TruGolf Holdings, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Cautionary Note Regarding Forward-Looking Statements All statements other than statements of historical fact included in this Report including, without limitation, statements in this section regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward- looking statements. When used in this Report, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or our management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the SEC. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Report. Overview We are a blank check company incorporated on July 8, 2020 as a Delaware corporation and formed for the purpose of effecting a business combination. We intend to effectuate our initial business combination using cash from the proceeds of the IPO and the private placement of the private placement units, the proceeds of the sale of our shares in connection with our initial business combination (including pursuant to forward purchase agreements or backstop agreements we may enter into following the consummation of the IPO or otherwise), shares issued to the owners of the target, debt issued to bank or other lenders or the owners of the target, or a combination of the foregoing. Extension of our Combination Period and Founder Conversion Our Initial Combination Period was extended until January 29, 2023 in the First Extension pursuant to our amended and restated certificate of incorporation and the First Sponsor Affiliate Notes. On December 23, 2022, we held the 2022 Special Meeting at which our stockholders approved, among other things, an amendment to our amended and restated certificate of incorporation to (i) extend the date by which we must consummate an initial business combination to July 29, 2023, or such earlier date as determined by the board of directors, and (ii) provide for the right of a holder of Class B common stock to convert into Class A common stock on a one-for-one basis prior to the closing of an initial business combination. In connection with the vote to approve the above, the holders of 11,819,790 public shares properly exercised their right to redeem such shares for a pro rata portion of the funds in the trust account. As a result, approximately $121 million (approximately $10.24 per share) was removed from the trust account to pay such holders. On December 23, 2022, stockholders holding all of the issued and outstanding Class B common stock elected to convert their Class B common stock into Class A common stock on a one-for-one basis. As a result, 3,162,500 shares of Class B common stock were cancelled, and 3,162,500 shares of Class A common stock were issued to such holders of the converting Class B common stock. 29 Following the Founder Conversion and the redemptions in connection with the 2022 Special Meeting, and as of March 31, 2023, we had 4,613,410 shares of Class A common stock issued and outstanding. Our Securities On February 15, 2023, we received approval from the Nasdaq Listing Qualifications Department of Nasdaq that our application to transfer the listing of the public shares and rights from the Nasdaq Global Market to the Nasdaq Capital Market was approved. The public shares and rights were transferred to the Nasdaq Capital Market at the opening of business on February 17, 2023 and continue to trade under the symbol “DMAQ” and “DMAQR,” respectively. The Nasdaq Capital Market operates in substantially the same manner as the Nasdaq Global Market, and listed companies must meet certain financial requirements and comply with Nasdaq’s corporate governance requirements. TruGolf Business Combination On March 31, 2023, we entered into the TruGolf Merger Agreement with Merger Sub, the Purchaser Representative, TruGolf and the Seller Representative. Pursuant to the TruGolf Merger Agreement, subject to the terms and conditions set forth therein, (i) upon the consummation of the TruGolf Business Combination, Merger Sub will merge with and into TruGolf in the Merger, with TruGolf continuing as the surviving corporation in the Merger and a wholly-owned subsidiary of the Company. In the Merger, (i) all shares of TruGolf common stock (together, “TruGolf Stock”) issued and outstanding immediately prior to the Effective Time will be converted into the right to receive the Merger Consideration (as defined in the TruGolf Merger Agreement ); (ii) all convertible securities of TruGolf, if not exercised or converted prior to the Effective Time, shall be cancelled, retired and terminated and cease to represent a right to acquire, be exchanged for or convert into shares of TruGolf Stock. At the Closing, the combined public company will be renamed “TruGolf, Inc.” For a full description of the TruGolf Merger Agreement and the proposed TruGolf Business Combination, please see “Item 1. Business.” Results of Operations We have neither engaged in any operations nor generated any revenues to date. Our only activities since inception have been organizational activities and those necessary to prepare for the IPO. Following the IPO, we have not and do not expect to generate any operating revenues until after completion of our initial business combination. We generated non-operating income in the form of interest income on cash and cash equivalents after the IPO in amount of $1,824,459 for the year ended March 31, 2023. There has been no significant change in our financial or trading position and no material adverse change has occurred since the date of our audited financial statements contained elsewhere in this Report. After the IPO, we incurred and expect to continue to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as expenses as we conduct due diligence on prospective business combination candidates. Our expenses have increased substantially after the closing of the IPO. For the year ended March 31, 2023, we had a net loss of $400,232, which consists of $2,167,122 of operating and formation costs, offset by the unrealized gain on our marketable securities held in the trust account of $1,824,459. For the year ended March 31, 2022, we had a net loss of $414,045, which consists of $409,912 of operating and formation costs and unrealized loss on our marketable securities held in the trust account of $4,133. Factors That May Adversely Affect our Results of Operations Our results of operations and our ability to complete an initial business combination may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond our control. Our business could be impacted by, among other things, downturns in the financial markets or in economic conditions, increases in oil prices, inflation, increases in interest rates, supply chain disruptions, declines in consumer confidence and spending, the ongoing effects of the COVID-19 pandemic, including resurgences and the emergence of new variants, and geopolitical instability, such as the military conflict in Ukraine. We cannot at this time fully predict the likelihood of one or more of the above events, their duration or magnitude or the extent to which they may negatively impact our business and our ability to complete an initial business combination. 30 Liquidity and Capital Resources We had cash of $595,536 on our balance sheet, including $554,873 distributed from the trust account for the tax payments as of March 31, 2023, and cash of $877,099 as of March 31, 2022. As of March 31, 2023 and 2022, we had total current liabilities of $2,795,069 and $536,712, respectively, and total current assets of $9,776,747 and $128,953,272, respectively. As of March 31, 2023, we had working capital deficit of $2,179,125, a decrease of working capital of $2,834,818 as compared to March 31, 2022, primarily as a result of a decrease in cash and prepaid expenses and an increase in total current liabilities. The significant increase in accrued expenses as of March 31, 2023 was in connection with the due diligence on Chijet. In addition, on October 15, 2022, we issued the First Sponsor Affiliate Notes in an aggregate principal amount of $1,265,000 to two affiliates of the sponsor in connection with the First Extension. Due to the stockholders’ redemption in December 2022 in connection with the 2022 Special Meeting, cash and marketable securities held in trust account decreased to $9,160,803 as of March 31, 2023 compared to $127,760,867 as of March 31, 2022, after $121,034,650 (approximately $10.24 per share) was removed from the trust account to pay such redeeming holders. In connection with the Second Extension, under the Second Sponsor Affiliate Note, an additional $100,000 was deposited in the aggregate into the trust Account as of March 31, 2023 and a further $100,000 has been deposited subsequently. We expect to continue to incur significant costs in the pursuit of a business combination. We cannot assure you that our plans to complete the business combination will be successful. For the year ended March 31, 2023, cash used in operating activities amounted to $1,036,436, mainly due to the net loss of $400,232, the unrealized income earned on investment held in the trust account in amount of $1,824,459, and the decrease in accrued expenses to related parties by $15,000, offset by the decrease in prepaid expenses by $294,898 and the increase in accrued expenses and taxes payable by $850,788 and $57,569, respectively. Comparatively, cash of $697,868 used in operating activities during the year ended March 31, 2022 was due to the net loss of $414,045, plus the increase in prepaid expenses by $277,806 and the decrease in accrued expenses to related parties by $25,000, offset by the increase in accrued expenses by $14,850. Cash flow of $120,424,523 provided by investing activities during the year ended March 31, 2023 was due to the distribution from the trust account in amount of $754,873 for taxes payments, offset by the investment of $1,365,000 in the trust account, of which $1,265,000 was to extend the Initial Combination Period in the First Extension pursuant to the First Sponsor Affiliate Notes and $100,000 was a partial payment pursuant to the Second Sponsor Affiliate Note in connection with the Second Extension (under which a monthly payment of $50,000 should be deposited into the trust account after January 29, 2023). In addition, subsequent to and in connection with the 2022 Special Meeting, stockholders holding 11,819,790 public shares exercised their right to redeem such shares for a pro rata portion of the funds in the trust account. As a result, $121,034,650 (approximately $10.24 per share) was released from the trust account to pay such holders. Cash flow of $127,765,000 used in investing activities during the year ended March 31, 2022 was due to the investment of cash in the trust account. Cash flow of $119,669,650 used in financing activities during the year ended March 31, 2023 was due to the proceeds from related parties’ loans totaled $1,365,000 as discussed above, offset by the cash of $121,034,650 removed from the trust account to pay the redeeming shareholders in December 2022. Cash flow of $128,839,900 from financing activities during the year ended March 31, 2022 was due primary to the proceeds from the sale of Units at the closing of the IPO in amount of $126,500,000, net of underwriting discounts of $2,530,000, the proceeds from the sale of Private Placement Units in amount of $5,195,000, offset by the payment to the offering costs of $325,000 and the repayment of $100 to due to related party. As of March 31, 2023, we had cash and marketable securities held in the trust account of $9,160,803, after the $121,034,650 (approximately $10.24 per share) was removed from the trust account to pay the redeeming holders in connection with the 2022 Special Meeting, substantially all of which has been invested in U.S. treasury bills with a maturity of 180 days or less. Interest income earned on the balance in the trust account may be available to us to pay taxes. We intend to use substantially all of the funds held in the trust account, including any amounts representing interest earned on the trust account to complete our initial business combination. In December 2022, we withdrew interest of $754,873 to pay franchise and income taxes. We estimate our annual franchise tax obligations, based on the number of shares of our common stock authorized and outstanding after the completion of the IPO, to be $200,000, which is the maximum amount of annual franchise taxes payable by us as a Delaware corporation per annum, which we may pay from funds from the IPO held outside of the trust account or from interest earned on the funds held in our trust account and released to us for this purpose. Our annual income tax obligations depend on the amount of interest and other income earned on the amounts held in trust account. The interest earned on the amount in the trust account has been and we expect it will continue to be sufficient to pay our income taxes. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our initial business combination, the remaining proceeds held in the trust account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies. 31 As of March 31, 2023, we had available cash of $595,536, including $554,873 distributed from the trust account for the tax payments. We have used and will continue to use these funds to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete an initial business combination. In order to fund working capital deficiencies or finance transaction costs in connection with an intended initial business combination, our sponsor or an affiliate of our sponsor or certain of our officers and directors may, but are not obligated to, loan us Working Capital Loans as may be required. If we complete our initial business combination, we would repay any Working Capital Loans. In the event that our initial business combination does not close, we may use a portion of the working capital held outside the trust account to repay any such Working Capital Loans but no proceeds from our trust account would be used for such repayment. Up to $1,500,000 of such Working Capital Loans may be convertible into private placement-equivalent units at a price of $10.00 per unit (which, for example, would result in the holders being issued 165,000 shares of Class A common stock if $1,500,000 of notes were so converted since the 150,000 rights included in such units would result in the issuance of 15,000 shares upon the closing of our business combination), at the option of the lender. Such units would be identical to the private placement units. The terms of such Working Capital Loans by our sponsor or its affiliates, or our officers and directors, if any, have not been determined and no written agreements exist with respect to such loans. We do not expect to seek loans from parties other than our sponsor or an affiliate of our sponsor as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our trust account. We do not believe we will need to raise additional funds following the IPO in order to meet the expenditures required for conducting the due diligence related to a proposed business combination and operating our business during this process. However, if our estimates of the costs of identifying a target business, undertaking in-depth due diligence and negotiating an initial business combination, including the proposed business combination, are less than the actual amount necessary to do so, or we are unable to complete the proposed business combination, we may have insufficient funds available to operate our business prior to our initial business combination. Moreover, we may need to obtain additional financing either to complete our initial business combination or because we become obligated to redeem a significant number of our public shares upon completion of our initial business combination, in which case we may issue additional securities or incur debt in connection with such business combination. In addition, have targeted and if the TruGolf Business Combination is not consummated, we will continue to target businesses larger than we could acquire with the net proceeds of the IPO and the sale of the private placement units, and may as a result be required to seek additional financing to complete such proposed initial business combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our initial business combination. If we are unable to complete our initial Business Combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the trust account. In addition, following our initial business combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations. As of March 31, 2023 and March 31, 2022, we had loans payable to the sponsor and its affiliates in the amount of $1,865,000 and $500,000, respectively, as discussed below: Prior to the consummation of the IPO, our sponsor agreed to loan us $500,000 to be used for a portion of the expenses of the IPO. The Sponsor Note is non-interest bearing, unsecured and due upon completion of our initial business combination. Under no circumstances shall any individual, including but not limited to any officer, director, employee or stockholder, be obligated personally for any obligations or liabilities of the Sponsor Note. On October 15, 2022, we issued the First Sponsor Affiliate Notes to two affiliates of the sponsor in connection with the First Extension, from October 29, 2022 to January 29, 2023. The First Sponsor Affiliate Notes bear no interest and are repayable in full upon the earlier of (a) the date of the consummation of the initial business combination, or (b) the date of our liquidation. On October 19, 2022, an aggregate of $1,265,000 from the First Sponsor Affiliate Notes was deposited into the trust account, which amount will be included in the pro rata amount distributed to (i) holders of public shares upon our liquidation or (ii) holders of public shares who elect to have their shares redeemed in connection with the consummation of the initial business combination. 32 On February 9, 2023, we issued the Second Sponsor Affiliate Note to an affiliate of the sponsor, in connection with the Second Extension, from January 29, 2023 to July 29, 2023, pursuant to which a monthly payment of $50,000 is to be deposited into the trust account after January 29, 2023. The Second Sponsor Affiliate Note bears no interest and is repayable in full upon the earlier of (a) the date of the consummation of the initial business combination, or (b) the date of our liquidation. Accordingly, an aggregate of $100,000 had been deposited into the trust account as of March 31, 2023 and an additional $100,000 has been deposited subsequently. Going Concern The Company expects to incur significant costs in pursuit of its acquisition plans and will not generate any operating revenues until after the completion of its initial business combination. In addition, the Company expects to have negative cash flows from operations as it pursues an initial business combination target. In connection with the Company’s assessment of going concern considerations in accordance with FASB ASU Topic 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern” the Company does not currently have adequate liquidity to sustain operations, which consist solely of pursuing a business combination. The Company may raise additional capital through loans or additional investments from the Sponsor or its stockholders, officers, directors, or third parties. The Company’s officers and directors and the Sponsor may, but are not obligated to (except as described above), loan the Company funds, from time to time, in whatever amount they deem reasonable in their sole discretion, to meet the Company’s working capital needs. Based on the foregoing, the Company believes it will have sufficient cash to meet its needs through the earlier of consummation of a Business combination or the deadline to complete a business combination pursuant to the Company’s amended and restated certificate of incorporation (unless otherwise amended by stockholders). While the Company expects to have sufficient access to additional sources of capital if necessary, there is no current commitment on the part of any financing source to provide additional capital and no assurances can be provided that such additional capital will ultimately be available. These conditions raise substantial doubt about the Company’s ability to continue as a going concern until the consummation of a business combination or for a period of time within one year after the date that these financial statements are issued. There is no assurance that the Company’s plans to raise additional capital (to the extent ultimately necessary) or to consummate a business combination will be successful or successful within the Combination Period. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. As is customary for a special purpose acquisition company, if the Company is not able to consummate a business combination during the Combination Period, it will cease all operations and redeem the Public Shares. Management plans to continue its efforts to consummate a business combination during the Combination Period. Off-Balance Sheet Financing Arrangements We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of March 31, 2023. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets. Contractual Obligations We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay our Chief Financial Officer monthly fee of $5,000 for accounting, administrative and support services. We will continue to incur these fees monthly until the earlier of the completion of the business combination and our liquidation. The underwriters of the initial public offering are entitled to a deferred fee of $0.35 per unit, or $4,427,500 in the aggregate. The deferred fee will become payable to the underwriters from the amounts held in the trust account solely in the event that we complete a business combination, subject to the terms of the underwriting agreement. Critical Accounting Policies The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have not identified any critical accounting policies . 33 Recent Accounting Pronouncements Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on our condensed financial statements. Item 7A. Quantitative and Qualitative Disclosures about Market Risk. We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item. Item 8. Financial Statements and Supplementary Data. Reference is made to pages F-1 through F-17 comprising a portion of this Report, which are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.