Capstone Holding Corp.

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 the issued and outstanding membership interests (the "Holdings Membership Interests") in Carolina Stone Holdings, which owns all 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.

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%) is 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.

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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 is in accordance with accounting principles generally accepted in the United States of America. (U.S. GAAP). In the opinion of management, the financial statements include all adjustments necessary and were of a normal recurring nature for the fair presentation of the Company’s financial position, results of operations, and cash flows.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the SEC's Form10-Q instructions and Article10 of Regulation S-X (the interim reporting rule). Accordingly, they donot include all of the information and notes required by GAAP for annual consolidated financial statements.

The consolidated balance sheet on* December 31, 2025* has been derived from the audited consolidated financial statements at that date but doesnot include all the information and notes required by GAAP for complete financial statements. These financial statements have been prepared on a basis that is consistent with the accounting principles applied in our Annual Report on Form10-K for the fiscal year ended on* December 31, 2025* (“2025 Form10-K”). This report should be read in conjunction with our2025 Form10-K filed with the SEC on* April 16, 2026,as amended on April 17, 2026.*

In our opinion, the accompanying unaudited interim consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates, and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of* June 30, 2026* and its results of operations, cash flows, and changes in stockholders’ Equity (deficit) for thethree andsix months ended* June 30, 2026and2025*. The results for thethree andsix months ended* June 30, 2026*, arenot necessarily indicative of the results expected for any future period or the full year.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make some estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period and accompanying notes. Management bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that arenot readily apparent from other sources. Although these estimates are based on management’s assumptions regarding current events and actions that* mayimpact on 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 at acquisition date.

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 provisional amounts identified after the end of the measurement period are recognized in the Company's consolidated statements of operations.

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 at the date of acquisition:

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* June 30, 2026* consist 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 (Carolina Stone Distributors, LLC) and Canadian Stone Industries (Fraser Canyon Holdings Inc.) acquisitions, measured at fair value (as stated in FASB ASC805-30-35-1 Subsequent measurement) using a probability-weighted expected payout, discounted at a rate that reflects the risk of the underlying performance metric 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* June 30, 2026* or* December 31, 2025*.

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Cash

Cash consists of balances held in a commercial bank account.

Accounts Receivable

Accounts receivables are recorded and carried at the original invoiced amount less any estimates for allowance for doubtful debts that are potentially uncollectible amounts. The Company estimates the allowance for expected credit losses (“ECL”) based upon its assessment of various factors, including historical experience, the age of the accounts receivable balances aging, credit quality of its customers, current economic conditions, and other factors that* mayaffect the Company’s ability to collect from customers. Additionally, the company has elected to assume that current conditions as of the balance sheet date remain unchanged for the remaining life of accounts recievables as it relates to the development of reasonable and supportable forecasts. As of June 30, 2026* and* December 31, 2025*, the allowance for doubtful accounts totaled approximately $139.0 and $127.0 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 performance obligations have been satisfied under the contract. (According to ASC606). Company invoices are retained and included in contract receivables when obligations have been satisfied and the right to collect is subject only to the passage of time. As of* June 30, 2026* and* December 31, 2025*, retainage receivables were $14.0 and $15.0 thousand, respectively.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentration 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.

Inventories

Inventories consisting of finished goods are stated at the lower cost or net realizable value. Cost is determined using the average cost method. Inventories also include deposits placed on inventory purchases for shipmentsnot yet received. Significant prepaid inventory* maybe located overseas. The total prepaid inventory balance as of June 30, 2026and December 31, 2025,is $251.0 thousand and $61.0 thousand, respectively. The reserve for obsolete inventory at June 30, 2026* and* December 31, 2025*, totaled $790.0 and $793.0 thousand, respectively.

Other Current Assets

In* February 2026,the U.S. Supreme Court ruled that tariffs imposed under the International Emergency Economic Powers Act ("IEEPA"), including the reciprocal tariffs, were imposed without statutory authority. Following the ruling, U.S. Customs and Border Protection ("CBP") established an administrative process through which importers of record may*claim refunds of IEEPA and reciprocal duties previously paid.

During the period from* March 2025through February 2026,the Company's subsidiary TotalStone, as importer of record, paid $438.0 thousand of IEEPA and reciprocal duties on imported merchandise. TotalStone filed 109 refund claims with CBP through its customs broker using CBP’s CAPE refund declaration system, all of which showed a status of CAPE Accepted on June 12, 2026.*Based on the Supreme Court's ruling, CBP's acceptance of the claims prior to the balance sheet date, and the operation of CBP's refund process, management concluded that recovery of these duties is probable and recognized the refund as a recovery of previously recognized costs.

Accordingly, as of* June 30, 2026,the Company recorded a tariff refund receivable of $438.0 thousand, included within other current assets in the accompanying unaudited condensed consolidated balance sheet. Because the merchandise to which the refunded duties relate was sold on or before June 30, 2026,the duties had been previously recognized in cost of goods sold; the refund was therefore recorded as a reduction of cost of goods sold in the accompanying unaudited condensed consolidated statements of operations for thesix* months ended* June 30, 2026.No refunds had been received as of June 30, 2026.Subsequent to June 30, 2026,and through August 12, 2026,the Company received $99.0 thousand of tariff refunds. CBP has indicated that accepted refunds will be paid within approximately60* to90 days of acceptance, together with statutory interest, which the Company will recognize in other income when received.

In addition, the Company estimates that it paid $136.0 thousand of IEEPA and reciprocal duties through purchases of merchandise from suppliers that acted as importer of record on the related shipments. The Company expects that it paid additional duties of this type but is unable to confirm the amounts at this time. Any recovery of these amounts depends on the suppliers' receipt of refunds from CBP and the Company's arrangements with those suppliers. Because the Company wasnot the importer of record on those shipments, it couldnot file CAPE refund claims for those duties and doesnot hold the direct legal right to the refunds. Accordingly,no amounts have been recognized in the accompanying consolidated financial statements, and the Company will recognize any such recovery when realized.

On* June 2, 2026,the U.S. Department of Justice filed a notice of appeal with the U.S. Court of Appeals for the Federal Circuit contesting CBP's obligation to refund certain entries that were liquidated and outside the applicable protest window, a category limited to importers pursuing refunds through litigation. The Company's claims were accepted through CBP's administrative refund process and arenot* within the scope of the appeal; accordingly, management doesnot expect the appeal to affect the recognized receivable.

Property and Equipment

Property and equipment are stated at cost and is depreciated over the estimated useful lives ranging from three toforty years according to asset category. Depreciation is computed by using the straight-line method. Property and equipment is comprised of building, machinery & equipment, computer equipment, leasehold improvements, software, office equipment, vehicles, and furniture & fixtures. Minor maintenance and repairs are charged to expenses as incurred.

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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 events or changes in circumstances indicate that the carrying value of the asset* may**not* be recoverable. Such triggering events or changes in circumstances include, but arenot limited to: a significant adverse change in the business climate or legal factors; an adverse action or assessment by a regulator; unanticipated competition; a loss of key personnel; a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of; or a sustained decline in the Company's stock price or overall market capitalization according to ASC350.

The Company’s goodwill is allocated to the Company’s reporting units for impairment assessment purposes. As of* June 30, 2026*, the Company hasthree reporting units: TotalStone (TotalStone, LLC), Canadian Stone Industries (Fraser Canyon Holdings Inc.), and Carolina Stone (Carolina Stone Distributors, LLC). The Company aggregates TotalStone and Canadian Stone Industries into a single reportable segment for ASC280 segment-reporting purposes (see Note18).

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 $6.2 million. See Note7* for additional information regarding the Company's goodwill impairment testing. As of* June 30, 2026,the Company concludedno* quantitative goodwill impairment test was required.

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.

Based on this qualitative assessment, the Company concluded thatno significant events or changes in circumstances have occurred that would more likely thannot reduce the fair value of any reporting unit less than its carrying amount. Accordingly, an interim quantitative goodwill impairment test wasnot required, andno goodwill impairment charge was recorded for thethree andsix months ended* June 30, 2026.The Company will perform its annual goodwill impairment test as of October 1, 2026,*or earlier if events or circumstances indicate that an interim test is required.

As of* June 30, 2026,the Company performed a qualitative interim assessment under ASC350*-20-35-3C to determine whether events or changes in circumstances had occurred that would more likely thannot reduce the fair value of any reporting unit below its carrying amount. In performing this assessment, the Company considered, among other factors macroeconomic conditions, industry and market factors, entity specific events, or overall financial performance trends, like share-price movements (including the Company’s status with respect to the Nasdaq minimum bid price requirement for which the Company was granted an additional180-day compliance period), and reporting-unit-changes.

Goodwill balances as of* June 30, 2026and December 31, 2025*are $18,475.0 thousand and $18,460.0 thousand, respectively.

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 financial period 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 other 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.

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 38 states andtwo Canadian provinces. 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 percentage of completion, typically through monthly billings. For thethree andsix months ended* June 30, 2026and2025*, there wereno significant estimates of variable consideration represented in revenue. Net revenue recognized at a point in time primarily relates to TotalStone (see Note18), which totaled approximately $18.3 million and $12.9 million for thethree months ended* June 30, 2026and2025,* respectively. Net revenue recognized at a point in time totaled approximately $28.6 million and $20.8 million for thesix months ended* June 30, 2026and2025*, respectively. Net revenue recognized over time primarily related to Carolina Stone (see Note18), which totaled approximately $3.2 million and $0.0 million for thethree months ended* June 30, 2026and2025,* respectively. Net revenue recognized over time totaled approximately $5.5 million and $0.0 million for thesix months ended* June 30, 2026and2025*, respectively.

Shipping and Handling

The Company includes amounts billed to customers related to 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. For thethree andsix months ended* June 30, 2026and2025*, advertising expenses were $22.0 and $9.0 thousand and $50.0 and $24.0 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 Z 8% 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 Note5* for additional information.

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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 and the if-converted method for convertible notes. Potential common shares that have anti-dilutive effect are excluded from computation.3i * February*warrants issued with a nominal exercise price of $0.01 per share are considered common stock equivalents and are included in the weighted-average number of common shares outstanding used to compute basic earnings (loss) per share.

For thesix months ended* June 30, 2026and2025*, both the calculations for basic and diluted loss per share are the same as potential dilutive securities would have had an anti-dilutive effect. For thesix months ended* June 30, 2026and2025,* the number of incremental common shares from potentially dilutive securities consisted of the following:

The table above reflects the conversion prices in effect at June 30, 2026.On August 10, 2026the conversion price of both Senior Secured Convertible Notes was reduced to $0.2949 per share. Had that price been in effect at June 30, 2026,the incremental shares attributable to the convertible notes would have been approximately 6,445,438 rather than 2,115,154, and total potentially dilutive securities would have been approximately 8,509,260 rather than 4,178,976. See Note19.

Restatement

On* August 7, 2026,the Company identified an error in the computation of basic and diluted loss per share for thethree* months ended* March 31, 2025,thethree* andsix months ended* June 30, 2025,and thethree* andnine months ended* September 30, 2025.The amounts previously reported for the periods ended June 30, 2025were the number of shares outstanding at the end of the period rather than averages weighted for the portion of the period each share was outstanding, and the amounts previously reported for the periods ended September 30, 2025didnot* reflect the day weighted average of shares outstanding during those periods, in each case as required by ASC260, Earnings Per Share. The error affected only the weighted average share amounts and the related per share amounts; it didnot affect net loss, total assets, total liabilities, stockholders' equity, or cash flows for any period. The Company assessed the error as material and has restated the affected periods in accordance with ASC250, Accounting Changes and Error Corrections. The Company is filing amendments on Form10-Q/A for the quarterly periods ended* June 30, 2025and September 30, 2025.The restated weighted average share and per share amounts for thethree* months ended* March 31, 2025are presented as comparative amounts in AmendmentNo.* 1 to the Company’s Quarterly Report on Form10-Q for the quarterly period ended* March 31, 2026.*

The effect of the restatement on the amounts previously reported for thethree andsix months ended* June 30, 2025*is as follows:

Reclassifications

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

Recent Accounting Pronouncements

In* November 2024,the FASB issued ASU2024*-03, Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic220-40), which requires public business entities to disclose disaggregated information about specified categories of expenses. The standard is effective for annual periods beginning after* December 15, 2026and interim periods within annual periods beginning after December 15, 2027,*with early adoption permitted. The Company is evaluating the impact of the standard on its consolidated financial statement disclosures.

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 modifications of convertible debt instruments should be accounted for as induced conversions. The Company adopted this guidance effective* January 1, 2026on a prospective basis. Adoption didnot* have a material effect on the Company’s consolidated financial statements.

On* July 30, 2025the FASB issued ASU2025*-05, Financial Instruments — Credit Losses (Topic326):Financial Instruments—Credit Losses (Topic326*): Measurement of Credit Losses for Accounts Receivable and Contract Assets*, which provides a practical expedient permitting entities to assume current conditions as of the balance sheet date donot change for the remaining life of the asset when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic606. The amendments are effective for annual reporting periods beginning after* December 15, 2025,and interim reporting periods within those annual reporting periods, with early adoption permitted. The Company adopted the standard effective January 1, 2026,electing the practical expedient, and the adoption didnot* have a material impact on its consolidated financial statements.

Note4 Business Combination

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 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 at the date of acquisition.

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The subordinated promissory note was issued toD22L, Inc. in the original principal amount of $1,250.0 thousand, maturing* February 22, 2028.The note bears interest at the Secured Overnight Financing Rate (“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.

As initially recognized in fiscal year2025, contingent consideration of up to $825.0 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 $1,000.0 thousand in either thefirst orsecond measurement period, the seller receives the full $825.0 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 $825.0 thousand in thethird* measurement period in the full amount if EBITDA exceeds $1,000 thousand, or a pro-rata amount determined by linear interpolation if EBITDA falls between $800.0 thousand and $1,000.0 thousand. If EBITDA doesnot reach $800.0 thousand in any measurement period, no earn-out is payable. Based on Carolina Stone's financial results in the audited consolidated financial statements for the year ended* December 31, 2025,the EBITDA threshold of $1,000.0 thousand wasnot* achieved for the First Earn-out Period, and accordinglyno Earn-Out Payment is payable in respect of the First Earn-out Period.

The fair value of contingent consideration at acquisition date of $250.0 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. The contingent consideration liability is remeasured to fair value at each reporting date until the contingency is resolved, with changes in fair value recognized in change in fair value of contingent consideration in the consolidated statements of operations. As of* June 30, 2026,the Company recognized an increase of $58.0 thousand resulting from the change in the fair value of the contingent consideration, primarily driven by updated EBITDA forecasts and the probability of achievement of the EBITDA targets. As of June 30, 2026and December 31, 2025,*the fair value of the contingent consideration was $308.0 and $250.0 thousand, respectively.

The following table presents the purchase price allocation for the Carolina Stone Holdings acquisition as finalized at* December 31, 2025,measured in accordance with ASC805* (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 were included in selling, general and administrative expenses during thethree* months ended* September 30, 2025.*

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$459.0 thousand (CAD $647.0 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$6,299.0 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$459.0 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$339.0 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$1,148.0 thousand), maturing* March 31, 2027; (iii) Seller Note II in the principal amount of C$2,000,000 (approximately US$1,434.0 thousand), maturing December 1, 2028;and (iv) contingent earn-out consideration of up to C$3,000,000 (approximately US$2,152.0 thousand) based on Average EBITDA during the2026–2027* and2027–2028 measurement periods, with an acquisition-date fair value of US$99.0 thousand (US$79.0 thousand for Earn-Out Provision I and US$20.0 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. During thesix months ended* June 30, 2026,*the Company settled the working capital adjustment under the purchase agreement, which increased the cash purchase price payable to the FCHI sellers by $38.0 thousand. The Company paid that amount in cash during the period and presented it within investing activities in the consolidated statements of cash flows. The increase in consideration resulted in a corresponding increase in goodwill.

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The Company 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 purchase price allocation was final at* December 31, 2025,other than the working capital adjustment under the purchase agreement, which the Company settled during thesix* months ended* June 30, 2026*as described above. The allocation below reflects that settlement. The aggregate purchase consideration of approximately US$6,299.0 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 $601.0 thousand was recognized in connection with the FCHI Share Purchase and is attributable primarily to the assembled workforce and expected synergies from integrating Canadian Stone Industries' western Canadian distribution operations with the Company's existing platform. The CSIA Asset Purchase didnot result in goodwill, as the purchase consideration approximated the fair value of the net assets acquired; tax-basis goodwill arising from the CSIA Asset Purchase is amortizable for U.S. income tax purposes under Section197 of the Internal Revenue Code. Goodwill arising from the FCHI Share Purchase isnot deductible for Canadian income tax purposes. Goodwill related to the Fraser Canyon acquisition is allocated to the TotalStone reporting unit.

The carrying amount of goodwill was $631.0 thousand and $616.0 thousand as of* June 30, 2026and December 31, 2025,respectively. The increase from the acquisition-date amount of $601.0 thousand to December 31, 2025,reflects a foreign currency translation adjustment by $15.0 thousand. During thesix* months ended* June 30, 2026,the Company recorded a measurement-period adjustment of $38.0 thousand that increased goodwill, resulting from the settlement of the working capital adjustment described above. This increase was partially offset by a foreign currency translation decrease of $23.0 thousand, resulting in a net increase in goodwill of $15.0 thousand for thesix* months ended* June 30, 2026.The Fraser Canyon earn-out liability was $99.0 thousand and $102.0 thousand as of June 30, 2026and December 31, 2025,*respectively, with the decrease resulting from foreign currency translation. Together with the Carolina Stone earn-out described above, the earn-out payable presented on the consolidated balance sheets was $407.0 thousand and $352.0 thousand as of those dates.

CSI contributed revenue of$592.0 thousand and net loss of $92.0 thousand for the period from* December 1, 2025through December 31, 2025.*Acquisition-related costs, including the Nectarine consent fee of $89.0 thousand and legal and advisory fees, were expensed as incurred.

The following table presents the final purchase price allocation for the FCHI acquisition, updated for the working capital settlement described above, measured in accordance with ASC805 (in thousands):

Pro Forma Financial Information

The following unaudited pro forma information presents the Company’s consolidated results of operations for thesix months ended* June 30, 2025as though both acquisitions had been completed as of January 1, 2025:*

The Company prepared this unaudited pro forma information under ASC805-10-50-2(h), presenting consolidated results as if the Carolina Stone Holdings and the Fraser Canyon acquisitions had closed on* January 1, 2025.Pro forma loss per share uses the restated weighted average number of common shares outstanding of 3,405,568 for thesix* months ended* June 30, 2025 (see the restatement described in Note3*); neither acquisition involved share consideration.

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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, 2025,$99.0 thousand of acquisition-related transaction expenses recorded in thesix* months ended* June 30, 2026is excluded from pro forma2026* results because all transaction-related costs would have been incurred prior to the comparative period.

(b) Incremental amortization expense—$83.0 thousand for thesix months ended* June 30, 2026,on the identifiable intangible assets recognized in the finalized purchase price allocations for the Carolina Stone acquisition (trade names of $670.0 thousand amortized over 20 years; customer relationships of $740.0 thousand amortized over 12 years; and non-compete agreements of $60.0 thousand amortized over 5 years) and the Fraser Canyon acquisition (trade names of $190.0 thousand amortized over 20 years and customer relationships of $170.0 thousand amortized over 17 years). For thesix* months ended* June 30, 2026,*the related amortization expense is already reflected in reported results.

(c) Income taxes —No incremental tax effect has been recognized on Carolina Stone or other U.S.-jurisdiction pro forma adjustments because the Company maintains a full valuation allowance against its U.S. net deferred tax assets. Canadian income tax effects on the Fraser Canyon-related pro forma adjustments arenot material to the pro forma presentation and havenot been separately reflected.

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.

Note5 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 earnings before interest, taxes, depreciation, and amortization (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. There wereno management fees expensed for thesix months ended* June 30, 2026* and $200.0 thousand for thesix months ended* June 30, 2025,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 accrued related party management fees. In connection with the Continental Stone Industries asset purchase completed December 1, 2025,Brookstone earned a 2% special services fee of approximately $9.0 thousand, which is included in accrued related party management fees. Amounts accrued for consulting and advisory services totaled $954.0 thousand as of June 30, 2026and December 31, 2025.*

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.

Effective* February 1, 2026,in connection with the cost rationalization program implemented by the Board, the Company’s Chief Executive Officer reduced his annual base cash salary to $1.00. Mr. Lipman continues to serve as Chief Executive Officer without other cash compensation arrangements; he separately participates in the Company’s2025* Plan as described in Note15.

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. Effective* January 1, 2026,Mr. Stroutno* longer receives deferred compensation and receives $33,333 annually in management fees. As of* June 30, 2026* and* 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* June 30, 2026* and* December 31, 2025*, the Company’s outstanding principal was $2,518,844 and $2,493,664, respectively. As of* June 30, 2026* and* December 31, 2025*, accrued and deferred interest was $675,514 and $524,431, respectively. The Company has also accrued an amendment fee of $695,000 payable to Stream Finance on the Deferral Date (as defined in the Stream Finance Credit Agreement). On* June 17, 2026,the Company and Stream Finance entered into the Fourth Amendment to the Stream Finance Credit Agreement, which extended the maturity date to September 30, 2028 (see Note11*).

On* March 10, 2025,TotalStone paid Brookstone Partners IAC, Inc. $200,000 for financial advisory and related services with respect to Capstone’s capital raising transaction (the “Capstone Capital Raising Transaction”) as agreed upon in the Restated Management Fee Agreement and Transaction Fee Agreement executed in March 2025.*

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, if and when seller note principal repayments and earn-out payments are made.

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 825,168 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 June 30, 2026,*no amounts remain outstanding.

Series Z 8% 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 Z 8% 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 1,467,532 shares were issued to BP Peptides, LLC (642,364 shares) and Brookstone Partners Acquisition XXI Corporation (825,168 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 $80,000 was recognized for thesix months ended* June 30, 2026.The carrying value of the Series Z liability, including accrued dividends as of June 30, 2026* and* December 31, 2025,*was approximately $2,056 thousand and $1,976 thousand, respectively.

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Note 6 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 for thethree months ended* June 30, 2026and2025* was $127.0 and $65.0 thousand and for thesix months ended* June 30, 2026and2025* was $253.0 and $130.0 thousand, respectively.

Note 7 Goodwill and Other Intangible Assets

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 for thethree andsix months ended* June 30, 2026and2025* was $37.0 and $2.0 thousand and $70.0 and $4.0 thousand, respectively.

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

The future amortization schedule above excludes $64.0 thousand of indefinite-lived trademarks, which arenot subject to amortization and are tested for impairment at least annually.

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Note 7 Goodwill and Other Intangible Assets(cont.)

The changes in the carrying amount of goodwill for thesix months ended* June 30, 2026are as follows in (“000’s”*):

2025 Impairment Assessment

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 $6.2 million (31.4%) below the carrying value of $19.7 million. Accordingly, the Company recorded a goodwill impairment charge of $6.2 million during thefourth* quarter of2025. Following the impairment charge, goodwill allocated to the Instone reporting unit was $17.1 million as of* December 31, 2025.*

Note 8 Fair Value Measurements

The Company’s fair value hierarchy policy is described in Note3. There wereno material changes in the carrying amount of goodwill between* December 31, 2025and June 30, 2026.*The following table presents assets and liabilities measured at fair value by level:

On* June 30, 2026,the Company’s Level3* recurring fair value measurements consisted of derivative liabilities of $7.0 thousand and earn-out payable of $407.0 thousand, compared with $352.0 thousand at* December 31, 2025.The increase reflects a $58.0 thousand remeasurement of the Carolina Stone earn-out, driven by updated EBITDA forecasts and the probability of achieving the EBITDA targets (see Note4*), partially offset by a $3.0 thousand decrease in the U.S. dollar carrying amount of the Canadian dollar denominated Fraser Canyon earn-out resulting from foreign currency translation. The non-recurring Level3 measurement of goodwill — Instone reporting unit was $17,086.0 thousand at both* June 30, 2026and December 31, 2025;no triggering events for interim impairment testing were identified during thesix months ended June 30, 2026.In reaching that conclusion, management considered the Company’s operating results for the period, the decline in the trading price of the Common Stock and the related Nasdaq minimum bid price deficiency described in Note11,* the relationship of the Company’s market capitalization to the carrying amount of its net assets, and the headroom indicated by the* October 1, 2025quantitative test. The goodwill of each of the Company'sthree* reporting units - TotalStone (Instone), Canadian Stone Industries, and Carolina Stone - is evaluated for impairment at least annually, or more frequently if impairment indicators arise. Goodwill of the Canadian Stone Industries reporting unit ($631.0 thousand at* June 30, 2026and $616.0 thousand at December 31, 2025)and Carolina Stone reporting unit ($758.0 thousand at both dates) was recognized at acquisition-date fair value in the respective2025* business combinations (see Note4);no impairment indicators were identified for these reporting units, andno remeasurement was required, through* June 30, 2026.The February 2026warrants issued to3i,* LP — a non-recurring Level3 fair value measurement during the period — are described in Note14.

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Note 8 Fair Value Measurements (cont.)

Derivative Liability

The Level3 derivative liabilities, representing the embedded conversion features bifurcated from the Senior Secured Convertible Notes, decreased from $702.0 thousand as of* December 31, 2025to $7.0 thousand as of June 30, 2026,reflecting the derecognition of $53.0 thousand to additional paid-in capital upon partial conversions of the underlying notes and a net decrease in fair value of $642.0 thousand recognized in unrealized gain on derivative instruments in the accompanying unaudited condensed consolidated statements of operations. The fair value was remeasured at each conversion date and at period end using the Black-Scholes option-pricing model with the inputs described above, including the effect of the April 16, 2026conversion price adjustment under the October**2025* Senior Secured Convertible Note, which was accounted for as a modification of the embedded derivative (see Note11).

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

Earn-out Payable

In addition to the embedded derivative liabilities described above, 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.

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 $1,021.0 thousand. The Carolina Stone earn-out is capped at $825.0 thousand per annual measurement period subject to EBITDA floors and targets of $800.0 to $1,000.0 thousand. For the Fraser Canyon earn-out valuation, 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 $776.0 to CAD $1,065.0 thousand.

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 Commitments and Contingencies

The Company is subject, from time to time, to certain legal proceedings and claims arising out of our business, which cover a wide range of matters, including product liability, advertising, contracts, environment, patent and trademark matters, labor and employment matters and tax. While considerable uncertainty exists, in the opinion of management, the ultimate resolution of the various lawsuits and claims willnot materially affect our financial position, results of operations or cash flows.

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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% (6.73% and 6.99% at* June30,* 2026 and* December 31, 2025,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 $9.7 and $7.9 million as of June30,* 2026 and* December 31, 2025respectively. Financial covenants include a minimum Cash Flow Coverage Ratio of 1.15x and a minimum Tangible Net Worth of $1,250,000. As of June 30, 2026*, the borrowers were in compliance with both the minimum Cash Flow Coverage Ratio and the minimum Tangible Net Worth covenants under the Revolving Credit Agreement. Additionally, under the Sixteenth Amendment, executed* June 17, 2026,the maturity date was extended to December**31,* 2026.

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 $2.9 million and $2.4 million as of* June 30, 2026and December 31, 2025respectively. 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. Financial covenants include a minimum trailingtwelve-month Debt Service Coverage Ratio of 1.25x. As of* June 30, 2026,*the Borrowers were in compliance with the financial covenants under the TD Bank Letter of Agreement.

As of* June 30, 2026* the combined balance outstanding under the Company's revolving credit facilities was $12.6 million and $10.3 million as of* June 30, 2026* and* December 31, 2025*, respectively.

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Note 11 Debt

As of* June 30, 2026*, the Company had $8.6 million in long-term debt, with $4.2 million payable within12 months. A summary of the Company’s long-term debt is as follows in (“000’s”):

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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 (a related party), as agent (as amended, the "Stream Finance Credit Agreement"). The mezzanine term loan bears interest at 12% per annum payable in cash plus 2% paid-in-kind. As of June 30, 2026* and* December 31, 2025,the outstanding principal balance was $2,518,844 and $2,493,664, respectively, and the Company’s total obligation to Stream Finance — including accrued and deferred interest and the $695,000 amendment fee — was $3,889,359 and $3,713,095, respectively, as presented in the long-term debt table above. The amendment fee is payable on the Deferral Date, defined as the earliest to occur of (i) repayment or prepayment of the entire outstanding principal balance, (ii) acceleration of the loan, and (iii) the Stream Finance Maturity Date. 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 thesix months ended* June 30, 2026*:

(1) The table above presents principal activity only; accrued and deferred interest and the $695,000 amendment fee are included in the long-term debt table.

Prior to the Fourth 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 closing at the date of acquisition. 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 unsecured, and is pre-payable without penalty. The balance outstanding as of June 30, 2026 was approximately $1,281,608.

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:

The First Seller 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, 2026and 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* June 30, 2026,the outstanding principal balance was CAD $1,600,000 (approximately USD $1,127,000), excluding accrued interest. The CAD $400,000 principal payment due July 31, 2026wasnot* made. Payment of the seller notes is subject to a Postponement and Assignment of Creditors Claim and Postponement of Security dated* December 1, 2025among the sellers, Instone Canada Corp. and TD Bank. Under Sections2*(a) and2(d) of that agreement, the Company* maymake, and the holders mayaccept, payment on the seller notes only if the Company isnot* in default under its credit agreement with TD Bank and the payment wouldnot create or cause such a default. The Company didnot make the payment because doing so would have caused a default under the financial covenants in the TD Bank facilities. The note remains outstanding and continues to accrue interest. Under Section2(b) of that agreement, the holders* may**not* accelerate the notes or exercise remedies while the TD Bank indebtedness is outstanding. The Second Seller 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* June 30, 2026,*the outstanding principal balance was CAD $2,000,000 (approximately USD $1,408,000), excluding accrued interest. Both notes are subordinated to the TD Bank credit facilities.

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Note 11 Debt(cont.)

Liquidity and NASDAQ Listing Compliance

For thethree months ended* June 30, 2026,net sales were $21,480 thousand compared with $12,852 thousand for the same period in2025,* gross profit was $5,999 thousand compared with $3,130 thousand, gross margin was 27.9% compared with 24.4%, and the Company recorded income from operations of $432 thousand compared with a loss from operations of $260 thousand. For thesix months ended* June 30, 2026,*net sales were $34,116 thousand compared with $20,751 thousand, gross profit was $8,969 thousand compared with $4,455 thousand, gross margin was 26.3% compared with 21.5%, and the loss from operations narrowed to $1,065 thousand from $1,688 thousand.

The Company has nonetheless generated recurring net losses, including a net loss of $3,295.0 thousand for thesix months ended* June 30, 2026,and had negative cash flow from operations in the year ended December 31, 2025.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 minimum bid price is the only listing deficiency for which the Company has received notice from Nasdaq. At the Annual Meeting of Stockholders held* June 18, 2026,the Company’s stockholders approved an amendment to the Certificate of Incorporation to effect a reverse stock split of all outstanding shares of common stock at a ratio ofnot* less than1-for-5 andnot more than1-for-50, with the exact ratio and timing to be determined by the Board in its sole discretion at any time withintwelve months of stockholder approval. Continued listing on Nasdaq supports the Company’s access to capital markets, including its ability to issue shares under the ELOC.

These conditions, together with the Company’s accumulated deficit and near-term debt maturities, initially indicated that substantial doubt existed about the Company’s ability to meet its obligations and to continue as a going concern withinone year after the date these condensed consolidated financial statements are issued. Management has concluded that the following plans and resources, in the aggregate, alleviate that doubt:

Based on this evaluation, management has concluded that these plans alleviate the substantial doubt about the Company’s ability to continue as a going concern.

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Senior Secured Convertible Notes.

The embedded conversion features are bifurcated as derivative liabilities and measured at fair value at each reporting date with changes in fair value recognized in earnings, in accordance with ASC815-15. 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 29, 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, from $1.72 to $1.00 and subsequently to $0.75 per share on the JulyNote, and from $1.10 to $0.75 per share on $1,772,856 of OctoberNote principal with the remaining $1,772,856 continuing at $1.10 per share. During that year the Buyer converted $2,897,196 of principal and $202,804 of accrued interest into 3,166,667 shares of common stock, and the Company redeemed $61,942 of JulyNote principal and $4,336 of accrued interest in cash on September 3, 2025.Conversion activity for thesix* months ended* June 30, 2026*and the resulting principal balances are set out below.

On* April 16, 2026,pursuant to a unanimous written consent dated April 16, 2026,the Company and the Buyer entered into a Letter Agreement (the “April 2026Letter Agreement”) reducing the Conversion Price applicable to $500,000 of principal under the OctoberNote to $0.57 per share. On the same date, the Buyer submittedeight* Notices of Conversion that aggregated to $1,725,136 of principal and $120,762 of interest converted into 2,557,198 shares of Common Stock. Of the principal converted: (i) $213,084 was converted at the reduced $0.57 conversion price established under the* April 2026Letter Agreement (thefirst* conversion at the reduced price), with approximately $286,916 of capacity remaining at$0.57; (ii) $250,372 of principal under the* JulyNote was converted at the prior $0.75 conversion price; and (iii) $1,261,680 of principal under the OctoberNote was converted at the prior $0.75 conversion price. Following these conversions, the outstanding principal balance was approximately $250,372 on the JulyNote and approximately $1,650,388 on the October*Note, before any further activity through the issuance date of these consolidated financial statements.

The following table summarizes the carrying value of the Company's senior secured convertible notes by note as of* June 30, 2026*:

The following table summarizes the carrying value of the Company’s senior secured convertible notes as of each period end:

The following table presents a roll forward of the derivative liabilities associated with the embedded conversion features for thesix month ended* June 30, 2026*:

As of* June 30, 2026*, the following shares of common stock were issuable upon conversion of the outstanding senior secured convertible notes:

Scheduled maturities of long-term debt as of* June 30, 2026*, are as follows:

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Note 12 Leases

As of* June 30, 2026*, the balance of our right-of-use (“ROU”) assets was $5.0 million, net, and total lease liabilities of $5.1 million (consisting of $1.5 million current and $3.6 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. CSD entered intofive* new lease agreements, including the401 North premises operating lease effective* July 1, 2026.*

Moreover, 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 $906.0 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* June 30, 2026* is as follows in (“000’s”):

Lease expense recognized on our leases for thethree andsix months ended* June 30, 2026and2025* is as follows in (“000’s”):

The following summarizes additional information related to our leases for thesix months ended* June 30, 2026* is as follows in (“000’s”):

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Note 13 TotalStone Preferred Units

The Company owns 100% of TotalStone’s outstanding common voting units. TotalStone’s historical Class B, Class C, and Special Preferred Membership Interests, and the payments made in respect of them, are described in the notes to the consolidated financial statements in the2025 Form10-K.

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* June 30, 2026*, and* December 31, 2025*no TotalStone preferred units remained outstanding.

Note 14 Warrants

TotalStone Class A Warrants. In* April 2020,1,175 warrants to purchase Class A common interests in TotalStone were granted to TotalStone management at an exercise price of $0.01 per unit, vesting over three years through March 31, 2023.Of the original grant,50 warrants were previously forfeited, and the remaining 1,125 outstanding warrants were cancelled on the Restructuring Date ( March 7, 2025)in connection with the corporate restructuring described in Note2.* As of* June 30, 2026and December 31, 2025,*no TotalStone warrants remained outstanding.

Representative's Warrant. In connection with the* March 7, 2025,Public Offering, the Company issued warrants to the underwriters to purchase 62,500 shares of Common Stock at an exercise price of $4.00 per share. The Representative's Warrant became exercisable on September 5, 2025,and expires on September 7, 2026.As of June 30, 2026*, no portion had been exercised.

• February 2026Warrant (3i, LP). On February 12, 2026,in connection with the Letter Agreement deferring the $606,054 installment payment originally due January 22, 2026under SSN#2* (see Note11), the Company issued to3i, LP afive-year warrant to purchase 405,000 shares of Common Stock at an exercise price of $0.01 per share, expiring* February 12, 2031.The Company evaluated the modification under ASC470*-50, concluded the10% test wasnot met, and accounted for it as a modification. The warrant was classified as equity under ASC815-40 and isnot subject to recurring remeasurement. The fair value of $203.0 thousand was estimated using the Black-Scholes option-pricing model with the following inputs: stock price $0.5077 (CAPS closing on2/12/2026), exercise price $0.01, expected term 5.0 years, risk-free rate 3.67%, dividend yield 0%, and annualized volatility 100.5%. The fair value was recorded as an increase to additional paid-in capital with a corresponding discount on SSN*#2,* which is being amortized to interest expense over the remaining term to maturity. As of* June 30, 2026,*no portion of the warrant had been exercised.

Note 15 Stockholders’** Equity**

As of* June 30, 2026,the Company had 15,203,173 shares of Common Stock issued and outstanding, of which 1,995,000 shares were issued as restricted stock awards on March 30, 2026and have voting rights but are excluded from basic earnings per share until vesting and 25,000,000 shares of preferred stock authorized, of which 2,000,000 are designated as Series B Preferred Stock (985,063 shares of Series B Preferred Stock remain issued and outstanding) and 3,500,000 are designated as Series Z 8% Non-Convertible Preferred Stock (1,467,532 shares of Series Z 8% Non-Convertible Preferred Stock remain issued and outstanding, classified as a liability under ASC480* — see Note5).

Share activity for thesix months ended* June 30, 2026 —including 2,890,533 shares issued upon partial conversions of the Senior Secured Convertible Notes (see Note11*) and 1,544,768 shares issued under the* May 2025Equity Line of Credit agreement with Tumim Stone Capital, LLC for aggregate gross proceeds of approximately $619,848 — is presented in the consolidated statements of changes in stockholders’ equity. All 1,995,000 restricted shares issued on March 30, 2026 (see Stock Compensation below) remained subject to the restrictions and forfeiture of the applicable award agreements as of June 30, 2026.Stock compensation expense with respect to 427,500 of those shares was fully recognized as of June 18, 2026,the date of the2026* Annual Meeting, because the requisite service period for those awards ended on that date. The completion of expense recognition doesnot accelerate the lapse of the restrictions on those shares, which occurs only in accordance with the terms of the applicable award agreements. The* February 2026warrant to purchase 405,000 shares of Common Stock was exercised in full on July 10, 2026 (see Note14* and Note19). No Common Stock was repurchased or retired during the period.

Stock Compensation

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.

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* June 30, 2026* and* December31,* 2025, no shares remained available to grant under the Plan and all granted shares are fully vested.

On* March 30, 2026,the Board of Directors approved the Capstone Holding Corp.2025 Stock Incentive Plan (the“2025* Plan”), as amended, authorizing awards of up to 35% of the shares of common stock outstanding, measured as provided in Section4(a) of the2025 Plan, for issuance in the form of stock options, restricted stock awards, and other equity-based awards. On the same date, the Board approved an initial grant of 1,995,000 restricted stock awards (“RSAs”) under the2025 Plan, at a grant-date fair value of $0.6490 per share (the closing price of the Common Stock on the Nasdaq Capital Market on* March 30, 2026),resulting in aggregate grant-date fair value of approximately $1,294,755. The grants are bifurcated intotwo* cohorts: (i)1,116,250 shares that vest in full on thethird anniversary of the grant date (* March 30, 2029)subject to continued service, recognized straight-line over the 36-month service period; and (ii)878,750 shares that vest in full only if the recipient’s service terminates by reason of death or disability, by action of the Company other than for cause (including a failure to be nominated for re-election), or by a failure to be re-elected by the stockholders, and that are forfeited if the recipient’s service terminates for any other reason, including a voluntary resignation. The requisite service period for these awards is the remainder of the recipient’s then-current term as a director, which mayend before the awards vest. Because the grants were made on the last day of thefirst* quarter, stock-based compensation expense recognized during the financial period for thesix months ended* June 30, 2026,included in selling, general and administrative expenses, was $398,805. Total unrecognized compensation cost related to these grants was approximately $895,950 as of June 30, 2026,*expected to be recognized over a period of 36 months for cohort (i) and through the separation date from the Board of Directors, a weighted-average period of approximately 10 months, for cohort (ii).

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Note 15 Stockholders’** Equity**(cont.)

As of* June 30, 2026* and* December 31, 2025,there were 0 and 50 stock options exercisable and vested at a weighted-average exercise price of $163.00, respectively. During2026* and2025, 50 and 450 options expired unexercised. No options were granted or exercised in2026 or2025.

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 June 30, 2026,the Company had 985,063 shares of Series B Preferred Stock outstanding. Additionally,1,467,532 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 Note5).

The Tax Benefit Preservation Plan adopted by the Board on* April 18, 2017between the Company and Computershare, which had been extended in May 2024through December 31, 2027,was cancelled on March 3, 2025*pursuant to the Master Exchange and Other Transaction Agreement.

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* March 2025Public 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. The terms of the Series B Preferred Stock were amended in* August 2026to provide for proportionate adjustment upon a stock split, reverse stock split or similar recapitalization of the Common Stock - see Note19.*

The Representative's Warrant issued in connection with the* March 2025Public Offering is described in Note14.*

The Company’s Senior Secured Convertible Notes (see Note11) are convertible into shares of Common Stock at conversion prices ranging from $0.57 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. Outstanding principal balances, conversion activity for the period, and shares issuable upon conversion are presented in Note11.* On* April 16, 2026,the conversion price applicable to $500,000 of principal under the OctoberNote was reduced to $0.57 per share (see Note11*). On* August 10, 2026,the conversion price of both Notes was reduced to $0.2949 per share with respect to all principal then outstanding (see Note19*).

The* February 2026Letter Agreement and the related warrant to purchase 405,000 shares of Common Stock are described in Note14.* During thesix months ended* June 30, 2026,*$111,021 of the discount recorded in connection with the warrant was amortized to interest expense.

2026 Annual Meeting of Stockholders

On* June 18, 2026,the Company held its2026* Annual Meeting of Stockholders. At the meeting, the stockholders approved each of the proposals set forth in the Company’s definitive proxy statement on Schedule14A filed with the Securities and Exchange Commission on* May 7, 2026,including: (i) the election of Fredric J. Feldman, Ph.D. and Elwood D. Howse, Jr. as Class I directors to serve until the2027* Annual Meeting of Stockholders or until their respective successors are duly elected and qualified; (ii) the election of John M. Holliman, III and Gordon Strout as Class II directors to serve until the2028 Annual Meeting of Stockholders or until their respective successors are duly elected and qualified; (iii) authorization of the Board of Directors, in its discretion, to effect a reverse stock split of the Company’s Common Stock at a ratio to be determined by the Board to satisfy the minimum bid price requirement to comply with Nasdaq Listing Rule5550(a)(2); (iv) approval of an amendment to the Company’s2025 Stock Incentive Plan; (v) the ratification of the appointment of GBQ Partners LLC as the Company’s independent registered public accounting firm for the fiscal year ending* December 31, 2026;and (vi) the adjournment of the Annual Meeting, if necessary or advisable, to solicit additional proxies. Detailed voting results were reported in a Current Report on Form8*-K filed with the Securities and Exchange Commission on* June 22, 2026.*

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Note 15 Stockholders’** Equity**(cont.)

Stock-Based Compensation Expense

At the Annual Meeting held on* June 18, 2026,stockholders elected Class I directors to serve until the2027* Annual Meeting of Stockholders and Class II directors to serve until the2028 Annual Meeting of Stockholders, in each case until their successors are duly elected and qualified; accordingly, ASC718 requires a prospective change in estimate of the related requisite service periods.

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 was approximately$70.0 thousand for thesix months ended* June 30, 2026.*

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;contributions on their behalf during thesix* months ended* June 30, 2026*are included within the TotalStone matching contribution expense disclosed above.

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 thesix months ended* June 30, 2026*totaled approximately$9.0 thousand.

Note 17 Income Taxes

For thethree andsix months ended* June 30, 2026,the Company recorded an income tax provision of $3.0 thousand and $5.0 thousand, respectively. The Company didnot record an income tax provision for thethree andsix* months ended* June 30, 2025.The effective tax rate was 0.0% for thesix* months ended* June 30, 2026compared to 0.0% for thesix* months ended* June 30, 2025.The difference between the effective tax rate and the U.S. statutory federal rate of 21% is primarily attributable to the full valuation allowance against the Company’s U.S. net deferred tax assets, which prevents recognition of a tax benefit on U.S. pretax losses, and to Canadian income tax expense on the operations of Canadian Stone Industries Inc. at the applicable Canadian statutory rate. The provision recorded in each2026* period consists of Canadian income taxes.

The Company continues to maintain a full valuation allowance against its U.S. net deferred tax assets, as it isnot more likely thannot that the Company will realize these deferred tax assets in future periods based on available positive and negative evidence, including the Company's recent history of losses. The deferred tax liability of*$19.0* thousand and*$20.0* thousand at* June 30, 2026and December 31, 2025relates to the Company's Canadian operations and isnot* subject to the U.S. valuation allowance.

The Company applies an estimated annual effective tax rate to year-to-date pretax results in accordance with ASC740-270. As of* June 30, 2026*the Company had no unrecognized tax benefits and no accrued interest or penalties related to uncertain tax positions.

The Company has substantial U.S. federal net operating loss carryforwards. Utilization of those carryforwards* maybe limited under Section382* of the Internal Revenue Code if the Company experiences an ownership change as defined in that section. Shares of common stock outstanding increased significantly during thesix months ended* June 30, 2026through conversions of the Senior Secured Convertible Notes, issuances under the Equity Line of Credit and the restricted stock awards described in Note15,* and additional shares were issued after the balance sheet date as described in Note19.

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Note 18 Segment Information

The Company’s reportable segments are unchanged from those identified in the Company’s Annual Report on Form10-K for the fiscal year ended* December 31, 2025:the TotalStone segment (which includes the legacy Instone distribution business together with Fraser Canyon / Canadian Stone Industries, acquired December 1, 2025)and the Carolina Stone segment (acquired August 22, 2025).*Capstone Holding Corp. corporate-level expenses are reported separately as the “Parent” caption. Intersegment transactions, where applicable, are reported in the “Eliminations” caption and (intercompany transactions and events) consist of intercompany sales, intercompany receivables and payables that are eliminated in consolidation.

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 18 Segment Information(cont.)

Note 19 Subsequent Events

The Company has evaluated subsequent events through* August 12, 2026,*the date these unaudited condensed consolidated financial statements were issued. Other than the events disclosed below,no other subsequent events occurred that would require recognition or disclosure in the unaudited condensed consolidated financial statements.

Warrant Exercise (3i, LP). On* July 10, 2026,3i, LP exercised in full the February 2026warrant to purchase 405,000 shares of Common Stock at an exercise price of $0.01 per share (see Note14*), and the Company issued 405,000 shares of Common Stock upon the exercise. The Company has filed a registration statement on Form S-1 registering the resale of such shares.

Senior Secured Convertible Note Maturity Extension. The* July 2025Senior Secured Convertible Note matured on July 29, 2026with an outstanding principal balance of $250,372, and the Company and the holder extended the maturity date to August 29, 2026.The extension was reported on the Current Report on Form8*-K filed with the SEC on* August 3, 2026,and the extension agreement is incorporated by reference in Item6.*

Convertible Note Conversion Price Adjustment. On* August 10, 2026,the Company and the holder of the Senior Secured Convertible Notes entered into a Conversion Price Voluntary Adjustment Notice under Section7*(h) of each Note reducing the conversion price of both Notes to $0.2949 per share, effective* August 10, 2026through the maturity date of the applicable Note. The adjusted price applies to all principal and other amounts outstanding under each Note, consisting of $250,372.01 of principal under the July 2025Note, previously subject to a conversion price of $0.75, and $1,650,387.77 of principal under the October 2025Note, of which $90,615.48 was previously subject to a conversion price of $0.75, $286,916.08 was previously subject to a conversion price of $0.57, and $1,272,856.21 was previously subject to a conversion price of $1.10. Following the adjustment,no principal amount outstanding under either Note remains subject to any other conversion price. The $1,900,759.78 of principal outstanding is convertible into approximately 6,445,438 shares of Common Stock at the adjusted price, compared with approximately 2,115,154 shares at the conversion prices in effect at June 30, 2026.Conversion is voluntary at the election of the holder. The adjustment is accounted for as a modification of the embedded conversion features, with the resulting change in the fair value of the bifurcated derivative liabilities reflected in earnings in thethird* quarter of2026. A copy of the notice is filed as Exhibit10.11 to this Quarterly Report.

Master Restricted Stock Agreements. On* August 7, 2026,the Company entered into Master Restricted Stock Agreements (the "True-Up Agreements") with Matthew Lipman, the Company's Chief Executive Officer, and Michael Toporek, the Company's Chairman, pursuant to the Company's2025* Stock Incentive Plan. In addition to the restricted stock previously granted to Mr. Lipman and Mr. Toporek on* March 30, 2026,the True-Up Agreements provide that the Company will issue to each of Mr. Lipman and Mr. Toporek, on an annual basis beginning January 31, 2027and continuing until the earliest of March 31, 2031,the applicable recipient's separation from service, or such earlier date as approved by at least80%* of the Board, additional shares of restricted common stock equal to3.75% of the aggregate number of shares of the Company's Common Stock issued during the applicable measurement period (the "True-Up Shares"). The True-Up Shares are issuable under, and subject to the share reserve limitations of, the2025 Stock Incentive Plan, and are subject to vesting conditions substantially consistent with those described above with respect to restricted stock awards held by the Company's executive officers and directors, as applicable.

Restricted Stock True-Up Awards. On* August 7, 2026,the Compensation Committee approved, and the Company issued,4,809,212 shares of restricted common stock toeleven* executive officers and directors under the Capstone Holding Corp.2025 Stock Incentive Plan, as amended (the*“2025* Plan”), including the shares granted under the True-Up Agreements. The awards were made pursuant to the true-up framework approved by the Board on* March 30, 2026,under which each participant is carried to a target ownership percentage as the number of shares of common stock outstanding increases. Section4*(a) of the2025 Plan limits awards, after giving effect to the issuance of shares thereunder, to35% of the shares of common stock outstanding as of thefirst trading day of each fiscal quarter; giving effect to these awards, aggregate shares issued under the2025 Plan total 6,804,212 shares, or approximately 34.0% of the shares of common stock outstanding as of thefirst trading day of thethird quarter of2026, after giving effect to the awards. Awards to management participants vest on athree-year cliff on* August 7, 2029,and awards to non-employee directors vest only if the recipient’s service terminates by reason of death or disability, by action of the Company other than for cause (including a failure to be nominated for re-election), or by a failure to be re-elected by the stockholders, and are forfeited if the recipient’s service terminates for any other reason. The grant date fair value was $0.27 per share, the closing price of the common stock on August 6, 2026,as fixed by the Compensation Committee written consent dated August 7, 2026,*and the Company will recognize compensation cost of approximately $1,299.0 thousand over the applicable vesting periods.

Amendment to Certificate of Incorporation. On* August 7, 2026,the Board of Directors approved, and stockholders holding a majority of the voting power of the Company’s outstanding voting stock approved by written consent in lieu of a special meeting,one or more amendments to the Company’s Certificate of Incorporation, as amended, to decrease the number of authorized shares of common stock and/or preferred stock, at such time and in such amounts as the Board of Directors maydetermine, including in connection with any reverse stock split. The holder of the Company’s Series B Preferred Stock consented to the amendments pursuant to Section1.5* of the Certificate of Designation of the Series B Preferred Stock. The approval authorizes the amendments but doesnot effect them. As of the date of this report, the Company hasnot determined the reduced number of authorized shares andno certificate of amendment has been filed. Any such amendment will be effected, if at all, at such time and in such amounts as the Board of Directors* maydetermine, andnot* before a definitive information statement on Schedule14C has been mailed to stockholders and the applicable waiting period has elapsed.

Amendment to the Series B Certificate of Designation. On* August 7, 2026,the Board of Directors approved, and the holder of the Series B Preferred Stock consented to, an amendment to the Certificate of Designation of Preferences, Rights and Limitations of Series B Preferred Stock, which the Company filed with the Delaware Secretary of State on August 10, 2026.*The amendment provides that, upon any stock split, reverse stock split, combination or similar recapitalization of the Common Stock, the number of votes per share of the Series B Preferred Stock and the price conditions applicable to its conversion adjust proportionately, so that the relative voting power and the conversion economics of the Series B Preferred Stock are unchanged by any such transaction.

Authorization of Related Party Exchanges. On* August 7, 2026,the Board of Directors authorized, but didnot* direct, the Company to enter into exchange agreements with BP Peptides, LLC and Brookstone Partners Acquisition XXI Corporation, entities affiliated with Matthew Lipman, the Company’s Chief Executive Officer, and Michael Toporek, the Chairman of the Board, pursuant to which such holders would surrender shares of Series Z Preferred Stock in exchange for shares of common stock at a price per share representing a premium to the market price of the common stock.No exchange agreement has been executed andno shares have been issued thereunder. The Board also approved in principle, and stockholders holding a majority of the voting power of the Company’s outstanding voting stock approved by written consent in lieu of a special meeting, the settlement of the remaining shares of Series Z Preferred Stock and accrued management fees payable to Brookstone Partners IAC, Inc. throughone or more further exchanges. With each exchange occurring at a price per share equal to103% of the Nasdaq Official Closing Price on the trading day immediately preceding consummation, inone or more exchanges at any time on or prior to* August 7, 2027,covering the issuance of up to 15,750,000 shares of common stock in the aggregate, with each recipient executing an18*-month lock-up agreement. Any such exchange willnot be effected before a definitive information statement on Schedule14C has been mailed to stockholders and the applicable waiting period has elapsed.

Subsequent Equity Line of Credit Draws. Between* July 1, 2026and August 7, 2026,the Company submittedsixteen* VWAP Purchase Notices under the Equity Line of Credit agreement with Tumim Stone Capital, LLC (see Note15), resulting in the issuance of an aggregate of 161,166 shares of Common Stock for aggregate gross proceeds of approximately $40.0 thousand.No further VWAP Purchase Notices were submitted through the date of this report

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