Capstone Holding Maps Remaining Convertible-Note Dilution and an Unused Reverse-Split Window

by Adam Kowalczyk · September 1, 2026

Filings & Deals Reporter, The MicroCap Herald

Capstone Holding Corp. (Nasdaq: CAPS), a building-products distributor, used an August 26 current report to lay out how much dilution remains embedded in its convertible notes and how close it is to Nasdaq's minimum bid price deadline. The filing is unusual for a company of its size in that it quantifies the overhang rather than describing it in general terms.

According to the filing, Capstone originally issued $6.82 million of principal across two convertible notes to 3i, LP. As of August 25, 2026, roughly $1.72 million of that principal remained outstanding, or about 25 percent of the original amount. The company noted that approximately three quarters of the convertible note principal has been retired. The terms on what is left have moved materially against existing holders. The original conversion prices ranged from $0.57 to $1.10 per share. An amendment on August 10, 2026 reduced the conversion price to $0.2949 per share.

At that price, the filing puts potential issuance from the remaining notes at approximately 6.18 million shares against 21,754,795 shares outstanding as of August 25 — dilution of roughly 28 percent. The company also disclosed 6,804,212 shares of restricted stock awards held by officers and directors, equal to about 31 percent of shares outstanding.

Two maturity dates govern the remaining principal. The note issued in July 2025 was scheduled to mature on August 29, 2026, and the note issued in October 2025 matures on October 22, 2026. As of the disclosures reviewed for this article, Capstone had not reported the outcome of the August maturity.

Separately, the stock trades below Nasdaq's $1.00 minimum bid price. The filing states that Capstone's compliance period runs through January 4, 2027, and that shareholders authorized a reverse stock split in June 2026 within a range of 1-for-5 to 1-for-50. No ratio has been selected. The company said any reverse split would be undertaken to address the minimum bid price requirement.

The financial picture behind those mechanics is now more than two months old. Capstone's most recent quarterly report covers the six months ended June 30, 2026 and was filed August 12. The figures that follow are from that filing and predate the August note amendment and the current report described above.

For the first half of 2026, Capstone reported net sales of $34.1 million and gross profit of $9.0 million, with a net loss of $3.3 million. Second-quarter net sales were $21.5 million against $12.9 million a year earlier, and second-quarter gross profit was $6.0 million against $3.1 million. Operating income in the quarter was roughly $0.4 million, versus an operating loss of about $0.3 million in the prior-year quarter. The net loss for the second quarter was $1.4 million.

The balance sheet is where the pressure sits. Cash stood at $225,000 at June 30, 2026, with operating cash outflow of $3.2 million in the first half. Borrowings under a revolving credit facility totaled $12.6 million and long-term debt, net of the current portion, was $8.6 million, alongside $1.9 million of Series Z preferred stock classified as a liability. Total assets were $54.7 million against total liabilities of $42.3 million, leaving stockholders' equity of $12.4 million. Current assets of $26.9 million against current liabilities of $27.1 million produced a working capital deficit of roughly $244,000. The filing indicated the company maintained covenant compliance on its credit lines.

On going concern, the language needs to be read precisely. In an amended first-quarter report filed August 12, Capstone described conditions that, in the aggregate, could raise substantial doubt about its ability to continue as a going concern, citing recurring losses, negative operating cash flows and upcoming debt maturities. Management concluded that liquidity would be adequate for the following twelve months, relying on an undrawn equity line of credit — approximately $19.2 million undrawn as of May 19, 2026 — together with planned cost and revenue initiatives. That is a conditional formulation rather than an unqualified substantial-doubt disclosure, and the conclusion depends on capacity the company had not yet drawn.

That August 12 amendment also restated share and per-share figures for the first quarter of 2025. The original filing had used shares outstanding at period end rather than a time-weighted average, as required under ASC 260. Weighted average common shares for the three months ended March 31, 2025 were restated from 5,190,251 to 1,555,566, and basic and diluted loss per share moved from $(0.47) to $(1.56). A pro forma per-share figure moved from $(0.29) to $(0.97). The net loss of $2.433 million was unchanged. The company disclosed that its chief financial officer reached the conclusion on August 7, 2026 and that the audit committee approved the amendment on August 10. The original first-quarter report had been filed May 20, 2026.

Capstone reaffirmed full-year 2026 targets in the August 26 filing: revenue of $72.1 million, gross profit of $18.7 million, and adjusted EBITDA for what it calls its Stone business of approximately $3.8 million. Those are company forecasts, not reported results, and the EBITDA measure is non-GAAP.

The filing also addressed cost items at the top of the house. It states that Capstone has paid no cash management fees in 2026, that Brookstone Partners waived its annual management fee, and that the chief executive officer's annual base cash salary has been $1 since February 2026. The filing names Matthew E. Lipman as chief executive officer. It adds that Nectarine Management, LLC, an entity that holds the Series B preferred stock and is affiliated with the company's chairman, has also received no management fees.

Stacked together, the disclosed dilution sources are meaningful relative to the current count: roughly 6.18 million shares issuable on the remaining notes and 6.80 million restricted shares to insiders against 21.75 million outstanding, with an undrawn equity line and an unexercised reverse-split authorization on top. A reverse split, if the board elects one, would reduce the share count and raise the quoted price without changing what any of those claims are worth.

The items to watch are whether the October 22 note is repaid or converted, whether the board selects a split ratio before the January 4, 2027 compliance deadline, and what the third-quarter report shows on cash. Nothing here is investment advice, and Capstone has disclosed in its own filings that its ability to meet these obligations depends on conditions it does not fully control.