TruGolf Holdings Inc

Comparisons of the Three Months ended March 31, 2024 and 2023

The following table sets forth certain condensed statement of operations data for the periods indicated in dollars. In addition, we note that the period-to-period may not be indicative of future performance.

Revenues

Our revenues were $5,012,022 for the three months ended March 31, 2024, compared to $5,083,199 for the three months ended March 31, 2023, a decrease of $71,177 or 1.40%. The decrease in revenues was due primarily to a decrease in software subscription and other sales.

Cost of Revenues

Cost of revenues for the three months ended March 31, 2024, increased $817,254 or 71.58% to $1,959,023 from $1,141,768 for the three months ended March 31, 2023. The increase was due primarily to an increase in the inventory adjustment of $709,929 from ($538,427) to $171,502 during the three months ended March 31, 2024 and 2023, respectively. Materials and components to manufacture our simulators primarily include fabricated steel, cut cloth, turf, computers, cameras and other high-end electronics which are subject to inflationary pricing pressures. The cost of shipping our finished simulators increased $207,562 due to price increases from our national shipping companies UPS, FedEx and Seko. These increased costs were offset by an approximate $100,237 decrease in material costs and other non-inventory items. During the three months ended March 31, 2024, the Company allocated $410,317 to cost of revenues from salaries and wages, which are classified as Selling, general and administrative expense. We are continuously working with our suppliers for volume pricing discounts and extended contract terms.

Operating Expenses

Our operating expenses were $3,996,684 for the three months ended March 31, 2024, compared to $8,845,951 for the three months ended March 31, 2023, a decrease of $4,849,267 or (54.82%). The decrease for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, was due primarily to:

Interest Income

Our interest income was $30,587 and $21,497 for the three months ended March 31, 2024 and 2023, respectively.

Interest Expense

Our interest expense was $384,854 and $468,154 for the three months ended March 31, 2024 and 2023, respectively, a decrease of $83,300 or (17.79%) primarily due to the margin line of credit loan was paid off during 2024.

Liquidity and Capital Resources

Business Combination

The Company consummated the business combination described in Note 1 and Note 2 on January 31, 2024. The Company received proceeds of approximately $2,237,213, net of closing costs, expenses and commissions. The Company recorded a PIPE Convertible Note, the source of the proceeds from the business combination, of $4,800,000 with an original issue discount of $480,000 (or 10%).

We have primarily obtained cash to fund our operations through the reinvestment of free cash flows generated from our business operations, issuance of common stock to private friend and family investors, issuance of term loans, issuance of notes payable and convertible debt instruments, and royalty structures.

As of March 31, 2024 and December 31, 2023, we had $7,825,967 and 5,397,564 in cash, cash equivalents and restricted cash and current working capital of $2,459,279 and $1,988,267, respectively.

In December 2023, we entered into a $2,000,000 variable rate line of credit with JP Morgan Chase Bank, N.A. The purpose of the new line of credit was to consolidate the balances outstanding on the note payable and the previous line of credit, which had matured. The line of credit matures on December 31, 2024. The line of credit has an annual interest rate computed at the Adjusted SOFR (Secured Overnight Financing Rate) Rate and at a rate of 3.00% above the SOFR Rate. The Adjusted SOFR rate means the sum of the Applicable margin (3.50% per annum) plus the SOFR rate applicable to the interest period plus the Unsecured to Secured Rate Adjustment. The variable rate line of credit was paid in full during the three months ended March 31, 2024.

Cash Flow from Operating Activities

For the three months ended March 31, 2024 the net cash provided by our operating activities was $2,668,617 primarily due to the liquidation of the marketable securities account of $2,478,953 and an increase in accounts payable of $1,146,347. The change in the remaining operating assets and liabilities was $224,013, depreciation and amortization of $36,105, the amortization of the ROU asset of $82,454, the amortization of original issue discount of $947 and the partial offset by the net loss of $1,301,864.

For the three months ended March 31, 2023 the net cash used in our operating activities was $3,071,956. The change in operating assets and liabilities was a decrease of $2,763,540. Other assets increased due to the $1,875,000 deposit paid for the Ethos Management Inc loan and $116,040 in net Ethos Management Inc deferred loan fees. The net loss of $5,351,177 was partially offset by increases to cash from depreciation and amortization of 13,756, amortization of convertible notes original issue discount of $257,233, amortization of ROU asset of $72,520, bad debt expense of $205,920 and stock-based compensation expense of $4,493,333.

Cash Flows from Investing Activities

For the three months ended March 31, 2024 and 2023, the cash used by our investing activities was $332,342 and $2,467,710. For the three months ended March 31, 2024 the Company capitalized software development costs of $332,342. For the three months ended March 31, 2023 the Company purchased fixed assets of $46,650 and purchased short-term investments of $2,421,060.

Cash Flows from Financing Activities

The Company consummated the business combination described in Note 1 and Note 2 on January 31, 2024, the Company received proceeds of approximately $2,237,213, net of closing costs, expenses and commissions. The Company recorded a PIPE Convertible Note, the source of the proceeds from the business combination, of $4,800,000 less an original issue discount of 480,000 (or 10%).

For the three months ended March 31, 2024 the cash provided by our financing activities was $92.128. The Company received net proceeds from the Merger of $2,237,213, paid off the variable rate line of credit of $1,980,937 and made debt payments of $270,795.

For the three months ended March 31, 2023 we borrowed $1,875,000 on our Morgan Stanely margin line of credit account and made debt payments of $33,616. One shareholder returned $42,963 in overpaid past dividends. The loan proceeds were used for ongoing operations.

The Company has incurred net losses and negative operating cash flows for the three months ended March 31, 2024 and 2023. As the Company continues to incur losses, successful transition to profitability is dependent on achieving a level of revenues adequate to support the Company’s cost structure. Unless and until this occurs, the Company may need to raise capital or issue debt to support ongoing operations.

The Company’s financial statements are prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of obligations in the normal course of business. Continuation as a going concern is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to, meets its financial requirements, raise additional capital, and the success of its future operations.

Under the rules of ASC Subtopic 205-40 “Presentation of Financial Statements-Going Concern” (“ASC 205-40”), the Company is required to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations as they become due within one year after the date that these financial statements are issued or available to be issued. This evaluation takes into account a Company’s current available cash and projected cash needs over the one-year evaluation period but may not consider things beyond its control.

The Company believes the recent merger, as described in Note 1 and Note 2, may enable us to raise additional capital through equity offerings and not incur more debt or loans payable.

Our significant projected cash requirements related primarily to operating expenses for the next 12 months include $7,000,000 to $8,000,000 for employees’ salaries, wages and benefits, $950,000 to $1,200,000 for installation and customers service, and $1,000,000 to $1,200,000 for development of software and hardware. No assurances can be given that the results anticipated by our projections will occur. With respect to long-term liquidity requirements, approximately $12,400,000 of our debt contractually matures in years 2025 to 2033.

In the event the projected results do not occur, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more product offerings and other strategic initiatives. Additionally, we would reduce the number of new hires planned during the remaining months of 2024, and implement cost reduction measures such as a reduction in headcount, reducing the planned sales and marketing expense among other cost reduction measures. We may also issue common stock to potential investors to increase our liquidity.

Management believes the plan outlined above provides an opportunity for the Company to continue as a going concern.

Material Cash Requirements for Known Contractual and Other Obligations

We have entered into operating leases for our corporate headquarters and a warehouse in Centerville, Utah. The leases have varying terms expiring between 2023 and 2025. In June 2023, we entered into a sixty-month, triple net lease for additional warehouse space in North Salt Lake, Utah. The lease payments range between $10,457 and $11,770.

We enter into agreements in the normal course of business with various vendors, which are generally cancellable upon notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including non-cancellable obligations of service providers, up to the date of cancellation.

Recent Accounting Pronouncements

Management has evaluated all recent accounting pronouncements issued by the Financial Accounting Standards Board and determined that none of the pronouncements will have a material impact on our financial statements. We will continue to monitor the issuance of any new accounting pronouncements and assess their potential impact on the financial statements in future periods.

Emerging Growth Company

We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies.