CLOUDASTRUCTURE, INC.

Previous wording

Total revenue increased by $578,000, or 78%, for the three months ended March 31, 2026 compared to the three months ended March 31, 2025. The Company increased the number of subscribing properties by 79% during the three months ended March 31, 2026 when compared to the same period in 2025. During the first quarter of 2026, cloud video subscriptions increased by $222,000, or 193%, Remote Guarding increased by $196,000, or 187%, hardware sales increased by $71,000, or 23%, and installation sales and other sales increased by $89,000, or 43%, over the same period in 2025.

Current wording

Total revenue increased by $147,000, or 14%, for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. The Company increased the number of subscribing properties by 140% during the three months ended June 30, 2026 when compared to the same period in 2025. During the second quarter of 2026, cloud video subscriptions increased by $260,000, or 172%, Remote Guarding increased by $215,000, or 156%, hardware sales decreased by $218,000, or 48%, and installation sales and other sales decreased by $111,000, or 32%, over the same period in 2025.

Previous wording

Our cost of goods sold increased by $198,000, or 49%, for the three months ended March 31, 2026 compared to the three months ended March 31, 2025. This increase was the result of increased sales and completion of more installation projects in the three months ended March 31, 2026 compared to the same period in 2025. Hosting and data center bandwidth costs increased by $63,000, or 105%, Remote Guarding costs increased by $21,000, or 49%, hardware costs decreased by $81,000, or 47%, and installation labor costs increased by $195,000, or 148% compared to the same period in 2025.

Current wording

Our cost of goods sold decreased by $64,000, or 9%, for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. This decrease was the result of decreased hardware activity and fewer installation projects which carry a smaller margin profile than our services lines for the three months ended June 30, 2026 compared to the same period in 2025. Hosting and data center bandwidth costs increased by $63,000, or 91%, Remote Guarding costs increased by $44,000, or 96%, hardware costs decreased by $177,000, or 69%, and installation labor costs increased by $5,000, or 2% compared to the same period in 2025.

Previous wording

Operations expenses increased by $209,000, or 203%, for the three months ended March 31, 2026 compared to the three months ended March 31, 2025. This change was primarily due to an increase of $168,000, or 287%, in Salaries and Benefits related to increased headcount in the department.

Current wording

Operations expenses increased by $188,000, or 110%, for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. This change was primarily due to an increase of $194,000, or 272%, in Salaries and Benefits related to increased headcount in the department.

Previous wording

Change in fair value of derivative liabilities consists of non-cash gains and losses arising from the remeasurement of bifurcated derivative liabilities associated with the Company’s preferred stock at each reporting date and conversion date using a Monte Carlo simulation model. For the three months ended March 31, 2026, we experienced a loss on change in fair value of the derivative liability totaling $128,000. For the three months ended March 31, 2025, we experienced a gain on change in fair value of the derivative liability totaling $415,000.

Current wording

Change in fair value of derivative liabilities consists of non-cash gains and losses arising from the remeasurement of bifurcated derivative liabilities associated with the Company’s preferred stock at each reporting date and conversion date using a Monte Carlo simulation model. For the three months ended June 30, 2026, we experienced a gain on change in fair value of the derivative liability totaling $319,000. For the three months ended June 30, 2025, we experienced a loss on change in fair value of the derivative liability totaling $334,000.

Previous wording

As a result of the foregoing, the Company had a net loss of $2.77 million for the three months ended March 31, 2026, compared to a net loss of $2.01 million for the three months ended March 31, 2025, a loss increase of 38% for the current period compared to the prior period. Gross profit increased by approximately 115%. Gross profit was $710,000 for the three months ended March 31, 2026 and $330,000 for the three months ended March 31, 2025.

Current wording

As a result of the foregoing, the Company had a net loss of $1.73 million for the three months ended June 30, 2026, compared to a net loss of $2.19 million for the three months ended June 30, 2025, a loss decrease of 21% for the current period compared to the prior period. Gross profit increased by approximately 53%. Gross profit was $610,000 for the three months ended June 30, 2026 and $400,000 for the three months ended June 30, 2025.

Previous wording

As described in Note 2 to the condensed consolidated interim financial statements, the comparative financial information for the three months ended March 31, 2025 has been revised to correct errors related to the accounting for the Company’s Series 1 Shares and Series 2 Shares. The errors related solely to the technical classification of the instrument on the balance sheet and to the measurement of the embedded derivative liability, and had no impact on the Company’s cash position, liquidity, revenue, or operating expenses. It was always the intent of both the Company and Streeterville that the Series 1 Shares and the Series 2 Shares be classified as permanent equity. As a result, as described in Note 9, subsequent to March 31, 2026, the Company amended and restated the Series 2 Certificate of Designations to eliminate the contractual provisions that gave rise to the classification errors. Management believes these actions have effectively resolved the underlying accounting classification issues on a prospective basis.

Current wording

As described in Note 2 to the condensed consolidated interim financial statements, the comparative financial information for the three months ended June 30, 2025 has been revised to correct errors related to the accounting for the Company’s Series 1 Shares and Series 2 Shares. The errors related solely to the technical classification of the instrument on the balance sheet and to the measurement of the embedded derivative liability, and had no impact on the Company’s cash position, liquidity, revenue, or operating expenses. It was always the intent of both the Company and Streeterville that the Series 1 Shares and the Series 2 Shares be classified as permanent equity. As a result, as described in Note 5, during the quarter ended June 30, 2026, the Company amended and restated the Series 2 Certificate of Designations to eliminate the contractual provisions that gave rise to the classification errors. Management believes these actions have effectively resolved the underlying accounting classification issues on a prospective basis.

Previous wording

Research and Development (“R&D”) expenses decreased by $64,000, or 8%, for the three months ended March 31, 2026 compared to the three months ended March 31, 2025. This change was primarily due to a decrease of $183,000, or 32%, in Salaries and Benefits, offset by an increase of $110,000, or 62%, in Consulting Fees.

Current wording

Research and Development (“R&D”) expenses decreased by $33,000, or 3%, for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. This change was primarily due to a decrease of $185,000, or 20%, in Salaries and Benefits, offset by an increase of $140,000, or 42%, in Consulting Fees.

Previous wording

Net cash used in operating activities for the three months ended March 31, 2026 was $2.51 million, which reflects our net loss of $2.77 million, increases in accounts receivable of $43,000, prepaid expenses of $296,000, deferred revenue of $102,000, and accrued expenses of $41,000 and offset by decreases in inventory of $17,000, accounts payable of $126,000, $414,000 of stock compensation expense, and $24,000 of depreciation expense.

Current wording

Net cash used in operating activities for the six months ended June 30, 2026 was $4.46 million, which reflects our net loss of $4.51 million, increases in accounts receivable of $140,000, deposits and prepaid expenses of $334,000, deferred revenue of $84,000, and accrued expenses of $89,000 and offset by decreases in inventory of $22,000, accounts payable of $294,000, $791,000 of stock compensation expense, $55,000 of depreciation expense, and an increase in the fair value of derivative liabilities of $191,000.

Previous wording

Our investing activities have consisted primarily of business combinations and the purchases of assets and equipment. We have invested in assets and equipment to support our headcount growth.

Current wording

Our investing activities have consisted primarily of purchases of assets and equipment to support our headcount growth.

Previous wording

Net cash used in investing activities for the three months ended March 31, 2026 was $58,000, which was attributable to asset additions to colocation equipment for our Montana data center in the amount of $33,000, $21,000 for equipment for research and development, and $3,000 of equipment in India.

Current wording

Net cash used in investing activities for the six months ended June 30, 2026 was $48,000, which was attributable to asset additions to colocation equipment for our Montana data center in the amount of $35,000 and $13,000 of equipment in India.

Previous wording

Our net cash used in financing activities for the three months ended March 31, 2026 was $130,000 compared to $9.36 million of cash provided by financing activities for the same period in 2025. The cash used in financing activities during the three months ended March 31, 2026 was principally attributed to $140,000 of issuance cost offset by $11,000 of proceeds from issuance of Class A common shares.

Current wording

Our net cash used in financing activities for the six months ended June 30, 2026 was $135,000 compared to $11.85 million of cash provided by financing activities for the same period in 2025. The cash used in financing activities during the six months ended June 30, 2026 was principally attributed to $145,000 of issuance costs offset by $10,000 of proceeds from issuance of Class A common shares.

Previous wording

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.

Current wording

On April 3, 2026, pursuant to the terms of our Series 2 Shares, we issued Streeterville an additional 120 Series 2 Shares as dividend payments.

Previous wording

As of March 31, 2026, we had approximately $5.75 million of cash on hand and approximately $4.76 million of working capital. We believe that our cash on hand, anticipated cash flows from operations, and financing available to us pursuant to the Equity Line and ATM Facility (subject to meeting the conditions of those financing arrangements) will be sufficient to meet our liquidity and capital resource requirements and continue operations for at least 12 months from the date of this Report. Our ability to draw on these facilities is subject to a number of conditions, many of which are outside of our control, including satisfaction of share price thresholds, beneficial ownership limitations, and other closing conditions. There is no assurance that such financing will be available when needed or on terms acceptable to us. If we are unable to access these facilities or raise alternative financing, it would be necessary to seek other sources of debt or equity capital, which may not be available or may only be available on terms that would have a material adverse effect on our results of operations and financial condition.

Current wording

As of June 30, 2026, we had approximately $3.81 million of cash on hand and approximately $4.52 million of working capital. We believe that our cash on hand, anticipated cash flows from operations, and financing available to us pursuant to the Equity Line and ATM Facility (subject to meeting the conditions of those financing arrangements) will be sufficient to meet our liquidity and capital resource requirements and continue operations for at least 12 months from the date of this report. Our ability to draw on these facilities is subject to a number of conditions, many of which are outside of our control, including satisfaction of share price thresholds, beneficial ownership limitations, and other closing conditions. There is no assurance that such financing will be available when needed or on terms acceptable to us. If we are unable to access these facilities or raise alternative financing, it would be necessary to seek other sources of debt or equity capital, which may not be available or may only be available on terms that would have a material adverse effect on our results of operations and financial condition.

Previous wording

The interim condensed consolidated unaudited financial statements included within this Report have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Our ability to continue as a going concern is dependent on our ability to further implement our business plan, raise capital, and generate revenues. Our financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty. We have incurred operating losses and negative cash flows from operations since inception. As of March 31, 2026, we had an accumulated deficit of approximately $53.8 million. Management expects to continue to incur operating losses and negative cash flows for the foreseeable future.

Current wording

The interim condensed consolidated unaudited financial statements included within this report have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Our ability to continue as a going concern is dependent on our ability to further implement our business plan, raise capital, and generate revenues. Our financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty. We have incurred operating losses and negative cash flows from operations since inception. As of June 30, 2026, we had an accumulated deficit of approximately $55.8 million and cash and cash equivalents of approximately $3.81 million. Net cash used in operating activities was approximately $4.46 million for the six months ended June 30, 2026. Management expects to continue to incur operating losses and negative cash flows for the foreseeable future. In addition, as of the date of this report, the Exchange Note issued to Streeterville on June 30, 2026, in the original principal amount of $1,299,870, is subject to monthly redemptions of up to $108,332.50 (plus accrued interest), which will require cash payments or conversions of debt to equity that may be dilutive to existing stockholders. A delisting of our Class A common stock from Nasdaq would constitute an event of default under the Exchange Note, potentially accelerating the outstanding balance and increasing it by 10%, which would further strain our liquidity.

Previous wording

Our significant accounting policies are described in “Note 2 — Summary of Significant Accounting Policies.” Many of these accounting policies require judgment and the use of estimates and assumptions when applying these policies in the preparation of our financial statements. On a quarterly basis, we evaluate these estimates and judgments based on historical experience as well as other factors that we believe to be reasonable under the circumstances. These estimates are subject to change in the future if underlying assumptions or factors change. Certain accounting policies, while significant, may not require the use of estimates. The recent accounting changes that may potentially impact our business are described under “Recent Accounting Pronouncements” in “Note 2 — Summary of Significant Accounting Policies.”

Current wording

Our other significant accounting policies are described in “Note 2 — Summary of Significant Accounting Policies.” The recent accounting changes that may potentially impact our business are described under “Recent Accounting Pronouncements” in “Note 2 — Summary of Significant Accounting Policies.”