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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from ________________ to ________________
Commission file number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of
incorporation or organization) |
(I. R. S. Employer
Identification No.) |
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| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided to Section 7(a)(2)(B) of the Securities Act.
Indicate by check mark whether the registrant
is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes ☐ No
The number of shares of the registrant’s common stock outstanding
as of November 14, 2025 was
TABLE OF CONTENTS
i
PART I
ITEM 1. FINANCIAL STATEMENTS
CAPSTONE HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
|
September 30,
2025 |
December 31,
2024 |
|||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ |
|
$ |
|
||||
| Accounts receivable, net |
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||||||
| Inventories |
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||||||
| Prepaid expenses |
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||||||
| Other current assets |
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||||||
| Total current assets |
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||||||
| Long-term Assets: | ||||||||
| Property and equipment, net |
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||||||
| Goodwill |
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||||||
| Other intangible assets |
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||||||
| Right of use assets |
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| Deferred tax asset |
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| Other long-term assets |
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| Total long-term assets |
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||||||
| Total Assets | $ |
|
$ |
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||||
| LIABILITIES & EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ |
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$ |
|
||||
| Accrued expenses |
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||||||
| Line of credit |
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||||||
| Current portion of long-term debt |
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| Current portion, lease liability |
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| Total current liabilities |
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||||||
| Long-term liabilities: | ||||||||
| Accrued related party management fee |
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||||||
| Long term debt, net of current portion |
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||||||
| Lease liability, net of current portion |
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||||||
| Earn-out payable |
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|||||||
| Total long-term liabilities |
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||||||
| Total Liabilities |
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||||||
| TotalStone, LLC – Class B Preferred Units |
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|||||||
| TotalStone, LLC – Special Preferred Units |
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|||||||
| Equity: | ||||||||
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|
||||||||
|
Series Z Preferred Stock,
par value;
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|||||||
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Common Stock $
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|||||||
| Additional paid-in capital |
|
|
||||||
| Accumulated deficit |
(
|
) |
(
|
) | ||||
| Total Equity |
|
(
|
) | |||||
| Total Liabilities, TotalStone, LLC Preferred Units & Equity | $ |
|
$ |
|
||||
See notes to consolidated financial statements
1
CAPSTONE HOLDING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Sales | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
| Sales returns and allowances |
(
|
) |
(
|
) |
(
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) |
(
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) | ||||||||
| Net sales |
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||||||||||||
| Cost of goods sold |
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||||||||||||
| Gross Profit |
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||||||||||||
| Selling, general and administrative expenses |
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||||||||||||
| Transaction expenses |
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||||||||||||||
| Income (loss) from operations |
(
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) |
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(
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) |
(
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) | |||||||||
| Loss on extinguishment of debt |
(
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) |
(
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) | ||||||||||||
| Interest expense |
(
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) |
(
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) |
(
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) |
(
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) | ||||||||
| Net income (loss) before taxes |
(
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) |
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(
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) |
(
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) | |||||||||
| Income tax expense |
(
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) |
(
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) | ||||||||||||
| Net Income (Loss) |
(
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) |
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(
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) |
(
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) | |||||||||
| Less: Net loss attributable to: | ||||||||||||||||
| Special preferred units |
(
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) |
(
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) | ||||||||||||
| Class B units preferred return |
(
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) |
(
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) |
(
|
) | ||||||||||
| Net loss attributable to Capstone Holding Corp. stockholders | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | ||||
| Earnings (loss) per share: | ||||||||||||||||
| Net loss per share attributable to Capstone Holding Corp. stockholders – basic and diluted | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | ||||
| Weighted average number of common shares outstanding – basic and diluted |
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||||||||||||
See notes to consolidated financial statements
2
CAPSTONE HOLDING CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except Common Stock Shares)
| Retained | TotalStone, LLC | |||||||||||||||||||||||||||||||||||||||||||
|
Common
Stock (Shares) |
Common
Stock |
Series B
(Shares) |
Series B
Preferred Stock |
Series Z (Shares) | Series Z Preferred Stock |
Additional
Paid-In Capital |
Earnings
(Accumulated Deficit) |
Total
Equity |
Class B
Preferred Units |
Special
Preferred Unit |
||||||||||||||||||||||||||||||||||
| Balance at January 1, 2025 |
|
$ | $ | $ | $ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
|
||||||||||||||||||||||||||||
| Net Loss | — | — | — |
(
|
) |
(
|
) | |||||||||||||||||||||||||||||||||||||
| Accrued Class B Distributions | — | — | — |
(
|
) |
(
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) |
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||||||||||||||||||||||||||||||||||||
| Conversion of Class B Preferred Units to Common stock |
|
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— | — |
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(
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) | ||||||||||||||||||||||||||||||||||||
| Conversion of Special Preferred Units to Debt | — | — | — |
(
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) | |||||||||||||||||||||||||||||||||||||||
| Public Offering |
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— | — |
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||||||||||||||||||||||||||||||||||||||
| Nectarine Management, LLC. Subscription Agreement | — |
|
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— |
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|||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2025 |
|
$ |
|
|
$ |
|
— | $ | $ |
|
$ |
(
|
) | $ |
|
$ | $ | |||||||||||||||||||||||||||
| Net Loss | — | — | — |
(
|
) |
(
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) | |||||||||||||||||||||||||||||||||||||
| Issuance of commitment shares pursuant to equity line of credit |
|
— | — | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to equity line of credit |
|
— | — |
|
|
|||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2025 |
|
$ |
|
|
$ |
|
— | $ | $ |
|
$ |
(
|
) | $ |
|
$ | $ | |||||||||||||||||||||||||||
| Net Loss | — | — | — |
(
|
) |
(
|
) | |||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to equity line of credit |
|
— |
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|
||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to Senior Convertible Note |
|
— |
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|
||||||||||||||||||||||||||||||||||||||||
| Conversion of note payable to BP Peptides, LLC. to Series Z Preferred Stock | — | — |
|
|
|
|||||||||||||||||||||||||||||||||||||||
| Conversion of note payable to Brookstone to Series Z Preferred Stock | — | — |
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|||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2025 |
|
$ |
|
|
$ |
|
|
$ |
|
$ |
|
$ |
(
|
) | $ |
|
$ | — | $ | — | ||||||||||||||||||||||||
| Retained | TotalStone, LLC | |||||||||||||||||||||||
|
Common
Stock |
Additional
Paid-In Capital |
Earnings
(Accumulated Deficit) |
Total
Equity |
Class B
Preferred Units |
Special
Preferred Unit |
|||||||||||||||||||
| Balance at January 1, 2024 |
|
$ |
|
$ |
(
|
) | $ |
|
$ |
|
$ |
|
||||||||||||
| Net Loss | — |
(
|
) |
(
|
) | |||||||||||||||||||
| Accrued Class B Preferred Units Distributions | — |
(
|
) |
(
|
) |
|
||||||||||||||||||
| Accrued Special Preferred Units Distributions | — |
(
|
) |
(
|
) |
|
||||||||||||||||||
| Balance at March 31, 2024 |
|
$ |
|
$ |
(
|
) | $ |
|
$ |
|
$ |
|
||||||||||||
| Net Loss | — |
(
|
) |
(
|
) | |||||||||||||||||||
| Accrued Class B Preferred Units Distributions | — |
(
|
) |
(
|
) |
|
||||||||||||||||||
| Accrued Special Preferred Units Distributions | — |
(
|
) |
(
|
) |
|
||||||||||||||||||
| Balance at June 30, 2024 |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
|
|||||||||||
| Net Income | — |
|
|
|||||||||||||||||||||
| Accrued Class B Preferred Units Distributions | — |
(
|
) |
(
|
) |
|
||||||||||||||||||
| Accrued Special Preferred Units Distributions | — |
(
|
) |
(
|
) |
|
||||||||||||||||||
| Balance at September 30, 2024 |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
|
|||||||||||
See notes to consolidated financial statements
3
CAPSTONE HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
Nine Months Ended September 30,
2025 |
Nine Months Ended September 30,
2024 |
|||||||
| OPERATING ACTIVITIES | ||||||||
| Net loss | $ |
(
|
) | $ |
(
|
) | ||
| Non cash items: | ||||||||
| Depreciation and amortization |
|
|
||||||
| Net, amortization (accretion) to interest expense |
|
|||||||
| Loss on extinguishment of debt |
|
|||||||
| Change in other operating items: | ||||||||
| Accounts receivable and other assets |
(
|
) |
|
|||||
| Change in operating leases, net |
(
|
) | ||||||
| Accounts payable and other accrued liabilities |
|
|
||||||
| Cash flows provided by (used in) operating activities |
(
|
) |
|
|||||
| INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment, net |
(
|
) |
(
|
) | ||||
| Purchase of intangible assets |
(
|
) | ||||||
| Acquisition, net cash acquired |
(
|
) | ||||||
| Cash flows used in investing activities |
(
|
) |
(
|
) | ||||
| FINANCING ACTIVITIES | ||||||||
| Proceeds from debt issuance |
|
|||||||
| Payments on financing lease liabilities |
(
|
) |
(
|
) | ||||
| Financing fees paid |
(
|
) |
(
|
) | ||||
| Borrowings under line of credit, net |
|
(
|
) | |||||
| Debt payments |
(
|
) |
(
|
) | ||||
| Proceeds from IPO and stock issuances |
|
|||||||
| Cash paid for IPO and stock issuance costs |
(
|
) | ||||||
| Proceeds from equity line of credit |
|
|||||||
| Cash flows provided (used in) by financing activities |
|
(
|
) | |||||
| NET CHANGE IN CASH & CASH EQUIVALENTS |
|
(
|
) | |||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
|
|
||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ |
|
$ |
|
||||
| SUPPLEIMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Operating cash flows from finance leases (interest) | $ |
|
$ |
|
||||
| Conversion of Special Preferred Units to debt |
|
|||||||
| Conversion of Class B Preferred Units to 3,782,641 share of Common Stock |
|
|||||||
| Conversion of long term debt to Series Z Preferred Stock |
|
|||||||
| Conversion of debt to stock |
|
|||||||
| TotalStone preferred stock dividends charged to retained earnings |
|
|||||||
| Operating cash flows from operating leases |
|
|
||||||
| Interest Paid |
|
|
||||||
| Taxes Paid |
|
|||||||
See notes to consolidated financial statements
4
CAPSTONE HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Nature of Operations
Capstone Holding Corp. (the “Capstone”) is a holding company and its operations consist substantially of the operations of its consolidated subsidiary, TotalStone, LLC (“TotalStone”). On April 1, 2020, Capstone obtained controlling interest in TotalStone, a materials distribution company that distributes masonry stone products for residential and commercial construction in the Midwest and Northeast United States under the trade names Instone and Northeast Masonry Distributors (“NMD”). On August 22, 2025, Capstone purchased all of the issued and outstanding membership interests (the “Holdings Membership Interests”) in Carolina Stone Holdings, LLC (“Carolina Stone Holdings”), which owns all of the issued and outstanding membership interests of Carolina Stone Distributors, LLC. Carolina Stone Holdings is a stone supplier and installer specializing in both manufactured and natural stone veneer and offering end-to-end services, including material supply, installation, and project management for residential, commercial, and multi-family projects.
Note 2 IPO and Restructuring
On March 7, 2025 (the “Restructuring Date”),
Capstone closed its Public Offering of
On March 7, 2025, TotalStone entered into a fifth amended and restated limited liability company agreement to govern its operations and affairs and its relationship with its members, which post restructuring is solely Capstone.
On March 10, 2025, TotalStone paid Brookstone
Partners IAC, Inc. $
Outstanding warrants to purchase
On the Restructuring Date, pursuant to a master
exchange agreement (the “Master Exchange Agreement”) entered into by the Capstone, TotalStone and TotalStone’s Class
B and Class C Members, all of TotalStone’s Class B and Class C Preferred Interests were exchanged for
TotalStone’s Special Preferred Membership
Interests were exchanged on the Restructuring Date for loans in an aggregate principal amount of $
In connection with the Restructuring, Capstone
also increased its authorized shares of Common Stock to
5
Note 3 Summary of Significant Accounting Policies
Basis of Presentation and Preparation
The accompanying consolidated financial statements include the accounts of Capstone and its consolidated subsidiaries (collectively, the “Company”). Intercompany accounts and transactions have been eliminated. Prior-year amounts may include instances of changes to prior-year amounts to achieve comparability to the most recent fiscal year.
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the rules and regulations for reporting the Quarterly Report on Form 10-Q (“Form 10-Q”). Accordingly, they do not include all of the information and notes required by GAAP for annual consolidated financial statements.
The consolidated balance sheet at December 31, 2024 has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by GAAP for complete financial statements. These financial statements have been prepared on a basis that is consistent with the accounting principles applied in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (“2024 Form 10-K”). This report should be read in conjunction with our 2024 Form 10-K filed with the SEC on March 31, 2025.
In our opinion, the accompanying unaudited interim consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates, and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of September 30, 2025 and its results of operations, cash flows, and changes in stockholders’ deficit for the three and nine months ended September 30, 2025 and 2024. The results for the three and nine months ending September 30, 2025, are not necessarily indicative of the results expected for any future period or the full year.
Use of Estimates
The preparation of financial statements in accordance with US GAAP requires management to make a number of assumptions and estimates that affect the reported amounts of assets, liabilities, and expenses in our financial statements and accompanying notes. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s assumptions regarding current events and actions that may impact on the Company in the future, actual results may differ from these estimates and assumptions.
Business Combinations
The Company accounts for business acquisitions using the acquisition method of accounting, in accordance with which assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date. The fair value of the consideration paid, including contingent consideration, is assigned to the assets acquired and liabilities assumed based on their respective fair values. Goodwill represents the excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed.
The Company’s management exercises significant judgments in determining the fair value of assets acquired and liabilities assumed, as well as intangibles and their estimated useful lives. Fair value and useful life determinations are based on, among other factors, estimates of future expected cash flows and appropriate discount rates used in computing present values. These judgments may materially impact the estimates used in allocating acquisition date fair values to assets acquired and liabilities assumed, as well as the Company’s current and future operating results. Actual results may vary from these estimates which may result in adjustments to goodwill and acquisition date fair values of assets and liabilities during a measurement period or upon a final determination of asset and liability fair values, whichever occurs first. Adjustments to the fair value of assets and liabilities made after the end of the measurement period are recorded within the Company’s operating results.
Accounts Receivable
Accounts receivable are recorded and carried at
the original invoiced amount less an allowance for any potential uncollectible amounts. The Company estimates expected credit losses for
the allowance for expected credit losses based upon its assessment of various factors, including historical experience, the age of the
accounts receivable balances, credit quality of its customers, current economic conditions, reasonable and supportable forecasts of future
economic conditions, and other factors that may affect the Company’s ability to collect from customers. As of September 30,
2025 and December 31, 2024, the allowance for doubtful accounts totaled approximately $
Certain of the Company’s contracts with
customers include retainage provisions. Retainage represents amounts withheld from billings by customers until installation work has been
inspected to ensure that obligations have been satisfied under the contract. Company invoices retainage and includes it in contract receivables
when obligations have been satisfied and the right to receipt is subject only to the passage of time. As of September 30, 2025, retainage
receivables were $
6
Note 3 Summary of Significant Accounting Policies (cont.)
Inventories
Inventories consisting of finished goods are stated
at the lower of cost, determined by the average cost method, or net realizable value. Inventories also include deposits placed on inventory
purchases for shipments not yet received. Significant prepaid inventory may be located overseas. At September 30, 2025 and December 31,
2024, the total prepaid inventory balance was $
Property and Equipment
Property and equipment is stated at cost and is
depreciated over the estimated useful lives ranging from
to
years. Depreciation is computed by using the straight-line
method for financial reporting purposes and straight-line and accelerated methods for income tax purposes. Property and equipment is comprised
of building, machinery & equipment, computer equipment, leasehold improvements, software, office equipment, vehicles, and furniture &
fixtures. Maintenance and repairs are charged to expense as incurred. Depreciation and amortization expense on property and equipment
for the three and nine months ended September 30, 2025 and 2024 were $
Goodwill and Other Intangible Assets
Goodwill represents costs in excess of fair values
assigned to the underlying net assets of acquired businesses. Goodwill and indefinite lived intangible assets are not amortized but rather
are tested for impairment annually as of the 1
st
day of the fourth quarter of each year or more frequently if indications
of potential impairment exist. The Company’s goodwill is recognized in
In evaluating potential goodwill impairment, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, based on a review of qualitative factors, it is more likely than not that the fair value of a reporting unit is less than its carrying value, we perform a quantitative analysis. If the quantitative analysis indicates the carrying value of a reporting unit exceeds its fair value, we measure any goodwill impairment losses as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit. The Company determined that no impairment was required for the periods presented.
Intangible assets with finite lives, consist of a distribution agreement, customer relationships and non-compete agreements that are amortized over the terms of the agreements or expected useful lives.
Long-lived Asset Impairments
Long-lived assets and finite lived identifiable intangibles are reviewed for impairment whenever events of changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the assets is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount of which the carrying amount of the assets exceeds the fair value of the assets. The Company determined that no impairment was required for the periods presented.
Convertible Debt
The Company accounts for convertible debt in accordance with ASC 470-20, Debt – Debt with Conversion and Other Options. Convertible debt instruments are evaluated at issuance to determine whether they contain embedded features that require bifurcation as derivatives or equity components. If the embedded conversion feature meets the criteria for derivative accounting under ASC 815, Derivatives and Hedging, it is bifurcated and recorded separately at fair value, with subsequent changes in fair value recognized in earnings. Upon modification, conversion or repurchase of convertible debt, the Company evaluates the potential of a gain or loss in accordance with ASC 470-20 and ASC 470-50, Debt Modifications and Extinguishments.
Revenue Recognition
Our sales primarily consist of distributing manufactured and natural stone cladding products, natural stone landscape products, and related goods for residential and commercial construction through a dealer network in 32 states in the Midwestern, Northeastern and Southeastern United States. For distribution sales, the Company recognizes revenue when control over the products has been transferred to the customer, and the Company has a present right to payment. For installation and project-based work, the Company recognizes revenue over time as performance obligations are satisfied. For production and custom residential jobs, revenue is generally recognized upon completion, as substantially all projects are short-term in nature. A small portion of commercial projects are recognized based on progress toward completion, typically through monthly billings.
7
Note 3 Summary of Significant Accounting Policies (cont.)
Shipping and Handling
The Company includes amounts billed to customers related to shipping and handling and shipping and handling expenses in cost of goods sold.
Earnings Per Share
Basic earnings (loss) per share is computed by dividing the net income (loss) applicable to the common stockholders of Capstone Holding Corp. by the weighted average number of shares of common stock outstanding during the year. Diluted earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method and the if-converted method for convertible notes. Potential common shares are excluded from the computation when their effect is antidilutive.
For the nine months ended September 30, 2025 and
2024, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have had an anti-dilutive
effect.
|
September 30,
2025 |
September 30,
2024 |
|||||||
| Stock options |
|
|
||||||
| Convertible notes |
|
|||||||
| Warrants |
|
|
||||||
Recent Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires companies to disclose disaggregated information related to the effective tax rate reconciliation and income taxes paid. This guidance is effective for public entities for fiscal years beginning after December 15, 2024. We do not anticipate the adoption of this guidance will have a material impact on our consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses, which requires disclosures about specific types of expenses included in expense captions presented on the face of the Consolidated Statement of Operations. This guidance is effective for public entities for fiscal years beginning after December 15, 2026. We are currently reviewing this guidance and its impact on our consolidated financial statements.
In November 2024, the FASB issued ASU 2024-04, Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments, which clarifies the assessment of whether certain settlements of convertible debt instruments should be accounted for as an inducement conversion or extinguishment of convertible debt. The new guidance is effective for annual reporting periods beginning after December 15, 2025, and interim periods within those annual periods. We are currently reviewing this guidance and its impact on our consolidated financial statements.
Note 4 Business Combination
On August 22, 2025, Capstone completed its membership
interest purchase to purchase all of the issued and outstanding membership interests in Carolina Stone Holdings, LLC, (“Carolina
Stone Holdings”), which owns all of the issued and outstanding membership interests of Carolina Stone Distributors, LLC, ( the “Business
Combination”). The aggregate purchase price is (i) $
8
Note 4 Business Combination (cont.)
The following table presents the preliminary purchase price allocation of the identifiable assets acquired and liabilities assumed and goodwill recognized, measured in accordance with ASC 805 (“000’s”):
| Amount | ||||
| Cash purchase price | $ |
|
||
| Seller note |
|
|||
| Earn-out agreement |
|
|||
| Aggregate purchase consideration |
|
|||
| Identifiable assets acquired and liabilities assumed: | ||||
| Cash |
|
|||
| Accounts receivable, net |
|
|||
| Inventories |
|
|||
| Prepaid expenses |
|
|||
| Property and equipment, net |
|
|||
| Other intangible assets |
|
|||
| Right of use assets |
|
|||
| Other long-term assets |
|
|||
| Accounts payable |
(
|
) | ||
| Accrued expenses |
(
|
) | ||
| Current portion, lease liability |
(
|
) | ||
| Lease liability, net of current portion |
(
|
) | ||
| Total identifiable net assets |
|
|||
| Goodwill | $ |
|
||
The purchase price allocation for the Business Combination is preliminary and subject to revision as additional information about the fair value of the assets to be acquired and liabilities to be assumed becomes available. Management has not completed a full, detailed valuation analysis. Management will continue to refine its identification and valuation of assets to be acquired and liabilities to be assumed as further information becomes available.
The final determination of the purchase price allocation will be completed as soon as practicable but not one year beyond the date of the closing date of the Business Combination and will be based on the fair values of the assets acquired and liabilities assumed as of the closing date. The final amounts allocated to assets acquired and liabilities assumed could differ significantly from the amounts presented in the preliminary purchase price allocation.
The table below represents the pro forma revenue
and net income (loss) for the nine months ended September 30, 2025 and 2024, assuming the acquisition had occurred on January 1, 2024,
pursuant to ASC Subtopic 805-10-50.
|
Nine Months Ended
September 30, |
||||||||
| 2025 | 2024 | |||||||
| Revenue | $ |
|
$ |
|
||||
| Net income (loss) |
(
|
) |
(
|
) | ||||
| Earnings (loss) per common share: |
(
|
) |
(
|
) | ||||
9
Note 5 Liquidity and Uncertainties
The Company has recognized operating losses and
net losses on a year-to-date basis in 2025 and for the years ended December 31, 2024 and 2023. Although losses have been recognized, the
Company recognized positive operating cash flows for the years ended December 31, 2024 and 2023. Operating results and cash flows fluctuate
based on seasonality with the first and fourth quarter typically slower periods in our calendar year. Working capital as of September
30, 2025 excluding the current portion of long-term debt is $
The Company primarily funds operations through cash provided from operations and available capacity under our ABL Facility (“Revolver”). In 2024 the Company was not in compliance with certain of the Revolver’s financial covenants which have been waived by our lender. As of September 30, 2025, the Company was in compliance with the Revolver’s financial covenants. In June 2025, the Company executed an amendment to the Revolver that extended the maturity date from June 2025 through December 2025. The Company believes the Revolver will continue to be available and the longer-term extension will be executed with financial covenants aligned to the Company’s anticipated future results.
Forecasted future results, the longer-term extension of the Revolver, future compliance with financial covenants and expecting regarding the conversion of the convertible notes are subject to risks and uncertainties which could have a material adverse effect on our business, financial condition and results of operations.
As more fully described in Note 10, on May 15, 2025, the Company entered into a common stock purchase equity line agreement with an accredited investor. Under that agreement, the Company has the right, but not the obligation, to sell to the Equity Line Investor, and the Equity Line Investor is obligated to purchase the Company’s common stock.
On July 29, 2025, the Company entered into a securities
purchase agreement with an institutional investor pursuant to which the Company authorized the issuance of senior secured convertible
notes in the aggregate original principal amount of up to $
Additionally, on October 22, 2025, a second Convertible
Note was issued in the original principal amount of approximately $
The Company currently believes that it will have sufficient liquidity to operate for a period of at least one year from the issuance date of the September 30, 2025 interim consolidated financial statements.
Note 6 Related Party Transactions
TotalStone is party to an agreement with a related
party, Brookstone Partners IAC, Inc. (“Brookstone”), the Company’s majority shareholder. Pursuant to this agreement,
Brookstone provides annual consulting services totaling $
Stream Finance, LLC, which serves as a creditor
on TotalStone’s mezzanine term loan of $
On March 10, 2025, TotalStone paid Brookstone
$
10
Note 7 Line of Credit
TotalStone has a Revolving Credit Note (“Revolver”)
available and outstanding pursuant to a Revolving Credit, Term Loan and Security Agreement, as amended, with Berkshire Bank. TotalStone’s
maximum revolving advance amount is $
Note 8 Debt
As of September 30, 2025, the Company had
$
|
September 30,
2025 |
December 31,
2024 |
|||||||
| Long-term Debt | ||||||||
| $ | $ |
|
||||||
|
Mezzanine term loan to Stream Finance, LLC, collateralized by substantially all of TotalStone’s assets and subordinated to the Bank term notes. Interest is calculated monthly as the Base Rate divided by an Adjustment Factor of 0.75, not to exceed
|
|
|
||||||
|
Seller’s note with Avelina Masonry, LLC, which required monthly payments of $
|
|
|
||||||
|
|
||||||||
|
|
||||||||
|
Term note agreement with Berkshire Bank, due in 48 consecutive monthly payments of $
|
|
|||||||
|
In December 2022, TotalStone sold its facility in Navarre, Ohio to a nonaffiliated third party for a purchase price of $
|
|
|
||||||
|
|
||||||||
|
|
|
|||||||
| Less: current portion |
(
|
) |
(
|
) | ||||
| Less: unamortized premiums, discounts and issuance costs |
(
|
) |
(
|
) | ||||
| Total Long-term debt | $ |
|
$ |
|
||||
11
Note 8 Debt (cont.)
Scheduled maturities of long-term as of September 30, 2025, are as follows:
| 2025 | $ |
|
||
| 2026 |
|
|||
| 2027 |
|
|||
| 2028 |
|
|||
| 2029 |
|
|||
| Thereafter |
|
|||
| Total | $ |
|
Note 9 Leases
As of September 30, 2025, the balance of
our right-of-use (“ROU”) assets was $
| Year | Finance | Operating | ||||||
| 2026 | $ |
|
$ |
|
||||
| 2027 |
|
|
||||||
| 2028 |
|
|
||||||
| 2029 |
|
|||||||
| 2030 |
|
|||||||
| Thereafter |
|
|||||||
| Total undiscounted Lease Payments |
|
|
||||||
| Less: Present value discount |
(
|
) |
(
|
) | ||||
| Total Lease Liability | $ |
|
$ |
|
||||
Lease expense recognized on our leases is as follows in (“000’s”):
|
Nine months
Ended September 30, 2025 |
Nine months
Ended September 30, 2024 |
Three months
Ended September 30, 2025 |
Three months
Ended September 30, 2024 |
|||||||||||||
| Finance leases | ||||||||||||||||
| Amortization expense | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
| Interest expense |
|
|
|
|
||||||||||||
| Operating leases | ||||||||||||||||
| Straight-line rent expense |
|
|
|
|
||||||||||||
| Total lease expense | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
The following summarizes additional information related to our leases for 2025 and 2024 in (“000’s”):
|
Nine months ended
September 30, 2025 |
Nine months ended
September 30, 2024 |
|||||||||||||||
| Finance | Operating | Finance | Operating | |||||||||||||
| Weighted-average remaining lease terms (years) |
|
|
|
|
||||||||||||
| Weighted-average discount rate |
|
% |
|
% |
|
% |
|
% | ||||||||
| ROU assets obtained in exchange for new lease liabilities | $ |
|
$ |
|
$ |
|
$ | |||||||||
12
Note 10 Stockholders’ Equity
Prior to 2025, Capstone had no outstanding shares of preferred stock.
Series B Preferred Stock:
In connection with the IPO and Restructuring. Capstone filed with the Delaware Secretary of State to designate two million shares of the Company’s authorized preferred stock as Series B Preferred Stock (“Series B Preferred Stock”), no par value.
In February 2025, Nectarine Management, LLC, an
entity controlled by Michael Toporek, purchased
The holders of shares of Series B Preferred Stock (“Series B Preferred Stockholders”) have the right to vote, together with the holders of all the outstanding shares of Common Stock on all matters on which holders of Common Stock have the right to vote. The holders of shares of Series B Preferred Stock have the right to cast one vote for each share of Series B Preferred Stock held by them.
Series B Preferred Stock is convertible into Common
Stock at the holder’s option any time after the two-year anniversary of the Company’s February 2025 initial public offering,
provided the Common Stock’s closing price meets or exceeds $
The Series B Preferred Stockholders have certain
protective rights. Until less than
Series Z Preferred Stock:
A number of Brookstone entities controlled by
Messrs. Lipman and Toporek control over
On September 30, 2025, following approval by the
Audit Committee of the Board, the Company and each of BP Peptides and Brookstone Acquisition (collectively, the “Brookstone Lenders”),
entered into an Exchange Agreement (the “Exchange Agreement”) whereby the Brookstone Lenders agreed to exchange their notes
for shares of the Company’s newly created Series Z 8% Non-Convertible Preferred Stock (the “Series Z Preferred”). Based
on the Nasdaq Official Closing Price of the Company’s Common Stock, $
On September 30, 2025, following Board
approval, the Company filed the Certificate of Designation of Preferences, Rights and Limitations of Series Z
Pursuant to the Certificate of Designation, the
Series Z Preferred shares are not convertible into shares of Common Stock, have voting rights of
13
Note 10 Stockholders’ Equity (cont.)
Recent Transactions
The Company entered into a common stock purchase
agreement (the “Purchase Agreement”) with an accredited investor (the “Equity Line Investor”), dated May 14, 2025.
Under the terms and subject to the conditions set forth in the Purchase Agreement, the Company has the right, but not the obligation,
to sell to the Equity Line Investor, and the Equity Line Investor is obligated to purchase, up to the lesser of (a) $
On June 26, 2025, the Company and the Equity Line
Investor entered into a first amendment to the Purchase Agreement (the “First Amendment to Purchase Agreement”), which amended
the definition of “VWAP Purchase Maximum Amount” in the Purchase Agreement to (a) remove the volume limitation on the number
of Equity Line Securities that may be purchased pursuant to a single VWAP Purchase (as defined in the Purchase Agreement) based on
On July 29, 2025, the Company entered into a securities
purchase agreement (the “Purchase Agreement”) with an institutional investor (the “Buyer”), pursuant to which
the Company authorized the issuance of senior secured convertible notes to the Buyer, in the aggregate original principal amount of up
to $
Effective August 14, 2025, the conversion price
per share of the Convertible Notes was amended to decrease the conversion price to $
On October 22, 2025, the Company issued to the
Buyer a second Convertible Note in the original principal amount of $
The Second Note bears interest at a rate of
14
Note 11 Segment Information
The Company has
The following tables present financial information regarding the Company’s reportable segment reconciled to the Company’s consolidated totals.
| Three Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||||||||||||||||
| TotalStone |
Carolina
Stone Holdings |
Parent | Eliminations | Consolidated | TotalStone | Parent |
Carolina
Stone Holdings |
Eliminations | Consolidated | |||||||||||||||||||||||||||||||
| Income (loss) from operations before taxes: | ||||||||||||||||||||||||||||||||||||||||
| Sales | $ |
|
$ |
|
$ | $ | $ |
|
$ |
|
$ | $ | $ | $ |
|
|||||||||||||||||||||||||
| Cost of goods sold |
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
| Gross Profit |
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses |
|
|
|
|
|
|
(
|
) |
|
|||||||||||||||||||||||||||||||
| Transaction Expenses |
|
|
|
|||||||||||||||||||||||||||||||||||||
| Income (loss) from operations | $ |
|
(
|
) | $ |
(
|
) | $ | $ |
(
|
) | $ |
|
$ |
(
|
) | $ | $ |
|
$ |
|
|||||||||||||||||||
| Loss on extinguishment of debt |
(
|
) |
(
|
) | ||||||||||||||||||||||||||||||||||||
| Interest expense |
(
|
) |
(
|
) |
(
|
) |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||||||||||||||||||||
| Other income (expense) net |
|
(
|
) | |||||||||||||||||||||||||||||||||||||
| Income (loss) from operations before taxes | $ |
|
(
|
) | $ |
(
|
) | $ | $ |
(
|
) | $ |
|
$ |
(
|
) | $ | $ |
|
|||||||||||||||||||||
| Other financial information: | ||||||||||||||||||||||||||||||||||||||||
| Depreciation & amortization | $ |
|
|
$ | $ | $ |
|
$ |
|
$ | $ | $ |
|
|||||||||||||||||||||||||||
| Capital expenditures |
|
|
||||||||||||||||||||||||||||||||||||||
15
| Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||||||||||||||||
| TotalStone | Carolina Stone Holdings | Parent | Eliminations | Consolidated | TotalStone | Parent | Carolina Stone Holdings | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
| Income (loss) from operations before taxes: | ||||||||||||||||||||||||||||||||||||||||
| Sales | $ |
|
$ |
|
$ | $ | $ |
|
$ |
|
$ | $ | $ | $ |
|
|||||||||||||||||||||||||
| Cost of goods sold |
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
| Gross Profit |
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses |
|
|
|
(
|
) |
|
|
|
(
|
) |
|
|||||||||||||||||||||||||||||
| Transaction Expenses |
|
|
|
|||||||||||||||||||||||||||||||||||||
| Income (loss) from operations | $ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ | $ |
|
$ |
(
|
) | |||||||||||||||
| Loss on extinguishment of debt |
(
|
) |
(
|
) | ||||||||||||||||||||||||||||||||||||
| Interest expense |
(
|
) |
(
|
) |
(
|
) |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||||||||||||||||||||
| Other income (expense) net |
|
|
(
|
) |
|
(
|
) | |||||||||||||||||||||||||||||||||
| Income (loss) from operations before taxes | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ | $ |
(
|
) | $ |
(
|
) | $ |
(
|
) | $ | $ |
(
|
) | |||||||||||||||||
| Other financial information: | ||||||||||||||||||||||||||||||||||||||||
| Depreciation & amortization | $ |
|
$ |
|
$ | $ | $ |
|
$ |
|
$ | $ | $ |
|
||||||||||||||||||||||||||
| Capital expenditures |
|
|
|
|
||||||||||||||||||||||||||||||||||||
| As of September 30, 2025 | As of December 31, 2024 | |||||||||||||||||||||||||||||||||||||||
| TotalStone | Carolina Stone Holdings | Parent | Eliminations | Consolidated | TotalStone | Carolina Stone Holdings | Parent | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
| Total assets | $ |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
|
$ |
|
$ | — | $ |
|
$ |
(
|
) | $ |
|
||||||||||||||||||
Note 12 Subsequent Events
On October 5, 2025, the conversion price with
regard to the entire principal of the convertible note issued on July 29, was decreased to $
As more fully disclosed in Note 10, on October
22, 2025 the Company issued a convertible note in the original principal amount of $
16
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information that our management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. This discussion may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is subject to the safe harbor created by those sections. For more information, see “Cautionary Note Regarding Forward-Looking Statements.” When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that impact our business. In particular, we encourage you to review the risks and uncertainties described in our Annual Report on Form 10-K for the year ended December 31, 2024 and this Quarterly Report on Form 10-Q under the caption “Part II. Item 1A. Risk Factors”. These risks and uncertainties could cause actual results to differ materially from those projected or implied by our forward-looking statements contained in this report. These forward-looking statements are made as of the date of this report, and we do not intend, and do not assume any obligation, to update these forward-looking statements, except as required by law.
The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and related notes thereto included in this Quarterly Report and our audited consolidated financial statements and related notes thereto for the year ended December 31, 2024, included in our 2024 Form 10-K. Throughout this discussion, unless the context specifies or implies otherwise the terms the “Company”, “we”, “us” and “our” refer to the business and operations of Capstone Holding Corp and its operating subsidiary, TotalStone, LLC (dba Instone).
All dollar amounts stated herein are in U.S. dollars unless specified otherwise.
Overview
Capstone Holding Corp., formerly known as Capstone Therapeutics Corp. and OrthoLogic Corp., incorporated in Delaware in 1987 as a domestic corporation, is the parent entity of TotalStone, LLC ( dba Instone). Instone has a building products distribution network that services 31 US states (with such states having over 60% of American households). Our over 400 active customers are primarily masonry, building materials and landscape dealers.
Through TotalStone, the Company also operates Carolina Stone Products, a distributor and installer of stone and masonry products serving the Southeastern United States. From two strategic locations in Raleigh and Charlotte, North Carolina, Carolina Stone Products provides showroom, warehouse, and staging-yard capabilities that support both direct-to-builder installations and distribution to regional dealers. The addition of Carolina Stone Products enhances Instone’s service capacity, extends our geographic coverage, and strengthens relationships with builders and distributors in a growing regional market.
Historically, the product mix for Instone was heavily concentrated on Cultured Stone®, in 2018 Cultured Stone® comprised almost 80% of our total revenue. Through acquisition and product expansions, we have increased our product offering to our customers. This expansion has made Instone a more attractive supplier to new and existing dealers.
We provide value to our dealers by making the procurement and logistics process easy for product lines that are otherwise challenging for dealers to manage if they were to purchase directly with a manufacturer or quarry. Our website provides efficiency, and we believe our product offering provides options and ability for vendor consolidation and our logistical capabilities provide cost effective and efficient delivery, typically within a week or less.
A key differentiating factor for our strategy is that we own or control five of the eight brands we sell. Our products include stone veneer, landscape stone, and modular masonry fireplaces. The brands we distribute which we do not control are Cultured Stone®, Dutch Quality®, and Isokern®. The brands we distribute which we own or control include Aura™, Pangea Stone®, Toro Stone™, Beon Stone®, and Interloc™.
We operate in a market environment where there are about 7,000 building products dealers, most of which are privately held. Many of these dealers are not able to efficiently purchase or optimize storage space, which constrains their ability to sell the diverse range of products we offer. Our website enables dealers to buy in the quantities they require thus driving a more optimal level of inventory while also significantly reducing logistical challenges. We believe the ability for customers to buy in the quantities they need across many product lines instead of buying single product lines form different manufacturers helps them manage cash and, in turn, allows them to offer a higher level of service to their own customers.
We intend to continue to grow our business organically and through successfully integrating well-timed acquisitions.
17
Recent Developments
On March 7, 2025, the Company closed its public offering (the “March 2025 Public Offering”) of 1,250,000 shares of common stock (the “Public Offering Shares”), which were registered under the Rule 424(b) of the Securities Act of 1933, as amended, pursuant to the Registration Statement on Form S-1 (File No. 333-284105) which was declared effective by the SEC on February 14, 2025. The Public Offering Shares were sold at a public offering price of $4.00 per share, which generated net proceeds of approximately $3,250,000 after deducting underwriting discounts and commissions and other offering expenses.
In addition to its March 2025 Public Offering, the Company also executed various debt and equity restructuring transactions in the quarter ended March 31, 2025 that are described in Note 2 to the consolidated financial statements included in this Quarterly Report.
On August 22, 2025, the Company completed its membership interest purchase agreement of the Carolina Stone Holdings. The aggregate purchase price of the Holdings Membership Interest is (i) $2,625,000 in cash, subject to adjustment set forth in Section 2.6 of the Membership Purchase Agreement, plus (ii) a seller note in the original principal amount of $1,250,000, plus (iii) the amount payable pursuant to the terms of the earn-out agreement. The Company transferred $2,501,500 in cash to the Seller, representing the aggregate purchase price of $2,625,000 less $123,000 for the preliminary working capital adjustment as set forth in Section 2.6 of the Purchase Agreement.
Equity Line of Credit
On May 14, 2025, we entered into a purchase agreement with the Equity Line Investor (as defined in Note 9 to the consolidated financials statements included in this Quarterly Report), pursuant to which the Equity Line Investor committed to purchase up to $20.0 million in shares of our Common Stock, subject to certain limitations and conditions as described in Note 4.
On June 26, 2025, the Company and the Equity Line Investor entered into a first amendment to the Purchase Agreement as described in Note 10 to the consolidated financials statements included in this Quarterly Report.
Convertible Note Financing
On July 29, 2025, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with an institutional investor (the “Buyer”), pursuant to which the Company authorized the issuance of senior secured convertible notes to the Buyer, in the aggregate original principal amount of up to $10,909,885, which are being issued with a 8.34% original issue discount (each, a “Convertible Note”). The first Convertible Note was issued in the original principal amount of approximately $3,272,966 (the “Convertible Note Financing”). The Convertible Notes are convertible into shares of our common stock, in certain circumstances in accordance with the terms of the Convertible Notes at an initial conversion price per share of $1.72. The Company received gross proceeds of $3,000,000, prior to the deduction of transaction related expenses, from the initial closing of the Convertible Note Financing. Concurrently with the Convertible Note Financing and the Purchase Agreement, the Company entered into a registration rights agreement and a security agreement with the Buyer.
On August 14, 2025, pursuant to Section 7(h) of the Conversion Note, the Company and the Buyer agreed, pursuant to a Conversion Price Voluntary Adjustment Notice executed by both parties, to reduce the Conversion Price of the Convertible Note with regard to $1,363,836 of principal of the Convertible Note to $1.00 per share starting on October 6, 2025 through the maturity date of the Convertible Note.
On October 5, 2025, pursuant to Section 7(h) of the Conversion Note, the Company and the Buyer agreed, pursuant to a Conversion Price Voluntary Adjustment Notice executed by both parties, to reduce the Conversion Price of the Convertible Note with regard to the entire principal of the Convertible Note to $1.00 per share starting on October 6, 2025 through the maturity date of the Convertible Note. The Company recognized an additional $845.0 thousand loss on debt extinguishment in October 2025 for the effect of this change in the conversion price.
On October 22, 2025, the Company issued to the Buyer a second Convertible Note in the original principal amount of $3,545,712.42 (the “Second Note”). The Second Note is convertible into shares of Common Stock, $0.0005 par value per share (the “Common Stock”), in certain circumstances in accordance with the terms of the Convertible Notes at an initial conversion price per share of $1.10. The Company received gross proceeds of $3,250,000, prior to the deduction of transaction-related expenses, from the closing of the Second Note.
Exchange Agreement and Series Z Preferred Stock Certificate of Designation
The Chief Executive Officer of the Company, Matthew Lipman and the Chairman of the Board of Directors of the Company (the “Board”), Michael Toporek, control Brookstone Partners (“Brookstone”), a private equity group with 25 years of deep expertise in building products investments.
A number of Brookstone entities controlled by Messrs. Lipman and Toporek control over 50% of the Company’s voting stock. In addition, as of September 30, 2025, one Brookstone entity, BP Peptides, LLC (“BP Peptides”), held a note from the Company in the combined principal and interest amount of $847,920. As of September 30, 2025, another Brookstone entity, Brookstone Partners Acquisition XXI Corporation (“Brookstone Acquisition”), held a note from the Company in the combined principal and interest amount of $1,089,222. Both notes had a maturity date of June 30, 2026.
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On September 30, 2025, following approval by the Audit Committee of the Board, the Company and each of BP Peptides and Brookstone Acquisition (collectively, the “Brookstone Lenders”), entered into an Exchange Agreement (the “Exchange Agreement”) whereby the Brookstone Lenders agreed to exchange their notes for shares of the Company’s newly created Series Z 8% Non-Convertible Preferred Stock (the “Series Z Preferred”). Based on the Nasdaq Official Closing Price of the Company’s common stock, $0.0005 par value per share (the “Common Stock”), of $1.32 on the day prior to the parties entering into the Exchange Agreement, BP Peptides will receive 642,364 Series Z Preferred shares and Brookstone Acquisition will receive 825,168 Series Z Preferred shares. Although the unaudited interim consolidated financial statements included in this Form 10-Q reflect the issuance of the Series Z shares, the formal share issuance process was not completed as of September 30, 2025.
On September 30, 2025, following Board approval, the Company filed the Certificate of Designation of Preferences, Rights and Limitations of Series Z 8% Non-Convertible Preferred Stock (the “Certificate of Designation”) with the Secretary of State of the State of Delaware with up to three million five hundred thousand (3,500,000) Series Z Preferred shares being authorized for issuance.
Pursuant to the Certificate of Designation, the Series Z Preferred shares are not convertible into shares of Common Stock, have voting rights of one vote per share and will vote together as a single class with the Common Stock shareholders. Each share of Series Z Preferred will accrue cumulative dividends at a rate of eight percent (8%) per annum based on the $1.32 stated value per share of the Series Z Preferred, accruing daily and payable, at the sole option of the Board, either in cash or payment-in-kind via the issuance of further shares of Series Z Preferred. The Series Z Preferred shares are redeemable upon the earlier of the seven year anniversary of the issuance of the shares or the occurrence of a fundamental transaction (as defined in the Certificate of Designation)
Components of Results of Operations
Sales
Our sales primarily consist of distributing manufactured and natural stone cladding products, natural stone landscape products, and related goods for residential and commercial construction through a dealer network in 32 states in the Midwestern, Northeastern and Southeastern United States. For distribution sales the Company recognizes revenue when control over the products has been transferred to the customer, and the Company has a present right to payment. For installation and project-based work, the Company recognizes revenue over time as performance obligations are satisfied. For production and custom residential jobs, revenue is generally recognized upon completion, as substantially all projects are short-term in nature. A small portion of commercial projects are recognized based on progress toward completion, typically through monthly billings.
Cost of Goods Sold and Gross Profit
Cost of goods sold includes the purchase price of material, freight, miscellaneous import fees (if applicable), warranty and other expenses that are directly attributable to our distributed, fabricated and installed products. The Company also includes amounts billed to customers related to shipping and handling and shipping and handling expenses in cost of goods sold.
Gross profit is equal to revenue less cost of goods sold. Gross profit margin is equal to gross profit divided by revenue.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of personnel-related costs, including salaries and benefits, advertising and marketing expenses, travel and entertainment, facility-related costs, investor relations, legal and consulting fees.
Other Income and Expenses
Other income and expenses consist primarily of management fees and interest expenses on our line of credit and debt.
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Results of Operations
The following is management’s discussion of the Company’s consolidated financial statements and results of operations for the three and nine months ended September 30, 2025 and 2024 in thousands:
Results of Operations Comparing Three Months Ended September 30, 2025 to 2024.
|
Three Months Ended
September 30, |
||||||||||||||||
| 2025 | 2024 | $ Change | % Change | |||||||||||||
| (in thousands) | ||||||||||||||||
| Net Sales | $ | 13,654 | $ | 12,318 | $ | 1,336 | 11 | % | ||||||||
| Cost of goods sold | 10,400 | 9,325 | 1,075 | 12 | % | |||||||||||
| Gross profit | 3,254 | 2,993 | 261 | 9 | % | |||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, General and administrative | 3,370 | 2,580 | 790 | 31 | % | |||||||||||
| Transaction expense | 652 | — | 652 | — | % | |||||||||||
| Income (loss) from operations | (768 | ) | 413 | (1,181 | ) | (286 | )% | |||||||||
| Loss on extinguishment of debt | (652 | ) | — | (652 | ) | — | % | |||||||||
| Interest and other expense, net | (594 | ) | (374 | ) | (220 | ) | (59 | )% | ||||||||
| Income tax expense | — | (5 | ) | 5 | — | % | ||||||||||
| Net loss | $ | (2,014 | ) | $ | 34 | $ | (2,048 | ) | (6024 | )% | ||||||
Sales
Sales were $13.7 million for the three months ended September 30, 2025 compared to $12.3 million for the three months ended September 30, 2024. Revenue increased between the three months ended September 30, 2025 and 2024 by $1.3 million. The $1.3 million increase was primarily attributable to the acquisition of Carolina Stone Holdings, which contributed approximately $957.0 thousand of incremental revenue during the period.
Cost of goods sold
Cost of goods sold increased by $1.1 million, or 12%, for the three months ended September 30, 2025 compared to the three months ended September 30, 2024.
The increase in cost of goods sold was driven primarily by an increase in sales of $1.3 million primarily attributable to the acquisition of Carolina Stone Holdings.
Gross profit margin decreased from 24.3% for the three months ended June 30, 2024 to 23.8% for the three months ended September 30, 2025.
Selling general and administrative expenses
Selling general and administrative expenses increased by $790.0 thousand, or 31.0%, for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. The increase results primarily from an increase in investor relations of $510.0 thousand and the acquisition of Carolina Stone Holdings.
Transaction expenses
Transaction expenses increased by $652.0 thousand for the three months ended September 30, 2025. The increase is related to transaction expenses for the Company’s acquisition expenses.
Loss on extinguishment of debt
Loss on extinguishment of debt increased by $652.0 thousand for the three months ended September 30, 2025. The increase relates to a substantial change to the conversion feature of the Company’s Convertible Notes in accordance with ASC 470-50 (see Note 10).
Interest expense
Interest expense increased by $220.0 thousand, or 59%, for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. The increase is largely attributed to the amortization of debt costs related to our Convertible Note issued on July 29, 2025.
Income Tax Expense
Income tax expense decreased by $5.0 thousand or 100% for the three months ended September 30, 2025, compared to the three months ended September 30, 2024.
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Results of Operations Comparing Nine Months Ended September 30, 2025 to 2024.
|
Nine Months Ended
September 30, |
||||||||||||||||
| 2025 | 2024 | $ Change | % Change | |||||||||||||
| (in thousands) | ||||||||||||||||
| Net Sales | $ | 34,405 | $ | 34,563 | $ | (158 | ) | — | % | |||||||
| Cost of goods sold | 26,696 | 27,062 | (366 | ) | (1 | )% | ||||||||||
| Gross profit | 7,709 | 7,501 | 208 | 3 | % | |||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, General and administrative | 9,513 | 7,790 | 1,723 | 22 | % | |||||||||||
| Transaction expenses | 652 | — | 652 | — | % | |||||||||||
| Loss from operations | (2,456 | ) | (290 | ) | (2,166 | ) | (747 | )% | ||||||||
| Loss on extinguishment of debt | (652 | ) | — | (652 | ) | — | % | |||||||||
| Interest and other expense, net | (1,334 | ) | (1,148 | ) | (186 | ) | (16 | )% | ||||||||
| Income tax expense | — | (22 | ) | 22 | — | % | ||||||||||
| Net loss | $ | (4,442 | ) | $ | (1,460 | ) | $ | (2,982 | ) | (204 | )% | |||||
Sales
Sales were $34.4 million for the nine months ended September 30, 2025 compared to $34.6 million for the nine months ended September 30, 2024. Revenue decreased between the nine months ended September 30, 2025 and 2024 by $158.0 thousand.
Cost of goods sold
Cost of goods sold decreased by $366.0 thousand, or 1%, for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024.
Selling general and administrative expenses
Selling general and administrative expenses increased by $1.7 million, or 22.0%, for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. The increase results primarily from an increase in investor relations of $1.0 million and the acquisition of Carolina Stone Holdings.
Transaction expenses
Transaction expenses increased by $652.0 thousand or 100% for the nine months ended September 30, 2025. The increase is related to transaction expenses for the Company’s acquisition expenses.
Loss on extinguishment of debt
Loss on extinguishment of debt increased by $652.0 thousand for the nine months ended September 30, 2025. The increase relates to a substantial change to the conversion feature of the Company’s Convertible Notes in accordance with ASC 470-50 (see Note 10).
Interest expense
Interest expense increased by $186.0 thousand, or 16%, for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. The increase is largely attributed to the amortization of debt costs related to our Senior Convertible Note.
Income Tax Expense
Income tax expense decreased by $22.0 thousand or 100% for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024.
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Segment Results
The Company has one operating and reportable segment which consists of the operations of TotalStone. The Company also has corporate-level SG&A expenses which are included in Capstone Holding Corp. (“Capstone” or “the Parent”) and consist primarily of board fees and, investor relations, filing, legal, insurance, accounting and consulting expenses not identifiable and allocated to TotalStone.
The following table is a summary of TotalStone’s operating results through operating income (loss) reconciled to the Company’s consolidated totals with the inclusion of Parent and eliminating amounts:
| Three Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||||||||||||||||
| TotalStone | Carolina Stone Holdings | Parent | Eliminations | Consolidated | TotalStone | Carolina Stone Holdings | Parent | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
| Income (loss) from operations before taxes: | ||||||||||||||||||||||||||||||||||||||||
| Sales | $ | 12,697 | $ | 957 | $ | — | $ | — | $ | 13,654 | $ | 12,318 | $ | — | $ | — | $ | — | $ | 12,318 | ||||||||||||||||||||
| Cost of goods sold | 9,680 | $ | 720 | — | — | 10,400 | 9,325 | — | — | — | 9,325 | |||||||||||||||||||||||||||||
| Gross Profit | 3,017 | 237 | — | — | 3,254 | 2,993 | — | — | — | 2,993 | ||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | 2,470 | 298 | 602 | — | 3,370 | 2,388 | — | 252 | (60 | ) | 2,580 | |||||||||||||||||||||||||||||
| Transaction Expenses | 34 | — | 618 | — | 652 | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Income (loss) from operations | $ | 513 | $ | (61 | ) | $ | (1,220 | ) | $ | — | $ | (768 | ) | $ | 605 | $ | — | $ | (252 | ) | $ | 60 | $ | 413 | ||||||||||||||||
| Other financial information: | ||||||||||||||||||||||||||||||||||||||||
| Depreciation & amortization included in SG&A expenses | $ | 111 | $ | 7 | $ | — | $ | — | $ | 118 | $ | 125 | $ | — | $ | — | $ | — | $ | 125 | ||||||||||||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||||||||||||||||
| TotalStone | Carolina Stone Holdings | Parent | Eliminations | Consolidated | TotalStone | Carolina Stone Holdings | Parent | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
| Income (loss) from operations before taxes: | ||||||||||||||||||||||||||||||||||||||||
| Sales | $ | 33,448 | $ | 957 | $ | — | $ | — | $ | 34,405 | $ | 34,563 | $ | — | $ | — | $ | — | $ | 34,563 | ||||||||||||||||||||
| Cost of goods sold | 25,976 | 720 | — | — | 26,696 | 27,062 | — | — | — | 27,062 | ||||||||||||||||||||||||||||||
| Gross Profit | 7,472 | 237 | — | — | 7,709 | 7,501 | — | — | — | 7,501 | ||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | 7,414 | 298 | 2,011 | (210 | ) | 9,513 | 7,540 | — | 431 | (180 | ) | 7,791 | ||||||||||||||||||||||||||||
| Transaction Expenses | 34 | — | 618 | — | 652 | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Income (loss) from operations | $ | 24 | $ | (61 | ) | $ | (2,629 | ) | $ | 210 | $ | (2,456 | ) | $ | (39 | ) | $ | — | $ | (431 | ) | $ | 180 | $ | (290 | ) | ||||||||||||||
| Other financial information: | ||||||||||||||||||||||||||||||||||||||||
| Depreciation & amortization included in SG&A expenses | $ | 341 | $ | 7 | $ | — | $ | — | $ | 348 | $ | 366 | $ | — | $ | — | $ | — | $ | 366 | ||||||||||||||||||||
The above discussion of consolidated operating results through operating income (loss) is in substance the operating results of TotalStone for the comparable periods presented. The elimination of selling, general and administrative expenses reflect the elimination of management fees incurred by TotalStone and earned by the Company. The Company classifies the management fee income earned as a component of net non-operating income (expense) and the corresponding income is also eliminated in the Company’s consolidated results.
Liquidity and Capital Resources
Working capital excluding the current portion of long-term debt was $2.8 million and $2.1 million as of September 30, 2025 and December 31, 2024, respectively. The $700.0 thousand increase in working capital is primarily attributable to an increase in accounts receivable, inventory and cash; offset by accounts payable and an increase in our revolving line of credit.
The Company primarily funds our operations through cash provided from operations of our building products distribution network and available capacity under our ABL Facility (“Revolver”). Our operating cash flows fluctuate based on seasonality with the first quarter typically a slower period in our calendar year resulting in negative operating cash flows from the building of accounts receivables and inventory levels. During the second half of the year we generate positive operating cash flows as we bring down accounts receivables and inventory levels from seasonal high periods and pay down our Revolver.
22
In 2024, the Company was not in compliance with certain of the Revolver’s financial covenants which have been waived by our lender. As of September 30, 2025, the Company was in compliance with the Revolver’s financial covenant as of the issuance date of these interim consolidated financial statements. In June 2025, the Company executed an amendment to the Revolver that extended the maturity date from April 2025 to December 2025. The Company believes the Revolver will continue to be available and the longer-term extension will be executed with financial covenants aligned to the Company’s anticipated future results.
The liquidity of the Company is largely dependent on our ability to borrow funds on our Revolver. The longer-term extension of the Revolver and future compliance with financial covenants are subject to risks and uncertainties which could have a material adverse effect on our business, financial condition and results of operations. The Company currently believes that it will have sufficient working capital to operate for a period of at least one year from the issuance date of the September 30, 2025 interim consolidated financial statements based on future expected results. Future acquisitions may be financed through other forms of financing that will depend on existing conditions.
Seasonality
The Company historically experiences higher sales during our second and third quarters due to the favorable weather in the Midwestern and Northeastern United States for new construction and remodeling.
Summary of Cash Flows
The following table summarizes our cash flows for each of the periods presented:
| (in thousands) |
Nine Months
Ended September 30, 2025 |
Nine Months
Ended September 30, 2024 |
||||||
| Net cash provided by (used in) operating activities | $ | (3,992 | ) | $ | 1,087 | |||
| Net cash used in investing activities | (2,441 | ) | (101 | ) | ||||
| Net cash provided by (used in) financing activities | 7,152 | (1,024 | ) | |||||
| Net increase (decrease) in cash | $ | 719 | $ | (38 | ) | |||
Cash Flows from Operating Activities
Net cash used in operating activities was $4.0 million for the nine months ended September 30, 2025, primarily resulting from our net loss of $4.9 million, offset by $956.0 thousand provided by changes in our working capital and non-cash expenses.
Net cash provided by operating activities was $1.1 million for the nine months ended September 30, 2024, primarily resulting from our net loss of $1.5 million; offset by $2.6 million provided by changes in our working capital and non-cash expenses.
Cash Flows from Investing Activities
Net cash used in investing activities was $2.4 million for nine months ended September 30, 2025, primarily attributable to the Company’s acquisition of Carolina Stone Holdings.
Net cash used in investing activities was $101.0 thousand for the nine months ended September 30, 2024. These cash outflows were related to purchases of property and equipment.
23
Cash Flows from Financing Activities
Net cash provided by financing activities was $7.2 million for the nine months ended September 30, 2025. The cash inflow was a result of funds received from our public offering of $3.3 million, proceeds from debt issuance $3.0 million and a net increase in our line of credit of $2.0 million, offset by the repayment of term debt of $975.0 thousand.
Net cash used in by financing activities was $1.0 million for the nine months ended September 30, 2024. The cash out was primarily related to the repayment of term debt of $750.0 thousand.
Funding Requirements
We currently expect to use some of the net proceeds of our March 2025 Public Offering primarily for organic growth, by expanding the breadth of our distribution network by both geography and new products, and inorganic growth via rapid acquisition program of building products distributors and manufacturers whose distribution core can be fortified to expand their footprint.
The Company, as described in Note 10 to the consolidated financials statements included in this Quarterly Report and in the Recent Developments section of this Management’s Discussion and Analysis, received $6,250,000 in gross proceeds pursuant to the Convertible Note Financing. In addition, as described in Note 5, the Company may receive up to $20.0 million from the sale of the Equity Line Securities to the Equity Line Investor. The Company plans to raise additional funds to finance the growth of our operations through equity financing or debt financing arrangements. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted.
Off-Balance Sheet Arrangements
During the periods presented we did not have, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Critical Accounting Policies and Significant Judgments and Estimates
The Critical Accounting Policies and Significant Judgments and Estimates included in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 31, 2025, have not materially changed. For the quarter ended September 30, 2025, we added the following two critical accounting policies and Significant Judgments and Estimates to Note 3 in the footnotes to the consolidated financial statements: Business Combinations and Convertible Notes.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our Company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated our Company’s disclosure controls and procedures as of the end of the period covered by this Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of September 30, 2025, our disclosure controls and procedures were not effective. The ineffectiveness of our disclosure controls and procedures was due to the following material weaknesses in our internal control over financial reporting.
Due to accounting resource constraints, we have had limited review controls. These constraints have resulted in (1) a lack of segregation of duties, since we have a limited administrative staff, and (2) lack of internal controls structure review.
Our management is composed of a small number of individuals resulting in a situation where limitations on segregation of duties exist. All responsibility for accounting entries and the creation of financial statements has historically been held primarily by a single person, though the Company engages multiple accounting consultants for accounting, tax and audit support. In April 2025, the Company hired a controller.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal controls over financial reporting, as defined in Rules 13a-15(f) of the Exchange Act, during the quarter ended September 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting
24
PART II
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be engaged in various lawsuits and legal proceedings in the ordinary course of our business. We are currently not aware of any legal proceedings the ultimate outcome of which, in our judgment based on information currently available, would have a material adverse effect on our business, financial condition or results of operations.
ITEM 1A: RISK FACTORS
For information regarding the risk factors that could affect the Company’s business, results of operations, financial condition and liquidity, see the information under Part I, Item 1A. “Risk Factors” in the Form 10-K, which is accessible on the SEC’s website at www.sec.gov. There have been no material changes to the risk factors previously disclosed in the Form 10-K.
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended September 30, 2025, there have been no unregistered sales of equity securities that have not been previously disclosed in a Current Report on Form 8-K.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5: OTHER INFORMATION.
Insider trading arrangements and policies.
During
the quarter ended September 30, 2025, no director or officer of the Company
25
ITEM 6: EXHIBITS
| * | Filed herewith. |
| ** | Furnished herewith |
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CAPSTONE HOLDING CORP. | ||
| Date: November 18, 2025 | By: | /s/ Matthew E. Lipman |
| Matthew E. Lipman | ||
|
Chief Executive Officer
(Principal Executive Officer) |
||
| Date: November 18, 2025 | /s/ Edward Schultz |
| Edward Schultz | |
| Chief Financial Officer | |
|
(Principal Financial and
Principal Accounting Officer) |
27