Executive Summary

Q4 2021 capped a difficult transition year: revenue for Q4 was ~~$0.203M (vs. $1.005M in Q4 2020), reflecting continued Smart Mirror launch delays and waning legacy LED demand; Q4 gross margin was negative (~~-46%) due to low-volume sales and elevated logistics costs .
Management emphasized that FCC certification (Dec 2021) was finalized, inventory arrived but was damaged in initial air shipments; the broader launch shifted to early 2022 with e-commerce channels (Amazon, CapstoneConnected.com) ready and big-box discussions initiated .
Full-year 2021 revenue fell 75% to $0.686M; operating loss narrowed YoY to $2.36M as cost controls offset volume shortfalls; “other income” (~$0.46M) from reversing aged promotional accruals materially reduced the FY net loss to $1.96M .
Key catalysts into 2022: commercialization execution for Smart Mirrors (Phase 2 with big-box), marketing conversion improvements, supply-chain normalization, and funding runway; risk factors include going concern uncertainty and reliance on insider financing in 2021 .

What Went Well and What Went Wrong

What Went Well
- FCC EMC certification completed in Dec-2021, removing a gating item for commercial sales (“enables…commence sales of the Smart Mirror product line”) .
- E-commerce infrastructure stood up: Amazon listing live, CapstoneConnected site, logistics/fulfillment, social media and digital campaigns staged; “We are poised to meet the market needs with inventories on hand…digital marketing…being adapted and improved daily” .
- Cost actions preserved liquidity and narrowed operating loss YoY; FY other income (~$0.456M) from reversal of no-longer-required promotional allowances aided bottom line .
What Went Wrong
- Launch delays and logistics mishaps: “the entire air shipment was a failed effort and very costly…approximately half of the inventory was damaged in transit,” constraining Q4 sell-through and producing negative gross margin .
- Demand hole from legacy LED: FY revenue fell 75% to $0.686M as LED orders waned and Smart Mirror sales were minimal ($3.8k recognized) .
- Financing risk: company tapped insider purchase-order funding ($1.02M) and ended FY with going concern uncertainty despite $1.28M cash and ~$2.0M working capital .

Financial Results

Quarterly trend (QoQ) – Revenues, profitability, and margins

Metric	Q2 2021	Q3 2021	Q4 2021
Revenue ($)	$0	$44,640	$202,791 (FY $685,854 − 9M $483,063)
Gross Profit ($)	$0	$12,463	$(93,900) (FY $47,210 − 9M $141,110)
Gross Margin (%)	0.0%	27.9%	−46.3% (derived)
Total Operating Expenses ($)	$580,796	$630,949	$577,843 (FY $2,403,085 − 9M $1,825,242)
Operating Income (Loss) ($)	$(580,796)	$(618,486)	$(671,743) (Gross Profit − OpEx)
Net Income (Loss) ($)	$(574,597)	$(618,486)	$(271,560) (FY $(1,963,629) − 9M $(1,692,069))

Year-over-year for Q4

Metric	Q4 2020	Q4 2021
Revenue ($)	$1,005,169 (FY $2,770,358 − 9M $1,765,189)	$202,791 (derived)
Gross Profit ($)	$260,205 (FY $503,766 − 9M $243,561)	$(93,900) (derived)
Gross Margin (%)	25.9% (derived)	−46.3% (derived)
Total Operating Expenses ($)	$808,273 (FY $3,589,300 − 9M $2,781,027)	$577,843 (derived)
Operating Income (Loss) ($)	$(548,068) (derived)	$(671,743) (derived)
Net Income (Loss) ($)	$(651,329) (FY $(2,383,816) − 9M $(1,732,487))	$(271,560) (derived)

Segment/category revenue (FY)

Category	FY 2021	FY 2020
Lighting Products – U.S. ($)	$340,896	$2,066,519
Smart Mirror – U.S. ($)	$3,795	—
Lighting Products – International ($)	$341,163	$703,839
Total Revenue ($)	$685,854	$2,770,358

Key balance sheet / liquidity KPIs (end of period)

KPI	FY 2021
Cash ($)	$1,277,492
Working Capital ($)	~$1.965M
Note Payable – Related Parties ($)	$1,030,340 (PO funding; includes $10,340 accrued interest)
Inventory ($)	$508,920
Deferred Tax Liability ($)	$273,954

Notes: Q4 2021 values are derived from audited FY 2021 results minus 9M YTD from the Q3 10‑Q (see citations in each cell) . Q4 2020 values similarly derived from FY 2020 minus 9M 2020 .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue / EPS	FY/Q1 2022	None issued	No formal quantitative guidance; management focused on phased Smart Mirror commercialization through e-commerce, then big-box discussions	Maintained no formal guidance
Operating items	2022	N/A	Intensify digital marketing, improve conversion, evaluate moving production to Mexico to hedge logistics costs	Qualitative expansion

Earnings Call Themes & Trends

Topic	Prior Two Quarters (Q1–Q2 2021)	Current Period (Q4 2021)	Trend
Supply chain / COVID impact	Q1: awaiting certifications; aiming for late Q2 initial shipments; pandemic lockdowns in Thailand caused disruptions . Q2: Zero revenue quarter; Delta variant delayed testing & shipments .	FCC certified; expedited air shipments arrived damaged; first ocean container delayed into early Mar 2022 .	Improving certification status, lingering logistics volatility
Certification / Regulatory	Awaiting FCC/ETL; target weeks to launch per CEO (May) .	FCC EMC certification finalized (Dec 2) .	Resolved for U.S.
E‑commerce marketing	Built site, Amazon presence; ad/SEO plans queued .	Focus on digital conversion, 8k-survey to reduce cart abandonment; expand social media .	Scaling execution
Big‑box / channel strategy	Warehouse clubs interested but wanted proof of category; management prioritized higher-margin DTC first .	“Phase 2” talks with big-box underway alongside DTC .	Gradual expansion
Funding / Liquidity	$1.498M equity raised (Apr); discussing PO funding; cost controls .	$1.02M insider PO funding (Oct); cash $1.28M; going concern risk persists .	Adequate near term; structural risk persists
Manufacturing footprint	Thailand ramp, COVID lockdowns; legacy China mix .	Exploring Mexico to hedge long-term logistics expense .	Strategic hedging

Management Commentary

“We immediately initiated the production [post‑approval] and attempted to expedite via air…The entire air shipment was a failed effort and very costly…approximately half of the inventory was damaged in transit.”
“Our digital marketing initiative is being adapted and improved daily…we…emailed a polling survey to ~8,000 participants…We have an estimated 500 website visitors that have placed the Mirror in their cart, but have not finalized the purchase.”
“We are going to Phase 2 of our Connected Surfaces strategy and have initiated our talks with big box customers.”
“Engineering is…assess[ing] to move production to Mexico for future growth and to hedge against the increasing logistical expense long-term.”

Q&A Highlights

No Q&A transcript was filed for the April 1, 2022 year-end call; earlier Q1 2021 Q&A indicated: (a) initial focus on DTC economics before big-box, (b) hospitality and developer channels as downstream opportunities once capabilities and features are tuned, and (c) near-term gating item was certifications and inventory availability .

Estimates Context

Wall Street consensus estimates (EPS/Revenue) were not available for CAPC around Q4 2021 given limited or no analyst coverage for this OTCQB-listed microcap; S&P Global consensus could not be retrieved. In our view, results should be evaluated versus company operational milestones (certification, inventory, channel readiness) rather than Street targets .

Key Takeaways for Investors

Execution pivot: With FCC approvals completed and e-commerce infrastructure live, 2022 execution hinges on converting demand and stabilizing logistics; Q4’s negative gross margin underscores the importance of volume scale and freight normalization .
Demand validation to watch: survey-driven funnel improvements, Amazon/website sell‑through, and conversion of “Phase 2” big‑box discussions into POs can re-rate revenue trajectory from the ~$0.2M Q4 base .
Margin path: mix shift to DTC should support higher structural gross margins, but near-term unit economics are sensitive to freight, damage/write-offs, and low-volume absorption; Mexico sourcing review is a longer-term hedge .
Liquidity runway: Cash ($1.28M) and PO funding ($1.02M) provided a bridge, but going concern language remains; additional capital (or rapid sell‑through) likely needed to scale marketing and inventory .
Risk skew: Microcap volatility, limited coverage, and execution risk on a new category; mitigation comes from proof points in conversion data, repeat purchase behavior, and early big‑box pilots .
Strategic optionality: Adjacent verticals (hospitality/developers) and product roadmap expansion can broaden TAM once core execution stabilizes .

Citations: –, –, –, –, –, –, –, –.

CAPSTONE COMPANIES, INC. (CAPC)·Q4 2021 Earnings Summary