Greetings and welcome to the Capstone Companies Second Quarter 2019 Financial Results. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Aimee Gaudet. Please go ahead.

Thank you, Stacy, and good morning to everyone. I would like to point out that Capstone's President and Chief Executive Officer, Stewart Wallach is traveling and joining us from a remote location this morning. If we should experience any technical difficulties I do apologize in advance. Also on the call today is Gerry McClinton, Capstone’s Chief Financial Officer. They will be discussing the second quarter 2019 financial results, as well as give us an update on the strategy and outlook followed by a question-and-answer session. If you do not have the release that was distributed yesterday afternoon, it is available on the company's website at www.capstonecompaniesinc.com. As you are aware, we may make forward-looking statements during today's presentation. These statements apply to future events which are subject to risks and uncertainties, as well as other factors that could cause the actual results to differ materially from where we are today. These factors are outlined in our earnings release as well as in the documents filed by the company with the Securities and Exchange Commission, which can be found at www.capstonecompaniesinc.com or at www.sec.gov. With that, I'll turn it over to you, Stewart.

Thank you, Aimee, and good morning to everyone. I appreciate your time with us today. Before introducing Gerry McClinton to review the second quarter 2019 financial results, I'd like to take just a few moments to discuss the company’s strategic planning and how it has attributed to the quarter and the year-to-date results. As we had indicated at the Q1 conference call, we achieved a number of initiatives that are now apparent in our revenue development. The response to our new Capstone branded LED products remain strong and backlog developments are on track to deliver solid Q3 revenues. Equally as important are the developments in establishing our supply chain in Thailand. I point this out because as tariff continue to play U.S. importers uncertainty in China supply chains remain a concern. We will be well positioned to provide products that are not subject to the threat of increased tariffs as we approach 2020. I will comment further on our Connected Surfaces program later in the webcast. Following Gerry's review of the financials. However, I would like to emphasize that the finalization of our first Smart Mirror is a major milestone in differentiating Capstone’s product portfolio and marks the company's entry into the emerging smart home electronics market. At this time, I would like to introduce Gerry McClinton to review the financials, after which, I will discuss the company's outlook followed by a question-and-answer session.

Thank you, Stewart. Good morning, everyone. So let's go straight to the numbers. Net revenue for the second quarter ended June 30, 2019 and 2018 were approximately $3.4 million and $2.1 million, respectively, that’s an increase of $1.3 million. The position of lighting products from license brand to the Capstone brand has been very successful. In the second quarter 2019 the Capstone brand generated $3.4 million revenue compared to $1.7 million in 2018. For the six months ended June 30, 2019 net revenues were approximately $6.4 million and that's an increase of $223,000 from 2018. The newly launched battery powered LED product Light Bars accounted for approximately $5.7 million of revenue for that period. For the three months ended June 30, 2019 and 2018, international sales were approximately $100,000 and $145,000, respectively, and $402,000 and $462,000, respectively for the six months ended June 30, 2019 and 2018. The sell through of the new Capstone branded lights was very strong, and the company invested approximately $1.3 million of marketing funds, that will support this program through 2019. Now, this level of support was a primary driver in bringing revenues back to 2018 levels. Now marketing funds are deducted from gross revenues that means they are already reflected in the net revenue in the period. So even with these major investments, the company was able to recover the revenue shortfall from Q1 2019. Gross profit for the three months ended June 30, 2019 and 2018 was approximately $734,100 and $360,700 respectively. Now that's an increase of $373,400. Gross Profit as a percentage was 21.5% in the second quarter 2019, as compared to 17.2% in 2018. Gross profit for the six months ended June 30, 2019 and 2018 was approximately $1,361,000 and $1,380,000, respectively. That's a slight decrease of $19,000. Gross profit as a percent of revenue for the six month period 2019 and 2018 was 21.3% and 22.3%, respectively. Now for comparison purposes, if we exclude the impact of the $851,000 increased marketing fund in the period as compared to 2018, gross profit would increase by 9% or up to 30.5% of revenue. So that's significantly higher than the 22.4% in 2018. Total operating expenses for the three months ended June 30 2019 was $752,600 as compared to $918,600 in 2018, that's a decrease of $166,000. For the six months ended June 30, 2019, total operating expenses were $1,730,000 as compared to $2,150,000 in 2018, that's a decrease of $420,000. The two areas most impacted in operating expenses were sales and marketing and product development expenses. Sales and marketing expenses for the three months ended June 30, 2019 and 2018 were $35,400 compared to $115,500, respectively, that’s a reduction of $80,100. During the quarter there were no licensed product sales, so reducing royalty expenses to zero compared to $17,100 in 2018. Promotional expenses did increase by $14,300 as we engage the services of Max Borges Marketing Solutions, which we did not have in 2018. In 2018 we also incurred $72,400 of tradeshow expenses related to the National Hardware Show held in May, which we did not attend in 2019. For the six months ended June 30, 2019 and 2018, sales and marketing expenses were $227,300, compared to $478,600 respectively, that's a reduction of $251,300. Royalty expenses in the six months in 2019 and 2018 were zero and $186,300, respectively. Sales commissions were also zero compared to $97,800 in 2018. However, part of these savings were offset with an increase in advertising and promotional expense of $37,800 which we did not occur in 2018. Product development expenses for the three months ended June 30, 2019 and 2018 were approximately $94,500 and $123,800, respectively, that's a decrease of $29,300. During the second quarter, the company invested $60,100 in software and hardware development for the Connected Surfaces project, an increase of $21,000 as compared to $39,100 in 2018. For the six months ended June 30, 2019 product development expenses were approximately $179,800 as compared to $290,300 in 2018, a decrease of $110,500. During that period, the company did invest $107,400 in software and hardware development for the Connected Surfaces project compared to $112,600 in 2018. Prototype sample development and product testing expenses was $11,600 in 2019, compared to $98,100 in 2018, that's a reduction of $86,500. Our samples were not required for the 2019 International Hardware Show, as we didn't attend it. Operating loss for the three months ended June 30, 2019 was $18,500 compared to a loss of $557,900 in 2018, that's an improvement of $539,400. For the six months after June 30, 2019, the operating loss was $365,400 compared to $766,600 in 2018, an improvement of $401,200. Net loss for the three months ended June 30, 2019 was approximately $10,500 compared to $351,600 in 2018, that's an improved performance of $341,100 in the quarter compared to 2018. For the six months ended June 30, 2019 the net loss was approximately $355,800 compared to $542,300 in 2018, an improved performance of $186,000 compared to 2018. Summarizing these financial performance in the second quarter 2019, we have to state that accrued sales were up $1.4 million compared to 2018. The company has continued to support management strategic objectives, and to promote future revenue growth by investing approximately $576,000 in the quarter. And just to take a look at that, to summarize it we spent $504,000 in marketing funds, we spent $60,000 in continued development of Connected Surfaces, and we spent $12,000 for smart marketing services. Summarizing the financial performance for the six months ended June 30, 2019, gross sales were $7.7 million, and that's an increase of $1.1 million over 2018. Besides that, the company invested $1.3 million for 2019 marketing funds, $107,000 in development of the Connected Surfaces software, and $35,000 for Smart Mirror marketing services. So in total, the company invested $1,442,000 of strategic funds were expensed in the six months. We would also note that this strategic investment was financed through operating cash flow and did not resolve in the occurrence of any debt or interest expense. Moreover, this investment will provide marketing support through the remainder of calendar 2019. Let's take a look at the liquidity and capital sources. Our cash balances as of June 30, 2019 and December 31, 2018, was $1.2 million and $3.8 million, respectively, that's a reduction of $2.6 million. The company also had additional borrowing availability, which we didn't use under the bank agreement of approximately $2.4 million. Of note, on July 2018, Sterling National Bank renewed our credit line up to $7.5 million and it’s renewed through June 30, 2020. As of June 30, 2019 and December 31, 2018, the Sterling Bank loan balance for both periods was zero. As of June 30, 2019 and December 31, 2018 notes payable related parties for both periods was zero. Now cash flow from operations are primarily dependent on a net income adjusted for non-cash expenses and the timing of collections of receivables, inventory levels and payments to suppliers. Based on our past performance and current expectations, management believes that our cash on hand, our availability under the line of credit and anticipated cash flows from operations will be adequate to meet the company's cash needs for our daily operations and capital expenditures for at least the next 12 months. Cash flows provided by operating activities, cash used in operating activities in the six months ended June 30, 2019 was approximately $2.5 million compared with approximately $781,000 in 2018. The cash usage in the period resulted from the net loss of approximately $356,000, $191,000 decrease in accrued sales allowances and $2.5 million increase in accounts receivable balances, resulting from the increased revenue levels. This was partially offset by $594,000 increase in accounts payable. Cash flows in financing activities for the six months ended June 30, 2019 and 2018 was approximately $36,000 and zero respectively. During the period the company repurchased 240,000 shares to-date at a cost of $36,000. At June 30, 2019, the company was in compliance with all of the terms pursuing to existing credit facilities. This concludes my report. So I'll pass it back to Stewart.

Thank you, Gerry. Let's continue the discussion regarding Capstone’s future. There are a few specific initiatives and developments that could contribute to the company's revenue performance in 2019, that are definitely expected to drive revenues in 2020 and position Capstone for continued growth. Firstly, is our supply chain transition. As we have had discussions with our retail partners regarding our plans, the response was favorable as expected, we learned while many companies are attempting to transition in this matter, we are ahead of the curve, and believe this will open opportunities particularly in our core businesses were due to tariffs, Chinese goods are now less competitive. Secondly, our strategy to establish Capstone as an innovator in the electronics industry has proven to be sound. Not only will it enable the company to participate in a rapidly emerging market, but it has the potential to deliver significant revenue growth, as the average selling price in this portfolio is substantially greater than products we have successfully marketed to-date. Capstone initially established itself as a viable supplier by capitalizing on the LED business which at that time was seen as an emerging business with strong growth potential. Similarly, our entry into the Smart Home Electronics category provides the same setting upon which Capstone developed its initial success. Our proven innovative strengths in product development will fuel our entry into the electronics market and allow us to grow as the Smart Home category continues to evolve. Before we move on to the Q&A session, I'd like to reiterate a few points that highlight our 2019 year-to-date performance. One, for the six months, gross sales increased by $1.1 million over 2018. Two, the company transitioned from licensed products to Capstone branded products, which resulted in no royalty fees being paid on sales through the period. Three, our core LED business is performing well due to the introduction of a new innovative feature rich Capstone product known as Light Bars. Our strategy was to create a product that could support a higher retail price position and generate increased margins that would provide us the opportunity to invest in sell through campaigns, which we in fact did. Four, the company launched its Capstone connected home presale website in July 2019, which features the first Connected Surfaces Smart Home device, which is a Smart Mirror. You can see that at capstoneconnectedhome.com. Five, as part of our launch strategy, Capstone smart mirror was featured -- recently featured at a media preview event located in New York City. This exclusive invitation only event was hosted by Max Borges, our consumer tech PR agency and serve to showcase our product over 90 top tier influential journalists from the tech and lifestyle outlets. Sixth, we expanded our social media marketing department, a strategy in 2019. Our team’s primary focus over the past six months has been to develop our presence and broaden our reach on the following platforms, Facebook, Google, Instagram, LinkedIn and Pinterest in preparation for the company’s launch of its Smart Mirror. In the weeks ahead, we will expand the campaign targeting numerous audiences and demographics with the intent to reach buying populations at this time. Number seven, as a follow up to our presale website, our Capstone connected website is nearing completion and it is planned to launch this fall. And eight, the company has its first approved OEM factory partner in Thailand, which has successfully completed FCCA auditing requirements, factory capability and capacity. As we have discussed in previous webcast, we made this transition to mitigate the impact of the additional tariffs being imposed by the current administration on merchandise being produced in China. We anticipate deliveries from the new OEM partner to commence as early as Q4 of 2019. I trust, this provides you with a better understanding of our strategic directives, the past two years have been very challenging, but we have demonstrated our commitment to follow our strategy in a disciplined and productive manner. We are bullish on 2020, as we have addressed the potential supply chain problem resulting from the looming trade dispute and we have also developed a new product portfolio to lead us into 2020. At this time I’d like to personally thank our long time shareholders, for your continued support and to our new and potential shareholders, I’d like to welcome you to Capstone’s new exciting chapter.

Thank you, Stewart. Before opening up the lines, I’d like to address some of the questions that we received via email. First question, it is great to see revenues building through Q2, you mentioned continuing investments to support this revenue momentum through 2019. Can you share the backlog for these LED products with us at this point?

All right as in the past, we prefer not to discuss specific backlog numbers, because they can be subject to adjustments for various reasons whether that be logistical, inventory levels, or retail, et cetera. However, to place some color on this inquiry I'm comfortable in saying, plus or minus 10% our backlog for LED products only is approximately $6 million at this time.

Great. Next question, at the last webcast, Stewart referenced the trade dispute with China and revealed the company’s efforts to develop the supply chain outside of China. Can you provide an update on that? Maybe Stewart you can answer that.

I think, we just covered this, as stated earlier in the webcast, we anticipate deliveries from the new OEM partner, which was just recently approved to commence in Q4 of 2019.

Okay, thank you. Gerry this question is directed to you, gross profits for the second quarter were very strong at $734,000. You mentioned in this quarter, gross margin as a percent of revenue was 21.5% compared to 17.2% in 2018. Will future product releases maintain this positive gross margin trends?

For the six months of 2019 gross margin is 21.5% of revenue compared to 22.1% in 2018. Now that’s overall a slight decrease, however, what makes this period so special is that this performance reflects a product mix that includes Capstone’s lighting new battery product. And the 21.3% gross margin was achieved after we invested $851,000 of additional marketing funds more than in 2018. So if we compare, if we hadn’t made the investment then the gross margin will be trending at approximately 30.56%. We envision that current product mix and trend to continue through the year.

Great. Thanks, Gerry. Next question, I note that Sterling Bank had reduced -- or excuse me, have renewed the credit line up to $7.5 million to June 30, 2020. Do you feel $7.5 million will limit the growth opportunities that will be generated through the Smart Home portfolio?

Yes, let me answer that one. You've already seen from the numbers that we went through, we have self-funded all of our investments, and working capital requirements without relying on any bank financing. As such the $7.5 million should be adequate for 2020. But even more important is that bank have made it very clear that should our business needs require additional funding, they will review the request so that it will be available as needed. Sterling is very supportive of Capstone, as our banking relationship has been in place for nine years, and any additional requests we may have, they can turn it around in a very short order. So I'm very comfortable that we’ll cover.

Great, thanks. We actually have another question with regards to the trade dispute. And the question is, do you see retail pricing on our products going up, which could negatively impact sales? Stewart maybe you can…

Yes, I'll fill that. For the most companies, I would say, yes. However, Capstone identified in 2018, the need to transition its supply chain and concurrently launch new products that did not have an established retail at that time. Our first launch was the Light Bars, and because of design and feature sets, the product line was positioned at a higher retail and yet the sales remain very strong. Had this same product been established in the marketplace in 2018, consumers would have seen retails increase as much as 25% to 30%, if not more, and as such the sales would have been negatively impacted. I think this is the situation that many companies are faced with today that have established products on the shelf. In short, our strategy is working, our supply chain shift will be key to Capstone maintaining its competitive posture. And once again, we anticipate this to commence as early as Q4 of 2019.

Thanks, Stewart. Last question, regarding Capstone Smart Home Mirror at the current time there is only one mirror featured on your presale website. What are your plans for extending the product line and when will that happen?

Okay. Capstone will be expanding the product line and introducing this line to the public at the 2020 CES exhibition. I anticipate right now the product portfolio calls for five to six additional form factors being completed in time for the trade show.

[Operator instructions] Our first question comes from Mike Schellinger with MicroCapClub LLC. Please go ahead.

Yes, I was curious if you could comment on how the pre-orders for the Connected Surfaces have gone thus far?

This is Stewart speaking. Hi, Mike. The order actually is a two-step process. What we're doing through the social media and the analytics that the site provides us is we are gauging of course how many people are reviewing the site, how many people cart the item, and then the sale will actually trigger at the time of delivery. So, what I can share with you is that we are running ahead of projection relative to what we were hopeful for in carting, if you will. But those will not be transferred for sale until the product is available for sale and at which time the credit card is charged. But once again, I can see from our analytics, how many have actually been put into the cart and it is substantially ahead of our initial projection, considering the fact that we had not even initiated any social media advertising campaign until this Monday. So we'll have a better read in a couple weeks. But we are tracking ahead of expectation. We are hoping to put 100 mirrors into the hands of users on the initial flow through, if you'll review the site, we put an early adopter campaign in place. This was ideally designed for us to talk to the initial users have them give us their honest experience and feedback. See if there's any adjustments to the product that they would recommend and that we would agree to, so that we would have all of that feedback in place prior to and in time for the Las Vegas Electronic Show.

Okay, great. And one other quick question, so regarding tariffs, you guys have made great progress on transitioning to a different supplier. I guess, I'm wondering, what is the exposure to tariffs between now and when that transition is completed in terms of rates, and like our -- do only a portion of products have exposed?

Yes, Mike, let me let me put it to you this way. Keep in mind what our business model has been. Our business model has been up until this point in time where we ship FOB China and our retail partners, whether it be Sam's Costco, are the importer of record. So, they in fact are the ones that are dealing with the tariffs. Part of what we did to assist them in generating increased sales was invest that $850,000 in sell through campaigns. That was a prudent investment on our part, it was received well, but it also allowed us to remain distance ourselves, if you will, from any participation in actually paying the tariffs. And it's not something we've done in the past and we didn't want to modify our business model. That being said, most of the product that has been -- that will be featured on our Light Bars, that will be featured in Qs three and four. We're subject to the first round of tariffs, not the second round. So at the end of the day, that's already been taken into consideration, we've already made the investments in the marketing campaigns, retails will go up slightly is my understanding, we don't of course control that. And everybody is keeping their cards pretty close to their vest, because it's a day-by-day situation, the process is dynamic. Nobody really knows what to expect. So, we're well positioned, our promotions are booked and we're expecting some very strong sell through in Q3 and Q4.

Okay, that's a good position. So just one other follow-up to that, then I'll end. So is the transition plan to transition all the products, just the higher volume ones or how does that work?

So here's is -- right now the plan is -- first of all, there's issues of capacity that we have to address. And then, of course, there's issues of what things are tariffed and what aren't tariffed, we had to find a business partner in overseas. So our approach to this, I think is somewhat unique and -- as I said, we are way ahead of curve on this. But for us, we have relinquishing the entire supply chain. We're not involved in that, we've arranged and introduced certain elements of the supply chain, that will continue to come out of China, but they will not be sold or coming to us, they will be coming to an OEM factory, which is the same way we've done business in China, so just that the OEM factory is no longer located in China. So it's a pretty complex plan, it's not specific to an item. In other words, we can just produce this product over there and the next product we could add to it. There are different capabilities. Right now, our primary partner who has again, as I said followed and passed the audit requirements to initiate shipping into the states. They are capable of doing any kind of molded product, we can do electronic PCB boards, we've identified the supply chain outside China. So, the assembly work is the least of the problem that's the easiest part, arranging the supply chain over time in such a way that we can remain competitive on the component purchases is the real challenge. Now moreover, our goal over long-term would be to replace that supply chain entirely into outside markets. But that is going to take some time and the key to that will be when we can walk in, sit down with a partner and say we need 100,000 pieces a month, then they will make the investments and the government will support those investments into potentially new products for the supply chain.

Okay, thank you.

You bet, Mike. Thanks.

As there are no further questions, I would like to turn the floor over to Stuart for closing comments.

Thank you, Stacy. Well, again I want to thank everybody for the time I know the last two days has been pretty hectic in the market and I’m sure a lot of people have bigger concerns than Capstone at this point. But for us we are very, very encouraged by what we've been able to finalize over the last few months, particularly, the Capstone Connected project, which will as I indicated really show its revenue capabilities in 2020, and the transition outside China on our supply chain. Both of these measures are very exciting for the management. Lot of long hours and hard work into this and we never lost sight of the goal. I’m very optimistic about what these two initiatives will result in for the company in 2020. And toward that end, I look forward to reporting our progress in the months ahead should there be something that you'd care to hear about, particularly, our initial shipments of the Capstone Connected project and our initial shipments outside China. So we will keep you advised of that. And once again want to thank you for your continued support.

This concludes today's conference. Thank you for your participation.