UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the fiscal year ended:
or
For the transition period from _________ to ________
Commission File Number:
Capstone Holding Corp.
(Exact name of registrant as specified in its charter)
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Securities registered pursuant to Section 12(b) of the Act:
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
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. Yes ☐
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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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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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 pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
The registrant was not a public company as of June 28, 2024, the last business day of its most recently completed second fiscal quarter, and therefore, cannot calculate the aggregate market value of its voting and non-voting common equity held by non-affiliates as of such date. The registrant’s common stock began trading on the Nasdaq Capital Market on March 6, 2025.
The registrant had
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (“Annual Report”) contains forward-looking statements within the meaning of the federal securities laws. All statements contained in this Annual Report, other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, potential growth or growth prospects, future research and development, sales and marketing and general and administrative expenses, and our objectives for future operations, are forward-looking statements. Words such as “believes,” “may,” “will,” “estimates,” “potential,” “continues,” “anticipates,” “intends,” “expects,” “could,” “would,” “projects,” “plans,” “targets,” and variations of such words and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the “Risk Factors” in this Annual Report. Readers are urged to carefully review and consider the various disclosures made in this Annual Report and in other documents we file from time to time with the Securities and Exchange Commission (the “SEC”) that disclose risks and uncertainties that may affect our business. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and circumstances discussed in this Annual Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance, or achievements. In addition, the forward-looking statements in this Annual Report are made as of the date of this filing, and we do not undertake, and expressly disclaim any duty, to update such statements for any reason after the date of this Annual Report or to conform statements to actual results or revised expectations, except as required by law.
You should read this Annual Report and the documents that we reference herein and have filed with the SEC as exhibits to this Annual Report with the understanding that our actual future results, performance, and events and circumstances may be materially different from what we expect.
This Annual Report also contains or may contain estimates, projections and other information concerning our industry, our business and the markets for our products, including data regarding the estimated size of those markets and their projected growth rates. Information that is based on estimates, forecasts, projections or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained these industry, business, market and other data from reports, research surveys, studies and similar data prepared by third parties, industry and general publications, government data and similar sources. In some cases, we do not expressly refer to the sources from which these data are derived.
Our Company
Capstone Holding Corp. ("Capstone," "we," "us," or the "Company") is a national, technology-enabled building products distribution and installation platform. Through our three operating subsidiaries — Instone (a trade name of TotalStone, LLC (dba “Instone”)), Canadian Stone Industries (operated through Fraser Canyon Holdings Inc. and its subsidiaries, collectively "CSI"), and Carolina Stone (operated through Carolina Stone Holdings, LLC and its subsidiary, Carolina Stone Distributors, LLC) — we distribute and install thin veneer stone, natural stone, manufactured stone, and related masonry and hardscape products for residential and commercial construction markets across 38 U.S. states and two Canadian provinces.'
Instone, founded over 30 years ago, is the largest wholesale distributor of thin veneer masonry products in the United States, operating from five distribution centers in the Northeast, Midwest, Mid-Atlantic, and West Coast. CSI is a leading wholesale distributor of natural and manufactured stone products in Canada, operating from two locations in British Columbia and Ontario. Carolina Stone distributes and installs thin veneer stone and related masonry products for residential, commercial, and multi-family projects in the Southeast United States from two locations in North Carolina. Together, our platform offers over 3,000 SKUs across nine warehouse and distribution center locations, serving a diverse base of masonry dealers, contractors, builders, and homeowners.
We are committed to being the preferred partner for our customers by providing high-quality products, expert support, and exceptional service. Our success is driven by our deep industry expertise, long-standing customer and supplier relationships, an expanding North American footprint, digital infrastructure that supports our customers and a relentless focus on operational excellence.
Our Business Strategy and Operating Model
Capstone Long-Term Growth Strategy. Our long-term growth strategy is built on the foundational strengths of our operating subsidiaries and the strategic opportunities available in the building products distribution and manufacturing industry. Our strategy has the following characteristics:
Deep Team. Capstone is controlled by Brookstone Partners, a private equity group with 25 years of deep expertise in building products investment. Brookstone Partners is controlled by Matthew Lipman, our chief executive officer, a member of our board of directors, and Michael Toporek, the chairman of our board. The Capstone leadership team includes seasoned operating executives and building products acquisition and investment professionals. Capstone’s leadership team includes its Lead Independent Director, Charles “Chuck” Dana. Mr. Dana spent 19 years at Owens Corning, a leading building materials company. At Owens Corning, Mr. Dana held various positions including Controller, President Global Composites and then Group President Building Materials. In addition, from the Company’s acquisition of Instone in April 2020 through December 31, 2025, Instone’s revenues have increased from approximately $32.2 million to approximately $44.2 million. In February 2008, a Brookstone Partners affiliate invested $8.8 million in Woodcrafter’s Home Products Holdings LLC. Brookstone’s team worked with Woodcrafter’s management to grow earnings and Brookstone completed the sale of all of its interests in Woodcrafter’s for $32 million in December 2013. The ability to identify, acquire and integrate acquisition candidates is a critical skill set to augment the operating expertise that drives organic growth. The current operating company has successfully executed multiple acquisitions and integrations, laying a solid foundation for continued expansion.
Strategic Timing. We believe we are strategically positioned to capitalize on market conditions within the building products sector. Historically, acquiring companies at interest rate peaks has yielded strong returns, and we are poised to leverage these strategic investment opportunities as the market evolves.
Industry Dynamics. According to the Bain & Company Global M&A Report published in 2024 (the “Bain Report”), this is “just the type of environment that has proved to offer opportunities to companies that are willing to make bold moves.” The Bain Report goes on to say, “building products companies that make frequent and material acquisitions substantially outpace inactive companies in total shareholder returns, 9.6% vs 2.7%” and “the most successful companies will pursue scope M&A to build product, geography, and capability adjacencies.”
The M&A environment for the building products sector is expected to improve because, according to the Bain Report, “there are ample one-off opportunities to acquire struggling assets”, and “financial investors have taken a step back, especially in North America, removing a potentially formidable layer of competition.”
Scale. For scale M&A, opportunities in core businesses allow for more operational synergies. The Bain Report states that “allowing management to focus on a more related group of products with some level of shared channels, end markets, or manufacturing processes helps focus efforts and tells a clearer equity story.”
Scope. Given macroeconomic uncertainty, companies who leverage their parenting advantage, the ability to effectively manage and integrate acquisitions, will be the most successful with regards to scope M&A. The Bain Report states that “the path to leadership generally means overlooking smaller assets in favor of bigger players for a first move in a new space.”
The “Annual total shareholder returns for building products companies” chart and quotes from the Bain Report are used with permission from Bain & Company. The Bain Report was not commissioned by the Company. The Company does not currently and has not in the past had a direct or indirect business relationship with Bain & Company. The Bain Report is publicly available via the Insight — Featured Topics portion of Bain & Company’s website.
Strategic Positioning. We believe we are strategically well-positioned to take advantage of the current market opportunities because of:
Team strength. The industry experience of the Board and Instone management provides the Company with the expertise to evaluate, acquire, and integrate acquisitions.
Experience integrating acquisitions. Since 2006, the Company has successfully integrated six acquisitions. The team believes the Company has the resources and expertise to continue to integrate acquisitions successfully.
Geographic distribution footprint. The current service area of the Company, which includes 38 U.S. states and two Canadian provinces, provides a good basis on which to make both “scale” and “scope” acquisitions.
Growth Premium. As Capstone continues to scale, growing its EBITDA, we anticipate benefiting from valuation premiums associated with increased size. This growth, coupled with consistent earnings performance, is expected to drive substantial shareholder value and enhance our market positioning.
During fiscal year 2025, the Company completed two material acquisitions that significantly expanded its geographic footprint, product offerings, and revenue base:
Fraser Canyon Holdings Inc. / Canadian Stone Industries. On December 1, 2025, through its indirect subsidiary Instone Canada Corp., the Company acquired 100% of the outstanding equity interests of Fraser Canyon Holdings, Inc. (“FCHI”) and substantially all assets of Continental Stone Industries, Inc. (“CSIA”), collectively the CSI business. FCHI is the parent company of Canadian Stone Industries Partnership (“CSIP”), Canadian Stone Industries Inc. (“CSII”), and CSIA, which together distribute natural and manufactured stone products wholesale from locations in Langley, British Columbia, North York, Ontario, and San Leandro, California. Effective at the closing of the CSI acquisition, the San Leandro, California operations were integrated into Instone’s U.S. distribution network; the CSI business today operates from two locations in British Columbia and Ontario. The purchase consideration for the combined Fraser Canyon Acquisition consisted of: (i) C$6,200,000 in cash (approximately US$4,447,000 at the closing-day exchange rate of US$1.00 = C$1.3943), of which approximately US$459,000 (C$647,000) represented the Continental Cash Purchase Price paid by TotalStone, LLC for the CSIA Asset Purchase, less a working capital reduction of C$473,189 (approximately US$339,000) that reduced the Cash Purchase Price payable to the FCHI sellers; (ii) a First SPA Note in the principal amount of C$1,600,000 (approximately US$1,148,000), maturing March 31, 2027; (iii) a Second SPA Note in the principal amount of C$2,000,000 (approximately US$1,434,000), maturing December 1, 2028; and (iv) contingent earn-out consideration of up to C$3,000,000 (approximately US$2,152,000) based on Average EBITDA during the 2026–2027 and 2027–2028 measurement periods. The acquisition-date fair value of the contingent earn-out consideration, as determined with the assistance of Loop Capital, was approximately US$100,000 and is reflected in the purchase price allocation (see Note 4). The seller notes, working capital adjustment, and earn-out provisions relate solely to the FCHI Share Purchase. U.S. dollar amounts have been translated from Canadian dollars at the closing-day exchange rate of US$1.00 = C$1.3943. This acquisition marked the Company's entry into the Canadian market and the U.S. West Coast, and is reported within the Company's Instone/TotalStone segment. FCHI reported net revenue of $16.4 million for the year ended December 31, 2024.
Carolina Stone Holdings, LLC. On August 22, 2025, through its indirect subsidiary CS Purchase Holdings, LLC, the Company acquired 100% of the membership interests of Carolina Stone Holdings, LLC (“CSH”). CSH, together with its subsidiary Carolina Stone Distributors, LLC, operates a stone distribution and installation business under the trade name “Carolina Stone Products” in the Raleigh-Durham and Charlotte, North Carolina markets. The aggregate purchase consideration consisted of (i) $2,625,000 in cash, subject to a working capital adjustment, (ii) a seller note in the original principal amount of $1,250,000, and (iii) contingent earn-out consideration of up to $825,000 (acquisition-date fair value of approximately $250,000), payable based on Carolina Stone’s achievement of specified Adjusted EBITDA thresholds during the fiscal years ending December 31, 2025, 2026, and 2027. The final working capital true-up resulted in additional cash consideration of $76,500 paid at closing and $200,000 released from holdback in December 2025, plus $56,047 added to the seller note principal, for total cash consideration of $2,758,000. Aggregate purchase consideration, including the earn-out at fair value, was approximately $4.2 million. The acquisition was financed in part with proceeds from the Company’s convertible note facility. Carolina Stone’s operations include both wholesale distribution and professional stone installation services for residential, commercial, and multi-family construction projects, and are reported in the Company’s Carolina Stone segment.
Capstone intends to drive sustainable growth, expand its geographic presence in the building products industry, and deliver superior value to its customers, shareholders, and other stakeholders. We expect to work with our businesses to achieve this through the following strategic pillars:
Expand Market Presence. We are committed to expanding our geographic footprint, increasing penetration in existing markets, and entering new, underserved regions. Our sales and marketing team continues to seek new opportunities to onboard customers in markets we are not currently servicing. In 2025, we onboarded customers in 6 new states, which are included in our distribution network of 38 U.S. states and two Canadian provinces. We will achieve this through both organic growth and strategic acquisitions that complement our existing business and provide opportunities to broaden our product offerings and customer base.
Enhance Product Portfolio. We continuously strive to expand and diversify our product offerings to meet the evolving needs of our customers. This includes introducing new textures, colors, and materials within our stone product lines, as well as expanding into adjacent building products and stone substitutes. By broadening our portfolio, we aim to increase our share of wallet with existing customers and attract new customers.
Operational Excellence. We are focused on optimizing our operations to improve efficiency, reduce costs, and enhance customer satisfaction. This involves investing in advanced technologies, streamlining our supply chain, and implementing best practices across all aspects of our business. Operational excellence is key to maintaining our competitive edge and ensuring long-term profitability.
Customer-Centric Approach. Our customers are at the heart of everything we do. We are committed to building strong, long-lasting relationships by providing high-quality products, exceptional service, and expert support. Our goal is to be the preferred partner for our customers, helping them succeed in their projects and achieve their business objectives.
Innovation. We recognize the importance of innovation in the building products sector and prioritize it, continually seeking new ways to improve our products, processes, and services to stay ahead of industry trends and meet the demands of a changing market. The most recent example is our introduction of the Toro® family of manufactured stone products. We used our 30 years of market knowledge to formulate a product offering that is well thought out to meet the needs of end use customers and distributors. We painstakingly designed each color family. We honed in on key manufacturing steps to drive quality and consistency then thoughtfully designed packaging to meet the needs of distributors. The end result was a set of products that competes with high-end alternatives in the sector on aesthetics, but for a better value. We expect Toro® to help drive significant organic revenue growth in the next three years.
Operating Model
Our operating model is designed to support our business strategy and drive consistent, profitable growth. Key elements of our operating model include:
Integrated Supply Chain. We operate an integrated supply chain that connects our network of suppliers, manufacturing partners, and distribution centers. This allows us to efficiently manage inventory, optimize logistics, and ensure timely delivery of products to our customers. Our supply chain capabilities are a critical component of our ability to provide reliable service and meet the needs of our diverse customer base.
Strategic Distribution Network. Our strategically located distribution centers enable us to serve 38 U.S. states and two Canadian provinces with speed and efficiency. Our nine distribution and warehouse facilities across the United States and Canada are designed to optimize inventory management, reduce lead times, and ensure that our customers have access to the products they need, when they need them. Our expanded North American distribution network is a key competitive advantage that supports our market position and provides a robust base for integrating additional distributors or manufacturers.
Scalable Infrastructure. We have invested in scalable infrastructure that can support our growth objectives and adapt to changing market conditions. This includes state-of-the-art facilities, advanced technology, and robust business processes that enable us to efficiently manage our operations and deliver consistent performance.
Experienced and Committed Workforce. Our employees are the foundation of our success. We have a highly experienced and committed workforce that shares our dedication to excellence, innovation, and customer satisfaction. We invest in the training and development of our employees to ensure they have the skills and knowledge needed to drive our business forward and meet the challenges of a dynamic industry.
Financial Discipline. We are committed to maintaining financial discipline and leveraging our resources to drive sustainable growth. This includes prudent capital allocation, cost management, and a focus on generating strong cash flow. We intend to invest in strategic initiatives, pursue growth opportunities, and return value to our shareholders.
Through the execution of our business strategy and the strength of our operating model, we are well-positioned to capitalize on the opportunities in the thin veneer stone and masonry products industry and deliver long-term value to our stakeholders.
Industry Overview
The building products industry in the United States is an essential segment of the broader construction market, contributing to both the structural integrity and aesthetic enhancement of buildings. The stone veneer subsector comprises several key segments, including natural stone, manufactured stone, and masonry products, each serving distinct roles within the construction process. The North American stone and masonry products industry represents a significant segment of the broader building products market, with continued growth expected to be supported by demand in both residential and commercial construction, as well as ongoing trends towards sustainability and enhanced building aesthetics.
Market Dynamics
Residential Construction Growth. The new residential construction market, a significant driver of demand in the stone industry, has softened as interest rates have increased. This is also in part driven by the timing of weakening new single and multi-family construction and renovation spending. New construction activity is sensitive to interest rate trends and housing supply dynamics. With a significant backlog of units authorized but not yet started, changes in interest rates could influence construction timing and spending patterns.
Renovation and Remodeling. The renovation and remodeling market has seen substantial growth, particularly following the COVID-19 pandemic, which spurred increased investment in home improvement. In 2022, U.S. homeowners spent over $500 billion on renovation projects, with a significant portion directed towards exterior upgrades and outdoor living spaces. Thin veneer stone, known for its durability and aesthetic versatility, is increasingly favored for these applications. Remodeling activity has been influenced by interest rate trends and the normalization of pandemic-era savings patterns. Industry forecasts generally point to a recovery in remodeling spend driven by pent-up demand, home equity access, and aging housing stock.
Commercial Construction. The commercial construction sector, particularly in hospitality, retail, and office buildings, continues to present growth opportunities for the stone industry. Stone products are highly valued in commercial construction for their durability, fire resistance, and ability to convey a sense of luxury. Continued investment in commercial construction is expected to support ongoing demand for stone and masonry products.
Competitive Landscape
The U.S. stone distribution market is highly fragmented, with a mix of large national distributors, regional players, and numerous smaller local suppliers. Despite this fragmentation, Capstone has achieved a leadership position by leveraging its extensive product offerings, strategic distribution network, and strong customer relationships.
Consolidation Trends. The industry is experiencing consolidation, with larger players acquiring smaller distributors to expand their geographic reach and product portfolios. This trend is expected to continue as companies seek to achieve economies of scale and enhance their market positioning.
Technological Advancements. Technology is playing an increasingly important role in the stone industry. From advanced manufacturing techniques that produce more realistic manufactured stone products to digital tools that improve inventory management and customer service, technology is helping distributors like Capstone improve efficiency and meet evolving customer needs.
Labor and Supply Chain Challenges. The stone and masonry industry faces challenges related to labor shortages and supply chain disruptions, which have been exacerbated by the pandemic. Navigating these challenges through strategies like vertical integration, strategic partnerships, and our unique delivery network is critical for maintaining competitiveness.
Outlook for 2026 and Beyond
Near-term residential construction activity is expected to remain relatively flat as the market contends with elevated mortgage rates and affordability pressures, though a persistent national housing deficit and growing repair-and-remodel spending provide a supportive baseline for building materials demand. The global natural stone market is projected to grow at a compound annual growth rate of approximately 4–5% through 2031, and companies with broad product assortments serving both new construction and renovation channels are well-positioned to benefit.
Our Competitive Strengths
Capstone’s success is underpinned by several competitive strengths that differentiate us in the market:
Extensive Product Offering. With over 3,000 SKUs, we offer one of the most comprehensive selections of stone products in the industry, including a variety of manufactured and natural stone options. Our diverse product line allows us to meet the needs of a broad customer base and cater to a wide range of construction applications.
Optimized Distribution Network. Our nine distribution and warehouse facilities across seven states and two Canadian provinces enable us to efficiently serve customers throughout the eastern and midwestern United States and key Canadian markets. Instone operates five facilities in Massachusetts, New Jersey, Ohio, California and Illinois; Carolina Stone operates two facilities in North Carolina; and CSI operates facilities in British Columbia and Ontario. These strategically located facilities are designed to optimize inventory management and reduce delivery times, ensuring that our customers receive the products they need when they need them.
Strong Customer Relationships. We have cultivated deep and lasting relationships with our customers, including some of the largest and most respected names in the construction industry. Our ability to provide a one-stop shop for stone and masonry products, combined with our commitment to service excellence, has made us a trusted partner for over 1,000 active customers across our three operating subsidiaries.
Operational Excellence. We maintain the highest standards of operational efficiency, supported by state-of-the-art distribution facilities and a team of experienced professionals.
Experienced Management Team. Our leadership team has extensive experience in the stone and masonry industry with a proven track record of driving growth and delivering results. Our senior management team is supported by a talented group of managers and employees who share a commitment to continuous improvement and a passion for customer service.
Our Growth Strategy
Capstone’s growth strategy is focused on expanding our market presence, enhancing our product offerings, and optimizing our operations:
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Strategic Acquisitions: We intend to pursue strategic acquisitions that complement our existing business and provide opportunities for growth. Potential targets include other distributors of stone products, manufacturers of complementary building products, and companies offering innovative products or technologies. |
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Product Line Expansion: We are continuously expanding our product offerings to meet the evolving needs of our customers, including new textures, colors, and materials of stone, as well as adjacent building products and stone substitutes. |
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Increased Marketing Efforts: We have invested in marketing initiatives to increase brand awareness and drive demand for our products. These efforts are focused on our dealers but also reach a broader audience of end-users and contractors, as well as promoting the benefits of our products to architects, designers, and builders. |
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Geographic Expansion: We see significant opportunities to expand our geographic footprint and increase our market penetration in underserved regions. This will be achieved through a combination of organic growth and strategic acquisitions. |
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Operational Efficiency: We are focused on improving our operational efficiency to reduce costs, enhance productivity, and improve customer satisfaction. This includes investing in technology and process improvements, optimizing our supply chain, and leveraging our scale to achieve cost advantages. |
Product Categories
The Company offers a diverse range of stone and masonry products through its three operating subsidiaries, organized into the following categories: (i) manufactured stone veneer, including Cultured Stone®, Dutch Quality Stone®, and our proprietary Toro Stone™ brand; (ii) natural stone, including Pangaea Stone® and our Interloc™ panelized stone system; (iii) mechanically attached stone veneer systems, including Beon Stone with its patented D-Rain™ moisture management system; (iv) landscape and hardscape products, including our Aura™ Natural Landscapes line of pavers, steps, and coping; and (v) modular masonry fireplaces under the Isokern® brand. These product categories enable the Company to serve as a consolidated sourcing platform for masonry dealers, contractors, and builders across residential and commercial construction markets.
Customers and Markets
Capstone serves a diverse customer base, including masonry dealers, brick distributors, landscape yards, hearth and home dealers, building material dealers, contractors, builders, and homeowners. We have built strong, long-lasting relationships with our customers, who rely on us for our extensive product selection, reliable delivery, and expert support.
Our primary markets include residential and commercial construction, with a focus on both new construction and repair-and-remodel projects. We serve customers across the United States and Canada through our three operating subsidiaries.
Sales and Marketing
Our sales and marketing efforts are centered on building strong relationships with our customers and promoting the benefits of our products and services provided on our business to business website, allowing customers to review inventory, pricing, our route truck delivery, and place orders without worrying about the logistics. We believe giving customers the ability to see all of these options in one website differentiates Instone from other suppliers. We employ a direct sales force that works closely with customers to understand their needs and provide personalized service. Our sales team is supported by a marketing team that develops targeted campaigns, product promotions, and educational materials. We give customers the ability to buy the quantities they need across many product lines instead of needing to buy a single product line from different manufacturers or quarries. Giving customers this ability we believe helps them manage their cash and allows them to, in turn, offer a higher level of service to their own customers.
We also invest in digital marketing, including our websites, social media, and online advertising, to reach a broader audience and generate leads. The Company operates www.instoneco.com as a key resource for customers, www.carolinastoneproducts.com for Carolina Stone, www.allthingsstone.com for CSI, www.budsboneyard.com to sell discounted products, www.torostone.com to market our proprietary manufactured stone veneer brand, and www.indigital-media.com to promote our digital media capabilities.
Competition
The stone distribution industry is competitive, with numerous regional and local distributors vying for market share, in addition to competition from quarry operators, manufacturers, and brokers who sell directly into the market. Key competitive factors include product selection, pricing, logistics, lead times, customer service, and industry expertise. While the industry is fragmented, Capstone has established a leadership position through its comprehensive product offering, logistics capability, strategic distribution network, and commitment to customer service.
We compete with both large national distributors and smaller regional players, as well as manufacturers, quarry operators and brokers. In Canada, CSI competes with regional wholesale distributors. In the Southeast installation and distribution market, Carolina Stone competes with numerous smaller regional and local competitors. Our ability to offer a one-stop shop for stone and masonry products, combined with our focus on operational efficiency and customer satisfaction, gives us a competitive advantage.
Supply Chain and Operations
Capstone’s supply chain is designed to support our extensive product offering and ensure timely delivery to our customers. We source our products from a network of trusted suppliers, including both domestic and international manufacturers. Our distribution centers are strategically located to optimize inventory management and minimize lead times.
We continuously invest in our operations to enhance efficiency and reduce costs. This includes upgrading our facilities, implementing new technologies, and improving our logistics capabilities. Our commitment to operational excellence allows us to deliver high-quality products while maintaining competitive pricing.
Following our 2025 acquisitions, the Company sources products from an expanded network of domestic and international suppliers. Key supplier relationships now include Eldorado Stone, Cultured Stone (Boral), Dutch Quality Stone, Pangaea Natural Stone, Stonecraft, and Horizon Stone, among others. Horizon Stone is a new supplier relationship established through the Carolina Stone acquisition. Our combined nine distribution and warehouse facilities are strategically positioned to serve markets across North America.
Regulatory and Environmental Matters
Our operations are subject to various federal, state, and local laws and regulations, including those related to environmental protection, health and safety, and labor practices. We are committed to complying with all applicable regulations and maintaining high standards of environmental stewardship and workplace safety.
We also recognize the importance of sustainability in our industry and are committed to reducing our environmental impact through initiatives to minimize waste, reduce energy consumption, and promote the use of environmentally friendly products.
Employees
As of December 31, 2025, the Company and its subsidiaries employed approximately 93 full-time employees and 3 independent contractors across our corporate office and nine distribution, warehouse, and installation facilities. This includes approximately 44 employees at Instone, 23 employees at Carolina Stone (including installation crews), and 29 employees at CSI. None of our employees are represented by a labor union or subject to a collective bargaining agreement.
Seasonality
The Company historically experiences higher sales during its second and third quarters due to the favorable weather in the Midwestern, Northeastern, and Southeastern United States and in Canada for new constructions and remodels. The seasonal impact on consolidated results does not change materially as a result of the 2025 acquisitions.
TotalStone, LLC
On April 1, 2020, the Company obtained controlling interest in TotalStone, a company that distributes masonry stone products for residential and commercial construction in the Midwest and Northeast United States under the trade name Instone. TotalStone, LLC (dba “Instone”), a Delaware limited liability company, was formed on October 4, 2006. TotalStone is the Company’s primary business activity and it is consolidated in the Company’s financial statements.
Contingent on the Company raising at least $3,000,000 in gross proceeds from an offering priced on or prior to March 10, 2025 (the “Restructuring Condition”), a series of restructuring transactions were to take place. The Company raised $5,000,000 in gross proceeds from the Public Offering (as defined below), which closed on March 7, 2025, satisfying the Restructuring Condition. On the Restructuring Date, the Company acquired 100% of the equity interests of TotalStone.
TotalStone Management Agreement
On April 1, 2020, the Company and TotalStone entered into a Management Agreement (as defined below) (the "TotalStone Management Agreement"), whereby Capstone agreed to provide advisory services to TotalStone for (i) a monthly fee of $20,000; and (ii) an upside fee, calculated annually and equal to 7% of income before federal taxes of TotalStone and its affiliates, less the aggregate monthly fee. In connection with the Restructuring on March 7, 2025, TotalStone became a wholly-owned subsidiary of Capstone, and this agreement was effectively superseded. Fees under this agreement are eliminated in consolidation for all periods following the Restructuring.
TotalStone Membership Information before March 2025
Class A Membership
Holders of TotalStone’s Class A Common Interests (the “Class A Members”) hold the only voting rights of TotalStone. The Class A Members may designate three TotalStone managers. In the event of a distribution of residual proceeds, Class A Members are inferior to the Special Preferred Members, Class B Members and Class C Members. Additionally, Class A Members shall receive distributions with respect to income tax in an amount equal to such member’s tax distribution. The Company owns all of the outstanding Class A Common Interests. Further, TotalStone issued warrants to certain members of its management team to purchase Class A Common Interests of TotalStone (the “Class A TS Warrants”).
Class B Membership
Holders of TotalStone’s Class B Preferred Interests (the “Class B Members”) had no voting rights and were entitled to designate two TotalStone managers. The TotalStone managers could not take certain actions without the express consent of the Class B Members, who also had preemptive rights such as a right of first refusal over new securities of TotalStone and the right of overallotment. With the Restructuring Condition having been met on March 7, 2025, all Class B Preferred Interests were exchanged for shares of Common Stock pursuant to the Master Exchange Agreement, and no Class B Membership interests remain outstanding.
On July 23, 2023, a Redemption Default pursuant to the TotalStone operating agreement occurred, allowing Class B Members to receive warrants to purchase common stock of Capstone in an aggregate amount of 2%. The Class B Members have waived and not exercised their rights in accordance with the terms of the TotalStone operating agreement.
Class C Membership
Prior to the Restructuring on March 7, 2025, there were 75 TotalStone’s Class C Preferred Interests outstanding. TotalStone’s Class C Preferred Interests are treated as profit interests and the one holder of TotalStone’s Class C Preferred Interests (the “Class C Member”) has no voting rights in TotalStone and receives no tax distributions. In the event of a distribution of proceeds, the Class C Member receives Class C Incentive Distributions concurrently with distributions made to Class B Members, but only after $5,000,000 in distributions have been made to the Special Preferred Members and the Class B Members since the date of grant of such Class C Preferred Interests.
Special Preferred Membership
Holders of TotalStone’s Special Preferred Membership Interests (the “Special Preferred Membership Interests”, and the holder thereof, the “Special Preferred Members”) had no voting rights. On the Restructuring Date, the Special Preferred Membership Interests held by Stream Finance, LLC were exchanged for additional term loans under the Stream Finance Credit Agreement (see Note 11). As of December 31, 2025, no Special Preferred Membership Interests remain outstanding.
TotalStone Equity Interests Transactions in March 2025 (the “Restructuring”)
Class A TS Warrants to purchase 1,125 TotalStone’s Class A Common Interests were cancelled on the Restructuring Date.
On the Restructuring Date, pursuant to a master exchange agreement (the “Master Exchange Agreement”) entered into by the Company, TotalStone and TotalStone’s Class B and Class C Members, all of TotalStone’s Class B and Class C Preferred Interests were exchanged for 3,782,641 shares of Common Stock that constitute approximately 96% of the shares of Common Stock outstanding on the Restructuring Date, which were allocated to the Class B and Class C Members as set forth in the Master Exchange Agreement. As consideration for the issuance of 3,782,641 shares of Common Stock, the Class B and Class C Members surrendered their existing TotalStone’s membership interests and withdrew from the membership of TotalStone. Following the restructuring, BP Peptides, LLC, the owner of approximately 77.3% of the Company’s shares prior to the restructuring, owns approximately 3% of the Company’s shares. Following the restructuring, the largest holder of the Company’s shares (approximately 48%) is BPA XIV, LLC. BP Peptides, LLC is jointly controlled by Matthew Lipman, our chief executive officer and a member of our board of directors, and Michael Toporek, the chairman of our board of directors, and BPA XIV, LLC is controlled by Mr. Lipman. On the Restructuring Date, the Class C Member cancelled his Class A TS Warrants, and his right to receive incentive compensation from TotalStone.
In total, on the Restructuring Date, in exchange for TotalStone’s outstanding Class B and Class C preferred interests, 3,782,641 shares of Common Stock were issued pursuant to the restructuring transactions.
The Special Preferred Membership Interests were issued by TotalStone in connection with the restructuring of its mezzanine indebtedness. This indebtedness is documented pursuant to that certain Second Amended and Restated Credit Agreement, dated as of March 8, 2023, with Stream Finance, LLC, as agent, and the lenders from time to time party thereto (as amended, the "Stream Finance Credit Agreement"). The maturity date of the Stream Finance Credit Agreement is September 30, 2027, as extended pursuant to the Third Amendment dated June 11, 2025 (the "Stream Finance Maturity Date"). On March 7, 2025, the Special Preferred Membership Interests were exchanged for additional term loans under the Stream Finance Credit Agreement in an aggregate principal amount of $1,143,646 (representing $1,006,377 of original principal plus $137,269 of accrued interest).
Other provisions of the Stream Finance Credit Agreement include that no financial covenants will be tested until the fiscal quarter ending March 31, 2026 (and will continue to be tested each quarter ending thereafter). An amendment fee of $695,000 shall be payable on the earliest to occur of (i) the date of repayment or prepayment of the entire outstanding principal balance of the loan, (ii) the acceleration of the entire outstanding principal balance of the loan and (iii) the Stream Finance Maturity Date, which was extended to September 30, 2027 pursuant to the Third Amendment dated June 11, 2025. The earliest of the date of repayment, the acceleration date, and the Stream Finance Maturity Date is referred to as the "Deferral Date." In addition, interest accrued during the period commencing on August 1, 2023 through the Restructuring Date will be due and payable on the Deferral Date; the standard interest rate will be an annual rate of 14 percent; the portion of such accrued interest at a rate of 2 percent during each applicable period shall be paid in kind with the balance paid in cash. Pursuant to the Third Amendment, certain cash interest payments totaling approximately $225,458 originally due on July 1, 2025, October 1, 2025, and January 1, 2026 were deferred to September 30, 2027, and an additional $18,805 cash interest payment was deferred from July 1, 2025 to April 1, 2026.
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 is now only the Company.
Berkshire Bank Credit Agreement
On December 20, 2017, TotalStone executed a Revolving Credit, Term Loan and Security Agreement with Berkshire Bank (the "Revolving Credit Agreement"). The Revolving Credit Agreement has been amended fifteen times through the fiscal year ended December 31, 2025. In connection with the Carolina Stone acquisition, CS Purchase Holdings LLC, Carolina Stone Holdings, LLC, and Carolina Stone Distributors, LLC were added as co-borrowers under the Fourteenth Amendment, dated August 22, 2025. Under the Fifteenth Amendment, executed December 19, 2025, the lender is now Beacon Bank & Trust (successor by merger to Berkshire Bank), and the maturity date was extended to June 19, 2026. TotalStone's maximum revolving advance amount is $11,500,000 for working capital purposes. Advances under the credit agreement are limited to a formula-based amount of up to eighty-five (85%) percent of the face amount of "Eligible Accounts Receivable" plus approximately fifty-four (54%) percent of the face amount of the TotalStone and Carolina Stone "Finished Goods Inventory" up to a maximum inventory amount of $8.0 million. Interest charged on the unpaid principal amount bears a rate per annum of Term SOFR plus 3.00%. The Borrower is required to minimum undrawn availability of $317,000 at all times. The balance outstanding on the line of credit was $10.3 million as of December 31, 2025 and $6.2 million as of December 31, 2024, respectively. Financial covenants include a minimum Cash Flow Coverage Ratio of 1.15x and a minimum Tangible Net Worth of $1,250,000, with which the Company was in compliance at December 31, 2025.
TD Bank Credit Facilities
On November 7, 2025, Canadian Stone Industries and Klad Envelope Solutions Inc. (collectively, the "CSI Borrowers") entered into a Letter of Agreement with The Toronto-Dominion Bank ("TD Bank") providing for the following credit facilities in connection with the CSI acquisition:
Facility 1 — Operating Loan. TD Bank provides Canadian Stone Industries with a revolving operating loan with a credit limit of CAD $5,000,000 for working capital purposes. Advances are available as Prime Rate Based Loans at Prime Rate + 0.50% per annum or United States Base Rate Loans at USBR + 0.50% per annum. The facility is uncommitted and repayable on demand. Advances are limited to a formula-based amount equal to the lesser of (i) CAD $5,000,000 and (ii) the sum of 80% of eligible Canadian and U.S. accounts receivable (excluding over-90-day receivables, priority payables, and related AR) plus 50% of inventory held in Canada net of 30-day accounts payable. The facility carries a monthly administration fee of CAD $300. The balance outstanding on the operating loan was $2.4 million as of December 31, 2025.
Facility 2 — Term Loan. In connection with the CSI acquisition, TD Bank provided Canadian Stone Industries with a term loan in the original principal amount of CAD $2,559,462 for the purpose of paying out the previous owner of Canadian Stone Industries. The term loan was repaid in full during the fiscal year ended December 31, 2025. As of December 31, 2025, there was no balance outstanding on the term loan.
The TD Bank credit facilities are secured by first-priority General Security Agreements from Canadian Stone Industries, Fraser Canyon Holdings Inc., Canadian Stone Industries (2022) Inc., Klad Envelope Solutions Inc., and Instone Canada Corp., covering all present and after-acquired personal property. Instone Canada Corp. has provided an unlimited guarantee in support of the CSI Borrowers. Additional security includes Section 427 Bank Act security over inventory at the Langley, BC and North York, ON locations, assignment of fire insurance, and subordination and priorities agreements for the seller notes issued in connection with the CSI acquisition. Financial covenants require a minimum Debt Service Coverage ratio of 1.25x at all times, tested on a trailing twelve-month basis. Negative covenants prohibit any change of control, ownership, or senior management without TD Bank's prior consent, and restrict distributions or payments on the seller notes unless financial covenants are satisfied on a pre- and post-payment basis. The CSI Borrowers are required to provide monthly aged receivables and payables listings, monthly management-prepared financial statements with a compliance certificate within 20 days of month-end, quarterly company-prepared financial statements within 45 days of quarter-end, and annual review engagement financial statements within 120 days of fiscal year-end. Annual compilation engagement financial statements are also required for Fraser Canyon Holdings Inc., Klad Envelope Solutions Inc., and Instone Canada Corp., and Capstone Holding Corp. financial statements must be provided at TD Bank's request.
Our Public Offering and Uplisting on Nasdaq Capital Market
On March 7, 2025, the Company closed its follow-on public offering (the "Public Offering") of 1,250,000 shares of common stock. In connection with the Public Offering, the Company entered into an Underwriting Agreement (“Underwriting Agreement”), dated March 5, 2025, with Joseph Gunnar & Co., LLC as representative of the underwriters named therein for the offer and sale of 1,250,000 shares of the Company’s common stock at a public offering price of $4.00 per share for gross proceeds, before deducting underwriting discounts and other related expenses, of $5 million. The Underwriting Agreement is filed herewith as Exhibit 1.1 and is incorporated herein by reference.
On March 6, 2025, the Company’s Common Stock began trading on the Nasdaq Capital Market under the symbol “CAPS”.
Pursuant to the Underwriting Agreement, as partial compensation for its services, the Company issued to the underwriters on the closing date of the Public Offering, warrants to purchase an aggregate of 62,500 shares of our common stock (the “Representative’s Warrant”), representing 5% of the shares issued on the Closing Date. The Representative’s Warrant will be exercisable, in whole or in part, commencing on September 5, 2025 and expiring on September 7, 2026, at an initial exercise price per share of common stock of $4.00, which is equal to 100% of the Offering price.
Convertible Note Financing
The aggregate outstanding principal balance under the Convertible Note Financing as of December 31, 2025, was approximately $3,859,541. Joseph Gunnar & Co., LLC acted as sole placement agent for the Convertible Note Financing and received cash fees equal to 7% of gross proceeds upon each closing. The Company registered a total of 8,388,336 shares of common stock for issuance upon conversion of the notes under effective registration statements on Form S-1.
Second Convertible Note. On October 22, 2025, the Company issued a second note in the original principal amount of $3,545,712 (the "October 2025 Note"), with gross proceeds of $3,250,000. The October 2025 Note bears interest at 7.0% per annum, matures on October 22, 2026, and was initially convertible at $1.10 per share. On November 28, 2025 (as disclosed in the Company's 8-K filed November 28, 2025, as later corrected to reflect November 24, 2025), the conversion price for $1,772,856 of principal was reduced to $0.75 per share, with the remaining $1,772,856 of principal continuing at $1.10 per share. In December 2025, the Buyer converted $186,916 of principal and $13,084 of accrued interest into 266,667 shares of common stock at a conversion price of $0.75 per share. As of December 31, 2025, the outstanding principal balance of the October 2025 Note was $3,358,797, of which $1,585,940 was convertible at $0.75 per share and $1,772,856 continued at $1.10 per share.
First Convertible Note. On July 29, 2025, the Company issued the first note in the original principal amount of $3,272,966 (the "July 2025 Note"). The July 2025 Note bears interest at 7.0% per annum, with principal and interest repaid in quarterly installments, and matures on July 26, 2026. The initial conversion price was $1.72 per share. On August 15, 2025, the conversion price was voluntarily reduced to $1.00 per share for up to $1,363,736 of principal. Between August and November 2025, the Buyer converted $2,710,280 of principal into 2,900,000 shares of common stock at a conversion price of $1.00 per share. Separately, the Company redeemed $61,942 of principal in cash on September 3, 2025. On November 28, 2025, the conversion price for the remaining principal balance of $500,744 was reduced to $0.75 per share. As of December 31, 2025, the outstanding principal balance of the July 2025 Note was $500,744.
On July 29, 2025, the Company entered into a Securities Purchase Agreement with an institutional investor (the “Buyer”) authorizing the issuance of senior secured convertible notes in the aggregate original principal amount of up to $10,909,885, with an 8.34% original issue discount (the “Convertible Note Financing”).
Corporate History
The Company was formed in 1987 as OrthoLogic Corp. In 2005, the Company filed its restated certificate of incorporation (the “Restated Certificate of Incorporation”). In 2010, the Company changed its name to Capstone Therapeutics Corp. On August 22, 2019, the Company filed a certificate of amendment to its Restated Certificate of Incorporation effecting a 1 for 1,000 reverse stock split of the common stock of the Company, whereby each 1,000 shares of common stock of the Company became 1 share of common stock. In 2021, the Company filed a certificate of amendment to its Restated Certificate of Incorporation decreasing the total number of shares of common stock authorized to be issued by the Company from 150,000,000 shares to 205,000 shares, consisting of 200,000 shares of common stock, par value $0.0005 per share and 5,000 shares of preferred stock, par value $0.0005 per share. On February 18, 2022, the Company filed a certificate of amendment to its Restated Certificate of Incorporation, changing the Company’s name from Capstone Therapeutics Corp. to Capstone Holding Corp. On February 20, 2025, following the Company’s controlling shareholder’s approval, the Company filed an amendment to its Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to increase the authorized shares of Common Stock to 50,000,000 shares and increase the authorized shares of preferred stock to 25,000,000 shares. On February 20, 2025, the Company filed a Certificate of Designation (the “Series B Certificate of Designation”) with the Delaware Secretary of State which designated 2 million shares of the Company’s authorized preferred stock as Series B Preferred Stock (“Series B Preferred Stock”), no par value.
Risks related to our industry and economic and market conditions
Our industry is cyclical and highly sensitive to macroeconomic conditions. Negative economic events including, but not limited to, recessions, lower consumer confidence, high interest rates, inflation, and lower new construction home starts may materially and adversely affect the outlook for our business, liquidity and results of operations.
The construction industry is highly sensitive to national and regional macroeconomic conditions.
The market for residential building products has experienced a sustained period of project deferrals, driven by higher interest rates and a structural lengthening of remodel cycles. According to Zonda Home (“Zonda”), the anticipated market recovery will be more muted than historical precedents due to ongoing mortgage rate uncertainty. For 2026, Zonda forecasts total residential building products spending will grow just 1.0%, with repair and remodel spending projected to grow 3.6%. While cash-out mortgage originations are expected to increase by over 50% in 2026, Zonda projects that remodeling growth will achieve only roughly half of the 20%+ growth rates seen in previous post-deferral cycles. If these structural deferrals persist, or if the expected stabilization in remodel volumes fails to materialize by mid-2026, our future revenue, operating results, and overall growth prospects could be materially adversely affected
In addition to commercial and residential market indicators, we also depend to a significant extent upon the levels of home repair and remodeling and new construction spending, affected by such factors as interest rates, inflation, consumer confidence, unemployment and the availability of consumer credit.
Our performance is also dependent upon consumers having the ability to finance home repair and remodeling projects and/or the purchase of new homes. The ability of consumers to finance these purchases is affected by such factors as new and existing home prices, homeowners’ equity values, interest rates and home foreclosures, which in turn could result in a tightening of lending standards by financial institutions and reduce the ability of some consumers to finance home purchases or repair and remodeling expenditures. Despite the recent abatement of these negative market factors, any recurrence or worsening of these items may adversely affect our financial condition and operating results.
Historically, any uncertainty about current economic conditions has had a negative effect on our business, and will continue to pose a risk to our business as our customers may postpone spending in response to tighter credit, negative financial news and/or declines in income or asset values, which could have a material negative effect on the demand for our products. Other factors that could influence demand include fuel and other energy costs, conditions in the nonresidential real estate markets, labor and healthcare costs, access to credit, tariffs, and other macroeconomic factors. From time to time, our industry has also been adversely affected in various parts of the country by declines in nonresidential construction starts, including but not limited to, high vacancy rates, changes in tax laws affecting the real estate industry, high interest rates and the unavailability of financing. Sales of our products may be adversely affected by continued weakness in demand for our products within particular customer groups, or a continued decline in the general construction industry or particular geographic regions. These and other economic factors could have a material adverse effect on demand for our products and on our financial condition and operating results.
We cannot predict the timing or severity of any future economic or industry downturns or adverse weather conditions. A prolonged economic downturn or negative weather patterns, particularly in states where many of our sales are made, would have a material adverse effect on our results of operations and financial condition.
Uncertainty and volatility in the financial markets and worldwide economic conditions may adversely affect our operating results.
The markets in which we compete are sensitive to general business and economic conditions in the United States and worldwide, including availability of credit, interest rates, fluctuations in capital, credit and mortgage markets and business and consumer confidence. Adverse developments in global financial markets and general business and economic conditions, including through recession, downturn or otherwise, could have a material adverse effect on our business, financial condition, results of operations and cash flows, including our ability and the ability of our customers and suppliers to access capital.
Risks related to our business
An inability to successfully develop new products or improve existing products could negatively impact our ability to attract new customers and/or retain existing customers, including our significant customers.
Our success depends on meeting consumer needs and anticipating changes in consumer preferences with successful new products and product improvements. We aim to introduce products and new or improved production processes proactively to offset obsolescence and decreases in sales of existing products. While we devote significant focus to the development of new products, we may not be successful in product development and our new products may not be commercially successful. In addition, it is possible that competitors may improve their products more rapidly or effectively, which could adversely affect our sales. Furthermore, market demand may decline as a result of consumer preferences trending away from our categories or trending down within our brands or product categories, which could adversely impact our results of operations, cash flows and financial condition.
The loss of, or a significant adverse change in our relationships with our largest customers, or loss of market position of any major customer, whether because of an inability to successfully develop new products or improve existing products, or otherwise, could cause a material decrease in net sales. The loss of, or a reduction in orders from, any significant customers, losses arising from customers’ disputes regarding shipments, fees, merchandise condition or performance or related matters, or an inability to collect accounts receivable from any major customer could adversely impact our net income and cash flow. In addition, revenue from customers that have accounted for significant revenue in past periods, individually or as a group, may not continue, or if continued, may not reach or exceed historical levels in any period.
Although we historically have been able to retain the majority of our customers on a year to year basis, if we fail to attract new customers, retain existing customers, or maintain or increase sales to customers, our business, financial condition, results of operations, and growth prospects will be harmed.
Although we historically have been able to retain the majority of our customers on a year to year basis, we do not have long-term agreements with our customers and their purchases are made on an order-by-order basis. Our business with our customers has been, and we expect it will continue to be, conducted based on the actual orders received from time to time. Our customers are not obligated in any way to continue placing orders with us at the same or increasing levels, or at all. Our customers level of demand for our products may fluctuate significantly from period to period. Such fluctuation is attributable mainly to changes in customer demand, including their business strategies and operational needs. The loss of our repeat customers, or if we are unable to attract new customers or if our existing customers decrease their spending on the products we offer, fail to make repeat purchases of our products, will harm our business, financial condition, results of operations, and growth prospects.
Our business may be adversely affected by weather conditions and other external factors beyond our control.
Markets for our products are seasonal and can be affected by inclement weather conditions. Historically, our business has experienced increased sales in the second and third quarters of the year due to increased construction during those periods. Because much of our overhead and operating expenses are spread ratably throughout the year, our operating profits tend to be lower in the first and fourth quarters. Inclement weather conditions can affect the timing of when our products are applied or installed, causing reduced profit margins when such conditions exist. For example, unseasonably cold weather or extraordinary amounts of rainfall may decrease construction activity.
Further, other external factors beyond our control could cause disruptions at any of our facilities, including maintenance outages; prolonged power failures or reductions; a breakdown, failure or substandard performance of any equipment or other operational problems; disruptions in the transportation infrastructure, including railroad tracks, bridges, tunnels or roads; fires, floods, hurricanes, earthquakes or other catastrophic disasters; pandemics, such as Coronavirus; or an act of terrorism. Any prolonged disruption in operations at any of our facilities could cause a significant loss in production. As a result, we could incur significantly higher costs and longer lead times associated with distributing our products to customers during the time that it takes for us to reopen or replace a damaged facility, which could cause our customers to purchase from our competitors either temporarily or permanently. If any of these events were to occur, it could adversely affect our business, financial condition, cash flows and results of operations
Price volatility and supply constraints for raw materials could prevent us from meeting delivery schedules to our customers or reduce our profit margins.
Our suppliers are heavily dependent on the price and supply of raw materials such as limestone, and natural stone. Raw material prices have been volatile in recent years and may remain volatile in the future. Raw material prices are influenced by numerous factors beyond our control, including general economic conditions domestically and internationally, currency fluctuations, the availability of raw materials, competition, labor costs, freight and transportation costs, production costs, tariffs, import duties and other trade restrictions.
Further, energy is used in the freight transportation of our products, many of which are sourced from overseas. Consequently, our operating costs typically increase if energy costs rise. During periods of higher energy costs, we may not be able to recover our operating cost increases through price increases without reducing demand for our products. To the extent we are not able to recover these cost increases through price increases or otherwise, our profitability and cash flow will be adversely impacted. We partially hedge our exposure to higher prices through fixed forward positions.
Failure to retain or replace key personnel could hurt our operations.
Our success depends to a significant degree upon the efforts, contributions and abilities of our senior management and other highly skilled personnel, including our sales personnel. These executives and managers have many accumulated years of experience in our industry and have developed personal relationships with our customers and suppliers that are important to our business. If we do not retain the services of our key personnel or if we fail to adequately plan for the succession of such individuals, our customer relationships, or our supplier relationships, results of operations and financial condition may be adversely affected.
If we are unable to enforce our intellectual property rights, or if such intellectual property rights become obsolete, our competitive position could be adversely affected.
As a company that manufactures and markets branded products, we expect to rely on trademark and service mark protection to protect our brands. We have filed applications for three trademarks that are used on our products, all of which are under review or pending. These protections may not adequately safeguard our intellectual property and we may incur significant costs to defend our intellectual property rights, which may harm our operating results. There is a risk that third parties, including our current competitors, will infringe on our intellectual property rights, or claim that our products infringe on their intellectual property rights. These third parties may bring infringement claims against us or our customers, which may harm our operating results.
If we are unable to protect and maintain our intellectual property rights, or if there are any successful intellectual property challenges or infringement proceedings against us, our business and revenue could be materially and adversely affected.
We could incur significant costs as a result of compliance with, violations of or liabilities under applicable environmental, health and safety laws.
Our operations are subject to various federal, state, local and foreign environmental, health and safety laws. Among other things, these laws regulate the emission or discharge of materials into the environment, govern the use, storage, treatment, disposal and management of hazardous substances and wastes, protect the health and safety of our employees and the end-users of our products, regulate the materials used in our products and impose liability for the costs of investigating and remediating, and other damages resulting from, present and past releases of hazardous substances. Violations of these laws or of any conditions contained in environmental permits can result in substantial fines or penalties, injunctive relief, requirements to install pollution or other controls or equipment, civil and criminal sanctions, permit revocations and facility shutdowns. We could be held liable for the costs to investigate, remediate or otherwise address contamination at any real property we have ever owned, operated or used as a disposal site or other sites at which we or predecessors released hazardous materials. We also could incur fines, penalties or sanctions or be subject to third-party claims, including indemnification claims, for property damage, personal injury or otherwise as a result of violations of or liabilities under environmental, health and safety laws or in connection with releases of hazardous or other materials. In addition, changes in, or new interpretations of, existing laws, regulations or enforcement policies, the discovery of previously unknown contamination, or the imposition of other environmental liabilities or obligations in the future, including additional investigation, remediation or other obligations with respect to our products or business activities or the imposition of new permit requirements, may lead to additional costs that could have a material adverse effect on our business, financial condition or results of operations.
Changes in building codes and standards could increase the cost of our products, lower the demand for our products, or otherwise adversely affect our business.
Our products and markets are subject to extensive and complex local, state, federal, and foreign statutes, ordinances, rules, and regulations. These mandates, including building design and safety and construction standards and zoning requirements, affect the cost, selection, and quality requirements of building components.
These statutes, ordinances, rules, and regulations often provide broad discretion to governmental authorities as to the types and quality specifications of products used in new residential and non-residential construction and home renovations and improvement projects, and governmental authorities can impose different standards. Compliance with these standards and changes in such statutes, ordinances, rules, and regulations may increase the costs of manufacturing our products or may reduce the demand for certain of our products in the affected geographical areas or product markets. Conversely, a decrease in product safety standards could reduce demand for our more modern products if less expensive alternatives that did not meet higher standards became available for use in that market. All or any of these changes could have a material adverse effect on our business, financial condition, and results of operations.
The industries in which we operate are highly competitive.
We compete with all other alternative methods of building construction, which may be viewed as more traditional, more aesthetically pleasing, or having other advantages over our products. In addition, competition in the construction markets of the building industry is intense. It is based primarily on quality; service; on-time delivery and project completion; ability to provide added value in distribution, manufacture, design and engineering; price; and personal relationships with customers.
We may be significantly affected by global climate change or by legal, regulatory or market responses to global climate change.
Concern over the effects of global climate change has led to federal, state and international legislative and regulatory efforts to limit greenhouse gas, or GHG, emissions. In the past, the United States Congress has considered various bills to regulate GHG emissions. Though the legislation did not become law, the U.S. Congress could pass climate change legislation in the future. In addition, in the past, the United States Environmental Protection Agency, or EPA, took steps to regulate GHG emissions, though at this time the EPA is not actively regulating GHG emissions. More stringent federal, regional, state and foreign laws and regulations relating to global climate change and GHG emissions may be adopted in the future. These laws and regulations could impact our facilities, raw material suppliers, the transportation and distribution of our products, and our customers, and could reduce demand for our products or cause us to incur additional capital, operating or other costs. Until the timing, scope and extent of any future legislation or regulation becomes known, we cannot predict its effect on our business. In addition, global climate change may increase the frequency or intensity of extreme weather events, such as storms, floods, heat waves, and other events that could affect our facilities and demand for our products. We are mindful of the harmful effects of global climate change and are taking steps to minimize our GHG emissions.
We rely on third-party suppliers, some of which are international, for materials and if we fail to identify and develop relationships with a sufficient number of qualified suppliers, or if there is a significant interruption in our supply chains, our business and results of operations could be adversely affected.
Our ability to offer a wide variety of products to our customers is dependent upon our ability to obtain adequate product supply from third-party suppliers, namely quarries. We generally have multiple suppliers; however, in some cases, materials are provided by a single supplier. The loss of, or substantial decrease in the availability of, products from our suppliers, or the loss of a key supplier, could adversely impact our business, financial condition and results of operations. Supply interruptions could arise from production difficulties including the closure of a quarry, and any suitable alternative for a particular stone quality, color, size, or packaging may be at a significantly higher cost. In addition, we may be materially adversely impacted by commodity cost volatility, pandemics, labor disputes, natural disasters, weather conditions, international trade disputes or trade policy changes or restrictions, tariffs or import-related taxes, third-party strikes, lock-outs, work stoppages or slowdowns, shortages of supply chain labor and truck drivers, shipping capacity constraints, military conflicts, acts of terrorism, civil unrest, or other factors beyond our control.
For example, U.S. and global markets are experiencing volatility and disruption related to the escalation of geopolitical tensions and the military conflict currently ongoing in Ukraine and the Middle East. These conflicts could lead to market or operational disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain shipping and freight interruptions. The price and availability of freight shipping containers, known as container freight rates, could materially negatively impact our business as it may no longer be economical to import materials from overseas suppliers. Many of our suppliers and manufacturers are located outside of the United States. Thus, compliance with federal laws and regulations regarding the importation of products, import taxes or costs, including new or increased tariffs, anti-dumping duties, countervailing duties, or similar duties, some of which could be applied retroactively, could increase the cost of the products that we distribute. In addition, quotas, embargoes, sanctions, safeguards, and customs restrictions, as well as foreign labor strikes, work stoppages, or boycotts, could reduce the supply of the products available to us. Short- and long-term disruptions in our supply chain would result in a need to maintain higher inventory levels as we replace similar product, a higher cost of product and ultimately a decrease in our net sales and profitability. To the extent our suppliers experience disruptions, there is a risk for delivery delays, production delays, production issues or delivery of non-conforming products by our suppliers. Even where these risks do not materialize, we may incur costs as we prepare contingency plans to address such risks. In addition, disruptions in transportation lines could delay our receipt of materials. If the costs of our imported products increase and we are not able to pass along those increased costs to our customers, then our business, financial condition, and results of operations could be adversely affected.
Our agreements with suppliers are generally terminable by either party on limited notice, and in some cases we do not have written agreements with our suppliers. If market conditions change or worsen, suppliers may stop offering us favorable terms, including volume-based incentive terms. Our suppliers may increase prices or reduce discounts on the products we distribute and we may be unable to pass on any cost increase to our customers, thereby resulting in reduced margins and profits. Failure by our suppliers to continue to supply us with products on favorable terms, commercially reasonable terms, or at all, could put pressure on our operating margins or have a material adverse effect on our financial condition, results of operations, and cash flows.
Loss of key suppliers and manufacturers would be highly disruptive and could affect our financial health.
Our ability to offer a wide variety of products to our customers, including our private label products, is dependent upon our ability to obtain adequate product supply from manufacturers and suppliers. Our most critical suppliers are Westlake, Pangaea Stone, Stonehenge Slate, Hoch Stone, and Earthcore. Generally, our products are obtainable from various sources and in sufficient quantities subject to then current market conditions. However, the loss of, or a substantial decrease in the availability of, key products from our suppliers, or the loss of key supplier arrangements, could adversely impact our financial condition, operating results, and cash flows. Although in many instances we have agreements with our suppliers, these agreements are generally terminable by either party on limited notice. Failure by our suppliers to continue to supply us with products on commercially reasonable terms, or at all, would be highly disruptive and could have a material adverse effect on our financial condition, operating results, and cash flows.
Breaches of our information system security measures could disrupt our internal operations.
We are dependent upon information technology for the distribution of information internally and also to our customers and suppliers. This information technology is subject to theft, damage or interruption from a variety of sources, including but not limited to malicious computer viruses, security breaches and defects in design. Purchase of our products may involve the transmission and/or storage of data, including in certain instances customers’ business and personally identifiable information. Thus, maintaining the security of computers, computer networks and data storage resources is a critical issue for us and our customers, as security breaches could result in vulnerabilities and loss of and/or unauthorized access to confidential information. We have in the past faced, and may in the future face attempts by hackers, cybercriminals or others with authorized access to our systems to misappropriate our proprietary information and technology, interrupt our business, and/or gain unauthorized access to confidential information. The reliability and security of our information technology infrastructure and software, and our ability to expand and continually update technologies in response to our changing needs is critical to our business. To the extent that any disruptions or security breaches result in a loss or damage to our data, it could cause harm to our reputation or brand. This could lead some customers to stop purchasing our products and reduce or delay future purchases of our products or the use of competing products; lead to state or federal enforcement action, which could result in fines, penalties and/or other liabilities and which may cause us to incur legal fees and costs; and/or result in additional costs associated with responding to a cyberattack. Increased regulation regarding cyber security may increase our costs of compliance, including fines and penalties, as well as costs of cyber security audits. Any of these actions could materially adversely impact our business and results of operations.
We have invested in industry appropriate protections and monitoring practices of our data and information technology to reduce these risks and continue to monitor our systems on an ongoing basis for any current or potential threats. There can be no assurance, however, that our efforts will prevent breakdowns or breaches to our third party providers’ databases or systems that could adversely affect our business.
Damage to our computer infrastructure and software systems could harm our business.
The unavailability of any of our primary information management systems for any significant period of time could have an adverse effect on our operations. In particular, our ability to deliver products to our customers when needed, collect our receivables and manage inventory levels successfully largely depend on the efficient operation of our computer hardware and software systems. Through information management systems, we provide inventory availability to our sales and operating personnel, improve customer service through better order and product reference data and monitor operating results. Difficulties associated with upgrades, installations of major software or hardware, and integration with new systems could lead to business interruptions that could harm our reputation, increase our operating costs and decrease our profitability. In addition, these systems are vulnerable to, among other things, damage or interruption from power loss, computer system and network failures, loss of telecommunications services, operator negligence, physical and electronic loss of data, or security breaches and computer viruses.
We risk liabilities and losses due to property damage or product liability claims, which may not be covered by insurance.
Exposures that could create insured (or uninsured) liabilities are difficult to assess and quantify due to unknown factors, including but not limited to injury frequency and severity, natural disasters, terrorism threats, third-party liability, and claims that are incurred but not reported (“IBNR”). Although we engage third-party actuarial professionals to assist us in determining our probable future loss exposure, it is possible that claims or costs could exceed our estimates or our insurance limits, or could be uninsurable. In such instances we might be required to use working capital to satisfy these losses rather than to maintain or expand our operations, which could materially and adversely affect our operating results and our financial condition.
Further, we face an inherent business risk of exposure to product liability claims, including class action claims and warranties, in the event that the use of any of our products results in personal injury or property damage. In the event that any of our products are defective or prove to be defective, among other things, we may be responsible for damages related to any defective products and may be required to cease production, recall or redesign such products. Because of the long useful life of our products, it is possible that latent defects might not appear for several years. Any insurance we maintain may not continue to be available on acceptable terms or such coverage may not be adequate for liabilities actually incurred. Further, any claim or product discontinuance, recall or redesign could result in adverse publicity against us, which could cause sales to decline, or increase warranty costs.
Increases in labor costs, potential labor disputes, union organizing activity and work stoppages at our facilities or the facilities of our suppliers could delay or impede our production, reduce sales of our products and increase our costs.
Our financial performance is affected by the availability of qualified personnel and the cost of labor. Any interruption in the production or delivery of our products could reduce sales of our products and increase our costs. Our ability to attract and retain qualified personnel to operate our facilities efficiently is critical to our financial performance. Any labor shortage will create operating inefficiencies that could adversely impact our financial performance.
Impairment of goodwill and intangible assets related to our 2025 acquisitions could materially adversely affect our results of operations and financial condition.
The Company has recorded goodwill and intangible assets in connection with its 2025 acquisitions. These assets are subject to periodic impairment testing. If the acquired businesses do not perform in accordance with expectations, or if market conditions deteriorate, we may be required to record impairment charges that could materially affect our reported results of operations and financial condition.
Our recently acquired businesses depend on key personnel, and the loss of these individuals could adversely affect our operations and the success of the acquisitions.
The success of our recently acquired businesses depends in part on the continued service and performance of key personnel at those businesses who have deep customer relationships and market expertise. The loss of key employees at Carolina Stone or CSI, particularly during the integration period, could adversely affect our ability to maintain customer relationships, execute on our growth plans, and realize the anticipated benefits of the acquisitions.
Our installation services business exposes us to additional liability risks that could result in claims, increased costs, or reputational harm.
Through Carolina Stone, the Company now provides professional stone installation services, which expose us to risks different from and in addition to those associated with our distribution operations. Installation activities carry risks of property damage, personal injury, workmanship claims, and general contractor disputes. Although Carolina Stone maintains insurance and follows industry-standard safety practices, claims arising from installation projects could result in significant liability, reputational harm, and increased insurance costs.
Our increased indebtedness may limit our operational flexibility and ability to pursue additional opportunities and may adversely affect our financial condition.
As a result of the 2025 acquisitions and related financing activities, the Company has significantly increased its indebtedness. Outstanding obligations include the Convertible Note Financing, seller notes from the Carolina Stone and CSI acquisitions, the Stream Finance mezzanine credit facility, the Berkshire Bank revolving credit agreement, and the TD Bank credit facilities maintained by Canadian Stone Industries. The increased debt burden could limit our operational flexibility, increase our vulnerability to adverse economic conditions, limit our ability to pursue additional acquisitions or capital expenditures, and increase our interest expense. Our ability to service our debt obligations depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control.
The conversion of our outstanding convertible notes could result in significant dilution to existing shareholders
As of December 31, 2025, the Company had approximately $3.9 million in aggregate outstanding principal under its Convertible Note Financing, with conversion prices as low as $0.75 per share. The conversion of these notes into common stock would result in significant dilution to existing shareholders. The authorized aggregate facility amount of approximately $10.9 million could result in further issuances and additional dilution. Conversion price adjustments made during fiscal 2025 have increased the dilutive impact of the outstanding notes. Future adjustments or additional draws could further increase potential dilution.
Grants under our equity incentive plan will dilute existing stockholders
On March 30, 2026, the Board of Directors approved the 2025 Stock Incentive Plan (the “2025 Plan”), reserving shares of common stock representing approximately 21.5% of the number of Common Shares outstanding as of the first trading day of each quarter for issuance as equity awards. On the same date, the Company granted 1,995,000 restricted stock awards to management and non-employee directors at a per-share fair market value of $0.649, subject to vesting schedules of up to three years, with certain director grants vesting upon cessation of service on the Board. The 2025 Plan includes an evergreen provision that automatically increases the authorized number of shares available for issuance as the Company’s outstanding common stock increases. As a result, future issuances of equity awards under the 2025 Plan will dilute the ownership interests of existing stockholders and may adversely affect the market price of our common stock.
Our earn-out and contingent consideration obligations related to recent acquisitions could require significant additional payments and impact our financial results.
Both the Carolina Stone and CSI acquisitions include earn-out provisions that could result in additional consideration payable to the sellers. These contingent payment obligations are subject to the achievement of specified financial or operational targets by the acquired businesses. The earn-out obligations may result in significant additional cash payments that could impact our liquidity and cash flow. Additionally, changes in the estimated fair value of earn-out liabilities could result in non-cash charges or credits that affect our reported operating results.
Our cross-border operations subject us to multiple regulatory regimes and trade policies that could increase costs and disrupt our business.
Our operations in both the United States and Canada subject us to the laws and regulations of multiple jurisdictions, including tax laws, employment laws, environmental regulations, and customs and trade regulations. Changes in tariff policies, trade agreements, or import/export regulations affecting stone and building products could increase our costs or disrupt our supply chain. The regulatory burden of operating across international borders may increase our compliance costs and expose us to enforcement risk.
Global tax developments, including the OECD Pillar Two global minimum tax, could affect our effective tax rate.
The Organization for Economic Co-operation and Development (the “OECD”) has issued various proposals that would change long-standing global tax principles. These proposals include a two-pillar approach to global taxation (BEPS 2.0 / Pillar Two), focusing on global profit allocation and a global minimum tax rate. On December 12, 2022, the European Union member states agreed to implement the OECD’s global corporate minimum tax rate of 15%, effective as of January 2024. Other countries are also actively considering changes to their tax laws to adopt certain parts of the OECD’s proposals. The enactment of Pillar Two legislation is not anticipated to have a material adverse effect on the Company’s effective tax rate, financial position, results of operations, or cash flows. The Company will continue to monitor and reflect the impact of such legislative changes in future financial statements as appropriate.
Our international operations expose us to foreign currency and other risks that could adversely affect our financial results.
With the acquisition of CSI, we now conduct a portion of our business in Canada. Our Canadian operations expose us to risks associated with international business, including fluctuations in foreign currency exchange rates (primarily the Canadian dollar relative to the U.S. dollar), differences in regulatory environments, potential trade restrictions or tariffs, and geopolitical and economic uncertainty. A weaker Canadian dollar relative to the U.S. dollar would compress the reported U.S. dollar margins of our Canadian operations. Currency fluctuations could adversely affect our reported financial results, as revenue and expenses of our Canadian operations are translated into U.S. dollars for financial reporting purposes. As a Smaller Reporting Company, the Company is exempt from the quantitative market risk disclosures required by Item 305 of Regulation S-K; however, the Company’s exposure to foreign currency translation risk is qualitatively described here and in Note 3 to the consolidated financial statements. We may seek to mitigate currency risk through hedging, but there can be no assurance such measures will be effective.
We may not successfully integrate our recent acquisitions or realize their anticipated benefits
We completed two material acquisitions during fiscal year 2025 and may pursue additional acquisitions in the future. The integration of acquired businesses involves significant risks, including difficulties in integrating operations, technologies, and personnel; potential disruption to our ongoing business; diversion of management attention; and the risk that we may not realize the anticipated benefits or synergies. The Carolina Stone and CSI acquisitions added new operational complexity, including installation services and international operations, which are areas in which the Company has limited prior experience at the parent level. There can be no assurance that these acquisitions will perform in accordance with our expectations or that the benefits of these acquisitions will be realized. Integration difficulties could have a material adverse effect on our business, financial condition, and results of operations.
Risks related to our company
Our business has generated net losses, and we intend to continue to invest substantially in our business. Thus, we may not be able to achieve or maintain profitability. We may not be able to secure financing on favorable terms, or at all, to meet our future capital needs.
The Company has incurred net losses since inception and had an accumulated deficit as of December 31, 2025. For the fiscal year ended December 31, 2025, the Company reported a consolidated net loss of approximately $12.9 million, a substantial portion of which was attributable to corporate-level expenses including public company compliance costs, convertible note interest expense, and management compensation. Our operating subsidiaries generate revenue and are individually capitalized; however, the holding company does not generate revenue and relies on distributions from its subsidiaries, external financing, and capital markets activity to fund its obligations. There can be no assurance that the Company will achieve profitability at the consolidated level, or that profitability, if achieved, will be sustained.
To date, the Company has funded its corporate operations and acquisition activity primarily through its March 2025 initial public offering, convertible note financings, and an equity line of credit facility. We may need to raise additional capital in the future to fund corporate obligations, service or refinance our indebtedness, or pursue strategic opportunities. Additional financing may not be available on terms favorable to us, or at all. If we raise additional funds through the issuance of equity or convertible debt securities, the ownership interests of our existing stockholders will be diluted. If adequate funds are not available, we may need to delay or reduce corporate expenditures, which could adversely affect our ability to support and grow our operating subsidiaries.
The Company’s outstanding indebtedness includes convertible notes, a mezzanine term loan, revolving credit facilities, and seller notes from recent acquisitions. Several of these obligations mature or require refinancing within the next twelve to twenty-four months. While the Company has historically been able to extend, refinance, or restructure its debt obligations as they come due, there can be no assurance that it will continue to be able to do so on acceptable terms, or at all. An inability to service or refinance our obligations as they mature could have a material adverse effect on our financial condition.
We may expand through investments in, acquisitions of, or the development of new products with assistance from, other companies, any of which may not be successful and may divert our management’s attention.
In the past, we completed strategic acquisitions. We also may evaluate and enter into discussions regarding an array of potential strategic transactions, including acquiring complementary products, technologies or businesses. An acquisition, investment or business relationship may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties integrating the businesses, technologies, products, personnel or operations of the acquired companies, particularly if the key personnel of the acquired company choose not to be employed by us, and we may have difficulty retaining the customers of any acquired business due to changes in management and ownership. Acquisitions may also disrupt our ongoing business, divert our resources and require significant management attention that would otherwise be available for ongoing development of our business. Moreover, we cannot assure you that the anticipated benefits of any acquisition, investment or business relationship would be realized timely, if at all, or that we would not be exposed to unknown liabilities. In connection with any such transaction, we may:
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encounter difficulties retaining key employees of the acquired company or integrating diverse business cultures; |
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incur large charges or substantial liabilities, including without limitation, liabilities associated with products or technologies accused or found to infringe on third-party intellectual property rights or violate existing or future privacy regulations; |
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issue shares of our capital stock as part of the consideration, which may be dilutive to existing stockholders; |
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become subject to adverse tax consequences, legal disputes, substantial depreciation or deferred compensation charges; |
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use cash that we may otherwise need for ongoing or future operation of our business; |
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enter new geographic markets that subject us to different laws and regulations that may have an adverse impact on our business; |
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experience difficulties effectively utilizing acquired assets; |
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encounter difficulties integrating the information and financial reporting systems of acquired businesses, particularly those that operated under accounting principles other than those generally accepted in the U.S. prior to the acquisition by us; and |
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incur debt, which may be on terms unfavorable to us or that we are unable to repay. |
If we are unable to obtain additional financing, business operations will be harmed and if we do obtain additional financing then existing shareholders may suffer substantial dilution.
We need substantial capital to implement our sales distribution strategy for our current products, strategic acquisitions to maximize existing technologies to create opportunities to create synergy and opportunity. Our capital requirements will depend on many factors, including but not limited to:
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the problems, delays, expenses, and complications frequently encountered by early-stage companies; |
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market acceptance of our products; and |
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the success of our sales and marketing programs; |
If adequate funds are not available or if we fail to obtain acceptable additional financing, we may be required to:
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severely limit or cease our operations or otherwise reduce planned expenditures and forego other business opportunities, which could harm our business; |
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obtain financing with terms that may have the effect of substantially diluting or adversely affecting the holdings or the rights of the holders of our capital stock; or |
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obtain funds through arrangements with future collaboration partners or others that may require us to relinquish rights to some or all of our technologies or products. |
Our success is substantially dependent on the continued service of our senior management.
Our success is substantially dependent on the continued service of our Chief Executive Officer (“CEO”), Matthew Lipman, our Chief Financial Officer (“CFO”), Edward Schultz, and Kevin Grotke, President and Chief Executive Officer of our subsidiaries, including TotalStone, LLC. We do not carry key person life insurance on any of our management, which would leave us uncompensated for the loss of any of our management. The loss of the services of any of our senior management could make it more difficult to successfully operate our business and achieve our business goals. In addition, our failure to retain qualified personnel in the diverse areas required for continuing our operations could harm our product development capabilities and customer and employee relationships, delay the growth of sales of our products and could result in the loss of key information, expertise or know-how.
We may not be able to hire or retain other key personnel required for our business, which could disrupt the development and sales of our products and limit our ability to grow.
Competition in our industry for senior management and other key personnel is intense. If we are unable to retain our existing personnel, or attract and train additional qualified personnel, either because of competition in our industry for such personnel or because of insufficient financial resources, our growth may be limited.
Affiliates of Brookstone (BPA XIV, LLC, Nectarine Management LLC and BP Peptides LLC) have significant control over shareholder matters and the minority shareholders will have little or no control over our affairs.
BP Peptides LLC, an entity jointly controlled by Messrs. Lipman and Toporek, BPA XIV, LLC, an entity controlled by Mr. Lipman (but not Mr. Toporek), and an entity, Nectarine Management LLC, whose voting of our securities held by such entity is solely controlled by Mr. Toporek, have the ability to control all matters requiring shareholder approval because these entities own over 50% of our common stock, control over 50% of our voting stock (inclusive of the votes of the over 50% of the Series B Preferred Stock shares outstanding issued to Nectarine Management LLC on March 6, 2025), and, via the protective provisions of the Series B Preferred Stock, have to consent before we can conduct major corporate actions. BP Peptides, LLC, BPA XIV, LLC, and Nectarine Management LLC may have interests that are different from yours. For example, these entities may support proposals and actions with which you may disagree. The concentration of ownership could delay or prevent a change in control of our Company or otherwise discourage a potential acquirer from attempting to obtain control of our Company, which in turn could reduce the price of our stock. In addition, these entities could use their voting influence to maintain our existing management and directors in office (including Messrs. Lipman and Toporek), delay or prevent changes in control of our Company, or support or reject other management and board proposals that are subject to stockholder approval, such as amendments to our employee stock plans and approvals of significant financing transactions.
Payments to Nectarine Management LLC could reduce cash available for operations.
Pursuant to an arrangement approved by our stockholders on November 18, 2025, we may pay Nectarine Management LLC — an entity controlled by Mr. Toporek and Mr. Lipman — a fee equal to 0.25% to 2% of transaction value on certain mergers, acquisitions, asset sales, equity issuances outside of incentive plans, joint ventures, and debt incurrences, plus reimbursement of up to $50,000 of legal fees per transaction. During 2025, we incurred approximately $88,700 of consent fees and agreed to up to $50,000 of legal fee reimbursement in connection with the Fraser Canyon acquisition, and an additional approximately $52,650 of contingent payments is owed upon repayment of the CAD 3.6 million Fraser Canyon seller note. Future transactions could trigger additional material payments to Nectarine and reduce cash otherwise available to fund operations and growth.
We may not have sufficient resources to effectively introduce and market our services and products, which could materially harm our operating results.
Continuation of market acceptance for our existing services and products require substantial marketing efforts and will require our sales account executives and contract partners to make significant expenditures of time and money. In some instances, we will be significantly or totally reliant on the marketing efforts and expenditures of our contract partners, outside sales agents and distributors.
Because we currently have very limited marketing resources and sales capabilities, commercialization of our products, some of which require regulatory clearance prior to market entrance, we must either expand our own marketing and sales capabilities or consider collaborating with additional third parties to perform these functions. We may, in some instances, rely significantly on sales, marketing and distribution arrangements with collaborative partners and other third parties. In these instances, our future revenue will be materially dependent upon the success of the efforts of these third parties.
Should we determine that expanding our own marketing and sales capabilities is required, we may not be able to attract and retain qualified personnel to serve in our sales and marketing organization, to develop an effective distribution network or to support our commercialization activities otherwise effectively. The cost of establishing and maintaining a more comprehensive sales and marketing organization may exceed its cost effectiveness. If we fail to further develop our sales and marketing capabilities, if sales efforts are not effective or if costs of increasing sales and marketing capabilities exceed their cost effectiveness, our business, results of operations and financial condition would be materially adversely affected.
We could be impacted by unfavorable results of legal proceedings
We may from time to time be involved in future litigation in which substantial monetary damages are sought. Litigation claims may relate to intellectual property, contracts, employment, securities and other matters arising out of the conduct of our current and past business activities. Any claims, whether with or without merit, could be time consuming, expensive to defend and could divert management’s attention and resources. We may maintain insurance against some, but not all, of these potential claims, and the levels of insurance we do maintain may not be adequate to fully cover any and all losses.
With respect to any litigation, our insurance may not reimburse us, or may not be sufficient to reimburse us, for the expenses or losses we may suffer in contesting and concluding such lawsuit. The results of any future litigation or claims are inherently unpredictable and substantial litigation costs, including the substantial self-insured retention that we are required to satisfy before any insurance applies to a claim, unreimbursed legal fees or an adverse result in any litigation may have a material adverse effect on our results of operations, cash from operating activities or financial condition.
We operate in a highly competitive industry.
We may encounter competition from local, regional or national entities, some of which have superior resources or other competitive advantages in the larger materials distribution space. Intense competition may adversely affect our business, financial condition or results of operations. These competitors may be larger and more highly capitalized, with greater name recognition. We will compete with such companies on brand name, quality of services, level of expertise, advertising, product and service innovation and differentiation of product and services. As a result, our ability to secure significant market share may be impeded.
We have material weaknesses in our internal control over financial reporting. If we fail to establish and maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business could be harmed.
Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. 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. As a result of these constraints, we have a material weakness in our internal control over financial reporting.
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 is held by a single person, though the Company engages multiple accounting consultants for accounting, tax and audit support. To remedy this situation, we would need to hire additional staff or financial consultant support. Currently, we are unable to hire additional staff to facilitate greater segregation of duties but will continue to reassess our capabilities after completion of our Public Offering on March 7, 2025.
In connection with the completion of our Public Offering on March 7, 2025, we intend to begin the process of documenting, reviewing and improving our internal controls and procedures for compliance with Section 404 of the Sarbanes-Oxley Act, which will require annual management assessment of the effectiveness of our internal control over financial reporting. To comply with the requirements of being a public company, the Company has undertaken various actions, and will take additional actions, such as remediating the material weaknesses described above, implementing additional internal controls and procedures and hiring internal audit staff or financial consultants. Testing and maintaining internal controls can divert our management’s attention from other matters that are important to the operation of our business. Additionally, when evaluating internal controls over financial reporting, the Company may identify additional material weaknesses that it may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404 of the Sarbanes-Oxley Act. If the Company identifies any additional material weaknesses in its internal control over financial reporting or is unable to remediate the material weakness described above or comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or if the Company’s independent registered public accounting firm is unable to express an unqualified opinion as to the effectiveness of our internal control over financial reporting once it is no longer an emerging growth company, or if the Company is unable to conclude in our quarterly and annual reports that our disclosure controls and procedures are effective, investors may lose confidence in the accuracy and completeness of the Company’s financial reports and the market price of our common stock could be negatively affected, and the Company could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.
In addition, if the Company fails to remediate any material weakness, including the material weaknesses described above, our financial statements could be inaccurate and the Company could face restricted access to capital markets. Our small size and internal control deficiencies may adversely affect our financial condition, results of operation and access to capital. Moreover, our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed.
The liquidity of the Company is largely dependent on our ability to borrow funds on our credit facilities.
We fund our operations primarily through cash provided from operations of our building products distribution network and available capacity under our credit facilities. Our operating cash flows fluctuate based on seasonality with the first half of the year typically resulting in negative operating cash flows from the build in accounts receivable and inventories and the second half of the year generating positive operating cash flows as we bring accounts receivables and inventory levels down from seasonal high periods and pay down our credit facilities. The liquidity of the Company is largely dependent on our ability to borrow funds on our credit facilities. The Company's recurring net losses (including a net loss of $21.2 million for the year ended December 31, 2025), accumulated deficit of $218.0 million as of December 31, 2025, and upcoming debt maturities of $5.976 million due in 2026 represent conditions that, in the aggregate, could raise substantial doubt about the Company's ability to continue as a going concern. Management has evaluated these conditions together with its financial resources and operational plans, including (i) the $3.252 million in net proceeds received from the March 2025 public offering, (ii) the $20 million Equity Line of Credit with 3i, LP (of which approximately $19.5 million remained undrawn at December 31, 2025), (iii) available capacity under the Company's Revolving Credit Agreement, and (iv) management's projections of improved operating performance in 2026 driven by the full-year contribution from the Carolina Stone and Fraser Canyon acquisitions. Based on this evaluation, management has concluded that these plans alleviate the substantial doubt. Accordingly, the Company's cash and available liquidity are expected to be sufficient to fund operations and meet obligations for at least one year from the issuance date of these consolidated financial statements.
The proceeds from our Public Offering, which closed on March 7, 2025, improved our liquidity position and reduced our reliance on the Revolving Credit Agreement, enhancing our ability to meet financial covenant requirements and fund our operations, including the Carolina Stone and Fraser Canyon acquisitions completed during 2025. However, while we believe we will be able to continue to borrow funds on our Revolving Credit Agreement when and as required, there can be no assurance that financing sufficient to enable us to continue our operations will be available to us in the future. If additional financing is not available when required or is not available on acceptable terms, we may be unable to operate our business as planned or at all, fund our expansion, successfully promote our business, develop or enhance our products and services, take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations.
We may be adversely affected by the effects of inflation.
While management has determined that inflation has not had a material effect on the Company in 2024, inflation has the potential to adversely affect our liquidity, business, financial condition and results of operations by increasing our overall cost structure. The existence of inflation in the economy has resulted in, and may continue to result in, higher interest rates and capital costs, supply shortages, increased costs of labor, components, manufacturing and shipping, as well as weakening exchange rates and other similar effects. As a result of inflation, we have experienced and may continue to experience cost increases. Although we may take measures to mitigate the effects of inflation, if these measures are not effective, our business, financial condition, results of operations and liquidity could be materially adversely affected. Even if such measures are effective, there could be a difference between the timing of when these beneficial actions impact our results of operations and when the cost of inflation is incurred.
Risks related to our securities
Capstone Holding Corp. is a holding company with no operations of its own, and it depends on its operating subsidiaries for cash to fund all of its operations and expenses, including to make future dividend payments, if any.
Our operations are conducted entirely through our operating subsidiaries, and our ability to generate cash to fund operations and expenses, to pay dividends or to meet debt service obligations is highly dependent on the earnings and the receipt of funds from our subsidiaries through dividends or intercompany loans. Deterioration in the financial condition, earnings or cash flow of Capstone Holding Corp. (“Holdings”) and its subsidiaries for any reason could limit or impair their ability to pay such distributions.
Additionally, to the extent that Holdings needs funds, and its subsidiaries are restricted from making such distributions under applicable law or regulation or under the terms of our financing arrangements, or are otherwise unable to provide such funds, it could materially adversely affect our business, financial condition, results of operations, and cash flows.
Sales of a significant number of shares of our Common Stock in the public market or the perception of such possible sales, could depress the market price of our Common Stock.
Sales of a substantial number of shares of our Common Stock in the public markets, which include an offering of our preferred stock or Common Stock could depress the market price of our Common Stock and impair our ability to raise capital through the sale of additional equity or equity-related securities. We cannot predict the effect that future sales of our Common Stock or other equity-related securities would have on the market price of our Common Stock.
Our share price could be volatile and our trading volume may fluctuate substantially.
The price of our Common Stock has been and may in the future continue to be extremely volatile. Many factors could have a significant impact on the future price of our shares of Common Stock, including:
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our inability to raise additional capital to fund our operations, whether through the issuance of equity securities or debt; |
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our failure to successfully implement our business objectives; |
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compliance with ongoing regulatory requirements; |
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market acceptance of our products; |
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changes in government regulations; |
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general economic conditions and other external factors; |
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actual or anticipated fluctuations in our quarterly financial and operating results; and |
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the degree of trading liquidity in our shares of Common Stock. |
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domestic and international economic and political factors unrelated to our performance; |
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changes in securities analysts’ estimates of our financial performance; |
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action by institutional stockholders or other large stockholders, including future sales; |
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failure to meet any guidance given by us or any change in any guidance given by us, or changes by us in our guidance practices; |
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announcements by us of significant impairment charges; |
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speculation in the press or investment community; |
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investor perception of us and our industry; |
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changes in market valuations or earnings of similar companies; |
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announcements by us or our competitors of significant contracts, acquisitions, dispositions or strategic partnerships; |
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war, terrorist acts and epidemic disease; |
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any future sales of our common stock or other securities; and |
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additions or departures of key personnel. |
In particular, we cannot assure that you will be able to resell your shares at or above your purchase price. The stock markets have experienced extreme volatility in recent years that has been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. In the past, following periods of volatility in the market price of a company’s securities, class action litigation has often been instituted against the affected company. Any litigation of this type brought against us could result in substantial costs and a diversion of our management’s attention and resources, which would harm our business, results of operations, financial condition, and cash flows.
A decline in the price of our shares of Common Stock could affect our ability to raise further capital and adversely impact our ability to continue operations.
The relatively low price of our shares of Common Stock, and a decline in the price of our shares of Common Stock, could result in a reduction in the liquidity of our Common Stock and a reduction in our ability to raise capital. Because we expect a significant portion of our operations will be financed through the sale of equity securities, a decline in the price of our shares of Common Stock could be especially detrimental to our liquidity and our operations. Such reductions and declines may force us to reallocate funds from other planned uses and may have a significant negative effect on our business plans and operations, including our ability to continue our current operations. If the price for our shares of Common Stock declines, it may be more difficult to raise additional capital. If we are unable to raise sufficient capital, and we are unable to generate funds from operations sufficient to meet our obligations, we will not have the resources to continue our operations.
The market price for our shares of Common Stock may also be affected by our ability to meet or exceed expectations of analysts or investors. Any failure to meet these expectations, even if minor, may have a material adverse effect on the market price of our shares of Common Stock.
We have received a notification from Nasdaq regarding non-compliance with the minimum bid price requirement, and failure to regain compliance could result in delisting of our Common Stock.
In January 2026, the Company received a notification from the Nasdaq Stock Market indicating that the closing bid price of its Common Stock had been below $1.00 per share for 30 consecutive business days, and that the Company was therefore not in compliance with Nasdaq Listing Rule 5550(a)(2). The Company has until July 6, 2026, to regain compliance, which requires the closing bid price of its Common Stock to be at least $1.00 per share for a minimum of 10 consecutive business days. If the Company does not regain compliance within the initial compliance period, it may be eligible for an additional 180-day compliance period, subject to meeting certain requirements. There can be no assurance that the Company will be able to regain compliance. If the Company fails to regain compliance, its Common Stock may be subject to delisting from Nasdaq, which could materially adversely affect the liquidity and trading price of its Common Stock and its ability to raise capital. In January 2025, the SEC approved amendments to Nasdaq Listing Rule 5810(c)(3)(A) that restrict the ability of listed companies to use reverse stock splits as a compliance tool. Under the amended rules, if a company effects a reverse stock split and subsequently fails to maintain the minimum bid price requirement within one year, the company will not be eligible for any compliance period and Nasdaq will issue a delisting determination. In addition, companies that effect reverse stock splits with a cumulative ratio of 250-to-1 or greater over any two-year period are subject to immediate delisting without a compliance period. The Company’s Board of Directors is seeking shareholder authorization at the 2026 Annual Meeting to effect a reverse stock split as a potential backstop measure to regain compliance if necessary. However, even if authorized and effected, a reverse stock split may not result in sustained compliance with the minimum bid price requirement, and the amended Nasdaq rules would preclude the Company from relying on an additional compliance period if the stock price subsequently falls below $1.00 within one year of such reverse split.
Our ability to raise capital through shelf registration statements may be limited.
The Company is not currently eligible to register securities for resale on a shelf registration statement on Form S-3 under the Securities Act because the Company did not timely file a Form 8-K in connection with the closing of its August 2025 acquisition of Carolina Stone Holdings, LLC. Under SEC rules, the Company will not regain Form S-3 eligibility until approximately twelve months following the date the required filing is made. This limitation restricts the Company’s ability to efficiently access the capital markets through an at-the-market (ATM) offering program or other shelf takedowns, which could limit the Company’s financial flexibility and its ability to fund operations, acquisitions, or debt repayments on favorable terms.
Financial Industry Regulatory Authority (“FINRA”) sales practice requirements may also limit a stockholder’s ability to buy and sell our Common Stock.
FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our Common Stock, which may limit your ability to buy and sell our Common Stock and have an adverse effect on the market for our shares.
We currently do not intend to pay dividends on our Common Stock. As result, your only opportunity to achieve a return on your investment is if the price of our Common Stock appreciates.
We currently do not expect to declare or pay dividends on our Common Stock. In addition, in the future we may enter into agreements that prohibit or restrict our ability to declare or pay dividends on our Common Stock. As a result, your only opportunity to achieve a return on your investment will be if the market price of our Common Stock appreciates and you sell your shares at a profit.
We could issue additional Common Stock, which might dilute the book value of our Common Stock.
Our Board has authority, without action or vote of our shareholders, to issue all or a part of our authorized but unissued shares. Such stock issuances could be made at a price that reflects a discount or a premium from the then-current trading price of our Common Stock. In addition, in order to raise capital, we may need to issue securities that are convertible into or exchangeable for our Common Stock. These issuances would dilute the percentage ownership interest, which would have the effect of reducing your influence on matters on which our shareholders vote and might dilute the book value of our Common Stock. You may incur additional dilution if holders of stock warrants or options, whether currently outstanding or subsequently granted, exercise their options, or if warrant holders exercise their warrants to purchase shares of our Common Stock.
We may issue preferred stock with terms that could adversely affect the voting power or value of our Common Stock.
Our certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designations, preferences, limitations and relative rights, including preferences over our common stock with respect to dividends and distributions, as our board of directors may determine. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of our common stock. For example, we have designated 5,000 shares of the Company’s authorized preferred stock as Series “A” Preferred Stock, par value $0.0005, which rank senior only to any other class or series of designated and outstanding preferred shares of the Company, and the holders of which are entitled to receive a quarterly dividend, payable after a dividend has been made on the common stock. In addition, we might grant holders of preferred stock the right to elect some number of our directors in all events or upon the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of our common stock. For more information, see “Description of Capital Stock”.
In addition, we have created a class of Series B Preferred Stock with such preferred stock’s certificate of designation containing protective provisions requiring holders of 50% of the stock to consent before we can conduct major corporate actions. We issued to Nectarine Management LLC (an entity whose voting of our securities held by such entity is solely controlled by Mr. Toporek) more than 50% of the shares of Series B Preferred Stock outstanding on March 6, 2025.
Future issuance of our Common Stock, preferred stock, options and warrants could dilute the interests of existing stockholders.
We may issue additional shares of our Common Stock, preferred stock, options and warrants in the future. The issuance of a substantial amount of Common Stock, preferred stock, options and warrants could have the effect of substantially diluting the interests of our current stockholders. In addition, the sale of a substantial amount of Common Stock or preferred stock in the public market, or the exercise of a substantial number of warrants and options either in the initial issuance or in a subsequent resale by the target company in an acquisition which received such Common Stock as consideration or by investors who acquired such Common Stock in a private placement could have an adverse effect on the market price of our Common Stock.
Future debt issuance may adversely affect the market price of our Common Stock.
If, in the future, we decide to issue debt securities that rank senior to our common stock, it is likely that such securities will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. Additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common stock and may result in dilution to owners of our common stock. We and, indirectly, our stockholders will bear the cost of issuing and servicing such securities. Because our decision to issue debt securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, holders of our common stock will bear the risk of our future offerings reducing the market price of our common stock and diluting the value of their stock holdings in us.
Anti-takeover provisions in our certificate of incorporation, by-laws could discourage, delay or prevent a change of control of our company and may affect the trading price of our common stock.
Our certificate of incorporation, by-laws include a number of provisions that may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. These provisions may prevent our stockholders from receiving the benefit from any premium to the market price of our common stock offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if the provisions are viewed as discouraging takeover attempts in the future. Furthermore, the existence of the foregoing provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. These provisions may facilitate management entrenchment that may delay, deter, render more difficult or prevent a change in our control, which may not be in the best interests of our stockholders.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
Risk Management and Strategy
Upon completion of these risk assessments, the -party information technology providers help the company assess how to reconfigure or implement additional procedures to mitigate any potential cybersecurity threats.
In connection with the acquisitions of Carolina Stone Distributors, LLC and Fraser Canyon Holdings Inc. (Canadian Stone Industries) completed during 2025, the Company is in the process of assessing and integrating the cybersecurity risk management practices and information technology environments of the acquired businesses into the Company’s existing cybersecurity framework. Until integration is complete, the acquired businesses continue to operate their respective pre-acquisition cybersecurity programs and controls.
Risks from Cybersecurity Threats
Cybersecurity Governance
TotalStone’s headquarters is located at 1 Red Valley Road, Millstone, NJ, 08510, (“Millstone”), which also serves as a distribution hub. The Millstone lease was entered into on November 1, 2020, consists of approximately 7.91 acres, and the term of the lease is through October 2027, with an average annual rent of approximately $381,000.
We lease distribution and fabrication hubs located at 18400 76th Avenue, Tinley Park, IL 60477, ("Tinley Park"), and at 26 Commerce Blvd., Plainville, MA, 02762, ("Plainville"). The Tinley Park lease is comprised of approximately 7,200 rentable square feet of leased office and warehouse space, which also serves as Capstone's corporate office. The Tinley Park lease was executed following the termination of our prior lease at 5141 W. 122nd Street, Alsip, IL effective April 30, 2026. The Tinley Park lease commences April 1, 2026, with a term of 62 months through May 31, 2031, and an average annual base rent of approximately $83,000. The Plainville lease was entered into on April 1, 2020, approximately 6.43 acres, and the term of the lease was extended through December 2029, with an annual rent of approximately $165,000.
On January 25, 2021, we closed on the purchase of approximately 4.99 acres at 9318 Erie Avenue, Navarre, OH, 44633, (“Navarre”) for $600,000. Prior to the Navarre real estate purchase, the Company leased this property.
On December 29, 2022, we closed on the sale of 9318 Erie Avenue, Navarre, OH, 44633, (“Navarre”) for $3.2 million. The Company will leaseback the property through December 2047, with an average annual rent of approximately $332,000. This transaction is accounted for as a finance transaction under the accounting requirements of ASC 842.
Carolina Stone Properties
We lease distribution, showroom, and warehouse space at 10306 Globe Road, Morrisville, NC 27560, which serves as Carolina Stone's corporate office, showroom, and primary warehouse for the Raleigh-Durham / Triangle market area. The facility consists of approximately 13,500 square feet of leased space. The term of the lease was extended through May 31, 2027, with an average annual base rent for the renewal period of approximately $154,560
We lease regional office, showroom, and warehouse space at 901 Tulip Drive, Gastonia, NC 28052, which serves Carolina Stone's Charlotte-area operations. The facility consists of approximately 28,000 square feet on approximately 2.3 acres of land, building, and improvements. The term of the lease is through June 30, 2029, with a starting annual base rent of $130,200, escalating at 3.5% annually.
CSI Properties
We lease warehouse space at 27524 – 51A Avenue, Langley, British Columbia, Canada V4W 4A9, which serves as CSI's headquarters and primary distribution facility for the Western Canada and Pacific Northwest market. The facility consists of approximately 31,418 square feet of leased space. The lease was entered into on May 28, 2025, with Cinnabar Property Holdings Inc., commencing August 1, 2025. The term of the lease is through July 31, 2030, with a starting annual base rent of approximately $627,024.
We lease warehouse space at 45 Fenmar Drive, Toronto (North York), Ontario, Canada M9L 1M2, which serves CSI's Eastern Canada distribution operations. The facility consists of approximately 30,000 square feet of leased space. The lease was renewed for a five-year term from December 1, 2021 through November 30, 2026. The lease includes a five-year extension option that has not yet been exercised.
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 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information and Holders of Common Stock
Our common stock is listed on the Nasdaq Capital Market (“Nasdaq”), under the symbol “CAPS”.
As of December 31, 2025, there were 20 registered holders of our common stock. The number of record holders does not include beneficial owners of common stock whose shares are held in the names of banks, brokers, nominees or other fiduciaries and holders of unissued shares common stock.
The last reported sales price for our Common Stock as reported on the Nasdaq on April 15, 2026 was $0.5055.
Dividends
We have not declared or paid any cash dividends on our common stock, and we do not anticipate declaring or paying cash dividends for the foreseeable future. We are not subject to any legal restrictions respecting the payment of dividends, except that we may not pay dividends if the payment would render us insolvent. Any future determination as to the payment of cash dividends on our common stock will be at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements and other factors that the board of directors considers to be relevant.
Recent Sales of Unregistered Securities
None.
Use of Proceeds from Registered Securities
On March 7, 2025, the Company closed its 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 $3,252,000 after deducting underwriting discounts and commissions and other offering expenses.
As of March 31, 2025, there has been no material change in our planned use of net proceeds from our Public Offering as described under the heading “Use of Proceeds” (including the repayment of a term loan) in our final prospectus, filed with the SEC on March 7, 2025 pursuant to Rule 424(b)(4) relating to our Registration Statement other than the following payments that were made in March 2025:
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$200,000 paid by TotalStone, LLC to Brookstone Partners IAC, Inc. for financial advisory and related services with respect to the Company’s capital raising transaction, as agreed upon in the Amendment of Amended and Restated Management Fee Agreement and Transaction Fee Agreement filed herewith as Exhibit 10.18. Brookstone Partners IAC, Inc. is an entity controlled by our Chief Executive Officer (who is also a member of our board of directors) and the chairman of our board of directors; |
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$20,000 for a bonus payment, related to the Public Offering, to Edward Schultz, our Chief Financial Officer, and Vice President of Finance of our subsidiary, TotalStone; and |
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$403,000 for a payment to TotalStone for advances made by TotalStone related to the Public Offering. The balance of net proceeds of approximately $2,629,000 was subsequently deployed to fund a portion of the cash consideration for the Carolina Stone acquisition (August 2025) and the Fraser Canyon / CSI acquisition (December 2025), and for general corporate and working capital purposes. |
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Joseph Gunnar & Co., LLC acted as the sole book-running manager for the Public Offering.
ITEM 7. 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 “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 audited consolidated financial statements for the year ended December 31, 2025, and the related notes thereto, which have been prepared in accordance with U.S. GAAP, included elsewhere in this Annual Report on Form 10-K. Throughout this discussion, unless the context specifies or implies otherwise, the terms the "Company," "we," "us," and "our" refer to Capstone Holding Corp. and its consolidated subsidiaries, including TotalStone, LLC (dba Instone), Carolina Stone Holdings, LLC, and Fraser Canyon Holdings Inc. (and its subsidiary, Canadian Stone Industries Inc.).
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 Holdings, LLC, which in turn owns TotalStone, LLC (dba Instone) and InStone Canada Corp. Capstone also owns Carolina Stone Holdings, LLC. Together, our three operating subsidiaries maintain a building products distribution and installation network serving customers across the United States and Canada.
Historically, the product mix for Instone was heavily concentrated on Cultured Stone®, which in 2018 comprised almost 80% of total revenue. Through organic product expansion and the acquisitions of Carolina Stone in August 2025 and Canadian Stone Industries in December 2025, we have significantly broadened our product offering, geographic reach, and customer base.
We provide value to our customers — including masonry dealers, contractors, builders, and developers of residential, commercial, and multi-family projects — by making the procurement and logistics process easy for product lines that are otherwise challenging to source directly from a manufacturer or quarry. Through Carolina Stone, we also deliver turnkey installation services, combining product supply with professional masonry installation for construction projects.
A key differentiating factor for our platform is the breadth of our product portfolio, which spans natural and manufactured stone veneer, thin brick veneer, stone siding, landscape stone, hardscape products, and modular masonry fireplaces. Across our three subsidiaries, we distribute a broad range of industry-leading brands including Cultured Stone®, Pangaea® Natural Stone, TerraCraft®, Dutch Quality®, Versetta Stone®, BrikClad, Isokern®, and Colonial Brick & Stone, among others, as well as our proprietary brands Toro Stone™, Beon Stone®, Aura™, and Interloc™. This breadth allows our customers to consolidate purchasing across multiple product lines through a single supplier relationship.
We operate across two complementary channels in the North American building products market. In distribution, we serve approximately 7,000 U.S. building products dealers plus a fragmented base of Canadian distributors and stone retailers. Most are privately held and cannot efficiently purchase or store a diverse product range, which constrains their ability to meet end-customer demand. Our website and logistics platform solve this by enabling customers to buy in the quantities they need across multiple product lines from a single supplier — improving their inventory turns, cash management, and ability to serve their own customers. In installation, Carolina Stone delivers turnkey masonry installation directly to contractors, builders, and developers for residential, commercial, and multi-family projects. Operating across both channels lets us serve customers at multiple points in the construction supply chain rather than a single one.
During fiscal year 2025, the Company executed on its acquisition strategy with two transactions that significantly expanded its scale and geographic reach. We intend to continue to grow our business organically and through successfully integrating well-timed acquisitions.
Recent Developments
Key developments during fiscal year 2025 included:
Public Offering and Nasdaq Uplisting. On March 7, 2025, the Company completed its follow-on public offering of 1,250,000 shares at $4.00 per share for gross proceeds of $5,000,000, and its common stock began trading on the Nasdaq Capital Market under the symbol “CAPS” on March 6, 2025.
TotalStone Restructuring. On March 7, 2025, TotalStone’s Class B and Class C preferred interests were exchanged for 3,782,641 shares of Common Stock, and the Company now owns 100% of TotalStone’s equity interests.
Convertible Note Financing. The Company issued two senior secured convertible notes totaling approximately $6.8 million in original principal ($6.25 million in gross proceeds) under a $10.9 million authorized facility. During the fiscal year, the Buyer converted approximately $2.9 million of principal into 3,166,667 shares of common stock (2,900,000 shares from the July Note at $1.00 per share and 266,667 shares from the October Note at $0.75 per share), and the Company redeemed approximately $62,000 of principal in cash. The conversion price on the July Note was reduced from $1.72 to $1.00 and subsequently to $0.75 per share through three amendments. On the October Note, at December 31, 2025, $1,585,940 of principal is convertible at $0.75 per share and $1,772,856 of principal continues at $1.10 per share. As of December 31, 2025, the aggregate net carrying value of the convertible notes was approximately $1.57 million, reflecting unamortized discounts of approximately $2.29 million (comprising original issue discounts, debt issuance costs, and derivative-related discounts). The amortization of these discounts to interest expense using the effective interest method will represent a material non-cash charge to earnings over the remaining term of the notes.
Carolina Stone Acquisition. Closed August 22, 2025. Aggregate purchase consideration of approximately $4.2 million (cash, seller note, and earn-out). See Note 4 for additional information. Carolina Stone contributed revenue and earnings to the Company's results beginning in the third quarter of 2025.
Fraser Canyon / CSI Acquisition. Closed December 1, 2025. Aggregate purchase consideration of approximately $6.8 million (cash, seller notes, and earn-out). See Note 4 for additional information. CSI contributed approximately one month of revenue and earnings to the Company's fourth quarter 2025 results.
Components of Results of Operations
Sales
Our sales consist of distributing and installing manufactured and natural stone cladding products, natural stone landscape products, and related masonry and hardscape goods for residential and commercial construction. We sell across 38 U.S. states and two Canadian provinces through our three operating subsidiaries: Instone (U.S. distribution), Canadian Stone Industries (Canadian distribution), and Carolina Stone (distribution and installation in the Southeastern United States). The Company recognizes revenue when control over the products has been transferred to the customer or as installation services are performed, and the Company has a present right to payment.
Cost of Goods Sold and Gross Profit
Cost of goods sold includes the purchase price of materials, inbound freight, import fees, and warranty expenses directly attributable to our distributed products, along with direct labor, subcontractor costs, and jobsite materials for our installation services. Amounts billed to customers for shipping and handling, along with the related shipping and handling expenses, are also included 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.
Results of Operations
The following is management’s discussion of the Company’s consolidated financial statements and results of operations for the years ended December 31, 2025 & 2024 in (“000’s”):
Results of Operations Comparing Year Ended December 31, 2025 to 2024.
| Fiscal Year Ended |
||||||||||||||||
| December 31, |
||||||||||||||||
| 2025 |
2024 |
$ Change |
% Change |
|||||||||||||
| (in thousands) |
||||||||||||||||
| Net Sales |
$ | 46,881 | $ | 44,876 | $ | 2,005 | 4 | % | ||||||||
| Cost of goods sold |
36,090 | 35,306 | 784 | 2 | % | |||||||||||
| Gross profit |
10,791 | 9,570 | 1,221 | 13 | % | |||||||||||
| Operating expenses: |
||||||||||||||||
| Selling, General and administrative |
14,374 | 10,208 | 4,166 | 41 | % | |||||||||||
| Impairment of goodwill |
6,200 | — | 6,200 | — | % | |||||||||||
| Transaction expenses |
1,203 | — | 1,203 | — | % | |||||||||||
| Loss income from operations |
(10,986 | ) | (638 | ) | (10,348 | ) | 1622 | % | ||||||||
| Change in fair value of derivative liability |
829 | — | 829 | — | % | |||||||||||
| Interest and other expense, net |
(3,886 | ) | (1,483 | ) | (2,403 | ) | 162 | % | ||||||||
| Income tax expense |
(7,176 | ) | (442 | ) | (6,734 | ) | 1524 | % | ||||||||
| Net loss |
$ | (21,230 | ) | $ | (2,563 | ) | $ | (18,667 | ) | 728 | % | |||||
Sales
Net sales increased $2.0 million, or 4.5%, to $46.9 million for the year ended December 31, 2025 from $44.9 million for the year ended December 31, 2024. The increase was primarily driven by the acquisitions of Carolina Stone Holdings in August 2025 and Fraser Canyon Holdings in December 2025, which contributed incremental revenue during their respective post-acquisition periods. Organic revenue from the TotalStone segment declined modestly, reflecting softer demand conditions in certain regional markets partially offset by expanded product distribution, including the addition of new dealer accounts.
Cost of goods sold
Cost of goods sold increased $0.8 million, or 2.2%, to $36.1 million for the year ended December 31, 2025 from $35.3 million for the year ended December 31, 2024. The increase reflects the addition of Carolina Stone and Fraser Canyon cost of goods sold during their post-acquisition periods. As a percentage of net sales, cost of goods sold improved to 77.0% from 78.7%, reflecting a favorable product mix shift.
Gross profit increased $1.2 million, or 12.8%, to $10.8 million for the year ended December 31, 2025 from $9.6 million for the year ended December 31, 2024. Gross margin improved to 23.0% from 21.3%, reflecting a favorable product mix shift toward higher-margin stone veneer products and the contribution of the acquired businesses, which carry gross margins above the consolidated average.
Selling general and administrative expenses
Selling, general and administrative expenses increased $4.2 million, or 40.8%, to $14.4 million for the year ended December 31, 2025 from $10.2 million for the year ended December 31, 2024. The increase was primarily attributable to $1.6 million of operating costs from the Carolina Stone and Fraser Canyon acquisitions and $1.6 million of higher public company costs — including investor relations, audit, legal, and Nasdaq-related fees — incurred for the first full year following the March 2025 public offering. The remainder reflects increased executive compensation, board fees, and insurance premiums in connection with operating as a public company.
Impairment, Interest, and Other Items
The Company recorded a goodwill impairment charge of $6.2 million related to the Instone reporting unit during 2025 (see Note 7). Interest expense increased $2.4 million to $3.9 million, driven by the issuance of $6.3 million in Senior Secured Convertible Notes in July and October 2025, including non-cash amortization of original issue discounts, debt issuance costs, and derivative-related discounts. The Company recognized an unrealized gain of $0.8 million on derivative instruments from the change in fair value of embedded conversion features in the convertible notes.
Income Tax Expense
The Company recorded income tax expense of $7.2 million for 2025 compared to $0.4 million for 2024. The 2025 provision primarily reflects the establishment of a full valuation allowance against the Company's net deferred tax assets, following the Company's conclusion that it is not more likely than not that the deferred tax assets will be realized. The Company maintains a full valuation allowance against its federal and state deferred tax assets as of December 31, 2025. Net loss increased $18.7 million to $21.2 million for 2025 from $2.6 million for 2024, driven by the goodwill impairment charge, the establishment of the valuation allowance, higher interest expense, increased SG&A costs, and transaction expenses, partially offset by higher gross profit and the change in fair value of derivative liabilities.
Segment Results
The Company has two reportable segments: (i) the TotalStone segment, which includes the operations of TotalStone, LLC and Canadian Stone Industries, and (ii) the Carolina Stone segment, which includes the operations of Carolina Stone Distributors. Both segments are engaged in the distribution and fabrication of natural and manufactured stone and related building products. 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, investor relations, filing, legal, insurance, accounting and consulting expenses not identifiable and allocated to the operating segments.
The following table is a summary of each segment's operating results through operating income (loss) reconciled to the Company's consolidated totals with the inclusion of Parent and eliminating amounts:
| Fiscal Year Ended December 31, |
Fiscal Year Ended December 31, |
|||||||||||||||||||||||||||||||||||||||
| 2025 |
2024 |
|||||||||||||||||||||||||||||||||||||||
| TotalStone |
Carolina Stone |
Parent |
Eliminations |
Consolidated |
TotalStone |
Carolina Stone |
Parent |
Eliminations |
Consolidated |
|||||||||||||||||||||||||||||||
| Sales |
$ | 43,550 | $ | 3,331 | $ | — | $ | — | $ | 46,881 | $ | 44,876 | — | $ | — | $ | — | $ | 44,876 | |||||||||||||||||||||
| Cost of goods sold |
33,834 | 2,256 | — | — | 36,090 | 35,306 | — | — | — | 35,306 | ||||||||||||||||||||||||||||||
| Gross Profit |
9,716 | 1,075 | — | — | 10,791 | 9,570 | — | — | — | 9,570 | ||||||||||||||||||||||||||||||
| Selling, general and administrative expenses |
10,157 | 1,204 | 3,223 | (210 | ) | 14,342 | 9,847 | — | 611 | (240 | ) | 10,218 | ||||||||||||||||||||||||||||
| Impairment of goodwill |
6,200 | — | — | — | 6,200 | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Transaction expenses |
185 | — | 1,018 | — | 1,203 | — | — | — | — | |||||||||||||||||||||||||||||||
| (Loss) income from operations |
$ | (6,826 | ) | $ | (129 | ) | $ | (4,241 | ) | $ | 210 | $ | (10,986 | ) | $ | (277 | ) | — | $ | (611 | ) | $ | 240 | $ | (648 | ) | ||||||||||||||
The above discussion of consolidated operating results through operating income (loss) reflects the combined operating results of the Instone and Carolina Stone segments for the comparable periods presented. The elimination of selling, general and administrative expenses reflect the elimination of management fees incurred by the operating segments and earned by Parent. The Parent 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
The Company has historically funded its operations through a combination of cash flows from operations, borrowings under its revolving credit facility, and proceeds from debt and equity financings. As of December 31, 2025, the Company had cash of $0.7 million and $10.3 million outstanding under its revolving line of credit. Working capital (current assets less current liabilities) was a deficit of $0.2 million at December 31, 2025 compared to a surplus of $0.3 million at December 31, 2024. The $0.5 million decrease was primarily driven by increases in the revolving line of credit, current maturities of long-term debt (including the senior secured convertible notes), management fee accruals, and current lease liabilities assumed in the Carolina Stone and Fraser Canyon acquisitions, partially offset by higher inventory and accounts receivable balances acquired through those transactions and by the $3.3 million of net proceeds from the March 2025 public offering.
In March 2025, the Company completed its initial public offering of 1,250,000 shares of common stock at $4.00 per share, generating net proceeds of approximately $3.3 million after deducting underwriting discounts and offering costs. The Company used a portion of the net proceeds to repay the Berkshire Bank term loan and fund general corporate purposes. The balance was subsequently deployed to fund a portion of the Carolina Stone and Fraser Canyon acquisitions.
The Company primarily funds its operations through cash provided from our building products distribution and installation businesses and available capacity under our credit facilities ("Credit Facilities").Our operating cash flows fluctuate based on seasonality with the first half of the year typically resulting in negative operating cash flows from the build in accounts receivable and inventories and the second half of the year generating positive operating cash flows as we bring accounts receivables and inventory levels down from seasonal high periods and pay down our Credit Facilities. The liquidity of the Company is largely dependent on our ability to borrow funds on our Credit Facilities. If the Company fails to fulfill its financial covenant requirements, our ability to continue as a going concern could be at risk. We believe ongoing availability of our Credit Facilities plus cash provided from operations combined with our considerable efforts to reduce overall spending will be sufficient to satisfy our cash requirements for at least one year after the date the consolidated financials are issued. The Company believes we will be able to continue to borrow funds on our Credit Facilities when and as required. Future acquisitions may be financed through other forms of financing that will depend on then-existing conditions.
In July and October 2025, the Company issued two Senior Secured Convertible Notes with aggregate gross proceeds of $6.3 million. These notes bear interest at 7.0% per annum and mature in July and October 2026, respectively. At December 31, 2025, the aggregate net carrying value of the notes was $1.6 million after deducting unamortized original issue discounts, debt issuance costs, and derivative-related discounts of $2.3 million in aggregate. See Note 11 — Debt for additional information regarding conversion activity, the embedded derivative, and subsequent events.
The Company's ability to continue as a going concern depends on its ability to generate sufficient cash flows from operations, access additional capital, and manage its debt maturities. The Senior Secured Convertible Notes mature in July and October 2026. The Company's U.S. revolving credit facility with Beacon Bank & Trust (successor by merger to Berkshire Bank) matures in June 2026, and Canadian Stone Industries' operating loan with TD Bank is subject to annual renewal. The mezzanine term loan with Stream Finance, LLC matures in September 2027. Management is evaluating alternatives to refinance or extend these obligations and believes that the Company's existing cash, availability under its revolving credit facilities, and expected operating cash flows will be sufficient to fund operations for at least the next twelve months from the date of this filing.
Seasonality
The Company historically experiences higher sales during its second and third quarters due to the favorable weather in the Midwestern, Northeastern, and Southeastern United States and in Canada for new construction and remodeling.
Summary of Cash Flows
The following table summarizes our cash flows for each of the periods presented:
| Year Ended |
Year Ended |
|||||||
| December 31, |
December 31, |
|||||||
| (in thousands) |
2025 |
2024 |
||||||
| Net cash provided by operating activities |
$ | (4,412 | ) | $ | 3,868 | |||
| Net cash used in investing activities |
(6,913 | ) | (186 | ) | ||||
| Net cash provided by (used in) financing activities |
12,117 | (3,723 | ) | |||||
| Net increase (decrease) in cash |
$ | 716 | $ | (41 | ) | |||
Cash Flows from Operating Activities
Net cash provided by operating activities was $4.6 million for the year ended December 31, 2025, primarily reflecting our net loss of $21.2 million, partially offset by non-cash charges totaling approximately $16.6 million — including the $6.2 million goodwill impairment, $7.2 million deferred tax valuation allowance establishment, $2.2 million of amortization of debt discounts and derivative-related expenses, and $0.4 million of depreciation and amortization — and favorable changes in working capital accounts.
Net cash provided by operating activities was $3.8 million for the year ended December 31, 2024, primarily resulting from our net loss of $2.6 million offset by $6.4 million of non-cash expenses and working capital changes.
Cash Flows from Investing Activities
Net cash used in investing activities was $6.9 million for the year ended December 31, 2025, primarily reflecting the acquisitions of Carolina Stone ($2.7 million, net of cash acquired), Fraser Canyon ($3.6 million, net of cash acquired), and CSIA ($0.5 million), along with $0.2 million of property, equipment, and intangible asset purchases.
Net cash used in investing activities was $0.1 million for the year ended December 31, 2024, consisting of property and equipment purchases.
Cash Flows from Financing Activities
Net cash provided by financing activities was $12.3 million for the year ended December 31, 2025. Cash inflows included $6.25 million in gross proceeds from the Senior Secured Convertible Notes, $5.0 million in gross proceeds from our March 2025 public offering, a $4.0 million net increase in our revolving line of credit, and $0.3 million from our equity line of credit. Cash outflows included $2.3 million in financing fees and $1.0 million in debt repayments.
Net cash used in financing activities was $3.7 million for the year ended December 31, 2024, primarily reflecting a $2.3 million net decrease in our line of credit, $1.0 million in debt repayments, and $0.2 million in deferred IPO costs.
Funding Requirements
The Company used the net proceeds of its March 2025 Public Offering to fund a portion of the cash consideration for the Carolina Stone acquisition (closed August 22, 2025) and the Fraser Canyon / CSI acquisition (closed December 1, 2025), and for general corporate and working capital purposes.
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
We periodically review our financial reporting and disclosure practices and accounting policies to ensure that they provide accurate and transparent information relative to the current economic and business environment. As part of this process, we have reviewed our selection, application and communication of critical accounting policies and financial disclosures. Management has discussed the development and selection of the critical accounting policies with the Audit Committee of the Board of Directors and the Audit Committee has reviewed the disclosure relating to critical accounting policies in this Management’s Discussion and Analysis.
This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements included as part of this report, which have been prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the revenue and expenses incurred during the reported periods. We base estimates on our historical experience, known trends and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The full details of our accounting policies are presented in Note 3 of our audited consolidated financial statements for the year ended December 31, 2025. These policies are considered by management to be essential to understanding the processes and reasoning that go into the preparation of our consolidated financial statements and the uncertainties that could have a bearing on its financial results. The significant accounting policies that we believe to be most critical in fully understanding and evaluating our financial results are revenue recognition and management estimates.
Revenue Recognition
The Company recognizes revenue when control of promised goods or services transfers to the customer, which for product sales through our distribution businesses generally occurs at a point in time upon shipment, and for installation services provided through Carolina Stone occurs over time as the work is performed. Revenue is presented net of sales tax. For 2025 and 2024, there are no material estimates of variable consideration included in revenue.
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 the Company in the future, actual results may differ from these estimates and assumptions.
Goodwill
At December 31, 2025, goodwill totaled $18.5 million compared to $23.3 million at December 31, 2024. During 2025, the Company recorded a $6.2 million impairment charge related to the Instone reporting unit as part of its annual goodwill impairment test. The impairment resulted from a decline in the estimated fair value of the Instone reporting unit, primarily driven by revised near-term revenue and earnings projections reflecting softer demand conditions and the impact of higher operating costs. Goodwill acquired through the Carolina Stone and Fraser Canyon acquisitions partially offset the impairment charge. The Company will continue to evaluate goodwill for impairment at least annually, or more frequently if indicators of potential impairment exist.
Goodwill represents costs in excess of the estimated fair values of acquired net assets in a business combination. Goodwill and other intangible assets with indefinite lives are reviewed annually for impairment.
Under U.S. GAAP, goodwill is not amortized but is reviewed annually for impairment at a level of reporting referred to as a reporting unit. A reporting unit is an operating segment, or one level below the operating segment, depending on whether certain criteria are met. The Company’s goodwill is allocated to two reporting units: the TotalStone segment (TotalStone, LLC and Canadian Stone Industries) and the Carolina Stone segment (Carolina Stone Distributors, LLC). See Note 7.
We perform our annual impairment test as of October 1 each year, or in between annual tests whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable, to determine whether an impairment exists. The goodwill impairment test compares a market participant perspective of fair value for a reporting unit to its carrying amount. As necessary, we recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized would not exceed the total amount of goodwill.
We have the option to perform a qualitative assessment to determine whether it is necessary to perform the quantitative goodwill impairment test. However, we may elect to perform the quantitative goodwill impairment test even if no indications of a potential impairment exist.
Factors considered in our qualitative assessments include (i) macroeconomic conditions including changes in interest rates and discount rates, (ii) industry and market considerations including multiples based on business enterprise value to EBITDA, (iii) trailing twelve month adjusted EBITDA of TotalStone determined on a consistent basis as that utilized in our debt financial covenants, and (iv) revenue levels, adjusted EBITDA and the EBITDA multiple implied in the enterprise valuation of TotalStone in our business combination transaction.
For 2025, we performed a quantitative goodwill impairment test utilizing two approaches: income approach, which converts future estimates of cash flows by reporting unit to a single (discounted) current value, and the market approach, which uses publicly available peer data to estimate value of the reporting unit. The valuation techniques performed in our quantitative analysis make use of our estimates and assumptions related to revenue and operating margin growth rates, future market conditions, determination of market multiples and comparative companies, and determination of risk-adjusted discount rates. Forecasts of future operations are based, in part, on actual operating results and our expectations as to future growth and market conditions, which are inherently uncertain and difficult to project. In performing our analysis, we make assumptions and apply judgments to estimate industry economic factors and the future profitability of our businesses. Due to the uncertainty and complexity of performing the goodwill impairment analysis, future results related to market conditions and our business operations and other inputs to the analysis may be worse than estimated or assumed. In such cases, we may be exposed to future material impairments of goodwill.
For 2025, we also considered our market capitalization and made estimates to attribute market capitalization to Total Stone. We used the market capitalization attributed to TotalStone as an estimate of fair value for comparison to the carrying value of TotalStone.
The results of our 2025 quantitative goodwill impairment testing indicated that the estimated fair value of the Instone reporting unit was below its carrying value by approximately $6,200 thousand, or 31.4%. Accordingly, the Company recorded a goodwill impairment charge of $6,200 thousand during the year ended December 31, 2025. The fair value was estimated using a blend of the income approach (discounted cash flow, weighted 50%), the guideline public company method (weighted 25%), and the guideline merged and acquired company method (weighted 25%). Key assumptions included a discount rate (WACC) of 15.50%, a terminal growth rate of 4.0%, and revenue growth rates ranging from 9.0% to 5.5% over the projection period. The fair value estimate also incorporated a $4,173 thousand benefit attributable to net operating loss carryforwards.
Long-lived Asset Impairments
Long-lived assets and certain 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 assets to be held and used 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. For 2025 and 2024, no impairment charges were necessary.
Inventories
Inventories increased $7.4 million, or 77.1%, to $17.1 million at December 31, 2025 from $9.6 million at December 31, 2024. The increase was primarily driven by the addition of Carolina Stone and Fraser Canyon inventories acquired in the August and December 2025 acquisitions. Organic inventory levels remained consistent with the prior year.
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 December 31, 2025 and 2024, the total prepaid inventory balance was $61.0 thousand and $163.0 thousand, respectively. We periodically review our inventory on hand and record a provision for excess, obsolete and slow-moving inventory based on our estimated forecast of product demand, as well as historical usage. The reserve for obsolete or slow-moving inventory at December 31, 2025 and 2024, totaled $793.0 thousand and $576.0 thousand, respectively.
Property and Equipment
Property and equipment is stated at cost and is depreciated over the estimated useful lives ranging from three to forty 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.
Business Combinations. The Company accounts for business combinations in accordance with ASC 805, Business Combinations. Under this guidance, the purchase price is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date, with the excess recorded as goodwill. The Company uses independent third-party valuation specialists to assist in determining the fair values of assets acquired and liabilities assumed, including identifiable intangible assets such as customer relationships, trade names, and non-compete agreements. Significant judgment is required in estimating the fair values of intangible assets, including assumptions regarding revenue growth rates, customer attrition rates, royalty rates, discount rates, and useful lives. Changes in these assumptions could materially affect the purchase price allocation and the resulting goodwill recognized. The Company has one year from the acquisition date to finalize the purchase price allocation.
Convertible Notes. The Company evaluates its convertible notes in accordance with ASC 470-20, Debt with Conversion and Other Options, and ASC 815, Derivatives and Hedging. The Company assesses whether the conversion features of its convertible notes require bifurcation and separate accounting as derivative liabilities. The embedded conversion features in the Company's senior secured convertible notes were bifurcated and accounted for as derivative liabilities at fair value, with subsequent changes in fair value recognized in earnings (see Note 11). Original issue discounts, debt issuance costs, and derivative-related discounts are amortized to interest expense over the term of the notes using the effective interest method.
Foreign Currency Translation. The functional currency of the Company’s Canadian subsidiary, Fraser Canyon Holdings Inc. (doing business as Canadian Stone Industries), is the Canadian dollar. Assets and liabilities denominated in Canadian dollars are translated into U.S. dollars at the exchange rate in effect at the balance sheet date, and revenues and expenses are translated at average exchange rates during the period. Translation adjustments are recorded as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Foreign currency transaction gains and losses are recognized in the consolidated statements of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Financial Statement Schedules from page F-1 of this annual report on Form 10-K, which are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. 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-K. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of December 31, 2025, our disclosure controls and procedures were not effective. The ineffectiveness of our disclosure controls and procedures was due to material weaknesses in our internal control over financial reporting. The Company filed a Notification of Late Filing on Form 12b-25 with the SEC on March 31, 2026 to extend the filing deadline for this Annual Report by 15 calendar days pursuant to Rule 12b-25 under the Exchange Act, as the Company required additional time to complete the purchase price allocations for its 2025 acquisitions and the preparation of its consolidated financial statements.
Management’s Annual Report on Internal Control Over Financial Reporting
This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting due to a transition period established by the rules of the SEC for newly public companies.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the year ended December 31, 2025, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
As discussed in Note 4, the Company completed the acquisitions of Carolina Stone Distributors, LLC on August 22, 2025 and Fraser Canyon Holdings Inc. on December 1, 2025. The Company has excluded the acquired businesses from its assessment of internal control over financial reporting as of December 31, 2025, as permitted by SEC guidance that allows companies to exclude acquisitions completed during the fiscal year from their annual assessment of internal control over financial reporting. The Company is in the process of integrating the internal controls of the acquired businesses into its overall system of internal control over financial reporting.
applicable.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table and biographical summaries set forth information, including principal occupation and business experience, about our directors and executive officers as of April 15, 2026:
| Directors and Executive Officers |
Position/Title |
Age |
||
| Matthew E. Lipman |
Chief Executive Officer and Director |
47 |
||
| Michael Toporek |
Chairman |
61 |
||
| Edward Schultz |
Chief Financial Officer |
42 |
||
| Kevin Grotke | President and Chief Executive Officer of TotalStone, LLC | 53 | ||
| Charles Dana |
Director (Lead Independent Director) |
70 |
||
| John M. Holliman, III |
Director |
72 |
||
| Gordon Strout |
Director |
63 |
||
| Fredric J. Feldman, Ph.D. |
Director |
86 |
||
| Elwood D. Howse, Jr. |
Director |
86 |
Matthew E. Lipman, Chief Executive Officer and Director. Mr. Lipman brings over 25 years of experience working with companies to establish growth strategies and execute acquisitions. Mr. Lipman has served as a director since July 2017. Mr. Lipman has served as a member of the Board of Directors of Soluna Holdings, Inc., a Nasdaq-listed digital infrastructure company, since 2016. Mr. Lipman joined Brookstone Partners in 2004, currently serving as a Managing Director. From July 2001 through June 2004, Mr. Lipman was an analyst in the mergers and acquisitions group at UBS Financial Services Inc. Mr. Lipman has a B.S. in Business Administration from Babson College. Mr. Lipman currently serves on the Board of Directors of Advanced Disaster Recovery Inc., Virginia Abrasives Corporation, and TotalStone, LLC. The Board believes that Mr. Lipman’s proficiency in reading and understanding financial statements, generally accepted accounting principles and internal controls, qualifies him to serve as Chief Executive Officer.
Michael Toporek, Chairman. Mr. Toporek has served as a director since July 2017. Since 2003, Mr. Toporek has served as the Managing General Partner of Brookstone Partners, a lower/middle market private equity firm based in New York and an affiliate of BP Peptides, LLC (“Brookstone Partners”). Mr. Toporek, a member of the Board of Directors of Soluna Holdings since 2016, served as Soluna Holdings’ Chief Executive Officer from November 2020 until May 2023 and has served as Executive Chairman of the Board since that date. Prior to founding Brookstone Partners in 2003, Mr. Toporek was both an active principal investor and an investment banker. Mr. Toporek began his career in Chemical Bank’s Investment Banking Group, later joined Dillon, Read and Co., which became UBS Warburg Securities Ltd. during his tenure, and SG Cowen and Company. Mr. Toporek currently serves on the Board of Directors of Harmattan Energy Limited. Mr. Toporek has a B.A. in Economics and an M.B.A from the University of Chicago. Mr. Toporek brings strategic and financial expertise to the Board as a result of his experience with Brookstone Partners, which the Board believes qualifies him to serve as Chairman.
Edward Schultz, CFO. Mr. Schultz has served as Chief Financial Officer since August 2023. Mr. Schultz also serves as the Vice President of Finance of TotalStone, LLC since June 2021. Prior to his employment with Capstone and TotalStone, Mr. Schultz was employed as Director of Financial Reporting and Technical Accounting for Brookfield Properties Retail from September 2012 through June 2021. He holds a Bachelor of Science in Accountancy from the Governors State University.
Kevin Grotke, President and Chief Executive Officer of TotalStone, LLC. Mr. Grotke oversees the operations and financial performance of TotalStone, LLC (d/b/a Instone) and leads the Company’s relationships with its key customers and suppliers. Mr. Grotke joined Instone in 2010 when Instone acquired the building materials distribution business from Hearth & Home Technologies, a division of HON Industries. Prior to joining Instone, Mr. Grotke held leadership and line-level positions during a 15-year career at Owens Corning, most recently serving as Director of North American Sales. Mr. Grotke holds a Bachelor’s degree from Bowling Green State University with a dual major in Purchasing/Inventory Management and Production/Operations Management.
Charles “Chuck” Dana, Director (Lead Independent Director). Mr. Dana has served as lead independent director since March 2025. Mr. Dana has been an investor in Brookstone since 2003, and in 2016 joined the firm as an Operating Partner. His main responsibilities are to assist in the strategy and operations of Brookstone’s portfolio companies and to identify and acquire middle market companies. Mr. Dana has over 40 years of financial and general management experience. He started his career at GE and had successively more responsible financial role culminating as President — GE Locomotives Indonesia. Mr. Dana then joined Owens Corning in 1995. He was the President of the Composites Solutions Business from 2003 to 2010 growing sales from $1.2 billion to $2.4 billion both through organic sales growth but also with via several acquisitions. Mr. Dana then served as the Group President for Building Materials ($4.5 billion sales) from 2010 to 2015, a segment that produced eighteen (18) consecutive quarters of net income growth for the insulation business under his leadership. Mr. Dana retired from Owens Corning and served as EVP at Molded Fiber Glass Companies before joining Brookstone. The Board believes the experience and knowledge of Mr. Dana qualifies him to serve on our Board.
John M. Holliman, III, Director. Mr. Holliman has served as a director since September 1987 and as former Chairman of the Board of Directors from August 1997 through July 2017. Since February 1993 he has been a general partner of entities which are the general partners of Valley Ventures, LP (formerly known as Arizona Growth Partners, LP), Valley Ventures II, LP, Valley Ventures III, LP, Valley Ventures III Annex, LP, all of which are venture capital funds. He has over thirty-nine years of business experience, including service on the boards of over forty companies, commercial lending experience with major financial institutions, and has been active in venture capital financing for over thirty-five years serving a variety of industries. Mr. Holliman earned a BBA in Finance and a MBA from Southern Methodist University and a Master of International Management from the Thunderbird School of Global Management. During his career Mr. Holliman has gained substantial executive and board level experience in business, finance and operations. The Board believes the experience and knowledge of Mr. Holliman qualifies him to serve on our board and to chair our Audit Committee.
Gordon Strout, Director. Mr. Strout has served as a director since March 2025. Mr. Strout ran a small industrial supply business as well as a heating oil business starting in 1985. After successfully selling off the heating oil business he purchased his father’s minority stake in the Industrial supply company in 1989. Instone and Total Lubrication (a Mobil branded lubricants distributor) grew out of the industrial supply business. In 2004 Gordon acquired a majority equity position. Gordon then partnered with Brookstone Partners in 2006 and served as President and CEO through April 2021 at which time he transitioned to Executive Chairman of the Instone board. Mr. Strout holds a bachelor’s degree from the University of Miami, Coral Gables Fla. The Board believes the experience and knowledge of Mr. Strout qualifies him to serve on our Board.
Fredric J. Feldman, Ph.D., Director. Mr. Feldman has served as a director since March 2025. Mr. Feldman, Ph.D., has been the President of FJF Associates, a consultant to venture capital and emerging companies, since February 1992 and has served as a director of the Company since 1991. From September 1995 to June 1996, he was the Chief Executive Officer of Biex, Inc., a women’s healthcare company. He served as Chief Executive Officer of Oncogenetics, Inc., a cancer genetics research company, from 1992 to 1995. Between 1988 and 1992, Dr. Feldman was the President and Chief Executive Officer of Microgenics Corporation, a medical diagnostics company. From 1984 to 1988 Dr. Feldman was Vice President and then President of Instrumentation laboratory a medium sized International Medical Diagnostic Instrumentation Company. Dr. Feldman received his Ph.D. in analytical chemistry from the University of Maryland. He has been a director of a number of public and private companies. The Board believes that Dr. Feldman’s over 40 years of operating, scientific and business experience in industry qualifies him for service on our board.
Elwood D. Howse, Jr., Director. Mr. Howse has served as a director since March 2025. Mr. Howse previously served as a director of the Company from 1987 to 2023. In 1982, Mr. Howse founded Cable, Howse and Ragen, investment banking and stock brokerage firm, subsequently known as Ragen MacKenzie. In 1977, Mr. Howse co-founded Cable & Howse Ventures, an early-stage venture capital firm focused on technology. In 1976, he served as Vice President, Corporate Finance, for Foster & Marshall, a northwest stock brokerage firm. In 1974 he was the Chief Financial Officer of Seattle Stevedore Company and the Miller Produce Company. Mr. Howse has served as a corporate director and advisor to various public, private and non-profit enterprises. He served on the board of the National Venture Capital Association and is past President of the Stanford Business School Alumni Association. Mr. Howse holds a BS in Engineering from Stanford University and an MBA from Stanford Graduate School of Business. Mr. Howse also served in the US Navy as a nuclear submariner. The Board believes Mr. Howse’s education and company operations skills brings important financial and business experience to the board and qualifies him to serve on our board.
None of the above directors and executive officers has been involved in any legal proceedings as listed in Regulation S-K, Section 401(f).
Family Relationships
There are no family relationships among any of our directors or executive officers.
Board Composition, Committees, and Independence
Director Independence
The Nasdaq Marketplace Rules require a majority of a listed company’s Board of Directors to be comprised of independent directors within one year of listing. In addition, the Nasdaq Marketplace Rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and corporate governance committees be independent and that audit committee members also satisfy independence criteria set forth in Rule 10A-3 under the Exchange Act.
Under Rule 5605(a)(2) of the Nasdaq Marketplace Rules, a director will only qualify as an “independent director” if, in the opinion of our Board of Directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In order to be considered independent for purposes of Rule 10A-3 of the Exchange Act, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the Board of Directors, or any other board committee, accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries or otherwise be an affiliated person of the listed company or any of its subsidiaries.
Our Board of Directors has reviewed the composition of our Board of Directors and its committees and the independence of each director. Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, our Board of Directors has determined that each of Messrs. Charles Dana, Fredric J. Feldman, Ph.D., Elwood D. Howse, Jr., and John M. Holliman, III is an “independent director” as defined under Rule 5605(a)(2) of the Nasdaq Marketplace Rules. Our Board of Directors also determined that John M. Holliman, Elwood D. Howse Jr. and Fredric J. Feldman Ph.D., who comprise our audit committee, Fredric J. Feldman Ph.D., Charles Dana and John M. Holliman, who comprise our compensation committee, and Charles Dana, Elwood D. Howse Jr. and Fredric J. Feldman Ph.D., who are members of our nominating and corporate governance committee, satisfy the independence standards for such committees established by the SEC and the NASDAQ Marketplace Rules, as applicable. In making such determinations, our Board of Directors considered the relationships that each such non-employee director has with our company and all other facts and circumstances our Board of Directors deemed relevant in determining independence, including the beneficial ownership of our capital stock by each non-employee director.
Audit Committee. We have established an audit committee consisting of John M. Holliman, III, Elwood D. Howse, Jr., and Fredric J. Feldman, Ph.D. John M. Holliman, III is chairman of the audit committee and he qualifies as an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K.
The audit committee’s duties are to recommend to our board of directors the engagement of independent auditors to audit our financial statements and to review its accounting and auditing principles. The audit committee will review the scope, timing and fees for the annual audit and the results of audit examinations performed by the internal auditors and independent public accountants, including their recommendations to improve the system of accounting and internal controls. The audit committee will at all times be composed exclusively of directors who are, in the opinion of our board of directors, free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles.
Compensation Committee. We have established a compensation committee consisting of Fredric J. Feldman, Ph.D., Charles Dana, and John M. Holliman, III. Fredric J. Feldman is chairman of the compensation committee.
In considering and determining executive and director compensation, the compensation committee reviews compensation that is paid by other similar public companies to its officers and takes that into consideration in determining the compensation to be paid to our officers. The compensation committee also determines and approves any non-cash compensation paid to any employee. We do not engage any compensation consultants to assist in determining or recommending the compensation to our officers or employees.
Nominating and Corporate Governance Committee. We have established a nominating and corporate governance committee consisting of Charles Dana, Elwood D. Howse, Jr., and Fredric J. Feldman, Ph.D. Charles Dana is chairman of the nominating and corporate governance committee. The responsibilities of the nominating and corporate governance committee include the identification of individuals qualified to become Board members, the selection of nominees to stand for election as directors, the oversight of the selection and composition of committees of the Board, establishing procedures for the nomination process, oversight of possible conflicts of interests involving the Board and its members, developing corporate governance principles, and the oversight of the evaluations of the Board and management. The nominating and corporate governance committee has not established a policy with regard to the consideration of any candidates recommended by stockholders. If we receive any stockholder recommended nominations, the nominating and corporate governance committee will carefully review the recommendation(s) and consider such recommendation(s) in good faith.
Code of Ethics
Our Board of Directors has adopted a Code of Business Conduct and Ethics applicable to each officer, director, and employee of the Company. The full text of our Code of Business Conduct and Ethics is posted on our website at www.capstoneholdingcorp.com. We intend to disclose on our website any future amendments of our Code of Business Conduct and Ethics or waivers that exempt any principal executive officer, principal financial officer, principal accounting officer or controller, persons performing similar functions or our directors from provisions in the Code of Business Conduct and Ethics. Information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report, and you should not consider information on our website to be part of this Annual Report.
Insider Trading Policy
The Company has an Insider Trading Policy governing all transactions in the Company’s securities by the Company’s directors, officers, and employees. The Insider Trading Policy is reasonably designed to promote compliance with insider trading laws, rules and regulations, and applicable listing standards. For more information, please refer to the Insider Trading Policy listed on Exhibit 19.1 to this Annual Report on Form -K.
Term of Office
Our directors are appointed at the annual meeting of shareholders and hold office until the annual meeting of the shareholders next succeeding his or her election, or until his or her prior death, resignation or removal in accordance with our bylaws. Our officers are appointed by the Board and hold office until the annual meeting of the Board next succeeding his or her election, and until his or her successor shall have been duly elected and qualified, subject to earlier termination by his or her death, resignation or removal.
Summary Compensation Table
The following table sets forth information concerning all compensation earned by our Chief Executive Officer and two other persons who served as executive officers as, at, or during the year ended December 31, 2025, and who earned compensation exceeding $100,000 during the year ended December 31, 2025 (the “Named Executive Officers”), for services as executive officers for the last two years.
| Annual Compensation | Long-Term Compensation(3) | |||||||||||||||||||||||||||
| Nonqualified | ||||||||||||||||||||||||||||
| Other | deferred | Securities | ||||||||||||||||||||||||||
| Annual | compensation | Underlying | Total | |||||||||||||||||||||||||
| Name and Principal Position | Year | Salary(1) | Bonus(2) | Compensation | earnings | Options | Compensation | |||||||||||||||||||||
| Matthew Lipman | 2025 | $ | 198,077 | $ | — | $ | 8,774 | $ | — | $ | — | $ | 206,851 | |||||||||||||||
| CEO | 2024 | $ | — | $ | — | $ | 48,000 | $ | — | $ | — | $ | 48,000 | |||||||||||||||
| Michael Toporek | 2025 | $ | — | $ | — | $ | 20,000 | $ | — | $ | — | $ | 20,000 | |||||||||||||||
| Chairman | 2024 | $ | — | $ | — | $ | 48,000 | $ | — | $ | — | $ | 48,000 | |||||||||||||||
| Edward Schultz(3) | 2025 | $ | 238,760 | $ | 27,808 | $ | — | $ | — | $ | — | $ | 266,568 | |||||||||||||||
| CFO | 2024 | $ | 216,161 | $ | — | $ | — | $ | — | $ | — | $ | 216,161 | |||||||||||||||
| Kevin Grotke | 2025 | $ | 324,285 | $ | 5,481 | $ | — | $ | — | $ | — | $ | 329,765 | |||||||||||||||
| President and CEO of TotalStone | 2024 | $ | 306,099 | $ | — | $ | — | $ | — | $ | — | $ | 306,099 | |||||||||||||||
| (1) | Management base salaries can be increased by our Board of Directors based on the attainment of financial and other performance guidelines set by our management. |
| (2) | Salaries listed do not include annual bonuses to be paid based on profitability and performance. These bonuses will be set, from time to time, by a disinterested majority of our Board of Directors. No bonuses will be set until such time as the aforementioned occurs. |
| (3) | Mr. Schultz receives a portion of his compensation through the Company’s subsidiary TotalStone, LLC where he also serves as the Vice President of Finance. |
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information regarding equity awards held by the Named Executive Officers as of December 31, 2025.
| Number of | Number of | |||||||||||||||
| Securities | Securities | |||||||||||||||
| Underlying | Underlying | |||||||||||||||
| Unexercised | Unexercised | |||||||||||||||
| Options, | Options, Not | Option | ||||||||||||||
| Exercisable | Exercisable | Exercise | Option | |||||||||||||
| Name | (#) | (#) | Price ($) | Expiration Date | ||||||||||||
| Matthew Lipman | — | — | — | — | ||||||||||||
| Michael Toporek | — | — | — | — | ||||||||||||
| Edward Schultz | — | — | — | — | ||||||||||||
Equity Incentive Plan
In June 2015, our stockholders approved the 2015 Equity Incentive Plan (the “2015 Plan”) and reserved 1,000,000 shares of our common stock for issuance. At December 31, 2024, no shares remained available to grant under the Plan and all granted shares are fully vested.
Stock-based compensation expense reflects the fair value of stock-based awards measured at the grant date and recognized over the relevant vesting period. The Company generally estimates the fair value of each stock-based award on the measurement date using the Black-Scholes option valuation model which incorporates assumptions as to stock price volatility, the expected life of the options, risk-free interest rate and dividend yield. No options were granted in 2025 or 2024 and all the vesting and associated stock compensation expense occurred prior to January 1, 2023.
Stock Compensation
On November 14, 2025, the Company’s Board of Directors adopted the 2025 Equity Incentive Plan (the “2025 Plan”), which was approved by the Company’s shareholders on March 30, 2026. The 2025 Plan reserves shares of common stock representing approximately 21.5% of outstanding shares for issuance pursuant to equity awards. On March 30, 2026, the Company granted 1,995,000 restricted stock awards under the 2025 Plan at a grant date fair value of $0.649 per share. No stock-based compensation expense was recognized in FY2025 as the grant occurred subsequent to the balance sheet date. See Note 19 for additional details regarding the RSA grants.
The benefits provided under these plans are share-based payments and the Company accounts for stock-based awards exchanged for employee service in accordance with the appropriate share-based payment accounting guidance.
Stock-based compensation represents the cost related to stock-based awards granted to employees and directors. The Company measures stock-based compensation cost at grant date based on the estimated fair value of the award and recognizes the cost as expense on a straight-line basis in accordance with the vesting of the options (net of estimated forfeitures) over the employee’s requisite service period. The Company estimates the fair value of stock-based awards on the grant date using a Black- Scholes valuation model.
As of December 31, 2025 and December 31, 2024, there were approximately 50 and 500 options exercisable and vested at a weighted average exercise price of $163.00, respectively. During 2025, 450 options expired unexercised. In addition, the Company issued a warrant to Brookstone Partners IAC to purchase up to 6,322 shares of the Company’s Common Stock, which provides for quarterly vesting of shares in amounts approximately equal to the amount of quarterly interest payable that would have been payable under the Agreement, converted into shares at $0.075, all of which has now vested, and can be exercised through October 15, 2028 with an exercise price that was between $10.00 and $30.00 per share, as determined by an independent valuation, through April 1, 2024, and, since that date, the lesser of (i) $75.00 per warrant share and (ii) the 10-day average closing price of the Company’s common stock.
Employee Pension, Profit Sharing or other Retirement Plan
TotalStone, LLC maintains a defined contribution pension plan (the "401(k) Plan"), which covers all employees electing to participate after completing certain service requirements. Employer contributions are made at the Company's discretion. Generally, the Company makes safe harbor matching contributions equal to 100% of employee contributions up to 4% of the employee's Plan Compensation, as defined. Each participant is 100% vested in their salary deferral and the safe harbor matching contributions. Other employer discretionary contributions are subject to a graded vesting schedule. TotalStone's employer matching contributions for fiscal years 2025 and 2024 were $150.7 thousand and $159.0 thousand, respectively.
During the period from the acquisition date of August 22, 2025 through December 31, 2025, Carolina Stone Distributors, LLC maintained a SIMPLE IRA plan covering eligible employees after 90 days of service, under which Carolina Stone matched employee contributions up to 3% of eligible compensation. Employer matching contributions under the SIMPLE IRA for the stub period totaled approximately $10,000. The SIMPLE IRA was terminated effective December 31, 2025, and Carolina Stone employees became eligible to participate in TotalStone's 401(k) Plan effective January 1, 2026.
Canadian Stone Industries Inc. sponsors a Group Registered Savings Plan ("Group RSP") through RBC covering all employees after three months of continuous service. Under the plan, CSI matches employee contributions at 2% of eligible compensation with immediate vesting. Employer matching contributions for the period from the acquisition date of December 1, 2025 through December 31, 2025 totaled approximately $1,000.
Compensation of Executive Officers
On January 2, 2025, we entered into an executive employment agreement with Matthew Lipman, our Chief Executive Officer, which became effective on March 7, 2025. Under this agreement, Mr. Lipman serves as the Company’s Chief Executive Officer with a base salary of $250,000 per annum and an annual performance bonus ranging from 50% to 100% of the base salary. The agreement commenced on its effective date and terminate on January 31, 2028, with automatic one-year extensions unless either party provides 120 days’ written notice to opt-out. The agreement includes a noncompetition clause effective for 18 months following the termination of Mr. Lipman’s employment with the Company. In the event of termination due to death, disability, for cause by the Company, resignation by Mr. Lipman without good reason, or non-extension of the agreement, Mr. Lipman will be entitled to any previously earned but unpaid base salary through the termination date, any earned but unpaid annual performance bonus, and other accrued benefits. If the agreement is terminated by the Company without cause or by Mr. Lipman for good reason, Mr. Lipman will receive a lump sum payment equal to three years’ base salary and the target performance bonus, as well as continued copayment by the Company of coverage premiums for 12 months following the termination date, at the same level and cost as if he were an active employee.
Effective August 25, 2023, we began to compensate Mr. Edward Schultz, our Chief Financial Officer, an annual salary of $200,000 paid in accordance with our standard employee payroll practices. Mr. Schultz receives a portion of his compensation through the Company’s subsidiary TotalStone, LLC where he also serves as the Vice President of Finance.
Subsequent to December 31, 2025, on January 21, 2026, Mr. Lipman voluntarily reduced his annual base cash salary to $1.00 for a period of one year, effective immediately, to align executive compensation directly with common shareholder equity appreciation in connection with the Company’s cost rationalization program described in Note 19.
Compensation of Directors
John M. Holliman, III. and Michael Toporek received director compensation of $48,000 annually for 2024 and 2023 for service on the Company’s board prior to the Public Offering that closed on March 7, 2025.
In connection with the completion of its Public Offering on March 7, 2025, the Company adopted a director compensation plan consisting of an annual cash retainer of $20,000 paid quarterly in arrears. For the fiscal year ended December 31, 2025, each non-employee director earned $15,000 under this plan, representing compensation for Q2 through Q4 2025. On March 30, 2026, the Company granted restricted stock awards to non-employee directors under the 2025 Stock Incentive Plan, as described in Note 19.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information known to us with respect to the beneficial ownership of our common stock as of March 31, 2026 based on 11,453,707 shares of common stock outstanding.
We have determined beneficial ownership in accordance with the rules of the Securities and Exchange Commission, and the information is not necessarily indicative of beneficial ownership for any other purpose. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities as well as any common stock that the person has the right to acquire within 60 days of April 15, 2026 through the exercise of stock options or other rights. These shares are deemed to be outstanding and beneficially owned by the person holding those options for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them. Except as otherwise indicated, the address of each of the shareholders listed below is: 5141 W. 122nd Street, Alsip, IL 60803.
| Beneficially Ownership Common Stock |
||||||||||||
| Percentage |
||||||||||||
| of Voting |
||||||||||||
| Shares |
Percentage |
Power(5) |
||||||||||
| Name of beneficial owner 5% shareholders: |
||||||||||||
| BP Peptides, LLC (1) |
128,096 | 1.12 | % | 5.58 | % | |||||||
| BPA XIV, LLC (1) |
2,528,662 | 22.08 | % | 18.18 | % | |||||||
| BPA XXI, LLC (1) |
— | — | 5.93 | % | ||||||||
| Named executive officers and directors: |
||||||||||||
| Matthew E. Lipman(1) (2) |
3,048,436 | 26.62 | % | 32.50 | % | |||||||
| Michael Toporek (1) (3) |
519,774 | 4.54 | % | 21.41 | % | |||||||
| Edward Schultz |
190,000 | 1.66 | % | 1.37 | % | |||||||
| Kevin Grotke |
526,102 | 4.59 | % | 3.78 | % | |||||||
| John M. Holliman, III |
96,095 | * | * | |||||||||
| Gordon Strout (1) (4) |
1,006,128 | 8.78 | % | 7.23 | % | |||||||
| Charles Dana |
95,000 | * | * | |||||||||
| Fredric J. Feldman, Ph.D. |
95,000 | * | * | |||||||||
| Elwood D. Howse, Jr. |
95,000 | * | * | |||||||||
| All executive officers and directors as a group ( nine (9) persons) |
5,671,535 | 49.52 | % | 58.44 | % | |||||||
| * |
Less than 1%. |
| (1) |
Includes a warrant to purchase up to 6,322 shares of Common Stock issued to Brookstone Partners IAC, Inc., the investment manager of BP Peptides, LLC which is controlled by Matthew Lipman and Michael Toporek. The business address of BP Peptides, LLC is 776A 6th Ave. 2nd Floor, New York, NY 10001. |
| (2) |
Includes 121,774 shares controlled by Matthew Lipman, through his control of BP Peptides, LLC. Brookstone Acquisition Partners XXI Corporation owns 81% of BP Peptides, LLC. Mr. Lipman owns approximately 4% of Brookstone Acquisition Partners XXI Corporation. |
| (3) |
Consists of 121,774 shares controlled by Michael Toporek, through his control of BP Peptides, LLC. Brookstone Acquisition Partners XXI Corporation owns 81% of BP Peptides, LLC. Mr. Toporek owns approximately 30% of Brookstone Acquisition Partners XXI Corporation. |
| (4) |
Mr. Strout has an interest in BP Peptides, LLC; however, he does not control it. Control of BP Peptides, LLC is held solely by Matthew Lipman and Michael Toporek. |
|
|
|
| (5) |
Voting power includes (i) 985,063 votes pursuant to the Series B Preferred Stock issued to Nectarine Management LLC (an entity whose voting of our securities held by such entity is solely controlled by Mr. Toporek) and (ii) 1,467,532 votes pursuant to Series Z 8% Non-Convertible Preferred Stock (642,364 shares held by BP Peptides, LLC and 825,168 shares held by Brookstone Partners Acquisition XXI Corporation), both of which vote alongside Common Stock. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The following includes a summary of transactions since January 1, 2023, to which we have been a party in which the amount involved exceeded or will exceed the lesser of (i) $120,000 and (ii) one percent (1%) of the average of our total assets at year-end for the prior two fiscal years, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described under “Item 11. Executive Compensation.” We also describe below certain other transactions with our directors, executive officers and stockholders.
TotalStone, LLC is party to a management and consulting agreement with a related party, Brookstone Partners IAC, Inc. (“Brookstone Partners IAC”), an entity controlled by our Chief Executive Officer (who is also a member of our board of directors) and the chairman of our board of directors. Pursuant to this agreement, Brookstone Partners IAC provides annual consulting services totaling $400,000, billed quarterly. The agreement also provides for an additional management fee equal to 5% of earnings before interest, taxes, depreciation, and amortization (“EBITDA”) in excess of $4.0 million, plus a special services fee in cash equal to two percent (2%) of total consideration of any acquisition of a majority of the equity interests of any entity or an equity recapitalization of the Company. Management fees expensed for the year ended December 31, 2025 totaled $400,000 and are included in selling, general and administrative expenses. Amounts accrued for such consulting services totaled $954.0 and $351.0 as of December 31, 2025 and 2024. In connection with the Carolina Stone acquisition, Brookstone Partners IAC earned a 2% special services fee of approximately $94,000, which is included in transaction expenses in the consolidated statement of operations for the year ended December 31, 2025. On January 21, 2026, Brookstone Partners IAC agreed to waive management and consulting fees totaling $400,000 that would have accrued under the management agreement during the period from January 1, 2026 through December 31, 2026.
Separately, Gordon Strout, a director of the Company and Board Chairman of TotalStone, is party to an executive agreement with TotalStone pursuant to which he receives deferred compensation. As of December 31, 2025, approximately $145,000 of deferred compensation was accrued and payable to Mr. Strout under this agreement, which is included in accrued management fees on the consolidated balance sheet.
Stream Finance, LLC, which serves as a creditor on TotalStone’s mezzanine term loan, is managed by Brookstone Partners. On March 7, 2025, the Special Preferred Membership Interests were exchanged for additional term loans in an aggregate principal amount of $1,143,646 (representing $1,006,377 of original principal plus $137,269 of accrued interest). An amendment fee of $695,000 is payable on the Deferral Date (as defined in the Stream Finance Credit Agreement). As of December 31, 2025, the total outstanding balance of the Stream Finance mezzanine term loan, including principal of $2,493,664 and accrued and deferred interest, was approximately $3.0 million. The maturity date of the Stream Finance Credit Agreement is September 30, 2027, as extended pursuant to the Third Amendment dated June 11, 2025.
TotalStone, LLC, was leasing a facility from a former officer and current Board Member of TotalStone, LLC for $29,000 per month. As of February 2022, the lessor is no longer a related party.
On December 21, 2020, BP Peptides, LLC exercised its right to convert $572,700 of accrued interest ($538,000) and secured debt ($35,000) into 24,900 shares of the Company’s Common Stock (exercised price of $23/share). The Company incurred issuance expenses of $5,000 resulting in a net increase in Additional Paid-in Capital of $568,000.
On June 15, 2022, Brookstone exercised its right to convert $1.9 million of accrued interest and debt from its senior secured note into 78,333 shares of the Company’s Common Stock at $24.75 per share. Following the Company’s corporate restructuring and Public Offering on March 7, 2025, Brookstone Partners Acquisition XIV, LLC (“BPA XIV”) received 2,528,662 shares of common stock in exchange for its TotalStone membership interests pursuant to the Master Exchange Agreement. As of December 31, 2025, BPA XIV held 2,528,662 shares, representing approximately 22.1% of the 11,453,707 shares of common stock outstanding.
In January 2021, the Company acquired a minority interest in Diamond Products Holdings, LLC (“DPH”) through an $8.0 million promissory note issued by Capstone Beta LLC to Brookstone Acquisition Partners XXI Corporation (“Brookstone XXI”), with the Company’s exposure limited to an $800,000 guaranty. In November 2023, the Diamond interest was sold to a third party for no cash consideration, resulting in an $8.0 million write-off of the investment and a $7.2 million gain on Brookstone XXI’s debt forgiveness, for a net loss of $800,000. An unsecured promissory note for $800,000 was issued on March 31, 2024, bearing interest at 6% with a maturity date of June 30, 2026. On September 30, 2025, this note was exchanged for Series Z Preferred Stock as described below.
As of December 31, 2025, the Company owed the following notes payable and accrued interest to related parties. The notes held by BP Peptides, LLC and Brookstone Acquisition Partners XXI Corporation were exchanged for shares of Series Z 8% Non-Convertible Preferred Stock on September 30, 2025, as described below, and accordingly had no outstanding balance as notes payable as of December 31, 2025. As of December 31, 2025, Stream Finance, LLC was the sole remaining related party note payable.
| Stream |
Brookstone |
|||||||||||
| BP Peptides, |
Finance, |
Acquisition |
||||||||||
| Terms |
LLC |
LLC |
Partners XXI(1) |
|||||||||
| Issuance dates of notes |
July 17, 2017 |
November 14, 2019 |
March 31, 2021 and March 31, 2024 |
|||||||||
| Maturity date |
June 30, 2026 |
September 30, 2027 |
June 30, 2026 |
|||||||||
| Interest rate |
6 | % | Disclosed Note 11 |
1% and 6% |
||||||||
| Collateral |
Secured |
Unsecured |
Secured/ Unsecured |
|||||||||
| Balance – December 31, 2023 |
$ | 774,327 | $ | 1,309,244 | $ | 1,009,778 | ||||||
| Accrual of interest |
$ | 42,152 | $ | 248,860 | $ | 43,044 | ||||||
| Balance – December 31, 2024 |
$ | 816,479 | $ | 1,558,104 | $ | 1,052,822 | ||||||
| Accrual of Interest |
$ | 31,441 | $ | 275,571 | $ | 36,400 | ||||||
| Exchange of Special Preferred for term loans |
$ | — | $ | 1,143,646 | $ | — | ||||||
| PIK interest capitalized |
$ | — | $ | 40,774 | $ | — | ||||||
| Exchanged for Series Z Preferred Stock |
$ | (847,920 | ) | $ | — | $ | (1,089,222 | ) | ||||
| Balance – December 31, 2025 |
$ | — | $ | 3,018,095 | $ | — | ||||||
| (1) |
In connection with the unwinding of the Diamond transaction in November 2023, the March 31, 2021 secured note accruing interest at 1% was replaced by a new unsecured note for $800,000 plus existing accrued interest with interest accruing from November 2023 to maturity at 6% per annum. |
BPA XIV, LLC, an entity controlled by Matthew Lipman, our Chief Executive Officer, and Gordon Rocks, Inc., an entity controlled by Gordon Strout, a director, are parties to the Master Exchange Agreement entered into by the Company, TotalStone and TotalStone’s Class B Members. Pursuant to the Master Exchange Agreement, BPA XIV, LLC and Gordon Rocks, Inc. surrendered their existing TotalStone’s membership interests and withdraw from the membership of TotalStone in exchange for 2,528,662 and 822,128 shares of Common Stock, respectively, on the Restructuring Date.
Special Preferred Membership Interests were issued by TotalStone in connection with the restructuring of its mezzanine indebtedness. This indebtedness is documented pursuant to that certain Second Amended and Restated Credit Agreement, dated as of March 8, 2023, with Stream Finance, LLC, as agent, and the lenders from time to time party thereto. The maturity date of the Stream Finance Credit Agreement is September 30, 2027, as extended pursuant to the Third Amendment dated June 11, 2025. On March 7, 2025, the Special Preferred Membership Interests were exchanged for additional term loans in an aggregate principal amount of $1,143,646 (representing $1,006,377 of original principal plus $137,269 of accrued interest).
In March 2025, the Company paid $200,000 as an advisory fee payment, related to the Public Offering, to Brookstone Partners, an entity controlled by our Chief Executive Officer (who is also a member of our board of directors) and the chairman of our board of directors.
On September 30, 2025, following approval by the Audit Committee of the Board, the Company and each of BP Peptides, LLC (“BP Peptides”) and Brookstone Partners Acquisition XXI Corporation (“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”). As of September 30, 2025, BP Peptides held a note with a combined principal and interest balance of $847,920 and Brookstone Acquisition held a note with a combined principal and interest balance of $1,089,222. Both notes had a maturity date of June 30, 2026. Based on the Nasdaq Official Closing Price of the Company’s Common Stock of $1.32 on the day prior to the parties entering into the Exchange Agreement, BP Peptides received 642,276 shares and Brookstone Acquisition received 825,067 shares of Series Z Preferred Stock. Upon completion of the exchange, the notes were extinguished in full and all rights thereunder were released. The shares of Series Z Preferred Stock were issued pursuant to the exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended. The Series Z Preferred Stock is mandatorily redeemable and has been classified as a liability in the Company’s consolidated balance sheet in accordance with ASC 480, Distinguishing Liabilities from Equity. Interest expense of approximately $39,000 was recognized on the Series Z obligation for the period from September 30, 2025 through December 31, 2025. See Note 11 for additional information.
At the Company’s annual meeting of stockholders on November 18, 2025, stockholders approved possible future payments to Nectarine Management LLC (“Nectarine”), an entity controlled by Michael Toporek, the chairman of our board of directors, and Matthew Lipman, our Chief Executive Officer. Under the approved arrangement, the Company will pay Nectarine a consent fee of 0.25% to 2% of transaction value for certain transactions, including mergers, acquisitions, asset sales, capital stock issuances outside of equity incentive plans, joint ventures, and certain debt incurrences, plus reimbursement of legal fees up to $50,000 per transaction. On December 19, 2025, the Nominating and Corporate Governance Committee approved a payment to Nectarine equal to 2% of the $4,435,225 in cash paid at closing for the Fraser Canyon Holdings acquisition, totaling approximately $88,700. The Committee also approved reimbursement of Nectarine’s legal fees related to the acquisition, up to $50,000. An additional approximately $52,650 in contingent payments to Nectarine personnel is payable upon Capstone’s repayment of the CAD $3.6 million promissory note issued to the sellers of Fraser Canyon Holdings. In February 2025, Nectarine purchased 985,063 shares of Series B Preferred Stock for a purchase price of $30,000.
On January 21, 2026, TotalStone, LLC entered into a conditional fee waiver and deferral agreement with Brookstone Partners IAC and Gordon Strout. Under the agreement, Brookstone Partners IAC agreed to waive management and consulting fees totaling $400,000 that would have accrued during 2026 under the existing management agreement, and Mr. Strout agreed to waive salary or fee accruals amounting to $94,091 under his executive agreement with TotalStone. The waived amounts are conditional and will become payable only if TotalStone meets specified performance targets during the waiver period. See Note 19.
In connection with the Carolina Stone acquisition, Brookstone Partners IAC earned a transaction advisory fee of $94.0 thousand pursuant to the management agreement.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Fees Billed for Audit and Non-Audit Services
The following table presents for each of the last two fiscal years the aggregate fees billed in connection with the audits of our financial statements and other professional services rendered by our independent registered public accounting firm GBQ Partners LLC.
| 2025 |
2024 |
|||||||
| Audit Fees (1) |
$ | 355,127 | $ | 159,931 | ||||
| Audit-related fees (2) |
89,319 | 11,050 | ||||||
| Tax fees (3) |
18,710 | 23,310 | ||||||
| Total |
$ | 463,156 | $ | 194,291 | ||||
| (1) |
Represents fees billed for professional services rendered for the annual audit, interim reviews of our financial statements and services provided in connection with registration statements. |
|
|
|
| (2) |
Represents fees billed for standalone audits for acquired entities. |
|
|
|
| (3) |
Represents fees billed for tax filing, preparation, and tax advisory services |
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
| (a) |
1. Financial Statements |
The financial statements and Report of Independent Registered Public Accounting Firm are listed in the “Index to Financial Statements and Schedules” on page F-1 and included from F-2 onwards.
| 2. |
Financial Statement Schedules |
All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission (the “Commission”) are either not required under the related instructions, are not applicable (and therefore have been omitted), or the required disclosures are contained in the financial statements included herein.
| 3. |
Exhibits (including those incorporated by reference). |
| (b) |
Exhibits |
| Exhibit |
Incorporated by Reference |
Filed or |
|||||||||
| Number |
Exhibit Description |
Form |
Exhibit |
Filing Date |
Herewith |
||||||
| 2.1 |
8-K |
2.1 |
11/24/2025 |
||||||||
| 2.2 |
8-K |
2.1 |
12/02/2025 |
||||||||
| 2.3 |
8-K |
2.2 |
12/02/2025 |
||||||||
| 3.1 |
S-1 |
3.1 |
12/31/2024 |
||||||||
| 3.2 |
S-8 |
4.2 |
06/23/2015 |
||||||||
| 3.3 |
Amended and Restated Certificate of Designation of Series A Preferred Stock, dated June 22, 2015 |
S-1 |
3.3 |
12/31/2024 |
|||||||
| 3.4 |
Form of Certificate of Amendment to the Restated Certificate of Incorporation |
S-1 |
3.4 |
02/06/2025 |
|||||||
| 3.5 |
Form of Certificate of Designation of Series B Preferred Stock |
S-1 |
3.5 |
02/06/2025 |
|||||||
| 3.6 |
8-K |
3.1 |
10/06/2025 |
||||||||
| 4.1 |
X | ||||||||||
| 4.2 |
S-1 |
4.2 |
12/31/2024 |
||||||||
| 4.3 |
Warrant to Purchase Common Stock, dated January 30, 2018, issued to BP Peptides, LLC |
8-K |
10.2 |
02/01/2018 |
|||||||
| 4.4 |
8-K |
4.1 |
10/23/2025 |
||||||||
| 4.5 | Warrant Issued to 3i, LP, dated February 12, 2026 | X | |||||||||
| 10.1 |
S-1 |
10.1 |
02/06/2025 |
||||||||
| 10.2 |
S-1 |
10.10 |
12/31/2024 |
||||||||
| 10.3 |
S-1 |
10.11 |
12/31/2024 |
||||||||
| 10.4 |
S-1 |
10.12 |
12/31/2024 |
||||||||
| 10.5 |
S-1 |
10.13 |
12/31/2024 |
||||||||
| 10.6 |
S-1 |
10.14 |
12/31/2024 |
||||||||
| 10.7 |
S-1 |
10.16 |
12/31/2024 |
||||||||
| 10.8 |
S-1 |
10.17 |
12/31/2024 |
||||||||
| 10.9 |
S-1 |
10.18 |
12/31/2024 |
||||||||
| 10.10 |
S-1 |
10.25 |
12/31/2024 |
Not Applicable.
Index to Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024
Report of Independent Registered Public Accounting Firm
To the Board of Directors
Capstone Holding Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Capstone Holding Corp. (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Impairment – Instone Reporting Unit
Description of the Matter
As described in Note 7 to the consolidated financial statements, the Company's goodwill balance totaled $18.4 million as of December 31, 2025. Management, with assistance from a third-party valuation specialist, prepared a quantitative impairment test for the Instone reporting unit as of the Company’s annual impairment testing date in the fourth quarter of 2025 using a combination of income and market approaches. As a result of this assessment, management concluded the fair value of the reporting unit was below its carrying value, resulting in a goodwill impairment charge of $6.2 million recognized during the fourth quarter of 2025.
We identified the goodwill impairment assessment as a critical audit matter. Specifically, the estimation of fair value of the reporting unit included significant assumptions, including projected revenues, margins and the discount rate.
How We Addressed the Matter in Our Audit
Our audit procedures included, among others:
| ● | Evaluating the completeness and accuracy of information used to determine the carrying value of the reporting unit. |
| ● | Evaluating the reasonableness of projected revenues, gross margin and operating expenses relative to historical performance and underlying business strategies and growth plans. |
| ● | Utilizing professionals with specialized skills and knowledge in valuation to assist in: (i) evaluating the valuation framework and methods considered by the Company, (ii) evaluating the reasonableness of the discount rate and terminal growth rate used in the valuation model; (iii) performing a market capitalization reconciliation relative to the estimated fair values of reporting units; and (iv) performing a sensitivity analysis to supplement our evaluation of the reasonableness of the Company's revenue projections. |
/s/
We have served as the Company’s auditor since 2020.
April 15, 2026
CAPSTONE HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
| December 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Prepaid expenses | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Long-term Assets: | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Other intangible assets | ||||||||
| Right of use assets | ||||||||
| Deferred tax asset | ||||||||
| Other long-term assets | ||||||||
| Total long-term assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES & EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Management fee payable, related party | ||||||||
| Line of credit | ||||||||
| Current portion of long-term debt | ||||||||
| Current portion, lease liability | ||||||||
| Deferred tax liability | ||||||||
| Derivative liability | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Accrued related party management fee | ||||||||
| Accrued Series Z preferred stock dividends | ||||||||
| Series Z preferred stock | ||||||||
| Long term debt, net of current portion | ||||||||
| Lease liability, net of current portion | ||||||||
| Earn-out payable | ||||||||
| Other long-term liabilities | ||||||||
| Total long-term liabilities | ||||||||
| Total Liabilities | $ | $ | ||||||
| TotalStone, LLC – Class B Preferred Units | ||||||||
| TotalStone, LLC – Special Preferred Units | ||||||||
| Equity: | ||||||||
| Series B Preferred Stock, par value; shares authorized; issued as of December 31, 2025. shares were authorized or issued as of December 31, 2024. | ||||||||
| Common Stock $ par value; and shares authorized; and issued as of December 31, 2025 and December 31, 2024 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ||||||
| Total Equity | ( | ) | ||||||
| Total Liabilities, TotalStone, LLC. Preferred Units & Equity | $ | $ | ||||||
See notes to consolidated financial statements
CAPSTONE HOLDING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
| Fiscal Year Ended | ||||||||
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Sales | $ | $ | ||||||
| Sales returns and allowances | ( | ) | ( | ) | ||||
| Net sales | ||||||||
| Cost of goods sold | ||||||||
| Gross Profit | ||||||||
| Selling, general and administrative expenses | ||||||||
| Impairment of goodwill | ||||||||
| Transaction expenses | ||||||||
| Income (loss) from operations | ( | ) | ( | ) | ||||
| Loss on asset disposal | ( | ) | ||||||
| Change in fair value of derivative liability | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Income (loss) from operations before taxes | ( | ) | ( | ) | ||||
| Provision for Income Taxes (expense) | ( | ) | ( | ) | ||||
| Net Income (Loss) | ( | ) | ( | ) | ||||
| Less: Net income (loss) attributable to: | ||||||||
| Special preferred units preferred return | ( | ) | ||||||
| Class B units preferred return | ( | ) | ( | ) | ||||
| Net Income (loss) attributable to Capstone Holding Corp. stockholders | ( | ) | ( | ) | ||||
| Other Comprehensive Loss | ||||||||
| Foreign currency translation adjustment | ( | ) | ||||||
| Comprehensive Loss | $ | ( | ) | $ | ( | ) | ||
| 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 | ||||||||
See notes to consolidated financial statements
CAPSTONE HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Fiscal Year | Fiscal Year | |||||||
| Ended | Ended | |||||||
| December 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Non cash items: | ||||||||
| Depreciation and amortization | ||||||||
| Net, amortization (accretion) to interest expense | ||||||||
| Unrealized gain (loss) on derivative instruments | ( | ) | ||||||
| Provisions for doubtful debt | ||||||||
| (Gain) loss on asset disposal | ||||||||
| Impairment on goodwill | ||||||||
| Deferred taxes, net | ||||||||
| Paid-in-kind interest | ||||||||
| Change in other operating items: | — | — | ||||||
| Accounts receivable and other assets | ( | ) | ||||||
| Accounts receivable - intercompany | ||||||||
| Inventory | ( | ) | ||||||
| Prepaid and other assets | ||||||||
| Change in operating leases, net | ||||||||
| Accounts payable | ||||||||
| Management fee payable, related party | ||||||||
| Accounts payable - intercompany | ||||||||
| Accrued expenses | ||||||||
| Derivative liability | ||||||||
| Other liabilities | ( | ) | ( | ) | ||||
| Cash flows provided by (used in) operating activities | ( | ) | ||||||
| INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment, net | ( | ) | ( | ) | ||||
| Purchase of intangible assets | ( | ) | ( | ) | ||||
| Acquisition of Carolina Stone, net of cash acquired | ( | ) | ||||||
| Acquisition of CSIA, net of cash acquired | ( | ) | ||||||
| Acquisition of CSI, net of 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 | ( | ) | ( | ) | ||||
| Deferred IPO Costs | ( | ) | ||||||
| Proceeds from IPO and stock issuances | ||||||||
| Proceeds from equity line of credit | ||||||||
| Cash flows provided by (used in) financing activities | ( | ) | ||||||
| Effect of foreign currency rates on changes in cash | ( | ) | — | |||||
| NET CHANGE IN CASH & CASH EQUIVALENTS | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL 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 shares of Common Stock | ||||||||
| Conversion of long term debt to Series Z Preferred Stock | ||||||||
| Conversion of debt to stock | ||||||||
| Reclassification of derivative liability to APIC upon conversion | ||||||||
| TotalStone preferred stock dividends charged to retained earnings | ||||||||
| Financing cash flows from finance leases (principal portion) | ||||||||
| Operating cash flows from operating leases | ||||||||
| Interest Paid | ||||||||
| Taxes Paid | ||||||||
See notes to consolidated financial statements
CAPSTONE HOLDING CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except Common Stock Shares)
| Retained | Accumulated | |||||||||||||||||||||||||||||||||||||||
| Series B | Earnings | Other | ||||||||||||||||||||||||||||||||||||||
| Series B | Preferred | Additional | (Accumulated | Comprehensive | Total | Class B | Special | |||||||||||||||||||||||||||||||||
| Common Stock | Common Stock | (Shares) | Stock | Paid-In Capital | Deficit) | Loss | Equity | Units | Preferred Unit | |||||||||||||||||||||||||||||||
| Balance at January 1, 2025 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||
| Net Loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Accrued Class B Distributions | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Conversion of Class B Preferred Units to Common stock | — | ( | ) | |||||||||||||||||||||||||||||||||||||
| Conversion of Special Preferred Units to Debt | — | — | ( | ) | ||||||||||||||||||||||||||||||||||||
| Net public offering proceeds | — | |||||||||||||||||||||||||||||||||||||||
| Nectarine Management, LLC. Subscription Agreement | — | — | ||||||||||||||||||||||||||||||||||||||
| Issuance of commitment shares pursuant to equity line of credit | — | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to equity line of credit | — | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to Senior Convertible Note | — | |||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||
| Retained | ||||||||||||||||||||||||
| Earnings | ||||||||||||||||||||||||
| Additional | (Accumulated | Total | Class B | Special | ||||||||||||||||||||
| Common Stock | Paid-In Capital | Deficit) | Equity | Units | Preferred Unit | |||||||||||||||||||
| Balance at January 1, 2024 | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||
| Net Loss | — | — | ( | ) | ( | ) | — | — | ||||||||||||||||
| Accrued Class B Distributions | — | — | ( | ) | ( | ) | — | |||||||||||||||||
| Accrued Special Preferred Distributions | — | — | ( | ) | ( | ) | — | |||||||||||||||||
| Balance at December 31, 2024 | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||
See notes to consolidated financial statements
CAPSTONE HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Nature of Operations
Capstone Holding Corp. (the "Company") is a holding company that operates through its consolidated subsidiaries: TotalStone, LLC ("TotalStone"), Carolina Stone Holdings, LLC ("Carolina Stone"), and Fraser Canyon Holdings Inc. ("FCHI" and together with its subsidiaries, the "CSI business"). Through these subsidiaries, the Company distributes and installs masonry and stone veneer products for residential and commercial construction across North America.
On April 1, 2020, the Company obtained a controlling interest in TotalStone, a materials distribution company that distributes masonry and stone veneer products for residential and commercial construction across the United States. TotalStone operates under the trade names Instone and Northeast Masonry Distributors ("NMD").
On August 22, 2025, the Company, through its subsidiary CS Purchase Holdings LLC, acquired all of the issued and outstanding membership interests (the "Holdings Membership Interests") in Carolina Stone Holdings, which owns all of the issued and outstanding membership interests of Carolina Stone Distributors, LLC. Carolina Stone 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 in the Raleigh-Durham and Charlotte, North Carolina markets.
On December 1, 2025, through its indirect subsidiary Instone Canada Corp., the Company acquired
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 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
Note 3 Summary of Significant Accounting Policies
Basis of Presentation and Preparation
The consolidated financial statements include the accounts of Capstone and its consolidated subsidiaries (collectively, the “Company”). Intercompany accounts and transactions have been eliminated. The preparation of these financial statements and accompanying notes are in accordance with accounting principles generally accepted in the United States of America. In the opinion of management, the financial statements include all adjustments necessary for the fair presentation of our financial position, results of operations, and cash flows, and all adjustments were of a normal recurring nature.
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 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.
Fair Value Measurements
The Company measures certain assets and liabilities at fair value in accordance with ASC 820, Fair Value Measurement. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level hierarchy that prioritizes the inputs used in measuring fair value:
Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs that are derived principally from or corroborated by observable market data.
Level 3 — Unobservable inputs for the asset or liability that are supported by little or no market activity and that are significant to the fair value measurement. Level 3 inputs reflect the Company's own assumptions about the assumptions market participants would use in pricing an asset or liability, developed based on the best information available in the circumstances.
The categorization of an asset or liability within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. Transfers between levels are recognized at the end of the reporting period in which the transfer occurs.
The Company's recurring fair value measurements as of December 31, 2025 consist of (i) the embedded conversion features bifurcated from the Senior Secured Convertible Notes, classified as derivative liabilities and measured at fair value using significant unobservable inputs (Level 3); and (ii) the contingent earn-out consideration related to the Carolina Stone and Fraser Canyon acquisitions, measured at fair value using a probability-weighted discounted cash flow model with significant unobservable inputs (Level 3). The Company also performs nonrecurring fair value measurements in connection with business combinations (Note 4) and goodwill impairment testing (Note 7), which involve Level 3 inputs including projected cash flows, discount rates, and market multiples. The Company has no recurring Level 1 or Level 2 fair value measurements as of December 31, 2025 or December 31, 2024.
Cash
Cash consists of balances held in a commercial bank account.
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 December 31, 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 December 31, 2025, retainage receivables were $
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. The Company places cash with high credit quality institutions. During the normal course of business, balances in these accounts may exceed the maximum amount insured by the Federal Deposit Insurance Corporation (“FDIC”). Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers comprising the Company’s diverse customer base and generally short payment terms. Management believes there is no business vulnerability regarding concentrations of accounts receivable and sales due to the strong relationships and financial strength of our customers.
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 December 31, 2025 and 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.
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 1st day of the fourth quarter of each year or more frequently if indications of potential impairment exist. The Company’s goodwill is allocated to the Company’s reporting units. As of December 31, 2025, the Company has reporting units: the TotalStone segment (TotalStone, LLC and Canadian Stone Industries) and the Carolina Stone segment (Carolina Stone Distributors, LLC).
In evaluating potential goodwill impairment, the Company first assesses 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, the Company performs a quantitative analysis. If the quantitative analysis indicates the carrying value of a reporting unit exceeds its fair value, the Company measures any goodwill impairment loss 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. During the year ended December 31, 2025, the Company performed a quantitative goodwill impairment test for the Instone reporting unit as of October 1, 2025, and recorded a goodwill impairment charge of $
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
Convertible Debt
The Company accounts for convertible debt in accordance with ASC 470-20, Debt with Conversion and Other Options, and ASC 815, Derivatives and Hedging. At issuance, the Company evaluates whether embedded conversion features require bifurcation as derivative liabilities under ASC 815-15. If bifurcation is required, the embedded feature is recorded at fair value as of the issuance date, with the initial fair value recognized as a derivative liability and a corresponding debt discount on the host instrument. The derivative liability is remeasured at fair value as of each subsequent balance sheet date, with changes in fair value recognized in earnings as non-operating, non-cash income or expense. The Company reassesses the classification of its derivative instruments at each balance sheet date. Upon modification of convertible debt, the Company evaluates the transaction under ASC 470-50, Debt Modifications and Extinguishments, and remeasures the bifurcated derivative immediately before and after the modification, with the change in fair value recognized in earnings. Upon conversion, the Company derecognizes the pro-rata carrying amount of the host debt (including unamortized OID, debt issuance costs, and derivative discount) and the corresponding portion of the derivative liability at its then-current fair value. Effective upon adoption of ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20), the Company no longer evaluates convertible instruments for beneficial conversion features.
Investment in Non-Marketable Securities
Investments in non-marketable securities without readily determinable fair values by entities that do not exercise significant influence over the investee are recorded at cost, less impairment, plus or minus observable price changes.
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
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.
Advertising Costs
Advertising and promotional expenses are expensed in the period incurred unless there are material costs that benefit future periods. The consolidated financial statements currently do not reflect any prepaid advertising expenses. For 2025 and 2024, advertising expenses were $
Research and Development
Research and development costs are expensed as incurred and were not significant in the periods presented.
Mandatorily Redeemable Preferred Stock
The Company classifies preferred stock that embodies an unconditional obligation to redeem the instrument by transferring assets at a specified or determinable date as a liability in accordance with ASC 480, Distinguishing Liabilities from Equity. Such instruments are initially measured at fair value and subsequently measured at the present value of the amount to be paid at settlement, with interest expense accrued using the rate implicit at inception. Periodic dividend obligations on mandatorily redeemable preferred stock classified as a liability are presented as interest expense in the consolidated statements of operations. The Company's Series Z 8% Non-Convertible Preferred Stock, issued September 30, 2025, has been assessed as mandatorily redeemable and is presented as a liability in the accompanying consolidated balance sheets. See Note 15 for additional information.
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. Potential common shares are excluded from the computation when their effect is antidilutive.
For the years ended December 31, 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. For the year ended December 31, 2025, potentially dilutive securities excluded from the calculation consisted of the following:
| December 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Convertible notes | ||||||||
| Representative's warrant | ||||||||
| Stock options | ||||||||
| BP Peptides warrant | ||||||||
| Total | ||||||||
Reclassifications
Certain reclassifications to prior year information have been made to conform with current year presentation.
Recent Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which enhances the transparency and decision usefulness of income tax disclosures, including jurisdictional information, by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disclosures. ASU 2023-09 is effective for annual periods beginning after December 15, 2024 and early adoption is permitted. The Company has adopted the disclosure requirements of this standard on its consolidated financial statements on a prospective basis.
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.
In July 2025, the FASB issued ASU 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. The amendments permit a practical expedient under which an entity may assume current conditions as of the balance sheet date will not change over the remaining life of accounts receivable and contract assets arising from customer contracts. The standard is effective for fiscal years beginning after December 15, 2025, and interim periods within those fiscal years; early adoption and prospective application are permitted. The Company is evaluating the standard and does not expect a material impact.
Note 4 Business Combinations
During the fiscal year ended December 31, 2025, the Company completed two acquisitions, each accounted for as a business combination under ASC Topic 805, Business Combinations. The Company engaged Loop Capital Financial Consulting Services, LLC (“Loop Capital”) as an independent third-party valuation firm to assist with the purchase price allocations.
Carolina Stone Distributors, LLC
On August 22, 2025, the Company, through its subsidiary CS Purchase Holdings LLC, completed its acquisition of 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 (“Carolina Stone”). Carolina Stone is a Morrisville, North Carolina-based distributor and installer of stone veneer and masonry products serving the Raleigh-Durham and Charlotte metropolitan areas.
Purchase Consideration. The aggregate purchase consideration for the Carolina Stone Companies was approximately $
The subordinated promissory note was issued to D22L, Inc. in the original principal amount of $
Contingent consideration of up to $
The fair value at acquisition date of $
Purchase Price Allocation. The following table summarizes the fair values of assets acquired and liabilities assumed based on the final purchase price allocation performed with the assistance of Loop Capital (in thousands):
| 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 | $ | |||
Goodwill of $
Post-Acquisition Results. Carolina Stone contributed revenue of $
Fraser Canyon Holdings Inc. / Canadian Stone Industries
On December 1, 2025, the Company completed the acquisition of Fraser Canyon Holdings Inc. (“FCHI”) and its subsidiaries, including Canadian Stone Industries Inc. (“CSI”), through two simultaneous transactions: (i) TotalStone, LLC acquired substantially all of the assets and assumed certain liabilities of Continental Stone Industries, Inc. (the “Asset Purchase”), and (ii) a subsidiary of TotalStone acquired all of the outstanding shares of FCHI (the “Share Purchase”). CSI is a Langley, British Columbia-based distributor of manufactured and natural stone products serving Western and Eastern Canada.
Purchase Consideration. The Fraser Canyon Acquisition comprises two simultaneous transactions: (i) the CSIA Asset Purchase, in which TotalStone, LLC acquired substantially all of the assets and assumed certain liabilities of Continental Stone Industries, Inc. for cash consideration of approximately thousand (CAD $
The initial accounting for the Fraser Canyon Acquisition is incomplete as of December 31, 2025. The Company has engaged Loop Capital to assist with the valuation of identifiable intangible assets and contingent consideration; the purchase price allocation presented below is based on valuations performed with the assistance of Loop Capital. The Company will finalize the purchase price allocation within the measurement period. The purchase price allocation is based on management’s best estimates and is subject to adjustment during the measurement period (up to one year from the acquisition date) as additional information is obtained about facts and circumstances that existed at the acquisition date. The aggregate purchase consideration of approximately thousand reflected in the purchase price allocation below represents the FCHI Share Purchase only, stated net of the Continental Cash Purchase Price paid separately for the CSIA Asset Purchase and net of the working capital reduction described above, with U.S. dollar amounts translated at the exchange rates used for purchase accounting purposes.
Goodwill of approximately thousand at December 31, 2025 (compared to thousand at the acquisition date), including approximately $
CSI contributed revenue of $
| Amount | ||||
| Cash purchase price | $ | |||
| Seller notes | ||||
| Earn-out agreements | ||||
| Aggregate purchase consideration | $ | |||
| Identifiable assets acquired and liabilities assumed: | ||||
| Accounts receivable, net | ||||
| Inventories | ||||
| Income tax receivable | ||||
| Prepaid expenses | ||||
| Property and equipment, net | ||||
| Other intangible assets | ||||
| Right of use assets | ||||
| Accounts payable | ( | ) | ||
| Accrued expenses | ( | ) | ||
| Income tax payable | ( | ) | ||
| Deferred tax liability | ( | ) | ||
| Current portion, lease liability | ( | ) | ||
| Lease liability, net of current portion | ( | ) | ||
| Total identifiable net assets | ||||
| Goodwill | $ | |||
Pro Forma Financial Information (Unaudited)
The following unaudited pro forma information presents the Company’s consolidated results of operations for the years ended December 31, 2025 and 2024 as though both acquisitions had been completed as of January 1, 2024:
| Twelve Months Ended | ||||||||
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenue | $ | $ | ||||||
| Net income (loss) | ( | ) | ( | ) | ||||
| Earnings (loss) per common share: | ( | ) | ( | ) | ||||
The Company prepared this unaudited pro forma information under ASC 805-10-50-2(h), presenting consolidated results as if the Carolina Stone and Fraser Canyon acquisitions had closed on January 1, 2024. Pro forma earnings per share uses the Company's actual weighted-average common shares outstanding —
The pro forma results include the following adjustments directly attributable to the acquisitions, consistent with the Company's prior pro forma disclosures in Forms 8-K/A filed with the SEC:
(a) Acquisition-related transaction expenses — Under the assumed acquisition date of January 1, 2024, $
(b) Incremental interest expense — $
(c) Incremental amortization — $
(d) Income taxes — No incremental tax effect has been recognized on the above adjustments because the Company maintains a full valuation allowance against its net deferred tax assets.
The pro forma results do not represent what the Company would have reported had the acquisitions closed on the assumed date, nor do they predict future performance.
Note 5 Related Party Transactions
TotalStone is party to a management agreement with Brookstone Partners IAC ("Brookstone"), an entity controlled by the Company's Chief Executive Officer and Chairman of the Board. Pursuant to this agreement, Brookstone provides annual consulting services totaling $
On January 21, 2026, Brookstone entered into a conditional fee waiver and deferral agreement with TotalStone, pursuant to which Brookstone agreed to waive the thousand in management and consulting fees that would otherwise accrue during calendar year 2026. The obligation to pay such waived fees will be extinguished unless TotalStone achieves certain performance targets specified in the agreement.
Separately, Gordon Strout, a director of the Company and Board Chairman of TotalStone, is party to an executive agreement with TotalStone pursuant to which he receives deferred compensation. As of December 31, 2025, approximately $
Stream Finance, LLC, which serves as a creditor on TotalStone’s mezzanine term loan, is managed by Brookstone. As of December 31, 2025, the Company’s total obligation to Stream Finance was $
On March 10, 2025, TotalStone paid Brookstone $
In connection with the Fraser Canyon acquisition, Nectarine Management LLC, an entity whose voting of Company securities is solely controlled by Mr. Toporek, earned a consent fee of $
Note 6 Property and Equipment, Net.
A summary of the Company’s property and equipment is as follows in (“000’s”):
| December 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Property and Equipment, Net. | ||||||||
| Land and buildings | $ | $ | ||||||
| Machinery and equipment | ||||||||
| Computer equipment | ||||||||
| Computer software | ||||||||
| Furniture and fixtures | ||||||||
| Leasehold Improvements | ||||||||
| Total property and equipment | $ | $ | ||||||
| Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Total property and equipment | $ | $ | ||||||
Depreciation and amortization expense on property and equipment for 2025 and 2024 was $
Note 7 Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill for the year ended December 31, 2025 are as follows in (“000’s”):
| Balance – December 31, 2024 | $ | |||
| Goodwill acquired during year | ||||
| Carolina Stone (August 22, 2025) | ||||
| Fraser Canyon (December 1, 2025) | ||||
| Foreign currency translation | ||||
| Impairment losses: | ||||
| Instone | ( | ) | ||
| Balance – December 31, 2025 | $ |
Goodwill recognized in connection with the Carolina Stone acquisition of $
During the year ended December 31, 2025, the Company engaged Loop Capital and performed a quantitative goodwill impairment test for the Instone reporting unit as of October 1, 2025. The estimated fair value of the reporting unit was determined using a weighted blend of the income approach (discounted cash flow method, 50% weight), the guideline public company method (25% weight), and the guideline merged and acquired company method (25% weight). The blended enterprise value of approximately $
The following tables summarize the Company’s other intangible assets in (“000’s”):
| As of December 31, 2024 | ||||||||||||
| Gross Carrying | Accumulated | Net Carrying | ||||||||||
| Amount | Amortization | Amount | ||||||||||
| Non-compete agreements | $ | $ | ( | ) | $ | |||||||
| Customer lists | ( | ) | ||||||||||
| Other | ( | ) | ||||||||||
| Total definite-lived intangible assets | ( | ) | ||||||||||
| Trademark | — | |||||||||||
| Indefinite-lived intangible assets | — | |||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | |||||||
| As of December 31, 2025 | ||||||||||||
| Gross Carrying | Accumulated | Net Carrying | ||||||||||
| Amount | Amortization | Amount | ||||||||||
| Non-compete agreements | $ | $ | ( | ) | $ | |||||||
| Customer lists | ( | ) | ||||||||||
| Tradenames | ( | ) | ||||||||||
| Distribution agreements | ( | ) | ||||||||||
| Total definite-lived intangible assets | ( | ) | ||||||||||
| Trademark | — | |||||||||||
| Indefinite-lived intangible assets | — | |||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | |||||||
Intangible assets are amortized over the estimated useful lives of the respective assets on a straight-line basis. Total Amortization expense for 2025 and 2024 was $
Total future amortization expense for finite-lived intangible assets was estimated as follows in (“000’s):
| Future | ||||
| Amortization | ||||
| Year | Expenses | |||
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Thereafter | ||||
| Total | $ | |||
Note 8 Fair Value Measurements
The Company’s fair value hierarchy policy is described in Note 3. The following table presents assets and liabilities measured at fair value by level:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| December 31, 2025 — Recurring | ||||||||||||||||
| Derivative liabilities — embedded conversion features | $ | $ | $ | $ | ||||||||||||
| December 31, 2025 — Non-recurring (equity-premise) | ||||||||||||||||
| Goodwill — Instone reporting unit | $ | $ | $ | $ | ||||||||||||
Significant unobservable inputs used in the Level 3 measurement of the derivative liabilities (Black-Scholes option-pricing model) are summarized below:
| SSN #1 at Issuance (7/31/2025) | SSN #2 at Issuance (10/22/2025) | December 31, 2025 | ||||||||||||
| Expected term (years) | – | |||||||||||||
| Risk-free rate | % | % | – | |||||||||||
| Annualized volatility | % | % | % | |||||||||||
In addition to the embedded derivative liabilities described above, the Company's Level 3 recurring fair value measurements include contingent earn-out consideration of $
The significant unobservable inputs used in the Carolina Stone earn-out valuation included EBITDA volatility of
The fair value of the contingent earn-out consideration is most sensitive to changes in projected EBITDA, EBITDA volatility, and the risk-adjusted discount rate. Significant increases (decreases) in expected EBITDA would result in a higher (lower) fair value measurement. Significant increases (decreases) in EBITDA volatility generally result in a higher (lower) fair value given the option-like payoff structure. Increases (decreases) in the risk-adjusted discount rate would result in a lower (higher) fair value. Changes in the fair value of the earn-out liabilities are recognized within operating expenses in the consolidated statements of operations.
The fair value of the embedded derivative liabilities is highly sensitive to changes in the expected volatility input. Significant increases (decreases) in the expected annualized volatility would result in a significantly higher (lower) fair value measurement of the derivative liabilities, which would be recognized as a non-operating loss (gain) in the consolidated statements of operations.
Note 9 Investment in Non-Marketable Securities
On January 15, 2021, Capstone acquired a minority interest in a consumer products company, Diamond Products Holdings, LLC (“ Diamond”), a sexual wellness holding company. The structure of the transaction was as follows: i) Brookstone Acquisition Partners XXI Corporation (“Brookstone XXI”) contributed its approximately
Diamond was previously sold to its lender in satisfaction of outstanding secured indebtedness, and the Company recognized an impairment charge equal to its full basis in the investment. As of December 31, 2025 and 2024, the carrying value of the Company's investment in DPH was $
Note 10 Line of Credit
On December 20, 2017, TotalStone executed a Revolving Credit, Term Loan and Security Agreement with Berkshire Bank (the “Revolving Credit Agreement”). The Revolving Credit Agreement has been amended fifteen times through the fiscal year ended December 31, 2025. In connection with the Carolina Stone acquisition, CS Purchase Holdings LLC, Carolina Stone Holdings, LLC, and Carolina Stone Distributors, LLC were added as co-borrowers under the Fourteenth Amendment, dated August 22, 2025. Under the Fifteenth Amendment, executed December 19, 2025, the lender is now Beacon Bank & Trust (successor by merger to Berkshire Bank), and the maturity date was extended to
In connection with the Fraser Canyon acquisition, on November 7, 2025, Canadian Stone Industries and Klad Envelope Solutions Inc. entered into a Letter of Agreement with The Toronto-Dominion Bank ("TD Bank") providing Canadian Stone Industries with a revolving operating loan with a credit limit of CAD $
As of December 31, 2025, the combined balance outstanding under the Company's revolving credit facilities was $
Note 11 Debt
As of December 31, 2025, the Company had $
| December 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Long-term Debt | ||||||||
| Note payable to BP Peptides, LLC “Brookstone”. The unsecured loan bears interest at % per annum, with interest payable quarterly and the amended maturity date is . On September 30, 2025, $ of combined prinicipal and interest was converted into shares of Series Z non-convertible preferred stock at a conversion price of $ a share. | ||||||||
| Mezzanine term loan to Stream Finance, LLC, a related party, 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 , not to exceed % per annum (see further details below), with a maturity date of September 31, 2027. On March 7, 2025, the Special Preferred Membership Interests were exchanged for loans in an aggregate principal of $ and an amendment fee of $ payable on the deferral date of September 30, 2027 which are included in this amount. At December 31, 2025 and December 31, 2024, $ thousand and $ thousand of accrued interest remains unpaid and is included within this amount, respectively. | ||||||||
| Seller’s note with Avelina Masonry, LLC, which required monthly payments of $ thousand. The original maturity date was but the loan has not been paid in full and is in default. The loan bears interest at one-month SOFR plus % plus % default (% and % at December 31, 2025 and December 31, 2024, respectively. At December 31, 2025 and December 31, 2024, $ thousand and $ thousand of accrued interest remains unpaid and is included within this amount, respectively. | ||||||||
| Seller's note with D22L, Inc., which requires quarterly interest payments commencing December 31, 2025 and quarterly principal payments of $ commencing December 31, 2026. This Subordinated Promissory Note has a maturity date of and bears interest of % plus SOFR (% at December 31, 2025). At December 31, 2025, $ thousand of accrued interest remains unpaid and is included within this amount. | ||||||||
| Senior Convertible Note with 3i, LP. issued on July 29, 2025 with a principal amount of $ and accrued interest of $. This note was issued with an 8.34% original issue discount and bears interest at the rate of % per annum, with a maturity date of . At December 31, 2025, $ thousand of accrued interest remains unpaid and is included within this amount. | ||||||||
| Seller’s note with Fraser Canyon Holdings, Inc., which requires quarterly principal payments of CAD $ commencing July 31, 2026. This Subordinated Promissory Note has a maturity date of and bears interest at TD Bank’s prime rate plus %, stepping up to prime plus % after November 30, 2026. At December 31, 2025, $ thousand of accrued interest remains unpaid. | ||||||||
| Seller’s note with Fraser Canyon Holdings, Inc., which requires quarterly principal payments of CAD $ commencing March 31, 2027. This Subordinated Promissory Note has a maturity date of and bears interest at 30-day average SOFR plus %, stepping up to SOFR plus % after November 30, 2026 and SOFR plus % after November 30, 2027. At December 31, 2025, $ thousand of accrued interest remains unpaid. | ||||||||
| Senior Convertible Note with 3i, LP, issued on October 22, 2025 with a principal amount of $. This note was issued with an % original issue discount and bears interest at the rate of % per annum, with a maturity date of . At December 31, 2025, $ thousand of accrued interest remains unpaid and is included within this amount. | ||||||||
| Term note agreement with Berkshire Bank, due in consecutive monthly payments of $ thousand. The loan matures on and is secured by all assets of TotalStone. Interest is charged at the one- month SOFR plus % (% at December 31, 2024). The Term note agreement with Berkshire Bank in amount of $ was paid in full on March 10, 2025. | ||||||||
| In December 2022, TotalStone sold its facility in Navarre, Ohio to a nonaffiliated third party for a purchase price of $ million and concurrently entered into a leaseback transaction. The transaction is treated as a failed sale in accordance with U.S. GAAP. The Company therefore recorded a financing liability related to the sale-leaseback in the amount of the sale price. The obligation matures in January 2048 and requires monthly payments of principal and interest. With the sale leaseback, TotalStone signed a lease agreement with a -year lease term. The initial annual lease payment of $ thousand increases % per annum. The imputed interest rate is %. | ||||||||
| Unsecured promissory note with Brookstone, related party plus accrued interest to acquire a minority interest in DPH. Interest accrues at % per annum and the maturity date is . On September 30, 2025 $ of combined principal and interest was converted into shares of Series Z non-convertible preferred stock at a conversion price of $ a share. | ||||||||
| Less: unamortized premiums, discounts, and issuance costs | ( | ) | ( | ) | ||||
| Total debt, net unamortized premiums, discounts, and issuance costs | $ | $ | ||||||
| Current portion of principal outstanding | ||||||||
| Less: current portion of unamortized premiums, discounts, and issuance costs | ( | ) | ||||||
| Total current portion of long-term debt | ||||||||
| Long-term portion of principal outstanding | ||||||||
| Less: long-term portion of unamortized premiums, discounts, and issuance costs | ( | ) | ( | ) | ||||
| Total long-term debt, net of current portion | ||||||||
| Total long-term debt | $ | $ | ||||||
Note 11 Debt (cont.)
Mezzanine Term Loan — Stream Finance, LLC.
TotalStone, LLC is party to the Second Amended and Restated Credit Agreement, dated March 8, 2023, with Stream Finance, LLC, as agent (as amended, the "Stream Finance Credit Agreement"). As of January 1, 2025, the outstanding balance of the mezzanine term loan was $
The following table summarizes the activity in the Stream Finance mezzanine term loan for the year ended December 31, 2025:
| Balance, January 1, 2025 | $ | |||
| Special Preferred exchange (March 7, 2025) | ||||
| PIK interest capitalized | ||||
| Balance, December 31, 2025 | $ |
(1) The table above presents principal activity only. As of January 1, 2025, accrued and deferred interest totaled $
Prior to the Fourteenth Amendment, the interest rate on the Credit Facility was determined on a performance-based sliding scale, with the applicable rate set each quarter by reference to trailing Adjusted EBITDA of TotalStone as measured under the two tables below (Table A excluding the Northeast operations and Table B including them):
| Table A | Table B | |||||||||||||
| Adjusted EBITDA of TotalStone | Adjusted EBITDA of TotalStone | |||||||||||||
| Level | (exclusive of Northeast) | Rate | Level | and Northeast | Rate | |||||||||
| I | Greater than $2,500,000 | % | I | Greater than $4,000,000 | % | |||||||||
| II | Less than or equal to $2,500,000, but greater than or equal to $2,000,000 | % | II | Less than or equal to $4,000,000, but greater than or equal to $3,500,000 | % | |||||||||
| III | Less than $2,000,000 | % | III | Less than $3,500,000 | % | |||||||||
Subordinated Promissory Note — Carolina Stone. In connection with the acquisition of Carolina Stone Holdings, LLC on August 22, 2025, CS Purchase Holdings LLC issued a subordinated promissory note to the seller in the original principal amount of $
Seller Notes — Fraser Canyon. In connection with the acquisition of Fraser Canyon Holdings, Inc. and the assets of Continental Stone Industries, Inc. on December 1, 2025, Instone Canada Corp. issued two subordinated promissory notes to the sellers: First Seller Note. The first note was issued in the original principal amount of CAD $
Liquidity and Nasdaq Listing Compliance
In January 2026, the Company received a notification from the Nasdaq Stock Market indicating that the closing bid price of its Common Stock had been below $1.00 per share for 30 consecutive business days and that the Company was therefore not in compliance with Nasdaq Listing Rule 5550(a)(2). The Company has until July 6, 2026 to regain compliance, and the Board of Directors intends to seek shareholder authorization at the 2026 Annual Meeting to effect a reverse stock split, if needed, to satisfy the minimum bid price requirement. Continued listing on Nasdaq is an important component of the Company's access to capital markets, including its ability to issue shares under the ELOC and to raise additional equity capital on favorable terms. A delisting or prolonged non-compliance could adversely impact the Company's liquidity position. In addition, the Company has generated recurring net losses, including a net loss of $
Management has evaluated these conditions together with the Company's liquidity resources and operational plans. In April 2025, the Company entered into a $
Senior Secured Convertible Notes. In July 2025, the Company issued a Senior Secured Convertible Note to 3i, LP (the "July Note") in the original principal amount of $
The following table summarizes the carrying value of the Company's senior secured convertible notes as of December 31, 2025:
| SSN #1 | SSN #2 | Total | ||||||||||
| Stated principal | $ | $ | $ | |||||||||
| Less: unamortized OID | ( | ) | ( | ) | ( | ) | ||||||
| Less: unamortized debt issuance costs | ( | ) | ( | ) | ( | ) | ||||||
| Less: unamortized derivative discount | ( | ) | ( | ) | ( | ) | ||||||
| Net carrying value | $ | $ | $ | |||||||||
The following table presents a roll forward of the derivative liabilities associated with the embedded conversion features for the year ended December 31, 2025:
| SSN #1 | SSN #2 | Total | ||||||||||
| $ | — | $ | — | $ | — | |||||||
| Fair value at note issuance | ||||||||||||
| Change in fair value — amendments | ( | ) | ( | ) | ||||||||
| Change in fair value — conversions | ( | ) | ( | ) | ( | ) | ||||||
| Derecogition to adddition paid-in capital | ( | ) | ( | ) | ( | ) | ||||||
| Change in fair value — remeasurement | ( | ) | ||||||||||
| $ | $ | $ | ||||||||||
As of December 31, 2025, the following shares of common stock were issuable upon conversion of the outstanding senior secured convertible notes:
| Conversion Price | Principal | Shares Issuable | ||||||||||
| July Note | ||||||||||||
| October Note — Tranche 1 | ||||||||||||
| October Note — Tranche 2 | ||||||||||||
| Total | $ | $ | ||||||||||
Promissory Note — Brookstone XXI, LLC. The $
Scheduled maturities of long-term as of December 31, 2025, are as follows:
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Thereafter | ||||
| Total | $ |
Note 12 Leases
As of December 31, 2025, the balance of our right-of-use (“ROU”) assets was $
In connection with the acquisitions of Carolina Stone ( August 22, 2025) and Fraser Canyon Holdings/CSI ( December 1, 2025), the Company assumed operating leases for distribution, showroom, and warehouse facilities. The Carolina Stone leases include: (i) approximately
The maturity of our lease liabilities as of December 31, 2025 is as follows in (“000’s”):
| Year | Finance | Operating | ||||||
| 2026 | $ | $ | ||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| 2030 | ||||||||
| Thereafter | ||||||||
| Total undiscounted Lease Payments | ||||||||
| Less: Present value discount | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Lease expense recognized on our leases is as follows in (“000’s”):
| Twelve months | Twelve months | |||||||
| Ended | Ended | |||||||
| December 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Finance leases | ||||||||
| Amortization expense | $ | $ | ||||||
| Interest expense | ||||||||
| Operating leases | ||||||||
| Straight-line rent expense | ||||||||
| Total lease expense | $ | $ | ||||||
Note 12 Leases (cont.)
The following summarizes additional information related to our leases for 2025 and 2024 in (“000’s”):
| Twelve months ended | Twelve months ended | |||||||||||||||
| December 31, 2025 | December 31, 2024 | |||||||||||||||
| Finance | Operating | Finance | Operating | |||||||||||||
| Weighted-average remaining lease terms (years) | ||||||||||||||||
| Weighted-average discount rate | % | % | % | % | ||||||||||||
| ROU assets obtained in exchange for new lease liabilities | $ | $ | $ | $ | ||||||||||||
Note 13 TotalStone Preferred Units
The Company owns
In addition, as part of the merger of the Company and TotalStone, the Mezzanine lender accepted $
On March 8, 2023, the Company entered into the Ninth Amendment to the Revolving Credit, term Loan and Security Agreement (the “Ninth Amendment”). The Ninth Amendment permitted a payment of $
On the Restructuring Date ( March 7, 2025), all outstanding Class B and Class C Preferred Interests in TotalStone were exchanged for
Note 14 TotalStone Warrants
In connection with the April 2020 TotalStone transaction,
On the Restructuring Date ( March 7, 2025),
Note 15 Stockholders’ Equity
As of December 31, 2025, the Company had
In June 2015, our stockholders approved the 2015 Equity Incentive Plan (the “2015 Plan”) and reserved
Stock-based compensation expense reflects the fair value of stock-based awards measured at the grant date and recognized over the relevant vesting period. The Company generally estimates the fair value of each stock-based award on the measurement date using the Black-Scholes option valuation model which incorporates assumptions as to stock price volatility, the expected life of the options, risk-free interest rate and dividend yield.
Stock Compensation
There were
As of December 31, 2025 and December 31, 2024, there were approximately
The Brookstone Partners warrant expired unexercised on April 1, 2024.
Preferred Stock
On February 20, 2025, following the Company’s controlling shareholder’s approval, the Company filed an amendment to its Restated Certificate of Incorporation to increase the authorized shares of preferred stock to
The Board of Directors of the Company approved a Tax Benefit Preservation Plan (“Benefit Plan”) dated April 18, 2017, between the Company and Computershare. The Benefit Plan and the exercise of rights to purchase Series A Preferred Stock, pursuant to the terms thereof, may delay, defer or prevent a change in control without the approval of the Board. In addition to the anti-takeover effects of the rights granted under the Benefit Plan, the issuance of preferred stock, generally, could have a dilutive effect on our stockholders.
Under the Benefit Plan, each outstanding share of our common stock has attached one preferred stock purchase right. Each share of our common stock subsequently issued prior to the expiration of the Benefit Plan will likewise have attached one right. Under specified circumstances involving an “ownership change,” as defined in Section 382 of the Internal Revenue Code (“the Code”), the right under the Benefit Plan that attaches to each share of our common stock will entitle the holder thereof to purchase of a share of our Series A Preferred Stock for a purchase price of $
The Benefit Plan was cancelled per the Master Exchange and Other Transaction Agreement executed on March 3, 2025.
Series B Preferred Stock: In February 2025, the Company filed the Certificate of Designation of Preferences, Rights and Limitations of Series B Preferred Stock with the Delaware Secretary of State, designating
Series Z 8% Non-Convertible Preferred Stock (Classified as Liability): On September 30, 2025, the Company filed the Certificate of Designation of Preferences, Rights and Limitations of Series Z 8% Non-Convertible Preferred Stock with the Secretary of State of the State of Delaware, designating
In connection with the Public Offering that closed on March 7, 2025, the Company issued to the underwriters warrants to purchase an aggregate of
The Company’s Senior Secured Convertible Notes (see Note 11) are convertible into shares of Common Stock at conversion prices ranging from $
Note 16 TotalStone 401(K) Retirement Savings Plan
TotalStone maintains a defined contribution pension plan, which covers all employees electing to participate after completing certain service requirements. Employer contributions are made at the Company’s discretion. Generally, the Company makes safe harbor matching contributions equal to
Carolina Stone Distributors, LLC maintained a SIMPLE IRA plan covering eligible employees after 90 days of service. Under the plan, Carolina Stone matched employee contributions up to
Canadian Stone Industries Inc. sponsors a Group Registered Savings Plan ("Group RSP") through RBC covering all employees after three months of continuous service. Under the plan, CSI matches employee contributions at
Note 17 Income Taxes
Pre-Tax book income/(loss) has been recorded in the following jurisdictions:
| Tax Years Ended | ||||||||
| 12/31/2025 | 12/31/2024 | |||||||
| US | $ | ( | ) | $ | ( | ) | ||
| Foreign | ( | ) | ||||||
| Income from continuing operations before taxes | ( | ) | ( | ) | ||||
| Total pre-tax income/(loss) | $ | ( | ) | $ | ( | ) | ||
The Company generated federal and state income tax expense for the period ended December 31, 2025 of $
| Tax Years Ended | ||||||||
| 12/31/2025 | 12/31/2024 | |||||||
| Current: | ||||||||
| Federal | $ | $ | ||||||
| State | ||||||||
| Foreign | ( | ) | ||||||
| Deferred: | ||||||||
| Federal | ||||||||
| State | ||||||||
| Foreign | ( | ) | ||||||
| Income tax expense (benefit) for continuing operations | ||||||||
| Total | $ | |||||||
Note 17 Income Taxes (cont.)
Effective January 1, 2025, the Company adopted ASU 2023‑09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, on a prospective basis in accordance with the standard’s transition guidance. As required under ASU 2023‑09, the rate reconciliation for the current year is presented using the new prescribed categories and enhanced disaggregation to provide greater transparency into the factors affecting the Company’s effective tax rate for continuing operations. The following table presents the Company’s income tax rate reconciliation on continuing operations for the year ended December 31, 2025, prepared in accordance with the disclosure requirements of ASU 2023‑09 in ('000's').
| Tax Year Ended | ||||||||
| 12/31/2025 | ||||||||
| Amount | Percent | |||||||
| U.S. Federal Statutory Tax Rate | $ | ( | ) | % | ||||
| State and Local Income Taxes, Net of Federal Income Tax Effect | % | |||||||
| Foreign Tax Effects | ( | ) | % | |||||
| Effect of Changes in Tax Laws or Rates Enacted in the Current Period | % | |||||||
| Effect of Cross-Border Tax Laws | % | |||||||
| Tax Credits | % | |||||||
| Changes in Valuation Allowances | ( | ) | % | |||||
| Nontaxable or Nondeductible Items | ||||||||
| Embedded Derivative | ( | ) | % | |||||
| Goodwill Impairment | % | |||||||
| Other Nontaxable or Nondeductible Items | % | |||||||
| Changes in Unrecognized Tax Benefits | % | |||||||
| Other Adjustments | ||||||||
| Net Federal Operating Losses Expiration | % | |||||||
| Other Unused Attributes | % | |||||||
| Other | % | |||||||
| Effective Tax Rate | $ | % | ||||||
As a result of the Company’s prospective adoption of ASU 2023‑09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, the rate reconciliation table presented above for the year ended December 31, 2025 reflects the new prescribed categories and enhanced disaggregation required under the updated disclosure framework. In accordance with the transition guidance, the Company did not elect retrospective application; therefore, the comparative periods that follow are presented in the legacy ASC 740 format applicable to those historical periods. The Company continues to apply FASB ASC Topic 740, Income Taxes, in the computation and presentation of its income tax provision, and the enhanced ASU 2023‑09 disclosure requirements apply solely to the current year rate reconciliation. The following table presents the reconciliation of the income tax provision (benefit) for prior periods using the legacy ASC 740 disclosure format for continuing operations in ('000's').
| Tax Year Ended | ||||
| 12/31/2024 | ||||
| Income tax provison (benefit) at statutory rate | ( | ) | ||
| State taxes, net of federal benefit | ||||
| Net change in NOL carryforward, federal credits and valuation allowance | ||||
| Income tax provision recognized | $ | |||
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows in ('000's'):
| Tax Years Ended | ||||||||
| 12/31/2025 | 12/31/2024 | |||||||
| Deferred tax assets: | ||||||||
| Stock options | $ | $ | ||||||
| Basis difference in TotalStone | ||||||||
| Basis difference in Diamond Products | ||||||||
| Interest expense limitation | ||||||||
| Property and equipment | ||||||||
| Intangibles | ||||||||
| Federal credits | ||||||||
| Net operating loss carryforwards | ||||||||
| Other deferred tax assets | ||||||||
| Gross deferred tax assets | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax assets | $ | $ | ||||||
| Deferred tax liabilities | ||||||||
| Intangibles | ( | ) | ||||||
| Gross deferred tax liabilities | ( | ) | ||||||
| Net deferred tax liabilities | ( | ) | ||||||
| Net deferred taxes | $ | ( | ) | $ | ||||
Note 17 Income Taxes (cont.)
In December 2023, the FASB issued ASU 2023‑09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances the transparency and decision usefulness of income tax information by expanding annual disclosure requirements related to income taxes paid. The amendments require entities to disaggregate income taxes paid by jurisdiction, providing separate disclosure for federal, state, and foreign income tax payments. These requirements are intended to give users of the financial statements greater insight into the geographical distribution of an entity’s cash tax outflows and tax related cash flow risks. The Company has adopted the disclosure requirements of this standard on its consolidated financial statements.
Cash paid for income taxes (net of refunds) are as follows for the year ended December 31, 2025 in ('000's'):
| Tax Year Ended | ||||
| 12/31/2025 | ||||
| U.S. Federal | $ | |||
| U.S. State | ||||
| California | ( | ) | ||
| New Jersey | ( | ) | ||
| Foreign | ||||
| Canada | ||||
| Total income taxes paid, net | $ | ( | ) | |
The Company has accumulated approximately $
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax basis of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company recognizes deferred tax assets to the extent that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. The valuation allowance changed by -$
For the period ended December 31, 2025, Capstone Holding Corp. has a total carryover of Federal Net Operating Losses (NOLs) of $
The Internal Revenue Code of 1986, as amended, imposes restrictions on the utilization of net operating losses and tax credits in the event of an "ownership change" of a corporation. Accordingly, a company's ability to use net operating losses and tax credits may be limited as prescribed under Internal Revenue Code Section 382 and 383 ("IRC Section 382"). Events which may cause limitations in the amount of the net operating losses or tax credits that the Company may use in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. Utilization of the federal and state net operating losses may be subject to substantial annual limitation due to the ownership change limitations provided by the IRC Section 382 rules and similar state provisions. At December 31, 2025, based on preliminary internal analysis, the Company has not experienced an ownership change as defined under IRC Section 382. However, in light of the 2025 initial public offering, corporate restructuring, and conversions of convertible notes and preferred interests into common stock, the Company expects that an ownership change may occur in early 2026. Upon occurrence of an ownership change, the Company's ability to utilize its $
The Company's major tax jurisdictions are the United States and Canada. All of the Company's tax years will remain open for examination by the Federal and state tax authorities for and years, respectively, from the date of utilization of the net operating loss or research and development credit. The Company does not have any tax audits pending in the United States.
"The Inflation Reduction Act of 2022 was signed into law August 16, 2022, and includes significant legislation addressing taxes, inflation, climate change and renewable energy incentives, and healthcare. Key tax provisions include a 15% corporate minimum tax, clean energy incentives, and a 1% excise tax on stock buybacks. The Company does not expect the provisions of such legislation to have any impact on the effective tax rate of the Company but will continue to evaluate the tax effects should any provisions become applicable to the Company.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted as Public Law 119‑21. The legislation implements several amendments to the Internal Revenue Code, including the permanent extension of 100 percent bonus depreciation for qualified property and research and development expenditures, as well as revisions to expensing rules applicable to certain structures. The Act also includes modifications affecting corporate tax administration, such as adjustments to the Employee Retention Credit (ERC), changes to Opportunity Zone related provisions, and the scheduled expiration or modification of certain business related clean energy credits.
The Company has evaluated the corporate income tax effects of the OBBBA in the period of enactment. In connection with the Act’s modifications to bonus depreciation, the Company has accelerated depreciation for its current period additions, consistent with the Act’s statutory framework governing the 100 percent allowance. The resulting adjustments have been reflected in the Company’s measurement of current and deferred income tax assets and liabilities. Based on its analysis, the Company determined that the enactment of the OBBBA did not have a material impact on its consolidated financial statements for the year ended December 31, 2025. The Company will continue to monitor regulatory and administrative guidance issued under the Act."
Note 18 Segment Information
The Company has reportable segments: (i) the TotalStone segment, which includes the operations of TotalStone, LLC and the legacy Instone distribution business, together with Canadian Stone Industries Inc. and Continental Stone Industries, Inc. (collectively, "Fraser Canyon"), acquired in December 2025; and (ii) the Carolina Stone segment, which includes the operations of Carolina Stone Distributors, LLC and its affiliated installation business, acquired in August 2025. The TotalStone segment distributes natural and manufactured stone and related building products. The Carolina Stone segment distributes and installs stone veneer and related masonry products. The Company also incurs corporate-level SG&A expenses at Capstone Holding Corp. ("Capstone" or the "Parent"), consisting primarily of board fees, investor relations, filing, legal, insurance, accounting and consulting expenses not identifiable or allocated to the operating segments.
The Company's Chief Executive Officer serves as the chief operating decision maker ("CODM"). The CODM evaluates segment performance based on segment revenue, gross profit, and income (loss) from operations. Corporate overhead and certain shared services costs not directly attributable to a segment are reported within the Parent/Eliminations column. Interest expense, income taxes, and other non-operating items are not allocated to segments. The accounting policies of the reportable segments are the same as those described in Note 3.
The following tables present financial information regarding the Company's reportable segments, reconciled to the Company's consolidated totals.
| Fiscal Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||||||||||||||||
| TotalStone | Carolina Stone | Parent | Eliminations | Consolidated | TotalStone | Carolina Stone | Parent | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
| Income (loss) from operations before taxes: | ||||||||||||||||||||||||||||||||||||||||
| Sales | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Cost of goods sold | ||||||||||||||||||||||||||||||||||||||||
| Gross Profit | ||||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Impairment of goodwill | ||||||||||||||||||||||||||||||||||||||||
| Transaction Expenses | ||||||||||||||||||||||||||||||||||||||||
| (Loss) income from operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||
| Other financial information: | ||||||||||||||||||||||||||||||||||||||||
| Depreciation & amortization | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| As of December 31, 2025 | As of December 31, 2024 | ||||||||||||||||||||||||||||||||||||
| TotalStone | Carolina Stone | Parent | Eliminations | Consolidated | TotalStone | Carolina Stone | Parent | Eliminations | Consolidated | ||||||||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
Note 19 Subsequent Events
Cost Rationalization and Executive Compensation. In January 2026, the Company executed a cost rationalization program removing approximately $
Fee Waiver and Deferral Agreement. On January 21, 2026, TotalStone, LLC entered into a conditional fee waiver and deferral agreement with Brookstone Partners IAC, Inc. (a related party) and Gordon Strout (Board Chairman of TotalStone). Under the agreement, Brookstone Partners IAC agreed to waive management and consulting fees totaling $
Convertible Note Activity. Subsequent to December 31, 2025, the Buyer converted additional principal under the October 2025 Senior Secured Convertible Note into shares of common stock. Between January and March 2026, the Buyer converted an aggregate of approximately $
2025 Stock Plan and Restricted Stock Awards. On March 30, 2026, the Board of Directors approved the Capstone Holding Corp. 2025 Stock Plan (the “2025 Plan”), reserving up to
Facility Consolidation. The Company’s lease at 5141 W. 122nd Street, Alsip, Illinois terminates effective April 30, 2026. The Company has entered into a new lease at 18400 76th Avenue, Tinley Park, Illinois, which commenced April 1, 2026 with a term of
Pursuant to the requirements of Section 13 or 15(d) 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. |
||
| Dated: April 15, 2026 |
By: |
/s/ Matthew E. Lipman |
| Matthew E. Lipman |
||
| Chief Executive Officer |
||
| Dated: April 15, 2026 |
By: |
/s/ Edward Schultz |
| Edward Schultz |
||
| Chief Financial Officer |
||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature |
Title |
Date |
||
| /s/ Matthew E. Lipman |
Chief Executive Officer and Director |
April 15, 2026 |
||
| Matthew E. Lipman |
(Principal Executive Officer) |
|||
| /s/ Edward Schultz |
Chief Financial Officer (Principal |
April 15, 2026 |
||
| Edward Schultz |
Financial Officer and Principal Accounting Officer) |
|||
| /s/ Michael Toporek |
Chairman |
April 15, 2026 |
||
| Michael Toporek |
||||
| /s/ Charles Dana |
Director |
April 15, 2026 |
||
| Charles Dana |
||||
| /s/ John M. Holliman, III |
Director |
April 15, 2026 |
||
| John M. Holliman, III |
||||
| /s/ Gordon Strout |
Director |
April 15, 2026 |
||
| Gordon Strout |
||||
| /s/ Fredric J. Feldman |
Director |
April 15, 2026 |
||
| Fredric J. Feldman, Ph.D. |
||||
| /s/ Elwood D. Howse, Jr. |
Director |
April 15, 2026 |
||
| Elwood D. Howse, Jr. |
