Executive Summary / Key Takeaways

• Radical Strategic Pivot: Capstone Companies (OTCQB: CAPC) is undergoing a profound transformation, shifting from its legacy consumer electronics and Smart Mirror products to focus on the burgeoning Health, Fitness, and Social Activities (HFS) industry and the licensing of its Connected Chef kitchen tablet. This pivot is a direct response to the commoditization of its traditional markets and the failure of its "Connected Surfaces" initiative to generate sustainable revenue.
• Critical Liquidity Concerns: As of June 30, 2025, CAPC faces severe liquidity challenges, including negative working capital of $325,205, an accumulated deficit of $11.95 million, and no revenue-generating product line. The company's ability to continue as a going concern is in substantial doubt, relying heavily on related-party debt financing from Coppermine Ventures, LLC for essential corporate maintenance through Q3 2025.
• New Growth Avenues, Unproven Revenue: The core investment thesis hinges on the successful development and commercialization of the HFS business, including a CRM application for HFS facilities, and the Connected Chef licensing model. While these initiatives target high-growth markets, neither has generated revenue as of the latest filing, underscoring the speculative nature of the current investment.
• High-Risk, High-Reward Profile: CAPC's current valuation reflects its distressed financial state and the significant execution risk associated with entering new, competitive industries with limited capital. Success in these new ventures could unlock substantial value, but failure to secure additional, non-related party funding or generate revenue quickly poses an existential threat.
• Technological Reorientation: The company's technological focus has shifted from hardware-centric smart home devices to software development (HFS CRM application) and licensing a purpose-built kitchen tablet. This reorientation aims to leverage market trends in connected living and community engagement, but its competitive differentiation and market penetration remain to be proven.

A Phoenix in the Making, or a Leap of Faith?

Capstone Companies, Inc. (CAPC) stands at a pivotal juncture, shedding its skin as a traditional consumer electronics designer to embrace a bold, high-stakes transformation. Incorporated in Florida in 1996, Capstone built its early reputation on wholesaling technology-inspired consumer products, notably integrating LEDs into home lighting. This era saw success, with Capstone and Hoover Home LED brands selling millions of units and generating $12.4 million in revenue from Capstone brands in 2019. However, the LED market matured rapidly, becoming commoditized and fiercely competitive, dominated by larger players with superior scale, distribution, and R&D capabilities. This environment, coupled with tariff penalties that eroded margins, led to a significant decline in CAPC's LED revenues by 2017 and a strategic pivot away from licensed brands.

The company then ventured into "Connected Surfaces," launching the ambitious Smart Mirror program at CES 2020. This initiative aimed to capitalize on the burgeoning smart home market, projected to reach $140 billion by 2023 with growing household penetration. The Smart Mirror was envisioned as a "logical addition" to modern living spaces, integrating content and computing platforms seamlessly. CAPC's core technological strength lay in "taking technology and embedding it into hardware," focusing on affordable, user-friendly designs for niche markets. However, despite substantial R&D investments totaling over $600,000 between 2019 and 2021, the Smart Mirror faced immense headwinds. Global supply chain disruptions, factory shutdowns, and critical FCC approval delays (which pushed the launch back an entire year to November 2021) crippled its commercial viability. Initial air shipments were mismanaged and damaged, further exacerbating the situation. Ultimately, the Smart Mirror products failed to achieve significant sales, leading to inventory liquidation by June 2024.

This history of market shifts and operational challenges underscores CAPC's current, even more radical, strategic reorientation. The company is now making a definitive bet on two new, distinct areas: the Health, Fitness, and Social Activities (HFS) industry and the licensing of its "Connected Chef" kitchen tablet. This is not merely an evolution but a fundamental re-founding, as CEO Alexander Jacobs noted, seeing the company "more like a start-up at this juncture."

The New Technological Frontier: Connected Chef and HFS Software

Capstone's current technological differentiation centers on two distinct product lines. The Connected Chef is a purpose-built kitchen tablet featuring Google (GOOGL) Mobile Service (Playstore, voice assistant, YouTube), designed with an accessory platform for food prep tools like cutting boards. Its core value proposition lies in its tailored design for kitchen use, recipes, and kitchen arts, and its ability to "withstand the conditions of a kitchen," a key differentiator against general-purpose smart devices. This is crucial as it faces competition from ubiquitous smartphones, tablets, laptops, and even Amazon (AMZN)'s Echo Show, which offers a 21-inch kitchen hub with Fire TV and Alexa functions. While these alternatives provide internet access, they lack the specialized, ruggedized design of the Connected Chef, which aims to appeal to consumers seeking a dedicated culinary device.

The second, and arguably more strategic, technological initiative is the development of an online customer registration and management (CRM) application for the HFS industry. This software development project, initiated through a Memorandum of Understanding with Coppermine Ventures, LLC, aims to create an integrated solution for managing year-round social, athletic, and fitness programs across multiple facilities. The initial phase involves an assessment and proposal, for which Coppermine will pay $24,000. If successful, CAPC plans to develop, test, and install the application, with potential for future commercialization through licensing to other HFS providers. This represents a significant shift from hardware to software, leveraging the experience of CAPC's Chairman in software development. The "so what" for investors is clear: this move targets a rapidly expanding industry with a scalable software solution, potentially offering higher margins and recurring revenue streams compared to physical product sales. However, the company will rely primarily on third-party software developers, introducing execution risk.

Financial Performance: A Company in Transition

The financial narrative of Capstone Companies is one of stark decline in its legacy businesses and a desperate search for new revenue streams. For the six months ended June 30, 2025, the company reported no revenues, a 100% decrease from $143,268 in the same period of 2024. This precipitous drop is attributed to the liquidation of Smart Mirror inventory in Q2 2024 and the absence of any operating product line. The net loss for the six months ended June 30, 2025, was $187,612, an improvement from the $386,270 loss in 2024, largely due to "concerted efforts to reduce operating expenses." Total operating expenses for the six months ended June 30, 2025, were approximately $177,200, a significant reduction from $431,600 in 2024. This reduction stemmed from zero sales and marketing expenses (down from $17,403), zero compensation expenses (down from $153,400), and a 61% decrease in professional fees to $120,900.

Despite these cost-cutting measures, CAPC's liquidity position is precarious. As of June 30, 2025, the company had a negative working capital of $325,205, an accumulated deficit of $11.95 million, and a cash balance of only $41,777. Cash used in operations for the six months ended June 30, 2025, was $156,611. These conditions collectively raise "substantial doubt about the Company's ability to continue as a going concern."

The company's survival currently hinges on related-party financing. An Amended and Revised Unsecured Promissory Note with Coppermine Ventures, LLC, for $485,163 (maturing December 31, 2025) is intended to cover essential corporate maintenance expenses through the first three fiscal quarters of 2025. As of June 30, 2025, $361,469 had been received, with an additional $123,694 provided on July 8, 2025. This funding is the "sole source of working capital funding" as of the filing date.

Historically, CAPC's financial performance reflects its journey. In 2021, net revenues were $685,854, a sharp decline from $2.77 million in 2020 and $12.40 million in 2019, as the LED business matured and the Smart Mirror launch was delayed. Gross profit margins fluctuated, reaching 73% in Q2 2024 (due to Smart Mirror liquidation sales) but were often impacted by promotional allowances and high freight costs. The company's ability to internally fund product development in 2020 and secure $1.5 million in private equity in 2021 demonstrates past financial discipline, but current conditions are far more challenging.

Outlook and Strategic Initiatives: A Glimmer of Hope?

Capstone's long-term strategy is unequivocally focused on the HFS Business and its related software and branding opportunities, with Connected Chef licensing as a secondary venture. The appointment of Alexander Jacobs, founder of Coppermine Ventures (an HFS operator), as CEO in December 2024, signals a clear commitment to this new direction. The company aims to capitalize on the rapid growth of sports like pickleball, which has been the fastest-growing sport in America since 2021. The HFS market offers opportunities in dedicated facilities, memberships, and special events, appealing to a broad demographic.

The development of the HFS CRM application for Coppermine's twenty facilities in Maryland is a concrete step in this strategy. While the initial $24,000 for the assessment and proposal is modest, it represents a potential entry into a scalable software-as-a-service model. The Connected Chef licensing agreement with T&B Media, Ltd. (UK) promises a $15 license fee for each unit sold, offering a capital-light revenue stream without requiring CAPC to fund production or marketing. However, as of the August 14, 2025 filing, "no sales of the Connected Chef and no license revenue generated for the Company."

Management's outlook is cautiously optimistic, emphasizing the "huge untapped potential within the emerging category of smart home products" and the HFS industry. They believe their "innovative approaches to affordable product designs and market approaches that are sensitive to today’s consumer paradigms" will resonate with millennial and Gen Z consumers. However, the realization of this vision is entirely dependent on securing "adequate, affordable and timely funding" beyond the current related-party loans.

Competitive Landscape and Risks

Capstone faces a dual competitive challenge in its new strategic areas. For the Connected Chef, the market is crowded with general-purpose smart devices (smartphones, tablets, laptops) and established smart kitchen hubs like Amazon's Echo Show. CAPC's differentiation hinges on the Connected Chef being "purpose-built" and designed to "withstand the conditions of a kitchen." However, consumers may prefer the versatility and ecosystem integration of larger, more established tech giants.

In the HFS industry, CAPC is entering a "rapidly expanding nationwide" market already populated by "many existing and new companies that have established operations and brand recognition," including "emerging regional or potentially national HFS chains and franchises." These competitors often possess "greater funding than the Company and established brand recognition." CAPC's strategy to appeal to a broad demographic (children, families, adults) rather than just adults seeking specific sports facilities is a potential differentiator, but establishing a competitive presence, especially in related apparel and branding, will require significant capital and execution prowess.

The risks facing CAPC are substantial and immediate:

• Going Concern Doubt: The most pressing risk is the company's ability to continue operations beyond Q3 2025 without additional funding.
• Reliance on Related-Party Funding: The dependence on Coppermine Ventures, LLC, for working capital is a critical vulnerability, as this funding is "not assured" past Q3 2025.

• Difficulty Securing External Capital: The company's "low market price and liquidity of the Common Stock," "significant debts," and lack of "hard assets suitable for asset financing" severely hamper its ability to attract unrelated, long-term funding.
  

• Unproven Business Models: Neither the Connected Chef licensing nor the HFS CRM application has generated revenue, making the company's future highly speculative.

• Intense Competition: Both new markets are competitive, with rivals often possessing superior financial resources, brand recognition, and distribution networks.
• Execution Risk: Relying on third-party developers for the CRM application introduces additional execution risk.
• Regulatory and Economic Uncertainty: The potential impact of new tax legislation (Taxpayer Fairness and Growth Act of 2025) and broader economic conditions (e.g., tariffs, recession) adds layers of uncertainty.

Conclusion

Capstone Companies is engaged in a profound, high-stakes transformation, attempting to reinvent itself in the dynamic Health, Fitness, and Social Activities sector and through a niche kitchen tablet licensing model. The company's history demonstrates a capacity for innovation and disciplined cost management, but its recent financial performance paints a dire picture of a company struggling for survival, with no revenue-generating product lines and a critical reliance on related-party funding.

The investment thesis for CAPC is a binary one: either the strategic pivot to HFS and Connected Chef licensing gains rapid traction, attracting the necessary external capital to sustain operations and fuel growth, or the company's substantial liquidity challenges become insurmountable. While the target markets offer significant growth potential, CAPC's current financial fragility and the intense competitive landscape present formidable hurdles. Investors considering CAPC must acknowledge the extraordinary level of risk, viewing it as a highly speculative bet on a complete corporate reinvention, where the promise of new technological leadership and market positioning is yet to translate into tangible financial results.