These YOY comparisons are outstanding. Improvements all around.
CONSOLIDATED OVERVIEW OF OPERATIONS
Revenue
For the 3 months ended June 30, 2014 and 2013, total revenues were approximately $1,181,400 and $1,027,100, respectively, an increase of $154,300 or 15% from the previous year. We would note that approximately $1,000,000 of planned second quarter revenue was brought forward and shipped in the first quarter 2014.
For the 6 months ended June 30, 2014 and 2013, total revenues were approximately $5,269,700 and $1,686,900 respectively, that’s an increase of $3,582,800 or 212%
Cost of Sales
For the 3 months ended June 30, 2014 and 2013, cost of sales were approximately $ 828,500 and $ 830,200, respectively, a reduction of $1,700 or 0.2% from the previous year. Cost of Sales as a percent of revenues for the three months was 70.1% in 2014 as compared to 80.8 % in 2013. That’s a 10.7% reduction-improvement over last year.
For the 6 months ended June 30, 2014 and 2013, Cost of Sales were approximately $3,610,400 and $1,296,100 respectively. That’s an increase of $2,314,300 and a result of the increase in sales volume. Cost of Sales as a percent of revenues for the six months was 68.5% in 2014 as compared to 76.8 % in 2013 which represents an overall cost reduction of 8.3% compared to last year.
Gross Profit
For the 3 months ended June 30, 2014 and 2013, gross profit was approximately $352,800 and $196,900 respectively, an increase of $155,900 or 79.2% as compared to the comparable period in 2013. Gross Profit as a percentage of revenues was 29.9% in the quarter compared to 19.2% in the same quarter in 2013. That’s a Gross Profit increase of 10.7% in the quarter.
For the 6 months ended June 30, 2014 and 2013, gross profit was approximately $1,659,400 and $390,800 respectively, an increase of $1,268,600 or 324.6% over 2013. The significant increase in revenue is attributed to the continued strong sales performance of our Motion Sensor Light, and Power Failure Light programs and we had specialty sales of the FIFA World Cup Brazil 2014 souvenir watches. Gross Profit as a percentage of revenues for the six months was 31.5% in 2014 as compared to 23.2% in 2013. That’s a Gross Profit increase of 8.3% improvement over last year.
The higher gross profit as a percentage of net sales reflects an improved margin resulting from the product mix shipped during the period.
Operating Expenses
For the 3 months ended June 30, 2014 and 2013, operating expenses were approximately $709,400 and $614,300 respectively, an increase of $95,100 or 15.5% as compared to same period in 2013.
For the 6 months ended June 30, 2014 and 2013, operating expenses were $1,654,100 and $ 1,120,400 respectively an increase of $533,700 or 47.6%.
Expenses for the second quarter were higher than the same quarter in 2013 mainly because we have incurred the added expense of our Hong Kong office, additional sales staff in our U.S. office, and we have continued investment in new product development. The following summarizes the major expense variances by category in the six month period compared to same period in 2013.
Sales and Marketing Expenses - for the 6 months ended June 30, 2014 and 2013 were approximately $374,000 and $166,600 respectively, an increase of $207,400 or 124.5%. During the six month period ended June 30, 2014, the Company continued its marketing-product promotion strategy and invested $224,000 retail product advertising and promotions, to further stimulate consumer response.
Compensation Expenses - for the 6 months ended June 30, 2014 and 2013 were $670,100 and $468,800 respectively, an increase of $201.300 or 42.9%. This increase is mainly the result of added sales personnel in the United States and staff in our Capstone International Hong Kong office. Some of this expense increase has been offset by reductions in professional fees expense as we transitioned from consultants to employees in our Hong Kong office.
Professional Fees - for the 6 months ended June 30, 2014 and 2013 were approximately $106,000and $205,500 respectively, a reduction of $99,500 or 48.4%. As noted above, to support our Hong Kong office, we have reduced our dependency on consultants and hired qualified personnel.
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Product Development Expenses - for the 6 months ended June 30, 2014 and 2013 was approximately $216,900 and $84,000 respectively, that’s an increase of $132,900 or 158.2% in the period. We have continued to make significant investments in developing, sourcing and testing new innovative products for future revenue growth. In an effort to accelerate the launch of new products incorporating the AC Kinetics technology, we engaged an additional industrial design firm stateside to help the overseas team execute at factory levels in the most effective way possible.
Other General Administrative - for the 6 months ended June 30, 2014 and 2013 were approximately $287,000 and $195,600 respectively, an increase of $91,400 or 46.7%. This expense increase was mainly the result of additional rental expense with the opening of the Hong Kong office and with an increase of insurance premiums associated with the Company’s higher revenue volumes.
Total Operating Expenses - for the 6 months ended June 30, 2014 and 2013 were approximately $1,654,100 and $1,120,400 respectively, an increase of $533,700 or 47.6%. During this period we have continued to invest for future growth, specifically, $240,500 in the establishment of our Hong Kong operation, $224,000 in product advertising and marketing to further develop consumer product awareness and $132,000 in new product development and technology, totaling $596,500 of investment.
Net Operating Income (Loss)
For the 3 months ended June 30, 2014 and 2013, Operating Income/(Loss) was approximately $(356,600) and $(417,400), respectively, for a net improvement of $60,800 as compared to same period in 2013.
For the 6 months ended June 30, 2014 and 2013, Operating Income/(Loss) was approximately $5,300 and $(729,600), respectively this represents a $734,900 net improvement over last year.
Interest Expense
For the 3 months ended June 30, 2014 and 2013, interest expenses were approximately $52,400 and $81,400, respectively, for a reduction of $29,000 as compared to same period in 2013.
For the 6 months ended June 30, 2014 and 2013, interest expenses were approximately $153,600 and $155,100, respectively. That’s an increase of $2,700. Even with a significant revenue increase over last year, we have been able to maintain our interest to slightly less than last year’s expense. This has been achieved by paying off some of our old outstanding loans and eliminating that interest and combined with having increased loan availability at Sterling National Bank, which reduced our need to use more expensive financing.
Net Income (Loss)
For the 3 months ended June 30, 2014 and 2013, the Company had a net loss of approximately $413,300 as compared with a net loss in the same period last year of ($498,800). That’s a net income improvement of $85,500.
For the 6 months ended June 30, 2014 and 2013, the Company had a net loss of approximately $152,500 and $884,700 respectively. That’s a net income improvement of $732,200 during the six months. It is worth noting, the company achieved this $732,200 net improvement having also invested $596,500 as noted above in additional strategic expenses designed to improve future company growth.
With the current retail interest in our product offerings, expansion of distribution channels through the domestic purchase program, the launch of exciting new products this year and the opportunities provided by Capstone International HK Ltd, the Company expects its sales volumes to grow and produce gross revenues in the projected range of $15 million to $20 million within the next rolling 12 months from July 2014 through June 2015, subject to economic conditions not deteriorating and other factors impacting on consumer sales (including, without limitation, competitors’ new products and sales efforts, changes in consumer purchasing habits and tastes, technological developments in our industry, and other risk factors set forth in our Securities Exchange Act of 1934 filings with the SEC). The Company anticipates this growth potential as a result of the increased retail distribution achieved in 2013, the rebranding of Capstone’s Power Failure Product line and the new product launches at the National Hardware Show in May of 2014, and we anticipate additional projects and programs through Capstone International. Having attended for the first time last year, the International Hotel, Motel and Restaurant Show we are actively pursuing opportunities with our Power Failure Solutions products and Door Security Monitor in this new distribution channel. These assumptions would have to be accurate to achieve the projected gross revenues. Further, since our products are mostly discretionary spending items for the general public, general economic conditions impact the market appeal and performance of our products to the extent that consumers defer or cancel discretionary spending on non-essential products in response to poor economic conditions.
Items of interest - Here are the insiders using their own money again that have very reasonable terms and call to maturity in Q4 / end of 2014:
On June 14, 2014, Capstone Industries, Inc. received a $125,000 loan from George Wolf. This loan is due on or before December 31, 2014 and carries an interest rate of 1.0% simple interest per month. The loan balance at June 30, 2014 is $125,575 including accrued interest of $575.
On December 11, 2013, Capstone Industries, Inc. received $620,000 against new note from Jeffrey Postal a director of the Company. The note is due on or before July 2, 2014 and carries an interest rate of 1.0% simple interest per month (12% annul). As of December 31, 2013, the total amount due under this note was $624,077 including accrued interest of $4,077. This note was paid in full during the first quarter 2014 and no amount is due at March 31, 2014.
On June 9, 2014, Capstone Industries, Inc. received $825,000 against two new notes from Jeffrey Postal a director of the Company. The notes are due on or before December 31, 2014 and carry an interest rate of 1.0% simple interest per month (12% annul). As of June 30, 2014, the total amount due under this note was $830,696 including accrued interest of $5,696.
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