Capstone Holding Corp.

Capstone Holding Corp. operates in the building products distribution and installation industry, specifically within the thin veneer stone, natural stone, manufactured stone, and related masonry and hardscape products subsector for residential and commercial construction markets. The North American stone and masonry products industry represents a significant segment of the broader building products market, with the global natural stone market projected to grow at a compound annual growth rate of approximately 4–5% through 2031 ¹. The industry is highly fragmented, with a mix of large national distributors, regional players, and numerous smaller local suppliers, and is experiencing consolidation trends as larger players acquire smaller distributors to expand geographic reach and product portfolios. Key structural forces shaping competition include residential construction growth sensitive to interest rate trends, renovation and remodeling market dynamics, commercial construction opportunities, technological advancements, and labor and supply chain challenges. Capstone sits within this landscape as a national, technology-enabled platform operating through three subsidiaries across 38 U.S. states and two Canadian provinces ².

The U.S. stone distribution market is highly fragmented, and Capstone has achieved a leadership position by leveraging its extensive product offerings, strategic distribution network, and strong customer relationships. The Company competes with both large national distributors and smaller regional players, as well as manufacturers, quarry operators and brokers. In Canada, CSI competes with regional wholesale distributors, and in the Southeast, Carolina Stone competes with numerous smaller regional and local competitors. Capstone's stated competitive advantages include an extensive product offering with over 3,000 SKUs ³, an optimized distribution network of nine facilities across seven states and two Canadian provinces ⁴, strong customer relationships with over 1,000 active customers ⁵, operational excellence, and an experienced management team. The Company believes its ability to offer a one-stop shop for stone and masonry products, combined with operational efficiency and customer satisfaction, gives it a competitive advantage.

Capstone generates revenue through the distribution and installation of thin veneer stone, natural stone, manufactured stone, and related masonry and hardscape products for residential and commercial construction markets. The Company operates across two complementary channels: distribution, where it serves approximately 7,000 U.S. building products dealers ⁶ plus a fragmented base of Canadian distributors and stone retailers, and installation, where Carolina Stone delivers turnkey masonry installation directly to contractors, builders, and developers. Revenue is transactional in nature, recognized when control over products has been transferred to the customer, typically upon shipment for distribution sales, and over time as performance obligations are satisfied for installation services. The Company's platform offers over 3,000 SKUs ⁷ across nine warehouse and distribution center locations ⁸, serving a diverse base of masonry dealers, contractors, builders, and homeowners. A key differentiating factor is the breadth of the product portfolio, which spans natural and manufactured stone veneer, thin brick veneer, stone siding, landscape stone, hardscape products, and modular masonry fireplaces, allowing customers to consolidate purchasing across multiple product lines through a single supplier relationship.

The Company offers a diverse range of stone and masonry products through its three operating subsidiaries, organized into five categories: (i) manufactured stone veneer, including Cultured Stone, Dutch Quality Stone, and the proprietary Toro Stone brand; (ii) natural stone, including Pangaea Stone and the Interloc panelized stone system; (iii) mechanically attached stone veneer systems, including Beon Stone with its patented D-Rain moisture management system; (iv) landscape and hardscape products, including the Aura Natural Landscapes line of pavers, steps, and coping; and (v) modular masonry fireplaces under the Isokern brand. The Company distributes a broad range of industry-leading brands including Cultured Stone, Pangaea Natural Stone, TerraCraft, Dutch Quality, Versetta Stone, BrikClad, Isokern, and Colonial Brick & Stone, among others, as well as proprietary brands Toro Stone, Beon Stone, Aura, and Interloc. The most recent example of innovation is the introduction of the Toro family of manufactured stone products, which the Company expects to help drive significant organic revenue growth in the next three years ⁹. The TotalStone segment reported sales of $43,550,000 ¹⁰ for fiscal 2025, while the Carolina Stone segment reported sales of $3,331,000 ¹¹ for the period from its acquisition on August 22, 2025 through year-end.

During fiscal year 2025, the Company completed two material acquisitions that significantly expanded its geographic footprint, product offerings, and revenue base. On August 22, 2025, through its indirect subsidiary CS Purchase Holdings, LLC, the Company acquired 100% of the membership interests of Carolina Stone Holdings, LLC for aggregate purchase consideration of approximately $4,202,000 ¹², consisting of $2,625,000 ¹³ in cash (subject to a working capital adjustment), a seller note in the original principal amount of $1,250,000 ¹⁴, and contingent earn-out consideration of up to $825,000 ¹⁵ (acquisition-date fair value of approximately $250,000 ¹⁶). On December 1, 2025, through its indirect subsidiary Instone Canada Corp., the Company acquired 100% of the outstanding equity interests of Fraser Canyon Holdings, Inc. and substantially all assets of Continental Stone Industries, Inc. for aggregate purchase consideration of approximately $6,262,000 ¹⁷, consisting of C$6,200,000 ¹⁸ in cash (approximately US$4,447,000 ¹⁹), a First SPA Note in the principal amount of C$1,600,000 ²⁰ (approximately US$1,148,000 ²¹), a Second SPA Note in the principal amount of C$2,000,000 ²² (approximately US$1,434,000 ²³), and contingent earn-out consideration of up to C$3,000,000 ²⁴ (approximately US$2,152,000 ²⁵) with an acquisition-date fair value of approximately US$100,000 ²⁶. On March 7, 2025, the Company closed its follow-on public offering of 1,250,000 ²⁷ shares of common stock at a public offering price of $4.00 ²⁸ per share for gross proceeds of $5,000,000 ²⁹, and its common stock began trading on the Nasdaq Capital Market under the symbol CAPS on March 6, 2025. On the same date, TotalStone's Class B and Class C preferred interests were exchanged for 3,782,641 ³⁰ shares of Common Stock. The Company also issued two senior secured convertible notes totaling approximately $6,818,678 ³¹ in original principal under a $10,909,885 ³² authorized facility: the July 2025 Note in the original principal amount of $3,272,966 ³³ and the October 2025 Note in the original principal amount of $3,545,712 ³⁴. During the fiscal year, the Buyer converted approximately $2,897,196 ³⁵ of principal into 3,166,667 ³⁶ shares of common stock. On September 30, 2025, the Company exchanged notes held by BP Peptides, LLC and Brookstone Partners Acquisition XXI Corporation for shares of Series Z 8% Non-Convertible Preferred Stock, with BP Peptides receiving 642,276 ³⁷ shares and Brookstone Acquisition receiving 825,067 ³⁸ shares.

For the fiscal year ended December 31, 2025, the Company reported net sales of $46,881,000 ³⁹, compared to $44,876,000 ⁴⁰ in fiscal 2024, representing an increase of $2,005,000 ⁴¹ or 4.5% ⁴². Gross profit increased $1,221,000 ⁴³ or 12.8% ⁴⁴ to $10,791,000 ⁴⁵ from $9,570,000 ⁴⁶, with gross margin improving to 23.0% ⁴⁷ from 21.3% ⁴⁸. The Company reported a net loss of $21,230,000 ⁴⁹ for fiscal 2025, compared to a net loss of $2,563,000 ⁵⁰ in fiscal 2024, an increase of $18,667,000 ⁵¹ or 728% ⁵². The net loss attributable to Capstone Holding Corp. stockholders was $21,935,000 ⁵³ for fiscal 2025, compared to $5,495,000 ⁵⁴ in fiscal 2024. Diluted loss per share was $4.12 ⁵⁵ for fiscal 2025, compared to $34.87 ⁵⁶ for fiscal 2024. The Company recorded a goodwill impairment charge of $6,200,000 ⁵⁷ related to the Instone reporting unit, income tax expense of $7,176,000 ⁵⁸ (primarily reflecting the establishment of a full valuation allowance against net deferred tax assets), and interest expense of $3,886,000 ⁵⁹ driven by the issuance of senior secured convertible notes. Selling, general and administrative expenses increased $4,166,000 ⁶⁰ or 40.8% ⁶¹ to $14,374,000 ⁶² from $10,208,000 ⁶³.

The Company's primary growth vector is strategic acquisitions, with management stating it intends to pursue strategic acquisitions that complement its existing business and provide opportunities for growth, including other distributors of stone products, manufacturers of complementary building products, and companies offering innovative products or technologies. The Company believes it is strategically positioned to capitalize on market conditions within the building products sector, noting that historically, acquiring companies at interest rate peaks has yielded strong returns. According to the Bain & Company Global M&A Report published in 2024, building products companies that make frequent and material acquisitions substantially outpace inactive companies in total shareholder returns, 9.6% vs 2.7% ⁶⁴, and the M&A environment for the building products sector is expected to improve because there are ample one-off opportunities to acquire struggling assets and financial investors have taken a step back, especially in North America. The Company's long-term growth strategy also includes expanding market presence through organic growth and strategic acquisitions, with the sales and marketing team continuing to seek new opportunities to onboard customers in markets not currently being serviced; in 2025, the Company onboarded customers in 6 new states ⁶⁵, which are included in its distribution network of 38 U.S. states and two Canadian provinces ⁶⁶.

The Company's second major growth vector is product line expansion and innovation, specifically the introduction of the Toro family of manufactured stone products. Management states that the Company used its 30 years ⁶⁷ of market knowledge to formulate a product offering that competes with high-end alternatives in the sector on aesthetics but for a better value, and expects Toro to help drive significant organic revenue growth in the next three years ⁶⁸. The Company also aims to continuously expand and diversify its product offerings to meet evolving customer needs, including introducing new textures, colors, and materials within stone product lines, as well as expanding into adjacent building products and stone substitutes, with the goal of increasing share of wallet with existing customers and attracting new customers. Additionally, the Company sees significant opportunities to expand its geographic footprint and increase market penetration in underserved regions through a combination of organic growth and strategic acquisitions.The Company recorded a goodwill impairment charge of $6,200,000 ⁶⁹ related to the Instone reporting unit during 2025, driven by revised near-term revenue and earnings projections reflecting softer demand conditions and the impact of higher operating costs. Selling, general and administrative expenses increased $4,166,000 ⁷⁰ or 40.8% ⁷¹ to $14,374,000 ⁷² for fiscal 2025, primarily attributable to $1,600,000 ⁷³ of operating costs from acquisitions and $1,600,000 ⁷⁴ of higher public company costs. Gross margin improved to 23.0% ⁷⁵ from 21.3% ⁷⁶, reflecting a favorable product mix shift toward higher-margin stone veneer products and the contribution of acquired businesses which carry gross margins above the consolidated average.

The Company operates an integrated supply chain connecting its network of suppliers, manufacturing partners, and distribution centers, with nine distribution and warehouse facilities across seven states and two Canadian provinces ⁷⁷ designed to optimize inventory management, reduce lead times, and ensure timely delivery. Following the 2025 acquisitions, the Company sources products from an expanded network of domestic and international suppliers, with key supplier relationships including Eldorado Stone, Cultured Stone (Boral), Dutch Quality Stone, Pangaea Natural Stone, Stonecraft, and Horizon Stone, among others. As of December 31, 2025, the Company and its subsidiaries employed approximately 93 full-time employees ⁷⁸ and 3 independent contractors ⁷⁹ across its corporate office and nine distribution, warehouse, and installation facilities, including approximately 44 employees at Instone ⁸⁰, 23 employees at Carolina Stone ⁸¹ (including installation crews), and 29 employees at CSI ⁸². The Company has invested in scalable infrastructure including state-of-the-art facilities, advanced technology, and robust business processes.

The Company's capital allocation activities during fiscal 2025 included the March 2025 public offering of 1,250,000 ⁸³ shares at $4.00 ⁸⁴ per share for gross proceeds of $5,000,000 ⁸⁵ and net proceeds of approximately $3,252,000 ⁸⁶. The Company issued two senior secured convertible notes with aggregate gross proceeds of $6,250,000 ⁸⁷ under a $10,909,885 ⁸⁸ authorized facility. The Company also established an Equity Line of Credit with 3i, LP of $20,000,000 ⁸⁹, of which approximately $19,500,000 ⁹⁰ remained undrawn at December 31, 2025. Capital expenditures for property, equipment, and intangible asset purchases totaled approximately $160,000 ⁹¹ for fiscal 2025. The Company does not currently intend to pay dividends on its Common Stock. On March 30, 2026, the Board of Directors approved the 2025 Stock Incentive Plan, reserving shares of common stock representing approximately 21.5% ⁹² of the number of Common Shares outstanding as of the first trading day of each quarter for issuance as equity awards, and granted 1,995,000 ⁹³ restricted stock awards at a per-share fair market value of $0.649 ⁹⁴.

Management explicitly flagged several structural headwinds and execution risks. The construction industry is highly sensitive to macroeconomic conditions, and the market for residential building products has experienced a sustained period of project deferrals driven by higher interest rates and a structural lengthening of remodel cycles. According to Zonda Home, for 2026, total residential building products spending will grow just 1.0% ⁹⁵, with repair and remodel spending projected to grow 3.6% ⁹⁶, and remodeling growth will achieve only roughly half of the 20%+ growth rates seen in previous post-deferral cycles. The Company noted that near-term residential construction activity is expected to remain relatively flat as the market contends with elevated mortgage rates and affordability pressures. The Company also faces risks related to its increased indebtedness, with outstanding obligations including the Convertible Note Financing, seller notes from the Carolina Stone and CSI acquisitions, the Stream Finance mezzanine credit facility, the Berkshire Bank revolving credit agreement, and the TD Bank credit facilities. The Company's recurring net losses (including a net loss of $21,200,000 ⁹⁷ for the year ended December 31, 2025), accumulated deficit of $218,000,000 ⁹⁸ as of December 31, 2025, and upcoming debt maturities of $5,976,000 ⁹⁹ due in 2026 represent conditions that could raise substantial doubt about the Company's ability to continue as a going concern, though management has concluded that its plans alleviate this doubt.

Management identified several geographic, regulatory, and macro factors as constraints. The Company's cross-border operations in both the United States and Canada subject it to multiple regulatory regimes, including tax laws, employment laws, environmental regulations, and customs and trade regulations, and changes in tariff policies, trade agreements, or import/export regulations affecting stone and building products could increase costs or disrupt supply chains. With the acquisition of CSI, the Company now conducts a portion of its business in Canada, exposing it to foreign currency exchange rate fluctuations (primarily the Canadian dollar relative to the U.S. dollar), and a weaker Canadian dollar relative to the U.S. dollar would compress the reported U.S. dollar margins of Canadian operations. The Company also noted that global tax developments, including the OECD Pillar Two global minimum tax rate of 15% ¹⁰⁰ effective as of January 2024, could affect its effective tax rate, though the enactment of Pillar Two legislation is not anticipated to have a material adverse effect. Additionally, the Company received a notification from Nasdaq in January 2026 regarding non-compliance with the minimum bid price requirement, as the closing bid price of its Common Stock had been below $1.00 ¹⁰¹ per share for 30 consecutive business days, and the Company has until July 6, 2026 ¹⁰² to regain compliance.

The Company faces material risks from its significant indebtedness, with outstanding obligations including approximately $3,859,541 ¹⁰³ in aggregate principal under the Convertible Note Financing, a mezzanine term loan with Stream Finance, LLC of approximately $3,018,095 ¹⁰⁴, a revolving credit facility with Beacon Bank & Trust with $10,313,000 ¹⁰⁵ outstanding, and seller notes from acquisitions, with upcoming debt maturities of $5,976,000 ¹⁰⁶ due in 2026. The conversion of outstanding convertible notes with conversion prices as low as $0.75 ¹⁰⁷ per share could result in significant dilution to existing shareholders, with potentially dilutive securities of 4,462,805 ¹⁰⁸ shares excluded from the diluted EPS calculation as of December 31, 2025. The Company has material weaknesses in internal control over financial reporting due to accounting resource constraints, including a lack of segregation of duties and lack of internal controls structure review. The Company's business is highly sensitive to macroeconomic conditions, with Zonda forecasting total residential building products spending will grow just 1.0% ¹⁰⁹ in 2026 and repair and remodel spending projected to grow 3.6% ¹¹⁰, achieving only roughly half of the 20%+ growth rates seen in previous post-deferral cycles. The Company also faces risks related to its reliance on key suppliers, with the most critical being Westlake, Pangaea Stone, Stonehenge Slate, Hoch Stone, and Earthcore, and the loss of any key supplier could be highly disruptive.

Management's message emphasizes that Capstone is strategically positioned to capitalize on market conditions within the building products sector, with a long-term growth strategy built on the foundational strengths of its operating subsidiaries and strategic opportunities available in the building products distribution and manufacturing industry. Key themes include the Company's ability to identify, acquire and integrate acquisition candidates as a critical skill set to augment operating expertise that drives organic growth, with management noting that since the Company's acquisition of Instone in April 2020 through December 31, 2025, Instone's revenues have increased from approximately $32,200,000 ¹¹¹ to approximately $44,200,000 ¹¹². Management emphasizes that the Company intends to drive sustainable growth, expand its geographic presence, and deliver superior value to customers, shareholders, and other stakeholders through four strategic pillars: expand market presence, enhance product portfolio, operational excellence, and customer-centric approach. Management also highlights the introduction of the Toro family of manufactured stone products as the most recent example of innovation, stating the Company expects Toro to help drive significant organic revenue growth in the next three years ¹¹³.