[10-K/A] Capstone Holding Corp. Amends Annual Report
Capstone Holding Corp. filed an amendment to its annual report for the year ended December 31, 2024 to correct headings on key financial statements. The amendment removes an inadvertent “unaudited” label from the consolidated balance sheets, statements of operations and cash flows, which are fully audited.
The company distributes masonry stone products through subsidiary TotalStone. For 2024, Capstone reported net sales of $44.9 million, gross profit of $9.6 million, and a net loss attributable to common stockholders of $5.5 million. Total assets were $47.2 million, including $23.3 million of goodwill and $9.6 million of inventories with a $576,000 reserve for slow-moving and obsolete stock.
Operating activities generated $3.8 million of cash in 2024, while financing activities used $3.7 million, leaving year-end cash of $11,000. Subsequent to year-end, Capstone completed a public offering of 1,250,000 shares at $4.00 per share, raising net proceeds of about $3.48 million, and restructured TotalStone’s equity, exchanging preferred interests for common stock.
Positive
- None.
Negative
- None.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Amendment No. 1)
For
the fiscal year ended:
or
For the transition period from _________ to ________
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation) | (I.R.S. Employer Identification Number) |
| (Address of principal executive offices and zip code) | (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| 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 pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
The
registrant was
The
registrant had
EXPLANATORY NOTE
Capstone Holding Corp. (the “Company”) is filing this Amendment No. 1 on Form 10-K/A (this “Amendment”) to amend its Annu Report on Form 10-K for the year ended on December 31, 2024, previously filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2025 (the “Original Filing”), for the sole purpose of removing the reference of “unaudited” that was inadvertently included on the Company’s consolidated balance sheets (page F-4), consolidated statements of operations (page F-5) and consolidated statements of cash flows (page F-7). No other changes have been made to the financial statements or Form 10-K content compared to the Form 10-K filed on March 31, 2025.
In addition, pursuant to the rules of the SEC, the exhibit list included herewith reflects a currently-dated auditor consent and certifications from the Company’s Chief Executive Officer and Chief Financial Officer, which are filed as exhibits to this Amendment No. 1.
Except for the foregoing information, this Amendment No. 1 does not amend or update any other information contained in the Original Filing, or reflect any events that have occurred after the filing of the Original Filing. Accordingly, this Amendment No. 1 should be read in conjunction with the Original Filing.
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements for the years ended December 31, 2024 and 2023, and the related notes, and the Report of Independent Registered Public Accounting Firm, are incorporated herein and are identical to those in the Original Filing, except that the reference to “unaudited” has been removed from the headings of the following financial statements:
| ● | Consolidated Balance Sheets as of December 31, 2024 and 2023 (page F-4) |
| ● | Consolidated Statements of Operations for Years Ended December 31, 2024 and 2023 (page F-5) |
| ● | Consolidated Statements of Cash Flows for the Years Ended December 31, 2024 and 2023 (page F-7) |
1
Index to Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023
| Page(s) | |
| Report of Independent Registered Public Accounting Firm (PCAOB Firm ID 0089) | F-2 |
| Balance Sheets as of December 31, 2024 and 2023 | F-4 |
| Statements of Operations for the Years Ended December 31, 2024 and 2023 | F-5 |
| Statements of Stockholders’ Deficit for the Years Ended December 31, 2024 and 2023 | F-6 |
| Statements of Cash Flows for the Years Ended December 31, 2024 and 2023 | F-7 |
| Notes to Financial Statements | F-8 |
F-1
Report of Independent Registered Public Accounting Firm
To the Board
of Directors
Capstone Holding Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Capstone Holdings Corp. (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
F-2
Slow-Moving, Excess and Obsolete Inventory Reserve
Critical Audit Matter Description
The Company values inventory at the lower of cost, determined by the average cost method, or net realizable value. The Company periodically assesses inventory to determine if the carrying value of the inventory exceeds net realizable value and when determined necessary, records a reserve for slow-moving, excess or obsolete inventory to reduce the carrying value to net realizable value. Recording the reserve requires management to make assumptions and apply judgments related to anticipated demand which may be impacted by changes in customer preferences, economic conditions, business trends or product strategies. The Company relies on, among other things, past sales experience, the duration of product life cycles, and anticipated market conditions to develop the estimate. As a result of management’s assessment, the Company recorded a reserve for slow-moving, excess, and obsolete inventory of approximately $576,000 as of December 31, 2024.
We identified the inventory slow-moving, excess and obsolete reserve as a critical audit matter because of the extent of audit judgment and effort required to evaluate management’s estimate and assumptions due to the subjective nature of the estimate described above.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the slow-moving, excess and obsolete inventory reserve included the following, among others:
| ● | We obtained an understanding of the process and design of controls associated with management’s development of the inventory reserve. |
| ● | We evaluated the appropriateness of management’s method and assumptions used in developing their estimate of the inventory reserve including assumptions related to the categorization of products into different classes of potential exposure and reserve percentages applied to those classes of inventory. |
| ● | We evaluated the appropriateness of specific inputs supporting management’s estimate, including historical sales levels, the year a product was introduced to the Company’s product lines and historic product life cycles. |
| ● | We evaluated the completeness and accuracy of the underlying data used in development of the inventory reserve, including the mathematical accuracy of the calculation. |
| ● | We performed inquiries with management regarding anticipated future demand for various products and classes of products and historical durations of product life cycles. |
/s/
We have served as the Company’s auditor since 2020.
March 31, 2025
F-3
CAPSTONE
HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
| December 31, 2024 | December 31, 2023 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Prepaid expenses | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Long-term Assets: | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Other intangible assets | ||||||||
| Right of use assets | ||||||||
| Deferred tax asset | ||||||||
| Other long-term assets | ||||||||
| Total long-term assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES & EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Line of credit | ||||||||
| Current portion of long-term debt | ||||||||
| Current portion, lease liability | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Accrued related party management fee | ||||||||
| Long term debt, net of current portion | ||||||||
| Lease liability, net of current portion | ||||||||
| Total long-term liabilities | ||||||||
| Total Liabilities | ||||||||
| TotalStone, LLC – Class B Preferred Units | ||||||||
| TotalStone, LLC – Special Preferred Units | ||||||||
| Equity: | ||||||||
| Common Stock $ | — | — | ||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Equity | ( | ) | ||||||
| Total Liabilities, TotalStone, LLC. Preferred Units & Equity | $ | $ | ||||||
See notes to consolidated financial statements
F-4
CAPSTONE
HOLDING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
| Twelve Months Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Sales | $ | $ | ||||||
| Sales returns and allowances | ( | ) | ( | ) | ||||
| Net sales | ||||||||
| Cost of goods sold | ||||||||
| Gross Profit | ||||||||
| Selling, general and administrative expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Loss on investment | — | ( | ) | |||||
| Gain on extinguishment of debt | — | |||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other income (expense), net | — | |||||||
| Net loss before taxes | ( | ) | ( | ) | ||||
| Income tax expense | ( | ) | ( | ) | ||||
| Net Loss | ( | ) | ( | ) | ||||
| Less: Net loss attributable to: | ||||||||
| Special preferred units | ( | ) | ( | ) | ||||
| Class B units preferred return | ( | ) | ( | ) | ||||
| Net loss attributable to Capstone Holding Corp. stockholders | $ | ( | ) | $ | ( | ) | ||
| Earnings (loss) per share: | ||||||||
| Net loss per share attributable to Capstone Holding Corp. stockholders – basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of common shares outstanding – basic and diluted | ||||||||
See notes to consolidated financial statements
F-5
CAPSTONE
HOLDING CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except Common Stock Shares)
| Common Stock | Additional Paid-In Capital | Retained Earnings (Accumulated Deficit) | Total Equity | Class B Units | Special Preferred Unit | |||||||||||||||||||
| Balance at January 1, 2024 | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||
| Net Loss | ( | ) | ( | ) | ||||||||||||||||||||
| Accrued Class B Distributions | ( | ) | ( | ) | ||||||||||||||||||||
| Accrued Special Preferred Distributions | ( | ) | ( | ) | ||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||
| Common Stock | Additional Paid-In Capital | Retained Earnings (Accumulated Deficit) | Total Equity | Class B Units | Special Preferred Unit | |||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||
| Net Loss | ( | ) | ( | ) | ||||||||||||||||||||
| Accrued Class B Distributions | ( | ) | ( | ) | ||||||||||||||||||||
| Accrued Special Preferred Distributions | ( | ) | ( | ) | ||||||||||||||||||||
| Special Preferred Distribution | — | ( | ) | |||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||
See notes to consolidated financial statements
F-6
CAPSTONE
HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Twelve Months Ended December 31, 2024 | Twelve Months Ended December 31, 2023 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Non cash items: | ||||||||
| Depreciation and amortization | ||||||||
| Loss on investment | — | |||||||
| Gain on extinguishment of debt | — | ( | ) | |||||
| Deferred taxes | ||||||||
| Change in other operating items: | ||||||||
| Accounts receivable and other assets | ||||||||
| Change in operating leases, net | — | |||||||
| Accounts payable and other accrued liabilities | ||||||||
| Cash flows provided by 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 | — | ( | ) | |||||
| Cash flows used in financing activities | ( | ) | ( | ) | ||||
| NET CHANGE IN CASH & CASH EQUIVALENTS | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | $ | ||||||
| SUPPLEIMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Operating cash flows from finance leases (interest) | $ | $ | ||||||
| Financing cash flows from finance leases (principal portion) | ||||||||
| Operating cash flows from operating leases | ||||||||
| Interest Paid | ||||||||
| Taxes Paid | ||||||||
See notes to consolidated financial statements
F-7
CAPSTONE
HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Nature of Operations
Capstone Holding Corp. (the “Capstone”) is a holding company and its operations consist substantially of the operations of its consolidated subsidiary, TotalStone, LLC (“TotalStone”). On April 1, 2020, Capstone obtained controlling interest in TotalStone, a materials distribution company that distributes masonry stone products for residential and commercial construction in the Midwest and Northeast United States under the trade names Instone and Northeast Masonry Distributors (“NMD”).
Note 2 Summary of Significant Accounting Policies
Basis of Presentation and Preparation
The consolidated financial statements include the accounts of Capstone and its consolidated subsidiaries (collectively, the “Company”). Intercompany accounts and transactions have been eliminated. The preparation of these financial statements and accompanying notes are in accordance with accounting principles generally accepted in the United States of America. In the opinion of management, the financial statements include all adjustments necessary for the fair presentation of our financial position, results of operations, and cash flows, and all adjustments were of a normal recurring nature.
Use of Estimates
The preparation of financial statements in accordance with US GAAP requires management to make a number of assumptions and estimates that affect the reported amounts of assets, liabilities, and expenses in our financial statements and accompanying notes. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s assumptions regarding current events and actions that may impact the Company in the future, actual results may differ from these estimates and assumptions.
Cash
Cash consists of balances held in a commercial bank account.
Accounts Receivable
Accounts
receivable are recorded and carried at the original invoiced amount less an allowance for any potential uncollectible amounts. The Company
estimates expected credit losses for the allowance for expected credit losses based upon its assessment of various factors, including
historical experience, the age of the accounts receivable balances, credit quality of its customers, current economic conditions, reasonable
and supportable forecasts of future economic conditions, and other factors that may affect the Company’s ability to collect from
customers. As of December 31, 2024 and December 31, 2023, the allowance for doubtful accounts totaled approximately $
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. The Company places cash with high credit quality institutions. During the normal course of business, balances in these accounts may exceed the maximum amount insured by the Federal Deposit Insurance Corporation (“FDIC”). Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers comprising the Company’s diverse customer base and generally short payment terms. Management believes there is no business vulnerability regarding concentrations of accounts receivable and sales due to the strong relationships and financial strength of our customers.
F-8
CAPSTONE
HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 Summary of Significant Accounting Policies (cont.)
Inventories
Inventories
consisting of finished goods are stated at the lower of cost, determined by the average cost method, or net realizable value. Inventories
also include deposits placed on inventory purchases for shipments not yet received. Significant prepaid inventory may be located overseas.
At December 31, 2024 and 2023, the total prepaid inventory balance was $
Property and Equipment
Property and equipment is stated at cost and is depreciated over the estimated useful lives ranging from three to forty years. Depreciation is computed by using the straight-line method for financial reporting purposes and straight-line and accelerated methods for income tax purposes. Property and equipment is comprised of building, machinery & equipment, computer equipment, leasehold improvements, software, office equipment, vehicles, and furniture & fixtures. Maintenance and repairs are charged to expense as incurred.
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 recognized in
In evaluating potential goodwill impairment, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, based on a review of qualitative factors, it is more likely than not that the fair value of a reporting unit is less than its carrying value, we perform a quantitative analysis. If the quantitative analysis indicates the carrying value of a reporting unit exceeds its fair value, we measure any goodwill impairment losses as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit. The Company determined that no impairment was required for the periods presented.
Intangible assets with finite lives, consist of a non-compete agreement, amortized over the term of the agreement.
Long-lived Asset Impairments
Long-lived assets and finite lived identifiable intangibles are reviewed for impairment whenever events of changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the assets is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount of which the carrying amount of the assets exceeds the fair value of the assets. The Company determined that no impairment was required for the periods presented.
Investment in Non-Marketable Securities
Investments in non-marketable securities without readily determinable fair values by entities that do not exercise significant influence over the investee are recorded at cost, less impairment, plus or minus observable price changes.
Revenue Recognition
Sales are recognized when revenue is realized or becomes realizable and has been earned, net of sales tax. In general, revenue is recognized at a point in time, which is usually upon shipment of the product. Our sales predominantly contain a single delivery element and revenue is recognized at a point in time when ownership, risks and rewards transfer. For 2024 and 2023, there are no estimates of variable consideration represented in revenue.
F-9
CAPSTONE
HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 Summary of Significant Accounting Policies (cont.)
Shipping and Handling
The Company includes amounts billed to customers related to shipping and handling and shipping and handling expenses in cost of goods sold.
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 2024 and 2023, advertising expenses were $
Research and Development
Research and development costs are expensed as incurred and were not significant in the periods presented.
Earnings Per Share
Basic earnings (loss) per share is computed by dividing the net income (loss) applicable to the common stockholders of Capstone Holding Corp. by the weighted average number of shares of common stock outstanding during the year. Diluted earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Potential common shares are excluded from the computation when their effect is antidilutive.
For the years ended December 31, 2024 and 2023, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have had an anti-dilutive effect. The potentially dilutive securities consisted of the following:
| December 31, 2024 | December 31, 2023 | |||||||
| Stock options | ||||||||
| Warrants | ||||||||
| Total | ||||||||
Recent Accounting Pronouncements
In November 2023, the FASB issued ASU 2023- 07, Improvements to Reportable Segment Disclosures, which requires companies to disclose significant segment expenses and other segment items that impact each reported measure of segment income or loss. This guidance is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. We adopted this guidance effective for the year ended December 31, 2024.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires companies to disclose disaggregated information related to the effective tax rate reconciliation and income taxes paid. This guidance is effective for public entities for fiscal years beginning after December 15, 2024. We do not anticipate the adoption of this guidance will have a material impact on our consolidated financial statements.
F-10
CAPSTONE
HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 Summary of Significant Accounting Policies (cont.)
In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses, which requires disclosures about specific types of expenses included in expense captions presented on the face of the Consolidated Statement of Operations. This guidance is effective for public entities for fiscal years beginning after December 15, 2026. We are currently reviewing this guidance and its impact on our consolidated financial statements.
Note 3 Related Party Transactions
TotalStone
is party to an agreement with a related party, Brookstone Partners IAC (“Brookstone”), the Company’s majority shareholder.
Pursuant to this agreement, Brookstone provides annual consulting services totaling $
Stream
Finance, LLC, which serves as a creditor on TotalStone’s mezzanine term loan of $
As further disclosed in Note 6, on March 31, 2021 a subsidiary of the Company acquired a minority interest in Diamond Products, LLC (“Diamond”) from an entity affiliated with Brookstone in exchange for a note payable issued to Brookstone by a Company subsidiary.
Note 4 Property and Equipment, Net.
A summary of the Company’s property and equipment is as follows in (“000’s”):
| December 31, 2024 | December 31, 2023 | |||||||
| 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 2024 and 2023 was $
F-11
CAPSTONE
HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 Goodwill and Other Intangible Assets
As
of December 31, 2024 and December 31, 2023, the Company had $
The following tables summarize the Company’s other intangible assets in (“000’s”):
| As of December 31, 2023 | ||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||
| Non-compete agreements | $ | $ | ( | ) | $ | |||||||
| Customer lists | ( | ) | — | |||||||||
| Other | ( | ) | — | |||||||||
| Total definite-lived intangible assets | ( | ) | ||||||||||
| Indefinite-lived intangible assets | — | — | — | |||||||||
| Total intangible assets | $ | $ | ( | ) | $ | |||||||
| As of December 31, 2024 | ||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||
| Non-compete agreements | $ | $ | ( | ) | $ | — | ||||||
| Customer lists | ( | ) | — | |||||||||
| Other | ( | ) | — | |||||||||
| Total definite-lived intangible assets | ( | ) | — | |||||||||
| Trademark | ||||||||||||
| Indefinite-lived intangible assets | — | |||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | |||||||
As of December 31, 2024, the definite-lived intangible assets are fully amortized and there is no future amortization expense.
Note 6 Investment in Non-Marketable Securities
On
January 15, 2021, the Capstone acquired a minority interest in a consumer products company, Diamond Products, 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
The
On
November 9, 2023 in connection with a restructuring and recapitalization transaction of Diamond’s operating entities, Diamond and
other related party entities affiliated with Brookstone XXI entered into a transaction that sold
F-12
CAPSTONE
HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 Line of Credit
On
June 29, 2015, TotalStone established a Revolving Credit Note which has been amended since. Under the terms of the Eleventh Amendment
to the Revolving Credit, Term Loan and Security Agreement with Berkshire Bank, executed on October 16, 2024, TotalStone, LLC’s
maximum revolving advance amount is $
The Company was not in compliance with the financial covenant requirements under the Revolving Credit, Term Loan and Security Agreement with Berkshire Bank (the “Credit Agreement”) as of September 30, 2024. In October 2024, terms of the Credit Agreement were amended that modified the financial covenant requirements to align with the Company’s current forecast. Further, the amended terms provided a waiver for the Company’s compliance of the financial covenants not met through September 2024. Subsequent to September 30, 2024, the Company has remained in compliance with the financial covenant requirements.
Note 8 Debt
As
of December 31, 2024, the Company had $
| December 31, 2024 | December 31, 2023 | |||||||
| Long-term Debt | ||||||||
| Note payable to BP Peptides, LLC “Brookstone”. The unsecured loan bears interest at | ||||||||
| Mezzanine term loan to Steam Finance, LLC, collateralized by substantially all of TotalStone’s assets and subordinated to the Bank term notes. Interest is calculated monthy as the Base Rate divided by an Adjustment Factor of | ||||||||
| Seller’s note with Avelina Masonry, LLC, which required monthly payments of $ | ||||||||
| Term note agreement with Berkshire Bank, due in 48 consecutive monthly payments of $ | ||||||||
| In December 2022, TotalStone sold its facility in Navarre, Ohio to a nonaffiliated third party for a purchase price of $ | ||||||||
| Unsecured promissory note with Brookstone plus accrued interest to acquire a minority interest in DPH. Interest accrues at | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Less unamortized loan origination fees | ( | ) | ( | ) | ||||
| Total Long-term debt | $ | $ | ||||||
F-13
CAPSTONE
HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 Debt (cont.)
Mezzanine Term Loan — Stream Finance, LLC.
| Table A | Table B | |||||||||||||
| Level | Adjusted EBITDA of TotalStone (exclusive of Northeast) | Rate | Level | Adjusted EBITDA of TotalStone and Northeast | Rate | |||||||||
| I | % | I | % | |||||||||||
| II | % | II | % | |||||||||||
| III | % | III | % | |||||||||||
Scheduled maturities of long-term as of December 31, 2024, are as follows:
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total | $ |
Note 9 Leases
As
of December 31, 2024, the balance of our right-of-use (“ROU”) assets was $
| Year | Finance | Operating | ||||||
| 2025 | $ | $ | ||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | — | — | ||||||
| Thereafter | — | — | ||||||
| Total undiscounted Lease Payments | ||||||||
| Less: Present value discount | ( | ) | ( | ) | ||||
| Total Lease Liability | $ | $ | ||||||
Lease expense recognized on our leases is as follows in (“000’s”):
| Twelve months Ended December 31, 2024 | Twelve months Ended December 31, 2023 | |||||||
| Finance leases | ||||||||
| Amortization expense | $ | $ | ||||||
| Interest expense | ||||||||
| Operating leases | ||||||||
| Straight-line rent expense | ||||||||
| Total lease expense | $ | $ | ||||||
F-14
CAPSTONE
HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 Leases (cont.)
The following summarizes additional information related to our leases for 2024 and 2023 in (“000’s”):
| Twelve months ended December 31, 2024 | Twelve months ended December 31, 2023 | |||||||||||||||
| Finance | Operating | Finance | Operating | |||||||||||||
| Weighted-average remaining lease terms (years) | ||||||||||||||||
| Weighted-average discount rate | % | % | % | % | ||||||||||||
| ROU assets obtained in exchange for new lease liabilities | $ | $ | — | $ | $ | — | ||||||||||
Note 10 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 $
Note 11 TotalStone Warrants
In
connection with the April 2020 TotalStone transaction,
F-15
CAPSTONE
HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 Stockholders’ Equity
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. No options were granted in 2024 or 2023.
Stock Compensation
There were no stock compensation costs, option grants or stock options exercised in 2024 or 2023. At December 31, 2024, there were no remaining unamortized non-cash stock compensation costs.
As
of December 31, 2024 and December 31, 2023, there were approximately
Preferred Stock
We
have
The Board of Directors of the Company approved a Tax Benefit Preservation Plan (“Benefit Plan”) dated April 18, 2017, between the Company and Computershare. The Benefit Plan and the exercise of rights to purchase Series A Preferred Stock, pursuant to the terms thereof, may delay, defer or prevent a change in control without the approval of the Board. In addition to the anti-takeover effects of the rights granted under the Benefit Plan, the issuance of preferred stock, generally, could have a dilutive effect on our stockholders.
Under
the Benefit Plan, each outstanding share of our common stock has attached one preferred stock purchase right. Each share of our common
stock subsequently issued prior to the expiration of the Benefit Plan will likewise have attached one right. Under specified circumstances
involving an “ownership change,” as defined in Section 382 of the Internal Revenue Code (“the Code”), the
right under the Benefit Plan that attaches to each share of our common stock will entitle the holder thereof to purchase 1/100 of a share
of our Series A Preferred Stock for a purchase price of $
The Benefit Plan was cancelled per the Master Exchange and Other Transaction Agreement executed on March 3, 2025.
Note 13 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
F-16
CAPSTONE
HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 Income Taxes
The components of deferred income tax assets are as follows as of December 31 (“000’s”):
| 2024 | 2023 | |||||||
| Stock Options | $ | $ | ||||||
| Basis Difference in TotalStone | ||||||||
| Basis Difference in Diamond Products | ||||||||
| Interest Expense Limitation | ||||||||
| Federal Credits | ||||||||
| Federal NOL Carryforward | ||||||||
| Other | ||||||||
| Less: valuation allowance | ( | ) | ( | ) | ||||
| Net, deferred income tax assets | $ | $ | ||||||
ASC 740
requires that a valuation allowance be established when it is more-likely-than-not that all or a portion of a deferred tax asset will
not be realized. Changes in valuation allowances from period-to-period are included in the tax provision in the period of change. In
determining whether a valuation allowance is required, the Company takes into account all evidence with regard to the utilization of
a deferred tax asset including past earnings history, expected future earnings, the character and jurisdiction of such earnings, unsettled
circumstances that, if unfavorably resolved, would adversely affect utilization of a deferred tax asset, carryback and carryforward periods,
and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset. Management has evaluated the
available evidence about future taxable income and other possible sources of realization of deferred tax assets and has established a
valuation allowance of $
The
Company has accumulated approximately $
The components of the income tax provision (benefit) are as follows in (“000’s”):
| 2024 | 2023 | |||||||
| Federal: | ||||||||
| Current | $ | — | $ | — | ||||
| Deferred | ||||||||
| State and local: | ||||||||
| Current | ||||||||
| Deferred | — | — | ||||||
| Income tax provision | $ | $ | ||||||
F-17
CAPSTONE
HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 Income Taxes (cont.)
A reconciliation of the difference between the provision for income taxes and income taxes at the statutory U.S. federal income tax rate is as follows in (“000’s”):
| 2024 | 2023 | |||||||
| Income tax provision (benefit) at statutory rate | $ | ( | ) | $ | ( | ) | ||
| State taxes, net of federal benefit | $ | $ | ||||||
| Net change in NOL carryforward, federal credits and valuation allowance | ||||||||
| Other | — | |||||||
| Income tax provision recognized | ||||||||
Note 15 Segment Information
The
Company has
The Company’s chief executive officer is also the Company’s chief operating decision maker (“CODM”). The Company’s chief operating decision maker evaluates the performance of segments based on operating income (loss). Cost of goods sold and selling, general and administrative expenses, as reported on the statement of operations, are the significant segment expenses provided to the CODM on a regular basis.
The following tables present financial information regarding the Company’s reportable segment reconciled to the Company’s consolidated totals.
| Twelve Months Ended December 31, | ||||||||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||||||||
| TotalStone | Parent | Eliminations | Consolidated | TotalStone | Parent | Eliminations | Consolidated | |||||||||||||||||||||||||
| Income (loss) from operations before taxes: | ||||||||||||||||||||||||||||||||
| Sales | $ | $ | — | $ | — | $ | $ | $ | — | $ | — | $ | ||||||||||||||||||||
| Cost of goods sold | — | — | — | — | ||||||||||||||||||||||||||||
| Gross Profit | — | — | — | |||||||||||||||||||||||||||||
| Selling, general and administrative expenses | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| (Loss) income from operations | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
| Loss on investment | — | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||||||||
| Gain on extinguishment of debt | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Interest expense | ( | ) | ( | ) | — | ( | ) | ( | ) | ( | ) | — | ( | ) | ||||||||||||||||||
| Other income (expense) net | — | ( | ) | — | — | ( | ) | |||||||||||||||||||||||||
| Loss from operations before taxes | $ | ( | ) | $ | ( | ) | $ | — | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | — | $ | ( | ) | ||||||||||
| Other financial information: | ||||||||||||||||||||||||||||||||
| Depreciation & amortization | $ | $ | — | $ | — | $ | $ | $ | — | $ | — | $ | ||||||||||||||||||||
| Capital expenditures | — | — | — | — | ||||||||||||||||||||||||||||
| As of December 31, 2024 | As of December 31, 2023 | |||||||||||||||||||||||||||||||
| TotalStone | Parent | Eliminations | Consolidated | TotalStone | Parent | Eliminations | Consolidated | |||||||||||||||||||||||||
| Total assets | $ | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
F-18
CAPSTONE
HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 16 Subsequent Events
On
March 7, 2025, the Company 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 will only be the Company.
On
March 10, 2025, TotalStone paid Brookstone Partners IAC, Inc. $
TotalStone Equity Interests Transactions in March 2025
Class
A TS Warrants to purchase
On
the Restructuring Date, pursuant to a master exchange agreement (the “Master Exchange Agreement”) entered into by the Company,
TotalStone and TotalStone’s Class B and Class C Members, all of TotalStone’s Class B and Class C Preferred Interests
were exchanged for
In
total, on the Restructuring Date, in exchange for TotalStone’s outstanding Class B and Class C preferred interests,
The
Special Preferred Membership Interests were issued by TotalStone in connection with the restructuring of its mezzanine indebtedness.
This indebtedness is documented pursuant to that certain Second Amended and Restated Credit Agreement, dated as of March 8, 2023,
with Stream Finance, LLC, as agent, and the lenders from time to time party thereto (as amended, the “Stream Finance Credit Agreement”).
The maturity date of the Stream Finance Credit Agreement is September 30, 2026 (the “Stream Finance Maturity Date”).
The Special Preferred Membership Interests will be exchanged on the Restructuring Date for loans in an aggregate principal amount of
$
F-19
PART IV
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
| (a) | The following documents are filed as part of this Amendment No. 1: |
| 1. | Financial Statements |
See Item 8 above.
| 2. | Financial Statement Schedules |
All schedules have been omitted because they are no applicable or because the information is included in the consolidated financial statements or the notes thereto.
| 3. | Exhibits (including those incorporated by reference). |
The following exhibits are filed as part of this Amendment No. 1:
| (b) | Exhibits |
| Exhibit | Incorporated by Reference | Filed
or Furnished |
|||||||||
| Number | Exhibit Description | Form | Exhibit | Filing Date | Herewith | ||||||
| 23.1 | Consent of Independent Registered Public Accounting Firm | X | |||||||||
| 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002 | X | |||||||||
| 31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002 | X | |||||||||
| 32.1 | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002 | X | |||||||||
| 101.INS | Inline XBRL Instance Document - The instance document does not appear in the interactive Data File because its XBRL tags are embedded within the Inline XBRL 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 (formatted as inline XBRL) | ||||||||||
2
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CAPSTONE HOLDING CORP. | ||
| Dated: April 17, 2026 | By: | /s/ Matthew E. Lipman |
| Matthew E. Lipman | ||
| Chief Executive Officer | ||
| Dated: April 17, 2026 | By: | /s/ Edward Schultz |
| Edward Schultz | ||
| Chief Financial Officer | ||
3