Capstone Companies Inc (CAPC)

[mdimport]

$CAPC's true cash burn last Quarter was $(664,282)

I took the cash on hand + receivables + prepaid expenses from Q1 2020 and subtracted it from Q4 2019.

https://www.otcmarkets.com/filing/html?id=14256165&guid=_cdFUqWqs_Jly3h

= ($2,452,652 + $69,973 + $140,583) - ($3,131,249 + $13,459 + $182,782)
= $(664,282)

There's no real need to play with the income tax refund since the company needs actual cash to survive.

At the beginning of Q2 2020 $CAPC started with useable cash, receivables, and prepayments of:
= $2,452,652 + $69,973 + $140,583
= $2,663,208

One would expect on a straight line burn rate the following ROM the end of each upcoming Quarter:

Q3 2020:
= $2,663,208 - $664,282
= $1,998,926

Q4 2020:
= $1,998,926 - $664,282
= $1,334,644

Q1 2021 (easily apparent insolvency):
= $1,334,644 - $664,282
= $670,362

Q2 2021 (actual insolvency):
= $670,362 - $664,282
= $6,080

The other way is consider how much actual cash is burned each day:
= $664,282 / 91 days
= $7,300 burned per day

At the beginning of Q2 2020 $CAPC started with $2,663,208.

So a straight line of burn days to $0 is:
= $2,663,208 / $7,300
= 365 days

Its the same result, but is a simpler analysis.

Bear in mind $CAPC will begin diluting heavily the more it's cash on hand drops. That should start somewhere in Q4 2020, but be disguised as being done in the name of inventory build-up for the 2020 holiday season. This may extend the company life into Q4 2021 / Q1 2022.

The other undiscussed issue is what should management do with the $2.7M it had to steer the company in a better direction:
- immediately stop production of the smart mirror
- layoff everyone, except the manager, and reduce salary to slow cash burn
- sale of the smart mirror manufacturing rights + any inventory
- get royalties on the sale of smart mirrors from the buyer of the manufacturing rights
- end all production in China
- develop a new US based product line