TruGolf Holdings, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis provide information which we believe relevant to an assessment and understanding of our financial condition and results of operations. The following financial information is derived from our financial statements and should be read in conjunction with such financial statements and notes thereto set forth elsewhere herein. Cautionary Note Regarding Forward Looking Statements This Quarterly Report on Form 10-Q for the three months ended March 31, 2026 (“Form 10-Q”) contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). All statements other than statements of historical facts contained in this Form 10-Q, including statements regarding the financial position, business strategy and the plans and objectives of management for our future operations, are forward-looking statements. These forward-looking statements are based on the beliefs of management, as well as assumptions made by and information currently available to us. When used in this Form 10-Q, the words “anticipate,” “believe,” “estimate,” “expect,” “forecasts,” “may,” “will,” “should,” “seek,” “scheduled,” “intend,” “plan,” and “expect” and variations of these words or similar expressions (or the negative versions of such words or expressions) are intended to identify forward-looking statements. The forward-looking statements in this Form 10-Q are not guarantees of future performance, conditions or results, and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside of the Company’s control, that could cause the actual results or outcomes to differ materially from those discussed in the forward-looking statements. These forward-looking statements speak only as of the date of this Form 10-Q and are subject to numerous risks, including, but not limited to the following: ● the occurrence of any event, change, or other circumstances, including the outcome of any legal proceedings that may be instituted against us; ● the ability to maintain the listing of our securities on Nasdaq, and the potential liquidity and trading of our securities; ● the risk of disruption to our current plans and operations; ● the ability to recognize the anticipated benefits of our business and the Business Combination, which may be affected by, among other things, competition and the ability to grow, manage growth profitably, and retain key employees; ● costs related to our business; ● changes in applicable laws or regulations; ● our ability to meet future capital requirements to fund our operations, which may involve debt and/or equity financing, and to obtain such debt and/or equity financing on favorable terms, and our sources and uses of cash; ● our ability to maintain existing license agreements; ● our ability to achieve and maintain profitability in the future; ● our financial performance; and ● other factors disclosed under the section entitled “Risk Factors”. These forward looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the U.S. Securities and Exchange Commission (“SEC”) on April 15, 2026 (the “Form 10-K”). Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable and the information included in this report is accurate, we cannot guarantee that the future results, level of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to confirm these statements to actual results or changes in our expectations. We qualify all of our forward-looking statements by these cautionary statements. 12 The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Form 10-Q (the “Financial Statements”), and also with our audited consolidated financial statements and notes thereto included in our Form 10-K. Company Overview We design, develop, manufacture, and sell golf simulators and related software for residential and commercial applications. Our product offerings include portable, professional, commercial, and custom simulators, as well as standalone software products including E6 Connect and E6 GOLF. We also offer multi-sport gaming applications. Our franchise operations are conducted through our wholly-owned subsidiary, TruGolf Links Franchising, LLC, (“Links”) Reverse Stock Split On March 27, 2026, the Company completed a 1-for-10 reverse stock split of the Class A common stock and Class B common stock of the Company’s issued and outstanding common stock, effective as of March 27, 2026 (the “2026 Reverse Stock Split”, and together with the 2025 Reverse Stock Split, the “Reverse Stock Split”) and began trading on a 2026 Reverse Stock Split-adjusted basis on Nasdaq on March 27, 2026. As a result of the 2026 Reverse Stock Split, the number of Class A common stock outstanding as of December 31, 2025, was reduced from 5,355,626 to approximately 535,563 and the number of Class B common stock outstanding was reduced from 199,999 to 19,999, and the number of authorized shares of common stock was reduced from 1,000,000,000 shares to 100,000,000 shares. All share amounts have been retroactively adjusted for the Reverse Stock Split. Results of Operations Comparison of the Three Months Ended March 31, 2026 to the Three Months Ended March 31, 2025 2026 2025 Variance Revenue, net $ 5,020,262 $ 5,237,825 $ (217,563 ) Cost of revenue 2,337,266 1,800,114 537,152 Total gross profit 2,682,996 3,437,711 (754,715 ) Operating Expenses: Salaries, wages and benefits 793,411 1,946,816 (1,153,405 ) Selling, general and administrative 3,184,164 2,725,119 459,045 Operating loss (1,294,579 ) (1,234,224 ) (60,355 ) Other income (expenses) (152,715 ) (1,436,098 ) 1,283,383 Loss before income taxes $ (1,447,294 ) $ (2,670,322 ) $ 1,223,028 Revenues Revenues remained relatively consistent for the three months ended March 31, 2026, decreasing by $217,563, or 4.2%, compared to the three months ended March 31, 2025. The decrease was primarily attributable to the decrease in golf simulator revenue, which decreased by $228,321, to $3,664,866 during the three months ended March 31, 2026, as compared to the prior year period. Cost of Revenues Cost of revenues increased by $537,152, or 29.8%, for the three months ended March 31, 2026, as compared to the three months ended March 31, 2025. The increase was partially attributable to (i) the allocation of salaries and wages of warehouse employees of $229,649, during the three months ended March 31, 2026, compared to its absence during the prior year period and (ii) the increase in shipping costs of $165,199 during the three months ended March 31, 2026 as compared to the prior year period. 13 Operating Expenses Total operating expenses decreased by $694,360, or 14.9%, for the three months ended March 31, 2026, as compared to the three months ended March 31, 2025. Salaries, Wages and Benefits: Salaries, wages and benefits decreased by $1,153,405, or 59.2%, to $793,411 for the three months ended March 31, 2026, compared to $1,946,816 for the prior year period. The decrease reflects a significant increase in the portion of employee compensation capitalized as software development costs during the period. During the three months ended March 31, 2026, the Company capitalized $1,066,064 in software development costs associated with employee compensation, compared to $270,531 during the prior year period. Selling, General and Administrative : SG&A increased by $459,045, or 16.8%, to $3,184,164 for the three months ended March 31, 2026, compared to $2,725,119 for the prior year period. The increase was primarily driven by the following: (i) amortization expense related to capitalized software costs increased to $469,213 in 2026 from $100,000 in 2025, (ii) an increase in rent expense of $104,644 during the three months ended March 31, 2026, as compared to the prior year period, primarily related to a lease modification during the year ended December 31, 2025, which resulted in an increase in the associated monthly rent, and (iii) an increase in professional fees of $166,634 primarily driven by $149,890 in legal fees related to the Company’s franchising efforts that were not active during the prior year period. Other Income (Expenses) Other income (expenses) decreased by $1,283,383, or 89.4%, for the three months ended March 31, 2026, as compared to the three months ended March 31, 2025. The decrease was primarily attributable to the elimination of interest obligations associated with the PIPE Convertible Notes following their exchange for Series A Preferred Stock in July 2025 as well as the settlement of the dividend notes payable in April 2025. Liquidity and Capital Resources Liquidity As of March 31, 2026, we had cash on hand of $10,936,670 and a working capital deficit of $1,282,452, as compared to cash on hand of $12,569,263 and a working capital surplus of $1,076,496 as of December 31, 2025. The decrease in working capital is primarily attributable to a decrease in cash on hand of $1,632,593, an increase of accounts receivable, net of $254,128, an increase in inventory of $497,411 which was partially offset by an increase in accounts payable of $419,485 and an increase in deferred revenue of $1,050,144. The Company’s operating activities consume the majority of its cash resources. The Company anticipates that it will continue to incur operating losses as it executes its development plans for 2026, as well as other potential strategic and business development initiatives. In addition, the Company has had and expects to have negative cash flows from operations, at least into the near future. The Company has previously funded, and plans to continue funding, these losses with the sale of equity and convertible notes. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. Cash Flows During the three months ended March 31, 2026, our net cash used in operating activities was $122,196 as compared to $449,119 during the three months ended March 31, 2025. The period over period change was primarily attributable to favorable changes in working capital, including increases in deferred revenue and accounts payable, partially offset by changes in inventory and accounts receivable. The current period also reflected $1,087,513 and $231,940 lower non-cash adjustments related to stock issued for make-whole provisions on debt conversion and amortization of convertible note discounts, respectively, compared to the prior year period. During the three months ended March 31, 2026, our net cash used in investing activities was $1,144,302 as compared to net cash used in investing activities of $334,690 during the three months ended March 31, 2025. The increase in cash used in investing activities was primarily due to an increase in capitalized costs for software development. During the three months ended March 31, 2026, our net cash used in financing activities was $366,095 as compared to net cash provided by of $2,517,552 during the three months ended March 31, 2025. The decrease in cash provided by financing activities was primarily due to $2,520,000 in cash proceeds from the Convertible PIPE Notes in 2025. 14 Critical Accounting Estimates The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues, and expenses. The following estimates involve the highest degree of judgment and uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. These descriptions should be read in conjunction with Note 2 — Summary of Significant Accounting Policies, which describes the underlying accounting policies. Allowance for Current Expected Losses We estimate our allowance for current expected credit losses on accounts receivable using a rate loss model that considers customer payment history, aging, current economic conditions, and management’s judgment regarding ultimate collectability. As of March 31, 2026, we recorded an allowance of $1,611,930 against gross accounts receivable of $2,926,767, representing a reserve rate of 55.1%. The reserve rate reflects the concentration of our receivables among a limited number of commercial customers and the extended payment terms common in our industry. This estimate is inherently uncertain because it requires management to predict future customer behavior based on historical patterns that may not be indicative of future collections. A 10% increase or decrease in our reserve rate would change the allowance by approximately $293,000, with a corresponding impact on net income. Given the concentration of our receivable balance, the financial condition of a single significant customer could have a disproportionate effect on this estimate. Inventory Valuation We carry inventory at the lower of cost or net realizable value. Estimating net realizable value requires management to assess product demand, technological obsolescence, and the expected selling prices of inventory on hand. During the three months ended March 31, 2026, we recorded $64,343 in inventory valuation adjustments in connection with our transition to a new accounting system, which required a comprehensive reconciliation of physical inventory counts to book records. These adjustments demonstrate the inherent uncertainty in this estimate. Going forward, our inventory valuation is subject to risk from rapid changes in product technology and customer demand, particularly as we continue to evolve our simulator hardware lineup. A deterioration in demand for existing hardware models or the introduction of new products that render current inventory obsolete could require additional write-downs beyond those already recorded. Management reviews inventory for impairment indicators on a quarterly basis. Capitalized Software Development Costs and Technological Feasibility and Useful Life We capitalize software development costs once technological feasibility is established and cease capitalization when the product is available for general release. As of March 31, 2026, capitalized software development costs, net of accumulated amortization, were $4,230,512, and amortization expense was $469,213 for the three months ended March 31, 2026, compared to $100,000 for the three months ended March 31, 2025. Two estimates embedded in this balance involve significant judgment. First, the determination of when technological feasibility is achieved affects the amount of costs eligible for capitalization versus those that must be expensed as incurred. An earlier or later feasibility determination could materially change the amount capitalized in any given period. Second, we amortize capitalized software costs over an estimated useful life of three years. If the actual useful life of our software products proves shorter than three years due to technological change or loss of market relevance, we would be required to accelerate amortization or record an impairment charge. Conversely, if useful lives are longer than estimated, our amortization expense may be overstated. Given the $4,230,512 net balance subject to this estimate, a change in the estimated useful life from three years to two years would increase annual amortization expense by approximately $702,000, which would be material to our results of operations. Recent Accounting Developments For a discussion of recently issued accounting developments and their impact on our unaudited condensed consolidated financial statements, refer to Note 2—Summary of Significant Accounting Policies in our Financial Statements. 15 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Smaller reporting companies are not required to provide the information required by this item.