ZSTK

ZeroStack Corp. 10-Q Summary: Q1 2026

Business Context and Reporting Period

This Quarterly Report on Form 10-Q covers the period ended March 31, 2026. ZeroStack Corp. (ZSTK) operates as a decentralized AI treasury company and a global pharmaceutical distributor. The company has pivoted from its legacy hemp and cannabis business (sold in September 2025) to focus on pharmaceutical distribution via its subsidiary Phatebo GmbH and a digital asset treasury strategy centered on the 0G Token (0G), the native token of the 0G Chain. The company is currently a non-accelerated filer and an emerging growth company.

Key Financial Metrics

Note: Q1 2025 figures include discontinued operations from the legacy cannabis business.

Material Changes vs. Prior Period

• Revenue Composition: Revenue increased slightly to $7.3 million. This includes $4.5 million from pharmaceutical distribution (down from $6.9 million in Q1 2025) and $2.8 million in new staking revenue from 0G tokens, which began in January 2026.
• Operating Loss: The operating loss widened significantly to $62.7 million, primarily driven by a $60.7 million unrealized loss on the fair value of digital assets due to the decline in 0G token prices.
• Debt Reduction: Total debt decreased from $53.5 million to $3.2 million. This reduction was achieved by settling the $50.7 million Zero Gravity Convertible Note on March 31, 2026, by transferring 50 million 0G tokens to the lender.
• Asset Valuation: Total digital assets dropped from $121.0 million to $38.4 million, reflecting both the token price decline and the transfer of tokens to settle debt.
• Share Capital: The company issued shares and exercised pre-funded warrants, increasing outstanding shares from 1.0 million to 2.4 million.

Guidance, Outlook, and Risks

• Strategic Transactions: On March 31, 2026, the company entered into a Share Exchange Agreement with Texas Blocker Corp. to acquire 142 million 0G tokens in exchange for issuing approximately 9.1 million ZeroStack shares. This transaction is expected to close around July 14, 2026, subject to shareholder approval.
• Going Concern: Management asserts that existing cash ($2.3 million) and staking rewards are sufficient to meet obligations for the next 12 months, alleviating previous substantial doubt about the company's ability to continue as a going concern.
• Key Risks:
  • Regulatory: Risk that 0G tokens may be classified as a "security" under U.S. law, potentially requiring registration as an investment company.
  • Market Volatility: Significant exposure to the price fluctuations of 0G tokens, which comprise approximately 85% of total assets.
  • Liquidity: Reliance on staking rewards and potential future capital raises to fund operations.
  • Legal: A pending legal dispute regarding a lease breach in California, for which a $1.3 million provision has been recorded.

Investor Verification Checklist

• Shareholder Approval: Verify the status of the shareholder vote required to consummate the Texas Blocker Exchange and the issuance of 9.1 million new shares.
• 0G Token Valuation: Monitor the fair value of 0G tokens, as a significant portion of the company's assets and revenue (staking) is tied to this single asset class.
• Debt Settlement: Confirm the final accounting treatment of the Zero Gravity Convertible Note settlement and the associated $3.1 million gain recorded.
• Legal Contingency: Track the resolution of the California lease dispute and the adequacy of the $1.3 million provision.
• Cash Burn: Review the sustainability of the $2.3 million cash balance against operating expenses, noting the company's reliance on staking rewards for working capital.