CAPS

New in FY2025

• The market for residential building products has experienced a sustained period of project deferrals, driven by higher interest rates and a structural lengthening of remodel cycles.
• According to Zonda Home (“Zonda”), the anticipated market recovery will be more muted than historical precedents due to ongoing mortgage rate uncertainty.
• For 2026, Zonda forecasts total residential building products spending will grow just 1.0%, with repair and remodel spending projected to grow 3.6%.
• While cash-out mortgage originations are expected to increase by over 50% in 2026, Zonda projects that remodeling growth will achieve only roughly half of the 20%+ growth rates seen in previous post-deferral cycles.
• If these structural deferrals persist, or if the expected stabilization in remodel volumes fails to materialize by mid-2026, our future revenue, operating results, and overall growth prospects could be materially adversely affected In addition to commercial and residential market indicators, we also depend to a significant extent upon the levels of home repair and remodeling and new construction spending, affected by such factors as interest rates, inflation, consumer confidence, unemployment and the availability of consumer credit.
• Impairment of goodwill and intangible assets related to our 2025 acquisitions could materially adversely affect our results of operations and financial condition.
• The Company has recorded goodwill and intangible assets in connection with its 2025 acquisitions.
• These assets are subject to periodic impairment testing.
• If the acquired businesses do not perform in accordance with expectations, or if market conditions deteriorate, we may be required to record impairment charges that could materially affect our reported results of operations and financial condition.
• Our recently acquired businesses depend on key personnel, and the loss of these individuals could adversely affect our operations and the success of the acquisitions.
• The success of our recently acquired businesses depends in part on the continued service and performance of key personnel at those businesses who have deep customer relationships and market expertise.
• The loss of key employees at Carolina Stone or CSI, particularly during the integration period, could adversely affect our ability to maintain customer relationships, execute on our growth plans, and realize the anticipated benefits of the acquisitions.
• Our installation services business exposes us to additional liability risks that could result in claims, increased costs, or reputational harm.
• Through Carolina Stone, the Company now provides professional stone installation services, which expose us to risks different from and in addition to those associated with our distribution operations.
• Installation activities carry risks of property damage, personal injury, workmanship claims, and general contractor disputes.
• Although Carolina Stone maintains insurance and follows industry-standard safety practices, claims arising from installation projects could result in significant liability, reputational harm, and increased insurance costs.
• Our increased indebtedness may limit our operational flexibility and ability to pursue additional opportunities and may adversely affect our financial condition.
• As a result of the 2025 acquisitions and related financing activities, the Company has significantly increased its indebtedness.
• Outstanding obligations include the Convertible Note Financing, seller notes from the Carolina Stone and CSI acquisitions, the Stream Finance mezzanine credit facility, the Berkshire Bank revolving credit agreement, and the TD Bank credit facilities maintained by Canadian Stone Industries.
• The increased debt burden could limit our operational flexibility, increase our vulnerability to adverse economic conditions, limit our ability to pursue additional acquisitions or capital expenditures, and increase our interest expense.
• Our ability to service our debt obligations depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control.
• The conversion of our outstanding convertible notes could result in significant dilution to existing shareholders As of December 31, 2025, the Company had approximately $3.9 million in aggregate outstanding principal under its Convertible Note Financing, with conversion prices as low as $0.75 per share.
• The conversion of these notes into common stock would result in significant dilution to existing shareholders.
• The authorized aggregate facility amount of approximately $10.9 million could result in further issuances and additional dilution.
• Conversion price adjustments made during fiscal 2025 have increased the dilutive impact of the outstanding notes.
• Future adjustments or additional draws could further increase potential dilution.
• Grants under our equity incentive plan will dilute existing stockholders On March 30, 2026, the Board of Directors approved the 2025 Stock Incentive Plan (the “2025 Plan”), reserving shares of common stock representing approximately 21.5% of the number of Common Shares outstanding as of the first trading day of each quarter for issuance as equity awards.
• On the same date, the Company granted 1,995,000 restricted stock awards to management and non-employee directors at a per-share fair market value of $0.649, subject to vesting schedules of up to three years, with certain director grants vesting upon cessation of service on the Board.
• The 2025 Plan includes an evergreen provision that automatically increases the authorized number of shares available for issuance as the Company’s outstanding common stock increases.
• As a result, future issuances of equity awards under the 2025 Plan will dilute the ownership interests of existing stockholders and may adversely affect the market price of our common stock.
• Our earn-out and contingent consideration obligations related to recent acquisitions could require significant additional payments and impact our financial results.
• Both the Carolina Stone and CSI acquisitions include earn-out provisions that could result in additional consideration payable to the sellers.
• These contingent payment obligations are subject to the achievement of specified financial or operational targets by the acquired businesses.
• The earn-out obligations may result in significant additional cash payments that could impact our liquidity and cash flow.
• Additionally, changes in the estimated fair value of earn-out liabilities could result in non-cash charges or credits that affect our reported operating results.
• Our cross-border operations subject us to multiple regulatory regimes and trade policies that could increase costs and disrupt our business.
• Our operations in both the United States and Canada subject us to the laws and regulations of multiple jurisdictions, including tax laws, employment laws, environmental regulations, and customs and trade regulations.
• Changes in tariff policies, trade agreements, or import/export regulations affecting stone and building products could increase our costs or disrupt our supply chain.
• The regulatory burden of operating across international borders may increase our compliance costs and expose us to enforcement risk.
• Global tax developments, including the OECD Pillar Two global minimum tax, could affect our effective tax rate.

and 68 more.

Gone since FY2024

• The market story for 2024 was one of “deferral”, with home improvement projects and new constructions being delayed due to higher interest rates.
• This pent-up demand is likely to lead to a more volatile upswing when growth resumes in 2025 and beyond.
• According to Zonda Home (“Zonda”), building products spending overall will grow +2.6% in 2025, with repair/remodel spend set to grow +7% in 2025.
• Cash-out home equity lines of credit (HELOCs) are expected to increase ~25% and remodel growth is expected to increase 20%+ in 2025, based on historical precedents in the year following rate-hike driven deferrals.
• In addition to commercial and residential market indicators, we also depend to a significant extent upon the levels of home repair and remodeling and new construction spending, affected by such factors as interest rates, inflation, consumer confidence, unemployment and the availability of consumer credit.
• Risks related to our company Our business has generated net loses, and we intend to continue to invest substantially in our business.
• Our success is substantially dependent on the continued service of our Chief Executive Officer (“CEO”), Matthew Lipman, our Chief Financial Officer (“CFO”), Edward Schultz, and Kevin Grotke, President and Chief Executive Officer of our subsidiary, TotalStone, LLC.
• We do not carry key person life insurance on any of its management, which would leave us uncompensated for the loss of any of its management.
• In addition, our failure to retain qualified personnel in the diverse areas required for continuing its operations could harm our product development capabilities and customer and employee relationships, delay the growth of sales of our products and could result in the loss of key information, expertise or know-how.
• We have material weaknesses in our internal control over financing reporting.
• As a result of these constraints, we have a material weakness in our internal control over financing reporting.
• The liquidity of the Company is largely dependent on our ability to borrow funds on our ABL Facility.
• We fund our operations primarily through cash provided from operations of our building products distribution network and available capacity under our ABL Facility (“Revolver”).
• Our operating cash flows fluctuate based on seasonality with the first half of the year typically resulting in negative operating cash flows from the build in accounts receivable and inventories and the second half of the year generating positive operating cash flows as we bring accounts receivables and inventory levels down from seasonal high periods and pay down our Revolver.
• The liquidity of the Company is largely dependent on our ability to borrow funds on our Revolver.
• If the Company fails to fulfill its financial covenant requirements, it could lose access to funding under the Revolver, which would significantly impact our liquidity and put our ability to continue as a going concern at risk.
• The proceeds from our Public Offering closed on March 7, 2025 are expected to improve our liquidity position and reduce our reliance on the Revolver, enhancing our ability to meet financial covenant requirements and fund our operations.
• However, while we believe we will be able to continue to borrow funds on our Revolver when and as required, there can be no assurance that financing sufficient to enable us to continue our operations will be available to us in the future.
• Risks related to our securities Capstone Holding Corp. is a holding company with no operations of its own, and it depends on its operating subsidiary for cash to fund all of its operations and expenses, including to make future dividend payments, if any.
• Our operations are conducted entirely through our operating subsidiary, and our ability to generate cash to fund operations and expenses, to pay dividends or to meet debt service obligations is highly dependent on the earnings and the receipt of funds from our subsidiaries through dividends or intercompany loans.