ZeroStack : Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Published: 2026-05-04 06:07:09 ET ZSTK

Published on 05/04/2026 at 06:07 am EDT

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides information we believe is relevant to an assessment and understanding of our results of operations, financial condition, liquidity and cash flows for the periods presented. This discussion should be read in conjunction with (a) our unaudited condensed consolidated financial statements and related notes contained elsewhere in Part I, Item 1, "Financial Statements" of this Quarterly Report, and (b) Part I, Item 1A "Risk Factors", Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our audited consolidated financial statements and related notes in our 2025 Annual Report. As discussed in the section above titled "Cautionary Statement Regarding Forward-Looking Statements," the following discussion contains forward-looking statements that are based upon our current expectations, including with respect to our future revenues and operating results. Our actual results may differ materially from those anticipated in such forward-looking statements as a result of various factors. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled "Risk Factors" included under Part II, Item 1A below and included under Part I, Item 1A in our 2025 Annual Report.

Amounts are expressed in United States dollars ("$" or "USD") unless otherwise stated to be in Euro ("€"). Amounts stated in foreign currencies include approximate USD amounts based on exchange rates on March 31, 2026. Variance, ratio, and percentage changes in this section are based on unrounded numbers. This section reports the Company's activities through March 31, 2026, unless otherwise indicated.

Overview of our Business

ZeroStack Corp. (the "Company" or "ZeroStack") is the first and largest decentralized AI treasury company that is investing in the future of AI infrastructure through strategic ownership in 0G Tokens. The Company is an AI infrastructure company that has created an open and decentralized AI network fueled by the 0G Token.

The Company is also a global pharmaceutical distributor through its wholly owned subsidiary Phatebo GmbH ("Phatebo"). Based in Germany, Phatebo is a wholesale pharmaceutical distribution company with import and export capabilities of a wide range of pharmaceutical goods and medical products to treat a variety of health indications, including drugs related to cancer therapies, attention-deficit/hyperactivity disorder, multiple sclerosis and anti-depressants, among others. Phatebo is focused on distributing pharmaceutical products within 28 countries globally, primarily in Europe, but also with sales to Asia, Latin America, and North America. Additionally, the Phatebo warehouse provides a logistics outpost for ZeroStack's growing product portfolio and distribution network within the European Union. On September 20, 2025, ZeroStack entered into an agreement for the disposition of certain components of our existing hemp and cannabis business, as described below under the header "Sale of Legacy Hemp and Cannabis Business."

Cryptocurrency Treasury Strategy

On May 2, 2025, the Company entered into a securities purchase agreement (the "May 2025 Securities Purchase Agreement") with certain investors (the "May 2025 Investors") in connection with the issuance and sale by the Company to the May 2025 Investors via a private placement (the "May 2025 Private Placement") of an aggregate of 80,340 common shares (the "Common Shares") at a purchase price of $11.70 per share and 18,642 pre-funded warrants of the Company (the "May 2025 Pre-funded Warrants") at a purchase price of $11.6961 per warrant each to purchase one Common Share (each, a "May 2025 Pre-funded Warrant Share") which were immediately exercisable and expire when exercised in full, at an exercise price of $0.0039 per share.

The net proceeds from the sale of the May 2025 Common Shares and the May 2025 Pre-funded Warrants were approximately $1.1 million after deducting estimated expenses relating to the May 2025 Private Placement. The Company used $0.4 million of the net proceeds from the May 2025 Private Placement to purchase Solana, $0.4 million of the net proceeds from the May 2025 Private Placement to purchase Ethereum, $0.1 million of the net proceeds from the May 2025 Private Placement to purchase Sui, $0.1 million of the net proceeds from the May 2025 Private Placement to purchase Ripple, and the balance of the net proceeds from the May 2025 Private Placement for general corporate and working capital purposes and to pay any fees and expenses in connection with the issuance of the May 2025 Common Shares and the May 2025 Pre-funded Warrants.

On September 19, 2025, the Company entered into securities purchase agreements with certain investors pursuant to which the Company agreed to sell and issue the following securities in private placement offerings (collectively, the "PIPE Offering"): (i) 116,340 common share units ("PIPE Common Share Units") at a unit price of $25.19, payable in cash, for aggregate gross proceeds of $2.9 million, with each unit consisting of one common share ("PIPE Common Share") and 0.2 of a warrant, with each full warrant to purchase one common share at an exercise price of $25.19 ("PIPE Warrant"); (ii) 419,975 pre-funded warrant units ("PIPE Pre-Funded Warrant Units") at a unit price of $25.1899, payable in cash, for aggregate gross proceeds of $10.6 million, with each unit consisting of one pre-funded warrant to purchase one common share at an exercise price of $0.0001 ("PIPE Pre-Funded Warrant") and 0.2 of a PIPE Warrant; (iii) 8,546,955 PIPE Pre-Funded Warrants at a unit price of $25.1899, payable in 71,766,135 0G Tokens; and (iv) an unsecured convertible note in an aggregate original principal amount of 95,333 Solana (the "PIPE Note").

On September 26, 2025, in connection with the closing of the PIPE Offering, the Company issued 116,340 PIPE Common Share Units and 419,975 PIPE Pre-Funded Warrant Units for aggregate gross cash proceeds of $13.5 million, and 2,592,212 PIPE Pre-Funded Warrants for 21,766,135 0G Tokens, valued at $54.7 million on the issuance date. The remaining 5,954,473 PIPE Pre-Funded Warrant Units were issued on October 9, 2025, for 50,000,000 0G Tokens. The PIPE Note was issued on October 24, 2025, at which date the original principal amount of 95,333 Solana was received.

On September 19, 2025, we entered into a loan agreement (the "Loan Agreement") between Zero Gravity Labs Inc. ("Zero Gravity") and us, pursuant to which we agreed to borrow 0G Tokens from Zero Gravity and agreed to issue to Zero Gravity 1,786,423 Common Share purchase warrants (the "Loan Agreement Warrants") each to purchase one Common Share at an exercise price of $0.01 per share.

On September 22, 2025, the Company entered into a securities purchase agreement with Zero Gravity for the issuance of the Zero Gravity Convertible Note that replaced the Loan Agreement and Loan Agreement Warrants, subject to closing. The Zero Gravity Convertible Note was issued on October 23, 2025, at which date the 50,000,000 0G Tokens were received by the Company. On March 31, 2026, the Company entered into the Note Settlement Agreement with Zero Gravity pursuant to which the Zero Gravity Convertible Note was settled. The Note Settlement Agreement provides that upon payment by ZeroStack to Zero Gravity on or before March 31, 2026 of 50,000,000 0G Tokens, then ZeroStack shall be deemed to have paid the entire principal and interest of the Zero Gravity Convertible Note in full and ZeroStack shall have no further obligations under the Zero Gravity Convertible Note and it shall be deemed to be satisfied.

The Company intends to use the net proceeds from the PIPE Offering and the Zero Gravity Convertible Note (collectively, the "Cryptocurrency Offering") to further the Company's new digital asset treasury strategy linked to 0G Tokens, and to explore and expand the use of the native AI functionality of the 0G Tokens to enhance the business of the Company. The balance of the net proceeds will be used for general corporate and working capital purposes.

On January 21, 2026, the Company commenced staking its 0G Tokens. The Company stakes the 0G on nodes for the purpose of validating transactions and adding blocks to the 0G blockchain network. The Company maintains control of the staked 0G and can withdraw them at any time. In exchange for staking the 0G and validating transactions on blockchain networks, the Company is entitled to the rewards for successfully validating or adding a block to the blockchain. These rewards are received by the Company directly from the 0G network and are calculated approximately based on the proportion of the Company's stake to the total 0G staked by all validators.

Sale of Legacy Hemp and Cannabis Business

On September 26, 2025, the Company transferred 100% of the issued and outstanding equity interests of the following direct and indirect wholly-owned subsidiaries, which collectively comprise the Company's legacy hemp and cannabis business: (i) Australian Vaporizers Pty LTD, an Australian limited company; (ii) Vessel Brand Canada Inc., a Canadian corporation; (iii) Klokken Aarhus Inc., a Canadian corporation; (iv) Rangers Pharmaceuticals A/S, a Danish stock-based corporation; (v) TruHC Pharma GmbH, a German limited company; (vi) Vessel Brand Inc., a Delaware corporation; (vii) High Roller Private Label LLC, a Florida limited liability company; (viii) Just Brands LLC, a Florida limited liability company; (ix) Just Brands FL LLC, a Florida limited liability company; (x) Just Brands International LTD, a United Kingdom limited company; and (xi) United Beverage Distribution Inc., a South Dakota corporation (collectively, the "Transferred Interests") to Flora Growth US Holdings LLC, a Florida limited liability company and certain noteholders ("Noteholders") of the Company, in exchange for full satisfaction of the balance receivable under the promissory notes issued by the Company to such Noteholders as part of the Company's acquisition of United Beverage Distribution Inc. on February 4, 2025.

Blocker Securities Contribution Agreements and Blocker Stockholders' Agreement

On March 31, 2026, Texas Blocker, which was formed by Daniel Reis-Faria and Dany Vaiman, the Chief Executive Officer and Chief Financial Officer, respectively, of the Company, for the purpose of facilitating the Exchange, entered into Securities Contribution Agreements with certain investors (the "Investors") pursuant to which the Investors contributed an aggregate of 142,232,948 0G Tokens in exchange for an aggregate of 9,104,614 Blocker Shares issued on a private placement basis (the "Exchange", and together with the Contribution, the "Financing"). The fair market value of each 0G Token was deemed to be $0.7549 and the fair market value of each Blocker Share was deemed to be $11.7931 in accordance with the valuation mutually agreed upon by Texas Blocker and the Investors. Each Blocker Share will be exchanged on a one-for-one basis for one ZeroStack Share or ZeroStack Pre-funded Warrant pursuant to the Share Exchange Agreement.

The Securities Contribution Agreements include customary representations, warranties and covenants by Texas Blocker and the Investors for an agreement of its type. Additionally, Texas Blocker has agreed to provide the Investors with customary indemnification against certain liabilities.

Closing of the Contribution occurred on March 31, 2026.

Concurrent with entering into the Securities Contribution Agreements, each of the Investors entered into a Stockholders' Agreement and a Share Exchange Agreement.

Under the Stockholders' Agreement, the Investors agreed to not transfer any of their Blocker Shares unless (i) pursuant to the Share Exchange Agreement, (ii) to an Affiliate of such Investor, subject to Unanimous Stockholder Approval and Board Approval or (iii) to any other person, subject to Unanimous Stockholder Approval and Board Approval. Additionally, without Unanimous Stockholder Approval, Texas Blocker will not be able to enter into any commitment to conduct any business or transaction that is not (i) in furtherance of the Exchange and the other transactions contemplated by the Share Exchange Agreement, (ii) related to the staking of 0G Tokens owned or acquired after the date of signing the Stockholders' Agreement by Texas Blocker or (iii) to pay a management fee to ZeroStack or engage in another tax-planning arrangement as determined by the Board of Directors of Texas Blocker.

Share Exchange Agreement

On March 31, 2026, concurrent with the execution of the Securities Contribution Agreements and Stockholders' Agreement, ZeroStack entered into the Share Exchange Agreement with Texas Blocker and the Investors. Under the terms of the Share Exchange Agreement, ZeroStack will issue an aggregate of 9,104,614 ZeroStack Shares and/or ZeroStack Pre-funded Warrants in exchange for an aggregate of 9,104,614 Blocker Shares, being all the issued and outstanding shares of Texas Blocker. Upon consummation of the Exchange, Texas Blocker will become a wholly-owned subsidiary of ZeroStack.

The respective obligations of ZeroStack and the Investors to consummate the Exchange are subject to the satisfaction or waiver (if applicable) of a number of customary conditions for an agreement of its type including, but not limited to: (i) the ZeroStack Shareholder Approval and (ii) the approval of the stockholders of Texas Blocker by written consent resolution to exchange the Blocker Shares for the ZeroStack Securities. Additionally, ZeroStack agreed to file a re-sale registration statement on Form S-3 registering the ZeroStack Shares, ZeroStack Pre-funded Warrants and the Common Shares issuable upon exercise of the ZeroStack Pre-funded Warrants. The Share Exchange Agreement includes customary representations, warranties and covenants by ZeroStack, Texas Blocker and the Investors for an agreement of its type.

Upon closing of the Exchange, which is expected to occur on or around July 14, 2026, Texas Blocker will become a wholly-owned subsidiary of ZeroStack and ZeroStack will be classified as a U.S. domestic corporation for U.S. federal income tax purposes pursuant to Section 7874(b) of the U.S. Internal Revenue Code of 1986, as amended.

Public Company Costs

We are a public company which requires additional staff and the implementation of processes and procedures to address public company regulatory requirements and customary practices. We expect to continue to incur substantial additional annual expenses for, among other things, directors' and officers' liability insurance and additional internal and external costs for investor relations, accounting, audit, legal, and other functions.

Minimum Independent Directors Requirement

On August 25, 2025, Harold Wolkin, a director of the Company passed away. Prior to his passing, Mr. Wolkin served as an "Independent Director", as defined in Nasdaq Listing Rule 5605(a)(2) ("Independent Director"), and as a member of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. On August 26, 2025, Nasdaq was informed that because of Mr. Wolkin's passing, the Company was no longer in compliance with certain Corporate Governance Requirements as set forth in Nasdaq Listing Rule 5605.

Pursuant to Nasdaq Listing Rule 5605(b)(1), a majority of the Board of a listed company must be comprised of Independent Directors. With Mr. Wolkin's passing, the Board was comprised of only four members, Daniel Reis-Faria, Michael Heinrich, Edward Woo and Manfred Leventhal. Only two of the four, Mr. Woo and Mr. Leventhal, qualified as Independent Directors. Therefore, the Company's Board was no longer comprised of a majority of Independent Directors as required by Nasdaq Listing Rule 5605(b)(1).

On January 6, 2026, the Board unanimously approved by written consent the appointment of Mr. Laurence Zeifman as a director of the Company. Following Mr. Zeifman's appointment, the Board is currently comprised of five members, Daniel Reis-Faria, Michael Heinrich, Edward Woo, Manfred Leventhal and Laurence Zeifman. Three of the five members, Mr. Woo, Mr. Leventhal and Mr. Zeifman, qualify as Independent Directors. Therefore, the Company's Board is now comprised of a majority of Independent Directors. As a result of the foregoing, the Company regained and has maintained compliance with the Board composition requirements of Nasdaq Listing Rule 5605(b)(1).

Audit Committee Requirement

Pursuant to Nasdaq Listing Rule 5605(c)(2)(A), a listed company must have an audit committee of at least three members, each of whom must be an Independent Director and meet the criteria for independence set forth in Rule 10A-3(b)(1) under the Exchange Act. With Mr. Wolkin's passing, the Audit Committee was comprised of only two members, Edward Woo and Manfred Leventhal, each of whom meet the independence requirements set forth in Nasdaq Rule 5605(a)(2) and Rule 10-A3(b)(1) of the Exchange Act. Therefore, the Audit Committee was no longer comprised of at least three members meeting the aforementioned independence requirements as required by Nasdaq Listing Rule 5605(c)(2)(A). On January 6, 2026, the Board unanimously approved by written consent the appointment of Mr. Laurence Zeifman as a member of the Audit Committee and the Chair of the Audit Committee. Following Mr. Zeifman's appointment, the Audit Committee is currently comprised of three members, each of whom being an Independent Director and meeting the criteria for independence set forth in Rule 10A-3(b)(1) under the Exchange Act. As a result of the foregoing, the Company regained and has maintained compliance with the audit committee composition requirements of Nasdaq Listing Rule 5605(c)(2)(A).

Compensation Committee Requirement

Pursuant to Nasdaq Listing Rule 5605(d)(2), a listed company must have a compensation committee of at least two members, each of whom must be an Independent Director and meet the criteria for independence set forth in Nasdaq Listing Rule 5605(d)(2)(A). On January 6, 2026, the Board unanimously approved by written consent the appointment of Mr. Laurence Zeifman as a member of the Compensation Committee. Following Mr. Zeifman's appointment, the Compensation Committee is currently comprised of three members, each of whom being an Independent Director and meeting the criteria for independence set forth in Nasdaq Listing Rule 5605(d)(2)(A).

Nominating and Corporate Governance Committee Requirement

Pursuant to Nasdaq Listing Rule 5605(e)(1), director nominees of a listed company must either be selected or recommended for the board's selection by Independent Directors constituting a majority of a board's Independent Directors or a nominations committee comprised solely of independent directors. With Mr. Wolkin's passing, the Nominating and Corporate Governance Committee was comprised of only two members, Edward Woo and Manfred Leventhal, each of whom meet the independence requirements set forth in Nasdaq Rule 5605(a)(2). On January 6, 2026, the Board unanimously approved by written consent the appointment of Mr. Laurence Zeifman as a member of the Nominating and Corporate Governance Committee. Following Mr. Zeifman's appointment, the Nominating and Corporate Governance Committee is currently comprised of three members, each of whom being an Independent Director.

Key Components of Results of Operations

Revenue

The Company uses the following five-step contract-based analysis of transactions to determine if, when and how much revenue can be recognized:

1. Identify the contract with a customer;

2. Identify the performance obligations in the contract;

3. Determine the transaction price;

4. Allocate the transaction price to the performance obligations in the contract; and

5. Recognize revenue when or as the Company satisfies the performance obligations.

a) Pharmaceutical Distribution Revenue

The Company primarily generates revenue as a global pharmaceutical distributor through its wholly owned subsidiary Phatebo.

The Company operates its global pharmaceutical distribution business through its subsidiary in the Germany.

Revenue from products is recognized at the transaction price, which is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods to a customer. Gross revenue excludes duties and taxes collected on behalf of third parties. Revenue is presented net of expected price discounts, sales returns, customer rebates, and other incentives.

The Company's contracts with customers for the sales of products consist of one performance obligation. Revenue from product sales is recognized at the point in time when control is transferred to the customer, which is on shipment or delivery, depending on the contract terms. The Company's payment terms generally range from 0 to 30 days from the transfer of control, and sometimes up to six months.

b) Staking Revenue

The Company began staking its 0G Tokens on January 21, 2026. Therefore, the provision of validating blockchain transactions is now an output of the Company's ordinary activities. The Company maintains control over the staked 0G Tokens as they remain in the Company's wallets and the Company has the right to direct their use. However, because the node that completes the validation is owned and operated by a third-party validator, the Company acts as an agent to the service of validating blockchain transactions. Therefore, it records the staking rewards as revenue on a net of a 2.0% commission basis.

Each separate validation under the validator contract represents a performance obligation. The transaction consideration the Company receives, the digital asset awards, is a non-cash consideration, which the Company measures at fair value. The Company will utilize a daily aggregation with daily average price valuation method, which aggregates the total 0G Tokens earned each day multiplied by the closing price of 0G on the Company's principal market, Kraken. The satisfaction of the performance obligation for transaction verification services occurs at a point in time when confirmation is received from the network indicating that the validation is complete, and the awards are deposited to the Company's wallet. At that point, revenue is recognized.

Cost of Sales

The Company includes the cost of raw materials and supplies, purchased finished goods and changes in inventory reserves in cost of sales. Raw materials include the purchase cost of the materials, freight-in and duty. Finished goods include the cost of products purchased from suppliers. Inventory reserves for excess and obsolete inventory are based upon quantities on hand, projected volumes from demand forecasts and net realizable value. The primary factors that can impact cost of goods sold on a period-to-period basis include the volume of products sold, the mix of products sold, third-party quality costs, transportation, overhead allocations and changes in inventory provisions.

Operating Expenses

The Company's operating expenses are apportioned based on the following categories:

Non-Operating Income

Non-operating income includes interest income and (expenses), foreign exchange gains (losses), gain on the disposal of Insolvent Entities and changes in financial instrument fair value. Interest is primarily related to the Company's lease liabilities and operating lines of credit. Foreign exchange is largely related to the revaluation of balances denominated in foreign currencies to U.S. dollars. Gain on the disposal of Insolvent Entities includes the difference between the fair value of any consideration received and the carrying values of the net assets of subsidiaries that have been deconsolidated as a result of filing for bankruptcy. Changes in financial instruments fair value pertain to fluctuations in the fair values of the Company's contingent consideration and non-current debt.

Income Tax

Income tax consists primarily of income taxes related to U.S. federal and state income taxes and income taxes in foreign jurisdictions in which we conduct business.

Loss from Discontinued Operations

Loss from discontinued operations includes the net loss, net of tax, of the Company's legacy hemp and cannabis business sold on September 26, 2025. It also includes an expected gain on the disposal as the expected sale price exceeded the carrying value of the assets being sold.

Results of Operations

The following table sets forth the Company's consolidated results of operations for the three months ended March 31, 2026 and 2025 (in thousands). The period-to-period comparisons of the Company's historical results are not necessarily indicative of the results that may be expected in the future. The results of operations data have been derived from our unaudited condensed interim consolidated financial statements for the three months ended March 31, 2026 and 2025 included elsewhere in this Quarterly Report.

For the Three Months Ended March 31, 2026 and 2025

Revenue

Revenue totaled $7.3 million and $6.9 million for the three months ended March 31, 2026 and 2025, respectively. The revenue generated by the Company's Phatebo subsidiary was $4.5 million and $6.9 million for the three months ended March 31, 2026 and 2025, respectively. The Company also began staking its 0G Tokens during the three months ended March 31, 2026, earning 4,364,724 0G Tokens in rewards, or $2.8 million.

Gross Profit

Gross profit totaled $3.1 million and $0.5 million for the three months ended March 31, 2026 and 2025, respectively. As a percentage of net sales, or gross margin, the Company reported 43% and 8% for the three months ended March 31, 2026 and 2025, respectively. The increases were primarily driven by the commencement of staking by the Company in the three months ended March 31, 2026.

Operating Expenses

Operating expenses totaled $65.8 million and $2.2 million for the three months ended March 31, 2026 and 2025, respectively. The increase is driven by the loss from changes in fair value of digital assets recorded during the three months ended March 31, 2026.

Loss from Changes in Fair Value of Digital Assets

Loss from changes in fair value of digital assets totaled $60.7 million and $nil for the three months ended March 31, 2026 and 2025, respectively. The loss in the three months ended March 31, 2026 was caused by the decrease in value of the Company's 0G holdings.

Salaries and Consulting Fees

Salaries and consulting fees were $1.0 million for the three months ended March 31, 2026 compared to $0.7 million for the three months ended March 31, 2025. These fees are related to employment and consulting contracts with most of the Company's management, as well as directors.

Professional Fees

Professional fees totaled $0.7 million for the three months ended March 31, 2026 compared to $0.5 million for the three months ended March 31, 2025. These expenses are associated with legal, accounting and audit services.

Share-based Compensation Expenses

Share-based compensation expenses totaled $2.8 million for the three months ended March 31, 2026 compared to $0.2 million for the three months ended March 31, 2025. These expenses represent the amortization of the fair value of share-based payments. The increase is due to the grants of options to key employees during the year ended December 31, 2025.

Asset Impairment

Asset impairment totaled $nil for the three months ended March 31, 2026 compared to less than $0.1 million for the three months ended March 31, 2025. The amount in 2025 represents impairment of an operating lease right of use asset in Florida.

Other Expenses, net

Other expenses totaled $0.7 million for both the three months ended March 31, 2026 and March 31, 2025. For both periods, this income and expense consists mainly of general and administrative expenses, insurance, travel, repairs and maintenance and royalties partially offset by miscellaneous incomes.

Non-operating income

The Company realized $26.0 million in non-operating income for the three months ended March 31, 2026 compared to non-operating income of $1.4 million for the three months ended March 31, 2025. This income consists of changes in financial instruments fair value, interest income (expense) and foreign exchange (loss) gain. The amount for the three months ended March 31, 2026 consists of a $23.0 million gain to revalue the Zero Gravity Convertible Note as well as $3.1 million gain on the settlement of the Zero Gravity Convertible Note. The amount for the three months ended March 31, 2025 includes a $1.1 million gain on the disposal of insolvent entities.

Income Tax

We recognized less than $0.1 million in income tax benefit for the three months ended March 31, 2026 compared to $0.1 million in income tax expense for the three months ended March 31, 2025. Our effective tax rate during the periods ended March 31, 2026 and 2025 was 0.0% and -34.8%, respectively. We maintain valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances from period to period are included in the tax provision in the period of change. In determining whether a valuation allowance is required, we consider such factors as prior earnings history, expected future earnings, carry-back and carry-forward periods and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset. We continue to believe our deferred tax assets are not more-likely-than-not to be realized and a full valuation allowance remains recorded against net deferred taxes as of March 31, 2026 and 2025.

Loss from Discontinued Operations

Loss from discontinued operations totaled $nil in the three months ended March 31, 2026 compared to $0.4 million in the three months ended March 31, 2025. The sale of the legacy hemp and cannabis businesses was finalized on September 26, 2025.

Net Loss

The Company recorded a net loss of $36.7 million for the three months ended March 31, 2026 compared to a net loss of $0.8 million for the three months ended March 31, 2025. The increased net loss was due to $60.7 million in losses recorded from changes in fair value of digital assets partially offset by $26.1 million in gains from the revaluation and settlement of the Zero Gravity Convertible Note.

Liquidity and Capital Resources

Since the Company's inception, we have funded our operations and capital spending through cash flows from product sales and proceeds from the sale of our capital stock. The Company is generating cash from sales and is deploying its capital reserves to acquire and develop assets capable of producing additional revenues and earnings over both the immediate and near term to support our business growth and expansion. While we have generated significant operating losses and negative cash flows from operations as reflected in our accumulated deficit and unaudited condensed interim consolidated statements of cash flows mainly through our legacy hemp and cannabis businesses, we have implemented an expansion strategy focused on identifying and pursuing complementary growth opportunities within the global digital asset market. This has resulted in staking revenue of $2.8 million in the three months ended March 31, 2026 and $38.4 million in digital assets on the Company's unaudited condensed interim balance sheet as of March 31, 2026. Our current, principal sources of liquidity are cash and cash equivalents provided by our operations and prior equity offerings. Cash consists primarily of cash on deposit with banks. Cash was $2.3 million and $5.6 million as of March 31, 2026 and December 31, 2025, respectively. As a result of the PIPE Offering that closed on September 26, 2025, the Company believes that its existing sources of liquidity are and will be sufficient in both the short and long term to meet our working capital requirements and future obligations.

The Company's primary uses of cash are for working capital requirements and capital expenditures. Additionally, from time to time, it may use capital for acquisitions and other investing and financing activities. Working capital is used principally for the Company's personnel as well as costs related to the distribution of pharmaceutical products. The Company's capital expenditures consist primarily of additional facilities, improvements in existing facilities and product development.

Cash Flows

The following table sets forth the major components of the Company's unaudited condensed interim consolidated statements of cash flows for the periods presented.

Cash used in Operating Activities

Net cash used in operating activities in the three months ended March 31, 2026 was $3.8 million compared to net cash used in operating activities of $2.7 million for the three months ended March 31, 2025. Cash flows used in operating activities for the periods ended March 31, 2026 and 2025 were due primarily to operating expenses exceeding the gross profit for the periods.

Cash provided by Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2026 totaled $0.1 million compared to $nil for the three months ended March 31, 2025. Cash flows provided from financing activities for the period ending March 31, 2026 were due to net borrowings on the credit facilities in Germany through the Company's Phatebo subsidiary. During the three months ended March 31, 2025, net borrowings on the credit facilities in Germany through the Company's Phatebo subsidiary were $nil.

Cash provided by Investing Activities

Net cash provided by investing activities for the three months ended March 31, 2026 totaled $nil compared to $0.4 million for the three months ended March 31, 2025. Cash flows provided by investing activities for the period ended March 31, 2025 were primarily related to the acquisition of United.

Working Capital

As of March 31, 2026, we had working capital of $3.1 million, including $2.3 million of cash. The Company's primary cash flow needs are for the development of its operating activities, administrative expenses and for general working capital to support growing sales with related receivables and payables.

Funding Requirements

Our continued existence is dependent on our ability to generate positive cash flows through synergies within our operations, expanding our production capacity and geographic footprint, exploring strategic partnerships and pursuing accretive acquisitions to supplement our organic growth. We are committed to attaining a level of sustained growth that will effectively offset our overhead costs, thereby paving the path to achieving profitability. We will be required in the future to raise additional capital through either equity or debt financings. To date, we have raised capital through multiple equity offerings. There were no equity offerings in the periods ended March 31, 2026 and March 31, 2025.

September 2025 ATM Offering

On September 23, 2025, the Company entered into an ATM sales agreement (the "Sales Agreement") with Revere Securities LLC (the "Agent) pursuant to which the Company may sell from time to time, at its option, Common Shares through the Agent in its capacity as sales agent. The sale of Common Shares, if any, will be made under the Company's Registration Statement, by any method that is deemed to be an "at the market offering" as defined in Rule 415(a)(4) under the Securities Act.

Subject to the terms and conditions of the Sales Agreement, the Agent will use its commercially reasonable efforts, consistent with its normal trading and sales practices and applicable state and federal laws, rules and regulations and the rules of Nasdaq, to sell on the Company's behalf all of the Common Shares requested to be sold by the Company. The Company may instruct the Agent not to sell Common Shares if the sales cannot be effected at or above the price designated by the Company in any such instruction. The Company or the Agent may suspend the offering of Common Shares being made through the Agent under the Sales Agreement upon proper notice to the other parties.

Unless otherwise agreed between the Company and the Agent, settlement for sales of the Common Shares will occur on the first trading day following the date on which any sales are made. Sales of the Common Shares will be settled through the facilities of The Depository Trust Company or by such other means as the Company and the Sales Agents may agree.

The aggregate compensation payable to the Agent, in cash, upon each sale of Common Shares through the Agent pursuant to the Sales Agreement, is an amount equal to: (i) 3.00% of the first $150 million in aggregate gross proceeds from the sale of Common Shares, (ii) 2.00% of the next $350 million in aggregate gross proceeds from the sale of the Common Shares, and (iii) 1.25% of any gross proceeds in excess of $500 million from the sale of the Common Shares. In addition, the Company has agreed in the Sales Agreement to provide indemnification and contribution to the Agent against certain liabilities, including liabilities under the Securities Act, in addition to certain other covenants, representations and warranties customary for an agreement of this type.

The Company is not obligated to make any sales of Common Shares under the Sales Agreement. The offering of Common Shares pursuant to the Sales Agreement will terminate upon the termination of the Sales Agreement by the Company or by the Agent, only with respect to itself, under the circumstances specified in the Sales Agreement.

The Company issued a total of 152,354 Common Shares through the September 2025 ATM Offering at an average purchase price of $10.61 per share for gross proceeds of $1.6 million through March 31, 2026. A total of 18,265 Common Shares were issued at an average price of $6.29 for gross proceeds of $0.1 million during the three months ended March 31, 2026.

November 2025 Share Purchase Agreement with White Lion

On November 28, 2025, the Company entered into the ELOC Agreement with White Lion pursuant to which White Lion has agreed to purchase from the Company up to an aggregate of $25.0 million of Common Shares from time to time over the term of the ELOC Agreement, which amount may be increased to up to an aggregate of $50.0 million of Common Shares upon mutual agreement by the parties and subject to the satisfaction of certain conditions. Also, on November 28, 2025, the Company entered a Registration Rights Agreement with White Lion. Pursuant to its obligations under the Registration Rights Agreement, the Company has filed with the SEC the registration statement that includes this prospectus to register the resale under the Securities Act of the Common Shares that may be issued to White Lion pursuant to the Total Commitment under the ELOC Agreement. On December 10, 2025, the Company issued 13,469 Common Shares to White Lion valued at $0.1 million as a commitment fee for the ELOC Agreement.

Note Settlement Agreement

On December 29, 2025, the Company entered into a note settlement agreement (the "PIPE Note Settlement Agreement") with the holder pursuant to which the PIPE Note issued to the holder pursuant to the September 19, 2025 securities purchase agreement between the Company and the holder was settled. The PIPE Note Settlement Agreement provided that upon payment by the Company to the holder on December 30, 2025 of: (i) 96,162 Solana with a value of $9.9 million based on the $124.88 closing price of Solana on December 30, 2025 as reported on its principal market, Kraken, (ii) $1.8 million in cash and (iii) 111,550 common shares of the Company, with a value of $0.7 million based on the $6.33 per share closing share price on December 30, 2025, then the Company was deemed to have paid the entire principal and interest of the PIPE Note in full, the Company had no further obligations under the PIPE Note, and the PIPE Note was deemed to be satisfied.

The Company issued 111,550 Common Shares valued at $0.7 million on December 30, 2025 in connection with the PIPE Note Settlement Agreement.

September 2025 Private Placement

On September 19, 2025, the Company entered into the PIPE Offering pursuant to which the Company agreed to sell and issue the following securities in private placement offerings: (i) 116,340 PIPE Common Share Units at a unit price of $25.19, payable in cash, for aggregate gross proceeds of $2.9 million, with each unit consisting of one PIPE Common Share and 0.2 PIPE Warrants, with each full warrant to purchase one Common Share at an exercise price of $25.19; (ii) 419,975 PIPE Pre-Funded Warrant Units at a unit price of $25.1899, payable in cash, for aggregate gross proceeds of $10.6 million, with each unit consisting of one PIPE Pre-Funded Warrant to purchase one Common Share at an exercise price of $0.0001 and 0.2 of a PIPE Warrant; (iii) 8,546,955 PIPE Pre-Funded Warrants at a unit price of $25.1899, payable in 71,766,135 0G Tokens; and (iv) the PIPE Note in an aggregate original principal amount of 95,333 Solana.

On September 26, 2025, in connection with the closing of the PIPE Offering, the Company issued 116,340 PIPE Common Share Units and 419,975 PIPE Pre-Funded Warrant Units for aggregate gross cash proceeds of $13.5 million, and 2,592,212 PIPE Pre-Funded Warrants for 21,766,135 0G Tokens, valued at $54.7 million on the issuance date. The remaining 5,954,743 PIPE Pre-Funded Warrant Units were issued on October 9, 2025, for 50,000,000 0G Tokens. The PIPE Note was issued on October 24, 2025, at which date the original principal amount of 95,333 Solana was received.

On September 19, 2025, we entered into the Loan Agreement pursuant to which we agreed to borrow 0G Tokens from Zero Gravity and agreed to issue to Zero Gravity 1,786,423 Loan Agreement Warrants each to purchase one Common Share at an exercise price of $0.01 per share.

On September 22, 2025, the Company entered into an agreement with Zero Gravity for the issuance of the Zero Gravity Convertible Note in an aggregate original principal amount of 50,000,000 0G Tokens that replaced the Loan Agreement and Loan Agreement Warrants, subject to closing. The Zero Gravity Convertible Note was issued on October 23, 2025, at which date the 50,000,000 0G Tokens were received by the Company.

May 2025 Private Placement

On May 2, 2025, the Company closed a private placement offering of 80,340 Common Shares at a price of $11.70 per Common Share and 18,642 pre-funded warrants at a price of $11.6961 per warrant for gross proceeds of $1.1 million, of which the Company immediately invested $1.0 million in digital assets.

Debt

In addition to the equity offerings described above, the Company also has access to credit facilities through its Phatebo subsidiary. The credit facilities total €2.4 million ($2.7 million) with three different German banks and are secured by default guarantees. On March 31, 2026, the outstanding amount was €2.4 million ($2.7 million) and was due within the next 12 months. The credit facilities have a weighted average interest rate of 8.12% and do not have a set maturity date. The interest rate is reset every time a new amount is drawn.

On September 19, 2025, the Company entered into an agreement with Zero Gravity pursuant to which the Company agreed to (i) borrow 50,000,000 0G Tokens from Zero Gravity under the Loan Agreement, and (ii) issue to Zero Gravity in a private placement offering 1,786,423 Loan Agreement Warrants. On September 22, 2025, the Company entered into a securities purchase agreement with Zero Gravity for the issuance of the Zero Gravity Convertible Note that replaced the Loan Agreement and Loan Agreement Warrants, subject to closing. The Zero Gravity Convertible Note was issued on October 23, 2025, at which date the 50,000,000 0G Tokens were received by the Company. On March 31, 2026, the Company entered into the Note Settlement Agreement with Zero Gravity pursuant to which the Zero Gravity Convertible Note was settled. The Note Settlement Agreement provides that upon payment by ZeroStack to the Zero Gravity on or before March 31, 2026 of 50,000,000 Tokens, then ZeroStack shall be deemed to have paid the entire principal and interest (as defined in the Zero Gravity Convertible Note) of the Zero Gravity Convertible Note in full and ZeroStack shall have no further obligations under the Zero Gravity Convertible Note and it shall be deemed to be satisfied. The Executive Chairman of the Company's board of directors, Michael Heinrich, was the Chief Executive Officer of Zero Gravity at the time of issuance and settlement of the Zero Gravity Convertible Note.

On March 26, 2026, Phatebo entered into a short-term loan agreement with an individual lender. Under the terms of the agreement, Phatebo borrowed 0.3 million EUR ($0.4 million), which was funded in a single advance. The loan matures four weeks from the date of funding and is repayable in a single lump-sum payment at maturity. The loan provides for a fixed interest charge of €65,000 for the contractual term. The total contractual repayment amount at maturity is 0.4 million EUR ($0.5 million). The loan is secured by substantially all current assets and fixed assets of Phatebo.

Off-Balance Sheet Arrangements

As of March 31, 2026, the Company did not have any off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on its results of operations or financial condition, including, and without limitation, such considerations as liquidity and capital resources.

Contractual Obligations

At March 31, 2026, the Company had the following contractual obligations to make future payments, representing contracts and other commitments that are known and committed:

(1) See Note 14 of the Company's unaudited condensed interim consolidated financial statements, included elsewhere in this Quarterly Report.

(2) See Note 10 of the Company's unaudited condensed interim consolidated financial statements, included elsewhere in this Quarterly Report.

(3) See Note 9 of the Company's unaudited condensed interim consolidated financial statements, included elsewhere in this Quarterly Report.

Critical Accounting Estimates

For information regarding our critical accounting policies and estimates, see "Critical Accounting Estimates" included in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2025 Annual Report.

Recently Adopted Accounting Principles

There were no new accounting standards issued during the three months ended March 31, 2026 that impacted the Company. See Note 3, Significant Accounting Policies, of the notes to the consolidated financial statements for the year ended December 31, 2025 for a discussion of recently issued accounting standards.

Disclaimer

Zerostack Corp. published this content on May 04, 2026, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 04, 2026 at 10:06 UTC.