Capstone Holding Corp 10-Q/A for FY2026 Q1
Capstone Holding Corp. (CAPS)
About this 10-Q/A
Capstone Holding Corp filed this 10-Q/A on August 12, 2026, covering the quarter ended March 31, 2026 (FY2026 Q1).
Headline figures
Quarter ended March 31, 2026, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $12.64M
- up 60.0% from $7.9M a year earlier
- Net loss
- $1.92M
- compared with a net loss of $1.73M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from ________________ to ________________
Commission file number
Capstone Holding Corp.
(Exact name of registrant as specified in its charter)
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| (Address of principal executive offices) | (Zip Code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| | Smaller reporting company |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act.
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes
The number of shares of the registrant’s common stock outstanding as of August 10, 2026 was
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| Consolidated Balance Sheets as of March 31, 2026 (Unaudited) and December 31, 2025 |
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| Consolidated Statements of Operations for the Three Months Ended March 31, 2026 and 2025 (Unaudited) |
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| Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2026 and 2025 (Unaudited) |
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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| ITEM 4: | MINE SAFETY DISCLOSURES | 18 |
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EXPLANATORY NOTE
Capstone Holding Corp. (the “Company”) is filing this Amendment No. 1 on Form 10-Q/A (this “Amendment”) to amend its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2026, originally filed with the Securities and Exchange Commission (the “SEC”) on May 20, 2026 (the “Original Report”).
This Amendment restates the weighted average number of common shares outstanding and the related basic and diluted net loss per share for the comparative three months ended March 31, 2025. The amount previously reported was the number of shares outstanding at the end of that period rather than an average weighted for the portion of the period each share was outstanding. The restatement also affects the comparative pro forma net loss per share presented in Note 4. Weighted average shares for that period were 5,190,251 as reported and are 1,555,566 as restated, which changes net loss per share from $(0.47) to $(1.56) and pro forma net loss per share from $(0.29) to $(0.97).
Net loss is not affected. No amount for the three months ended March 31, 2026 is affected. The consolidated balance sheets, the consolidated statements of stockholders’ equity and the consolidated statements of cash flows are not affected.
The Company is not amending its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2025. The correction is made in this Amendment because the affected comparative amounts are presented in this report.
On August 7, 2026, the Company’s Chief Financial Officer concluded that the comparative amounts described above should no longer be relied upon. The Audit Committee of the Company’s Board of Directors concurred in that conclusion on August 10, 2026. The Company reported that conclusion in a Current Report on Form 8-K filed with the SEC on August 12, 2026.
This Amendment sets forth the complete text of Part I, Item 1, Financial Statements, as amended, and Part I, Item 4, Controls and Procedures, as amended. Part II, Item 6 is set forth to reflect the filing of new certifications by the Company’s principal executive officer and principal financial officer. The financial statement information formatted in Inline XBRL is also amended.
Except as described above, this Amendment does not amend, update or change any other item or disclosure in the Original Report. This Amendment speaks as of the date of the Original Report and does not reflect events occurring after the filing of the Original Report. This Amendment should be read together with the Original Report and the Company’s other filings with the SEC.
CAPSTONE HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
| (Unaudited) | (Audited) | |||||||
| March 31, | December 31, | |||||||
| 2026 | 2025 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Prepaid expenses | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Long-term Assets: | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Other intangible assets | ||||||||
| Right of use assets | ||||||||
| Other long-term assets | ||||||||
| Total long-term assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES & EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Management fee payable, related party | ||||||||
| Line of credit | ||||||||
| Current portion of long-term debt | ||||||||
| Current portion, lease liability | ||||||||
| Deferred tax liability | ||||||||
| Income tax payable | ||||||||
| Derivative liability | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Accrued related party management fee | ||||||||
| Accrued Series Z preferred stock dividends | ||||||||
| Series Z preferred stock | ||||||||
| Long term debt, net of current portion | ||||||||
| Lease liability, net of current portion | ||||||||
| Earn-out payable | ||||||||
| Other long-term liabilities | ||||||||
| Total long-term liabilities | ||||||||
| Total Liabilities | ||||||||
| Equity: | ||||||||
| Series B Preferred Stock, par value; shares authorized; issued as of March 31, 2026 and December 31, 2025. | ||||||||
| Common Stock $ par value; shares authorized; and issued as of March 31, 2026 and December 31, 2025, respectively. | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive (loss) | ( | ) | ||||||
| Total Equity | ||||||||
| Total Liabilities & Equity | $ | $ | ||||||
See notes to consolidated financial statements
CAPSTONE HOLDING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2026 | 2025 (As Restated) | |||||||
| Sales | $ | $ | ||||||
| Sales returns and allowances | ( | ) | ( | ) | ||||
| Net sales | ||||||||
| Cost of goods sold | ||||||||
| Gross Profit | ||||||||
| Selling, general and administrative expenses | ||||||||
| Transaction expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Unrealized gain on derivative instruments | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Loss from operations before taxes | ( | ) | ( | ) | ||||
| Provision for Income Taxes (expense) | ( | ) | ||||||
| Net Loss | ( | ) | ( | ) | ||||
| Class B units preferred return | ( | ) | ||||||
| Net Loss attributable to Capstone Holding Corp. stockholders | $ | ( | ) | $ | ( | ) | ||
| Other Comprehensive Loss | ||||||||
| Foreign currency translation adjustment | ||||||||
| Comprehensive Loss | $ | ( | ) | $ | ( | ) | ||
| Loss per share: | ||||||||
| Net loss per share attributable to Capstone Holding Corp. stockholders – basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of common shares outstanding – basic and diluted | ||||||||
See notes to consolidated financial statements
CAPSTONE HOLDING CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except Common Stock Shares)
(unaudited)
| Retained | Accumulated | TotalStone, LLC | ||||||||||||||||||||||||||||||||||||||||||||||
| Common | Series B | Series Z | Additional | Earnings | Other | Class B | Special | |||||||||||||||||||||||||||||||||||||||||
| Stock | Common | Series B | Preferred | Series Z | Preferred | Paid-In | (Accumulated | Comprehensive | Total | Preferred | Preferred | |||||||||||||||||||||||||||||||||||||
| (Shares) | Stock | (Shares) | Stock | (Shares) | Stock | Capital | Deficit) | Income (Loss) | Equity | Units | Unit | |||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2026 | $ | $ | $ | — | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||||
| Net Loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Issuance of warrants pursuant to Senior Convertible Notes | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to equity line of credit | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to Senior Convertible Notes | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2026 | $ | $ | — | $ | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| Retained | Accumulated | TotalStone, LLC | ||||||||||||||||||||||||||||||||||||||||||||||
| Common | Series B | Series Z | Additional | Earnings | Other | Class B | Special | |||||||||||||||||||||||||||||||||||||||||
| Stock | Common | Series B | Preferred | Series Z | Preferred | Paid-In | (Accumulated | Comprehensive | Total | Preferred | Preferred | |||||||||||||||||||||||||||||||||||||
| (Shares) | Stock | (Shares) | Stock | (Shares) | Stock | Capital | Deficit) | Loss | Equity | Units | Unit | |||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2025 | $ | — | $ | — | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||||
| Net Loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Accrued Class B Distributions | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Conversion of Class B Preferred Units to Common stock | — | — | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Special Preferred Units to Debt | — | — | — | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Net public offering proceeds | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Nectarine Management, LLC. Subscription Agreement | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2025 | $ | $ | — | $ | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
See notes to consolidated financial statements
CAPSTONE HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Three Months Ended | Three Months Ended | |||||||
| March 31, | March 31, | |||||||
| 2026 | 2025 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Non cash items: | ||||||||
| Depreciation and amortization | ||||||||
| Net, amortization (accretion) to interest expense | ||||||||
| Unrealized (gain) loss on derivative instruments | ( | ) | ||||||
| Provisions for doubtful debt | ||||||||
| Provisions for inventory reserve | ||||||||
| Paid-in-kind interest | ||||||||
| Series Z preferred dividends accrued | ||||||||
| Change in other operating items: | ||||||||
| Accounts receivable, net | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid and other assets | ( | ) | ( | ) | ||||
| Change in operating leases, net | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Derivative liability | ||||||||
| Other liabilities | ||||||||
| Cash flows used in operating activities | ( | ) | ( | ) | ||||
| INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment, net | ( | ) | ( | ) | ||||
| Cash flows used in investing activities | ( | ) | ( | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Payments on financing lease liabilities | ( | ) | ( | ) | ||||
| Financing fees paid | ( | ) | ||||||
| Borrowings under line of credit, net | ||||||||
| Debt payments | ( | ) | ( | ) | ||||
| Deferred IPO Costs | ||||||||
| Cash payment to special preferred equity members | ||||||||
| Proceeds from IPO and stock issuances | ||||||||
| Proceeds from equity line of credit | ||||||||
| Cash flows provided by financing activities | ||||||||
| Effect of foreign currency rates on changes in cash | ( | ) | ||||||
| NET CHANGE IN CASH & CASH EQUIVALENTS | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Operating cash flows from finance leases (interest) | $ | |||||||
| Financing cash flows from finance leases (principal portion) | ||||||||
| Conversion of Special Preferred Units to debt | ||||||||
| Conversion of Class B Preferred Units to shares of Common Stock | ||||||||
| Fair value of warrants issued to defer senior secured note installment payment | ||||||||
| Conversion of debt to stock | ||||||||
| TotalStone preferred stock dividends charged to retained earnings | ||||||||
| Reclassification of derivative liability to APIC upon conversion | ||||||||
| Operating cash flows from operating leases | ||||||||
| Interest Paid | ||||||||
| Taxes Paid | ||||||||
See notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 Nature of Operations
Capstone Holding Corp. (the "Company") is a holding company that operates through its consolidated subsidiaries: TotalStone, LLC ("TotalStone"), Carolina Stone Holdings, LLC ("Carolina Stone"), and Fraser Canyon Holdings Inc. ("FCHI" and together with its subsidiaries, the "CSI business"). Through these subsidiaries, the Company distributes and installs masonry and stone veneer products for residential and commercial construction across North America.
On April 1, 2020, the Company obtained a controlling interest in TotalStone, a materials distribution company that distributes masonry and stone veneer products for residential and commercial construction across the United States. TotalStone operates under the trade names Instone and Northeast Masonry Distributors ("NMD").
On August 22, 2025, the Company, through its subsidiary CS Purchase Holdings LLC, acquired all the issued and outstanding membership interests (the "Holdings Membership Interests") in Carolina Stone Holdings, which owns all the issued and outstanding membership interests of Carolina Stone Distributors, LLC. Carolina Stone is a stone supplier and installer specializing in both manufactured and natural stone veneer and offering end-to-end services, including material supply, installation, and project management for residential, commercial, and multi-family projects in the Raleigh-Durham and Charlotte, North Carolina markets.
On December 1, 2025, through its indirect subsidiary Instone Canada Corp., the Company acquired
Note 1A Restatement of Previously Issued Comparative Financial Information
Subsequent to the issuance of the Company’s unaudited condensed consolidated financial statements for the three months ended March 31, 2026, management determined that the weighted average number of common shares outstanding used to compute basic and diluted net loss per share for the comparative three months ended March 31, 2025 was incorrect. The amount previously reported was the number of shares outstanding at March 31, 2025 rather than an average weighted for the portion of the period each share was outstanding, as required by ASC 260, Earnings Per Share. The Company has restated that amount and the related per share amounts in accordance with ASC 250, Accounting Changes and Error Corrections.
The correction affects the comparative weighted average share amount, the related per share amounts and the comparative pro forma per share amount presented in Note 4. It does not affect any other amount in the financial statements. Weighted average shares for the three months ended March 31, 2025 were
The following table presents the effect of the restatement on the accompanying consolidated statements of operations:
| Three Months Ended March 31, 2025 | ||||||||||||
| As Previously | Adjustment | As Restated | ||||||||||
| Net loss attributable to Capstone Holding Corp. stockholders (in thousands) | $ | ( | ) | $ | $ | ( | ) | |||||
| Weighted average number of common shares outstanding – basic and diluted | ( | ) | ||||||||||
| Net loss per share attributable to Capstone Holding Corp. stockholders – basic and diluted | $ | ( | ) | $ | ( | $ | ( | ) | ||||
Note 2 IPO and Restructuring
On March 7, 2025 (the “Restructuring Date”), Capstone closed its Public Offering of
On March 7, 2025, TotalStone entered into a fifth amended and restated limited liability company agreement to govern its operations and affairs and its relationship with its members, which post restructuring is solely Capstone.
On March 10, 2025, TotalStone paid Brookstone Partners IAC, Inc. $
Outstanding warrants to purchase
On the Restructuring Date, pursuant to a master exchange agreement (the “Master Exchange Agreement”) entered into by Capstone, TotalStone and TotalStone’s Class B and Class C Members, all of TotalStone’s Class B and Class C Preferred Interests were exchanged for
TotalStone’s Special Preferred Membership Interests were exchanged on the Restructuring Date for loans in an aggregate principal amount of $
In connection with the Restructuring, Capstone also increased its authorized shares of Common Stock to
CAPSTONE HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 Summary of Significant Accounting Policies
Basis of Presentation and Preparation
The consolidated financial statements include the accounts of Capstone and its consolidated subsidiaries (collectively, the “Company”). Intercompany accounts and transactions have been eliminated. The preparation of these financial statements and accompanying notes is in accordance with accounting principles generally accepted in the United States of America. In the opinion of management, the financial statements include all adjustments necessary for the fair presentation of our financial position, results of operations, and cash flows, and all adjustments were of a normal recurring nature.
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the rules and regulations for reporting the Quarterly Report on Form 10-Q (“Form 10-Q”). Accordingly, they do not include all the information and notes required by GAAP for annual consolidated financial statements.
The consolidated balance sheet on December 31, 2025 has been derived from the audited consolidated financial statements at that date but does not include all the information and notes required by GAAP for complete financial statements. These financial statements have been prepared on a basis that is consistent with the accounting principles applied in our Annual Report on Form 10-K for the fiscal year ended on December 31, 2025 (“2025 Form 10-K”). This report should be read in conjunction with our 2025 Form 10-K filed with the SEC on April 16, 2026, as amended on April 17, 2026.
In our opinion, the accompanying unaudited interim consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates, and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of March 31, 2026 and its results of operations, cash flows, and changes in stockholders’ Equity (deficit) for the three months ended March 31, 2026 and 2025. The results for the three months ended March 31, 2026, are not necessarily indicative of the results expected for any future period or the full year.
Use of Estimates
The preparation of financial statements in accordance with US GAAP requires management to make some assumptions and estimates that affect the reported amounts of assets, liabilities, and expenses in our financial statements and accompanying notes. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s assumptions regarding current events and actions that may impact on the Company in the future, actual results may differ from these estimates and assumptions.
Business Combinations
The Company accounts for business acquisitions using the acquisition method of accounting, in accordance with which assets acquired, and liabilities assumed are recorded at their respective fair values at the acquisition date. The fair value of the consideration paid, including contingent consideration, is assigned to the assets acquired and liabilities assumed based on their respective fair values. Goodwill represents the excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed at acquisition date.
The Company’s management exercises significant judgments in determining the fair value of assets acquired and liabilities assumed, as well as intangibles and their estimated useful lives. Fair value and useful life determinations are based on, among other factors, estimates of future expected cash flows and appropriate discount rates used in computing present values. These judgments may materially impact the estimates used in allocating acquisition date fair values to assets acquired and liabilities assumed, as well as the Company’s current and future operating results. Actual results may vary from these estimates which may result in adjustments to goodwill and acquisition date fair values of assets and liabilities during a measurement period or upon a final determination of asset and liability fair values, whichever occurs first. Adjustments to the fair value of assets and liabilities made after the end of the measurement period are recorded within the Company’s operating results.
Fair Value Measurements
The Company measures certain assets and liabilities at fair value in accordance with ASC 820, Fair Value Measurement. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level hierarchy that prioritizes the inputs used in measuring fair value at the date of acquisition:
Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs that are derived principally from or corroborated by observable market data.
Level 3 — Unobservable inputs for the asset or liability that are supported by little or no market activity and that are significant to the fair value measurement. Level 3 inputs reflect the Company's own assumptions about the assumptions market participants would use in pricing an asset or liability, developed based on the best information available in the circumstances.
The categorization of an asset or liability within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. Transfers between levels are recognized at the end of the reporting period in which the transfer occurs.
The Company's recurring fair value measurements as of March 31, 2026 consist of (i) the embedded conversion features bifurcated from the Senior Secured Convertible Notes, classified as derivative liabilities and measured at fair value using significant unobservable inputs (Level 3); and (ii) the contingent earn-out consideration related to the Carolina Stone and Fraser Canyon acquisitions, measured at fair value using a probability-weighted discounted cash flow model with significant unobservable inputs (Level 3). The Company also performs nonrecurring fair value measurements in connection with business combinations (Note 4) and goodwill impairment testing (Note 7), which involve Level 3 inputs including projected cash flows, discount rates, and market multiples. The Company has no recurring Level 1 or Level 2 fair value measurements as of March 31, 2026 or December 31, 2025.
Cash
Cash consists of balances held in a commercial bank account.
Accounts Receivable
Accounts receivables are recorded and carried at the original invoiced amount less an allowance for any potential uncollectible amounts. The Company estimates expected credit losses for the allowance for expected credit losses based upon its assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of its customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect the Company’s ability to collect from customers. As of March 31, 2026 and December 31, 2025, the allowance for doubtful accounts totaled approximately $
Certain of the Company’s contracts with customers include retainage provisions. Retainage represents amounts withheld from billings by customers until installation work has been inspected to ensure that obligations have been satisfied under the contract. Company invoices are retained and included in contract receivables when obligations have been satisfied and the right to receipt is subject only to the passage of time. As of March 31, 2026 and December 31, 2025, retainage receivables were $
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and trade accounts receivable. The Company places cash with high credit quality institutions. During the normal course of business, balances in these accounts may exceed the maximum amount insured by the Federal Deposit Insurance Corporation (“FDIC”). Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers comprising the Company’s diverse customer base and generally short payment terms. Management believes there is no business vulnerability regarding concentrations of accounts receivable and sales due to the strong relationships and financial strength of our customers.
CAPSTONE HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 Summary of Significant Accounting Policies (cont.)
Inventories
Inventories consisting of finished goods are stated at the lower cost, determined by the average cost method, or net realizable value. Inventories also include deposits placed on inventory purchases for shipments not yet received. Significant prepaid inventory may be located overseas. At March 31, 2026, the Company did have a prepaid inventory balance. At December 31, 2025, the total prepaid inventory balance was $
Property and Equipment
Property and equipment are stated at cost and is depreciated over the estimated useful lives ranging from to years. Depreciation is computed by using the straight-line method for financial reporting purposes and straight-line and accelerated methods for income tax purposes. Property and equipment is comprised of building, machinery & equipment, computer equipment, leasehold improvements, software, office equipment, vehicles, and furniture & fixtures. Minor maintenance and repairs are charged to expense as incurred.
Goodwill and Other Intangible Assets
Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Goodwill and indefinite lived intangible assets are not amortized but rather are tested for impairment annually as of the 1st day of the fourth quarter of each year or more frequently if indications of potential impairment exist. The Company’s goodwill is allocated to the Company’s reporting units for impairment assessment purposes. As of March 31, 2026, the Company has
In evaluating potential goodwill impairment, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, based on a review of qualitative factors, it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company performs a quantitative analysis. If the quantitative analysis indicates the carrying value of a reporting unit exceeds its fair value, the Company measures any goodwill impairment loss as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit.
During the year ended December 31, 2025, the Company performed a quantitative goodwill impairment test for the Instone reporting unit as of October 1, 2025, and recorded a goodwill impairment charge of $
Intangible assets with finite lives, consist of a distribution agreement, customer relationships and non-compete agreements that are amortized over the terms of the agreements or expected useful lives.
Long-lived Asset Impairments
Long-lived assets and finite lived identifiable intangibles are reviewed for impairment whenever events of changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the assets is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount of which the carrying amount of the assets exceeds the fair value of the assets. The Company determined that no impairment was required for the period presented.
Convertible Debt
The Company accounts for convertible debt in accordance with ASC 470-20, Debt with Conversion and Other Options, and ASC 815, Derivatives and Hedging. At issuance, the Company evaluates whether embedded conversion features require bifurcation as derivative liabilities under ASC 815-15. If bifurcation is required, the embedded feature is recorded at fair value as of the issuance date, with the initial fair value recognized as a derivative liability and a corresponding debt discount on the host instrument. The derivative liability is remeasured at fair value as of each subsequent balance sheet date, with changes in fair value recognized in earnings as other income or expense. The Company reassesses the classification of its derivative instruments at each balance sheet date. Upon modification of convertible debt, the Company evaluates the transaction under ASC 470-50, Debt Modifications and Extinguishments, and remeasures the bifurcated derivative immediately before and after the modification, with the change in fair value recognized in earnings. Upon conversion, the Company derecognizes the pro-rata carrying amount of the host debt (including unamortized OID, debt issuance costs, and derivative discount) and the corresponding portion of the derivative liability at its then-current fair value.
Revenue Recognition
Our sales primarily consist of distributing manufactured and natural stone cladding products, natural stone landscape products, and related goods for residential and commercial construction through a dealer network in
Note 3 Summary of Significant Accounting Policies (cont.)
Shipping and Handling
The Company includes amounts billed to customers related to shipping and handling expenses in cost of goods sold.
Advertising Costs
Advertising and promotional expenses are expensed in the period incurred unless there are material costs that benefit future periods. The consolidated financial statements currently do not reflect any prepaid advertising expenses. For the three months ended March 31, 2026 and 2025, advertising expenses were $
Research and Development
Research and development costs are expensed as incurred and were not significant in the periods presented.
Mandatorily Redeemable Preferred Stock
The Company classifies preferred stock that embodies an unconditional obligation to redeem the instrument by transferring assets at a specified or determinable date as a liability in accordance with ASC 480, Distinguishing Liabilities from Equity. Such instruments are initially measured at fair value and subsequently measured at the present value of the amount to be paid at settlement, with interest expense accrued using the rate implicit at inception. Periodic dividend obligations on mandatorily redeemable preferred stock classified as a liability are presented as interest expense in the consolidated statements of operations. The Company's Series Z 8% Non-Convertible Preferred Stock, issued September 30, 2025, has been assessed as mandatorily redeemable and is presented as a liability in the accompanying consolidated balance sheets. See Note 15 for additional information.
Earnings Per Share
Basic earnings (loss) per share is computed by dividing the net income (loss) applicable to the common stockholders of Capstone Holding Corp. by the weighted average number of shares of common stock outstanding during the year. Diluted earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method and the if-converted method for convertible notes. Potential common shares are excluded from computation when their effect is antidilutive. Warrants issued with a nominal exercise price of $0.01 per share are considered common stock equivalents and are included in the weighted-average number of common shares outstanding used to compute basic earnings (loss) per share.
For the three months ended March 31, 2026 and 2025, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have had an anti-dilutive effect. For the three months ended March 31, 2026 and 2025, the number of incremental common shares from potentially dilutive securities consisted of the following:
| March 31, | March 31, | |||||||
| 2026 | 2025 | |||||||
| Convertible notes | ||||||||
| Representative's warrant | ||||||||
| Stock options | ||||||||
| BP Peptides warrant | ||||||||
| 3i February 2026 warrants | ||||||||
| Total | ||||||||
Reclassifications
Certain reclassifications to prior period information have been made to conform with current period presentation.
Recent Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances the transparency and decision usefulness of income tax disclosures, including jurisdictional information, by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disclosures. ASU 2023-09 is effective for annual periods beginning after December 15, 2024 and early adoption is permitted. The Company adopted the disclosure requirements of this standard on its consolidated financial statements on a prospective basis.
The Company adopted the disclosure requirements of this standard on a prospective basis effective January 1, 2025. Adoption did not have a material effect on the Company’s consolidated financial statements but resulted in expanded income tax disclosures in the Company’s 2025 Form 10-K and in this Quarterly Report.
In November 2024, the FASB issued ASU 2024-03, Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220-40), which requires public business entities to disclose disaggregated information about specified categories of expenses. The standard is effective for annual periods beginning after December 15, 2026 and interim periods within annual periods beginning after December 15, 2027, with early adoption permitted. The Company is evaluating the impact of the standard on its consolidated financial statement disclosures.
In December 2024, the FASB issued ASU 2024-04, Debt — Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments, which clarifies the assessment of whether modifications of convertible debt instruments should be accounted for as induced conversions. The Company adopted this guidance effective January 1, 2026 on a prospective basis. Adoption did not have a material effect on the Company’s consolidated financial statements.
In May 2025, the FASB issued ASU 2025-05, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which provides a practical expedient permitting entities to assume current conditions as of the balance sheet date persist over the contractual life of accounts receivable and contract assets. The standard is effective for annual periods beginning after December 15, 2025, with early adoption permitted. Adoption did not have a material effect on the Company’s consolidated financial statements.
Note 4 Business Combination
During the fiscal year ended December 31, 2025, the Company completed two acquisitions, each accounted for as a business combination under ASC Topic 805, Business Combinations. The Company engaged Loop Capital Financial Consulting Services, LLC (“Loop Capital”) as an independent third-party valuation firm to assist with the purchase price allocations.
Carolina Stone Distributors, LLC
On August 22, 2025, the Company, through its subsidiary CS Purchase Holdings LLC, completed its acquisition of all the issued and outstanding membership interests in Carolina Stone Holdings, LLC (“Carolina Stone Holdings”), which owns all of the issued and outstanding membership interests of Carolina Stone Distributors, LLC (“Carolina Stone”). Carolina Stone is a Morrisville, North Carolina-based distributor and installer of stone veneer and masonry products serving the Raleigh-Durham and Charlotte metropolitan areas.
Purchase Consideration. The aggregate purchase consideration for the Carolina Stone Companies was approximately $
The subordinated promissory note was issued to D22L, Inc. in the original principal amount of $
Contingent consideration of up to $
The fair value of contingent consideration at acquisition date of $
.
Note 4 Business Combination (cont.)
The following table presents the purchase price allocation for the Carolina Stone Holdings acquisition as finalized at December 31, 2025, measured in accordance with ASC 805 (in thousands):
| Amount | ||||
| Cash purchase price | $ | |||
| Seller note | ||||
| Earn-out agreement | ||||
| Aggregate purchase consideration | $ | |||
| Identifiable assets acquired and liabilities assumed: | ||||
| Cash | ||||
| Accounts receivable, net | ||||
| Inventories | ||||
| Prepaid expenses | ||||
| Property and equipment, net | ||||
| Other intangible assets | ||||
| Right of use assets | ||||
| Other long-term assets | ||||
| Accounts payable | ( | ) | ||
| Accrued expenses | ( | ) | ||
| Current portion, lease liability | ( | ) | ||
| Lease liability, net of current portion | ( | ) | ||
| Total identifiable net assets | ||||
| Goodwill | $ | |||
Goodwill of $
Post-Acquisition Results. Carolina Stone contributed revenue of $
Fraser Canyon Holdings Inc. / Canadian Stone Industries
On December 1, 2025, the Company completed the acquisition of Fraser Canyon Holdings Inc. (“FCHI”) and its subsidiaries, including Canadian Stone Industries Inc. (“CSI”), through two simultaneous transactions: (i) TotalStone, LLC acquired substantially all of the assets and assumed certain liabilities of Continental Stone Industries, Inc. (the “Asset Purchase”), and (ii) a subsidiary of TotalStone acquired all of the outstanding shares of FCHI (the “Share Purchase”). CSI is a Langley, British Columbia-based distributor of manufactured and natural stone products serving Western and Eastern Canada.
Purchase Consideration. The Fraser Canyon Acquisition comprises two simultaneous transactions: (i) the CSIA Asset Purchase, in which TotalStone, LLC acquired substantially all of the assets and assumed certain liabilities of Continental Stone Industries, Inc. for cash consideration of approximately thousand (CAD $
The Company engaged Loop Capital to assist with the valuation of identifiable intangible assets and contingent consideration; the purchase price allocation presented below is based on valuations performed with the assistance of Loop Capital. The Company will finalize the purchase price allocation within the measurement period. The purchase price allocation is based on management’s best estimates and is subject to adjustment during the measurement period (up to one year from the acquisition date) as additional information is obtained about facts and circumstances that existed at the acquisition date. The aggregate purchase consideration of approximately thousand reflected in the purchase price allocation below represents the FCHI Share Purchase only, stated net of the Continental Cash Purchase Price paid separately for the CSIA Asset Purchase and net of the working capital reduction described above, with U.S. dollar amounts translated at the exchange rates used for purchase accounting purposes.
Goodwill totaled approximately thousand and thousand at March 31, 2026 and December 31, 2025 (compared to thousand at the acquisition date), including approximately $
CSI contributed revenue of thousand and net loss of $
| Amount | ||||
| Cash purchase price | $ | |||
| Seller notes | ||||
| Earn-out agreements | ||||
| Aggregate purchase consideration | $ | |||
| Identifiable assets acquired and liabilities assumed: | ||||
| Accounts receivable, net | ||||
| Inventories | ||||
| Income tax receivable | ||||
| Prepaid expenses | ||||
| Property and equipment, net | ||||
| Other intangible assets | ||||
| Right of use assets | ||||
| Accounts payable | ( | ) | ||
| Accrued expenses | ( | ) | ||
| Income tax payable | ( | ) | ||
| Deferred tax liability | ( | ) | ||
| Current portion, lease liability | ( | ) | ||
| Lease liability, net of current portion | ( | ) | ||
| Total identifiable net assets | ||||
| Goodwill | $ | |||
Pro Forma Financial Information
The following unaudited pro forma information presents the Company’s consolidated results of operations for the three months ended March 31, 2026 and 2025 as though both acquisitions had been completed as of January 1, 2025:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2026 | 2025 (As Restated) | |||||||
| Revenue | $ | $ | ||||||
| Net income (loss) | ( | ) | ( | ) | ||||
| Earnings (loss) per common share: | ( | ) | ( | ) | ||||
The Company prepared this unaudited pro forma information under ASC 805-10-50-2(h), presenting consolidated results as if the Carolina Stone Holdings acquisition and the Fraser Canyon acquisition had closed on January 1, 2025. Pro forma earnings per share uses the Company's actual weighted-average common shares outstanding —
The pro forma results include the following adjustments directly attributable to the acquisitions, consistent with the Company's prior pro forma disclosures in Forms 8-K/A filed with the SEC:
(a) Acquisition-related transaction expenses — Under the assumed acquisition date of January 1, 2025, $
(b) Incremental amortization expense thousand for the three months ended March 31, 2025, on the identifiable intangible assets recognized in the finalized purchase price allocations for the Carolina Stone acquisition (trade names of $
(c) Income taxes — No incremental tax effect has been recognized on Carolina Stone or other U.S.-jurisdiction pro forma adjustments because the Company maintains a full valuation allowance against its U.S. net deferred tax assets. Canadian income tax effects on the Fraser Canyon-related pro forma adjustments are not material to the pro forma presentation and have not been separately reflected.
The pro forma results do not represent what the Company would have reported had the acquisitions closed on the assumed date, nor do they predict future performance.
Note 5 Related Party Transactions
TotalStone is party to a management agreement with Brookstone Partners IAC ("Brookstone"), an entity controlled by the Company's Chief Executive Officer and Chairman of the Board. Pursuant to this agreement, Brookstone provides annual consulting services totaling $
On January 21, 2026, Brookstone entered into a conditional fee waiver and deferral agreement with TotalStone, pursuant to which Brookstone agreed to waive the thousand in management and consulting fees that would otherwise accrue during calendar year 2026. The obligation to pay such waived fees will be extinguished unless TotalStone achieves certain performance targets specified in the agreement.
Effective February 1, 2026, in connection with the cost rationalization program implemented by the Board, the Company’s Chief Executive Officer reduced his annual base cash salary to $
Separately, Gordon Strout, a director of the Company and Board Chairman of TotalStone, is party to an executive agreement with TotalStone pursuant to which he receives deferred compensation. As of March 31, 2026 and December 31, 2025, approximately $
Stream Finance, LLC, which serves as a creditor on TotalStone’s mezzanine term loan, is managed by Brookstone. As of March 31, 2026 and December 31, 2025, the Company’s outstanding principal was $
On March 10, 2025, TotalStone paid Brookstone $
In connection with the Fraser Canyon acquisition, Nectarine Management LLC, an entity whose voting of Company securities is solely controlled by Mr. Toporek, earned a consent fee of $
Note 6 Property and Equipment, Net.
A summary of the Company’s property and equipment is as follows in (“000’s”):
| March 31, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Property and Equipment, Net. | ||||||||
| Land and buildings | $ | $ | ||||||
| Machinery and equipment | ||||||||
| Computer equipment | ||||||||
| Computer software | ||||||||
| Furniture and fixtures | ||||||||
| Leasehold Improvements | ||||||||
| Total property and equipment | $ | $ | ||||||
| Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Total property and equipment | $ | $ | ||||||
Depreciation and amortization expense on property and equipment for the three months ended March 31, 2026 and 2025 was $
Note 7 Goodwill and Other Intangible Assets
The following tables summarize the Company’s other intangible assets in (“000’s”):
| Balance at December 31, 2025 | ||||||||||||
| Gross Carrying | Accumulated | Net Carrying | ||||||||||
| Amount | Amortization | Amount | ||||||||||
| Non-compete agreements | $ | $ | ( | ) | $ | |||||||
| Customer lists | ( | ) | ||||||||||
| Tradenames | ( | ) | ||||||||||
| Other | ( | ) | ||||||||||
| Total definite-lived intangible assets | ( | ) | ||||||||||
| Trademark | — | |||||||||||
| Indefinite-lived intangible assets | — | |||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | |||||||
| Balance at March 31, 2026 | ||||||||||||
| Gross Carrying | Accumulated | Net Carrying | ||||||||||
| Amount | Amortization | Amount | ||||||||||
| Non-compete agreements | $ | $ | ( | ) | $ | |||||||
| Customer lists | ( | ) | ||||||||||
| Tradenames | ( | ) | ||||||||||
| Distribution agreements | ( | ) | ||||||||||
| Total definite-lived intangible assets | ( | ) | ||||||||||
| Trademark | — | |||||||||||
| Indefinite-lived intangible assets | — | |||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | |||||||
Intangible assets are amortized over the estimated useful lives of the respective assets on a straight-line basis. Total amortization expense for the three months ended March 31, 2026 and 2025 was $
Total future amortization expense for finite-lived intangible assets was estimated as follows in (“000’s):
| Future | ||||
| Amortization | ||||
| Year | Expenses | |||
| Remainder of 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Thereafter | ||||
| Total | $ | |||
The future amortization schedule above excludes $
The changes in the carrying amount of goodwill for the three months ended March 31, 2026 are as follows in (“000’s”):
| Balance – December 31, 2025 | $ | |||
| Goodwill acquired during year | ||||
| Foreign currency translation | ||||
| Impairment losses: | ||||
| Balance – March 31, 2026 | $ |
During the year ended December 31, 2025, the Company engaged Loop Capital and performed a quantitative goodwill impairment test for the Instone reporting unit as of October 1, 2025. The estimated fair value of the reporting unit was determined using a weighted blend of the income approach (discounted cash flow method, 50% weight), the guideline public company method (25% weight), and the guideline merged and acquired company method (25% weight). The blended enterprise value of approximately $
Note 8 Fair Value Measurements
The Company’s fair value hierarchy policy is described in Note 3. There were no material changes in the carrying amount of goodwill between December 31, 2025 and March 31, 2026.The following table presents assets and liabilities measured at fair value by level:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| March 31, 2026 — Recurring | ||||||||||||||||
| Derivative liabilities — embedded conversion features | ||||||||||||||||
| March 31, 2026 — Non-recurring (equity-premise) | – | – | – | – | ||||||||||||
| Common stock purchase warrants — issued February 12, 2026 | ||||||||||||||||
| December 31, 2025 — Recurring | – | – | – | – | ||||||||||||
| Derivative liabilities — embedded conversion features | ||||||||||||||||
| Earn-out Payable | ||||||||||||||||
| December 31, 2025 — Non-recurring (equity-premise) | – | – | – | – | ||||||||||||
| Goodwill — Instone reporting unit | ||||||||||||||||
At March 31, 2026, the Company’s Level 3 recurring fair value measurements consisted of derivative liabilities of $
Significant unobservable inputs used in the Level 3 measurement of the derivative liabilities (Black-Scholes option-pricing model) are summarized below:
| SSN #1 at | SSN #2 at | |||||||||||||||
| Issuance | Issuance | March 31, | December 31, | |||||||||||||
| (7/29/2025) | (10/22/2025) | 2026 | 2025 | |||||||||||||
| Expected term (years) | ||||||||||||||||
| Risk-free rate | % | % | % | % | ||||||||||||
| Annualized volatility | % | % | % | |||||||||||||
In addition to the embedded derivative liabilities described above, the Company's Level 3 recurring fair value measurements include contingent earn-out consideration of $
The significant unobservable inputs used in the Carolina Stone earn-out valuation included EBITDA volatility of
The fair value of the contingent earn-out consideration is most sensitive to changes in projected EBITDA, EBITDA volatility, and the risk-adjusted discount rate. Significant increases (decreases) in expected EBITDA would result in a higher (lower) fair value measurement. Significant increases (decreases) in EBITDA volatility generally result in a higher (lower) fair value given the option-like payoff structure. Increases (decreases) in the risk-adjusted discount rate would result in a lower (higher) fair value. Changes in the fair value of the earn-out liabilities are recognized within operating expenses in the consolidated statements of operations.
The fair value of the embedded derivative liabilities is highly sensitive to changes in the expected volatility input. Significant increases (decreases) in the expected annualized volatility would result in a significantly higher (lower) fair value measurement of the derivative liabilities, which would be recognized as a non-operating loss (gain) in the consolidated statements of operations.
Note 9 Investment in Non-Marketable Securities
On January 15, 2021, Capstone acquired a minority interest in a consumer products company, Diamond Products Holdings, LLC (“Diamond”), a sexual wellness holding company. The structure of the transaction was as follows: i) Brookstone Acquisition Partners XXI Corporation (“Brookstone XXI”) contributed its approximately
Diamond was previously sold to its lender in satisfaction of outstanding secured indebtedness, and the Company recognized an impairment charge equal to its full basis in the investment. As of March 31, 2026, and December 31, 2025, the carrying value of the Company's investment in DPH was $
Note 10 Line of Credit
On December 20, 2017, TotalStone executed a Revolving Credit, Term Loan and Security Agreement with Berkshire Bank (the “Revolving Credit Agreement”). The Revolving Credit Agreement has been amended fifteen times through the fiscal year ended December 31, 2025. In connection with the Carolina Stone acquisition, CS Purchase Holdings LLC, Carolina Stone Holdings, LLC, and Carolina Stone Distributors, LLC were added as co-borrowers under the Fourteenth Amendment, dated August 22, 2025. Under the Fifteenth Amendment, executed December 19, 2025, the lender is now Beacon Bank & Trust (successor by merger to Berkshire Bank), and the maturity date was extended to . TotalStone’s maximum revolving advance amount is $
In connection with the Fraser Canyon acquisition, on November 7, 2025, Canadian Stone Industries and Klad Envelope Solutions Inc. entered into a Letter of Agreement with The Toronto-Dominion Bank ("TD Bank") providing Canadian Stone Industries with a revolving operating loan with a credit limit of CAD $
As of March 31, 2026 the combined balance outstanding under the Company's revolving credit facilities was $
Note 11 Debt
As of March 31, 2026, the Company had $
| March 31, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Long-term Debt | ||||||||
| Mezzanine term loan to Stream Finance, LLC, a related party, collateralized by substantially all of TotalStone’s assets and subordinated to the Bank term notes. Interest is calculated monthly as the Base Rate divided by an Adjustment Factor of 0.75, not to exceed % per annum (see further details below), with a maturity date of September 30, 2027. On March 7, 2025, the Special Preferred Membership Interests were exchanged for loans in an aggregate principal of $ and an amendment fee of $ payable on the deferral date of which are included in this amount. At March 31, 2026 and December 31, 2025, $ thousand of accrued interest remains unpaid and is included within this amount. | ||||||||
| Seller’s note with Avelina Masonry, LLC, which required monthly payments of $ thousand. The original maturity date was but the loan has not been paid in full and is in default. The loan bears interest at one-month SOFR plus % plus % default (% and % at March 31, 2026 and December 31, 2025, respectively. At March 31, 2026 and December 31, 2025, $ thousand and $ thousand of accrued interest remains unpaid and is included within this amount, respectively. | ||||||||
| Seller's note with D22L, Inc., which requires quarterly interest payments commencing December 31, 2025 and quarterly principal payments of $ commencing December 31, 2026. This Subordinated Promissory Note has a maturity date of and bears interest of % plus SOFR ( and % at March 31, 2026 and December 31, 2025, respectively). At March 31, 2026 and December 31, 2025, $ thousand and $ thousand of accrued interest remains unpaid and is included within this amount, respectively. | ||||||||
| Senior Convertible Note with 3i, LP. issued on July 29, 2025 with a principal amount of $ and accrued interest of $. This note was issued with an % original issue discount and bears interest at the rate of % per annum, with a maturity date of . At March 31, 2026 and December 31, 2025, $ and $ thousand of accrued interest remains unpaid and is included within this amount, respectively. | ||||||||
| Seller’s note with Fraser Canyon Holdings Inc., which requires quarterly principal payments of CAD $ commencing July 31, 2026. This Subordinated Promissory Note has a maturity date of and bears interest at TD Bank’s prime rate plus %, stepping up to prime plus 3.00% after November 30, 2026. At March 31, 2026 accrued interest remains unpaid. At December 31, 2025, $ thousand of accrued interest remains unpaid. | ||||||||
| Seller’s note with Fraser Canyon Holdings Inc., which requires quarterly principal payments of CAD $ commencing March 31, 2027. This Subordinated Promissory Note has a maturity date of and bears interest at 30-day average SOFR plus %, stepping up to SOFR plus 2.50% after November 30, 2026 and SOFR plus 3.75% after November 30, 2027. At March 31, 2026, accrued interest remains unpaid. At December 31, 2025, $ thousand of accrued interest remains unpaid. | ||||||||
| Senior Convertible Note with 3i, LP, issued on October 22, 2025 with a principal amount of $. This note was issued with an % original issue discount and bears interest at the rate of % per annum, with a maturity date of . At March 31, 2026 and December 31, 2025, $ and $ thousand of accrued interest remains unpaid and is included within this amount, respectively. | ||||||||
| In December 2022, TotalStone sold its facility in Navarre, Ohio to a nonaffiliated third party for a purchase price of $ million and concurrently entered into a leaseback transaction. The transaction is treated as a failed sale in accordance with U.S. GAAP. The Company therefore recorded a financing liability related to the sale-leaseback in the amount of the sale price. The obligation matures in January 2048 and requires monthly payments of principal and interest. With the sale leaseback, TotalStone signed a lease agreement with a -year lease term. The initial annual lease payment of $ thousand increases % per annum. The imputed interest rate is %. | ||||||||
| Less: unamortized premiums, discounts, and issuance costs | ( | ) | ( | ) | ||||
| Total debt, net unamortized premiums, discounts, and issuance costs | $ | $ | ||||||
| Current portion of principal outstanding | ||||||||
| Less: current portion of unamortized premiums, discounts, and issuance costs | ( | ) | ( | ) | ||||
| Total current portion of long-term debt | ||||||||
| Long-term portion of principal outstanding | ||||||||
| Less: long-term portion of unamortized premiums, discounts, and issuance costs | ( | ) | ( | ) | ||||
| Total long-term debt, net of current portion | ||||||||
| Total long-term debt | $ | $ | ||||||
Note 11 Debt (cont.)
Mezzanine Term Loan — Stream Finance, LLC.
TotalStone, LLC is party to the Second Amended and Restated Credit Agreement, dated March 8, 2023, with Stream Finance, LLC, as agent (as amended, the "Stream Finance Credit Agreement"). The mezzanine term loan bears interest at an annual rate of
The following table summarizes the activity in the Stream Finance mezzanine term loan for the three months ended March 31, 2026:
| Balance, December 31, 2025 | $ | |||
| Special Preferred exchange | ||||
| PIK interest capitalized | ||||
| Balance, March 31, 2026 | $ |
(1) The table above presents principal activity only. As of March 31, 2026 and December 31, 2025, accrued and deferred interest totaled $
Prior to the Fourteenth Amendment, the interest rate on the Credit Facility was determined on a performance-based sliding scale, with the applicable rate set each quarter by reference to trailing Adjusted EBITDA of TotalStone as measured under the two tables below (Table A excluding the Northeast operations and Table B including them):
| Table A | Table B | |||||||||||||
| Adjusted EBITDA of TotalStone | Adjusted EBITDA of TotalStone | |||||||||||||
| Level | (exclusive of Northeast) | Rate | Level | and Northeast | Rate | |||||||||
| I | Greater than $2,500,000 | % | I | Greater than $4,000,000 | % | |||||||||
| II | Less than or equal to $2,500,000, but greater than or equal to $2,000,000 | % | II | Less than or equal to $4,000,000, but greater than or equal to $3,500,000 | % | |||||||||
| III | Less than $2,000,000 | % | III | Less than $3,500,000 | % | |||||||||
Subordinated Promissory Note — Carolina Stone. In connection with the acquisition of Carolina Stone Holdings, LLC on August 22, 2025, CS Purchase Holdings LLC issued a subordinated promissory note to the seller in the original principal amount of $
Seller Notes — Fraser Canyon. In connection with the acquisition of Fraser Canyon Holdings Inc. and the assets of Continental Stone Industries, Inc. on December 1, 2025, Instone Canada Corp. issued two subordinated promissory notes to the sellers: First Seller Note. The first note was issued in the original principal amount of CAD $
Liquidity and Nasdaq Listing Compliance
In January 2026, the Company received a notification from the Nasdaq Stock Market indicating that the closing bid price of its Common Stock had been below $1.00 per share for 30 consecutive business days and that the Company was therefore not in compliance with Nasdaq Listing Rule 5550(a)(2). The Company has until July 6, 2026 to regain compliance, and the Board of Directors intends to seek shareholder authorization at the 2026 Annual Meeting to effect a reverse stock split, if needed, to satisfy the minimum bid price requirement. Continued listing on Nasdaq is an important component of the Company's access to capital markets, including its ability to issue shares under the ELOC and to raise additional equity capital on favorable terms. A delisting or prolonged non-compliance could adversely impact the Company's liquidity position. In addition, the Company has generated recurring net losses, including a net loss of $
The Company’s recurring net losses, accumulated deficit, and upcoming debt maturities represent conditions that, in the aggregate, could raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date these consolidated financial statements are issued. Management has evaluated these conditions together with the Company's liquidity resources and operational plans. In April 2025, the Company entered into a $
CAPSTONE HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Senior Secured Convertible Notes.
The embedded conversion features are bifurcated as derivative liabilities and measured at fair value at each reporting date with changes in fair value recognized in earnings, in accordance with ASC 815-15. In July 2025, the Company issued a Senior Secured Convertible Note to 3i, LP (the "July Note") in the original principal amount of $
The following table summarizes the carrying value of the Company's senior secured convertible notes as of March 31, 2026:
| SSN #1 | SSN #2 | Total | ||||||||||
| Stated principal | $ | $ | $ | |||||||||
| Less: unamortized OID | ( | ) | ( | ) | ( | ) | ||||||
| Less: unamortized debt issuance costs | ( | ) | ( | ) | ( | ) | ||||||
| Less: unamortized derivative discount | ( | ) | ( | ) | ( | ) | ||||||
| Net carrying value | $ | $ | $ | |||||||||
At December 31, 2025, the net carrying value of the Senior Secured Convertible Notes was $
The following table presents a roll forward of the derivative liabilities associated with the embedded conversion features for the three month ended March 31, 2026:
| SSN #1 | SSN #2 | Total | ||||||||||
| Balance, December 31, 2025 | $ | $ | $ | |||||||||
| Initial fair value at issuance | ||||||||||||
| Change in fair value — amendments | ||||||||||||
| Derecognition to APIC | ( | ) | ( | ) | ||||||||
| Change in fair value — conversions | ( | ) | ( | ) | ||||||||
| Change in fair value — remeasurement | ( | ) | ||||||||||
| Balance, March 31, 2026 | $ | $ | $ | |||||||||
As of March 31, 2026, the following shares of common stock were issuable upon conversion of the outstanding senior secured convertible notes:
| Conversion Price | Principal | Shares Issuable | ||||||||||
| July Note | ||||||||||||
| October Note — Tranche 1 | ||||||||||||
| October Note — Tranche 2 | ||||||||||||
| Total | $ | $ | ||||||||||
Promissory Note — Brookstone XXI, LLC. The $
Scheduled maturities of long-term debt as of March 31, 2026, are as follows:
| 2027 | $ | |||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| 2031 | ||||
| Thereafter | ||||
| Total | $ |
Note 12 Leases
As of March 31, 2026, the balance of our right-of-use (“ROU”) assets was $
In connection with the acquisitions of Carolina Stone ( August 22, 2025) and Fraser Canyon Holdings/CSI ( December 1, 2025), the Company assumed operating leases for distribution, showroom, and warehouse facilities. The Carolina Stone leases include: (i) approximately
The maturity of our lease liabilities as of March 31, 2026 is as follows in (“000’s”):
| Year | Finance | Operating | ||||||
| 2026 | $ | $ | ||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| 2030 | ||||||||
| 2031 | ||||||||
| Thereafter | ||||||||
| Total undiscounted Lease Payments | ||||||||
| Less: Present value discount | ( | ) | ( | ) | ||||
| Total Lease Liability | $ | $ | ||||||
Lease expense recognized on our leases for the three months ended March 31, 2026 and 2025 is as follows in (“000’s”):
| Three Months Ended | Three Months Ended | |||||||
| March 31, | March 31, | |||||||
| 2026 | 2025 | |||||||
| Finance leases | ||||||||
| Amortization expense | $ | $ | ||||||
| Interest expense | ||||||||
| Operating leases | ||||||||
| Straight-line rent expense | ||||||||
| Total lease expense | $ | $ | ||||||
The following summarizes additional information related to our leases for three months ended March 31, 2026 is as follows in (“000’s”):
| Three Months Ended | ||||||||
| March 31, 2026 | ||||||||
| Finance | Operating | |||||||
| Weighted-average remaining lease terms (years) | ||||||||
| Weighted-average discount rate | % | % | ||||||
| ROU assets obtained in exchange for new lease liabilities | $ | $ | ||||||
Note 13 TotalStone Preferred Units
The Company owns
In addition, as part of the merger of the Company and TotalStone, the Mezzanine lender accepted $
On March 8, 2023, the Company entered into the Ninth Amendment to the Revolving Credit, term Loan and Security Agreement (the “Ninth Amendment”). The Ninth Amendment permitted a payment of $
On the Restructuring Date ( March 7, 2025), all outstanding Class B and Class C Preferred Interests in TotalStone were exchanged for
Note 14 TotalStone Warrants
TotalStone Class A Warrants. In April 2020,
Representative's Warrant. In connection with the March 7, 2025, Public Offering, the Company issued warrants to the underwriters to purchase
February 2026 Warrant (3i, LP). On February 12, 2026, in connection with the Letter Agreement deferring the $
Note 15 Stockholders’ Equity
As of March 31, 2026, the Company had
In June 2015, our stockholders approved the 2015 Equity Incentive Plan (the “2015 Plan”) and reserved
Stock-based compensation expense reflects the fair value of stock-based awards measured at the grant date and recognized over the relevant vesting period. The Company generally estimates the fair value of each stock-based award on the measurement date using the Black-Scholes option valuation model which incorporates assumptions as to stock price volatility, the expected life of the options, risk-free interest rate and dividend yield.
Stock Compensation
On March 30, 2026, the Board of Directors approved the Capstone Holding Corp. 2025 Stock Incentive Plan (the “2025 Plan”), reserving up to
As of March 31, 2026 and December 31, 2025, there were
The Brookstone Partners warrant expired unexercised on April 1, 2024.
Preferred Stock
On February 20, 2025, following the Company’s controlling shareholder’s approval, the Company filed an amendment to its Restated Certificate of Incorporation to increase the authorized shares of preferred stock to
The Tax Benefit Preservation Plan adopted by the Board on April 18, 2017 between the Company and Computershare, which had been extended in May 2024 through December 31, 2027, was cancelled on March 3, 2025 pursuant to the Master Exchange and Other Transaction Agreement.
Series B Preferred Stock: In February 2025, the Company filed the Certificate of Designation of Preferences, Rights and Limitations of Series B Preferred Stock with the Delaware Secretary of State, designating
Series Z 8% Non-Convertible Preferred Stock (Classified as Liability): On September 30, 2025, the Company filed the Certificate of Designation of Preferences, Rights and Limitations of Series Z 8% Non-Convertible Preferred Stock with the Secretary of State of the State of Delaware, designating
In connection with the Public Offering that closed on March 7, 2025, the Company issued to the underwriters warrants to purchase an aggregate of
The Company’s Senior Secured Convertible Notes (see Note 11) are convertible into shares of Common Stock at conversion prices ranging from $
On February 12, 2026, the Company and the Buyer entered into a Letter Agreement (the "February 2026 Letter Agreement") deferring the $
Note 16 TotalStone 401(K) Retirement Savings Plan
TotalStone maintains a defined contribution pension plan, which covers all employees electing to participate after completing certain service requirements. Employer contributions are made at the Company’s discretion. Generally, the Company makes safe harbor matching contributions equal to
Carolina Stone Distributors, LLC maintained a SIMPLE IRA plan covering eligible employees after 90 days of service. Under the plan, Carolina Stone matched employee contributions up to
Canadian Stone Industries Inc. sponsors a Group Registered Savings Plan ("Group RSP") through RBC covering all employees after three months of continuous service. Under the plan, CSI matches employee contributions at
Note 17 Income Taxes
The Company's effective tax rate for the three months ended March 31, 2026 and 2025 was
Note 18 Segment Information
The Company has reportable segments: (i) the TotalStone segment, which includes the operations of TotalStone, LLC and the legacy Instone distribution business, together with Canadian Stone Industries Inc. and Continental Stone Industries, Inc. (collectively, "Fraser Canyon"), acquired in December 2025; and (ii) the Carolina Stone segment, which includes the operations of Carolina Stone Distributors, LLC and its affiliated installation business, acquired in August 2025. The TotalStone segment distributes natural and manufactured stone and related building products. The Carolina Stone segment distributes and installs stone veneer and related masonry products. The Company also incurs corporate-level SG&A expenses at Capstone Holding Corp. ("Capstone" or the "Parent"), consisting primarily of board fees, investor relations, filing, legal, insurance, accounting and consulting expenses not identifiable or allocated to the operating segments.
The Company's Chief Executive Officer serves as the chief operating decision maker ("CODM"). The CODM evaluates segment performance based on segment revenue, gross profit, and income (loss) from operations. Corporate overhead and certain shared services costs not directly attributable to a segment are reported within the Parent/Eliminations column. Interest expense, income taxes, and other non-operating items are not allocated to segments. The accounting policies of the reportable segments are the same as those described in Note 3.
The following tables present financial information regarding the Company's reportable segments, reconciled to the Company's consolidated totals.
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | |||||||||||||||||||||||||||||||||||||||
| TotalStone | Carolina Stone Holdings | Parent | Eliminations | Consolidated | TotalStone | Carolina Stone Holdings | Parent | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
| Income (loss) from operations before taxes: | ||||||||||||||||||||||||||||||||||||||||
| Sales | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Cost of goods sold | ||||||||||||||||||||||||||||||||||||||||
| Gross Profit | ||||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Transaction Expenses | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Income (loss) from operations | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||
| Unrealized gain on derivative | ||||||||||||||||||||||||||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Other income (expense) net | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Income (loss) from operations before taxes | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||
| Other financial information: | ||||||||||||||||||||||||||||||||||||||||
| Depreciation & amortization | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Capital expenditures | ||||||||||||||||||||||||||||||||||||||||
| As of March 31, 2026 | As of December 31, 2025 | |||||||||||||||||||||||||||||||||||||||
| TotalStone | Carolina Stone Holdings | Parent | Eliminations | Consolidated | TotalStone | Carolina Stone Holdings | Parent | Eliminations | Consolidated | |||||||||||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||
Note 19 Subsequent Events
The Company has evaluated subsequent events through the date these consolidated financial statements were issued and has identified the following events for disclosure.
Convertible Note Conversion Price Adjustment. On April 16, 2026, pursuant to a unanimous written consent dated April 16, 2026, the Company and the Buyer entered into a Letter Agreement (the “April 2026 Letter Agreement”) reducing the Conversion Price applicable to $
Subsequent Convertible Note Conversions. On April 16, 2026, the Buyer submitted Eight Notices of Conversion that aggregated to $
Subsequent Equity Line of Credit Draws. Between April 6, 2026 and May 7, 2026, the Company submitted four VWAP Purchase Notices under the May 2025 Equity Line of Credit agreement with Tumim Stone Capital, LLC, resulting in the issuance of an aggregate of
Revolving Credit Agreement Waiver. On May 18, 2026, the Company received a written waiver from Beacon Bank & Trust of the Company's noncompliance with the minimum Cash Flow Coverage Ratio under the Revolving Credit Agreement as of March 31, 2026. The waiver applies to the noncompliance as of the measurement date and the Company remains subject to the financial covenants of the Revolving Credit Agreement on a forward basis. See Note 10.
Facility Consolidation. The Company’s lease at 5141 W. 122nd Street, Alsip, Illinois terminated effective April 30, 2026. The Company entered into a new lease at 18400 76th Avenue, Tinley Park, Illinois, which commenced April 1, 2026 with a term of
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our Company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated our Company’s disclosure controls and procedures as of the end of the period covered by this Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of March 31, 2026, our disclosure controls and procedures were not effective. The ineffectiveness of our disclosure controls and procedures was due to the following material weaknesses in our internal control over financial reporting.
Due to accounting resource constraints, we have had limited review controls. These constraints have resulted in (1) a lack of segregation of duties, since we have a limited administrative staff, and (2) lack of internal controls structure review.
Our management is composed of a small number of individuals, which has historically resulted in limitations on segregation of duties. To address this matter and the related material weakness, the Company has undertaken and continues to implement the following remediation steps:
Process and review enhancements. The Company has implemented additional review procedures over journal entries, account reconciliations, and the consolidation process. Management is documenting key accounting policies, formalizing close calendars and review checklists, and engaging multiple external accounting, tax, and audit consultants to supplement internal staffing during the remediation period.
Post-acquisition disclosure controls. Following the acquisitions of Carolina Stone Holdings on August 22, 2025 and Fraser Canyon Holdings on December 1, 2025, the Company has integrated each acquired business into its quarterly disclosure controls and procedures, including expanding the close calendar to incorporate the acquired entities, aligning the chart of accounts and reporting packages, and extending review and certification responsibilities to the acquired-entity finance leads.
Expected timing. The Company expects the remediation steps described above, taken together with the completion of the additional staff accountant hire for TotalStone and the continuing engagement of external accounting consultants, to substantially remediate the identified material weaknesses by the end of fiscal year 2026, subject to the operating effectiveness of the new controls being demonstrated for a sufficient period of time.
The Company will continue to evaluate the design and operating effectiveness of its internal control over financial reporting, and management will reassess the remediation status quarterly. Until the remediation is complete and the relevant controls have operated effectively for a sufficient period, the material weaknesses described above will continue to exist.
Material Weakness Identified in Connection with the Restatement
In connection with the restatement described in Note 1A to the consolidated financial statements included in this Amendment, management identified an additional material weakness in the Company’s internal control over financial reporting. The Company’s controls over the computation and review of the weighted average number of common shares outstanding used to compute net loss per share did not operate effectively. As a result, the comparative weighted average share and per share amounts for the three months ended March 31, 2025 presented in the Original Report were misstated, and the Company has restated those amounts in this Amendment. This does not change management’s conclusion that the Company’s disclosure controls and procedures were not effective as of March 31, 2026.
The Company has designed and implemented a remediation plan directed at the material weaknesses described above. The Company has expanded its accounting staff so that the preparation of the financial statements is no longer dependent on a single individual, and it has established layers of review under which the preparer of a financial statement and the reviewer of that statement are different individuals. The error described above was identified through that review process.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal controls over financial reporting, as defined in Rules 13a-15(f) of the Exchange Act, during the quarter ended March 31, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting
| Exhibit |
||
| Number |
Exhibit Description |
|
| 10.1 |
||
| 10.2 |
||
| 10.3* | Waiver, dated May 18, 2026, from Beacon Bank & Trust under the Revolving Credit, Term Loan and Security Agreement, as amended | |
| 31.1* |
||
| 31.2* |
||
| 32.1** |
||
| 32.2** |
||
| 101.INS* |
Inline XBRL Instance Document |
|
| 101.SCH* |
Inline XBRL Taxonomy Extension Schema Document |
|
| 101.CAL* |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
| 101.DEF* |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
| 101.LAB* |
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
| 101.PRE* |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
| 104* |
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| * |
Filed herewith. |
| ** |
Furnished herewith |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CAPSTONE HOLDING CORP. |
||
| Date: August 12, 2026 | By: |
/s/ Matthew E. Lipman |
| Matthew E. Lipman |
||
| Chief Executive Officer |
||
| Date: August 12, 2026 | /s/ Edward Schultz |
| Edward Schultz |
|
| Chief Financial Officer |
|
| (Principal Financial and |
Exhibit 10.3
May 18, 2026
Totalstone, LLC
Northeast Masonry Distributors, LLC
Totalstone Properties, LLC
1 Red Valley Rd.
Millstone Township, NJ 08510
Attn: Matthew Lipman, Manager
CS Purchase Holdings LLC
Carolina Stone Holdings, LLC
2140 South DuPont Hwy
Camden, DE 19934
Attn: Matthew Lipman, Manager
Carolina Stone Distributors, LLC
10312 Globe Rd.
Morrisville, NC 27560
Attn: Matthew Lipman, Manager
|
Re: |
Waiver Request Under the Fifteenth Amendment to Revolving Credit, Term Loan and Security Agreement |
Dear Mr. Lipman:
Reference is made to certain (i) Revolving Credit, Term Loan and Security Agreement (the “Original Loan Agreement”) dated as of December 20, 2017 by and among TotalStone, LLC, a Delaware limited liability company (“TotalStone”) and Beacon Bank & Trust (successor by merger to Berkshire Bank), a Massachusetts chartered trust company (“Lender”), (ii) that certain Fifteenth Amendment to Revolving Credit, Term Loan And Security Agreement (“Fifteenth Amendment”; the Fifteenth Amendment, the Original Loan Agreement and all other amendments to the Original Loan Agreement and subsequent amendments are collectively referred to as the “Loan Agreement”) dated as of December 19, 2025, by and among TotalStone, Northeast Masonry Distributors, LLC (f/k/a NEM Purchaser, LLC), a Delaware limited liability company (“Northeast”), TotalStone Properties, LLC, a Delaware limited liability company (“Properties”), Cs Purchase Holdings LLC, a Delaware limited liability company (“CS Purchase”), Carolina Stone Holdings, LLC, a Delaware limited liability company (“Carolina Holdings”), and Carolina Stone Distributors, LLC, a Delaware limited liability company (“Carolina Distributors,” collectively with CS Purchase, Carolina Holdings (“CSP”, and collectively with TotalStone, Northeast, Properties, CS Purchase, and Carolina Holdings, the “Borrower”), and Lender, and (iii) all Other Documents (as defined in the Loan Agreement) at any time, including without limitation any and all amendments from time to time, executed and/or delivered in connection therewith or related thereto. Each capitalized term herein not otherwise defined herein shall have the meaning ascribed thereto in the Loan Agreement.
The Borrower was noncompliant with that certain Cash Flow Coverage Ratio (the “CFSR Covenant”) set forth in Section 6.5(a) of the Fifteenth Amendment for the twelve (12) month trailing period ending March 31, 2026 (the “CFSR Testing Period”). Subject to Lender’s receipt of a $7,000 noncompliance fee from Borrower, the Lender hereby waives Borrower’s compliance with the CFSR Covenant for the CFSR Testing Period.
Except as provided herein, the sending of this letter should not be construed to limit the right of Lender to act without any other or further notice to Borrower in accordance with the terms of the Loan Agreement, the Other Documents or applicable law. Nothing contained herein shall be deemed to be a waiver of any other requirement of Borrower to perform or cause to be performed under the Loan Agreement or Other Documents. Borrower is not entitled to rely upon any oral statements made or reported to be made by or on behalf of Lender in connection with any alleged agreement by Lender to refrain from exercising any of its rights and remedies under the Loan Agreement, the Othe Documents or applicable law.
The Loan Agreement and the Other Documents remain in full force and effect in accordance with their original terms, as the same may have been amended, modified or altered from time to time. The making of any Loans to or on behalf of Borrower under the Loan Agreement from and after the date of this letter shall not be construed to be, and nothing in this letter or any other correspondence or any oral communications among Lender and the Borrower should be construed to be, a waiver, modification or release of any breach or default, whether now existing or hereafter arising, or of any of Lender’s rights and remedies, under the Loan Agreement, the Other Documents, applicable law or in equity. Nothing in this letter shall constitute a course of dealing or a course of conduct.
This waiver is without prejudice, and Lender hereby specifically reserves all of the rights and remedies of Lender.
This waiver shall not limit, impair, or otherwise affect in any manner whatsoever the right of Lender to require Borrower to execute and deliver or cause to be executed and delivered such additional and further agreements, documents, or instruments as provided in the Loan Agreement and Other Documents.
|
Very truly yours, |
|||
|
BEACON BANK & TRUST |
|||
|
/s/ Ben Garcia |
|||
|
Name: Ben Garcia Title: Senior Vice President |
Exhibit 31.1
SECTION 302 CERTIFICATION
I, Matthew E. Lipman, certify that:
|
1. |
I have reviewed this Quarterly Report on Form 10-Q for the period ended on June 30, 2026 of Capstone Holding Corp.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
|
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on Capstone Holding Corp.’s most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (of persons performing the equivalent functions): |
|
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting. |
| Date: August 12, 2026 |
By: |
/s/ Matthew E. Lipman |
|
Matthew E. Lipman |
||
|
Chief Executive Officer |
Exhibit 31.2
SECTION 302 CERTIFICATION
I, Edward Schultz, certify that:
|
1. |
I have reviewed this Quarterly Report on Form 10-Q for the period ended on June 30, 2026 of Capstone Holding Corp.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
|
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on Capstone Holding Corp.’s most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (of persons performing the equivalent functions): |
|
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting. |
| Date: August 12, 2026 |
By: |
/s/ Edward Schultz |
|
Edward Schultz |
||
|
Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Capstone Holding Corp. (the “Company”) on Form 10-Q for the period ended June 30, 2026 (the “Report”) I, Matthew E. Lipman, Chief Executive Officer of the Company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:
|
(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: August 12, 2026 |
By: |
/s/ Matthew E. Lipman |
|
Matthew E. Lipman |
||
|
Chief Executive Officer |
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Capstone Holding Corp. (the “Company”) on Form 10-Q for the period ended June 30, 2026 (the “Report”) I, Edward Schultz, Chief Financial Officer of the Company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:
|
(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: August 12, 2026 |
By: |
/s/ Edward Schultz |
|
Edward Schultz |
||
|
Chief Financial Officer |
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.