# EDGAR Filing Document

**Accession Number:** 0000887151
**File Stem:** 0001213900-25-077016
**Filing Date:** 2025-8
**Character Count:** 91855
**Document Hash:** da15b1018a5bee4b294a0830066a41fc
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001213900-25-077016.hdr.sgml**: 20250815

**ACCESSION NUMBER**: 0001213900-25-077016

**CONFORMED SUBMISSION TYPE**: 10-Q

**PUBLIC DOCUMENT COUNT**: 58

**CONFORMED PERIOD OF REPORT**: 20250630

**FILED AS OF DATE**: 20250815

**DATE AS OF CHANGE**: 20250815

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** Capstone Holding Corp.
- **CENTRAL INDEX KEY:** 0000887151
- **STANDARD INDUSTRIAL CLASSIFICATION:** WHOLESALE-LUMBER & OTHER CONSTRUCTION MATERIALS [5030]
- **ORGANIZATION NAME:** 07 Trade & Services
- **EIN:** 860585310
- **STATE OF INCORPORATION:** DE
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 10-Q
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-33560
- **FILM NUMBER:** 251222362

**BUSINESS ADDRESS:**
- **STREET 1:** 5141 W. 122ND STREET
- **CITY:** ALSIP
- **STATE:** IL
- **ZIP:** 60803
- **BUSINESS PHONE:** 7083710660

**MAIL ADDRESS:**
- **STREET 1:** 5141 W. 122ND STREET
- **CITY:** ALSIP
- **STATE:** IL
- **ZIP:** 60803

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** Capstone Therapeutics Corp.
- **DATE OF NAME CHANGE:** 20100521

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** ORTHOLOGIC CORP
- **DATE OF NAME CHANGE:** 19940211

?xml version='1.0' encoding='ASCII'?

**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**

**<u>Capstone Holding Corp.</u>**

(Exact name of registrant as specified in its charter)

---

| | |
|:---|:---|
| **Delaware** | **86-0585310** |
| (State or other jurisdiction of<br> incorporation or organization) | (I. R. S. Employer<br> Identification No.) |

---

---

| | |
|:---|:---|
| **5141 W. 122nd Street**<br> **Alsip, IL**  | **60803** |
| (Address of principal executive offices) | (Zip Code) |

---

**<u>(708) 371-0660</u>**

(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 ☐ <br> Non-accelerated filer ☒ Smaller reporting company ☒ <br> 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**](#a_001) |  | 1 |
| ITEM 1: | [FINANCIAL STATEMENTS](#a_002) | 1 |
|  | [Consolidated Balance Sheets as of June 30, 2025 (Unaudited) and December 31, 2024](#a_003) | 1 |
|  | [Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2025 and 2024 (Unaudited)](#a_004) | 2 |
|  | [Consolidated Statements of Stockholders' Equity (Deficit) for the Three and Six Months Ended June 30, 2025 and 2024 (Unaudited)](#a_005) | 3 |
|  | [Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2025 and 2024 (Unaudited)](#a_006) | 4 |
|  | [Notes to Consolidated Financial Statements (Unaudited)](#a_007) | 5 |
| ITEM 2: | [MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION](#a_008) | 15 |
| ITEM 3: | [QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK](#a_009) | 23 |
| ITEM 4: | [CONTROLS AND PROCEDURES](#a_010) | 23 |
| [**PART II**](#a_011) |  | 24 |
| ITEM 1: | [LEGAL PROCEEDINGS](#a_012) | 24 |
| ITEM 1A: | [RISK FACTORS](#a_013) | 24 |
| ITEM 2: | [UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](#a_014) | 24 |
| ITEM 3: | [DEFAULTS UPON SENIOR SECURITIES](#a_015) | 24 |
| ITEM 5: | [OTHER INFORMATION](#a_017) | 24 |
| ITEM 6: | [EXHIBITS](#a_018) | 25 |
| [**SIGNATURES**](#a_019) | [**SIGNATURES**](#a_019) | 26 |

---

i

**PART I**

**ITEM 1. FINANCIAL STATEMENTS**

**CAPSTONE HOLDING CORP. CONSOLIDATED BALANCE SHEETS**

(in thousands, except share and per share data)

(unaudited)

---

| | | |
|:---|:---|:---|
|  | **June 30, <br> 2025** | **December 31, <br> 2024** |
| **ASSETS** | | |
| **Current Assets:** | | |
| &nbsp;&nbsp;&nbsp;Cash | $773 | $11 |
| &nbsp;&nbsp;&nbsp;Accounts receivable, net | 5487 | 2762 |
| &nbsp;&nbsp;&nbsp;Inventories | 9590 | 9635 |
| &nbsp;&nbsp;&nbsp;Prepaid expenses | 439 | 150 |
| &nbsp;&nbsp;&nbsp;Other current assets | 242 | 242 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total current assets** | 16531 | 12800 |
| **Long-term Assets:** |  |  |
| &nbsp;&nbsp;&nbsp;Property and equipment, net | 1466 | 1594 |
| &nbsp;&nbsp;&nbsp;Goodwill | 23286 | 23286 |
| &nbsp;&nbsp;&nbsp;Other intangible assets | 61 | 48 |
| &nbsp;&nbsp;&nbsp;Right of use assets | 3185 | 2068 |
| &nbsp;&nbsp;&nbsp;Deferred tax asset | 7178 | 7178 |
| &nbsp;&nbsp;&nbsp;Other long-term assets | 178 | 247 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total long-term assets | 35354 | 34421 |
| **Total Assets** | $**51885** | $**47221** |
| **LIABILITIES & EQUITY** |  |  |
| **Current Liabilities:** |  |  |
| &nbsp;&nbsp;&nbsp;Accounts payable | $3599 | $3304 |
| &nbsp;&nbsp;&nbsp;Accrued expenses | 923 | 394 |
| &nbsp;&nbsp;&nbsp;Line of credit | 8713 | 6259 |
| &nbsp;&nbsp;&nbsp;Current portion of long-term debt | 2910 | 1855 |
| &nbsp;&nbsp;&nbsp;Current portion, lease liability | 826 | 738 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current liabilities | 16971 | 12550 |
| **Long-term liabilities:** |  |  |
| &nbsp;&nbsp;&nbsp;Accrued related party management fee | 351 | 351 |
| &nbsp;&nbsp;&nbsp;Long term debt, net of current portion | 5827 | 6323 |
| &nbsp;&nbsp;&nbsp;Lease liability, net of current portion | 2462 | 1437 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total long-term liabilities | 8640 | 8111 |
| **Total Liabilities** | 25611 | 20661 |
| **TotalStone, LLC – Class B Preferred Units** |  | 28475 |
| **TotalStone, LLC – Special Preferred Units** |  | 1143 |
| **Equity:** |  |  |
| &nbsp;&nbsp;&nbsp;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 |  |
| &nbsp;&nbsp;&nbsp;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 |  |
| &nbsp;&nbsp;&nbsp;Additional paid-in capital | 225476 | 193044 |
| &nbsp;&nbsp;&nbsp;Accumulated deficit | (199235) | (196102) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Equity | 26274 | (3058) |
| **Total Liabilities, TotalStone, LLC. Preferred Units & Equity** | $**51885** | $**47221** |

---

 

*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 <br> June 30,** | **Three Months Ended <br> June 30,** | **Six Months Ended<br> June 30,** | **Six Months Ended<br> June 30,** |
|  | **2025** | **2024** | **2025** | **2024** |
| Sales | $13193 | $13151 | $21358 | $22734 |
| Sales returns and allowances | (341) | (265) | (607) | (489) |
| **Net sales** | **12852** | **12886** | **20751** | **22245** |
| Cost of goods sold | 9722 | 10122 | 16296 | 17737 |
| &nbsp;&nbsp;&nbsp;**Gross Profit** | **3130** | **2764** | **4455** | **4508** |
| &nbsp;&nbsp;&nbsp;Selling, general and administrative expenses | 3390 | 2750 | 6143 | 5211 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income (loss) from operations | (260) | 14 | (1688) | (703) |
| &nbsp;&nbsp;&nbsp;Interest expense | (440) | (394) | (740) | (774) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net loss before taxes | (700) | (380) | (2428) | (1477) |
| &nbsp;&nbsp;&nbsp;Income tax expense |  | (1) |  | (17) |
| &nbsp;&nbsp;&nbsp;**Net Loss** | **(700)** | **(381)** | **(2428)** | **(1494)** |
| &nbsp;&nbsp;&nbsp;Less: Net loss attributable to: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Special preferred units |  | (44) |  | (92) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Class B units preferred return |  | (903) | (705) | (1776) |
| &nbsp;&nbsp;&nbsp;**Net loss attributable to Capstone Holding Corp. stockholders** | $**(700)** | $**(1328)** | **(3133)** | $**(3362)** |
| &nbsp;&nbsp;&nbsp;Earnings (loss) per share: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Net loss per share attributable to Capstone Holding Corp. stockholders – basic and diluted | $(0.13) | $(8.43) | $(0.58) | $(21.33) |
| &nbsp;&nbsp;&nbsp;Weighted average number of common shares outstanding – basic and diluted | 5406305 | 157610 | 5406305 | 157610 |

---

 

*See notes to consolidated financial statements*

 

**CAPSTONE HOLDING CORP. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY**

(in thousands, except Common Stock Shares)

---

| | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | | | | | | | | **TotalStone, LLC** | **TotalStone, LLC** |
|  |<br>**Common<br> Stock<br> (Shares)** |<br>**Common<br> Stock** |<br>**Series B<br> (Shares)** |<br>**Series B<br> Preferred <br> Stock** |<br>**Additional<br> Paid-In<br> Capital** | **Retained**<br> **Earnings<br> (Accumulated<br> Deficit)** |<br>**Total<br> Equity** | **Class B<br> Preferred<br> Units** | **Special<br> Preferred<br> Unit** |
| **Balance at January 1, 2025** | 157610 | $**—**  | **—**  | $**—**  | $193044 | $(196102) | $(3058) | $28475 | $1143 |
| Net Loss | **—** | **—**  | **—** | **—**  | **—**  | (1728) | (1728) | **—**  | **—**  |
| Accrued Class B Distributions | **—** | **—**  | **—** | **—**  | **—**  | (705) | (705) | 705 | **—**  |
| Conversion of Class B Preferred Units to Common stock | 3782641 | 1 | **—**  | **—**  | 29180 | **—**  | 29181 | (29180) | **—**  |
| Conversion of Special Preferred Units to Debt | **—** | **—**  | **—** | **—**  | **—**  | **—**  | **—**  | **—**  | (1143) |
| Public Offering | 1250000 | 2 | **—**  | **—**  | 3250 | **—**  | 3252 | **—**  | **—**  |
| Nectarine Management, LLC. Subscription Agreement | **—**  | **—**  | 985063 | 30 | **—**  | **—**  | 30 | **—**  | **—**  |
| **Balance at March 31, 2025** | **5190251** | $**3** | **985063** | **30** | $**225474** | $**(198535)** | $**26972** | $**—**  | $**—**  |
| Net Loss | **—** | **—**  | **—** | **—**  | **—**  | (700) | (700) | **—**  | **—**  |
| Issuance of commitment shares pursuant to equity line of credit | 215054 | **—**  | **—**  | **—**  | **—**  | **—**  | **—**  | **—**  | **—**  |
| Issuance of common stock pursuant to equity line of credit | 1000 | **—**  | **—**  | **—**  | 2 | **—**  | 2 | **—**  | **—**  |
| **Balance at June 30, 2025** | **5406305** | **3** | **985063** | **30** | **225476** | **(199235)** | **26274** | $**—**  | $**—**  |

---

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | | | | | **TotalStone, LLC** | **TotalStone, LLC** |
|  |<br>**Common<br> Stock** |<br>**Additional<br> Paid-In<br> Capital** | **Retained**<br>**Earnings<br> (Accumulated<br> Deficit)** |<br>**Total<br> Equity** | **Class B<br> Preferred<br> Units** | **Special<br> Preferred<br> Unit** |
| **Balance at January 1, 2024** | 157610 | $193044 | $(190607) | $2437 | $25871 | $815 |
| Net Loss | **—**  | **—**  | (1113) | (1113) | **—**  | **—**  |
| Accrued Class B Preferred Units Distributions | **—**  | **—**  | (873) | (873) | 873 | **—**  |
| Accrued Special Preferred Units Distributions | **—**  | **—**  | (48) | (48) | **—**  | 48 |
| **Balance at March 31, 2024** | **157610** | $**193044** | $**(192641)** | $**403** | $**26744** | $**863** |
| &nbsp;&nbsp;&nbsp;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** | **157610** | $**193044** | $**(193969)** | $**(925)** | $**27647** | $**907** |

---

 

*See notes to consolidated financial statements*

**CAPSTONE HOLDING CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS**

(in thousands)

(unaudited)

---

| | | |
|:---|:---|:---|
|  | **Six Months <br> Ended <br> June 30, <br> 2025** | **Six Months <br> Ended <br> June 30, <br> 2024** |
| **OPERATING ACTIVITIES** | | |
| Net loss | $(2428) | $(1494) |
| Non cash items: |  |  |
| &nbsp;&nbsp;&nbsp;Depreciation and amortization | 230 | 242 |
| Change in other operating items: |  |  |
| &nbsp;&nbsp;&nbsp;Accounts receivable and other assets | (2988) | (1739) |
| &nbsp;&nbsp;&nbsp;Change in operating leases, net | (25) | **—**  |
| &nbsp;&nbsp;&nbsp;Accounts payable and other accrued liabilities | 1219 | 1856 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash flows used in operating activities | (3992) | (1135) |
| **INVESTING ACTIVITIES** |  |  |
| &nbsp;&nbsp;&nbsp;Purchase of property and equipment, net | (2) | (121) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash flows used in investing activities | (2) | (121) |
| **FINANCING ACTIVITIES** |  |  |
| &nbsp;&nbsp;&nbsp;Payments on financing lease liabilities | (64) | (80) |
| &nbsp;&nbsp;&nbsp;Financing fees paid | (6) | (6) |
| &nbsp;&nbsp;&nbsp;Borrowings under line of credit, net | 2454 | 1791 |
| &nbsp;&nbsp;&nbsp;Debt payments | (910) | (500) |
| &nbsp;&nbsp;&nbsp;Proceeds from IPO and stock issuances | 5032 | **—**  |
| &nbsp;&nbsp;&nbsp;Cash paid for IPO and stock issuance costs | (1750) | **—**  |
| &nbsp;&nbsp;&nbsp;Cash flows provided by financing activities | 4756 | 1205 |
| &nbsp;&nbsp;&nbsp;NET CHANGE IN CASH & CASH EQUIVALENTS | 762 | (51) |
| &nbsp;&nbsp;&nbsp;CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 11 | 51 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**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 |
| &nbsp;&nbsp;&nbsp;Operating cash flows from operating leases | 399 | 387 |
| &nbsp;&nbsp;&nbsp;Interest Paid | 740 | 774 |
| &nbsp;&nbsp;&nbsp;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 1<sup>st</sup> 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, <br> 2025** | **June 30, <br> 2024** |
| Stock options | 150 | 900 |
| Warrants | 6322 | 6322 |
| **Total** | **43146** | **48146** |

---

*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, <br> 2025** | **December 31, <br> 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. | 3536 | 1558 |
| 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%. | 3168 | 3174 |
| 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. | 1077 | 1053 |
|  | 9607 | 8444 |
| Less: current portion | (2910) | (1855) |
| Less unamortized loan origination fees | (870) | (266) |
| Total Long-term debt | $5827 | $6323 |

---

**Note 7 Debt** (cont.)

Scheduled maturities of long-term as of June 30, 2025, are as follows:

---

| | |
|:---|:---|
| 2025 | $2910 |
| 2026 | 3555 |
| 2027 | 27 |
| 2028 | 35 |
| 2029 | 44 |
| Thereafter | 3036 |
| Total | $9607 |

---

**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 | 3276 |
| Less: Present value discount | (12) | (330) |
| **Total Lease Liability** | $**342** | $**2946** |

---

Lease expense recognized on our leases is as follows in ("000's"):

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Six months Ended June 30, <br> 2025** | **Six months Ended June 30, <br> 2024** | **Three months<br> Ended <br> June 30, <br> 2025** | **Three months<br> Ended <br> June 30, <br> 2024** |
| **Finance leases** | | | | |
| &nbsp;&nbsp;&nbsp;Amortization expense | $72 | $83 | $41 | $41 |
| &nbsp;&nbsp;&nbsp;Interest expense | 6 | 8 | 3 | 4 |
| **Operating leases** |  |  |  |  |
| &nbsp;&nbsp;&nbsp;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** | **Six months ended June 30, 2025** | **Three months ended June 30, 2024** | **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 | $1395 | $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,** | **Three Months Ended June 30,** | **Three Months Ended June 30,** | **Three Months Ended June 30,** | **Three Months Ended June 30,** | **Three Months Ended June 30,** | **Three Months Ended June 30,** | **Three Months Ended June 30,** |
|  | **2025** | **2025** | **2025** | **2025** | **2024** | **2024** | **2024** | **2024** |
|  | **TotalStone** | **Parent** | **Eliminations** | **Consolidated** | **TotalStone** | **Parent** | **Eliminations** | **Consolidated** |
| **<u>Income (loss) from operations before taxes:</u>** |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Sales | $12852 | $— | $— | $12852 | $12886 | $— | $— | $12886 |
| &nbsp;&nbsp;&nbsp;Cost of goods sold | 9722 |  |  | 9722 | 10122 |  |  | 10122 |
| &nbsp;&nbsp;&nbsp;**Gross Profit** | **3130** | **—**  |  | **3130** | **2764** | **—**  | **—**  | **2764** |
| &nbsp;&nbsp;&nbsp;Selling, general and administrative expenses | 2545 | 845 |  | 3390 | 2718 | 92 | (60) | 2750 |
| &nbsp;&nbsp;&nbsp;**Income (loss) from operations** | $**585** | $**(845)** | $— | $**(260)** | $**46** | $**(92)** | $**60** | $**14** |
| &nbsp;&nbsp;&nbsp;Interest expense | (417) | (23) |  | (440) | (382) | (12) |  | (394) |
| &nbsp;&nbsp;&nbsp;Other income (expense) net | **—**  |  |  |  |  | 60 | (60) |  |
| &nbsp;&nbsp;&nbsp;**Income (loss) from operations before taxes** | $**168** | $**(868)** | $**—**  | $**(700)** | $**(336)** | $**(44)** | $**—**  | $**(380)** |
| **<u>Other financial information:</u>** |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Depreciation & amortization | $114 | $— | $— | $114 | $121 | $— | $— | $121 |
| &nbsp;&nbsp;&nbsp;Capital expenditures | 2 |  |  | 2 | 21 |  |  | 21 |

---

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **Six Months Ended June 30,** | **Six Months Ended June 30,** | **Six Months Ended June 30,** | **Six Months Ended June 30,** | **Six Months Ended June 30,** | **Six Months Ended June 30,** | **Six Months Ended June 30,** | **Six Months Ended June 30,** |
|  | **2025** | **2025** | **2025** | **2025** | **2024** | **2024** | **2024** | **2024** |
|  | **TotalStone** | **Parent** | **Eliminations** | **Consolidated** | **TotalStone** | **Parent** | **Eliminations** | **Consolidated** |
| **<u>Income (loss) from operations before taxes:</u>** |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Sales | $20751 | $— | $— | $20751 | $22245 | $— | $— | $22245 |
| &nbsp;&nbsp;&nbsp;Cost of goods sold | 16296 |  |  | 16296 | 17737 |  |  | 17737 |
| &nbsp;&nbsp;&nbsp;**Gross Profit** | 4455 | **—**  |  | **4455** | **4508** | **—**  | **—**  | **4508** |
| &nbsp;&nbsp;&nbsp;Selling, general and administrative expenses | 4944 | 1409 | (210) | 6143 | 5153 | 178 | (120) | 5211 |
| &nbsp;&nbsp;&nbsp;**(Loss) income from operations** | $**(489)** | $**(1409)** | $**210** | $**(1688)** | $**(645)** | $**(178)** | $**120** | $**(703)** |
| &nbsp;&nbsp;&nbsp;Interest expense | (695) | (45) |  | (740) | (745) | (29) |  | (774) |
| &nbsp;&nbsp;&nbsp;Other income (expense) net | 150 | 60 | (210) |  |  | 120 | (120) |  |
| &nbsp;&nbsp;&nbsp;**Loss from operations before taxes** | $**(1034)** | $**(1394)** | $**—**  | $**(2428)** | $**(1390)** | $**(87)** | $**—**  | $**(1477)** |
| **<u>Other financial information:</u>** |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Depreciation & amortization | $230 | $— | $— | $230 | $242 | $— | $— | $242 |
| &nbsp;&nbsp;&nbsp;Capital expenditures | 2 |  |  | 2 | 121 |  |  | 121 |

---

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| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **As of June 30, 2025** | **As of June 30, 2025** | **As of June 30, 2025** | **As of June 30, 2025** | **As of December 31, 2024** | **As of December 31, 2024** | **As of December 31, 2024** | **As of December 31, 2024** |
|  | **TotalStone** | **Parent** | **Eliminations** | **Consolidated** | **TotalStone** | **Parent** | **Eliminations** | **Consolidated** |
| Total assets | $43268 | $9022 | $(405) | $51885 | $40468 | $7858 | $(1105) | $47221 |

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**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 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 <br> June 30,** | **Three Months Ended <br> June 30,** | | |
|  | **2025** | **2024** |<br>**$ Change** |<br>**% Change** |
|  | **(in thousands)** | **(in thousands)** | | |
| Net Sales | $12852 | $12886 | $(34) | (0)% |
| Cost of goods sold | 9722 | 10122 | (400) | (4)% |
| Gross profit | 3130 | 2764 | 366 | 13% |
| Operating expenses: |  |  |  |  |
| Selling, General and administrative | 3390 | 2750 | 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 <br> June 30,** | **Six Months Ended <br> June 30,** | | |
|  | **2025** | **2024** |<br>**$ Change** |<br>**% Change** |
|  | **(in thousands)** | **(in thousands)** | | |
| Net Sales | $20751 | $22245 | $(1494) | (7)% |
| Cost of goods sold | 16296 | 17737 | (1441) | (8)% |
| Gross profit | 4455 | 4508 | (53) | (1)% |
| Operating expenses: |  |  |  |  |
| Selling, General and administrative | 6143 | 5211 | 932 | 18% |
| Loss from operations | (1688) | (703) | (985) | (140)% |
| Interest and other expense, net | (740) | (774) | 34 | (4)% |
| Income tax expense |  | (17) | 17 | —% |
| Net loss | $(2428) | $(1494) | $(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,** | **Three Months Ended June 30,** | **Three Months Ended June 30,** | **Three Months Ended June 30,** | **Three Months Ended June 30,** | **Three Months Ended June 30,** | **Three Months Ended June 30,** | |
|  | **2025** | **2025** | **2025** | **2025** | **2024** | **2024** | **2024** | |
|  | **TotalStone** | **Parent** | **Eliminations** | **Consolidated** | **TotalStone** | **Parent** | **Eliminations** |<br>**Consolidated** |
| **<u>Income (loss) from operations before taxes:</u>** |  |  |  |  |  |  |  |  |
| Sales | $12852 | $— | $— | $12852 | $12886 | $— | $— | $12886 |
| Cost of goods sold | 9722 |  |  | 9722 | 10122 |  |  | 10122 |
| **Gross Profit** | **3130** | **—** | **—** | **3130** | **2764** | **—** | **—** | **2764** |
| Selling, general and administrative expenses | 2545 | 845 |  | 3390 | 2718 | 92 | (60) | 2750 |
| **Income (loss) from operations** | $**585** | $**(845)** | $— | $**(260)** | $**46** | $**(92)** | $**60** | $**14** |
| **<u>Other financial information:</u>** |  |  |  |  |  |  |  |  |
| Depreciation & amortization included in SG&A expenses | $114 | $— | $— | $114 | $121 | $— | $— | $121 |

---

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **Six Months Ended June 30,** | **Six Months Ended June 30,** | **Six Months Ended June 30,** | **Six Months Ended June 30,** | **Six Months Ended June 30,** | **Six Months Ended June 30,** | **Six Months Ended June 30,** | |
|  | **2025** | **2025** | **2025** | **2025** | **2024** | **2024** | **2024** | |
|  | **TotalStone** | **Parent** | **Eliminations** | **Consolidated** | **TotalStone** | **Parent** | **Eliminations** |<br>**Consolidated** |
| **<u>Income (loss) from operations before taxes:</u>** |  |  |  |  |  |  |  |  |
| Sales | $20751 | $— | $— | $20751 | $22245 | $— | $— | $22245 |
| Cost of goods sold | 16296 |  |  | 16296 | 17737 |  |  | 17737 |
| **Gross Profit** | **4455** | **—** | **—** | **4455** | **4508** | **—** | **—** | **4508** |
| Selling, general and administrative expenses | 4944 | 1409 | (210) | 6143 | 5153 | 178 | (120) | 5211 |
| **Income (loss) from operations** | $**(489)** | $**(1409)** | $**210** | $**(1688)** | $**(645)** | $**(178)** | $**120** | $**(703)** |
| **<u>Other financial information:</u>** |  |  |  |  |  |  |  |  |
| 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 <br> Ended<br> June 30,<br> 2025** | **Six Months <br> Ended<br> June 30,<br> 2024** |
| Net cash used in operating activities | $(3992) | $(1135) |
| Net cash used in investing activities | (2) | (121) |
| Net cash provided by financing activities | 4756 | 1205 |
| 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)](https://www.sec.gov/Archives/edgar/data/887151/000121390025044408/ea024229301ex10-1_capstone.htm) |
| 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)](https://www.sec.gov/Archives/edgar/data/887151/000121390025044408/ea024229301ex10-2_capstone.htm) |
| 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)](https://www.sec.gov/Archives/edgar/data/887151/000121390025058624/ea024721801ex10-1_capstone.htm) |
| 31.1\* | [Certification pursuant to 18 U.S.C. Section 1350 Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Executive Officer](ea025295001ex31-1_capstone.htm) |
| 31.2\* | [Certification pursuant to 18 U.S.C. Section 1350 Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Financial Officer](ea025295001ex31-2_capstone.htm) |
| 32.1\*\* | [Certification pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002 - Chief Executive Officer](ea025295001ex32-1_capstone.htm) |
| 32.2\*\* | [Certification pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002 - Chief Financial Officer](ea025295001ex32-2_capstone.htm) |
| 101.INS\* | Inline XBRL Instance Document |
| 101.SCH\* | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL\* | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF\* | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB\* | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE\* | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104\* | Cover Page Interactive Data File (embedded within the Inline XBRL document) |

---

\* Filed herewith.

\*\* Furnished herewith

**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. | CAPSTONE HOLDING CORP. |
| Date: August 15, 2025 | By: | */s/ Matthew E. Lipman* |
|  |  | Matthew E. Lipman |
|  |  | Chief Executive Officer<br> (Principal Executive Officer) |

---

---

| | |
|:---|:---|
| Date: August 15, 2025 | */s/ Edward Schultz* |
|  | Edward Schultz |
|  | Chief Financial Officer |
|  | (Principal Financial and <br> Principal Accounting Officer) |

---

## Exhibit 31.1

**Exhibit 31.1**

**SECTION 302 CERTIFICATION**

I, Matthew E. Lipman, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the period ended on June 30, 2025 of Capstone Holding Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5. The registrant's other certifying officer(s) and I have disclosed, based on Capstone Holding Corp.'s most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (of persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.

---

| | | |
|:---|:---|:---|
| Date: August 15, 2025 | By: | */s/ Matthew E. Lipman* |
|  |  | Matthew E. Lipman |
|  |  | Chief Executive Officer |

---

## Exhibit 31.2

**Exhibit 31.2**

**SECTION 302 CERTIFICATION**

I, Edward Schultz, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the period ended on June 30, 2025 of Capstone Holding Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5. The registrant's other certifying officer(s) and I have disclosed, based on Capstone Holding Corp.'s most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (of persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.

---

| | | |
|:---|:---|:---|
| Date: August 15, 2025 | By: | */s/ Edward Schultz* |
|  |  | Edward Schultz |
|  |  | Chief Financial Officer |

---

## Exhibit 32.1

**Exhibit 32.1**

**CERTIFICATION PURSUANT TO**

**18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO**

**SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**

In connection with the Quarterly Report of Capstone Holding Corp. (the "Company") on Form 10-Q for the period ended June 30, 2025 (the "Report") I, Matthew E. Lipman, Chief Executive Officer of the Company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:

&nbsp;&nbsp;&nbsp;&nbsp;(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

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| | | |
|:---|:---|:---|
| Date: August 15, 2025 | By: | */s/ Matthew E. Lipman* |
|  |  | Matthew E. Lipman |
|  |  | Chief Executive Officer |

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This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

## Exhibit 32.2

**Exhibit 32.2**

**CERTIFICATION PURSUANT TO**

**18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO**

**SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**

In connection with the Quarterly Report of Capstone Holding Corp. (the "Company") on Form 10-Q for the period ended June 30, 2025 (the "Report") I, Edward Schultz, Chief Financial Officer of the Company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:

&nbsp;&nbsp;&nbsp;&nbsp;(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

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| | | |
|:---|:---|:---|
| Date: August 15, 2025 | By: | */s/ Edward Schultz* |
|  |  | Edward Schultz |
|  |  | Chief Financial Officer |

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This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.