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

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

Cautionary Notice Regarding Forward Looking Statements

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 (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 Form 10-K, 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 market, economic and other conditions; the Company's ability to continue as a going concern; the Company's ability to manage costs and execute on its operational and budget plans; and, the Company'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. (Nasdaq: 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. Our condensed consolidated financial statements contemplate the continuation of our business as a going concern. 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 and Nine Months Ended September 30, 2025 and 2024

Revenue

Revenue for the three months ended September 30, 2025 was $2.9 million, an increase of $1.7 million or 148% compared to the revenue for the three months ended September 30, 2024 of $1.2 million. The increase was a result of the acquisition of CSI.

Revenue for the nine months ended September 30, 2025 was $5.3 million, an increase of $3.5 million or 197% compared to the revenue for the nine months ended September 30, 2024 of $1.8 million. The increase was a result of the acquisition of CSI.

Gross Profit and Operating Expenses

Gross Profit

Gross profit for the three months ended September 30, 2025 was $95,000 compared to a gross profit of $226,000 for the three months ended September 30, 2024. The gross profit as a percent of sales was 3% for the three months ended September 30, 2025, compared to the gross profit of 19% for the three months ended September 30, 2024. The decrease in gross profit is due to the inclusion of lower-margin revenue as a result of the acquisition of CSI.

Gross profit for the nine months ended September 30, 2025 was $199,000 compared to a gross profit of $154,000 for the nine months ended September 30, 2024. The gross profit as a percent of sales was 4% for the nine months ended September 30, 2025, compared to the gross profit of 9% for the nine months ended September 30, 2024. 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 September 30, 2025 were $5.0 million, an increase of $2.8 million, compared to the research and development expenses for the three months ended September 30, 2024 of $2.2 million. The increase in research and development expenses is primarily driven by IBM Watsonx AI subscription licenses of $2.2 million and higher stock-based compensation of $1.1 million, offset partially by decreases in research and development expenses due to the adjustment related to the acquisition of NYIAX assets of $0.5 million.

Research and development expenses for the nine months ended September 30, 2025 were $11.6 million, an increase of $5.9 million compared to the research and development expenses for the nine months ended September 30, 2024 of $5.7 million. The increase in research and development expenses is primarily driven by IBM Watsonx AI subscription licenses of $2.2 million, the increase in research and development expenses of $1.3 million related to the acquisition of NYIAX assets, NFL Alumni license and Brookhaven National Laboratory research, higher headcount resulting in increased salaries, wages, benefits, and stock-based compensation of $1.9 million, and legal expenses related to intellectual property of $0.4 million.

Sales and Marketing

Sales and marketing expenses for the three months ended September 30, 2025 were $2.2 million, an increase of $1.2 million compared to the sales and marketing expenses for the three months ended September 30, 2024 of $1.0 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 $1.1 million and consulting expenses of $0.1 million.

Sales and marketing expenses for the nine months ended September 30, 2025 were $5.4 million, an increase of $2.6 million compared to the sales and marketing expenses for the nine months ended September 30, 2024 of $2.8 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 $2.0 million, and increased consulting expenses of $0.6 million.

General and Administrative

General and administrative expenses for the three months ended September 30, 2025 were $7.7 million, an increase of $5.4 million compared to general and administrative expenses for the three months ended September 30, 2024 of $2.3 million. The increase in general and administrative expenses is primarily driven by higher amortization of intangibles assets of $2.7 million related to the Data Vault asset acquisition that closed on December 31, 2024 and IP acquisitions from Turner Global Media LLC and Web Access LLC closed in July 2025, an increase in headcount resulting in increased salaries and wages, commissions, benefits and stock-based compensation of $1.5 million, increased consulting and legal expenses of $0.7 million and $0.5 million respectively.

General and administrative expenses for the nine months ended September 30, 2025 were $19.8 million, an increase of $13.3 million, compared to the general and administrative expenses for the three months ended September 30, 2024 of $6.5 million. The increase in general and administrative expenses is primarily driven by higher amortization of intangibles assets of $7.5 million related to the Data Vault asset acquisition that closed on December 31, 2024 and IP acquisitions from Turner Global Media LLC and Web Access LLC closed in July 2025, an increase in headcount resulting in increased salaries and wages, commissions, benefits and stock-based compensation of $3.5 million, increased consulting expense of $1.6 million, increased legal and accounting fees of $0.9 million and $0.2 million, respectively, offset partially by decreases in investor relations of $0.4 million.

Interest expense, net for the three months ended September 30, 2025 was $0.9 million, an increase of $0.9 million compared to the interest income for the three months ended September 30, 2024 of $9,000. Interest expense increased due to an increase in borrowings.

Interest expense, net for the nine months ended September 30, 2025 was $18.2 million, an increase of $16.9 million compared to the interest expense for the nine months ended September 30, 2024 of $1.3 million. The increase in interest expense, net for the nine months ended September 30, 2025, is due to the issuance of the Additional Warrants with the 2025 Notes fair value at issuance of $16.7 million and increased borrowings.

Change in fair value of convertible notes measured at fair value increased to $10.8 million for the three months ended September 30, 2025 compared to none for the three months ended September 30, 2024 due to the issuance of the 2025 Notes and recording the issuance fair value of $10.8 million, including original issue discount of $1.3 million and fees of $1.0 million.

Change in fair value of convertible notes measured at fair value increased to $19.6 million for the nine months ended September 30, 2025 compared to none for the nine months ended September 30, 2024 due to the issuance of the 2025 Notes and recording the issuance fair value of $19.6 million, including the original issue discount of $3.0 million and fees of $2.3 million.

Change in fair value of convertible note to related party measured at fair value increased to $1.1 million in the three months ended September 30, 2025 compared to none in the three months ended September 30, 2024 due to an increase in the DV Note fair value of $1.1 million.

Change in fair value of convertible note to related party measured at fair value increased to a gain of $0.2 million in the nine months ended September 30, 2025 compared to none in the nine months ended September 30, 2024 due to an increase in the DV note fair value of the note of $1.1 million offset by a decrease in the DV note fair value of $1.3 million.

Change in other income, net increased to income of $0.3 million for the three and nine months ended September 30, 2025 for an increase of $0.2 million over the three and nine months ended September 30, 2024 due to the unrealized gain on the fair value of bitcoin intangible assets at September 30, 2025.

Debt Extinguishment

Debt extinguishment expense in the three and nine months ended September 30, 2025 was $5.8 million due to the extinguishment of the convertible notes issued in April and May 2025 with the issuance of the convertible notes in August. The Company recognized the pre-modification fair value and the post modification incremental fair value change in the April and May notes due to the decrease in the alternative conversion feature and recorded $2.1 million in expense and the exchange of 30,738,449 outstanding warrants held by the holders of the April and May notes for common stock for which the Company recognized the incremental fair value of $3.7 million.

Change in Fair Value of Warrant Liability

Change in fair value of warrant liability for the three months ended September 30, 2025 was zero compared to a loss of $6,000 for the three months ended September 30, 2024.

Change in fair value of warrant liability for the nine months ended September 30, 2025 was a gain of $19,000 compared to a loss of $29,120,000 for the nine months ended September 30, 2024. The change in fair value of the warrant liability for the nine months ended September 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 nine months ended September 30, 2025.

Liquidity and Capital Resources

Cash and cash equivalents as of September 30, 2025 were $1.7 million compared to $3.3 million, as of December 31, 2024.

We recorded a net loss of $33.0 million and $79.7 million, respectively, for the three and nine months ended September 30, 2025 and used net cash in operating activities of $23 million for the nine months ended September 30, 2025 vs $13.3 million for the nine months ended September 30, 2024. Excluding non-cash adjustments, the primary reasons for the increase in the use of net cash from operating activities during the nine months ended September 30, 2025, was related to an increase in the net loss.

Cash provided by financing activities for the nine months ended September 30, 2025 and 2024 totaled approximately $28.1 million and $17.1 million, respectively.

Cash used in investing activities for the nine months ended September 30, 2025 and 2024 totaled approximately $6.6 million and $0.4 million, respectively. The increase was due to the acquisition of CSI on May 20, 2025.

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 August 2025 and September 2025, we received $5.5 million and $6 million in proceeds from the issuance of the Q3 2025 Notes. 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. In January 2024, we received gross proceeds of $600,000 from the issuance of promissory notes and common stock purchase warrants to certain accredited investors. In February 2024, we received gross proceeds of approximately $10.0 million from the public offering of 1,025,600 units, with each unit consisting of one share of common stock (or pre-funded warrant in lieu thereof) and one warrant, each to purchase one (1) share of common stock. 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

We have no off-balance sheet arrangements.

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