Executives: Aimee Gaudet - IR Stewart Wallach - President, CEO and Director Gerry McClinton - CFO, COO and Director

Analysts: Tomer Cohen - Five Roads Capital

Operator: Greetings and welcome to the Capstone Companies Third quarter 2017 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]. And as a reminder, this conference is being recorded. I would now like to turn the conference over to Aimee Gaudet, Corporate Secretary for Capstone Companies. Thank you. Please go ahead.

Aimee Gaudet: Thank you, Brenda 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 third quarter results as well as give us an update on strategy and outlook followed by question-and-answer session. If you do not have the release that was distributed yesterday, 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 capstonecompaniesinc.com or sec.gov. With that I'll turn it over to you, Stewart.

Stewart Wallach: Thank you, Aimee. Thank you, good morning to everyone. I'm going to apologize up front, I've got a bit of a head cold so please bear with me. I appreciate your time with us today. I am pleased to report that morning that Capstone has once again yielded record results. We have remained consistent in our approach to the market and our retail partners continue to support our programs as our products resonate with our shoppers. The company's strategic planning is attributed to its ongoing strong financial performance and we have already surpassed 2016's record year end revenues in the first three quarters of 2017. Clearly 2017 is going to be the strongest year in the history of the company. Following Gerry's review of the financials I will elaborate further on our 2017 achievements and offer some 2018 perspective.

Gerry McClinton: Thank you, Stewart and good morning, everyone. It gives me great pleasure to report on another record breaking quarter. So, let's go through the numbers. Net revenue for the three months ended September 30th 2017 and 2016 was approximately 13.8 million and 11.7 million respectively an increase of 2.1 million or 18.2% from 2016 and a new quarterly record. During the quarter the company also provided approximately 1.4 million in consumer promotional allowances compared to $699,000 in 2016. For the nine months ended September 30th 2017 and 2016 revenue was approximately 30.8 million and 22.7 million respectively. Now that's an increase of 8.1 million or 35.8% from 2016 and a new Q3 year to date record. The company has a strong sales performance in the Accent Light category in all three brands including Duracell, Capstone Lighting and Hoover Home LED. Revenue also increased as a result of the five new product watches that we initiated. During the nine months ended September 30th 2017 the company has also increased its product promotional allowances by $352,000 from 2016 levels up to 1.8 million in order to support the new product launches and improve product awareness. For the nine months international sales were approximately $1.3 million as compared to $1.8 million in 2016. Cost of sales for the three months ended September 30th 2017 and 2016 were approximately $10.7 million and $8.8 million respectively. Now that's an increase of $1.9 million or 21.1% from 2016. This cost equates to 77.5% and 75.6% respectively of revenue in the quarter. The percentage to revenue increase of 1.9% were resulted from the $699,000 additional promotional allowances provided in the quarter compared to 2016. For the nine months ended September 30, 2017 and 2016 cost of sales were approximately $23.5 million and $17.1 million respectively, that’s an increase of $6.4 million or 37.3% from 2016. This cost equates to 76.2% and 75.3% respectively of revenue. The percent revenue increased of 0.9% resulted from the $353,000 of additional and promotional allowances provided in the nine months compared to 2016. Now manufacturing unit costs continued to remain stable in the period as a result of effective buying programs with our overseas factories, the steady price of oil and the U.S. exchange rates. Gross profit for the three months ended September 30, 2017 and 2016 was approximately $3.1 million and $2.9 million respectively, an increase of $259,000 or 9.1% from the same period in 2016. Gross profit as a percentage of sales was 22.5% in the quarter compared to 24.4% in 2016. For the nine months September 30, 2017 and 2016 gross profit was approximately $7.3 million and $5.6 million respectively, now that’s an increase of $1.7 million or 31.1% from the same period in 2016. Gross profit as a percentage of sales was 23.8% in the nine months compared to 24.7% in 2016. The increased gross profit resulted from the 35.8% increase in revenue. A slight reduction of gross profit to sale of percentage resulted from the additional $353,000 provided for transitional allowances to retailers in the period. Operating expenses for the three months ended September 30, 2017 and 2016 were approximately $1.6 million and $1.2 million respectively, an increase of $413,000 or 33.1%. For the nine months ended September 30, 2017 and 2016 total operating expenses were approximately $4.2 million and $2.9 million respectively, that’s an increase of $1.3 million or 44.9% as compared to 2016. I'm just going to give you a brief summary of the major expense variances by category, comparing 2017 to 2016. Sales and marketing expenses for the three months ended September 30, 2017 and 2016 were approximately $928,000 and $488,000 respectively, an increase of $440,000 over 2016. Now the company continued to invest heavily in its brands of Duracell, Capstone Lighting and Hoover Home LED. The sales and marketing expenses increase resulted mainly from the royalty license payments of $514,000 for the branded licenses, which was $293,000 higher than in 2016. In addition, sales representative commissions increased by $23,000. For the nine months September 30, 2017 and 2016 sales and marketing expenses were approximately $1.9 million and $904,000 respectively, that’s an increase of 966,000. Now many of these expense increases resulted from $8.1 million revenue increase in the period. Just to give you a brief summary of that. We invested in the branded license of Duracell and Hoover and amount to $1 million and license payments, now that was $637,000 higher than we occurred in 2016. Sales representative commissions increased by 160,000 in 2017 from 2016. The company also expensed $93,000 of prepared media credits. We invested $36,000 for in-store setup for the new products and increased advertising and trade show expense by look further of $42,000 over 2016. Compensation expenses for the three months ended September 30, 2017 and 2016 was approximately 352,000 and 325,000, respectively and increased 27,000 or 8.2%. For the nine months ended September 30, 2017 and 2016, compensation expense was approximately $1,066,000, I guess $950,000 respectively and increased of 116,000 or 12.2%. Compensation expense increased as a result of performance based salary adjustments during the period of stock-based compensation paid to Directors. Professional fees for the three months ended September 30, 2017 and 2016 were approximately 109,000 and 111,000, respectively, a decrease of 200,000 or 1.9%. For the nine months ended September 30, 2017 and 2016 professional expenses were approximately 429,000 and 287,000 respectively, an increase of 143,000 or 49.8%. The increased professional fees in the period resulted from hiring an investment banker, increased investor relations including management’s attendance at various investor shows, and engaging the services of the sales consultant to help support the U.S. sales office marketing effort. Product development expenses for the three months ended September 30, 2017 and 2016 were 81,000 and 127,000, respectively, a decrease of $46,000 or 36.4%. For the nine months ended September 30, 2017 and 2016 product development expenses were approximately 220,000 and 228,000, respectively a decrease of $800,0000 of 3.6%. Now, the company has continued to invest the new product prototype development including testing and product certification. To reduce the initial costs of new product development, we’ve been able to negotiate with our factory partners to absorb some of the initial costs of new product development. So that is help to keep that particular expense category lower. Other general and administration, for the three months ended September 30, 2017 and 2016 expenses were approximately 190,000 and 195,000 respectively, a decrease of $5,000 or 2.7%. For the nine months ended September 30, 2017 and 2016 other general and administration expenses were 573,000 and 502,000 respectively an increase of 71,000 or 14.2%. Now this expense increase is a result of higher Sterling bank processing fees and increased general insurance liability of premiums associated with the higher revenue levels and increased travel expenses related to the increased sales activities during the period. Net income for the three months ended September 30, 2017 was approximately $1,450,000 compared to $1,604,000 at 2016. This is a reduction of a 154,000 or 9.6% compared to 2016. For the nine months ended September 30th 2017, the operating income was approximately $3,176,000 compared to $2,724,000 in 2016. Now this is an improved performance of $452,000 compared to 2016 and a new company record. Interest expense, were lower income expense. For the three months ended September 30th 2017 and 2016 other expense was approximately 70,000 and 90,000 respectively for a reduction of 20,000 and 22.6% compared to 2016. For the nine months ended September 30, 2017 and 2016 other expense was approximately a $113,000 and $213,000 respectively or a reduction or a $100,000 or 47% as compared to 2016. Now despite having substantial revenue growth during the period we have been able to curtail increased borrowing by negotiating favorable paying returns with our overseas suppliers which has substantially reduced the need for purchase order funding. With the increased cash flows resulted from operational profits in 2017 we've also been able to substantially reduce old director loans which also reduced the interest expense in the period. Provision for income tax. For the three months ended September 30 2017 income tax was approximately $390,000 an increase of $366,000 compared to 2016. As the company has now offset its previous year's operating losses the company must provide for future income tax expense. For the nine months ended September 30, 2017 the provision for the income tax expense was approximately $927,000 an increase of $883,000 compared to 2016. Net income for the three months ended September 30, 2017 was approximately $990,000 compared to $1,490,000 in 2016. For the nine months the company had net income of approximately 2,142,000 as compared to 2,473,000 in 2016. To summarize during the nine months ended September 30th 2017 the company has achieved record net revenue, record gross profit, record net operating income. The record performance was achieved after the company provided approximately $1.8 million of promotional allowances for the new product launches and also incurred approximately $1.3 million of increased operating expense resulting from higher revenues and further strategic investments by the company for future revenue growth. Now during the nine months ended September 30th 2017 the company also provided for tax provision of $920,000 which is approximately $883,000 higher than in 2016 and it's the main reason why net income for the nine months was approximately $330,000 lower than in 2016. Now let’s turn to liquidity and capital resources. The good news here is that as of September 30, 2017, the company had approximately $3.2 million of cash on hand as compared to $1.6 million at December 31, 2016. Our sterling bank loan balance is zero and our working capital of approximately $5.2 million as compared to $2.8 million at December 31, 2016. Operating activities, cash flow provided by operating activities was approximately $2.1 million in the nine months ended September 30, 2017 compared to $3.7 million used in operating activities in 2016. In the nine months ended September 30, 2017, the net income of approximately $2.1 million combined with $224,000 decrease in inventory and the $732,000 decrease in accounts receivable, of the offset cash usage from $264,000 decrease in accounts payable and $134,000 decrease in notes/loans payable interest and $832,000 decrease in accrued sales allowances. During 2016, the net income of approximately $2.5 million was offset by large increase of $6.8 million in accounts receivable. Investing activities, cash used for investing activities for the nine months ended September 30, 2017 was approximately $48,000 compared to $60,000 in 2016. Now the company continues to invest in new product molds tooling and product certification, with the product expansion plan, the company's future capital requirements will increase. Management believes that our cash flow from operations and additional borrowing as needed will provide for these necessary capital expenditures. Financing activities, cash used in financing activities for the nine months ended September 30, 2017 was approximately $500,000 compared to $3.8 million provided by financing activities in 2016. During the period, the company repurchased and retired $250,000 of the company’s common stock from Involve LLC and paid off $257,000 of Director's loans outstanding since 2010 and 2013 including accrued interest. The company was also able to maintain their Sterling bank loan at zero balance. Company also sold some outstanding warrants totaling $7,500. Now what's noting that our ability to maintain sufficient liquidity is highly dependent upon achieving expected operating results. However, achieving expected results as accomplished in 2016 and through the first three quarters of 2017 has increased working capital, provided the company with liquidity and has allowed the repayment of outstanding bank notes and some old related loans. As of September 30, 2017, the company was in compliance with all of its agreements pursuing two existing credit facilities. Now this concludes my financial summary for the third quarter 2017. I will turn the call back to you, Stewart.

Stewart Wallach: Thank you, Gerry for the detailed coverage. Well, as you can see, the company is experiencing continued growth having delivered year-to-date increases in revenues of 35%. While growing gross profit dollars in excess of 30% and operating income in excess of 16%. As the company continues to evolve. We have remained a discipline in our approach to gaining market share and revenue growth. In Q3 alone, we invested close to $1.4 million into consumer promotional campaigns that pushed our revenues to record highs. As we are competing today at the highest levels globally, we are expected to invest more vigorously in retail business programs. But we remain resolute in making solid business decisions with yield beneficial results to Capstone. We started the year with the most significant product line expansion to-date. We also introduced one of our product lines under the Duracell. Our overseas operation, while delivering this increased demand on-time, also maintained its overheads and this strong operating leverage is expected to continue to drive earnings potential into the future. Moreover, Capstone International continued to strength in these direct sales efforts in the Pacific Rim and as expanded product placement in 2017 as well. We started 2017 with a great deal of momentum coming off of record 2016 and now as we approach a record year-end again. We remain sensitive to the matters, which we can control such a shipping day changes factory supply chain matters and potential logistical issues, when discussing future revenue projections. It is for these reasons that we continually suggest the trailing 12 assessments, which offers a more accurate perspective of the company’s performance. I’m pleased to say that our trailing 12 revenues are tracking at approximately $38 million. As I stated earlier, there was a direct correlation between substantial marketing investments, we have need to support retail sell-through and the revenue growth we are experiencing. We measure the investments carefully and we factor in the value of market positioning, competitive standings and general consumer awareness in addition to the increased revenues that result in these investments. At the same time, we have continued to manage our debt successfully and reduce debt level faster than anticipated. In short, I couldn’t be more proud of Capstone’s management and its associates. Delivering growth, while maintaining operating leverage as a direct result of their willingness to putting forth extra efforts, while maintaining costs. I believe, we are a standout company and as we continue to execute on our marketing products strategies or story will continue to unfold. Our business strategies and discipline have allowed this company to achieve strong and consistent year-over-year results. The company’s entry into the LED lighting category with a sound decision and afforded us significant opportunities to demonstrate differentiated capabilities. We focused on battery operated low cost products, incorporating style and increased functionality. As LED became more mainstream, the growth of our company followed the trend. Our decisions to market our products on a direct import basis allowed us to fully exploit our asset life business model. The company’s innovation sustains it as competition follows us into the market. Today, we are profitable, competitive and a well-respected company within our industry. Considering our start-up limited resources both human and financial I don't believe there are many companies that have achieved our level of performance. Through the confidence and financial support of Directors including myself we provided the early financing required for the company to operate in a relatively unencumbered manner. That freedom to focus on product development and market expansion is why we are successful today. My ambitions for this company are far greater than our current status. We have a sound business strategy leading us into 2018 driven by a highly focused product line expansion and innovation plan. Just as we were an early entry into the LED category we are now focusing on a product line expansion that enables us to repeat our business model while complementing our current core business success. Within our 2018 strategy we will build upon our LED business while launching a new product category that will provide us a path to expanding our channels of distribution. Whereas today we are primarily focused and have been successful in the warehouse club channel. This new product category will have a broader reach and afford us the opportunity to enter other channels with an innovative and unique line of products. Capstone has deliberately shied away from commodity products. Our primary product objectives have been consistent since our company's inception. If we cannot make a difference in the market and offer a recognizable and affordable benefit for the consumer than the product is not a good fit for Capstone. In keeping with our past disciplines, we do not publicly announce product launches until we are ready to enter the market. This helps us maintain a competitive advantage and supports our conservative perspective in discussing our future business. In wrapping up, I will also add we are taking a hard look at our investor relations strategy and we plan to execute better in this area in 2018. Our company is still relatively unknown and we recognize the need to invest in bringing attention to our great story. So, with that I'd like to personally thank our long-term shareholders for your continued support and to our new and potential shareholders I'd like to welcome you to this exciting time in our company's history.

Aimee Gaudet: So before opening up the line, I just want to take a moment to mention that we did receive numerous questions via email that we will address first and then we'll take calls after that. I'll turn the call to Brenda.

Operator: Thank you [Operator Instructions].

Aimee Gaudet: This first question is directed towards Gerry. The record year to date gross profit of $7.3 million was 23.8% compared to 24.7% in 2016. Could you further explain what impacted the percentage reduction?

Stewart Wallach: Yeah, in order to achieve an $8.1 million revenue increase or 35.8% in a year, as Stewart alluded to the company must expand consumer product awareness and product new product and reduction. Now, this has achieved simply by product advertising and by providing consumer rebates through the retailer. The financial impact of such programs is to reduce the gross profit in our financial statements. For the nine months year-to-date, we have provided $1.8 million of such promotions, that's nearly $400,000 higher than in 2016 and is the reason for the slight margins in reduction. Now if we had not provided the additional allowances, our margins would have been 25% and higher than occurred in 2016. But that actual promotional investment increased revenue by $8.1 million, improved branding and consumer awareness and we believe is a great deal for the company as we continue to expand revenue growth.

Aimee Gaudet: Okay, great. Thanks, Gerry. Second question. Assuming that you're coming to the end of your relationship with Wilmington. Can you share what you have learned going through the process?

Stewart Wallach: That’s a good question and one that I anticipated, very simply, there was a great deal learned from - and working with Wilmington. My goal in engaging Wilmington investment banker was to get an objective as perspective, an objective perspective on the ways to increase shareholder value. Meetings were held on our behalf and discussions took place regarding mergers, acquisition, opportunities, et cetera. Through this process, I particularly learned areas of our company that needed to be strengthened from outside perspectives and general expansion was one key area to focus on. As we have been in development of the new product category for the past year, this was basically a validation of our insight and we feel confident that the channel expansion will be successfully addressed in 2018 furthering the value of Capstone Companies.

Aimee Gaudet: Okay, great. Next question, total year-to-date operating expenses of $4.156 million increased by nearly $1.3 million or 30.9% from 2016. Why was there such a large increase?

Gerry McClinton: Let me answer that one, Stewart. For the most part a lot of our expenses are variable expenses, which means as our sales increase, expenses will also increase proportionately. Now with a 35.8% revenue growth in nine months, these variable expenses also increased. As an example, in the nine months sales and marketing increased by $966,000, most of that total -- that’s most of the total operating expense in the period, but as we invested, expiring our license product offerings, royalty payments will also increase accordingly, and as an example in the period, we expensed over $1 million in royalties for Hoover and Duracell licenses.

Aimee Gaudet: Okay, thanks, Gerry. Next question, are you considering an uplifting, how are you address the need for an additional board member?

Stewart Wallach: Well, I think we’ve discussed this earlier in the year. We were considering uplifting to OTCQX after having uplifted last August OTCQB. However, we have put down on hold at the moment, as with the launch of a new product category, the revenues may afford us an opportunity to uplift to NASDAQ. That would be attractive for a number of reasons, but I wanted to emphasize that at this point there is no specific plan in place. But clearly, as the company continues to grow up listing will remain a priority for the year forward.

Aimee Gaudet: Next question. In reviewing the interest expense, the costs have come down significantly from $213,000 in 2016 to $113,000 for the nine months. Will this trend continue? Maybe Gerry you can…

Gerry McClinton: I like to have some of our successes here and that’s a great question. We started the year by stating one of our goals was to reduce debt and interest expense. Clearly, our strategy has worked. As of September 30, 2017, we have zero bank debt and it's been that way for most of the year. We have reduced related party loans from 1.3 million down to 688,000 and we have $3.2 million in the bank, up 1.6 million from last year. This strategy will continue and our goal remains the same, to curtail interest expense even as revenue continues to grow. Good question.

Aimee Gaudet: Next question. Who is [George Wells] and what services does he provide to the company?

Stewart Wallach: George Wells is a seasoned Executive, that’s been part of my team Gerry McClinton, George Wells, Larry Sloven myself of 25 plus years. He has always been involved in all of my business projects. He is one of the most professional people that I know and he has a primary focus on sales operations. He operates in the consultant capacity as it is just the best situation for both George and the company. We don’t have to pay benefits and George has some advantages for himself working as a consultant. We are his only client and he is focused here 40 to 50-hour week. So yes, George has it been part of my original team and he’s key to our success.

Aimee Gaudet: Next question. in reviewing note receivable, the AC Kinetics note which was valued at 526,000, 887,000 at 12/31/16 has now been valued at zero. Could you explain the situation fi the note is still valid?

Gerry McClinton: Yes. First of all, we still have a note with $1.5 million and off earning accrued interest. Now in order to accept the note, the company was provided collateral by AC Kinetics of buying back, the ability of buying back 1,666,000 shares, in the company’s shares out of price of $0.50 each. We took that opportunity, we repurchased the stock and with the company stock value at $0.50 each, clearly, we made profit by repurchasing those shares. With the company now having tax exposure which we've all observed in our recent results, management decided to used that profit to write-off the AC Kinetics note. As it was collateral -- as the shares were collateral for the note, we had that option available to us. So, in summary, we now have a $1.5 million note, valid note sitting on our books at zero cost.

Aimee Gaudet: Thanks Gerry. With record increase revenue of $30.8 million net income for the nine months came in at 2.1 million compared to 2.5 million, a reduction of 330,000. Clearly the big difference was the $920,000 tax provision in 2017. As in 2016 we were still using up to NOLs. What is your strategy to impact future tax liability?

Gerry McClinton: Up until now the company really has never felt the impact of having to pay taxes. So, this is a new gain for us. We have already had meetings with our outside tax planners to ensure we utilize the most effective tax strategies and obtain whatever tax credits are available. I've got several future meetings coming up as we do our task planning and close out so you know we're getting the best advice and we learn from it and our strategies will take us from the [event] that we're given.

Aimee Gaudet: Thanks Gerry. Okay, this is actually the last question, this was directed towards Stewart. Full year 2017 is almost in the books, I'm hoping that $40 million revenue is within reach. Is there a roadmap to $100 million in yearly revenues?

Stewart Wallach: Well, as I stated earlier trailing 12 is a very good barometer in gauging the company's annual revenue which is currently tracking at 38 million so we're certainly in the ballpark. And so far as the $100 million it’s curious that you use that number because that is actually a goal I have set for the company to achieve under my management. To say we have an exact roadmap to a 100 million would not be an accurate statement, however we have demonstrated our ability to achieve our goals over the past several years. So, if history serves yes well then yes, I definitely would like to see a $100 million in revenue for Capstone and that is the target that I'm keeping my eye on.

Aimee Gaudet: Brenda, I believe we can open up for few minutes of calls.

Operator: Certainly, our first question comes from the line of Tomer Cohen with Five Roads Capital, please go ahead.

Tomer Cohen: Good morning, my first question has to do with BJ's wholesale. You mentioned channel expansion earlier, I'm just curious if you've ever tried to sell at BJ's and then how that experience went?

Stewart Wallach: Yeah, we have sold BJ's in the past, their volumes are not as significant as the other channel leaders we're selling. Their margin criteria is larger than the other channels we're selling and all in all it doesn't meet our model. Their volume is a small percentage of that which we experienced from both Sam's and Costco.

Tomer Cohen: I see, okay so when you're thinking about channel expansion opportunities with other retailers it's not…

Stewart Wallach: Absolutely, it's other retailers. We're talking channel expansion into home improvement, we're talking channel expansion into e-commerce.

Tomer Cohen: I see, okay, so that's helpful color. And then the other question I had was on the Duracell license and how worried are you about meeting your minimum sales requirements, so you keep that license?

Stewart Wallach: Well, first of all, there’s an assumption that there's a minimum sales requirement that you've just made. I'm not sure where you got that from.

Tomer Cohen: [indiscernible] something like $5 million year one, something like $7 million in year two.

Stewart Wallach: No, I'm not sure where that came from Tomer, but…

Tomer Cohen: [Hoover].

Stewart Wallach: Yeah. That has something like, yeah…

Tomer Cohen: I see, okay. I understood.

Stewart Wallach: The Duracell license as you probably recognized, was utilized for a promotion directly with Costco. In fact, it was initiated through joint effort of both our companies, there were no minimum assigned to that. It’s pretty much up to us at this point, whether we want to expand that license or not and that’s under review.

Tomer Cohen: I see, what sorts of things will you think about deciding if you want to expand it.

Stewart Wallach: Well, if there's an advantage for us in the brand overselling Capstone, at the same time, some of our products don't fully get the benefit. When you're selling a branded product, you should be able to anticipate at least 20% to 25% increase in sales over a less branded product like ourselves and if we can't realize that kind of growth then the investment that's generated from the royalty payments isn’t warranted.

Tomer Cohen: That makes sense. Okay. And then to my original point, I guess now that I realized that there was a minimum for Hoover. Any questions on whether or not you can hit those numbers?

Stewart Wallach: We far exceeded the minimum requirements.

Tomer Cohen: Yeah. Yeah, exactly. Okay. And then…

Operator: Our next question is coming from the line of Tony [indiscernible] Partners. Please go ahead with your question.

Unidentified Analyst: Hi. I wanted to ask in terms of the new product line that you mentioned that and I understand you said you won’t talk about it, well, till it's ready to launch but then you referred to trailing 12 months as a sort of a decent revenue thing to look at, do you expect this new product line to -- I’m trying to get a sense of how material you should be…

Stewart Wallach: That’s is a very, very, very intuitive question. Tony, when I'm talking trailing 12 months, I'm talking about our core business as it exists today. So, there’s new product category while it may displace some of that business, will really be a new business unit that will layer on top of that business. From my perspective as a business manager, I look at a $30 million, $35 million of our core business, it’s the business that we can operate comfortably in, we make money, but at any point, it will not get us to where we need to be relative to shareholder value. I'm looking, I'm doubling, tripling the size of the company over the next course of the years. So, we wouldn't be trading off the initial revenue but we would be adding to it. So, yes, on a trailing 12 basis, if I understand your question and I think I do that would not have included anything relative to the new product category.

Unidentified Analyst: Great. And second and final question on that, we do expect the new product would also decrease your distribution a concentration, in essence is this new product…

Stewart Wallach: Tony, that’s actually the primary target of it. When we started to build our strategy and we’ve recognize the fact that focusing on the Warehouse Club Channel gave us significant entry to the market at very low costs of entry and it was a very sound business decision. Recognizing that we wanted to expand the company and grow the company, we have to do that through channel expansion, it was unrealistic thing that we can just continued to add more products into those existing channels. So, the primary objective of the new category was to absolutely take us into the home improvement channel, home furnishings channel, ecommerce, enable us to walk into all of those distribution channels. But do so, in the same way, we entered LED in 2009 and that was true innovation. We have never ever been involved my history of 30 years in business, I’ve never been evolved in commodity products, it’s not our cup of tea, it’s not a wheelhouse. So, we have to find the right category and what I can share with you is, we will be early in the market just as we were with LED. It’s an emerging category, it frankly does not exist today in the marketplace except in a few sporadic highly specialized areas. So, we’re going to be bringing in mainstream and I couldn’t be more excited about it.

Operator: And our next question comes from the line of [indiscernible] Private Investor. Please go ahead with your question.

Unidentified Analyst: You keep mentioning that you’re not a commodity product yet the stock suddenly trades. And so, I agree with you, you need a little more selling of the investment itself. So, if the stock trade, your self-commodity products, but in fact you don’t. So, I think that’s sort of the message that is message, or rather that the investors aren’t yet getting.

Stewart Wallach: I would agree with you completely.

Unidentified Analyst: Just briefly what gives you, I mean you seem very enthusiastic about this new product introduction. What gives you obviously, you’re not going to be able to share a lot, but what gives you the confidence that you seem to have, but this is in fact going to be a significant product for the company?

Stewart Wallach: And that’s a fair question. If you been around and watched the company and watched our history, you probably picked up on some of these. But let me share this with you. My business background has been one that is not based on assumptions. It’s not based on -- we got a hunch, we’re going to sell a bunch. When we decide to look into new businesses we typically try to find a business that’s niche in its initial nature, but has the opportunity to expand into mainstream reach. That being said, we have been working on this category for better part of the, a little bit over a year now. And part of that process is research. That’s research of the market, research of the players that could be in the market research of the consumer buyers profile. And then of course research relative to why we can bring that proposition to retail successfully. So, my enthusiasm is based on the data and the extrapolation of that data and the entire strategy that has been put together as a result of that data. The potential is very large, and my being, I am relatively conservative in my approach to the market and talking about the potentials, but what I can say is this. That it's a more lifestyle product and it's a more relevant product to today's market and future markets than we're currently in and it's a market that will enable us to further differentiate the company, in that it is more technology based. So, we are talking about a product that has a little bit higher level of product development behind it and it isn't something that just anybody can do. I have an experience with software development and a background at a company that we developed security software applications so I've a pretty good understanding of how to manage that type of a project and we're well on our way. I was actually hoping to be able to make the announcement frankly around this time of the year. I hate to do this to you but looking at the product as we're sitting here it's very exciting, there's still a few areas -- few I would say minor areas to cover not hurdles, just a couple of things we need to flesh out before we submit it for robust testing. Robust testing consists of doing to it what a consumer would do to it. Because in today's world and particularly impacted by e-commerce, consumer return rates are really excessive. This has been predominantly created by Amazon and the ease in which they want people to be able to participate online so it's easy to ship but it's also easy to return. So, it's very important particularly a product that's going to be expensive considerably more expensive than what we currently sell. That the product meets or exceeds any expectation of a consumer but more importantly can endure the type of consumer abuse that most products endure, intentionally or otherwise. Lot of products, particularly products that has software involved in their operation are abused only from the standpoint of error, mistake, how to use it. So, we have to make sure we dumb it down so that it’s easy to use and follows [score meets] that you would typically see in the world today of Smartphones and widget applications and things of that nature. That's probably a more lengthy answer than you anticipated, that’s actually lengthier than planned.

Unidentified Analyst: No, I appreciate the insight, and final question is can you just briefly discuss is your business or the Capstone business seasonal.

Stewart Wallach: Well let me say this, the current product line has a seasonality to it, I'm not going to say it's seasonal, in other words because seasonal means a very specific thing in our industry, it means a buy for a specific season and that's the only time to buy like the toy industry is highly seasonal, they buy it in July, ship it in October and the business is over in February. So, it seasonal in that some of our products just have a very strong appeal for certain promotional periods. Spring is good for us, spring clean-up and renovation, you’ve got your holiday gift giving, a lot of our items afford themselves to being gift giving, which is reflected obviously in our Q3 numbers, because those numbers support your Christmas business and your holiday gift giving side. But it’s relatively Q1 is usually the widest quarter for us and has been historically. And that's because we have so much inventory in the pipeline going into Q4 that retailers need to move those categories through in January and February and March, there is residual inventories to make room for new product launches. I will say that that's also why sometimes you'll see more expense in our business in the first quarter of the year relative to sales because sometimes we'll make a conscious decision to go to the retailer and say, can we generate another promotion on that to accelerate the sell-through which would allow us to bring another product category forward. So seasonal somewhat, seasonality, yes, somewhat, but not seasonal.

Operator: Yeah. So, any closing comments you would like to make?

Stewart Wallach: No. I think that’s it. I want to thank everybody for their time, I hope they’re always enthusiastic about our performance as we are and again I apologize, I have got a bit of a head cold, so I hope the cold medicine didn’t dilute the presentation too much. Thank you very much.

Gerry McClinton: Thank you.

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