UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2025
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________
to ________________
Commission file number 001-41775
Capstone Holding Corp.
(Exact name of registrant as specified in its charter)
| Delaware | | 86-0585310 |
(State or other jurisdiction of
incorporation or organization) | | (I. R. S. Employer
Identification No.) |
| 5141 W. 122nd Street Alsip, IL | | 60803 |
| (Address of principal executive offices) | | (Zip Code) |
(708) 371-0660
(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 |
| Common Stock | | CAPS | | The Nasdaq Stock Market LLC |
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 ☒ No ☐
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).
Yes ☒ No ☐
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 ☐ |
| Non-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 ☐ No ☒
The number of shares of the registrant’s
common stock outstanding as of August 12, 2025 was 5,581,205 shares.
TABLE OF CONTENTS
| |
|
Page |
| PART I |
|
1 |
| |
|
|
| ITEM 1: |
FINANCIAL STATEMENTS |
1 |
| |
Consolidated Balance Sheets as of June 30, 2025 (Unaudited) and December 31, 2024 |
1 |
| |
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2025 and 2024 (Unaudited) |
2 |
| |
Consolidated Statements of Stockholders’ Equity (Deficit) for the Three and Six Months Ended June 30, 2025 and 2024 (Unaudited) |
3 |
| |
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2025 and 2024 (Unaudited) |
4 |
| |
Notes to Consolidated Financial Statements (Unaudited) |
5 |
| ITEM 2: |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION |
15 |
| ITEM 3: |
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
23 |
| ITEM 4: |
CONTROLS AND PROCEDURES |
23 |
| |
|
|
| PART II |
|
24 |
| |
|
|
| ITEM 1: |
LEGAL PROCEEDINGS |
24 |
| ITEM 1A: |
RISK FACTORS |
24 |
| ITEM 2: |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
24 |
| ITEM 3: |
DEFAULTS UPON SENIOR SECURITIES |
24 |
| ITEM 5: |
OTHER INFORMATION |
24 |
| ITEM 6: |
EXHIBITS |
25 |
| SIGNATURES |
26 |
PART I
ITEM 1. FINANCIAL STATEMENTS
CAPSTONE HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
| | |
June 30,
2025 | | |
December 31,
2024 | |
| ASSETS | |
| | |
| |
| Current Assets: | |
| | |
| |
| Cash | |
$ | 773 | | |
$ | 11 | |
| Accounts receivable, net | |
| 5,487 | | |
| 2,762 | |
| Inventories | |
| 9,590 | | |
| 9,635 | |
| Prepaid expenses | |
| 439 | | |
| 150 | |
| Other current assets | |
| 242 | | |
| 242 | |
| Total current assets | |
| 16,531 | | |
| 12,800 | |
| Long-term Assets: | |
| | | |
| | |
| Property and equipment, net | |
| 1,466 | | |
| 1,594 | |
| Goodwill | |
| 23,286 | | |
| 23,286 | |
| Other intangible assets | |
| 61 | | |
| 48 | |
| Right of use assets | |
| 3,185 | | |
| 2,068 | |
| Deferred tax asset | |
| 7,178 | | |
| 7,178 | |
| Other long-term assets | |
| 178 | | |
| 247 | |
| Total long-term assets | |
| 35,354 | | |
| 34,421 | |
| Total Assets | |
$ | 51,885 | | |
$ | 47,221 | |
| | |
| | | |
| | |
| LIABILITIES & EQUITY | |
| | | |
| | |
| Current Liabilities: | |
| | | |
| | |
| Accounts payable | |
$ | 3,599 | | |
$ | 3,304 | |
| Accrued expenses | |
| 923 | | |
| 394 | |
| Line of credit | |
| 8,713 | | |
| 6,259 | |
| Current portion of long-term debt | |
| 2,910 | | |
| 1,855 | |
| Current portion, lease liability | |
| 826 | | |
| 738 | |
| Total current liabilities | |
| 16,971 | | |
| 12,550 | |
| Long-term liabilities: | |
| | | |
| | |
| Accrued related party management fee | |
| 351 | | |
| 351 | |
| Long term debt, net of current portion | |
| 5,827 | | |
| 6,323 | |
| Lease liability, net of current portion | |
| 2,462 | | |
| 1,437 | |
| Total long-term liabilities | |
| 8,640 | | |
| 8,111 | |
| Total Liabilities | |
| 25,611 | | |
| 20,661 | |
| TotalStone, LLC – Class B Preferred Units | |
| — | | |
| 28,475 | |
| TotalStone, LLC – Special Preferred Units | |
| — | | |
| 1,143 | |
| Equity: | |
| | | |
| | |
Series B Preferred Stock, no par value; 2,000,000 shares authorized; 985,063 issued as of June 30, 2025. No shares were authorized or issued as of December 31, 2024. | |
| 30 | | |
| — | |
| Common Stock $0.0005 par value; 50,000,000 and 200,000 shares authorized; 5,406,305 and 157,610 issued as of June 30, 2025 and December 31, 2024, respectively. | |
| 3 | | |
| — | |
| Additional paid-in capital | |
| 225,476 | | |
| 193,044 | |
| Accumulated deficit | |
| (199,235 | ) | |
| (196,102 | ) |
| Total Equity | |
| 26,274 | | |
| (3,058 | ) |
| Total Liabilities, TotalStone, LLC. Preferred Units & Equity | |
$ | 51,885 | | |
$ | 47,221 | |
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
June 30, | | |
Six Months Ended
June 30, | |
| | |
2025 | | |
2024 | | |
2025 | | |
2024 | |
| Sales | |
$ | 13,193 | | |
$ | 13,151 | | |
$ | 21,358 | | |
$ | 22,734 | |
| Sales returns and allowances | |
| (341 | ) | |
| (265 | ) | |
| (607 | ) | |
| (489 | ) |
| Net sales | |
| 12,852 | | |
| 12,886 | | |
| 20,751 | | |
| 22,245 | |
| Cost of goods sold | |
| 9,722 | | |
| 10,122 | | |
| 16,296 | | |
| 17,737 | |
| Gross Profit | |
| 3,130 | | |
| 2,764 | | |
| 4,455 | | |
| 4,508 | |
| Selling, general and administrative expenses | |
| 3,390 | | |
| 2,750 | | |
| 6,143 | | |
| 5,211 | |
| Income (loss) from operations | |
| (260 | ) | |
| 14 | | |
| (1,688 | ) | |
| (703 | ) |
| Interest expense | |
| (440 | ) | |
| (394 | ) | |
| (740 | ) | |
| (774 | ) |
| Net loss before taxes | |
| (700 | ) | |
| (380 | ) | |
| (2,428 | ) | |
| (1,477 | ) |
| Income tax expense | |
| — | | |
| (1 | ) | |
| — | | |
| (17 | ) |
| Net Loss | |
| (700 | ) | |
| (381 | ) | |
| (2,428 | ) | |
| (1,494 | ) |
| Less: Net loss attributable to: | |
| | | |
| | | |
| | | |
| | |
| Special preferred units | |
| — | | |
| (44 | ) | |
| — | | |
| (92 | ) |
| Class B units preferred return | |
| — | | |
| (903 | ) | |
| (705 | ) | |
| (1,776 | ) |
| Net loss attributable to Capstone Holding Corp. stockholders | |
$ | (700 | ) | |
$ | (1,328 | ) | |
| (3,133 | ) | |
$ | (3,362 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Earnings (loss) per share: | |
| | | |
| | | |
| | | |
| | |
| Net loss per share attributable to Capstone Holding Corp. stockholders – basic and diluted | |
$ | (0.13 | ) | |
$ | (8.43 | ) | |
$ | (0.58 | ) | |
$ | (21.33 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Weighted average number of common shares outstanding – basic and diluted | |
| 5,406,305 | | |
| 157,610 | | |
| 5,406,305 | | |
| 157,610 | |
See notes to consolidated financial statements
CAPSTONE HOLDING CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except Common Stock Shares)
| | |
| | |
| | |
| | |
| | |
| | |
Retained | | |
| | TotalStone, LLC | |
| | |
Common
Stock
(Shares) | | |
Common
Stock | | |
Series B
(Shares) | | |
Series B
Preferred
Stock | | |
Additional
Paid-In
Capital | | |
Earnings
(Accumulated
Deficit) | | |
Total
Equity | | |
Class B
Preferred
Units | | |
Special
Preferred
Unit | |
| Balance at January 1, 2025 | |
| 157,610 | | |
$ | — | | |
| — | | |
$ | — | | |
$ | 193,044 | | |
$ | (196,102 | ) | |
$ | (3,058 | ) | |
$ | 28,475 | | |
$ | 1,143 | |
| Net Loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (1,728 | ) | |
| (1,728 | ) | |
| — | | |
| — | |
| Accrued Class B Distributions | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (705 | ) | |
| (705 | ) | |
| 705 | | |
| — | |
| Conversion of Class B Preferred Units to Common stock | |
| 3,782,641 | | |
| 1 | | |
| — | | |
| — | | |
| 29,180 | | |
| — | | |
| 29,181 | | |
| (29,180 | ) | |
| — | |
| Conversion of Special Preferred Units to Debt | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (1,143 | ) |
| Public Offering | |
| 1,250,000 | | |
| 2 | | |
| — | | |
| — | | |
| 3,250 | | |
| — | | |
| 3,252 | | |
| — | | |
| — | |
| Nectarine Management, LLC. Subscription Agreement | |
| — | | |
| — | | |
| 985,063 | | |
| 30 | | |
| — | | |
| — | | |
| 30 | | |
| — | | |
| — | |
| Balance at March 31, 2025 | |
| 5,190,251 | | |
$ | 3 | | |
| 985,063 | | |
| 30 | | |
$ | 225,474 | | |
$ | (198,535 | ) | |
$ | 26,972 | | |
$ | — | | |
$ | — | |
| Net Loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (700 | ) | |
| (700 | ) | |
| — | | |
| — | |
| Issuance of commitment shares pursuant to equity line of credit | |
| 215,054 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Issuance of common stock pursuant to equity line of credit | |
| 1,000 | | |
| — | | |
| — | | |
| — | | |
| 2 | | |
| — | | |
| 2 | | |
| — | | |
| — | |
| Balance at June 30, 2025 | |
| 5,406,305 | | |
| 3 | | |
| 985,063 | | |
| 30 | | |
| 225,476 | | |
| (199,235 | ) | |
| 26,274 | | |
$ | — | | |
$ | — | |
| | |
| | |
| | |
Retained | | |
| | |
TotalStone, LLC | |
| | |
Common
Stock | | |
Additional
Paid-In
Capital | | |
Earnings
(Accumulated
Deficit) | | |
Total
Equity | | |
Class B
Preferred
Units | | |
Special
Preferred
Unit | |
| Balance at January 1, 2024 | |
| 157,610 | | |
$ | 193,044 | | |
$ | (190,607 | ) | |
$ | 2,437 | | |
$ | 25,871 | | |
$ | 815 | |
| Net Loss | |
| — | | |
| — | | |
| (1,113 | ) | |
| (1,113 | ) | |
| — | | |
| — | |
| Accrued Class B Preferred Units Distributions | |
| — | | |
| — | | |
| (873 | ) | |
| (873 | ) | |
| 873 | | |
| — | |
| Accrued Special Preferred Units Distributions | |
| — | | |
| — | | |
| (48 | ) | |
| (48 | ) | |
| — | | |
| 48 | |
| Balance at March 31, 2024 | |
| 157,610 | | |
$ | 193,044 | | |
$ | (192,641 | ) | |
$ | 403 | | |
$ | 26,744 | | |
$ | 863 | |
| Net Loss | |
| — | | |
| — | | |
| (381 | ) | |
| (381 | ) | |
| — | | |
| — | |
| Accrued Class B Preferred Units Distributions | |
| — | | |
| — | | |
| (903 | ) | |
| (903 | ) | |
| 903 | | |
| — | |
| Accrued Special Preferred Units Distributions | |
| — | | |
| — | | |
| (44 | ) | |
| (44 | ) | |
| — | | |
| 44 | |
| Balance at June 30, 2024 | |
| 157,610 | | |
$ | 193,044 | | |
$ | (193,969 | ) | |
$ | (925 | ) | |
$ | 27,647 | | |
$ | 907 | |
See notes to consolidated financial statements
CAPSTONE HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| | |
Six Months
Ended
June 30,
2025 | | |
Six Months
Ended
June 30,
2024 | |
| OPERATING ACTIVITIES | |
| | |
| |
| Net loss | |
$ | (2,428 | ) | |
$ | (1,494 | ) |
| Non cash items: | |
| | | |
| | |
| Depreciation and amortization | |
| 230 | | |
| 242 | |
| Change in other operating items: | |
| | | |
| | |
| Accounts receivable and other assets | |
| (2,988 | ) | |
| (1,739 | ) |
| Change in operating leases, net | |
| (25 | ) | |
| — | |
| Accounts payable and other accrued liabilities | |
| 1,219 | | |
| 1,856 | |
| Cash flows used in operating activities | |
| (3,992 | ) | |
| (1,135 | ) |
| INVESTING ACTIVITIES | |
| | | |
| | |
| Purchase of property and equipment, net | |
| (2 | ) | |
| (121 | ) |
| Cash flows used in investing activities | |
| (2 | ) | |
| (121 | ) |
| FINANCING ACTIVITIES | |
| | | |
| | |
| Payments on financing lease liabilities | |
| (64 | ) | |
| (80 | ) |
| Financing fees paid | |
| (6 | ) | |
| (6 | ) |
| Borrowings under line of credit, net | |
| 2,454 | | |
| 1,791 | |
| Debt payments | |
| (910 | ) | |
| (500 | ) |
| Proceeds from IPO and stock issuances | |
| 5,032 | | |
| — | |
| Cash paid for IPO and stock issuance costs | |
| (1,750 | ) | |
| — | |
| Cash flows provided by financing activities | |
| 4,756 | | |
| 1,205 | |
| NET CHANGE IN CASH & CASH EQUIVALENTS | |
| 762 | | |
| (51 | ) |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | |
| 11 | | |
| 51 | |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | |
$ | 773 | | |
$ | — | |
| | |
| | | |
| | |
| SUPPLEIMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |
| | | |
| | |
| Operating cash flows from finance leases (interest) | |
$ | 5 | | |
$ | 8 | |
| Financing cash flows from finance leases (principal portion) | |
| 64 | | |
| 80 | |
| Operating cash flows from operating leases | |
| 399 | | |
| 387 | |
| Interest Paid | |
| 740 | | |
| 774 | |
| Taxes Paid | |
| — | | |
| 17 | |
See notes to consolidated financial statements
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 IPO and
Restructuring
On March 7, 2025 (the “Restructuring Date”),
Capstone closed its Public Offering of 1,250,000 shares of common stock (the “Public Offering Shares”), which were registered
under the Rule 424(b) of the Securities Act of 1933, as amended, pursuant to the Registration Statement on Form S-1 (File No. 333-284105)
which was declared effective by the SEC on February 14, 2025. The Public Offering Shares were sold at a public offering price of $4.00
per share, which generated net proceeds of approximately $3,252,000 after deducting underwriting discounts and commissions and other offering
expenses.
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. $200,000 for financial advisory and related services with respect to Capstone’s capital raising transaction as
agreed upon in the Restated Management Fee Agreement and Transaction Fee Agreement executed in March 2025.
Outstanding warrants to purchase 1,125 Class A
Common Interests in TotalStone were cancelled on the Restructuring Date.
On the Restructuring Date, pursuant to a master
exchange agreement (the “Master Exchange Agreement”) entered into by the 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 3,782,641 shares
of Common Stock that constitute approximately 96% of the shares of Common Stock outstanding on the Restructuring Date, which were allocated
to the Class B and Class C Members as set forth in the Master Exchange Agreement. As consideration for the issuance of 3,782,641 shares
of Common Stock, the Class B and Class C Members surrendered their existing TotalStone’s membership interests and withdrew from
the membership of TotalStone. Following the restructuring, BP Peptides, LLC, the owner of approximately 77.3% of Capstone’s shares
prior to the restructuring, owns approximately 3% of Capstone’s shares on a post restructuring basis. Following the restructuring,
the largest holder of Capstone’s shares (approximately 64%) will be BPA XIV, LLC. BP Peptides, LLC is jointly controlled by Matthew
Lipman, our chief executive officer and a member of our board of directors, and Michael Toporek, the chairman of our board of directors,
and BPA XIV, LLC is controlled by Mr. Lipman. On the Restructuring Date, the Class C Member cancelled his Class A TS Warrants, and
his right to receive incentive compensation from TotalStone. TotalStone’s Class C Preferred Interests were historically included
in TotalStone’s Class B Preferred Interests on the Company’s consolidated balance sheet.
TotalStone’s Special Preferred Membership
Interests were exchanged on the Restructuring Date for loans in an aggregate principal amount of $1,006,377 plus interest.
In connection with the Restructuring, Capstone
also increased its authorized shares of Common Stock to 50,000,000 shares and increased the authorized shares of preferred stock to 25,000,000
shares.
Note 3 Summary
of Significant Accounting Policies
Basis of Presentation and Preparation
The accompany consolidated financial statements
include the accounts of Capstone and its consolidated subsidiaries (collectively, the “Company”). Intercompany accounts and
transactions have been eliminated. Prior-year amounts may include instances of changes to prior-year amounts to achieve comparability
to the most recent fiscal year.
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 of
the information and notes required by GAAP for annual consolidated financial statements.
The consolidated balance sheet at December
31, 2024 has been derived from the audited consolidated financial statements at that date but does not include all of 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 December 31,
2024 (“2024 Form 10-K”). This report should be read in conjunction with our 2024 Form 10-K
filed with the SEC on March 31, 2025.
In our opinion, the accompanying unaudited
interim consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates,
and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as
of June 30, 2025 and its results of operations, cash flows, and changes in stockholders’ deficit for the three
and six months ended June 30, 2025 and 2024. The results for the three and six months ending June 30, 2025, 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 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 on the Company in the future, actual results may differ from these estimates and assumptions.
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 June 30, 2025
and December 31, 2024, the allowance for doubtful accounts totaled approximately $104.0 thousand.
Note 3 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 June 30, 2025 and December 31,
2024, the total prepaid inventory balance was $290.0 thousand and $163.0 thousand, respectively. The reserve for obsolete inventory at
June 30, 2025 and December 31, 2024, totaled $596.0 and $576.0 thousand, respectively.
Property and Equipment
Property and equipment is stated at cost and is
depreciated over the estimated useful lives ranging from three to forty years. Depreciation is computed by using the straight-line
method for financial reporting purposes and straight-line and accelerated methods for income tax purposes. Property and equipment is comprised
of building, machinery & equipment, computer equipment, leasehold improvements, software, office equipment, vehicles, and furniture &
fixtures. Maintenance and repairs are charged to expense as incurred. Depreciation and amortization expense on property and equipment
for the three and six months ended June 30, 2025 and 2024 were $65.0 and $71.0 thousand and $130.0 and $139.0 thousand, respectively.
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 one reporting unit, its consolidated subsidiary, TotalStone.
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 distribution 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.
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 the six months ended June 30, 2025 and 2024, there are no estimates of variable consideration represented
in revenue.
Note 3 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.
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 six months ended June 30, 2025 and 2024,
the calculations of basic and diluted loss per share are the same because potential dilutive securities would have had an anti-dilutive
effect. The potentially dilutive securities consisted of the following:
| | |
June 30,
2025 | | |
June 30,
2024 | |
| | |
| | |
| |
| Stock options | |
| 150 | | |
| 900 | |
| Warrants | |
| 6,322 | | |
| 6,322 | |
| Total | |
| 43,146 | | |
| 48,146 | |
Recent Accounting Pronouncements
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.
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 4 Liquidity and Uncertainties
The Company has recognized operating losses and
net losses on a year-to-date basis in 2025 and for the years ended December 31, 2024 and 2023. Although losses have been recognized, the
Company recognized positive operating cash flows for the years ended December 31, 2024 and 2023. Operating results and cash flows fluctuate
based on seasonality with the first and fourth quarter typically slower periods in our calendar year. Working capital as of June 30, 2025
excluding the current portion of long-term debt is $2.5 million. Our long-term debt classified as current liabilities in our balance sheet
as of June 30, 2025 based on contractual maturity dates includes $1.9 million payable to Brookstone (notes payable to shareholder) and
$989.0 thousand related to the seller note with Avelina Masonry. The maturity date of notes payable to Brookstone have historically been
extended and subject to liquidity may be extended in future periods. The seller note is subordinated to our line of credit agreement and
payments on that note are restricted while the line of credit is outstanding.
The Company primarily funds operations through
cash provided from operations and available capacity under our ABL Facility (“Revolver”). In 2024 the Company was not in compliance
with certain of the Revolver’s financial covenants which have been waived by our lender. As of June 30, 2025, the Company was in
compliance with the Revolver’s financial covenants. In June 2025, the Company executed an amendment to the Revolver that extended
the maturity date from June 2025 through December 2025. The Company believes the Revolver will continue to be available and the longer-term
extension will be executed with financial covenants aligned to the Company’s anticipated future results.
Forecasted future results, the longer-term extension
of the Revolver and future compliance with financial covenants are subject to risks and uncertainties which could have a material adverse
effect on our business, financial condition and results of operations.
As more fully described in Note 9, on May 15,
2025, the Company entered into a common stock purchase equity line agreement with an accredited investor. Under that agreement, the
Company has the right, but not the obligation, to sell to the Equity Line Investor, and the Equity Line Investor is obligated to purchase
the Company’s common stock.
Additionally, on July 29, 2025, the Company entered
into a securities purchase agreement with an institutional investor pursuant to which the Company authorized the issuance of senior secured
convertible notes in the aggregate original principal amount of up to $10,909,885. The first Convertible Note was issued in the original
principal amount of approximately $3,272,966. The Company received gross proceeds of $3,000,000, prior to the deduction of transaction
related expenses, from the initial closing of the Convertible Note Financing (see Note 9).
The Company currently believes that it will have
sufficient liquidity to operate for a period of at least one year from the issuance date of the June 30, 2025 interim consolidated financial
statements.
Note 5 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 $400.0 thousand. The agreement also provides for an additional management fee equal to 5%
of earnings before interest, taxes, depreciation, and amortization (“EBITDA”) in excess of $4.0 million, plus a
special services fee in cash equal to two percent (2%) of total consideration of any acquisition of a majority of the equity interests
of any entity. Amounts accrued for such consulting services totaled $351.0 thousand as of June 30, 2025 and December 31, 2024. The
management fees expensed for the six months ended June 30, 2025 and 2024 were $200.0 thousand and included in selling, general and administrative
expenses.
Stream Finance, LLC, which serves as a creditor
on TotalStone’s mezzanine term loan of $2.5 million, accrued interest of $372.0 thousand and an accrued amendment fee of $85.0 thousand
as of June 30, 2025, is managed by Brookstone.
On March 10, 2025, TotalStone paid Brookstone
Partners IAC, Inc. $200,000 for financial advisory and related services with respect to Capstone’s capital raising transaction (the
“Capstone Capital Raising Transaction”).
Note 6 Line
of Credit
TotalStone has a Revolving Credit Note (“Revolver”)
available and outstanding pursuant to a Revolving Credit, Term Loan and Security Agreement, as amended, with Berkshire Bank. TotalStone’s
maximum revolving advance amount is $11.5 million for working capital purposes. Advances under the credit agreement are limited to
a formula-based amount of up to eighty-five (85%) percent of the face amount of the TotalStone “Eligible Accounts Receivable”
plus approximately fifty (50%) percent of the face amount of the TotalStone, “Finished Goods Inventory” up to a maximum amount
of $8.0 million. Interest charged on the unpaid principal amount of the Credit Agreement bears a rate per annum of SOFR plus 3.0%
(7.44% and 7.19% at June 30, 2025 and December 31, 2024, respectively). The balance outstanding on the line of credit was $8.7 million
and $6.3 million as of June 30, 2025 and December 31, 2024, respectively, with a maturity date of December 17, 2025.
Note 7 Debt
As of June 30, 2025, the Company had $5.8 million
in long-term debt, with $2.9 million payable within 12 months. A summary of the Company’s long-term debt is as follows
in (“000’s”):
| | | June 30,
2025 | | | December 31,
2024 | |
| Long-term Debt | | | | | | |
| Note payable to BP Peptides, LLC “Brookstone”. The unsecured loan bears interest at 6% per annum, with interest earned quarterly and the amended maturity date is June 30, 2026. As of June 30, 2025 and December 31, 2024, the balance includes $137.0 thousand and $116.0 thousand of accrued interest, respectively. | | $ | 837 | | | $ | 817 | |
| Mezzanine term loan to Stream Finance, LLC, 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 15% per annum (see further details below), with a maturity date of September 30, 2026. On
March 7, 2025, the Special Preferred Membership Interests were exchanged for loans in an aggregate principal of $1,143,646 and an amendment
fee of $695,000 payable on the deferral date of September 30, 2027 which are included in this amount. At June 30, 2025
and December 31, 2024, $372.0 thousand and $243.0 thousand of accrued interest remains unpaid and is included within this amount, respectively. | | | 3,536 | | | | 1,558 | |
| Seller’s note with Avelina Masonry, LLC, which required monthly payments of $48.0 thousand. The original maturity date was November 13, 2022 but the loan has not been paid in full and is in default. The loan bears interest at one-month SOFR plus 4.5% plus 3.0% default (11.94% and 12.14% at March 31, 2025 and December 31, 2024, respectively. At June 30, 2025 and December 31, 2024, $222.0 thousand and $165.0 thousand of accrued interest remains unpaid and is included within this amount, respectively. | | | 989 | | | | 932 | |
| Term note agreement with Berkshire Bank, due in 48 consecutive monthly payments of $83.0 thousand. The term note was paid in full on March 10, 2025. The loan was secured by all assets of TotalStone. Interest was charged at the one- month SOFR plus 3.5% (8.19% at December 31, 2024). | | | — | | | | 910 | |
| In December 2022, TotalStone sold its facility in Navarre, Ohio to a nonaffiliated third party for a purchase price of $3.2 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 25-year lease term. The initial annual lease payment of $259.0 thousand increases 2% per annum. The imputed interest rate is 8.10%. | | | 3,168 | | | | 3,174 | |
| Unsecured promissory note with Brookstone plus accrued interest to acquire a minority interest in DPH. Interest accrues at 6% per annum and the maturity date is June 30, 2026. At June 30, 2025 and December 31, 2024 $277.0 thousand and $253.0 thousand of accrued interest remains unpaid and is included within this amount, respectively. | | | 1,077 | | | | 1,053 | |
| | | | 9,607 | | | | 8,444 | |
| Less: current portion | | | (2,910 | ) | | | (1,855 | ) |
| Less unamortized loan origination fees | | | (870 | ) | | | (266 | ) |
| Total Long-term debt | | $ | 5,827 | | | $ | 6,323 | |
Note 7 Debt
(cont.)
Scheduled maturities of long-term as of June 30,
2025, are as follows:
| 2025 | |
$ | 2,910 | |
| 2026 | |
| 3,555 | |
| 2027 | |
| 27 | |
| 2028 | |
| 35 | |
| 2029 | |
| 44 | |
| Thereafter | |
| 3,036 | |
| Total | |
$ | 9,607 | |
Note 8 Leases
As of June 30, 2025, the balance of our right-of-use
(“ROU”) assets was $3.2 million, net and lease liabilities were $3.3 million, included in current portion, lease
liability and lease liability, net of current portion. The maturity of our lease liabilities as of June 30, 2025 is as follows in
(“000’s”):
| Year | |
Finance | | |
Operating | |
| 2025 | |
$ | 168 | | |
$ | 812 | |
| 2026 | |
| 122 | | |
| 830 | |
| 2027 | |
| 64 | | |
| 519 | |
| 2028 | |
| — | | |
| 166 | |
| 2029 | |
| — | | |
| 169 | |
| Thereafter | |
| — | | |
| 780 | |
| Total undiscounted Lease Payments | |
| 354 | | |
| 3,276 | |
| Less: Present value discount | |
| (12 | ) | |
| (330 | ) |
| Total Lease Liability | |
$ | 342 | | |
$ | 2,946 | |
Lease expense recognized on our leases is as follows
in (“000’s”):
| | | Six months
Ended
June 30,
2025 | | | Six months
Ended
June 30,
2024 | | | Three months
Ended
June 30,
2025 | | | Three months
Ended
June 30,
2024 | |
| Finance leases | | | | | | | | | | | | |
| Amortization expense | | $ | 72 | | | $ | 83 | | | $ | 41 | | | $ | 41 | |
| Interest expense | | | 6 | | | | 8 | | | | 3 | | | | 4 | |
| Operating leases | | | | | | | | | | | | | | | | |
| Straight-line rent expense | | | 395 | | | | 389 | | | | 197 | | | | 194 | |
| Total lease expense | | $ | 473 | | | $ | 480 | | | $ | 241 | | | $ | 239 | |
The following summarizes additional information
related to our leases for 2025 and 2024 in (“000’s”):
| | | Six months ended
June 30, 2025 | | | Three months ended
June 30, 2024 | |
| | | Finance | | | Operating | | | Finance | | | Operating | |
| Weighted-average remaining lease terms (years) | | | 2.3 | | | | 5.7 | | | | 2.6 | | | | 3.4 | |
| Weighted-average discount rate | | | 3.51 | % | | | 3.47 | % | | | 4.00 | % | | | 2.95 | % |
| ROU assets obtained in exchange for new lease liabilities | | $ | 180 | | | $ | 1,395 | | | $ | 63 | | | $ | — | |
Note 9 Stockholders’
Equity
Prior to 2025, Capstone had no outstanding shares
of preferred stock.
Series B Preferred Stock:
In connection with the IPO and Restructuring.
Capstone filed with the Delaware Secretary of State to designate two million shares of the Company’s authorized preferred stock
as Series B Preferred Stock (“Series B Preferred Stock”), no par value.
In February 2025, Nectarine Management, LLC, an
entity controlled by Michael Toporek, purchased 985,063 shares of Series B Preferred Stock for a purchase price of $30,000.
The holders of shares of Series B Preferred Stock
(“Series B Preferred Stockholders”) have the right to vote, together with the holders of all the outstanding shares of Common
Stock on all matters on which holders of Common Stock have the right to vote. The holders of shares of Series B Preferred Stock have the
right to cast one vote for each share of Series B Preferred Stock held by them.
Series B Preferred Stock is convertible into Common
Stock at the holder’s option any time after the two-year anniversary of the Company’s February 2025 initial public offering,
provided the Common Stock’s closing price meets or exceeds $40 per share on the date of conversion. The number of shares of Common
Stock issuable upon conversion of each share of Series B Preferred Stock is based on a specified formula as set forth in the Series B
Certificate of Designation.
The Series B Preferred Stockholders have certain
protective rights. Until less than 50% of the originally issued Series B Preferred Stock remains outstanding, holders of at least 50%
of such shares may appoint two directors to the Board. Additionally, until less than 20% of shares of Series B Preferred Stock remains
outstanding, the Company cannot take certain actions without the approval of at least 50% of the outstanding Series B Preferred Stock,
including amending governing documents, altering the Board size, issuing or modifying Series B Preferred Stock, engaging in mergers, consolidations,
or asset sales (except in the ordinary course), repurchasing shares (except under employment agreements), adopting equity incentive plans
exceeding 10% of outstanding Common Stock, issuing additional shares (except under an approved plan), acquiring other entities, or incurring
new indebtedness beyond refinancing existing debt.
Recent Transactions
As previously disclosed in Item 5 of the Quarterly
Report on Form 10-Q for the period ended March 31, 2025 filed with the Securities and Exchange Commission on May 15, 2025, the Company entered
into a common stock purchase agreement (the “Purchase Agreement”) with an accredited investor (the “Equity Line Investor”),
dated May 14, 2025. Under the terms and subject to the conditions set forth in the Purchase Agreement, the Company has the right, but
not the obligation, to sell to the Equity Line Investor, and the Equity Line Investor is obligated to purchase, up to the lesser of (a)
$20,000,000 in aggregate gross purchase price of the Company’s common stock (the “Equity Line Securities”) and (b) the
Exchange Cap (as defined in the Purchase Agreement). The Equity Line Securities to be issued by the Company and purchased by the Equity
Line Investor, if any, will be sold at a purchase price equal to 97% of the lowest daily volume-weighted average price of the Company’s
common stock on the Nasdaq Capital Market during the three consecutive trading days immediately following the trading date on which a
valid purchase notice is delivered to the Equity Line Investor by the Company.
Note 9 Stockholders’
Equity (cont.)
On June 26, 2025, the Company and the Equity Line
Investor entered into a first amendment to the Purchase Agreement (the “First Amendment to Purchase Agreement”), which amended
the definition of “VWAP Purchase Maximum Amount” in the Purchase Agreement to (a) remove the volume limitation on the number
of Equity Line Securities that may be purchased pursuant to a single VWAP Purchase (as defined in the Purchase Agreement) based on 100%
of the five-day average trading volume, and (b) increase the dollar-based limitation on the number of Equity Line Securities that may
be purchased pursuant to a single VWAP Purchase from $2 million to $3 million. As amended, the term “VWAP Purchase Maximum Amount”
now means the maximum number of Equity Line Securities that can be purchased in a single VWAP Purchase is equal to the lesser of (a) 40%
of the trading volume in the Company’s common stock on the relevant exchange on the day the VWAP Purchase is exercised, or (b) $3
million divided by the volume-weighted average price of the common stock on the trading day immediately preceding the date the VWAP Purchase
is exercised.
As more fully described in the Current Report
on Form 8-K filed with the Securities and Exchange Commission on August 4, 2025, on July 29, 2025, the Company entered into a securities
purchase agreement (the “Purchase Agreement”) with an institutional investor (the “Buyer”), pursuant to which
the Company authorized the issuance of senior secured convertible notes to the Buyer, in the aggregate original principal amount of up
to $10,909,885, which are being issued with a 8.34% original issue discount (each, a “Convertible Note”). The first Convertible
Note was issued in the original principal amount of approximately $3,272,966 (the “Convertible Note Financing”). The Convertible
Notes are convertible into shares of common stock, $0.0005 par value per share (the “Common Stock”), in certain circumstances
in accordance with the terms of the Convertible Notes at an initial conversion price per share of $1.72. The Company received gross proceeds
of $3,000,000, prior to the deduction of transaction related expenses, from the initial closing of the Convertible Note Financing.
Note 10 Segment
Information
The Company has one operating and reportable segment
which consists of the operations of TotalStone. The Company also has corporate-level activity, which is included in Capstone Holding Corp.
(“Capstone” or “the Parent”) which consists primarily of board fees and, investor relations, filing, legal, insurance,
accounting and consulting expenses and other non-operating income and expenses not identifiable and allocated to TotalStone. The Parent
balance sheet information includes cash and cash equivalents, net deferred tax asset, debt and other assets and liabilities which are
also not identifiable to the operations of TotalStone.
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.
Note 10 Segment Information (cont.)
The following tables present financial information
regarding the Company’s reportable segment reconciled to the Company’s consolidated totals.
| | |
Three Months Ended June 30, | |
| | |
2025 | | |
2024 | |
| | |
TotalStone | | |
Parent | | |
Eliminations | | |
Consolidated | | |
TotalStone | | |
Parent | | |
Eliminations | | |
Consolidated | |
| Income (loss) from operations before taxes: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Sales | |
$ | 12,852 | | |
$ | — | | |
$ | — | | |
$ | 12,852 | | |
$ | 12,886 | | |
$ | — | | |
$ | — | | |
$ | 12,886 | |
| Cost of goods sold | |
| 9,722 | | |
| — | | |
| — | | |
| 9,722 | | |
| 10,122 | | |
| — | | |
| — | | |
| 10,122 | |
| Gross Profit | |
| 3,130 | | |
| — | | |
| | | |
| 3,130 | | |
| 2,764 | | |
| — | | |
| — | | |
| 2,764 | |
| Selling, general and administrative expenses | |
| 2,545 | | |
| 845 | | |
| — | | |
| 3,390 | | |
| 2,718 | | |
| 92 | | |
| (60 | ) | |
| 2,750 | |
| Income (loss) from operations | |
$ | 585 | | |
$ | (845 | ) | |
$ | — | | |
$ | (260 | ) | |
$ | 46 | | |
$ | (92 | ) | |
$ | 60 | | |
$ | 14 | |
| Interest expense | |
| (417 | ) | |
| (23 | ) | |
| — | | |
| (440 | ) | |
| (382 | ) | |
| (12 | ) | |
| — | | |
| (394 | ) |
| Other income (expense) net | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 60 | | |
| (60 | ) | |
| — | |
| Income (loss) from operations before taxes | |
$ | 168 | | |
$ | (868 | ) | |
$ | — | | |
$ | (700 | ) | |
$ | (336 | ) | |
$ | (44 | ) | |
$ | — | | |
$ | (380 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Other financial information: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Depreciation & amortization | |
$ | 114 | | |
$ | — | | |
$ | — | | |
$ | 114 | | |
$ | 121 | | |
$ | — | | |
$ | — | | |
$ | 121 | |
| Capital expenditures | |
| 2 | | |
| — | | |
| — | | |
| 2 | | |
| 21 | | |
| — | | |
| — | | |
| 21 | |
| | |
Six Months Ended June 30, | |
| | |
2025 | | |
2024 | |
| | |
TotalStone | | |
Parent | | |
Eliminations | | |
Consolidated | | |
TotalStone | | |
Parent | | |
Eliminations | | |
Consolidated | |
| Income (loss) from operations before taxes: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Sales | |
$ | 20,751 | | |
$ | — | | |
$ | — | | |
$ | 20,751 | | |
$ | 22,245 | | |
$ | — | | |
$ | — | | |
$ | 22,245 | |
| Cost of goods sold | |
| 16,296 | | |
| — | | |
| — | | |
| 16,296 | | |
| 17,737 | | |
| — | | |
| — | | |
| 17,737 | |
| Gross Profit | |
| 4,455 | | |
| — | | |
| | | |
| 4,455 | | |
| 4,508 | | |
| — | | |
| — | | |
| 4,508 | |
| Selling, general and administrative expenses | |
| 4,944 | | |
| 1,409 | | |
| (210 | ) | |
| 6,143 | | |
| 5,153 | | |
| 178 | | |
| (120 | ) | |
| 5,211 | |
| (Loss) income from operations | |
$ | (489 | ) | |
$ | (1,409 | ) | |
$ | 210 | | |
$ | (1,688 | ) | |
$ | (645 | ) | |
$ | (178 | ) | |
$ | 120 | | |
$ | (703 | ) |
| Interest expense | |
| (695 | ) | |
| (45 | ) | |
| — | | |
| (740 | ) | |
| (745 | ) | |
| (29 | ) | |
| — | | |
| (774 | ) |
| Other income (expense) net | |
| 150 | | |
| 60 | | |
| (210 | ) | |
| — | | |
| — | | |
| 120 | | |
| (120 | ) | |
| — | |
| Loss from operations before taxes | |
$ | (1,034 | ) | |
$ | (1,394 | ) | |
$ | — | | |
$ | (2,428 | ) | |
$ | (1,390 | ) | |
$ | (87 | ) | |
$ | — | | |
$ | (1,477 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Other financial information: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Depreciation & amortization | |
$ | 230 | | |
$ | — | | |
$ | — | | |
$ | 230 | | |
$ | 242 | | |
$ | — | | |
$ | — | | |
$ | 242 | |
| Capital expenditures | |
| 2 | | |
| — | | |
| — | | |
| 2 | | |
| 121 | | |
| — | | |
| — | | |
| 121 | |
| | |
As of June 30, 2025 | | |
As of December 31, 2024 | |
| | |
TotalStone | | |
Parent | | |
Eliminations | | |
Consolidated | | |
TotalStone | | |
Parent | | |
Eliminations | | |
Consolidated | |
| Total assets | |
$ | 43,268 | | |
$ | 9,022 | | |
$ | (405 | ) | |
$ | 51,885 | | |
$ | 40,468 | | |
$ | 7,858 | | |
$ | (1,105 | ) | |
$ | 47,221 | |
Note 11 Subsequent
Events
As more fully described in the Current Report
on Form 8-K filed with the Securities and Exchange Commission on August 4, 2025, on July 29, 2025, the Company entered into a securities
purchase agreement (the “Purchase Agreement”) with an institutional investor (the “Buyer”), pursuant to which
the Company authorized the issuance of senior secured convertible notes to the Buyer, in the aggregate original principal amount of up
to $10,909,885, which are being issued with a 8.34% original issue discount (each, a “Convertible Note”). The first Convertible
Note was issued in the original principal amount of approximately $3,272,966 (the “Convertible Note Financing”). The Convertible
Notes are convertible into shares of common stock, $0.0005 par value per share (the “Common Stock”), in certain circumstances
in accordance with the terms of the Convertible Notes at an initial conversion price per share of $1.72. The Company received gross proceeds
of $3,000,000, prior to the deduction of transaction related expenses, from the initial closing of the Convertible Note Financing.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides
information that our management believes is relevant to an assessment and understanding of our consolidated results of operations and
financial condition. This discussion may contain certain forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), and is subject to the safe harbor created by those sections. For more information, see
“Cautionary Note Regarding Forward-Looking Statements.” When reviewing the discussion below, you should keep in mind
the substantial risks and uncertainties that impact our business. In particular, we encourage you to review the risks and uncertainties
described in our Annual Report on Form 10-K for the year ended December 31, 2024 and this Quarterly Report on Form 10-Q under the caption
“Part II. Item 1A. Risk Factors”. These risks and uncertainties could cause actual results to differ materially from those
projected or implied by our forward-looking statements contained in this report. These forward-looking statements are made as of the date
of this report, and we do not intend, and do not assume any obligation, to update these forward-looking statements, except as required
by law.
The following discussion and analysis should
be read in conjunction with our unaudited consolidated financial statements and related notes thereto included in this Quarterly Report
and our audited consolidated financial statements and related notes thereto for the year ended December 31, 2024, included in our 2024
Form 10-K. Throughout this discussion, unless the context specifies or implies otherwise the terms the “Company”, “we”,
“us” and “our” refer to the business and operations of Capstone Holding Corp and its operating subsidiary, TotalStone,
LLC (dba Instone).
All dollar amounts stated herein are in
U.S. dollars unless specified otherwise.
Overview
Capstone Holding Corp., formerly known as Capstone
Therapeutics Corp. and OrthoLogic Corp., incorporated in Delaware in 1987 as a domestic corporation, is the parent entity of TotalStone,
LLC (dba Instone). Instone has a building products distribution network that services 31 US states (with such states having over
60% of American households). Our over 400 active customers are primarily masonry, building materials and landscape dealers.
Historically, the product mix for Instone was
heavily concentrated on Cultured Stone®, in 2018 Cultured Stone® comprised almost 80% of our total revenue. Through acquisition
and product expansions, we have increased our product offering to our customers. This expansion has made Instone a more attractive supplier
to new and existing dealers.
We provide value to our dealers by making the
procurement and logistics process easy for product lines that are otherwise challenging for dealers to manage if they were to purchase
directly with a manufacturer or quarry. Our website provides efficiency, and we believe our product offering provides options and ability
for vendor consolidation and our logistical capabilities provide cost effective and efficient delivery, typically within a week or less.
A key differentiating factor for our strategy
is that we own or control five of the eight brands we sell. Our products include stone veneer, landscape stone, and modular masonry fireplaces.
The brands we distribute which we do not control are Cultured Stone®, Dutch Quality®, and Isokern®. The brands we distribute
which we own or control include Aura™, Pangea Stone®, Toro Stone™, Beon Stone®, and Interloc™.
We operate in a market environment where there
are about 7,000 building products dealers, most of which are privately held. Many of these dealers are not able to efficiently purchase
or optimize storage space, which constrains their ability to sell the diverse range of products we offer. Our website enables dealers
to buy in the quantities they require thus driving a more optimal level of inventory while also significantly reducing logistical challenges.
We believe the ability for customers to buy in the quantities they need across many product lines instead of buying single product lines
form different manufacturers helps them manage cash and, in turn, allows them to offer a higher level of service to their own customers.
We intend to continue to grow our business organically
and through successfully integrating well-timed acquisitions.
Recent Developments
On March 7, 2025, the Company closed its public
offering (the “March 2025 Public Offering”) of 1,250,000 shares of common stock (the “Public Offering Shares”),
which were registered under the Rule 424(b) of the Securities Act of 1933, as amended, pursuant to the Registration Statement on Form
S-1 (File No. 333-284105) which was declared effective by the SEC on February 14, 2025. The Public Offering Shares were sold at a public
offering price of $4.00 per share, which generated net proceeds of approximately $3,250,000 after deducting underwriting discounts and
commissions and other offering expenses.
In addition to its March 2025 Public Offering,
the Company also executed various debt and equity restructuring transactions in the quarter ended March 31, 2025 that are described in
Note 2 to the consolidated financial statements included in this Quarterly Report.
Equity Line of Credit
On May 14, 2025, we entered into a purchase agreement
with the Equity Line Investor (as defined in Note 9 to the consolidated financials statements included in this Quarterly Report), pursuant
to which the Equity Line Investor committed to purchase up to $20.0 million in shares of our Common Stock, subject to certain limitations
and conditions as described in Note 4.
On June 26, 2025, the Company and the Equity Line
Investor entered into a first amendment to the Purchase Agreement as described in Note 9 to the consolidated financials statements included
in this Quarterly Report.
Convertible Note Financing
On July 29, 2025, the Company entered into a securities
purchase agreement (the “Purchase Agreement”) with an institutional investor (the “Buyer”), pursuant to which
the Company authorized the issuance of senior secured convertible notes to the Buyer, in the aggregate original principal amount of up
to $10,909,885, which are being issued with a 8.34% original issue discount (each, a “Convertible Note”). The first Convertible
Note was issued in the original principal amount of approximately $3,272,966 (the “Convertible Note Financing”). The Convertible
Notes are convertible into shares of common stock, $0.0005 par value per share (the “Common Stock”), in certain circumstances
in accordance with the terms of the Convertible Notes at an initial conversion price per share of $1.72. The Company received gross proceeds
of $3,000,000, prior to the deduction of transaction related expenses, from the initial closing of the Convertible Note Financing. Concurrently
with the Convertible Note Financing and the Purchase Agreement, the Company entered into a registration rights agreement and a security
agreement with the Buyer.
Components of Results of Operations
Sales
Our sales primarily consist of distributing manufactured
and natural stone cladding products, natural stone landscape products, and related goods for residential and commercial construction through
a dealer network in 31 states in the Midwestern and Northeastern United States. The Company recognizes revenue when control over
the products has been transferred to the customer, and the Company has a present right to payment.
Cost of Goods Sold and Gross Profit
Cost of goods sold includes the purchase price
of material, freight, miscellaneous import fees (if applicable), warranty and related expenses that are directly attributable to our fabricated
products. The Company also includes amounts billed to customers related to shipping and handling and shipping and handling expenses in
cost of goods sold.
Gross profit is equal to revenue less cost of
goods sold. Gross profit margin is equal to gross profit divided by revenue.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist
of personnel-related costs, including salaries and benefits, advertising and marketing expenses, travel and entertainment, facility-related
costs, investor relations, legal and consulting fees.
Other Income and Expenses
Other income and expenses consist primarily of
interest expenses on our line of credit and debt.
Results of Operations
The following is management’s discussion
of the Company’s consolidated financial statements and results of operations for the three and six months ended June 30,
2025 and 2024 in thousands:
Results of Operations Comparing Three Months
Ended June 30, 2025 to 2024.
| | |
Three Months Ended
June 30, | | |
| | |
| |
| | |
2025 | | |
2024 | | |
$ Change | | |
% Change | |
| | |
(in thousands) | | |
| | |
| |
| Net Sales | |
$ | 12,852 | | |
$ | 12,886 | | |
$ | (34 | ) | |
| (0 | )% |
| Cost of goods sold | |
| 9,722 | | |
| 10,122 | | |
| (400 | ) | |
| (4 | )% |
| Gross profit | |
| 3,130 | | |
| 2,764 | | |
| 366 | | |
| 13 | % |
| | |
| | | |
| | | |
| | | |
| | |
| Operating expenses: | |
| | | |
| | | |
| | | |
| | |
| Selling, General and administrative | |
| 3,390 | | |
| 2,750 | | |
| 640 | | |
| 23 | % |
| Income (loss) from operations | |
| (260 | ) | |
| 14 | | |
| (274 | ) | |
| (1957 | )% |
| Interest and other expense, net | |
| (440 | ) | |
| (394 | ) | |
| (46 | ) | |
| (12 | )% |
| Income tax expense | |
| — | | |
| (1 | ) | |
| 1 | | |
| — | % |
| Net loss | |
$ | (700 | ) | |
$ | (381 | ) | |
$ | (319 | ) | |
| (84 | )% |
Sales
Sales were $12.9 million for the three months
ended June 30, 2025 compared to $12.9 million for the three months ended June 30, 2024. Revenue slightly decreased between the three
months ended June 30, 2025 and 2024 by $34.0 thousand.
Cost of goods sold
Cost of goods sold decreased by $400.0 thousand,
or 4%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024.
The decrease in cost of goods sold was driven
primarily by product mix, lower outbound freight, and lower landed cost goods.
Gross profit margin increased from 21.4% for the
three months ended June 30, 2024 to 24.4% for the three months ended June 30, 2025. The increase in gross profit margin was primarily
driven by product mix, lower outbound freight, and lower landed cost goods.
Selling general and administrative expenses
Selling general and administrative expenses increased
by $640.0 thousand, or 23.0%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024.
The increase results primarily from an increase in investor relations of $510.0 thousand.
Interest and other expense
Other expenses, net, increased by $46.0 thousand,
or 12%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024. The increase is largely attributed
the amortization of debt costs related to our Mezzanine Term Loan.
Income Tax Expense
Income tax expense decreased by $1.0 thousand
or 100% for the three months ended June 30, 2025, compared to the three months ended June 30, 2024.
Results of Operations Comparing Six Months
Ended June 30, 2025 to 2024.
| | |
Six Months Ended
June 30, | | |
| | |
| |
| | |
2025 | | |
2024 | | |
$ Change | | |
% Change | |
| | |
(in thousands) | | |
| | |
| |
| Net Sales | |
$ | 20,751 | | |
$ | 22,245 | | |
$ | (1,494 | ) | |
| (7 | )% |
| Cost of goods sold | |
| 16,296 | | |
| 17,737 | | |
| (1,441 | ) | |
| (8 | )% |
| Gross profit | |
| 4,455 | | |
| 4,508 | | |
| (53 | ) | |
| (1 | )% |
| | |
| | | |
| | | |
| | | |
| | |
| Operating expenses: | |
| | | |
| | | |
| | | |
| | |
| Selling, General and administrative | |
| 6,143 | | |
| 5,211 | | |
| 932 | | |
| 18 | % |
| Loss from operations | |
| (1,688 | ) | |
| (703 | ) | |
| (985 | ) | |
| (140 | )% |
| Interest and other expense, net | |
| (740 | ) | |
| (774 | ) | |
| 34 | | |
| (4 | )% |
| Income tax expense | |
| — | | |
| (17 | ) | |
| 17 | | |
| — | % |
| Net loss | |
$ | (2,428 | ) | |
$ | (1,494 | ) | |
$ | (934 | ) | |
| (63 | )% |
Sales
Sales were $20.7 million for the six months
ended June 30, 2025 compared to $22.2 million for the six months ended June 30, 2024. Revenue decreased between the six months ended
June 30, 2025 and 2024 by $1.5 million.
Sales decreased in 2025 due to colder winter temperatures
experienced when compared to prior year, along with challenging economic conditions attributable to trade policies, interest rates, and
concerns about inflation.
The majority of the decline was driven by lower
volumes in our veneer products resulting in $2.4 million in lower revenues; offset by an increase in our landscaping products of $760.0
thousand.
We continue to evaluate the potential impact of
tariffs and have successfully transitioned the sourcing of higher volume products from China to other parts of the world. We believe the
actions taken will minimize the impact of tariffs on our customers and end users.
Cost of goods sold
Cost of goods sold decreased by $1.4 million,
or 8%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024.
The decrease in cost of goods sold was driven
primarily by product mix, lower outbound freight, and lower landed cost goods.
Gross profit margin increased from 20.3% for the
six months ended June 30, 2024 to 21.5% for the six months ended June 30, 2025. The increase in gross profit margin was primarily driven
by product mix, lower outbound freight, and lower landed cost goods.
Selling general and administrative expenses
Selling general and administrative expenses increased
by $932.0 thousand, or 18.0%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024. The
increase results primarily from an increase in investor relations of $681.0 thousand.
Interest and other expense
Other expenses, net, decreased by $34.0 thousand,
or 4%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024. The decrease is primarily attributed to
our revolving line of credit.
Income Tax Expense
Income tax expense decreased by $17.0 thousand
or 100% for the six months ended June 30, 2025, compared to the six months ended June 30, 2024.
Segment Results
The Company has one operating and reportable segment
which consists of the operations of TotalStone. The Company also has corporate-level SG&A expenses which are included in Capstone
Holding Corp. (“Capstone” or “the Parent”) and consist primarily of board fees and, investor relations, filing,
legal, insurance, accounting and consulting expenses not identifiable and allocated to TotalStone.
The following table is a summary of TotalStone’s
operating results through operating income (loss) reconciled to the Company’s consolidated totals with the inclusion of Parent and
eliminating amounts:
| | |
Three Months Ended June 30, | | |
| |
| | |
2025 | | |
2024 | | |
| |
| | |
TotalStone | | |
Parent | | |
Eliminations | | |
Consolidated | | |
TotalStone | | |
Parent | | |
Eliminations | | |
Consolidated | |
| Income (loss) from operations before taxes: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Sales | |
$ | 12,852 | | |
$ | — | | |
$ | — | | |
$ | 12,852 | | |
$ | 12,886 | | |
$ | — | | |
$ | — | | |
$ | 12,886 | |
| Cost of goods sold | |
| 9,722 | | |
| — | | |
| — | | |
| 9,722 | | |
| 10,122 | | |
| — | | |
| — | | |
| 10,122 | |
| Gross Profit | |
| 3,130 | | |
| — | | |
| — | | |
| 3,130 | | |
| 2,764 | | |
| — | | |
| — | | |
| 2,764 | |
| Selling, general and administrative expenses | |
| 2,545 | | |
| 845 | | |
| — | | |
| 3,390 | | |
| 2,718 | | |
| 92 | | |
| (60 | ) | |
| 2,750 | |
| Income (loss) from operations | |
$ | 585 | | |
$ | (845 | ) | |
$ | — | | |
$ | (260 | ) | |
$ | 46 | | |
$ | (92 | ) | |
$ | 60 | | |
$ | 14 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Other financial information: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Depreciation & amortization included in SG&A expenses | |
$ | 114 | | |
$ | — | | |
$ | — | | |
$ | 114 | | |
$ | 121 | | |
$ | — | | |
$ | — | | |
$ | 121 | |
| | |
Six Months Ended June 30, | | |
| |
| | |
2025 | | |
2024 | | |
| |
| | |
TotalStone | | |
Parent | | |
Eliminations | | |
Consolidated | | |
TotalStone | | |
Parent | | |
Eliminations | | |
Consolidated | |
| Income (loss) from operations before taxes: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Sales | |
$ | 20,751 | | |
$ | — | | |
$ | — | | |
$ | 20,751 | | |
$ | 22,245 | | |
$ | — | | |
$ | — | | |
$ | 22,245 | |
| Cost of goods sold | |
| 16,296 | | |
| — | | |
| — | | |
| 16,296 | | |
| 17,737 | | |
| — | | |
| — | | |
| 17,737 | |
| Gross Profit | |
| 4,455 | | |
| — | | |
| — | | |
| 4,455 | | |
| 4,508 | | |
| — | | |
| — | | |
| 4,508 | |
| Selling, general and administrative expenses | |
| 4,944 | | |
| 1,409 | | |
| (210 | ) | |
| 6,143 | | |
| 5,153 | | |
| 178 | | |
| (120 | ) | |
| 5,211 | |
| Income (loss) from operations | |
$ | (489 | ) | |
$ | (1,409 | ) | |
$ | 210 | | |
$ | (1,688 | ) | |
$ | (645 | ) | |
$ | (178 | ) | |
$ | 120 | | |
$ | (703 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Other financial information: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Depreciation & amortization included in SG&A expenses | |
$ | 230 | | |
$ | — | | |
$ | — | | |
$ | 230 | | |
$ | 242 | | |
$ | — | | |
$ | — | | |
$ | 242 | |
The above discussion of consolidated operating
results through operating income (loss) is in substance the operating results of TotalStone for the comparable periods presented. The
elimination of selling, general and administrative expenses reflect the elimination of management fees incurred by TotalStone and earned
by Parent. The Parent classifies the management fee income earned as a component of net non-operating income (expense) and the corresponding
income is also eliminated in the Company’s consolidated results.
Liquidity and Capital Resources
Working capital excluding the current portion
of long-term debt was $2.5 million and $2.1 million as of June 30, 2025 and December 31, 2024, respectively. The $400.0 thousand increase
in working capital is primarily attributable to an increase in accounts receivable and cash; offset by an increase in our revolving line
of credit.
The Company primarily funds our operations through
cash provided from operations of our building products distribution network and available capacity under our ABL Facility (“Revolver”).
Our operating cash flows fluctuate based on seasonality with the first quarter typically a slower period in our calendar year resulting
in negative operating cash flows from the building of accounts receivables and inventory levels. During the second half of the year we
generate positive operating cash flows as we bring down accounts receivables and inventory levels from seasonal high periods and pay down
our Revolver.
In 2024 the Company was not in compliance with
certain of the Revolver’s financial covenants which have been waived by our lender. As of June 30, 2025, the Company was in compliance
with the Revolver’s financial covenant as of the issuance date of these interim consolidated financial statements. In June 2025,
the Company executed an amendment to the Revolver that extended the maturity date from April 2025 to December 2025. The Company believes
the Revolver will continue to be available and the longer-term extension will be executed with financial covenants aligned to the Company’s
anticipated future results.
The liquidity of the Company is largely dependent
on our ability to borrow funds on our Revolver. The longer-term extension of the Revolver and future compliance with financial covenants
are subject to risks and uncertainties which could have a material adverse effect on our business, financial condition and results of
operations. The Company currently believes that it will have sufficient working capital to operate for a period of at least one year from
the issuance date of the June 30,2025 interim consolidated financial statements based on future expected results. Future acquisitions
may be financed through other forms of financing that will depend on existing conditions.
Seasonality
The Company historically experiences higher sales
during our second and third quarters due to the favorable weather in the Midwestern and Northeastern United States for new construction
and remodeling.
Summary of Cash Flows
The following table summarizes our cash flows
for each of the periods presented:
| (in thousands) | |
Six Months
Ended
June 30,
2025 | | |
Six Months
Ended
June 30,
2024 | |
| Net cash used in operating activities | |
$ | (3,992 | ) | |
$ | (1,135 | ) |
| Net cash used in investing activities | |
| (2 | ) | |
| (121 | ) |
| Net cash provided by financing activities | |
| 4,756 | | |
| 1,205 | |
| Net increase (decrease) in cash | |
$ | 762 | | |
$ | (51 | ) |
Cash Flows from Operating Activities
Net cash used in operating activities was $4.0 million for the
six months ended June 30, 2025, primarily resulting from our net loss of $2.4 million and $1.8 million used in changes
in our non-cash working capital and non-cash expenses.
Net cash used in operating activities was $1.1 million
for the six months ended June 30, 2024, primarily resulting from our net loss of $1.5 million; offset by $117.0 thousand provided
by changes in our non-cash working and non-cash expenses.
Cash Flows from Investing Activities
Net cash used in investing activities was $2.0
thousand for six months ended June 30, 2025 compared to $121.0 thousand for the six months ended June 30, 2024. These cash outflows
were related to purchases of property and equipment.
Cash Flows from Financing Activities
Net cash provided by financing activities was $4.8 million for
the six months ended June 30, 2025. The cash inflow was a result of funds received from our public offering of $3.3 million
and a net increase in our line of credit of $2.5 million, offset by the repayment of term debt of $910.0 thousand. Net cash provided
by financing activities was $1.3 million for the six months ended June 30, 2024. The cash inflow was a result of a $1.8 million
net increase in our line of credit, offset primarily by the repayment of term debt of $500.0 thousand.
Funding Requirements
We currently expect to use some of the net proceeds
of our March 2025 Public Offering primarily for organic growth, by expanding the breadth of our distribution network by both geography
and new products, and inorganic growth via rapid acquisition program of building products distributors and manufacturers whose distribution
core can be fortified to expand their footprint.
The Company, as described in Note 9 to the consolidated
financials statements included in this Quarterly Report and in the Recent Developments section of this Management’s Discussion and
Analysis, received $3 million in gross proceeds pursuant to the Convertible Note Financing. In addition, as described in Note 4, the Company
may receive up to $20.0 million from the sale of the Equity Line Securities to the Equity Line Investor. The Company plans to raise additional
funds to finance the growth of our operations through equity financing or debt financing arrangements. If we raise additional funds by
issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted.
Off-Balance Sheet Arrangements
During the periods presented we did not have,
and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Critical Accounting Policies and Significant
Judgments and Estimates
The Critical Accounting Policies and Significant
Judgments and Estimates included in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on
March 31, 2025, have not materially changed.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not applicable.
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 June 30, 2025, 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 resulting in a situation where limitations on segregation of duties exist. All responsibility for accounting entries and the
creation of financial statements has historically been held primarily by a single person, though the Company engages multiple accounting
consultants for accounting, tax and audit support. In April 2025, the Company hired a controller.
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 June 30, 2025 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting
PART II
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be engaged in various
lawsuits and legal proceedings in the ordinary course of our business. We are currently not aware of any legal proceedings the ultimate
outcome of which, in our judgment based on information currently available, would have a material adverse effect on our business, financial
condition or results of operations.
ITEM 1A: RISK FACTORS
For information regarding the risk factors that
could affect the Company’s business, results of operations, financial condition and liquidity, see the information under Part I,
Item 1A. “Risk Factors” in the Form 10-K, which is accessible on the SEC’s website at www.sec.gov. There have been no
material changes to the risk factors previously disclosed in the Form 10-K.
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS
During the three months ended June 30, 2025, there
have been no unregistered sales of equity securities that have not been previously disclosed in a Current Report on Form 8-K.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY
DISCLOSURES
Not applicable.
ITEM 5: OTHER INFORMATION.
Insider trading arrangements
and policies.
During the quarter ended
June 30, 2025, no director or officer of the Company adopted or terminated any “Rule 10b5-1 trading arrangement” or “non-Rule
10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
ITEM 6: EXHIBITS
| Exhibit |
|
|
| Number |
|
Exhibit Description |
| 10.1 |
|
Form of Common Stock Purchase Agreement (incorporated by reference to exhibit 10.1 to quarterly report on Form 10-Q filed with the SEC on May 15, 2025) |
| 10.2 |
|
Form of Registration Rights Agreement (incorporated by reference to exhibit 10.2 to quarterly report on Form 10-Q filed with the SEC on May 15, 2025) |
| 10.3 |
|
First Amendment to Common Stock Purchase Agreement, dated June 26, 2025, by and between Capstone Holding Corp. and Tumim Stone Capital, LLC (incorporated by reference to exhibit 10.1 to current report on Form 8-K filed with the SEC on June 27, 2025) |
| 31.1* |
|
Certification pursuant to 18 U.S.C. Section 1350 Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Executive Officer |
| 31.2* |
|
Certification pursuant to 18 U.S.C. Section 1350 Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Financial Officer |
| 32.1** |
|
Certification pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002 - Chief Executive Officer |
| 32.2** |
|
Certification pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002 - Chief Financial Officer |
| 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) |
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| |
CAPSTONE HOLDING CORP. |
| |
|
|
| Date: August 15, 2025 |
By: |
/s/ Matthew E. Lipman |
| |
|
Matthew E. Lipman |
| |
|
Chief Executive Officer
(Principal Executive Officer) |
| Date: August 15, 2025 |
/s/ Edward Schultz |
| |
Edward Schultz |
| |
Chief Financial Officer |
| |
(Principal Financial and
Principal Accounting Officer) |
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