Item 1.01 Entry into a Material Definitive Agreement.
Credit Line. On January 4, 2021, Capstone Companies, Inc., a Florida corporation
and the Registrant, ("Company") entered into a Loan Agreement, dated January 4,
2021, ("Loan Agreement") with Stewart Wallach and Jeffrey Postal as joint
lenders (the "Lenders") whereby Lenders will make a maximum of Seven Hundred
Fifty Thousand Dollars and No Cents ($750,000) ("principal") available as a
credit line to Company for working capital purposes. Under the Loan Agreement,
Company may request funding in draw requests up to the principal amount from
time to time during the term of the Loan Agreement. A draw request must be for
at least Twenty-Five Thousand Dollars and No Cents ($25,000.00) principal
amount. Any loaned principal amount bears interest at One Percent (1%) simple
annual interest. Principal and accrued interest are due in a single lump sum
payment due on June 30, 2021 ("Maturity Date"). The Maturity Date is also the
expiration date of the Loan Agreement, except that the Company may request a
six-month extension of the Maturity Date and term of the Loan Agreement
("Extension") by a written request made prior to or on the Maturity Date.
Advances under the Loan Agreement are not secured by any collateral or Company
assets, but the Loan Agreement provides that the repayment of principal amount
loaned, and interest accrued thereon will have seniority in payment over any
other unsecured debts of the Company and, to the extent allowed by law, any
distributions of cash or assets by the Company.
Mr. Wallach is a Director, Chief Executive Officer and a principal shareholder
of the Company. Mr. Postal is an outside Director and principal shareholder of
the Company. On December 31, 2020, the Loan Agreement was approved by the
Company's Audit Committee's disinterested director, being Jeffrey Guzy, and also
approved by disinterested director Larry Sloven and director James McClinton,
who is Chief Financial Officer of the Company. The disinterested directors
concluded that the Loan Agreement and transactions therein are in the best
interests of the Company and its public shareholders and the only firm
commitment for lending available to the Company on commercially reasonable terms
and conditions. The Company has no alternative firm commitments for working
capital funding as of the date of this Current Report on Form 8-K.
The low market price of the Company Common Stock, $0.0001 par value per share,
("Common Stock") coupled with the Company's declining financial results and lack
of any significant tangible assets for collateral are some of the factors that
hampered Company efforts in 2020 to locate third party working capital funding,
either debt or equity-based funding. Company projects that it will need the
working capital credit line for operational overhead from time to time in 2021.
Background - Need for Working Capital Funding. As reported in its periodic
reports filed by the Company with the Commission, the Company has experienced a
significant decline in gross revenues generated by its business in 2020 due to
the impact of the Coronavirus/COVID 19 pandemic on the economy and consumer
demand for Company products and due to its core products reaching maturity in
the product life cycle and resulting net losses in financial results. While the
Company is developing a new line of "smart," interactive mirrors for residential
market, this new product line has not been launched and is not generating
revenues as of the date of this Current Report on Form 8-K. The Company does
not have a third party credit line and efforts to secure a third party credit
line or funding in 2020 has produced no firm commitments for funding and only
produced one proposed term sheet that provided funding on terms that the Company
regarded as commercially unreasonable in terms of interest rate, restrictive
covenants and a discretionary conversion rate of principal into shares of
Company Common Stock, $0.0001 par value per share, ("Common Stock"), which rate
of conversion would have been highly dilutive of Company shareholders. Due to
the declining financial results and losses, the Company needs working capital
funding to cover projected operating overhead in first half of fiscal year
2021. In light of the lack of commercially reasonable third party offers of
funding, Mr. Wallach and Mr. Postal, who have provided short-term working
capital loans to the Company in the past, agreed to enter into the Loan
Agreement to provide needed working capital for the Company.
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Item 3.02 Unregistered Sales or Equity Securities. Issuance of Preferred Stock.
The Loan Agreement provides for issuance of a total of seven thousand five
hundred shares of Company's Series B-1 Convertible Preferred Stock, $0.0001 par
value per share, ("Preferred Shares") to each of the Lenders within ten (10)
days of signing of Loan Agreement as partial consideration for providing a
below-market interest rate, unsecured loan to the Company. Lender may convert
unpaid principal and interest into shares of Common Stock at 9 cents per share
at option of Lender. If there is an Extension, then the Company would issue a
total of five hundred thousand (500,000) shares of Common Stock issued to each
of the Lenders as partial consideration for extending the term of the Loan
Agreement. The Preferred Shares and any shares of Common Stock issued under the
Loan Agreement will be "restricted" securities under Rule 144 of the Securities
Act of 1933, as amended. The Loan Agreement grants piggyback registration
rights to Lenders for any shares of Common Stock issued or issuable under the
Loan Agreement.
Item 7.01 Regulation FD Disclosure.
On January 4, 2021, the Company issued a press release regarding the transaction
described above under Item 1.01 of this Current Report on Form 8-K. A copy of
the press release is attached hereto as Exhibit 99.1.
In accordance with General Instruction B.2 of Form 8-K, the information in this
Item 7.01 of this Current Report on Form 8-K, including Exhibit 99.1, shall not
be deemed "filed" for the purposes of Section 18 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or otherwise subject to the
liabilities of that section, nor shall it be deemed incorporated by reference in
any filing under the Exchange Act or the Securities Act of 1933, as amended,
except as shall be expressly set forth by reference in such a filing.
Furthermore, the furnishing of information under Item 7.01 of this Current
Report on Form 8-K is not intended to constitute a determination by the Company
that the information contained herein, including the exhibits hereto, is
material or that the dissemination of such information is required by Regulation
FD.
Item 8.01 Other Events.
Stewart Wallach and Jeffrey Postal may individually purchase shares of Common
Stock in the open market and for investment purposes only and in order to show
their support of the Company.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits.
Exhibit No. Description
10.1 Loan Agreement, dated January 4, 2021, by and among Capstone Companies,
Inc., Stewart Wallach and Jeffrey Postal
99.1 Press Release, dated January 5, 2021, by Capstone Companies, Inc. reporting
the Loan Agreement, dated January 4, 2021, by and among Capstone Companies,
Inc., Stewart Wallach and Jeffrey Postal
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