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Item 2. Management’s Discussion and Analysis

2025-08-19 compared with 2025-05-14 · 51 added, 34 removed, 40 unchanged (68% of the section changed)

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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.

Datavault AI 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 HPC capabilities and advanced software, we aim to empower customers worldwide with revolutionary data solutions.

At the heart of our offerings are our artificial intelligence (AI)-driven agents—branded as Data Vault®, DataValue®, DataScore®, and Data Vault Bank®.

These tools harness generative AI to deliver enterprise-grade data management solutions tailored for the HPC landscape and the Web 3.0 paradigm.

Our technology ensures data ownership immutability, experiential data observability, precise data asset valuation, and secure monetization—which we believe will unlock unprecedented opportunities for businesses in an increasingly data-driven world on which our executive leadership, with our engineering and software development teams, can capitalize.

Datavault AI operates through two synergistic platforms (Data Science and Acoustic Science) to optimize our revenue generation.

The operating results presented in our historical financial statements represent the audio business and may not be indicative of our results following the asset purchase from EOS Technology Holdings Inc.

We expect to derive a higher portion of revenues from the assets purchased from EOS Technology Holdings Inc.

as compared to the revenue generated by the legacy Company.

We have incurred, and expect to continue to incur, increased salaries and benefits expense due to hiring the additional employees it will take to monetize the economic benefit of the assets purchased in the Data Vault transaction.

Other corporate costs are expected to increase such as legal and research and development expenses due to increased patent activity as well as sales and marketing expenses.

Datavault AI Inc.

DVLT) is an innovative technology licensing company revolutionizing data management, valuation, and monetization through its portfolio of patented, secure platforms.

Our proprietary high-performance computing (“HPC”) infrastructure and advanced software empower global businesses with innovative, AI-driven solutions tailored for the Web 3.0 ecosystem.

Central to our offerings are our flagship AI agents—Data Vault®, DataValue®, DataScore®, and Data Vault Bank®—which leverage generative AI to deliver enterprise-grade capabilities for data ownership immutability, real-time experiential observability, precise asset valuation, and secure monetization.

Operating through two synergistic divisions—Data Science and Acoustic Science—we optimize revenue streams across industries such as sports, entertainment, biotech, fintech, and energy.

With a seasoned executive leadership team and robust engineering expertise, Datavault AI is poised to capitalize on the growing demand for data-driven solutions, unlocking transformative opportunities in an increasingly digital world.

Strategic Acquisition of CompuSystems, Inc.

On May 20, 2025, we finalized the strategic acquisition of CompuSystems, Inc.

(“CSI”) assets, a pivotal milestone in our growth strategy.

This acquisition enhances our capabilities in event management and data monetization, particularly in the sports, entertainment, and venue markets, by integrating CSI’s historical, present, and future data with our patented Web 3.0 technologies, including Data Vault, Adio, and WiSA.

To date, our operations have been funded through sales of our common and preferred equity, proceeds from the exercise of warrants to purchase common stock, sale of debt instruments, and revenue from the sale of our products.

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However, we are subject to the risks and uncertainties associated with an emerging business, as noted above we have no established source of capital, and we have incurred recurring losses from operations since inception.

Comparison of the Three Months Ended March 31, 2025 and 2024

Revenue for the three months ended March 31, 2025 was $629,000 an increase of $374,000 or 147%, compared to the revenue for the three months ended March 31, 2024 of $255,000.

The increase was a result of higher Consumer Audio Product sales and Component revenue which increased by $333,000 and $41,000, respectively compared to the three months ended March 31, 2024.

Gross Deficit and Operating Expenses

Comparison of the Three and Six Months Ended June 30, 2025 and 2024

Revenue for the three months ended June 30, 2025 was $1.7 million, an increase of $1.4 million or 403% compared to the revenue for the three months ended June 30, 2024 of $0.3 million.

The increase was a result of the acquisition of CSI.

Revenue for the six months ended June 30, 2025 was $2.4 million, an increase of $1.8 million or 294% compared to the revenue for the six months ended June 30, 2024 of $0.6 million.

The increase was a result of the acquisition of CSI.

Gross Profit and Operating Expenses

Gross Profit (Deficit)

Gross profit for the three months ended March 31, 2025 was $69,000, an improvement of $152,000, compared to gross deficit of $83,000 for the three months ended March 31, 2024.

The gross margin as a percent of sales was 11% for the three months ended March 31, 2025, compared to (33%) for the three months ended March 31, 2024.

The improvement in gross deficit and gross margin as a percent of sales compared to the prior period is mainly attributable to the sale inventory with a lower cost basis.

Gross profit for the three months ended June 30, 2025 was $35,000 compared to a gross profit of $11,000 for the three months ended June 30, 2024.

The gross margin as a percent of sales was 2% for the three months ended June 30, 2025, compared to 3% for the three months ended June 30, 2024.

Gross profit for the six months ended June 30, 2025 was 0.1 million compared to a gross deficit of ($72,000) for the six months ended June 30, 2024.

Research and Development

Research and development expenses for the three months ended March 31, 2025 were $2,361,000, an increase of $646,000 compared to research and development expenses for the three months ended March 31, 2024 of $1,715,000.

The increase in research and development expenses is primarily related to an increase in headcount resulting in increased salaries and wages, benefits and stock-based compensation of $356,000, legal expenses related to intellectual property of $104,000 and consultants expense of $25,000.

Research and development expenses for the three months ended June 30, 2025 were $4.2 million, an increase of $2.4 million, compared to the research and development expenses for the three months ended June 30, 2024 of $1.8 million.

The increase in research and development expenses is primarily driven by the acquisition of NYIAX assets for $1.5 million in exchange for 1,500,000 shares of common stock and a payment of $450,000 to NYIAX, higher headcount resulting in increased salaries, wages, benefits, and stock-based compensation of $0.4 million, and legal expenses related to intellectual property of $0.3 million.

Research and development expenses for the six months ended June 30, 2025 were $6.6 million, an increase of $3.1 million compared to the research and development expenses for the six months ended June 30, 2024 of $3.5 million.

The increase in research and development expenses is primarily driven by the acquisition of NYIAX assets for $1.5 million in exchange for 1,500,000 shares of common stock and a payment to NYIAX of $450,000, higher headcount resulting in increased salaries, wages, benefits, and stock-based compensation of $0.8 million and facility expenses of $0.1 million, legal expenses related to intellectual property of $0.4 million and other research and development costs of $0.1 million.

Sales and Marketing

Sales and marketing expenses for the three months ended March 31, 2025 were $1,495,000, an increase of $566,000, compared to the sales and marketing expenses for the three months ended March 31, 2024 of $929,000.

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 $178,000 and consulting expenses of $311,000.

Sales and marketing expenses for the three months ended June 30, 2025 were $1.7 million, an increase of $0.9 million compared to the sales and marketing expenses for the three months ended June 30, 2024 of $0.9 million.

Sales and marketing expenses for the six months ended June 30, 2025 were $3.2 million, an increase of $1.4 million compared to the sales and marketing expenses for the six months ended June 30, 2024 of $1.8 million.

General and Administrative

General and administrative expenses for the three months ended March 31, 2025 was $5,644,000, an increase of $4,213,000, compared to the general and administrative expenses for the three months ended March 31, 2024 of $1,431,000.

The increase in general and administrative expenses is primarily related to increased amortization of intangibles of $2,309,000 for the assets acquired from EOS Holdings that closed on December 31, 2024, an increase in headcount resulting in increased salaries and wages, benefits and stock-based compensation of $533,000, increase in bonus of $90,000, increased investor relations expense of $669,000, increased consulting expense of $421,000, and increased legal fees of $211,000.

Interest Expense, net

Interest expense, net for the three months ended March 31, 2025 was $120,000, a decrease of $1,145,000, compared to the interest expense for the three months ended March 31, 2024 of $1,265,000.

The decrease, was primarily due to the Company’s debt balance declining in the three months ended March 31, 2025.

General and administrative expenses for the three months ended June 30, 2025 were $6.5 million, an increase of $3.7 million compared to general and administrative expenses for the three months ended June 30, 2024 of $2.8 million.

The increase in general and administrative expenses is primarily driven by higher amortization of intangibles assets of $2.3 million related to the Data Vault asset acquisition that closed on December 31, 2024, an increase in headcount resulting in increased salaries and wages, benefits and stock-based compensation of $1.2 million, increased consulting expense of $0.4 million, increased legal and accounting fees of $0.2 million and $0.2 million, respectively, offset partially by decreases in investor relations and shareholder expenses of $0.8 million and $82,000, respectively.

General and administrative expenses for the six months ended June 30, 2025 were $12.2 million, an increase of $8.0 million, compared to the general and administrative expenses for the three months ended June 30, 2024 of $4.2 million.

The increase in general and administrative expenses is primarily driven by higher amortization of intangibles assets of $4.6 million related to the Data Vault asset acquisition that closed on December 31, 2024, an increase in headcount resulting in increased salaries and wages, benefits and stock-based compensation of $1.8 million, increased consulting expense of $0.8 million, increased legal and accounting fees of $0.4 million and $0.1 million, respectively, offset partially by decreases in investor relations and shareholder expenses of $0.1 million and $0.2 million, respectively.

Interest expense, net for the three months ended June 30, 2025 was $17.2 million, an increase of $17.2 million compared to the interest expense for the three months ended June 30, 2024 of $4,000.

Interest expense increased due to the issuance of the Additional Warrants with the 2025 Notes fair value at issuance of $16.7 million.

Interest expense, net for the six months ended June 30, 2025 was $17.3 million, an increase of $16.1 million compared to the interest expense for the six months ended June 30, 2024 of $1.3 million.

The increase in interest expense, net for the six months ended June 30, 2025, is due to the issuance of the Additional Warrants with the 2025 Notes fair value at issuance of $16.7 million.

Change in fair value of convertible notes measured at fair value increased to $8.8 million for the three and six months ended June 30, 2025 compared to none for the three and six months ended June 30, 2024 due to the issuance of the 2025 Notes and recording the issuance fair value of $8.8 million, including $3.0 million of fees and original issue discount.

Change in fair value of convertible note to related party measured at fair value increased to a gain of $1.4 million in the three and six months ended June 30, 2025 compared to none in the three and six months ended June 30, 2024 due to a decrease in the DV Note fair value of $1.4 million.

Change in Fair Value of Warrant Liability

Change in fair value of warrant liability for the three months ended March 31, 2025 was $17,000, compared to $8,129,000 for the three months ended March 31, 2024.

The change in fair value of warrant liability for the three months ended March 31, 2025 was due to our minimal number of warrants classified as liabilities outstanding.

The change in fair value of the warrant liability for the three months ended March 31, 2024 was due to the issuance of warrants in January 2024 associated with our short term note and the issuance of warrants in connection with our February Public Offering and March 2024 Offering, offset partially by the subsequent decrease in the price of our common stock price at March 31, 2024 compared to the price of our stock on the date of the warrant issuance as well as the decline in our stock price from December 31, 2023, related to existing warrant liabilities.

Change in fair value of warrant liability for the three months ended June 30, 2025 was a gain of $2,000 compared to a loss of $37,255,000 for the three months ended June 30, 2024.

The change in fair value of the warrant liability for the three months ended June 30, 2024 was due to the issuance of additional warrants to purchase 5,602,693 shares of common stock and the subsequent valuing of such warrants.

The additional warrants were issued as a result of provision in certain of the warrant agreements that was triggered following the Company’s reverse stock split that occurred in April 2024.

There was no such activity in the three months ended June 30, 2025.

Change in fair value of warrant liability for the six months ended June 30, 2025 was a gain of $19,000 compared to a loss of $29,126,000 for the six months ended June 30, 2024.

The change in fair value of the warrant liability for the six months ended June 30, 2024 was due to the issuance of additional warrants to purchase 5,602,693 shares of common stock and the subsequent valuing of such warrants.

The additional warrants were issued as a result of provision in certain of the warrant agreements that was triggered following the Company’s reverse stock split that occurred in April 2024.

There was no such activity in the six months ended June 30, 2025.

Liquidity and Capital Resources

Cash and cash equivalents as of March 31, 2025 was $171,000, compared to $3,330,000, as of December 31, 2024.

We recorded net loss of $9,563,000 for the three months ended March 31, 2025 and used net cash in operating activities of $6,024,000.

We incurred a net income of $2,707,000 for the three months ended March 31, 2024 and used net cash in operating activities of $3,540,000.

The primary reasons for the increase in the use of net cash from operating activities during the three months ended March 31, 2025, was related to a net loss of $9,563,000 offset by the non-cash add back of depreciation and amortization of $2,321,000 in the three months ended March 31, 2025 compared to net income of $2,707,000 in the prior year offset by net non-cash add backs of $6,469,000.

Cash and cash equivalents as of June 30, 2025 were $0.7 million compared to $3.3 million, as of December 31, 2024.

We recorded a net loss of $37.1 million and $46.7 million for the three and six months ended June 30, 2025 and used net cash in operating activities of $12.8 million for the six months ended June 30, 2025 vs $9.0 million for the six months ended June 30, 2024.

Excluding non-cash adjustments, the primary reasons for the increase in the use of net cash from operating activities during the six months ended June 30, 2025, was related to an increase in the net loss.

Cash provided by financing activities for the six months ended June 30, 2025 and 2024 totaled approximately $16.7 million and $14.9 million, respectively.

We have financed our operations to date primarily through the issuance of equity securities, proceeds from the exercise of warrants to purchase common stock and sale of debt instruments.

In April 2025 and May 2025 we received $4.5 million and $9.2 million in proceeds from the issuance of the 2025 Notes.

In February 2025, we received aggregate gross proceeds of approximately $5.4 million in our registered direct offering.

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In March 2024 we received gross proceeds of approximately $2.3 million from the issuance of 417,833 shares of common stock, 93,342 pre-funded common stock warrants and the issuance of 511,175 warrants to purchase common stock.

We will need to raise additional proceeds via the issuance of equity securities and/or the sale of debt instruments in the remainder of 2025 and 2026 to fund operations.

Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis