Executives: Aimee Gaudet - Investor Relations Stewart Wallach - President, Chief Executive Officer and Director Gerry McClinton - Chief Financial Officer, Chief Operating Officer and Director

Analysts:

Operator: Greetings and welcome to the Capstone Companies teleconference call. [Operator Instructions]. I would now like to turn the conference over to Ms. Aimee Gaudet, Corporate Secretary for Capstone Companies. Thank you Ms. Gaudet. You may now begin.

Aimee Gaudet: Thank you and good morning everyone. I would like to point out that our executive is traveling and joining us from remote location this morning. If we should experience any technical difficulties I do apologize in advance. Due to this reason we will not be conducting a Q&A session. However if you've any questions subsequent to the webcast you may send them directly to my attention at aimee@capstonecompaniesinc.com. 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 second quarter results as well as give us an update on the strategy and outlook. If you do not have the release that was distributed yesterday afternoon, it is available on the company's website at www.capstonecompaniesinc.com. As you are aware, we may make forward-looking statements during today’s presentation. These statements apply to future events, which are subject to risks and uncertainties as well as other factors that could cause the actual results to differ materially from where we are today. These factors are outlined in our earnings release as well as in the documents filed by the Company with the Securities and Exchange Commission, which can be found at capstonecompaniesinc.com or sec.gov. With that I'll turn the call over to you, Stewart.

Stewart Wallach: Thank you, Aimee and good morningto everyone. I appreciate your time with us today. I am pleased to report this morning that Capstone's momentum is continuing strongly in 2017. Yesterday, we announced another record breaking quarter which follows seven record quarters making eight successive quarters since Q3 2015. As stated during our most recent webcast, Q1 represented the most significant product line and brand extension in the company's history. Our Q2 record performance resulted from this expansion, five new products being shipped under three branded lines, Capstone Lighting, Hoover Home LED, and Duracell. For our long time shareholders as I've stated in the past, we are consistently conservative in our projections as we are sensitive to the matters which we can't control such as change of shipping windows, factory supply chain issues, and logistical issues. These occurrences can significantly impact the timing of shipments from quarter to quarter. The best way to judge the company's performance is on a trailing 12 basis which at the end of Q2 is estimated at $37.5 million. I would also like to share that our backlog entering into Q3 2017 remained solid, and we anticipate meeting or exceeding Q3 2016's performance. We have made some substantial marketing investments that will impact us in Q3, in fact the most significant consumer rebate program that we have funded to-date. However, we still remain confident that our net revenue numbers for Q3 will exceed 2016. At this time, I would like to introduce Gerry McClinton to review the financials in detail after which I will comment on the company's outlook.

Gerry McClinton : Thank you, Stewart and good morning everyone. It gives me great pleasure to report on another record breaking quarter. Net revenue for the three months ended June 30, 2017 and 2016 was approximately $10.2 million and $8.9 million respectively, an increase of $1.3 million or 14.8% from the previous year. During the quarter, the company also provided approximately $256,000 in consumer promotional allowances which reduced the sales. For the six months ended June 30, 2017 and 2016, revenue was approximately $17 million and $11 million respectively, that's an increase of $6 million or 54.6% from 2016. During the six-month period, the company provided approximately $453,000 in consumer promotional allowances, and the company continued to have strong revenue performance in the Accent Light category and all three brands including Duracell, Capstone Lighting, and Hoover Home LED. For the six months ended June 30, 2017, international sales were approximately $1.1 million or 6.4% of revenue. Cost of sales for the three months ended June 30, 2017 and 2016 were approximately $7.6 million and $6.8 million respectively, that's an increase of $800,000 or 11.9%, now this equates to 74.1% and 76% respectively of revenue. For the six months, cost of sales were approximately $12.7 million and $8.2 million respectively, an increase of $4.5 million from 2016, which resulted from the increased sales volume. This cost equates to 75.1% and 75% respectively of revenue. Manufacturing unit costs continued to remain stable in the period resulting from effective volume buying with our overseas factories, the steady price of oil, and the continuing strength of the U.S. dollar. In the second quarter, the cost of sales percent to revenue of 74.1% was nearly 2% lower than in the same quarter 2016. For the six month period, the percent cost of sales to revenue was 75.1% that's 0.1% higher than 2016, so costs are remaining pretty much in check. Gross profit, for the three months ended June 30, 2017 and 2016 was approximately $2.6 million and $2.1 million respectively, an increase of $514,000 from 2016. As a percent of sales, gross profit was 25.9% compared to 23.9% in 2016. For the six months, gross profit was approximately $4.2 million and $2.7 million respectively, that's an increase of $1.5 million from 2016. As a percentage of sales, gross profit was 24.9% compared to 25% in 2016. Operating expenses for the three months ended June 30, 2017 and 2016 were approximately $1.3 million and $968,000 respectively, an increase of $337,000 compared to 2016. For the six months, operating expenses were approximately $2.5 million and $1.6 million respectively, an increase of $874,000 compared to 2016. The following is a brief summary of the major expense variances by category, and 2017 compared to 2016. Sales and marketing expenses for the three months ended June 30, 2017 were approximately $565,000, an increase of 212,000 from 2016. The expense increase resulted mainly from royalty license payments of $142,000 for the branded licenses that was not incurred last year, and sales representative commissions that increased by $39,000 from 2016. For the six months, sales and marketing expenses were approximately $941,000, an increase of $526,000 from 2016. Investment in the branded licenses of Duracell and Hoover Home LED amounted to $344,000 and license payments that did not occur in 2016. Sales representative commissions also increased by $136,000 in 2017 from 2016. Compensation expense for the three months ended June 30, 2017 was approximately $354,000, an increase of $38,000 from 2016. For the six months, compensation expense was approximately $714,000, an increase of $89,000 from 2016. Professional fees for the three months ended June 30, 2017 were approximately $115,000, an increase of $44,000 from 2016. For the six months, professional expenses were $320,000, an increase of $145,000 from 2016. This increased expense resulted from hiring an investment banker, increased investor relations including management's attendance at various investor conferences, and increased accounting and tax services. Product development expenses for the three months ended June 30, 2017 were approximately $66,000, an increase of $2000 from 2016. For the six months, product development expenses were approximately $138,000, an increase of $38,000 from 2016. This expense increase resulted from new product prototype development including testing and certification costs related to the expansion of our product categories. We also incurred additional costs related to artwork and package design and patent and trademark services. Other general and administration, for the three months ended June 30, 2017 were approximately $204,000, an increase of $40,000 from 2016. For the six months, other G&A expenses were approximately $383,000, an increase of $76,000 from 2016. This expense increase is primarily the result of increased Sterling bank processing fees and increased general insurance liability of premiums associated with the current higher revenue levels. And also we had additional increased travel expenses related to sales activities during the period. Additionally, higher freight carrier services were realized due to ramp-up product prototype and sample development during the period. Net operating income for the three months ended June 30, 2017 was approximately $1.3 million compared to $1.2 million in 2016. This is an improved performance of $177,000 over 2016. For the six months ended June 30, 2017, operating income was approximately $1.7 million compared to $1.1 million in 2016. This is an improved performance of $606,000 or 54.1% over 2016. Interest expense for the three months ended June 30, 2017 and 2016 was approximately $35,000 and $66,000 respectively, a reduction of $31,000 as compared to 2016. For the six months ended June 30, 2017 and 2016, interest expense was approximately $57,000 and $124,000 respectively, that's reduction of $67,000 as compared to 2016. Now despite having substantial revenue growth during that period, we've been able to curtail the need for increased borrowing through efficient daily cash management and by negotiating favorable payment terms with their overseas suppliers, which has substantially reduced the need and cost for purchase order funding. With the increased cash flow resulting from operational profits in 2017, we've also been able to substantially reduce all director loans, which also reduced the interest expense in the period. Income before tax for the three months ended June 30, 2017, the company had income before tax of approximately $1.3 million as compared to $1.1 million in the same quarter last year, an increase of $208,000. Income before tax as a percentage of sales was 12.8% in the quarter compared to 12.3% in 2016. For the six months ended June 30, 2017, the company had income before tax of approximately $1.7 million as compared to approximately $996,000 in 2016. This is an increase of $686,000 or 68.9%. Income before tax as a percentage of sales was 9.9% in the period compared to 9.1% in 2016. Provision for income tax for the three months ended June 30, 2017, the provision for income tax was approximately $402,000, an increase of $389,000 compared to 2016. As the company has now offset its previous year's net operating losses, the company must now provide for future income tax expense. For the six months ended June 30, 2017, the provision for income tax was approximately $530,000, an increase of $517,000 compared to 2016. Net income for the three months ended June 30, 2017 was approximately $901,000 as compared to $1.1 million in 2016. For the six months, the company had net income of approximately $1.2 million as compared to $983,000 in 2016. To summarize, in summary, the overall net income improvement for the six months period of $169,000 compared to 2016 was the result of nearly $6 million increase in net revenue resulting in increased gross profit of approximately $1.5 million. This record performance was achieved after the company provided for $454,000 of marketing allowances and increased operating expenses of $874,000, mainly resulting from the higher revenue. During the six month period ended June 30, 2017, the company also provided for a $530,000 tax provision, which is $517,000 higher than in 2016. This also had the impact of reducing the net income for the period. Let's turn to liquidity and capital resources. Operating activities, cash flow provided by operating activities was approximately $16,000 in the six months ended June 30, 2017 compared with approximately $1.6 million used in operating activities in 2016. During the period net income provided $1.2 million of cash, the decrease in inventory of $99,000 and an increase of accounts payable of $112,000 provided another $211,000 of cash flow. This $1.4 million of cash allowed the company to fund $451,000 of accounts receivable and $1 million of purchase order funding overseas without having to use any borrowed funds for the bank. Investing activities, cash used for investing activities for the six months ended June 30, 2017 was approximately $15,000 compared to $5000 in 2016. Now the company continues to invest in the new product molds [ph] and tooling with the continued product expansion into new categories, the company's future capital requirements will increase. Our Hong Kong management team has the task of the go savings favourable payment terms with our factories which will reduce the amount of upfront cash required to have available when initiating a new project. Management believes that our cash flow from operations and additional borrowing will provide for these necessary capital expenditures. Financing activities, cash used in financing activities for the six months ended June 30, 2017 was approximately $473,000 compared to $1.6 million provided by financing activities in the same period 2016. During that period ended June 30, 2017 the company invested $250,000 for the repurchase and retirement of company shares Involve LLC and paid off $223,000 of directors loans, some outstanding since 2010 and 2013 including all accrued interest. The company was also able to maintain their sterling bank loan balance at zero balance despite the large sales volume increase. The cash balance of June 30th was approximately $1.2 million which is $472,000 reduction from December 31, 2016. At June 30, 2017 the company was in compliance with all agreements pursuing two existing credit facility. Management believes that our cash flow from operations, continued support from Sterling National Bank and support of our directors will provide sufficient financial resources for the company during 2017. This concludes my financial summary for the second quarter 2017. I will now turn the call back to Stewart.

Stewart Wallach: Thank you. Gerry. In furtherance to Gerry's detailed financial review, I would like to emphasize some of our first half 2017 Q2 and forward-looking highlights. One, we shipped five new product offerings in Q's one and two, largest product launch in the company's history. Two, our third brand Duracell which was launched in Q1 2017 will be featured in the Warehouse Club Channel in just a matter of weeks early September. Three, our growth over the first six months was approximately $6 million representing 54.6% growth. The net revenue for the three months was $10.2 million, an increase of $1.3 million or 14.8% from the previous year which contributes to our seventh record breaking quarter. We have continued to expand product placement in the Pacific Rim, adding [indiscernible] is a building supply superstore in that region and this was accomplished through the direct efforts of the Capstone Hong Kong office. Number five, our strong operating leverage remains a constant and is expected to continue to drive earnings growth. Number six, we have made significant investments to support retail sell through and have partnered with our customers by participating in various consumer rebate programs. The most noteworthy will be publicly evident in Q's three and four and our trailing '12 revenues are tracking at $37.5 million and our Q3 backlog remains solid. And lastly number eight, during the first six months of 2017 we repurchased and retired $1.66 million shares of stock reducing our total outstanding by approximately 3%. Our primary management objective at this time is to maintain our momentum. We are continuing to build on our branding and product strategies. While it is exciting and gratifying to have broadened our retail product placement as we have been in 2017 our new product roadmap remains a vital factor in our looking forward success. To keep everything in perspective, experience tells us it is unrealistic to expect that all products will resonate with retail consumers equally. Nor will they deliver consistent remarkable sales results. We monitor sales activities very closely and we consider our customers recommendations for improvements carefully. We remain laser focused on our research and development activities as we strive to deliver more innovative products in 2018. We are not relying on past product introductions or successes to fuel our future growth. We are relentless in our pursuit of delivering differentiation and market firsts. We have remained consistent in our business approach as it continues to deliver to expectations and allows us to allocate our resources to looking forward opportunities. In closing I would like to thank our long term shareholders for your continued support and to our new and potential shareholders. I'd like to thank you for your interest in Capstone Companies. Thank you.

Operator: Thank you. Ladies and gentlemen this does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.