Operator: Greetings and welcome to the Capstone Companies First Quarter 2019 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Aimee Gaudet. Thank you, you may begin.

Aimee Gaudet: Thank you, Matt, and good morning to everyone. On the call today is Stewart Wallach, Capstone's President and Chief Executive Officer; and Gerry McClinton, Chief Financial Officer. They will be discussing the first 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.

Stewart Wallach: Thank you, Aimee, and good morning to everyone. I appreciate your time with us today. Before introducing Gerry McClinton to review the first quarter 2019 financial results, I'd like to take a few minutes to highlight a couple of salient points that impacted the quarter. The first quarter of 2019 marked certain accomplishments and achievements within new product areas while also ramping up business activity in our core category of LED lighting. To be specific we shipped an estimated $3 million net of all discounts and allowances of newly developed Capstone branded LED products in the quarter. Moreover, due to the successful initial sell through in Q1 of this latest innovation in LED, our backlog is growing and currently stands at an estimated $9 million to $10 million. In short, if Capstone did obtain another order for the remainder of the year, we will have approximated the sales in calendar year 2018. And that does not include any connected surfaces product sales. Concurrent with the above, we have been rapidly finalizing developments of our first time Connected Surfaces product which I’ll comment on a bit later and our presale website is scheduled to be launched in the weeks ahead. At this time, I’ll turn this over to Gerry to review the highlights of the financials, after which I will comment further on the company’s outlook followed by a question-and-answer session.

Gerry McClinton: Alright. Thank you, Stewart. And good morning, everyone. Let’s go straight to the numbers. Net revenue for the quarter ended March 31, 2019 and 2018 were approximately $3 million and $4.1 million respectively. The decrease in net revenues was a direct result of reduction in promotional activities within the LED categories but specifically for Hoover and Duracell promotion that figure permanently in our 2018 revenues would not repeat it in 2019. At the same time we made a major promotional investment into the launch of our new Capstone lighting battery powered LED product which generated an estimated $3 million of revenue in Q1 2019. Now for the purpose of comparison, the Duracell license which expired on December 31, 2018 had zero revenues in Q1 2019 compared to $921,000 last year. And then Hoover home LED program also had zero revenues in 2019 compared to $2.8 million in the first quarter of 2018. In the first quarter of 2019 with the uncertainty surrounding a 15% increased tariff for consumer products coming from China, in support of the marketing launch of the new LED product, the company invested approximately $790,000 in the form of the 2019 marketing fund that the retailer could use either to offset tariff increases should they occur or promote the new products. Now this is $765,000 increase compared to the first quarter of 2018. As these marketing funds are deducted from gross revenues, they are reflected in the reduced revenue in the quarter. For the three months ended March 31, 2019 international sales were approximately $301,000 as compared to $317,000 in 2018. Gross profit for the three months ended March 31, 2019 and 2018 was approximately $626,600 and $1,19,000 respectively, a reduction of $392,400. Gross profit as a percent of revenue was 21% in first quarter of 2019 as compared to 25.1% last year. However the $790,000 market fund investment resulted in the reduction of gross profit in the period. Just for comparison purposes that we excluded the impact of the marketing fund, gross profit in the quarter would have been an unprecedented 37.6%, significantly higher than the 25.1% in 2018. Total operating expenses for the three months ended March 31, 2019 were $973,500 as compared to $1,228,000 in 2018, that's a decrease of $254,000. The two areas most impacted by operating expenses was sales and marketing and product development expenses. For the three months ended March 31, 2019 and 2018, sales and marketing expenses were $191,900 compared to $363,100 respectively, that's a reduction of $171,000. But during the quarter with the revenue reduced of licensed product, total royalty paid in 2019 and 2018 was zero and $169,000 respectively. Sales representative commissions were also reduced in the period from $93,000 in 2018 to zero in 2019. In 2018, we also incurred $56,000 in fees for our retail service company to ensure timely display setup which were not incurred in the first quarter of 2019. However part of these overall reductions were offset with a $145,000 trade show expense to launch the Connected Surfaces categories at the Consumer Electronics Show which obviously in 2018 did not occur. For the three months ended in March 31, 2019 product development expenses were approximately $85,200 compared to a $166,000 in 2018 that’s a decrease of $81,000. During the first quarter the company invested a further $47,000 in software and hardware development for the Connected Surfaces project, and as compared to $73,000 in 2018 when we initially started that project out. The prototype and sample development expenses were $3,000 in 2019 compared to $47,000 in 2018. In other expense areas, compensation expense of $375,000, the same level as in 2018. Professional fees were $158,000 and $149,000, respectively, an increase of $9,000 and that's mainly due to higher accounting fees. Other G&A expenses for the three months ended March 31, 2019 were approximately $163,000 as compared to $174,000 in 2018, a decrease of $11,000. But during the period we invested $12,000 in developing the new Connected Surfaces website which did not incur in 2018. Rent was $21,000 in Q1 2019 compared to $41,000 in 2018 a reduction of $20,000 as a result of the rent incentives the company received from our landlord from moving from new -- into the new corporate offices. Operating loss for the three months ended March 31, 2019 was $346,000 compared to a loss of $208,000 in 2018 an increase of $138,000. Despite expense decrease of $254,000, the reduced gross profit resulting from the $790,000 marketing fund negatively impacted this quarters overall operating performance. Other expense for the three months ended March 31, 2019 was $10,500 as compared to zero in 2018. This was a net result of a refund of overpaid general liability insurance premium and an expense related to retail warranty claim. Benefit from income tax for the three months ended March 31, 2019 was $12,000 compared to of $18,000 last year. Net loss from the three months ended March 31, 2019 was approximately $345,000 compared to a net loss of a $191,000 in 2018. I’d really just kind of summarized exactly what happened in the period just to give you a perspective. So summarizing the financial performance of Q1 2019, gross sales were actually $3.8 million in 2019 compared to $4.1 million in 2018, that's a decrease of $300,000. However, the overall results were impacted as the company incurred additional expenses to support management’s strategic objective in order to promote revenue growth in the future. Now let's summarize those. We spent $790,000 for 2019 marketing funds. We spent a $145,000 for the CES show and the launch of the smart project, smart mirror project, we spent $47,000 in continued development of the Connected Surfaces software and we spent $12,000 in website development for Connected Surfaces online sales which Stewart alluded to earlier. In total $994,000 of strategic funds were expensed in the quarter, which if not incurred would have turned the $357,000 loss into a $636,000 profit. And let me just note that those investments were done without borrowing any funds. There were no interest expenses in this period, but we did of all this without borrowing any money. So let just talk a little bit about liquidity and capital resources. Our cash balance at March 31, 2019 and December 31, 2018 was $1.6 million and $3.8 million respectively. The company also had additional borrowing availability if we had needed it under the signed agreement of approximately $2 million and another $2 million for the Capstone expansion line which we have not touched. As of March 31, 2019 and December 31, 2018 the Sterling Bank loan balances for both periods continue to be zero. As of March 31, 2019 and December 31, 2018, those payables related parties were zero. Based on cash performance and current expectations, management believes that our cash on hand, our availability under the line of credit and anticipated cash flows from operations will be adequate to meet the company's cash needs for our daily operations and capital expenditures for at least the next 12 months. With a working capitalization we believe that we have the ability to continue to invest in further development of our product portfolio. Cash flows provided by operating activities in the three months ended March 31, 2019 was approximately $2.2 million compared with approximately $193,000 provided by operating activities in the same quarter 2018. Now the cash uses in the period for the net was really resulted from the net loss of $345,000 a $191,000 decrease of accrued sales allowances and a $2.1 million increase in accounts receivable, so we have the funds, the additional receivables from the revenue in the quarter. This was partially offset by a $167,000 decrease in prepaid expenses $277,000 increase in accounts payable. The company's cash position reduced from $3.9 million at March 31, 2018 to $1.6 million at March 31, 2019. The company is continuing to negotiate beneficial payment channels with our main overseas manufacturer that resulted in introducing funding requirements to produce the re-launch products. Cash flow used from financing activities for the three months ended March 31, 2019 and 2018 was approximately $900,000 and zero respectively. As of March 31, 2019 the company had zero outstanding debt. On March 31, 2019 the company was in full compliance with all the terms pursuant to our existing credit facilities. This concludes my report so I’ll pass it back to you Stewart.

Stewart Wallach: Thank you Gerry. Let’s turn our attention to Capstone’s future. We are putting several initiatives in place that will drive the company’s growth over the next several years. Towards that end let me highlight some of our specific Connected Surfaces achievements to-date which will fuel the company’s growth and its security of share in this emerging category. Firstly, number one, our initial smart devices Smart Mirror was introduced at CES 2019. This was our first entry in the electronics industry showcase and we have subsequently been covered in numerous industry publication interviews and were recognized by Android Headlines as one of their best of CES choices. We had such a powerful experience that our commitments for exhibiting the 2020 CES have been made. We are planning a broad expansion and launch to the Connected Surfaces programming at that time. Two, we engaged Max Borges Agency a noted consumer tech PR company who helped us to spearhead the launch of the Connected Surfaces product line at the Consumer Electronic Show and we will continue to manage media contact for the company as we initiate product launches at retail. Media outlets are eagerly awaiting samples for them to experience firsthand the product they saw at CES and will feature us in applicable public reviews. Three, the company expanded a social media marketing department and enhanced its social media campaign strategy. We currently have a presence on the following social media platforms: Facebook, both Capstone Industries and CapstoneConnected; Instagram; Pinterest; LinkedIn; with plans to stay with presence on YouTube as well as Twitter in the very near future. Additionally our team is in developing a strategic social media advertising campaign designed to reach our highly targeted audience and leverage potential sales of the smart device. Much progress have been made in this area. We urge you to follow us on Facebook under CapstoneConnected, Pinterest under CapstoneConnected and Instagram under CapstoneConnected. Four, the company has been working with its web design and marketing team, the developments of a short term pre-sale website which we use to facilitate direct sales early adopters. As mentioned earlier we are scheduled to introduce this site in the weeks ahead. Five, additionally the web team has also been making progress under design and development of our main website which will be a modernistic and relevant site reflective of the image associated with smart electronic products. This website will feature products from the new CapstoneConnected product line and it is expected to be hosted in Q2. And lastly we engaged Producify a boutique full-service marketing company to help us create and produce our initial product video which will be used on social media channels and to support the initial campaign. Additionally, we are planning a continuity marketing campaign with them, and will be creating a number of videos in the months ahead to support our marketing efforts. As you can see our pursuit to establish Capstone as an innovator in the electronics industry is focusing on track because of this opportunity is greater than any that Capstone has pursued in its history sizeable investments have been made to make our presence known and to deliver us to a leading market position. On an additional note, I recently returned from Asia, where I had the opportunity to review and discuss plans for the Capstone Connected Surfaces programming, as well as explore expansion of our LED product roadmap. My time to spend both in Mainland China, as well as Thailand and I am certain that we will be expanding our supply-chain to Thailand as a means to mitigate increased tariff increases and reduce our reliance on Mainline China price of souring. While we enjoy strong relationships with our OEM factories, and we are not currently experiencing any delivery or production issues, there are concerns that trade relations between the US and China will remain strained for the foreseeable future and we need to be prepared for future instabilities. In closing Capstone management took some very bold steps in 2018 to address the maturation of the LED category, reduction in promotional scheduling resulting from the trade disputes, while launching an entirely new product line with an emerging category influenced by today's digital lifestyle. At this time, I'd like to personally thank our long-term shareholders for your continued support and for a new and potential shareholders I’d like to welcome you to Capstone’ next exciting chapter.

A - Aimee Gaudet: Okay before opening up the phone lines, I'd like to address some questions that came in via email. The first question was, in the last webcast you stated that Wilson and Davis had been authorized to repurchase stock. What is the status of this program?

Gerry McClinton: Yes, let me answer that, so I was just talking about in this market. But the program is in place the growth that has been authorized to purchase shares everyday on the specific guidelines regulatory terms and conditions that we have to deal with as of pricing and so forth. But as of this morning, the number of shares purchased to-date was approximately 120,000, so that program is very active.

Aimee Gaudet: Thanks, Gerry. This question came in with regards to tariff. As the tariff flow with China seems to be accelerating can you provide an details as to Stewart’s visit and the possibility of moving manufacturing out of China?

Stewart Wallach: Alright, firstly it's important to emphasize that the Capstone HK team has been researching this potential shift in manufacturing over the past 12 months. It requires participation at several levels, including but not limited to, legal compliance, finding suppliers at a proven track record, supplying other recognized companies and most importantly, we are looking to build long-term relationships similar to those we have built over the years in China. Some of our products will still require components to be shipped from China, but the bulk of the product and the related costs will be borne outside of China. I'm pleased to say that we have found a few companies that meet our criteria. We are accelerating operational plans to begin building product just in the season. As I stated earlier I believe we will be receiving finished goods by yearend.

Aimee Gaudet: Great, thanks Stewart. Next question, can you please comment about the increased business in our Capstone franchise?

Gerry McClinton: It's important to point out that we have excellent results with the licenses that we have commissioned over the past several years. Additionally the Capstone brand has proven its strengths particular in the warehouse club channels. Curiously enough on a comparative basis the Capstone brand outsold the Duracell brand on similar products and as such our retail partner agreed resumed marketing of the Capstone brand which also translates to cost savings for the membership. We are not stating that licenses would not be meaningful in the future, however at this time our new LED products are only being marketed under Capstone brand.

Aimee Gaudet: Thanks, next question maybe Gerry you can help us out with this one. Gross profit was 21% in Q1 2019 compared to 25.1% in 2018. Could you explain if the increased costs are the result of the increased tariffs being levied on Chinese goods?

Gerry McClinton: Well, it is true that these additional costs are paid by US importers and could increase cost of sales expense. However, our business model is based on shipments being billed from the port overseas, so it is actually the retailer who pays for the added tariffs when the goods arrive in the United States. The tariffs have not impacted our cost of sales or indeed our gross profit numbers other than increase in participation and promotional funding to help stimulate sales of retail. The retailers will bear the brunt of the tariffs and as such we'll definitely be reaching out to us for assistance for additional promotional funding.

Aimee Gaudet: Thanks Gerry. Number five, I know we spent a $145,000 at the CES show in January, did you get the impact that you wanted and is Capstone planning to attend in 2020?

Stewart Wallach: Let me handle this. The simple answer is yes, we had a very impactful showing. This was evidenced by the media coverage that followed out our participation as well as the recognition we received at CES. As I stated earlier one of the most rewarding experience is receiving the best in CES 2019 award by Android Headlines publication. Moreover our media agency has a long list of journalists eagerly awaiting samples which will lead to additional media coverage in the months ahead.

Aimee Gaudet: Thanks Stewart, next question, Capstone's cash balance at March 31st was $1.6 million compared to $3.8 million at December 31, 2018. Could you explain the $2.2 million reduction? Maybe Gerry, you can answer that.

Gerry McClinton: Yes, well, I touched on it earlier when I was talking but you'll note that with no interest expense, we had zero loan balances during the quarter, which means our investments are being made with our own working capital. The marketing funds, the CES show expense, Connected Surfaces software development, website development, media agency involvement totaling an estimated $994,000 were all covered from existing cash flow. We also funded the $2.1 million increase to the account receivable that we will get back when the envelops are paid back to us. In summary we are being highly efficient in our cash management.

Aimee Gaudet: Thanks Gerry. Next question, as a long-term shareholder I am so pleased to see that LED lighting category was not abandoned when you implemented the Connected Surface plan. It appears based on your statement about the open order log that the company will be in great shape once this Smart Mirror product ship, does ship. Can you shed any light on that?

Stewart Wallach: Well thanks for acknowledging, firstly. Thanks for acknowledging the effort regarding our core LED business and recognizing the potential impact our Smart Mirror will have on the company performance as well. I can see that much interest has been shown by the numerous retailers that first saw our Smart Mirror product at CES. Moreover the press that covered our product release furthered the interest in several channels. Following CES a few presentations were made in prototype stages. And I can tell you had the product been ready at that time, orders would have been written. Due to the complexity of the product which requires extensive testing being done on both the hardware and software we elected to introduce the product direct-to-consumers in case we could not meet the shipping deadlines for Christmas season. In this way we will be able to launch sales in calendar year 2019 and start to gear up 2020 first half.

Aimee Gaudet: Great and this is actually the last question. You are very positive about the potential of the smart home categories and where we may fit into that. Can you share what is driving this enthusiasm?

Stewart Wallach: Well several things. At the recent being redundant, I shared some of this information during previous webcast but I'm comfortable sharing some of the stats that motivate this development effort. Consider this, revenue in the Smart Home segment amounts to approximately $46 billion in 2018. Household penetration is only a 7.5% in 2018, and is expected to write the 19.5% by 2020. Smartphone users in the US exceed 220 million as projected 270 million in 2022. And most importantly the fixed broadband subscriptions in the US exceed a100 million homes. The size of the market alone is very exciting. While we are not in a position today to project the potential for our company, consider that reaching only 1% of the fixed broadband household in North America would result in selling 1 million Smart Mirrors. It’s quite dazzling. So we’re excited about it, we’re motivated by it and all trends relative to emerging technologies and future spending are extremely positive. And this is the market we will be competing in. So that is the basis for my enthusiasm.

Aimee Gaudet: Okay thanks Stewart. At this time we can open up the line for some questions.

Operator: Great thank you. [Operator Instructions] We do have a question here from [Erika Colin]. Please go ahead.

Unidentified Analyst: The stock has gone down tremendously in the last two years, where do you expect the stock to be after second quarter, third quarter and fourth quarter of this year?

Stewart Wallach: Well, this is Stewart speaking. Thank you, Erika. We can't possibly project stock valuations. There are so many factors in the dynamics of the marketplace et cetera. But here is what I will tell you is that we saw this as a huge opportunity to buy and that's why we did in fact put the program in place for stock repurchasing and allocating much of our resources -- available resources to bring stock back in. That dilution -- I am sorry reduction of outstanding stock should assist in the valuation but at the end of the day until we start to ramp-up at previous levels in revenues and close the profits I think that the stock has found its bottom and we are all very helpful that the stock will resume and start to reflect the revenue growth. I will point out that just for your ratification, at the same time that we are doing a stock buyback program, insiders that have not sold any stocks. Our holdings have remained solid.

Gerry McClinton: Yes, I'd just like to add to that and speaking with the broker this morning they are putting bids in everyday and stating that they're going to get some acceptance and it's not happened, people aren’t looking to give up the stock and that’s why we would have a lot more or that people aren't selling the stock, believe it or not that’s what’s going on.

Unidentified Analyst: Well I think that's because of stock has hit really at its bottom. My question is if you can't comment where do you think the stock will be during this year, what is your hope that the stock will be?

Stewart Wallach: I'm not in a position as the CEO of the public company to project. I am hopeful that the company will resume levels that it had hit prior to and considerably more than in the past. The past year has been difficult for the stock and it's been difficult for a lot of stocks, but particularly for our company. And I think at this point as I’ve said demonstrating the growth and moving into a category that offers growth for three to five years minimally was an important step for us. We were doing very well in the LED lighting category only but that category has matured greatly and the opportunities for us were being reduced. So the company and the management took some very bold moves. We've invested a great deal of our money internally into expansion and we're hoping that will translate to shareholder value later in the year.

Unidentified Analyst: Yes. I have to say it's very exciting to hear your marketing strategy because I always felt that nobody knew about the company and there were a lot of really positive things. So I think in my opinion that your marketing strategy that the changes to it, I think that will help greatly and I'm really happy to hear about that.

Stewart Wallach: Thank you for acknowledging that Erika.

Unidentified Analyst: Yeah, that's huge, it's huge. So just got back to very big positive, so thank you for taking my call, thank you. Good luck.

Operator: This concludes the question-and-answer session. I'd like to turn the floor back to management for any closing comments.

Stewart Wallach: In closing I just want to say that with all the challenges we faced from the trade disputes and last year's reduction in promotional activity as a result of the trade wars and the uncertainty of supply chain and relative costs out of China, personally I'm very, very pleased with how the management has conducted itself over the course of this past year, I think that is a true litmus test for management and I think we performed well. Cash management seeks for itself over funding almost a $1 million worth of investment in the first part of this year, and our loan balances remain at zero and our interest expense remains at zero. Moreover we have arranged for additional working capital expansion once this program starts to take off, so we're going to be in a very good position to maximize and leverage the opportunity. I will point out that we are now competing in an industry where are indicators are significant. The International Data Corporation has pointed out that smart home devices and smart wearable products will account for more than 80% of the overall spending on emerging technologies in 2019. Now, we talk about 80% of a substantial market, but more importantly the fastest growing technology category are smart home devices is being forecasted with a five year compound annual growth rate of 38%. So we're in the right place, we're at the right time. And as I indicated earlier even a 1% penetration rate into the smart home environment in America represents a substantial opportunity for us. So we're very bullish. We are excited about it. And at the same time we have to continue to support our LED categories, we have to transition manufacturing out of China, we have to explore opportunities relative to penetrating new channels. There's a great deal of work being done to have this company positioned properly for the next three to five years. And I personally am very pleased with the way management has conducted itself. And I do expect this to translate to shareholder value in the near future. So thanks again for participating and we'll talk to you soon.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.