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, 2026 and 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 ASC 480 — see Note 5).

Share activity for the six months ended June 30, 2026 — including 2,890,533 shares issued upon partial conversions of the Senior Secured Convertible Notes (see Note 11) and 1,544,768 shares issued under the May 2025 Equity 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 the 2026 Annual Meeting, because the requisite service period for those awards ended on that date. The completion of expense recognition does not accelerate the lapse of the restrictions on those shares, which occurs only in accordance with the terms of the applicable award agreements. The February 2026 warrant to purchase 405,000 shares of Common Stock was exercised in full on July 10, 2026 (see Note 14 and Note 19). 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 June 2015, our stockholders approved the 2015 Equity Incentive Plan (the “2015 Plan”) and reserved 1,000,000 shares of our common stock for issuance. At  June 30, 2026 and  December 31, 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 Section 4(a) of the 2025 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 the 2025 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 into two cohorts: (i) 1,116,250 shares that vest in full on the third 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 may end before the awards vest. Because the grants were made on the last day of the first quarter, stock-based compensation expense recognized during the financial period for the six 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).

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. During 2026 and 2025, 50 and 450 options expired unexercised. No options were granted or exercised in 2026 or 2025.

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 ASC 480, Distinguishing Liabilities from Equity (see Note 5).

The Tax Benefit Preservation Plan adopted by the Board on April 18, 2017 between the Company and Computershare, which had been extended in May 2024 through 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, casting one vote per share. Series B Preferred Stock is convertible into Common Stock at the holder’s option after the two-year anniversary of the Company’s March 2025 Public Offering, provided the Common Stock’s closing price meets or exceeds $40 per share. Until less than 50% of the originally issued Series B Preferred Stock remains outstanding, holders of at least 50% of such shares may appoint two 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 2026 to provide for proportionate adjustment upon a stock split, reverse stock split or similar recapitalization of the Common Stock - see Note 19.

The Representative's Warrant issued in connection with the March 2025 Public Offering is described in Note 14.

The Company’s Senior Secured Convertible Notes (see Note 11) 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 Note 11. On April 16, 2026, the conversion price applicable to $500,000 of principal under the October Note was reduced to $0.57 per share (see Note 11). 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 Note 19).

The February 2026 Letter Agreement and the related warrant to purchase 405,000 shares of Common Stock are described in Note 14. During the six 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 its 2026 Annual Meeting of Stockholders. At the meeting, the stockholders approved each of the proposals set forth in the Company’s definitive proxy statement on Schedule 14A 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 the 2027 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 the 2028 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 Rule 5550(a)(2); (iv) approval of an amendment to the Company’s 2025 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 Form 8-K filed with the Securities and Exchange Commission on June 22, 2026.

Stock-Based Compensation Expense

At the Annual Meeting held on June 18, 2026, stockholders elected Class I directors to serve until the 2027 Annual Meeting of Stockholders and Class II directors to serve until the 2028 Annual Meeting of Stockholders, in each case until their successors are duly elected and qualified; accordingly, ASC 718 requires a prospective change in estimate of the related requisite service periods.