensed when incurred and are included in the operating expenses.~~

The principal raw materials used by Capstone are sourced in China, as the Company orders product exclusively through contract manufacturers in the region. These contract manufacturers purchase components based on the Company's specifications and provide the necessary facilities and labor to manufacture the Company's products. Capstone allocates the production of specific products to the contract manufacturer the Company believes is more experienced to produce the specific product. In order to ensure the consistent quality of Capstone's products, quality control procedures have been incorporated at each stage of the manufacturing process, ranging from the inspection of raw materials through production and delivery to the customer. These procedures are additional to the manufacturers' internal quality control procedures and performed by Company staff.

Since January 2015, the Company has transferred its U.S. domestic warehousing and distribution needs to a third-party warehousing facility situated in Anaheim, California. The warehouse operator provides full inventory storage, packaging and logistics services including direct to store and direct to consumer shipping capabilities that electronically interface to our existing operations software. The warehouse operator provides full ERP (Enterprise Resource Planning), Inventory Control and Warehouse Management Systems. These fulfillment services can be expanded to the east coast in Charleston, South Carolina, if the Company needed to establish an east coast distribution point. This relationship, if required, will allow us to fully expand our U.S. distribution capabilities and services.

As the Company moves into the E-Commerce and on-line consumer marketplace, the Company will need to contract with a specialized fulfillment service which provides secured payment processing capability combined with an efficient quick response fulfilment and logistics service, at a very competitive cost.

We have, from time to time, entered into agreements whereby we have agreed to pay royalties for the use of nationally recognized licensed brands on Company product offerings. Royalty expense incurred under such agreements is expensed at the time of shipment.

Sales for household products and electronics are seasonally influenced. Certain gift products cause consumers to increase purchases during key holiday winter season of the fourth quarter, which requires increases in retailer inventories during the third quarter. In addition, natural disasters such as hurricanes and tornadoes can create conditions that drive increased needs for portable power and power failure light sales. Historically, the lighting products had seasonally lower sales during the first quarter due to the Chinese New Year holiday as factories are closed and shipments are halted during this period.

CAPC subsidiary, CAPI, owns a number of U.S. trademarks and patents which CAPC considers of substantial importance and which are used individually or in conjunction with other CAPC trademarks and patents. These include the following trademarks: Exclusive license and sub-license to Power Failure Technology; Capstone Power Control, Timely Reader, Pathway Lights, and 10 LED - Eco-i-Lite Power Failure Light, 5 LED - Eco-i-Lite Power Failure Light, 3 LED - Eco-i-Lite Power Failure Light, 3 LED Slim Line Eco-i-Lite Power Failure Light, LED Induction Charged Headlight. We also have a number of patents pending; Puck Light (cookie), Puck Light Base, Multi-Color Puck Lights, LED Dual Mode Solar Light, Integrated Light Bulb (Coach Light), LED Gooseneck Lantern, Spot Lights, Security Motion Activated Lights, Under Cabinet Lighting and Bathroom Vanity Light. CAPC periodically prepares patent and trademark applications for filing in the United States and China. CAPC will also pursue foreign patent protection in foreign countries if deemed necessary. CAPC's ability to compete effectively in the Home Lighting categories depends in part, on its ability to maintain the proprietary nature of its technology and manufacturing processes through a combination of patent and trade secret protection, non-disclosure agreements, licensing, and cross-licensing agreements. CAPC owns a number of patents, trademarks, trademark and patent applications and other technology which CAPC believes are significant to its business. These intellectual property rights relate primarily to lighting device improvements and manufacturing processes.

While the Company may license third party technologies for its products, or may rely on other companies for design, engineering and testing, the Company believes that its oversight of design and function of its products and its marketing capabilities are significant factors in the ability of the Company to sell its products.

Reverse engineering, unauthorized copying or other misappropriation of our technologies could enable third parties to benefit from our technologies without paying us. We cannot assure shareholders that our competitors have not developed or will not develop similar products, will not duplicate our products, or will not design around any patents issued to or licensed by us. We will assess any loss of these rights and determine whether to litigate to protect our intellectual property rights on a case by case basis.

As is customary in the retail industry, many of our customer agreements requires us to indemnify our customers for third-party intellectual property infringement claims. Such claims could harm our relationships with customers and might deter future customers from doing business with us. With respect to any intellectual property rights claims against us or our customers, we may be required to cease manufacture of the infringing product, pay damages and expend significant Company resources to defend against the claim and or seek a license.

The efficient operation of our business is dependent on our information technology systems. We rely on those systems to manage our daily operations, communicate with our customers and maintain our financial and accounting records. In the normal course of business, we receive information regarding customers, associates, and vendors. Since we do not collect significant amounts of valuable personal data or sensitive business data from others, our internal computer systems are under a light to moderate level of risk from hackers or other individuals with malicious intent to gain unauthorized access to our computer systems. Cyberattacks are growing in number and sophistication and are an ongoing threat to business computer systems, which are used to operate the business on a day to day basis. Our computer systems could be vulnerable to security breaches, computer viruses, or other events. The failure of our information technology systems, our inability to successfully maintain our information or any compromise of the integrity or security of the data we generate from our systems or an event resulting in the unauthorized disclosure of confidential information or degradation of services provided by critical business systems, whether by us directly or our third-party service providers, could adversely affect our business operations, sales, reputation with current and potential customers, associates or vendors, results of operations, product development and make us unable or limit our ability to respond to customers' demands.

We have incorporated into our data network various on and off site data backup processes which should allow us to mitigate any data loss events, however our information technology systems are vulnerable to damage or interruption from:

~~We believe that the Company is in compliance with environmental protection regulations and will not have a material impact on our financial position and results of operations.~~

As of December 31, 2018, we employed 7 employees in our U.S. office and 7 employees in our Hong Kong operation. We consider our relations with our employees to be good. None of our employees are covered by a collective bargaining agreement. We have no part-time workers.

~~The following table sets forth the number of employees by function:~~

Our principal executive offices are located at 431 Fairway Drive, Suite #200, Deerfield Beach, Florida, USA 33441. Our telephone number is (954) 570-8889 and our website is at URL: www.capstonecompaniesinc.com. Our U.S. subsidiaries operate out of our principal executive offices.

Our operations are subject to regulation by federal and state securities authorities as well as various federal, state, foreign and local laws and regulations governing a consumer products company and a for-profit business. We are not subject to any U.S. federal, state or local regulation that poses, in our opinion, any special or unusual burden or obstacle to conducting our business and financial affairs. Our main concern in terms of government regulation is the changing regulatory environment in China and its impact on our ability to access our consumer product manufacturing sources and obtain our consumer products. While the general trend in China has to be conducive to trade and commerce, China is a still a single-party nation-state in which the central government has the power to dramatically and immediately change its trade and commercial policies and laws. Political or military conflict between the United States and China, who are rivals for power and influence in Asia and to an increasing extent all along the Pacific Rim as well as being diametrically opposed to one another over the status of Taiwan, could provoke a change in Chinese trade or commercial law that makes it more difficult or expensive for us to obtain consumer products. Such a development would have a serious impact on our ability to compete in the United States in the niche consumer product market.

CIHK is subject to the laws of Hong Kong SAR, which is a part of and subject to governance by China. In light of the specific operational role of CIHK in our company, we do not believe that such regulation poses a significant risk factor in terms of the business and financial condition of the Company.

In order to more effectively support retailers in the U.S. domestic markets, so that retailers can quickly replenish their stock and reduce the impact of lost sales as a result of stock outages, the Company, as needed, strategically increases its inventory levels held in its leased Anaheim, California warehouse. Combined with investment in new product molds, product testing and outside certifications, package design work, and further expansion of its design and engineering capabilities in CIHK, the Company may require additional working capital to fund these strategic projects.

The Company's ability to maintain sufficient working capital is highly dependent upon achieving expected operating results. Failure to achieve expected operating results could have a material adverse effect on the Company's working capital, ability to obtain financing, and its operations in the future. However, achieving expected results as accomplished in 2017 and 2016, has increased working capital, provided the Company with liquidity and has allowed for the repayment of all outstanding bank notes and old related party loans.

Continued product expansion are critical requirements to ensure the Company's continued revenue growth. Such projects are never held back because of funding shortfalls. The Company allocated funds for such projects and if necessary certain members of the Company's senior management and Board of Directors have supplemented the cash flow needs as required through short term, unsecured loans.

On July 20, 2018, to support the Company’s future needs, Sterling National Bank expanded the credit line up to $10,000,000 of which $2,000,000 was allocated as a Capstone expansion working capital line.

~~The Company's liquidity and cash requirements are discussed more fully in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, below.~~

Our future success may depend on our ability to deliver innovative, higher performing and lower cost solutions for existing and new markets and for customers to accept those solutions. We must introduce new products in a timely and cost-effective manner, and we must secure production orders for those products from our customers. The development of new products is a highly complex process, and we have in some instances experienced delays in completing the development and introduction of new products. Our research and development efforts are aimed at solving increasingly complex problems, and we do not expect that all of our projects will be successful. The successful development, introduction and acceptance of new products depend on a number of factors, including the following:

~~If any of these or other similar factors becomes problematic, we may not be able to deliver and introduce new products in a timely or cost-effective manner.~~

Our potential for growth depends significantly on the adoption of our products within the markets we serve and our ability to affect this rate of adoption. In order to manage our growth and business strategy effectively relative to the uncertain pace of adoption, we must continue to:

We are also increasingly dependent on information technology to enable us to improve the effectiveness of our operations and to maintain financial accuracy and efficiency. While we intend to focus on managing our costs and expenses, over the long term we expect to invest to support our growth and may have additional unexpected costs. Such investments take time to become fully operational, and we may not be able to expand quickly enough to exploit targeted market opportunities. In connection with our efforts to cost-effectively manage our growth, we rely on contract manufacturers for production capacity. If our contract OEM manufacturers, original design manufacturers (“ODMs”) or other service providers do not perform effectively, we may not be able to achieve the expected cost and may incur additional costs to fulfill customer demand. Our operations may also be negatively impacted if any of these contract manufacturers, ODMs or other service providers do not have the financial capability to meet our growing needs. There are also inherent execution risks in starting up a new contract manufacturer factory or expanding production capacity of our existing contract OEM manufacturers or ODMs, or moving production to different contract manufacturers or ODMs, that could increase costs and reduce our operating results.

We operate the executive operations with a relatively small number of personnel. We may have to increase the number of our personnel in the future to handle any growth or expansion of product lines or product categories. Our ability to find and retain qualified personnel when needed by our growth or existing operations will be an important factor in determining our success in coping with growth or efficiently handling existing operational burdens.

As we grow our business and expand into business channels that are different from those in which we have historically operated, those retailers may alter their promotional pricing or inventory strategies, which could impact our targeted sales of these products. If we are unable to effectively penetrate these channels or develop alternate channels to ensure our products are reaching the intended customer base, our financial results may be adversely impacted. In addition, if we successfully penetrate or develop these channels, we cannot guarantee that customers will accept our products.

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

With the increased demand for consumer LED lighting products, we will continue to face increased competition in the future across our businesses. If the investment in capacity exceeds the growth in demand the LED lighting market is likely to become more competitive with additional pricing pressures.

As competition increases, we need to continue to develop new products that meet or exceed the needs of our customers. Therefore, our ability to continually produce smart, efficient and lower cost lighting products that meet the evolving needs of our customers will be critical to our success. Competitors may also try to align with some of our strategic customers. This could lead to lower prices for our products, reduced demand for our products and a corresponding reduction in our ability to recover development, engineering and manufacturing costs. Any of these developments could have an adverse effect on our business, results of operations or financial condition.

As is true in any consumer product industry, the ability of a company to respond to changing consumer tastes and purchasing habits is key to success in consumer products. Introduction of new products brings the risk of increased development, production and marketing costs as well as that investment failing to produce revenues or profits that justify the investment in new products.

The manufacture of our products involves complex processes. Our customers specify quality, performance and reliability standards that we must meet. If our products do not meet these standards, we may be required to replace or rework the products. In some cases, our products may contain undetected defects that only become evident after shipment and used by consumers. Even if our products meet standard specifications, our customers may attempt to use our products in applications for which they were not designed resulting in product failures and creating customer satisfaction issues.

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

A significant product recall could also result in adverse publicity, damage to our reputation and a loss of customer or consumer confidence in our products. While we believe that product liability for consumer electronic products is not significant or widespread, we could face product liability lawsuits or regulatory proceedings by the Consumer Product Safety Commission (CPSC) and could suffer losses from a significant product liability judgment or adverse CPSC finding against us if the use of our products at issue is determined to have caused injury or contained a substantial product hazard to the public.

We provide warranty periods of 1 year on our products. Although we believe our warranty reserves are appropriate, we are making projections about the future reliability of new products and technologies, and we may experience increased variability in warranty claims. Increased warranty claims could result in significant losses due to a rise in warranty expense and costs associated with customer support.

We depend on a number of key suppliers who manufacture our products. Although alternative manufacturers with similar manufacturing capabilities are available, qualification and certification of many of these alternative manufacturers could take up to six months or longer to finalize.

Additionally, the inability of our suppliers to access capital efficiently could cause disruptions in their businesses, thereby negatively impacting ours. This risk may increase if an economic downturn negatively affects key suppliers or a significant number of our other suppliers. Any delay in product delivery or other interruption or variation in supply from these suppliers could prevent us from meeting customer order requirements. If we were to lose a key supplier, if our key suppliers were unable to support our demand for any reason or if we were unable to identify and qualify alternative suppliers, our manufacturing operations could be interrupted or hampered significantly.

We rely on arrangements with independent shipping companies for the delivery of our products from vendors and to customers both in the United States and abroad. The failure or inability of these shipping companies to deliver products or the unavailability of shipping or port services, even temporarily, could have a material adverse effect on our business. We may also be adversely affected by an increase in freight surcharges due to rising fuel costs and added security.

We receive a significant amount of our revenue from a limited number of customers. Most of our customer orders are made on a purchase order basis, which does not require any long-term customer commitments. Therefore, these customers may alter their purchasing behavior with little or no notice to us for various reasons, including developing their own product solutions; choosing to purchase from our competitors or incorrectly forecasting end market demand for their products. Retail customers may alter their promotional pricing; increase promotion of competitors' products over our products; or reduce their inventory levels; all of which could negatively impact our financial condition and results of operations. If our customers alter their purchasing behavior, if our customers' purchasing behavior does not match our expectations or if we encounter any problems collecting amounts due from them, our financial condition and results of operations could be negatively impacted.

Maintaining and continually enhancing the value of the Company's brand or licensed brands is critical to the success of our business. Brand value is based in large part on customer perceptions. Success in promoting and enhancing brand value depends in large part on our ability to provide high-quality products. Brand value could diminish significantly due to a number of factors, including adverse publicity about our products (whether valid or not), a failure to maintain the quality of our products (whether perceived or real), the failure of our products or Capstone to deliver consistently positive consumer experiences. Damage to our brand or licensed brands, reputation or loss of customer confidence in our brands or products could result in decreased demand for our products and have a negative impact on our business, results of operations or financial condition. As a small reporting company, we do not have the resources to easily withstand the failure of established and new product lines.

Our operations and performance depend significantly on economic conditions. Uncertainty about global economic conditions could result in customers postponing purchases of our products and services in response to tighter credit, unemployment, negative financial news and/or declines in income or asset values and other macroeconomic factors, which could have a material negative effect on demand for our products and services and, accordingly, on our business, results of operations or financial condition.

Additionally, our international sales are subject to variability as our selling prices become less competitive in countries with currencies that are declining in value against the U.S. Dollar and more competitive in countries with currencies that are increasing in value against the U.S. Dollar. In addition, our international purchases can become more expensive if the U.S. Dollar weakens against the foreign currencies.

For example, the United States tariffs imposed on Chinese manufactured goods and corresponding tariffs from China in response, may negatively impact demand and/or increase the cost for our products These tariffs increases with reciprocal increases on U.S. goods imported into China may provoke a trade war between China and the U.S. and such a continuing trade conflict could affect our business as we currently produce our products in China. The possibility and full extent of any trade conflicts and such a conflict's impact on our business or growth is uncertain as of the date of the filing of this Report.

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

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

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

Our current short-term debt level as of December 31, 2018 and 2017 was $0 for both years. Our current funding availability consists of cash on hand, the Sterling National Bank financing agreement to fund investment, operations, and private placement note agreements from insiders as needed. If we have a shortfall in revenues without a corresponding reduction to expenses, operating results may suffer. We rely on and we may be unable to raise adequate funding or financing to survive unexpected revenue shortfalls, or to reduce operating expenses quickly enough to offset any such unexpected revenue shortfall from our lack of traditional bank financing. If we are not able to access debt capital markets at competitive rates or terms and conditions, our ability to implement our business plan and strategy will be negatively affected. Limited access to sufficient bank financing, could force us to seek expensive financing or funding, or forms of financing that require issuance of our securities (such as equity credit lines or PIPE financing). Such financing would dilute the position of existing shareholders and put negative pressure on the market price of our Common Stock while possibly failing to provide adequate and ongoing working capital for the Company and its operations.

All of our sales in 2018 were transacted in U.S. dollars. The weakening of the U.S. dollar relative to foreign currencies can negatively impact our operating profits, through higher unit costs. However, as the Company volumes continue to increase, the leveraged buying power has enabled the Company to minimize the impact on costs. The last economic crisis revealed that exchange rates can be highly volatile. Changes in currency exchange rates may also affect the relative prices at which we and our competitors sell products in the same market. There can be no assurance that the U.S. dollar foreign exchange rates will be stable in the future or that fluctuations in such rates will not have a material adverse effect on our business, results of operations, or financial condition.

While the Company is not subject to any significant litigation actions, defending against potential litigation will likely require significant attention and resources and, regardless of the outcome, result in significant legal expenses, which could adversely affect our results unless covered by insurance or recovered from third parties. If our defenses are ultimately unsuccessful or if we are unable to achieve a favorable resolution, we could be liable for damage awards that could materially affect our results of operations and financial condition.

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

There can be no assurance that third parties will not attempt to assert infringement claims against us, or our customers, with respect to our products. We have also promised certain customers that we will indemnify them in the event they are sued by our competitors for infringement claims directed to the products we supply. Under these indemnification obligations, we may be responsible for future payments to resolve infringement claims against them. We do not maintain a reserve for intellectual property rights litigation liabilities.

We rely on trademark, trade secret, patent and copyright laws to protect our intellectual property rights. In particular, our trademarks are of material importance to our business and are among our most important assets. In 2018, substantially all of our total revenues were from products bearing proprietary trademarks and brand names. Accordingly, our future success may depend, in part, upon the goodwill associated with our trademarks and brand names. We own a number of patents; patent applications and other technology which we believe are significant to our business.

We cannot be sure that these intellectual property rights will be maximized or that they can be successfully asserted. There is a risk that we will not be able to obtain and perfect, or maintain our own intellectual property rights or, where appropriate, license intellectual property rights necessary to support new product introductions. We cannot be certain that these rights, if obtained, will not be invalidated, circumvented or challenged in the future, and we could incur significant costs in connection with legal actions to defend our intellectual property rights.

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

To a significant extent, our success will depend on our senior management team, including the Chairman and Chief Executive Officer Mr. Stewart Wallach and other members of the executive team. The loss of any of these individuals could severely harm the business. Our success also depends on our ability to identify, attract, hire, train and retain highly skilled technical, managerial, and sales and marketing personnel. Competition for these individuals is intense, and we may not be able to successfully recruit, assimilate or retain sufficiently qualified personnel. The inability to attract and retain such highly skilled personnel could harm our ability to obtain new customers and develop new products and could adversely affect our business and operating results.

On December 22, 2017, the legislation commonly referred to as the Tax Cuts and Jobs Act, or the Tax Reform Act, was enacted, which contains significant changes to U.S. tax law, including, but not limited to, a reduction in the corporate tax rate and a transition to a new territorial system of taxation. The primary impact of the new legislation on our provision for income taxes was a reduction of the future tax benefits of our deferred tax assets as a result of the reduction in the corporate tax rate. The impact of the Tax Reform Act will likely be subject to ongoing technical guidance and accounting interpretation, which we will continue to monitor and assess. Provisional accounting impacts may change in future reporting periods until the accounting analysis is finalized, which will occur no later than one year from the date the Tax Reform Act was enacted. If we expand the scale of our international business activities, any changes in the U.S. or foreign taxation of such activities may increase our worldwide effective tax rate and harm our business, results of operations, and financial condition.

As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the “Exchange Act”, the Sarbanes-Oxley Act of 2002, or the “Sarbanes-Oxley Act”. We expect that the requirements may increase our legal, accounting, and financial compliance costs, make some activities more difficult, time-consuming and costly, and place significant strain on our personnel, systems, and resources.

~~The Sarbanes-Oxley Act requires, among other things, that we maintain effective~~maintains disclosure controls and procedures ~~and internal control over financial reporting. We review and, if necessary, refine our disclosure controls and other procedures~~(as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed ~~by us~~ in ~~the~~Exchange Act reports ~~that we file with the SEC~~ is recorded, processed, summarized and reported within the time ~~periods~~period specified in ~~SEC~~the Commission’s rules and forms, and that such information ~~required to be disclosed in reports under the Exchange Act~~ is accumulated and communicated to ~~our principal executive~~Company’s management, including to Company’s Chief Executive Officer and ~~financial officers. In order~~Chief Financial Officer, as appropriate, to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, resources, including accounting-related costs and management oversight.allow timely decisions regarding required disclosure.

~~Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting because we are small reporting company.~~

A disruption or failure of our systems or operations in the event of a natural disaster, health pandemic, or man-made catastrophic event could cause delays in completing sales, continuing production or performing other critical functions of our business, particularly if a catastrophic event occurred at our subcontractors' locations. Any of these events could severely affect our ability to conduct normal business operations and, as a result, our operating results could be adversely affected. There may also be secondary impacts that are unforeseeable as well, such as impacts to our customers, which could cause delays in new orders, delays in completing sales or even order cancellations.

The Company has operating lease agreements for offices and showroom facilities in Fort Lauderdale, Florida and in Hong Kong SAR, expiring at varying dates. Neither the Company nor its operating subsidiaries own any real properties or facilities. CAPC and Capstone share principal executive offices and operating facilities. The Company’s new principal executive offices is located at 431 Fairway Drive, Suite 200, Deerfield Beach, Florida 33441. Those offices were previously located at 350 Jim Moran Blvd., Suite 120, Deerfield Beach, Florida 33442.

Effective February 1, 2017, the Company renewed the original office location 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 lease. Under the lease, 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 amendment with the existing landlord to provide for a premises relocation, lease termination and new sublease agreement. Under this arrangement, 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 and the parties proceededRule 13a-15 under the terms of the new sublease which expires on January 31, 2020. The base annual rent in the new sublease remains at the same rate as the previous agreement until January 31, 2020. At the expiration of the new sublease, the Company has 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 decides to further extend the sublease after January 31, 2020, the Company will be subject to the terms and conditions of the prime lease. The base monthly rent will be $7,312 to January 31, 2019 and then a base rent of $7,514 until January 31, 2020 which includes an estimate for portion of the common area maintenance.

For 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 “turn key” condition with requested renovations made at no expense to the Company. As further consideration, the existing landlord agreed to pay the Company $150,000 as an incentive to vacate the existing premises on completion of the relocation, which was fully paid as of December 31, 2018 and is being amortized over the life of the lease amendment resulting in the recognition of lease incentive income of $870 per month.

Capstone International Hong Kong Ltd, or “CIHK”, entered into a lease agreement for office space at 303 Hennessy Road, Wan Chai, Hong Kong. The original agreement which was effective from February 17, 2014 has been extended various times. The lease was renewed for (12) months ending May 16, 2018 with a base annual rate of $54,193 paid in equal monthly installments. On April 24, 2018, the Company further extended the lease for (3) months ending August 16, 2018 with a base rate increase of $225 per month. This agreement has been further extended until August 16, 2019 with a base monthly rate of $5,006.

CIHK entered into a six (6) 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 with a base monthly rent of $1,290.

We are not a party to any material pending legal proceedings and, to the best our knowledge, no such action by or against us has been threatened. From time to time, we may be subject to legal proceedings and claims that arise in the ordinary course of business. Although occasional adverse decisions or settlements may occur in such routine lawsuits, we believe that the final disposition of such routine lawsuits will not have material adverse effect on our financial position, results of operations or cash flows.

To the best of our knowledge, none of our directors, officers or owner of record of more than five percent (5%) of the securities of the Company, or any associate of any such director, officer or security holder is a party adverse to us or has a material interest adverse to us in reference to pending litigation.

The Company's Common Stock is quoted on The OTC Markets Group, Inc.'s QB Venture Market Tier under the trading symbol "CAPC". The Company's Common Stock, $0.0001 par value, ("Common Stock") commenced quotation on the QB Venture Market Tier on August 22, 2016. Prior to August 22, 2016, the Common Stock was quoted on The OTC Markets Group, Inc. Pink Tier under the "CAPC" trading symbol. The Company considered but has not acted and may not act on seeking quotation of the Common Stock on The OTC Markets Group, Inc. QX Tier. The Company will not seek quotation of its Common Stock on the QX Tier unless and until the Company's business and financial condition warrant such an application to quote the Common Stock on the QX Tier or another stock quotation system.

~~The information below was obtained from information provided from The OTC Markets Group, Inc. for the respective periods.~~

We have not declared or paid any cash or other dividends on shares of our Common Stock in the last five years, and we presently have no intention of paying any cash dividends on shares of our Common Stock. We do not currently anticipate, based on existing financial performance, to be declaring or paying dividends on any series of our preferred stock in the foreseeable future. Our current policy is to retain earnings, if any, to finance the expansion and development of our business. The future payment of dividends on shares of our Common Stock are at the sole discretion of our board of directors.

There were no unregistered securities sold during the year ended December 31, 2018. On August 6, 2018, Company granted stock options to Mr. Guzy and Mr. Postal, who are directors of the Company, each received 100,000 stock option grants for participating in the Audit and Nomination and Compensation Committees for the year 2018-2019. The stock options were issued under an exemption from registration under Section 4(a)(2) of the SecuritiesExchange Act, ~~and Rule 506(b) of Regulation D under that act.~~

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 ofCompany’s 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,~~Stewart Wallach, the Company’s ~~Board of Directors approved a further extension of~~Chief Executive Officer, and James McClinton, 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 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 Rule 10b5-1 Purchase Plan with Wilson Davis & Co., Inc., a registered broker-dealer, (the "Purchase Plan"), which Purchase Plan is made pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, with respect to shares of common stock of the Company. As previously reported, the use of a Rule 10b5-1 purchase plan was authorized by the Company's Board of Directors on August 29, 2018. Under the Purchase Plan, Wilson Davis & Co., Inc., a registered broker dealer, 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. This description of the Purchase Plan does not purport to be complete and is qualified in its entirety by the text of the Purchase Plan, a copy of which is attached as Exhibit 99.1 to the Current Report on Form 8-K, as filed with the Commission on December 24, 2018 and as dated December 18, 2018. Under the Purchase Plan, we have purchased 30,000 shares as of March 14, 2019 and in open market purchases.

~~The following summarizes any purchases of the Common Stock under the stock purchase program in fiscal years 2018 and 2017:~~

The following discussion is designed to provide a better understanding of our audited consolidated financial statements and notes thereto, including a brief discussion of our business products, key factors that impacted our performance and a summary of operating results. The following discussion should be read in conjunction with our consolidated financial statements included in Item 8 of this Annual Report. Historical results and percentage relationships among any amounts in the consolidated financial statements are not necessarily indicative of trends in operating results for any future periods.

Capstone Companies, Inc. ("CAPC," "Capstone", "Company," "we" or "us") is a public holding company headquartered in the United States (organized under the laws of the State of Florida) and has its principal executive offices in Broward County, Florida and operating offices in Hong Kong SAR. The primary operating subsidiary is Capstone Industries, Inc., a Florida corporation located in the principal executive offices of the Company ("CAPI"). Capstone International Hong Kong, Ltd., or "CIHK", was established to expand the Company's product development, engineering and factory resource capabilities in Hong Kong. The Company designs, markets and sells diverse consumer products including LED lighting for indoor and outdoor applications with the primary market being the United States. The Company’s products are also distributed internationally in Australia, France, Iceland, Japan, Mexico, New Zealand, South Korea, Spain, Taiwan, Thailand, United Kingdom.

Capstone's core executive team has been working together for over three decades and has successfully built and managed other consumer product companies. CIHK resident management team has extensive experience with low cost off shore OEM manufacturing and is led by an industry leader that has provided sourcing and procurement services to such recognized companies as Circuit City and Dicks Sporting Goods. Operating Management's experience in hardline product manufacturing and marketing prepared the Company for its entry into the LED market. The Company entered the LED consumer market nine years ago, at that time there was a significant opportunity for an innovative low-cost LED product supplier as the lighting industry was on its transition path from traditional lighting technologies to LED.

Capstone was early in the introduction of lower cost LED lighting products that had distinctive aspects to create greater appeal to consumers. The Company's lighting product lines through 2018 consist of decorative lighting, indoor and outdoor lighting fixtures. The Company has a strong presence where battery operated lighting is displayed. The Company’s power failure lighting and security products were initially sold under its wholly – owned subsidiary Capstone Industries' brand name through 2015.

Through 2018, the Company maintains and supplies eight core lighting products. The Company follows a closely defined business strategy to develop and increase market leadership positions in these key product offerings. These product offerings are prioritized based on their capacity to maximize the use of the Company's core competencies and to deliver sustainable long-term growth.

Consistently management focuses on a variety of key indicators to monitor business health and performance. These indicators include market share, sales, organic sales growth, gross profit margin, operating profit, and net income, as well as measures used to optimize the management of working capital, capital expenditures, cash flow, and return on capital. The monitoring of these indicators, and the Company's corporate governance policies help to maintain business health and strong internal controls. To achieve its business and financial objectives, the Company focuses the organization on initiatives to drive and fund growth. Capstone seeks to capture significant opportunities for growth by identifying and meeting consumer needs within its core product categories, through its focus on innovation and development of successful new products. The investments needed to fund this growth are developed through continuous, Company-wide initiatives to lower costs and increase effective asset utilization through which the Company seeks to become even more effective and efficient throughout its businesses.

Looking forward, the Company expects global macroeconomic and market conditions to remain challenging for its consumer products. The marketplace in which Capstone operates is competitive and in certain markets competition consists of large multi-national companies, some of which may have greater resources than the Company does. While the Company has taken, and will continue to take, measures to address the heightened competitive activity, should these conditions persist, they could adversely affect the Company's future results. The Company believes it is well prepared to meet the challenges ahead due to its, experience operating in challenging environments and continued focus on Capstone's strategic initiatives: effectiveness and efficiency; innovation; and leadership.

Enhancement of shareholder value through a higher market price will require sustained fiscal quarters of profitability combined with greater market support for the Company's stock from market makers and long-term investors. Capstone believes sustained profitability will be required for any such enhanced market support for our Common Stock. Sustained profitability will require products that command higher profit margins and/or increased sales in existing or new markets while maintaining product development and marketing costs.

The Company operates in competitive retail environments with aggressive pricing and frequent changes in technology or design. Capstone must maintain sufficient, affordable, and timely funding to respond to some significant changes in technology or design changes in our industry that attract significant consumer demand. The failure to respond quickly to consumer demand or changes in consumer demand could prove detrimental to our current and future business and financial condition.

As is true for any consumer product company, Capstone's financial and business results could be suddenly and adversely affected by changes in consumer purchasing habits and tastes in any major market. Further, technological changes can unexpectedly affect such consumer purchasing habits and tastes. The Company seeks to develop and sell products that serve a basic consumer demand.

~~There are a number of industry factors that affect our financial performance which include, among others:~~

Revenue is derived from sales of our residential LED lighting products. These products are directed towards consumer home LED lighting for both indoor and outdoor applications. Revenue is subject to both quarterly and annual fluctuations and is impacted by the timing of individually large orders as well as delays or sometimes advancements to the timing of shipments or deliveries. We recognize revenue upon shipment of the order to the customer, when all performance obligations have been completed and title has transferred to the customer and in accordance with the respective sale’s contractual arrangements. Each contract on acceptance will have a fixed unit price. The majority of our sales are to the U.S. market which in 2018 represented 90% of revenues and we expect that region to continue to be the major source of revenue for the Company. We also derive a portion of our revenue from overseas sales. All of our revenue is denominated in U.S. dollars.

Our cost of goods sold consists primarily of purchased products from contract manufacturers, associated duties and inbound freight. In addition, our cost of goods sold also include inventory adjustments, warranty claims/reserves and freight allowances. We source our manufactured products based on customer orders.

For the year ended December 31, 2018, net revenues were approximately $12.8 million, a decrease of $24.0 million or 65.1% from $36.8 million in fiscal 2017. The decrease in net revenues was primarily due to some of our product lines maturing in their retail life cycle, which maturation impacted on our gross profits.

~~The Capstone Lighting program generated $5.4 million of revenue in 2018 compared to $5.2 million in 2017, an increase of approximately $200 thousand. The Company launched 4 new products during 2018.~~

~~For the years ended December 31, 2018 and 2017, international sales were approximately $1.3 million or 10% of revenue as compared to $1.8 million or 5 % of revenue, respectively.~~

~~The Company provided retailers with $559 thousand of consumer rebate promotional allowances in 2018 compared to $1.9 million in 2017.~~

Gross profit for the year ended December 31, 2018, was approximately $2.9 million, or 22.5% of net revenues, as compared to gross profit of $8.8 million or 24.1% of net revenues, for fiscal 2017. With the reduced revenue, gross profit decreased by $5.9 million or 67.3% from 2017. This margin decrease resulted from the blended margin of 7 new products that were launched during the year which included 2 product test orders that had greatly reduced margins resulting from increased set up costs, combined with inactive warehouse inventory being sold off at reduced margins.

For the years ended December 31, 2018 and 2017, cost of sales were approximately $9.9 million and $27.9 million, respectively, a decrease of $18.0 million or 64.4 % from the previous year. This reduction was a direct result of the reduced revenue in fiscal 2018. This cost represents 77.5% and 75.9% of net revenues for 2018 and 2017, respectively.

For fiscal 2018, compensation expenses were approximately $1.5 million a reduction of $110 thousand or 6.8% from $1.6 million expensed in 2017. As a percent to revenue 2018 expenses were 11.7% as compared to 4.4% in 2017. Expenses in 2018 decreased primarily as a result of the elimination of the 2018 year-end bonus payment to executives.

For fiscal 2018, product development expenses were approximately $519 thousand as compared to $377 thousand, an increase of $142 thousand or 37.7% from 2017. In 2018 the Company invested $295 thousand in the Smart Mirror development an increase of $235 thousand or 395% from the previous year. As a percent to revenue, 2018 expenses were 4.0% as compared to 1.0% in 2017. We have continued to invest heavily in product design, software development, electrical engineering, product prototyping, testing and regulatory certifications by outside third-party testing laboratories.

For fiscal 2018 and 2017, other general and administration expenses were approximately $691 thousand and $805 thousand, respectively, a decrease of $114 thousand or 14.2%. As a percent to revenue 2018 expenses were 5.4 % as compared to 2.2% in 2017. In 2018 with the positive cash position and reduced bank processing fees, bank charges were $58.7 thousand as compared to $154.3 thousand in 2017, a reduction of $95.6 thousand or 61.9 %. Office rent was $108.0 thousand in 2018 as compared to $163.0 thousand in 2017, a reduction of $55 thousand or 15.6% resulting from approximately $60.6 thousand of rate abatements and relocation incentive provided by the landlord to relocate the corporate office. In 2018, we also incurred a "one-off" settlement charge of $63 thousand related to settlement of litigation described in “Legal Proceedings” of this Report.

In summary, in fiscal 2018, total operating expenses were $4.1 million or 32.2% of revenue as compared to $5.6 million or 15.3% of revenue in 2017. This represents a $1.5 million or 26.2% decrease over fiscal 2017.

For the year ended December 31, 2018 the operating loss was approximately $1.2 million compared to a $3.2 million operating income in 2017. Despite operating expenses being reduced by $1.5 million or 26.2% in 2018 as compared to 2017, the $5.9 million gross profit reduction resulting from the reduced revenue was the main reason for $4.5 million or 139.4% operating income negative swing as compared to 2017.

For fiscal 2018 other expense was approximately $55 thousand a positive swing of $67 thousand compared to $122 thousand expense in 2017. The expense reduction was mainly the result of zero interest expense. The Company through a combination of efficient cash flow management, favorable payment terms with our overseas suppliers and a strong cash position was able to eliminate the need for increased borrowing or purchase order funding which resulted in a zero interest expense in 2018 as compared to $122 thousand expense in 2017.

~~For fiscal 2018 and 2017 net income (loss) was approximately $(1.0) million and $2.1 million, respectively, a negative net swing of approximately $3.1 million.~~

~~Gross margin, as presented below, is sales less cost of sales.~~

Management continues to believe that the execution of the Company’s strategy and development of the Connected Surfaces category will provide attractive opportunities for profitable growth over the long-term. The Company’s strategy is to capitalize on the market growth of these new innovative Smart Home categories and leverage our market relationships and expansion into previously unpenetrated channels of distribution.

Third-party forecasts and leading indicators suggest that the North American lighting market, will increase in low-single digit range in 2019. Management expects to maintain the lighting revenues at existing levels with the revenue growth coming from launching the new Connected Surfaces category.

Effective September 24, 2018, the current U.S. administration implemented a 10% tariff increase with a further 15% increase scheduled for March 1, 2019, (subject to ongoing trade negotiations). The U.S. administration postponed the further 15% increase in tariffs scheduled for March 1, 2019 due to pending negotiations with Chinese government trade officials. All companies are affected equally and the appeal for these products may be negatively impacted when retail prices are increased due to higher duty rates. The tariff negotiations has caused uncertainty and confusion with retailers. The Company has seen in store promotional schedules cut back and retailers have expressed concerns for possible pricing adjustments that would not be known to them in advance to products being shipped. Capstone's business model insulates the Company from paying duties as its retail partners are the importers of record. The obvious unknown is the final impact of tariffs to the landed costs. Accordingly, retailers have demonstrated caution in their promotional planning schedules and may continue to do so until the administration has clarified its position enabling importers to calculate estimated landed costs. Tariffs and trade restrictions imposed or threatened by the current U.S. administration has provoked and may provoke future trade and tariff retaliation by other countries. A trade dispute of this nature or other governmental action related to tariffs or international trade agreements or policies has the potential to adversely impact demand for our products, our costs, customers, suppliers and/or the U.S. economy or certain sectors thereof and, thus, to adversely impact our business.

As management recognized that the growth of the LED category was maturing in 2017, as reflected in our financial results for fiscal year 2018, we sought a business opportunity that would prove equal to or greater opportunity than the LED business. While we currently continue to develop new LED products, the revenue potential has been lessened and our new product strategy was developed to seek products to supplement and compensate for declining revenues from our established product lines.

Our new portfolio is designed to appeal to a a larger consumer base, especially products that will benefit from Company’s abilities in the areas of low-cost production and operations. The new Connected Surfaces portfolio seeks to address perceived consumer expectations of greater connectivity in appliances and products. The Connected Surfaces products have touch screen and voice interfacing, internet access and an operating system capable of running downloadable applications. The average selling prices are expected to retail at $500.00 per unit, with the goal to deliver consumer value for and to appeal to middle income consumers. Capstone’s new Connected Surfaces products are designed to provide the ease of connectivity in consumer devices that consumers have come to expect from use of smart phones.

The Company competes in competitive consumer market channels that can be affected by volatility from a number of general business and economic factors such as, consumer confidence, employment levels, credit availability and commodity costs. Demand for the Company’s products is highly dependent on economic drivers such as consumer spending and discretionary income. While we believe that the markets for LED home products will remain competitive during fiscal 2019, we are confident in maintaining our revenue stream in the lighting business segment by continuing to introduce new innovative LED products. The first of these new LED products will be present in the retail market place during the first quarter of 2019. By working diligently overseas with alternate manufacturers located outside China, particularly in Thailand and Vietnam, we anticipate minimal impact to our selling prices and related margins of profit that could otherwise be impacted by ongoing trade disputes with China.

While the Company seeks to expand into consumer lighting products offering connectivity as a product function, the Company may face competition not only from traditional competitors in the consumer lighting product industry companies, but also potential future competition from companies in smart home technology industry. Such possible future competition could come from companies like Ring, that makes smart, connected home security lighting devices and is owned by Amazon.com, Inc., or Nest, a maker of smart home technology and is owned by Alphabet, Inc. (formerly Google). Smart phone manufacturers, like Apple, Inc. and Samsung Electronics Co., could also enter the smart home product industry as a natural product expansion for smart phones that have growing capabilities to control home or consumer devices. Such future competition could undermine the Company’s ability to develop a new product line to compensate for the declining revenues from its established lighting product line.

In 2019, we are focused on the following priorities to support our goals of delivering higher revenue and profits and establishing a new product line and revenue source to compensate for the declining revenues from the matured lighting product line:

~~Purchase Obligations — Purchase obligations are comprised of the Company's commitments for goods and services in the normal course of business.~~

~~Short Term Debt — None.~~

~~Long Term Debt— None.~~

We require cash to fund our operating expenses and working capital requirements, including outlays for research and development, capital expenditures and strategic investments. Our principal sources of liquidity are cash on hand, cash generated from operations, availability under our Sterling Bank credit facility and our ability to negotiate beneficial payment terms with our main overseas manufacturers that has resulted in significantly reduced funding requirements to produce newly launched products.

Operational cashflow is significantly influenced by the timing and launch of new products into the marketplace. With our Hong Kong operation, we have built an operational structure that, through relationships with factory-suppliers combined with our expertise, can develop and release quality, innovative products to the market substantially quicker than in previous years.

~~Our ability to generate cash from operations has been one of our fundamental strengths and has provided us with flexibility in meeting our operating, financing and investing needs.~~

On July 20, 2018, Sterling National Bank expanded our existing line from $7 million up to $10 million. The purpose of this line is to provide $2 million for the development and expansion of the new Smart Mirror category and related infrastructure and $8 million for accounts receivable growth.

Our cash balances as of December 31, 2018 and 2017 was approximately $3.8 million and $3.7 million, respectively. The Company also had additional borrowing availability under the bank agreement of approximately $55 thousand and $2.0 million for the Capstone expansion line as compared to $3.7 million in 2017.

~~As of December 31, 2018, and 2017 the loan balance for both years was $0.~~

Historically, our Directors have been a significant source of financing and they continue to support our operations as necessary. In 2017 the Company was able to pay off all Director debt and accumulated interest and has not incurred any Director debt since. As of December 31, 2018, and 2017, the notes payable to related parties for both years was $0.

Based on past performance and current expectations, Management believes that our cash on hand, our availability under the line of credit and anticipated cash flows from operations will be adequate to meet the Company’s cash needs for our daily operations and capital expenditures for at least the next 12 months. With our strong working capital position, we believe that we have the ability to continue to invest in further development of our products.

~~As of December 31, 2018 the Company’s working capital was approximately $3.8 million. Our current liabilities were $582 thousand and include:~~

Cash provided by operating activities was approximately $208 thousand in 2018 compared with approximately $3.5 million in 2017. The negative cash impact of the net loss of approximately $1.1 million, was offset by a combination of factors, namely: strong account collections during the year which reduced outstanding accounts receivables by $4.1 million, a concerted effort to reduce inventory to prepare for the new product launch, which resulted in a $113 thousand inventory reduction and a $171 thousand increase in accrued sales allowance. With this cash availability the Company paid down outstanding supplier balances and reduced $2.3 million in accounts payable and accrued liabilities and paid $613 thousand in income tax payable. The Company's cash position increased from $3.7 million at December 31, 2017 to $3.8 million at December 31, 2018. The Company continued to negotiate beneficial payment terms with our main overseas manufacturers that resulted in reduced funding requirements to produce newly launched products.

The use of cash in 2018 was approximately $54 thousand compared to $48 thousand in 2017. The Company continued to invest in new product molds and tooling. With the product expansion into Smart Home lighting and Smart Mirror categories, the Company's future capital requirements will increase. CIHK will try to negotiate favorable payment terms with our OEM manufacturers to reduce the amounts of upfront cash required when initiating new product line projects.

Cash used in financing activities for the year ended December 31, 2018 and 2017, was approximately $ 0 compared to $1.4 million, respectively. As of December 31, 2018. the Company had zero debt outstanding.

We sell all of our products in U.S. dollars and pay for all of our manufacturing costs in U.S. dollars. Our factories are located in mainland China and the exchange rate fluctuations between the U.S. dollar and Chinese Yuan have been relatively stable at approximately RMB 6.70 to U.S. $1.00.

Operating expenses of the Hong Kong office are paid in either Hong Kong dollars or U.S. dollars. The exchange rate of the Hong Kong dollar to the U.S. dollar has been relatively stable at approximately HK $7.80 to U.S. $1.00 since 1983 and, accordingly, has not represented a currency exchange risk to the U.S. dollar. While exchange rates have been stable for several years, we cannot assure you that the exchange rate between the United States, Hong Kong and Chinese currencies will continue to be stable and exchange rate fluctuations may have a material effect on our business, financial condition or results of operations.

~~We do not have material off-balance sheet arrangements that have or are reasonably likely to have a material future effect on our results of operations or financial condition.~~

We have not declared or paid any cash or other dividends on shares of our Common Stock in the last five years and we presently have no intention of paying any cash dividends on shares of our Common Stock. We do not currently anticipate, based on existing financial performance, to be declaring or paying dividends on any series of our Preferred Stock in the foreseeable future. Our current policy is to retain earnings, if any, to finance the expansion and development of our business. The future payment of dividends on shares of our Common Stock will be at the sole discretion of our Board of Directors.

~~See Note 5 of the Consolidated Financial Statements at Item 15 of this Report.~~

~~See Note 1 of the Consolidated Financial Statements at Item 15 of this Report.~~

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make certain estimates and assumptions regarding matters that are inherently uncertain and that ultimately affect the reported amounts of assets, liabilities, revenues and expense, and the disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition; inventory valuation; depreciation; amortization and the recovery of long-lived assets; including goodwill and intangible assets; shared base-based payment expense; product warranty; and other reserves and assumptions based on management's experience and understanding of current facts and circumstances, historical experience and other relevant factors. These estimates may differ from actual results. Certain of our accounting policies are considered critical as they are both important to reflect our financial position and results of operations and require significant or complex judgement on the part of management. The following is a summary of certain accounting policies considered critical by management.

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 will have different functionalities. Capstone currently operates in the consumer lighting products category in the Unites States and in specific overseas markets. These products may be offered either under the Capstone brand or licensed brands.

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 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 expenses.

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 retail 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.

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 both December 31, 2018 and 2017, management has determined that the accounts receivable is fully collectible. As such, management has not recorded an allowance for doubtful accounts.~~

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.

Accrued liabilities contained in the accompanying consolidated balance sheets include accruals for estimated amounts of credits to be issued in future years based on potential product warranties and accruals for various compensation, benefits and commission expenses.

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.

~~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.~~

As of December 31, 2018, the Company had utilized all net operating loss carry forwards for income tax reporting purposes that were previously available to be offset against future taxable income through 2034. The net deferred tax liability as of December 31, 2018 and December 31, 2017 was $12,000 and $251,000, respectively, and is reflected in long-term liabilities in the accompanying consolidated balance sheets.

The provision (benefit) for income taxes for the year ended December 31, 2018 and 2017 was calculated based on the estimated annual effective rate of (22)% and 33%, respectively for both the full 2018 and 2017 calendar years.

On December 22, 2017, President Trump signed into law the legislation generally known as Tax Cut and Jobs Act of 2017. The tax law includes significant changes to the U.S. corporate tax systems including a rate reduction from 35% to 21% beginning in January of 2018, a change in the treatment of foreign earnings going forward and a deemed repatriation transition tax. In accordance with ASC 740, the impact of a change in tax law is recorded in the period of enactment. During the fourth quarter of 2017, the Company recorded a non-cash change in its net deferred income tax balances of approximately $120,000 related to the tax rate change.

~~The financial statements and financial statement schedules of CAPC as well as supplementary data are listed in Item 15 below and are included after the signature page to this Report.~~

~~None.~~

~~Our management, with the participation of our chief executive officer and chief financial officer,~~Officer, evaluated the effectiveness of ~~our~~the design and operation of Company’s disclosure controls and procedures as of December 31, ~~2018. As of the date of this Report, Stewart Wallach is our~~2019. Based on that evaluation, Company’s Chief Executive Officer and ~~James Gerald McClinton is our~~ Chief Financial Officer determined that, as of December 31, 2019, the Company’s disclosure controls and ~~Chief Operating Officer.~~procedures were effective.

~~There are~~During the fiscal quarter ended December 31, 2019, there were no changes ~~to our~~in Company’s internal control over financial reporting ~~(as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act)~~ that ~~occurred during the year ended December 31, 2018, that has~~have materially affected, or are ~~reasonable~~reasonably likely to materially affect, ~~our~~Company’s internal control over financial reporting.

The certifications of our Chief Executive Officer and Chief Financial Officer attached as Exhibits 31 and 32 and to this Report include information concerning our disclosure controls and procedures and internal control over financial reporting. Such certifications should be read in conjunction with the information incorporated by reference to our annual report on Form 10-K for the fiscal year ended December 31, 2018, for a more complete understanding of the matters covered by such certifications.

~~None~~

The background information on the Directors is set forth below under "Item 1. Proposal Two: Election of Directors." Each Director's term is for one year. The incumbent and current members of the Board of Directors are:

Company Directors have typically been elected in the past by written consent of stockholders holding more than 50% of the then current voting power. The Company uses the written consent because a small number of shareholders have sufficient voting power to decide the election of Directors and approval or denial of any other corporate resolution and the cost of conducting an annual stockholders' meeting is significant for a small reporting company. The Company conducts regular stockholder-investor conference calls to allow stockholders to interact with Company senior management and to ask questions of that management.

Further, stockholders may make inquiries in writing by sending their inquiries to Aimee Gaudet, Secretary, Capstone Companies, Inc., 431 Fairway Drive, Suite 200, Deerfield Beach, Florida 33441. The information required in Part III of this Report is set forth in the information statement filed for the written consent approval of nominee slates of Directors and the requirements for stockholders to submit proposed resolutions and Director nominees is set forth in this Report.

Company Directors are expected to attend all annual and special board meetings per Company policy. An attendance rate of less than 75% over any 12-month period is grounds for removal from the Board of Directors. In fiscal year 2018, all Directors attended at least 75% of all (3) three board meetings.

The Board of Directors is responsible for overseeing the Chief Executive Officer and other senior management in order to assure that such officers are competent and ethical in running the Company on a day-to-day basis and to assure that the long-term interests of the stockholders are being served by such management. The Directors must take a pro-active focus and approach to their obligation in order to set and enforce standards to ensure that the Company is committed to business success through maintenance of the highest standards of responsibility and ethics.

The Company has adopted a Code of Ethics, which is posted on http://capstonecompaniesinc.com. The contents of the Company Website are not incorporated herein by reference and that Website provided in this Report is intended to be an inactive textual reference only.

The Audit Committee was established in accordance with Section 3(a)(58) (A) of the Exchange Act. It is primarily responsible for overseeing the services performed by the Company's Independent Registered Public Accounting Firm, evaluating the Company's accounting policies and its system of internal controls and reviewing significant financial transactions. The members of the Audit Committee in fiscal year 2018 were Jeffrey Guzy and Jeffrey Postal. The Company believes that Mr. Guzy is an Independent Director under SEC and NASDAQ applicable standards.

The material in this section is not deemed filed with the Commission and is not incorporated by reference in any of our filings under the Securities Act or the Exchange Act, whether made before or after the date of this Report and irrespective of any general incorporation language in those filings.

The Audit Committee is responsible for providing oversight to Company's accounting and financial reporting processes and the audit of the Company's financial statements. The Audit Committee monitors the Company's external audit process, including auditor independence matters, the scope and fees related to audits, and the extent to which the Independent Registered Public Accounting Firm may be retained to perform non-audit services. The Audit Committee also reviews the results of the external audit with regard to the adequacy and appropriateness of our financial, accounting and internal controls over financial reporting. It also generally oversees the Company's internal compliance programs. The function of the Audit Committee is not intended to duplicate or to certify the activities of the management and the Independent Registered Public Accounting Firm, nor can the Audit Committee certify that the independent registered public accounting firm is "independent" under applicable rules. The Audit Committee members are not professional accountants or auditors. Under its Charter, the Audit Committee has authority to retain outside legal, accounting or other advisors as it deems necessary to carry out its duties and to require the Company to pay for such expenditures.

The Audit Committee provides counsel, advice and direction to management and the Independent Registered Public Accounting Firm on matters for which it is responsible, based on the information it receives from management and the independent registered public accounting firm and the experience of its members in business, financial and accounting matters.

The Company's management is responsible for the preparation and integrity of its financial statements, accounting and financial reporting principles, and internal controls and procedures designed to ensure compliance with accounting standards, applicable laws and regulations.

~~The foregoing report is provided by the undersigned members of the Audit Committee.~~

~~/s/Jeffrey Guzy~~

~~Jeffrey Guzy, Chairman of Audit Committee~~

Company's Compensation and Nomination Committee is currently composed of two members (both Company directors): Mr. Jeffrey Guzy and Mr. Jeffrey Postal. Only Mr. Guzy, who serves as Chairman of the Compensation and Nomination Committee, is “independent” within the meaning of the NASDAQ Marketplace Rules.

Company's Compensation and Nomination Committee assists the Company Board of Directors in reviewing and approving the compensation structure of executive officers, including all forms of compensation to be provided to the executive officers. The chief executive officer and chief financial officer may not be present at any Compensation and Nomination Committee meeting during which the executive's compensation is discussed and deliberated.

~~The Compensation and Nomination Committee is responsible for, among other customary duties, the following:~~

The Company has a code of ethics that applies to all of the Company's employees, including its principal executive officer, and principal financial officer, and its Board. A copy of this code is available on http://www.capstonecompaniesinc.com. The Company intends to disclose any changes in or waivers from its code of ethics by posting such information on its website or byoriginal filing ~~a Form 8-K Report.~~

The Board of Directors had (3) three official meetings in year 2018. During 2018, all of the Directors attended 75% or more of all meetings of the Board, which were held during the period of time that such person served on the Board or such committee.

The Company's Board of Directors endorses the view that one of its primary functions is to protect stockholders' interests by providing independent oversight of management, including the Chief Executive Officer and Chief Operating Officer (who also holds the Chief Financial Officer position). The Chief Financial Officer is allowed and encouraged to address the Board of Directors on any issues affecting the Company or its stockholders. The Company also allows outside counsel to participate in some of the board meetings in order to provide legal counsel and an outside perspective on corporate governance and risk issues.

The CEO is responsible for setting the strategic direction for the Company and the day to day leadership and performance of the Company, while the Chairman of the Board of Directors provides guidance to senior management and sets the agenda for Board of Directors meetings and presides over meetings of the full Board of Directors.

Our CEO serves on our Board of Directors, which we believe helps the CEO serve as a bridge between management and the Board of Directors, ensuring that both groups act with a common purpose. We believe that the CEO's presence on the Board of Directors enhances his ability to provide insight and direction on important strategic initiatives to both management and the independent directors and, at the same time, ensures that the appropriate level of independent oversight is applied to all decisions by the Board of Directors.

Our senior officers are responsible for the day-to-day management of risks the Company faces, while the Board, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, the Board of Directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed. To do this, the Chairman of the Board and other non-officer directors met quarterly on average with management to discuss strategy and the risks facing the Company. Senior management, each member being also a director, attends the Board meetings and is available to address any questions or concerns raised by the Board on risk management and any other matters. The Chairman of the Board and members of the Board work together to provide strong, independent oversight of the Company's management and affairs through its standing committees and, when necessary, special meetings of directors. Since most of the directors are located in the same area, informal meetings between directors and officers also occur to discuss business risk and appropriate responses.

If the candidate is deemed eligible for election to the Board of Directors, the Compensation and Nominating Committee will then evaluate the prospective nominee to determine if he or she possesses the following qualifications, qualities or skills:

The Compensation and Nominating Committee will also consider any other factors it deems relevant. With respect to nominating an existing director for re-election to the Board of Directors, the Compensation and Nominating Committee will consider and review an existing director's Board and committee attendance and performance; length of Board service; experience, skills and contributions that the existing director brings to the Board; and independence.

For purposes of identifying nominees for the Board of Directors, the Compensation and Nominating Committee relies on personal contacts of the committee members and other members of the Board of Directors and will consider director candidates recommended by stockholders in accordance with the policy and procedures set forth above. The Compensation and Nominating Committee has not used an independent search firm to identify nominees.

In evaluating potential nominees, the Compensation and Nominating Committee determines whether the candidate is eligible and qualified for service on the Board of Directors by evaluating the candidate under the selection criteria, which are discussed in more detail below. If such individual fulfills these criteria, the Compensation and Nominating Committee will conduct a check of the individual's background and interview the candidate to further assess the qualities of the prospective nominee and the contributions he or she would make to the Board of Directors.

In order for a director candidate to be considered for nomination at the Company's annual meeting of stockholders, when and if one is held, or to be considered prior to a written consent vote on director nominees, the recommendation must be received by the Compensation and Nominating Committee at least 30 days before the date of the ~~annual meeting or, in the case of an information statement and no shareholder meeting being held, prior to April 1st.~~

Section 16(a) of the Exchange Act requires the Company's executive officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of securities ownership and changes in such ownership with the SEC. Executive officers, directors and greater than ten percent stockholders also are required by rules promulgated by the SEC to furnish the Company with copies of all Section 16(a) forms they file.

~~Based solely upon a review of the copies of such forms furnished~~Form 10-K Report, does not reflect events that may have occurred subsequent to the ~~Company or other written representations, the Company believes that all of Section 16(a)~~original filing ~~requirements were met during fiscal year 2017 by the Company's directors and officers.~~

Our Company endeavors to strike an appropriate balance between long-term and current cash compensation. The current executives are key to the ability of the Company to conduct its business because of their individual experience and relationships in our current business line. Their compensation reflects their individual value to the ability of the Company to conduct its current business

On February 5, 2018, the Company renewed the 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, 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 February 5, 2018 Employment Agreement with Mr. Wallach was previously filed by the Company as an exhibit to Report Form 10-K for fiscal year ended December 31, 2017 - (as filed by the Company with the Commission on March 28, 2018).

On February 5, 2018, the Company renewed the Employment Agreement with James McClinton, whereby Mr. McClinton will be paid $191,442 per annum. 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 one year in length.

The February 5, 2018 Employment Agreement with Mr. McClinton was previously filed by the Company as an exhibit to Report Form 10-K for fiscal year ended December 31, 2017 (as filed by the Company with the Commission on March 28, 2018).

~~The above summary of the employment agreements is qualified by reference to the actual employment agreements, which were filed as exhibits to~~ the Form 10-K ~~by the Company for fiscal year ended December 31, 2017 (as filed by the Company with the Commission on March 28, 2018).~~

~~Footnotes:~~

The Company maintains directors and officer's liability insurance coverage to reduce its exposure to such obligations, and payments made under these agreements historically have not been material. Further, the Company’s articles of incorporation and bylaws provide for indemnification of directors and officers.

The sole class of voting Common Stock of the Company as of March 14, 2019, that are issued and outstanding is the Common Stock, $0.0001 par value per share, or "Common Stock". The table below sets forth, as of March 14, 2019, ("Record Date"), certain information with respect to the Common Stock beneficially owned by (i) each Director, nominee and executive officer of the Company; (i) each person who owns beneficially more than 5% of the Common Stock; and (iii) all Directors, nominees and executive officers as a group.

~~The Company is a "controlled company" under typical stock exchange corporate governance rules, that is a company where 50% or more of the voting power is owned by a person or a group~~Report and does not ~~currently have to meet requirements for a board of directors with a majority of "independent directors." Currently, only Jeffrey Guzy qualifies as an "independent director" under~~modify or update the ~~listing standards of most stock exchanges or quotation systems. No other director qualifies as an "independent director" under those rules because they are officers of~~disclosures made in the ~~Company or have business relationships with the Company.~~

The CAPC Board adopted a written policy for approval of transactions between the Company and its directors, director nominees, executive officers, greater than 5% beneficial owners and their respective immediate family members. The policy governs transaction in which the value exceeds or is expected to exceed $120,000 in a single calendar year.

A "related-person transaction" will be a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which we and any "related person" are participants involving an amount that exceeds $120,000. Transactions involving compensation for services provided to us as an employee, director, consultant or similar capacity by a related person will not be covered by this policy. A related person will be any executive officer, director or a holder of more than five percent of our common stock, including any of their immediate family members and any entity owned or controlled by such persons.

The policy provides that the Audit Committee reviews transactions subject to the policy and determines whether or not to approve or ratify those transactions. The Audit Committee takes into account, among other factors it deems appropriate, the following factors:

~~The Audit Committee does not have any policies on expedited or pre-approval of certain routine related person transactions.~~

From time to time, the Company borrows working capital on a short-term basis, usually with maturity dates of less than a year, from Company directors and officers. The Company believes that these working capital loans are commercially reasonable, especially in light of the inability of the Company to obtain such short-term financing from traditional funding sources. As of December 31, 2018, all related party loans outstanding balance is $0.

On September 19, 2016, the disinterested directors of the Board of Directors of the Company approved the use of up to $750,000 dividend distribution from Capstone Industries, Inc., a Florida corporation and a wholly owned subsidiary of the Company, to pay down working capital loans made by Stewart Wallach and Jeffrey Postal to the Company. Mr. Wallach is the Chief Executive Officer and Chairman of the Board of Directors of the Company and Mr. Postal is a director of the Company. The proposed use of the cash dividend was also approved by disinterested directors of the Company under the Company's related party transaction guidelines.

~~The following is a summary of the fees billed to us by Kaufman, Rossin & Co., for professional services rendered for the years ended December 31, 2018 and 2017:~~

The following is a summary of the fees paid by us to CBIZ and Mayer Hoffman McCann P.C., the Company’s former Independent Registered Public Accounting Firm, for the years ended December 31, 2018 and 2017:

MHM has advised us that MHM leases substantially all of its personnel, who work under the control of MHM's shareholders, from wholly-owned subsidiaries of CBIZ, Inc., in an alternative practice structure. Accordingly, substantially all of the hours expended on MHM's engagement to audit our consolidated financial statements for the year ended December 31, 2017 were attributed to work performed by persons other than MHM's fulltime, permanent employees.

The Audit Committee is to pre-approve all audit and non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services as allowed by law or regulation. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specifically approved amount. The independent auditors and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval and the fees incurred to date. The Audit Committee may also pre-approve particular services on a case-by-case basis.

The Audit Committee pre-approved 100% of the Company's 2018 audit fees, audit-related fees, tax fees, and all other fees to the extent the services occurred after the effective date of the SEC's final pre-approval rules.

~~In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of Capstone Companies, Inc. and in the capacities and on the dates indicated.~~

~~April 1, 2019~~

Florida	84-1047159
(State or Other Jurisdiction of Incorporation)	(I.R.S. Employer No.)

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on which Registered
None	Not applicable	Not applicable

~~Item Number~~	~~Description~~	~~Page~~

~~Part I~~

~~Item 1.~~	~~Business~~	5
~~Item 1A.~~	~~Risk Factors~~	20
~~Item 1B.~~	~~Unresolved Staff Comments~~	29
~~Item 2.~~	~~Properties~~	29
~~Item 3.~~	~~Legal Proceedings~~	30
~~Item 4.~~	~~Mine Safety Disclosures (Not Applicable)~~	30

~~Part II~~

~~Item 5.~~	~~Market for Registrants Common Equity and Related Stockholder Matters~~	30
~~Item 6.~~	~~Selected Financial Data (Not Applicable)~~	32
~~Item 7.~~	~~Management's Discussion and Analysis of Financial Condition and Results of Operation~~	33
~~Item 7A.~~	~~Quantitative and Qualitative Disclosures About Market Risk (Not Applicable)~~	48
~~Item 8.~~	~~Financial Statements and Supplementary Data~~	48
~~Item 9.~~	~~Change in and Disagreements with Accountants on Accounting and Financial Disclosure~~	48
~~Item 9A.~~	~~Controls and Procedures~~	49
~~Item 9B.~~	~~Other Information~~	50

~~Part III~~

~~Item 10.~~	~~Directors, Executive Officers and Corporate Governance~~	50
~~Item 11.~~	~~Executive Compensation~~	57
~~Item 12.~~	~~Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters~~	60
~~Item 13.~~	~~Certain Relationships and Related Transactions, and Director Independence~~	62
~~Item 14.~~	~~Principal Accounting Fees and Services~~	63

~~Part IV~~

~~Item 15.~~	~~Exhibits, Financial Statement Schedules~~	64
~~Item 16.~~	~~Form 10-K Summary~~	65

~~Employee Function~~	~~Number of Employees~~
~~Executive~~	3
~~Sales/Customer Service/Distribution~~	4
~~Research & Development/Technology/Product Development~~	4
~~Administrative~~	3
~~TOTAL~~	14

Year Ended December 31,	US		HK		Total
2019	$	89,966	$	56,535	$	146,501
2020		7,514		-		7,514
Total future lease obligations	$	97,480	$	56,535	$	154,015

	2018		2017
	High	Low	High	Low
1^stQuarter	.5600	.4020	.5000	.2500
2^ndQuarter	.4500	.2300	.7350	.4525
3^rdQuarter	.2900	.1090	.6500	.4500
4^th Quarter	.2000	.1100	.5800	.4000

Fiscal Period	Number of Shares Repurchased		Aggregate Purchase Price
FY 2018		-		-
FY 2017		1,666,667	$	250,000
Total		1,666,667	$	250,000

Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017
(In Thousands)
	December 31, 2018						December 31, 2017

	Dollars			% of Revenue			Dollars			% of Revenue
Revenue	$	12,830			100.00	%	$	36,753			100.00	%
Cost of sales		9,937			77.5	%		27,911			75.9	%
Gross Profit		2,893			22.5	%		8,842			24.1	%
Operating Expenses:
Sales and marketing		915			7.1	%		2,267			6.2	%
Compensation		1,503			11.7	%		1,612			4.4	%
Professional fees		510			4.0	%		550			1.5	%
Product development		519			4.0	%		377			1.0	%
Other general and administrative		691			5.4	%		805			2.2	%
Total Operating Expenses		4,138			32.2	%		5,611		��	15.3	%
Operating Income (Loss)		(1,245	)		(9.7	)%		3,231			8.8	%
Other Expenses
Miscellaneous expense, net		(55	)		(0.4	) %		-			-	%
Interest expense		-			-	%		(122	)		(0.3	)%
Total Other Expenses		(55	)		(0.4	)%		(122	)		(0.3	)%

Income (Loss) Before Tax Provision (Benefit)		(1,300	)		(10.1	)%		3,109			8.5	%
Provision (Benefit) for Income Tax		(289	)		(2.2	)%		1,030			2.8	%
Net Income (Loss)	$	(1,011	)		(7.9	)%	$	2,079			5.7	%

The following table disaggregates revenue by major source:

	For the Year Ended December 31, 2018										For the Year Ended December 31, 2017
	Capstone Brand				Licensed Brands			Total Consolidated			Capstone Brand				Licensed Brands				Total Consolidated
					(In Thousands)										(In Thousands)

LED Consumer Products- US		$	4,733			6,827			11,560			$	3,816			$	31,125			$	34,941
LED Consumer Products-International			639			631			1,270				1,361				451				1,812
Total Revenue		$	5,372			7,458			12,830			$	5,177			$	31,576			$	36,753
% of Total Revenue			42	%		58	%		100	%			14	%			86	%			100	%

	Years Ended December 31,
	2018				2017
Sales
(In thousands, except percentages)
Net Revenue		$	12,830			$	36,753
Gross Profit			2,893				8.842
Gross Profit %			22.5	%			24.1	%

Assets			2018				2017
(In thousands)
Total Assets		$	6,493			$	10,433

	Payments Due by Period
	Total			2019			2020			2021			After 2021
(In thousands)
Purchase Obligations		$	461,446		$	461,446		$	-		$	-		$	-
Short-Term Debt			-			-			-			-			-
Long-Term Debt			-			-			-			-			-
Operating Leases			154,015			146,501			7,514			-			-
Total Contractual Obligations		$	615,461		$	607,947		$	7,514		$	-		$	-

	Years ended December 31,
Summary of Cash Flows	2018				2017
(In thousands)
Net cash provided by (used in):
Operating Activities		$	208			$	3,452
Investing Activities			(54	)			(48	)
Financing Activities			-				(1,382	)
Net increase in cash and cash equivalents		$	154			$	2,022

Name ⁽¹⁾	Audit Committee		Nomination and Compensation Committees		Total Awards
Stewart Wallach ⁽²⁾		-		-		-
Gerry McClinton ⁽²⁾		-		-		-
Jeff Guzy ^{(3), (4)}	$	20,634	$	20,635	$	41,269
Jeff Postal ^{(3), (4)}	$	20,634	$	20,635	$	41,269
Larry Sloven ⁽²⁾		-		-		-

Name & Principal Position	Year	Salary $		Bonus $		Stock Awards $		Non-Equity Incentives $		All Others $		TOTAL
Stewart Wallach,	2018	$	301,521	$	-	$	-	$	-	$	-	$	301,521	��
Chief Executive	2017	$	301,521	$	100,000	$	-	$	-	$	-	$	401,521
Officer ^(1,2,5,6)	2016	$	327,396	$	100,000	$	-	$	-	$	-	$	427,396

James G. McClinton,	2018	$	191,442	$	-	$	-	$	-	$	-		191,442
Chief Financial	2017	$	191,442	$	20,000	$	-	$	-	$	-	$	211,442
Officer & COO ^(3,4,5,6)	2016	$	192,013	$	20,000	$	-	$	-	$	-	$	212,013

~~Name~~	~~No. of Shares~~ ~~Underlying~~	~~% of Total Options~~ ~~Granted Employees~~ ~~in 2018~~	~~Expiration~~ ~~Date~~	~~Restricted~~ ~~Stock Grants~~	~~No. Shares~~ ~~underlying Options~~ ~~Options Granted~~ ~~in 2018~~
~~Stewart Wallach~~	-	-	-	-	-
~~Gerry McClinton~~	-	-	-	-	-

~~NAME/POSITION~~	~~YEAR~~	~~SEVERANCE~~ ~~PACKAGE~~	~~CAR~~ ~~ALLOWANCE~~	~~CO. PAID~~ ~~SERVICES~~	~~TRAVEL~~ ~~LODGING~~	~~TOTAL ($)~~
~~Stewart Wallach~~	~~2018~~	-	-	-	-	-
~~Chief Executive~~	~~2017~~	-	-	-	-	-
~~Officer~~	~~2016~~	-	-	-	-	-

~~Gerry McClinton~~	~~2018~~	-	-	-	-	-
~~Chief Operating~~	~~2017~~	-	-	-	-	-
~~Officer & Chief~~	~~2016~~	-	-	-	-	-
~~Financial Officer~~

~~NAME~~	~~Securities Underlying~~ ~~Unexercised Options~~	~~Option Exercise~~ ~~Price~~	~~Option~~ ~~Expiration Date~~
~~Stewart Wallach~~	-	-	-
~~Gerry McClinton~~	-	-	-

~~Name~~	~~Number of Shares~~ ~~Acquired on Exercise~~	~~Value Realized on~~ ~~Exercise~~
~~Stewart Wallach~~	-	-
~~Gerry McClinton~~	-	-

	SALARY SEVERANCE		BONUS SEVERANCE		GROSS UP TAXES		BENEFIT COMPENSATION		GRAND TOTAL TOTAL
Stewart Wallach	$	301,521		-	$	12,500	$	16,000	$	330,021
Gerry McClinton	$	191,442		-	$	9,000	$	16,000	$	216,442

OWNERSHIP OF OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS
As of March 14, 2019
					ALL OPTION WARRANT SHARES
NAME, ADDRESS & TITLE	STOCK OWNERSHIP	PERCENTAGE OF STOCK OWNERSHIP	STOCK OWNERSHIP AFTER CONVERSION OF ALL OPTIONS & WARRANTS PLUS THOSE EXERCISEABLE WITHIN THE NEXT 60 DAYS	% OF STOCK OWNERSHIP AFTER CONVERSION OF ALL OPTIONS & WARRANTS PLUS THOSE EXERCISEABLE WITHIN THE NEXT 60 DAYS	VESTED	EXPIRED	NOT VESTED

Stewart Wallach, CEO, 350 Jim Moran Blvd, Suite 120, Deerfield Beach, FL 33442	9,831,745	20.9%	9,831,745	20.5%	-	-	-

Gerry McClinton, CFO, & Director, 350 Jim Moran Blvd, Suite 120, Deerfield Beach, FL 33442	33,664	0.1%	33,664	.1%	-	-	-

Jeff Postal, Director, 350 Jim Moran Blvd, Suite 120, Deerfield Beach, FL 33442	9,034,120	19.2%	9,234,120	19.2%	100,000	-	100,000

Aimee C. Gaudet, Secretary, 350 Jim Moran Blvd, Suite 120, Deerfield Beach, FL 33442	-	0.0%	60,000	0.1%	50,000	-	10,000

Jeff Guzy, Director, 3130 19th Street North, Arlington, VA 22201	52,800	0.1%	652,800	1.3%	500,000	-	100,000

Larry Sloven, Director, 350 Jim Moran Blvd, Suite 120, Deerfield Beach, FL 33442	52,800	0.1%	52,800	0.1%	-	-	-

ALL OFFICERS & DIRECTORS AS A GROUP	19,005,129	40.4%	19,865,129	41.3%	650,000	-	210,000

	2018		2017
Audit Fees	$	115,000	$	105,350
Tax Fees		7,975		11,340
Total	$	122,975	$	116,690

~~2.1~~ Exhibit Number	~~Stock Purchase Agreement dated September 15, 2006, by and between CHDT Corporation, and Capstone Industries, Inc.~~ Description of Exhibit	Filed with this Report	Incorporated by ~~reference~~Reference to ~~Exhibit 2.1 to the~~ Form ~~8-K filed by CHDT Corporation with the Commission on September 18, 2006.~~or Schedule	Date of Filing	SEC File No.
3.1	Articles of Incorporation of CHDT Corp. (former name of Capstone Companies, Inc.)		X Incorporated by reference to Annex G to ~~the Special Meeting~~ Proxy Statement ~~Dated April 15, 2004,~~ filed by CHDT ~~Corporation with the Commission on~~ Corp.	April 20, ~~2004.~~2004	000-28831
3.1.1	Amended and Restated Articles of ~~Incorporation~~incorporation of Capstone Companies, Inc., dated July 14, 2009		X- Incorporated by reference to Exhibit 3.1 to the Form 8-K ~~filed~~ by Capstone Companies, Inc. ~~with the Commission on~~	July 14, ~~2009.~~2009	000-28831
3.1.1.1	Amendment to ~~Amended and Restated~~ Articles of Incorporation of Capstone Companies, Inc., ~~as filed with Florida Secretary of State on~~dated June 8, ~~2016. Incorporated~~2016		X-Incorporated by reference to Exhibit 3.1 to the Form 8-K filed by Capstone Companies, Inc. ~~with the Commission on~~	June ~~6, 2016.~~8, 2016	000-28831
3.2	~~By-laws~~By-Laws of CHDT Corp. (former name of Capstone Companies, Inc.)		X- Incorporated by reference to Annex H ~~the Special Meeting~~of Proxy Statement ~~Dated April 15, 2004,~~ filed by CHDT ~~Corporation with the Commission on~~ Corp.	April 20, ~~2004.~~2004	000-28831
~~3.3~~4.6	~~Certificate~~Description of ~~Designation~~Securities of ~~the Preferences, Limitations, and Relative Rights of Series B Convertible Preferred Stock of CHDT Corp.~~Capstone Companies, Inc.		X- Incorporated by reference to Exhibit ~~99.2~~4.6 to ~~the~~ Form ~~8-K filed by CHDT Corp. with the Commission on November 6, 2007.~~10-K Annual Report for fiscal year ended December 31, 2019	March 30, 2020	000-28831

10.1	~~2005 Equity Plan of CHDT Corp.~~Employment Agreement between Capstone Companies, Inc. and Stewart Wallach, dated February 5, 2020		X- Incorporated by reference to Exhibit ~~10.6~~10.1 to ~~the~~ Form 10-K ~~filed by CHDT Corp.~~Annual Report for ~~the~~ fiscal year ended December 31, ~~2007 and filed with the Commission on~~ 2019	March ~~31, 2008.~~30, 2020	000-28831
10.2	Employment Agreement ~~by Capstone Companies, Inc. and Stewart Wallach, dated February 5, 2018. Incorrorated by reference to Exhibit 10.3 to Form 10-K filed by Capstone Companies, Inc with the Commission on March 28, 2018.~~
~~10.3~~	~~Employment Agreement by~~between Capstone Companies, Inc. and James McClinton, dated February 5, ~~2018. Incorrorated by reference to Exhibit 10.4 to Form 10-K filed by Capstone Companies, Inc with the Commission on March 28, 2018.~~
~~10.4~~2020		~~Promissory Note, dated June 27, 2016, by Neil Singer in favor of Capstone Companies, Inc.~~X- Incorporated by reference to Exhibit 10.2 to ~~the~~ Form ~~8-K filed by Capstone Companies, Inc. with the Commission on July 12, 2016.~~10-K Annual Report for fiscal year ended December 31, 2019	March 30, 2020	000-28831
~~10.5~~	~~Subordination Agreement dated June 27, 2016, by Capstone Companies, Inc. and Koch Minerals, LLC. Incorporated by reference to Exhibit~~ 10.3 ~~to the Form 8-K filed by Capstone Companies, Inc. with the Commission on July 12, 2016.~~
~~10.6~~	Securities Purchase Agreement, dated June 27, 2016, by Capstone Companies, Inc., Neil Singer and AC Kinetics, Inc. Incorporated by reference to Exhibit 10.4 to the Form 8-K filed by Capstone Companies, Inc. with the Commission on July 12, 2016.
~~10.7~~	Termination Agreement, dated June 27, 2016, by Capstone Companies, Inc. and AC Kinetics, Inc. Incorporated by reference to Exhibit 10.5 to the Form 8-K filed by Capstone Companies, Inc. with the Commission on July 12, 2016.
~~10.8~~	Financing Agreement by Capstone Industries, Inc. and Sterling Capital Funding, dated September 8, 2010. Incorrorated by reference to Exhibit 10.11 to Form 10-K filed by Capstone Companies, Inc with the Commission on March 28, 2018.
~~10.9~~	Amendment to Financing Agreement by Capstone Industries, Inc. and Sterling Capital Funding, dated ~~November~~Nov. 5, ~~2015. Incorrorated~~2015		X-- Incorporated by reference to Exhibit 10.12 to Form 10-K Annual Report filed by Capstone Companies, ~~Inc with the Commission on~~ Inc. for fiscal year ended December 31, 2017	March 28, ~~2018.~~2018	000-28831

~~10.10~~10.4	Validity Guaranty to Financing Agreement by Capstone Industries, Inc. and Sterling Capital Funding, dated June 4, ~~2016. Incorrorated~~2016	X- Incorporated by reference to Exhibit 10.13 to Form 10-K Annual Report filed by Capstone Companies, ~~Inc with the Commission on~~ Inc. for fiscal year ended December 31, 2017	March 28, ~~2018.~~2018	000-28831
~~10.11~~10.5	Trademark License with Hoover Inc., dated ~~January~~Jan. 29, ~~2015. Incorrorated~~2015	X- Incorporated by reference to Exhibit 10.14 to Form 10-K Annual Report filed by Capstone Companies, ~~Inc with the Commission on~~ Inc. for fiscal year ended December 31, 2017	March 28, ~~2018.~~2018	000-28831
~~10.12~~10.6	Amendment to Trademark License with Hoover Inc., dated ~~January~~Jan. 29, ~~2016. Incorrorated~~2016	X- Incorporated by reference to Exhibit 10.15 to Form 10-K Annual Report filed by Capstone Companies, ~~Inc with the Commission on~~ Inc. for fiscal year ended December 31, 2017	March 28, ~~2018.~~2018	000-28831
~~10.13~~	~~Trademark License with The Duracell Company dated December 8, 2016. Incorrorated by reference to Exhibit 10.16 to Form 10-K filed by Capstone Companies, Inc with the Commission on March 28, 2018.~~
~~10.14~~10.07	Addendum ~~dated January 1, 2019~~ to Consulting Agreement by Capstone ~~Industries,~~Companies, Inc. and George ~~Wolf. ^~~Wolf, dated Jan. 1, 2019	X- Incorporated by reference to Exhibit 10.17 to Form 10-K Annual Report filed by Capstone Companies, Inc. for fiscal year ended December 31, 2019	March 30, 2020	000-28831

~~10.15~~10.08	Financial Services Agreement ~~dated March 1, 2017,~~ by Capstone Companies, Inc. and Wilmington Capital Securities, ~~LLC. Incorrorated~~LLC, dated March 1, 2017	X- Incorporated by reference to Exhibit 10.18 to Form 10-K Annual Report filed by Capstone Companies, ~~Inc with the Commission on~~ Inc. for fiscal year ended December 31, 2017	March 28, ~~2018.~~2018	000-28831
14	Code of Ethics ~~Policy.~~Policy	X- Incorporated by reference to Exhibit 14 ~~of the~~to Form 8-K filed by Capstone Companies, Inc. ~~Form 8-K, as filed with the Commission on~~	March 22, ~~2018.~~2018	000-28831
21.1	List of Subsidiaries of Capstone Companies, Inc. ^	X- Incorporated by reference to Exhibit 21.1 to Form 10-K Annual Report filed by Capstone Companies, Inc. for fiscal year ended December 31, 2019	March 30, 2020	000-28831

31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Stewart Wallach, Chief Executive ~~Officer^~~Officer		X- Incorporated by reference to Exhibit 31.1 to Form 10-K Annual Report filed by Capstone Companies, Inc. for fiscal year ended December 31, 2019	March 30, 2020	000-28831
31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by ~~Gerry~~James McClinton, Chief Financial Officer ~~and Chief Operating Officer^~~		X- Incorporated by reference to Exhibit 31.2 to Form 10-K Annual Report filed by Capstone Companies, Inc. for fiscal year ended December 31, 2019	March 30, 2020	000-28831
~~32.1~~31.3	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Stewart Wallach, Chief Executive ~~Officer. ^~~Officer	X
~~32.2~~31.4	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by ~~Gerry~~James McClinton, Chief Financial Officer ~~& Chief Operating Officer^~~	X
32.1	Certification of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted under Section 906 of the Sarbanes-Oxley Act of 2002		X- Incorporated by reference to Exhibit 32.1 to Form 10-K Annual Report filed by Capstone Companies, Inc. for fiscal year ended December 31, 2019	March 30, 2020	000-28831
32.2	Certification of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted under Section 906 of the Sarbanes-Oxley Act of 2002		X- Incorporated by reference to Exhibit 32.2 to Form 10-K Annual Report filed by Capstone Companies, Inc. for fiscal year ended December 31, 2019	March 30, 2020	000-28831

~~101.INS~~	~~XBRL Instance Document~~
~~101.SCH~~	~~XBRL Taxonomy Extension Schema Document~~
~~101.CAL~~	~~XBRL Taxonomy Extension Calculation Linkbase Document~~
~~101.DEF~~	~~XBRL Taxonomy Extension Definition Linkbase Document~~
~~101.LAB~~	~~XBRL Taxonomy Extension Label Linkbase Document~~
~~101.PRE~~	~~XBRL Taxonomy Extension Presentation Linkbase Document~~

~~/S/ Kaufman, Rossin & Co., P.A.~~

~~We have served as the Company’s auditor since 2018.~~

~~Boca Raton, Florida~~

~~April 1, 2019~~

CAPSTONE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

	December 31,			December 31,
	2018			2017
Assets:
Current Assets:
Cash	$	3,822,359		$	3,668,196
Accounts receivable, net		64,511			4,367,721
Inventories		27,497			140,634
Prepaid expenses		243,876			239,150
Income tax refundable		220,207			-
Total Current Assets		4,378,450			8,415,701

Property and Equipment:
Computer equipment and software		51,195			9,895
Machinery and equipment		170,567			318,801
Furniture and fixtures		6,828			5,665
Less: Accumulated depreciation		(152,870	)		(266,997	)
Total Property & Equipment		75,720			67,364

Other Non-current Assets:
Deposit		102,805			13,616
Goodwill		1,936,020			1,936,020
Total Other Non-current Assets		2,038,825			1,949,636
Total Assets	$	6,492,995		$	10,432,701

Liabilities and Stockholders’ Equity:
Current Liabilities:
Accounts payable and accrued liabilities	$	461,446		$	2,733,516
Deferred rent incentive		108,844			-
Income tax payable		11,694			624,782
Total Current Liabilities		581,984			3,358,298

Long Term Liabilities:
Deferred tax liabilities		12,000			251,000
Total Long Term Liabilities		12,000			251,000
Total Liabilities		593,984			3,609,298

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, issued 47,046,364 shares		4,704			4,704
Additional paid-in capital		7,092,219			7,005,553
Accumulated deficit		(1,197,912	)		(186,854	)
Total Stockholders' Equity		5,899,011			6,823,403
Total Liabilities and Stockholders’ Equity	$	6,492,995		$	10,432,701

The accompanying notes are an integral part of these consolidated financial statements.

CAPSTONE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS


	For the Years Ended
	December 31,
	2018			2017

Revenues, net	$	12,830,324		$	36,752,813
Cost of sales		(9,936,745	)		(27,910,869	)
Gross Profit		2,893,579			8,841,944

Operating Expenses:
Sales and marketing		915,205			2,266,601
Compensation		1,502,590			1,612,480
Professional fees		510,022			549,844
Product development		518,969			376,981
Other general and administrative		691,466			805,077
Total Operating Expenses		4,138,252			5,610,983

Operating Income (Loss)		(1,244,673	)		3,230,961

Other Expenses:
Miscellaneous expense, net		(55,360	)		-
Interest expense		-			(122,091	)
Total Other Expenses		(55,360	)		(122,091	)

Income (Loss) Before Tax Provision (Benefit)		(1,300,033	)		3,108,870

Provision (Benefit) for Income Tax		(288,975	)		1,029,694

Net Income (Loss)	$	(1,011,058	)	$	2,079,176

Net Income (Loss) per Common Share
Basic	$	(0.021	)	$	0.044
Diluted	$	(0.021	)	$	0.044

Weighted Average Shares Outstanding
Basic		47,046,364			47,007,296
Diluted		47,046,364			47,188,450

The accompanying notes are an integral part of these consolidated financial statements.

CAPSTONE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2018 AND 2017

	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, 2016		-	$	-		-	$	-		-	$	-		48,132,664		$	4,813		$	7,411,172		$	(2,266,030	)	$	5,149,955



Stock options for compensation		-		-		-		-		-		-		-			-			95,469			-			95,469
Repurchase of shares from Involve L.L.C.		-		-		-		-		-		-		(1,666,667	)		(167	)		(749,833	)		-			(750,000	)
Shares issued to payoff working capital loan and exercise warrants		-		-		-		-		-		-		580,367			58			248,745			-			248,803
Net Income		-		-		-		-		-		-		-			-			-			2,079,176			2,079,176
Balance at December 31, 2017		-		-		-		-		-		-		47,046,364			4,704			7,005,553			(186,854	)		6,823,403


Stock options for compensation		-		-		-		-		-		-		-			-			86,666			-			86,666
Net (Loss)		-		-		-		-		-		-		-			-			-			(1,011,058	)		(1,011,058	)
Balance at December 31, 2018		-	$	-		-	$	-		-	$	-		47,046,364		$	4,704		$	7,092,219		$	(1,197,912	)	$	5,899,011

The accompanying notes are an integral part of these consolidated financial statements.

CAPSTONE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the Years Ended
	December 31,
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)	$	(1,011,058	)	$	2,079,176
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		45,510			80,940
Accrued interest on note receivable		-			26,887
Stock based compensation expense		86,666			95,469
Provision (Benefit) for deferred income tax		(239,000	)		35,000
Increase (decrease) in accrued sales allowance		170,833			(1,006,731	)
Decrease in accounts receivable, net		4,132,377			1,090,898
Decrease in inventories		113,137			225,696
Increase (decrease) in prepaid expenses		(4,726	)		90,869
(Increase) in deposits		(89,189	)		(1,423	)
(Decrease) increase in accounts payable and accrued liabilities		(2,272,070	)		55,306
Increase in deferred rent incentive		108,844			-
(Decrease) increase in income tax payable		(613,088	)		623,194
(Increase) in income tax refundable		(220,207	)		-
(Decrease) increase in accrued interest on notes payable		-			56,554
Net cash provided by operating activities		208,029			3,451,835

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(53,866	)		(47,587	)
Net cash (used in) investing activities		(53,866	)		(47,587	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable		-			30,559,312
Repayments of notes payable		-			(30,559,312	)
Repurchase of shares from Involve, LLC		-			(250,000	)
Warrants issued		-			7,500
Repayments of notes and loans payable to related parties		-			(1,139,680	)
Net cash (used in) financing activities		-			(1,382,180	)

Net Increase in Cash		154,163			2,022,068
Cash at Beginning of Period		3,668,196			1,646,128
Cash at End of Period	$	3,822,359		$	3,668,196

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	-		$	418,925
Income taxes	$	865,000		$	371,500

Non-cash financing and investing activities:

Shares issued in satisfaction of loan payable to related party	$	-		$	240,900

Note Receivable used to repurchase shares from Involve L.L.C.	$	-		$	500,000

The accompanying notes are an integral part of these consolidated financial statements.

~~Computer equipment~~	~~3 - 7 years~~
~~Computer software~~	~~3 - 7 years~~
~~Machinery and equipment~~	~~3 - 7 years~~
~~Furniture and fixtures~~	~~3 - 7 years~~

	Year Ended December 31, 2018	Year Ended December 31, 2017
Basic weighted average shares outstanding	47,046,364	47,007,296
Dilutive options	-	181,154
Diluted weighted average shares outstanding	47,046,364	47,188,450

	Net Revenue %						Gross Accounts Receivable
	Year Ended December 31,						Year Ended December 31,			Year Ended December 31,
	2018			2017			2018			2017
Customer A		60	%		57	%		$	-		$	2,259,769
Customer B		36	%		42	%			402,294			2,268,426
Total		96	%		99	%		$	402,294		$	4,528,195