Heavy 0G exposure drives ZeroStack (Nasdaq: ZSTK) Q1 2026 loss
ZeroStack Corp. reported a net loss of $36.7 million for the three months ended March 31, 2026, driven mainly by a $60.7 million loss from changes in the fair value of its digital assets, primarily 0G Tokens. Revenue rose modestly to $7.3 million, including $2.8 million of 0G staking rewards, while pharmaceutical distribution contributed $4.5 million. Total assets fell to $45.2 million from $130.2 million as digital asset values and restricted holdings declined, though the company settled the Zero Gravity Convertible Note and reduced total debt to $3.2 million. Management now relies on staking income and recent equity financings to support a going concern outlook, but notes significant risk from heavy concentration in 0G and volatile cryptocurrency markets.
Positive
- Elimination of large convertible note liability: Settlement of the Zero Gravity Convertible Note with 50,000,000 0G Tokens removed a liability last measured at $27.7 million and produced a $3.1 million gain in changes in financial instruments fair value.
- New recurring staking revenue stream: ZeroStack began staking 0G Tokens on January 21, 2026 and earned 4,364,724 0G Tokens, or $2.8 million in rewards net of validator commission in the quarter, creating a significant new source of operating revenue.
Negative
- Large quarterly loss driven by digital asset volatility: The company recorded a net loss of $36.7 million in Q1 2026, mainly due to a $60.7 million loss from changes in the fair value of its digital assets.
- High concentration in a single cryptocurrency: As of March 31, 2026, 0G cryptocurrency holdings of approximately $38.3 million represented about 85% of total assets, exposing ZeroStack to significant token-specific and counterparty risk.
- Working capital reliance on volatile staking income: Management states that existing cash of $2.3 million and staking rewards from unrestricted digital assets are expected to meet obligations, tying liquidity to cryptocurrency market and protocol conditions.
Insights
Large digital asset losses and token concentration dominate ZeroStack’s Q1 2026 profile despite debt reduction.
ZeroStack generated $7.3 million in Q1 2026 revenue, including $2.8 million from staking 0G Tokens, but reported a net loss of $36.7 million. The key driver was a $60.7 million loss from changes in the fair value of digital assets.
At March 31, 2026, digital assets totaled $38.4 million, and management discloses that 0G holdings represented about 85% of total assets. This creates material exposure to 0G price volatility and to a small set of custodians and trading platforms that hold the tokens.
The company settled the Zero Gravity Convertible Note by transferring 50,000,000 0G Tokens, eliminating a liability last valued at $27.7 million and recognizing a $3.1 million gain. While management concludes that cash plus staking rewards support a going concern view for at least one year, future results will depend heavily on 0G prices, staking conditions and the successful closing of the planned Exchange and related restructuring described in the period.
Key Figures
Key Terms
0G Tokens financial
staking financial
Zero Gravity Convertible Note financial
going concern financial
PIPE Pre-Funded Warrants financial
fair value financial
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____________ to _____________
Commission file number
(Exact name of registrant as specified in its charter)
| Province of |
Not Applicable |
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(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
As of April 27, 2026, the registrant had
Table of Contents
| Page | |
| Cautionary Statement Regarding Forward-Looking Statements | 2 |
| PART I | |
| Item 1. Financial Statements | 4 |
| Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 26 |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | 37 |
| Item 4. Controls and Procedures | 37 |
| PART II | |
| Item 1. Legal Proceedings | 38 |
| Item 1A. Risk Factors | 39 |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 39 |
| Item 3. Defaults Upon Senior Securities | 39 |
| Item 4. Mine Safety Disclosures | 39 |
| Item 5. Other Information | 39 |
| Item 6. Exhibits | 40 |
| Signatures |
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (this "Quarterly Report") contains "forward-looking statements," as that term is defined under the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements may include projections and estimates concerning our possible or assumed future results of operations, financial condition, business strategies and plans, market opportunity, competitive position, industry environment, and potential growth opportunities. In some cases, you can identify forward-looking statements by terms such as "may", "will", "should", "believe", "expect", "could", "intend", "plan", "anticipate", "estimate", "continue", "predict", "project", "potential", "target," "goal" or other words that convey the uncertainty of future events or outcomes. You can also identify forward-looking statements by discussions of strategy, plans or intentions. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, because forward-looking statements relate to matters that have not yet occurred, they are inherently subject to significant business, competitive, economic, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These and other important factors, including, among others, those discussed in this Quarterly Report, may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by the forward-looking statements in this Quarterly Report. Risks and uncertainties, the occurrence of which could adversely affect our business, include, but are not limited to, the following:
- the satisfaction of customary closing conditions related to the Exchange (as defined below) and to complete the Financing (as defined below);
- the date on which the Exchange is expected to close;
- our ability to obtain shareholder approval for the Exchange and/or planned redomicile from the province of Ontario to the State of Texas;
- Texas Blocker Corp.'s ("Texas Blocker") ability to obtain stockholder approval by written consent for the Exchange.
- our limited operating history and net losses;
- fluctuations in the market price of $0G, the native token of the 0G Chain, a layer-1 blockchain designed to enable users to deploy and operate decentralized artificial intelligence ("AI") applications and data ("0G Tokens", each a "0G Token"or "0G") or any other digital assets we might hold;
- the possibility that any one of the 0G Tokens and any other assets we might hold (collectively, the "Cryptocurrencies") may be classified as a "security";
- decrease in liquidity of 0G Tokens or any other digital assets we might hold;
- our ability to continue as a going concern absent access to sources of liquidity;
- damage to our reputation as a result of negative publicity;
- exposure to product liability claims, actions and litigation;
- risks associated with product recalls;
- our ability to successfully integrate businesses that we acquire;
- our ability to achieve economies of scale;
- our ability to fund overhead expenses, including costs associated with being a publicly-listed company
- maintenance of effective quality control systems;
- risks associated with expansion into new jurisdictions;
- regulatory compliance risks;
- potential delisting resulting in reduced liquidity of our Common Shares;
- risks associated with cybersecurity and the protection of confidential information;
- the possibility that we are deemed to be an investment company under the Investment Company Act of 1940, as amended (the "Investment Company Act"), and become subject to applicable restrictions that make it impractical for us to continue segments of our business as currently contemplated;
- risks associated with our use of AI;
- competition from the emergence or growth of other digital assets accelerated by advancements in AI and blockchain technology;
- the reliance of our AI technology on the use of third-party data;
- the negative impact on the value the Cryptocurrencies caused by disruptions in the Cryptocurrencies' networks;
- risks related to the custody of the Cryptocurrencies, including the loss or destruction of private keys required to access our Cryptocurrencies and cyberattacks or other data loss relating to our Cryptocurrencies; and
2
- the other risks described under Part I, Item 1A, "Risk Factors" included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (the "2025 Annual Report") filed with the Securities and Exchange Commission (the "SEC") on February 27, 2026, as well as described from time to time in our other filings with the SEC.
Given the foregoing risks and uncertainties, you are cautioned not to place undue reliance on the forward-looking statements in this Quarterly Report. The forward-looking statements contained in this Quarterly Report are not guarantees of future performance and our actual results of operations and financial condition may differ materially from such forward-looking statements. In addition, even if our results of operations and financial condition are consistent with the forward-looking statements in this Quarterly Report, they may not be predictive of results or developments in future periods.
Any forward-looking statement that we make in this Quarterly Report speaks only as of the date of this Quarterly Report. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements in this Quarterly Report, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report.
3
PART I
Item 1. Financial Statements
ZeroStack Corp.
Table of Contents
| Unaudited Condensed Interim Consolidated Financial Statements: | Page | |
| Unaudited Condensed Interim Consolidated Statements of Financial Position as of March 31, 2026 and December 31, 2025 | 5 | |
| Unaudited Condensed Interim Consolidated Statements of Loss and Comprehensive Loss for the Three Months Ended March 31, 2026 and 2025 | 6 | |
| Unaudited Condensed Interim Consolidated Statements of Changes in Shareholders' Equity for the Three Months Ended March 31, 2026 and 2025 | 7 | |
| Unaudited Condensed Interim Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2026 and 2025 | 8 | |
| Notes to Unaudited Condensed Interim Consolidated Financial Statements | 9 |
4
| ZeroStack Corp. |
| Unaudited Condensed Interim Consolidated Statements of Financial Position |
| (in thousands of United States dollars, except share amounts which are in thousands of shares) |
| As at: | March 31, 2026 | December 31, 2025 | ||||
| ASSETS | ||||||
| Current | ||||||
| Cash | $ | $ | ||||
| Restricted cash | ||||||
| Trade and amounts receivable, net of $ |
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| Prepaid expenses and other current assets | ||||||
| Inventory | ||||||
| Current digital assets | ||||||
| Total current assets | ||||||
| Non-current | ||||||
| Property, plant and equipment | ||||||
| Operating lease right of use assets | ||||||
| Restricted digital assets | ||||||
| Digital assets | ||||||
| Other assets | ||||||
| Total assets | $ | $ | ||||
| LIABILITIES | ||||||
| Current | ||||||
| Trade payables | $ | $ | ||||
| Contingencies | ||||||
| Current portion of debt | ||||||
| Current portion of operating lease liability | ||||||
| Other accrued liabilities | ||||||
| Total current liabilities | ||||||
| Non-current | ||||||
| Long-term debt | ||||||
| Non-current operating lease liability | ||||||
| Deferred tax | ||||||
| Total liabilities | ||||||
| SHAREHOLDERS' EQUITY | ||||||
| Share capital, no par value, unlimited authorized, |
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| Additional paid-in capital | ||||||
| Accumulated other comprehensive loss | ||||||
| Deficit | ( |
) | ( |
) | ||
| Total shareholders' equity | ||||||
| Total liabilities and shareholders' equity | $ | $ |
Commitments and contingencies - see Note 14.
Going concern - see Note 2.
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
5
| ZeroStack Corp. |
| Unaudited Condensed Interim Consolidated Statements of Loss and Comprehensive Loss |
| (in thousands of United States dollars, except per share amounts which are in thousands of shares) |
| For the three months ended March 31, 2026 |
For the three months ended March 31, 2025 |
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| Revenue | $ | $ | |||||
| Cost of sales | |||||||
| Gross profit | |||||||
| Operating expenses | |||||||
| Loss from changes in fair value of digital assets | |||||||
| Salaries and consulting fees | |||||||
| Professional fees | |||||||
| Share based compensation | |||||||
| Asset impairment | |||||||
| Other expenses, net | |||||||
| Total operating expenses | |||||||
| Operating loss | ( |
) | ( |
) | |||
| Interest expense | ( |
) | ( |
) | |||
| Foreign exchange (loss) gain | ( |
) | |||||
| Gain on disposal of Insolvent Entities | |||||||
| Changes in financial instruments fair value | |||||||
| Net loss before income taxes and discontinued operations | ( |
) | ( |
) | |||
| Income tax benefit (expense) | ( |
) | |||||
| Net loss from continuing operations | ( |
) | ( |
) | |||
| Loss from discontinued operations, net of taxes | ( |
) | |||||
| Net loss for the period | $ | ( |
) | $ | ( |
) | |
| Basic loss per share from continuing operations | $ | ( |
) | $ | ( |
) | |
| Diluted loss per share from continuing operations | $ | ( |
) | $ | ( |
) | |
| Basic loss per share | $ | ( |
) | $ | ( |
) | |
| Diluted loss per share | $ | ( |
) | $ | ( |
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| Weighted average number of common shares outstanding - basic | |||||||
| Weighted average number of common shares outstanding - diluted | |||||||
| Other comprehensive loss | |||||||
| Net loss for the period | $ | ( |
) | $ | ( |
) | |
| Derecognition of equity related to Insolvent Entities, net of income taxes of $ |
( |
) | |||||
| Gain (loss) on foreign currency translation, net of income taxes of $ |
|||||||
| Comprehensive loss | $ | ( |
) | $ | ( |
) | |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
6
| ZeroStack Corp. |
| Unaudited Condensed Interim Consolidated Statements of Changes in Shareholders' Equity |
| (in thousands of United States dollars, except for share amounts which are in thousands of shares) |
| Common Shares |
Additional paid-in Capital |
Accumulated other comprehensive income (loss) |
Accumulated deficit |
Total shareholders' equity |
||||||||||||||
| # | ||||||||||||||||||
| For the three months ended March 31, 2026 | ||||||||||||||||||
| Balance, December 31, 2025 | $ | $ | $ | $ | ( |
) | $ | |||||||||||
| Equity offerings | - | - | - | |||||||||||||||
| Exercise of pre-funded warrants | - | - | - | - | - | |||||||||||||
| Options issued | - | - | - | - | ||||||||||||||
| Restricted stock vested | - | - | - | - | ||||||||||||||
| SARs issued | - | - | - | - | ||||||||||||||
| Share issuance costs | - | - | - | - | ||||||||||||||
| Other comprehensive loss - exchange differences | - | - | - | - | ||||||||||||||
| Net loss | - | - | - | - | ( |
) | ( |
) | ||||||||||
| Balance, March 31, 2026 | $ | $ | $ | $ | ( |
) | $ | |||||||||||
| For the three months ended March 31, 2025 |
||||||||||||||||||
| Balance, December 31, 2024 | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||
| Equity issued for business combinations | - | - | - | |||||||||||||||
| Restricted stock vested | - | - | - | - | ||||||||||||||
| SARs issued | - | - | - | - | ||||||||||||||
| Share issuance costs | - | - | ( |
) | - | - | ( |
) | ||||||||||
| Derecognition of equity related to Insolvent Entities | - | - | - | ( |
) | - | ( |
) | ||||||||||
| Other comprehensive loss - exchange differences | - | - | - | - | ||||||||||||||
| Net loss | - | - | - | - | ( |
) | ( |
) | ||||||||||
| Balance, March 31, 2025 | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
7
| ZeroStack Corp. | |||
| Unaudited Condensed Interim Consolidated Statement of Cash Flows | |||
| (in thousands of United States dollars) |
| For the three months ended March 31, 2026 |
For the three months ended March 31, 2025 |
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| Cash flows from operating activities: | |||||||
| Net loss | $ | ( |
) | $ | ( |
) | |
| Adjustments to net loss: | |||||||
| Depreciation and amortization | |||||||
| Share based compensation | |||||||
| Deferred ELOC costs | |||||||
| Inventory impairments through costs of sales | |||||||
| Asset impairments | |||||||
| Digital assets received as revenue | ( |
) | |||||
| Changes in fair value of digital assets | |||||||
| Changes in financial instruments fair value | ( |
) | ( |
) | |||
| Realized gain on the settlement of convertible note | ( |
) | |||||
| Bad debt expense | |||||||
| Gain on disposal of Insolvent Entities | ( |
) | |||||
| Interest expense | |||||||
| Interest paid | ( |
) | ( |
) | |||
| Income tax | ( |
) | |||||
| ( |
) | ( |
) | ||||
| Net change in non-cash working capital: | |||||||
| Trade and other receivables | ( |
) | |||||
| Inventory | |||||||
| Prepaid expenses and other assets | ( |
) | ( |
) | |||
| Trade payables and accrued liabilities | ( |
) | ( |
) | |||
| Net cash used in operating activities | ( |
) | ( |
) | |||
| Cash flows from financing activities: | |||||||
| Equity instruments issued | |||||||
| Loan borrowings | |||||||
| Loan repayments | ( |
) | ( |
) | |||
| Net cash provided by financing activities | |||||||
| Cash flows from investing activities: | |||||||
| Purchases of property, plant and equipment and intangible assets | ( |
) | |||||
| Net cash on insolvency | ( |
) | |||||
| Cash acquired in business combination | |||||||
| Net cash provided by investing activities | |||||||
| Effect of exchange rate on changes on cash | ( |
) | ( |
) | |||
| Change in cash during the period | ( |
) | ( |
) | |||
| Cash and restricted cash at beginning of period | |||||||
| Cash included in assets held for sale | |||||||
| Cash and restricted cash at end of period | $ | $ | |||||
| Supplemental disclosure of non-cash investing and financing activities | |||||||
| Digital assets used to settle convertible note | $ | $ | |||||
| Debt issued for business combinations | |||||||
| Common shares issued for business combinations | |||||||
| Operating lease additions to right of use assets | |||||||
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
8
| ZeroStack Corp. |
| Notes to the unaudited condensed interim consolidated financial statements For the three months ended March 31, 2026 (In thousands of United States dollars, except number of shares, units and tokens and per share and per unit amounts, or as indicated) |
1. NATURE OF OPERATIONS
ZeroStack Corp. (the "Company" or "ZeroStack") (with its subsidiaries, the "Group") was incorporated as Flora Growth Corp. under the laws of the Province of Ontario, Canada on March 13, 2019. The Company, which filed articles of amendment to change its name to ZeroStack Corp. on January 29, 2026, is a decentralized artificial intelligence ("AI") treasury company that is investing in the future of AI infrastructure through strategic ownership in $0G, the native token of the 0G Chain, a layer-1 blockchain designed to enable users to deploy and operate decentralized AI applications and data ("0G Tokens", each a "0G Token" or "0G"), and an AI-focused asset management company. The Company is also a global pharmaceutical distributor through its wholly owned subsidiary Phatebo GmbH ("Phatebo"). The Company's registered office and principal place of business is located at 40 King Street, W Suite 2400, Toronto, Ontario, M5H 3S1, Canada.
2. BASIS OF PRESENTATION
These unaudited condensed interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") for interim financial information. Accordingly, they do not include all of the information and notes required by U.S. GAAP. The Company believes that the disclosures made are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (the "2025 Annual Report"). These unaudited condensed interim consolidated financial statements reflect all adjustments, which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.
These unaudited condensed interim consolidated financial statements apply the same accounting policies as those used in the financial statements included in the 2025 Annual Report, except as noted below.
Blocker Securities Contribution Agreements and Blocker Stockholders' Agreement
On March 31, 2026, Texas Blocker Corp. ("Texas Blocker"), a Texas corporation that 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 (as defined below), entered into securities contribution agreements (the "Securities Contribution Agreements") with certain investors (the "Investors") pursuant to which the Investors contributed an aggregate of
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 by and among Texas Blocker and the other Investors (the "Stockholders' Agreement") and a share exchange agreement by and among Texas Blocker, ZeroStack and the other Investors (the "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 (as defined in the Stockholders' Agreement) of such Investor, subject to unanimous approval of the stockholders of Texas Blocker ("Unanimous Stockholder Approval") and the approval of the Board of Directors of Texas Blocker, which consists of Daniel Reis-Faria and Dany Vaiman ("Board Approval") or (iii) to any other person, subject to Unanimous Stockholder Approval and Board Approval. Additionally, without Unanimous Stockholder Approval, Texas Blocker is not 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.
ZeroStack Corp. Notes to the unaudited condensed interim consolidated financial statementsFor the three months ended March 31, 2026 (In thousands of United States dollars, except number of shares, units and tokens and per share and per unit amounts, or as indicated) |
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 was to issue an aggregate of
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) approval of the shareholders of ZeroStack (the "ZeroStack Shareholder Approval") to issue the ZeroStack Securities under the applicable rules of the Nasdaq Stock Market LLC (the "Nasdaq") and (ii) 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. Because of the obligations of ZeroStack and the Investors described above, Texas Blocker was not a subsidiary ZeroStack as of March 31, 2026. Moreover, the Company does not hold a variable interest in Texas Blocker because it does not have an explicit interest or support arrangement that absorbs Texas Blocker's variability and there is no implicit arrangement through related parties that transfers Texas Blocker's economic variability to ZeroStack. Because the Company does not hold a variable interest in Texas Blocker as of March 31, 2026, the Company did not consolidate Texas Blocker.
The Executive Chairman of the Company's board of directors, Michael Heinrich, was the Chief Executive Officer of Zero Gravity Labs Inc. ("Zero Gravity") at the closing of the Contribution. Zero Gravity owns
Revenue recognition
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 the 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
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.
The Company now relies on staking revenue as part of its ongoing operations and on converting its staking rewards to cash to meet its working capital requirements. The current staking network conditions and protocol-level reward mechanics should not be viewed as fixed, guaranteed, or indicative of future results. Staking yields may fluctuate and could decrease materially or be eliminated due to a variety of factors, including but not limited to:
- changes in network participation rates or total staked supply;
- modifications to protocol reward structures or governance decisions;
- smart contract or protocol-level risks;
- market price volatility of the underlying digital assets;
- technical, security, or operational risks affecting the blockchain network; and
- regulatory developments or changes in applicable laws and guidance.
Significant Judgments over the accounting for cryptocurrency and assessment of control over the 0G protocol
The Company holds cryptocurrency associated with the 0G protocol and accounts for such assets at fair value in accordance with applicable U.S. GAAP. The determination of the appropriate accounting model for these cryptocurrency holdings requires significant judgment, particularly in assessing whether the Company, either individually or together with related parties, controls the underlying protocol. In evaluating whether it controls the 0G protocol, management considered a range of qualitative and quantitative factors, including the Company's governance participation, decision-making authority, and the structure of the protocol's governance mechanisms. Key considerations included:
ZeroStack Corp. Notes to the unaudited condensed interim consolidated financial statementsFor the three months ended March 31, 2026 (In thousands of United States dollars, except number of shares, units and tokens and per share and per unit amounts, or as indicated) |
- Governance Voting Power: The Company holds less than
- Supermajority Requirements: Substantive protocol decisions require approval by approximately
- Distribution of Remaining Voting Interests: The remaining governance tokens are widely held among third parties, including several holders or groups with meaningful voting interests. These parties are not subject to the Company's direction, and no arrangements exist that would allow the Company to coordinate or control their voting behavior.
- Absence of Special Governance Rights: The Company does not have any preferential rights, enhanced voting privileges, or other contractual mechanisms that would provide it with disproportionate influence over protocol decisions.
- Influence versus Control: Management considered whether its ownership interest, combined with its participation in the ecosystem, could result in de facto control. The Company determined that, while it may exert influence as a significant participant, it does not have the ability to direct the activities of the protocol in a manner consistent with control.
Based on the above analysis, management concluded that the Company does not control the 0G protocol. Accordingly, the Company continues to account for its cryptocurrency holdings associated with the protocol at fair value.
This assessment involves significant judgment and is subject to ongoing evaluation. Changes in governance structures, voting thresholds, ownership concentrations, or relationships among token holders could result in a different conclusion. If the Company were to determine that it controls the protocol in the future, it would be required to change its accounting model for the related cryptocurrency holdings from fair value to a cost less impairment model, which could materially affect the Company's financial position and results of operations.
Going concern
The accompanying unaudited condensed interim consolidated financial statements have been prepared assuming the Company will continue as a going concern. The going concern basis of presentation assumes that the Company will continue one year after the date these unaudited condensed interim consolidated financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.
The Group had cash of $
Basis of consolidation
These unaudited condensed interim consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions were eliminated on consolidation. Subsidiaries are entities the Company controls when it is exposed, or has rights, to variable returns from its involvement in the entity and can affect those returns through its power to direct the relevant activities of the entity. Subsidiaries are included in the consolidated financial results of the Company from the date of acquisition up to the date of disposition or loss of control. At March 31, 2026, the Company's subsidiaries and respective ownership percentages have not changed from December 31, 2025.
3. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
On September 20, 2025, the Company entered into an Equity Transfer and Debt Repayment Agreement (the "Agreement") with a group of investors (the "Investors"), which included Clifford Starke and Sammy Dorf, each of whom were directors of the Company at the time of the transaction, and Dany Vaiman, the Company's chief financial officer. Under the Agreement, the Investors acquired assets from the Company relating to the Company's hemp and cannabis related businesses, including Just Brands LLC, Just Brands FL LLC, Just Brands International LTD, High Roller Private Label LLC (together with Just Brands LLC, Just Brands FL LLC, Just Brands International LTD ("JustCBD"), Vessel Brand Inc., Vessel Brand Canada Inc. (together with Vessel Brand Inc., "Vessel"), United Beverage Distribution Inc. ("United"), Klokken Aarhus Inc., Rangers Pharmaceuticals A/S (together with Klokken Aarhus Inc., "Klokken"), TruHC Pharma GmbH ("TruHC"), Australian Vaporizers Pty LTD and the Company's investment in an early-stage European cannabis company (collectively the "Cannabis Business"). The sale of the Cannabis Business occurred following signing on September 26, 2025.
ZeroStack Corp. Notes to the unaudited condensed interim consolidated financial statementsFor the three months ended March 31, 2026 (In thousands of United States dollars, except number of shares, units and tokens and per share and per unit amounts, or as indicated) |
The consideration received by the Company for the sale of the Cannabis Business consisted of the cancellation by the Investors of all of the Company's obligations pursuant to promissory notes owed to the Investors with five year maturities held by the Company with an aggregate amount of principal and accrued interest of approximately $
The sale enabled the Company to concentrate on its international pharmaceutical distribution business. The sale was part of several strategic changes to become a digital assets treasury company.
The following table summarizes the major classes of line items included in loss from discontinued operations, net of tax, for the three months ended March 31, 2026 and 2025:
| For the three months ended March 31, 2026 |
For the three months ended March 31, 2025 |
|||||
| Revenue | $ | $ | ||||
| Cost of sales | ||||||
| Gross profit from discontinued operations | ||||||
| Operating expenses | ||||||
| Salaries and consulting fees | ||||||
| Professional fees | ||||||
| General and administrative | ||||||
| Promotion and communication | ||||||
| Travel expenses | ||||||
| Research and development | ||||||
| Operating lease expense | ||||||
| Depreciation and amortization | ||||||
| Bad debt expense | ||||||
| Other income | ( |
) | ||||
| Operating loss from discontinued operations | ( |
) | ||||
| Interest expense | ( |
) | ||||
| Foreign exchange gain | ||||||
| Changes in financial instruments fair value | ||||||
| Net loss before income taxes | ( |
) | ||||
| Income tax benefit | ||||||
| Loss from discontinued operations | $ | $ | ( |
) | ||
| Basic and diluted loss per share from discontinued operations | $ | $ | ( |
) |
The following table summarizes the significant operating and investing items related to the Cannabis Business for the three months ended March 31, 2026 and 2025:
| For the three months ended March 31, 2026 |
For the three months ended March 31, 2025 |
|||||
| Operating activities of discontinued operations | ||||||
| Depreciation and amortization | $ | $ | ||||
| Bad debt expense | ||||||
| Investing activities of discontinued operations | ||||||
| Purchases of property, plant and equipment | $ | $ |
The subsidiaries sold included TruHC, Klokken Aarhus Inc. and Rangers Pharmaceuticals A/S, which were part of the commercial and wholesale segment; Just Brands LLC, Just Brands FL LLC, Just Brands International LTD, High Roller Private Label LLC, Vessel Brand Inc., Vessel Brand Canada Inc., United and Australian Vaporizers Pty LTD which made up the entirety of the house of brands segment; and the Company's investment in an early stage European cannabis company which was part of the Company's corporate segment.
ZeroStack Corp. Notes to the unaudited condensed interim consolidated financial statementsFor the three months ended March 31, 2026 (In thousands of United States dollars, except number of shares, units and tokens and per share and per unit amounts, or as indicated) |
The Company applies significant judgement in determining whether a disposal meets the criteria to present as held for sale at the reporting date, and whether the disposal represents a strategic shift that has (or will have) a major effect on its operations and financial results in order to be classified as a discontinued operation. The criteria evaluated are both quantitative and qualitative in nature, to evaluate the significance of the disposal relative to the operations of the Company as a whole. The Company has determined this disposition represents a strategic shift in operations that will have a major effect on the Company's operations and financial results, and accordingly, has been presented as discontinued operations.
4. INSOLVENCY AND DECONSOLIDATION OF CERTAIN SUBSIDIARIES
On March 14, 2025, each of Franchise Global Health Inc. ("FGH"), Franchise Cannabis Corp., CBDMed Therapeutics Inc., Harmony Health One Inc., 1200325 B.C. Ltd., and Fayber Technologies Inc. (collectively, the "Canadian Insolvent Entities") made a voluntary assignment in bankruptcy pursuant to section 49 Bankruptcy and Insolvency Act (Canada) in the Ontario Superior Court of Justice (the "Ontario Court"). On March 14, 2025, the Ontario Court appointed a trustee of the estate of each of the Canadian insolvent entities.
On March 18, 2025, ACA Mueller ADAG Pharma Vertriebs GmbH, Sativa Verwaltungs GmbH, and Sativa Verwaltungs GmbH and Co. KG (together "the German Insolvent Entities") each made filings for insolvency proceedings under German insolvency laws in the Constance Regional Court (the "German Court"). On March 18, 2025, the German Court appointed a trustee of the estate of each of the German insolvent entities.
The trustees have been appointed by the respective courts and the trustees have assumed and will continue to exercise control over all assets and liabilities of the Insolvent Entities. The assets of the Insolvent Entities will be liquidated for distribution in accordance with the priorities established by the courts. The Company expects that no distributions will be available in the Insolvent Entities' liquidation.
Each of the Canadian insolvent entities and the German Insolvent Entities was a direct or indirect subsidiary of the Company and was part of the Company's acquisition of FGH in December 2022. As a result of the insolvencies, the Company concluded that it no longer controls the Insolvent Entities for accounting purposes as of March 14, 2025, in accordance with ASC Topic 810, and, therefore, deconsolidated all assets and liabilities of the Insolvent Entities during the three months ended March 31, 2025 from the Company's financial statements. Subsequent to the deconsolidation, the Company accounted for its investment in the Insolvent Entities using the cost method of accounting, which was recorded at $
The following table provides the combined carrying value of assets and liabilities of Insolvent Entities that were deconsolidated on March 14, 2025:
| Cash | $ | ||
| Trade and amounts receivable | |||
| Indemnification receivable | |||
| Total assets | $ | ||
| Trade and other payables | $ | ||
| Contingencies | |||
| Current portion of long term debt | |||
| Current portion of operating lease liability | |||
| Total liabilities | $ | ||
| Net liabilities deconsolidated | |||
| Impairment of receivable from Insolvent Entities | ( |
) | |
| Gain on deconsolidation of Insolvent Entities | $ |
ZeroStack Corp. Notes to the unaudited condensed interim consolidated financial statementsFor the three months ended March 31, 2026 (In thousands of United States dollars, except number of shares, units and tokens and per share and per unit amounts, or as indicated) |
The gain on deconsolidation of Insolvent Entities is recorded in gain on disposal of Insolvent Entities in the unaudited condensed interim consolidated statement of loss and comprehensive loss for the three months ended March 31, 2025.
The contingencies and indemnification receivable relate to a legal claim filed against FGH, which was covered under an indemnification agreement between the Company and the former Chief Executive Officer and shareholder of FGH. The voluntary assignment in bankruptcy of FGH triggered an automatic stay on the related legal proceedings.
5. TRADE AND AMOUNTS RECEIVABLE
The Company's trade and amounts receivable are recorded at amortized cost. The trade and other receivables balance as at March 31, 2026 and December 31, 2025 consists of trade accounts receivable, amounts recoverable from the Government of Canada for Harmonized Sales Taxes ("HST"), as well as Value Added Tax ("VAT") from various jurisdictions, and other receivables.
| March 31, 2026 | December 31, 2025 | |||||
| Trade accounts receivable | $ | $ | ||||
| Allowance for expected credit losses | ( |
) | ( |
) | ||
| HST/VAT receivable | ||||||
| Other receivables | ||||||
| Total | $ | $ |
Changes in the trade accounts receivable allowance for the three months ended March 31, 2026 relate to establishing an allowance for expected credit losses. There was less than $
| March 31, 2026 | December 31, 2025 | |||||
| Current | $ | $ | ||||
| 1-30 Days | ||||||
| 31-60 Days | ||||||
| 61-90 Days | ||||||
| 91-180 Days | ||||||
| 180+ Days | ||||||
| Total trade receivables | $ | $ |
6. INVENTORY
Inventory is comprised of the following:
| March 31, 2026 | December 31, 2025 | |||||
| Raw materials and supplies | $ | $ | ||||
| Finished goods | ||||||
| Total | $ | $ |
For the three months ended March 31, 2026, the Company recorded inventory impairment as a write-down to cost of sales in the amount of less than $
7. DIGITAL ASSETS
On March 31, 2026, the Company entered into a note settlement agreement (the "Note Settlement Agreement") with Zero Gravity Labs Inc. ("Zero Gravity") pursuant to which the Zero Gravity Convertible Note (as defined below) was settled. As part of the settlement, the Company transferred
The Company began staking its 0G tokens on January 21, 2026 with a third-party validator. For the three months ended March 31, 2026, the Company earned total rewards of
As of March 31, 2026, the Company's digital assets consist of the following:
ZeroStack Corp. Notes to the unaudited condensed interim consolidated financial statementsFor the three months ended March 31, 2026 (In thousands of United States dollars, except number of shares, units and tokens and per share and per unit amounts, or as indicated) |
| Digital Assets | |||||||||
| Number of Units | Cost | Fair Value | |||||||
| Zero Gravity (0G) | $ | $ | |||||||
| Bitcoin (BTC) | |||||||||
| Total digital assts | $ | $ | |||||||
As of March 31, 2026, of the Company's
The following table presents a reconciliation of the fair values of the Company's investments in digital assets for the three months ended March 31, 2026:
| Digital Assets | Restricted Digital Assets |
Total | |||||||
| Balance as of December 31, 2025 | $ | $ | $ | ||||||
| Digital assets transferred to settle Zero Gravity Note (non-cash) | ( |
) | ( |
) | |||||
|
Staking rewards recognized |
|||||||||
| Total losses on digital assets | ( |
) | ( |
) | ( |
) | |||
| Balance as of March 31, 2026 | $ | $ | $ |
The Company recorded $
In accordance with ASC Topic 820, Fair Value Measurement, the Company measures the fair value of its digital assets based on the quoted end-of-day price on the measurement date for a single digital asset on an active trading platform. Management has determined that Kraken, an active exchange market, represents the principal market for the 0G and BTC that it holds, and the end-of-day quoted price is both readily available and representative of fair value (Level 1 inputs).
The Company recorded a net loss of $
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
| March 31, 2026 | December 31, 2025 | |||||
| Buildings | $ | $ | ||||
| Machinery and office equipment | ||||||
| Vehicles | ||||||
| Total | ||||||
| Less: accumulated depreciation | ( |
) | ( |
) | ||
| Property, plant and equipment, net | $ | $ |
Depreciation expense was less than $
9. DEBT
The Company's debt consisted of the following:
| March 31, 2026 | December 31, 2025 | |||||
| Zero Gravity Convertible Note (carrying amount of |
$ | $ | ||||
| Euro credit facility | ||||||
| Other secured debt | ||||||
| Total debt | ||||||
| Current portion of long-term debt | ||||||
| Long-term debt | $ | $ |
ZeroStack Corp. Notes to the unaudited condensed interim consolidated financial statementsFor the three months ended March 31, 2026 (In thousands of United States dollars, except number of shares, units and tokens and per share and per unit amounts, or as indicated) |
Zero Gravity Convertible Note
On October 23, 2025, the Company received
The Zero Gravity Convertible Note accrued interest payable in 0G Tokens, or in cash at $
As of December 31, 2025, the total outstanding amount on the Zero Gravity Convertible Note was
On March 31, 2026, the Company entered into the Note Settlement Agreement with Zero Gravity pursuant to which the Zero Gravity Convertible Note issued to Zero Gravity was settled. The Note Settlement Agreement provided that upon payment by ZeroStack to Zero Gravity on or before March 31, 2026 of
As of the date of settlement of March 31, 2026, the total outstanding amount on the Zero Gravity Convertible Note was
The Company recorded a gain on the settlement of the Zero Gravity Convertible Note of $
ZeroStack Corp. Notes to the unaudited condensed interim consolidated financial statementsFor the three months ended March 31, 2026 (In thousands of United States dollars, except number of shares, units and tokens and per share and per unit amounts, or as indicated) |
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.
Euro credit facility
The Company, through its Phatebo subsidiary, has credit facilities totaling
Phatebo short term borrowing
On March 26, 2026, Phatebo, a wholly owned subsidiary of the Company, entered into a short-term loan agreement with an individual lender. Under the terms of the agreement, Phatebo borrowed
Although the loan carries a fixed interest charge rather than a stated annual interest rate, the Company considers the borrowing to represent a high-cost, short-term financing arrangement entered into to meet near-term working capital needs.
See Note 18 for subsequent settlement of the Phatebo short term borrowing.
Maturities
The following table shows the maturities of the Company's debt instruments outstanding as of March 31, 2026.
| Payments | |||
| Nine months ended December 31, 2026 | $ | ||
| Year ended December 31, 2027 | |||
|
Year ended December 31, 2028 |
|||
|
Year ended December 31, 2029 |
|||
|
Year ended December 31, 2030 |
|||
| Thereafter | |||
| Total | $ |
10. LEASES
The Company's leases primarily consist of administrative real estate leases in Germany and the United States. Management has determined all the Company's leases are operating leases through March 31, 2026. Information regarding the Company's leases is as follows:
| Three months ended March 31, 2026 |
Three months ended March 31, 2025 |
|||||
| Components of lease expense | ||||||
| Operating lease expense | $ | $ | ||||
| Short-term lease expense | ||||||
| Sublease income | ( |
) | ( |
) | ||
| Total lease expense | $ | $ | ||||
| Other Information | ||||||
| Operating cash flows from operating leases | $ | $ | ||||
| ROU assets obtained in exchange for new operating lease liabilities | ||||||
| Weighted-average remaining lease term in years for operating leases | ||||||
| Weighted-average discount rate for operating leases |
ZeroStack Corp. Notes to the unaudited condensed interim consolidated financial statementsFor the three months ended March 31, 2026 (In thousands of United States dollars, except number of shares, units and tokens and per share and per unit amounts, or as indicated) |
Maturities of operating lease liabilities as of March 31, 2026 are as follows:
| Operating Leases | |||
| Nine months ended December 31, 2026 | $ | ||
| Year ended December 31, 2027 | |||
|
Year ended December 31, 2028 |
|||
|
Year ended December 31, 2029 |
|||
|
Year ended December 31, 2030 |
|||
| Thereafter | |||
| Total future lease payments | |||
| Less: imputed interest | ( |
) | |
| Total lease liabilities | |||
| Less: current lease liabilities | ( |
) | |
| Total non-current lease liabilities | $ |
Some of the Company's leases contain renewal options to continue the leases for another term equivalent to the original term, which are generally up to five years. The lease liabilities above include renewal terms that management has executed or is reasonably certain of renewing, which only included leases that would have expired in 2026.
In March 2025, the Company began leasing 10,400 sq. ft. of warehouse and office space in Hilzingen, Germany, for $
11. SHARE CAPITAL
The Company had the following significant Common Share transactions:
Three months ended March 31, 2026
AT THE MARKET ("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 is to 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 the Nasdaq Capital Market, 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 are to occur on the first trading day following the date on which any sales are made. Sales of the Common Shares are to 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:
ZeroStack Corp. Notes to the unaudited condensed interim consolidated financial statementsFor the three months ended March 31, 2026 (In thousands of United States dollars, except number of shares, units and tokens and per share and per unit amounts, or as indicated) |
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
Three months ended March 31, 2025
FEBRUARY PAYMENT TO UNITED OWNERS
The Company issued
12. SHARE BASED COMPENSATION
The Company's 2022 Incentive Compensation Plan (the "2022 Plan") and its previous "'rolling" stock option plan (the "Prior Plan") are described in the Company's 2025 Form 10-K. The 2022 Plan was amended to increase the number of shares issuable thereunder from
OPTIONS
Stock options granted under the Prior Plan are non-transferable and non-assignable and may be granted for a term not exceeding five years. Under the 2022 Plan, stock options may be granted with a term of up to ten years and in the case of all stock options, the exercise price may not be less than 100% of the fair market value of a Common Share on the date the award is granted. Stock option vesting terms are subject to the discretion of the Compensation Committee of the Company's Board of Directors (the "Committee"). Common shares are newly issued from available authorized shares upon exercise of awards. The Company no longer makes new grants of stock options under the Prior Plan.
Information relating to share options outstanding and exercisable as at March 31, 2026 and December 31, 2025 is as follows:
| Options Outstanding | ||||||||||||
| Number of options |
Weighted average exercise price |
Weighted average remaining life (years) |
Aggregate intrinsic value |
|||||||||
| Outstanding balance, December 31, 2025 | $ | $ | ||||||||||
| Outstanding balance, March 31, 2026 | $ | $ | ||||||||||
| Exercisable balance, March 31, 2026 | $ | $ | ||||||||||
The fair value of stock options issued in years prior to December 31, 2024 were determined at the time of issuance using the Black-Scholes option pricing model. The stock options issued in the year ended December 31, 2025 were determined at the time of issuance using a Monte Carlo simulation incorporating Brownian motion, which simulates a distribution of stock prices for the Company throughout the term of the stock options, based on certain assumptions of stock price behavior. The significant inputs to the valuation include a
The total expense related to the options granted in the three months ended March 31, 2026 was $
ZeroStack Corp. Notes to the unaudited condensed interim consolidated financial statementsFor the three months ended March 31, 2026 (In thousands of United States dollars, except number of shares, units and tokens and per share and per unit amounts, or as indicated) |
| Percentage of Options Vested | At or Above the Following VWAP on Any Trading Day |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
At March 31, 2025 the total remaining stock option cost for nonvested awards is expected to be $
RESTRICTED STOCK AWARDS
Restricted stock is a grant of Common Shares which may not be sold or disposed of, and which is subject to such risks of forfeiture and other restrictions as the Committee, in its discretion, may impose. A participant granted restricted stock generally has all of the rights of a shareholder of the Company, unless otherwise determined by the Committee. Subject to certain exceptions, the vesting of restricted stock awards is subject to the holder's continued employment or engagement through the applicable vesting date. Unvested restricted stock awards will be forfeited if the holder's employment or engagement ceases during the vesting period and may, in certain circumstances, be accelerated. The Company values restricted stock awards based on the closing share price of the Common Shares as of the date of grant. The fair value of the restricted stock award is recorded as expense over the vesting period.
Information relating to restricted stock awards outstanding as at March 31, 2026 and December 31, 2025:
| Number of restricted stock awards |
Weighted average grant date fair value |
|||||
| Balance, December 31, 2025 | $ | |||||
| Vested | ( |
) | ||||
| Balance, March 31, 2026 | $ |
The total expense related to the restricted stock awards in the three months ended March 31, 2026 was less than $
As of March 31, 2026, the Company had no unrecognized compensation expense related to restricted stock awards.
STOCK APPRECIATION RIGHTS ("SARs")
Information relating to SARs outstanding at March 31, 2026 and December 31, 2025 is as follows:
| SARs Outstanding | ||||||||||||
| Number of SARS |
Weighted average exercise price |
Weighted average remaining life (years) |
Aggregate intrinsic value |
|||||||||
| Outstanding balance, December 31, 2025 | ||||||||||||
| Outstanding balance, March 31, 2026 | $ | $ | ||||||||||
| Exercisable balance, March 31, 2026 | $ | $ | ||||||||||
The total expense related to SARs granted in the three months ended March 31, 2026 was less than $
ZeroStack Corp. Notes to the unaudited condensed interim consolidated financial statementsFor the three months ended March 31, 2026 (In thousands of United States dollars, except number of shares, units and tokens and per share and per unit amounts, or as indicated) |
13. WARRANTS
2025 PRIVATE PLACEMENT
As discussed in the 2025 Annual Report, the Company issued an aggregate of
The PIPE Pre-Funded Warrants and the PIPE Warrants are classified as equity because they are freestanding financial instruments, are immediately exercisable, permit the holder to receive a fixed number of the Common Shares and do not provide any guarantee of value or return.
There were
The following summarizes the number of warrants outstanding as of March 31, 2026, excluding the Pre-Funded Warrants:
| Number of warrants | Weighted average exercise price |
|||||
| Balance, December 31, 2025 | $ | |||||
| Balance, March 31, 2026 | $ |
| Date of expiry | Warrants outstanding |
Exercise price |
Grant date fair value |
Remaining life in years |
||||||||
| $ | $ | |||||||||||
| $ | $ |
14. COMMITMENTS AND CONTINGENCIES
Provisions
The Company's provisions and contingent liabilities consist of the following as of March 31, 2026:
| Legal dispute | |||
| Balance as at December 31, 2025 | $ | ||
| Payments/settlements | |||
| Additional provisions | |||
| Balance as at March 31, 2026 | $ |
The legal dispute balance as of March 31, 2026 involves a legal proceeding that was brought against the Company and Vessel Brand Inc., which was formerly a wholly owned subsidiary of the Company, by the lessor of the warehousing and office space in Carlsbad, CA on June 2, 2025, in the Superior Court of California, County of San Diego. The lessor is claiming breach of lease and written guaranty agreements by the Company and is seeking damages for $
ZeroStack Corp. Notes to the unaudited condensed interim consolidated financial statementsFor the three months ended March 31, 2026 (In thousands of United States dollars, except number of shares, units and tokens and per share and per unit amounts, or as indicated) |
Legal proceedings
The Company records liabilities for legal proceedings in those instances where it can reasonably estimate the amount of the loss and where liability is probable. The Company is engaged from time to time in various legal proceedings and claims that have arisen in the ordinary course of business. The outcome of all the proceedings and claims against the Company is subject to future resolution, including the uncertainties of litigation. Based on information currently known to the Company and after consultation with outside legal counsel, management believes that the probable ultimate resolution of any such proceedings and claims, individually or in the aggregate, will not have a material adverse effect on the financial condition of the Company, taken as a whole as at March 31, 2026.
15. LOSS PER SHARE
The Company calculates basic loss per share based upon the weighted average number of Common Shares outstanding during the period, while the calculation of diluted earnings per share includes the dilutive effect of potential Common Shares outstanding during the period. The calculation of diluted earnings per share excludes all potential Common Shares, with the exception of Pre-Funded Warrants, if their inclusion would have an anti-dilutive effect. Restricted stock award recipients under the 2022 Plan have a non-forfeitable right to receive dividends declared by the Company and are therefore included in computing earnings per share. A total of
| Three months ended March 31, 2026 |
Three months ended March 31, 2025 |
|||||
| Stock options | ||||||
| Warrants | ||||||
| Restricted stock awards | ||||||
| Stock appreciation rights | ||||||
| JustCBD potential additional shares to settle contingent consideration | ||||||
| Total anti-dilutive |
16. FINANCIAL INSTRUMENTS
Fair value
The Company's financial instruments measured at amortized cost as at March 31, 2026 and December 31, 2025 consist of cash, restricted cash, trade and amounts receivable, trade payables, contingencies, other accrued liabilities, lease liabilities, and certain debt. The amounts reflected in the consolidated statements of financial position approximate fair value due to the short-term maturity of these instruments.
Financial instruments recorded at the reporting date at fair value are classified into one of three levels based upon the fair value hierarchy. Items are categorized based on inputs used to derive fair value based on:
Level 1 - quoted prices that are unadjusted in active markets for identical assets or liabilities
Level 2 - inputs other than quoted prices included in level 1 that are observable for the asset/liability either directly or indirectly; and
Level 3 - inputs for the instruments are not based on any observable market data.
As valuations of investments for which market quotations are not readily available are inherently uncertain, may fluctuate within short periods of time and are based on estimates, determination of fair value may differ materially from the values that would have resulted if a ready market existed for the investments. Such changes may have a significant impact on the Company's financial condition or operating results.
The following tables present information about the Company's financial instruments and their classifications as at March 31, 2026 and December 31, 2025 and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value.
|
Fair value measurements at March 31, 2026 using: |
|
|
|
|
ZeroStack Corp. Notes to the unaudited condensed interim consolidated financial statementsFor the three months ended March 31, 2026 (In thousands of United States dollars, except number of shares, units and tokens and per share and per unit amounts, or as indicated) |
| Level 1 | Level 2 | Level 3 | Total | |||||||||
| Financial liabilities: | ||||||||||||
| Convertible notes payable | $ | $ | $ | $ |
| Fair value measurements at December 31, 2025 using: | ||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||
| Financial liabilities: | ||||||||||||
| Convertible notes payable | $ | $ | $ | $ |
The $
Concentration risk
Management considers concentration risk with counterparties considering the level of purchases and sales of its business segments (Note 17).
At March 31, 2026, the Company held approximately $
Accordingly, the Company is exposed to concentration risk associated with the operational performance, financial condition, and regulatory compliance of these custodians and trading platforms. If any such custodian or trading platform were to experience financial distress, cybersecurity incidents, operational disruptions, insolvency, loss of required licenses, or other adverse developments, the Company could experience delays in accessing its assets, incur losses, or be required to transfer assets to alternative service providers, which may not be available on commercially reasonable terms.
Management monitors the financial and operational condition of its custodians and trading counterparties; however, no assurance can be provided that such measures would prevent losses in the event of failure or disruption of these counterparties. Any such event could have a material adverse effect on the Company's financial position, results of operations, and cash flows.
17. SEGMENTED INFORMATION
The Company formerly reported its financial results for the following
The Company operates its distribution business within its Germany subsidiary. The Company operates its digital assets business primarily within its United States subsidiary.
The following table shows information regarding the Company's segments for the three months ended March 31, 2026.
ZeroStack Corp. Notes to the unaudited condensed interim consolidated financial statementsFor the three months ended March 31, 2026 (In thousands of United States dollars, except number of shares, units and tokens and per share and per unit amounts, or as indicated) |
| Commercial & Wholesale |
Digital Assets | Total | ||||||||
| Revenue | $ | $ | $ | |||||||
| Cost of sales | ||||||||||
| Gross profit | ||||||||||
| Salaries and consulting fees | ||||||||||
| Share based compensation | ||||||||||
| Loss from changes in fair value of digital assets | ||||||||||
| Changes in financial instruments fair value | ( |
) | ( |
) | ||||||
| Interest expense (income), net | ( |
) | ||||||||
| Other segment items (1) | ||||||||||
| Net loss before income taxes | ( |
) | ( |
) | ( |
) | ||||
| Income taxes | ||||||||||
| Net loss from continuing operations | $ | ( |
) | $ | ( |
) | $ | ( |
) |
The following table shows information regarding the Company's segments for the three months ended March 31, 2025.
| Commercial & Wholesale |
Digital Assets | Total | |||||||
| Revenue | $ | $ | $ | ||||||
| Cost of sales | |||||||||
| Gross profit | |||||||||
| Salaries and consulting fees | |||||||||
| Share based compensation | |||||||||
| Impairment expense | |||||||||
| Gain on disposal of Insolvent Entities | ( |
) | ( |
) | |||||
| Interest expense, net | |||||||||
| Changes in financial instruments fair value | ( |
) | ( |
) | |||||
| Other segment items (1) | |||||||||
| Net income (loss) before income taxes | ( |
) | ( |
) | |||||
| Income taxes | ( |
) | ( |
) | |||||
| Net income (loss) from continuing operations | $ | $ | ( |
) | $ | ( |
) |
(1) Other segment items include professional fees, other expenses (net), and foreign exchange loss (gain).
Other significant items and disaggregation by geographic area:
| As at | March 31, 2026 | December 31, 2025 | ||||
| Assets | ||||||
| Digital Assets | $ | $ | ||||
| Commercial & Wholesale | ||||||
| $ | $ | |||||
| For the three months ended March 31, 2026 |
For the three months ended March 31, 2025 |
|||||
| Net Sales | ||||||
| Germany | $ | $ | ||||
| United States | ||||||
| $ | $ |
ZeroStack Corp. Notes to the unaudited condensed interim consolidated financial statementsFor the three months ended March 31, 2026 (In thousands of United States dollars, except number of shares, units and tokens and per share and per unit amounts, or as indicated) |
The $
18. SUBSEQUENT EVENTS
DIGITAL ASSET VALUATION
The Company holds
SETTLEMENT OF PHATEBO SHORT TERM BORROWING
On April 21, 2026, the Company paid
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Item 2. 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").
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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.
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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).
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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.
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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:
- Loss from changes in fair value of digital assets relate to fluctuations in fair value of the Company's digital assets.
- Salaries and consulting fees include salary and benefit expenses for employees, directors and consultants for the Company's corporate activities, other than those included in one of general and administrative, share-based compensation, and research and development.
- Professional fees include legal, audit and other expenses incurred by third-party service providers.
- Share-based compensation includes the cost of vesting of the Company's equity awards, including share options, restricted share awards, and stock appreciation rights ("SARs").
- Asset impairment includes the difference between the fair value and carrying amount of the asset group. An impairment loss is recognized when the sum of projected undiscounted cash flows is less than the carrying value of an asset group.
- Other expenses, net include miscellaneous expenses that do not fit the criteria for recognition in another category.
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.
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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 |
For the three months ended March 31, 2025 |
|||||
| Revenue | $ | 7,274 | $ | 6,866 | ||
| Cost of sales | 4,128 | 6,331 | ||||
| Gross profit | 3,146 | 535 | ||||
| Loss from changes in fair value of digital assets | 60,742 | - | ||||
| Salaries and consulting fees | 965 | 705 | ||||
| Professional fees | 653 | 534 | ||||
| Share based compensation | 2,771 | 172 | ||||
| Asset impairment | - | 46 | ||||
| Other expenses, net | 668 | 697 | ||||
| Operating loss | (62,653 | ) | (1,619 | ) | ||
| Non-operating income | 25,984 | 1,366 | ||||
| Net loss before taxes and discontinued operations | (36,669 | ) | (253 | ) | ||
| Income tax | 9 | (88 | ) | |||
| Net loss from continuing operations | (36,660 | ) | (341 | ) | ||
| Loss from discontinued operations, net of tax | - | (417 | ) | |||
| Net loss for the period | $ | (36,660 | ) | $ | (758 | ) |
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.
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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.
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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.
| (In thousands of United States dollars) | For the three months ended March 31, 2026 |
For the three months ended March 31, 2025 |
||||
| Cash used in operating activities | $ | (3,847 | ) | $ | (2,661 | ) |
| Cash from financing activities | 571 | - | ||||
| Cash from investing activities | - | 370 | ||||
| Effect of exchange rate change | (42 | ) | (50 | ) | ||
| Change in cash during the period | (3,318 | ) | (2,341 | ) | ||
| Cash, beginning of period | 5,621 | 5,248 | ||||
| Cash included in assets held for sale | - | 804 | ||||
| Cash, end of period | $ | 2,303 | $ | 3,711 |
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.
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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.
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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.
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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:
| Total | Less than 1 Year |
1 - 3 Years | More than 3 Years |
|||||||||
| Legal disputes (1) | $ | 1,271 | $ | 1,271 | $ | - | $ | - | ||||
| Operating lease obligations (2) | 450 | 140 | 209 | 101 | ||||||||
| Debt (3) | 3,157 | 3,114 | 36 | 7 | ||||||||
| Total | $ | 4,878 | $ | 4,525 | $ | 245 | $ | 108 |
(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.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act and the regulations promulgated thereunder) as of March 31, 2026 (the "Evaluation Date"). Based on such evaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the three months ended March 31, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
Item 1. Legal Proceedings
There have been no material changes to the legal proceedings described in Item 3 of our 2025 Annual Report, other than as disclosed in Note 14 of the Company's unaudited condensed interim consolidated financial statements, included in Item 1 of Part I of this Quarterly Report.
Item 1A. Risk Factors
There have been no material changes from the risk factors disclosed in Item 1A of the 2025 Annual Report, other than as disclosed in this Quarterly Report.
Absent federal legislation or regulations, there is a possibility that 0G may be classified as a "security." Classification of 0G as a "security" would subject us to additional regulation and could materially impact the operation of our business.
There is limited guidance as to whether Cryptocurrencies are a "security." Therefore, while (for the reasons discussed below) we believe that none of the Cryptocurrencies are a "security" within the meaning of the U.S. federal securities laws, and registration of the Company under the Investment Company Act, is therefore not required under the applicable securities laws, we acknowledge that a regulatory body or federal court may determine otherwise. Our belief, even if reasonable under the circumstances, would not preclude legal or regulatory action based on such a finding that any of the Cryptocurrencies, other than Solana, are a "security" which would require us to register as an investment company under the Investment Company Act.
We have also adapted our process for analyzing the U.S. federal securities law status of the Cryptocurrencies and other cryptocurrencies over time, as guidance and case law have evolved. As part of our U.S. federal securities law analytical process, we take into account a number of factors, including the various definitions of "security" under U.S. federal securities laws and federal court decisions interpreting the elements of these definitions, such as the U.S. Supreme Court's decisions in the Howey and Reves cases, as well as court rulings, reports, orders, press releases, public statements, and speeches by the SEC Commissioners and SEC Staff providing guidance on when a digital asset or a transaction to which a digital asset may relate may be a security for purposes of U.S. federal securities laws, including the SEC's March 17, 2026 interpretation clarifying how federal securities laws apply to certain crypto assets and transactions involving crypto assets (the "SEC March Interpretation"). Our position that none of the Cryptocurrencies, other than Solana, are a "security" is premised, among other reasons, the SEC's March Interpretation and on our conclusion none of Cryptocurrencies meet the elements of the Howey test. Among the reasons for our conclusion none of Cryptocurrencies are a security, other than Solana, is that holders of the Cryptocurrencies do not have a reasonable expectation of profits from our efforts in respect of their holding of the Cryptocurrencies. Also, ownership of the Cryptocurrencies does not convey the right to receive any interest, rewards, or other returns.
We acknowledge, however, that a federal court or another relevant entity could take a different view or the SEC could change its current view. The regulatory treatment of the Cryptocurrencies is such that it has drawn significant attention from legislative and regulatory bodies. Application of securities laws to the specific facts and circumstances of digital assets is complex and subject to change. Our conclusion, even if reasonable under the circumstances, would not preclude legal or regulatory action based on a finding that any of the Cryptocurrencies is a "security." As such, we are at risk of enforcement proceedings against us, which could result in potential injunctions, cease-and-desist orders, fines, and penalties if any of the Cryptocurrencies are determined to be a security by a regulatory body or a court. Such developments could subject us to fines, penalties, and other damages, and adversely affect our business, results of operations, financial condition, and prospects.
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We are required to take commercially reasonable efforts to obtain shareholder approval for the issuance of the ZeroStack Shares and ZeroStack Pre-funded Warrants issuable under the Share Exchange Agreement at a meeting of the Company's shareholder's and if we are unable to obtain such approval, then we may not be able to complete the Exchange.
Pursuant to the Share Exchange Agreement, the Company is required to take commercially reasonable efforts to convene a shareholder meeting to obtain shareholder approval for the issuance of the ZeroStack Shares and ZeroStack Pre-funded Warrants issuable under the Share Exchange Agreement and to recommend shareholders of the Company approve the issuance of such securities for the purpose of obtaining shareholder approval to allow for the issuance of the ZeroStack Shares and ZeroStack Pre-funded Warrants pursuant to the Share Exchange Agreement in accordance with applicable Nasdaq Listing Rules. If such shareholder approval is not received, the Company may be required to convene additional shareholder meetings thereafter until such approval is obtained, which could result in substantial costs and be a distraction to management.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(c) Trading Plans.
During the three months ended March 31, 2026, none of the
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Item 6. Exhibits
| Incorporated by Reference | ||||||||
| Exhibit Number |
Description | Form | Exhibit | Filing Date | ||||
| 3.1 | Articles of Incorporation of Zero Stack Corp. (formerly "Flora Growth Corp.") | 1-A | 2.1 | 10/10/2019 | ||||
| 3.2 | Articles of Amendment of Zero Stack Corp. (formerly "Flora Growth Corp.") effective April 30, 2021 | F-1 | 3.3 | 11/16/2021 | ||||
| 3.3 | Articles of Amendment of Zero Stack Corp. (formerly Flora Growth Corp.") effective June 9, 2023 | 8-K | 3.1 | 07/07/2023 | ||||
| 3.4 | Bylaw No. 1-A of Zero Stack Corp. (formerly "Flora Growth Corp.") | 6-K | 99.3 | 07/06/2022 | ||||
| 3.5 | Articles of Amendment of ZeroStack Corp. (formerly "Flora Growth Corp.") effective August 3, 2025 | 8-K | 3.1 | 08/04/2025 | ||||
| 3.6 | Articles of Amendment and Certificate of Amendment of ZeroStack Corp. (formerly, "Flora Growth Corp.") | 8-K | 3.1 | 01/29/2026 | ||||
| 4.1 | Form of Unit Warrant | F-1 | 4.5 | 11/16/2021 | ||||
| 4.2 | Form of Investor Warrant | 6-K | 4.1 | 12/13/2022 | ||||
| 4.3 | Form of Placement Agent Warrant | 6-K | 4.2 | 12/13/2022 | ||||
| 4.4 | Form of Investor Warrant | 8-K | 4.1 | 09/21/2023 | ||||
| 4.5 | Form of Placement Agent Warrant | 8-K | 4.2 | 09/21/2023 | ||||
| 4.6 | Form of Warrant Amendment | 8-K | 10.3 | 09/21/2023 | ||||
| 4.7 | Form of Pre-funded Warrant dated as of September 19, 2025 |
8-K | 4.1 | 09/23/2025 | ||||
| 4.8 | Form of Common Warrant dated as of September 19, 2025 | 8-K | 4.2 | 09/23/2025 | ||||
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| 4.9 | Form of Convertible Note dated as of September 19, 2025 |
8-K | 4.3 | 09/23/2025 | ||||
| 4.10 | Form of Convertible Note dated as of September 22, 2025 |
8-K | 4.4 | 09/23/2025 | ||||
| 4.11 | Form of Pre-funded Warrant |
8-K | 4.1 | 03/31/2026 | ||||
| 10.1 | Form of Securities Contribution Agreement by and among Texas Blocker Corp. and investors of Texas Blocker Corp., dated March 31, 2026 | 8-K | 10.1 | 03/31/2026 | ||||
| 10.2 | Form of Share Exchange Agreement by and among ZeroStack Corp. (formerly "Flora Growth Corp."), Texas Blocker Corp. and investors of Texas Blocker Corp., dated March 31, 2026 | 8-K | 10.2 | 03/31/2026 | ||||
| 10.3 | Note Settlement Agreement by and between ZeroStack Corp. (formerly "Flora Growth Corp.") and Zero Gravity Labs Inc., dated March 31, 2026 | 8-K | 10.3 | 03/31/2026 | ||||
| 31.1* | Certification of Principal Executive Officer of ZeroStack Corp. (formerly "Flora Growth Corp.") pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||||
| 31.2* | Certification of Principal Financial Officer of ZeroStack Corp. (formerly "Flora Growth Corp.") pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||||
| 32.1* | Certification of Principal Executive Officer of ZeroStack Corp. (formerly "Flora Growth Corp.") pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||||
| 32.2* | Certification of Principal Financial Officer of ZeroStack Corp. (formerly "Flora Growth Corp.") pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||||
| 101 | Inline Interactive Data File | |||||||
| 101.INS | Inline XBRL Instance Document–the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||
* Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Dated: May 1, 2026 | ZeroStack Corp. | |
| By: | /s/ Daniel Reis-Faria | |
| Daniel Reis-Faria | ||
| Chief Executive Officer (Principal Executive Officer) | ||
| Dated: May 1, 2026 | ||
| By: | /s/ Dany Vaiman | |
| Dany Vaiman | ||
| Chief Financial Officer (Principal Financial and Accounting Officer) |
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