Capstone Holding Corp 10-Q for FY2026 Q2
Capstone Holding Corp. (CAPS)
About this 10-Q
Capstone Holding Corp filed this 10-Q on August 12, 2026, covering the quarter ended June 30, 2026 (FY2026 Q2).
Headline figures
Quarter ended June 30, 2026, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $21.48M
- up 67.1% from $12.85M a year earlier
- Net loss
- $1.38M
- compared with a net loss of $700K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from ________________ to ________________
Commission file number
Capstone Holding Corp.
(Exact name of registrant as specified in its charter)
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| (Address of principal executive offices) | (Zip Code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| | | The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| | Smaller reporting company |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act.
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes
The number of shares of the registrant’s common stock outstanding as of August 10, 2026 was
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| Consolidated Balance Sheets as of June 30, 2026 (Unaudited) and December 31, 2025 |
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| Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2026 and 2025 (Unaudited) |
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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| ITEM 4: | MINE SAFETY DISCLOSURES | 38 |
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CAPSTONE HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
| (Unaudited) | (Audited) | |||||||
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| 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 | ||||||||
| 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 | ||||||||
| Income tax payable | ||||||||
| Derivative liability | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Accrued related party management fee | ||||||||
| Accrued Series Z preferred stock dividends, related party | ||||||||
| Series Z preferred stock, related party | ||||||||
| 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 | ||||||||
| Equity: | ||||||||
| Series B Preferred Stock, par value; shares authorized; issued as of June 30, 2026 and December 31, 2025. | ||||||||
| Common Stock $ par value; shares authorized; and issued as of June 30, 2026 and December 31, 2025, respectively. | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total Equity | ||||||||
| Total Liabilities & Equity | $ | $ | ||||||
See notes to consolidated financial statements
CAPSTONE HOLDING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| (As Restated) | (As Restated) | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Sales | $ | $ | $ | $ | ||||||||||||
| Sales returns and allowances | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net sales | ||||||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Change in fair value of contingent consideration | ||||||||||||||||
| Income (loss) from operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Unrealized gain on derivative instruments | ||||||||||||||||
| Realized foreign currency loss, net | ( | ) | ( | ) | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss from operations before taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ( | ) | ( | ) | ||||||||||||
| Net Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Class B units preferred return | ( | ) | ||||||||||||||
| Net Loss attributable to Capstone Holding Corp. stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||||||||||
| Comprehensive Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 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 CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except Common Stock Shares)
(unaudited)
| Accumulated | TotalStone, LLC | |||||||||||||||||||||||||||||||||||||||
| Common | Series B | Additional | Other | Class B | Special | |||||||||||||||||||||||||||||||||||
| Stock | Common | Series B | Preferred | Paid-In | Accumulated | Comprehensive | Total | Preferred | Preferred | |||||||||||||||||||||||||||||||
| (Shares) | Stock | (Shares) | Stock | Capital | Deficit | Income (Loss) | Equity | Units | Unit | |||||||||||||||||||||||||||||||
| Balance at January 1, 2026 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||
| Net Loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Issuance of warrants pursuant to Senior Convertible Notes | — | — | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to equity line of credit, net of fees | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to Senior Convertible Notes | ||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | ||||||||||||||||||||||||||||||||||||||
| Unvested restricted stock awards (March 30, 2026 grant) | ||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2026 | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Net Loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to equity line of credit, net of fees | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to Senior Convertible Notes | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance at June 30, 2026 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||
| Accumulated | TotalStone, LLC | |||||||||||||||||||||||||||||||||||||||
| Common | Series B | Additional | Other | Class B | Special | |||||||||||||||||||||||||||||||||||
| Stock | Common | Series B | Preferred | Paid-In | Accumulated | Comprehensive | Total | Preferred | Preferred | |||||||||||||||||||||||||||||||
| (Shares) | Stock | (Shares) | Stock | Capital | Deficit | (Loss) | Equity | Units | 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 | ||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Net Loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Issuance of commitment shares pursuant to equity line of credit | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to equity line of credit | ||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2025 | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
See notes to consolidated financial statements
CAPSTONE HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Six Months Ended | Six Months Ended | |||||||
| June 30, | June 30, | |||||||
| 2026 | 2025 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Non cash items: | ||||||||
| Depreciation and amortization | ||||||||
| Net, amortization (accretion) to interest expense | ||||||||
| Unrealized gain on derivative instruments | ( | ) | ||||||
| Provisions for doubtful debt | ||||||||
| Provisions for inventory reserve | ||||||||
| Remeasurement of contingent consideration | ||||||||
| Restricted stock awards | ||||||||
| Paid-in-kind interest | ||||||||
| Series Z preferred dividends accrued | ||||||||
| Change in other operating items: | ||||||||
| Accounts receivable, net | ( | ) | ( | ) | ||||
| Inventory | ||||||||
| Prepaid and other assets | ( | ) | ( | ) | ||||
| Change in operating leases, net | ( | ) | ( | ) | ||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Derivative liability | ||||||||
| Other liabilities | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment, net | ( | ) | ( | ) | ||||
| Acquisition of CSI, net of cash acquired | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Payments on financing lease liabilities | ( | ) | ( | ) | ||||
| Financing fees paid | ( | ) | ||||||
| Borrowings under line of credit, net | ||||||||
| Debt payments | ( | ) | ( | ) | ||||
| Cash Fee paid on ELOC Draw Down Notice | ( | ) | ||||||
| Proceeds from IPO and stock issuances | ||||||||
| Proceeds from equity line of credit | ||||||||
| Cash paid for IPO and stock issuance costs | ( | ) | ||||||
| Net cash provided by 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) | $ | |||||||
| Financing cash flows from finance leases (principal portion) | ||||||||
| Conversion of Special Preferred Units to debt | ||||||||
| Conversion of Class B Preferred Units to shares of common stock | ||||||||
| Fair value of warrants issued to defer senior secured note installment payment | ||||||||
| Conversion of debt to stock | ||||||||
| Reclassification of derivative liability to APIC upon conversion | ||||||||
| Operating cash flows from operating leases | ||||||||
| Interest Paid | 590 | |||||||
See notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 the issued and outstanding membership interests (the "Holdings Membership Interests") in Carolina Stone Holdings, which owns all 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.
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
CAPSTONE HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 is in accordance with accounting principles generally accepted in the United States of America. (U.S. GAAP). In the opinion of management, the financial statements include all adjustments necessary and were of a normal recurring nature for the fair presentation of the Company’s financial position, results of operations, and cash flows.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the SEC's Form 10-Q instructions and Article 10 of Regulation S-X (the interim reporting rule). Accordingly, they do not include all of the information and notes required by GAAP for annual consolidated financial statements.
The consolidated balance sheet on December 31, 2025 has been derived from the audited consolidated financial statements at that date but does not include all the information and notes required by GAAP for complete financial statements. These financial statements have been prepared on a basis that is consistent with the accounting principles applied in our Annual Report on Form 10-K for the fiscal year ended on December 31, 2025 (“2025 Form 10-K”). This report should be read in conjunction with our 2025 Form 10-K filed with the SEC on April 16, 2026, as amended on April 17, 2026.
In our opinion, the accompanying unaudited interim consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates, and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of June 30, 2026 and its results of operations, cash flows, and changes in stockholders’ Equity (deficit) for the three and six months ended June 30, 2026 and 2025. The results for the three and six months ended June 30, 2026, are not necessarily indicative of the results expected for any future period or the full year.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make some estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period and accompanying notes. Management bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Although these estimates are based on management’s assumptions regarding current events and actions that may impact on the Company in the future, actual results may differ from these estimates and assumptions.
Business Combinations
The Company accounts for business acquisitions using the acquisition method of accounting, in accordance with which assets acquired, and liabilities assumed are recorded at their respective fair values at the acquisition date. The fair value of the consideration paid, including contingent consideration, is assigned to the assets acquired and liabilities assumed based on their respective fair values. Goodwill represents the excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed at acquisition date.
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 provisional amounts identified after the end of the measurement period are recognized in the Company's consolidated statements of operations.
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 at the date of acquisition:
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 June 30, 2026 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 (Carolina Stone Distributors, LLC) and Canadian Stone Industries (Fraser Canyon Holdings Inc.) acquisitions, measured at fair value (as stated in FASB ASC 805-30-35-1 Subsequent measurement) using a probability-weighted expected payout, discounted at a rate that reflects the risk of the underlying performance metric 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 June 30, 2026 or December 31, 2025.
CAPSTONE HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 Summary of Significant Accounting Policies (cont.)
Cash
Cash consists of balances held in a commercial bank account.
Accounts Receivable
Accounts receivables are recorded and carried at the original invoiced amount less any estimates for allowance for doubtful debts that are potentially uncollectible amounts. The Company estimates the allowance for expected credit losses (“ECL”) based upon its assessment of various factors, including historical experience, the age of the accounts receivable balances aging, credit quality of its customers, current economic conditions, and other factors that may affect the Company’s ability to collect from customers. Additionally, the company has elected to assume that current conditions as of the balance sheet date remain unchanged for the remaining life of accounts recievables as it relates to the development of reasonable and supportable forecasts. As of June 30, 2026 and December 31, 2025, 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 performance obligations have been satisfied under the contract. (According to ASC 606). Company invoices are retained and included in contract receivables when obligations have been satisfied and the right to collect is subject only to the passage of time. As of June 30, 2026 and December 31, 2025, retainage receivables were $
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentration 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 cost or net realizable value. Cost is determined using the average cost method. Inventories also include deposits placed on inventory purchases for shipments not yet received. Significant prepaid inventory may be located overseas. The total prepaid inventory balance as of June 30, 2026 and December 31, 2025, is $
Other Current Assets
In February 2026, the U.S. Supreme Court ruled that tariffs imposed under the International Emergency Economic Powers Act ("IEEPA"), including the reciprocal tariffs, were imposed without statutory authority. Following the ruling, U.S. Customs and Border Protection ("CBP") established an administrative process through which importers of record may claim refunds of IEEPA and reciprocal duties previously paid.
During the period from March 2025 through February 2026, the Company's subsidiary TotalStone, as importer of record, paid $
Accordingly, as of June 30, 2026, the Company recorded a tariff refund receivable of $
In addition, the Company estimates that it paid $
On June 2, 2026, the U.S. Department of Justice filed a notice of appeal with the U.S. Court of Appeals for the Federal Circuit contesting CBP's obligation to refund certain entries that were liquidated and outside the applicable protest window, a category limited to importers pursuing refunds through litigation. The Company's claims were accepted through CBP's administrative refund process and are not within the scope of the appeal; accordingly, management does not expect the appeal to affect the recognized receivable.
Property and Equipment
Property and equipment are stated at cost and is depreciated over the estimated useful lives ranging from to years according to asset category. Depreciation is computed by using the straight-line method. Property and equipment is comprised of building, machinery & equipment, computer equipment, leasehold improvements, software, office equipment, vehicles, and furniture & fixtures. Minor maintenance and repairs are charged to expenses as incurred.
Note 3 Summary of Significant Accounting Policies (cont.)
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 events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. Such triggering events or changes in circumstances include, but are not limited to: a significant adverse change in the business climate or legal factors; an adverse action or assessment by a regulator; unanticipated competition; a loss of key personnel; a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of; or a sustained decline in the Company's stock price or overall market capitalization according to ASC 350.
The Company’s goodwill is allocated to the Company’s reporting units for impairment assessment purposes. As of June 30, 2026, the Company has
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 $
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.
Based on this qualitative assessment, the Company concluded that no significant events or changes in circumstances have occurred that would more likely than not reduce the fair value of any reporting unit less than its carrying amount. Accordingly, an interim quantitative goodwill impairment test was not required, and
As of June 30, 2026, the Company performed a qualitative interim assessment under ASC 350-20-35-3C to determine whether events or changes in circumstances had occurred that would more likely than not reduce the fair value of any reporting unit below its carrying amount. In performing this assessment, the Company considered, among other factors macroeconomic conditions, industry and market factors, entity specific events, or overall financial performance trends, like share-price movements (including the Company’s status with respect to the Nasdaq minimum bid price requirement for which the Company was granted an additional 180-day compliance period), and reporting-unit-changes.
Goodwill balances as of June 30, 2026 and December 31, 2025 are $
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 other 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.
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 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 the three and six months ended June 30, 2026 and 2025, 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
Note 3 Summary of Significant Accounting Policies (cont.)
Earnings Per Share
Basic earnings (loss) per share is computed by dividing the net income (loss) applicable to the common stockholders of Capstone Holding Corp. by the weighted average number of shares of common stock outstanding during the year. Diluted earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method and the if-converted method for convertible notes. Potential common shares that have anti-dilutive effect are excluded from computation. 3i February warrants issued with a nominal exercise price of $
For the six months ended June 30, 2026 and 2025, both the calculations for basic and diluted loss per share are the same as potential dilutive securities would have had an anti-dilutive effect. For the six months ended June 30, 2026 and 2025, the number of incremental common shares from potentially dilutive securities consisted of the following:
The table above reflects the conversion prices in effect at June 30, 2026. On August 10, 2026 the conversion price of both Senior Secured Convertible Notes was reduced to $
| June 30, | June 30, | |||||||
| 2026 | 2025 | |||||||
| Convertible notes | ||||||||
| Unvested restricted stock awards | ||||||||
| Representative's warrant | ||||||||
| Stock options | ||||||||
| BP Peptides warrant | ||||||||
| Total | ||||||||
Restatement
On August 7, 2026, the Company identified an error in the computation of basic and diluted loss per share for the three months ended March 31, 2025, the three and six months ended June 30, 2025, and the three and nine months ended September 30, 2025. The amounts previously reported for the periods ended June 30, 2025 were the number of shares outstanding at the end of the period rather than averages weighted for the portion of the period each share was outstanding, and the amounts previously reported for the periods ended September 30, 2025 did not reflect the day weighted average of shares outstanding during those periods, in each case as required by ASC 260, Earnings Per Share. The error affected only the weighted average share amounts and the related per share amounts; it did not affect net loss, total assets, total liabilities, stockholders' equity, or cash flows for any period. The Company assessed the error as material and has restated the affected periods in accordance with ASC 250, Accounting Changes and Error Corrections. The Company is filing amendments on Form 10-Q/A for the quarterly periods ended June 30, 2025 and September 30, 2025. The restated weighted average share and per share amounts for the three months ended March 31, 2025 are presented as comparative amounts in Amendment No. 1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2026.
The effect of the restatement on the amounts previously reported for the three and six months ended June 30, 2025 is as follows:
| Three Months Ended | ||||||||||||
| June 30, 2025 | ||||||||||||
| As Previously Reported | Adjusted | As Restated | ||||||||||
| Net loss attributable to Capstone Holding Corp. stockholders (in thousands) | $ | ( | ) | $ | $ | ( | ) | |||||
| Weighted average number of common shares outstanding - basic and diluted | ( | ) | ||||||||||
| Net loss per share attributable to Capstone Holding Corp. stockholders - basic and diluted | $ | ( | ) | $ | $ | ( | ) | |||||
| Six Months Ended | ||||||||||||
| June 30, 2025 | ||||||||||||
| As Previously Reported | Adjusted | As Restated | ||||||||||
| Net loss attributable to Capstone Holding Corp. stockholders (in thousands) | $ | ( | ) | $ | $ | ( | ) | |||||
| Weighted average number of common shares outstanding - basic and diluted | ( | ) | ||||||||||
| Net loss per share attributable to Capstone Holding Corp. stockholders - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Reclassifications
Certain reclassifications to prior period information have been made to conform with current period presentation.
Recent Accounting Pronouncements
In November 2024, the FASB issued ASU 2024-03, Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220-40), which requires public business entities to disclose disaggregated information about specified categories of expenses. The standard is effective for annual periods beginning after December 15, 2026 and interim periods within annual periods beginning after December 15, 2027, with early adoption permitted. The Company is evaluating the impact of the standard on its consolidated financial statement disclosures.
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 modifications of convertible debt instruments should be accounted for as induced conversions. The Company adopted this guidance effective January 1, 2026 on a prospective basis. Adoption did not have a material effect on the Company’s consolidated financial statements.
On July 30, 2025 the FASB issued ASU 2025-05, Financial Instruments — Credit Losses (Topic 326): Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which provides a practical expedient permitting entities to assume current conditions as of the balance sheet date do not change for the remaining life of the asset when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606. The amendments are effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods, with early adoption permitted. The Company adopted the standard effective January 1, 2026, electing the practical expedient, and the adoption did not have a material impact on its consolidated financial statements.
Note 4 Business Combination
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 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 $
Note 4 Business Combination (cont.)
The subordinated promissory note was issued to D22L, Inc. in the original principal amount of $
As initially recognized in fiscal year 2025, contingent consideration of up to $
The fair value of contingent consideration at acquisition date of $
The following table presents the purchase price allocation for the Carolina Stone Holdings acquisition as finalized at December 31, 2025, measured in accordance with ASC 805 (in thousands):
| Amount | ||||
| Cash purchase price | $ | |||
| Working capital | ||||
| 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 $
Note 4 Business Combination (cont.)
The Company 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 purchase price allocation was final at December 31, 2025, other than the working capital adjustment under the purchase agreement, which the Company settled during the six months ended June 30, 2026 as described above. The allocation below reflects that settlement. 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 $
The carrying amount of goodwill was $
CSI contributed revenue of thousand and net loss of $
The following table presents the final purchase price allocation for the FCHI acquisition, updated for the working capital settlement described above, measured in accordance with ASC 805 (in thousands):
| 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
The following unaudited pro forma information presents the Company’s consolidated results of operations for the six months ended June 30, 2025 as though both acquisitions had been completed as of January 1, 2025:
| Six Months Ended | ||||
| June 30, | ||||
| 2025 | ||||
| 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 Holdings and the Fraser Canyon acquisitions had closed on January 1, 2025. Pro forma loss per share uses the restated weighted average number of common shares outstanding of
Note 4 Business Combination (cont.)
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, 2025, $
(b) Incremental amortization expense thousand for the six months ended June 30, 2026, on the identifiable intangible assets recognized in the finalized purchase price allocations for the Carolina Stone acquisition (trade names of $
(c) Income taxes — No incremental tax effect has been recognized on Carolina Stone or other U.S.-jurisdiction pro forma adjustments because the Company maintains a full valuation allowance against its U.S. net deferred tax assets. Canadian income tax effects on the Fraser Canyon-related pro forma adjustments are not material to the pro forma presentation and have not been separately reflected.
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.
Effective February 1, 2026, in connection with the cost rationalization program implemented by the Board, the Company’s Chief Executive Officer reduced his annual base cash salary to $
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. Effective January 1, 2026, Mr. Strout no longer receives deferred compensation and receives $
Stream Finance, LLC, which serves as a creditor on TotalStone’s mezzanine term loan, is managed by Brookstone. As of June 30, 2026 and December 31, 2025, the Company’s outstanding principal was $
On March 10, 2025, TotalStone paid Brookstone Partners IAC, Inc. $
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 $
Promissory Note — Brookstone XXI, LLC. The $
Series Z
Note 6 Property and Equipment, Net.
A summary of the Company’s property and equipment is as follows in (“000’s”):
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| 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 the three months ended June 30, 2026 and 2025 was $
Note 7 Goodwill and Other Intangible Assets
The following tables summarize the Company’s other intangible assets in (“000’s”):
| Balance at December 31, 2025 | ||||||||||||
| Gross Carrying | Accumulated | Net Carrying | ||||||||||
| Amount | Amortization | Amount | ||||||||||
| Non-compete agreements | $ | $ | ( | ) | $ | |||||||
| Customer lists | ( | ) | ||||||||||
| Tradenames | ( | ) | ||||||||||
| Other | ( | ) | ||||||||||
| Total definite-lived intangible assets | ( | ) | ||||||||||
| Trademark | — | |||||||||||
| Indefinite-lived intangible assets | — | |||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | |||||||
| Balance at June 30, 2026 | ||||||||||||
| 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 the three and six months ended June 30, 2026 and 2025 was $
Total future amortization expense for finite-lived intangible assets was estimated as follows in (“000’s):
| Future | ||||
| Amortization | ||||
| Year | Expenses | |||
| Remainder of 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Thereafter | ||||
| Total | $ | |||
The future amortization schedule above excludes $
Note 7 Goodwill and Other Intangible Assets (cont.)
The changes in the carrying amount of goodwill for the six months ended June 30, 2026 are as follows in (“000’s”):
| Balance – December 31, 2025 | $ | |||
| Measurement-period adjustment | ||||
| Foreign currency translation | ( | ) | ||
| Balance – June 30, 2026 | $ |
2025 Impairment Assessment
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 $
Note 8 Fair Value Measurements
The Company’s fair value hierarchy policy is described in Note 3. There were no material changes in the carrying amount of goodwill between December 31, 2025 and June 30, 2026. The following table presents assets and liabilities measured at fair value by level:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| June 30, 2026 — Recurring | ||||||||||||||||
| Derivative liabilities — embedded conversion features | – | – | $ | $ | ||||||||||||
| Earn-out Payable | – | – | ||||||||||||||
| June 30, 2026 — Non-recurring (equity-premise) | ||||||||||||||||
| Common stock purchase warrants — issued February 12, 2026 | – | – | ||||||||||||||
| December 31, 2025 — Recurring | ||||||||||||||||
| Derivative liabilities — embedded conversion features | – | – | ||||||||||||||
| Earn-out Payable | – | – | ||||||||||||||
| December 31, 2025 — Non-recurring (equity-premise) | ||||||||||||||||
| Goodwill — Instone reporting unit | – | – | ||||||||||||||
On June 30, 2026, the Company’s Level 3 recurring fair value measurements consisted of derivative liabilities of $
Note 8 Fair Value Measurements (cont.)
Derivative Liability
The Level 3 derivative liabilities, representing the embedded conversion features bifurcated from the Senior Secured Convertible Notes, decreased from $
Significant unobservable inputs used in the Level 3 measurement of the derivative liabilities (Black-Scholes option-pricing model) are summarized below:
| SSN #1 at | SSN #2 at | |||||||||||||||
| Issuance | Issuance | June 30, | December 31, | |||||||||||||
| (7/29/2025) | (10/22/2025) | 2026 | 2025 | |||||||||||||
| Expected term (years) | ||||||||||||||||
| Risk-free rate | % | % | ||||||||||||||
| Annualized volatility | % | % | % | % | ||||||||||||
Earn-out Payable
In addition to the embedded derivative liabilities described above, the fair value of each earn-out was determined at the respective acquisition date using an option-pricing model implemented through a Monte Carlo simulation of the underlying EBITDA of each acquired business.
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 Commitments and Contingencies
The Company is subject, from time to time, to certain legal proceedings and claims arising out of our business, which cover a wide range of matters, including product liability, advertising, contracts, environment, patent and trademark matters, labor and employment matters and tax. While considerable uncertainty exists, in the opinion of management, the ultimate resolution of the various lawsuits and claims will not materially affect our financial position, results of operations or cash flows.
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 . TotalStone’s maximum revolving advance amount is $
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 June 30, 2026 the combined balance outstanding under the Company's revolving credit facilities was $
Note 11 Debt
As of June 30, 2026, the Company had $
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Long-term Debt | ||||||||
| 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 0.75, not to exceed % per annum (see further details below), with a maturity date of September 30, 2028. 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 , as extended on June 17, 2026, which are included in this amount. At June 30, 2026 and December 31, 2025, $ 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 June 30, 2026 and December 31, 2025, respectively). At June 30, 2026 and December 31, 2025, $ 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 (% and % at June 30, 2026 and December 31, 2025, respectively). At June 30, 2026 and December 31, 2025, $ thousand and $ thousand of accrued interest remains unpaid and is included within this amount, respectively. | ||||||||
| 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 % original issue discount and bears interest at the rate of % per annum, with a maturity date of . At June 30, 2026 and December 31, 2025, $ and $ thousand of accrued interest remains unpaid and is included within this amount, respectively. | ||||||||
| 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 3.00% after November 30, 2026. At June 30, 2026 and December 31, 2025, $ and $ thousand of accrued interest remains unpaid, respectively. | ||||||||
| Seller’s note with Fraser Canyon Holdings Inc., which requires quarterly principal payments of CAD $ commencing . This Subordinated Promissory Note has a maturity date of December 1, 2028 and bears interest at 30-day average SOFR plus %, stepping up to SOFR plus 2.50% after November 30, 2026 and SOFR plus 3.75% after November 30, 2027. At June 30, 2026 and December 31, 2025, $ and $ thousand of accrued interest remains unpaid, respectively. | ||||||||
| 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 June 30, 2026 and December 31, 2025, $ and $ thousand of accrued interest remains unpaid and is included within this amount, respectively. | ||||||||
| 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 %. | ||||||||
| 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 (a related party), as agent (as amended, the "Stream Finance Credit Agreement"). The mezzanine term loan bears interest at
The following table summarizes the activity in the Stream Finance mezzanine term loan for the six months ended June 30, 2026:
| Balance, December 31, 2025 | $ | |||
| PIK interest capitalized | ||||
| Balance, June 30, 2026 | $ |
(1) The table above presents principal activity only; accrued and deferred interest and the $
Prior to the Fourth 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:
The First Seller Note was issued in the original principal amount of CAD $
Note 11 Debt (cont.)
Liquidity and NASDAQ Listing Compliance
For the three months ended June 30, 2026, net sales were $
The Company has nonetheless generated recurring net losses, including a net loss of $
These conditions, together with the Company’s accumulated deficit and near-term debt maturities, initially indicated that substantial doubt existed about the Company’s ability to meet its obligations and to continue as a going concern within one year after the date these condensed consolidated financial statements are issued. Management has concluded that the following plans and resources, in the aggregate, alleviate that doubt:
| i. | Management continues to execute the January 2026 cost rationalization program, which removed approximately $ |
| ii. | Management is expanding the Company’s product offering and its distribution. Eldorado Stone reached 81 dealers across 17 states within ten weeks of launch, BrikClad continues to gain distribution in Canada, and Nature’s Edge launched during the second quarter. The Company is extending distribution into the Carolinas and Canadian markets and expects to open its ninth distribution location in August 2026; |
| iii. | Management expects the operating subsidiaries to generate cash from operations in the second half of the year as accounts receivable and inventory are reduced from seasonal highs, and has identified further reductions in inventory at TotalStone and at the CSI business that can be realized if required. Management expects a portion of the cash generated at the operating subsidiaries to be available to fund holding company obligations; |
| iv. | As described in Note 3, TotalStone filed |
| v. | The Company received gross proceeds of $ |
| vi. | The U.S. revolving credit facility with Beacon Bank & Trust (successor by merger to Berkshire Bank), with approximately $ |
| vii. | Nasdaq granted the Company an additional 180-day compliance period through January 4, 2027 to regain compliance with Nasdaq Listing Rule 5550(a)(2). |
| Based on this evaluation, management has concluded that these plans alleviate the substantial doubt about the Company’s ability to continue as a going concern. |
CAPSTONE HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Senior Secured Convertible Notes.
The embedded conversion features are bifurcated as derivative liabilities and measured at fair value at each reporting date with changes in fair value recognized in earnings, in accordance with ASC 815-15. In July 2025, the Company issued a Senior Secured Convertible Note to 3i, LP (the "July Note") in the original principal amount of $
| July 2025 Note | October 2025 Note | Total | ||||||||||
| Balance, December 31, 2025 | $ | $ | $ | |||||||||
| Converted to common stock | ( | ) | ( | ) | ( | ) | ||||||
| Balance, June 30, 2026 | $ | $ | $ | |||||||||
| Note | Conversion Price | Principal | Accrued Interest | Shares Issued | ||||||||||||
| July 2025 Note | $ | $ | $ | |||||||||||||
| October 2025 Note | $ | |||||||||||||||
| October 2025 Note | $ | |||||||||||||||
| Total | $ | $ | ||||||||||||||
On April 16, 2026, pursuant to a unanimous written consent dated April 16, 2026, the Company and the Buyer entered into a Letter Agreement (the “April 2026 Letter Agreement”) reducing the Conversion Price applicable to $
The following table summarizes the carrying value of the Company's senior secured convertible notes by note as of June 30, 2026:
| 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 summarizes the carrying value of the Company’s senior secured convertible notes as of each period end:
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Stated principal | $ | $ | ||||||
| Less: unamortized original issue discount | ( | ) | ( | ) | ||||
| 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 six month ended June 30, 2026:
| SSN #1 | SSN #2 | Total | ||||||||||
| Balance, December 31, 2025 | $ | $ | $ | |||||||||
| Change in fair value — amendments | ||||||||||||
| Derecognition to APIC | ( | ) | ( | ) | ( | ) | ||||||
| Change in fair value — conversions | ( | ) | ( | ) | ( | ) | ||||||
| Change in fair value — remeasurement | ( | ) | ( | ) | ||||||||
| Balance, June 30, 2026 | $ | $ | $ | |||||||||
As of June 30, 2026, 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 | ||||||||||||
| October Note — Tranche 3 | ||||||||||||
| Total | $ | $ | ||||||||||
Scheduled maturities of long-term debt as of June 30, 2026, are as follows:
| Remainder of 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Thereafter | ||||
| Total | $ |
Note 12 Leases
As of June 30, 2026, 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
Moreover, the CSI leases include: (i) approximately
The maturity of our lease liabilities as of June 30, 2026 is as follows in (“000’s”):
| Year | Finance | Operating | ||||||
| 2027 | $ | $ | ||||||
| 2028 | ||||||||
| 2029 | ||||||||
| 2030 | ||||||||
| 2031 | ||||||||
| Thereafter | ||||||||
| Total undiscounted Lease Payments | ||||||||
| Less: Present value discount | ( | ) | ( | ) | ||||
| Total Lease Liability | $ | $ | ||||||
Lease expense recognized on our leases for the three and six months ended June 30, 2026 and 2025 is as follows in (“000’s”):
| Six Months Ended | Six Months Ended | Three months Ended | Three months Ended | |||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Finance leases | ||||||||||||||||
| Amortization expense | $ | $ | $ | $ | ||||||||||||
| Interest expense | ||||||||||||||||
| Operating leases | ||||||||||||||||
| Straight-line rent expense | ||||||||||||||||
| Total lease expense | $ | $ | $ | $ | ||||||||||||
The following summarizes additional information related to our leases for the six months ended June 30, 2026 is as follows in (“000’s”):
| Six Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2026 | June 30, 2025 | |||||||||||||||
| 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
On the Restructuring Date ( March 7, 2025), all outstanding Class B and Class C Preferred Interests in TotalStone were exchanged for
Note 14 Warrants
TotalStone Class A Warrants. In April 2020,
Representative's Warrant. In connection with the March 7, 2025, Public Offering, the Company issued warrants to the underwriters to purchase
February 2026 Warrant (3i, LP). On February 12, 2026, in connection with the Letter Agreement deferring the $
Note 15 Stockholders’ Equity
As of June 30, 2026, the Company had
Share activity for the six months ended June 30, 2026 — including
Stock Compensation
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.
In June 2015, our stockholders approved the 2015 Equity Incentive Plan (the “2015 Plan”) and reserved
On March 30, 2026, the Board of Directors approved the Capstone Holding Corp. 2025 Stock Incentive Plan (the “2025 Plan”), as amended, authorizing awards of up to
Note 15 Stockholders’ Equity (cont.)
As of June 30, 2026 and December 31, 2025, there were
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 Tax Benefit Preservation Plan adopted by the Board on April 18, 2017 between the Company and Computershare, which had been extended in May 2024 through December 31, 2027, was cancelled on March 3, 2025 pursuant to the Master Exchange and Other Transaction Agreement.
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
The Representative's Warrant issued in connection with the March 2025 Public Offering is described in Note 14.
The Company’s Senior Secured Convertible Notes (see Note 11) are convertible into shares of Common Stock at conversion prices ranging from $
The February 2026 Letter Agreement and the related warrant to purchase
2026 Annual Meeting of Stockholders
On June 18, 2026, the Company held its 2026 Annual Meeting of Stockholders. At the meeting, the stockholders approved each of the proposals set forth in the Company’s definitive proxy statement on Schedule 14A filed with the Securities and Exchange Commission on May 7, 2026, including: (i) the election of Fredric J. Feldman, Ph.D. and Elwood D. Howse, Jr. as Class I directors to serve until the 2027 Annual Meeting of Stockholders or until their respective successors are duly elected and qualified; (ii) the election of John M. Holliman, III and Gordon Strout as Class II directors to serve until the 2028 Annual Meeting of Stockholders or until their respective successors are duly elected and qualified; (iii) authorization of the Board of Directors, in its discretion, to effect a reverse stock split of the Company’s Common Stock at a ratio to be determined by the Board to satisfy the minimum bid price requirement to comply with Nasdaq Listing Rule 5550(a)(2); (iv) approval of an amendment to the Company’s 2025 Stock Incentive Plan; (v) the ratification of the appointment of GBQ Partners LLC as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2026; and (vi) the adjournment of the Annual Meeting, if necessary or advisable, to solicit additional proxies. Detailed voting results were reported in a Current Report on Form 8-K filed with the Securities and Exchange Commission on June 22, 2026.
Note 15 Stockholders’ Equity (cont.)
Stock-Based Compensation Expense
At the Annual Meeting held on June 18, 2026, stockholders elected Class I directors to serve until the 2027 Annual Meeting of Stockholders and Class II directors to serve until the 2028 Annual Meeting of Stockholders, in each case until their successors are duly elected and qualified; accordingly, ASC 718 requires a prospective change in estimate of the related requisite service periods.
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
For the three and six months ended June 30, 2026, the Company recorded an income tax provision of $
The Company continues to maintain a full valuation allowance against its U.S. net deferred tax assets, as it is not more likely than not that the Company will realize these deferred tax assets in future periods based on available positive and negative evidence, including the Company's recent history of losses. The deferred tax liability of $19.0 thousand and $20.0 thousand at June 30, 2026 and December 31, 2025 relates to the Company's Canadian operations and is not subject to the U.S. valuation allowance.
The Company applies an estimated annual effective tax rate to year-to-date pretax results in accordance with ASC 740-270. As of June 30, 2026 the Company had no unrecognized tax benefits and no accrued interest or penalties related to uncertain tax positions.
The Company has substantial U.S. federal net operating loss carryforwards. Utilization of those carryforwards may be limited under Section 382 of the Internal Revenue Code if the Company experiences an ownership change as defined in that section. Shares of common stock outstanding increased significantly during the six months ended June 30, 2026 through conversions of the Senior Secured Convertible Notes, issuances under the Equity Line of Credit and the restricted stock awards described in Note 15, and additional shares were issued after the balance sheet date as described in Note 19.
Note 18 Segment Information
The Company’s reportable segments are unchanged from those identified in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025: the TotalStone segment (which includes the legacy Instone distribution business together with Fraser Canyon / Canadian Stone Industries, acquired December 1, 2025) and the Carolina Stone segment (acquired August 22, 2025). Capstone Holding Corp. corporate-level expenses are reported separately as the “Parent” caption. Intersegment transactions, where applicable, are reported in the “Eliminations” caption and (intercompany transactions and events) consist of intercompany sales, intercompany receivables and payables that are eliminated in consolidation.
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.
| Three Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | |||||||||||||||||||||||||||||||||||||||
| TotalStone | Carolina Stone Holdings | Parent | Eliminations | Consolidated | TotalStone | Carolina Stone Holdings | Parent | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
| Income (loss) from operations before taxes: | ||||||||||||||||||||||||||||||||||||||||
| Sales | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Sales returns and allowances | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Net sales | ||||||||||||||||||||||||||||||||||||||||
| Cost of goods sold | ||||||||||||||||||||||||||||||||||||||||
| Gross Profit | ||||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||||||||||||||||||||||||||
| Change in fair value of contingent consideration | ||||||||||||||||||||||||||||||||||||||||
| Income (loss) from operations | $ | $ | $ | ( | ) | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||
| Realized foreign currency gain (loss), net. | ( | ) | ( | ) | $ | |||||||||||||||||||||||||||||||||||
| Unrealized gain on derivative | ||||||||||||||||||||||||||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Income (loss) from operations before taxes | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
| Other financial information: | ||||||||||||||||||||||||||||||||||||||||
| Depreciation & amortization | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Capital expenditures | ||||||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | |||||||||||||||||||||||||||||||||||||||
| TotalStone | Carolina Stone Holdings | Parent | Eliminations | Consolidated | TotalStone | Carolina Stone Holdings | Parent | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
| Income (loss) from operations before taxes: | ||||||||||||||||||||||||||||||||||||||||
| Sales | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Sales returns and allowances | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Net sales | ||||||||||||||||||||||||||||||||||||||||
| Cost of goods sold | ||||||||||||||||||||||||||||||||||||||||
| Gross Profit | ||||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Change in fair value of contingent consideration | ||||||||||||||||||||||||||||||||||||||||
| Income (loss) from operations | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||
| Realized foreign currency gain (loss), net. | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Unrealized gain on derivative | ||||||||||||||||||||||||||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Other income (expense) net | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Income (loss) from operations before taxes | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||
| Other financial information: | ||||||||||||||||||||||||||||||||||||||||
| Depreciation & amortization | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Capital expenditures | ||||||||||||||||||||||||||||||||||||||||
Note 18 Segment Information (cont.)
| As of June 30, 2026 | As of December 31, 2025 | |||||||||||||||||||||||||||||||||||||||
| TotalStone | Carolina Stone Holdings | Parent | Eliminations | Consolidated | TotalStone | Carolina Stone Holdings | Parent | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||
Note 19 Subsequent Events
The Company has evaluated subsequent events through August 12, 2026, the date these unaudited condensed consolidated financial statements were issued. Other than the events disclosed below, no other subsequent events occurred that would require recognition or disclosure in the unaudited condensed consolidated financial statements.
Warrant Exercise (3i, LP). On July 10, 2026, 3i, LP exercised in full the February 2026 warrant to purchase
Senior Secured Convertible Note Maturity Extension. The July 2025 Senior Secured Convertible Note matured on July 29, 2026 with an outstanding principal balance of $
Convertible Note Conversion Price Adjustment. On August 10, 2026, the Company and the holder of the Senior Secured Convertible Notes entered into a Conversion Price Voluntary Adjustment Notice under Section 7(h) of each Note reducing the conversion price of both Notes to $
Master Restricted Stock Agreements. On August 7, 2026, the Company entered into Master Restricted Stock Agreements (the "True-Up Agreements") with Matthew Lipman, the Company's Chief Executive Officer, and Michael Toporek, the Company's Chairman, pursuant to the Company's 2025 Stock Incentive Plan. In addition to the restricted stock previously granted to Mr. Lipman and Mr. Toporek on March 30, 2026, the True-Up Agreements provide that the Company will issue to each of Mr. Lipman and Mr. Toporek, on an annual basis beginning January 31, 2027 and continuing until the earliest of March 31, 2031, the applicable recipient's separation from service, or such earlier date as approved by at least 80% of the Board, additional shares of restricted common stock equal to 3.75% of the aggregate number of shares of the Company's Common Stock issued during the applicable measurement period (the "True-Up Shares"). The True-Up Shares are issuable under, and subject to the share reserve limitations of, the 2025 Stock Incentive Plan, and are subject to vesting conditions substantially consistent with those described above with respect to restricted stock awards held by the Company's executive officers and directors, as applicable.
Restricted Stock True-Up Awards. On August 7, 2026, the Compensation Committee approved, and the Company issued,
Amendment to Certificate of Incorporation. On August 7, 2026, the Board of Directors approved, and stockholders holding a majority of the voting power of the Company’s outstanding voting stock approved by written consent in lieu of a special meeting, one or more amendments to the Company’s Certificate of Incorporation, as amended, to decrease the number of authorized shares of common stock and/or preferred stock, at such time and in such amounts as the Board of Directors may determine, including in connection with any reverse stock split. The holder of the Company’s Series B Preferred Stock consented to the amendments pursuant to Section 1.5 of the Certificate of Designation of the Series B Preferred Stock. The approval authorizes the amendments but does not effect them. As of the date of this report, the Company has not determined the reduced number of authorized shares and no certificate of amendment has been filed. Any such amendment will be effected, if at all, at such time and in such amounts as the Board of Directors may determine, and not before a definitive information statement on Schedule 14C has been mailed to stockholders and the applicable waiting period has elapsed.
Amendment to the Series B Certificate of Designation. On August 7, 2026, the Board of Directors approved, and the holder of the Series B Preferred Stock consented to, an amendment to the Certificate of Designation of Preferences, Rights and Limitations of Series B Preferred Stock, which the Company filed with the Delaware Secretary of State on August 10, 2026. The amendment provides that, upon any stock split, reverse stock split, combination or similar recapitalization of the Common Stock, the number of votes per share of the Series B Preferred Stock and the price conditions applicable to its conversion adjust proportionately, so that the relative voting power and the conversion economics of the Series B Preferred Stock are unchanged by any such transaction.
Authorization of Related Party Exchanges. On August 7, 2026, the Board of Directors authorized, but did not direct, the Company to enter into exchange agreements with BP Peptides, LLC and Brookstone Partners Acquisition XXI Corporation, entities affiliated with Matthew Lipman, the Company’s Chief Executive Officer, and Michael Toporek, the Chairman of the Board, pursuant to which such holders would surrender shares of Series Z Preferred Stock in exchange for shares of common stock at a price per share representing a premium to the market price of the common stock. No exchange agreement has been executed and no shares have been issued thereunder. The Board also approved in principle, and stockholders holding a majority of the voting power of the Company’s outstanding voting stock approved by written consent in lieu of a special meeting, the settlement of the remaining shares of Series Z Preferred Stock and accrued management fees payable to Brookstone Partners IAC, Inc. through one or more further exchanges. With each exchange occurring at a price per share equal to 103% of the Nasdaq Official Closing Price on the trading day immediately preceding consummation, in one or more exchanges at any time on or prior to August 7, 2027, covering the issuance of up to
Subsequent Equity Line of Credit Draws. Between July 1, 2026 and August 7, 2026, the Company submitted sixteen VWAP Purchase Notices under the Equity Line of Credit agreement with Tumim Stone Capital, LLC (see Note 15), resulting in the issuance of an aggregate of
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q ("Quarterly Report") contains forward-looking statements within the meaning of the federal securities laws. All statements contained in this Quarterly 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 "Risk Factors" in our 2025 Form 10-K and in Part II, Item 1A of this Quarterly Report. Readers are urged to carefully review and consider the various disclosures made in this Quarterly 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 Quarterly 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 Quarterly 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 Quarterly Report or to conform statements to actual results or revised expectations, except as required by law.
You should read this Quarterly Report and the documents that we reference herein and have filed with the SEC as exhibits to this Quarterly Report with the understanding that our actual future results, performance, and events and circumstances may be materially different from what we expect.
This Quarterly 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.
The following discussion and analysis provides information that our management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. This discussion may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is subject to the safe harbor created by those sections. For more information, see “Cautionary Note Regarding Forward-Looking Statements.” When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that impact our business. In particular, we encourage you to review the risks and uncertainties described in our Annual Report on Form 10-K for the year ended December 31, 2025 and this Quarterly Report on Form 10-Q under the caption “Part II. Item 1A. Risk Factors”. These risks and uncertainties could cause actual results to differ materially from those projected or implied by our forward-looking statements contained in this report. These forward-looking statements are made as of the date of this report, and we do not intend, and do not assume any obligation, to update these forward-looking statements, except as required by law.
The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and related notes thereto included in this Quarterly Report and our audited consolidated financial statements and related notes thereto for the year ended December 31, 2025, included in our 2025 Form 10-K. Throughout this discussion, unless the context specifies or implies otherwise the terms the “Company”, “we”, “us” and “our” refer to the business and operations of Capstone Holding Corp and its operating subsidiary, TotalStone, LLC (dba Instone), Carolina Stone Holdings, LLC, and Canadian Stone Industries (Fraser Canyon Holdings Inc. and its subsidiaries).
All dollar amounts stated herein are in U.S. dollars unless specified otherwise.
Overview
Capstone Holding Corp., incorporated in Delaware in 1987 as a domestic corporation, is a national, technology-enabled building products distribution and installation platform. Through our three operating subsidiaries — Instone (TotalStone, LLC), Canadian Stone Industries (Fraser Canyon Holdings Inc. and its subsidiaries, “CSI”), and Carolina Stone (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.
Historically, the product mix for Instone was heavily concentrated on Cultured Stone®, in 2018 Cultured Stone® comprised almost 80% of our total revenue. Through acquisition and product expansions, we have increased our product offering to our customers. This expansion has made Instone a more attractive supplier to new and existing dealers.
We provide value to our dealers by making the procurement and logistics process easy for product lines that are otherwise challenging for dealers to manage if they were to purchase directly with a manufacturer or quarry. Our website provides efficiency, and we believe our product offering provides options and ability for vendor consolidation and our logistical capabilities provide cost effective and efficient delivery, typically within a week or less.
A key differentiating factor for our strategy is that we own or control five of the eight brands we sell. Our products include stone veneer, landscape stone, and modular masonry fireplaces. The brands we distribute which we do not control are Cultured Stone®, Dutch Quality®, and Isokern®. The brands we distribute which we own or control include Aura™, Pangea Stone®, Toro Stone™, Beon Stone®, and Interloc™.
We operate in a market environment where there are about 7,000 building products dealers, most of which are privately held. Many of these dealers are not able to efficiently purchase or optimize storage space, which constrains their ability to sell the diverse range of products we offer. Our website enables dealers to buy in the quantities they require thus driving a more optimal level of inventory while also significantly reducing logistical challenges. We believe the ability for customers to buy in the quantities they need across many product lines instead of buying single product lines form different manufacturers helps them manage cash and, in turn, allows them to offer a higher level of service to their own customers.
We intend to continue to grow our business organically and through successfully integrating well-timed acquisitions.
Recent Developments
In addition to events previously disclosed, the following significant developments occurred during the financial period covered by this Quarterly Report:
• Convertible Note, Price Adjustment (April 16, 2026). The Company and the holder of the Senior Secured Convertible Notes entered into a letter agreement to adjust the conversion price on $500,000 of principal outstanding under the October 2025 Convertible Note from $1.10 to $0.57 per share. The adjustment is accounted for as a modification of the embedded conversion feature, with the change in fair value of the bifurcated derivative liability reflected in earnings for the period (see Note 11).
• Convertible Note, Price Adjustment (August 10, 2026). The Company and the holder of the Senior Secured Convertible Notes entered into a Conversion Price Voluntary Adjustment Notice reducing the conversion price of both Notes to $0.2949 per share with respect to all $1,900,759.78 of principal then outstanding. At that price the outstanding principal is convertible into approximately 6,445,438 shares of Common Stock. The adjustment is accounted for as a modification of the embedded conversion features, with the change in fair value of the bifurcated derivative liabilities reflected in earnings in the third quarter of 2026 (see Note 19).
• Convertible Note Conversions. During the six months ended June 30, 2026, aggregate of $1,958,781 of principal and $137,115 of accrued interest was converted into 2,890,533 shares of Common Stock under the Senior Secured Convertible Notes (See Note 11).
• Revolving Credit Facility Waiver and Sixteenth Amendment. On May 18, 2026, the Company received a written waiver from Beacon Bank & Trust of the Company’s noncompliance with the minimum Cash Flow Coverage Ratio under the Revolving Credit Agreement as of March 31, 2026. On June 17, 2026, the Company entered into the Sixteenth Amendment to the Revolving Credit Agreement, extending the maturity date by six months from June 19, 2026 to December 31, 2026 (see Note 11).
• Stream Finance Mezzanine Loan Extension. On June 17, 2026, the Company entered into the Fourth Amendment to the Stream Finance Credit Agreement, extending the maturity date by one year from September 30, 2027 to September 30, 2028 (see Note 11).
• 2026 Annual Meeting of Stockholders. On June 18, 2026, the Company held its 2026 Annual Meeting of Stockholders. The stockholders approved each proposal set forth in the proxy statement, including the election of Class I and Class II directors, authorization to effect a reverse stock split, approval of an amendment to the 2025 Stock Incentive Plan and ratification of the Company’s independent registered public accounting firm (see Note 15).
• Equity Line of Credit Draws. Between April 5, 2026 and June 18, 2026, the Company submitted ten VWAP Purchase Notices under the May 2025 Equity Line of Credit agreement with Tumim Stone Capital, LLC, resulting in the issuance of an aggregate of 1,222,268 shares of Common Stock for aggregate gross proceeds of approximately $425,277.
• 2025 Stock Incentive Plan; Restricted Stock Awards. The 1,995,000 restricted stock awards granted on March 30, 2026 began amortizing stock-based compensation expense over their respective requisite service periods during the three and six months ended June 30, 2026 (see Note 15). Stock-based compensation expense recognized was approximately $398.8 thousand for the six months ended June 30, 2026 The March 30, 2026 grant date resulted in de minimis expense in the first quarter.
On March 7, 2025, the Company closed its public offering (the “March 2025 Public Offering”) of 1,250,000 shares of common stock (the “Public Offering Shares”), which were registered under the Rule 424(b) of the Securities Act of 1933, as amended, pursuant to the Registration Statement on Form S-1 (File No. 333-284105) which was declared effective by the SEC on February 14, 2025. The Public Offering Shares were sold at a public offering price of $4.00 per share, which generated net proceeds of approximately $3,252,000 after deducting underwriting discounts and commissions and other offering expenses.
In addition to its March 2025 Public Offering, the Company also executed various debt and equity restructuring transactions in the quarter ended March 31, 2025 that are described in Note 2 to the consolidated financial statements included in this Quarterly Report.
On August 22, 2025, the Company completed its membership interest purchase agreement of the Carolina Stone Holdings. The aggregate purchase price of the Holdings Membership Interest is (i) $2,625,000 in cash, subject to adjustment set forth in Section 2.6 of the Membership Purchase Agreement, plus (ii) a seller note in the original principal amount of $1,250,000, plus (iii) the amount payable pursuant to the terms of the earn-out agreement. The Company transferred $2,501,500 in cash to the Seller, representing the aggregate purchase price of $2,625,000 less $124,000 for the preliminary working capital adjustment as set forth in Section 2.6 of the Purchase Agreement.
Equity Line of Credit
On May 14, 2025, we entered into a purchase agreement with the Equity Line Investor (as defined in Note 11 to the consolidated financial statements included in this Quarterly Report), pursuant to which the Equity Line Investor committed to purchase up to $20.0 million in shares of our Common Stock, subject to certain limitations and conditions as described in Note 11.
On June 26, 2025, the Company and the Equity Line Investor entered into a first amendment to the Purchase Agreement as described in Note 11 to the consolidated financial statements included in this Quarterly Report.
Convertible Note Financing
On July 29, 2025, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with an institutional investor (the “Buyer”), pursuant to which the Company authorized the issuance of senior secured convertible notes to the Buyer, in the aggregate original principal amount of up to $10,909,885, which are being issued with a 8.34% original issue discount (each, a “Convertible Note”). The first Convertible Note was issued in the original principal amount of approximately $3,272,966 (the “Convertible Note Financing”). The Convertible Notes are convertible into shares of our common stock, in certain circumstances in accordance with the terms of the Convertible Notes at an initial conversion price per share of $1.72. The Company received gross proceeds of $3,000,000, prior to the deduction of transaction related expenses, from the initial closing of the Convertible Note Financing. Concurrently with the Convertible Note Financing and the Purchase Agreement, the Company entered into a registration rights agreement and a security agreement with the Buyer.
On August 14, 2025, pursuant to Section 7(h) of the Conversion Note, the Company and the Buyer agreed, pursuant to a Conversion Price Voluntary Adjustment Notice executed by both parties, to reduce the Conversion Price of the Convertible Note with regard to $1,363,736 of principal of the Convertible Note to $1.00 per share starting on October 6, 2025 through the maturity date of the Convertible Note.
On October 5, 2025, pursuant to Section 7(h) of the Conversion Note, the Company and the Buyer agreed, pursuant to a Conversion Price Voluntary Adjustment Notice executed by both parties, to reduce the Conversion Price of the Convertible Note with regard to the entire principal of the Convertible Note to $1.00 per share starting on October 6, 2025 through the maturity date of the Convertible Note. The Company recognized an additional $845.0 thousand loss on debt extinguishment in October 2025 for the effect of this change in the conversion price.
On October 22, 2025, the Company issued to the Buyer a second Convertible Note in the original principal amount of $3,545,712.42 (the “October Note”). The October Note is convertible into shares of Common Stock, $0.0005 par value per share (the “Common Stock”), in certain circumstances in accordance with the terms of the Convertible Notes at an initial conversion price per share of $1.10. The Company received gross proceeds of $3,250,000, prior to the deduction of transaction-related expenses, from the closing of the October Note.
Exchange Agreement and Series Z Preferred Stock Certificate of Designation
The Chief Executive Officer of the Company, Matthew Lipman and the Chairman of the Board of Directors of the Company (the “Board”), Michael Toporek, control Brookstone Partners (“Brookstone”), a private equity group with 25 years of deep expertise in building products investments.
A number of Brookstone entities controlled by Messrs. Lipman and Toporek control over 50% of the Company’s voting stock. The notes held by BP Peptides, LLC (“BP Peptides”) and Brookstone Partners Acquisition XXI Corporation (“Brookstone Acquisition”) 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 June 30, 2026 and December 31, 2025. As of June 30, 2026, Stream Finance, LLC was the sole remaining related party note payable.
Carolina Stone Acquisition
On August 22, 2025, the Company, through its subsidiary CS Purchase Holdings LLC, acquired all of the issued and outstanding membership interests of Carolina Stone Holdings, LLC (“Carolina Stone”), which owns Carolina Stone Distributors, LLC.
The aggregate purchase consideration was approximately $4.2 million, consisting of cash, a subordinated seller note, working-capital adjustments and contingent earn-out consideration. The seller note matures on February 22, 2028, and the sellers may receive earn-out consideration of up to $825,000 based on Carolina Stone’s EBITDA performance during fiscal years 2025, 2026 and 2027. Carolina Stone contributed revenue of $3.3 million and a net loss of $169,000 to the Company’s consolidated results for the period from August 22, 2025 through December 31, 2025.
Fraser Canyon / CSI Acquisition
On December 1, 2025, the Company completed the acquisition of the Fraser Canyon / Canadian Stone Industries (“CSI”) business through two transactions: TotalStone, LLC acquired substantially all of the assets and assumed certain liabilities of Continental Stone Industries, Inc., and a subsidiary of TotalStone acquired all of the outstanding shares of Fraser Canyon Holdings Inc.
The aggregate consideration was approximately US$6.8 million, consisting of cash, two subordinated seller notes and contingent earn-out consideration of up to CAD $3.0 million based on Average EBITDA during the 2026–2027 and 2027–2028 measurement periods. In connection with the acquisition, Canadian Stone Industries and Klad Envelope Solutions Inc. entered into a TD Bank revolving operating loan with a CAD $5.0 million credit limit for working-capital purposes. CSI contributed revenue of $592,000 and a net loss of $92,000 to the Company’s consolidated results for the period from December 1, 2025 through December 31, 2025.
On September 30, 2025, following approval by the Audit Committee of the Board, the Company and each of BP Peptides and Brookstone Acquisition (collectively, the “Brookstone Lenders”), entered into an Exchange Agreement (the “Exchange Agreement”) whereby the Brookstone Lenders agreed to exchange their notes for shares of the Company’s newly created Series Z 8% Non-Convertible Preferred Stock (the “Series Z Preferred”). Based on the Nasdaq Official Closing Price of the Company’s common stock, $0.0005 par value per share (the “Common Stock”), of $1.32 on the day prior to the parties entering into the Exchange Agreement, BP Peptides received 642,364 Series Z Preferred shares and Brookstone Acquisition received 825,168 Series Z Preferred shares. The unaudited interim consolidated financial statements included in this Form 10-Q reflect the issuance of the Series Z shares as of June 30, 2026.
On September 30, 2025, following Board approval, the Company filed the Certificate of Designation of Preferences, Rights and Limitations of Series Z 8% Non-Convertible Preferred Stock (the “Certificate of Designation”) with the Secretary of State of the State of Delaware with up to three million five hundred thousand (3,500,000) Series Z Preferred shares being authorized for issuance.
Pursuant to the Certificate of Designation, the Series Z Preferred shares are not convertible into shares of Common Stock, have voting rights of one vote per share and will vote together as a single class with the Common Stock shareholders. Each share of Series Z Preferred will accrue cumulative dividends at a rate of eight percent (8%) per annum based on the $1.32 stated value per share of the Series Z Preferred, accruing daily and payable, at the sole option of the Board, either in cash or payment-in-kind via the issuance of further shares of Series Z Preferred. The Series Z Preferred shares are redeemable upon the earlier of the seven year anniversary of the issuance of the shares or the occurrence of a fundamental transaction (as defined in the Certificate of Designation)
On January 21, 2026, the Company entered into a fee waiver agreement with Brookstone Partners IAC under which Brookstone agreed to waive its $400.0 thousand annual management fee for fiscal year 2026, and the Company's Chief Executive Officer agreed to reduce his annual base cash salary to $1.00 with the fee waiver effective January 1, 2026 and the salary reduction effective February 1, 2026.
On February 12, 2026, the Company entered into a Letter Agreement with 3i, LP (“3i”) modifying the Senior Secured Convertible Note dated July 29, 2025. The Letter Agreement deferred the $606,054 installment payment originally due January 22, 2026 to the maturity date. As consideration for the deferral, the Company issued to 3i a warrant to purchase 405,000 shares of common stock at an exercise price of $0.01 per share, exercisable for five years.
During the six months ended June 30, 2026, the Company completed twelve conversions of principal under the October Note; eleven conversions totaling $1,495,325 of principal and $104,673 of accrued interest, which were converted into 2,133,335 shares of common stock at a conversion price of $0.75 per share and one conversion totaling $213,084 of principal and $14,916 of accrued interest, which were converted into 400,000 shares of common stock at a conversion price of $0.57 per share.
During the six months ended June 30, 2026, the Company completed one conversion of principal under the July Note totaling $250,371 of principal and $17,526 of accrued interest, which were converted into 357,198 shares of common stock at a conversion price of $0.75 per share.
The Company completed twenty draws under its Equity Line of Credit during the six months ended June 30, 2026, generating gross proceeds of approximately $619,848 for 1,544,768 shares of common stock.
On March 30, 2026, the Compensation Committee of the Board of Directors granted 1,995,000 restricted stock awards to executive officers and non-employee directors under the Company's 2025 Plan, with a grant-date fair value of $1,294,755. The awards generally vest at the third anniversary of the grant date for management recipients (with continued service required) and for non-employee director recipients, only upon the qualifying terminations of Board service described in Note 15; other terminations, including voluntary resignation, result in forfeiture.
Components of Results of Operations
Sales
Our sales primarily consist of distributing manufactured and natural stone cladding products, natural stone landscape products, and related goods for residential and commercial construction through a dealer network in 38 U.S. states and two Canadian provinces. For distribution sales the Company recognizes revenue when control over the products has been transferred to the customer, and the Company has a present right to payment. For installation and project-based work, the Company recognizes revenue over time as performance obligations are satisfied. For production and custom residential jobs, revenue is generally recognized upon completion, as substantially all projects are short-term in nature. A small portion of commercial projects are recognized based on progress toward completion, typically through monthly billings.
Cost of Goods Sold and Gross Profit
Cost of goods sold includes the purchase price of material, freight, miscellaneous import fees (if applicable), warranty and other expenses that are directly attributable to our distributed, fabricated and installed products. The Company also includes amounts billed to customers related to shipping and handling and shipping and handling expenses in cost of goods sold.
Gross profit is equal to revenue less cost of goods sold. Gross profit margin is equal to gross profit divided by revenue.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of personnel-related costs, including salaries and benefits, advertising and marketing expenses, travel and entertainment, facility-related costs, investor relations, legal and consulting fees.
Other Income and Expenses
Other income and expenses consist primarily of management fees and interest expenses on our line of credit and debt.
Results of Operations
The following is management’s discussion of the Company’s consolidated financial statements and results of operations for the three months ended June 30, 2026 and 2025 in thousands:
Results of Operations Comparing Three Months Ended June 30, 2026 to 2025.
| Three Months Ended |
||||||||||||||||
| June 30, |
||||||||||||||||
| 2026 |
2025 |
$ Change |
% Change |
|||||||||||||
| (in thousands) |
||||||||||||||||
| Net Sales |
$ | 21,480 | $ | 12,852 | $ | 8,628 | 67 | % | ||||||||
| Cost of goods sold |
15,481 | 9,722 | 5,759 | 59 | % | |||||||||||
| Gross profit |
5,999 | 3,130 | 2,869 | 92 | % | |||||||||||
| Operating expenses: |
||||||||||||||||
| Selling, General and administrative |
5,509 | 3,390 | 2,119 | 63 | % | |||||||||||
| Change in fair value of contingent consideration |
58 | — | 58 | — | % | |||||||||||
| Income (loss) from operations |
432 | (260 | ) | 692 | (266 | )% | ||||||||||
| Unrealized gain on derivative instruments |
166 | — | 166 | — | % | |||||||||||
| Realized foreign currency loss, net |
(14 | ) | — | (14 | ) | — | % | |||||||||
| Interest and other expense, net |
(1,961 | ) | (440 | ) | (1,521 | ) | 346 | % | ||||||||
| Provision for Income Taxes |
(3 | ) | — | (3 | ) | — | % | |||||||||
| Net loss |
$ | (1,380 | ) | $ | (700 | ) | $ | (680 | ) | 97 | % | |||||
Sales
Sales were $21.5 million for the three months ended June 30, 2026 compared to $12.9 million for the three months ended June 30, 2025. The period-over-period change in revenue was $8.6 million, primarily driven by the full-period contributions from the Carolina Stone (August 2025) and Fraser Canyon (December 2025) acquisitions. Revenue from the Company's legacy Instone operations increased approximately $0.9 million period-over-period; the increase reflects approximately $3.2 million contributed by Carolina Stone and approximately $4.5 million contributed by Fraser Canyon.
Cost of goods sold
Cost of goods sold increased by $5.8 million or 59.2%, for the three months ended June 30, 2026 compared to the three months ended June 30, 2025.
The change in cost of goods sold was driven primarily by the increase in sales attributable to the Carolina Stone and Fraser Canyon acquisitions.
Gross profit margin was 27.9% for the three months ended June 30, 2026 compared to 24.4% for the three months ended June 30, 2025. Gross margin for the three months ended June 30, 2026 benefited from the $438.0 thousand tariff refund recorded as a reduction of cost of goods sold (see Note 3), which contributed approximately 2.0 percentage points of the improvement. The remaining improvement reflects gross margin gains within the Company's TotalStone segment, together with the addition of Carolina Stone, whose stone distribution and installation mix carries a higher gross margin of approximately 34.7%.
Selling general and administrative expenses
Selling, general and administrative expenses increased by $2.1 million or 62.5%, for the three months ended June 30, 2026 compared to the three months ended June 30, 2025, primarily driven by the full-period effect of the Carolina Stone ($877.0 thousand) and Fraser Canyon ($897.0 thousand) acquisitions.
Change in fair value of contingent consideration
Change in fair value of contingent consideration increased by $58.0 thousand for the three months ended June 30, 2026 compared to the three months ended June 30, 2025, related to the remeasurement of the Carolina Stone earn-out payable.
Unrealized gain on derivative instruments
Unrealized gain on derivative instruments increased by $166.0 thousand for the three months ended June 30, 2026 compared to the three months ended June 30, 2025, related to the Company's Senior Secured Convertible Notes.
Realized foreign currency loss, net
Realized foreign currency loss, net, increased by $14.0 thousand for the three months ended June 30, 2026 compared to the three months ended June 30, 2025, related to the Fraser Canyon acquisition.
Interest expense
Interest expense increased by $1.5 million or 346%, for the three months ended June 30, 2026 compared to the three months ended June 30, 2025, primarily driven by the amortization of debt discount and issuance costs on the Company’s Senior Secured Convertible Notes.
Provision for income taxes
The Company recorded a provision for income taxes of $3.0 thousand for the three months ended June 30, 2026, compared to no provision for the three months ended June 30, 2025. The provision consists of Canadian income taxes on the operations of Canadian Stone Industries Inc., which the Company did not own during the 2025 period. No U.S. tax benefit was recognized on the pretax loss in either period because of the full valuation allowance against U.S. net deferred tax assets.
The following is management’s discussion of the Company’s consolidated financial statements and results of operations for the six months ended June 30, 2026 and 2025 in thousands:
Results of Operations Comparing Six Months Ended June 30, 2026 to 2025.
| Six Months Ended |
||||||||||||||||
| June 30, |
||||||||||||||||
| 2026 |
2025 |
$ Change |
% Change |
|||||||||||||
| (in thousands) |
||||||||||||||||
| Net Sales |
$ | 34,116 | $ | 20,751 | $ | 13,365 | 64 | % | ||||||||
| Cost of goods sold |
25,147 | 16,296 | 8,851 | 54 | % | |||||||||||
| Gross profit |
8,969 | 4,455 | 4,514 | 101 | % | |||||||||||
| Operating expenses: |
||||||||||||||||
| Selling, General and administrative |
9,976 | 6,143 | 3,833 | 62 | % | |||||||||||
| Change in fair value of contingent consideration |
58 | — | 58 | — | % | |||||||||||
| Loss from operations |
(1,065 | ) | (1,688 | ) | 623 | (37 | )% | |||||||||
| Unrealized gain on derivative instruments |
642 | — | 642 | — | % | |||||||||||
| Realized foreign currency loss, net |
(14 | ) | — | (14 | ) | — | % | |||||||||
| Interest and other expense, net |
(2,853 | ) | (740 | ) | (2,113 | ) | 286 | % | ||||||||
| Provision for Income Taxes |
(5 | ) | — | (5 | ) | — | % | |||||||||
| Net loss |
$ | (3,295 | ) | $ | (2,428 | ) | $ | (867 | ) | 36 | % | |||||
Sales
Sales were $34.1 million for the six months ended June 30, 2026 compared to $20.8 million for the six months ended June 30, 2025. The period-over-period change in revenue was $13.4 million, primarily driven by the full-period contributions from the Carolina Stone (August 2025) and Fraser Canyon (December 2025) acquisitions. Revenue from the Company's legacy Instone operations increased approximately $857.0 thousand period-over-period; the increase reflects approximately $5.5 million contributed by Carolina Stone and approximately $7.0 million contributed by Fraser Canyon.
Cost of goods sold
Cost of goods sold increased by $8.9 million or 54.3%, for the six months ended June 30, 2026 compared to the six months ended June 30, 2025.
The change in cost of goods sold was driven primarily by the increase in sales attributable to the Carolina Stone and Fraser Canyon acquisitions.
Gross profit margin was 26.3% for the six months ended June 30, 2026 compared to 21.5% for the six months ended June 30, 2025. Gross margin for the six months ended June 30, 2026 benefited from the $438.0 thousand tariff refund recorded as a reduction of cost of goods sold (see Note 3), which contributed approximately 1.3 percentage points of the improvement. The remaining improvement reflects gross margin gains within the Company's TotalStone segment, together with the addition of Carolina Stone, whose stone distribution and installation mix carries a higher gross margin of approximately 36.0%.
Selling general and administrative expenses
Selling, general and administrative expenses increased by $3.8 million or 62.4%, for the six months ended June 30, 2026 compared to the six months ended June 30, 2025, primarily driven by the full-period effect of the Carolina Stone ($1.7 million) and Fraser Canyon ($1.8 million) acquisitions.
Change in fair value of contingent consideration
Change in fair value of contingent consideration increased by $58.0 thousand for the six months ended June 30, 2026 compared to the six months ended June 30, 2025, related to the remeasurement of the Carolina Stone earn-out payable.
Unrealized gain on derivative instruments
Unrealized gain on derivative instruments increased by $642.0 thousand for the six months ended June 30, 2026 compared to the six months ended June 30, 2025, related to the Company's Senior Secured Convertible Notes.
Realized foreign currency loss, net
Realized foreign currency loss, net. increased by $14.0 thousand for the six months ended June 30, 2026 compared to the six months ended June 30, 2025, related to the Fraser Canyon acquisition.
Interest expense
Interest expense increased by $2.1 million or 286%, for the six months ended June 30, 2026 compared to the six months ended June 30, 2025, primarily driven by the amortization of debt discount and issuance costs on the Company’s Senior Secured Convertible Notes.
Provision for income taxes
The Company recorded a provision for income taxes of $5.0 thousand for the six months ended June 30, 2026, compared to no provision for the six months ended June 30, 2025, for the same reasons.
Segment Results
The Company has two reportable segments — TotalStone (which includes the legacy Instone distribution business together with Fraser Canyon, acquired December 1, 2025) and Carolina Stone (acquired August 22, 2025). The Company also has corporate-level SG&A expenses, included in Capstone Holding Corp. (“Capstone” or the “Parent”), consisting primarily of board fees, investor relations, filing, legal, insurance, accounting and consulting expenses not identifiable to either reportable segment.
The following table is a summary of TotalStone’s operating results through operating income (loss) reconciled to the Company’s consolidated totals with the inclusion of Parent and eliminating amounts:
| Three Months Ended June 30, |
||||||||||||||||||||||||||||||||||||||||
| 2026 |
2025 |
|||||||||||||||||||||||||||||||||||||||
| Income (loss) from operations before taxes: |
TotalStone |
Carolina Stone Holdings |
Parent |
Eliminations |
Consolidated |
TotalStone |
Carolina Stone Holdings |
Parent |
Eliminations |
Consolidated |
||||||||||||||||||||||||||||||
| Sales |
$ | 18,306 | $ | 3,174 | $ | — | $ | — | $ | 21,480 | $ | 12,852 | $ | — | $ | — | $ | — | $ | 12,852 | ||||||||||||||||||||
| Cost of goods sold |
13,407 | 2,074 | — | — | 15,481 | 9,722 | — | — | — | 9,722 | ||||||||||||||||||||||||||||||
| Gross Profit |
4,899 | 1,100 | — | — | 5,999 | 3,130 | — | — | — | 3,130 | ||||||||||||||||||||||||||||||
| Selling, general and administrative expenses |
3,422 | 877 | 1,210 | — | 5,509 | 2,545 | — | 845 | — | 3,390 | ||||||||||||||||||||||||||||||
| Change in fair value of contingent consideration |
— | 58 | — | — | 58 | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Income (loss) from operations |
$ | 1,477 | $ | 165 | $ | (1,210 | ) | $ | — | $ | 432 | $ | 585 | $ | — | $ | (845 | ) | $ | — | $ | (260 | ) | |||||||||||||||||
| Other financial information: |
||||||||||||||||||||||||||||||||||||||||
| Depreciation & amortization included in SG&A expenses |
$ | 99 | $ | 64 | $ | — | $ | — | $ | 163 | $ | 114 | $ | — | $ | — | $ | — | $ | 114 | ||||||||||||||||||||
| Six Months Ended June 30, |
||||||||||||||||||||||||||||||||||||||||
| 2026 |
2025 |
|||||||||||||||||||||||||||||||||||||||
| TotalStone |
Carolina Stone Holdings |
Parent |
Eliminations |
Consolidated |
TotalStone |
Carolina Stone Holdings |
Parent |
Eliminations |
Consolidated |
|||||||||||||||||||||||||||||||
| Income (loss) from operations before taxes: |
||||||||||||||||||||||||||||||||||||||||
| Sales |
$ | 28,576 | $ | 5,540 | $ | — | $ | — | $ | 34,116 | $ | 20,751 | $ | — | $ | — | $ | — | $ | 20,751 | ||||||||||||||||||||
| Cost of goods sold |
21,602 | 3,545 | — | — | 25,147 | 16,296 | — | — | — | 16,296 | ||||||||||||||||||||||||||||||
| Gross Profit |
6,974 | 1,995 | — | — | 8,969 | 4,455 | — | — | — | 4,455 | ||||||||||||||||||||||||||||||
| Selling, general and administrative expenses |
6,745 | 1,691 | 1,540 | — | 9,976 | 4,944 | — | 1,409 | (210 | ) | 6,143 | |||||||||||||||||||||||||||||
| Change in fair value of contingent consideration |
— | 58 | — | — | 58 | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Income (loss) from operations |
$ | 229 | $ | 246 | $ | (1,540 | ) | $ | — | $ | (1,065 | ) | $ | (489 | ) | $ | — | $ | (1,409 | ) | $ | 210 | $ | (1,688 | ) | |||||||||||||||
| Other financial information: |
||||||||||||||||||||||||||||||||||||||||
| Depreciation & amortization included in SG&A expenses |
$ | 189 | $ | 135 | $ | — | $ | — | $ | 324 | $ | 230 | $ | — | $ | — | $ | — | $ | 230 | ||||||||||||||||||||
Liquidity and Capital Resources
Working capital was negative $244.0 thousand as of June 30, 2026 compared to positive $78.0 thousand as of December 31, 2025. Excluding the current portion of long-term debt, working capital was $4.0 million and $3.8 million as of June 30, 2026 and December 31, 2025, respectively. The $200.0 thousand increase was primarily driven by a $4.5 million increase in accounts receivable, offset by a $1.9 million increase in accounts payable and a $2.3 million increase in borrowings under our revolving line of credit.
The Company primarily funds our operations through cash provided from operations of our building products distribution network and available capacity under our ABL Facility (“Revolver”). Our operating cash flows fluctuate based on seasonality with the first quarter typically a slower period in our calendar year resulting in negative operating cash flows from the building of accounts receivables and inventory levels. During the second half of the year we generate positive operating cash flows as we bring down accounts receivables and inventory levels from seasonal high periods and pay down our Revolver.
As of June 30, 2026, the Company had a combined balance of $12.6 million outstanding under its revolving credit facilities. Our Revolving Credit Agreement with Beacon Bank matures on December 31, 2026, as extended by the Sixteenth Amendment to the Credit Agreement dated June 17, 2026. As of June 30, 2026, the Company was in compliance with both the minimum Cash Flow Coverage Ratio and the minimum Tangible Net Worth covenants under the Revolving Credit Agreement. See Note 11. Management is in discussions with Beacon Bank & Trust regarding a longer-term extension of the Revolver with financial covenants aligned to the Company's anticipated future results.
The liquidity of the Company is largely dependent on our ability to borrow funds on our Revolver. The longer-term extension of the Revolver and future compliance with financial covenants are subject to risks and uncertainties which could have a material adverse effect on our business, financial condition and results of operations. The Company currently believes that it will have sufficient working capital to operate for a period of at least one year from the issuance date of the June 30, 2026 interim consolidated financial statements based on future expected results. Future acquisitions may be financed through other forms of financing that will depend on existing conditions.
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 July 2025 Senior Secured Convertible Note matured on July 29, 2026 and has since been extended to August 29, 2026, and the October 2025 Note matures on October 22, 2026. The Company’s U.S. revolving credit facility with Beacon Bank & Trust (successor by merger to Berkshire Bank) matures in December 2026, as extended by the Sixteenth Amendment, 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 2028, as extended by the Fourth Amendment dated June 17, 2026. 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 our second and third quarters due to the favorable weather in the Midwestern and Northeastern United States for new construction and remodeling.
Summary of Cash Flows
The following table summarizes our cash flows for each of the periods presented:
| Six Months Ended |
Six Months Ended |
|||||||
| June 30, |
June 30, |
|||||||
| (in thousands) |
2026 |
2025 |
||||||
| Net cash used in operating activities |
$ | (3,179 | ) | $ | (3,992 | ) | ||
| Net cash used in investing activities |
(131 | ) | (2 | ) | ||||
| Net cash provided by financing activities |
2,814 | 4,756 | ||||||
| Net increase (decrease) in cash |
$ | (502 | ) | $ | 762 | |||
Cash Flows from Operating Activities
Net cash used in operating activities was $3.2 million for the six months ended June 30, 2026, primarily resulting from the Company’s net loss of $3.3 million and a $2.2 million build in working capital, partially offset by $2.2 million of non-cash items including depreciation, amortization, and accrued interest.
Net cash used in operating activities was $4.0 million for the six months ended June 30, 2025, primarily resulting from our net loss of $2.4 million and a $1.8 million build in working capital.
Cash Flows from Investing Activities
Net cash used in investing activities was $131.0 thousand for the six months ended June 30, 2026, consisting of $93.0 thousand of property and equipment purchases and $38.0 thousand paid to settle the working capital adjustment under the Fraser Canyon purchase agreement (see Note 4).
Net cash used in investing activities was $2.0 thousand for the six months ended June 30, 2025, related to purchases of property and equipment.
Cash Flows from Financing Activities
Net cash provided by financing activities was $2.8 million for the six months ended June 30, 2026, primarily consisting of net borrowings under our revolving line of credit of $2.4 million and net proceeds from our equity line of credit of $620.0 thousand.
Net cash provided by financing activities was $4.8 million for the six months ended June 30, 2025, primarily consisting of net proceeds from our March 2025 public offering of $3.3 million and net borrowings under our revolving line of credit of $2.5 million, partially offset by debt repayments of $910.0 thousand.
Funding Requirements
The Company used the net proceeds of its March 2025 Public Offering and its Senior Secured Convertible Notes to fund a portion of the cash consideration for the Carolina Stone Holdings acquisition (closed August 22, 2025) and the Fraser Canyon Holdings acquisition (closed December 1, 2025), and for general corporate and working capital purposes.
Through October 22, 2025, the Company received an aggregate of $6,250,000 in gross proceeds pursuant to its Senior Secured Convertible Notes financings (the July 29, 2025 issuance and the October 22, 2025 issuance), as described in Note 11 to the consolidated financial statements included in this Quarterly Report and in the Recent Developments section of this Management's Discussion and Analysis. In addition, as described in Note 11 and Note 15, the Company may receive up to $19.1 million from the sale of the Equity Line Securities to the Equity Line Investor. The Company plans to raise additional funds to finance the growth of our operations through equity financing or debt financing arrangements. If we raise additional funds through the issuance of equity, equity-related or debt securities, those securities may have rights, preferences or privileges senior to the rights of our existing Common Stock, and our existing stockholders may experience dilution.
Off-Balance Sheet Arrangements
During the periods presented we did not have, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Critical Accounting Policies and Significant Judgments and Estimates
The Critical Accounting Policies and Significant Judgments and Estimates included in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on April 16, 2026, as amended on April 17, 2026, have not materially changed. For the quarter ended June 30, 2026, we added the following two critical accounting policies and Significant Judgments and Estimates to Note 3 in the footnotes to the consolidated financial statements: Business Combinations and Convertible Notes.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our Company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated our Company’s disclosure controls and procedures as of the end of the period covered by this Form 10-Q. Based on this evaluation and in light of the remediation action plan that has been designed and implemented by the management as described below, our principal executive officer and principal financial officer concluded that as of June 30, 2026, our disclosure controls and procedures were not effective, due to the previously identified material weaknesses, which remain under remediation and the additional material weakness described below.
Remediation Material Weakness Identified in Connection with the Restatement. In connection with the restatement described in Note 3, management identified an additional material weakness in the Company’s internal control over financial reporting. The Company’s controls over the computation and review of the weighted average number of common shares outstanding used to compute net loss per share did not operate effectively. The Company has implemented an independent re-computation of the weighted average number of common shares outstanding from the share register each reporting period. Remediation of Previously Reported Material Weakness and Changes in Internal Control Over Financial Reporting.
Our management has historically been composed of a small team, which resulted in limitations on segregation of duties. During the quarter ended June 30, 2026, management began a remediation action plan restructuring the accounting and financial reporting function and addressing the reported internal control weaknesses including the following steps:
| ● |
Expanding the accounting staff across our operating entities, including the hiring of a controller and additional qualified accounting personnel, so that the preparation of financial statements is no longer dependent on a single individual; |
|
| ● |
Reorganizing the financial reporting function under a defined organizational structure with documented reporting lines and named owners for each key position in the financial reporting chain; |
|
| ● |
Implementing segregation of duties across the close, financial reporting, and reconciliation processes, so that the initiation, review, and approval of transactions and journal entries are performed by varied individuals; |
|
| ● |
Establishing multi-level review controls over journal entries, account reconciliations, and the preparation of the consolidated financial statements and related disclosures; and |
|
| ● |
Investing in training, supervision, and systems supporting the financial reporting function, supplemented by external accounting, tax, and audit specialists engaged for complex and unusual transactions. |
While management believes the foregoing actions address the underlying causes of material weaknesses, the material weaknesses will not be considered fully remediated until the remediated controls have operated for a sufficient period of time and management has concluded, through testing, that they are operating effectively. Management expects to complete this evaluation during the remainder of the fiscal year 2026.
Process and review enhancements. The Company has implemented additional review procedures over journal entries, account reconciliations, and the consolidation process. Management is documenting key accounting policies, formalizing close calendars and review checklists, and engaging multiple external accounting, tax, and audit consultants to supplement internal staffing during the remediation period.
Post-acquisition disclosure controls. Following the acquisitions of Carolina Stone Holdings on August 22, 2025 and Fraser Canyon Holdings on December 1, 2025, the Company has integrated each acquired business into its quarterly disclosure controls and procedures, including expanding the close calendar to incorporate the acquired entities, aligning the chart of accounts and reporting packages, and extending review and certification responsibilities to the acquired-entity finance leads.
Expected timing. The Company expects the remediation action plan described above, taken together with the completion of the additional accounting staff hired across the organization and the continuing engagement of external accounting consultants, to substantially remediate the identified material weaknesses by the end of the fiscal year 2026, subject to the operating effectiveness of the new controls being demonstrated for a sufficient period of time.
The Company will continue to evaluate the design and operating effectiveness of its internal control over financial reporting, and management will reassess and test the remediation status quarterly until the remediation is complete and the relevant controls have operated effectively for a sufficient period of time.
Changes in Internal Control Over Financial Reporting
During the three months ended June 30, 2026, we implemented the remediation actions described above, including the expansion of our accounting staff, the reorganization of the financial reporting function under a defined organizational structure with named owners, and the implementation of segregation of duties and multi-level review controls across the close, reporting, and reconciliation processes. These changes in our internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act, have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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.
This Quarterly Report contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in this Quarterly Report. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Quarterly Report.
You should carefully consider the risk factors disclosed in Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (the "2025 Form 10-K"), together with all other information in this Quarterly Report, including our unaudited condensed financial statements and notes thereto, and in our other filings with the Securities and Exchange Commission. If any such risks, including the risk set out below, or other risks not presently known to us or that we currently believe to not be significant, develop into actual events, then our business, financial condition, results of operations or prospects could be materially adversely affected. If that happens, the market price of our common stock could decline, and stockholders may lose all or part of their investment.
In addition to the risk factors set forth in the 2025 Form 10-K, the following risk factors represent material updates to our risk factor disclosures. The risk factors set forth in the 2025 Form 10-K, as updated by the foregoing, should be read in conjunction with the other information set forth in this Quarterly Report.
The Company was in compliance with its financial covenants under our Revolving Credit Agreement as of June 30, 2026, and although we received a written waiver from our lender for the prior quarter, there can be no assurance that we will maintain compliance in future periods or that our lender will grant additional waivers, which could result in acceleration of our outstanding indebtedness and materially impair our liquidity.
As of June 30, 2026, the Company was in compliance with both the minimum Cash Flow Coverage Ratio and the minimum Tangible Net Worth covenants under our Revolving Credit Agreement with Beacon Bank & Trust. We were not in compliance with that covenant as of March 31, 2026. On May 18, 2026, we received a written waiver limited to that specific violation; the waiver did not extend to any future defaults or events of default. On June 17, 2026, we entered into the Sixteenth Amendment to the Revolving Credit Agreement, which extended the maturity date by six months from June 19, 2026 to December 31, 2026. There can be no assurance that we will maintain compliance with the financial covenants of the amended Revolving Credit Agreement in future periods or that our lender will grant additional waivers if we do not.
There can be no assurance that we will maintain compliance in future periods or that our lender will grant additional waivers if we do not. Any future waiver, if obtained, may be conditioned upon terms less favorable to the Company, including increased interest rates, additional collateral requirements, or other operational restrictions. If we fail to obtain a necessary waiver, our lender could declare an event of default, accelerate all outstanding amounts under the Revolving Credit Agreement, and exercise its remedies against pledged collateral. Acceleration could also trigger cross-default provisions in our other debt agreements, including the October Note, and could materially impair our financial condition and our ability to continue as a going concern. Recurring covenant non-compliance may also impair our ability to access additional financing and may be viewed unfavorably by investors and counterparties.
The reduction of the conversion price under the October Note and the resulting conversion of a substantial portion of the principal and accrued interest into shares of common stock resulted in significant dilution to our existing stockholders, and future conversions at the reduced conversion price or further reductions in the conversion price could result in additional substantial dilution.
On April 16, 2026, we reduced the conversion price applicable to $500,000 of the principal amount outstanding under the October Note to $0.57 per share. On the same date, the buyer converted an aggregate of $1,725,136 of principal and $120,762 of accrued interest into 2,557,198 shares of common stock, increasing our outstanding share count by approximately 22% in a single day. On August 10, 2026, we further reduced the conversion price of both Notes to $0.2949 per share with respect to all $1,900,759.78 of principal then outstanding. At that price the outstanding principal is convertible into approximately 6,445,438 shares of Common Stock, compared with approximately 2,115,154 shares at the conversion prices in effect at June 30, 2026.
This conversion has resulted in significant dilution to existing stockholders with respect to earnings, book value, and voting power per share, and may depress the market price of our Common Stock. If additional principal or interest is converted at the reduced price, or if we further reduce the conversion price, stockholders will experience additional material dilution. The shares of common stock issuable upon conversion of remaining unconverted principal may exert continued downward pressure on our stock price, which could impair our ability to raise capital through equity offerings or our Equity Line of Credit and could make any future conversions even more dilutive.
The company has received an additional 180-day compliance period, through January 4, 2027, to regain compliance with the $1.00 minimum bid price requirement for continued listing on the Nasdaq Capital Market. The minimum bid price is the Company’s only remaining listing deficiency.
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 had until July 6, 2026, to regain compliance, which required the closing bid price of its Common Stock to be at least $1.00 per share for a minimum of 10 consecutive business days. The Company did not regain compliance within that period, and Nasdaq granted the Company an additional 180-day compliance period through January 4, 2027. There can be no assurance that the Company will be able to regain compliance within that period. 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. At the 2026 Annual Meeting held on June 18, 2026, the Company’s stockholders authorized the Board of Directors to effect a reverse stock split as a potential measure to regain compliance. 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.
Nasdaq has adopted a new minimum market value requirement for continued listing that could apply to us.
In July 2026, the SEC approved new Nasdaq continued listing standards that require automatic delisting if the market value of a company's listed securities remains below $5 million for 30 consecutive business days (the “MVLS Rule”). The new MVLS Rule eliminates any cure period, precludes any automatic stay of suspension pending an appeal, and results in an immediate trading suspension upon Nasdaq's determination of non-compliance. On July 29, 2026, the SEC stayed the effectiveness of that approval order pending its consideration of notices of intent to petition for review, and the amendments are not currently operative. Accordingly, it is currently uncertain when the stay will be lifted, or the MVLS Rule delayed, modified, or set aside. If the amended standards become effective and the market value of our listed securities is below the required minimum, we could receive an additional deficiency notice from Nasdaq. A reverse stock split would not, by itself, increase the market value of our listed securities, and any actions we take to address the requirement, including issuances of additional securities, could dilute existing stockholders. If we do not satisfy the requirement within any applicable compliance period, our Common Stock could be delisted, which would materially impair the liquidity of our Common Stock and our ability to raise capital, including under the ELOC.
Changes in foreign currency translation and transaction risks that could adversely affect our reported financial results and the cost of servicing our Canadian dollar-denominated obligations.
Our Canadian operating subsidiary, Canadian Stone Industries Inc., generates revenues and incurs expenses in Canadian dollars, and we have outstanding debt and seller notes denominated in Canadian dollars. These exposures subject us to foreign currency translation risk when consolidating the subsidiary's results into U.S. dollars, and to transaction risk affecting the U.S. dollar cost of servicing our Canadian dollar-denominated obligations.
Fluctuations in the CAD/USD exchange rate may cause variability in our reported financial results independent of underlying operating performance. While this risk was not material in prior periods, it could become increasingly material if our Canadian operations or Canadian dollar-denominated indebtedness grow or as exchange rate volatility increases.
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On February 12, 2026, in connection with the Letter Agreement with 3i, LP (see Note 15 to the consolidated financial statements included in this Quarterly Report), the Company issued warrants to purchase 405,000 shares of Common Stock at an exercise price of $0.01 per share. The warrants were issued in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended, as a transaction not involving a public offering. The warrants were exercised in full on July 10, 2026 (See Note 19), and the Company has filed a registration statement on Form S-1 registering the resale of the shares issued upon the exercise.
During the six months ended June 30, 2026, in connection with the senior secured convertible notes, the Company issued 333,335 shares of Common Stock and on April 16, 2026, the Buyer submitted eight Notices of Conversion on the July and October notes that aggregated 2,557,198 shares of Common Stock. The shares were issued in reliance on Section 3(a)(9) of the Securities Act of 1933, as amended.
On August 7, 2026, the Company issued 4,809,212 shares of restricted common stock as restricted stock awards to eleven executive officers and directors under the Capstone Holding Corp. 2025 Stock Incentive Plan, as amended (see Note 19 to the consolidated financial statements included in this Quarterly Report). The shares were issued in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended, as a transaction not involving a public offering. The shares have not been registered as of the date of this filing.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
We are reporting the following information in lieu of reporting on a Current Report on Form 8-K under Item 3.02, Unregistered Sales of Equity Securities and Item 5.02, Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On August 7, 2026, the Company granted 4,809,212 shares of common stock as restricted stock awards to eleven executive officers and directors under the Capstone Holding Corp. 2025 Stock Incentive Plan, as amended. Awards to management participants vest on a three-year cliff on August 7, 2029, and awards to non-employee directors vest only if the recipient’s service terminates by reason of death or disability, by action of the Company other than for cause (including a failure to be nominated for re-election), or by a failure to be re-elected by the stockholders, and are forfeited if the recipient’s service terminates for any other reason.
We are reporting the following information in lieu of reporting on a Current Report on Form 8-K under Item 3.03, Material Modification to Rights of Security Holders and Item 5.03, Amendments to Articles of Incorporation or Bylaws.
On August 7, 2026, the Board of Directors approved, and the holder of the Series B Preferred Stock consented to, an amendment to the Certificate of Designation of Preferences, Rights and Limitations of Series B Preferred Stock (the “Amendment to Series B Preferred COD”). The Company filed the Amendment to Series B Preferred COD with the Delaware Secretary of State on August 10, 2026. The amendment provides that, upon any stock split, reverse stock split, combination or similar recapitalization of the Common Stock, the number of votes per share of the Series B Preferred Stock and the price conditions applicable to its conversion adjust proportionately, so that the relative voting power and the conversion economics of the Series B Preferred Stock are unchanged by any such transaction.
The foregoing does not purport to be a complete description of the Amendment to Series B Preferred COD, and such description is qualified in its entirety by reference to the full text of the Amendment to Series B Preferred COD, a copy of which is filed as Exhibit 3.1 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.
We are reporting the following information in lieu of reporting on a Current Report on Form 8-K under Item 5.07, Submission of Matters to a Vote of Security Holders.
On August 7, 2026, certain stockholders (collectively, the “Consenting Stockholders”) of the Company holding at least a majority of the voting power of the Company’s outstanding shares of capital stock entitled to vote, including the majority of each of (i) the Common Stock shares outstanding, (ii) the Series B Preferred Stock shares outstanding, and (c) the Series Z Preferred Stock shares outstanding, adopted resolutions by written consent (the “Written Consent”) in lieu of a meeting of stockholders to approve two matters.
The first matter approved is the filing of one or more amendments to the Company’s Certificate of Incorporation, as amended, to decrease the number of authorized shares of Common Stock and/or preferred stock, at such time and in such amounts as the Board of Directors may determine, including in connection with any reverse stock split. The approval authorizes the amendments but does effect them. As of the date of this report, the Company has not determined the reduced number of authorized shares and no certificate of amendment has been filed. Any such amendment will be effected, if at all, at such time and in such amounts as the Board of Directors may determine, and not before a information statement on Schedule 14C (a “Schedule 14C”) has been filed with the SEC and mailed to stockholders and the applicable waiting period has elapsed.
The second matter approved is the settlement of the remaining shares of Series Z Preferred Stock and accrued management fees payable to Brookstone Partners IAC, Inc. (an entity affiliated with Matthew Lipman, the Company’s Chief Executive Officer, and Michael Toporek, the Chairman of the Board) through one or more further exchanges. With each exchange occurring at a price per share equal to 103% of the Nasdaq Official Closing Price on the trading day immediately preceding consummation, in one or more exchanges at any time on or prior to August 7, 2027, covering the issuance of up to 15,750,000 shares of Common Stock in the aggregate, with each recipient executing an 18-month lock-up agreement. Any such exchange will not be effected before a Schedule 14C has been filed with the SEC and mailed to stockholders and the applicable waiting period has elapsed.
In connection with both matters, the Company will file with the U.S. Securities and Exchange Commission a Schedule 14C that will be mailed to all holders of record of the Company’s voting capital stock as of the close of business on August 7, 2026 (the “Record Date”).
The Consenting Stockholders are, collectively, BPA XIV, LLC, Nectarine Management, LLC, Brookstone Partners Acquisition XXI Corporation, BP Peptides, LLC, Gordon Rocks, Inc. (an entity controlled by Gordon Strout, a member of the Board), each member of the Board and named executive officer listed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, and two employees of TotalStone, LLC. As of the close of business on the Record Date, the Consenting Stockholders together held 10,536,050 shares of Common Stock (representing approximately 51.2% of the shares outstanding) and all of the shares of Series B Preferred Stock and Series Z Preferred Stock outstanding, representing approximately 56.4% of the voting power of our outstanding shares of capital stock entitled to vote.
Insider trading arrangements and policies.
During the quarter ended June 30, 2026, no director or officer of the Company adopted or terminated any “Rule - trading arrangement” or “non-Rule -1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
| Exhibit |
||
| Number |
Exhibit Description |
|
| 3.1* |
||
| 10.1 |
||
| 10.2 |
||
| 10.3 |
||
| 10.4 |
||
| 10.5 |
||
| 10.6 |
||
| 10.7 |
||
| 10.8 |
||
| 10.9* |
Form of Master Restricted Stock Agreement, dated August 7, 2026, by and between Capstone Holding Corp. and each of the recipients named in the schedule filed therewith, together with a schedule of omitted agreements filed pursuant to Instruction 2 to Item 601(b)(10) of Regulation S-K | |
| 10.10* |
||
| 10.11* | Conversion Price Voluntary Adjustment Notice, dated August 10, 2026, between Capstone Holding Corp. and 3i, LP | |
| 31.1* |
||
| 31.2* |
||
| 32.1** |
||
| 32.2** |
||
| 101.INS* |
Inline XBRL Instance Document |
|
| 101.SCH* |
Inline XBRL Taxonomy Extension Schema Document |
|
| 101.CAL* |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
| 101.DEF* |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
| 101.LAB* |
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
| 101.PRE* |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
| 104* |
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| * |
Filed herewith. |
| ** |
Furnished herewith |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CAPSTONE HOLDING CORP. |
||
| Date: August 12, 2026 |
By: |
/s/ Matthew E. Lipman |
| Matthew E. Lipman |
||
| Chief Executive Officer |
||
| Date: August 12, 2026 | /s/ Edward Schultz |
| Edward Schultz |
|
| Chief Financial Officer |
|
| (Principal Financial and |
Exhibit 3.1
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF DESIGNATION
OF SERIES B PREFERRED STOCK OF
CAPSTONE HOLDING CORP.
Capstone Holding Corp., a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), does hereby certify
FIRST: The Certificate of Designation of Series B Preferred Stock was filed with the Secretary of State of the State of Delaware on February 20, 2025, as amended on February 20, 2025 (the “Certificate of Designation”).
SECOND: The Certificate of Designation is hereby amended by adding a new Section 1.6 as follows, and the subsequent sections shall be renumbered accordingly:
“Adjustments for Recapitalizations. If the Corporation, at any time while this Series B Preferred Stock is outstanding, (i) subdivides its outstanding shares of Common Stock into a larger number of shares such that the price of the Common Stock automatically adjusts in accordance with such subdivision or (ii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares such that the price of the Common Stock automatically adjusts in accordance with such combination, then, effective concurrently with such event, (a) the number of votes to which each share of Series B Preferred Stock is entitled, (b) the maximum number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock, and (c) each price- or share-count-based condition set forth in this Certificate of Designation, shall in each case be equitably and proportionately adjusted so that the relative voting power, conversion entitlement and economic terms of the Series B Preferred Stock immediately after such event are the same as immediately before such event. Any adjustment made pursuant to this Section
1.6 shall become effective immediately after the effective date of such a subdivision or combination.”
THIRD: This Certificate of Amendment has been duly adopted by the Board of Directors of the Corporation and approved by the written consent of the holder of all outstanding shares of Series B Preferred Stock, the only class or series entitled to vote thereon, in accordance with the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be executed by its duly authorized officer on this 10th day of August, 2026.
CAPSTONE HOLDING CORP.
|
By: |
/s/ Matthew E. Lipman |
Name: Matthew E. Lipman
Title: Chief Executive Officer
Exhibit 10.9
CAPSTONE HOLDING CORP.
2025 Stock Incentive Plan
Master Restricted Stock Agreement
Capstone Holding Corp. (the “Company”) and the Recipient named below each hereby into this Master Restricted Stock Agreement on the execution date specified in the table below (including the Terms and Conditions attached hereto, the “Agreement”). The Company grants to the Recipient the shares of Restricted Stock specified herein on the dates specified herein pursuant to the Capstone Holding Corp. 2025 Stock Incentive Plan, as amended and in effect from time to time (the “Plan”).
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Name of recipient (the “Recipient”): |
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Reference Date |
June 30, 2026 |
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Aggregate Reference Percentage |
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Date of execution (the “Execution Date”) |
August 7, 2026 |
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Date of initial grant of Restricted Stock under this Agreement (the “Initial Grant Date”): |
August 7, 2026 |
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Type of Restricted Stock granted pursuant to this Agreement: |
Common Shares |
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Aggregate Number of Shares of such type of Restricted Stock granted pursuant to this Agreement: |
The aggregate of (a) ____________ Common Shares (the “Reference Date Stock”) plus (b) the BDP Stock (as hereinafter defined). |
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Consideration payable for shares of Restricted Stock, if any: |
$0.00 |
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Vesting Schedule of Restricted Stock |
As provided in Section 2 of the Agreement. |
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Signature of Recipient Address: |
CAPSTONE HOLDING CORP.
By: Name: Title: |
CAPSTONE HOLDING CORP.
2025 Stock Incentive Plan
Master Restricted Stock Agreement – Terms and Conditions
The Company agrees to award to the Recipient, and the Recipient agrees to accept from the Company, the number of shares of Restricted Stock set forth on the cover page hereof. If elected by the Company in its sole discretion, the Company and Recipient agree to enter into short-form grant agreements referencing this Agreement on the applicable Grant Date (each, a “Short-Form Agreement”).
1. Grants Under Plan.
(a) The Company shall issue to Recipient on the Initial Grant Date and each BDP Grant Date (as defined below) (each of the foregoing, a “Grant Date”) an award of restricted stock consisting of an aggregate number of shares of common stock specified in the table above (the “Restricted Stock”), provided that (i) Recipient has not severed all Business Relationship (as defined below) with the Company or any subsidiary prior to the respective Grant Date and (ii) there is availability under the Plan as of the respective Grant Date (any shares of Restricted Stock not issued on a Grant Date due to this clause (ii) (an “Availability Condition Date”) are referred to herein as the “Availability Condition Stock”). This award is subject to the terms and conditions of this Agreement and the Plan, which are incorporated herein by this reference. Capitalized terms used in this Agreement but not defined herein have the respective meanings specified in the Plan or in any employment or similar agreement between the Recipient and the Company or a subsidiary, as applicable.
(b) The Company shall issue to Recipient on the Initial Grant Date the Reference Date Stock (as specified on the cover page hereto).
(c) The Company shall issue to Recipient on January 31 of each year occurring during the BDP Availability Period (as hereinafter defined), such other dates, if any, occurring during the BDP Availability Period approved by the Committee in its sole discretion, and the 15th day of the calendar quarter following the last day of the BDP Availability Period that is determined pursuant to subsection (a) or (c) of such definition (such date, the “Final BDP Grant Date”) (each of the foregoing, a “BDP Grant Date”) an award of restricted stock consisting of an aggregate number of shares of common stock equal to the sum of (x) the Aggregate Reference Percentage of the BDP Issuances during the period commencing on the first day after the date used to calculate the aggregate number of shares on the most recent Grant Date (each, a “BDP Calculation Date”), which BDP Calculation Date is June 30, 2026 for the Initial Grant Date, plus (y) the Aggregate Reference Percentage of such number of shares determined pursuant to preceding clause (x).
(d) [Reserved]
(e) The Company shall issue Availability Condition Stock to Recipient on the first BDP Grant Date to occur after an Availability Condition Date for which there is availability under the Plan and the Recipient has not severed all Business Relationship with the Company or any subsidiary prior to such Grant Date. The Company shall cause one or more amendments to the Plan to become effective such that there will be no Availability Condition Stock as of the Final BDP Grant Date.
(f) The Company shall issue to Recipient on the Final BDP Grant Date an award of restricted stock consisting of a number of shares of common stock equal to the aggregate number of shares to which Recipient was entitled to receive under this Agreement that was not previously awarded to Recipient.
2. Vesting.
(a) Vesting Date.
(i) If the Recipient’s Business Relationship with the Company or any subsidiary is terminated after the Execution Date (x) by reason of Recipient’s death or Disability; (y) by the Company or any subsidiary for any reason other than Cause, including, as applicable, the failure to be nominated to serve as a director of the Company; or (z) by the failure to be elected by the shareholders of the Company to serve as a director (such date described in clause (x), (y) or (z), the “Separation Vesting Date”), then 100% of the shares of Restricted Stock granted to Recipient under this Agreement shall automatically vest on the Separation Vesting Date.
(ii) If the Recipient’s Business Relationship with the Company or any subsidiary is terminated for any reason other than in a manner described in Section 2(a)(i), all shares of Restricted Stock granted to Recipient under this Agreement shall be automatically forfeited on the date of such termination.
(b) General.
(i) Any determination under this Agreement as to Business Relationship status or other matters referred to above in this Section 2 shall be made in good faith by the Administrator whose decision shall be final and binding on all parties.
(ii) For the avoidance of doubt, no shares of Restricted Stock will be granted under this Agreement after the Recipient’s Business Relationship has been terminated (such date of termination, the “Separation Date”).
3. Restrictions on Transfer. The Recipient shall not sell, assign, transfer, pledge, encumber or dispose of all or any of his or her unvested shares of Restricted Stock.
4. Rights as a Stockholder. The Recipient shall have all rights as a stockholder of the Company as provided in Section 6(c) of the Plan with respect to the Restricted Stock granted under this Agreement no earlier than the relevant Grant Date.
5. Withholding Taxes. The Company or an employing subsidiary may withhold any and all applicable income and employment taxes required to be withheld from the Recipient in connection with the issuance or vesting of the shares of Restricted Stock to the Recipient, as provided in the Plan.
6. Compliance with Securities Act; Lock-Up Agreement. The Company shall not be obligated to issue any Restricted Stock or other securities pursuant to this Agreement unless the Restricted Stock or other securities with respect to which this Agreement applies are at that time effectively registered or exempt from registration under the Securities Act and applicable state or provincial securities laws/any applicable securities laws unless the Recipient complies with the remaining portion of this Section 6. In the event Restricted Stock or other securities shall be issued that shall not be so registered, the Recipient hereby represents, warrants and agrees that he or she will receive such Restricted Stock or other securities for investment and not with a view to their resale or distribution, and will execute an appropriate investment letter satisfactory to the Company and its counsel. The Recipient further hereby agrees that as a condition to the acquisition of Restricted Stock pursuant to this Agreement, he or she will execute an agreement in a form acceptable to the Company to the effect that the Restricted Stock shall be subject to any underwriter’s lock-up agreement in connection with a public offering of any securities of the Company that may from time to time apply to shares held by officers and employees of the Company, and such agreement or a successor agreement must be in full force and effect.
7. Legends. The Recipient hereby acknowledges that the stock certificate or certificates (or entries in the case of book entry form) evidencing Restricted Stock or other securities issued pursuant to this Agreement may bear a legend (or provide a restriction) setting forth the restrictions on their transferability described in Section 6 hereof, if such restrictions are then in effect.
8. Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Recipient consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
9. Company Policies. This award shall be subject to any applicable clawback or recoupment policies, share trading policies, and other policies that may be implemented by the Board from time to time, in accordance with applicable law.
10. Provision of Documentation to Recipient. By signing the cover page of this Agreement, the Recipient acknowledges receipt of a copy of this entire Agreement, a copy of the Plan and a copy of the Plan’s related prospectus.
11. Effect upon Employment and Performance of Services. Nothing in this Agreement or the Plan shall be construed to impose any obligation upon the Company or any subsidiary to employ or utilize the services of the Recipient or to retain the Recipient in its employ or to engage or retain the services of the Recipient.
12. Section 409A of the Internal Revenue Code. The award of the shares of Restricted Stock hereunder is intended to be exempt from or in compliance with the requirements of Code Section 409A so as to avoid the potential adverse tax consequences to the Recipient of Code Section 409A, and the Committee may make such modifications to this Agreement as it deems necessary or advisable to avoid such adverse tax consequences. Notwithstanding any provision herein or in the applicable Plan to the contrary, the Recipient acknowledges that the Recipient will be solely responsible for any and all tax liabilities payable by the Recipient in connection with the Recipient’s acquisition of the Restricted Stock. The Company (a) makes no representation or undertaking regarding the application of any income tax, social insurance, payroll tax or other tax-related obligations (“Tax-Related Items”) in connection with the grant or vesting of the Restricted Stock or the subsequent sale of any shares underlying the Restricted Stock and (b) does not commit to structure the Restricted Stock to reduce or eliminate the Recipient’s liability for any Tax-Related Items.
13. Nature of Award. By accepting this award, the Recipient acknowledges, understands and agrees that:
(a) the Plan is established voluntarily by the Company, is discretionary in nature and may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan and this Agreement;
(b) the grant of this award is voluntary and occasional and does not create any contractual or other right to receive future awards under the Plan or benefits in lieu of Plan awards, even if Plan awards have been granted in the past;
(c) all decisions with respect to future Plan awards will be at the sole discretion of the Committee;
(d) he or she is voluntarily participating in the Plan;
(e) the future value of Restricted Stock is unknown and cannot be predicted with certainty;
(f) if the Recipient resides and/or works outside the United States, the following additional provisions shall apply:
(i) any Restricted Stock acquired under the Plan do not replace any pension or retirement rights or compensation;
(ii) any Restricted Stock acquired under the Plan do not constitute compensation of any kind for services of any kind rendered to the Company and/or any subsidiary thereof and are outside the scope of the Recipient’s employment contract, if any;
(iii) any Restricted Stock acquired under the Plan are not part of normal or expected compensation or salary, including, but not limited to, for purposes of calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, service awards, pension or retirement or welfare benefits or similar payments unless such other arrangement explicitly provides to the contrary;
(iv) no claim or entitlement to compensation or damages shall arise from forfeiture of any Restricted Stock under this award resulting from a termination of the Business Relationship for any reason and in consideration of the grant of this award, the Recipient irrevocably agrees never to institute a claim against the Company and/or any subsidiary, waives his or her ability to bring such claim and releases the Company and/or its subsidiaries from any claim; if, notwithstanding the foregoing, such claim is allowed by a court of competent jurisdiction, then by accepting this award, the Recipient is deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claims; and
(v) neither the Company nor any subsidiary shall be liable for any foreign exchange rate fluctuation between the Recipient’s local currency and the United States dollar that may affect the value of the award or any amounts due pursuant to the award or the subsequent sale of any Shares acquired upon settlement.
14. Certain Definitions.
(a) “Aggregate Reference Percentage” means the percentage set forth in the table on the cover page to this Agreement.
(b) “BDP” is the acronym for base dilution protection.
(c) “BDP Availability Period” means the period commencing on June 30, 2026 and continuing until the earliest to occur of (A) March 31, 2031, (B) the Separation Date and (C) the date, if any, that at least eighty percent (80%) of the Board have approved as the cessation date for Recipient and all other recipients of similar award structures.
(d) “BDP Issuances” means the common stock of the Company issued during an applicable period.
(e) “BDP Stock” means all Restricted Stock issued to Recipient pursuant to this Agreement other than the Reference Date Stock.
(f) “Business Relationship” means service to the Company or its subsidiaries in the capacity of an employee, officer, director, consultant or advisor, unless specified otherwise in a written agreement between the Recipient and the Company or a subsidiary. For purposes hereof, a Business Relationship shall not be considered as having terminated during any military leave, sick leave or other leave of absence if approved in writing by the Company (or a subsidiary) and if such written approval, or applicable law, contractually obligates the Company (or the subsidiary) to continue the Business Relationship of the Recipient after the approved period of absence.
(g) “Cause” means that Recipient is determined by the administrator of the Plan (the “Administrator”) to have committed an act of embezzlement, fraud, dishonesty, or breach of fiduciary duty to the Company or any of its subsidiaries or because Recipient has made any unauthorized disclosure of any of the secrets or confidential information of the Company or any of its subsidiaries. The preceding notwithstanding, if the Recipient has a written employment, consulting, severance or similar agreement with the Company that defines the term “cause”, then the definition(s) of such term in such agreement shall control for purposes of this Agreement. The Administrator may also determine that a Recipient’s termination was for Cause retroactively if the Administrator determines after the date of termination that grounds for termination for Cause existed at the time of termination. The determination as to whether a Recipient termination was for Cause shall be made in good faith by the Company and shall be final and binding on the Recipient.
(h) “Disability” means Recipient’s inability to perform the essential duties, responsibilities and functions of Recipient’s position with the Company for a continuous period of ninety (90) days as a result of any mental or physical disability or incapacity, with or without reasonable accommodation, all as determined by the Administrator in its reasonable discretion.
15. Miscellaneous.
(a) Entire Agreement; Modification. This Agreement constitutes the entire agreement between the parties relative to the subject matter hereof, and supersedes all proposals, written or oral, and all other communications between the parties relating to the subject matter of this Agreement. Except as set forth in the immediately following sentence, this Agreement may be modified, amended or rescinded only by a written agreement executed by the Recipient and the Company. Amendments and modifications of the definition of BDP Availability Period may be effected by a written agreement executed only by the Company and only after approval of 80% of the Board.
(b) Severability. The invalidity, illegality or unenforceability of any provision of this Agreement shall in no way affect the validity, legality or enforceability of any other provision.
(c) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, subject to the limitations set forth herein.
(d) Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Delaware without giving effect to the principles of the conflicts of laws thereof; provided, that if after the Execution Date the jurisdiction of incorporation of the Company is a State other than the State of Delaware, then this Agreement shall be governed by and interpreted in accordance with the laws of that other State without giving effect to the principles of the conflicts of laws thereof.
(e) Construction. This Agreement is to be construed in accordance with the terms of the Plan. In case of any conflict between the Plan and this Agreement, the Plan shall control. In the event of a conflict between the terms of the Plan and an employment or similar agreement the specific terms of which relate to this award, the terms of the employment or similar agreement shall control. In the event of a conflict between the terms of this Agreement and a Short-Form Agreement, the terms of this Agreement shall control. The titles of the sections of this Agreement and of the Plan are included for convenience only and shall not be construed as modifying or affecting their provisions. The masculine gender shall include all genders; the singular shall include the plural and the plural the singular unless the context otherwise requires.
(f) Data Privacy. By entering into this Agreement and except as otherwise provided in any data transfer agreement entered into by the Company, the Recipient: (i) authorizes the Company, and any agent of the Company administering the Plan or providing Plan recordkeeping services, to disclose to the Company such information and data as the Company shall request in order to facilitate the issuance of Restricted Stock and the administration of the Plan; (ii) waives any data privacy rights he or she may have with respect to such information; and (iii) authorizes the Company to store and transmit such information in electronic form. For purposes of this Section 15(f), the term “Company” refers to the Company, its subsidiaries and any other affiliate.
(g) Notices. All notices hereunder shall be in writing and shall be deemed given when sent by certified or registered mail, postage prepaid, return receipt requested, if to the Recipient, to the address set forth on the cover page hereof or at the address shown on the records of the Company, and if to the Company, to the Company’s principal offices, attention of the Corporate Secretary.
SCHEDULE OF OMITTED MASTER RESTRICTED STOCK AGREEMENTS
Filed pursuant to Instruction 2 to Item 601(b)(10) of Regulation S-K
Each of the Master True-Up Award Agreements (Second Tranche) listed below, each dated August 7, 2026 between Capstone Holding Corp. and the recipient named, is substantially identical in all material respects to the form of agreement filed as Exhibit 10.9 to this report, except as to the recipient and the amounts set forth below.
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Recipient |
Aggregate Reference Percentage |
Reference Date Stock |
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Charles Dana |
2.00% |
305,248 |
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Fredric J. Feldman |
1.00% |
105,124 |
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John M. Holliman III |
2.00% |
305,248 |
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Elwood D. Howse, Jr. |
1.00% |
105,124 |
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Gordon Strout |
2.50% |
357,810 |
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Michael Toporek |
7.25% |
1,094,647 |
The Master True-Up Award Agreement (Second Tranche) between the Company and Matthew Lipman is not substantially identical to the form filed and is filed separately as Exhibit 10.10.
Exhibit 10.10
CAPSTONE HOLDING CORP.
2025 Stock Incentive Plan
Master Restricted Stock Agreement
Capstone Holding Corp. (the “Company”) and the Recipient named below each hereby into this Master Restricted Stock Agreement on the execution date specified in the table below (including the Terms and Conditions attached hereto, the “Agreement”). The Company grants to the Recipient the shares of Restricted Stock specified herein on the dates specified herein pursuant to the Capstone Holding Corp. 2025 Stock Incentive Plan, as amended and in effect from time to time (the “Plan”).
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Name of recipient (the “Recipient”): |
Matthew Lipman |
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Reference Date |
June 30, 2026 |
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Aggregate Reference Percentage |
7.25% |
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Date of execution (the “Execution Date”) |
August 7, 2026 |
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Date of initial grant of Restricted Stock under this Agreement (the “Initial Grant Date”): |
August 7, 2026 |
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Type of Restricted Stock granted pursuant to this Agreement: |
Common Shares |
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Aggregate Number of Shares of such type of Restricted Stock granted pursuant to this Agreement: |
The aggregate of (a) 1,094,648 Common Shares (the “Reference Date Stock”) plus (b) the BDP Stock (as hereinafter defined). |
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Consideration payable for shares of Restricted Stock, if any: |
$0.00 |
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Vesting Schedule of Separation Vesting Stock: |
As provided in Section 2 of the Agreement. |
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Vesting Schedule of 3-Full Year Vesting Stock: |
As provided in Section 2 of the Agreement. |
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Signature of Recipient Address: |
CAPSTONE HOLDING CORP.
By: Name: Edward Schultz Title: Chief Financial Officer |
CAPSTONE HOLDING CORP.
2025 Stock Incentive Plan
Master Restricted Stock Agreement – Terms and Conditions
The Company agrees to award to the Recipient, and the Recipient agrees to accept from the Company, the number of shares of Restricted Stock set forth on the cover page hereof. If elected by the Company in its sole discretion, the Company and Recipient agree to enter into short-form grant agreements referencing this Agreement on the applicable Grant Date (each, a “Short-Form Agreement”).
1. Grants Under Plan.
(a) The Company shall issue to Recipient on the Initial Grant Date and each BDP Grant Date (as defined below) (each of the foregoing, a “Grant Date”) an award of restricted stock consisting of an aggregate number of shares of common stock specified in the table above (the “Restricted Stock”) allocated between Separation Vesting Stock and 3-Full Year Vesting Stock in accordance with Section 1(d) below, provided that (i) Recipient has not severed all Business Relationship (as defined below) with the Company or any subsidiary prior to the respective Grant Date and (ii) there is availability under the Plan as of the respective Grant Date (any shares of Restricted Stock not issued on a Grant Date due to this clause (ii) (an “Availability Condition Date”) are referred to herein as the “Availability Condition Stock”). This award is subject to the terms and conditions of this Agreement and the Plan, which are incorporated herein by this reference. Capitalized terms used in this Agreement but not defined herein have the respective meanings specified in the Plan or in any employment or similar agreement between the Recipient and the Company or a subsidiary, as applicable.
(b) The Company shall issue to Recipient on the Initial Grant Date the Reference Date Stock (as specified on the cover page hereto).
(c) The Company shall issue to Recipient on January 31 of each year occurring during the BDP Availability Period (as hereinafter defined), such other dates, if any, occurring during the BDP Availability Period approved by the Committee in its sole discretion, and the 15th day of the calendar quarter following the last day of the BDP Availability Period that is determined pursuant to subsection (a) or (c) of such definition (such date, the “Final BDP Grant Date”) (each of the foregoing, a “BDP Grant Date”) an award of restricted stock consisting of an aggregate number of shares of common stock equal to the sum of (x) the Aggregate Reference Percentage of the BDP Issuances during the period commencing on the first day after the date used to calculate the aggregate number of shares on the most recent Grant Date (each, a “BDP Calculation Date”), which BDP Calculation Date is June 30, 2026 for the Initial Grant Date, plus (y) the Aggregate Reference Percentage of such number of shares determined pursuant to preceding clause (x).
(d) On each Grant Date, the aggregate number of shares of Restricted Stock to be issued to Recipient on such Grant Date (the “Applicable Aggregate Share Amount”) shall be issued to Recipient in one or more awards as follows: (i) the Applicable Aggregate Share Amount multiplied by applicable Separation Vesting Reference Percentage and (ii) the Applicable Aggregate Share Amount multiplied by the applicable 3-Full Year Vesting Reference Percentage; provided, however, that if the Recipient requests in writing a modification of the Separation Vesting Reference Percentage and/or the 3-Full Year Vesting Reference Percentage (each, an “Allocation Vesting Reference Percentage”) no later than ten (10) business days prior to a BDP Grant Date and the Administrator approves in its sole discretion any modification to the Allocation Vesting Reference Percentages for such Additional BDP Grant Date, then such modified Allocation Vesting Reference Percentages shall apply to the determination of the number of shares of Separation Vesting Stock and 3-Full Year Vesting Stock awarded on such BDP Grant Date.
(e) The Company shall issue Availability Condition Stock to Recipient on the first BDP Grant Date to occur after an Availability Condition Date for which there is availability under the Plan and the Recipient has not severed all Business Relationship with the Company or any subsidiary prior to such Grant Date. The Company shall cause one or more amendments to the Plan to become effective such that there will be no Availability Condition Stock as of the Final BDP Grant Date.
(f) The Company shall issue to Recipient on the Final BDP Grant Date an award of restricted stock consisting of a number of shares of common stock equal to the aggregate number of shares to which Recipient was entitled to receive under this Agreement that was not previously awarded to Recipient.
2. Vesting.
(a) Separation Vesting Stock.
(i) If the Recipient’s Business Relationship with the Company or any subsidiary is terminated after the Execution Date (x) by reason of Recipient’s death or Disability; (y) by the Company or any subsidiary for any reason other than Cause, including, as applicable, the failure to be nominated to serve as a director of the Company; or (z) by the failure to be elected by the shareholders of the Company to serve as a director (such date described in clause (x), (y) or (z), the “Separation Vesting Date”), then 100% of the shares of Separation Vesting Stock granted to Recipient under this Agreement shall automatically vest on the Separation Vesting Date.
(ii) If the Recipient’s Business Relationship with the Company or any subsidiary is terminated for any reason other than in a manner described in Section 2(a)(i), all shares of Separation Vesting Stock granted to Recipient under this Agreement shall be automatically forfeited on the date of such termination.
(b) 3-Full Year Vesting Stock.
(i) If the Recipient has maintained continuously a Business Relationship through the three-year anniversary of a Grant Date, then 100% of the shares of 3-Full Year Vesting Stock awarded on such Grant Date will vest on such three-year anniversary date.
(ii) For the avoidance of doubt, no shares of 3-Full Year Vesting Stock shall become vested under any circumstances with respect to the Recipient after the Separation Date (as hereinafter defined).
(c) All Restricted Stock.
(i) Any determination under this Agreement as to Business Relationship status or other matters referred to above in this Section 2 shall be made in good faith by the Administrator whose decision shall be final and binding on all parties.
(ii) For the avoidance of doubt, no shares of Restricted Stock will be granted under this Agreement after the Recipient’s Business Relationship has been terminated (such date of termination, the “Separation Date”).
3. Restrictions on Transfer. The Recipient shall not sell, assign, transfer, pledge, encumber or dispose of all or any of his or her unvested shares of Restricted Stock.
4. Rights as a Stockholder. The Recipient shall have all rights as a stockholder of the Company as provided in Section 6(c) of the Plan with respect to the Restricted Stock granted under this Agreement no earlier than the relevant Grant Date.
5. Withholding Taxes. The Company or an employing subsidiary may withhold any and all applicable income and employment taxes required to be withheld from the Recipient in connection with the issuance or vesting of the shares of Restricted Stock to the Recipient, as provided in the Plan.
6. Compliance with Securities Act; Lock-Up Agreement. The Company shall not be obligated to issue any Restricted Stock or other securities pursuant to this Agreement unless the Restricted Stock or other securities with respect to which this Agreement applies are at that time effectively registered or exempt from registration under the Securities Act and applicable state or provincial securities laws/any applicable securities laws unless the Recipient complies with the remaining portion of this Section 6. In the event Restricted Stock or other securities shall be issued that shall not be so registered, the Recipient hereby represents, warrants and agrees that he or she will receive such Restricted Stock or other securities for investment and not with a view to their resale or distribution, and will execute an appropriate investment letter satisfactory to the Company and its counsel. The Recipient further hereby agrees that as a condition to the acquisition of Restricted Stock pursuant to this Agreement, he or she will execute an agreement in a form acceptable to the Company to the effect that the Restricted Stock shall be subject to any underwriter’s lock-up agreement in connection with a public offering of any securities of the Company that may from time to time apply to shares held by officers and employees of the Company, and such agreement or a successor agreement must be in full force and effect.
7. Legends. The Recipient hereby acknowledges that the stock certificate or certificates (or entries in the case of book entry form) evidencing Restricted Stock or other securities issued pursuant to this Agreement may bear a legend (or provide a restriction) setting forth the restrictions on their transferability described in Section 6 hereof, if such restrictions are then in effect.
8. Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Recipient consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
9. Company Policies. This award shall be subject to any applicable clawback or recoupment policies, share trading policies, and other policies that may be implemented by the Board from time to time, in accordance with applicable law.
10. Provision of Documentation to Recipient. By signing the cover page of this Agreement, the Recipient acknowledges receipt of a copy of this entire Agreement, a copy of the Plan and a copy of the Plan’s related prospectus.
11. Effect upon Employment and Performance of Services. Nothing in this Agreement or the Plan shall be construed to impose any obligation upon the Company or any subsidiary to employ or utilize the services of the Recipient or to retain the Recipient in its employ or to engage or retain the services of the Recipient.
12. Section 409A of the Internal Revenue Code. The award of the shares of Restricted Stock hereunder is intended to be exempt from or in compliance with the requirements of Code Section 409A so as to avoid the potential adverse tax consequences to the Recipient of Code Section 409A, and the Committee may make such modifications to this Agreement as it deems necessary or advisable to avoid such adverse tax consequences. Notwithstanding any provision herein or in the applicable Plan to the contrary, the Recipient acknowledges that the Recipient will be solely responsible for any and all tax liabilities payable by the Recipient in connection with the Recipient’s acquisition of the Restricted Stock. The Company (a) makes no representation or undertaking regarding the application of any income tax, social insurance, payroll tax or other tax-related obligations (“Tax-Related Items”) in connection with the grant or vesting of the Restricted Stock or the subsequent sale of any shares underlying the Restricted Stock and (b) does not commit to structure the Restricted Stock to reduce or eliminate the Recipient’s liability for any Tax-Related Items.
13. Nature of Award. By accepting this award, the Recipient acknowledges, understands and agrees that:
(a) the Plan is established voluntarily by the Company, is discretionary in nature and may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan and this Agreement;
(b) the grant of this award is voluntary and occasional and does not create any contractual or other right to receive future awards under the Plan or benefits in lieu of Plan awards, even if Plan awards have been granted in the past;
(c) all decisions with respect to future Plan awards will be at the sole discretion of the Committee;
(d) he or she is voluntarily participating in the Plan;
(e) the future value of Restricted Stock is unknown and cannot be predicted with certainty;
(f) if the Recipient resides and/or works outside the United States, the following additional provisions shall apply:
(i) any Restricted Stock acquired under the Plan do not replace any pension or retirement rights or compensation;
(ii) any Restricted Stock acquired under the Plan do not constitute compensation of any kind for services of any kind rendered to the Company and/or any subsidiary thereof and are outside the scope of the Recipient’s employment contract, if any;
(iii) any Restricted Stock acquired under the Plan are not part of normal or expected compensation or salary, including, but not limited to, for purposes of calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, service awards, pension or retirement or welfare benefits or similar payments unless such other arrangement explicitly provides to the contrary;
(iv) no claim or entitlement to compensation or damages shall arise from forfeiture of any Restricted Stock under this award resulting from a termination of the Business Relationship for any reason and in consideration of the grant of this award, the Recipient irrevocably agrees never to institute a claim against the Company and/or any subsidiary, waives his or her ability to bring such claim and releases the Company and/or its subsidiaries from any claim; if, notwithstanding the foregoing, such claim is allowed by a court of competent jurisdiction, then by accepting this award, the Recipient is deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claims; and
(v) neither the Company nor any subsidiary shall be liable for any foreign exchange rate fluctuation between the Recipient’s local currency and the United States dollar that may affect the value of the award or any amounts due pursuant to the award or the subsequent sale of any Shares acquired upon settlement.
14. Certain Definitions.
(a) “3-Full Year Vesting Reference Percentage” means, as of the Initial Grant Date, 100%.
(b) “3-Full Year Vesting Stock” means all Restricted Stock issued to Recipient pursuant to Section 1 of this Agreement that is not Separation Vesting Stock.
(c) “Aggregate Reference Percentage” means the percentage set forth in the table on the cover page to this Agreement.
(d) “BDP” is the acronym for base dilution protection.
(e) “BDP Availability Period” means the period commencing on June 30, 2026 and continuing until the earliest to occur of (A) March 31, 2031, (B) the Separation Date and (C) the date, if any, that at least eighty percent (80%) of the Board have approved as the cessation date for Recipient and all other recipients of similar award structures.
(f) “BDP Issuances” means the common stock of the Company issued during an applicable period.
(g) “BDP Stock” means all Restricted Stock issued to Recipient pursuant to this Agreement other than the Reference Date Stock.
(h) “Business Relationship” means service to the Company or its subsidiaries in the capacity of an employee, officer, director, consultant or advisor, unless specified otherwise in a written agreement between the Recipient and the Company or a subsidiary. For purposes hereof, a Business Relationship shall not be considered as having terminated during any military leave, sick leave or other leave of absence if approved in writing by the Company (or a subsidiary) and if such written approval, or applicable law, contractually obligates the Company (or the subsidiary) to continue the Business Relationship of the Recipient after the approved period of absence.
(i) “Cause” means that Recipient is determined by the administrator of the Plan (the “Administrator”) to have committed an act of embezzlement, fraud, dishonesty, or breach of fiduciary duty to the Company or any of its subsidiaries or because Recipient has made any unauthorized disclosure of any of the secrets or confidential information of the Company or any of its subsidiaries. The preceding notwithstanding, if the Recipient has a written employment, consulting, severance or similar agreement with the Company that defines the term “cause”, then the definition(s) of such term in such agreement shall control for purposes of this Agreement. The Administrator may also determine that a Recipient’s termination was for Cause retroactively if the Administrator determines after the date of termination that grounds for termination for Cause existed at the time of termination. The determination as to whether a Recipient termination was for Cause shall be made in good faith by the Company and shall be final and binding on the Recipient.
(j) “Disability” means Recipient’s inability to perform the essential duties, responsibilities and functions of Recipient’s position with the Company for a continuous period of ninety (90) days as a result of any mental or physical disability or incapacity, with or without reasonable accommodation, all as determined by the Administrator in its reasonable discretion.
(k) “Separation Vesting Reference Percentage” means, as of the Initial Grant Date, 0%.
(l) “Separation Vesting Stock” means all Restricted Stock issued to Recipient pursuant to Section 1 of this Agreement, which amount was determined by reference to the Separation Vesting Reference Percentage.
15. Miscellaneous.
(a) Entire Agreement; Modification. This Agreement constitutes the entire agreement between the parties relative to the subject matter hereof, and supersedes all proposals, written or oral, and all other communications between the parties relating to the subject matter of this Agreement. Except as set forth in the immediately following sentence, this Agreement may be modified, amended or rescinded only by a written agreement executed by the Recipient and the Company. Amendments and modifications of the definition of BDP Availability Period may be effected by a written agreement executed only by the Company and only after approval of 80% of the Board.
(b) Severability. The invalidity, illegality or unenforceability of any provision of this Agreement shall in no way affect the validity, legality or enforceability of any other provision.
(c) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, subject to the limitations set forth herein.
(d) Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Delaware without giving effect to the principles of the conflicts of laws thereof; provided, that if after the Execution Date the jurisdiction of incorporation of the Company is a State other than the State of Delaware, then this Agreement shall be governed by and interpreted in accordance with the laws of that other State without giving effect to the principles of the conflicts of laws thereof.
(e) Construction. This Agreement is to be construed in accordance with the terms of the Plan. In case of any conflict between the Plan and this Agreement, the Plan shall control. In the event of a conflict between the terms of the Plan and an employment or similar agreement the specific terms of which relate to this award, the terms of the employment or similar agreement shall control. In the event of a conflict between the terms of this Agreement and a Short-Form Agreement, the terms of this Agreement shall control. The titles of the sections of this Agreement and of the Plan are included for convenience only and shall not be construed as modifying or affecting their provisions. The masculine gender shall include all genders; the singular shall include the plural and the plural the singular unless the context otherwise requires.
(f) Data Privacy. By entering into this Agreement and except as otherwise provided in any data transfer agreement entered into by the Company, the Recipient: (i) authorizes the Company, and any agent of the Company administering the Plan or providing Plan recordkeeping services, to disclose to the Company such information and data as the Company shall request in order to facilitate the issuance of Restricted Stock and the administration of the Plan; (ii) waives any data privacy rights he or she may have with respect to such information; and (iii) authorizes the Company to store and transmit such information in electronic form. For purposes of this Section 15(f), the term “Company” refers to the Company, its subsidiaries and any other affiliate.
(g) Notices. All notices hereunder shall be in writing and shall be deemed given when sent by certified or registered mail, postage prepaid, return receipt requested, if to the Recipient, to the address set forth on the cover page hereof or at the address shown on the records of the Company, and if to the Company, to the Company’s principal offices, attention of the Corporate Secretary.
Exhibit 10.11
August 10, 2026
3i, LP
2 Wooster Street, 2nd Floor
New York, New York 10013
Attn: Maier J. Tarlow
Re: Conversion Price Voluntary Adjustment Notice
Dear Sirs:
Reference is made to (a) that certain Securities Purchase Agreement dated as of July 29, 2025 (the “Purchase Agreement”) between Capstone Holding Corp. (the “Company”) and 3i, LP (the “Investor”), (b) the senior secured convertible notes of the Company, each with a 8.34% original issue discount, issued to the Investor on July 29, 2025 (as amended, including pursuant to that certain First Amendment thereto) and October 22, 2025 (each, a “Note” and together, the “Notes”), and (c) the other transaction documents, as modified from time to time, referred to collectively, as the “Transaction Documents”. Capitalized terms used but not defined herein shall have the meanings given to them in the Purchase Agreement, or if not defined therein, in the applicable Note, or if not defined therein, in the applicable Transaction Document, in each case as of the date hereof.
This letter agreement (this “Letter Agreement”) confirms our recent discussions about, among other matters, certain modifications to the Notes.
Pursuant to Section 7(h) of each Note, the Company hereby reduces the Conversion Price of each of the Notes to $0.2949, effective August 10, 2026 through the Maturity Date of the applicable Note, with respect to all principal and other amounts outstanding under each Note as of the date hereof, the principal portion of which consists of (i) $250,372.01 of principal under the July 2025 Note, presently subject to a Conversion Price of $0.75, and (ii) $1,650,387.77 of principal under the October 2025 Note, of which $90,615.48 is presently subject to a Conversion Price of $0.75, $286,916.08 is presently subject to a Conversion Price of $0.57, and $1,272,856.21 is presently subject to a Conversion Price of $1.10. Following this adjustment, no principal amount outstanding under either Note remains subject to any other Conversion Price. Any conversion which occurs shall be voluntary at the election of the Investor, which shall evidence its election as to the Note being converted in writing on a conversion notice.
This Letter Agreement is a Transaction Document and is limited as written. As of the date first written above, each reference in the Purchase Agreement or any other applicable Transaction Document to “this Agreement,” “hereunder,” “hereof,” “herein,” or words of like import, and each reference in the other Transaction Documents to such Purchase Agreement or other Transaction Documents (including, without limitation, by means of words like “thereunder,” “thereof” and words of like import), shall refer to the Purchase Agreement as modified thereby, and this Letter Agreement and the Purchase Agreement shall be read together and construed as a single agreement. The execution, delivery and effectiveness of this Letter Agreement shall not, except as expressly provided herein, (A) waive or modify any right, power or remedy under, or any other provision of, any Transaction Document or (B) commit or otherwise obligate the Investor to enter into or consider entering into any other amendment, waiver or modification of any Transaction Document.
All communications and notices hereunder shall be given as provided in the Transaction Documents. This Letter Agreement (a) shall be governed by and construed in accordance with the law of the State of New York, (b) is for the exclusive benefit of the parties hereto and the beneficiaries of the Purchase Agreement and, together with the other Transaction Documents, constitutes the entire agreement of such parties, superseding all prior agreements among them, with respect to the subject matter hereof, (c) may be modified, waived or assigned only in writing and only to the extent such modification, waiver or assignment would be permitted under the Transaction Documents (and any attempt to assign this Letter Agreement without such writing shall be null and void), (d) is a negotiated document, entered into freely among the parties upon advice of their own counsel, and it should not be construed against any of its drafters and (e) shall survive the satisfaction or discharge of the amounts owing under the Transaction Documents. The fact that any term or provision of this Letter Agreement is held invalid, illegal or unenforceable as to any person in any situation in any jurisdiction shall not affect the validity, enforceability or legality of the remaining terms or provisions hereof or the validity, enforceability or legality of such offending term or provision in any other situation or jurisdiction or as applied to any person.
This Letter Agreement is expressly conditioned on the following conditions precedent:
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● |
The Company’s Board of Directors shall have approved this Letter Agreement and all undertakings thereto in all respects and shall provide written evidence of the same to the Investor by August 10, 2026; and |
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The Company shall have verified and confirmed with its transfer agent that there are no impediments to the issuance of shares as a result of this Letter Agreement. |
Kindly confirm your agreement with the above by signing in the space indicated below and by PDFing a partially executed copy of this letter to the undersigned, and which may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement.
Very truly yours,
Capstone Holding Corp.
| By: | /s/ Matthew E. Lipman | |
| Name: | Matthew E. Lipman | |
| Title: | Chief Executive Officer |
AGREED AND ACCEPTED:
3i, LP
| By: | 3i Management LLC, As General Partner | |
| By: | /s/ Maier J. Tarlow | |
| Name: | Maier J. Tarlow | |
| Title: | Manager |
18400 76th Avenue ● Tinley Park, IL 60477 ● Office 708-371-0660 ● www.capstoneholdingcorp.com
Exhibit 31.1
SECTION 302 CERTIFICATION
I, Matthew E. Lipman, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q for the period ended on June 30, 2026 of Capstone Holding Corp.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
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5. |
The registrant’s other certifying officer(s) and I have disclosed, based on Capstone Holding Corp.’s most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (of persons performing the equivalent functions): |
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a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting. |
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Date: August 12, 2026 |
By: |
/s/ Matthew E. Lipman |
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Matthew E. Lipman |
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Chief Executive Officer |
Exhibit 31.2
SECTION 302 CERTIFICATION
I, Edward Schultz, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q for the period ended on June 30, 2026 of Capstone Holding Corp.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
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5. |
The registrant’s other certifying officer(s) and I have disclosed, based on Capstone Holding Corp.’s most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (of persons performing the equivalent functions): |
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a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting. |
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Date: August 12, 2026 |
By: |
/s/ Edward Schultz |
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Edward Schultz |
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Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Capstone Holding Corp. (the “Company”) on Form 10-Q for the period ended June 30, 2026 (the “Report”) I, Matthew E. Lipman, Chief Executive Officer of the Company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:
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(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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Date: August 12, 2026 |
By: |
/s/ Matthew E. Lipman |
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Matthew E. Lipman |
||
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Chief Executive Officer |
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Capstone Holding Corp. (the “Company”) on Form 10-Q for the period ended June 30, 2026 (the “Report”) I, Edward Schultz, Chief Financial Officer of the Company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:
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(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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Date: August 12, 2026 |
By: |
/s/ Edward Schultz |
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Edward Schultz |
||
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Chief Financial Officer |
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.