TruGolf Holdings, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. The unaudited results include TruGolf’s golf simulator hardware and software business. The business combination with Deep Medicine Acquisition Corp. closed January 31, 2024; it was accounted for as a reverse recapitalization, with TruGolf as the accounting acquirer. The company filed this report on August 14, 2024, after the quarter-end.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Revenue | $5.01 million | $5.08 million; down 1.4% |
| Gross profit / margin | $3.05 million / 60.9% | $3.94 million / 77.5% |
| Operating expenses | $4.00 million | $8.85 million |
| Operating loss | $0.94 million | $4.90 million loss |
| Net loss | $1.30 million | $5.35 million |
| Operating cash flow | $2.67 million provided | $3.07 million used |
Cost of revenue rose 71.6%, primarily reflecting a $709,929 unfavorable swing in inventory adjustments, higher shipping costs, and inflationary component costs. Operating expenses fell mainly because Q1 2023 included $4.49 million of noncash stock-based consulting expense. The filing’s per-share loss comparison is not readily comparable: weighted-average shares were 5,994,704 in 2024 versus 11,994 in 2023 following the recapitalization.
At March 31, cash and cash equivalents were $7.83 million; current assets were $12.15 million and current liabilities $9.69 million, yielding reported working capital of approximately $2.46 million. Total liabilities were $24.55 million, and stockholders’ deficit was $9.07 million. The company reported $4.32 million of net PIPE convertible notes and $802,738 outstanding on its bank line of credit. It also had related-party notes, dividend notes, assumed merger notes, and other obligations.
Reported operating cash generation was substantially influenced by liquidation of marketable securities and a $1.15 million increase in accounts payable; it should not be viewed as recurring operating performance. Investing cash outflow was $332,342, and financing cash flow was $92,128. Cash increased by $2.43 million during the quarter.
Material changes and notable items
- Revenue was nearly flat year over year, while gross margin declined materially, from approximately 77.5% to 60.9%.
- The merger closed January 31, 2024. TruGolf received approximately $2.24 million net of transaction costs from the merger-related PIPE financing and recorded $4.80 million of PIPE note principal less a $480,000 original issue discount.
- The company liquidated its marketable securities and repaid a $1.98 million Morgan Stanley margin line. Cash and cash equivalents rose from approximately $3.30 million at year-end; restricted cash and marketable securities were zero at March 31.
- Q1 2024 included $171,502 of inventory write-downs, compared with a $538,427 reduction to cost of revenue in Q1 2023. The filing also reports increased shipping costs of $207,562.
- Management says it terminated the Ethos loan agreement in February 2024 after delayed fundings, asserting that Ethos must release the $1.875 million collateral deposit. The deposit remained recorded as a long-term asset at quarter-end.
Outlook, risks, and controls
- Funding and going concern: Management says continued operations depend on sufficient revenue, additional capital, or financing. It states the merger may facilitate equity fundraising but gives no assurance that projected results will occur. If they do not, the company may delay or scale back products and initiatives, reduce hiring, or cut costs.
- Projected cash requirements: For the next 12 months, management estimates $7.0–$8.0 million for salaries and benefits, $0.95–$1.20 million for installation and customer service, and $1.0–$1.20 million for software and hardware development. Approximately $12.4 million of debt is stated to mature in 2025–2033.
- PIPE financing: The scheduled second tranche had not been received as of May 14, 2024. The financing agreement provides for additional tranches subject to conditions. An August 13, 2024 amendment waived certain filing-related defaults through August 14, extended the optional-closing period, permitted certain affiliate debt, and allowed specified interest payments to be settled in shares or added to note principal. These are subsequent developments, not Q1 operating results.
- Late filing and Nasdaq: TruGolf disclosed that it had not timely filed the 10-Q and received a Nasdaq deficiency letter on July 15, 2024. It believed filing this report would resolve the deficiency, but stated there was no assurance against future deficiencies.
- Financial reporting controls: Management concluded disclosure controls were ineffective at March 31, citing material weaknesses in segregation of duties, public-company and technical accounting staffing, and information-systems controls. Remediation plans include hiring accounting staff, implementing a new ERP system, adding review controls, and engaging an outside accounting firm.
- Other risks: Four customers represented more than 50% of receivables at quarter-end; six manufacturers supplied approximately 50.4% of assembly parts purchased during the quarter. The company also identifies market acceptance, sales-channel execution, product/geographic mix, supplier availability, and Nasdaq compliance as risks. No material lawsuit was reported.
- Management and initiatives: The CFO resigned May 1, 2024, and CEO Christopher Jones became interim CFO. The company reported a franchise-consulting agreement and an AI-engine license agreement for its Apogee launch monitor; the latter includes a right of first refusal to acquire the licensor’s assets.
Most important facts for investors to verify
- Whether additional PIPE proceeds were funded, what conditions and dilution apply, and the effect of the August 2024 amendment on note principal, interest, and potential share issuance.
- Whether the company resolved the Nasdaq filing deficiency and remains in compliance with all listing requirements.
- Whether the $1.875 million Ethos collateral deposit is released and how the related loan and accrued interest are ultimately settled.
- Whether cash generation is sustainable after separating working-capital movements and the securities liquidation from recurring operations.
- Whether gross margins recover, inventory reserves and receivable allowances remain adequate, and customer and supplier concentrations change.
- Progress in remediating material weaknesses and the status of the interim CFO appointment and financial-reporting support.