Capstone Holding Corp 2026 Annual Report

TABLE OF CONTENTS PART I ITEM 1:FINANCIAL STATEMENTS Consolidated Balance Sheets as of March 31, 2026(Unaudited) and December 31, 2025Consolidated Statements of Operations for the Three Months Ended March 31, 2026and 2025(Unaudited)Consolidated Statements of Stockholders’Equity (Deficit) for the Three Months Ended March31, 2026and2025(Unaudited) Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2026and 2025(Unaudited) Notes to Consolidated Financial Statements (Unaudited)ITEM 2:MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS17ITEM 3:QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK23ITEM 4:CONTROLS AND PROCEDURES23 PART II ITEM 1:LEGAL PROCEEDINGSITEM 1A:RISK FACTORSITEM 2:UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSITEM 3:DEFAULTS UPON SENIOR SECURITIESITEM 4:MINE SAFETY DISCLOSURESITEM 5:OTHER INFORMATIONITEM 6:EXHIBITSSIGNATURES CAPSTONE HOLDING CORP.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note1Nature of Operations Capstone Holding Corp. (the "Company") is a holding company that operates through its consolidated subsidiaries: TotalStone,LLC ("TotalStone"), Carolina Stone Holdings, LLC ("Carolina Stone"), and Fraser Canyon Holdings Inc. ("FCHI" and togetherwith its subsidiaries, the "CSI business"). Through these subsidiaries, the Company distributes and installs masonry and stone On April 1, 2020, the Company obtained a controlling interest in TotalStone, a materials distribution company that distributesmasonry and stone veneer products for residential and commercial construction across the United States. TotalStone operates under On August 22, 2025, the Company, through its subsidiary CS Purchase Holdings LLC, acquired all the issued and outstandingmembership interests (the "Holdings Membership Interests") in Carolina Stone Holdings, which owns all the issued andoutstanding membership interests of Carolina Stone Distributors, LLC. Carolina Stone is a stone supplier and installer specializingin both manufactured and natural stone veneer and offering end-to-end services, including material supply, installation, and project On December 1, 2025, through its indirect subsidiary Instone Canada Corp., the Company acquired 100% of the outstanding equityinterests of Fraser Canyon Holdings Inc. ("FCHI") and substantially all assets of Continental Stone Industries, Inc. ("CSIA"),collectively the "CSI business." FCHI is the parent company of Canadian Stone Industries Partnership, Canadian Stone IndustriesInc., and CSIA, which together distribute natural and manufactured stone products wholesale from locations in Langley, BritishColumbia; North York, Ontario; and San Leandro, California. Effective at the closing of the CSI acquisition, the San Leandro, 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 theRegistration Statement on Form S-1 (File No. 333-284105) which was declared effective by the SEC on February 14, 2025. ThePublic Offering Shares were sold at a public offering price of $4.00 per share, which generated net proceeds of approximately On March 7, 2025, TotalStone entered into a fifth amended and restated limited liability company agreement to govern itsoperations 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 withrespect to Capstone’s capital raising transaction as agreed upon in the Restated Management Fee Agreement and Transaction Fee 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 byCapstone, TotalStone and TotalStone’s Class B and Class C Members, all of TotalStone’s Class B and Class C Preferred Interestswere exchanged for 3,782,641 shares of Common Stock that constitute approximately 96% of the shares of Common Stockoutstanding on the Restructuring Date, which were allocated to the Class B and Class C Members as set forth in the MasterExchange Agreement. As consideration for the issuance of 3,782,641 shares of Common Stock, the Class B and Class C Memberssurrendered their existing TotalStone’s membership interests and withdrew from the membership of TotalStone. Following therestructuring, BP Peptides, LLC, the owner of approximately 77.3% of Capstone’s shares prior to the restructuring, owns TotalStone’s Special Preferred Membership Interests were exchanged on the Restructuring Date for loans in an aggregate principalamount of $1,143,646 (representing $1,006,377 of original principal plus $137,269 of accrued interest).