Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q.

Overview

Cloudastructure, Inc. ("Cloudastructure," "we," "us," "our" or the "Company") was formed under the laws of the State of Delaware on March 28, 2003. We provide an award-winning cloud-based artificial intelligence ("AI") video surveillance and Remote Guarding (as described below) service built on AI and machine learning platforms.

We operated as a small Silicon Valley startup until early 2021 when we raised over $35 million in funding under Regulation A of the Securities Act of 1933, as amended (the "Securities Act"). With these funds we quickly built a sales, marketing and support structure and achieved a degree of early success in the property management space. As of the date of this report, we have contracts in place with five of the top 10 property management companies on the National Multifamily Housing Council's ("NMHC's") 2024 NMCH 50 list (Greystar Real Estate Partners, Avenue5 Residential, LLC, Cushman & Wakefield, BH Management Services, LLC and FPI Management, Inc.). Our cloud-based solutions allow our customers to provide real-time safety and security solutions for their properties, as well as easily manage security across all of their locations. As of the date of this report, we are focused on expanding into more of our existing top tier customer locations and acquiring additional customers in the property management ("proptech") space, and we anticipate entering into additional markets in 2025 and 2026.

Our intelligent AI solution works by identifying objects (faces, license plates, animals, guns, etc.) in video footage so that property managers can quickly search for those objects. Additionally, our AI and Remote Guarding services provide a proactive response to crime. Remote Guarding combines video surveillance, AI analytics, monitoring centers, and security agents ("Remote Guarding"). Based on internal data comparing the total number of actual threatening activity alerts received by our Remote Guards, against all potentially suspicious and threatening activity alerts received by our Remote Guards through the first six months of 2025, our Remote Guarding services deterred over 98% of all threatening activity for our customers. We believe AI security delivers multiple benefits for many property owners, including, without limitation:

·

Deterring crime and improving overall safety

·

Improving occupancy rates and rental rates; and

·

Reducing onsite guard costs and lowering insurance rates

As of the date of this report, we are the only seamless, cloud-based, AI surveillance and Remote Guarding solution on the market of which we are aware. We also believe that our solution is more affordable and easier to use than the various solutions that our competitors offer. Our Remote Guarding service bridges the line between AI and human intelligence. AI has the ability to monitor all cameras at the same time and all of the time, a task from which humans would fatigue. When the AI detects an event occurring, the Remote Guards are notified. The Remote Guards can then determine if escalation is required. With real-time human intervention, our Remote Guarding service can turn video surveillance from a forensic tool, used after a crime has been committed, into a real time crime prevention tool. This has the potential to greatly increase value for our customers.

Components of Results of Operations

Net Revenues

Our net revenues primarily consist of revenues generated from subscriptions to our core business services (cloud video surveillance and remote guarding), revenues generated from hardware sales, and revenue generated from installation services.

We bill cloud video surveillance and remote guarding according to the number of camera views. Hardware mainly includes cloud video recorders, surveillance cameras, and horn speakers kept in inventory. Installation services include the labor needed to set in place said hardware and software.

We recognize revenue when a customer obtains control of promised goods or services. Typically, our customers pay up front annually for our services and sign subscription and remote guarding agreements governing the terms of service. In those instances, revenue is recognized ratably over the period that commences on the subscription start date and ending on the date the subscription term expires. Some of our customers require monthly billing arrangements, in which case revenue is recognized on a monthly basis. Revenue generated from sales of hardware is generally recognized at time of delivery. Revenue generated from installation services is generally recognized at the completion of the professional services.

Cost of Goods Sold

Cost of goods sold primarily consists of hosting costs, the costs of equipment sold, installation costs and the costs of the operations department.

Operating Expenses

Operating expenses consist of general and administrative expenses, which are primarily salaries, professional fees, consulting costs and expenses related to the administrative functions of the Company, research and development expenses, which consist primarily of product development costs and salaries, and sales and marketing expenses, which represent public relations, advertising and direct marketing costs, as well as the associated personnel costs.

Results of Operations

Comparison of the three months ended June 30, 2025 to the three months ended June 30, 2024

Net Revenues

The majority of our net revenues for the three months ended June 30, 2025 were comprised of subscription revenue generated from our core business services (cloud video surveillance and remote guarding) and hardware sales.

Total revenue increased by $793,411, or 267%, from $296,777 for the three months ended June 30, 2024 compared to $1,090,188 for the three months ended June 30, 2025. This increase is due a 58% increase in the number of customers during the three months ended June 30, 2025 compared to the same period in 2024. Cloud video subscriptions increased by 133%, Remote Guarding increased by 151%, hardware sales increased by 863%, and installation labor sales and other sales increased by 167% over the same period in 2024.

The following table summarizes our revenue by service line:

		Three Months Ended June 30,
		2025				2024
Cloud Video Surveillance		$	151,323			$	64,991
Remote Guarding		$	137,509			$	54,777
Hardware		$	454,596			$	47,187
Other (installation, door subscriptions, etc.)		$	346,760			$	129,822
		$	1,090,188			$	296,777

Cost of Goods Sold

Our cost of goods sold increased $497,841, or 264%, from $188,586 for the three months ended June 30, 2024 compared to $686,427 for the three months ended June 30, 2025. This increase was the result of increased sales and completion of more installation projects in the three months ended June 30, 2025 compared to the same period in 2024. Hosting and data center bandwidth costs increased by 4%, Remote Guarding costs increased by 79%, hardware costs increased by 1,114%, and installation labor costs increased by 314% over the same period in 2024.

The following table summarizes our cost of goods sold:

		Three Months Ended June 30,
		2025				2024
Hosting and Data Center Bandwidth		$	68,389			$	65,701
Remote Guarding		$	45,455			$	25,350
Hardware		$	256,494			$	21,135
Installation Labor		$	316,089			$	76,399
		$	686,427			$	188,586

Operating Expenses

Our operating expenses for the three months ended June 30, 2025 and June 30, 2024 were as follows:

		Three Months Ended June 30,
		2025				2024
General and administrative		$	636			$	390
Research and development		$	379			$	365
Sales and marketing		$	728			$	506
Non-cash expenses (stock comp, depreciation, bad debt, etc)		$	581			$	590
		$	2,324			$	1,852

General and administrative expenses increased by 63% for the three months ended June 30, 2025 compared to the three months ended June 30, 2024. This increase was primarily due to an increase of $131,346 in payroll mainly derived from bonuses paid, and an increase of $87,635 in legal, audit and tax services fees.

Research and development ("R&D") expenses increased by 4%. This increase is mainly due to equipment purchases and travel expenses incurred in the three-month period ended June 30, 2025.

Sales and marketing expenses increased by 43% for the three months ended June 30, 2025, compared to the sales and marketing expenses incurred during the three months ended June 30, 2024. This increase in sales and marketing expenses was due to an increase in payroll of $117,816 derived from new hires, an increase of $50,931 in consulting services, and a $39,781 increase in marketing expenses.

Non-cash expenses decreased by 2% for the three months ended June 30, 2025 compared to the same period for 2024. This decrease is primarily due to a decrease of $24,886 in bad debt expense, partially offset by an increase in stock option expense of $16,037 during the three-month period ended June 30, 2025 compared to the same period in 2024.

Net Loss

As a result of the foregoing, the Company had a net loss of $2.0 million for the three months ended June 30, 2025, compared to net loss of $1.85 million for the three months ended June 30, 2024, a loss increase of approximately 9% for the current period compared to the prior period. Gross profit increased by approximately 273%. Gross profit was $402,698 for the three months ended June 30, 2025 and $108,192 for the three months ended June 30, 2024.

Comparison of the six months ended June 30, 2025 to the six months ended June 30, 2024

Net Revenues

Total revenue increased by $1,294,559, or 243%, from $533,454 for the six months ended June 30, 2024 compared to $1,828,013 for the six months ended June 30, 2025. This increase is due to a 60% increase in the number of customers during the six months ended June 30, 2025 compared to the same period in 2024. Cloud video subscriptions increased by 106%, Remote Guarding increased by 157%, hardware sales increased by 454%, and installation labor sales and other sales increased by 223% over the same period in 2024.

The following table summarizes our revenue by service line:

		Six Months Ended June 30,
		2025				2024
Cloud Video Surveillance		$	266,719			$	129,287
Remote Guarding		$	242,651			$	94,585
Hardware		$	765,835			$	138,341
Other (installation, door subscriptions, etc.)		$	552,807			$	171,241
		$	1,828,013			$	533,454

Cost of Goods Sold

Our cost of goods sold increased $652,083, or 148%, from $441,817 for the six months ended June 30, 2024 compared to $1,093,900 for the six months ended June 30, 2025. This increase was the result of increased sales and completion of more installation projects in the six months ended June 30, 2025 compared to the same period in 2024. Hosting and data center bandwidth costs decreased by 15%, which resulted from our movement of certain hosting services from a third-party provider to a data center we operate. Remote Guarding costs increased by 91%, hardware costs increased by 503%, and installation labor costs increased by 158% over the same period in 2024.

The following table summarizes our cost of goods sold:

		Six Months Ended June 30,
		2025				2024
Hosting and Data Center Bandwidth		$	128,438			$	150,341
Remote Guarding		$	89,138			$	46,713
Hardware		$	428,624			$	71,076
Installation Labor		$	447,700			$	173,687
		$	1,093,900			$	441,817

Operating Expenses

Our operating expenses for the six months ended June 30, 2025 and June 30, 2024 were as follows:

		Six Months Ended June 30,
		2025				2024
General and administrative		$	1,349			$	723
Research and development		$	985			$	719
Sales and marketing		$	1,540			$	1,026
Non-cash expenses (stock comp, depreciation, bad debt, etc)		$	1,217			$	987
		$	5,091			$	3,455

General and administrative expenses increased by 86% for the six months ended June 30, 2025 compared to the six months ended June 30, 2024. This increase was primarily due to an increase of $541,908 in payroll derived from a one-time bonus paid to employees in 2025 to compensate for salary reductions in 2024, an increase of $65,786 in insurance costs (primarily D&O insurance rates being much higher for public companies compared to private companies), and an increase of $16,775 in audit and tax services incurred during the six months ended June 30, 2025 when compared to the same period in 2024.

Research and development ("R&D") expenses increased by 37% for the six months ended June 30, 2025 compared to the same period in 2024. This increase is due to an increase of $257,494 in payroll derived from a one-time bonus paid to employees in 2025 to compensate for salary reductions in 2024 and an increase of $10,252 in equipment purchases during the six months ended June 30, 2025 when compared to the same period in 2024.

Sales and marketing expenses increased by 50% for the six months ended June 30, 2025, compared to the sales and marketing expenses incurred during the six months ended June 30, 2024. This increase is due to an increase of $324,688 in payroll mainly derived from a one-time bonus paid to employees in 2025 to compensate for salary reductions in 2024, as well as the cost of new hires in the first half of 2025. Consulting expenses also increased by $56,459, and marketing expenses increased by $144,695 during the six months ended June 30, 2025 when compared to the same period in 2024.

Non-cash expenses increased by 23% for the six months ended June 30, 2025 compared to the same period for 2024. This increase is primarily due to an increase of $365,559 in stock option expense, partially offset by a decrease in bad debt expense of $130,585 during the six-month period ended June 30, 2025 compared to the same period in 2024.

Net Loss

As a result of the foregoing, the Company had a net loss of $4.6 million for the six months ended June 30, 2025, compared to net loss of $3.6 million for the six months ended June 30, 2024, a loss increase of approximately 27% for the current period compared to the prior period. Gross profit increased by approximately 701%. Gross profit was $734,112 in the six months ended June 30, 2025 and $91,637 for the six months ended June 30, 2024.

Off-Balance Sheet Arrangements

As of the date of this report, we have no off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Liquidity and Capital Resources

Overview

From inception, we have funded our operations principally through the net proceeds from sales of our capital stock and to a lesser extent from cash flows generated from operating activities.

Summary of Cash Flows

The following table summarizes our cash flows for the six months ended June 30, 2025 and 2024:

		Six Months Ended June 30,
(in thousands)		2025				2024
Net cash (used in) operating activities			(4,306	)			(2,274	)
Net cash (used in) investing activities			(150	)			(16	)
Net cash provided by financing activities			12,137				(51	)
Cash and cash equivalents at end of period			7,681				(2,341	)

Operating Activities

We continue to experience negative cash flows from operations as we expand our business. Our cash flows from operating activities are significantly affected by our cash investments to support the growth of our business in areas such as product and service development and selling, general and administrative. Our operating cash flows are also affected by our working capital needs to support growth and fluctuations in personnel-related expenditures, accounts payable and other current assets and liabilities.

Net cash used in operating activities for the six months ended June 30, 2025 was $4.3 million, which reflects our net loss of $4.6 million and increases in accounts receivable of $299,839, inventory of $136,867, prepaid expenses of $211,585, and deferred revenue of $164,845. Accounts payable decreased by $474,156, and the rest was offset by $1,183,120 of stock compensation expense and $32,202 of depreciation expense.

Investing Activities

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.

Net cash used in investing activities for the six months ended June 30, 2025 was approximately $150,000, $143,000 attributable to colocation equipment for our Montana data center and $7,000 in computer equipment for some of our new employees.

Financing Activities

Our net cash provided by financing activities for the six months ended June 30, 2025 was $12.1 million compared to $0 for the same period in 2024. This increase in cash provided by financing activities is principally attributed to $13.7 million from the issuance of preferred shares and $285,000 declared in preferred dividends, reduced by approximately $1.9 million in issuance costs.

On January 29, 2025, we received gross proceeds of $6.3 million through the sale of Series 1 Preferred shares and shares of our Class A common stock to Streeterville, pursuant to the terms of the Series 1 Equity Financing.

On March 25, 2025, and April 14, 2025, we received gross proceeds of $4.5 million and $3.0 million, respectively, through the sale of Series 2 Preferred shares to Streeterville pursuant to the terms of the Series 2 Equity Financing.

On April 3, 2025, pursuant to the respective terms of our Series 1 Preferred shares and our Series 2 Preferred shares, we issued Streeterville an additional 75 shares of Series 1 Preferred and an additional 7 shares of Series 2 Preferred as dividend payments.

See Note 4 to the condensed unaudited financial statements included within this report for additional information regarding the Series 1 Equity Financing and the Series 2 Equity Financing.

On July 2, 2025, pursuant to the respective terms of our Series 1 Preferred shares and our Series 2 Preferred shares, we issued Streeterville an additional 163 shares of Series 2 Preferred as dividend payments.

Funding Requirements

We anticipate incurring additional losses for the foreseeable future, and we may never become profitable. We expect our operating expenses to continue to increase as we expand our business, particularly as we continue development of our existing and new products and services. In addition, we expect to continue to incur additional costs and expenses associated with being a public company.

As of June 30, 2025, we had approximately $7.7 million of cash on hand and approximately $7.8 million of working capital. We currently expect our current cash will be sufficient to fund operations through at least the second quarter of 2026; however, it is possible we will need additional funding during that period if we are unable to sustain or grow our current revenues or if our expenses increase more than currently anticipated. The Series 2 Equity Financing described above gives us the ability to sell additional shares of our Series 2 Preferred to Streeterville, subject to the satisfaction or waiver of several significant conditions set forth in such Series 2 Equity Financing. In addition, we have entered into an Equity Line with Atlas that gives us the ability to sell shares of our Class A common stock to Atlas, subject to the satisfaction or waiver of several significant conditions set forth in such Equity Line. See Note 4 to the condensed unaudited financial statements included within this report for additional information regarding the Series 2 Equity Financing and the Equity Line.

We currently anticipate that the Series 2 Equity Financing and/or the Equity Line will provide us the necessary funding to continue our operations for the next 12 months; however, our ability to sell additional shares of our capital stock pursuant to the Series 2 Equity Financing and/or the Equity Line is subject to a number of conditions, many of which are out of our control. As a result, there is no assurance that we will be able to sell additional shares of our capital stock pursuant to either the Series 2 Equity Financing and/or the Equity Line. In that case, it would be necessary for us to seek alternative debt or equity financing to fund our operations; however, such alternative financing may only be available at a price and on terms and conditions that would have a material adverse effect on our results of operations and financial condition or may not be available at all.

The condensed 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, 2025, we had an accumulated deficit of approximately $45.4 million. Management expects to continue to incur operating losses and negative cash flows for the foreseeable future.

We have based the foregoing estimates on assumptions that may prove to be incorrect, and we could use our capital resources sooner than we expect. We have a planning and budgeting process in place to monitor our operating cash requirements, including amounts projected for capital expenditures, which are adjusted as our future funding requirements change. These funding requirements include, but are not limited to, our product and service development, our general and administrative requirements, and the costs of operating as a public company, and are offset by our ability to generate revenue from operations and the availability of equity or debt financing.

Contractual Obligations and Commitments

In addition to ongoing capital expenditures and working capital needs to fund operations over the next 12 months, our contractual obligations to make future payments primarily relate to our operating lease obligations, capital lease obligations and insurance obligations, all of which are governed by agreements with month-to-month terms, and which are generally terminable after a notice period at any time. We purchase equipment, software and inventory necessary to conduct our operations on an as-needed basis.

During the three months ended June 30, 2024, we had an outstanding obligation to the SEC pursuant to the terms of a final settlement reached with the SEC on September 27, 2023. See "Business-Legal Proceedings" in our Annual Report on Form 10-K for the year ended December 31, 2024, for additional details regarding the settlement. This obligation was paid in full on August 9, 2024. We do not have any other long-term debt, capital lease obligations, operating lease obligations or long-term liabilities.

Emerging Growth Company

We are an "emerging growth company," as defined in the Jump Start Our Business Startups Act of 2012 ("JOBS Act"). As an emerging growth company, we are eligible to take advantage of certain exemptions from various reporting and disclosure requirements that are applicable to public companies that are not emerging growth companies, and we have elected to take advantage of those exemptions. For so long as we remain an emerging growth company, we will not be required to:

·

have an auditor attestation report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act");

·

submit certain executive compensation matters to Member advisory votes pursuant to the "say on frequency" and "say on pay" provisions (requiring a non-binding Member vote to approve compensation of certain executive officers) and the "say on golden parachute" provisions (requiring a non-binding Member vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; or

·

disclose certain executive compensation related items, such as the correlation between executive compensation and performance and comparisons of the chief executive officer's compensation to median employee compensation.

In addition, the JOBS Act provides that an emerging growth company may take advantage of an extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies. This means that an emerging growth company can delay adopting certain accounting standards until such standards are otherwise applicable to private companies. We have elected to take advantage of the extended transition period. Since we will not be required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies, our financial statements may not be comparable to the financial statements of companies that comply with public company effective dates. If we were to subsequently elect to comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act.

We will remain an emerging growth company for up to the last day of the fiscal year following the fifth anniversary of our direct listing on Nasdaq, or until the earliest of: (i) the last date of the fiscal year during which we had total annual gross revenues of $1.235 billion or more; (ii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (iii) the date on which we are deemed to be a "large accelerated filer" as defined under Rule 12b-2 under the Exchange Act.

We do not believe that being an emerging growth company will have a significant impact on our business. Also, even once we are no longer an emerging growth company, we still may not be subject to auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act unless we meet the definition of a large accelerated filer or an accelerated filer under Section 12b-2 of the Exchange Act.

Critical Accounting Estimates

Our accounting and recording policies are in accordance with accounting principles generally accepted in the United States of America. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

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."