Capstone Holding Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 Nature of Operations

Capstone Holding Corp. (the "Company") is a holding company that operates through its consolidated subsidiaries: TotalStone, LLC ("TotalStone"), Carolina Stone Holdings, LLC ("Carolina Stone"), and Fraser Canyon Holdings Inc. ("FCHI" and together with its subsidiaries, the "CSI business"). Through these subsidiaries, the Company distributes and installs masonry and stone veneer products for residential and commercial construction across North America.

On* April 1, 2020,*the Company obtained a controlling interest in TotalStone, a materials distribution company that distributes masonry and stone veneer products for residential and commercial construction across the United States. TotalStone operates under the trade names Instone and Northeast Masonry Distributors ("NMD").

On* August 22, 2025,*the Company, through its subsidiary CS Purchase Holdings LLC, acquired all of the issued and outstanding membership interests (the "Holdings Membership Interests") in Carolina Stone Holdings, which owns all of the issued and outstanding membership interests of Carolina Stone Distributors, LLC. Carolina Stone is a stone supplier and installer specializing in both manufactured and natural stone veneer and offering end-to-end services, including material supply, installation, and project management for residential, commercial, and multi-family projects in the Raleigh-Durham and Charlotte, North Carolina markets.

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. ("FCHI") and substantially all assets of Continental Stone Industries, Inc. ("CSIA"), collectively the "CSI business." FCHI is the parent company of Canadian Stone Industries Partnership, Canadian Stone Industries Inc., and CSIA, which together distribute natural and manufactured stone products wholesale from locations in Langley, British Columbia; North York, Ontario; and San Leandro, California. Effective at the closing of the CSI acquisition, the San Leandro, California operations were integrated into Instone's U.S. distribution network to consolidate West Coast operations; the CSI business today operates fromtwo* locations in British Columbia and Ontario.

Note2 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 Rule424*(b) of the Securities Act of1933, as amended, pursuant to the Registration Statement on Form S-1 (FileNo. 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 afifth* 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 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 $1,143,646 (representing $1,006,377 of original principal plus $137,269 of accrued 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.

F-8

Note 3 Summary of Significant Accounting Policies

Basis of Presentation and Preparation

The consolidated financial statements include the accounts of Capstone and its consolidated subsidiaries (collectively, the “Company”). Intercompany accounts and transactions have been eliminated. The preparation of these financial statements and accompanying notes are in accordance with accounting principles generally accepted in the United States of America. In the opinion of management, the financial statements include all adjustments necessary for the fair presentation of our financial position, results of operations, and cash flows, and all adjustments were of a normal recurring nature.

Use of Estimates

The preparation of financial statements in accordance with US GAAP requires management to make a number of assumptions and estimates that affect the reported amounts of assets, liabilities, and expenses in our financial statements and accompanying notes. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s assumptions regarding current events and actions that* mayimpact the Company in the future, actual results may*differ from these estimates and assumptions.

Business Combinations

The Company accounts for business acquisitions using the acquisition method of accounting, in accordance with which assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date. The fair value of the consideration paid, including contingent consideration, is assigned to the assets acquired and liabilities assumed based on their respective fair values. Goodwill represents the excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed.

The Company’s management exercises significant judgments in determining the fair value of assets acquired and liabilities assumed, as well as intangibles and their estimated useful lives. Fair value and useful life determinations are based on, among other factors, estimates of future expected cash flows and appropriate discount rates used in computing present values. These judgments* maymaterially impact the estimates used in allocating acquisition date fair values to assets acquired and liabilities assumed, as well as the Company’s current and future operating results. Actual results mayvary from these estimates which may*result in adjustments to goodwill and acquisition date fair values of assets and liabilities during a measurement period or upon a final determination of asset and liability fair values, whichever occurs first. Adjustments to the fair value of assets and liabilities made after the end of the measurement period are recorded within the Company’s operating results.

Fair Value Measurements

The Company measures certain assets and liabilities at fair value in accordance with ASC820, Fair Value Measurement. ASC820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC820 establishes athree-level hierarchy that prioritizes the inputs used in measuring fair value:

Level1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level2 — Inputs other than quoted prices included within Level1 that are observable for the asset or liability, either directly or indirectly. Level2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that arenot active, and inputs that are derived principally from or corroborated by observable market data.

Level3 — Unobservable inputs for the asset or liability that are supported by little orno market activity and that are significant to the fair value measurement. Level3 inputs reflect the Company's own assumptions about the assumptions market participants would use in pricing an asset or liability, developed based on the best information available in the circumstances.

The categorization of an asset or liability within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. Transfers between levels are recognized at the end of the reporting period in which the transfer occurs.

The Company's recurring fair value measurements as of* December 31, 2025consist of (i) the embedded conversion features bifurcated from the Senior Secured Convertible Notes, classified as derivative liabilities and measured at fair value using significant unobservable inputs (Level3*); and (ii) the contingent earn-out consideration related to the Carolina Stone and Fraser Canyon acquisitions, measured at fair value using a probability-weighted discounted cash flow model with significant unobservable inputs (Level3). The Company also performs nonrecurring fair value measurements in connection with business combinations (Note4) and goodwill impairment testing (Note7), which involve Level3 inputs including projected cash flows, discount rates, and market multiples. The Company hasno recurring Level1 or Level2 fair value measurements as of* December 31, 2025or December 31, 2024.*

F-9

Cash

Cash consists of balances held in a commercial bank account.

Accounts Receivable

Accounts receivable are recorded and carried at the original invoiced amount less an allowance for any potential uncollectible amounts. The Company estimates expected credit losses for the allowance for expected credit losses based upon its assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of its customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that* mayaffect the Company’s ability to collect from customers. As of December 31, 2025* and* December 31, 2024*, the allowance for doubtful accounts totaled approximately $127.0 thousand and $104.0 thousand, respectively.

Certain of the Company’s contracts with customers include retainage provisions. Retainage represents amounts withheld from billings by customers until installation work has been inspected to ensure that obligations have been satisfied under the contract. Company invoices retainage and includes it in contract receivables when obligations have been satisfied and the right to receipt is subject only to the passage of time. As of* December 31, 2025,retainage receivables were $15.0 thousand. There wereno retainage receivables as of December 31, 2024.*

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. The Company places cash with high credit quality institutions. During the normal course of business, balances in these accounts* mayexceed the maximum amount insured by the Federal Deposit Insurance Corporation (“FDIC”). Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers comprising the Company’s diverse customer base and generally short payment terms. Management believes there isno* business vulnerability regarding concentrations of accounts receivable and sales due to the strong relationships and financial strength of our customers.

F-10

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 shipmentsnot yet received. Significant prepaid inventory* maybe located overseas. At December 31, 2025and2024*, the total prepaid inventory balance was $61.0 thousand and $163.0 thousand, respectively. The reserve for obsolete inventory at* December 31, 2025* and* December 31, 2024*, totaled $793.0 thousand 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 toforty years. Depreciation is computed by using the straight-line method for financial reporting purposes and straight-line and accelerated methods for income tax purposes. Property and equipment is comprised of building, machinery & equipment, computer equipment, leasehold improvements, software, office equipment, vehicles, and furniture & fixtures. Maintenance and repairs are charged to expense as incurred.

Goodwill and Other Intangible Assets

Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Goodwill and indefinite lived intangible assets arenot amortized, but rather are tested for impairment annually as of the1st day of thefourth quarter of each year or more frequently if indications of potential impairment exist. The Company’s goodwill is allocated to the Company’s reporting units. As of* December 31, 2025,*the Company hasthree reporting units: the TotalStone segment (TotalStone, LLC and Canadian Stone Industries) and the Carolina Stone segment (Carolina Stone Distributors, LLC).

In evaluating potential goodwill impairment, the Companyfirst assesses qualitative factors to determine whether it is more likely thannot 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 thannot that the fair value of a reporting unit is less than its carrying value, the Company performs a quantitative analysis. If the quantitative analysis indicates the carrying value of a reporting unit exceeds its fair value, the Company measures any goodwill impairment loss 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. During the year ended* December 31, 2025,the Company performed a quantitative goodwill impairment test for the Instone reporting unit as of October 1, 2025,and recorded a goodwill impairment charge of $6,200.0 thousand. See Note7* for additional information regarding the Company's goodwill impairment testing.No impairment was required for the year ended* December 31, 2024.*

Intangible assets with finite lives, consist of a distribution agreement, customer relationships and non-compete agreements that are amortized over the terms of the agreements or expected useful lives.

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 thatno impairment was required for the periods presented.

Convertible Debt

The Company accounts for convertible debt in accordance with ASC470-20, Debt with Conversion and Other Options, and ASC815, Derivatives and Hedging. At issuance, the Company evaluates whether embedded conversion features require bifurcation as derivative liabilities under ASC815-15. If bifurcation is required, the embedded feature is recorded at fair value as of the issuance date, with the initial fair value recognized as a derivative liability and a corresponding debt discount on the host instrument. The derivative liability is remeasured at fair value as of each subsequent balance sheet date, with changes in fair value recognized in earnings as non-operating, non-cash income or expense. The Company reassesses the classification of its derivative instruments at each balance sheet date. Upon modification of convertible debt, the Company evaluates the transaction under ASC470-50, Debt Modifications and Extinguishments, and remeasures the bifurcated derivative immediately before and after the modification, with the change in fair value recognized in earnings. Upon conversion, the Company derecognizes the pro-rata carrying amount of the host debt (including unamortized OID, debt issuance costs, and derivative discount) and the corresponding portion of the derivative liability at its then-current fair value. Effective upon adoption of ASU2020-06, Debt - Debt with Conversion and Other Options (Subtopic470-20), the Companyno longer evaluates convertible instruments for beneficial conversion features.

Investment in Non-Marketable Securities

Investments in non-marketable securities without readily determinable fair values by entities that donot exercise significant influence over the investee are recorded at cost, less impairment, plus or minus observable price changes.

Revenue Recognition

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 32 states in the Midwestern, Northeastern and Southeastern United States. For distribution sales, the Company recognizes revenue when control over the products has been transferred to the customer, typically upon shipment, and the Company has a present right to payment. For installation and project-based work, the Company recognizes revenue over time as performance obligations are satisfied. For production and custom residential jobs, revenue is generally recognized upon completion, as substantially all projects are short-term in nature. A small portion of commercial projects are recognized based on progress toward completion, typically through monthly billings. For2025 and2024, there areno estimates of variable consideration represented in revenue.Net revenue recognized at a point in time totaled approximately $43.5 million and $44.9 million for the years ended* December 31, 2025and2024,* respectively. Net revenue recognized over time totaled approximately $3.3 million for the year ended* December 31, 2025*and primarily relates to Carolina Stone.

F-11

Shipping and Handling

The Company includes amounts billed to customers related to shipping and handling and shipping and handling expenses in cost of goods sold.

Advertising Costs

Advertising and promotional expenses are expensed in the period incurred unless there are material costs that benefit future periods. The consolidated financial statements currently donot reflect any prepaid advertising expenses. For2025 and2024, advertising expenses were $74.0 thousand and $187.0 thousand, respectively.

Research and Development

Research and development costs are expensed as incurred and werenot significant in the periods presented.

Mandatorily Redeemable Preferred Stock

The Company classifies preferred stock that embodies an unconditional obligation to redeem the instrument by transferring assets at a specified or determinable date as a liability in accordance with ASC480, Distinguishing Liabilities from Equity. Such instruments are initially measured at fair value and subsequently measured at the present value of the amount to be paid at settlement, with interest expense accrued using the rate implicit at inception. Periodic dividend obligations on mandatorily redeemable preferred stock classified as a liability are presented as interest expense in the consolidated statements of operations. The Company's Series Z8% Non-Convertible Preferred Stock, issued* September 30, 2025,has been assessed as mandatorily redeemable and is presented as a liability in the accompanying consolidated balance sheets. See Note15* for additional information.

Earnings Per Share

Basic earnings (loss) per share is computed by dividing the net income (loss) applicable to the common stockholders of Capstone Holding Corp. by the weighted average number of shares of common stock outstanding during the year. Diluted earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Potential common shares are excluded from the computation when their effect is antidilutive.

For the years ended* December 31, 2025and2024*, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have had an anti-dilutive effect. For the year ended* December 31, 2025*, potentially dilutive securities excluded from the calculation consisted of the following:

Reclassifications

Certain reclassifications to prior year information have been made to conform with current year presentation.

Recent Accounting Pronouncements

In* December 2023,the FASB issued ASU2023*-09, “Income Taxes (Topic740): Improvements to Income Tax Disclosures,” which enhances the transparency and decision usefulness of income tax disclosures, including jurisdictional information, by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disclosures. ASU2023-09 is effective for annual periods beginning after* December 15, 2024*and early adoption is permitted. The Company has adopted the disclosure requirements of this standard on its consolidated financial statements on a prospective basis.

F-12

In* November 2024,the FASB issued ASU2024*-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.

In* November 2024,the FASB issued ASU2024*-04, Debt—Debt with Conversion and Other Options (Subtopic470-20): Induced Conversions of Convertible Debt Instruments, which clarifies the assessment of whether certain settlements of convertible debt instruments should be accounted for as an inducement conversion or extinguishment of convertible debt. The new guidance is effective for annual reporting periods beginning after* December 15,*2025, and interim periods within those annual periods. We are currently reviewing this guidance and its impact on our consolidated financial statements.

In* July 2025,the FASB issued ASU2025*-05, Financial Instruments—Credit Losses (Topic326*): Measurement of Credit Losses for Accounts Receivable and Contract Assets.* The amendments permit a practical expedient under which an entity* mayassume current conditions as of the balance sheet date willnot* change over the remaining life of accounts receivable and contract assets arising from customer contracts. The standard is effective for fiscal years beginning after* December 15, 2025,and interim periods within those fiscal years; early adoption and prospective application are permitted. The Company is evaluating the standard and doesnot* expect a material impact.

Note4 Business Combinations

During the fiscal year ended* December 31, 2025*, the Company completedtwo acquisitions, each accounted for as a business combination under ASC Topic805, Business Combinations. The Company engaged Loop Capital Financial Consulting Services, LLC (“Loop Capital”) as an independentthird-party valuation firm to assist with the purchase price allocations.

Carolina Stone Distributors, LLC

On* August 22, 2025,*the Company, through its subsidiary CS Purchase Holdings LLC, completed its acquisition of all of the issued and outstanding membership interests in Carolina Stone Holdings, LLC (“Carolina Stone Holdings”), which owns all of the issued and outstanding membership interests of Carolina Stone Distributors, LLC (“Carolina Stone”). Carolina Stone is a Morrisville, North Carolina-based distributor and installer of stone veneer and masonry products serving the Raleigh-Durham and Charlotte metropolitan areas.

Purchase Consideration. The aggregate purchase consideration for the Carolina Stone Companies was approximately $4,202.0 thousand, consisting of the following: cash at closing of $2,625.0 thousand (less preliminary working capital adjustment of $124.0 thousand for net cash transferred of $2,501.0 thousand), a subordinated promissory note of $1,250.0 thousand, final working capital adjustment of $77.0 thousand, and contingent consideration (earn-out) at fair value of $250.0 thousand.

The subordinated promissory note was issued toD22L, Inc. in the original principal amount of $1,250 thousand, maturing* February 22, 2028.The note bears interest at SOFR plus 1.25%, payable quarterly commencing December 31, 2025,with quarterly principal payments of $100.0 thousand beginning December 31, 2026.*After application of the working capital true-up of approximately $56.0 thousand, the outstanding principal balance at closing was approximately $1,306.0 thousand.

Contingent consideration of up to $825 thousand is payable as a singular payment based on Carolina Stone’s EBITDA performance duringthree annual measurement periods (fiscal years2025, 2026, and2027). Onlyone payment can be earned across allthree periods. If Carolina Stone achieves EBITDA of at least*$1,000* thousand in either thefirst orsecond measurement period, the seller receives the full $825 thousand, payable in equal quarterly installments through* June 30, 2028.If the EBITDA threshold isnot* met in thefirst two periods, the seller* mayreceive up to $825 thousand in thethird* measurement period: the full amount if EBITDA exceeds*$1,000* thousand, or a pro-rata amount determined by linear interpolation if EBITDA falls between*$800* thousand and*$1,000* thousand (as the value that EBITDA represents between*$775* thousand and*$1,000* thousand). If EBITDA doesnot reach*$800* thousand in any measurement period,no earn-out is payable.

The fair value at acquisition date of $250 thousand was estimated using a Monte Carlo simulation model with key assumptions including asset volatility of 35.0%, risk-free rate of 3.69%, and EBITDA projections based on management forecasts. Based on management’s assessment as of* December 31, 2025*,no remeasurement of the contingent consideration fair value was required for fiscal year2025.

Purchase Price Allocation. The following table summarizes the fair values of assets acquired and liabilities assumed based on the final purchase price allocation performed with the assistance of Loop Capital (in thousands):

Goodwill of $758.0 thousand is attributable to the assembled workforce (valued at approximately $170.0 thousand) and expected synergies from integrating Carolina Stone’s distribution and installation capabilities with the Company’s existing platform. All goodwill is allocated to the Carolina Stone reporting unit and is deductible for income tax purposes.

Post-Acquisition Results. Carolina Stone contributed revenue of $3.3 million and net income (loss) of ($169.0) thousand to the Company’s consolidated results for the period from* August 22, 2025through December 31, 2025.*Acquisition-related costs of $131.0 thousand were expensed as incurred and are included in selling, general and administrative expenses.

F-13

Fraser Canyon Holdings Inc. / Canadian Stone Industries

On* December 1, 2025,the Company completed the acquisition of Fraser Canyon Holdings Inc. (“FCHI”) and its subsidiaries, including Canadian Stone Industries Inc. (“CSI”), throughtwo* simultaneous transactions: (i) TotalStone, LLC acquired substantially all of the assets and assumed certain liabilities of Continental Stone Industries, Inc. (the “Asset Purchase”), and (ii) a subsidiary of TotalStone acquired all of the outstanding shares of FCHI (the “Share Purchase”). CSI is a Langley, British Columbia-based distributor of manufactured and natural stone products serving Western and Eastern Canada.

Purchase Consideration. The Fraser Canyon Acquisition comprisestwo simultaneous transactions: (i) the CSIA Asset Purchase, in which TotalStone, LLC acquired substantially all of the assets and assumed certain liabilities of Continental Stone Industries, Inc. for cash consideration of approximately US$459 thousand (CAD $647 thousand); and (ii) the FCHI Share Purchase, in which Instone Canada Corp., a wholly-owned subsidiary of TotalStone, acquired all of the outstanding shares of Fraser Canyon Holdings, Inc. for consideration of approximately US$6,267 thousand (representing the FCHI Share Purchase portion of the combined transaction). Under ASC805, both transactions have been accounted for as a single combined business combination because they were entered into in contemplation ofone another and effected concurrently. The purchase consideration for the combined Fraser Canyon Acquisition consisted of: (i)C$6,200,000 in cash (approximately US$4,447 thousand at the closing-day exchange rate ofUS$1.00 =C$1.3943), of which US$459 thousand (C$647 thousand) represented the Continental Cash Purchase Price paid by TotalStone, LLC for the CSIA Asset Purchase, reduced by a working capital adjustment of C$473,189 (approximately US$339 thousand) that lowered the Cash Purchase Price payable to the FCHI sellers; (ii) Seller Note I in the principal amount of C$1,600,000 (approximately US$1,148 thousand), maturing* March 31, 2027; (iii) Seller Note II in the principal amount of C$2,000,000 (approximately US$1,434 thousand), maturing December 1, 2028;and (iv) contingent earn-out consideration of up to C$3,000,000 (approximately US$2,152 thousand) based on Average EBITDA during the2026–2027* and2027–2028 measurement periods, with an acquisition-date fair value of US$100 thousand (US$80 thousand for Earn-Out Provision I and US$20 thousand for Earn-Out Provision II) as measured with the assistance of Loop Capital and reflected in the purchase price allocation set forth below. The seller notes, working capital adjustment, and earn-out provisions relate solely to the FCHI Share Purchase. U.S. dollar amounts have been translated from Canadian dollars at the closing-day exchange rate ofUS$1.00 =C$1.3943. The purchase price is subject to finalization during the measurement period.

The initial accounting for the Fraser Canyon Acquisition is incomplete as of* December 31, 2025.The Company has engaged Loop Capital to assist with the valuation of identifiable intangible assets and contingent consideration; the purchase price allocation presented below is based on valuations performed with the assistance of Loop Capital. The Company will finalize the purchase price allocation within the measurement period. The purchase price allocation is based on management’s best estimates and is subject to adjustment during the measurement period (up toone* year from the acquisition date) as additional information is obtained about facts and circumstances that existed at the acquisition date. The aggregate purchase consideration of approximately US$6,262 thousand reflected in the purchase price allocation below represents the FCHI Share Purchase only, stated net of the Continental Cash Purchase Price paid separately for the CSIA Asset Purchase and net of the working capital reduction described above, with U.S. dollar amounts translated at the exchange rates used for purchase accounting purposes.

Goodwill of approximately US$616 thousand at* December 31, 2025 (compared to US$601 thousand at the acquisition date), including approximately $15 thousand of foreign currency translation impact. Of the goodwill recognized at the acquisition date,$601* thousand was recognized in connection with the FCHI Share Purchase, attributable to the assembled workforce (valued at approximately US$230 thousand) and expected synergies from integrating Canadian Stone Industries’ western Canadian distribution operations with the Company’s existing platform. Goodwill from the FCHI Share Purchase isnot deductible for Canadian income tax purposes. The CSIA Asset Purchase didnot result in goodwill, as the cash purchase consideration approximated the fair value of the net assets acquired; any tax basis in goodwill from the CSIA Asset Purchase is amortizable for U.S. income tax purposes pursuant to Section197 of the Internal Revenue Code.

CSI contributed revenue of $592 thousand and net loss of $92 thousand for the period from* December 1, 2025through December 31, 2025.*Acquisition-related costs, including the Nectarine consent fee of $89 thousand and legal and advisory fees, were expensed as incurred.

Pro Forma Financial Information (Unaudited)

The following unaudited pro forma information presents the Company’s consolidated results of operations for the years ended* December 31, 2025* and2024 as though both acquisitions had been completed as of* January 1, 2024:*

The Company prepared this unaudited pro forma information under ASC805-10-50-2(h), presenting consolidated results as if the Carolina Stone and Fraser Canyon acquisitions had closed on* January 1, 2024.Pro forma earnings per share uses the Company's actual weighted-average common shares outstanding —5,321,454 for2025* and 157,610 for2024 — because neither acquisition involved share consideration. The2024 share count reflects the Company's capital structure prior to its* March 2025*initial public offering.

The pro forma results include the following adjustments directly attributable to the acquisitions, consistent with the Company's prior pro forma disclosures in Forms8-K/A filed with the SEC:

(a) Acquisition-related transaction expenses — Under the assumed acquisition date of* January 1, 2024,$1,298 of estimated transaction costs is reflected in the year ended December 31, 2024.The $1,203 of actual transaction expenses recorded in2025* is reclassified out of pro forma2025 results to avoid duplication.

(b) Incremental interest expense — $164 for2025 and $1,832 for2024, representing interest on acquisition debt as if outstanding from* January 1, 2024.*Acquisition debt includes the Carolina seller note ($1,250 at SOFR +1.25%), the Fraser subordinate seller note ($1,148 at TD Prime +1.00%), and the Fraser senior secured note ($1,434 at SOFR +1.25%).

(c) Incremental amortization — $16 per year on intangible assets recognized in the preliminary purchase price allocation for the Carolina Stone acquisition.

(d) Income taxes —No incremental tax effect has been recognized on the above adjustments because the Company maintains a full valuation allowance against its net deferred tax assets.

The pro forma results donot represent what the Company would have reported had the acquisitions closed on the assumed date, nor do they predict future performance.

Note 5 Related Party Transactions

TotalStone is party to a management agreement with Brookstone Partners IAC ("Brookstone"), an entity controlled by the Company's Chief Executive Officer and Chairman of the Board. Pursuant to this agreement, Brookstone provides annual consulting services totaling $400.0 thousand billed quarterly. The agreement also provides for an additional management fee equal to 5% of EBITDA in excess of $4.0 million, plus a special services fee in cash equal totwo percent (2%) of total consideration of any acquisition of a majority of the equity interests of any entity. Management fees expensed in each2025 and2024 were $400.0 thousand, and are included in selling, general and administrative expenses. The special services fees expensed for2025 were $103.0 thousand and are included in selling, general and administrative expenses. In connection with the Carolina Stone acquisition, Brookstone earned a 2% special services fee of approximately $94.0 thousand, which is included in transaction expenses in the consolidated statement of operations for the year ended* December 31, 2025*. In connection with the Continental Stone Industries asset purchase completed* December 1, 2025,Brookstone earned a 2% special services fee of approximately $9.2 thousand, which is included in transaction expenses in the consolidated statement of operations for the year ended December 31, 2025*. Amounts accrued for consulting and advisory services totaled $954.0 and $351.0 thousand as of* December 31, 2025and2024*, respectively.

On* January 21, 2026,Brookstone entered into a conditional fee waiver and deferral agreement with TotalStone, pursuant to which Brookstone agreed to waive the$400.0 thousand in management and consulting fees that would otherwise accrue during calendar year2026.* The obligation to pay such waived fees will be extinguished unless TotalStone achieves certain performance targets specified in the agreement.

Separately, Gordon Strout, a director of the Company and Board Chairman of TotalStone, is party to an executive agreement with TotalStone pursuant to which he receives deferred compensation. As of* December 31, 2025,*approximately $145.0 thousand of deferred compensation was accrued and payable to Mr. Strout under this agreement, which is included in accrued management fees on the consolidated balance sheet.

Stream Finance, LLC, which serves as a creditor on TotalStone’s mezzanine term loan, is managed by Brookstone. As of* December 31, 2025*, the Company’s total obligation to Stream Finance was $3,713,095, comprising principal of $2,493,664, accrued and deferred interest of $524,431, and an amendment fee of $695,000 payable on the Deferral Date (as defined in the Stream Finance Credit Agreement).

On* March 10, 2025,TotalStone paid Brookstone $200,000 for financial advisory and related services with respect to Capstone’s capital raising transaction (the “Capstone Capital Raising Transaction”). Additionally, in connection with the Carolina Stone acquisition, Brookstone earned a 2% management fee of $94,000 that is accrued on the December 31, 2025consolidated balance sheet and included in transaction expenses in the consolidated statement of operations for the periods ended December 31, 2025*. In connection with the acquisition of Canadian Stone Industries assets, Brookstone Partners IAC earned an advisory fee of approximately $9,200.

In connection with the Fraser Canyon acquisition, Nectarine Management LLC, an entity whose voting of Company securities is solely controlled by Mr. Toporek, earned a consent fee of $88,700 (CAD $124,000), representing 2.0% of the gross cash consideration of CAD $6,200,000. The fee was invoiced on* December 10, 2025pursuant to a letter agreement dated September 15, 2025.*Additional deferred fees of up to CAD $132,000 are payable as and when seller note principal repayments and earn-out payments are made.

F-14

Note6 Property and Equipment, Net.

A summary of the Company’s property and equipment is as follows in (“000’s”):

Depreciation and amortization expense on property and equipment for2025 and2024 was $313.0 and $282.0 thousand, respectively.

Note7 Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill for the year ended* December 31, 2025* are as follows in (“000’s”):

Goodwill recognized in connection with the Carolina Stone acquisition of $758.0 thousand is attributable to the assembled workforce and expected synergies from integrating Carolina Stone’s southeastern distribution network and installation capabilities with the Company’s existing platform. All goodwill from the Carolina Stone acquisition is allocated to the Carolina Stone reporting unit and is deductible for income tax purposes.

During the year ended* December 31, 2025,the Company engaged Loop Capital and performed a quantitative goodwill impairment test for the Instone reporting unit as of October 1, 2025.The estimated fair value of the reporting unit was determined using a weighted blend of the income approach (discounted cash flow method,50% weight), the guideline public company method (25% weight), and the guideline merged and acquired company method (25% weight). The blended enterprise value of approximately $28,148.0 thousand, after adjustment for net debt of approximately $14,632.0 thousand, resulted in an estimated fair value of equity of $13,516.0 thousand, which was $6,200.0 thousand (31.4%) below the carrying value of $19,716.0 thousand. Accordingly, the Company recorded a goodwill impairment charge of $6,200.0 thousand during thefourth* quarter of2025. Following the impairment charge, goodwill allocated to the Instone reporting unit was $17,086.0 thousand as of* December 31, 2025.*

The following tables summarize the Company’s other intangible assets in (“000’s”):

Intangible assets are amortized over the estimated useful lives of the respective assets on a straight-line basis. Total Amortization expense for2025 and2024 was $49.0 and $2.0 thousand, respectively.

Total future amortization expense for finite-lived intangible assets was estimated as follows in (“000’s):

F-15

Note 8 Fair Value Measurements ** **

The Company’s fair value hierarchy policy is described in Note3. The following table presents assets and liabilities measured at fair value by level:

Significant unobservable inputs used in the Level3 measurement of the derivative liabilities (Black-Scholes option-pricing model) are summarized below:

In addition to the embedded derivative liabilities described above, the Company's Level3 recurring fair value measurements include contingent earn-out consideration of $352 at* December 31, 2025,comprising $250 from the Carolina Stone acquisition and $102 from the Fraser Canyon acquisition. The fair value of each earn-out was determined at the respective acquisition date using an option pricing model implemented through a Monte Carlo simulation of the underlying EBITDA of each acquired business, and has been carried at the acquisition-date fair value through December 31, 2025pending thefirst* measurement period as there wereno material changes from the acquisition date through fiscal year-end.

The significant unobservable inputs used in the Carolina Stone earn-out valuation included EBITDA volatility of 35.0%, a risk-adjusted discount rate of 15.00% to 15.50%, and risk-free rates of 3.75% to 4.37% across thethree annual measurement periods through2027, with forecasted annual EBITDA ranging from $285 to $1,021. The Carolina Stone earn-out is capped at $825 per annual measurement period subject to EBITDA floors and targets of $800 to $1,000. For the Fraser Canyon earn-out, the significant unobservable inputs included EBITDA volatility of 40.0%, a risk-adjusted discount rate of 11.50%, and risk-free rates of 3.55% to 3.63% across thethree annual measurement periods through2028, with forecasted annual EBITDA ranging from CAD $776 to CAD $1,065.

The fair value of the contingent earn-out consideration is most sensitive to changes in projected EBITDA, EBITDA volatility, and the risk-adjusted discount rate. Significant increases (decreases) in expected EBITDA would result in a higher (lower) fair value measurement. Significant increases (decreases) in EBITDA volatility generally result in a higher (lower) fair value given the option-like payoff structure. Increases (decreases) in the risk-adjusted discount rate would result in a lower (higher) fair value. Changes in the fair value of the earn-out liabilities are recognized within operating expenses in the consolidated statements of operations.

The fair value of the embedded derivative liabilities is highly sensitive to changes in the expected volatility input. Significant increases (decreases) in the expected annualized volatility would result in a significantly higher (lower) fair value measurement of the derivative liabilities, which would be recognized as a non-operating loss (gain) in the consolidated statements of operations.

Note 9 Investment in Non-Marketable Securities

On* January 15, 2021,Capstone acquired a minority interest in a consumer products company, Diamond Products Holdings, LLC (“ Diamond”), a sexual wellness holding company. The structure of the transaction was as follows: i) Brookstone Acquisition Partners XXI Corporation (“Brookstone XXI”) contributed its approximately 95% equity interest in Diamond, which represented approximately 62% equity ownership on a fully-diluted basis, to Diamond Products Holdings, LLC (“DPH”); ii) The Company formed Capstone Beta LLC (“Beta”) as a wholly-owned subsidiary, and Beta purchased a portion of Brookstone XXI’s interest in DPH; iii) Beta issued a promissory note to Brookstone XXI in the original principal amount of $8.0 million, bearing interest at 1% per annum over a 36 month term, and secured its obligations thereunder by pledging Beta’s interests in DPH; and iv) As additional credit support, Capstone issued a limited payment guaranty to Brookstone XXI in the amount of 10% of the principal amount of Beta’s promissory note. The terms of the promissory note issued by Beta to Brookstone XXI include provisions whereby in the event that the membership interests in Diamond are sold or otherwise disposed of, any proceeds received by Beta are to be utilized to prepay the promissory note to Brookstone XXI and Brookstone XXI’s remaining recourse for the remaining note balance, if any, is limited to the pledged collateral (Beta’s membership interest in DPH) and the $800.0 thousand limited payment guarantee provide by Capstone. DPH was structured to holdone* asset, the membership interest in Diamond, and accordingly upon the sale or other disposition of the membership interests in Diamond, the sole recourse of payment by Brookstone XXI is the $800.0 thousand limited payment guarantee. In summary, the intent of Brookstone XXI and the special committee of Capstone’s independent directors entering into this arrangement was to limit Capstone’s downside risk to $800.0 thousand.

Diamond was previously sold to its lender in satisfaction of outstanding secured indebtedness, and the Company recognized an impairment charge equal to its full basis in the investment. As of* December 31, 2025and2024,* the carrying value of the Company's investment in DPH was $0, andno amount is presented in the accompanying consolidated balance sheets.

Note 10 Line of Credit

On* December 20, 2017,TotalStone executed a Revolving Credit, Term Loan and Security Agreement with Berkshire Bank (the “Revolving Credit Agreement”). The Revolving Credit Agreement has been amendedfifteen* times through the fiscal year ended* December 31, 2025.In connection with the Carolina Stone acquisition, CS Purchase Holdings LLC, Carolina Stone Holdings, LLC, and Carolina Stone Distributors, LLC were added as co-borrowers under the Fourteenth Amendment, dated August 22, 2025.Under the Fifteenth Amendment, executed December 19, 2025,the lender is now Beacon Bank & Trust (successor by merger to Berkshire Bank), and the maturity date was extended to June 19, 2026.TotalStone’s maximum revolving advance amount is $11,500,000 for working capital purposes. Advances under the credit agreement are limited to a formula-based amount of up toeighty-five* (85%) percent of the face amount of “Eligible Accounts Receivable” plus approximatelyfifty-four (54%) percent of the face amount of the TotalStone and Carolina Stone, “Finished Goods Inventory” up to a maximum inventory amount of $8.0 million. Interest charged on the unpaid principal amount bears a rate per annum of Term SOFR plus 3.00% (6.99% and 7.19% at* December 31, 2025and2024,* respectively). The Borrower is required to maintain minimum undrawn availability of $317,000 at all times. The balance outstanding on the line of credit was $7.9 million as of* December 31, 2025and $6.2 million as of December 31, 2024.Financial covenants include a minimum Cash Flow Coverage Ratio of 1.15x and a minimum Tangible Net Worth of $1,250,000, with which the Company was in compliance at December 31, 2025.As of December 31, 2025,*the Company was in compliance with all financial covenants under the Revolving Credit Agreement.

In connection with the Fraser Canyon acquisition, on* November 7, 2025,Canadian Stone Industries and Klad Envelope Solutions Inc. entered into a Letter of Agreement with The Toronto-Dominion Bank ("TD Bank") providing Canadian Stone Industries with a revolving operating loan with a credit limit of CAD $5,000,000 for working capital purposes. Advances are available as Prime Rate Based Loans at Prime Rate +0.50% per annum or United States Base Rate Loans at USBR +0.50% per annum. The facility is uncommitted and repayable on demand. Advances are limited to a formula-based amount equal to the lesser of (i) CAD $5,000,000 and (ii) the sum of 80% of eligible Canadian and U.S. accounts receivable plus 50% of inventory held in Canada net of30*-day accounts payable. The balance outstanding on the TD Bank operating loan was approximately $2.4 million as of* December 31, 2025.The TD Bank credit facility is secured byfirst*-priority General Security Agreements from Canadian Stone Industries, Fraser Canyon Holdings Inc., Canadian Stone Industries (2022) Inc., Klad Envelope Solutions Inc., and Instone Canada Corp., covering all present and after-acquired personal property. Instone Canada Corp. has provided an unlimited guarantee.

As of* December 31, 2025,*the combined balance outstanding under the Company's revolving credit facilities was $10.3 million.

F-16

Note 11 Debt

As of* December 31, 2025*, the Company had $15.7 million in total debt outstanding, with $6.0 million payable within12 months. A summary of the Company’s total debt outstanding is as follows in (“000’s”):

F-17

Note 11 Debt(cont.)

Mezzanine Term Loan —Stream Finance, LLC.

TotalStone, LLC is party to the Second Amended and Restated Credit Agreement, dated* March 8, 2023,with Stream Finance, LLC, as agent (as amended, the "Stream Finance Credit Agreement"). As of January 1, 2025,the outstanding balance of the mezzanine term loan was $1,552,244, consisting of principal of $1,309,244 and accrued and deferred interest of $243,000. On March 7, 2025,in connection with the corporate restructuring described in Note2,* the Special Preferred Membership Interests previously held by Stream Finance were exchanged for additional term loans, adding $1,143,646 (representing $1,006,377 of original principal plus $137,269 of accrued interest) to the outstanding principal balance. The loan bears interest at an annual rate of 14% (12% payable in cash and 2% paid-in-kind) pursuant to the terms of the Stream Finance Credit Agreement, as amended. PIK interest of $40,774 was capitalized to principal through* December 31, 2025.As of December 31, 2025,the outstanding principal balance of the mezzanine term loan was $2,493,664. Including accrued and deferred interest of $524,431, the total outstanding balance was $3,018,095. Including the $695,000 amendment fee payable on the Deferral Date, the Company's total obligation to Stream Finance was $3,713,095 as of December 31, 2025.The amendment fee is payable on the Deferral Date, defined as the earliest to occur of (i) the date of repayment or prepayment of the entire outstanding principal balance of the loan, (ii) the acceleration of the entire outstanding principal balance of the loan, and (iii) the Stream Finance Maturity Date. The Stream Finance Credit Agreement matures on September 30, 2027,as extended pursuant to the Third Amendment dated June 11, 2025.The loan is secured by asecond*-priority lien on substantially all assets of TotalStone, LLC.

The following table summarizes the activity in the Stream Finance mezzanine term loan for the year ended* December 31, 2025*:

(1) The table above presents principal activity only. As of* January 1, 2025,accrued and deferred interest totaled $243,000. As of December 31, 2025,accrued and deferred interest totaled $524,431 and the amendment fee of $695,000 remained payable on the Deferral Date. The Company's total obligation to Stream Finance, including principal of $2,493,664, accrued and deferred interest of $524,431, and the amendment fee of $695,000, was $3,713,095 at December 31, 2025.*

Prior to the Fourteenth Amendment, the interest rate on the Credit Facility was determined on a performance-based sliding scale, with the applicable rate set each quarter by reference to trailing Adjusted EBITDA of TotalStone as measured under thetwo tables below (Table A excluding the Northeast operations and Table B including them):

Subordinated Promissory Note—*** Carolina Stone.*In connection with the acquisition of Carolina Stone Holdings, LLC on August 22, 2025,CS Purchase Holdings LLC issued a subordinated promissory note to the seller in the original principal amount of $1,250,000 (the “CS Seller Note”). Following the final working capital adjustment of $56,047 added to the principal balance, the CS Seller Note had a balance of approximately $1,306,000 at closing. The CS Seller Note bears interest at a rate of SOFR plus 1.25%, payable quarterly beginning December 31, 2025.Quarterly principal payments of $100,000 commence December 31, 2026,with the remaining balance due at maturity on February 22, 2028.The CS Seller Note is subordinated and unsecured, and is prepayable without penalty. The balance outstanding as of December 31, 2025 was approximately $1,306,000.

Seller Notes—*** Fraser Canyon.In connection with the acquisition of Fraser Canyon Holdings, Inc. and the assets of Continental Stone Industries, Inc. on December 1, 2025,Instone Canada Corp. issuedtwo subordinated promissory notes to the sellers: First Seller Note. Thefirst* note was issued in the original principal amount of CAD $1,600,000 and matures on* March 31, 2027.The note bears interest at TD Bank’s prime rate plus 1.00% through November 30, 2026,stepping up to prime rate plus 3.00% thereafter, payable quarterly. Principal payments of CAD $400,000 each are due on July 31, 2026 and October 31, 2026,with the remaining balance due at maturity. The note is guaranteed by Capstone Holding Corp. and includes a mandatory prepayment provision requiring50%* of net cash proceeds from Capstone equity or debt raises in excess of US $1,100,000. As of* December 31, 2025*, the outstanding principal balance was CAD $1,600,000 (approximately USD $1,112,000), excluding accrued interest. Second Seller Note. Thesecond note was issued in the original principal amount of CAD $2,000,000 and matures on* December 1, 2028.The note bears interest at30*-day average SOFR plus an escalating margin:1.25% through* November 30, 2026;2.50% from December 1, 2026through November 30, 2027;and 3.75% thereafter, payable quarterly. Quarterly principal payments of CAD $50,000 commence March 31, 2027,with the remaining balance due at maturity. The note includes a mandatory prepayment provision requiring50%* of quarterly fixed charge excess cash flow to be applied to principal. As of* December 31, 2025*, the outstanding principal balance was CAD $2,000,000 (approximately USD $1,390,000), excluding accrued interest. Both notes are subordinated to the TD Bank credit facilities.

Liquidity and Nasdaq Listing Compliance

In* January 2026,the Company received a notification from the Nasdaq Stock Market indicating that the closing bid price of its Common Stock had been below$1.00* per share for30 consecutive business days and that the Company was thereforenot in compliance with Nasdaq Listing Rule5550(a)(2). The Company has until* July 6, 2026to regain compliance, and the Board of Directors intends to seek shareholder authorization at the2026* Annual Meeting to effect a reverse stock split, if needed, to satisfy the minimum bid price requirement. Continued listing on Nasdaq is an important component of the Company's access to capital markets, including its ability to issue shares under the ELOC and to raise additional equity capital on favorable terms. A delisting or prolonged non-compliance could adversely impact the Company's liquidity position. In addition, the Company has generated recurring net losses, including a net loss of $21.2 million for the year ended* December 31, 2025,and has had negative cash flow from operations in each of the pasttwo* fiscal years.

Management has evaluated these conditions together with the Company's liquidity resources and operational plans. In* April 2025,the Company entered into a $20 million Equity Line of Credit agreement with3i,* LP (the "ELOC"), under which the Company* maysell shares of its Common Stock from time to time to3i,* LP at pricing determined under the ELOC agreement, subject to certain conditions, including the Company's continued Nasdaq listing. As of* December 31, 2025,and as of April 15, 2026,approximately $19.5 million remained undrawn under the ELOC, and the Company intends to continue using the ELOC as a component of its liquidity strategy alongside its Revolving Credit Agreement. The Company is also actively integrating the businesses acquired in2025* and implementing plans to realize operating synergies and cost reductions across the combined platform. On the revenue side, management is expanding the Company's product offering — including new stone veneer lines, complementary hardscape and masonry categories, and broader distribution into the Carolinas and Canadian markets — to drive organic growth and improve operating leverage in2026. Based on this evaluation, management believes the Company's available liquidity and operating plans are sufficient to fund operations for at leastone year from the issuance date of these consolidated financial statements.

F-18

Senior Secured Convertible Notes.In July 2025,the Company issued a Senior Secured Convertible Note to3i, LP (the "JulyNote") in the original principal amount of $3,272,966 (net of an 8.34% original issue discount), maturing July 31, 2026.In October 2025,the Company issued asecond Senior Secured Convertible Note to3i, LP (the* "OctoberNote") in the original principal amount of $3,545,712, maturing October 22, 2026.Both notes bear interest at 7.0% per annum, with quarterly cash amortization beginning after 90 days. The notes are secured by afirst*-priority lien on substantially all of the Company's assets. The embedded conversion features were bifurcated and accounted for as derivative liabilities at fair value in accordance with ASC815 (see the derivative instruments disclosure below). During the year ended* December 31, 2025*, the Company entered intothree amendments to the* JulyNote andone* amendment to the* OctoberNote that reduced the applicable conversion prices. The conversion price on the JulyNote was reduced from $1.72 to $1.00 per share and subsequently to $0.75 per share. On the OctoberNote, the conversion price on $1,772,856 of principal was reduced from $1.10 to $0.75 per share, while the remaining $1,772,856 of principal continued at $1.10 per share. During the year ended December 31, 2025*, the Buyer converted $2,710,280 of* JulyNote principal into 2,900,000 shares of common stock at $1.00 per share and $186,916 of OctoberNote principal and $13,084 of accrued interest into 266,667 shares at $0.75 per share. Separately, the Company redeemed $61,942 of JulyNote principal in cash on September 3, 2025.As of December 31, 2025*, the outstanding principal balance was $500,744 on the* JulyNote and $3,358,797 on the October*Note, for an aggregate balance of $3,859,541.

The following table summarizes the carrying value of the Company's senior secured convertible notes as of* December 31, 2025*:

The following table presents a roll forward of the derivative liabilities associated with the embedded conversion features for the year ended* December 31, 2025*:

As of* December 31, 2025*, the following shares of common stock were issuable upon conversion of the outstanding senior secured convertible notes:

Promissory Note—*** Brookstone XXI, LLC.*The $800,000 unsecured promissory note payable to Brookstone Partners Acquisition XXI Corporation was included in the combined principal and interest balance of $1,089,222 exchanged for 825,067 shares of Series Z 8% Non-Convertible Preferred Stock on September 30, 2025 (see above). Upon completion of the exchange, the note and all related obligations, including Capstone’s limited payment guaranty, were extinguished in full. As of December 31, 2025, no amounts remain outstanding.

Scheduled maturities of long-term as of* December 31, 2025*, are as follows:

F-19

Note 12 Leases

As of* December 31, 2025*, the balance of our right-of-use (“ROU”) assets was $5.4 million, net, and total lease liabilities of $5.5 million (consisting of $1.7 million current and $3.8 million non-current), included in current portion, lease liability and lease liability, net of current portion.

In connection with the acquisitions of Carolina Stone (* August 22, 2025)and Fraser Canyon Holdings/CSI ( December 1, 2025),the Company assumed operating leases for distribution, showroom, and warehouse facilities. The Carolina Stone leases include: (i) approximately 13,500 square feet at10306* Globe Road, Morrisville, NC, extended through* May 31, 2027,at approximately $154,560 annually, and (ii) approximately 28,000 square feet at901* Tulip Drive, Gastonia, NC, through* June 30, 2029,at a starting annual base rent of $130,200 escalating at 3.5% annually. The CSI leases include: (i) approximately 31,418 square feet at27524–51A* Avenue, Langley, BC, through* July 31, 2030,at approximately CAD $627,024 annually, and (ii) approximately 30,000 square feet at45* Fenmar Drive, North York, ON, through* November 30, 2026,with afive*-year extension optionnot yet exercised. Operating lease ROU assets of $906 thousand and corresponding lease liabilities were recognized at fair value upon the Carolina Stone acquisition date (see Note4). Fraser Canyon/CSI ROU assets and lease liabilities are included in the purchase price allocation and totaled approximately $2.1 million.

The maturity of our lease liabilities as of* December 31, 2025* is as follows in (“000’s”):

Lease expense recognized on our leases is as follows in (“000’s”):

F-20

Note 12 Leases(cont.)

The following summarizes additional information related to our leases for2025 and2024 in (“000’s”):

Note 13 TotalStone Preferred Units

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

In addition, as part of the merger of the Company and TotalStone, the Mezzanine lender accepted $873.0 thousand as a Special Preferred Unit in lieu of debt. The Special Preferred Unit has a preferential distribution position but doesnot earn a preferred return.

On* March**8,* 2023, the Company entered into the Ninth Amendment to the Revolving Credit, term Loan and Security Agreement (the “Ninth Amendment”). The Ninth Amendment permitted a payment of $389.0 thousand to the Special Preferred Unit holders.

On the Restructuring Date (* March 7, 2025),all outstanding Class B and Class C Preferred Interests in TotalStone were exchanged for 3,782,641 shares of the Company’s Common Stock pursuant to the Master Exchange Agreement described in Note2.* The Special Preferred Membership Interests were also extinguished in connection with the restructuring. As of* December 31, 2025,*no TotalStone preferred units remain outstanding.

Note 14 TotalStone Warrants

In connection with the* April2020* TotalStone transaction,1,175 warrants to purchase class A common interest in TotalStone were granted to TotalStone management. The warrants have a purchase price of $0.01 per warrant unit and vested in equal annual installments over athree-year period, with* March31,* 2023 as the final vesting date. Vested warrants* maybe exercised through March 31, 2030*subject to continuing employment.

On the Restructuring Date (* March 7, 2025),1,125 outstanding Class A TS Warrants were cancelled in connection with the corporate restructuring described in Note2.* The remaining 50 warrants from the original grant of 1,175 had been previously forfeited. As of* December 31, 2025,*no TotalStone warrants remain outstanding.

F-21

Note15 Stockholders’ Equity

As of* December 31, 2025*, the Company had 8,772,872 shares of Common Stock issued and outstanding and 25,000,000 shares of preferred stock authorized, of which 2,000,000 are designated as Series B Preferred Stock (985,063 shares issued and outstanding) and 3,500,000 are designated as Series Z 8% Non-Convertible Preferred Stock (1,467,343 shares issued and outstanding, classified as a liability pursuant to ASC480).

In* June2015,* our stockholders approved the2015 Equity Incentive Plan (the*“2015* Plan”) and reserved 1,000,000 shares of our common stock for issuance. At* December31,* 2024, no shares remained available to grant under the Plan and all granted shares are fully vested.

Stock-based compensation expense reflects the fair value of stock-based awards measured at the grant date and recognized over the relevant vesting period. The Company generally estimates the fair value of each stock-based award on the measurement date using the Black-Scholes option valuation model which incorporates assumptions as to stock price volatility, the expected life of the options, risk-free interest rate and dividend yield. No options were granted in2025 or2024.

Stock Compensation

There wereno stock compensation costs, option grants or stock options exercised in2025 or2024. At* December**31,* 2025, there wereno remaining unamortized non-cash stock compensation costs.

As of* December 31, 2025* and* December 31, 2024*, there were approximately 50 and 500 options exercisable and vested at a weighted average exercise price of $163.00, respectively. During2025 and2024,450 options expired unexercised.No options were granted or exercised in2025 or2024.

The Brookstone Partners warrant expired unexercised on* April 1, 2024.*

Preferred Stock

On* February 20, 2025,following the Company’s controlling shareholder’s approval, the Company filed an amendment to its Restated Certificate of Incorporation to increase the authorized shares of preferred stock to 25,000,000 shares. As of December 31, 2025,the Company had 985,063 shares of Series B Preferred Stock outstanding. Additionally,1,467,343 shares of Series Z 8% Non-Convertible Preferred Stock were issued and outstanding; however, the Series Z Preferred Stock is classified as a liability on the consolidated balance sheet pursuant to ASC480,* Distinguishing Liabilities from Equity (see Series Z disclosure below). As of* December 31, 2024,*there wereno outstanding shares of preferred stock.

The Board of Directors of the Company approved a Tax Benefit Preservation Plan (“Benefit Plan”) dated* April**18,* 2017, between the Company and Computershare. The Benefit Plan and the exercise of rights to purchase Series A Preferred Stock, pursuant to the terms thereof,* may*delay, defer or prevent a change in control without the approval of the Board. In addition to the anti-takeover effects of the rights granted under the Benefit Plan, the issuance of preferred stock, generally, could have a dilutive effect on our stockholders.

Under the Benefit Plan, each outstanding share of our common stock has attachedone preferred stock purchase right. Each share of our common stock subsequently issued prior to the expiration of the Benefit Plan will likewise have attachedone right. Under specified circumstances involving an “ownership change,” as defined in Section382 of the Internal Revenue Code (“the Code”), the right under the Benefit Plan that attaches to each share of our common stock will entitle the holder thereof to purchase 1/100 of a share of our Series A Preferred Stock for a purchase price of $5.00 (subject to adjustment), and to receive, upon exercise, shares of our common stock having a value equal totwo times the exercise price of the right. In* Mayof2024,* The Company and Computershare extended the Benefit Plan through* December**31,* 2027.

The Benefit Plan was cancelled per the Master Exchange and Other Transaction Agreement executed on* March 3, 2025.*

Series B Preferred Stock: In* February 2025,the Company filed the Certificate of Designation of Preferences, Rights and Limitations of Series B Preferred Stock with the Delaware Secretary of State, designating 2,000,000 shares as Series B Preferred Stock, no par value. Nectarine Management, LLC, an entity controlled by Michael Toporek, the chairman of the board of directors, purchased 985,063 shares of Series B Preferred Stock for a purchase price of $30,000. The holders of Series B Preferred Stock have the right to vote together with common stockholders, castingone* vote per share. Series B Preferred Stock is convertible into Common Stock at the holder’s option after thetwo-year anniversary of the Company’s* February 2025initial public offering, provided the Common Stock’s closing price meets or exceeds $40 per share. Until less than 50% of the originally issued Series B Preferred Stock remains outstanding, holders of at least 50% of such shares mayappointtwo* directors to the Board and the Company cannot take certain corporate actions without the approval of at least 50% of the outstanding Series B Preferred Stock.

Series Z8% Non-Convertible Preferred Stock (Classified as Liability): On* September 30, 2025,the Company filed the Certificate of Designation of Preferences, Rights and Limitations of Series Z8%* Non-Convertible Preferred Stock with the Secretary of State of the State of Delaware, designating 3,500,000 shares as Series Z Preferred Stock, no par value. A total of 1,467,343 shares were issued to BP Peptides, LLC (642,276 shares) and Brookstone Partners Acquisition XXI Corporation (825,067 shares), both affiliates of Brookstone Partners, the Company’s majority shareholder, in exchange for the extinguishment of outstanding related party promissory notes with a combined principal and accrued interest balance of approximately $1.94 million. The shares were issued pursuant to the exemption from registration under Section4(a)(2) of the Securities Act of1933, as amended. The Series Z Preferred Stock is non-convertible and carries a cumulative dividend at the rate of 8% per annum, accruing daily on the $1.32 per share stated value based on a360-day year oftwelve 30-day months. Accrued but unpaid dividends compound quarterly. The Series Z Preferred Stock is mandatorily redeemable at the earlier of (a) theseventh anniversary of the original issue date (* September 30, 2032)or (b) the occurrence of a Fundamental Transaction, at a redemption price equal to the stated value plus all accrued and unpaid dividends. Because the Series Z Preferred Stock embodies an unconditional obligation requiring the Company to transfer assets to redeem the instrument at a specified date, and the instrument is non-convertible, the Company has classified the Series Z Preferred Stock as a liability in accordance with ASC480*-10-25-4, Distinguishing Liabilities from Equity. The Series Z liability was initially measured at fair value, which approximated the aggregate stated value of $1,936,893, and is subsequently measured using the interest method, with periodic accretion of interest expense at the 8% contractual rate. Interest expense of approximately $39,000 was recognized for the period from* September 30, 2025through December 31, 2025.As of December 31, 2025,*the carrying value of the Series Z liability, including accrued interest, was approximately $1,976,000.

In connection with the Public Offering that closed on* March 7, 2025,the Company issued to the underwriters warrants to purchase an aggregate of 62,500 shares of Common Stock (the “Representative’s Warrant”), representing 5% of the shares issued in the Public Offering. The Representative’s Warrant is exercisable commencing on September 5, 2025and expiring on September 7, 2026,at an exercise price of $4.00 per share. As of December 31, 2025*, the Representative’s Warrant hadnot been exercised.

The Company’s Senior Secured Convertible Notes (see Note11) are convertible into shares of Common Stock at conversion prices ranging from $0.75 to $1.10 per share. During the year ended* December 31, 2025*, holders converted an aggregate principal amount of $2,897,196 into 3,166,667 shares of Common Stock at conversion prices ranging from $0.75 to $1.00 per share. As of* December 31, 2025*, the remaining outstanding principal of $3,859,541 would be convertible into approximately 4,393,933 shares of Common Stock at conversion prices ranging from $0.75 to $1.10 per share.

Note 16 TotalStone401(K)** Retirement Savings Plan

TotalStone maintains a defined contribution pension plan, which covers all employees electing to participate after completing certain service requirements. Employer contributions are made at the Company’s discretion. Generally, the Company makes safe harbor matching contributions equal to 100% of employee contributions up to 4% of the employee’s Plan Compensation, as defined. Each participant is 100% vested in their salary deferral and the safe harbor matching contributions. Other employer discretionary contributions are subject to a graded vesting schedule. Company matching contribution expense in each of2025 and2024 was $150.7 thousand and $159.0 thousand, respectively.

Carolina Stone Distributors, LLC maintained a SIMPLE IRA plan covering eligible employees after90 days of service. Under the plan, Carolina Stone matched employee contributions up to 3% of eligible compensation. Employer matching contributions for the period from the acquisition date of* August 22, 2025through December 31, 2025totaled $10.0 thousand. The SIMPLE IRA was terminated effective December 31, 2025,and Carolina Stone employees became eligible to participate in TotalStone's401*(k) Plan effective* January 1, 2026.*

Canadian Stone Industries Inc. sponsors a Group Registered Savings Plan ("Group RSP") through RBC covering all employees afterthree months of continuous service. Under the plan, CSI matches employee contributions at 2% of eligible compensation with immediate vesting. Employer matching contributions for the period from the acquisition date of* December 1, 2025through December 31, 2025*totaled $1.0 thousand.

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Note 17 Income Taxes

Pre-Tax book income/(loss) has been recorded in the following jurisdictions:

The Company generated federal and state income tax expense for the period ended* December 31, 2025of $7,178, $46, and $48, respectively in ('000's'). The Company generated federal, state, and foreign income tax expense for the period ended December 31, 2024of $419, $23, and $0, respectively in ('000's'*).

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Note 17 Income Taxes (cont.)

Effective* January 1, 2025,the Company adoptedASU 2023‑09,* Income Taxes (Topic740): Improvements to Income Tax Disclosures, on a prospective basis in accordance with the standard’s transition guidance. As required underASU 2023‑09, the rate reconciliation for the current year is presented using the new prescribed categories and enhanced disaggregation to provide greater transparency into the factors affecting the Company’s effective tax rate for continuing operations. The following table presents the Company’s income tax rate reconciliation on continuing operations for the year ended* December 31, 2025,prepared in accordance with the disclosure requirements ofASU 2023‑09* in ('000's').

As a result of the Company’s prospective adoption ofASU 2023‑09, Income Taxes (Topic740): Improvements to Income Tax Disclosures, the rate reconciliation table presented above for the year ended* December 31, 2025reflects the new prescribed categories and enhanced disaggregation required under the updated disclosure framework. In accordance with the transition guidance, the Company didnot* elect retrospective application; therefore, the comparative periods that follow are presented in the legacyASC 740 format applicable to those historical periods. The Company continues to apply FASB ASC Topic740, Income Taxes, in the computation and presentation of its income tax provision, and the enhancedASU 2023‑09 disclosure requirements apply solely to the current year rate reconciliation. The following table presents the reconciliation of the income tax provision (benefit) for prior periods using the legacyASC 740 disclosure format for continuing operations in ('000's').

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows in ('000's'):

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Note 17 Income Taxes (cont.)

In* December 2023,the FASB issued ASU2023‑09,* Income Taxes (Topic740): Improvements to Income Tax Disclosures, which enhances the transparency and decision usefulness of income tax information by expanding annual disclosure requirements related to income taxes paid. The amendments require entities to disaggregate income taxes paid by jurisdiction, providing separate disclosure for federal, state, and foreign income tax payments. These requirements are intended to give users of the financial statements greater insight into the geographical distribution of an entity’s cash tax outflows and tax related cash flow risks. The Company has adopted the disclosure requirements of this standard on its consolidated financial statements.

Cash paid for income taxes (net of refunds) are as follows for the year ended* December 31, 2025in ('000's'*):

The Company has accumulated approximately $141.0 million in federal and $17.0 million in state net operating loss carryforwards (“NOLs”) and approximately $3.9 million of research and development tax credit carryforwards. The federal NOLs generated before2018 have20-year carryforward periods with NOLs generated in2018 and after havingno expiration period. Federal NOLs generated in2018 and after total $3.5 million. The availability of these NOL’s to offset future taxable income could be limited in the event of a change in ownership, as defined in Section382 of the Internal Revenue Code.

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax basis of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company recognizes deferred tax assets to the extent that these assets are more likely thannot to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. The valuation allowance changed by -$2.2 million, during the year ended* December**31,* 2025.

For the period ended* December 31, 2025,Capstone Holding Corp. has a total carryover of Federal Net Operating Losses (NOLs) of $98.4 million, which represents NOLs that were generated before the rules of the Tax Cuts and Jobs Act (TCJA), which became effective on January 1, 2018and NOLs that were generated after the TCJA. The Company expects to expire $22.7 million of NOLs for the period ended December 31, 2025.The Company’s NOLs that were generated after TCJA in the amount of $8.8 million donot* expire but are subject to the80% limitation. The Company has a State NOL carryover of $3.6 million. These NOLs are subject to various limitations and expiration dates.

The Internal Revenue Code of1986, as amended, imposes restrictions on the utilization of net operating losses and tax credits in the event of an "ownership change" of a corporation. Accordingly, a company's ability to use net operating losses and tax credits* maybe limited as prescribed under Internal Revenue Code Section382* and383 ("IRC Section382"). Events which* maycause limitations in the amount of the net operating losses or tax credits that the Company mayuse in anyone* year include, but arenot limited to, a cumulative ownership change of more than50% over athree-year period. Utilization of the federal and state net operating losses* maybe subject to substantial annual limitation due to the ownership change limitations provided by the IRC Section382* rules and similar state provisions. At* December 31, 2025,based on preliminary internal analysis, the Company hasnot* experienced an ownership change as defined under IRC Section382. However, in light of the2025 initial public offering, corporate restructuring, and conversions of convertible notes and preferred interests into common stock, the Company expects that an ownership change* mayoccur in early2026.* Upon occurrence of an ownership change, the Company's ability to utilize its $98.4 million of pre-TCJA and $8.8 million of post-TCJA federal net operating loss carryforwards against future taxable income will become subject to an annual limitation under IRC Section382. The Company intends to engage an outside advisor to complete a formal Section382 study. Any such limitation isnot expected to affect the Company's net income tax expense in the near term because of the full valuation allowance maintained against net deferred tax assets.

The Company's major tax jurisdictions are the United States and Canada. All of the Company's tax years will remain open for examination by the Federal and state tax authorities forthree andfour years, respectively, from the date of utilization of the net operating loss or research and development credit. The Company doesnot have any tax audits pending in the United States.

"The Inflation Reduction Act of2022 was signed into law* August 16, 2022,and includes significant legislation addressing taxes, inflation, climate change and renewable energy incentives, and healthcare. Key tax provisions include a15%* corporate minimum tax, clean energy incentives, and a1% excise tax on stock buybacks. The Company doesnot expect the provisions of such legislation to have any impact on the effective tax rate of the Company but will continue to evaluate the tax effects should any provisions become applicable to the Company.

On* July 4, 2025,the One Big Beautiful Bill Act (“OBBBA”) was enacted as Public Law119‑21.* The legislation implements several amendments to the Internal Revenue Code, including the permanent extension of100 percent bonus depreciation for qualified property and research and development expenditures, as well as revisions to expensing rules applicable to certain structures. The Act also includes modifications affecting corporate tax administration, such as adjustments to the Employee Retention Credit (ERC), changes to Opportunity Zone related provisions, and the scheduled expiration or modification of certain business related clean energy credits.

The Company has evaluated the corporate income tax effects of the OBBBA in the period of enactment. In connection with the Act’s modifications to bonus depreciation, the Company has accelerated depreciation for its current period additions, consistent with the Act’s statutory framework governing the100 percent allowance. The resulting adjustments have been reflected in the Company’s measurement of current and deferred income tax assets and liabilities. Based on its analysis, the Company determined that the enactment of the OBBBA didnot have a material impact on its consolidated financial statements for the year ended* December 31, 2025.*The Company will continue to monitor regulatory and administrative guidance issued under the Act."

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Note 18 Segment Information

The Company hastwo reportable segments: (i) the TotalStone segment, which includes the operations of TotalStone, LLC and the legacy Instone distribution business, together with Canadian Stone Industries Inc. and Continental Stone Industries, Inc. (collectively, "Fraser Canyon"), acquired in* December 2025;and (ii) the Carolina Stone segment, which includes the operations of Carolina Stone Distributors, LLC and its affiliated installation business, acquired in August 2025.The TotalStone segment distributes natural and manufactured stone and related building products. The Carolina Stone segment distributes and installs stone veneer and related masonry products. The Company also incurs corporate-level SG&A expenses at Capstone Holding Corp. ("Capstone" or the "Parent"), consisting primarily of board fees, investor relations, filing, legal, insurance, accounting and consulting expensesnot* identifiable or allocated to the operating segments.

The Company's Chief Executive Officer serves as the chief operating decision maker ("CODM"). The CODM evaluates segment performance based on segment revenue, gross profit, and income (loss) from operations. Corporate overhead and certain shared services costsnot directly attributable to a segment are reported within the Parent/Eliminations column. Interest expense, income taxes, and other non-operating items arenot allocated to segments. The accounting policies of the reportable segments are the same as those described in Note3.

The following tables present financial information regarding the Company's reportable segments, reconciled to the Company's consolidated totals.

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Note 19 Subsequent Events

Cost Rationalization and Executive Compensation.In January 2026,the Company executed a cost rationalization program removing approximately $2.0 million in annualized corporate overhead expenses, primarily through the elimination of non-core investor relations and consulting expenditures. In connection with the cost rationalization, the Chief Executive Officer voluntarily reduced his annual base cash salary to $1.00 for a period ofone year, effective February 1, 2026.

*Fee Waiver and Deferral Agreement.On January 21, 2026,TotalStone, LLC entered into a conditional fee waiver and deferral agreement with Brookstone Partners IAC, Inc. (a related party) and Gordon Strout (Board Chairman of TotalStone). Under the agreement, Brookstone Partners IAC agreed to waive management and consulting fees totaling $400,000 that would have accrued during the period from January 1, 2026through December 31, 2026under the existing management agreement dated March 1, 2020.*Additionally, Mr. Strout agreed to waive the right to salary or fee accruals amounting to $94,091 under his executive agreement with TotalStone. The waived amounts are conditional and will become payable only if TotalStone meets specified performance targets during the waiver period.

Convertible Note Activity.Subsequent to December 31, 2025,the Buyer converted additional principal under the October 2025Senior Secured Convertible Note into shares of common stock. Between Januaryand March 2026,the Buyer converted an aggregate of approximately $233,645 of principal into 333,335 shares of common stock at a conversion price of $0.75 per share. In February 2026,the Company entered into a letter agreement with3i, LP pursuant to which the $606,054 payment due January 22, 2026under the July 2025Senior Secured Convertible Note was deferred to the maturity date. As consideration for the deferral, the Company issued a warrant to3i, LP for 405,000 shares of common stock at an exercise price of $0.01 per share with afive-year term.

2025 Stock Plan and Restricted Stock Awards.On March 30, 2026,the Board of Directors approved the Capstone Holding Corp.2025 Stock Plan (the“2025 Plan”), reserving up to 5,000,000 shares of common stock for issuance in the form of stock options, restricted stock awards, and other equity-based awards to employees, officers, and directors of the Company and its subsidiaries. On the same date, the Board approved an initial grant of 1,995,000 restricted stock awards under the2025 Plan tofive members of management andsix non-employee directors, representing approximately 21.0% of common shares outstanding as of the grant date. The restricted stock awards were granted at a per-share fair market value of $0.649, the closing price of the Company’s common stock on the Nasdaq Capital Market on* March 30, 2026,resulting in total stock-based compensation cost of approximately $1,295,000 to be recognized over the applicable vesting periods. Management awards vest on athree-year cliff basis from the grant date. Non-employee director awards vest in accordance with each director’s individual vesting election under the terms of the2025* Plan. The issuance of shares upon vesting* may*result in dilution to existing shareholders.

Facility Consolidation. The Company’s lease at5141 W.122nd Street, Alsip, Illinois terminates effective* April 30, 2026.The Company has entered into a new lease at18400* 76th Avenue, Tinley Park, Illinois, which commenced* April 1, 2026with a term of 62 months through May 31, 2031.The Tinley Park facility serves as the Company’s corporate office. In connection with the lease transition, the Company expects to relocate its Alsip corporate functions to the Tinley Park office by the end of April 2026as part of the Company’s ongoing cost rationalization program. Following the consolidation, the Company will operateeight* distribution and warehouse locations across the United States and Canada.

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