Capstone Holding Corp — Amended Annual Report (Form 10-K/A)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K/A

(Amendment No. 1) 

 

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended: December 31, 2024

 

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: 001-33560

 

Capstone Holding Corp.

(Exact name of registrant as specified in its charter)

 

Delaware		86-0585310
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification Number)

 

5141 W. 122nd Street Alsip, IL 60803		(708) 371-0660
(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
Common Stock		CAPS		The Nasdaq Stock Market LLC

 

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 ☐ No ☒

 

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 ☐ No ☒

 

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 such files). Yes ☒ No ☐

 

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 ☐
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 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 not a public company as of June 28, 2024, the last business day of its most recently completed second fiscal quarter, and therefore, cannot calculate the aggregate market value of its voting and non-voting common equity held by non-affiliates as of such date. The registrant’s common stock began trading on the Nasdaq Capital Market on March 6, 2025.

 

The registrant had 5,190,251 shares of its common stock, par value $0.0005, issued and outstanding as of March 31, 2025.

 

 

 

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)

 

 

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

 

 

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.

 

 

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/ GBQ Partners LLC

 

We have served as the Company’s auditor since 2020.

Columbus, Ohio
March 31, 2025

 

 

CAPSTONE HOLDING CORP.
CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

		December 31, 2024				December 31, 2023
ASSETS
Current Assets:
Cash		$	11			$	52
Accounts receivable, net			2,762				2,581
Inventories			9,635				13,750
Prepaid expenses			150				458
Other current assets			242				241
Total current assets			12,800				17,082
Long-term Assets:
Property and equipment, net			1,594				1,756
Goodwill			23,286				23,286
Other intangible assets			48				10
Right of use assets			2,068				2,922
Deferred tax asset			7,178				7,597
Other long-term assets			247				48
Total long-term assets			34,421				35,619
Total Assets		$	47,221			$	52,701
LIABILITIES & EQUITY
Current Liabilities:
Accounts payable		$	3,304			$	2,575
Accrued expenses			394				324
Line of credit			6,259				8,574
Current portion of long-term debt			1,855				3,612
Current portion, lease liability			738				887
Total current liabilities			12,550				15,972
Long-term liabilities:
Accrued related party management fee			351				351
Long term debt, net of current portion			6,323				5,114
Lease liability, net of current portion			1,437				2,141
Total long-term liabilities			8,111				7,606
Total Liabilities			20,661				23,578
TotalStone, LLC – Class B Preferred Units			28,475				25,871
TotalStone, LLC – Special Preferred Units			1,143				815
Equity:
Common Stock $0.0005 par value; 200,000 shares authorized; 157,610 issued as of December 31, 2024 and December 31, 2023			—				—
Additional paid-in capital			193,044				193,044
Accumulated deficit			(196,102	)			(190,607	)
Total Equity			(3,058	)			2,437
Total Liabilities, TotalStone, LLC. Preferred Units & Equity		$	47,221			$	52,701

 

See notes to consolidated financial statements

 

 

CAPSTONE HOLDING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

 

		Twelve Months Ended December 31,
		2024				2023
Sales		$	45,808			$	48,643
Sales returns and allowances			(932	)			(289	)
Net sales			44,876				48,354
Cost of goods sold			35,306				38,743
Gross Profit			9,570				9,611
Selling, general and administrative expenses			10,208				10,867
Loss from operations			(638	)			(1,256	)
Loss on investment			—				(8,000	)
Gain on extinguishment of debt			—				7,200
Interest expense			(1,483	)			(1,672	)
Other income (expense), net			—				143
Net loss before taxes			(2,121	)			(3,585	)
Income tax expense			(442	)			(234	)
Net Loss			(2,563	)			(3,819	)
Less: Net loss attributable to:
Special preferred units			(328	)			(150	)
Class B units preferred return			(2,604	)			(1,766	)
Net loss attributable to Capstone Holding Corp. stockholders		$	(5,495	)		$	(5,735	)
Earnings (loss) per share:
Net loss per share attributable to Capstone Holding Corp. stockholders – basic and diluted		$	(34.87	)		$	(36.39	)
Weighted average number of common shares outstanding – basic and diluted			157,610				157,610

 

See notes to consolidated financial statements

 

 

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			157,610			$	193,044			$	(190,607	)		$	2,437			$	25,871			$	815
Net Loss											(2,563	)			(2,563	)
Accrued Class B Distributions											(2,604	)			(2,604	)			2,604
Accrued Special Preferred Distributions											(328	)			(328	)							328
Balance at December 31, 2024			157,610			$	193,044			$	(196,102	)		$	(3,058	)		$	28,475			$	1,143

 

		Common Stock				Additional Paid-In Capital				Retained Earnings (Accumulated Deficit)				Total Equity				Class B Units				Special Preferred Unit
Balance at January 1, 2023			157,610			$	193,044			$	(184,872	)		$	8,172			$	24,105			$	1,054
Net Loss											(3,819	)			(3,819	)
Accrued Class B Distributions											(1,766	)			(1,766	)			1,766
Accrued Special Preferred Distributions											(150	)			(150	)							150
Special Preferred Distribution															—								(389	)
Balance at December 31, 2023			157,610			$	193,044			$	(190,607	)		$	2,437			$	25,871			$	815

 

See notes to consolidated financial statements

 

 

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		$	(2,563	)		$	(3,819	)
Non cash items:
Depreciation and amortization			517				461
Loss on investment			—				8,000
Gain on extinguishment of debt			—				(7,200	)
Deferred taxes			419				32
Change in other operating items:
Accounts receivable and other assets			4,256				3,920
Change in operating leases, net			—				21
Accounts payable and other accrued liabilities			1,192				235
Cash flows provided by operating activities			3,821				1,650
INVESTING ACTIVITIES
Purchase of property and equipment, net			(120	)			(208	)
Cash flows used in investing activities			(120	)			(208	)
FINANCING ACTIVITIES
Payments on financing lease liabilities			(208	)			(171	)
Financing fees paid			(13	)			(12	)
Borrowings under line of credit, net			(2,315	)			1,303
Debt payments			(1,007	)			(2,144	)
Deferred IPO Costs			(199	)			—
Cash payment to special preferred equity members			—				(389	)
Cash flows used in financing activities			(3,742	)			(1,413	)
NET CHANGE IN CASH & CASH EQUIVALENTS			(41	)			29
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			52				23
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	11			$	52
SUPPLEIMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Operating cash flows from finance leases (interest)		$	14			$	12
Financing cash flows from finance leases (principal portion)			208				180
Operating cash flows from operating leases			778				761
Interest Paid			1,483				1,639
Taxes Paid			31				378

 

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 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 $104.0 thousand.

 

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.

 

 

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 $163.0 thousand and $912.0 thousand, respectively. The reserve for obsolete inventory at December 31, 2024 and December 31, 2023, totaled $576.0 thousand and $324.0 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.

 

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 1^st 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 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.

 

 

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 $187.0 thousand and $285.0 thousand, respectively.

 

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			500				976
Warrants			6,322				6,322
Total			44,876				48,354

 

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.

 

 

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 $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 December 31, 2024 and 2023. The management fees expensed in 2024 and 2023 were $400.0 thousand and included in selling, general and administrative expenses.

 

Stream Finance, LLC, which serves as a creditor on TotalStone’s mezzanine term loan of $1.3 million and accrued interest of $249.0 thousand as of December 31, 2024, is managed by Brookstone.

 

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		$	685			$	685
Machinery and equipment			836				856
Computer equipment			255				323
Computer software			476				347
Furniture and fixtures			316				332
Leasehold Improvements			737				749
Total property and equipment		$	3,305			$	3,292
Accumulated depreciation and amortization			(1,711	)			(1,536	)
Total property and equipment		$	1,594			$	1,756

 

Depreciation and amortization expense on property and equipment for 2024 and 2023 was $282.0 and $241.0 thousand, respectively.

 

 

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 $23.3 million in goodwill. There were no changes in the recognized goodwill balance during the periods presented.

 

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		$	50			$	(40	)		$	10
Customer lists			231				(231	)			—
Other			11				(11	)			—
Total definite-lived intangible assets			292				(282	)			10
Indefinite-lived intangible assets			—				—				—
Total intangible assets		$	292			$	(282	)		$	10

 

		As of December 31, 2024
		Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount
Non-compete agreements		$	50			$	(50	)		$	—
Customer lists			231				(231	)			—
Other			11				(11	)			—
Total definite-lived intangible assets			292				(292	)			—
Trademark			48				0				48
Indefinite-lived intangible assets			48				—				48
Total intangible assets		$	340			$	(292	)		$	48

 

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 95% equity interest in Diamond, which represented approximately 62% equity ownership on a fully-diluted basis, to Diamond Products Holdings, LLC (“DPH”); ii) The Company formed Capstone Beta LLC (“Beta”) as a wholly-owned subsidiary, and Beta purchased a portion of Brookstone XXI’s interest in DPH; iii) Beta issued a promissory note to Brookstone XXI in the original principal amount of $8.0 million, bearing interest at 1% per annum over a 36 month term, and secured its obligations thereunder by pledging Beta’s interests in DPH; and iv) As additional credit support, Capstone issued a limited payment guaranty to Brookstone XXI in the amount of 10% of the principal amount of Beta’s promissory note. The terms of the promissory note issued by Beta to Brookstone XXI include provisions whereby in the event that the membership interests in Diamond are sold or otherwise disposed of, any proceeds received by Beta are to be utilized to prepay the promissory note to Brookstone XXI and Brookstone XXI’s remaining recourse for the remaining note balance, if any, is limited to the pledged collateral (Beta’s membership interest in DPH) and the $800.0 thousand limited payment guarantee provide by Capstone. DPH was structured to hold one asset, the membership interest in Diamond, and accordingly upon the sale or other disposition of the membership interests in Diamond, the sole recourse of payment by Brookstone XXI is the $800.0 thousand limited payment guarantee. In summary, the intent of Brookstone XXI and the special committee of Capstone’s independent directors entering into this arrangement was to limit Capstone’s downside risk to $800.0 thousand.

 

The 20% minority investment in DPH represented an effective 19% equity interest in Diamond and approximately 12% on a fully-diluted basis. The Company does not have the ability to exercise significant influence over operating and financial policies of Diamond and DPH.

 

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 100% of the membership interest in Diamond inclusive of Beta’s minority interest in Diamond via its membership interest in DPH to a third party. No cash consideration was received in this transaction. Rather, the primary consideration received by the selling parties was the release of guarantees of senior debt of Diamond operating entities. The third party assumed none of the $8.0 million debt liability and no other consideration was transferred. As a result, the Company’s wrote-off its equity investment in DPH from $8.0 million to zero, and recognized a $7.2 million gain on debt extinguishment from Brookstone XXI’s debt forgiveness which was consistent with the terms of the note agreement that limited Captone’s risk upon sale or disposition of Diamond’s membership interests to the $800.0 thousand limited guaranty provided by Capstone which is the net amount of the loss recognized in the 2023 statement of operations from this transaction. The remaining unsecured debt liability $800.0 thousand plus accrued interest will remain on the Company’s balance sheet with a maturity date of June 30, 2026.

 

 

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 $14.0 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-five (55%) 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 2.5% (7.19% and 7.96% at December 31, 2024 and December 31, 2023, respectively). The balance outstanding on the line of credit was $6.3 million and $8.6 million as of December 31, 2024 and December 31, 2023, respectively, with a maturity date of April 30, 2025.

 

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 $8.4 million in long-term debt, with $1.8 million payable within 12 months. A summary of the Company’s long-term debt is as follows in (“000’s”):

 

		December 31, 2024				December 31, 2023
Long-term Debt
Note payable to BP Peptides, LLC “Brookstone”. The unsecured loan bears interest at 6% per annum, with interest payable quarterly and the as amended maturity date is June 30, 2026.			817				774
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 0.75, not to exceed 15% per annum (see further details below), with a maturity date of September 30, 2026. At December 31, 2024 and 2023, $243.0 thousand and $81.0 thousand of accrued interest remains unpaid and is included within this amount, respectively.			1,558				1,309
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 (12.14% and 12.96% at December 31, 2024 and 2023, respectively. At December 31, 2024 and 2023, $165.0 thousand and $60.0 thousand of accrued interest remains unpaid and is included within this amount, respectively.			932				819
Term note agreement with Berkshire Bank, due in 48 consecutive monthly payments of $83.0 thousand. The loan matures on December 1, 2025 and is secured by all assets of TotalStone. Interest is charged at the one- month SOFR plus 3.5% (8.19% and 8.96% at December 31, 2024 and December 31, 2023, respectively).			910				1,910
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%.			3,174				3,181
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 December 31, 2024 and 2023 $253.0 thousand and $214.0 thousand of accrued interest remains unpaid and is included within this amount, respectively.			1,053				1,010
			8,444				9,003
Less: current portion			(1,855	)			(3,612	)
Less unamortized loan origination fees			(266	)			(277	)
Total Long-term debt		$	6,323			$	5,114

  

 

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

Greater than $2,500,000

12

%

I

Greater than $4,000,000

12

%

II

Less than or equal to $2,500,000, but greater than or equal to $2,000,000

10

%

II

Less than or equal to $4,000,000, but greater than or equal to $3,500,000

10

%

III

Less than $2,000,000

8

%

III

Less than $3,500,000

8

%

 

Scheduled maturities of long-term as of December 31, 2024, are as follows:

 

2025		$	1,855
2026			3,447
2027			27
2028			35
2029			44
Thereafter			3,036
Total		$	8,444

 

Note 9 Leases

 

As of December 31, 2024, the balance of our right-of-use (“ROU”) assets was $2.1 million, net and lease liabilities of $2.2 million, included in current portion, lease liability and lease liability, net of current portion. The maturity of our lease liabilities as of December 31, 2024 is as follows in (“000’s”):

 

Year		Finance				Operating
2025		$	149			$	638
2026			102				656
2027			28				602
2028			8				86
2029			—				—
Thereafter			—				—
Total undiscounted Lease Payments			288				1,981
Less: Present value discount			(10	)			(84	)
Total Lease Liability		$	278			$	1,897

 

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		$	164			$	139
Interest expense			14				11
Operating leases
Straight-line rent expense			779				779
Total lease expense		$	957			$	929

 

 

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)			2.2				3.0				2.8				3.9
Weighted-average discount rate			4.00	%			2.95	%			3.93	%			2.95	%
ROU assets obtained in exchange for new lease liabilities		$	63			$	—			$	219			$	—

 

Note 10 TotalStone Preferred Units

 

The Company owns 100% of TotalStone’s outstanding common voting units and receives certain funding from TotalStone, in exchange for potential benefits to the combined organization from the use of the Company’s Federal Net Operating Loss and other tax benefit carryovers. The existing holders of TotalStone’s common stock received Class B Preferred Units valued at $20.5 million, with a quarterly dividend.

 

In addition, as part of the merger of the Company and TotalStone, the Mezzanine lender accepted $873.0 thousand as a Special Preferred Unit in lieu of debt. The Special Preferred Unit has a preferential distribution position but does not earn a preferred return.

 

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 $389.0 thousand to the Special Preferred Unit holders.

 

Note 11 TotalStone Warrants

 

In connection with the April 2020 TotalStone transaction, 1,175 warrants to purchase class A common interest in TotalStone were granted to TotalStone management. The warrants have a purchase price of $0.01 per warrant unit and vested in equal annual installments over a three-year period, with March 31, 2023 as the final vesting date. Vested warrants may be exercised through March 31, 2030 subject to continuing employment.

 

 

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 1,000,000 shares of our common stock for issuance. At December 31, 2024, no shares remained available to grant under the Plan and all granted shares are fully vested.

 

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 500 and 976 options exercisable and vested at a weighted average exercise price of $163.00 and $21.00, respectively. In addition, Capstone issued a Warrant to Brookstone to purchase up to 6,322 shares of the Capstone’s Common Stock with an exercise price between $10.00 and $30.00 per share, as determined by an independent valuation, through April 1, 2024, and after that date, the lesser of (i) $75.00 per warrant share and (ii) the 10-day average closing price of the Company’s common stock.

 

Preferred Stock

 

We have 5,000 shares of authorized preferred stock, the terms of which may be fixed by our Board of Directors. As of December 31, 2024, we have no outstanding shares of preferred stock. Our Board of Directors has the authority, without stockholder approval, to create and issue one or more series of such preferred stock and to determine the voting, dividend and other rights of holders of such preferred stock. If we raise additional funds to continue operations, we may issue preferred stock. The issuance of any of such series of preferred stock may have an adverse effect on the holders of common stock.

 

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 $5.00 (subject to adjustment), and to receive, upon exercise, shares of our common stock having a value equal to two times the exercise price of the right. In May of 2024, The Company and Computershare extended the Benefit Plan through December 31, 2027.

 

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 100% of employee contribution up to 4% of the employee’s Plan Compensation, as defined. Each participant is 100% vested in in their salary deferral and the safe harbor Company’s matching contributions. Other employer discretionary contributions are subject to a graded vesting schedule. Company matching contribution expense in 2024 in 2023 were $159.0 thousand and $196.0 thousand, respectively.

 

 

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		$	79			$	79
Basis Difference in TotalStone			620				463
Basis Difference in Diamond Products			217				247
Interest Expense Limitation			730				425
Federal Credits			3,110				3,866
Federal NOL Carryforward			29,604				29,497
Other			460				460
			34,820				35,037
Less: valuation allowance			(27,642	)			(27,440	)
Net, deferred income tax assets		$	7,178			$	7,597

 

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 $27.6 million and $27.4 million at December 31, 2024 and 2023, respectively. The valuation allowance reduces deferred tax assets to an amount that management believes will more likely than not be realized.

 

The Company has accumulated approximately $141.0 million in federal and $17.0 million in state net operating loss carryforwards (“NOLs”) and approximately $3.9 million of research and development tax credit carryforwards. The federal NOLs generated before 2018 have 20-year carryforward periods with NOLs generated in 2018 and after having no expiration period. Federal NOLs generated in 2018 and after total $3.5 million. The availability of these NOL’s to offset future taxable income could be limited in the event of a change in ownership, as defined in Section 382 of the Internal Revenue Code.

 

The components of the income tax provision (benefit) are as follows in (“000’s”):

 

		2024				2023
Federal:
Current		$	—			$	—
Deferred			419				32
			419				32
State and local:
Current			23				202
Deferred			—				—
			23				202
Income tax provision		$	442			$	234

 

 

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		$	(444	)		$	(753	)
State taxes, net of federal benefit		$	23			$	162
Net change in NOL carryforward, federal credits and valuation allowance			863				817
Other			—				8
Income tax provision recognized			442				234

 

Note 15 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.

 

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		$	44,876			$	—			$	—			$	44,876			$	48,354			$	—			$	—			$	48,354
Cost of goods sold			35,306				—				—				35,306				38,743				—				—				38,743
Gross Profit			9,570				—								9,570				9,611				—				—				9,611
Selling, general and administrative expenses			9,847				611				(240	)			10,208				10,765				342				(240	)			10,867
(Loss) income from operations		$	(277	)		$	(611	)		$	240			$	(638	)		$	(1,154	)		$	(342	)		$	240			$	(1,256	)
Loss on investment			—				—				—				—				—				(8,000	)			—				(8,000	)
Gain on extinguishment of debt			—				—				—				—				—				7,200				—				7,200
Interest expense			(1,410	)			(73	)			—				(1,483	)			(1,562	)			(110	)			—				(1,672	)
Other income (expense) net			—				240				(240	)			—				—				383				(240	)			143
Loss from operations before taxes		$	(1,687	)		$	(434	)		$	—			$	(2,121	)		$	(2,716	)		$	(869	)		$	—			$	(3,585	)
Other financial information:
Depreciation & amortization		$	517			$	—			$	—			$	517			$	461			$	—			$	—			$	461
Capital expenditures			120				—				—				120				208				—				—				208

 

		As of December 31, 2024																As of December 31, 2023
		TotalStone				Parent				Eliminations				Consolidated				TotalStone				Parent				Eliminations				Consolidated
Total assets		$	40,468			$	7,858			$	(1,105	)		$	47,221			$	45,281			$	7,923			$	(503	)		$	52,701

 

 

CAPSTONE HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 16 Subsequent Events

 

On March 7, 2025, the Company 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 $3,481,802 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 will only be the Company.

 

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”), as agreed upon in the Amendment of Amended and Restated Management Fee Agreement and Transaction Fee Agreement filed herewith as Exhibit 10.18.

 

TotalStone Equity Interests Transactions in March 2025

 

Class A TS Warrants to purchase 1,125 TotalStone’s Class A Common Interests were cancelled on the Restructuring Date.

 

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 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 the Company’s shares prior to the restructuring, owns approximately 3% of the Company’s shares. Following the restructuring, the largest holder of the Company’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.

 

In total, on the Restructuring Date, in exchange for TotalStone’s outstanding Class B and Class C preferred interests, 3,782,641 shares of Common Stock were issued pursuant to the restructuring transactions.

 

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 $1,006,377 plus certain amounts for each day after September 30, 2024 until the Restructuring Date. As of December 31, 2024, the interest accrued for 2024 was $137.3 thousand. On March 7, 2025 the Special Preferred Membership Interests were exchange for loans in an aggregate principal of $1,006,377 plus interest.

 

 

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)

 

 

  

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