ZeroStack (ZSTK) risk factors, FY2024 10-K

RISKS RELATED TO OUR BUSINESS AND INDUSTRY

1. 01We are an early-stage company with limited operating history and may never become profitable
2. 02Recent and future acquisitions and strategic investments could be difficult to integrate, divert the attention of key management personnel, disrupt our business, dilute shareholder value, may subject us to liability, and harm our results of operations and financial condition
3. 03Certain conditions or events could disrupt the Company's supply chains, disrupt operations, and increase operating expenses
4. 04Cannabis laws, regulations, and guidelines are dynamic and subject to changes
5. 05Demand 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
6. 06Damage to the Company's reputation can be the result of the actual or perceived occurrence of any number of events, and could include any negative publicity, whether such publicity is accurate or not
7. 07We are subject to the inherent risk of exposure to product liability claims, actions and litigation
8. 08We are subject to the inherent risks involved with product recalls
9. 09The Company's products could have unknown side effects
10. 10Research 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
11. 11Our growth depends, in part, on expanding into additional consumer markets, and we may not be successful in doing so
12. 12Fluctuations in the cost and availability of raw materials, equipment, labor, and transportation could cause manufacturing delays or increase our costs
13. 13We 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
14. 14The Company's inventory has a shelf life and may reach its expiration and not be sold
15. 15The seasonal trends in our business create variability in our financial and operating results
16. 16The Company may not be able to maintain effective quality control systems
17. 17The cannabinoid industry faces strong opposition and may face similar opposition in other jurisdictions in which we operate
18. 18The Company is subject to wholesale price volatility that could expose the Company to lower than anticipated revenues, gross margins, net income and cash flows
19. 19The Company could face competitive risks from the development and distribution of synthetic cannabis
20. 20The legalization of adult-use, recreational cannabis may reduce sales of medical cannabis
21. 21The Company is reliant on third party transportation services and importation services to deliver its products to customers
22. 22We may not be able to establish and maintain bank accounts in certain countries
23. 23We may not be able to renew certain of our leases
24. 24The 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
25. 25The Company may incur significant costs to defend its intellectual property and other proprietary rights
26. 26The Company may incur additional liability as a result of the insolvency of a subsidiary

RISKS RELATED TO OUR REGULATORY FRAMEWORK

1. 27Changes 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
2. 28Uncertainty caused by potential changes to legal regulations could impact the use of CBD products
3. 29Any 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
4. 30Any failure by us to comply with the applicable regulatory requirements could
5. 31There can be no assurance that any future regulatory or agency proceedings, investigations or audits will not result in substantial costs, a diversion of management's attention and resources or other adverse consequences to our business
6. 32The FDA limits the ability to discuss the medical benefits of CBD
7. 33The 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

RISKS RELATED TO FINANCIALS AND ACCOUNTING

1. 34We may increase our foreign sales in the future, and such sales may be subject to unexpected regulatory requirements, exchange rate fluctuations and other barriers
2. 35Assumptions, estimates and judgments related to critical accounting matters could significantly affect our reported financial results or financial condition
3. 36There are tax risks the Company may be subject to in carrying on business in multiple jurisdictions
4. 37Restrictions on Deduction of Certain Expenses for U.S. Federal Income Tax Purposes
5. 38The Company may be at a higher risk of IRS audit
6. 39Changes in global and local tax laws and regulations in jurisdictions in which the Company operates may adversely impact the Company and the value of the Common Shares
7. 40Failure to develop our internal controls over financial reporting as we grow could have an adverse effect on our operations

RISKS RELATED TO OUR COMMON SHARES

1. 41We will need, but may be unable to, obtain additional funding on satisfactory terms, which could dilute our shareholders or impose burdensome financial restrictions on our business
2. 42Holders of our Common Shares are subject to dilution resulting from the issuance of equity-based compensation by us
3. 43We continue to incur increased costs as a result of operating as a public company and our management is required to devote substantial time to new compliance initiatives
4. 44If we fail to meet applicable listing requirements, Nasdaq may delist our Common Shares from trading, in which case the liquidity and market price of our Common Shares could decline
5. 45Ownership 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
6. 46The Company's directors and officers may have a conflict of interest in conducting their duties
7. 47As 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
8. 48The regulated nature of our business may impede or discourage a takeover, which could reduce the market price of our Common Shares
9. 49We do not intend to pay dividends on our Common Shares in the near future, and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our Common Shares
10. 50We cannot predict whether investors will find our Common Shares less attractive as a result of our reliance on these exemptions. If some investors find our Common Shares less attractive as a result, there may be a less active trading market for our Common Shares and our stock price may be more volatile
11. 51If the price of our Common Shares fluctuates, you could lose a significant part of your investment
12. 52Changes to United States tariff and import/export regulations may have a negative effect on our Company and, in turn, harm us
13. 53Political, social and geopolitical conditions can adversely affect our business
14. 54Political uncertainty may have an adverse impact on our operating performance and results of operations
15. 55The Company may become involved in legal proceedings from time to time, which could adversely affect the Company
16. 56The Company's success will depend, in part, on its ability to continue to enhance its product and service offerings to respond to technological and regulatory changes and emerging industry standards and practices
17. 57We are dependent upon our management and key employees, and the loss of any member of our management team or key employees could have a material adverse effect on our operations
18. 58Our inability to retain and acquire skilled personnel could impair our business and operations
19. 59We will need to grow the size of our organization, and we may experience difficulties in managing any growth we may achieve
20. 60If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about us, our share price and trading volume could decline
21. 61We expect to incur significant ongoing costs and obligations related to our investment in infrastructure, growth, regulatory compliance and operations
22. 62Our production is, in general, subject to different risks and hazards, including adverse weather conditions, fires, plant diseases and pest infestations, other natural phenomena, industrial accidents, labor disputes, changes in the legal and regulatory framework applicable to us and environmental contingencies
23. 63We may be unable to implement our business strategy, which could have negative financial and reputational effects on our business
24. 64The Company could be subject to a security breach that could result in significant damage or theft of products and equipment