Datavault AI Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Cautionary Notice Regarding Forward Looking Statements This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue,” negatives thereof or similar expressions. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of Datavault AI Inc.’s (“Datavault”, the “Company”, “our”, “us” or “we”) operations; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future operations, future cash needs, business plans and future financial results, and any other statements that are not historical facts. From time to time, forward-looking statements also are included in our other periodic reports on Forms 10-Q and 8-K, in our press releases, in our presentations, on our website and in other materials released to the public. Any or all of the forward-looking statements included in this Report and in any other reports or public statements made by us are not guarantees of future performance and may turn out to be inaccurate. These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors, including risks related to Datavault’s ability to remain listed on the Nasdaq Capital Market; Datavault’s need for financing in the near term to support its ongoing operations; the volatility of the market price for Datavault’s common stock; market, economic and other conditions; Datavault’s ability to manage costs and execute on its operational and budget plans; risks related to mergers and acquisitions activity, including our ability to close certain acquisitions and realize the anticipated benefits from those acquisitions; our ability to realize the anticipated benefits from the acquisitions of CompuSystems, Inc. (“CSI”), API Media Innovations Inc. and NYIAX, Inc. (“NYIAX”); our ability to complete the acquisition of NYIAX; and Datavault’s ability to achieve its financial goals. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report. Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise. Overview Datavault AI Inc. (“Datavault,” the “Company,” “us,” “our,” or “we”) is a pioneering technology licensing company that owns a portfolio of patented, secure platforms designed to redefine how data is managed, valued, and monetized in the modern era. Leveraging our proprietary high-performance computing capabilities and advanced software, our technology offerings are designed to ensure data ownership immutability, experiential data observability, precise data asset valuation, and secure monetization-which we believe will unlock significant opportunities for businesses in an increasingly data-driven world. Datavault has two synergistic platforms-Data Sciences and Acoustic Sciences-that our executive leadership is focusing on as key drivers of future revenue growth. Our Data Sciences division is focused on the delivery of cyber-secure, privacy protected data management and monetization technologies, the heart of which are our offerings of artificial intelligence-driven agents-branded as Data Vault®, DataValue®, DataScore®, and Data Vault Bank®. We believe our Data Sciences division will redefine data management by providing a software as a service platform designed to enable organizations to acquire, value, refine, and monetize their data assets with unparalleled security and control. Our Acoustic Sciences division is focused on technological innovations that have already produced advanced technologies in data-over-sound, low latency spatial audio and high-definition audio transmission, and our patented semiconductor and digital module technologies are currently 43 Table of Contents being deployed by several key customers, including Bang & Olufsen, Harmon Kardon, Klipsch and other leading electronics manufacturer. Comparison of the Three Months Ended March 31, 2026 and March 31, 2025 Revenue Revenue for the three months ended March 31, 2026 was $3.4 million, an increase of $2.8 million or 443% compared to the revenue for the three months ended March 31, 2025 of $0.6 million. The increase was a result of the acquisition of CSI. Gross Profit and Operating Expenses Gross Profit Gross profit for three months ended March 31, 2026 was $0.1 million compared to a gross profit of $0.1 million for the three months ended March 31, 2025. The gross profit as a percent of sales was 3% for the three months ended March 31, 2026, compared to the gross profit of 11% for the three months ended March 31, 2025. The decrease in gross profit is due to the inclusion of lower-margin revenue as a result of the acquisition of CSI. Research and Development Research and development expenses for the three months ended March 31, 2026 were $5.7 million, an increase of $3.3 million, compared to the research and development expenses for the three months ended March 31, 2025 of $2.4 million. The increase in research and development expenses is primarily driven by IBM Watsonx AI and SanQtum AI subscription licenses of $3.1 million and higher legal expenses of $0.3 million. Sales and Marketing Sales and marketing expenses for the three months ended March 31, 2026 were $6.6 million, an increase of $5.1 million compared to the sales and marketing expenses for the three months ended March 31, 2025 of $1.5 million. The increase in sales and marketing expenses is primarily related to an increase in headcount resulting in increased salaries and wages, benefits and stock-based compensation of $1.5 million, an increase in advertising and sponsorship projects of $2.8 million and consulting expenses of $0.4 million. General and Administrative General and administrative expenses for the three months ended March 31, 2026 were $18.7 million, an increase of $13.1 million compared to general and administrative expenses for the three months ended March 31, 2025 of $5.6 million. The increase in general and administrative expenses is primarily driven by higher headcount, resulting in additional salaries, wages, commissions, benefits, and stock-based compensation of $4.4 million; consulting and legal expenses of $1.6 million and $2.5 million respectively; higher amortization of intangibles assets of $0.8 million related to the CSI acquisition closed on May 20, 2025, the IP acquisitions from Turner Global Media LLC and Web Access LLC closed in July 2025, the IP acquisition closed on January 04, 2026 and the API acquisition closed on January 22, 2026. The increase also reflects higher acquisition-related expenses and investor relations costs of $0.6 million each. Interest Expense, net Interest expense, net for the three months ended March 31, 2026 was $1.1 million, an increase of $1.0 million compared to the interest income for the three months ended March 31, 2025 of $0.1 million. Interest expense increased due to an increase in borrowings. Debt Extinguishment Debt extinguishment expense for the three months ended March 31, 2026 was $1.7 million, representing the difference between the settlement amount due and the carrying value of the First Convertible Note on the settlement date. 44 Table of Contents Change in Fair Value of Warrant Liability Change in fair value of warrant liability for the three months ended March 31, 2026 was zero compared to $17,000 of income for the three months ended March 31, 2025. Impairment of investment in nonmarketable security Impairment of investment in marketable security for the three months ended March 31, 2026 was $2.5 million compared to none for the three months ended March 31, 2025. This impairment increase was primarily due to the decline in value of our investment in NYIAX. Other Expense, net Other expense, net for the three months ended March 31, 2026 was $16.8 million compared to $29,000 for the three months ended March 31, 2025. This increase was primarily due to realized and unrealized gains and losses on crypto assets. Liquidity and Capital Resources Cash and cash equivalents as of March 31, 2026 were $2.2 million compared to $2.0 million, as of December 31, 2025. We recorded a net loss of $53.1 million for the three months ended March 31, 2026 and used net cash in operating activities of $8.7 million for the three months ended March 31, 2026 vs $6.0 million for the three months ended March 31, 2025. Excluding non-cash adjustments, the primary reasons for the increase in the use of net cash from operating activities during the three months ended March 31, 2026, was related to an increase in the net loss. Cash used in investing activities for the three months ended March 31, 2026 and 2025 totaled approximately $13.9 million and $1.1 million, respectively. The increase was due to the acquisition of API on January 22, 2026. Cash provided by financing activities for the three months ended March 31, 2026 and 2025 totaled approximately $22.8 million and $3.9 million, respectively. The increase of $18.9 million of cash provided by financing activities is primarily attributable to an increase of $25.0 million provided by proceeds from equity offerings, offset by and increase of debt payments of $6.6 million. We have financed our operations to date primarily through the issuance of equity securities, proceeds from the exercise of warrants to purchase common stock, sale of debt instruments and through the sale of Bitcoin. As of May 15, 2026, we utilized our July ATM program to sell common stock for net proceeds of $32.4 million. We raised net proceeds of $55.8 million on May 4, 2026 in a registered direct offering. We will need to raise additional proceeds via the issuance of equity securities and/or the sale of debt instruments in the remainder of 2026 to fund operations. In addition to raising proceeds from the issuance of equity securities/debt instruments, the Company has sufficient cash and cash equivalents, BTC, and other resources for the next 12 months. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements. Item 3. Quantitative and Qualitative Disclosures About Market Risk. As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item.