This
discussion should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations
in the Company’s 2025 Annual Report.
Cautionary
Statement Regarding Forward-Looking Statements
This
Form 10-Q contains forward-looking statements that are contained principally in the sections describing our business as well as in “Risk
Factors, and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. These statements
involve known and unknown risks, uncertainties, assumptions and other factors which may cause our actual results, performance, or achievements
to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements.
All statements other than statements of historical facts contained, or incorporated by reference, in this Form 10-Q, including, without
limitation, those regarding our business strategy, business development efforts, financial position, funding prospects, results of operations,
plans, prospects, actions taken or strategies being considered with respect to our liquidity position, valuation and appraisals of our
assets and objectives of management for future operations, our ability to weather the impacts of the any pandemic or similar event, financing
opportunities, and future cost mitigation and cash conservation efforts and efforts to reduce operating expenses and capital expenditures
are forward-looking statements. The efforts of the Company to develop or acquire a new business line to generate sustained or sustainable
revenues have failed as of the date of the filing of this Form 10-Q and may not succeed in the future. The effort to develop or acquire
a new business line should not be construed as an indication of the prospects or likelihood of a new business line being developed or
acquired. The Company may be unable to overcome its lack of working and expansion capital and revenue flow to fund the development or
acquisition of a new business line. Further, any new business line may be unable to generate revenues sufficient to solve the Company’s
current financial condition. These risks and uncertainties include, but are not limited to, the factors described in the section captioned
“Risk Factors” in our 2025 Annual Report on Form 10-K. In some cases, you can identify forward-looking statements by terms
such as “anticipates”, “believes”, “could”, “estimates”, “expects”, “intends”,
“may”, “plans”, “potential”, “predicts”, “projects”, “should”,
“would”, “hope” and similar expressions (including the negative and variants of such words). Forward-looking
statements reflect our current views with respect to future events and are based on assumptions and are subject to various risks and
uncertainties. Given these uncertainties, a reader of this Form 10-Q should not rely upon forward-looking statements as predictions of
future events or results or place undue reliance on forward-looking statements. The forward-looking statements contained in this Form
10-Q are made as of the date of filing this Form 10-Q. The Company assumes no obligation to revise or update any forward-looking statements
for any reason, except as required by law. Examples of these risks, uncertainties and other factors include, but are not limited, to
the impact of:
●
Company has no product line or operations generating sufficient revenues to sustain corporate operating overhead and has relied on loans
or advances from related parties to sustain basic executive operations, which funding is not assured to fund those operations past the
third fiscal quarter of 2026. If the Company cannot find outside funding to develop and promote a new product line or acquire a new business
line in fiscal 2026, the Company may lack sufficient funds to sustain operations beyond 2026.
●
Company needs to find third party funding to fund the development, marketing and acquisition of any new product line, operation or new
business line that generate sufficient revenues to support sustained corporate operations. Since the Company lacks hard assets suitable
for asset financing, has revenue generating operations that are not currently producing sufficient or any revenues to sustain operations
into 2026, and has significant debts, and as the Common Stock has a low market price and limited liquidity, third party funding may not
be available to produce and promote a new product line or a new business, or acquire an operation, or to sustain operations into 2027.
●
Company may be unable to develop or acquire a new business line or operation that is able to fund the overhead necessary to maintain
the Company as a public company into 2027. The Company’s efforts to develop or acquire a new business line have failed as of the
date of the filing of this Form 10-Q and continued efforts to develop or acquire a new business line in 2026 may also be unsuccessful.
●
The financial condition of the Company raises a substantial doubt about the Company’s ability to continue as a going concern.
●
The debt obligations, if not resolved or restructured, may pose a hindrance to developing a profitable new product line or acquisition
of a new business line, or sustaining operations into 2027. The Company is uncertain about whether it could restructure or resolve its
debt obligations, whether in connection with business development or otherwise.
16
●
The Company may be unable to restructure or resolve all or most of its debt obligations in general or in any transaction for acquisition
of a new business or business line, or to fund production and promotion of any new product or business line.
●
Other risk factors are stated in Item 1A of Company’s 2025 Annual Report.
It
is not possible to predict or identify all such risks. There may be additional risks that we consider immaterial as of the date of the
filing of this Form 10-Q but subsequently become material risks, or which are unknown or not foreseeable as of the date of the filing
of this Form 10-Q.
Risk
Factors affecting Efforts to Develop or Acquire a New Business Line
The
challenge facing the Company is to acquire and fund a new business line, or to establish a new profitable product line or a services
business, before the cost of marketing and establishing a revenue generating business impose unsustainable financial burdens and losses
on the Company. Internal development of any new business line or product or services will require advance funding, which has not been
obtained as of the date of the filing of this Form 10-Q and may be unattainable by the Company.
The
License Agreement for the Connected Chef was terminated by mutual agreement of the Company and Licensee during the first week of November
2025, as a result of the prospective Chinese OEM refusing to produce a product developed by an American company. Consequently, the Company
and Licensee ended the License Agreement during the first week of November 2025. The Company is not considering further efforts to license
the Connected Chef as of the date of the filing of this Form 10-Q, but the Company may reconsider efforts to license the Connected Chef
if trade relations between the U.S. and China improve, or an OEM who does not require upfront money and located outside of China can
be located by the Company.
Even
if a new business or operation is acquired or developed, there can be no assurance that it will produce revenues sufficient to sustain
corporate operations. No assurances can be given that any new management members or additional funding by Coppermine or eBliss, which
additional funding is not anticipated by the Company, will in fact result in a new business line or operation for the Company or cover
all future operating expenses of the Company through 2026 or into 2027, or support any new business line or product or services. The
Coppermine Note, as most recently amended on January 5, 2026, matures December 31, 2026, and Coppermine has committed to lending a total
of $558,191 in working capital funding through December 31, 2026. In addition, on March 4, 2026, the Company issued the eBliss Note,
a $250,000 unsecured working capital loan from eBliss that includes a 90-day ‘no shop’ provision (with eBliss having exclusivity
for the first 60 days). The 90-day ‘no shop’ period expired on or about June 3, 2026, but a ‘no shop’ period
was imposed on both companies under the Letter of Intent, which ‘no shop’ period will expire on or about September 4, 2026,
unless terminated sooner by the Company and eBliss. The Letter of Intent expires on August 31, 2026. Otherwise, the August 1, 2026 termination
notice is effective on or about September 4, 2026.
If
Coppermine does not provide additional funding beyond its current commitment, the eBliss Note proceeds prove insufficient, no superior
third-party proposal or definitive transaction with eBliss is consummated, a new source of funding is not found, or the Company does
not develop revenue generating operations producing sufficient working capital prior to the end of fiscal 2026, the Company will need
to obtain a new source of working capital funding to sustain operations and any efforts to develop or acquire a new business or business
line in 2027. The Company does not have an alternative source of working capital funding to funding by Coppermine and eBliss as of the
date of the filing of this Form 10-Q and is uncertain about whether it can obtain any alternative funding or receive any additional funding
from Coppermine. Due to eBliss terminating the Letter of Intent, the Company believes that any additional funding from eBliss or any
restricting of the debt owed eBliss is highly unlikely. As of the date of the filing of this Form 10-Q, there is no indication of any
additional funding from Coppermine or eBliss.
Even
if the Company locates a new business or business line to develop or acquire, the Company may lack the funding necessary to consummate
the development or acquisition of a new business line or operation, or to sustain that business line or operation. Further, the low market
price and liquidity of the Company’s Common Stock, the Company’s status as a ‘penny stock company’ under SEC
rules, the status of the Company as a company without operations producing sustain, sufficient or any revenues to fund overhead as of
the date of the filing of this Form 10-Q, and the costs of and regulatory requirements for consummating an acquisition with another company
or for developing a new business, and the limited working capital funding available to the Company are factors adversely affecting the
Company’s ability to develop or acquire a new business or business line. The Company requires adequate, affordable and timely funding
to acquire or develop and to operate a new business line with revenue-generating operations and such funding may not be available to
the Company at all or in sufficient amounts or on affordable terms and conditions.
17
As
an ongoing strategic plan, and subject to the restrictions in the No Shop Period, the Company intends to develop or acquire a new business
line or operation that is not involved in the production of consumer device or appliance products that are discretionary purchases for
consumers and have relatively low profit margins, which was the Company’s prior consumer product business line. The shift in focus
is due to the low profit margins typically provided by those lower-end consumer products; the funding needed for developing, producing,
warehousing and marketing those consumer products; the Company’s lack of an effective e-commerce operation; reliance on bulk orders
by a limited number of retailers for those consumer products; and vulnerability of those consumer products to suddenly changing consumer
preferences and retailers’ buying preferences. The Company also lacks the funding and internal resources to respond to those changes
in consumer preferences and product technology.
General
Risk Factors for Investment in Company’s Common Stock.
The
Company is a “penny stock” company under Commission rules and the public stock market price for our common stock is impacted
by the lack of significant institutional investor and any primary market maker support. Investment in our common stock is highly risky
and should only be considered by investors who can afford to lose their investment and do not require on demand liquidity. Potential
investors should carefully consider risk factors in our SEC filings. The Company’s common stock lacks the primary market maker
and institutional investor support to protect the public market from being unpredictable and volatile. Investors may not have liquidity
or desired liquidity in our common stock as an investment. With the lack of any revenues and revenue generating operations, and lack
of any funding covering anticipated future overhead, the inability of the Company to develop or acquire a new business line as of the
date of the filing of this Form 10-Q, and the doubt as a going concern, any investment in the Company’s common stock is highly
risky in terms of liquidity and risk of loss of investment.
The
above risk factors are not exhaustive and new risks may emerge from time to time. Such forward-looking statements are based on our current
beliefs, assumptions, expectations, estimates and projections regarding our present and future business strategies and the environment
in which we expect to operate in the future. There may be risk factors that we cannot anticipate or foresee. These forward-looking statements
speak only as of the date made. These forward-looking statements should not be relied upon as representing Company’s assessments
and assumptions as of any date subsequent to the date of this Form 10-Q. We expressly disclaim any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statement to reflect any change in our expectations with regard thereto or any
change of events, conditions, or circumstances on which any such statement was based, except as required by law.
Overview
of Our Business
Capstone
Companies, Inc. (“Company” or “CAPC”) is a Florida corporation. The Company was a designer, promoter and licensor
of consumer products that were designed to simplify daily living through technology. The most recent product was the Connected Chef kitchen
tablet, but the Company was unable to successfully commercialize the Connected Chef kitchen tablet in fiscal year 2025. The Company pursued
development of a new business line in health, fitness and social activities industry (as described in “Health, Fitness and Social
Activities Business” below) in fiscal year 2025, which effort has not resulted in the acquisition or development of a health, fitness
and social activities industry (“HFS industry”) in fiscal year 2025. The Company has and will consider opportunities in other
industries fiscal year 2026, subject to the restrictions related to the No Shop Period and subject to the limitations on the Company’s
ability to pursue and consummate any new opportunities (as described in this Form 10-Q).
2026
Business Development Efforts; eBliss Note. On March 3, 2026, the Company entered into a promissory note with eBliss Global, Inc. (“eBliss
Note”), a private early-stage Delaware corporation engaged in the developing and production of e-mobility solutions (including
and initially making e-bikes as transportation vehicles at a Utica, New York factory). The interest rate under the eBliss Note is seven
percent simple annual interest. Principal and accrued interest are due in a single lump sum payment due on March 4, 2027. The eBliss
Note is unsecured and does not provide for a conversion of debt-to-equity securities. The Loan is being made to supply working capital
to the Company and as partial consideration for a 90-day ‘no shop’ provision in the eBliss Note. During the 90 days following
the funding of the principal of the eBliss Note (“No Shop Period”), the Company could not entertain third party proposals
for a merger, business combination, stock or asset acquisition, strategic alliance or joint venture for product development or similar
transactions (collectively, “Transactions”) and had to cease any third party discussions for any Transactions for the No
Shop Period, except that the Company could entertain third party proposals during the last 30 days of the No Shop Period if the Company
and eBliss have not signed a definitive agreement or letter of intent for a Transaction during the first 60 days of the No Shop Period
and the third party proposal is deemed ‘superior’ to any existing proposal for a Transaction from eBliss, if any. The purpose
of the ‘no shop’ provision was to afford the Company and eBliss an opportunity to discuss the possibility and feasibility
of a mutually beneficial Transaction by eBliss and the Company and conduct any desired due diligence. On May 14, 2026, the Company and
eBliss entered into a non-binding Letter of Intent (the “LOI”) with the intent to explore the possibility of a merger, other
business combination or similar corporate transaction between the two companies. The LOI contained a mutual ‘no shop’ provision
that supersedes the ‘no shop’ provision in the eBliss Note. The ‘no shop’ provision in the eBliss Note was to
expire on or about June 3, 2026. On July 8, 2026, the Company and eBliss entered into Amendment Number One to the LOI, extending the
‘no shop’ provision and the LOI’s expiration date from July 31, 2026 to August 31, 2026. eBliss notified the Company
on August 1, 2026, that it was terminating the LOI, which terminates 35 days after the written notice. See Note 1 and Note 2 for further
information.
The
Company and eBliss held preliminary discussions on a possible Transaction, but these discussions did not result in any agreement on the
terms and conditions of a Transaction as of August 1, 2026, the date of eBliss termination notice for the LOI. The Company and eBliss
were unable to reach any agreement for any Transactions and, as such, the two companies will not seek to consummate or pursue any Transactions
as of the date of the filing of this Form 10-Q.
18
Product
Development Efforts. The following discusses efforts by the Company to develop a new product line in over the last few years. The Company
has been unable to successfully launch a new product line with the maturation of its former traditional business line in LED Lighting
Products.
Connected
Chef Product Line. During 2023, the Company developed the Connected Chef (“Connected Chef”), a purpose-built kitchen
tablet with an accessory platform to accommodate food prep accessories such as a cutting board. The Connected Chef has Google mobile
service allowing for pre-installation of specific Google applications including Playstore, voice assistant, and YouTube. The ability
of the Company to promote the Connected Chef and any new, related “connected” consumer products has been dependent on securing
adequate, affordable and timely funding from lenders and investors or on entering into a viable third-party licensing, production or
distribution arrangement, none of which the Company has been able to obtain on acceptable terms since 2023. As of the date of the filing
of this Form 10-Q, the Company is not actively pursuing a licensing arrangement for the Connected Chef and has never received license
revenue. The Company may, however, reconsider efforts to license, produce or otherwise commercialize the Connected Chef if trade conditions
improve, a suitable OEM not located in China can be identified, or another viable commercial arrangement becomes available.
HFS
Business Development Efforts. The following section discusses Company’s efforts to develop a business line in the HFS industry
in 2025, which efforts did not produce a new business line or operation in fiscal year 2025 or in the first fiscal quarter of 2026. These
efforts were suspended in March 2026 for the 90-day ‘no shop’ period as described in “eBliss Note” above and
further suspended under the subsequent ‘no shop’ restrictions in the LOI. Upon expiration or earlier termination of the ‘no
shop’ provision in the LOI, the Company will no longer be restricted from soliciting or pursuing third-party transactions
with respect to the HFS business and may resume its HFS business development efforts. There can be no assurance that the Company will
resume such efforts, or that any resumed efforts will be successful.
The
Company commenced in 2024 its business development of a new business line focused on year-round health, fitness and social activities
at facilities that would be owned, leased or operated by the Company (this business line being referred to as “HFS” or “HFS
business”). The initiative was informed by the growing nationwide popularity of sports such as pickle ball and flag football and
by interactions with Coppermine Ventures, LLC (“Coppermine”), a private Maryland limited liability company that operates
HFS facilities through its subsidiaries. Cooperative business activities between Coppermine and the Company have been discussed from
time to time and may be revisited if circumstances warrant, but to date no legally binding agreement or cooperative venture has resulted
from those discussions, and the only transactions between Coppermine and the Company have been working capital funding under the Coppermine
Note (as amended) and the Management Transition Agreement dated October 31, 2024.
The
Company’s business concept in its HFS business development concept has been to feature indoor and outdoor pickle ball courts as
a primary attraction, but also to offer other sports and entertainment-social events in order to attract customers year-round and morning-to-evening
and also to attract league, tournament and corporate events. The Company has been unable to locate a suitable HFS industry opportunity
or to secure working capital funding to enable consummating a HFS industry opportunity.
19
E-Mobility
Business Development. In parallel with its HFS efforts, the Company was evaluating opportunities in the e-mobility industry, including
the e-bike business, principally through the discussions with eBliss. eBliss is a private Delaware corporation that commenced production
of e-bikes for personal transportation in Utica, New York in July 2026. The Company and eBliss are parties to a non-binding Letter of
Intent dated May 14, 2026, as amended July 8, 2026 (see Note 1), to negotiate a possible merger, other business combination or similar
corporate transaction between eBliss and the Company. There is no legally binding agreement, agreement in principle, or understanding
between the Company and eBliss on the essential terms of any Transaction as of August 1, 2026, the date on which eBliss notified the
Company that eBliss was terminating the LOI. The discussions between the Company and eBliss did not result in any agreement or commitment
for or consummation of any Transactions.
Corporate
Status. The Company’s business activities were limited to business development efforts during the first half of fiscal 2026. The
Company has no revenue generating business and no products in active commercialization as of the date of the filing of this Form 10-Q.
Working
Capital Funding. In 2025 and into 2026, the Company sought working capital funding for basic working capital for essential corporate
operations and regulatory compliance costs necessary as a reporting company under the Exchange Act and a company with its common stock
quoted on the OTC Market Group QB Venture Market. During 2024, the Company was successful in securing a new funding source for operating
working capital from Coppermine Ventures LLC (“Coppermine”). The Company received capital advances beginning in 2024 and
into 2026, totaling $530,163 under an unsecured promissory note, most recently amended on January 5, 2026, (“Note”) issued
by Coppermine. The Note accrues simple interest at 7% and matures December 31, 2026, and Coppermine has committed to lending a total
of $558,191 in working capital funding through December 31, 2026. In addition, on March 4, 2026, the Company issued the eBliss Note to
eBliss Global, Inc. (“eBliss”), a $250,000 unsecured working capital promissory note that includes a 90-day ‘no shop’
provision (with eBliss having exclusivity for the first 60 days) during which the Company and eBliss will discuss a potential merger,
business combination, strategic relationship, joint venture or similar transaction. See Note 2 — Notes Payable for further information
regarding the Coppermine Note and the eBliss Note and the LOI between the Company and eBliss. There is no assurance that funding from
Coppermine or eBliss will extend beyond the second half of 2026 or that either company will restructure its current loans to the Company.
Special
Board Committee. In order to conduct and as part of discussions between the Company and eBliss during the No Shop Period, the Company
formed a special committee of independent, disinterested Company directors, which consist of Company directors Jeffrey Guzy and Warner
Session.
Finding
affordable, timely and adequate funding from third party sources in 2026 will be essential to sustaining Company basic corporate operations
and business development efforts. The funding from the eBliss Note is estimated to provide adequate funding of basic corporate compliance
and operational overhead into the latter half of 2026.
Liquidity
and Going Concern
The
accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities and commitments in the normal course of business.
The
Company does not currently have an operating product line. The net loss for the six months ended June 30, 2026 was $177,193 as compared
to $187,612 in 2025. During the six months ended June 30, 2026 and 2025 the Company used cash in operating activities of approximately
$139,526 in 2026 and $156,611 in 2025. The decrease in net cash used in operations primarily relates to a decrease in professional fees
and other general and administrative expenses compared to the prior year period, in an effort to operate as efficiently as possible under
a low cost strategy while the Company explores strategic business opportunities.
20
As
of June 30, 2026, the Company has negative working capital of $636,262 and an accumulated deficit of $12,856,961. The Company’s
cash balance increased by approximately $156,000 from $39,000 as of December 31, 2025 to approximately $195,000 as of June 30, 2026.
The increase was due to the working capital note proceeds from both eBliss and Coppermine in the first quarter of 2026. These conditions
raise substantial doubt about the Company’s ability to continue as a going concern.
The
Company is actively seeking alternative sources of liquidity, including but not limited to accessing the capital markets, strategic partnerships,
or other alternative financing measures, but has been unable to secure long-term funding or secure other sources of liquidity. As stated,
Company’s low market price for its common stock and poor financial condition and performance hinder these efforts.
Besides
the efforts to license the Connected Chef kitchen appliance product, which effort has not successfully commercialized the Connected Chef
product or resulted in any production of that product as of the date of the filing of this Form 10-Q, the Company is seeking to establish
revenue generating operations in the HFS business by internal development of HFS operations or acquiring or being acquired by an existing,
operating HFS company, and is also evaluating opportunities in the e-mobility industry, including the e-bike business, principally through
the discussions with eBliss Global, Inc. Management is closely monitoring its operations, liquidity, and capital resources and is actively
working to minimize the current and future impact of this unprecedented situation.
The
lack of adequate working capital and lack of tangible assets to attain asset based funding significantly hinder and may undermine ongoing
or future business development efforts. There is also substantial uncertainty about the Company as a going concern and its ability to
operate beyond fiscal 2026.
The
Company reviews alternatives to its current business approach, including, without limitation, sale of the public company or merger of
the Company with a private operating company and other common strategic alternatives to a company facing business and financial challenges
and uncertainties such as ours. Management is closely monitoring its operations, liquidity, and capital resources and is actively working
to minimize the current and future impact of this unprecedented situation.
Our
Current Strategy
The
Company’s business operations in 2024 and 2025 consisted of the HFS business development efforts and third-party licensing of the
Connected Chef. The Company’s long-term business strategy in 2025 was focused on HFS business development, with third-party licensing
of the Connected Chef as a secondary business. Implementation of this long-term strategy depends on having adequate working capital until
revenue from new business operations, or revenue from Connected Chef products, replaces third-party funding as the Company’s principal
source of funding for overhead. The failure of the Connected Chef licensing effort in late 2025 left the Company with only its business
development efforts. The Company has funded basic operational overhead through the eBliss Note and the Coppermine Note (as amended) for
fiscal 2026. The Company may be unable to achieve sufficient working capital, when and in the amounts required, to meet operational overhead
beyond December 31, 2026. As of the date of the filing of this Form 10-Q, the Company has not achieved adequate funding for all anticipated
working capital needs for fiscal year 2027 and has not been able to secure adequate funding for the internal development or launch of
a new business line.
21
In
terms of HFS business, the Company sought in 2025 to penetrate an industry that was and continues to enjoy rapid expansion nationwide
with many existing and new companies that have established operations and brand recognition. The Company’s strategy for any developed
or acquired HFS operation was to provide offerings and facilities that appeal to a broad demographic group (children, families and adults)
as opposed to offerings that are primarily aimed at appealing to adults seeking pickle ball courts with a sport bar or social activities
environment. This model is based on Coppermine’s business approach. The Company’s inability to secure adequate business development
funding hampered efforts in 2025 to either acquire or internally develop a new HFS industry business line. he Company believes that identifying
a suitable acquisition target or a strategic alliance with an established HFS industry business may enhance its ability to attract funding
for acquiring or establishing a new HFS business, whether internally or through an acquisition. As described in Note 1, on May 14, 2026
the Company and eBliss entered into a non-binding Letter of Intent containing a mutual ‘no shop’ provision that supersedes
the ‘no shop’ provision in the eBliss Note; that provision, as extended, runs through August 31, 2026. On August 1, 2026,
eBliss notified the Company that it was terminating the LOI under the 35-days’ prior written notice termination provision. The
Company’s HFS industry business development efforts, which have not succeeded to date, remain suspended during this period. Upon
expiration or earlier termination of the exclusivity period, the Company will no longer be restricted from soliciting or pursuing third-party
proposals with respect to the HFS business and may resume its HFS business development efforts. There can be no assurance that the Company
will resume, pursue, or successfully complete any HFS-related business opportunity, or that adequate financing will be available to do
so.
Perceived
or Essential Strengths
Capstone
believes that the following competitive strengths have traditionally served to support its business strategies in development of new
business line:
HFS
Development. The Company’s Chief Executive Officer, Alexander Jacobs, has an established record since 2011 of successfully founding,
operating, and growing a HFS company. His expertise is key to the HFS development effort of the Company. He has developed for his Coppermine
company a selection of HFS offerings that appeal to and attracts a broad demographic group – children, adults, families, elders
– as well as appealing to corporate events and sports tournament and league events. Unlike other HFS companies that are geared
primarily to appeal to adults seeking pickle ball and sports bar entertainment, the concept developed by Mr. Jacobs, and the concept
that the Company is pursuing, is to tailor facility offerings to the locality and to appeal to a broader demographic group rather than
the demographic approach aimed primarily at adults seeking pickle ball/sports bar facility.
The
success of Mr. Jacobs at another company is a not an indication of and should not be deemed to be an indication or projection or guarantee
of the potential performance of any Company HFS operation or the likelihood of the Company developing or acquiring a business in the
HFS industry. The Company cannot fully implement its HFS business without sufficient working capital for internal development of an HFS
operation or acquisition of an existing HFS company or operation, and such working capital has not been obtained as of the date of the
filing of this Form 10-Q report. Even with adequate funding, the Company will face significant competition in the growing HFS industry
and may, as a new entrant in the industry, be unable to successfully compete in that industry. As noted, the HFS business development
effort was suspended for the 90-day No Shop Period under the eBliss Note until June 3, 2026, and then further suspended under the ‘no
shop’ provision of the LOI until August 31, 2026, the expiration date of the LOI and ‘no shop’ provision. Otherwise,
the August 1, 2026, termination notice from eBliss terminates the ‘no shop’ provision and the LOI as of September 4, 2026.
The Company intends to pursue opportunities in HFS Industry upon expiration of the LOI ‘no shop’ period.
Connected
Chef Product. With respect to 2025 efforts to develop the Connected Chef product into a new product line, the Company regards the following
as potential strategic strengths in the consumer product business. In North America, the Company has been recognized for more than a
decade as an innovator and highly efficient, low-cost manufacturer in several product niches. Company believes that its insight into
the needs of retail programming and its proven execution track record is a potential strength if the Company decides and is able to launch
a new product or services business as part of any new business line, including an HFS business line. Selling branded merchandise is a
common part of HFS operations.
The
Company’s former chief executive officer, and current Chairman of the Board, Stewart Wallach, has over three decades of consumer
product experience and has successfully built and managed other consumer product companies. In the past, the operating management’s
experience in hardline product manufacturing has prepared the Company for successful entries into various consumer product markets, especially
its experience in using foreign OEMs to provide capabilities not possessed internally by our company.
22
Consumer
Product Quality: With prior product lines, the Company demonstrated a high quality in product’s design and utility through
a combination of sourcing quality components, stringent manufacturing quality control and conducting rigorous third-party testing. The
Company’s history of developing cost-competitive products without compromising quality standards could be a competitive strength
of the Company if product development, promotion and sales are part of any new business line.
Perceived
Weaknesses
As
of the date of the filing of this Form 10-Q Report, the Company’s working capital constraints hinder full implementation of the
HFS business development and hindered a more expansive promotion of the Connected Chef product licensing program in 2025. The lack of
adequate working capital prevents any sustained, effective development effort for product development as of the date of the filing of
this Form 10-Q Report.
With
respect to the Connected Chef, and in the past with any new product line, the Company’s consumer products face the risk of new
technologies or functionalities shifting consumer demand away from the products produced by the Company. The Company lacks and may continue
to lack the financial resources or ability to license, develop or acquire new technologies or functionalities in demand by consumers,
which failure may undermine the commercial viability of Connected Chef. Further, the Company’s business model in consumer products
was to focus on bulk sales to ‘Big Box’ retailers. While this strategy worked well for the Company in the past, with a small
number of employees and reliance on competent foreign OEMs for product production, the strategy was dependent on meeting the purchasing
preferences and predicting consumer preferences for products that the Company could economically, efficiently produce. Without bulk orders
from traditional retailers, the Company did not have alternative, at-hand distribution channels to replace the sales to ‘Big Box’
retailers. The development of alternative distribution channels takes prolonged sustained effort, adequate working capital and sustained
investment and adequate, experienced personnel. These alternative distribution channels are currently beyond the available capabilities
and resources of the Company.
As
a smaller reporting company, Company lacks the staff, money, internal capabilities and resources and operational experience to significantly
or timely respond to significant challenges and adverse changes in business and financial requirements. It also lacks the financial,
marketing and technical resources to compete against competitors with greater financial, distribution, marketing, and technical resources,
including greater brand recognition with consumers.
Strategic
Reviews. Like many companies, the Company conducts periodic strategic reviews where the feasibility of significant corporate transactions
is considered, including mergers, asset purchases or sales and diversification or change in business lines. The Company lacks the financial
resources of larger companies to withstand adverse, significant and sustained changes in business and financial condition. This vulnerability
necessitates an ongoing consideration of alternatives to current operations. Due to the decline in financial performance of the Company
since 2021, with no current product line or source of sustained revenues, as well as the Company having its shares of Common Stock quoted
on The OTC Markets Group, Inc. QB Venture Market and being a “penny stock”, the Company may be unable to fully implement
any HFS business or other business development efforts or, if the Company elected to revise its licensing efforts, aggressively pursue
Connected Chef licensing.
eBliss
was the sole e-mobility company identified by the Company in 2026 as a possible interested party to a transaction with the Company. With
the termination of the LOI, the Company does not anticipate any future efforts to develop a new business line in the e-mobility industry,
including the e-bike segment. The intended focus of the Company in 2026 will be the HFS industry due to potential opportunities in that
industry for small companies, seeking to operate a facility or provide support services for a facility.
Products
and Customers
Current
product lines available for potential development as of this Form 10-Q Report are as follows:
-
Connected Chef, a purpose-built kitchen appliance tablet, which is a unique form factor with Google GMS operating system, with an integrated
platform for cooking accessories, i.e.: cutting board. The development effort for the Connected Chef has been suspended indefinitely
due to failure of 2025 licensing arrangement.
23
The
following product lines that are discontinued for manufacturing, but are available for sale as of the date of this Form 10-Q Report are
as follows:
-
LED Lighting
Tariffs.
President Trump imposed aggregate tariffs of 20% on Chinese imports. These tariffs produced retaliatory tariffs from China on certain
U.S. imports. This trade dispute adversely impacted the Connected Chef product licensing business by hindering possible Chinese contract
manufacturers from producing products for licensees or licensors, or those products being competitively priced after the seller or distributor
adds any costs from tariffs. The Company may be able to find other contract manufacturers to replace Chinese contract manufacturers,
The Company’s experience in consumer product development and production has primarily been with Chinese contract or OEM manufacturers.
The Company lacks sufficient operational history as of the filing of this Form 10-Q Report to estimate or project the impact of the current
trade dispute and tariff hikes on the Connected Chef licensing business.
Tariffs
and trade restrictions imposed by the previous U.S. administration provoked trade and tariff retaliation by other countries. A “trade
dispute” of this nature or other governmental action related to tariffs or international trade agreements or policies has the potential
to adversely impact demand for our products, our costs, customers, suppliers and/or the U.S. economy or certain sectors thereof and,
thus, to adversely impact our businesses.
We
used social media platforms and online advertising campaigns to further grow the Company’s online presence. In addition to Facebook,
Instagram, Pinterest and LinkedIn, The Company has launched a YouTube channel to host videos and established a X (formerly, Twitter)
account. Our Social Media marketing has not resulted in any significant sales of products. We have not been and may not be able to effectively
compete in e-commerce and Social Media marketing and sales. The Company has a Social Media presence on the following Social Media platforms
, but the Company has not actively pursued promotion or use of Social Media in 2026 due to the lack of a product or service suitable
for Social Media promotion.
FACEBOOK1:
https://www.facebook.com/capstoneindustries and https://www.facebook.com/capstoneconnected
INSTAGRAM2:
https://www.instagram.com/capstoneconnected
PINTEREST3:
https://www.pinterest.com/capstoneconnected/
X4
: https://x.com/CAPC_Capstone
YOUTUBE5
: https://www.youtube.com/channel/UCMX5W8PV0Q59qoAdMxKcAig
1
Facebook is a registered trademark of Facebook, Inc.
2
Instagram is a registered trademark of Instagram.
3
Pinterest is a registered trademark of Pinterest.
4
X is a registered trademark of X Corp.
5YouTube
is a registered trademark of YouTube Corporation.
24
Competitive
Conditions
Consumer
Products. The Company’s former LED lighting and Connected Chef product lines operated in a highly competitive environment, both
in the United States and internationally, competing with large multinationals with global operations as well as numerous smaller, specialized
national or regional competitors, including Gentex Corporation, Seura Solutions, Inc., Magna International, Inc., Amazon, and Samsung
Electronics Co. Ltd. The Company discontinued these product lines in 2025 and currently has no operating product line. See the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2025 for further information regarding these discontinued product lines.
Consumer
Product Research, Product Development, and Manufacturing Activities
The
Company’s former research and development operations, based in Florida and Thailand, designed and engineered many of the Company’s
discontinued consumer products, in collaboration with third-party manufacturing partners, software developers, and Capstone U.S. engineering
advisers, and outsourced manufacturing and assembly to a select group of OEM manufacturers overseas. The Company discontinued these product
lines in 2025 and currently has no active product research, development, or manufacturing operations.
Information
Technology
The
efficient operation of our business development efforts and operations are dependent on our information technology systems. We rely on
those systems to manage our daily operations and maintain our financial and accounting records. Since we do not collect significant amounts
of valuable personal data or sensitive business data from others, our internal computer systems are under a light to moderate level of
risk from hackers or other individuals with malicious intent to gain unauthorized access to our computer systems. Cyberattacks are growing
in number and sophistication and are an ongoing threat to business computer systems, which are used to operate the business on a day-to-day
basis. Our computer systems could be vulnerable to security breaches, computer viruses, or other events. The failure of our information
technology systems, our inability to successfully maintain our information or any compromise of the integrity or security of the data
we generate from our systems or an event resulting in the unauthorized disclosure of confidential information or degradation of services
provided by critical business systems, whether by us directly or our third-party service providers, could adversely affect our business
operations, sales, reputation with funding sources or lenders, current and potential customers for any products, associates or vendors,
results of operations, product development and make us unable or limit our ability to respond to demands of any customers who own our
products.
We
have incorporated into our data network various on and off-site data backup processes which should allow us to mitigate any data loss
events, however our information technology systems are vulnerable to damage or interruption from:
●
hurricanes, fire, flood and other natural disasters
●
power outage
●
internet, computer system, telecommunications or data network failure hacking as well as malware, computer viruses, ransomware and similar
malicious software code
Cybersecurity
The
Company did not experience any cybersecurity incidents for the six months ended June 30, 2026.
Environmental
Regulations
The
Company has not engaged in production or manufacturing activities since 2023. We believe that the Company is in compliance with environmental
protection regulations and will not have a material impact on our financial position and results of operations. The Company is not aware
of any national, state or local environmental laws or regulations that will materially affect our earnings or competitive position or
result in material capital expenditures. However, the Company cannot predict the effect on our operations due to possible future environmental
legislation or regulations.
Climate
Change. With no current product line, the Company has not experience any direct, material impact on business and financial conditions
from pending or existing climate-change related legislation, regulations, and international accords in the U.S., the physical impacts
of climate change, or perceived indirect material impact from business trends. On March 27, 2025, the Commission voted to end its defense
of its climate related risk and greenhouse gas emissions rule (The Enhancement and Standardization of Climate-Related Disclosures for
Investors, SEC Release Nos. 33-11275; 34-99678). On April 4, 2024, the SEC had imposed an administrative stay on enforcement of the rule
due to pending challenges in federal courts. The Eighth Circuit ordered that the litigation would be held in abeyance until such time
as the SEC reconsider or renews it defense of the Rules. In its order, the Eighth Circuit emphasized that the SEC has the “responsibility
to determine whether its Final Rules will be rescinded, repealed, modified, or defended in litigation.” On
June 3, 2026, the U.S. Securities and Exchange Commission (SEC or Commission) published a proposed withdrawal of its climate-related
disclosure rule that required registrants and public companies to provide standardized, detailed information about climate-related risks,
governance, and certain greenhouse gas emissions in SEC filings. This action would eliminate the pending disclosure framework rather
than replacing it with an alternative set of climate-specific reporting requirements, reverting issuers to existing, principles-based
disclosure obligations.
Critical
Accounting Policies
We
believe that there have been no significant changes to our critical accounting policies during the six months ended June 30, 2026, as
compared to those we disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included
in our 2025 Annual Report.
25
CONSOLIDATED
OVERVIEW OF RESULTS OF OPERATIONS
Results
of operations.
Net
Revenues
The
Company does not have a product line that is generating revenues as of the date of the filing of this Form 10-Q.
Operating
Expenses
Operating
expenses include professional fees and compliance and regulatory expenses. In addition, operating expense include charges relating to
office expenses, accounting, and insurance.
CONSOLIDATED
RESULTS OF OPERATIONS AND OUTLOOK
Three Months Ended June 30, 2026, Compared to Three Months Ended June 30, 2025
(In Thousands)
June 30, 2026 June 30, 2025
Dollars % of Revenue Dollars % of Revenue
Revenues, net $ — — % $ — — %
Total Operating Expenses 71 — % 70 — %
Operating Loss (71 ) — % (70 ) — %
Total Other Income (Expense) (14 ) — % (6 ) — %
Loss Before Tax Benefit (85 ) — % (76 ) — %
Income Tax (Expense) — — % — — %
Net Loss $ (85 ) — % $ (76 ) — %
Six Months Ended June 30, 2026, Compared to Six Months Ended June 30, 2025
(In Thousands)
June 30, 2026 June 30, 2025
Dollars % of Revenue Dollars % of Revenue
Revenues, net $ — — % $ — — %
Total Operating Expenses 154 — % 177 — %
Operating Loss (154 ) — % (177 ) — %
Total Other Income (Expense) (23 ) — % (10 ) — %
Loss Before Tax Benefit (177 ) — % (187 ) — %
Income Tax (Expense) — — % — — %
Net Loss $ (177 ) — % $ (187 ) — %
Net
Revenues
Company
did not have an operating product line during the three and six month periods ended June 30, 2026 or 2025.
26
Operating
Expenses and Other Income (Expenses)
The
Company made concerted efforts to reduce operating expenses during 2026 as the Company did not have a revenue generating product line
during the three and six month periods ended June 30, 2026.
Professional
Fees
For
the three months ended June 30, 2026, and 2025, professional fees were approximately $51,000 and $42,000 respectively, an increase of
$9,000 or 21%, which relates to the timing of professional fees incurred during the second quarter of 2026, which are not forecasted
to occur during the second half of 2026.
For
the six months ended June 30, 2026, and 2025, professional fees were approximately $119,000 and $121,000 respectively, a decrease of
$2,000 or 2%, which is consistent with the Company’s cost efficiency strategy while pursuing possible business opportunities
Product
Development Expenses
For
the three months ended June 30, 2026, product development expenses were $0 as compared to $0 in 2025, as the Company did not have a revenue
generating product line during the three month period ended June 30, 2026.
For
the six months ended June 30, 2026, product development expenses were $0 as compared to $125 in 2025, as the Company did not have a revenue
generating product line during the six month period ended June 30, 2026.
Other
General and Administrative Expenses
For
the three months ended June 30, 2026, other general and administrative expenses were approximately $20,000 as compared to $28,000 in
2025 for an decrease of $8,000 or 29% which is consistent with the Company’s cost efficiency strategy while pursuing possible business
opportunities.
For
the six months ended June 30, 2026, other general and administrative expenses were approximately $35,000 as compared to $56,000 in 2025
for a decrease of $21,000 or 37% which is consistent with the Company’s cost efficiency strategy while pursuing possible business
opportunities
Total
Operating Expenses
For
the three months ended June 30, 2026, and 2025, total operating expenses were approximately $71,000 and $70,000, respectively, an increase
of approximately $1,000 or 1%, as denoted above.
For
the six months ended June 30, 2026, and 2025, total operating expenses were approximately $153,000 and $177,000, respectively, a decrease
of approximately $24,000 or 13%, as denoted above.
Operating
Loss
For
the three months ended June 30, 2026 and 2025, the operating loss was approximately $71,000 and $70,000, respectively, an increase in
loss of $1,000 or 1%.
For
the six months ended June 30, 2026 and 2025, the operating loss was approximately $153,000 and $177,000, respectively, a decrease of
approximately $24,000 or 13%, as denoted above.
Total
Other Income (Expense), net
For
the three months ended June 30, 2026, and 2025, other expense was $13,000, net as compared to $6,000 for 2025, which is directly attributable
to increased interest on working capital loan proceeds.
For
the six months ended June 30, 2026, and 2025, other expense was $24,000, net as compared to $14,000 for 2025, which is directly attributable
to increased interest on working capital loan proceeds.
Net
Loss
For
the three months ended June 30, 2026 the net loss was approximately $85,000 compared to a net loss of $77,000 in the same period 2025,
an increased loss of $8,000 or 11%.
For
the six months ended June 30, 2026 the net loss was approximately $177,000 compared to a net loss of $187,000 in the same period 2025,
a decreased loss of $10,000 or 6%.
Off-Balance
Sheet Arrangements
The
Company does not have material off-balance sheet arrangements that have or are reasonably likely to have a material future effect on
our results of operations or financial condition.
Contractual
Obligations
There
were no material changes to contractual obligations for the six months ended June 30, 2026.
27
Cash
Flow
Cash
flow from operations are primarily dependent on our net income adjusted for non-cash expenses and the timing of payments to suppliers.
Cash as of June 30, 2026, and December 31, 2025, was approximately $195,000 and $39,000 respectively, an increase of approximately $156,000.
Summary of Cash Flows For the Six Months ended June 30,
2026 2025
(In thousands)
Net cash provided by (used in):
Operating Activities $ (140 ) $ (157 )
Financing Activities 295 183
Net increase (decrease) in cash $ 155 $ 26
As
of June 30, 2026, the Company’s working capital deficit was approximately $636,000. Current assets were approximately $205,000
and current liabilities were approximately $841,000 and include:
● Accounts payable of $7,791, of which $5,180 is due to the Company’s Chairman (see Note 3).
● Note payable related parties and unrelated parties of $832,998, inclusive of accrued interest of $52,835.
Cash
Flows used in Operating Activities
Cash
used in operating activities in the six months ended June 30, 2026, and 2025 was approximately $140,000 and $157,000, respectively, a
decrease of $17,000 compared to last year, which relates to the Company’s cost efficiency strategy while pursuing possible business
opportunities.
Cash
Flows provided by Financing Activities
Cash
provided by financing activities for the six months ended June 30, 2026 and 2025, was approximately $295,000 and $183,000, respectively.
As
of June 30, 2026, and December 31, 2025, the Company had outstanding notes payable $832,998 and $514,320 which includes accrued interest
of $52,835 and $29,157, respectively.
Directors
and Officers Insurance
The
Company currently has Directors and Officers liability insurance, and the Company believes the coverage is adequate to cover likely liabilities
under such a policy.
Exchange
Rates
Country
Risks: Changes in foreign, cultural, political, and financial market conditions could impair the Company’s international manufacturing
operations and financial performance.
Currency:
Currency fluctuations could significantly increase our expenses during periods when we produced and sold consumer products and could
affect the results of operations, especially where the currency is subject to intense political and other outside pressures.
28
Interest
Rate Risk: The Company does not have significant interest rate risk during the six month period ended June 30, 2026. All outstanding
loans have been disclosed including the agreed interest rates.
Credit
Risk: The Company has not experienced significant credit risk.
Item