Note 5 – Share Capital

Regulation A Equity Financings

Between 2020 and 2023, the Company sold units consisting of two shares of Class A common stock and one warrant to purchase one share of Class A common stock pursuant to Regulation A under the Securities Act (“Regulation A”). The warrants were immediately exercisable and expired 18 months from the date of issuance. Pursuant to these Regulation A offerings, the Company issued a total of 12.1 million shares of Class A common stock and 5.3 million warrants and received cumulative net proceeds of approximately $33.1 million, after deducting issuance costs.

All warrants issued pursuant to the Regulation A offerings expired on or before December 31, 2025. As of March 31, 2026, no warrants issued pursuant to the Regulation A offerings were still outstanding.

Preferred Stock Financings

The Company is authorized to issue 150,000,000 shares of preferred stock, par value $0.0001 per share. As of March 31, 2026, the Board of Directors has designated 30,000 shares as Series 1 Shares and 40,000 shares as Series 2 Shares.

Series 1 Convertible Preferred Stock

On November 25, 2024, the Company entered into the Series 1 Equity Financing with Streeterville for the issuance and sale of $6.3 million of Series 1 Shares, together with 720,000 shares of Class A common stock as pre-delivery shares. This Series 1 Equity Financing closed on January 29, 2025. All of these Series 1 Shares were subsequently converted into shares of the Company’s Class A common stock. As of March 31, 2026, and December 31, 2025, no Series 1 Shares were issued or outstanding. We no longer have the ability to issue any additional Series 1 Shares in connection with the Series 1 Equity Financing.

Each Series 1 Share had a stated value of $1,111, subject to an automatic 10% increase upon the occurrence of (i) a Series 1 Trigger Event (defined below), (ii) if the Company failed to fully comply with any covenant, obligation, or agreement or fail to pay any amount when due and payable, and such failure is not cured within the applicable cure period, or (iii) upon the occurrence of any bankruptcy, insolvency, or similar event (each of (ii) and (iii) an “Event of Default”) (the “Series 1 Stated Value”).

Except as otherwise set forth in the Series 2 Certificate of Designations of Preferences and Rights of Series 2 Convertible Preferred Stock (the “Series 2 Certificate of Designations”) or as required by applicable law, the Series 1 Shares and the Series 2 Shares ranked equally (including with respect to dividends and distributions and upon any voluntary or involuntary liquidation, dissolution, or winding up of the Company (a “Liquidation Event”)) and were identical in all respects. Except to the extent that the holders of at least a majority of the outstanding Series 1 Shares and the Series 2 Shares, voting together as a single class, expressly consented to the creation of capital stock that was either senior or pari passu in rank with the Series 1 Shares and the Series 2 Shares, all other shares of capital stock of the Company will be junior in rank.

The Series 1 Shares accrued a 10% per annum rate of return on the Series 1 Stated Value (the “Series 1 Preferred Return”) from the date of issuance. The Series 1 Preferred Return was payable on a quarterly basis, and was subject to quarterly compounding, either in cash or via the issuance of additional Series 1 Shares, at the Company’s discretion. Following the occurrence of an Event of Default, the preferred return would increase to 15% per annum until such Event of Default was cured.

In the event of a Liquidation Event or Deemed Liquidation Event (defined below), the Series 1 Shares were entitled to be paid an amount equal to (i) the Series 1 Stated Value at such time, plus (ii) any accrued and unpaid Series 1 Preferred Return (the “Series 1 Preferred Liquidation Amount”), prior to any payments being made to the holders of the Company’s common stock. Following payment of the Series 1 Preferred Liquidation Amount, the Series 1 Shares would not participate in the distribution of any remaining assets of the Company.

A “Deemed Liquidation Event” will occur (i) if the Company merges or consolidates with another entity and its stockholders immediately prior to such transaction do not continue to hold a majority of the voting power immediately after such transaction, or (ii) if the Company sells, leases, transfers, exclusively licenses, or otherwise disposes of all or substantially all of its assets.

The Series 1 Shares were convertible at any time into (i) the number of Series 1 Shares being converted multiplied by their then Series 1 Stated Value (the “Series 1 Conversion Amount”), divided by (ii) the Series 1 Conversion Price (defined below).

Prior to a Series 1 Trigger Event (defined below) or an Event of Default, the conversion price (“Series 1 Conversion Price”) was $9.00 per share of Class A common stock or, if lower, the price at which the Company issued Class A common stock or rights to receive Class A common stock (the “Series 1 Fixed Conversion Price”). Following a Series 1 Trigger Event or Event of Default, the Series 1 Conversion Price was to be the lesser of the (i) Series 1 Fixed Conversion Price, and (ii) greater of (x) 85% multiplied by the lowest daily volume weighted average price (VWAP) of the Class A common stock during the ten business day period prior to the measurement date, and (y) $1.00.

A “Series 1 Trigger Event” will occur (i) upon the Company’s receipt of a letter of noncompliance from Nasdaq, (ii) upon the Company’s average market capitalization during any 10 business day period falling below $75,000,000, and (iii) in any quarter beginning with the first calendar quarter of 2025 where (x) the Company’s stockholder equity is less than $2,500,000, (y) the Company incurs a net loss greater than $1,000,000, or (z) the Company’s net sales are less than $500,000.

Notwithstanding the foregoing, the Company was not required to give effect to any conversion of Series 1 Shares to the extent that, following such conversion, the holder individually (without aggregating with its affiliates) would beneficially own in excess of 4.99% of the outstanding Class A common stock (the “Maximum Percentage”); provided, that the Maximum Percentage for a holder of Series 1 Preferred together with such holder’s affiliates was 9.99%. The Maximum Percentage was enforceable, unconditional, and non-waivable and applied to all affiliates and assigns of each holder of Series 1 Shares.

The Company had the right at any time after the date that was six months from the earlier of (i) the effective date of the registration statement registering the shares of Class A common stock into which the Series 1 Shares were convertible, and (ii) the date that such shares of Class A common stock were eligible for resale pursuant to Rule 144 under the Securities Act, to elect, in the Company’s sole discretion, to redeem all or any portion of the Series 1 Shares then outstanding by paying an amount in cash equal to the Series 1 Preferred Liquidation Amount multiplied by 115%. In addition, the Company had the right, at its election, to use at least 25% of any funds that the Company raised through an equity financing to redeem outstanding Series 1 Shares.

The Series 1 Shares were not entitled to participate in any dividends, distributions, or payments to the holders of the Company’s common stock. However, the Series 1 Shares were entitled to the Series 1 Preferred Return described above.

The Series 1 Shares voted together with holders of the Class A common stock and Class B common stock on an as-converted basis, and not as a separate class, at any annual or special meeting of stockholders, and holders of Series 1 Shares were permitted to act by written consent in the same manner as holders of the Class A common stock and Class B common stock. In addition, for so long as any Series 1 Shares were outstanding, the affirmative vote of a majority of the Series 1 Shares then outstanding was required to (i) alter or change adversely the powers, preferences or rights given to the Series 1 Shares or alter or amend the Series 1 Certificate of Designations, or (ii) enter into any agreement with respect to any of the foregoing.

Notwithstanding the foregoing, in no event was a holder of Series 1 Shares (together with such holder’s affiliates, and any “persons” acting as a “group” (as such terms are defined under Sections 13(d) and 14(d) of the Exchange Act and the rules and regulations promulgated thereunder) together with such holder or such holder’s affiliates (such persons, “Attribution Parties”)) entitled to vote, on an as-converted basis and in aggregate with respect to any other shares of the Class A common stock, Class B common stock, Series 2 Shares or other preferred stock beneficially owned by such holder of Series 1 Shares or any affiliates or Attribution Parties of such holder, more than 4.99% of the Company’s outstanding voting shares as of the applicable record date, as adjusted for any stock splits, reverse stock splits, stock dividends, reclassifications, reorganization, recapitalizations or other similar transaction.

Pursuant to the Series 1 Certificate of Designations, for so long as any Series 1 Shares remained outstanding, the Company agreed to comply with a number of covenants restricting its ability to take certain actions or engage in certain activities, which restrictions are typical for protecting holders of preferred shares such as the Series 1 Shares. In particular, at any time that any Series 1 Shares were outstanding, the Company agreed not to issue any preferred stock or other securities (except for certain limited issuances), not to enter into certain fundamental transactions (including, without limitation, mergers, business combinations or similar transactions), and not to incur any debt (other than trade payables incurred in the ordinary course of business) without, in each case, the prior written consent of the holders of a majority of the Series 1 Shares then issued and outstanding.

Series 2 Convertible Preferred Stock

On March 21, 2025, the Company entered into Series 2 Equity Financing with Streeterville. At the initial closing of the Series 2 Equity Financing on March 25, 2025, the Company sold $4.5 million of Series 2 Shares. The Company subsequently sold to Streeterville an additional $3.0 million of Series 2 Shares on April 10, 2025, and an additional $3.5 million of Series 2 Shares on December 15, 2025. As of March 31, 2026, and December 31, 2025, there were 4,961 and 5,166 Series 2 Shares issued and outstanding, respectively. All other Series 2 Shares have been converted into shares of the Company’s Class A common stock.

Each Series 2 Share has a stated value of $1,111, subject to an automatic 10% increase upon the occurrence of an Event of Default (the “Series 2 Stated Value”).

Except as otherwise set forth in the Series 2 Certificate of Designations or as required by applicable law, the Series 1 Shares and the Series 2 Shares rank equally (including with respect to dividends and distributions and upon any Liquidation Event) and are identical in all respects. Except to the extent that the holders of at least a majority of the outstanding Series 1 Shares and the Series 2 Shares, voting together as a single class, expressly consent to the creation of capital stock that is either senior or pari passu in rank with the Series 1 Shares and the Series 2 Shares, all other shares of capital stock of the Company will be junior in rank.

The Series 2 Shares accrue a 9.5% per annum rate of return on the Series 2 Stated Value (the “Series 2 Preferred Return”) from the date of issuance. The Series 2 Preferred Return is payable on a quarterly basis, and is subject to quarterly compounding, either in cash or via the issuance of additional Series 2 Shares, at the Company’s discretion. Following an Event of Default, the Series 2 Preferred Return increases to 15% per annum until such Event of Default has been cured.

In the event of a Liquidation Event or Deemed Liquidation Event, the Series 2 Shares will be paid an amount equal to (i) the Series 2 Stated Value at such time, plus (ii) any accrued and unpaid Series 2 Preferred Return (the “Series 2 Preferred Liquidation Amount”), prior to any payments being made to the holders of the Company’s common stock. Following payment of the Series 2 Preferred Liquidation Amount, the Series 2 Shares will not participate in the distribution of any remaining assets of the Company.

The Series 2 Shares are convertible at any time into (i) the number of Series 2 Shares being converted multiplied by their then Series 2 Stated Value (the “Series 2 Conversion Amount”), divided by (ii) the Series 2 Conversion Price (defined below).

Prior to a Series 2 Trigger Event (defined below) or an Event of Default, the conversion price (“Series 2 Conversion Price”) is $10.00 per share of Class A common stock or, if lower, the price at which the Company issues Class A common stock or rights to receive Class A common stock (the “Series 2 Fixed Conversion Price”). Following a Series 2 Trigger Event or Event of Default, the Series 2 Conversion Price is the lesser of the (i) Series 2 Fixed Conversion Price, and (ii) greater of (x) 88% multiplied by the lowest daily VWAP of the Class A common stock during the eight business day period prior to the measurement date, and (y) the 20% of the “Minimum Price” as defined in Nasdaq Rule 5635 calculated as of the most recent date on which Series 2 Preferred has been issued.

A “Series 2 Trigger Event” will occur (i) upon the Company’s receipt of a letter of noncompliance from Nasdaq, (ii) upon the Company’s average market capitalization during any three business day period following April 1, 2025 falling below $125,000,000, and (iii) in any quarter beginning with the first calendar quarter of 2025 where (x) the Company’s stockholder equity is less than $2,500,000, (y) the Company incurs a net loss greater than $1,000,000, or (z) the Company’s net sales are less than $500,000.

On April 11, 2025, the Company entered into a Supplement Terms Agreement with Streeterville (the “First Series 2 Supplemental Terms”), in connection with the Company’s issuance and sale of 3,000 Series 2 Shares (the “Tranche 2 Shares”) to Streeterville. The First Series 2 Supplemental Terms provides that, irrespective of the terms of the Series 2 Certificate of Designations, Streeterville will not have the right to convert the Tranche 2 Shares into shares of the Company’s Class A common stock at a conversion price of less than $1.00 per share prior to 30 days following the occurrence of a First Supplemental Terms Trigger Event (defined below), at which time the Company may elect to pay the conversion amount in cash or by issuance of additional shares of Class A common stock, at the Company’s discretion. A “First Supplemental Terms Trigger Event” will occur when the daily VWAP of our Class A common stock is below $1.00 for five or more business days during any given 15-day period.

As of March 31, 2026, and since the first calendar quarter of 2025, one or more Series 2 Trigger Events have been in effect. Specifically, the Company has incurred a net loss in excess of $1,000,000 and its stockholders' equity has been less than $2,500,000 in each quarter since the first calendar quarter of 2025. As a result, since the first calendar quarter of 2025, the Series 2 Conversion Price has been determined as the lesser of (i) the Series 2 Fixed Conversion Price of $10.00 per share and (ii) the greater of (x) 88% of the lowest daily VWAP of the Class A common stock during the eight business day period prior to each applicable measurement date and (y) 20% of the Minimum Price as defined in Nasdaq Rule 5635 calculated as of the most recent date on which Series 2 Shares were issued. During the three months ended March 31, 2026, the 280 Series 2 Shares that were converted to Class A common stock were converted at a weighted-average conversion price of approximately $0.5626 per share. The Trigger Event and resulting variable conversion price are reflected in the Monte Carlo simulation model used to determine the fair value of the bifurcated derivative liability at each measurement date.

In addition, on December 15, 2025, the Company entered into a second Supplement Terms Agreement with Streeterville (the “Second Series 2 Supplemental Terms”), in connection with its issuance and sale of 3,500 Series 2 Shares (the “Tranche 3 Shares”) to Streeterville. The Second Series 2 Supplemental Terms provides that, irrespective of the terms of the Series 2 Certificate of Designations, Streeterville will not have the right to convert the Tranche 3 Shares into shares of Class A common stock at a conversion price of less than $0.75 per share prior to 20 days following the date that the daily VWAP of the Class A stock is below $0.75 (the “Cooling Off Period”). Following the Cooling Off Period, if Streeterville seeks to convert any of the Tranche 3 Shares with a conversion price below $0.75 per share, the Company may elect to pay the conversion amount in cash or by issuance of additional shares of Class A common stock, at the Company’s discretion. Only one Cooling Off Period may occur unless the daily VWAP of the Class A Stock is above $0.75 for 90 consecutive days, after which a subsequent Cooling Off Period may occur. 

Notwithstanding the foregoing, the Company will not give effect to any conversion of Series 2 Shares to the extent that, following such conversion, the holder individually (without aggregating with its affiliates) would beneficially own in excess of 4.99% of the outstanding Class A common stock (the Maximum Percentage); provided, that the Maximum Percentage for a holder of Series 2 Shares together with such holder’s affiliates will be 9.99%. The Maximum Percentage is enforceable, unconditional, and non-waivable and shall apply to all affiliates and assigns of each holder of the Series 2 Shares.

The Company has the right at any time after the date that is six months from the earlier of (i) the effective date of the registration statement registering the shares of Class A common stock into which the Series 2 Shares are convertible, and (ii) the date that such shares of Class A common stock are eligible for resale pursuant to Rule 144 under the Securities Act, to elect, in the Company’s sole discretion, to redeem all or any portion of the Series 2 Shares then outstanding by paying an amount in cash equal to the Series 2 Preferred Liquidation Amount multiplied by 115%. In addition, the Company may, at its election, use at least 25% of any funds that it raises through an equity financing to redeem outstanding Series 2 Shares.

The Series 2 Shares are not entitled to participate in any dividends, distributions, or payments to the holders of the Company’s Class A common stock. However, the Series 2 Shares are entitled to the Series 2 Preferred Return described above.

The Series 2 Shares shall vote together with holders of Class A common stock and Class B common stock on an as-converted basis, and not as a separate class, at any annual or special meeting of stockholders, and may act by written consent in the same manner as holders of Class A common stock and Class B common stock. In addition, for so long as any Series 2 Shares are outstanding, the affirmative vote of a majority of the Series 2 Shares then outstanding shall be required to (i) alter or change adversely the powers, preferences or rights given to the Series 2 Shares or alter or amend the Series 2 Certificate of Designations, or (ii) enter into any agreement with respect to any of the foregoing.

Notwithstanding the foregoing, in no event shall a holder of Series 2 Shares (together with such holder’s affiliates, and any “persons” acting as a “group” (as such terms are defined under Sections 13(d) and 14(d) of the Exchange Act and the rules and regulations promulgated thereunder) together with Attribution Parties) be entitled to vote, on an as-converted basis and in aggregate with respect to any other shares of our Class A common stock, Class B common stock, Series 1 Shares, or other preferred stock beneficially owned by such holder of Series 2 Shares or any affiliates or Attribution Parties of such holder, more than 4.99% of the outstanding voting shares as of the applicable record date, as adjusted for any stock splits, reverse stock splits, stock dividends, reclassifications, reorganization, recapitalizations or other similar transaction.

Pursuant to the Series 2 Certificate of Designations, for so long as any Series 2 Shares remain outstanding, the Company has agreed to comply with a number of covenants restricting its ability to take certain actions or engage in certain activities, which covenants are substantially similar to the covenants in the Series 1 Certificate of Designations described above. In particular, at any time that any Series 2 Shares are outstanding, the Company will not issue any preferred stock or other securities (except for certain limited issuances), will not enter into certain fundamental transactions (including, without limitation, mergers, business combinations or similar transactions), and will not incur any debt (other than trade payables incurred in the ordinary course of our business) without, in each case, the prior written consent of the holders of a majority of the Series 2 Shares then issued and outstanding.

Under the Series 2 Equity Financing, Streeterville initially had the right, but not the obligation, to reinvest up to an additional $4.0 million in one or more tranches, which was reduced to $3.0 million following the April 2025 issuance, and further reduced to $0 following the December 2025 issuance, as well as participation rights in up to 30% of future debt or equity financings, subject to specified time limitations. These arrangements superseded similar reinvestment and participation rights under the Series 1 Equity Financing and further enhanced the Company’s liquidity and financial flexibility.

For the periods ended March 31, 2026 and December 31, 2025, the Company elected to pay the return on the Series 2 Shares by issuing additional Series 2 Shares. On January 5, 2026, pursuant to the terms of our Series 2 Shares, we issued Streeterville an additional 75 Series 2 Shares as dividend payments. During the three months ended March 31, 2026, 280 Series 2 Shares were converted to 552,932 shares of Class A common stock. As of March 31, 2026, there were 4,961 Series 2 Shares issued and outstanding. Subsequent to March 31, 2026, on June 29, 2026, the Company filed an Amended and Restated Certificate of Designations for the Series 2 Shares that eliminated the variable conversion price feature and the Deemed Liquidation Event provision, and reduced the Fixed Conversion Price to $0.40 per share. In addition, on June 30, 2026, the Company and Streeterville entered into an Exchange Agreement pursuant to which 1,170 Series 2 Shares were exchanged for an unsecured Promissory Note in the principal amount of $1,299,870. See Note 9 for additional details regarding these subsequent events.

Mezzanine (Temporary) Equity Rollforward

The following table presents the activity in the carrying value of the Series 1 Shares and Series 2 Shares classified in temporary equity for the three months ended March 31, 2026 and 2025: 

Accretion of the original issue discount and the 9.5% preferred return are recognized as increases to the temporary equity carrying value with corresponding charges to additional paid-in capital and accumulated deficit as deemed dividends. Upon conversion of Series 2 Shares to Class A common stock, the host instrument carrying value at the conversion date is reclassified from temporary equity to additional paid-in capital, and the related bifurcated derivative liability is derecognized at fair value with the offset recorded to additional paid-in capital.

Equity Line Financing

On November 25, 2024, we entered into the Equity Line with Atlas, which provides that, upon the terms and subject to the conditions and limitations set forth therein, Atlas will purchase up to an aggregate of $50.0 million of our Class A common stock over the 24-month term of the Equity Line. In consideration of Atlas’s commitment to purchase shares pursuant to the Equity Line, we issued 143,472 shares of our Class A common stock to Atlas on February 6, 2025, and an additional 229,662 shares of our Class A common stock on July 9, 2025, as a result of the decline in the market price of our Class A common stock since signing the Equity Line. As of the date of this Report, we have not sold any shares to Atlas pursuant to the Equity Line, other than the commitment shares described in the preceding sentence.

Equity Distribution Agreement

On February 2, 2026, we entered into the ATM Facility with Maxim to create an at-the-market equity program. Under the ATM Facility, we may offer and sell shares of our Class A common stock from time to time having an aggregate offering amount of up to $9.0 million during the term of the ATM Facility, through Maxim, as sales agent, subject to the terms and conditions of the ATM Facility. The ATM Facility requires us to pay Maxim a commission equal to 3.0% of the gross sales price from the sales of shares of Class A common stock pursuant to the ATM Facility.

Any sales of our Class A common stock under the ATM Facility may be made through any method permitted by law to be “at-the-market equity offerings” as defined in applicable SEC rules, including sales directly on The Nasdaq Capital Market, at market prices or as otherwise agreed with Maxim. We have no obligation to sell any shares pursuant to the ATM Facility, and no assurance can be given that we will sell any shares pursuant to the ATM Facility, or if we do, as to the price or number of shares to be sold or the dates on which any such sales will take place. The ATM Facility will terminate on the earliest of (a) the sale, pursuant to the ATM Facility, of shares having an aggregate offering price of $9.0 million, (b) February 2, 2027, and (c) earlier termination in certain situations, as set forth in the ATM Facility.

Stock-Based Compensation

The Company maintains the Cloudastructure, Inc. Amended and Restated 2024 Equity Incentive Plan (the “Incentive Plan”), which was adopted by the board of directors on June 27, 2025, and approved by the Company’s stockholders in September 2025. The Incentive Plan is an amendment and restatement of the Company’s previous 2024 Stock Option Plan. Under the Incentive Plan, the Company may grant incentive stock options, non-qualified stock options, restricted stock awards, restricted stock units, and other stock-based awards to employees, directors, and consultants. As of March 31, 2026, there were the equivalent of 2,268,167 shares available for future issuance under the Incentive Plan.

Stock options granted under the Incentive Plan are generally exercisable into shares of the Company’s Class B common stock or Class A common stock. Since the Company’s Nasdaq listing in January 2025, options have been granted at an exercise price equal to the closing price of the Company’s Class A common stock on the date of grant. Since January 1, 2025, all stock option grants have been for Class A common stock. Options generally vest over four years, with an initial one-year cliff, and expire ten years from the date of grant.

The fair value of stock option awards is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes model requires the use of subjective assumptions, including (i) the estimated fair value of the underlying stock on the measurement date, (ii) the expected term of the option, (iii) the expected volatility of the Company’s stock price, and (iv) the risk-free interest rate. Due to the Company’s limited trading history as a publicly listed company, expected volatility is estimated based on the historical volatility of the stock prices of comparable publicly traded companies over a period commensurate with the expected term. The expected term is estimated using the simplified method permitted under SEC Staff Accounting Bulletin No. 107, as the Company does not have sufficient historical exercise data to provide a reasonable basis for estimating the expected term. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for a period commensurate with the expected term.

The following table summarizes the assumptions used to estimate the fair value of options granted during the three-month periods ended March 31, 2026 and 2025: 

All equity grants are issued at current stock price on the day of grant, using the average of the day’s high and low stock price.  For the three months ended March 31, 2026, this range was between $0.65 - 0.76 per share. For the three months ended March 31, 2025, the stock price and exercise price was $6.75 per share.

Outstanding Warrants

There were 814,167 Class A common stock warrants at an exercise price of $2.16 outstanding as of December 31, 2025, and March 31, 2026.