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 approximately 403,000 shares of Class A common stock and approximately 177,000 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 June 30, 2026, no warrants issued pursuant to the Regulation A offerings were still outstanding.

Preferred Stock Financings

As of July 31, 2026, the Company is authorized to issue 5,000,000 shares of preferred stock, par value $0.0001 per share. As of June 30, 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 24,000 shares of Class A common stock as pre-delivery shares. The Series 1 Equity Financing closed on January 29, 2025. Each Series 1 Share had a stated value of $1,111 and accrued a 10% per annum rate of return, payable quarterly in cash or through additional shares. The Series 1 Shares were convertible into Class A common stock at a fixed conversion price of $270 per share, subject to adjustment upon the occurrence of specified trigger events. All Series 1 Shares were converted into Class A common stock during the second quarter of 2025. As of June 30, 2026, and December 31, 2025, no Series 1 Shares were issued or outstanding, and the Company no longer has the ability to issue any additional Series 1 Shares. For a complete description of the terms of the Series 1 Shares, see Note 5 to the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.

Each share of Series 1 Preferred has 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 fails 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 (defined below) or as required by applicable law, the Series 1 Preferred and the Series 2 Preferred rank 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 are identical in all respects. Except to the extent that the holders of at least a majority of the outstanding Series 1 Preferred shares and the Series 2 Preferred 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 Preferred and the Series 2 Preferred, all other shares of capital stock of the Company will be junior in rank.

The Series 1 Preferred accrues 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 is payable on a quarterly basis, and is subject to quarterly compounding, either in cash or via the issuance of additional shares of Series 1 Preferred, at the Company’s discretion. Following the occurrence of an Event of Default, the preferred return will increase to 15% per annum until such Event of Default has been cured.

In the event of a Liquidation Event or Deemed Liquidation Event (defined below), the Series 1 Preferred will 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 Preferred will 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 Preferred is convertible at any time into (i) the number of shares of Series 1 Preferred 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”) is $9.00 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 1 Fixed Conversion Price”). Following a Series 1 Trigger Event or Event of Default, the Series 1 Conversion Price is 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 will not give effect to any conversion of Series 1 Preferred 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 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 1 Preferred.

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 1 Preferred 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 1 Preferred then outstanding by paying an amount in cash equal to the Series 1 Preferred Liquidation Amount multiplied by 115%. In addition, the Company may, at its election, use at least 25% of any funds that the Company raises through an equity financing to redeem outstanding shares of Series 1 Preferred.

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

The Series 1 Preferred shall vote 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 may 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 shares of Series 1 Preferred are outstanding, the affirmative vote of a majority of the Series 1 Preferred then outstanding shall be required to (i) alter or change adversely the powers, preferences or rights given to the Series 1 Preferred 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 shall a holder of Series 1 Preferred (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”)) be 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 Preferred or other preferred stock beneficially owned by such holder of Series 1 Preferred 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.

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 June 30, 2026, and December 31, 2025, there were 3,911 and 5,166 Series 2 Shares issued and outstanding, respectively. The number of Series 2 Shares outstanding as of June 30, 2026, is net of 1,170 Series 2 Shares that were converted into a note payable in the amount of $1,299,870.

Effective June 29, 2026, with the consent of Streeterville, the Company filed an Amended and Restated Certificate of Designations of Preferences and Rights of Series 2 Convertible Preferred Stock (as subsequently amended, the “Amended Series 2 Certificate of Designations”) with the State of Delaware that amended and restated the terms of the Series 2 Shares in their entirety. The Amended Series 2 Certificate of Designations (i) eliminated the variable conversion price feature that gave rise to the compound embedded derivative liability, (ii) eliminated the deemed liquidation event provision (such that no merger, consolidation, or sale of substantially all assets will trigger the right of a holder to receive the liquidation amount), (iii) eliminated the holder-initiated forced redemption right upon an event of default, and (iv) reduced the fixed conversion price to $12 per share (reflecting the post-reverse-stock-split equivalent of the $0.40 per share stated in the Amended Series 2 Certificate of Designations, which was filed prior to the 1-for-30 reverse stock split effected on July 31, 2026), with full-ratchet anti-dilution protection. These changes cause the Series 2 Shares to be classified as permanent equity under U.S. GAAP on a prospective basis.

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 to the extent that the holders of at least a majority of the outstanding Series 2 Shares expressly consent to the creation of capital stock that is either senior or pari passu in rank with 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.

The Series 2 Shares are convertible into shares of Class A common stock 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) $12.00 (which has been adjusted to give effect to the 1-for-30 reverse stock split effective July 31, 2026, as discussed in Note 7 below). If the Company issues any Class A common stock or any warrant, option, or other right to receive Class A common stock at a price per share lower than $12.00 per share, the conversion price for the Series 2 Shares will automatically be reduced to such lower price. The conversion price for the Series 2 Shares was amended in the Amended Series 2 Certificate of Designations effective June 29, 2026. Prior to such date, the Series 2 Shares were convertible into shares of Class A common stock at a variable conversion rate. 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 $16.878 per share. The variable conversion price was reflected in the Monte Carlo simulation model used to determine the fair value of the bifurcated derivative liability at each measurement date.

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 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 (as defined in the Amended Series 2 Certificate of Designations) 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 Amended 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 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 Amended 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. 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 June 30, 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 and April 3, 2026, we issued Streeterville an additional 75 and 120 Series 2 Shares, respectively, as dividend payments.

On June 30, 2026, the Company entered into an Exchange Agreement with Streeterville pursuant to which Streeterville exchanged 1,170 Series 2 Shares for an unsecured Promissory Note of the Company in the original principal amount of $1,299,870 (the “Exchange Note”). The exchange was effected as a Section 3(a)(9) exchange under the Securities Act of 1933, as amended, without any additional consideration paid by Streeterville. The Exchange Note bears interest at 9.5% per annum (compounding daily on a 360-day year basis) and matures on July 30, 2027, 13 months from the date of issuance. Beginning July 30, 2026, Streeterville has the right to redeem up to $108,332.50 (plus accrued interest) of the Exchange Note per calendar month. Upon the occurrence of specified trigger events or events of default (including failure to pay, insolvency, delisting, or breach of covenants), Streeterville may accelerate the Exchange Note and the outstanding balance increases by 10%. Following this exchange, the 1,170 Series 2 Shares were cancelled.

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 six months ended June 30, 2026 and twelve months ended December 31, 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 4,782 shares of our Class A common stock to Atlas on February 6, 2025, and an additional 7,656 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 (as subsequently amended, 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 June 30, 2026, there were the equivalent of 76,911 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 six-month periods ended June 30, 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 six months ended June 30, 2026, this range was between $18.00 - $20.10 per share. For the six months ended June 30, 2025, the stock price and exercise price was $202.50 per share.

Approval of Option Repricing

On May 21, 2026, our Board of Directors adopted, subject to stockholder approval, an amendment to the Incentive Plan to permit a one-time repricing of the Company’s stock options outstanding as of May 21, 2026 (the “Subject Options”), and to authorize the Board (or a committee thereof) to implement such option repricing, subject to certain parameters and safeguards. As of May 21, 2026, the Subject Options consisted of approximately 514,992 options with exercise prices ranging from $0.72 to $202.50 per share (on a post-split basis), substantially all of which were “underwater” (i.e., had exercise prices above the then-current market price of the Company’s Class A common stock). The amendment does not increase the number of shares available for issuance under the Incentive Plan and will not result in the issuance of any new options or additional shares. If the Board implements the repricing, the exercise price of the Subject Options would be reduced to no less than the fair market value of the Company’s Class A common stock on the repricing date; no new options would be granted. Under ASC 718, a repricing is treated as a modification of the existing awards, and the Company would be required to recognize incremental compensation expense equal to the excess, if any, of the fair value of the repriced options (measured as of the repricing date) over the fair value of the original options immediately before the repricing, recognized over the remaining requisite service period. As of June 30, 2026, the repricing had not been effected and stockholder approval had not yet been obtained; accordingly, no incremental compensation expense has been recognized in the current period. On July 15, 2026, at the Company’s annual meeting of stockholders, the amendment was approved by the stockholders (see Note 9 — Subsequent Events). As of the date of this report, the Board has not yet determined whether or when to implement the repricing.

Outstanding Warrants

There were 27,140 Class A common stock warrants at an exercise price of $64.80 outstanding as of December 31, 2025, and June 30, 2026.