ZSTK 10-K & 10-Q changes, risk factors and insider trading
ZeroStack Corp. · Nasdaq · Finance Services · CIK 1790169 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “If we or our third-party providers fail to protect confidential information and/or experience cybersecurity incidents, there may be damage to our brand and reputation, material financial penalties, and legal liability, which would materially adversely affect our business, results of operations, and financial condition.”
New heading “We may be subject to regulatory developments related to crypto assets and crypto asset markets, which could adversely affect our business, financial condition and results of operations.”
New heading “There are risks relating to the sale of our legacy hemp and cannabis business.”
New heading “We may experience difficulties due to changes in management.”
New heading “Our executive officers and directors hold or may have served certain management positions and directorships of other companies, including related parties, which may result in potential conflicts of interest and divert their time and attention from our business. This could have a negative impact on our ability to implement our plan of operation.”
New heading “RISKS RELATED TO ARTIFICIAL INTELLIGENCE AND INVESTING IN CRYPTOCURRENCY”
New heading “0G is a highly volatile asset, and fluctuations in the price of 0G may influence our financial results and the market price of our listed securities.”
New heading “We plan to use a portion of our capital that is not required to provide working capital for our ongoing operations to acquire 0G, which may adversely affect our financial results and the market price of our securities.”
New heading “Our historical financial statements do not reflect the potential variability in earnings that we may experience in the future relating to our 0G holdings.”
New heading “The concentration of our 0G holdings could enhance the risks inherent in our 0G treasury strategy.”
New heading “Absent federal 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.”
New heading “If we were deemed to be an investment company under the Investment Company Act, applicable restrictions likely would make it impractical for us to continue segments of our business as currently contemplated.”
New heading “The Cryptocurrencies are created and transmitted through the operations of the peer-to-peer networks, decentralized networks of computers running software following the respective protocols. If the networks of any of the Cryptocurrencies is disrupted or encounters any unanticipated difficulties, the value of the Cryptocurrencies could be negatively impacted.”
New heading “We face risks relating 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, including smart contract related losses and vulnerabilities.”
New heading “Our 0G treasury strategy subjects us to enhanced regulatory oversight.”
New heading “Competition from the emergence or growth of other digital assets, likely accelerated by advancements in AI and blockchain technology, could have a negative impact on the price of 0G and adversely affect the value of our 0G holdings.”
New heading “Our 0G holdings will be less liquid than our cash and cash equivalents and may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents.”
New heading “Many countries and regulatory authorities are studying the impact of AI and may implement regulations on AI that may be difficult or impossible for the 0G Blockchain to implement and comply with.”
New heading “AI, including generative AI, advancements are progressing at an unprecedented pace, which brings risks that could subject us to loss through various technical, legal, and opportunistic-related risks.”
New heading “Our long-term success depends on our ability to develop products and services to address the rapidly evolving market for digital assets, and, if we are not able to implement successful enhancements and new features for our products and services, our business could be materially and adversely affected”
New heading “We use AI in our services which may result in operational challenges, legal liability, reputational concerns and privacy and competitive risks.”
New heading “Our AI technology relies in part on the use of third-party data, and if we lose the ability to use such data, or if such data contains gaps or inaccuracies, our business could be adversely affected.”
New heading “There is no assurance that we will be able to continue as a going concern.”
New heading “If we or our third-party service providers experience a security breach or cyberattack and unauthorized parties obtain access to our digital assets, we may lose some or all of our digital assets and our financial condition and results of operations could be materially adversely affected.”
Removed heading “Cannabis laws, regulations, and guidelines are dynamic and subject to changes.”
Removed heading “Demand for cannabis and derivative products could be adversely affected and significantly influenced by scientific research or findings, regulatory proceedings, litigation, media attention or other research findings.”
Removed heading “Research regarding the medical benefits, viability, safety, efficacy, use and social acceptance of cannabis or isolated cannabinoids (such as CBD and THC) remains in early stages.”
Removed heading “Our growth depends, in part, on expanding into additional consumer markets, and we may not be successful in doing so.”
Removed heading “Fluctuations in the cost and availability of raw materials, equipment, labor, and transportation could cause manufacturing delays or increase our costs.”
Removed heading “We rely on third-parties for raw materials and to manufacture and compound some of our products. We have no control over these third parties and if these relationships are disrupted our results of operations in future periods will be adversely impacted.”
Removed heading “The seasonal trends in our business create variability in our financial and operating results.”
Removed heading “The cannabinoid industry faces strong opposition and may face similar opposition in other jurisdictions in which we operate.”
Removed heading “The Company could face competitive risks from the development and distribution of synthetic cannabis.”
Removed heading “The legalization of adult-use, recreational cannabis may reduce sales of medical cannabis.”
Removed heading “The Company may be subject to cyber-security and privacy risks that could disrupt its operations and expose the Company to financial losses, contractual losses, liability, reputational damage and additional expense.”
Removed heading “The Company may incur significant costs to defend its intellectual property and other proprietary rights.”
Removed heading “RISKS RELATED TO OUR REGULATORY FRAMEWORK”
Removed heading “Marijuana remains illegal under U.S. federal law, and the enforcement of U.S. cannabis laws could change.”
Removed heading “Changes to federal or state laws pertaining to industrial hemp could slow the use of industrial hemp which would materially impact our revenues in future periods.”
Removed heading “Uncertainty caused by potential changes to legal regulations could impact the use of CBD products.”
Removed heading “Any failure on our part to comply with applicable regulations could prevent us from being able to carry on our business, and there may be additional costs associated with any such failure.”
Removed heading “The FDA limits the ability to discuss the medical benefits of CBD.”
Removed heading “The legal cannabis market is a relatively new industry. As a result, the size of our target market is difficult to quantify, and investors will be reliant on their own estimates on the accuracy of market data.”
Removed heading “Management has performed an analysis of our ability to continue as a going concern, and has determined that, based on our current financial position, there is a substantial doubt about our ability to continue as a going concern. In addition, our independent registered public accounting firm has raised substantial doubt as to our ability to continue as a going concern.”
Removed heading “Restrictions on Deduction of Certain Expenses for U.S. Federal Income Tax Purposes.”
Removed heading “Ownership of our Common Shares may be considered unlawful in some jurisdictions and holders of our Common Shares may consequently be subject to liability in such jurisdictions.”
Removed heading “As of January 1, 2023, we were required to report as a U.S. domestic issuer and the benefits of a "foreign private issuer" are no longer available to us, which will likely result in additional costs and expenses for us.”
Removed heading “The regulated nature of our business may impede or discourage a takeover, which could reduce the market price of our Common Shares.”
Removed heading “We may be unable to implement our business strategy, which could have negative financial and reputational effects on our business.”
Largest changes
“We and certain of our third-party providers regularly experience cyberattacks and other incidents, and we expect such attacks and incidents to continue in varying degrees. While to date no incidents have had a material impact on our operations or financial results, we cannot guarantee that material incidents will not occur in the future. …”see in full comparison
“macroeconomic changes, such as changes in the level of interest rates and inflation, fiscal and monetary policies of governments, trade restrictions and fiat currency devaluations; and changes in national and international economic and political conditions, including, without limitation, federal government policies, trade tariffs and trade disputes, and the adverse impacts attributable to global conflicts, including those between Russia and Ukraine and in the Middle East.”see in full comparison
“If we or our third-party providers fail to protect confidential information and/or experience cybersecurity incidents, there may be damage to our brand and reputation, material financial penalties, and legal liability, which would materially adversely affect our business, results of operations, and financial condition.”see in full comparison
“If we or our third-party service providers experience a security breach or cyberattack and unauthorized parties obtain access to our digital assets, we may lose some or all of our digital assets and our financial condition and results of operations could be materially adversely affected.”see in full comparison
“Management has performed an analysis of our ability to continue as a going concern, and has determined that, based on our current financial position, there is a substantial doubt about our ability to continue as a going concern. In addition, our independent registered public accounting firm has raised substantial doubt as to our ability to continue as a going concern.”see in full comparison
“There has been increasing focus on the extent to which digital assets can be used to launder the proceeds of illegal activities, fund criminal or terrorist activities, or circumvent sanctions regimes, including those sanctions imposed in response to the ongoing conflict between Russia and Ukraine. …”see in full comparison
Full comparison: every changed paragraph (200)
You should carefully consider the risks described below, as well as other information contained in this report, including the consolidated financial statements and the notes thereto and "Item 77. "Management's Discussion and Analysis of Financial Condition and Results of Operations." The occurrence of any of the events discussed below could significantly and adversely affect our business, prospects, results of operations, financial condition, and cash flows.
We are ana early-stagedecentralized AI treasury company focusedthat onis supplyinginvesting natural,in medicinal-gradethe cannabisfuture flowerof andAI high-qualityinfrastructure cannabisthrough derivedstrategic medicalownership andin wellness0G productsTokens. toThe largeCompany channelis distributorsa andglobal retailerspharmaceutical globally.distributor through its wholly owned subsidiary Phatebo. Formed in March 2019, we have a limited operating history. We have limited financial resources and minimal operating cash flow. For the years ended December 31, 20242025 and 2023,2024, we had losses of $15.9$119.7 million and $56.3$15.9 million, respectively, and as of December 31, 20242025 an accumulated deficit of $158.1$277.8 million.
successfully implement or execute our business plan, or that our business plan is sound;
adjust to changing conditions or keep pace with increased demand;
attract and retain an experienced management team;
successfully integrate businesses that we acquire; or raise sufficient funds in the capital markets to effectuate our business plan, including product development, licensing and approvals.
We acquired 100% equity interests in Just Brands, Franchise Global Health ("FGH"), AV, and TruHC. We have a history of acquisitive activity, and we may in the future seek to acquire or invest in businesses, products, or technologies that we believe could complement our operations or expand our breadth, enhance our capabilities, or otherwise offer growth opportunities. Our diversity of product offerings may not be successful. While our growth strategy includes broadening our service and product offerings, implementing an aggressive marketing plan and employing product diversification, there can be no assurance that our systems, procedures and controls will be adequate to support our operations as they expand. We cannot assure you that our existing personnel, systems, procedures or controls will be adequate to support our operations in the future or that we will be able to successfully implement appropriate measures consistent with our growth strategy. As part of our planned growth and diversified product offerings, we may have to implement new operational and financial systems, procedures and controls to expand, train and manage our employee base, and maintain close coordination among our staff. We cannot guarantee that we will be able to do so, or that if we are able to do so, we will be able to effectively integrate them into our existing staff and systems. Additionally, the integration of our acquisitions and pursuit of potential future acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating, and pursuing suitable acquisitions, whether or not they are consummated. Any acquisition, investment or business relationship may result in unforeseen operating difficulties and expenditures. In addition, we have limited experience in acquiring other businesses. Specifically, we may not successfully evaluate or utilize the acquired products, assets or personnel, or accurately forecast the financial impact of an acquisition transaction, including accounting charges.
Moreover, the anticipated benefits of any acquisition, investment, or business relationship may not be realized, or we may be exposed to unknown risks or liabilities of our acquisitions. Furthermore, we may be subject to unknown liabilities of the businesses we acquire. In addition, we may become subject to legal proceedings in connection with the businesses of, or resulting from, our acquisitions. For example, we have become party to certain litigation as a result of our acquisition of FGH, which falls under certain indemnification protections obtained in the acquisition. For more information, see Item 3 "Legal Proceedings."
Cannabis laws, regulations, and guidelines are dynamic and subject to changes.
Cannabis laws and regulations are dynamic and subject to evolving interpretations which could require us to incur substantial costs associated with compliance or alter certain aspects of our business plan. It is also possible that regulations may be enacted in the future that will be directly applicable to certain of our products and/or aspects of our businesses. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business. Management expects that the legislative and regulatory environment in the cannabis industry internationally will continue to be dynamic and will require innovative solutions to try to comply with this changing legal landscape in this nascent industry for the foreseeable future. Compliance with any such legislation may have a material adverse effect on our business, financial condition and results of operations.
Public opinion can also exert a significant influence over the regulation of the cannabis industry. A negative shift in the public's perception of the cannabis industry could affect future legislation or regulation in different jurisdictions.
Demand for cannabis and derivative products could be adversely affected and significantly influenced by scientific research or findings, regulatory proceedings, litigation, media attention or other research findings.
The legal cannabis industry is at a relatively early stage of its development. Consumer perceptions regarding legality, morality, consumption, safety, efficacy and quality of medicinal cannabis are mixed and evolving and can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the consumption of medicinal cannabis products. There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favorable to the medicinal cannabis market or any particular product, or consistent with earlier publicity. Future research reports, findings, regulatory proceedings, litigation, media attention or other publicity that are perceived as less favorable than, or that question, earlier research reports, findings or publicity, could have a material adverse effect on the demand for medicinal cannabis and on our business, results of operations, financial condition and cash flows. Further, adverse publicity reports or other media attention regarding cannabis in general or associating the consumption of medicinal cannabis with illness or other negative effects or events, could have such a material adverse effect. Public opinion and support for medicinal cannabis use has traditionally been inconsistent and varies from jurisdiction to jurisdiction. Our ability to gain and increase market acceptance of our business may require substantial expenditures on investor relations, strategic relationships and marketing initiatives. There can be no assurance that such initiatives will be successful and their failure to materialize into significant demand may have an adverse effect on our financial condition.
As a distributor of products designed to be ingested by humans, weWe face an inherent risk of exposure to product liability claims, regulatory action and litigation if our products are alleged to have caused bodily harm or injury. In addition, the sale of our products involves the risk of injury to consumers due to tampering by unauthorized third parties or product contamination. Adverse reactions resulting from human consumption of our products alone or in combination with other medications or substances could occur. We may be subject to various product liability claims, including, among others, that our products caused injury or illness, include inadequate instructions for use or include inadequate warnings concerning health risks, possible side effects or interactions with other substances. Product liability claims or regulatory actions against us could result in increased costs, could adversely affect our reputation with our clients and consumers generally, and could have a material adverse effect on our results of operations and financial condition. There can be no assurances that we will be able to obtain or maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of our potential products.
Research regarding the medical benefits, viability, safety, efficacy, use and social acceptance of cannabis or isolated cannabinoids (such as CBD and THC) remains in early stages.
There have been relatively few clinical trials on the benefits of cannabis or isolated cannabinoids (such as CBD and THC). Although the Company believes that the articles, reports and studies support its beliefs regarding the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, future research and clinical trials may prove such statements to be incorrect, or could raise concerns regarding, and perceptions relating to, cannabis. Given these risks, uncertainties and assumptions, investors should not place undue reliance on such articles and reports. Future research studies and clinical trials may draw opposing conclusions to those stated herein or reach negative conclusions related to medical cannabis, which could have a material adverse effect on the demand for the Company's products, which could result in a material adverse effect on our business, financial condition and results of operations or prospects.
Our growth depends, in part, on expanding into additional consumer markets, and we may not be successful in doing so.
We believe that our future growth depends not only on continuing to provide our current customers with new products, but also continuing to enlarge our customer base. The growth of our business will depend, in part, on our ability to continue to expand in the United States, as well as into international markets. We are investing significant resources in these areas, and although we hope that our products will gain popularity, we may face challenges that are different from those we currently encounter, including competitive merchandising, distribution, hiring, and other difficulties. We may also encounter difficulties in attracting customers due to a lack of consumer familiarity with or acceptance of our brand, or a resistance to paying for premium products, particularly in international markets. In addition, although we are investing in sales and marketing activities to further penetrate newer regions, including expansion of our dedicated sales force, we may not be successful. If we are not successful, our business and results of operations may be harmed.
Fluctuations in the cost and availability of raw materials, equipment, labor, and transportation could cause manufacturing delays or increase our costs.
The price and availability of key components used to manufacture our products has been increasing and may continue to fluctuate significantly. In addition, the cost of labor within our company or at our third-party manufacturers could increase significantly due to regulation or inflationary pressures. Additionally, the cost of logistics and transportation fluctuates in large part due to the price of oil, and availability can be limited due to political and economic issues. Any fluctuations in the cost and availability of any of our raw materials, packaging, or other sourcing or transportation costs could harm our gross margins and our ability to meet customer demand. If we are unable to successfully mitigate a significant portion of these product cost increases or fluctuations, our results of operations could be harmed.
We rely on third-parties for raw materials and to manufacture and compound some of our products. We have no control over these third parties and if these relationships are disrupted our results of operations in future periods will be adversely impacted.
We currently hold short term supply contracts with unaffiliated third-party vendors for our critical raw materials. In addition, some of our products are manufactured or compounded by unaffiliated third parties and the use of these third-party co-packers changes from time to time due to customer demand and the composition of our product mix and product portfolio. We do not have any long-term contracts with any of these third parties, and we expect to compete with other companies for raw materials, production and imported packaging material capacity. If we experience significant increased demand or need to replace an existing raw material supplier or third-party manufacturer, there can be no assurances that replacements for these third-party vendors will be available when required on terms that are acceptable to us, or at all, or that any manufacturer or compounder would allocate sufficient capacity to us in order to meet our requirements. In addition, even if we are able to expand existing or find new sources, we may encounter delays in production and added costs as a result of the time it takes to engage third parties. Any delays, interruption or increased costs in raw materials and/or the manufacturing or compounding of our products could have an adverse effect on our ability to meet retail customer and consumer demand for our products and result in lower revenues and net income both in the short and long-term.
The Company holds finished goods in inventory and its inventory has a shelf life. Finished goods in the Company's inventory may include cannabis flower, cannabis oil products and cosmeceuticals. The Company's inventory may reach its expiration and not be sold. Although management regularly reviews the quantity and remaining shelf life of inventory on hand, and estimates manufacturing and sales lead times in order to manage its inventory, write-downs of inventory may still be required. Any such write-down of inventory could have a material adverse effect on the Company's business, financial condition, and results of operations.
The seasonal trends in our business create variability in our financial and operating results.
Our financial and operating results are subject to seasonal and quarterly variations in our net revenue and operating income and, as a result, our quarterly results may fluctuate and could be below expectations. Our business has realized a disproportionate amount of our net revenue and earnings for prior fiscal years in the third and fourth quarter as a result of the holiday season, and we expect this seasonal impact on our operations to continue in the future. If we experience lower than expected net revenue during any third or fourth quarter, it may have disproportionately large effects on our operating results and financial condition for that year. Any factors that harm our third or fourth quarter operating results, including disruptions in our brands or our supply chains or unfavorable economic conditions, could have a disproportionate effect on our results of operations and our financial condition for our entire fiscal year.
The Company may not be able to maintain an effective quality control system. The Company ascribes its early successes, in part, on its commitment to product quality and its effective quality control system.
The Company may not be able to maintain an effective quality control system. The Company ascribes its early successes, in part, on its commitment to product quality and its effective quality control system. The effectiveness of the Company's quality control system and its ability to obtain or maintain good manufacturing practice ("GMP") certification with respect to its manufacturing, processing and testing facilities depend on a number of factors, including the design of its quality control procedures, training programs, and its ability to ensure that its employees adhere to the Company's policies and procedures. The Company also depends on service providers such as toll manufacturers and contract laboratories to manufacture, process or test its products that are subject to GMP certification requirements.
We expect that regulatory agencies will periodically inspect our and our service providers' facilities to evaluate compliance with applicable GMP requirements. Failure to comply with these requirements may subject us or our service providers to possible regulatory enforcement actions. Any failure or deterioration of the Company's or its service providers' quality control systems, including loss of GMP certification, may have a material adverse effect on the Company's business, results of operations and financial condition.
The cannabinoid industry faces strong opposition and may face similar opposition in other jurisdictions in which we operate.
Many political and social organizations oppose hemp and cannabis and their legalization, and many people, even those who support legalization, oppose the sale of hemp and cannabis in their geographies. Our business will need support from local governments, industry participants, consumers and residents to be successful. Additionally, there are large, well-funded businesses that may have a strong opposition to the cannabis industry. For example, the pharmaceutical and alcohol industries have traditionally opposed cannabis legalization. Any efforts by these or other industries to halt or impede the cannabis industry could have detrimental effects on our business.
The pharmaceutical distribution andindustry cannabisis industries area margin-based businessesbusiness in which gross profits depend on the excess of sales prices over costs. Consequently, profitability is sensitive to fluctuations in wholesale and retail prices caused by changes in supply (which itself depends on other factors such as weather, fuel, equipment and labor costs, shipping costs, economic situation, government regulations and demand), taxes, government programs and policies for the pharmaceutical distribution and cannabis industriesindustry (including price controls and wholesale price restrictions that may be imposed by government agencies responsible for the sale of pharmaceuticals and cannabis), and other market conditions, all of which are factors beyond our control. The Company's operating income may be significantly and adversely affected by a decline in the price of pharmaceuticals and cannabis and will be sensitive to changes in the price of cannabis and the overall condition of the cannabis industry, as our profitability is directly related to the price of pharmaceuticals and cannabis.pharmaceuticals. These prices are affected by numerous factors beyond our control. Any price decline may have a material adverse effect on the Company's business, financial condition and results of operations.
The Company could face competitive risks from the development and distribution of synthetic cannabis.
The pharmaceutical industry and others may attempt to enter the cannabis industry and, in particular, the medical cannabis industry through the development and distribution of synthetic products that emulate the effects of and treatment provided by naturally occurring cannabis. If synthetic cannabis products are widely adopted, the widespread popularity of such synthetic cannabis products could change the demand, volume and profitability of the botanical cannabinoid industry. This could adversely affect our ability to secure long-term profitability and success through the sustainable and profitable operation of our business.
The legalization of adult-use, recreational cannabis may reduce sales of medical cannabis.
Legalization of the sale to adults of recreational, non-medical cannabis in any country may increase competition in the medical cannabis market. We may not be able to achieve our business plan in a highly competitive market where recreational, adult-use cannabis is legal, or the market may experience a drop in the price of cannabis and cannabis products over time, decreasing our profit margins.
There is a risk that banking institutions in countries where we operate will not open accounts for us or will not accept payments or deposits from proceeds related to the cannabiscryptocurrency industry. Such risks could increase our costs or prevent us from expanding into certain jurisdictions.
If we or our third-party providers fail to protect confidential information and/or experience cybersecurity incidents, there may be damage to our brand and reputation, material financial penalties, and legal liability, which would materially adversely affect our business, results of operations, and financial condition.
We rely on computer systems, hardware, software, technology infrastructure and online sites and networks for both internal and external operations that are critical to our business (collectively, "IT Systems"). We rely on third parties for a range of IT Systems and related products and services, including but not limited to cloud computing services. We and certain of our third-party providers collect, maintain and process data about customers, employees, business partners and others, including information about individuals and their financial assets (such as 0G), as well as proprietary information belonging to our business such as trade secrets (collectively, "Confidential Information").
We face numerous and evolving cybersecurity risks that threaten the confidentiality, integrity and availability of our IT Systems and Confidential Information, including from diverse threat actors, such as state-sponsored organizations, opportunistic hackers and hacktivists, as well as through diverse attack vectors, such as social engineering/phishing, malware (including ransomware), malfeasance by insiders, human or technological error, and as a result of malicious code embedded in open-source software, or misconfigurations, bugs or other vulnerabilities in commercial software that is integrated into our (or our suppliers' or service providers') IT Systems, products or services. As knowledge and techniques in cryptography continue to advance, threat actors may exploit these advancements to develop more sophisticated and effective attack methods, increasing the frequency and severity of cyberattacks as well. Because we make extensive use of third party suppliers, service providers, and partners (including our partnerships with crypto wallet providers and financial institutions), successful cyberattacks that disrupt or result in unauthorized access to third party IT Systems can materially impact our operations and financial results.
Moreover, we may acquire companies with cybersecurity vulnerabilities and/or unsophisticated security measures, which exposes us to significant cybersecurity, operational, and financial risks. Our remote and hybrid working arrangements (and at our third-party providers) also increase cybersecurity risks due to the challenges associated with managing remote computing assets and security vulnerabilities that are present in many non-corporate and home networks. Additionally, any integration of AI in our or any service providers' operations, products or services is expected to pose new or unknown cybersecurity risks and challenges. Because our products and services are integrated with our customers' systems and processes, any circumvention or failure of our cybersecurity defenses or measures could compromise the confidentiality, integrity, and availability of our customers' own IT Systems and/or Confidential Information as well. Moreover, certain threats are designed to remain dormant or undetectable until launched against a target and we may not be able to implement adequate preventative measures. If such an event were to occur and cause interruptions in our operations, result in the unauthorized access, disclosure, loss, processing, or other compromise of personal information or Confidential Information, or jeopardize the confidentiality, integrity, or availability of our information systems or any information residing therein, it could result in a material disruption of our development programs and our business operations, whether due to a loss of our trade secrets or other similar disruptions.
Some of the federal, state, and foreign government requirements include obligations of companies to notify individuals of certain cybersecurity breaches involving particular personal information, which could result from breaches experienced by us or by our vendors, contractors, or organizations with which we have formed strategic relationships. Even though we may have contractual protections with such vendors, contractors, or other organizations, notifications and follow-up actions related to a cybersecurity breach could impact our reputation, cause us to incur significant costs, including legal expenses, harm customer confidence, hurt our expansion into new markets, cause us to incur remediation costs, or cause us to lose existing customers.
Further, the cryptocurrency industry is a frequent target for cyberattacks, including hacks of exchanges and wallets. The underlying technology of cryptocurrencies, including blockchain, is complex and still developing, which means technical issues, bugs, or vulnerabilities could impact our operations and the security of user funds. Additionally, any actual or perceived breach or cybersecurity attack directed at other financial institutions or crypto companies, whether or not we are directly impacted, could lead to a general loss of customer confidence in the cryptoeconomy or in the use of technology to conduct financial transactions, which could negatively impact us, including the market perception of the effectiveness of our security measures and technology infrastructure.
Cyberattacks are expected to accelerate on a global basis in frequency and magnitude as threat actors are becoming increasingly sophisticated in using techniques and tools - including AI - that circumvent security controls, evade detection and remove forensic evidence. As a result, we may be unable to detect, investigate, remediate or recover from future attacks or incidents, or to avoid a material adverse impact to our IT Systems, Confidential Information or business. There can also be no assurance that our cybersecurity risk management program and processes, including our policies, controls or procedures, will be fully implemented, complied with or effective in protecting our IT Systems and Confidential Information. Furthermore, given the nature of complex systems, software and services like ours, and the scanning tools that we deploy across our networks and products, we regularly identify and track security vulnerabilities. We are unable to comprehensively apply patches or confirm that measures are in place to mitigate all such vulnerabilities, or that patches will be applied before vulnerabilities are exploited by a threat actor. In other situations, vulnerabilities persist even after we have issued security patches because our customers may fail to apply patches or update their systems to newer software versions. If attackers are able to exploit critical vulnerabilities before patches are installed or mitigating measures are implemented, significant compromises could impact our and our customers' IT Systems and/or Confidential Information.
We and certain of our third-party providers regularly experience cyberattacks and other incidents, and we expect such attacks and incidents to continue in varying degrees. While to date no incidents have had a material impact on our operations or financial results, we cannot guarantee that material incidents will not occur in the future. Any adverse impact to the availability, integrity or confidentiality of our IT Systems or Confidential Information can result in legal claims or proceedings (such as class actions), regulatory investigations and enforcement actions, fines and penalties, negative reputational impacts that cause us to lose existing or future customers, and/or significant incident response, system restoration or remediation and future compliance costs. Any or all of the foregoing could materially adversely affect our business, results of operations, and financial condition. Finally, we cannot guarantee that any costs and liabilities incurred in relation to an attack or incident will be covered by our existing insurance policies or that applicable insurance will be available to us in the future on economically reasonable terms or at all.
The Company may be subject to cyber-security and privacy risks that could disrupt its operations and expose the Company to financial losses, contractual losses, liability, reputational damage and additional expense.
The Company may be subject to risks related to our information technology systems, including cyber-attacks, malware, ransomware and phishing attacks that could target our intellectual property, trade secrets, financial information, personal information of our employees, customers and patients, including sensitive personal health information. The occurrence of such an attack could disrupt our operations and expose the Company to financial losses, contractual damages, liability under labor and privacy laws, reputational damage and additional expenses. We have implemented security measures to protect our data and information technology systems; however, such measures may not be effective in preventing cyber-attacks. We may be required to allocate additional resources to implement additional preventative measures including significant investments in information technology systems. A serious cyber-security breach could have a material adverse effect on our business, financial condition and results of operations.
The Company may collect and store certain personal information about customers and is responsible for protecting such information from privacy breaches. A privacy breach may occur through procedural or process failure, information technology malfunction, or deliberate unauthorized intrusions. In addition, theft of data is an ongoing risk whether perpetrated via employee collusion or negligence or through deliberate cyber-attack. Any such privacy breach or theft could have a material adverse effect on the Company's business, financial condition and results of operations. If the Company were found to be in violation of privacy or security rules or other laws protecting the confidentiality of information, the Company could be subject to sanctions and civil or criminal penalties, which could increase its liabilities, harm its reputation and have a material adverse effect on the Company's business, financial condition and results of operations.
The Company may incur significant costs to defend its intellectual property and other proprietary rights.
The ownership and protection of trademarks, patents, trade secrets and intellectual property rights are significant aspects of the Company's future success. Unauthorized parties may attempt to replicate or otherwise obtain and use the Company's products and technology. Policing the unauthorized use of the Company's current or future trademarks, patents, trade secrets or intellectual property rights could be difficult, expensive, time-consuming and unpredictable, as may be enforcing these rights against unauthorized use by others.
In addition, other parties may claim that the Company's products infringe on their proprietary and perhaps patent protected rights. Such claims, regardless of their merit, may result in the expenditure of significant financial and managerial resources, legal fees, injunctions, temporary restraining orders and/or require the payment of damages. As well, the Company may need to obtain licenses from third parties who allege that the Company has infringed on their lawful rights. Such licenses may not be available on terms acceptable to the Company or at all. In addition, the Company may not be able to obtain or utilize on terms that are favorable to it, or at all, licenses or other rights with respect to intellectual property that it does not own.
We may be subject to regulatory developments related to crypto assets and crypto asset markets, which could adversely affect our business, financial condition and results of operations.
As 0G Tokens and other digital assets are relatively novel and the application of state and federal securities laws and other laws and regulations to digital assets is unclear in certain respects, it is possible that regulators in the United States or foreign countries may interpret or apply existing laws and regulations in a manner that adversely affects the price of 0G Tokens. The U.S. federal government, states, regulatory agencies and foreign countries may also enact new laws and regulations, or pursue regulatory, legislative, enforcement or judicial actions, that could materially impact the price of 0G Tokens or the ability of individuals or institutions such as us to own or transfer 0G Tokens.
If 0G Tokens are determined to constitute a security for purposes of the federal securities laws, the additional regulatory restrictions imposed by such a determination could adversely affect the market price of 0G Tokens and in turn adversely affect the market price of our Common Shares. Moreover, the risks of us engaging in a 0G Tokens treasury strategy have created, and could continue to create complications due to the lack of experience that third parties have with companies engaging in such a strategy, such as increased costs of director and officer liability insurance or the potential inability to obtain such coverage on acceptable terms in the future.
There are risks relating to the sale of our legacy hemp and cannabis business.
On September 20, 2025, we entered into the Cannabis Sale Agreement to sell certain subsidiaries comprising our legacy hemp and cannabis business to our Noteholders, in exchange for the repayment of the Equity Transfer Notes held by such Noteholders. This disposition closed on September 26, 2025. While we have agreed to only limited indemnification and other obligations in connection with the disposition, there can be no assurance that we will not be subjected to indemnification claims or other liabilities in connection with the disposition.
Further, achieving the anticipated benefits of the disposition is subject to a number of uncertainties. There can be no assurance that we will realize the full benefits of strategic focus, cost savings and operating efficiencies that we currently expect from the transaction or that such benefits will be achieved within the anticipated time frames. Failure to achieve these anticipated benefits could result in increased costs and diversion of management's time and energy and could materially adversely affect our business, financial position, results of operations and cash flows.
The disposition may be subject to regulatory actions or private litigation that could expose us to costly and time-consuming proceedings. Failure to prevail in any such regulatory actions or private litigation could result in significant fines or monetary damages, which may require us to raise additional capital.
We may experience difficulties due to changes in management.
In connection with the Cryptocurrency Offering, on October 1, 2025, Mr. Clifford Starke resigned as a director and the Chief Executive Officer of the Company and Mr. Sammy Dorf resigned as the Executive Chairman. Further, on October 1, 2025, the Board appointed Mr. Daniel Reis-Faria and Michael Heinrich as non-independent directors of the Board, and in connection with their appointments to the Board, Mr. Reis-Faria was also appointed as the Chief Executive Officer of the Company and Mr. Heinrich was also appointed as Executive Chairman effective October 1, 2025. Neither new executive officer has previously served as an executive officer of a publicly traded company. In addition to devoting substantial time becoming integrated into our business and increasing their familiarity with our operations, each new executive officer may be required to devote substantial time fulfilling their public company compliance obligations. Such changes in our management could impair relationships with key business contacts, make it more difficult to retain employees or result in the loss of confidence in our investor base, any of which events could harm our performance. There can be no assurance that our reconstituted management will function effectively.
Our executive officers and directors hold or may have served certain management positions and directorships of other companies, including related parties, which may result in potential conflicts of interest and divert their time and attention from our business. This could have a negative impact on our ability to implement our plan of operation.
Management's Discussion & Analysis (MD&A)
New heading “Cryptocurrency Treasury Strategy”
New heading “September 2025 ATM Offering”
New heading “November 2025 Share Purchase Agreement with White Lion”
New heading “Sale of Legacy Hemp and Cannabis Business”
New heading “Minimum bid price requirement”
New heading “Minimum Independent Directors Requirement”
New heading “Compensation Committee Requirement”
New heading “Nominating and Corporate Governance Committee Requirement”
New heading “Loss from Changes in Fair Value of Digital Assets”
New heading “Other Expenses (Income), Net”
New heading “September 2025 ATM Offering”
New heading “November 2025 Share Purchase Agreement with White Lion”
New heading “September 2025 Private Placement”
New heading “May 2025 Private Placement”
Removed heading “House of Brands”
Removed heading “Commercial & Wholesale”
Removed heading “Colombian Related Subsidiaries”
Removed heading “Stop Sale Order by Florida Department of Agriculture and Consumer Services Division of Food Safety”
Removed heading “Promotion and Communication Expenses”
Removed heading “Research and Development Expenses”
Removed heading “EBITDA and Adjusted EBITDA”
Removed heading “September 2023 Unit Offering”
Removed heading “Intangible Assets”
Largest changes
“The Company's ability to execute its operating plans through 2025 and beyond depends on its ability to obtain additional funding through equity offerings, debt financing, or other forms of financing to meet planned growth requirements and to fund future operations, which may not be available on acceptable terms, or at all. If we are unable to raise the requisite funds, we will need to curtail or cease operations. …”see in full comparison
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.see in full comparisonWeWhile 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 cashflows.flowsWemainlyexpectthroughtoourcontinuelegacyto incur operating losseshemp andnegativecannabiscashbusinesses,flowsweforbegan implementing an expansion strategy focused on identifying and pursuing complementary growth opportunities within theforeseeableglobalfuture.digital asset market in early 2025. This has resulted in $121.0 million in digital assets on the Company's condensed consolidated balance sheet as of December 31, 2025. Our current, principal sources of liquidity are cash and cash equivalents provided by our operations and prior equity offerings. Cashand cash equivalents consistconsists primarily of cash on deposit with banks. Cashandwascash equivalents were $6.1$5.6 million and$4.4$5.2 million as of December 31,20242025 and2023,2024, respectively. As a result ofDecember 31, 2024,theCompany'sPIPEcurrentOfferingworkingthatcapital,closedanticipatedonoperatingSeptemberexpenses26,and net losses, and2025, theuncertaintiesCompanysurroundingbelieves that itsability to raise additional capital as needed, raise substantial doubt as to whetherexistingcashsources of liquidity are andcash equivalentswill be sufficient in both the short and long term to meetitsourobligationsworkingascapitalthey come due within twelve months from the date the consolidated financial statements were issued. The consolidated financial statements do not include any adjustments for the recoveryrequirements andclassificationfutureof assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.obligations.
“The Company's accounting for digital assets involves significant management judgment and estimation uncertainty. In applying ASC 350-60, Intangibles-Goodwill and Other-Crypto Assets, management evaluates whether digital assets meet the definition of in-scope crypto assets and determines the appropriate accounting treatment. In accordance with ASU 2023-08, qualifying digital assets are measured at fair value, with changes in fair value recognized in earnings each reporting period. …”see in full comparison
“Goodwill and other asset impairments totaled $2.2 million and $39.5 million in asset impairments for the years ended December 31, 2024 and 2023, respectively. The Company tests its goodwill and indefinite-lived intangibles for impairment as part of its annual fourth quarter impairment test, and at interim periods when impairment indicators exist. …”see in full comparison
“At June 30, 2023 and December 31, 2023, Flora determined that the decline in the share price of the Company's publicly traded Common Shares, the declining share price of comparable public companies and challenging economic factors making it difficult to access capital were indicators of impairment. Flora then concluded that the carrying values of its JustCBD and FGH reporting units were higher than their respective estimated fair values, and a cumulative goodwill impairment loss totaling $23.4 million was recognized for the year ended December 31, 2023.”see in full comparison
“Consistent profitability and positive operating cash flows. A key determinant of the Company's success is to deliver profitable results and positive cashflows from operating activities. The Company's results have not yet achieved the prerequisite consistency to achieve self-sufficiency. Since its inception, only the third quarter of 2023 yielded net income and positive cashflows from operating activities. There is no assurance that the Company would be able to produce adequate levels of sustained profitability and cash flow positive, or at all. …”see in full comparison
Full comparison: every changed paragraph (180)
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") of the Company should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2024,2025, and the accompanying notes thereto (the "Financial Statements") included in this Annual Report, which have been prepared in accordance with U.S. GAAP. Amounts are expressed in United States dollars ("$" or "USD") unless otherwise stated to be in Canadian dollars ("CAD"), Euro ("€" or "EUR"), or Australian dollars ("AUD"). Amounts stated in foreign currencies include approximate USD amounts based on exchange rates on December 31, 2024.2025. Variance, ratio, and percentage changes in this MD&A are based on unrounded numbers. This MD&A reports the Company's activities through December 31, 2024,2025, unless otherwise indicated. All share-related information presented in this section gives effect to the Share Consolidation.
The Company 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.
We are a multi-national cannabis company that manufactures and distributes consumer packaged goods and distributes medicinal cannabis and pharmaceutical products. Flora exists to create a world where the benefits of cannabis are accessible to everyone. Our business strategy is built on two core pillars: House of Brands and Commercial & Wholesale. This strategy was devised to allow us access to markets around the globe based on the legal standing of cannabis in each of the geographical locations in which we operate. Our approach has enabled us to develop distribution networks, build customer bases, establish operations as the regulatory framework evolves and allow for expanded access to cannabis and its derivatives.
Our brand portfolio consists of a mix of products across multiple categories, including food and beverage, nutraceuticals, cannabis accessories and technology, personal care, and wellness. Consumer brands allow Flora to move assertively into nascent markets, develop customer bases and distribution channels, and gather consumer insights which would not be possible with traditional cannabis sales alone. Through this channel we seek to build loyalty, credibility and enjoy healthy margins that help to support the rapid growth of our business.
House of Brands
JustCBD is Flora's leading consumer packaged goods brand. JustCBD was launched in 2017 with a mission to bring high-quality, trustworthy, and budget-friendly CBD products to market. JustCBD products are available for purchase in smoke and vape shops, clinics, spas and pet stores, as well as other independent non-traditional retail channels. JustCBD's products are both internally and third-party lab-tested to ensure quality.
Vessel is Flora's cannabis accessory and technology brand currently servicing the United States and Canada through direct-to-consumer and retail sales. Vessel's products include cannabis consumption accessories, personal storage, and travel accessories for the vape and dry herb categories, which are sold to consumers, dispensaries, smoke shops and cannabis brands. Vessel has been fully integrated into JustCBD and now benefits from operational, logistical and sales synergies with JustCBD.
Australian Vaporizers was founded in 2010 and has become a prominent online retailers of vaporizers, hardware, and accessories in Australia. It is an online expert for aromatherapy products, specializing in dry herb vaporizers. It has been providing vapes, accessories and knowledge to enthusiasts and newcomers alike. Its website www.australianvaporizers.com.au is a popular designation in the country with a large database of satisfied customers.
Commercial & Wholesale
The Company'sCompany Commercialis anda Wholesale pillar encompasses the distribution ofglobal pharmaceutical productsdistributor tothrough international markets. This pillar is anchored by Flora'sits wholly owned subsidiary,subsidiary Phatebo,Phatebo. a multi-national operatorBased in pharmaceutical and medical cannabis distribution, with principal operations in Germany.Germany, Phatebo is a wholesale pharmaceutical distribution company with import and export capabilities of a wide range of pharmaceutical goods and medical cannabis products to treat a variety of health indications, including drugs related to cancer therapies, ADHD, multiple sclerosis and anti-depressants, among others. Phatebo holds a license for the Trade in Narcotic Drugs (including the cannabis sales license amendment) and a wholesale trading license, both of which are issued by BfArM (the largest drug approval authority in Europe). 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. In November 2018, Phatebo also received a medical cannabis import and distribution license. We intend to leverage Phatebo's existing network of pharmacies as Flora begins to move medicinal cannabis from third parties into Germany. Additionally, the Phatebo warehouse provides a logistics outpost for Flora'sZeroStack'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 the May 2025 Securities Purchase Agreement with the May 2025 Investors in connection with the issuance and sale by the Company to the May 2025 Investors in the May 2025 Private Placement of an aggregate of 80,340 May 2025 Common Shares at a purchase price of $11.70 per share and 18,642 May 2025 Pre-funded Warrants at a purchase price of $11.6961 per warrant, each to purchase one May 2025 Pre-funded Warrant Share which were immediately exercisable and expire when exercised in full, at an exercise price of $0.0039 per share.
The net proceeds from the sale of the May 2025 Common Shares and the May 2025 Pre-funded Warrants were approximately $1.1 million after deducting estimated expenses relating to the May 2025 Private Placement. The Company used $0.4 million of the net proceeds from the May 2025 Private Placement to purchase Solana, $0.4 million of the net proceeds from the May 2025 Private Placement to purchase Ethereum, $0.1 million of the net proceeds from the May 2025 Private Placement to purchase Sui, $0.1 million of the net proceeds from the May 2025 Private Placement to purchase Ripple, and the balance of the net proceeds from the May 2025 Private Placement for general corporate and working capital purposes and to pay any fees and expenses in connection with the issuance of the May 2025 Common Shares and the May 2025 Pre-funded Warrants.
On September 19, 2025, the Company entered into securities purchase agreements with certain investors pursuant to which the Company agreed to sell and issue the following securities in private placement offerings (collectively, the "PIPE Offering"): (i) 116,340 common share units ("PIPE Common Share Units") at a unit price of $25.19, payable in cash, for aggregate gross proceeds of $2.9 million, with each unit consisting of one common share ("PIPE Common Share") and 0.2 of a warrant, with each full warrant to purchase one common share at an exercise price of $25.19 ("PIPE Warrant"); (ii) 419,975 pre-funded warrant units ("PIPE Pre-Funded Warrant Units") at a unit price of $25.1899, payable in cash, for aggregate gross proceeds of $10.6 million, with each unit consisting of one pre-funded warrant to purchase one common share at an exercise price of $0.0001 ("PIPE Pre-Funded Warrant") and 0.2 of a PIPE Warrant; (iii) 8,546,955 PIPE Pre-Funded Warrants at a unit price of $25.1899, payable in 71,766,135 0G Tokens; and (iv) an unsecured convertible note in an aggregate original principal amount of 95,333 Solana (the "PIPE Note").
On September 26, 2025, in connection with the closing of the PIPE Offering, the Company issued 116,340 PIPE Common Share Units and 419,975 PIPE Pre-Funded Warrant Units for aggregate gross cash proceeds of $13.5 million, and 2,592,212 PIPE Pre-Funded Warrants for 21,766,135 0G Tokens, valued at $54.7 million on the issuance date. The remaining 5,954,473 PIPE Pre-Funded Warrant Units were issued on October 9, 2025, for 50,000,000 0G Tokens. The PIPE Note was issued on October 24, 2025, at which date the original principal amount of 95,333 Solana was received.
On September 19, 2025, 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.
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.
In connection with the Cryptocurrency Offering, on October 1, 2025, Mr. Clifford Starke resigned as a director and the Chief Executive Officer of the Company and Mr. Sammy Dorf resigned as the Executive Chairman.
On October 1, 2025, the Board appointed Mr. Daniel Reis-Faria and Michael Heinrich as non-independent directors of the Board, and in connection with their appointments to the Board, Mr. Reis-Faria, was also appointed as the Chief Executive Officer of the Company and Mr. Heinrich was also appointed as Executive Chairman effective October 1, 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 134,089 Common Shares at an average purchase price of $11.20 per share for gross proceeds of $1.5 million in the year ended December 31, 2025. See Note 26 of the Company's consolidated financial statements for the year ended December 31, 2025 for issuances subsequent to December 31, 2025.
November 2025 Share Purchase Agreement with White Lion
On November 28, 2025, the Company entered into a share purchase agreement (the "ELOC Agreement") with White Lion Capital LLC ("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 (the "Total Commitment"). Also, on November 28, 2025, the Company entered into a registration rights agreement with White Lion (the "Registration Rights Agreement"). 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.
The Company issued 111,550 Common Shares valued at $0.7 million on December 30, 2025 in connection with the Note Settlement Agreement.
Sale of Legacy Hemp and Cannabis Business
On September 26, 2025, the Company transferred the Transferred Interests to Flora Growth US Holdings LLC, a Florida limited liability company and the Noteholders, 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 on February 4, 2025.
During 2024, we acquired TruHC, an early-stage cannabis company based in Hamburg, Germany. TruHC holds a GDP wholesale, and an EU-GMP processing and production license for medical cannabis. It also owns and operates an EU-GMP certified laboratory ready for instant cannabis analysis as required for the new Cannabis Social Clubs. The facility of TruHC is a flexible production space with EU-GMP certified modules that can be extended and customized for any production process from processing to extraction. TruHC also holds a narcotic license with EU-GMP certified storage.
Colombian Related Subsidiaries
On July 5, 2023, the Company entered into a share purchase agreement with Lisan, a Delaware limited liability company, to sell all its shares in certain of its Colombian subsidiaries and its Colombian assets for a purchase price of CAD $0.8 million (USD $0.6 million). The sale relates to Flora's operations in Colombia, including its interest in (i) its 361-acre Cosechemos farm located in Giron, Colombia and its related processing facilities and inventory and (ii) all other assets relating to Flora Lab 2, Flora Lab 4 and Flora's Colombian food and beverage and consumer products business (collectively "Colombia Assets"). The sale enables the Company to concentrate on its core business divisions, which are lifestyle brands in the United States and international pharmaceutical distribution. The sale was part of several strategic changes to cut costs and streamline operations. The Company received proceeds of CAD $0.5 million during the quarter ended September 30, 2023. The Company and Lisan completed the sale of Cosechemos Ya S.A.S on November 1, 2023.
Financial results associated with fluctuations in the value of 0G. 0G is a new type of digital asset, which tend to be highly volatile. Although ZeroStack continues to initially record its 0G purchases at cost, upon adoption of ASU 2023-08 on January 1, 2025, any subsequent increases or decreases in fair value are recognized as incurred in the Consolidated Statements of Loss and Comprehensive Loss, and the fair value of the 0G is reflected within the Consolidated Statement of Financial Position each reporting period-end. Due to the volatility of 0G, and the Company's substantial holdings of 0G, ZeroStack expects changes in the market value of 0G to materially impact our results.
Risks associated with 0G. 0G is a digital asset, which is a novel asset class that is subject to significant legal, commercial, regulatory and technical uncertainty. Holding 0G does not generate any cash flows and involves custodial fees and other costs. Additionally, the price of digital assets has historically experienced significant price volatility, and a significant decrease in the price of 0G would adversely affect the Company's financial condition and results of operations. ZeroStack's strategy of acquiring and holding 0G also exposes it to counterparty risks with respect to the custody of its 0G, cybersecurity risks, and other risks inherent to holding a digital asset. In particular, the Company is subject to the risk that, if its private keys with respect to its digital assets are lost or destroyed or other similar circumstances or events occur, the Company may lose some or all of its digital assets, which could materially adversely affect the Company's financial condition and results of operations. For more information, see "Item 1A. Risk Factors."
Challenges in realization of overhead reductions. Management has taken, and continues to implement, various cost-saving initiatives to lower overhead costs. However, the Company has not yet reached the critical balance in reducing overhead to meet both the existing and potential market demand in aggregate. The Company strives to attain sufficient growth to cover its overhead to reach profitability. If the Company fails to grow its business or reduce its operating expenses further in the long term, it will continue to face significant cash flow deficiencies in the future and continue to be reliant on debt and/or equity financing to fund operations.
Consistent profitability and positive operating cash flows. A key determinant of the Company's success is to deliver profitable results and positive cashflows from operating activities. The Company's results have not yet achieved the prerequisite consistency to achieve self-sufficiency. Since its inception, only the third quarter of 2023 yielded net income and positive cashflows from operating activities. There is no assurance that the Company would be able to produce adequate levels of sustained profitability and cash flow positive, or at all. These factors, amongst others, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are described in Note 2 of the Company's audited consolidated financial statements for the year ended December 31, 2024. For more information, see Item 1A "Risk Factors."
Acquisition strategy disadvantages include significant transaction costs and liabilities of our acquirees. The Company has been opportunistic and pursues acquisitions from time to time that management believes will be complementary to or synergistic to the Company's existing business. However, any such acquisitions require the Company to incur heightened upfront transaction costs and require the Company to assume certain liabilities from the acquired companies. In addition, while the Company believes such acquisitions will provide enhanced value in the long term, it is possible that the anticipated synergies from the acquisition may never be realized. For example, the Company acquired TruHC in April 2024 and Australian Vaporizers in June 2024. In connection with the acquisition of TruHC, the Company incurred $0.2 million in transaction costs in 2024, which included legal and consulting fees incurred by the Company. In addition, we assumed $1.5 million in liabilities, which included $0.4 million of lease liabilities and other ordinary course operating liabilities. In connection with the acquisition of Australian Vaporizers, the Company incurred less than $0.1 million in transaction costs in 2024, which included legal and consulting fees incurred by the Company. In addition, we assumed $0.4 million in liabilities, which included $0.1 million of lease liabilities and other ordinary course operating liabilities.
Diversification of cashflows. Our sources of cash are diversifiedcurrently acrossfocused geographicon andits productpharmaceutical lines.distribution business. Revenues are concentrated primarily in Germany and the United States, spanning pharmaceuticals, hemp and non-hemp consumer products and medicinal cannabis.Germany.
International cannabis developments. Flora's growth is embedded in the expansion, regulation and legalization of medicinal and recreational cannabis and cannabis derivative products across the world. While medicinal cannabis has been regulated at the federal level in multiple countries, the Company is focused on the most robust markets in Germany and the European Union. We remain tuned to international developments as potentially lucrative medicinal cannabis markets open.
Product evolution and brand acceptance. As the cannabis industry continues to change, divergent regulations and the corresponding resources required to introduce high-quality products are expected to impact our market share. Gaining access to continuously evolving and superior products remains a critical success factor. Our ultimate ability to produce and acquire products meeting stringent quality control standards drives the extent of consumer acceptance. Furthermore, the intrinsic value within our brands, including JustCBD and Vessel, is subject to evolving consumer sentiment.
Regulatory proficiency and adoption. The markets in which FloraZeroStack operates are highly regulated and require extensive experience in navigating the associated complexities. We have assembled a team with deep knowledge of the regulatory and governance environments in which the Company operates. Fundamental expertise entails compliance with product approvals, import permits, export permits, distribution licenses and other pertinent licenses.
Integration of acquired companies. Our growth has been fueled substantially by the acquisition of JustCBD, Vessel and FGH. Our continued ability to extract incremental synergies from a group of diversified entities is a key determinant of our ability to expand organically.
Following the consummation of our initial public offering, we becameAs a public company,Company which has required the hiring of additional staff and implementation of processes and procedures to address public company regulatory requirements and customary practices. We expect to continue towe 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 bid price requirement
On February 25, 2025, the Company was notified by Nasdaq that it was not in compliance with the minimum bid price requirement of $1.00 per share for 30 consecutive business days as set forth in Rule 5550(a)(2) of the Nasdaq Listing Rules (the "Minimum Bid Price Requirement"). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company had 180 calendar days, or until August 25, 2025, to regain compliance with the Minimum Bid Price Requirement. To regain compliance, the Company needed to maintain a minimum closing bid price of $1.00 or more for at least 10 consecutive trading days before August 25, 2025, unless Nasdaq Listing Qualifications Department exercised its discretion to extend this ten-day period pursuant to Nasdaq Listing Rule 5810(c)(3)(H).
On August 4, 2025, the Company effected a 1-for-39 share consolidation of the Company's issued and outstanding Common Shares, by filing Articles of Amendment to the Company's amended and restated Articles of Incorporation with the Ontario Ministry of Public and Business Service Delivery and Procurement. The Common Shares began trading on a post-share consolidation basis as of the opening of the Nasdaq on August 4, 2025.
From August 4, 2025 through August 18, 2025, a period of 10 consecutive trading days, the closing bid price of the Common Shares was greater than $1.00 per share. Accordingly, on August 19, 2025, the Company received formal notice from Nasdaq that it had regained compliance with the Minimum Bid Price Requirement and that the matter was closed. ZeroStack is now in compliance with all applicable continued listing standards and its Common Shares continue to be listed and traded on Nasdaq.
Minimum Independent Directors Requirement
On August 25, 2025, Harold Wolkin, a director of the Company passed away. Prior to his passing, Mr. Wolkin served as an "Independent Director", as defined in Nasdaq Listing Rule 5605(a)(2) (“Independent Director”), and as a member of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. On August 26, 2025, Nasdaq was informed that because of Mr. Wolkin's passing, the Company was no longer in compliance with certain Corporate Governance Requirements as set forth in Nasdaq Listing Rule 5605.
Pursuant to Nasdaq Listing Rule 5605(b)(1), a majority of the Board of a listed company must be comprised of Independent Directors. With Mr. Wolkin's passing, the Board was comprised of only four members, Daniel Reis-Faria, Michael Heinrich, Edward Woo and Manfred Leventhal. Only two of the four, Mr. Woo and Mr. Leventhal, qualified as Independent Directors. Therefore, the Company's Board was no longer comprised of a majority of Independent Directors as required by Nasdaq Listing Rule 5605(b)(1).
On January 6, 2026, the Board unanimously approved by written consent the appointment of Mr. Laurence Zeifman as a director of the Company. Following Mr. Zeifman's appointment, the Board is currently comprised of five members, Daniel Reis-Faria, Michael Heinrich, Edward Woo, Manfred Leventhal and Laurence Zeifman. Three of the five members, Mr. Woo, Mr. Leventhal and Mr. Zeifman, qualify as Independent Directors. Therefore, the Company's Board is now comprised of a majority of Independent Directors. As a result of the foregoing, the Company regained and has maintained compliance with the Board composition requirements of Nasdaq Listing Rule 5605(b)(1).
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.
On December 6, 2023, the Company received a notification from Nasdaq, confirming that, due to having less than three independent audit committee members, the Company no longer complies with Nasdaq's audit committee requirements contained in Nasdaq Listing Rule 5605(c)(2)(A). As set forth in such notification, Nasdaq advised the Company that, under Nasdaq Rule 5605(c)(4), the Company was afforded a cure period in order to regain compliance (i) until the earlier of the Company's next annual shareholders' meeting or November 30, 2024, or (ii) if the next annual shareholders' meeting is held before May 28, 2024, then the Company must evidence compliance no later than May 28, 2024.
On May 2, 2024, the Board appointed Mr. Brendan Cahill as a director and member of each of the Company's audit committee, compensation committee and nominating and corporate governance committee.
What changed in the latest 10-Q
Risk Factors
We could not find a separate Risk Factors item in the latest 10-Q. Some companies leave it out of quarterly reports; see the annual 10-K risk factors and the original filing. Open the filing on SEC.gov.
Management's Discussion & Analysis (MD&A)
New heading “Other Expenses, net”
New heading “Non-operating (expense) income”
New heading “Loss from Discontinued Operations”
New heading “Operating Expenses”
New heading “Loss (Gain) from Changes in Fair Value of Digital Assets”
New heading “Salaries and Consulting Fees”
New heading “Professional Fees”
New heading “Share-based Compensation Expenses”
New heading “March 2026 Blocker Securities Contribution Agreements and Blocker Stockholders' Agreement”
New heading “March 2026 Share Exchange Agreement”
Largest changes
“As of June 30, 2026, the Company had cash of $2.6 million, negative working capital of $0.6 million and an accumulated deficit of $339.1 million. The Company incurred a net loss of $61.3 million during the six months ended June 30, 2026 and relies primarily on the monetization of digital assets earned through staking activities to fund operations and satisfy its obligations as they become due. …”see in full comparison
“Staking rewards earned by the Company are held in a separate hot wallet designated for operating liquidity. The Company intends to use these staking rewards, either in kind or through sale for cash, principally to fund operating activities, including research and development, general and administrative expenses, and other costs associated with its decentralized AI treasury strategy. …”see in full comparison
“Although management has implemented the plans described above, it cannot conclude that such plans are probable of effectively mitigating the conditions and events that raise substantial doubt. Accordingly, substantial doubt exists about the Company's ability to continue as a going concern for the one-year period following the issuance of these financial statements. …”see in full comparison
“March 2026 Blocker Securities Contribution Agreements and Blocker Stockholders' Agreement”see in full comparison
“Management considered these conditions together with its liquidity outlook for the twelve-month period following the issuance of these financial statements. On July 20, 2026, the Company completed the acquisition of Texas Blocker Corp., which added approximately 148.0 million 0G tokens to the Company's treasury holdings. Following the acquisition, the Company held approximately 223 million 0G tokens, substantially all of which are staked and expected to generate recurring staking rewards. …”see in full comparison
Full comparison: every changed paragraph (78)
Amounts are expressed in United States dollars ("$" or "USD") unless otherwise stated to be in Euro ("€"). Amounts stated in foreign currencies include approximate USD amounts based on exchange rates on MarchJune 31,30, 2026. Variance, ratio, and percentage changes in this section are based on unrounded numbers. This section reports the Company's activities through MarchJune 31,30, 2026, unless otherwise indicated.
The Company recognizes staking rewards as revenue at the time they are earned and control of the reward tokens is obtained, measured at their fair value on the date of receipt. The fair value of the staking rewards at receipt becomes their cost basis for subsequent accounting and potential disposal.
Staking rewards earned by the Company are held in a separate hot wallet designated for operating liquidity. The Company intends to use these staking rewards, either in kind or through sale for cash, principally to fund operating activities, including research and development, general and administrative expenses, and other costs associated with its decentralized AI treasury strategy. Consistent with this business model and the treatment of staking rewards as operating revenue, the Company classifies cash proceeds from the sale of 0G Tokens received as staking rewards as cash flows from operating activities in its condensed consolidated statements of cash flows.
On March 31, 2026, Texas Blocker,Blocker Corp. ("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.
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 willwas to become a wholly-ownedwholly owned subsidiary of ZeroStack.
Upon closing of the Exchange, which is expected to occuroccurred on or around July 14,20, 2026,2026 upon approval by the Company's shareholders, Texas Blocker will becomebecame a wholly-owned subsidiary of ZeroStack and ZeroStack willis benow 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.
On August 25, 2025, Harold Wolkin, a director of the CompanyCompany, 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.
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,validators, 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 1.0% or 2.0% commission basis.
Loss (gain) from changes in fair value of digital assets relate to fluctuations in fair value of the Company's digital assets.
The following table sets forth the Company's consolidated results of operations for the three and six months ended MarchJune 31,30, 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 and six months ended MarchJune 31,30, 2026 and 2025 included elsewhere in this Quarterly Report.
For the Three Months Ended March 31,June, 2026 and 2025
Revenue
Revenue totaled $7.3$13.7 million and $6.9$9.7 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The revenue generated by the Company's Phatebo subsidiary was $4.5$12.6 million and $6.9$9.7 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The Company also began staking its 0G Tokens during the three months ended March 31, 2026, earning 4,364,7242,254,442 0G Tokens in rewards, or $2.8$1.0 million.million, during the three months ended June 30, 2026.
Gross profit totaled $3.1$1.6 million and $0.5$0.6 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. As a percentage of net sales, or gross margin, the Company reported 43%12% and 8%6% for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The increases were primarily driven by the commencement of staking by the Company in the three months ended MarchJune 31,30, 2026.
Operating expenses totaled $65.8$25.9 million and $2.2$2.1 million for the three months ended MarchJune 31,30, 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 MarchJune 31,30, 2026.
Loss (Gain) from Changes in Fair Value of Digital Assets
Loss (gain) from changes in fair value of digital assets totaled $60.7a loss of $21.8 million and $nila gain of $0.1 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The loss in the three months ended MarchJune 31,30, 2026 was caused by the decrease in value of the Company's 0G holdings.
Salaries and consulting fees were $1.0$1.1 million for the three months ended MarchJune 31,30, 2026 compared to $0.7$0.8 million for the three months ended MarchJune 31,30, 2025. These fees are related to employment and consulting contracts with most of the Company's management, as well as directors.
Professional fees totaled $0.7$1.0 million for the three months ended MarchJune 31,30, 2026 compared to $0.5$0.6 million for the three months ended MarchJune 31,30, 2025. These expenses are associated with legal, accounting and audit services.
Share-based compensation expenses totaled $2.8$1.6 million for the three months ended MarchJune 31,30, 2026 compared to $0.2 million for the three months ended MarchJune 31,30, 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 endedin December 31,2025 2025.and May 2026.
Other Expenses, net
Other expenses totaled $0.4 million for the three months ended June 30, 2026 compared to $0.6 million for the three months ended June 30, 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 (expense) income
The Company realized $0.1 million in non-operating expense for the three months ended June 30, 2026 compared to non-operating expense of less than $0.1 million for the three months ended June 30, 2025. This income consists of changes in financial instruments fair value, interest income (expense) and foreign exchange (loss) gain.
Income Tax
We recognized $0.3 million in income tax expense for the three months ended June 30, 2026 compared to less than $0.1 million in income tax expense for the three months ended June 30, 2025. Our effective tax rate during the periods ended June 30, 2026 and 2025 was -1.1% and -0.5%, 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 June 30, 2026 and 2025.
Loss from Discontinued Operations
Loss from discontinued operations totaled $nil in the three months ended June 30, 2026 compared to $0.9 million in the three months ended June 30, 2025. The sale of the legacy hemp and cannabis businesses was finalized on September 26, 2025.
Net Loss
The Company recorded a net loss of $24.6 million for the three months ended June 30, 2026 compared to a net loss of $2.4 million for the three months ended June 30, 2025. The increased net loss was due to $21.8 million in losses recorded from changes in fair value of digital assets.
For the Six Months Ended June, 2026 and 2025
Revenue totaled $20.9 million and $16.6 million for the six months ended June 30, 2026 and 2025, respectively. The revenue generated by the Company's Phatebo subsidiary was $17.1 million and $16.6 million for the six months ended June 30, 2026 and 2025, respectively. The Company also began staking its 0G Tokens during 2026, earning 6,619,166 0G Tokens in rewards, or $3.8 million, during the six months ended June 30, 2026.
Gross Profit
Gross profit totaled $4.8 million and $1.2 million for the six months ended June 30, 2026 and 2025, respectively. As a percentage of net sales, or gross margin, the Company reported 23% and 7% for the six months ended June 30, 2026 and 2025, respectively. The increases were primarily driven by the commencement of staking by the Company in the six months ended June 30, 2026.
Operating Expenses
Operating expenses totaled $91.7 million and $4.3 million for the six months ended June 30, 2026 and 2025, respectively. The increase is driven by the loss from changes in fair value of digital assets recorded during the six months ended June 30, 2026.
Loss (Gain) from Changes in Fair Value of Digital Assets
Loss (gain) from changes in fair value of digital assets totaled a loss of $82.5 million and a gain of $0.1 million for the six months ended June 30, 2026 and 2025, respectively. The loss in the six months ended June 30, 2026 was caused by the decrease in value of the Company's 0G holdings.
Salaries and Consulting Fees
Salaries and consulting fees were $2.0 million for the six months ended June 30, 2026 compared to $1.6 million for the six months ended June 30, 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 $1.7 million for the six months ended June 30, 2026 compared to $1.2 million for the six months ended June 30, 2025. These expenses are associated with legal, accounting and audit services.
Share-based Compensation Expenses
Share-based compensation expenses totaled $4.4 million for the six months ended June 30, 2026 compared to $0.3 million for the six months ended June 30, 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 in December 2025 and May 2026.
Asset impairment totaled $nil for the threesix months ended MarchJune 31,30, 2026 compared to less than $0.1 million for the threesix months ended MarchJune 31,30, 2025. The amount in 2025 represents impairment of an operating lease right of use asset in Florida.
Other expenses totaled $0.7$1.1 million for both the threesix months ended MarchJune 31,30, 2026 andcompared Marchto 31,$1.3 million for the six months ended June 30, 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.
The Company realized $26.0$25.9 million in non-operating income for the threesix months ended MarchJune 31,30, 2026 compared to non-operating income of $1.4$1.3 million for the threesix months ended MarchJune 31,30, 2025. This income consists of changes in financial instruments fair value, interest income (expense) and foreign exchange (loss) gain. The amount for the threesix months ended MarchJune 31,30, 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 threesix months ended MarchJune 31,30, 2025 includes a $1.1 million gain on the disposal of insolvent entities.
We recognized less than $0.1$0.2 million in income tax benefitexpense for the threesix months ended MarchJune 31,30, 2026 compared to $0.1 million in income tax expense for the threesix months ended MarchJune 31,30, 2025. Our effective tax rate during the periods ended MarchJune 31,30, 2026 and 2025 was 0.0%-0.4% and -34.8%,-5.3%, 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 MarchJune 31,30, 2026 and 2025.
Loss from discontinued operations totaled $nil in the threesix months ended MarchJune 31,30, 2026 compared to $0.4$1.3 million in the threesix months ended MarchJune 31,30, 2025. The sale of the legacy hemp and cannabis businesses was finalized on September 26, 2025.
The Company recorded a net loss of $36.7$61.3 million for the threesix months ended MarchJune 31,30, 2026 compared to a net loss of $0.8$3.2 million for the threesix months ended MarchJune 31,30, 2025. The increased net loss was due to $60.7$82.5 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.
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$3.8 million in the threesix months ended MarchJune 31,30, 2026 and $38.4$15.2 million in digital assets on the Company's unaudited condensed interim balance sheet as of MarchJune 31,30, 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.
As of June 30, 2026, the Company had cash of $2.6 million, negative working capital of $0.6 million and an accumulated deficit of $339.1 million. The Company incurred a net loss of $61.3 million during the six months ended June 30, 2026 and relies primarily on the monetization of digital assets earned through staking activities to fund operations and satisfy its obligations as they become due. The Company's ability to generate liquidity from such digital assets, and, if necessary, from the monetization of its underlying digital asset holdings, is subject to significant market price volatility and market liquidity conditions. These factors raise substantial doubt about the Company's ability to continue as a going concern within one year after the date these financial statements are issued.
Management considered these conditions together with its liquidity outlook for the twelve-month period following the issuance of these financial statements. On July 20, 2026, the Company completed the acquisition of Texas Blocker Corp., which added approximately 148.0 million 0G tokens to the Company's treasury holdings. Following the acquisition, the Company held approximately 223 million 0G tokens, substantially all of which are staked and expected to generate recurring staking rewards. Management expects existing cash balances, together with the monetization of digital assets earned through staking activities to provide sufficient liquidity to fund forecasted operating expenditures during the assessment period. If necessary, the Company may also monetize a portion of its digital asset holdings to satisfy its liquidity requirements.
Although management has implemented the plans described above, it cannot conclude that such plans are probable of effectively mitigating the conditions and events that raise substantial doubt. Accordingly, substantial doubt exists about the Company's ability to continue as a going concern for the one-year period following the issuance of these financial statements. The accompanying financial statements have been prepared on a going concern basis and do not include any adjustments to the carrying amounts or classification of assets and liabilities that may result from the outcome of this uncertainty.
Net cash used in operating activities in the threesix months ended MarchJune 31,30, 2026 was $3.8$2.5 million compared to net cash used in operating activities of $2.7$5.5 million for the threesix months ended MarchJune 31,30, 2025. Cash flows used in operating activities for the periods ended MarchJune 31,30, 2026 and 2025 were due primarily to operating expenses exceeding the gross profit for the periods.
Cash used in/provided by Financing Activities
Net cash used in financing activities for the six months ended June 30, 2026 totaled $0.2 million compared to $1.5 million provided by financing activities for the threesix months ended MarchJune 31,30, 20262025. totaledCash $0.1flows millionused comparedin tofinancing $nilactivities for the threeperiod monthsending endedJune March30, 31,2026 2025.were due to net payments on the credit facilities in Germany through the Company's Phatebo subsidiary. Cash flows provided from financing activities for the period ending MarchJune 31,30, 20262025 were due to the sale of common shares of the Company in May 2025 as well as net borrowings on the credit facilities in Germany through the Company's Phatebo subsidiary. During the three months ended March 31, 2025, net borrowings on the credit facilities in Germany through the Company's Phatebo subsidiary were $nil.
Cash providedused byin Investing Activities
Net cash providedused byin investing activities for the threesix months ended MarchJune 31,30, 2026 totaled $nil compared to $0.4$0.7 million for the threesix months ended MarchJune 31,30, 2025. Cash flows providedused byin investing activities for the period ended MarchJune 31,30, 2025 were primarily related to the acquisition of United.digital assets.
ZSTK insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 1 Form 4 filing (1 insider, 1 trade date, 4,608,575 shares, about $3.5M) and open-market sales in 1 filing (1 insider, 1 trade date, 1,000 shares, about $7.6K). Net open-market shares: 4,607,575 (purchases minus sales); net value about $3.4M.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-08-19 | Rong Rudy |
Open-market sale | 1,000 | $7.57 | $7.6K |
| 2026-07-20 | Heinrich Michael |
Open-market purchase | 4,608,575 | $0.75 | $3.5M |
| 2026-07-20 | Reis-Faria Daniel |
Option exercise | 5,954,743 | — | — |
Well-known investors holding ZSTK (13F)
None of the 59 investors we track reported a position in their latest 13F.