Capstone Holding Corp 8-K/A, filed Feb 17, 2026
Capstone Holding Corp. (CAPS)
About this 8-K/A
Capstone Holding Corp filed this 8-K/A on February 17, 2026, reporting on events of November 30, 2025.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Amendment No.1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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Introductory Note
On December 2, 2025, Capstone Holding Corp. (the “Company”) filed a Current Report on Form 8-K (the “Original Report”) with the U.S. Securities and Exchange Commission that disclosed the closing of the acquisition (the “Acquisition”) contemplated by the an asset purchase agreement (the “Asset Purchase Agreement”), dated November 30, 2025, by and between TotalStone, LLC (“TotalStone”), the Company’s primary operating subsidiary, and Continental Stone Industries Inc., a Delaware corporation that is wholly owned by FCHI (“CSIA”), and Jeffery Leech as the representative of CSIA, to purchase all of the assets and assume certain of the liabilities of CSIA (the “Asset Purchase Transaction”); and (ii) a share purchase agreement (the “Share Purchase Agreement”), dated December 1, 2025, by and between InStone Canada Corp., a British Columbia corporation, an indirect wholly-owned subsidiary of the Company (“InStone Canada”), and Dream Family Holdings Ltd, Robert Jahnsen, The Jeffery Leech Family Trust, Jeffery Leech in his individual capacity, Wendy Chiavacci, Michael Siemens, Nathan Thompson, Curt Trierweiler, and Jeffery Leech in his capacity as the representative of the sellers of FCHI, to purchase all of the issued and outstanding shares of FCHI.
The Acquisition closed on December 1, 2025.
This Current Report on Form 8-K/A (the “Amendment”) amends the Original Report to include the financial statements required to be filed under Item 9.01(a) of Form 8-K and the pro forma financial information required to be filed under Item 9.01(b) of Form 8-K. Except as provided herein, the disclosures made in the Original Report remain unchanged.
Item 9.01. Financial Statements and Exhibits.
As a result of the Acquisition as described in Item 2.01 of the Original Report, the registrant is filing the following financial statements and financial information as exhibits to this Amendment.
(a) Financial Statements of Business Acquired.
The audited financial statements of FCHI as of and for the year ended December 31, 2024 and unaudited financial statements of FCHI as of and for the nine months ended September 30, 2025, as required by Item 9.01(a) of Form 8-K are attached as Exhibit 99.1 and Exhibit 99.2, respectively, to this Amendment and are incorporated by reference herein.
(b) Pro Forma Financial Information.
The unaudited pro forma combined financial statements of the Company as of and for the year ended December 31, 2024 and as of and for the nine months ended September 30, 2025, as required by Item 9.01(b) of Form 8-K are attached as Exhibit 99.3 to this Amendment and are incorporated by reference herein.
(d) Exhibits.
| Exhibit Number |
Exhibits | |
| 23.1 | Consent of GBQ Partners LLC | |
| 99.1 | Audited Financials of Fraser Canyon Holdings Inc. as of and for the year ended December 31, 2024 | |
| 99.2 | Unaudited Financial Statements of Fraser Canyon Holdings Inc. as of and for the nine months ended September 30, 2025 | |
| 99.3 | Unaudited Pro Forma Combined Financial Statements as of and for the year ended December 31, 2024 and the nine months ended September 30, 2025 | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Date: February 17, 2026 | Capstone Holding Corp. | |
| By: | /s/ Matthew E. Lipman | |
| Name: | Matthew E. Lipman | |
| Title: | Chief Executive Officer | |
2
Exhibit 23.1
Consent of Independent Auditor
We hereby consent to the incorporation by reference in Registration Statements on Form S-1 (Nos. 333-284105, 333-287745, 333-289222) of Capstone Holding Corp. of our report dated February 17, 2026, relating to the consolidated financial statements of Fraser Canyon Holdings, Inc., which appears in this Form 8-K/A.
/s/ GBQ Partners LLC
Columbus, Ohio
February 17, 2026
Exhibit 99.1
Fraser Canyon Holdings, Inc.
Consolidated Financial Statements
As of and for the year ended December 31, 2024
Index to Consolidated Financial Statements
| Page | ||
| Independent Auditor’s Report | F-2 | |
| Consolidated Financial Statements: | ||
| Balance Sheet | F-4 | |
| Statement of Income and Comprehensive Loss | F-5 | |
| Statement of Stockholders’ Equity | F-6 | |
| Statement of Cash Flows | F-7 | |
| Notes to Consolidated Financial Statements | F-8 |
F-1
To the Shareholders
Fraser Canyon Holdings
27524 51A Ave, Langley, BC V4W 4A9
Opinion
We have audited the accompanying consolidated financial statements of Fraser Canyon Holdings (the Company), which comprise the balance sheet as of December 31, 2024, and the related statements of income and comprehensive loss, stockholders’ equity, and cash flows for the year then ended, and the related notes to the consolidated financial statements.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued or available to be issued.
F-2
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements.
In performing an audit in accordance with GAAS, we:
| ● | Exercise professional judgment and maintain professional skepticism throughout the audit. |
| ● | Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. |
| ● | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed. |
| ● | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. |
| ● | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
/s/ GBQ Partners LLC
Columbus, Ohio
February 17, 2026
F-3
FRASER CANYON HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
| December 31, 2024 | ||||
| ASSETS | ||||
| Current Assets: | ||||
| Cash | $ | 170,972 | ||
| Accounts receivable | 1,372,803 | |||
| Inventory | 4,915,241 | |||
| Taxes receivable | 129,806 | |||
| Derivative asset | 71,528 | |||
| Total current assets | 6,660,350 | |||
| Property and equipment, net | 128,279 | |||
| Right-of-use assets | 446,118 | |||
| Deferred tax asset | 21,138 | |||
| Total Assets | $ | 7,255,885 | ||
| LIABILITIES & STOCKHOLDERS’ EQUITY | ||||
| Current Liabilities: | ||||
| Bank indebtedness | $ | 1,538,718 | ||
| Accounts payable - trade | 507,958 | |||
| Accounts payable – related party | 136,286 | |||
| Accrued expenses | 118,386 | |||
| Operating lease liabilities, current | 294,148 | |||
| Current portion of long-term debt | 430,434 | |||
| Total current liabilities | 3,025,930 | |||
| Long-Term Liabilities: | ||||
| Operating lease liabilities, noncurrent | 151,970 | |||
| Long-Term debt | 1,704,778 | |||
| Stockholder advances | 249,736 | |||
| Total current liabilities | 2,106,484 | |||
| Total Liabilities | 5,132,414 | |||
| STOCKHOLDERS’ EQUITY: | ||||
| Common Stock | 153 | |||
| Retained earnings | 2,508,892 | |||
| Accumulated other comprehensive loss | (385,574 | ) | ||
| Total stockholder’s equity | 2,123,471 | |||
| Total Liabilities and Stockholders’ Equity | $ | 7,255,885 | ||
F-4
FRASER CANYON HOLDINGS
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE LOSS
| Twelve Months Ended December 31, 2024 | ||||
| Net Revenue | $ | 16,420,348 | ||
| Cost of Sales | 11,807,723 | |||
| Gross Profit | 4,612,625 | |||
| Operating Expenses | ||||
| Advertising and promotion | 202,093 | |||
| Amortization | 70,587 | |||
| Automobile | 143,440 | |||
| Entertainment and client relations | 48,172 | |||
| Insurance | 69,741 | |||
| Office and miscellaneous | 28,388 | |||
| Professional services | 216,728 | |||
| Rent, property taxes and utilities | 705,867 | |||
| Salaries and benefits | 2,501,028 | |||
| Telephone and information technology | 128,280 | |||
| Travel | 73,576 | |||
| Warehouse expenses | 119,308 | |||
| Total operating expenses | 4,307,208 | |||
| Operating Income | 305,417 | |||
| Other Income (Expense) | ||||
| Interest and other income | 840 | |||
| Interest expense and bank charges | (24,602 | ) | ||
| Interest expense on long-term debt | (383,294 | ) | ||
| Foreign exchange gain, net | 129,286 | |||
| Total other income (expense) | (277,770 | ) | ||
| Income before income taxes | 27,647 | |||
| Income tax expense | (9,173 | ) | ||
| Net Income | $ | 18,474 | ||
| Other Comprehensive Loss | ||||
| Foreign currency translation adjustment | (374,508 | ) | ||
| Comprehensive Loss | $ | (356,034 | ) | |
F-5
FRASER CANYON HOLDINGS
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
| Common Stock | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | |||||||||||||
| Balance at December 31, 2023 | $ | 153 | $ | 2,490,416 | $ | (11,066 | ) | $ | 2,479,503 | |||||||
| Net Income | — | 18,476 | — | 18,476 | ||||||||||||
| Foreign currency translation adjustment | — | — | (374,508 | ) | (374,508 | ) | ||||||||||
| Balance at December 31, 2024 | $ | 153 | $ | 2,508,892 | $ | (385,574 | ) | $ | 2,123,471 | |||||||
F-6
FRASER CANYON HOLDINGS
CONSOLIDATED STATEMENT OF CASH FLOW
| Twelve Months Ended December 31, 2024 | ||||
| Cash Flows from Operating Activities | ||||
| Net income | $ | 18,476 | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||
| Depreciation and amortization | 71,054 | |||
| Foreign currency gain, net | (110,949 | ) | ||
| Change in operating assets and liabilities: | ||||
| Accounts receivable, net | 245,552 | |||
| Prepaid expenses | 3,650 | |||
| Inventory | 699,237 | |||
| Accounts payable - trade | (194,556 | ) | ||
| Accounts payable – related party | (14,980 | ) | ||
| Accrued expenses | (275,329 | ) | ||
| Taxes payable | (105,660 | ) | ||
| Due to shareholder | 54,745 | |||
| Deferred tax asset | (22,218 | ) | ||
| Total adjustments | 350,546 | |||
| Net cash provided by operating activities | 369,022 | |||
| Cash Flows from Investing Activities | ||||
| Purchase of property and equipment, net | (8,127 | ) | ||
| Cash Flows from Financing Activities | ||||
| Net draws on line of credit | (54,050 | ) | ||
| Repayments of long-term debt | (439,236 | ) | ||
| Net cash used in financing activities | (493,286 | ) | ||
| Effect of foreign currency exchange rates on changes in cash | (30,635 | ) | ||
| NET DECREASE IN CASH | (163,026 | ) | ||
| CASH AND CASH EQUIVALENTS – BEGINNING OF YEAR | 333,998 | |||
| CASH – END OF YEAR | $ | 170,972 | ||
| Supplemental Schedule of Cash Flow Information | ||||
| Cash paid during the year for interest | $ | 383,294 | ||
| Cash refund during the year for income taxes | 40,793 | |||
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Nature and Scope of Business
Fraser Canyon Holdings Inc. (FCHI) is a holding company for its wholly owned operating subsidiaries, Canadian Stone Industries Partnership (CSIP), Canadian Stone Industries Inc (CSII), Continental Stone Industries Inc. (CSIA), and Klad Envelope Solutions Inc. (KLAD) and are collectively referred to herein as the “Company”. The Company distributes natural and manufactured stone products wholesale in Canada and the United States from warehouses in Langley, British Columbia, North York, Ontario, and San Leandro, California.
Note 2 Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of FCHI, CSIP, CSII, CSIA, and KLAD and are collectively referred to as “the Company”. Significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual amounts could differ from those estimates.
Accounts Receivable
Accounts receivable are uncollateralized customer obligations due under normal trade terms and are stated at the amount billed to the customer. Customer account balances that exceed specified trade terms are considered delinquent. The Company does not charge interest on delinquent account balances.
The carrying amount of receivables is reduced by a valuation allowance for expected credit losses, as necessary, that reflects management’s best estimate of the amount that will not be collected. This estimation takes into consideration historical loss experience, current conditions and subsequent cash collections through the date the consolidated financial statements were available to be issued. Actual results could vary from the estimate. Accounts are charged against the allowance when management deems them to be uncollectible. Based on its assessment, management determined that the risk of credit loss was not material; therefore, there was no valuation allowance recorded as of December 31, 2024.
Inventories
Inventory is comprised of natural and manufactured stone products, classified as finished goods, and is valued at the lower of average cost and estimated net realizable value with cost being determined on a first-in first-out average cost basis. The cost of inventory includes the purchase price, transport and other costs directly attributable to the acquisition of inventory.
Property and Equipment
Property and equipment are carried at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets. The estimated useful lives used for financial statement purposes are:
| Automotive | 30% declining balance |
| Computer hardware | 3 years straight-line |
| Computer software | 100% declining balance |
| Leasehold improvements | 3 years straight-line |
| Office equipment | 20% declining balance |
F-8
Impairment of Assets
The Company reviews the recoverability of long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of potential impairment is based on the ability to recover the carrying value of the asset from the expected future pretax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. The measurement of impairment requires management to make estimates of these cash flows related to long-lived assets, as well as other fair value determinations. Impairment charges are recorded as a component of operating expenses within the accompanying statement of income. There were no impairment charges recorded for the year ended December 31, 2024.
Foreign Currency Forward Contracts
The Company uses foreign currency forward contracts to manage exposure to fluctuations in the exchange rate between the U.S. dollar and the Canadian dollar associated with anticipated transactions and balance sheet exposures. These contracts are entered into for risk management purposes and are not designated as accounting hedges under ASC 815, Derivatives and Hedging.
Derivative instruments are recorded at fair value in the consolidated balance sheet within Derivative asset or Derivative liability. Changes in fair value are recognized in current period earnings within foreign exchange (gain) loss, reflecting the economic offset of the underlying exposure.
These contracts are valued using observable market inputs, such as forward exchange rates and discount factors, and are classified within Level 2 of the fair value hierarchy. The Company’s derivative counterparties are major financial institutions, and management believes the risk of nonperformance is not significant.
Fair Value Measurements
U.S. GAAP established a fair value hierarchy that prioritizes the inputs to measure the fair value of the assets or liabilities being measured. Fair value is defined as the exchange value that would be received on the measurement date to sell an asset or to value the amount paid to transfer a liability in the principal or most advantageous market available to the entity in an orderly transaction between market participants. The three levels of the fair value hierarchy are as follows:
| Level 1 | Inputs are unadjusted quoted market prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date. Level 1 inputs provide the most reliable measure of fair value as of the measurement date. |
| Level 2 | Inputs are based on significant observable inputs, including unadjusted quoted market prices for similar assets and liabilities in active markets, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability. |
| Level 3 | Inputs are significant unobservable inputs for the asset or liability. |
The level of the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.
F-9
Revenue Recognition
The Company recognizes revenue under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606). The Company recognizes revenues when control of the promised materials and services is transferred to the clients, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those services.
Sales of manufactured and natural stone products are recognized at a point in time when control transfer to customers, which is generally determined when title, ownership and risk of loss pass to the customer, all of which generally occurs upon shipment or delivery of the product. Based on the Company’s assessment of control indicators, sales are recognized when products are shipped to the customer.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction that are collected by the Company from a customer are excluded from revenue.
The Company’s customers pay for products received in accordance with payment terms that are customary within the industry. The Company’s contracts with its customers do not have significant financing components.
The following table provides information about opening and closing totals of contract balances during the presented reporting period
| 2024 | 2023 | |||||||
| Accounts receivable, net | $ | 1,372,803 | $ | 1,677,280 | ||||
Shipping and Handling Costs
Shipping and handling costs are accounted for as fulfillment costs and are included in cost of sales in the consolidated statements of operations.
Reporting Currency and Foreign Currency Translation
The consolidated financial statements have been presented in U.S. dollars as the reporting currency. The Company’s principal cash flows are recorded in Canadian dollars, its functional currency. In accordance with U.S. GAAP, assets and liabilities have been translated at exchange rates as of the end of the year and income and expense accounts have been translated at the average exchange rate for the year ended December 31, 2024. The difference resulting from such translations is included in other comprehensive income (loss) as a separate component of stockholder’s equity.
Foreign Currency Transactions
Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in currency other than the Company’s functional currency are included in the results of operations as incurred. As of the balance sheet date, recorded balances that are denominated in a currency other than U.S. dollars have been adjusted to reflect the current exchange rate. Transaction gains and losses are recognized within other income (expense) in the accompanying statement of income.
Leases
Pursuant to GAAP, a contract contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is defined as having both the right to obtain substantially all of the economic benefits from use of the asset and the right to direct the use of the asset. Management only reassesses its determination if the terms and conditions of the contract are changed. Leases with an initial term of 12 months or less are not recorded within the accompanying balance sheet.
F-10
Operating leases are included in right-of-use assets and lease liabilities within the Company’s accompanying consolidated balance sheet.
ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments. Lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company uses the implicit rate when it is readily determinable. If the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The incremental borrowing rate is defined as the interest the Company would pay to borrow on a collateralized basis, considering factors such as length of lease term. For operating leases, lease expense is recognized on a straight-line basis in operations over the lease term. For finance leases, lease expense is recognized as amortization and interest; amortization on a straight-line basis over the lease term and interest using the effective interest method.
The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise the option.
The Company has lease agreements with lease and non-lease components; however, the Company has elected the practical expedient to account for the lease and non-lease components as a single lease.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statement of income in the period that includes the enactment date.
The Company accounts for uncertainty in income tax positions which initially need to be recognized in the financial statements when it is more-likely-than-not the positions will be sustained upon examination by the tax authorities. A recognized tax position is measured at the largest amount of benefit that has a greater than 50% likelihood of being realized upon settlement.
It is the policy of the Company to include in its statements of income penalties and interest assessed by income taxing authorities. There are no penalties or interest related to income taxes included in the 2024 statement of income.
Advertising
Advertising costs are expensed as incurred and totaled $202,093 for the year ended December 31, 2024.
New Accounting Pronouncements
In July 2025, the FASB issued ASU 2025-05, Measurement of Credit Losses for Accounts Receivable and Contract Assets, which amends ASC 326-20 to provide a practical expedient and an accounting policy election related to the estimation of expected credit losses for current accounts receivable and current contract assets that arise from transactions accounted for under ASC 606. Specifically, the ASU provides a practical expedient to assume that current conditions as of the balance sheet do not change for the remaining life of the asset. For entities that elect the practical expedient, the ASU also allows an accounting policy election to consider collection activity after the balance sheet date when estimating expected credit losses. ASU 2025-05 is effective for fiscal years beginning after December 15, 2025, with early adoption permitted. The Company has elected to early adopt the practical expedient and accounting policy election, which did not have a material effect on the accompanying consolidated financial statements.
F-11
Cash
Cash is maintained at financial institutions and, at times, balances may exceed federally insured limits.
Inventory
Inventory as of December 31, 2024 consists of the following:
| Finished goods | $ | 4,961,635 | ||
| Reserve for obsolete inventory | (46,394 | ) | ||
| Inventory, net | $ | 4,915,241 |
Derivative Assets and Liabilities
The Company enters into foreign currency forward contracts to manage exposure to fluctuations in U.S. dollar/Canadian dollar exchange rates arising from anticipated inventory purchases and other transactions denominated in U.S. dollars.
The Company estimates the fair value of its foreign currency forward contracts using an income approach valuation technique that reflects the present value of the future contractual cash flows, based on observable forward U.S. dollar/Canadian dollar exchange rates and market based discount factors, and classifies these instruments within Level 2 of the fair value hierarchy.
As of December 31, 2024, the Company held several outstanding forward contracts to purchase an aggregate notional amount of $1,200,000 U.S. dollars, settling in Canadian dollars. The contract deal rates for these forward contracts range from 1.29 to 1.37 CAD per USD. The original contractual maturity extends through December 2025. As of December 31, 2024, the Company has recognized a current derivative asset of $71,528 related to the fair value of its foreign currency forward contracts. The Company recorded an unrealized gain of $110,949 as a component of foreign currency gain, net within the accompanying consolidated statement of income for the year ended December 31, 2024.
The Company is exposed to the risk of nonperformance by its counterparties, but manages this risk by transacting with major financial institutions. No collateral is required to be posted and contracts are presented on a gross basis in the financial statements.
Note 3 Property and Equipment
Property and equipment consisted of the following at December 31, 2024:
| Leasehold improvements | $ | 88,663 | ||
| Computer hardware | 99,447 | |||
| Office equipment | 87,801 | |||
| Plant equipment | 626,488 | |||
| 902,397 | ||||
| Accumulated depreciation and amortization | (774,118 | ) | ||
| Property & equipment, net | $ | 128,279 |
Note 4 Bank Indebtedness
The Company maintains a credit facility with Toronto Dominion Bank, providing overdraft and letter of credit availability up to $6,000,000 CAD. The facility bears interest at the prime lending rate plus 0.50% for Canadian dollar advances and the U.S. base rate plus 0.50% for U.S. dollar advances. The facility is secured by a general security agreement and a first charge on inventory, as well as assignment of satisfactory fire insurance.
F-12
Note 5 Notes Payable
Notes payable consisted of the following at December 31, 2024:
| Toronto Dominion Bank term loan of $2,225,000 CAD repayable in monthly installments of $32,965 CAD, including principal and interest at a rate of 6.43% per annum, maturing on August 30, 2026. | $ | 1,105,119 | ||
| Toronto Dominion Bank term loan of $1,562,700 CAD repayable in monthly installments of $26,488 CAD, plus accrued interest at prime rate plus 0.50% (5.95% as of December 31, 2024) maturing per annum, maturing on August 30, 2026. | 1,030,092 | |||
| 2,135,212 | ||||
| Less: current portion of long-term debt | (430,434 | ) | ||
| Notes payable, long-term | $ | 1,704,778 |
The future maturities of the notes payable as of December 31, 2024 are as follows:
| 2025 | $ | 430,434 | ||
| 2026 | 1,274,344 | |||
| Total | $ | 1,704,778 |
Under the terms of its loan agreements, CSIP is required to maintain a debt service coverage ratio of at least 1.25 times and a total debt to adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio of no more than 2.75 times. As of December 31, 2024, CSIP was not in compliance with the debt service coverage ratio covenant. Subsequently, the lender provided a waiver for this noncompliance.
Note 6 Share Capital
As December 31, 2024, the Company’s share capital consists of the following classes of shares, each with specific rights and restrictions as set out in the Company’s Articles of Incorporation:
| Par Value (CAD) | Authorized | Issued | Outstanding | |||||||||||
| Class A Common | $ | 1.00 | Unlimited | 1,000 | 1,000 | |||||||||
| Class B Common | 1.00 | Unlimited | 1,000 | 1,000 | ||||||||||
| Class C Preferred | 0.10 | Unlimited | — | — | ||||||||||
| Class D Preferred | — | Unlimited | — | — | ||||||||||
| Class E Preferred | 0.01 | Unlimited | — | — | ||||||||||
| Class F Preferred | 0.01 | Unlimited | — | — | ||||||||||
The Company’s Class A Common shares are voting common shares that provide no participation or redemption rights. The Company’s Class B Common shares are participating common shares that provide no voting or redemption rights. The Company’s preferred shares (Classes C, D, E, and F) are non-voting and participating, and each class carries specific redemption and retraction rights as follows: Class C and Class D preferred shares are redeemable and retractable at $3,745 per share, Class E preferred shares are redeemable and retractable at an amount to be set by the directors, and Class F preferred shares are redeemable and retractable at $1,000 per share.
Note 7 Leases
The Company leases its office and warehouses under operating leases, which expire at various dates through 2025. Certain leases require the Company to pay its proportionate share of real estate taxes, common area maintenance, utilities, insurance and other ancillary related costs. The office and warehouse operating leases contain rent escalation clauses detailing specific rent increases.
F-13
The following summarizes the components of expense recognized in the statement of income for operating leases subject to Accounting Standards Codification 842 (ASC 842), Leases:
| Operating lease expense | $ | 424,099 | ||
| Short-term lease expense | 74,822 | |||
| Total lease expense | $ | 498,921 |
The following is a schedule of future minimum lease payments required under operating leases as of December 31, 2024:
| 2025 | $ | 310,345 | ||
| 2026 | 156,040 | |||
| Total undiscounted Lease Payments | 466,385 | |||
| Less: Present value discount | (20,267 | ) | ||
| Total Lease Liability | $ | 446,118 |
The following summarizes additional information related to operating and finance leases accounted for under ASC 842 for the year ended December 31, 2024:
| Cash paid for amounts included in the measurement of lease liabilities: | ||||
| Operating cash flows from operating leases | $ | 419,241 | ||
| ROU assets obtained in exchange for new operating lease liabilities | — | |||
| Weighted-average remaining lease term in years for operating leases | 1.55 | |||
| Weighted-average discount rate for operating leases | 6.00 | % | ||
Note 8 Income Taxes
The Company generated a worldwide pre-tax income of $27,648 for the period ended December 31, 2024.
Pre-tax book income has been recorded in the following jurisdictions:
| 2024 | ||||
| Canadian | $ | 25,250 | ||
| Foreign | 2,367 | |||
| Total pre-tax income | $ | 27,647 | ||
The Company recorded Canadian, Provincial, and Foreign income tax expense for the period ended December 31, 2024 of $6,008, $1,860, and $1,393, respectively.
| December 31, 2024 | ||||
| Current: | ||||
| Canadian | $ | 23,473 | ||
| Provincial | 6,436 | |||
| Foreign | 1,393 | |||
| 31,302 | ||||
| Deferred: | ||||
| Canadian | (17,552 | ) | ||
| Provincial | (4,577 | ) | ||
| Foreign | — | |||
| Total Income tax expense | $ | 9,173 | ||
F-14
A reconciliation of statutory Canadian and provincial income tax rates is shown below:
| 2024 | ||||
| Income before income taxes | $ | 27,647 | ||
| Statutory rate | 9 | % | ||
| Income taxes at statutory rate | 2,488 | |||
| Taxation difference on foreign earnings (U.S.) | 1,785 | |||
| CSII income taxed at higher rates | 546 | |||
| Provincial taxes | 1,860 | |||
| Other permanent differences | (6,657 | ) | ||
| Effects of cross border transactions | 7,630 | |||
| Payable true-up | 1,521 | |||
| Total | $ | 9,173 | ||
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:
| 2024 | ||||
| Deferred tax assets: | ||||
| Loss and tax credit carryforwards | $ | 20,760 | ||
| Investment in partnership | 428 | |||
| Gross deferred tax assets | 21,188 | |||
| Valuation allowance | — | |||
| Net deferred tax assets | $ | 21,188 | ||
| Deferred tax liabilities: | ||||
| Property and equipment | (50 | ) | ||
| Net deferred taxes | $ | 21,138 | ||
Note 9 Related Party Transactions
As of December 31, 2024, accounts payable – related party includes amounts due to certain stockholders of the Company related to Class D preferred share dividends declared in December 2023. These amounts are owed to holders of the Company’s preferred equity interests, who are related parties by virtue of their ownership interests in the Company. As of December 31, 2024, the balance owed to the holders of Class D preferred shares is $46,813.
In connection with the Company’s acquisition of KLAD in a prior period, certain operating expenses of the Company were paid by Dream Family Holdings, a related party that previously owned KLAD. Amounts payable to Dream Family Holdings primarily relate to expenses paid on behalf of the Company during the transition period following the acquisition. As of December 31, 2024, the balance due to Dream Family Holdings also included in accounts payable – related party is $31,099.
During 2024, the Company received advances from a stockholder of $54,745 to fund working capital needs. Advances from the stockholder are unsecured, non-interest bearing and are due on demand. As of December 31, 2024, the balance payable under the advance is $249,736. The payable is classified as long-term based on the repayment intent of the Company and stockholder.
F-15
Note 10 Concentrations
The Company extends trade credit to its customers upon evaluation of customers’ financial condition, generally without requiring collateral. Exposure to losses on receivables is principally dependent on each customer’s financial position. For the purpose of assessing a customer’s relative concentration, a group of entities under common control is considered a single customer.
Sales to one customer accounted for approximately 18% of sales for the years ended December 31, 2024. Amounts due from one customer accounted for approximately 14% of accounts receivable as of December 31, 2024. In addition, the Company is economically dependent on its two primary suppliers for a significant portion of the products it sells.
Note 11 Contingencies
The Company may become involved from time-to-time in operational, litigation and regulatory matters incidental to its business, including product liability, commercial disputes and other matters arising out of the normal conduct of its business. The Company accrues for contingencies if it is probable that a liability has been incurred and the amount of loss can be reasonably estimated.
Note 12 Subsequent Events - Date of Management Evaluation
Management has evaluated subsequent events through the date of the Independent Auditor’s Report, the date on which the financial statements were available to be issued.
On December 1, 2025 Capstone Holdings Corp. (“Capstone”) (NASDAQ: CAPS) acquired 100% of the outstanding equity interests of the Company. As a result of the transaction, the Company became an indirect wholly owned subsidiary of Capstone.
F-16
Exhibit 99.2
Fraser Canyon Holdings, Inc.
Consolidated Financial Statements
As of and for the Nine Months ended September 30, 2025
Index to Consolidated Financial Statements
F-1
FRASER CANYON HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
| September 30, 2025 | ||||
| ASSETS | ||||
| Current Assets: | ||||
| Cash | $ | 216,252 | ||
| Accounts receivable | 1,923,931 | |||
| Prepaid expenses | 43,390 | |||
| Inventory | 5,211,066 | |||
| Tax receivable | 22,053 | |||
| Total current assets | 7,416,692 | |||
| Property and equipment, net | 78,261 | |||
| Right-of-use assets | 2,292,705 | |||
| Deferred tax asset | 19,314 | |||
| Total Assets | $ | 9,806,972 | ||
| LIABILITIES & STOCKHOLDERS’ EQUITY | ||||
| Current Liabilities: | ||||
| Bank indebtedness | $ | 1,184,883 | ||
| Accounts payable – trade | 1,132,567 | |||
| Accounts payable – related party | 80,557 | |||
| Accrued expenses | 78,189 | |||
| Operating lease liabilities, current | 560,277 | |||
| Current portion of long-term debt | 1,875,442 | |||
| Derivative liability | 1,436 | |||
| Total current liabilities | 4,913,351 | |||
| Long-Term Liabilities: | ||||
| Operating lease liabilities, noncurrent | 1,732,428 | |||
| Long-Term debt | — | |||
| Due to stockholder | 411,185 | |||
| Total long-term liabilities | 2,143,613 | |||
| Total Liabilities | 7,056,964 | |||
| STOCKHOLDERS’ EQUITY: | ||||
| Common Stock | 153 | |||
| Retained earnings | 2,987,362 | |||
| Accumulated other comprehensive loss | (237,507 | ) | ||
| Total stockholders’ equity | 2,750,008 | |||
| Total Liabilities and Stockholders’ Equity | $ | 9,806,972 | ||
F-2
FRASER CANYON HOLDINGS
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
| Nine Months Ended September 30, 2025 | ||||
| Net Revenue | $ | 11,746,965 | ||
| Cost of Sales | 8,209,095 | |||
| Gross Profit | 3,537,870 | |||
| Operating Expenses | ||||
| Advertising and promotion | 144,376 | |||
| Amortization | 49,733 | |||
| Automobile | 98,289 | |||
| Entertainment and client relations | 20,183 | |||
| Insurance | 39,479 | |||
| Office and miscellaneous | 22,436 | |||
| Professional services | 98,864 | |||
| Rent, property taxes and utilities | 547,921 | |||
| Salaries and benefits | 1,576,793 | |||
| Telephone and information technology | 84,648 | |||
| Travel | 36,791 | |||
| Warehouse expenses | 96,329 | |||
| Total operating expenses | 2,815,842 | |||
| Operating Income | 722,028 | |||
| Other Income (Expense) | ||||
| Interest and other income | 424 | |||
| Loss on disposal of property and equipment | (1,660 | ) | ||
| Interest expense and bank charges | (11,642 | ) | ||
| Interest expense on long-term debt | (186,433 | ) | ||
| Foreign exchange loss, net | (75,653 | ) | ||
| Total other income (expense) | (274,964 | ) | ||
| Income before income taxes | 447,064 | |||
| Income tax benefit | 31,406 | |||
| Net Income | $ | 478,470 | ||
| Other Comprehensive Income | ||||
| Foreign currency translation adjustment | 148,067 | |||
| Comprehensive Income | $ | 626,537 | ||
F-3
FRASER CANYON HOLDINGS
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
| Common Stock | Retained Earnings | Accumulated Other Comprehensive Income(Loss) | Total Stockholders’ Equity | |||||||||||||
| Balance at December 31, 2024 | $ | 153 | $ | 2,508,892 | $ | (385,574 | ) | $ | 2,123,471 | |||||||
| Net income | — | 478,470 | — | 478,470 | ||||||||||||
| Foreign currency translation adjustment | — | — | 148,067 | 148,067 | ||||||||||||
| Balance at September 30, 2025 | $ | 153 | $ | 2,987,362 | $ | (237,507 | ) | $ | 2,750,008 | |||||||
F-4
FRASER CANYON HOLDINGS
CONSOLIDATED STATEMENT OF CASH FLOW
| Nine Months Ended September 30, 2025 | ||||
| Cash Flows from Operating Activities | ||||
| Net income | $ | 478,470 | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||
| Depreciation and amortization | 49,733 | |||
| Foreign currency loss, net | 75,086 | |||
| Loss on sale of assets | 1,660 | |||
| Change in operating assets and liabilities: | ||||
| Accounts receivable, net | (565,813 | ) | ||
| Prepaid expenses | (43,213 | ) | ||
| Inventory | (56,877 | ) | ||
| Accounts payable | 605,057 | |||
| Accrued expenses | (26,241 | ) | ||
| Taxes payable | 103,501 | |||
| Due to stockholder | 151,509 | |||
| Total adjustments | 294,402 | |||
| Net cash provided by operating activities | 772,872 | |||
| Cash Flows from Investing Activities | ||||
| Proceeds from sale of equipment | 7,328 | |||
| Purchase of property and equipment | (4,568 | ) | ||
| Net cash provided by investment activities | 2,760 | |||
| Cash Flows from Financing Activities | ||||
| Net draws on line of credit | (404,439 | ) | ||
| Repayments of long-term debt | (330,933 | ) | ||
| Net cash used in financing activities | (735,372 | ) | ||
| Effect of foreign currency exchange rates on changes in cash | 5,020 | |||
| NET INCREASE IN CASH | 45,280 | |||
| CASH AND CASH EQUIVALENTS – BEGINNING OF YEAR | 170,972 | |||
| CASH – END OF YEAR | $ | 216,252 | ||
| Supplemental Schedule of Cash Flow Information | ||||
| Cash paid during the period for interest | $ | 186,433 | ||
F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Nature and Scope of Business
Fraser Canyon Holdings Inc. (FCHI) is a holding company for its wholly owned operating subsidiaries, Canadian Stone Industries Partnership (CSIP), Canadian Stone Industries Inc (CSII), Continental Stone Industries Inc. (CSIA), and Klad Envelope Solutions Inc. (KLAD) and are collectively referred to herein as the “Company”. The Company distributes natural and manufactured stone products wholesale in Canada and the United States from warehouses in Langley, British Columbia, North York, Ontario, and San Leandro, California.
Note 2 Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of FCHI, CSIP, CSII, CSIA, and KLAD and are collectively referred to as “the Company”. Significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual amounts could differ from those estimates.
Accounts Receivable
Accounts receivable are uncollateralized customer obligations due under normal trade terms and are stated at the amount billed to the customer. Customer account balances that exceed specified trade terms are considered delinquent. The Company does not charge interest on delinquent account balances.
The carrying amount of receivables is reduced by a valuation allowance for expected credit losses, as necessary, that reflects management’s best estimate of the amount that will not be collected. This estimation takes into consideration historical loss experience, current conditions and subsequent cash collections through the date the consolidated financial statements were available to be issued. Actual results could vary from the estimate. Accounts are charged against the allowance when management deems them to be uncollectible. Based on its assessment, management determined that the risk of credit loss was not material; therefore, there was no valuation allowance recorded as of September 30, 2025.
Inventories
Inventory is comprised of natural and manufactured stone products, classified as finished goods, and is valued at the lower of average cost and estimated net realizable value with cost being determined on a first-in first-out average cost basis. The cost of inventory includes the purchase price, transport and other costs directly attributable to the acquisition of inventory.
F-6
Property and Equipment
Property and equipment are carried at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets. The estimated useful lives used for financial statement purposes are:
| Automotive | 30% declining balance | |
| Computer hardware | 3 years straight-line | |
| Computer software | 100% declining balance | |
| Leasehold improvements | 3 years straight-line | |
| Office equipment | 20% declining balance |
Impairment of Assets
The Company reviews the recoverability of long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of potential impairment is based on the ability to recover the carrying value of the asset from the expected future pretax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. The measurement of impairment requires management to make estimates of these cash flows related to long-lived assets, as well as other fair value determinations. Impairment charges are recorded as a component of operating expenses within the accompanying statement of income. There were no impairment charges recorded for the nine months ended September 30, 2025.
Foreign Currency Forward Contracts
The Company uses foreign currency forward contracts to manage exposure to fluctuations in the exchange rate between the U.S. dollar and the Canadian dollar associated with anticipated transactions and balance sheet exposures. These contracts are entered into for risk management purposes and are not designated as accounting hedges under ASC 815, Derivatives and Hedging.
Derivative instruments are recorded at fair value in the consolidated balance sheet within Derivative asset or Derivative liability. Changes in fair value are recognized in current period earnings within foreign exchange (gain) loss, reflecting the economic offset of the underlying exposure.
These contracts are valued using observable market inputs, such as forward exchange rates and discount factors, and are classified within Level 2 of the fair value hierarchy. The Company’s derivative counterparties are major financial institutions, and management believes the risk of nonperformance is not significant.
Fair Value Measurements
U.S. GAAP established a fair value hierarchy that prioritizes the inputs to measure the fair value of the assets or liabilities being measured. Fair value is defined as the exchange value that would be received on the measurement date to sell an asset or to value the amount paid to transfer a liability in the principal or most advantageous market available to the entity in an orderly transaction between market participants. The three levels of the fair value hierarchy are as follows:
| Level 1 | Inputs are unadjusted quoted market prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date. Level 1 inputs provide the most reliable measure of fair value as of the measurement date. |
| Level 2 | Inputs are based on significant observable inputs, including unadjusted quoted market prices for similar assets and liabilities in active markets, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability. |
| Level 3 | Inputs are significant unobservable inputs for the asset or liability. |
The level of the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.
F-7
Revenue Recognition
The Company recognizes revenue under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606). The Company recognizes revenues when control of the promised materials and services is transferred to the clients, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those services.
Sales of manufactured and natural stone products are recognized at a point in time when control transfer to customers, which is generally determined when title, ownership and risk of loss pass to the customer, all of which generally occurs upon shipment or delivery of the product. Based on the Company’s assessment of control indicators, sales are recognized when products are shipped to the customer.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction that are collected by the Company from a customer are excluded from revenue.
The Company’s customers pay for products received in accordance with payment terms that are customary within the industry. The Company’s contracts with its customers do not have significant financing components.
The following table provides information about opening and closing totals of contract balances during the presented reporting period
| September 30, 2025 | December 31, 2024 | |||||||
| Accounts receivable, net | $ | 1,923,931 | $ | 1,372,803 | ||||
Shipping and Handling Costs
Shipping and handling costs are accounted for as fulfillment costs and are included in cost of sales in the consolidated statements of operations.
Reporting Currency and Foreign Currency Translation
The consolidated financial statements have been presented in U.S. dollars as the reporting currency. The Company’s principal cash flows are recorded in Canadian dollars, its functional currency. In accordance with U.S. GAAP, assets and liabilities have been translated at exchange rates as of September 30, 2025 and income and expense accounts have been translated at the average exchange rate for the nine months ended September 30, 2025. The difference resulting from such translations is included in other comprehensive income (loss) as a separate component of stockholders’ equity.
Foreign Currency Transactions
Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in currency other than the Company’s functional currency are included in the results of operations as incurred. As of the balance sheet dates, recorded balances that are denominated in a currency other than U.S. dollars have been adjusted to reflect the current exchange rate. Transaction gains and losses are recognized within other income (expense) in the accompanying statement of income.
Leases
Pursuant to GAAP, a contract contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is defined as having both the right to obtain substantially all of the economic benefits from use of the asset and the right to direct the use of the asset. Management only reassesses its determination if the terms and conditions of the contract are changed. Leases with an initial term of 12 months or less are not recorded within the accompanying balance sheet.
F-8
Operating leases are included in right-of-use assets and lease liabilities within the Company’s accompanying consolidated balance sheet.
ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments. Lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company uses the implicit rate when it is readily determinable. If the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The incremental borrowing rate is defined as the interest the Company would pay to borrow on a collateralized basis, considering factors such as length of lease term. For operating leases, lease expense is recognized on a straight-line basis in operations over the lease term. For finance leases, lease expense is recognized as amortization and interest; amortization on a straight-line basis over the lease term and interest using the effective interest method.
The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise the option.
The Company has lease agreements with lease and non-lease components; however, the Company has elected the practical expedient to account for the lease and non-lease components as a single lease
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statement of income in the period that includes the enactment date
The Company accounts for uncertainty in income tax positions which initially need to be recognized in the financial statements when it is more-likely-than-not the positions will be sustained upon examination by the tax authorities. A recognized tax position is measured at the largest amount of benefit that has a greater than 50% likelihood of being realized upon settlement.
It is the policy of the Company to include in its statements of income penalties and interest assessed by income taxing authorities. There are no penalties or interest related to income taxes included in the accompanying statement of income.
Advertising
Advertising costs are expensed as incurred and totaled $144,376 for the nine months ended September 30, 2025.
New Accounting Pronouncements
In July 2025, the FASB issued ASU 2025-05, Measurement of Credit Losses for Accounts Receivable and Contract Assets, which amends ASC 326-20 to provide a practical expedient and an accounting policy election related to the estimation of expected credit losses for current accounts receivable and current contract assets that arise from transactions accounted for under ASC 606. Specifically, the ASU provides a practical expedient to assume that current conditions as of the balance sheet do not change for the remaining life of the asset. For entities that elect the practical expedient, the ASU also allows an accounting policy election to consider collection activity after the balance sheet date when estimating expected credit losses. ASU 2025-05 is effective for fiscal years beginning after December 15, 2025, with early adoption permitted. The Company has elected to early adopt the practical expedient and accounting policy election, which did not have a material effect on the accompanying consolidated financial statements.
Cash
Cash is maintained at financial institutions and, at times, balances may exceed federally insured limits.
Inventory
Inventory as of September 30, 2025 consists of the following:
| Finished goods | $ | 5,236,440 | ||
| Reserve for obsolete inventory | (25,374 | ) | ||
| Inventory, net | $ | 5,211,066 |
F-9
Derivative Assets and Liabilities
The Company enters into foreign currency forward contracts to manage exposure to fluctuations in U.S. dollar/Canadian dollar exchange rates arising from anticipated inventory purchases and other transactions denominated in U.S. dollars.
The Company estimates the fair value of its foreign currency forward contracts using an income approach valuation technique that reflects the present value of the future contractual cash flows, based on observable forward U.S. dollar/Canadian dollar exchange rates and market based discount factors, and classifies these instruments within Level 2 of the fair value hierarchy.
As of September 30, 2025, the Company held several outstanding forward contracts to purchase an aggregate notional amount of $560,000 U.S. dollars, settling in Canadian dollars. The contract deal rates for these forward contracts range from 1.34 to 1.43 CAD per USD. The original contractual maturity extends through April 2026. As of September 30, 2025, the Company has recognized a current derivative liability of $1,436 related to the fair value of its foreign currency forward contracts. The Company recorded an unrealized loss of $75,653 as a component of foreign currency loss, net within the accompanying consolidated statement of income for the nine months ended September 30, 2025.
The Company is exposed to the risk of nonperformance by its counterparties, but manages this risk by transacting with major financial institutions. No collateral is required to be posted and contracts are presented on a gross basis in the financial statements.
Note 3 Property and Equipment
Property and equipment consisted of the following at September 30, 2025:
| Leasehold improvements | $ | 91,674 | ||
| Computer hardware | 105,803 | |||
| Office equipment | 90,783 | |||
| Plant equipment | 586,188 | |||
| 874,488 | ||||
| Accumulated depreciation and amortization | (796,187 | ) | ||
| Property & equipment, net | $ | 78,261 |
Note 4 Bank Indebtedness
The Company maintains a credit facility with Toronto Dominion Bank, providing overdraft and letter of credit availability up to $6,000,000 CAD. The facility bears interest at the prime lending rate plus 0.50% for Canadian dollar advances and the U.S. base rate plus 0.50% for U.S. dollar advances. The facility is secured by a general security agreement and a first charge on inventory, as well as assignment of satisfactory fire insurance.
F-10
Note 5 Notes Payable
Notes payable consisted of the following at September 30, 2025:
| Toronto Dominion Bank term loan of $2,225,000 CAD repayable in monthly installments of $32,965CAD, including principal and interest at a rate of 6.43-% per annum, maturing on August 30, 2026. | $ | 981,538 | ||
| Toronto Dominion Bank term loan of $1,562,700 CAD repayable in monthly installments of $26,488CAD, plus accrued interest at prime rate plus 0.50% (5.20% as of September 30, 2025 maturing per annum, maturing on August 30, 2026. | 893,904 | |||
| 1,875,442 | ||||
| Less: current portion of long-term debt | (1,875,442 | ) | ||
| Notes payable, long-term | $ | — |
The future maturities of the notes payable as of September 30, 2025 are as follows:
| 2026 | $ | 1,875,442 | ||
| Total | $ | 1,875,442 |
Under the terms of its loan agreements, CSIP is required to maintain a debt service coverage ratio of at least 1.25 times and a total debt to adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio of no more than 2.75 times. As of September 30, 2025, CSIP was in compliance with the total debt to adjusted EBITDA covenant.
Note 6 Share Capital
As September 30, 2025, the Company’s share capital consists of the following classes of shares, each with specific rights and restrictions as set out in the Company’s Articles of Incorporation:
| Par Value (CAD) | Authorized | Issued | Outstanding | |||||||||||
| Class A Common | $ | 1.00 | Unlimited | 1,000 | 1,000 | |||||||||
| Class B Common | 1.00 | Unlimited | 1,000 | 1,000 | ||||||||||
| Class C Preferred | 0.10 | Unlimited | — | — | ||||||||||
| Class D Preferred | — | Unlimited | — | — | ||||||||||
| Class E Preferred | 0.01 | Unlimited | — | — | ||||||||||
| Class F Preferred | 0.01 | Unlimited | — | — | ||||||||||
The Company’s Class A Common shares are voting common shares that provide no participation or redemption rights. The Company’s Class B Common shares are participating common shares that provide no voting or redemption rights. The Company’s preferred shares (Classes C, D, E, and F) are non-voting and participating, and each class carries specific redemption and retraction rights as follows: Class C and Class D preferred shares are redeemable and retractable at $3,745 per share, Class E preferred shares are redeemable and retractable at an amount to be set by the directors, and Class F preferred shares are redeemable and retractable at $1,000 per share.
Note 7 Leases
The Company leases its office and warehouses under operating leases, which expire at various dates through 2030. Certain leases require the Company to pay its proportionate share of real estate taxes, common area maintenance, utilities, insurance and other ancillary related costs. The office and warehouse operating leases contain rent escalation clauses detailing specific rent increases.
The following summarizes the components of expense recognized in the statement of income for operating and finance leases subject to Accounting Standards Codification 842 (ASC 842), Leases:
| Operating lease expense | $ | 347,491 | ||
| Short-term lease expense | 42,284 | |||
| Total lease expense | $ | 389,775 |
The following is a schedule of future minimum lease payments required under leases as of September 30, 2025:
| 2026 | $ | 639,376 | ||
| 2027 | 494,610 | |||
| 2028 | 474,984 | |||
| 2029 | 486,861 | |||
| 2030 | 414,131 | |||
| Total undiscounted Lease Payments | 2,509,962 | |||
| Less: Present value discount | (217,257 | ) | ||
| Total Lease Liability | $ | 2,292,705 |
F-11
The following summarizes additional information related to operating and finance leases accounted for under ASC 842 for the nine months ended September 30, 2025:
| Cash paid for amounts included in the measurement of lease liabilities: | ||||
| Operating cash flows from operating leases | $ | 310,321 | ||
| ROU assets obtained in exchange for new operating lease liabilities | 2,115,355 | |||
| Weighted-average remaining lease term in years for operating leases | 4.5 | |||
| Weighted-average discount rate for operating leases | 4.03 | % | ||
Note 8 Related Party Transactions
As of September 30, 2025, accounts payable – related party includes amounts due to certain stockholders of the Company related to Class D preferred share dividends declared in December 2023. These amounts are owed to holders of the Company’s preferred equity interests, who are related parties by virtue of their ownership interests in the Company. As of September 30, 2025, the balance owed to the holders of Class D preferred shares is $48,402.
In connection with the Company’s acquisition of KLAD in a prior period, certain operating expenses of the Company were paid by Dream Family Holdings, a related party that previously owned KLAD. Amounts payable to Dream Family Holdings primarily relate to expenses paid on behalf of the Company during the transition period following the acquisition. As of September 30, 2025, the balance due to Dream Family Holdings is $32,155.
During the year, the Company received advances from a stockholder of $161,449 to fund working capital needs. Advances from a stockholder are unsecured, non-interest bearing and are due on demand. As of September 30, 2025, the balance due under the advance is $411,185. The payable is classified as long-term based on the repayment intent of the Company and stockholder.
Note 9 Concentrations
The Company extends trade credit to its customers upon evaluation of customers’ financial condition, generally without requiring collateral. Exposure to losses on receivables is principally dependent on each customer’s financial position. For the purpose of assessing a customer’s relative concentration, a group of entities under common control is considered a single customer.
Sales to one customer accounted for approximately 24% of sales for the nine months ending September 30, 2025. Amounts due from one customer accounted for approximately 15% of accounts receivable as of September 30, 2025. In addition, the Company is economically dependent on its two primary suppliers for a significant portion of the products it sells.
Note 10 Contingencies
The Company may become involved from time-to-time in operational, litigation and regulatory matters incidental to its business, including product liability, commercial disputes and other matters arising out of the normal conduct of its business. The Company accrues for contingencies if it is probable that a liability has been incurred and the amount of loss can be reasonably estimated.
Note 11 Subsequent Events - Date of Management Evaluation
On December 1, 2025 Capstone Holdings Corp. (“Capstone”) (NASDAQ: CAPS) acquired 100% of the outstanding equity interests of the Company. As a result of the transaction, the Company became an indirect wholly owned subsidiary of Capstone.
F-12
Exhibit 99.3
CAPSTONE
HOLDING CORP.
Unaudited Pro Forma Combined Financial Information
On December 1, 2025, Capstone Holding Corp. (the “Company”) completed its previously announced acquisition (the “Acquisition”) of Fraser Canyon Holdings Inc. (“FCHI”) and its subsidiaries. FCHI does business as Canadian Stone Industries. The Acquisition was completed pursuant to the terms and conditions of (i) the asset purchase agreement (the “Asset Purchase Agreement”) previously filed as an exhibit to the Current Report on Form 8-K dated December 2, 2025 (the “December 8-K”), and (ii) the share purchase agreement (the “Share Purchase Agreement”) previously filed as an exhibit to the December 8-K.
Asset Purchase Transaction
The Asset Purchase Agreement, dated November 30, 2025, was entered into by and between TotalStone, LLC (“TotalStone”), the Company’s primary operating subsidiary, Continental Stone Industries Inc., a Delaware corporation that is wholly owned by FCHI (“CSIA”), and Jeffery Leech as the representative of CSIA. Pursuant to the Asset Purchase Agreement, TotalStone purchased all of the assets and assumed certain of the liabilities of CSIA (the “Asset Purchase Transaction”). The aggregate purchase price for the Asset Purchase Transaction consisted of (i) the assumption of CSIA’s liabilities, and (ii) cash of $458,810.00 (the “Continental Cash Purchase Price”).
Share Purchase Transaction
The Share Purchase Agreement, dated December 1, 2025, was entered into by and between InStone Canada Corp., a British Columbia corporation and an indirect wholly-owned subsidiary of the Company (“InStone Canada”), and Dream Family Holdings Ltd., Robert Jahnsen, The Jeffery Leech Family Trust, Jeffery Leech in his individual capacity, Wendy Chiavacci, Michael Siemens, Nathan Thompson, Curt Trierweiler, and Jeffery Leech in his capacity as the representative of the sellers of FCHI (collectively, the “Sellers”). Pursuant to the Share Purchase Agreement, InStone Canada purchased all of the issued and outstanding shares of FCHI (the “FCHI Shares,” and the transaction, the “Share Purchase Transaction”).
The aggregate purchase price for the Share Purchase Transaction consisted of:
(i) C$6,200,000 in cash (approximately $4,446,676 at an exchange rate of US$1.00 = C$1.3943), less the amount of the Continental Cash Purchase Price, with such cash purchase price including the assumption of liabilities; (ii) a promissory note in the principal amount of C$1,600,000 (approximately $1,147,529) (the “First SPA Note”), payable in the amount of C$400,000 on July 31, 2026 and C$400,000 on October 31, 2026, with a maturity date of March 31, 2027 and interest at TD Bank’s prime rate plus 1.00% through November 30, 2026, and at TD Bank’s prime rate plus 3.00% from December 1, 2026 onward; (iii) a promissory note in the principal amount of C$2,000,000 (approximately $1,434,412) (the “Second SPA Note”), payable in equal installments of C$50,000 on the last day of each of March, June, September, and December, commencing on March 31, 2027, with a maturity date of December 1, 2028 and interest at a per annum rate equal to 30-day average SOFR plus an applicable margin that is (a) 1.25% through November 30, 2026, (b) 2.50% from December 1, 2026 through November 30, 2027, and (c) 3.75% thereafter; (iv) any amounts payable under the earn-out agreement (the “Earn-Out Agreement”) up to C$3,000,000 based on Average EBITDA (as defined in the Earn-Out Agreement) during two separate periods: the 2026 and 2027 calendar years (the first period) and the 2027 and 2028 calendar years (the second period); and (v) the Buyer WC Payment Amount (as defined in the Share Purchase Agreement), if any, less the Buyer WC Receipt Amount (as defined in the Share Purchase Agreement), if any.
Additional Agreements
In connection with the closing of the Acquisition, the buyers agreed to deliver a buyer-side representations and warranties insurance policy and the Company entered into a guaranty agreement (the “Guaranty Agreement”) in favor of the Sellers in connection with the First SPA Note issued under the Share Purchase Agreement.
To finance a portion of the cash purchase price, on October 22, 2025, the Company issued to an institutional investor (the “Buyer”) a senior secured convertible note in the original principal amount of $3,545,712.42 (the “Note”), which was issued with a 8.34% original issue discount. The 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 Note 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 issuance of the Note. The Note bears interest at a rate of 7.0% per annum. Principal and interest under the Note will be repaid in a series of equal quarterly installments. Subsequent to the issuance of the Note, on November 24, 2025, the Company voluntarily reduced the conversion price of a portion of the Note totaling $1,772,856.21 in principal amount to $0.75 per share, with the remaining principal amount continuing to be subject to the existing conversion price of $1.10 per share. The pro forma adjustments related to this arrangement are shown in a separate column as “Other Adjustments”.
The foregoing does not purport to be a complete description of the Asset Purchase Agreement, the Share Purchase Agreement, the First SPA Note, the Second SPA Note, the Guaranty Agreement, and the Earn-Out Agreement, and such description is qualified in its entirety by reference to the full text of the Asset Purchase Agreement, the Share Purchase Agreement, the First SPA Note, the Second SPA Note, the Guaranty Agreement, and the Earn-Out Agreement, the forms of which were filed as, respectively, Exhibits 2.1, 2.2, 10.1, 10.2, 10.3, and 10.4 to the December 8-K and which are incorporated herein by reference.
Previous 2025 Acquisition
As more fully disclosed in our Form 8-K filed with the SEC on November 7, 2025, on August 22, 2025, the Company acquired Carolina Stone Holdings, LLC (“CSH“). The aggregate purchase price of the CSH acquisition was (i) $2,625,000 in cash, subject to adjustment set forth in Section 2.6 of the Purchase Agreement, plus (ii) a seller note in the original principal amount of $1,250,000, plus (iii) the amount payable pursuant to the terms of the earn-out agreement. The Company transferred $2,501,500 in cash to the seller representing the aggregate purchase price of $2,625,000 less $123,500 for the preliminary working capital adjustment as set forth in Section 2.6 of the Purchase Agreement.
To finance the CSH cash purchase price, on July 29, 2025, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) pursuant to which the Company authorized the issuance of senior secured convertible notes, 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 “Note). The Convertible Notes are 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 $1.72 per share. Subsequent to the issuance date, the conversion price of the Convertible Note was amended to $1.00 per share. The Company received gross proceeds of $3,000,000 or $2,680,000 of net proceeds after the deduction of transaction related expenses, from the initial closing of the Convertible Note Financing.
The following Unaudited Pro Forma Combined Financial Information has been prepared from the respective historical consolidated financial statements of the Company, CSH and FCHI and has been adjusted to illustrate the estimated effects of both acquisitions.
The Unaudited Pro Forma Combined Financial Information has been prepared in accordance with Article 8 of Regulation S-X as amended. The Unaudited Pro Forma Combined Financial Information is derived from and should be read in conjunction with:
| ● | the historical audited consolidated financial statements of the Company, as of and for the year ended December 31, 2024 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2025; |
2
| ● | the historical unaudited consolidated financial statements of the Company, as of and for the nine months ended September 30, 2025 included in the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 18, 2025; |
| ● | the audited consolidated financial statements of FCHI as of and for the year ended December 31, 2024; |
| ● | the unaudited consolidated financial statements of FCHI as of and for the nine months ended September 30, 2025. |
| ● | The audited consolidated financial statements of CSH as of and for the year ended December 31, 2024 that are included in the Company’s Form 8-K filed on November 7, 2025; and |
| ● | The Company’s Form 8-K filed on November 7, 2025 that included pro forma financial statements to give effect to the CSH acquisition and includes additional detail with respect to that acquisition and related proforma adjustments. |
The Unaudited Pro Forma Combined Consolidated Balance Sheet gives effect to the FCHI acquisition as if it had been consummated on September 30, 2025 and includes pro forma adjustments based on the preliminary valuation of certain tangible and identifiable intangible assets acquired and liabilities assumed and consideration transferred. The Unaudited Pro Forma Combined Consolidated Balance Sheet combines the Company’s historical Unaudited Consolidated Balance Sheet as of September 30, 2025 with FCHI’s historical Unaudited Consolidated Balance Sheet as of September 30, 2025. The CSH acquisition closed on August 22, 2025 and accordingly the assets acquired and liabilities assumed are already included in the Company’s consolidated balance sheet as of September 30, 2025.
The Unaudited Pro Forma Combined Consolidated Statement of Operations for the year ended December 31, 2024 gives effect to the CSH and FCHI acquisition as if they had been consummated on January 1, 2024, and combines the Company’s historical Audited Consolidated Statement of Operations for the year ended December 31, 2024 with CSH’s and FCHI’s historical Audited Consolidated Statement of Operations for the year ended December 31, 2024. Similarly, the Unaudited Pro Forma Combined Consolidated Statement of Operations for the nine months ended September 30, 2025 gives effect to the CSH and FCHI acquisition as if they had been consummated on January 1, 2024 and combines the Company’s historical Unaudited Consolidated Statement of Operations for the nine months ended September 30, 2025, with FCHI’s historical Unaudited Consolidated Statement of Operations for the nine months ended September 30, 2025 and CSH’s historical Unaudited Consolidated Statement of Operations for the period January 1, 2025 through August 28, 2025.
The accompanying Unaudited Pro Forma Combined Financial Information was derived by making certain Acquisition Adjustments to the historical consolidated financial statements of CSH and FCHI noted above. Such adjustments are based on currently available information and certain estimates and assumptions. Therefore, the actual impact of the Company’s acquisitions may differ from the adjustments made to the Unaudited Pro Forma Combined Financial Information. However, management believes that the assumptions provide reasonable basis for presenting the significant effects of the acquisitions as if it had been consummated as of the dates indicated above, and that all adjustments necessary to present fairly the Unaudited Pro Forma Combined Financial Information have been made.
The Unaudited Pro Forma Combined Financial Information is for illustrative purposes only and is subject to a number of uncertainties and assumptions as described in the accompanying notes. The Unaudited Pro Forma Combined Financial Information should not be relied upon as an indication of the financial condition or the operating results that the Company would have achieved had the acquisitions occurred on the dates assumed, nor indicative of the financial condition or operating results of the combined company as of or for any future date or period.
As of the date of this Amendment Number 1 to the Current Report on Form 8-K, the Company has not finalized its determination of the fair value of consideration transferred for the CSH and FCHI acquisitions, the fair value of assets acquired and liabilities assumed and the related allocations of purchase price, nor has it identified all adjustments necessary to conform FCHI’s accounting policies to the Company’s accounting policies. As additional information becomes available and additional analyses are performed, this may cause the final adjustments to be materially different from the Unaudited Pro Forma Combined Financial Information presented below. The final allocation of the total purchase price for each acquisition will be determined after a final determination of the fair value of CSH’s and FCHI’s tangible and identifiable intangible assets acquired and liabilities that existed at each respective acquisition closing date.
3
CAPSTONE HOLDING CORP.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of September 30, 2025
(in thousands, except share and per share data)
(unaudited)
| Capstone Holding Corp. (Historical) |
Fraser Canyon Holdings (Historical) |
Acquisition Adjustments |
Other Adjustments |
Pro Forma Combined |
|||||||||||||||||
| ASSETS | |||||||||||||||||||||
| Current Assets: | |||||||||||||||||||||
| Cash | $ | 730 | $ | 216 | $ | (2,265 | ) | (a) | $ | 3,250 | (h) | $ | 1,931 | ||||||||
| Accounts receivable, net | 5,771 | 1,924 | — | — | 7,695 | ||||||||||||||||
| Inventories | 12,167 | 5,211 | — | — | 17,378 | ||||||||||||||||
| Prepaid expenses | 203 | 43 | — | — | 246 | ||||||||||||||||
| Other current assets | 242 | 22 | — | — | 264 | ||||||||||||||||
| Total current assets | 19,113 | 7,416 | (2,265 | ) | 3,250 | 26,514 | |||||||||||||||
| Long-term Assets: | |||||||||||||||||||||
| Property and equipment, net | 1,703 | 78 | — | — | 1,781 | ||||||||||||||||
| Goodwill | 26,030 | — | 945 | (a) | — | 26,975 | |||||||||||||||
| Other intangible assets | 359 | — | — | — | 359 | ||||||||||||||||
| Right of use assets | 3,879 | 2,292 | — | — | 6,171 | ||||||||||||||||
| Deferred tax asset | 7,178 | — | — | — | 7,178 | ||||||||||||||||
| Other long-term assets | 221 | — | — | — | 221 | ||||||||||||||||
| Total long-term assets | 39,370 | 2,370 | 945 | — | 42,685 | ||||||||||||||||
| Total Assets | $ | 58,483 | $ | 9,786 | $ | (1,320 | ) | $ | 3,250 | $ | 70,199 | ||||||||||
| LIABILITIES & EQUITY | |||||||||||||||||||||
| Current Liabilities: | |||||||||||||||||||||
| Accounts payable | $ | 5,476 | $ | 1,195 | $ | 894 | (f) | $ | — | $ | 7,566 | ||||||||||
| Accrued expenses | 1,325 | 97 | — | — | 1,421 | ||||||||||||||||
| Senior convertible note | — | — | — | 3,250 | (h) | 3,250 | |||||||||||||||
| Line of credit | 8,271 | 1,185 | 844 | (a) | — | 10,300 | |||||||||||||||
| Current portion of long-term debt | 3,724 | 1,875 | — | — | 5,599 | ||||||||||||||||
| Current portion, lease liability | 1,224 | 560 | — | — | 1,784 | ||||||||||||||||
| Total current liabilities | 20,020 | 4,912 | 1,738 | 3,250 | 29,920 | ||||||||||||||||
| Long-term liabilities: | |||||||||||||||||||||
| Accrued related party management fee | 445 | — | — | — | 445 | ||||||||||||||||
| Long term debt, net of current portion | 7,229 | — | 2,582 | (c) | — | 9,811 | |||||||||||||||
| Lease liability, net of current portion | 2,807 | 1,732 | — | — | 4,539 | ||||||||||||||||
| Shareholder Advances | — | 411 | — | 441 | |||||||||||||||||
| Earn-out payable | 825 | — | 269 | (b) | — | 1,094 | |||||||||||||||
| Total long-term liabilities | 11,306 | 2,144 | 2,851 | — | 16,300 | ||||||||||||||||
| Total Liabilities | 31,326 | 7,055 | 4,589 | 3,250 | 46,220 | ||||||||||||||||
| Equity: | |||||||||||||||||||||
| Series B Preferred Stock, no par value; 2,000,000 shares authorized; 985,063 issued as of September 30, 2025. | 30 | — | — | — | 30 | ||||||||||||||||
| Series Z Preferred Stock, no par value; 3,500,000 shares authorized; 1,467,532 issued as of September 30, 2025. | 1,937 | — | — | — | 1,937 | ||||||||||||||||
| Common Stock $0.0005 par value; 50,000,000 and 200,000 shares authorized; 6,306,205 and 157,610 issued as of September 30, 2025 and December 31, 2024, respectively. | 3 | — | — | — | 3 | ||||||||||||||||
| Additional paid-in capital | 226,436 | — | — | — | 226,436 | ||||||||||||||||
| Retained Earnings (Accumulated deficit) | (201,249 | ) | 2,731 | (5,909 | ) | — | (204,427 | ) | |||||||||||||
| Total Equity | 27,157 | 2,731 | (5,909 | ) | — | 23,979 | |||||||||||||||
| Total Liabilities, Preferred Units & Equity | $ | 58,483 | $ | 9,786 | $ | (1,320 | ) | $ | 3,250 | $ | 70,199 | ||||||||||
4
CAPSTONE
HOLDING CORP.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2025
(in thousands, except share and per share data)
(unaudited)
| Capstone Holding Corp. (Historical) |
Carolina Stone Holdings (Historical) |
Capstone & Carolina Stone (Historical) |
Fraser Canyon Holdings (Historical) |
Acquisition Adjustments |
Other Adjustments |
Pro Forma Combined |
||||||||||||||||||||||||
| Sales | $ | 35,348 | $ | 6,838 | $ | 42,186 | $ | 11,747 | $ | — | $ | — | $ | 53,933 | ||||||||||||||||
| Sales returns and allowances | (943 | ) | — | (943 | ) | — | — | — | (943 | ) | ||||||||||||||||||||
| Net sales | 34,405 | 6,838 | 41,243 | 11,747 | — | — | 52,990 | |||||||||||||||||||||||
| Cost of goods sold | 26,696 | 4,509 | 31,205 | 8,209 | — | — | 39,414 | |||||||||||||||||||||||
| Gross Profit | 7,709 | 2,329 | 10,038 | 3,538 | — | — | 13,576 | |||||||||||||||||||||||
| Selling, general and administrative expenses | 9,513 | 1,977 | 11,490 | 2,816 | 51 | (g) | — | 14,357 | ||||||||||||||||||||||
| Transactional expenses | 652 | — | 652 | — | — | — | 652 | |||||||||||||||||||||||
| Income (loss) from operations | (2,456 | ) | 352 | (2,104 | ) | 722 | (51 | ) | — | (1,433 | ) | |||||||||||||||||||
| Interest expense | (1,334 | ) | (6 | ) | (1,340 | ) | (197 | ) | — | (149 | ) | (c) | (1,686 | ) | ||||||||||||||||
| Foreign exchange loss, net | — | — | — | (76 | ) | — | — | (76 | ) | |||||||||||||||||||||
| Loss on extinguishment of debt | (652 | ) | — | (652 | ) | — | — | — | (652 | ) | ||||||||||||||||||||
| Loss on disposal of property and equipment | — | — | (2 | ) | (2 | ) | ||||||||||||||||||||||||
| Net income (loss) before taxes | (4,442 | ) | 346 | (4,096 | ) | 447 | (51 | ) | (149 | ) | (3,849 | ) | ||||||||||||||||||
| Income tax benefit (expense) | — | (20 | ) | (20 | ) | 31 | — | — | 11 | |||||||||||||||||||||
| Net Income (loss) | (4,442 | ) | 326 | (4,116 | ) | 478 | (51 | ) | (149 | ) | (3,838 | ) | ||||||||||||||||||
| Less: Net loss attributable to: | ||||||||||||||||||||||||||||||
| Special preferred units | — | — | — | — | — | — | — | |||||||||||||||||||||||
| Class B units preferred return | (705 | ) | — | (705 | ) | — | — | — | (705 | ) | ||||||||||||||||||||
| Net loss attributable to Capstone Holding Corp. stockholders | $ | (5,147 | ) | $ | 326 | $ | (4,821 | ) | $ | 478 | $ | (51 | ) | $ | (149 | ) | $ | (4,543 | ) | |||||||||||
| Earnings (loss) per share: | ||||||||||||||||||||||||||||||
| Net loss per share attributable to Capstone Holding Corp. stockholders – basic and diluted | $ | (1.45 | ) | (1.28 | ) | |||||||||||||||||||||||||
| Weighted average number of common shares outstanding – basic and diluted | 3,560,035 | 3,560,035 | ||||||||||||||||||||||||||||
5
CAPSTONE
HOLDING CORP.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2024
(in thousands, except share and per share data)
(unaudited)
| Capstone Holding Corp. (Historical) |
Carolina Stone Holdings (Historical) |
Capstone & Carolina Stone (Historical) |
Fraser Canyon Holdings (Historical) |
Acquisition Adjustments |
Other Adjustments |
Pro Forma Combined |
||||||||||||||||||||||||
| Sales | $ | 45,808 | $ | 11,862 | $ | 57,670 | $ | 16,420 | $ | — | $ | — | $ | 74,090 | ||||||||||||||||
| Sales returns and allowances | (932 | ) | — | (932 | ) | — | — | — | (932 | ) | ||||||||||||||||||||
| Net sales | 44,876 | 11,862 | 56,738 | 16,420 | — | — | 73,158 | |||||||||||||||||||||||
| Cost of goods sold | 35,306 | 7,910 | 43,216 | 11,808 | — | — | 55,024 | |||||||||||||||||||||||
| Gross Profit | 9,570 | 3,952 | 13,522 | 4,612 | — | — | 18,134 | |||||||||||||||||||||||
| Selling, general and administrative expenses | 10,208 | 3,451 | 13,659 | 4,307 | 16 | (g) | — | 17,982 | ||||||||||||||||||||||
| Transactional expenses | — | — | — | — | 1,298 | (f) | — | 1,298 | ||||||||||||||||||||||
| Income (loss) from operations | (638 | ) | 501 | (137 | ) | 305 | (1,314 | ) | — | (1,146 | ) | |||||||||||||||||||
| Interest expense | (1,483 | ) | (41 | ) | (1,524 | ) | (407 | ) | — | (1,833 | ) | (c), (h) | (3,764 | ) | ||||||||||||||||
| Foreign exchange gain, net | — | — | — | 129 | — | — | 129 | |||||||||||||||||||||||
| Net income (loss) before taxes | (2,121 | ) | 460 | (1,661 | ) | 27 | (1,314 | ) | (1,833 | ) | (4,781 | ) | ||||||||||||||||||
| Income tax expense | (442 | ) | (25 | ) | (467 | ) | (9 | ) | — | — | (476 | ) | ||||||||||||||||||
| Net Income (loss) | (2,563 | ) | 435 | (2,128 | ) | 18 | (1,314 | ) | (1,833 | ) | (5,257 | ) | ||||||||||||||||||
| Less: Net loss attributable to: | ||||||||||||||||||||||||||||||
| Special preferred units | (328 | ) | — | (328 | ) | — | — | — | (328 | ) | ||||||||||||||||||||
| Class B units preferred return | (2,604 | ) | — | (2,604 | ) | — | — | — | (2,604 | ) | ||||||||||||||||||||
| Net loss attributable to Capstone Holding Corp. stockholders | $ | (5,495 | ) | $ | 435 | $ | (5,060 | ) | $ | 18 | $ | (1,314 | ) | $ | (1,833 | ) | $ | (8,189 | ) | |||||||||||
| Earnings (loss) per share: | ||||||||||||||||||||||||||||||
| Net loss per share attributable to Capstone Holding Corp. stockholders – basic and diluted | $ | (34.87 | ) | (51.96 | ) | |||||||||||||||||||||||||
| Weighted average number of common shares outstanding – basic and diluted | 157,610 | 157,610 | ||||||||||||||||||||||||||||
6
CAPSTONE
HOLDING CORP.
NOTES TO THE UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
Note 1 Basis of Presentation
The Unaudited Pro Forma Combined Financial Information is prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and Article 11 of Regulation S-X.
The historical consolidated financial statements of the Company, CSH and FCHI were prepared in accordance with U.S. GAAP and presented in thousands. The Unaudited Pro Forma Combined Financial Information has been derived from the historical consolidated financial statements of the Company and FCHI. Certain FCHI and Carolina Stone Holdings’ audited and unaudited historical consolidated balances have been reclassified to conform to the Company’s financial statement presentation. The Unaudited Pro Forma Combined Consolidated Balance Sheet as of September 30, 2025, gives effect to the FCHI acquisition as if it had occurred on September 30, 2025. The Unaudited Pro Forma Combined Consolidated Statements of Operations for the year ended December 31, 2024 and for the nine months ended September 30, 2025 give effect to the CSH and FCHI acquisitions as if they had occurred on January 1, 2024.
The historical consolidated financial statements have been adjusted in the Unaudited Pro Forma Combined Financial Information to give effect to the pro forma events that are factually supportable, directly attributable to the acquisitions, and expected to have a continuing impact on the combined results following the business combination.
The pro forma adjustments represent management’s estimates based on information available as of the date of the filing of the Unaudited Pro Forma Combined Financial Information and do not reflect possible adjustments related to integration activities that have yet to be determined or transaction or other costs following the acquisitions that are not expected to have a continuing impact. No adjustments have been made to the Unaudited Pro Forma Combined Financial Information to reflect potential synergies or cost savings that may result from the business combination.
The Unaudited Pro Forma Combined Financial Information should be read in conjunction with the historical consolidated financial statements, and related notes thereto, of the Company, CSH and FCHI for the periods presented.
Note 2 Preliminary Purchase Price Allocation
The acquisitions are accounted for using the acquisition method of accounting in accordance with the Accounting Standards Codification Topic 805, “Business Combinations” (“Topic 805”), with the Company as the accounting acquirer. Topic 805 requires, among other things, that the assets acquired, and liabilities assumed be recognized at their acquisition date fair values, with any excess of the purchase price over the estimated fair values of the identifiable net assets acquired recorded as goodwill.
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The following table summarizes the preliminary purchase price allocation for the FCHI acquisition as of the December 1, 2025 closing date (in “000’s”):
| Amount | ||||
| Cash purchase price | $ | 4,078 | ||
| Seller notes | 2,582 | |||
| Earn-out agreements | 269 | |||
| Aggregate purchase consideration | 6,929 | |||
| Identifiable assets acquired and liabilities assumed: | ||||
| Cash | — | |||
| Accounts receivable, net | 1,543 | |||
| Inventories | 5,269 | |||
| Prepaid expenses | 9 | |||
| Property and equipment, net | 72 | |||
| Other assets | 3 | |||
| Right of use assets | 2,293 | |||
| Accounts payable | (871 | ) | ||
| Accrued expenses | (42 | ) | ||
| Current portion of long-term debt | — | |||
| Current portion, lease liability | (560 | ) | ||
| Long term debt, net of current portion | — | |||
| Lease liability, net of current portion | (1,732 | ) | ||
| Total identifiable net assets | 5,984 | |||
| Goodwill | $ | 945 | ||
The preliminary purchase price allocation for the CSH acquisition is included in Exhibit 99.3 to the Company’s Form 8-K filed with the SEC on November 7, 2025.
The purchase price allocation for the both acquisitions are is preliminary and subject to revision as additional information about the fair value of the assets to be acquired and liabilities to be assumed becomes available. Accordingly, the unaudited pro forma condensed combined financial information includes a preliminary allocation of the purchase price based on assumptions and estimates that, while considered reasonable under the circumstances, are subject to changes, which may be material.
The final determination of the purchase price allocation will be completed as soon as practicable but not one year beyond the date of the closing date of the each business combination and will be based on the fair values of the assets acquired and liabilities assumed as of the closing date. The final amounts allocated to assets acquired and liabilities assumed could differ significantly from the amounts presented in the unaudited pro forma condensed combined financial information.
Note 3 Acquisition Adjustments
FCHI Adjustments:
| (a) | Represents the aggregate cash consideration in connection with the Acquisition as described in Note 2, Preliminary Purchase Price Allocation. The cash purchase price under the Share Purchase Agreement was C$6,200 thousand (approximately $4,447 thousand), less the working capital adjustment of C$513 thousand (approximately $369 thousand) owed by the Sellers to the Company pursuant to the Share Purchase Agreement, and includes the Continental Cash Purchase Price of $459 thousand paid under the Asset Purchase Agreement. A portion of the cash proceeds was also used to repay FCHI’s outstanding indebtedness at closing, including the line of credit, long-term debt, and shareholder advances. |
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| (b) | Represents the estimated acquisition-date fair value of the contingent consideration under the Earn-Out Agreement entered into with the Sellers. In accordance with ASC 805, contingent consideration is recognized at its acquisition-date fair value. The Earn-Out Agreement provides for earn-out payments based on Average EBITDA (as defined in the Earn-Out Agreement) during two separate measurement periods as follows: Earn-Out 1 provides for payments of up to C$2,000 thousand (approximately $1,434 thousand) subject to the Company achieving an average EBITDA of C$2,250 thousand for the 2026 and 2027 calendar years, with a reduced payout for average EBITDA between C$1,800 thousand and C$2,250 thousand during the 2027 and 2028 calendar years. The estimated fair value of Earn-Out 1 as of the closing date is C$300 thousand (approximately $215 thousand). Earn-Out 2 provides for payments of up to C$1,000 thousand (approximately $717 thousand) subject to the Company achieving an average EBITDA of C$2,750 thousand for the 2026 and 2027 calendar years, with a reduced payout for average EBITDA between C$2,250 thousand and C$2,750 thousand during the 2027 and 2028 calendar years. The estimated fair value of Earn-Out 2 as of the closing date is C$75 thousand (approximately $54 thousand). The aggregate maximum earn-out payable under the Earn-Out Agreement is C$3,000 thousand (approximately $2,152 thousand) and the aggregate estimated fair value included in the purchase consideration is C$375 thousand (approximately $269 thousand). The earn-out payable is classified as a liability and will be remeasured at fair value each reporting period, with changes in fair value recognized in earnings. |
| (c) | Represents the First SPA Note in the principal amount of C$1,600 thousand (approximately $1,148 thousand) and the Second SPA Note in the principal amount of C$2,000 thousand (approximately $1,434 thousand) issued to the Sellers pursuant to the Share Purchase Agreement. The First SPA Note is payable in installments of C$400 thousand on July 31, 2026 and C$400 thousand on October 31, 2026, with a maturity date of March 31, 2027, and bears interest at TD Bank’s prime rate plus 1.00% through November 30, 2026, and at TD Bank’s prime rate plus 3.00% from December 1, 2026 onward. The Second SPA Note is payable in quarterly installments of C$50 thousand commencing March 31, 2027, with a maturity date of December 1, 2028, and bears interest at a per annum rate equal to 30-day average SOFR plus an applicable margin of (a) 1.25% through November 30, 2026, (b) 2.50% from December 1, 2026 through November 30, 2027, and (c) 3.75% thereafter. The pro forma adjustment also reflects the repayment of FCHI’s outstanding indebtedness at closing. |
| (d) | No preliminary purchase accounting adjustment has been made to the carrying value of acquired property and equipment. The fair value of FCHI’s property and equipment is preliminarily estimated to approximate its historical carrying value. Management will continue to assess the fair values of acquired property and equipment as additional information becomes available. |
| (e) | The Unaudited Pro Forma Combined Consolidated Statements of Operations for the year ended December 31, 2024, includes $894 thousand of non-recurring transaction expenses incurred in the Acquisition. The Unaudited Pro Forma Combined Consolidated Balance Sheet as of September 30, 2025 includes $894 thousand of Acquisition expenses payable. |
CSH Adjustments:
| (f) | The Unaudited Pro Forma Combined Consolidated Statements of Operations for the nine months ended September 30, 2025, includes $51 thousand of amortization expense for the period from January 1, 2025 to August 22, 2025 for $300 thousand of identifiable intangible assets estimated in the Company’s preliminary purchase price allocation. |
| (g) | The net pro forma impacts on depreciation and amortization expense reflected in selling, general and administrative expenses in the Unaudited Pro Forma Combined Consolidated Statements of Operations for the year ended December 31, 2024 is an increase of $16.0 thousand. |
Note 4 Other Adjustments
FCHI Adjustments
| (h) | The Unaudited Pro Forma Combined Consolidated Balance Sheet as of September 30, 2025 includes acquisition financing related to the Convertible Note with an original principal amount of $3,250 thousand. The interest rate applicable to the Convertible Note is 7.00%. |
The term of the Convertible Note is one year from the issuance date and therefore on the basis that the Pro Forma Statements of Operations assume that the FCHI acquisition occurred on January 1, 2024, the interest expense pro forma adjustments are only applicable to the year ended December 31, 2024.
The following table summarizes interest expense, original issue discount expense and debt issuance costs applicable to the Convertible Note (in “000’s”) for the year ended December 31, 2024:
| Year Ended December 31, 2024 | ||||
| Senior Convertible Note | ||||
| Interest expense related to senior convertible note | $ | 248 | ||
| Amortization of debt issuance costs | 268 | |||
| Amortization of original issue discount | 296 | |||
| Pro forma adjustment to “Interest expense” | $ | 812 | ||
| (i) | The Unaudited Pro Forma Combined Consolidated Statements of Operations for the year ended December 31, 2024, includes $894.0 thousand of non-recurring transaction expenses incurred in the FCHI acquisition. The Unaudited Pro Forma Combined Consolidated Balance Sheet as of September 30, 2025 includes $310.0 thousand of Acquisition expenses payable. |
CSH Adjustments
| (j) | The Unaudited Pro Forma Combined Consolidated Statements of Operations for the year ended December 31, 2024, includes $404.0 thousand of non-recurring transaction expenses incurred in the CSH acquisition. |
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