UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

X[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, ~~2017~~2019

__TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _____________

Commission File Number: 000-28831

CAPSTONE COMPANIES, INC.

(Exact name of Registrant as specified in its charter)

Florida	84-1047159
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

~~350 Jim Moran Boulevard,~~431 Fairway Drive, Suite ~~120,~~200, Deerfield Beach, Florida ~~33442~~33441

(Address of principal executive offices)

(954) ~~570-8889~~252-3440

(Issuer's Telephone Number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [__] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web Site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [_]

Indicate by check mark whether the registrant is a large accelerated file, an accelerated filer, a non-accelerated filer, smaller reporting company, or emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [_]	Accelerated filer [_]
Non-accelerated filer [_] ~~(Do not check if a smaller reporting company)~~	Smaller reporting company [x]
Emerging Growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [_]

Securities registered pursuant to Section 12(b) of the Act: None

Title of Each Class of Securities	Trading Symbol(s)	Name of each exchange on which it is registered
None	Not applicable	Not applicable

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [_] Yes [X] No

~~State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practical date. As of September 30, 2017, there~~There were ~~47,046,364~~46,722,693 shares of the ~~issuer's Common Stock,~~registrant’s common stock, $0.0001 par value, ~~per share, issued and outstanding.~~outstanding as of November 1, 2019.

CAPSTONE COMPANIES, INC.

Quarterly Report ofon Form 10-Q

Three Months and Nine Months Ended September 30, ~~2017~~2019

TABLE OF CONTENTS

PART 1	FINANCIAL INFORMATION	3

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of ~~Operation~~Operations	1722
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3244
Item 4.	Controls and Procedures	3344

PART II	Other Information	3346

Item 1.	Legal Proceedings	3346
Item 1A.	Risk Factors	3346
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	3446
Item 3.	Defaults of Senior Securities	3446
Item 4.	Mine Safety Disclosures	3446
Item 5.	Other Information	3446
Item 6.	Exhibits	3447

CAPSTONE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30,			December 31,
	2019			2018
Assets:	(Unaudited)
Current Assets:
Cash	$	2,306,431		$	3,822,359
Accounts receivable, net		2,152,341			64,511
Inventories		-			27,497
Prepaid and other		136,517			243,876
Income tax refundable		220,207			220,207
Total Current Assets		4,815,496			4,378,450

Property and Equipment:
Computer equipment and software		53,819			51,195
Machinery and equipment		202,067			170,567
Furniture and fixtures		6,828			6,828
Less: Accumulated depreciation		(185,943	)		(152,870	)
Total Property & Equipment		76,771			75,720

Other Non-current Assets:
Deposit		26,893			102,805
Goodwill		1,936,020			1,936,020
Total Other Non-current Assets		1,962,913			2,038,825
Total Assets	$	6,855,180		$	6,492,995

Liabilities and Stockholders’ Equity:
Current Liabilities:
Accounts payable and accrued liabilities	$	915,450		$	461,446
Deferred rent incentive		33,529			108,844
Income tax payable		11,694			11,694
Total Current Liabilities		960,673			581,984

Long Term Liabilities:
Deferred tax liabilities		-			12,000
Total Long Term Liabilities		-			12,000
Total Liabilities		960,673			593,984

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 46,752,419 shares at September 30, 2019 and 47,046,364 shares at December 31, 2018		4,677			4,704
Additional paid-in capital		7,076,513			7,092,219
Accumulated deficit		(1,186,683	)		(1,197,912	)
Total Stockholders' Equity		5,894,507			5,899,011
Total Liabilities and Stockholders’ Equity	$	6,855,180		$	6,492,995

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

CAPSTONE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

September 30, December 31,
2017 2016
(Unaudited)
Assets:
Current Assets:
   Cash $ 3,240,721 $ 1,646,128
   Accounts receivable, net 4,660,203 4,449,179
   Inventory 142,065 366,330
   Prepaid expenses 349,410 330,020
     Total Current Assets 8,392,399 6,791,657

Property and Equipment:
   Computer equipment and software 19,767 19,767
   Machinery and equipment 371,323 325,750
   Furniture and fixtures 5,665 5,665
   Less: Accumulated depreciation (304,176 ) (250,465 )
     Total Property & Equipment 92,579 100,717

Other Non-current Assets:
   Deposit 13,616 12,193
   Note receivable - 526,887
   Goodwill 1,936,020 1,936,020
      Total Other Non-current Assets 1,949,636 2,475,100
         Total Assets $ 10,434,614 $ 9,367,474

Liabilities and Stockholders' Equity:
Current Liabilities:
   Accounts payable and accrued liabilities $ 2,122,220 $ 2,678,210
   Income tax payable 404,088 1,588
   Notes and loans payable to related parties 688,384 1,321,721
     Total Current Liabilities 3,214,692 4,001,519

Long Term Liabilities:
   Deferred tax liabilities 362,000 216,000
     Total Long Term Liabilities 362,000 216,000
     Total Liabilities 3,576,692 4,217,519

Commitments and Contingencies (Note 6)

Stockholders' Equity:
   Preferred Stock, Series A, par value $.001 per share, authorized 6,666,667 shares, issued -0- shares - -
   Preferred Stock, Series B-1, par value $.0001 per share, authorized 3,333,333 shares, issued -0- shares - -
   Preferred Stock, Series C, par value $1.00 per share, authorized 67 shares, issued -0- shares - -
   Common Stock, par value $.0001 per share, authorized 56,666,667 shares, issued 47,046,364 shares and 48,132,664 shares 4,704 4,813
   Additional paid-in capital 6,976,678 7,411,172
   Accumulated deficit (123,460 ) (2,266,030 )
     Total Stockholders' Equity 6,857,922 5,149,955
     Total Liabilities and Stockholders' Equity $ 10,434,614 $ 9,367,474

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

CAPSTONE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018

Revenues, net	$	5,354,190		$	5,726,145		$	11,740,814		$	11,889,520
Cost of sales		(4,139,214	)		(4,395,761	)		(9,165,140	)		(9,179,145	)
Gross Profit		1,214,976			1,330,384			2,575,674			2,710,375

Operating Expenses:
Sales and marketing		102,193			359,715			329,463			838,323
Compensation		381,795			359,539			1,138,960			1,104,396
Professional fees		112,687			102,532			353,293			394,320
Product development		81,060			95,661			260,823			385,994
Other general and administrative		169,572			232,888			490,835			573,852
Total Operating Expenses		847,307			1,150,335			2,573,374			3,296,885

Operating Income (Loss)		367,669			180,049			2,300			(586,510	)

Other Income (Expenses):
Other Income (Expense), Net		2,610			(1,960	)		135			145,330
Interest Expense		(3,206	)		-			(3,206	)		-
Total Other Income (Expenses)		(596	)		(1,960	)		(3,071	)		145,330

Income (Loss) Before Tax Benefit		367,073			178,089			(771	)		(441,180	)

Provision (Benefit) for Income Tax		-			6,000			(12,000	)		(71,000	)

Net Income (Loss)	$	367,073		$	172,089		$	11,229		$	(370,180	)

Net Income (Loss) per Common Share
Basic	$	0.01		$	0.00		$	0.00		$	(0.01	)
Diluted	$	0.01		$	0.00		$	0.00		$	(0.01	)

Weighted Average Shares Outstanding
Basic		46,882,538			47,046,364			46,874,256			47,046,364
Diluted		46,882,538			47,046,364			46,874,256			47,046,364

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

CAPSTONE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

For the Three Months Ended For the Nine Months Ended
September 30,   September 30,
2017 2016 2017 2016

Revenues, net $ 13,817,909 $ 11,692,146 $ 30,789,653 $ 22,672,551
Cost of sales (10,707,657 ) (8,841,148 ) (23,457,070 ) (17,079,271 )
        Gross Profit 3,110,252 2,850,998 7,332,583 5,593,280

Operating Expenses:
  Sales and marketing 928,321 488,057 1,869,596 903,888
  Compensation 351,915 325,283 1,065,621 949,753
  Professional fees 109,257 111,339 429,440 286,681
  Product development 80,991 127,367 219,464 227,552
  Other general and administrative 189,780 195,046 572,461 501,458
       Total Operating Expenses 1,660,264 1,247,092 4,156,582 2,869,332

Net Operating Income 1,449,988 1,603,906 3,176,001 2,723,948

Other Income (Expense):
  Interest Income (12,945 ) 13,664 - 13,664
  Interest expense (56,514 ) (103,363 ) (113,431 ) (227,522 )
     Total Other Income (Expense) (69,459 ) (89,699 ) (113,431 ) (213,858 )

Income Before Tax Provision 1,380,529 1,514,207 3,062,570 2,510,090

    Provision for Income Tax (390,000 ) (24,412 ) (920,000 ) (37,012 )

Net Income $ 990,529 $ 1,489,795 $ 2,142,570 $ 2,473,078

Net Income per Common Share
Basic $ 0.021 $ 0.031 $ 0.046 $ 0.051
Diluted $ 0.021 $ 0.031 $ 0.045 $ 0.051

Weighted Average Common Shares Outstanding
Basic 46,660,456 48,132,664 46,989,940 48,132,664
Diluted 47,152,574 48,371,158 47,462,664 48,320,017

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

CAPSTONE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY



	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, 2018		-	$	-		-	$	-		-	$	-		47,046,364		$	4,704		$	7,092,219		$	(1,197,912	)	$	5,899,011
Stock options for compensation		-		-		-		-		-		-		-			-			11,025			-			11,025
Repurchase of shares		-		-		-		-		-		-		(45,470	)		(3	)		(8,612	)		-			(8,615	)
Net (Loss)		-		-		-		-		-		-		-			-			-			(345,340	)		(345,340	)
Balance at March 31, 2019		-		-		-		-		-		-		47,000,894			4,701			7,094,632			(1,543,252	)		5,556,081
(Unaudited)

Stock options for compensation		-		-		-		-		-		-		-			-			11,025			-			11,025
Repurchase of shares		-		-		-		-		-		-		(168,530	)		(17	)		(27,246	)		-			(27,263	)
Net (Loss)		-		-		-		-		-		-		-			-			-			(10,504	)		(10,504	)
Balance at June 30, 2019		-		-		-		-		-		-		46,832,364		$	4,684		$	7,078,411		$	(1,553,756	)	$	5,529,339
(Unaudited)

Stock options for compensation		-		-		-		-		-		-		-			-			9,732			-			9,732
Repurchase of shares		-		-		-		-		-		-		(79,945	)		(7	)		(11,630	)		-			(11,637	)
Net Income		-		-		-		-		-		-		-			-			-			367,073			367,073
Balance at September 30, 2019		-	$	-		-	$	-		-	$	-		46,752,419		$	4,677		$	7,076,513		$	(1,186,683	)	$	5,894,507
(Unaudited)


Balance at December 31, 2017		-	$	-		-	$	-		-	$	-		47,046,364		$	4,704		$	7,005,553		$	(186,854	)	$	6,823,403
Stock options for compensation		-		-		-		-		-		-		-			-			28,875			-			28,875
Net (Loss)		-		-		-		-		-		-		-			-			-			(190,641	)		(190,641	)
Balance at March 31, 2018		-		-		-		-		-		-		47,046,364			4,704			7,034,428			(377,495	)		6,661,637
(Unaudited)

Stock options for compensation		-		-		-		-		-		-		-			-			28,874			-			28,874
Net (Loss)		-		-		-		-		-		-		-			-			-			(351,628	)		(351,628	)
Balance at June 30, 2018		-		-		-		-		-		-		47,046,364		$	4,704		$	7,063,302		$	(729,123	)	$	6,338,883
(Unaudited)

Stock options for compensation		-		-		-		-		-		-		-			-			17,892			-			17,892
Net Income		-		-		-		-		-		-		-			-			-			172,089			172,089
Balance at September 30, 2018		-	$	-		-	$	-		-	$	-		47,046,364		$	4,704		$	7,081,194		$	(557,034	)	$	6,528,864
(Unaudited)
The accompanying notes are an integral part of these condensed consolidated financial statements.

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

For the Nine Months Ended
September 30,
2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES:

   Net income $ 2,142,570 $ 2,473,078
Adjustments necessary to reconcile net income to net cash provided by (used in) operating activities:
      Depreciation and amortization 55,725 44,400
      Accrued interest on note receivable 26,887 (13,654 )
      Stock based compensation expense 66,594 46,581
      Provision for deferred income tax 146,000 -
      Accrued sales allowance (831,731 ) (94,203 )
     (Increase) decrease in accounts receivable 731,532 (6,755,174 )
     (Increase) decrease in inventory 224,265 (275,049 )
     (Increase) decrease in prepaid expenses (20,813 ) 43,764
      Increase (decrease) in accounts payable and accrued liabilities (263,912 ) 958,580
     (Decrease) in accrued interest on notes payable (135,337 ) (168,492 )
  Net cash provided by (used in) operating activities 2,141,780 (3,740,169 )

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (47,587 ) (15,501 )
Net cash (used in) investing activities (47,587 ) (15,501 )

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 30,559,312 19,393,834
Repayments of notes payable (30,559,312 ) (15,049,345 )
Repurchase of shares from Involve, LLC (250,000 ) -
Warrant issued 7,500 -
Proceeds from notes and loans payable to related parties - 860,000
Repayments of notes and loans payable to related parties (257,100 ) (1,453,946 )
Net cash provided by (used in) financing activities (499,600 ) 3,750,543

Net Increase (decrease) in Cash and Cash Equivalents 1,594,593 (5,127 )
Cash and Cash Equivalents at Beginning of Period 1,646,128 364,714
Cash and Cash Equivalents at End of Period $ 3,240,721 $ 359,587

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest 221,881 $ 396,014
Income taxes $ 371,500 $ 31,912

Non-cash financing and investing activities:
Sale of Investment for Note receivable $ - $ 500,000

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

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

CAPSTONE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	For the Nine Months Ended
	September 30,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:

Net Income (Loss)	$	11,229		$	(370,180	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		33,072			32,457
Stock based compensation expense		31,782			75,641
Provision (benefit) for deferred income tax		(12,000	)		32,000
Increase (decrease) in accrued sales allowance		(106,448	)		153,025
(Increase) decrease in accounts receivable, net		(1,981,382	)		1,827,100
Decrease in inventories		27,497			132,318
Decrease in prepaid and other		107,359			74,805
(Increase) decrease in deposits		75,912			(1,139	)
Increase (decrease) in accounts payable and accrued liabilities		454,004			(932,262	)
Decrease in deferred rent incentive		(75,315	)		-
Decrease in income tax payable		-			(613,088	)
Increase in income tax refundable		-			(354,912	)
Net cash provided by (used in) operating activities		(1,434,290	)		55,765

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(34,123	)		(130,665	)
Net cash used in investing activities		(34,123	)		(130,665	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of Shares		(47,515	)		-
Net cash used in financing activities		(47,515	)		-

Net Decrease in Cash		(1,515,928	)		(74,900	)
Cash at Beginning of Period		3,822,359			3,668,196
Cash at End of Period	$	2,306,431		$	3,593,296

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	3,206		$	-
Income taxes	$	-		$	865,000

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

CAPSTONE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of accounting policies for Capstone Companies, Inc. ("CAPC", "Capstone," “we,” “our,” “us,” or the "Company" ~~or "Capstone"~~), a Florida corporation, ~~(formerly, "CHDT Corporation")~~ and its wholly-owned subsidiaries is presented to assist in understanding the Company's consolidated financial statements. The accounting policies conform to accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently applied in the preparation of the consolidated financial statements.

Organization and Basis of Presentation

The condensed consolidated financial statements contained in this report are unaudited. In the opinion of management, the condensed consolidated financial statements include all adjustments, which are of a normal recurring nature, necessary to present fairly the ~~Company's~~Company’s financial position as of September 30, ~~2017~~2019 and results of operations and cash flows for the three months and nine months ended September 30, ~~2017~~2019 and ~~2016.~~2018. All ~~significant~~material intercompany accounts and transactions are eliminated in consolidation. These condensed consolidated financial statements and notes are presented in accordance with the rules and regulations of the United States Securities and Exchange Commission ~~("SEC"~~(“SEC”) relating to interim financial statements and in conformity with U.S. GAAP. Certain information and note disclosures have been condensed or omitted in the condensed financial statements pursuant to SEC rules and regulations, although the Company believes that the disclosures made herein are adequate to make the information not misleading. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes in the ~~Company's~~Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016~~2018 (the ~~"2016~~“2018 Annual ~~Report"~~Report”).

The operating results for any interim period are not necessarily indicative of the operating results to be expected for any other interim period or the full fiscal year.

Nature of Business

Since the beginning of fiscal year 2007, the Company has been primarily engaged in the business of developing, marketing and selling ~~consumer~~home LED products through national and regional retailers ~~and distributors~~ in North ~~America.~~America and in certain overseas markets. The Company’s products are targeted for applications such as home indoor and outdoor lighting and have different functionalities to meet consumer’s needs. The Company has developed a smart interactive mirror for residential use as a variant line for its lighting products, which should be ready for market introduction in early 2020. The development of the smart interactive mirror is part of the Company’s strategic effort to find new product lines to replace or supplement existing products that are nearing or at the end of their product life cycle. These products are offered either under the Capstone currently operates in eight primary product categories: Induction Charged Power Failure Lights; LED Night Lights and Power Failure Lights; Motion Sensor Lights; Wireless Remote-Control Outlets; Wireless Remote-Control Accent Lights; Dual Power Solar Lights; Outdoor Light Fixtures and Power Control Light Bulbs. brand or licensed brands.

The ~~Company's~~Company’s products are typically manufactured in China by ~~third-party~~contract manufacturing companies.

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

Accounts Receivable

For product revenue, the Company invoices its customers at the time of shipment for the sales value of the product shipped. Accounts receivable are recognized at the amount expected to be collected and are not subject to any interest or finance charges. The Company does not have any off-balance sheet credit exposure related to any of its customers. As of September 30, 2019, and December 31, 2018, accounts receivable serves as collateral when the Company borrows against its credit facilities.

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Allowance for Doubtful Accounts

The Company evaluates the collectability of accounts receivable based on a combination of factors. In cases where the Company becomes aware of circumstances that may impair a specific customer’s ability to meet its financial obligations subsequent to the original sale, the Company will recognize an allowance against amounts due, and thereby reduce the net recognized receivable to the amount the Company reasonably believes will be collected. For all other customers, the Company recognizes an allowance for doubtful accounts based on the length of time the receivables are past due and consideration of other factors such as industry conditions, the current business environment and the Company’s historical payment experience. An allowance for doubtful accounts is established as losses are estimated to have occurred through a provision for bad debts charged to earnings. This evaluation is inherently subjective and requires estimates that are susceptible to significant revisions as more information becomes available.

As of September 30, 2019, and December 31, 2018, management has determined that accounts receivable are fully collectible. As such, management has not recorded an allowance for doubtful accounts.

The following table summarizes the components of Accounts Receivable, net:

	September 30,				December 31,
	2019				2018
Trade Accounts Receivables at period end		$	2,410,787			$	429,405
Reserve for estimated marketing allowances, cash discounts and other incentives			(258,446	)			(364,894	)
Total Accounts Receivable, net		$	2,152,341			$	64,511

The following table summarizes the changes in the Company's reserve for marketing allowances, cash discounts and other incentives which is included in net accounts receivable:

	September 30,			December 31,
	2019			2018
Balance at beginning of the period	$	(364,894	)	$	(194,061	)
Accrued allowances		(85,020	)		(191,468	)
Reversal of prior year accrued allowances		-			1,749
Expenditures		191,468			18,886
Balance at period-end	$	(258,446	)	$	(364,894	)

Marketing allowances include the cost of underwriting an instant rebate coupon or a target markdown allowance on a specific product. Cash discounts represent discounts offered to the retailer off outstanding accounts receivable in order to initiate early payment.

Inventories

The Company's inventory, recorded at lower of cost (first-in, first-out) or net realizable value, consists of finished goods for resale by ~~Capstone, totaling $142,065 and $366,330 at September 30, 2017 and December 31, 2016, respectively.~~Capstone.

Prepaid Expenses

The ~~Company's~~Company’s prepaid expenses consist primarily of deposits on inventory purchases for future orders as well as prepaid ~~advertising. As of September 30, 2017,~~insurance, trade show and ~~December 31, 2016, the Company has $93,010 and $186,019, respectively, in prepaid advertising credits included in prepaid expenses on the consolidated balance sheets.~~subscription expense.

~~Net Income (Loss)~~Leases

Lease incentives are amortized utilizing the straight-line method over the life of the lease.

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Earnings Per Common Share

Basic earnings per common share ~~were~~are computed by dividing net ~~income or loss~~income(loss) by the weighted average number of shares of common stock outstanding for the reporting period. Diluted earnings per share reflects the potential dilution that ~~could~~would occur if securities or other contracts to issue common stock were exercised or converted into common stock. For calculation of the diluted net income per share, the basic weighted average number of shares is increased by the dilutive effect of stock options and warrants using the treasury stock method. In periods where losses are reported, the weighted average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. AtAs of September 30, ~~2017~~2019 and ~~2016,~~2018, the total number of potentially dilutive common stock ~~equivalents excluded~~ from common stock options amounted to 1,023,334 and 993,335 shares, respectively. These shares were not included in the computation of diluted earnings per share ~~calculation~~for the three months and nine months ended September 30, 2019 and September 30, 2018 because their effect was 0anti-dilutive.

During the nine months ended September 30, 2019, 156,667 stock options expired.

Basic weighted average shares outstanding is reconciled to diluted weighted shares outstanding as follows:

	3 months ended		3 months ended
	September 30, 2019		September 30, 2018
Basic weighted average shares outstanding		46,882,538		47,046,364
Dilutive options		-		-
Diluted weighted average shares outstanding		46,882,538		47,046,364

	9 months ended		9 months ended
	September 30, 2019		September 30, 2018
Basic weighted average shares outstanding		46,874,256		47,046,364
Dilutive options		-		-
Diluted weighted average shares outstanding		46,874,256		47,046,364

Revenue Recognition

The Company generates revenue from developing, marketing and ~~5,818,700 respectively.~~selling consumer lighting products through national and regional retailers. The Company’s products are targeted for applications such as home indoor and outdoor lighting and have different functionalities. Capstone currently operates in the consumer lighting products category in the Unites States and in certain overseas markets. These products may be offered either under the Capstone brand or licensed brands.

A sales contract occurs when the customer-retailer submits a purchase order to buy a specific product, a specific quantity, at an agreed-fixed price, within typically a six-month shipping window, from a specific location and on agreed payment terms. The selling price in all of our customers’ orders has been previously negotiated and agreed to including any applicable discount prior to receiving the customer’s purchase order. The stated unit price in the customer’s order has already been determined and is fixed at the time of invoicing.

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

~~Basic weighted average shares outstanding~~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 ~~reconciled~~fixed, when the product title and risk of loss for that order has passed to ~~diluted weighted shares outstanding as follows:~~

3 months ended
September 30, 2017

3 months ended
September 30, 2016

Basic weighted average shares outstanding 46,660,456 48,132,664
Dilutive warrants 313,211 238,494
Dilutive options 178,907 -
Diluted weighted average shares outstanding 47,152,574 48,371,158

9 months ended
September 30, 2017

9 months ended
September 30, 2016

Basic weighted average shares outstanding 46,989,940 48,132,664
Dilutive warrants 308,219 187,353
Dilutive options 164,505 -
Diluted weighted average shares outstanding 47,462,664 48,320,017

~~Revenue Recognition~~the customer, and collection of the invoice is reasonably assured. This means that the product ordered and to be shipped has gone through quality assurance inspection, customs and commercial documentation preparation, the goods have been delivered, title transferred to the customer and confirmed by a signed cargo receipt or bill of lading. Only at the time of shipment when all performance obligations have been satisfied will the judgement be made to invoice the customer and complete the sales contract.

~~Product~~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 ~~when an agreement of sale exists, product delivery has occurred, pricing is fixed or determinable, and collection is reasonably assured.~~

~~Allowances for sales returns, rebates and discounts are recorded as a component of net sales in~~during the period the ~~allowances~~related sale is recorded. These costs are ~~recognized. In addition, accrued liabilities contained in~~recorded within sales and marketing expenses.

The following table disaggregates net revenue by major source:

	For the 3 Months Ended September 30, 2019									For the 3 Months Ended September 30, 2018
	Capstone Brand			License Brands			Total Consolidated			Capstone Brand			License Brands			Total Consolidated
Lighting Products- U.S.		$	4,980,249		$	-		$	4,980,249		$	2,697,694		$	2,939,613		$	5,637,307
Lighting Products-International			373,941			-			373,941			65,009			23,829			88,838
Total Revenue		$	5,354,190		$	-		$	5,354,190		$	2,762,703		$	2,963,442		$	5,726,145

	For the 9 Months Ended September 30, 2019									For the 9 Months Ended September 30, 2018
	Capstone Brand			License Brands			Total Consolidated			Capstone Brand			License Brands			Total Consolidated
Lighting Products- U.S.		$	10,965,258		$	-		$	10,965,258		$	4,539,476		$	6,798,866		$	11,338,342
Lighting Products-International			775,556			-			775,556			261,983			289,195			551,178
Total Revenue		$	11,740,814		$	-		$	11,740,814		$	4,801,459		$	7,088,061		$	11,889,520

We provide our customers with limited rights of return for non-conforming product warranty claims. As a policy, the ~~accompanying consolidated balance sheets include accruals for estimated amounts of credits to be issued in future years based on potentially defective product, other~~Company does not accept product returns ~~and various allowances which are based on historical authorized returns.~~from customers, however occasionally as part of a customer's in store test for new product, we may receive back residual inventory.

~~On April 22, 2016,~~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 ~~received~~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 ~~approximately $479,000 from its major vendor to cover customer returns~~sales, or marketing expenses depending on the type of ~~products from~~ sales ~~that occurred in 2015~~incentives. Sales reductions for anticipated discounts, allowances and ~~promotional allowances for 2016 sales. A credit of $126,000 was applied to invoices due to the vendor~~other deductions are recognized during the period ~~ending June 30, 2016 and~~ the ~~remaining credit balance of $353,000 was applied to invoices due to the vendor during the period ended September 30, 2016.~~related revenue is recorded.

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

During the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, Capstone determined that ~~$47,741~~$0 and ~~$94,203,~~$1,749, respectively of previously accrued allowances were no longer required.

Warranties

The ~~reduction~~Company provides the end user with limited rights of ~~accrued~~return as a consumer assurance warranty on all products sold, stipulating that the product will function properly for the warranty period. The warranty period for all products is one year from the date of consumer purchase

Certain retail customers may receive an off-invoice based discount such as a defective/warranty allowance, that will automatically reduce the unit selling price at the time the order is invoiced. This allowance will be used by the retail customer to defray the cost of any returned units from consumers and negate the need to ship defective units back to the Company. Such allowances are charged to cost of sales at the time the order is invoiced.

For those customers that do not receive a discount off-invoice, the Company recognizes a charge to cost of sales for anticipated non-conforming returns based upon an analysis of historical product warranty claims and other relevant data. We evaluate our warranty reserves based on various factors including historical warranty claims assumptions about frequency of warranty claims, and assumptions about the frequency of product failures derived from our reliability estimates. Actual product failure rates that materially differ from our estimates could have a significant impact on our operating results. Product warranty reserves are reviewed each quarter and recognized at the time we recognize revenue.

The following table summarizes the changes in the Company's product warranty liabilities which are included in ~~net revenues for~~accounts payable and accrued liabilities in the ~~nine-month periods ended~~accompanying September 30, ~~2017~~2019, and ~~2016.~~December 31, 2018 balance sheets:

	September 30,			December 31,
	2019			2018
Balance at the beginning of the period	$	212,495		$	328,279
Amount accrued		206,633			59,981
Expenditures		(235,225	)		(175,765	)
Balance at period-end	$	183,903		$	212,495

Advertising and Promotion

Advertising and promotion costs, including advertising, public relations, and trade show expenses, are expensed as incurred and included in sales and marketing expenses. Advertising and promotion expense ~~were $67,497~~was $42,358 and ~~$65,406~~$0 for the three months and ~~$180,743~~$228,364 and ~~$138,846~~$77,650 for the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively.

Product Development

Our research and development team is located in Hong Kong working with our designated factories, and is responsible for the design, development, testing, and certification of new product releases. Our engineering efforts support product development across all products, as well as product testing for specific overseas markets. All research and development costs are charged to results of operations as incurred.

Product development expenses were $81,060 and $95,661, respectively for the three months and $260,823 and $385,994, respectively for the nine months ended September 30, 2019 and 2018.

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Shipping and Handling

The Company's shipping and handling costs are included in sales and marketing expenses and are recognized as an expense during the period in which they are incurred and amounted to ~~$48,952~~$4,871 and ~~$59,604~~$14,680 for the three months and ~~$95,290~~$20,533 and ~~$117,000~~$48,538 for the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively.

Accounts Payable and Accrued Liabilities

~~Accrued~~The following table summarizes the components of accounts payable and 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 returns and various allowances, amounting to $369,061 and $1,200,792 as of September 30, ~~2017~~2019, and December 31, ~~2016, respectively. These estimates could change significantly in the near term.~~2018, respectively:

~~NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)~~

	September 30,		December 31,
	2019		2018
Accounts payable	$	588,150	$	221,568
Accrued warranty reserve		183,903		212,495
Accrued compensation, benefits, commissions and marketing expenses		143,397		27,383
Total accrued liabilities		327,300		239,878
Total	$	915,450	$	461,446

Income Taxes

The Company is subject to income taxes in the U.S. federal jurisdiction, various state jurisdictions and certain other jurisdictions.

The Company accounts for income taxes under the provisions of Financial Accounting Standards Board ~~("FASB"~~(“FASB”) Accounting Standard Codification ~~("ASC"~~(“ASC”) 740 Income Taxes. ASC 740 requires recognition of deferred income tax assets and liabilities for the expected future income tax consequences, based on enacted tax laws, of temporary differences between the financial reporting and tax bases of assets and liabilities. The Company and its U.S. subsidiaries ~~intend to~~ file consolidated income tax returns.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement.

Tax regulations within each jurisdiction are subject to the interpretation of the relaxed tax laws and regulations and require significant judgement to apply. The Company is not subject to U.S. federal, state and local tax examinations by tax authorities generally for a period commencing from 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.

Stock-Based Compensation

The Company accounts for stock-based compensation under the provisions of ASC 718 Compensation- Stock Compensation, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options, based on estimated fair values.

ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of the grant using an option-pricing model. ~~The value of the portion of the award that is ultimately expected to vest is recognized as expenses over the requisite service periods in the Company's consolidated statements of income.~~

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period.

In conjunction with the adoption of ASC 718, the Company adopted the straight-line single option method of attributing the value of stock-based compensation expense.

The Company accounts for forfeitures as they occur.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and ~~liabilities~~expenses and the disclosure of contingent assets and liabilities. The Company evaluates its estimates on an ongoing basis, including those related to revenue recognition, product warranty obligations, valuation of inventories, tax related contingencies, valuation of stock-based compensation, other contingencies and litigation, among others. The Company generally bases its estimates on historical experience, agreed obligations, and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying value of assets and liabilities atthat are not readily apparent from other sources. Historically, past changes to these estimates have not had a material impact on the ~~date of the consolidated~~Company’s financial ~~statements~~statements. However, circumstances could change, and ~~the reported amounts of revenue and expenses during the reporting period. Actual~~actual results could differ materially from those ~~estimates, and the differences could be material.~~estimates.

Recent Accounting Standards

~~In May 2014, ASU 2014-09 was issued,~~ ~~Revenue from Contracts with Customers. Under this ASU and subsequently issued amendments, an entity is required to recognize the amount of revenue it expects to~~To be ~~entitled to for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance~~Adopted in ~~U.S. GAAP. This ASU provides alternative methods of transition,~~ a full retrospective and a modified retrospective approach. We expect to utilize the modified retrospective approach which would result in recognition of the cumulative impact of a retrospective application as of the beginning of the period of initial application, which in our case is the interim period beginning January 1, 2018. The adoption of ASU 2014-09 is not expected to have a material effect on the Company's consolidated financial statements.

~~In January 2016, the FASB issued ASU 2016-01,~~ ~~Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities~~ ("ASU 2016-01"). ASU 2016-01 modifies how entities measure equity investments and present changes in the fair value of financial liabilities. Under the new guidance, entities will have to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicality exception. A practicality exception will apply to those equity investments that do not have a readily determinable fair value and do not qualify for the practical expedient to estimate fair value under ASC 820~~, Fair Value Measurements~~, and as such these investments may be measured at cost. ASU 2016-01 will be effective for the Company's fiscal year beginning after December 15, 2017 and subsequent interim periods. The adoption of ASU 2016-01 is not expected to have a material effect on the Company's consolidated financial statements.

~~In March 2016, the FASB issued ASU 2016-02,~~ ~~Leases~~ ("ASU 2016-02"), which provides guidance for accounting for leases. ASU 2016-02 requires lessees to classify leases as either finance or operating leases and to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of the lease classification. The lease classification will determine whether the lease expense is recognized based on effective interest rate method or a straight-line basis over the term of the lease. Accounting for lessors remains largely unchanged from current GAAP. ASU 2016-02 will be effective for the Company's fiscal year beginning after December 15, 2018 and subsequent interim periods. The Company is currently evaluating the impact of the adoption of ASU 2016-02 will have on the Company's consolidated financial statements.

~~NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)~~

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~ ~~("ASU 2016-15"). ASU 2016-015 reduces the existing diversity in practice in financial reporting across all industries by clarifying certain existing principles in ASC 230,~~ ~~Statement of Cash Flows,~~ including providing additional guidance on how and what an entity should consider in determining the classification of certain cash flows. ASU 2016-15 will be effective for the Company's fiscal year beginning after December 15, 2017 and subsequent interim periods. The adoption of ASU 2016-15 will modify the Company's current disclosures and reclassifications within the consolidated statement of cash flows but is not expected to have a material effect on the Company's consolidated financial statements.

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Cash Flows: Statement of Cash Flows (Topic 230) - Restricted Cash.~~ The update requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This standard is effective at the beginning of our 2018 fiscal year. ~~The adoption of ASU 2016-18 is not expected to have a material effect on the Company's consolidated financial statements.~~Future Period

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which requires an entity to perform a one-step quantitative impairment test, whereby a goodwill impairment loss will be measured as the excess of a reporting ~~unit's~~unit’s carrying amount over its fair value (not to exceed the total goodwill allocated to that reporting unit). It eliminates Step 2 of the current two-step goodwill impairment test, under which a goodwill impairment loss is measured by comparing the implied fair value of a reporting ~~unit's~~unit’s goodwill with the carrying amount of that goodwill. ASU 2017-04 will be effective for the ~~Company's~~Company’s fiscal year beginning after December 15, 2019, and subsequent interim periods. The Company is currently evaluating the impact of the adoption of ASU 2017-04 will have on the ~~Company's consolidated financial statements.~~

~~In May 2017, the FASB issued ASU No. 2017-09,~~ ~~"Compensation – Stock Compensation (Topic 718) – Scope of Modification Accounting"~~ ("ASU 2017-09"), clarifying when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. This new accounting standard requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. The new guidance is effective for us on a prospective basis beginning on January 1, 2018, with early adoption permitted. We typically do not change either the terms or conditions of share-based payment awards once they are granted, therefore; this new guidance is not expected to have a material impact on our consolidated financial statements.

~~Adoption of New Accounting Standards~~

~~In July 2015, the FASB issued ASU 2015-11,~~ ~~Simplifying the Measurement of Inventory~~ which simplifies the subsequent measurement of inventory. The updated guidance requires that inventory measured using any method other than last-in, first-out (LIFO) or the retail inventory method (for example, inventory measured using first-in, first-out (FIFO) or average cost) be measured at the lower of cost and net realizable value. This update became effective at the beginning of our 2017 fiscal year. The adoption of this ASU did not have a significant impact on our consolidated financial statements and disclosures.

~~The Company adopted ASU 2015-17,~~ ~~Income Taxes (Topic 740): Balance sheet Classification of Deferred Taxes,~~ which changed the classification requirements for deferred tax assets and liabilities, effective January 1, 2017. ASU 2015-17 requires long-term classification of all deferred tax assets and liabilities, rather than separately classifying deferred tax assets and liabilities based on their net current and non-current amounts, as was required under the previous guidance. The Company adopted ASU 2015-17 on a retrospective basis, therefore prior periods were adjusted to conform to the current period presentation. Consequently, $209,000 of current deferred tax assets previously reported as of December 31, 2016, have been reclassified to long-term deferred tax liabilities.

~~The Company adopted ASU 2016-09,~~ ~~Compensation - Stock Compensation (Topic 718)~~ which simplified several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures, effective January 1, 2017. The new standard requires excess tax benefits or deficiencies for share-based payments to be recognized as income tax benefit or expense, rather than within additional paid-in capital, when the awards vest or are settled. Furthermore, cashflows related to excess tax benefits are required to be classified as operating activities in the statement of cash flows rather than financing activities. The adoption of ASU 2016-09 did not have a material effect on the Company'sCompany’s consolidated financial statements.

The Company continually assesses any new accounting pronouncements to determine their applicability to the Company. Where it is determined that a new accounting pronouncement affects the ~~Company's~~Company’s financial reporting, the Company undertakes a study to determine the consequence of the change to its financial statements and assures that there are proper controls in place to ascertain that the ~~Company's~~Company’s financials properly reflect the change.

NOTE 2 - CONCENTRATIONS OF CREDIT RISK AND ECONOMIC DEPENDENCE

Financial instruments that potentially subject the Company to credit risk consist principally of cash ~~and cash equivalents~~ and accounts receivable.

The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements.

Cash ~~and Cash Equivalents~~

The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents, to the extent the funds are not being held for investment purposes.

The Company at times has cash ~~and cash equivalents~~ with its financial institution in excess of Federal Deposit Insurance Corporation ("FIDC") insurance limits. The Company places its cash ~~and cash equivalents~~ with high credit quality financial institutions which minimize these risks.

NOTE 2 - CONCENTRATIONS OF CREDIT RISK AND ECONOMIC DEPENDENCE (continued)

Accounts Receivable

The Company grants credit to its customers, substantially all of whom are retail establishments located throughout the United States and their international locations. The Company typically does not require collateral from customers. Credit risk is limited due to the financial strength of the customers comprising the Company's customer base and their dispersion across different geographical regions.

The Company monitors exposure of credit losses and maintains allowances for anticipated losses considered necessary under the circumstances.

Major Customers

The Company had two customers who comprised ~~55.5%~~84% and ~~43.7%~~13% of net revenue, respectively during the ~~nine-month period~~nine months ended September 30, ~~2017,~~2019 and ~~62.8%~~two customers who comprised of 36% and ~~35.8%~~61% of net revenue, respectively during the ~~nine-month period~~nine months ended September 30, ~~2016.~~2018. The loss of these customers would adversely impact the business of the Company.

~~Approximately 4.3%~~For the nine months ended September 30, 2019 and ~~8.1%~~2018, approximately 7% and 5%, respectively, of the Company's net revenue ~~for the nine-month periods ended September 30, 2017 and 2016, was~~resulted from international sales.

	Revenue %						Gross Accounts Receivable				Net Revenue %						Net Accounts Receivable
	9 Month Periods Ended September 30,						As of September 30,		As of December 31,		For the Nine Months ended September 30,						As of September 30,				As of December 31,
	2017			2016			2017		2016		2019			2018			2019			2018
Customer A		55.5	%		62.8	%	$	3,563,515	$	3,760,755		84	%		36	%		$	1,501,533		$	38,090
Customer B		43.7	%		35.8	%		1,447,171		1,823,785		13	%		61	%			603,288			-
		99.2	%		98.6	%	$	5,010,686	$	5,558,540
Total												97	%		97	%		$	2,104,821		$	38,090

Major Vendors

The Company had one vendor from which it purchased ~~90.8%~~98% and 60% of merchandise sold during the ~~nine-month period~~nine months ended September 30, ~~2017,~~2019 and ~~89.5% of merchandise sold during the nine-month period ended September 30, 2016.~~2018, respectively. The loss of this ~~supplier~~vendor could adversely impact the business of the Company.

Purchases % Accounts Payable

9 Month Periods Ended
September 30,
As of September 30, As of December 31,
2017 2016 2017 2016
Vendor A 90.8 % 89.5 % $ 1,172,314 $ 1,507,671

	Purchases %						Accounts Payable
	For the Nine Months ended September 30,						As of September 30,		As of December 31,
	2019			2018			2019		2018
Vendor A		98	%		60	%	$	478,216	$	63,594
Vendor B		-	%		17	%		-		-
Total		98	%		77	%	$	478,216	$	63,594

1014

NOTE 3 ~~- NOTE RECEIVABLE~~

On January 15, 2013, the Company entered into an agreement with AC Kinetics, Inc. ("AC Kinetics") to purchase 100 shares of AC Kinetics Series A Preferred Stock for $500,000. These shares carried a liquidation preference in the amount of $500,000, were convertible at the Company's demand into 3% of the outstanding shares of AC Kinetics common stock and had anti-dilution protection.

On June 8, 2016, the Board of Directors approved a Resolution to accept an offer from AC Kinetics to sell back the 100 shares of AC Kinetics Series A Preferred Stock. For consideration, the Company received a note in the face amount of $1,500,000 that will be immediately paid to the Company on completion and funding of a Securities Purchase Agreement with a national company to purchase AC Kinetics. The note is subject to a Subordination Agreement for loans made to AC Kinetics by the national company involved in the Securities Purchase Agreement. As further consideration, the Company also received an option to repurchase 1,666,667 shares of Company common stock held by Involve L.L.C. at an exercise price of $.15. The Agreements were signed June 27, 2016. As the note is subject to a subordination agreement, and the Securities Purchase Agreement between the national company and AC Kinetics and has not been concluded, the Company has determined that the note fell under the Level three category of the fair value hierarchy and that the fair value of the note was determined to be $500,000 at the date of the transaction. The fair value of the note was determined based on an analysis of AC Kinetics ability to repay the note and the perceived value of the options available under the repurchase agreement.

~~The significant unobservable inputs used in the fair value measurement of the Company's note receivable were the probability of default and the loss severity in the event of the default.~~

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.

With the purchase of all available options under the repurchase agreement, part of the collateral used to substantiate the value of the note receivable was no longer available and, consequently management has determined that the fair value of the note at September 30, 2017 was $0.

~~NOTE 4~~ – NOTES PAYABLE

Sterling National Bank

On September 8,2010, in order to fund increasing accounts receivables and support working capital needs, Capstone secured a Financing Agreement from Sterling Capital Funding (now called Sterling National Bank), located in New York, New York, whereby Capstone receives funds for assigned retailer shipments. The assignments provide funding for an amount up to 85% of net invoices submitted.

There is a base management fee equal to ~~.30%~~0.30% of the gross invoice amount. The interest rate of the loan advance is ~~.25%~~0.25% above Sterling National Bank's Base Rate which at time of closing was 5%7.00%. As of September 30, ~~2017~~2019, and December 31, ~~2016,~~2018, the interest rate on the loan was ~~5.25~~7.25%.and 7.25%, respectively. The amounts borrowed under this agreement are due on demand and collateralized by substantially all the assets of Capstone.

Processing fees associated with the agreement for the three months were $16,464 and $19,263 and $36,692 and $39,880 for the nine months ended September 30, 2019 and 2018, respectively.

On July 20, 2018, Sterling National Bank expanded the credit line up to $10,000,000 of which $2,000,000 had been allocated as a Capstone expansion working capital line.

On July 18, 2019, Sterling National Bank renewed the credit line up to $7,500,000 to June 30, 2020. Additional expansion of the line will be reviewed as the need arises.

As of ~~both~~ September 30, ~~2017~~2019, and December 31, ~~2016,~~2018, there was no balance due to Sterling National Bank.

~~As of September 30, 2017, the maximum amount that can be borrowed on this credit line is $7,000,000.~~

NOTE ~~5 – NOTES AND LOANS PAYABLE TO RELATED PARTIES~~

As of September 30, 2017, and December 31, 2016, the Company had notes payable due to one officer, director and related party which totaled $688,384 and $1,321,721, respectively. During the quarter ended September 30, 2017, this related party entered into a Conversion and Option Agreement that resulted in $217,500 of outstanding notes payable being satisfied as payment for exercised stock options and a further $23,400 of notes payable being satisfied as payment for the purchase of 50,000 of the Company's common shares.

~~On September 14, 2017, the remaining balance of that note payable, $138,418 was paid to this related party, resulting in the full and final payment of the note outstanding since 2012.~~

~~The remaining note payable carries an 8% interest rate and matures on of January 2, 2018.~~

~~NOTE 6~~4 – COMMITMENTS AND CONTINGENCIES AND SUBSEQUENT EVENTS

Operating Leases

~~On June 29, 2007, the~~The Company ~~relocated its~~has operating lease agreements for offices and showroom facilities in Fort Lauderdale, Florida and in Hong Kong, expiring at varying dates. The Company’s principal executive offices ~~and sole operations facility to~~were located at 350 Jim Moran Blvd., Suite 120, Deerfield Beach, Florida ~~33442, which is~~33442. As of the date of this report, the Company’s principal executive offices are located ~~in Broward County. This space consists of 4,000 square rentable feet and was leased on a month to month basis.~~at 431 Fairway Drive, Suite 200, Deerfield Beach, Florida 33441.

Capstone entered into a lease agreement for the same office space as currently located. The lease agreement dated January 17, 2014, and effective February 1, 2014, had a 3-year term with a base annual rent of $87,678 paid in equal monthly installments. The Company had the one-time option to renew the lease for three (3) years subject to a 3% increase per each year of the renewal term. Effective February 1, 2017, the Company renewed the lease for 3 years ending January 31, 2020, with a base annual rent of $92,256 and with a total rent expense of $281,711 through the term of the agreement. Under the lease agreement, Capstone iswas responsible for a portion of common area maintenance charges and any other utility consumed in the leased premises.

~~CIHK~~On May 15, 2018, the Company entered into a lease agreement with the previous landlord to provide for a premise’s relocation, lease termination and new sublease agreement. Under the agreement the Company relocated its principal executive offices located at 350 Jim Moran Blvd, Suite 120, Deerfield Beach, Florida 33442 to 4,694 square feet of office space on the second floor of 431 Fairway Drive, Suite 200, Deerfield Beach, Florida 33441. The original lease terminated on the relocation date, being July 1, 2018, and the parties proceeded under the terms of the 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. It is not reasonably certain that the Company will be able to exercise the option. 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 was $7,312 to January 31, 2019 and then base rent will be $7,514 until January 31, 2020 which includes an estimate for portion of the common area maintenance.

NOTE 4 – COMMITMENTS AND CONTINGENCIES AND SUBSEQUENT EVENTS (continued)

As consideration for the lease amendment, the Company received a rate abatement from the landlord, effective May 1, 2018 and for four months to September 1, 2018. The landlord delivered the relocation premises in a “turnkey” condition with requested renovations made at no expense to the Company. As further consideration, the existing landlord agreed to pay the Company $150,000 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.

On May 9, 2019, per the terms of the lease agreement, the current landlord was notified of the Company’s intent to take over the prime lease. The terms of this lease are being negotiated but the lease when finalized will be an operating lease and fall under ASU 2016-02, Topic 842 guidance which will require the recording of a right-of-use asset and a lease liability for the life of the lease.

Capstone International Hong Kong Ltd, (CIHK), entered into a lease agreement for office space at 303 Hennessy Road, Wanchai, Hong Kong. The original agreement which was ~~for the period~~effective from February 17, 2014 ~~to February 16, 2016, with a base annual rent of $48,000 (HK$ 372,000) paid in equal monthly installments.~~has been extended various times. The lease was ~~extended for three (3) months until May 16, 2016. The lease was~~ renewed ~~for (12) months ending May 16, 2017 with a base annual rate of $48,775 and was further extended~~ for (12) months ending May 16, 2018 with a base annual rate of $54,193 paid in equal monthly installments. ~~The~~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 was further extended until August 16, 2019 with a base monthly rate of $5,006. On August 17, 2019, the lease was further extended with a base monthly rate of $5,100 for six months until February 16, 2020.

CIHK entered into a six (6) month rental agreement effective from December 1, 2016 ~~until May 31, 2017~~ for a showroom space at 3F, Wing Kin Industrial Building, 4-6 Wing Kin Road, Kwai Chung, NT, Hong Kong. This agreement has been ~~further~~ extended ~~until December 31, 2017.~~various times. The current lease with a base monthly rent of $1,290 expired August 16, 2019. The property is currently being rented on a month by month basis.

The Company's rent expense ~~amounted to $36,757 and $35,610~~ for the ~~three-month period~~three months ended September 30, ~~2017~~2019 and ~~2016,~~2018 amounted to $21,228 and $30,976 respectively and ~~$117,266~~$64,002 and ~~$107,245~~$106,743 for the ~~nine-month period~~nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively. The decreased rent in the period resulted from the $8,383 per month office move incentive that has been amortized over the life of the lease that ends January 31, 2020. The Company did not record a right to use asset and liability under ASC 842 due to the short term length of its current leases.

Consulting Agreements

On July 1, 2015, the Company entered into a business development-sales consulting agreement with George Wolf, whereby Mr. Wolf was paid $10,500 per month through December 31, 2015 increasing to $12,500 per month from January 1, 2016 through December 31, 2017. A bonus compensation of $10,000 was paid in the month of January 2017 related to 2016 sales performance.

On January 1, 2017, the agreement was amended, whereby Mr. Wolf ~~will be~~was paid $13,750 per month from January 1, 2017 through December 31, 2017. ~~A bonus~~Bonus compensation of ~~$10,000~~$15,000 was paid inon December 22, 2017 related to 2017 sales performance.

On January 1, 2018, the agreement was further amended, whereby Mr. Wolf will be paid $13,750 per month offrom January ~~2017.~~ 1, 2018 through December 31, 2018.

On January 1, 2019, the agreement was further amended, whereby Mr. Wolf will be paid $13,750 per month from January 1, 2019 through December 31, 2020.

The agreement can be terminated upon 30 days' notice by either party. The Company may, in its sole discretion at any time after December 31, 2015 convert Mr. Wolf to a full-time Executive status. The annual salary and term of employment would be equal to that outlined in the consulting agreement. Mr. Wolf is an independent contractor of the Company.

1216

NOTE 64 – COMMITMENTS AND CONTINGENCIES AND SUBSEQUENT EVENTS (continued)

Employment Agreements

On February 5, ~~2016,~~2018, the Company entered into an Employment Agreement with Stewart Wallach, whereby Mr. Wallach will be paid ~~$287,163~~$301,521 per annum. As part of the agreement, the base salary will be reviewed annually by the Compensation Committee for a potential increase, to at least reflect increases in the cost of living, but only if the Company shows a net profit for the year. The initial term of this new agreement began February 5, ~~2016~~2018 and ends February 5, ~~2018.~~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. This Employment Agreement replaced a prior Employment Agreement, dated February 6, 2016 and ended February 5, 2018. Under this prior Employment Agreement, Mr. Wallach received an annual base salary of $287,163.

On February 5, ~~2016,~~2018, the Company entered into an Employment Agreement with James McClinton, whereby Mr. McClinton will be paid $191,442 per annum. As part of the agreement, the base salary will be reviewed annually by the Compensation Committee for a potential increase, to at least reflect increases in the cost of living, but only if the Company shows a net profit for the year. The initial term of this new agreement began February 5, ~~2016~~2018 and ends February 5, ~~2018.~~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. This Employment Agreement replaced a prior Employment Agreement, dated February 5, 2016 and ended February 5, 2018. Under the prior Employment Agreement, Mr. McClinton received an annual base salary of $191,442.

There is a common provision in both Mr. Wallach and Mr. McClinton's employment agreements:

If the officer's employment is terminated by death or disability or without cause, the Company is obligated to pay to the officer's estate or the officer, as the case may be, an amount equal to accrued and unpaid base salary as well as all accrued but unused vacation days through the date of termination. The Company will also pay sum payments equal to (a) the sum of twelve (12) months base salary at the rate the ~~Executive~~executive was earning as of the date of termination and (b) the sum of "merit" based bonuses earned by the ~~Executive~~executive during the prior calendar year of his termination. Any payments owed by the Company shall be paid from a normal payroll account on a bi-weekly basis in accordance with the normal payroll policies of the Company. The amount owed by the Company to the ~~Executive,~~executive, from the effective ~~Termination~~termination date, will be ~~payout~~paid out bi-weekly over the course of the year but at no time will be no more than twenty (26) installments. The Company will also continue to pay the ~~Executive's~~executive's health and dental insurance benefits for 12 months starting at the

~~Executives~~ executive’s date of termination. If the ~~Executive~~executive had family health coverage at the time of termination, the additional family premium obligation would remain theirs and will be reduced against the ~~Executive's~~executive's severance package. The employment agreements have an anti-competition provision for 18 months after the end of employment.

Directors Compensation

On May 31, 2019 the Company approved that effective on June 1, 2019, each independent director, namely Jeffrey Guzy and Jeffrey Postal, will each receive $750 per calendar month, as a Form 1099 compensation, for their continued services as directors of the Company. This compensation will be additional to the stock option grants awarded for their participation on the Audit Committee and Compensation and Nominating Committee.

On May 31, 2019, the Company also approved that the independent directors would be offered effective from June 1, 2019, the opportunity to participate as a non-employee in the Company’s Health Benefit Plan, subject to compliance with all plan participation requirements and on acceptance into the plan the director will be responsible to pay 100% of their plans participation cost.

Licensing Agreements

OnUnder a February 4, 2015 ~~the Company finalized a~~ Licensing Agreement with a ~~globally recognized~~ floorcare company, ~~that allows the~~ Company ~~to market~~markets home lighting products under the licensed brand of the floorcare company, to discount retailers, warehouse clubs, home centers, on-line retailers and other retail distribution channels in the U.S., Canada and Mexico. The initial term of the agreement is for 3 years. The ~~agreement~~Licensing Agreement does not have a guaranteed royalty stipulation.

NOTE 4 – COMMITMENTS AND CONTINGENCIES AND SUBSEQUENT EVENTS (continued)

On December 29, 2016, the Company finalized the first amendment to the February 4,^th, 2015 Licensing Agreement with the floorcare company in which the initial term was extended through February 3, 2020 and additional renewal terms and periods were also finalized. During this initial extended period through February 3, 2020, if the Company ~~reaches $10,000,000 of~~achieves net sales inof $5,000,000, then the ~~initial~~

~~term. The agreement was further~~Licensing Agreement would automatically be extended ~~out to a second extended term~~2 years until February 3, 2022 and if during this second extended period the Company achieves net sales of $5,000,000, then the Licensing Agreement would automatically be further extended ~~out~~2 years until February 3, 2024. This license amendment also added an additional product category.

On April 12, 2018, the Company finalized the second amendment to ~~a third extended term if specified sales goals are achieved. The~~the February 4, 2015 Licensing Agreement in which the license was ~~also~~further expanded to add an additional product category.

Royalty expense ~~for~~related to this ~~agreement was $251,559 and $221,219~~Licensing Agreement for the ~~three-month~~three months ended September 30, 2019 and 2018, was $0 and $146,981 and $0 and $303,477 for the nine month period ended September 30, ~~2017~~2019 and ~~2016, respectively, and $630,664 and $406,405 for the nine-month period ended September 30, 2017 and 2016,~~2018, respectively.

On January 9, 2017, the Company finalized a Licensing Agreement with a globally recognized battery company that ~~will allow~~allowed the Company to market under the licensed brand, a specific product to a specific retailer in the warehouse club distribution channel. This agreement ~~will be effective until~~expired on December 31, 2018. ~~The agreement does not have a guaranteed royalty stipulation, but the Company must meet minimum net sales requirements of $5,000,000 for contract year 1 and $7,000,000 for contract year 2.~~

Royalty expense ~~for~~related to this ~~agreement was $262,466~~Licensing Agreement with the battery company for the ~~three-month period~~three months ended September 30, ~~2017~~2019 and ~~$412,589~~2018, was $0 and $715, respectively and $0 and $30,555 for the ~~nine-month period~~nine months ended September 30, ~~2017.~~

2019 and 2018, respectively.

~~NOTE 6 – COMMITMENTS AND CONTINGENCIES (continued)~~

~~Investment Banking~~Public Relations Agreement

On ~~March 1, 2017,~~September 27, 2018, the Company executed ~~an Investment Banking Agreement~~a public relations services agreement with ~~Wilmington Capital Securities, LLC, ("Wilmington"~~Max Borges Agency, (“MBA”), a ~~registered broker-dealer under the Securities Exchange Act of 1934.~~full – service public relations and communications agency with offices in Miami and San Francisco. The Company entered into the Agreement ~~in order~~ to obtain ~~outside~~ assistance from a nationally recognized firm, specializing in ~~finding~~the development of, product branding, marketing and ~~considering possible opportunities to enhance Company shareholder value through significant corporate transactions~~launching of technology products. The MBA agreement was effective on October 1, 2018 with a minimum 180 days term, which either party can cancel with 60 days’ advanced notice in writing on or ~~through funding expansion and/or diversification~~after the 120^th day of the Company's primary business lines. The scope of such possible strategic transactions includes mergers and acquisitions, asset acquisition or sales and funding through the issuance of Company securities. The agreement has an initial six-month term and renews for an additional, consecutive six-month term if not terminated prior to the term renewal. Wilmingtoneffective date. MBA will receive a ~~cash retainer~~monthly fee upof $11,250 and $476 subscription fee due on the first of each month.

On February 25, 2019, the MBA agreement was temporarily paused and on April 17, 2019, both Company’s agreed to ~~$80,000, payable~~restart the engagement effective May 1, 2019 with the same statement of work and terms as originally agreed.

Legal Matters

Cyberquest, Inc

As previously reported in ~~monthly installments,~~prior reports under the Exchange Act, on September 27, 2018, Company settled a legal action to access corporate records and validate issuance of shares of preferred stock in the ~~first six-month term, and~~1998 acquisition of Cyberquest, Inc. by a ~~reduced retainer fee of $45,000, payable in monthly installments, in the first renewal~~predecessor of the ~~initial six-month term. Wilmington will also receive~~Company. Both parties to this action filed a ~~transaction fee~~Joint Stipulation and Order for ~~any consummated strategic transaction introduced by Wilmington under~~Dismissal with Prejudice with the ~~Agreement. The transaction fees are based on the Lehman Scale starting at 8% fee reducing to 4% on transactions from $5,000,000 to~~U.S. district Court in ~~excess of $20,000,000.~~Dallas, Texas, thereby ending this dispute in Cyberquest, Ltd. v. Capstone Companies, Inc.

~~The retainer fee paid for this agreement was $30,000 for the three-month period ended September 30, 2017 and $100,000 for the nine-month period ended September 30, 2017.~~

NOTE 75 - STOCK TRANSACTIONS

~~Warrants~~

During September and October 2007, the Company issued 2,121,569 shares of common stock for cash at $0.255 per share, or $541,000 total as part of a Private Placement under Rule 506 of Regulation D. Along with the stock, each investor also received a warrant to purchase 30% of the shares purchased in the Private Placement. In September 2017, an investor exercised a warrant option for 29,412 shares at the exercise price of $.255 per share. A total of 607,062 issued warrants remain outstanding at September 30, 2017. Such warrants expired during October 2017.

Options

In 2005, the Company authorized the 2005 Equity Plan that made available shares of common stock for issuance through awards of options, restricted stock, stock bonuses, stock appreciation rights and restricted stock units.

On May 2, 2017, the Company’s Board of Directors amended the Company’s 2005 Equity Incentive Plan to extend the Plan’s expiration date from December 31, 2016 to December 31, 2021.

On August ~~6, 2017,~~29, 2018, the Company granted ~~200,000~~100,000 stock options each to two directors of the Company (“Director options”) for their participation as members of the Audit Committee and Nominating and Compensation Committee, and 10,000 stock options to the Company Secretary. ~~These~~The Director options have a strike price of $.435 with an effective date of August 6, ~~2017~~2018 and vested on August 5, 2019 and have a term of 5 years. The Company Secretary options have a strike price of $.435 with an effective date of August 6, 2018 and vested on August 5, 2019 and have a term of 10 years.

On May 31, 2019, the Company granted 100,000 stock options each to two directors of the Company for their participation as members of the Audit Committee and Nominating and Compensation Committee, and 10,000 stock options to the Company Secretary. The Director options have a strike price of $.435 with an effective date of August 6, 2019 and will vest on August 5, ~~2018.~~

~~During the quarter ended September 30, 2017, Jeffrey Postal (Director) entered into~~2020 and have a ~~Conversion and Option Agreement with the~~term of 5 years. The Company ~~and exercised his option to purchase 500,000 of his vested stock~~Secretary options ~~at the grant~~have a strike price of $.435 ~~per share~~with an effective date of August 6, 2019 and ~~with~~will vest on August 5, 2020 and have a ~~total value~~term of ~~$217,500. As part of the Agreement, the $217,500 payment for these stock options resulted in the satisfaction of $217,500 of notes payable due Mr. Postal since 2012.~~10 years.

As of September 30, ~~2017,~~2019, there were ~~1,026,670~~1,023,334 stock options outstanding and ~~816,670~~813,334 stock options vested. The stock options have a weighted average expense price of ~~$0.435.~~$.435.

For the three-month ~~periods~~period ended September 30, ~~2017~~2019 and ~~2016,~~2018, the Company recognized ~~stock based~~stock-based compensation expense of ~~$25,644~~$9,732 and ~~$18,081,~~$17,891, respectively ~~related to these stock options.~~

~~For~~and $31,782 and $75,641 for the ~~nine-month periods~~nine month period ended September 30, ~~2017~~2019 and ~~2016, the Company recognized stock based compensation expense of $66,594 and $46,581, respectively, related to these stock options.~~ 2018, respectively.

Such amounts are included in compensation expense in the accompanying consolidated statements of ~~income.~~operations. A further compensation expense expected to be ~~$28,875~~$8,925 and ~~$68,856~~$21,283 will be recognized for these options in ~~2017~~2019 and ~~2018~~2020, respectively.

~~On May 2, 2017,~~Stock options were issued under Section 4(a)(2) and Rule 506(b) of Regulation D under the ~~Company's Board~~Securities Act of ~~Directors amended the Company's 2005 Equity Incentive Plan to extend the Plan's expiration date from December 31, 2016 to December 31, 2021.~~

~~NOTE 7 - STOCK TRANSACTIONS (continued)~~

~~Stock Purchase~~

During the quarter ended September 30, 2017, Jeffrey Postal entered into a Conversion and Option Agreement with the Company. As part of the Agreement, Jeffrey Postal purchased 50,000 shares of common stock at a price of $.468 per share being the 30-consecutive trading day average price with a 10% discount resulting in a total value of $23,400. As part of the Agreement, the payment for these shares resulted in the satisfaction of $23,400 of notes payable due to Mr. Postal since 2012.1933.

Adoption of Stock Repurchase Plan

On August 23, 2016, the Company's Board of Directors authorized the Company to implement a stock repurchase plan for up to $750,000 worth of shares of the Company's outstanding common stock. The stock purchases can be made in the open market, structured repurchase programs, or in privately negotiated transactions. The Company has no obligation to repurchase shares under the authorization, and the timing, actual number and value of the shares which are repurchased will be at the discretion of management and will depend on a number of factors including the price of the Company's common stock, market conditions, corporate developments and the Company's financial condition. The repurchase plan may be discontinued at any time at the Company's discretion.

On December 21, 2016, the Company's Board of Directors approved an extension of the Company's stock repurchase plan through December 31, 2017, subject to an earlier termination at the discretion of the Company's Board of Directors.

NOTE 5 – STOCK TRANSACTIONS (continued)

On December 15, 2017, the Company's Board of Directors approved an extension of the Company's stock repurchase plan for up to $750,000 through June 30, 2018.

On August 29, 2018, the Company’s Board of Directors approved a further extension of the Company’s stock repurchase plan through August 31, 2019. The Board of Directors also approved an increase of the maximum amount of aggregate funding available for possible stock repurchases under the stock repurchase program from $750,000 to $1,000,000 during the renewal period.

On August 29, 2018, the Company’s Board 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 bonafide debts.

On December 19, 2018, Company entered into a Purchase Plan pursuant to Rule 10b5-1 under the Exchange Act, with Wilson Davis & Co., Inc., a registered broker-dealer. Under the Purchase Plan, Wilson Davis & Co., Inc will make periodic purchases of up to an aggregate of 750,000 shares at prevailing market prices, subject to the terms of the Purchase Plan. For the three months, six months and nine months ended March 31, 2019, June 30, 2019, and September 30,2019, respectively, the Company repurchased 45,470, 168,530, and 79,945 of the Company’s Common Stock, at a cost of $8,615 and $27,263, and $11,637 respectively. As of September 30, 2019, a total of 293,945 common shares have been repurchased at a total cost of $47,515.

On May 31, 2019, the Company’s Board of Directors approved a further extension of the Company’s stock repurchase plan through August 31, 2020. The Board of Directors also approved that the maximum amount of aggregate funding available for possible stock repurchases under the stock repurchase program remained at $1,000,000 during the renewal period.

On September 23, 2019 the Company signed a revised stock Purchase Plan to reflect an extension of the plan to repurchase up to an aggregate of 750,000 shares at prevailing market prices, subject to the terms of the Purchase Plan.

NOTE 86 - INCOME TAXES

As of ~~September 30, 2017,~~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. An operating loss carry forward of approximately $861,000 is available to the Company indefinitely and up to 80% of the operating loss can be used against future taxable income.

The net deferred tax ~~liability~~(liability)benefit as of September 30, ~~2017~~2019 and December 31, 2018 was ~~$362,000~~$0 and $(12,000), respectively, and is reflected in long-term liabilities in the accompanying consolidated balance ~~sheet.~~sheets.

The ~~Company is subject to income taxes in the U.S. federal jurisdiction, various state jurisdictions~~condensed consolidated statement of operations shows an effective rate of 0% and certain other jurisdictions. 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 authorities3% for the ~~years 2013 and prior.~~

~~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.~~

~~The provision for income taxes for the nine-months~~three months ended September 30, ~~2017~~2019 and 2016 was calculated based on the estimated annual effective rate of 34% for both the full 2017 and 2016 calendar years, adjusted for an income tax benefit from the expected utilization of net operating loss carryforwards.September 30, 2018, respectively.

1520

Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018
(In Thousands)
	September 30, 2019						September 30, 2018
	Dollars			% of Revenue			Dollars			% of Revenue
Net Revenue	$	11,741			100	%	$	11,889			100.0	%
Cost of sales		(9,165	)		(78.1	)%		(9,179	)		(77.2	)%
Gross Profit		2,576			21.9	%		2,710			22.8	%

Operating Expenses:
Sales and marketing		330			2.8	%		838			7.1	%
Compensation		1,139			9.7	%		1,105			9.3	%
Professional fees		353			3.0	%		394			3.3	%
Product development		261			2.2	%		386			3.2	%
Other general and administrative		491			4.2	%		574			4.8	%
Total Operating Expenses		2,574			21.9	%		3,297			27.7	%
Operating Income (Loss)		2			-	%		(587	)		(4.9	)%

Other Income (Expense)
Other Income (Expense), net		-			-	%		145			1.2	%
Interest expense		(3	)		-	%		-			-	%
Total Other Income (Expense)		(3	)		-	%		145			1.2	%

(Loss) Before Tax Benefit		(1	)		-	%		(442	)		(3.7	)%
(Benefit) for Income Tax		(12	)		(.1	)%		(72	)		(0.6	)%
Net Income (Loss)	$	11			.1	%	$	(370	)		(3.1	)%

	For the Nine Months ended September 30,
Summary of Cash Flows	2019				2018
In thousands
Net cash provided by (used in):
Operating Activities		$	(1,434	)		$	56
Investing Activities			(34	)			(131	)
Financing Activities			(48	)			-
Net (decrease) in cash and cash equivalents		$	(1,516	)		$	(75	)

EXHIBIT #	EXHIBIT TITLE

31.1	Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes Oxley Act of 2002 ^
31.2	Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes Oxley Act of 2002 ^
32.1	Certification of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, ^
32.2	Certification of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, ^

/s/ Stewart Wallach
Stewart Wallach	Chief Executive Officer
Principal Executive Officer



/s/James G. McClinton
James G. McClinton	Chief Financial Officer and	Chief Operating Officer
Principal Financial Executive and Accounting Officer	~~Chief Operating Officer~~

CAPSTONE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2017			2016
	(Unaudited)
Assets:
Current Assets:
Cash	$	3,240,721		$	1,646,128
Accounts receivable, net		4,660,203			4,449,179
Inventory		142,065			366,330
Prepaid expenses		349,410			330,020
Total Current Assets		8,392,399			6,791,657

Property and Equipment:
Computer equipment and software		19,767			19,767
Machinery and equipment		371,323			325,750
Furniture and fixtures		5,665			5,665
Less: Accumulated depreciation		(304,176	)		(250,465	)
Total Property & Equipment		92,579			100,717

Other Non-current Assets:
Deposit		13,616			12,193
Note receivable		-			526,887
Goodwill		1,936,020			1,936,020
Total Other Non-current Assets		1,949,636			2,475,100
Total Assets	$	10,434,614		$	9,367,474

Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts payable and accrued liabilities	$	2,122,220		$	2,678,210
Income tax payable		404,088			1,588
Notes and loans payable to related parties		688,384			1,321,721
Total Current Liabilities		3,214,692			4,001,519

Long Term Liabilities:
Deferred tax liabilities		362,000			216,000
Total Long Term Liabilities		362,000			216,000
Total Liabilities		3,576,692			4,217,519

Commitments and Contingencies (Note 6)

Stockholders' Equity:
Preferred Stock, Series A, par value $.001 per share, authorized 6,666,667 shares, issued -0- shares		-			-
Preferred Stock, Series B-1, par value $.0001 per share, authorized 3,333,333 shares, issued -0- shares		-			-
Preferred Stock, Series C, par value $1.00 per share, authorized 67 shares, issued -0- shares		-			-
Common Stock, par value $.0001 per share, authorized 56,666,667 shares, issued 47,046,364 shares and 48,132,664 shares		4,704			4,813
Additional paid-in capital		6,976,678			7,411,172
Accumulated deficit		(123,460	)		(2,266,030	)
Total Stockholders' Equity		6,857,922			5,149,955
Total Liabilities and Stockholders' Equity	$	10,434,614		$	9,367,474

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

CAPSTONE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016

Revenues, net	$	13,817,909		$	11,692,146		$	30,789,653		$	22,672,551
Cost of sales		(10,707,657	)		(8,841,148	)		(23,457,070	)		(17,079,271	)
Gross Profit		3,110,252			2,850,998			7,332,583			5,593,280

Operating Expenses:
Sales and marketing		928,321			488,057			1,869,596			903,888
Compensation		351,915			325,283			1,065,621			949,753
Professional fees		109,257			111,339			429,440			286,681
Product development		80,991			127,367			219,464			227,552
Other general and administrative		189,780			195,046			572,461			501,458
Total Operating Expenses		1,660,264			1,247,092			4,156,582			2,869,332

Net Operating Income		1,449,988			1,603,906			3,176,001			2,723,948

Other Income (Expense):
Interest Income		(12,945	)		13,664			-			13,664
Interest expense		(56,514	)		(103,363	)		(113,431	)		(227,522	)
Total Other Income (Expense)		(69,459	)		(89,699	)		(113,431	)		(213,858	)

Income Before Tax Provision		1,380,529			1,514,207			3,062,570			2,510,090

Provision for Income Tax		(390,000	)		(24,412	)		(920,000	)		(37,012	)

Net Income	$	990,529		$	1,489,795		$	2,142,570		$	2,473,078

Net Income per Common Share
Basic	$	0.021		$	0.031		$	0.046		$	0.051
Diluted	$	0.021		$	0.031		$	0.045		$	0.051

Weighted Average Common Shares Outstanding
Basic		46,660,456			48,132,664			46,989,940			48,132,664
Diluted		47,152,574			48,371,158			47,462,664			48,320,017

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

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

	For the Nine Months Ended
	September 30,
	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income	$	2,142,570		$	2,473,078
Adjustments necessary to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		55,725			44,400
Accrued interest on note receivable		26,887			(13,654	)
Stock based compensation expense		66,594			46,581
Provision for deferred income tax		146,000			-
Accrued sales allowance		(831,731	)		(94,203	)
(Increase) decrease in accounts receivable		731,532			(6,755,174	)
(Increase) decrease in inventory		224,265			(275,049	)
(Increase) decrease in prepaid expenses		(20,813	)		43,764
Increase (decrease) in accounts payable and accrued liabilities		(263,912	)		958,580
(Decrease) in accrued interest on notes payable		(135,337	)		(168,492	)
Net cash provided by (used in) operating activities		2,141,780			(3,740,169	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(47,587	)		(15,501	)
Net cash (used in) investing activities		(47,587	)		(15,501	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable		30,559,312			19,393,834
Repayments of notes payable		(30,559,312	)		(15,049,345	)
Repurchase of shares from Involve, LLC		(250,000	)		-
Warrant issued		7,500			-
Proceeds from notes and loans payable to related parties		-			860,000
Repayments of notes and loans payable to related parties		(257,100	)		(1,453,946	)
Net cash provided by (used in) financing activities		(499,600	)		3,750,543

Net Increase (decrease) in Cash and Cash Equivalents		1,594,593			(5,127	)
Cash and Cash Equivalents at Beginning of Period		1,646,128			364,714
Cash and Cash Equivalents at End of Period	$	3,240,721		$	359,587

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest		221,881		$	396,014
Income taxes	$	371,500		$	31,912

Non-cash financing and investing activities:
Sale of Investment for Note receivable	$	-		$	500,000

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

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

	3 months ended September 30, 2017		3 months ended September 30, 2016
Basic weighted average shares outstanding		46,660,456		48,132,664
Dilutive warrants		313,211		238,494
Dilutive options		178,907		-
Diluted weighted average shares outstanding		47,152,574		48,371,158

	9 months ended September 30, 2017		9 months ended September 30, 2016
Basic weighted average shares outstanding		46,989,940		48,132,664
Dilutive warrants		308,219		187,353
Dilutive options		164,505		-
Diluted weighted average shares outstanding		47,462,664		48,320,017

	3 months ended September 30, 2017		3 months ended September 30, 2016
Current:
Federal	$	382,000	$	-
Deferred:
Federal		8,000		24,412
Income Tax Provision	$	390,000	$	24,412

Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018
(In Thousands)
	September 30, 2019						September 30, 2018
	Dollars			% of Revenue			Dollars			% of Revenue
Net Revenue	$	5,354			100.0	%	$	5,726			100.0	%
Cost of sales		(4,139	)		(77.3	)%		(4,396	)		(76.8	)%
Gross Profit		1,215			22.7	%		1,330			23.2	%

Operating Expenses:
Sales and marketing		102			1.9	%		360			6.3	%
Compensation		382			7.1	%		359			6.3	%
Professional fees		113			2.1	%		102			1.8	%
Product development		81			1.5	%		96			1.6	%
Other general and administrative		169			3.2	%		233			4.1	%
Total Operating Expenses		847			15.8	%		1,150			20.1	%
Operating Income		368			6.9	%		180			3.1	%

Other Income (Expense)
Other Income (Expense), Net		2			-	%		(2	)		-	%
Interest expense		(3	)		-	%		-			-	%
Total Other Income (Expense)		(1	)		-	%		(2	)		-	%

Income Before Tax Provision (Benefit)		367			6.9	%		178			3.1	%
Provision (Benefit) for Income Tax		-			-	%		6			(.1	)%
Net Income	$	367			6.9	%	$	172			3.0	%

The following table disaggregates revenue by major source:

	For the Three Months Ended September 30, 2019												For the Three Months Ended September 30, 2018
	Capstone Brand				Licensed Brands				Total Consolidated				Capstone Brand				Licensed Brands				Total Consolidated
LED Consumer Products- US		$	4,980,249			$	-			$	4,980,249			$	2,697,694			$	2,939,613			$	5,637,307
LED Consumer Products-International			373,941				-				373,941				65,009				23,289				88,838
Total Revenue		$	5,354,190			$	-			$	5,354,190			$	2,762,703			$	2,963,442			$	5,726,145
% of Total Revenue			100	%			-	%			100	%			48.2	%			51.8	%			100	%

The following table disaggregates revenue by major source:

	For the Nine Months Ended September 30, 2019												For the Nine Months Ended September 30, 2018
	Capstone Brand				Licensed Brands				Total Consolidated				Capstone Brand				Licensed Brands				Total Consolidated
LED Consumer Products- US		$	10,965,258			$	-			$	10,965,258			$	4,539,476			$	6,798,866			$	11,338,342
LED Consumer Products-International			775,556				-				775,556				261,983				289,195				551,178
Total Revenue		$	11,740,814			$	-			$	11,740,814			$	4,801,459			$	7,088,061			$	11,889,520
% of Total Revenue			100	%			-	%			100	%			40.4	%			59.6	%			100	%

	For the Nine Months Ended
(In thousands)	September 30, 2017				September 30, 2016
Net cash provided by (used in):
Operating Activities		$	2,142			$	(3,740	)
Investing Activities		$	(48	)		$	(16	)
Financing Activities		$	(500	)		$	3,751
Total		$	1,594			$	(5	)