Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management's discussion and analysis should be read in conjunction with our historical financial statements and the related notes thereto. This management's discussion and analysis contains forward-looking statements, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words "believe," "plan," "intend," "anticipate," "target," "estimate," "expect" and the like, and/or future tense or conditional constructions ("will," "may," "could," "should," etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including those under "Risk Factors" in our filings with the Securities and Exchange Commission ("SEC") that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. See "Forward-Looking Statements; Risk Factor Summary."

References in this management's discussion and analysis to "we," "us," "our," "the Company," "our Company" or "TruGolf" refer to TruGolf Holdings, Inc. and its subsidiaries.

Overview

Business

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 operations are conducted through our wholly-owned subsidiary, TruGolf, Inc., a Nevada corporation ("TruGolf Nevada"), which has been developing indoor golf simulation software and hardware since 1999.

On January 31, 2024, we consummated a business combination pursuant to which TruGolf Nevada became our wholly-owned subsidiary, and our name was changed from Deep Medicine Acquisition Corp. to TruGolf Holdings, Inc. We commenced trading on the Nasdaq Capital Market under the ticker symbol "TRUG" on February 1, 2024.

During the year ended December 31, 2025, several significant developments shaped our financial results and capital structure:

Franchise Operations. Through our subsidiary TruGolf Links Franchising, LLC ("Links"), formed in May 2024, we continued to develop our indoor golf franchise model, generating $13,125 in franchise revenue during the year ended December 31, 2025.

Reverse Stock Split. On June 23, 2025, we effected a 1-for-50 reverse stock split of our Class A and Class B common stock. On March 27, 2026, we effected a 1-for-10 reverse stock split of our Class A and Class B common stock. All share and per share amounts in this discussion have been retroactively adjusted to reflect both reverse stock splits.

Nasdaq Compliance. Following a Nasdaq hearing panel process, we regained full compliance with all Nasdaq continued listing requirements by August 1, 2025. We are currently subject to a one-year Mandatory Panel Monitor through August 2026, during which any subsequent non-compliance with the Equity Rule would result in an expedited delisting determination.

PIPE Note Extinguishment. In July 2025, we exchanged the entire outstanding principal balance of our PIPE Convertible Notes ($3,938,311) for 3,938 shares of our Series A Convertible Preferred Stock, reducing our total debt obligations and eliminating a significant source of dilution from note conversions.

Dividend Note Settlement. In April 2025, we settled approximately $3.9 million in outstanding dividend notes payable through the issuance of Class A and Class B common stock, eliminating these legacy obligations.

Results of Operations

Year Ended December 31, 2025 Compared with Year Ended December 31, 2024

The following table sets forth our results of operations for each of the years set forth below:

		2025				2024				Change
Revenue		$	18,878,997			$	21,282,649			$	(2,403,652	)
Cost of revenue			9,359,380				7,401,511				1,957,869
Gross profit			9,519,617				13,881,138				(4,361,521	)
Operating expenses:
Salaries, wages and benefits			4,615,951				9,314,415				(4,698,464	)
Selling, general and administrative			11,006,020				6,669,684				4,336,336
Total operating expenses			15,621,971				15,984,099				(362,128	)
Loss from operations			(6,102,354	)			(2,102,961	)			(3,999,393	)
Other income (expense):
Interest income			265,708				106,400				159,308
Interest expense			(3,256,687	)			(6,932,618	)			3,675,931
Gain on fair value adjustment			-				142,319				(142,319	)
Loss on extinguishment of debt			(6,135,160	)			(270,594	)			(5,864,566	)
Loss on investment			-				262,035				(262,035	)
Other income			600				-				600
Net loss		$	(15,227,893	)		$	(8,795,419	)		$	(6,432,474	)

Revenue

Revenue Category		2025				2024				Change
Golf simulators (hardware and perpetual licenses)		$	14,681,994			$	13,708,760			$	973,234
Content software subscriptions			3,710,245				7,276,484				(3,566,239	)
Franchise revenue			13,125				-				13,125
Other (shipping, installation, and other income)			473,633				297,405				176,228
Total net revenue		$	18,878,997			$	21,282,649			$	(2,403,652	)

Net revenues decreased $2,403,652, or 11.3%, to $18,878,997 for the year ended December 31, 2025, compared to $21,282,649 for the year ended December 31, 2024. The following discussion presents each revenue category separately.

Golf Simulators: Golf simulator revenue, which includes hardware and perpetual software licenses, increased $973,234, or 7.1%, to $14,681,994 for the year ended December 31, 2025, compared to $13,708,760 for the year ended December 31, 2024, primarily driven by increased unit volumes in our commercial channels coupled with growth in residential installations.

Content Software Subscriptions: Content software subscriptions revenue decreased $3,566,239, or 49.0%, to $3,710,245 for the year ended December 31, 2025, compared to $7,276,484 for the year ended December 31, 2024. The decrease is due to how the Company sold its content subscription licenses during the year ended December 31, 2025, which has resulted in $1,329,184 in deferred revenue to be recognized over the next twelve months.

Franchise Revenue: Franchise revenue of $13,125 was recognized for the year ended December 31, 2025, representing initial fees from our TruGolf Links Franchising subsidiary, which was formed in May 2024. No franchise revenue was recognized in the prior year.

Other Revenue: Other revenue, which includes shipping income, installation income, and other ancillary items, increased $176,228 to $473,633 for the year ended December 31, 2025, from $297,405 for the year ended December 31, 2024, primarily driven by an increase in sales of ancillary products used with our MultiSport Arcade system.

Cost of Goods Sold and Gross Profit

Cost of goods increased by $1,957,869, or 26.5% to $9,359,380 for the year ended December 31, 2025, as compared to $7,401,511 for the year ended December 31, 2024. Substantially all of the increase was attributable to $2,199,985 in non-recurring inventory adjustments arising from the reconciliation of inventory records in connection with the Company's transition to a new accounting system during the year. Management does not expect similar adjustments to recur following the completion of the system transition. Excluding these adjustments, cost of goods sold would have been $7,159,395, relatively flat year-over-year, consistent with prior year levels relative to revenue volume. Management believes this adjusted measure provides useful information to investors as it reflects the Company's ongoing cost structure without the impact of the system transition-related adjustments.

Gross profit decreased $4,361,521, or 31.4%, to $9,519,617 for the year ended December 31, 2025, compared to $13,881,138 for the year ended December 31, 2024. Gross margin declined to 50.4% from 65.2%, primarily reflecting the impact of the inventory reconciliation adjustments described above and the decline in higher-margin content software subscription revenue. Excluding the $2,199,985 inventory adjustments, adjusted gross profit of $11,719,602 and adjusted gross margin would have been approximately 62.1%, compared to 65.2% in the prior year. Management presents these adjusted measures to provide investors with additional insight into the Company's underlying operating performance exclusive of the system transition-related adjustments.

Operating Expenses

Total operating expenses decreased $362,128, or 2.3%, to $15,621,971 for the year ended December 31, 2025, compared to $15,984,099 for the year ended December 31, 2024. While the aggregate change was nominal, this overall stability masks significant and largely offsetting movements within individual expense categories, each of which is discussed below.

Salaries, Wages and Benefits: Salaries, wages, and benefits decreased $4,698,464, or 50.4%, to $4,615,951 for the year ended December 31, 2025, compared to $9,314,415 for the year ended December 31, 2024. The decrease reflects a significant increase in the portion of employee compensation capitalized as software development costs during the year. During the year ended December 31, 2025, the Company capitalized $3,231,490 in software development costs, including the associated employee compensation, representing a full year of capitalization activity compared to partial year in 2024, during which capitalization commenced on March 1, 2024. The increase in capitalized compensation reduced the amount of salary expense recognized in the consolidated statements of operations and is consistent with the Company's continued investment in its suite of software platforms. Total compensation costs incurred, including both expensed and capitalized amounts, were relatively consistent with prior year levels.

Selling, General and Administrative: SG&A increased $4,336,336, or 65.0%, to $11,006,020 for the year ended December 31, 2025, compared to $6,669,684 for the year ended December 31, 2024. The increase was primarily driven by the following: (i) outside contractor costs increased $1,329,017, reflecting the Company's increased utilization of third-party contractors to supplement the internal capabilities following the shift of employee compensation to capitalized software development costs described above; (ii) amortization expense increased $976,600, all of which reflects the increase in amortization of capitalized software development costs from $161,350 in 2024 to $1,137,950 in 2025, as the Company's software projects were completed and placed into operation during the year. The significant increase from the prior year reflects the fact that capitalization commenced on March 1, 2024, with the first full year of amortization recognized in 2025. This amortization is expected to continue at similar or higher levels in future periods as the capitalized development portfolio continues to amortize over its estimated three-year useful lives; (iii) professional fees increased $280,797, reflecting higher legal and accounting costs associated with the Company's public company compliance obligations and financial statement preparation; and (iv) credit card processing fees increased $140,763, consistent with changes in the Company's revenue mix and payment processing activity during the year.

Loss From Operations

Loss from operations increased $3,999,393 to $(6,102,354) for the year ended December 31, 2025, compared to $(2,102,961) for the year ended December 31, 2024. The widening operating loss was driven primarily by the $4,361,521 decline in gross profit, which was largely attributable to the inventory reconciliation adjustments and the decline in higher-margin software subscription revenue, while total operating expenses remained essentially flat year-over-year.

Other Income (Expense)

Total other expense, net was $(9,125,539) for the year ended December 31, 2025, compared to $(6,692,458) for the year ended December 31, 2024, an increase in expense of $2,433,081. The net change reflects significant offsetting movements within individual components, as described below.

Interest Income: Interest income increased $159,308 to $265,708 for the year ended December 31, 2025, compared to $106,400 for the year ended December 31, 2024, reflecting higher average cash balances held during the year.

Interest Expense: Interest expense decreased $3,675,931, or 53.0%, to $3,256,687 for the year ended December 31, 2025, compared to $6,932,618 for the year ended December 31, 2024. The decrease reflects 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, both of which significantly reduced the Company's average interest-bearing debt balance during the year.

Gain on Fair Value Adjustment: No gain on fair value adjustment was recorded for the year ended December 31, 2025, compared to a gain of $142,319 for the year ended December 31, 2024. The prior year gain related to the revaluation of derivative liabilities associated with the PIPE Warrants, which were exchanged in April 2025 and no longer exist.

Loss on Extinguishment of Debt: Loss on extinguishment of debt was $6,135,160 for the year ended December 31, 2025, compared to $270,594 for the year ended December 31, 2024. The 2025 loss arose primarily from the exchange of the outstanding PIPE Convertible Notes for Series A Preferred Stock in July 2025. The improvement in interest expense discussed above is directly related to these same transactions, and both items should be considered together when evaluating the net economic impact of the debt restructuring activity completed during 2025.

Gain on Investment: No gain on investment was recorded for the year ended December 31, 2025, compared to a gain of $262,035 for the year ended December 31, 2024. The prior year gain related to short-term money market investments.

Net Loss

Net loss was $15,227,893 for the year ended December 31, 2025, compared to $8,795,419 for the year ended December 31, 2024, an increase of $6,432,474. The increase in net loss was driven by the $4,361,521 decline in gross profit and the $6,135,160 loss on extinguishment of debt, partially offset by a $3,675,931 reduction in interest expense resulting from the debt restructuring transactions completed during the year.

Liquidity and Capital Resources

Our primary sources of liquidity are cash on hand, cash generated from operations, proceeds from equity financings, and available borrowings under our JP Morgan Chase line of credit. Our primary uses of cash are funding operations, capitalized software development costs, and scheduled debt service obligations.

Cash Position

The following table presents our cash position as of December 31, 2025 and 2024:

		2025				2024				Change
Cash and cash equivalents		$	10,469,263			$	8,782,077			$	1,687,186
Restricted cash			2,100,000				2,100,000				-
Total cash		$	12,569,263			$	10,882,077			$	1,687,186

As of December 31, 2025, we had cash and cash equivalents of $10,469,263, compared to $8,782,077 as of December 31, 2024. The $2,100,000 in restricted cash is pledged as collateral for our JP Morgan Chase line of credit and is presented separately on our consolidated balance sheets. Restricted cash is not available for general corporate purposes. Unrestricted cash available for operations as of December 31, 2025, was $10,469,263.

Summary of Cash Flows

The following table summarizes our cash flows for the years ended December 31 2025 and 2024:

		2025				2024				Change
Net cash used in operating activities		$	(1,698,381	)		$	(3,995,606	)		$	2,297,225
Net cash (used in) provided by investing activities			(3,436,933	)			741,143				(4,178,076	)
Net cash provided by financing activities			6,822,500				8,738,976				(1,916,476	)
Net increase in cash and cash equivalents		$	1,687,186			$	5,484,513			$	(3,797,327	)

Operating Activities: During the year ended December 31, 2025, we used $1,698,381 in cash from operating activities, a decrease in use of $2,297,225 compared to the cash used in operating activities of $3,995,606 during the year ended December 31, 2024. Despite a net loss of $15,227,893, operating cash consumption was significantly reduced by large non-cash charges included in net loss. The most significant non-cash items were: (i) loss on extinguishment of debt of $6,135,160, which represented the non-cash accounting loss recognized upon the exchange of the PIPE Convertible Notes for Series A Preferred Stock. This charge had no cash impact on operating activities; (ii) inventory reconciliation adjustments of $2,199,985, which represented non-cash changes recorded in connection with the Company's transition to a new accounting system, as described in the Cost of Revenue discussion above; (iii) amortization of capitalized software development costs of $1,137,950, which represented a non-cash charge for the amortization of software development costs capitalized in prior periods and placed into service during 2025.

The improvement in operating cash flow compared to the prior year reflects the combined effect of these non-cash adjustments and changes in working capital, partially offset by the increase in operating loss from continuing operations.

Investing Activities

Net cash used in investing activities was $3,436,933 for the year ended December 31, 2025, compared to net cash provided by investing activities of $741,143 for the year ended December 31, 2024, a change of $4,178,076. The increase in cash used reflects the Company's continued and expanded investment in capitalized software development costs, which totaled $3,231,490 for the year ended December 31, 2025, representing a full year of development activity compared to a partial year in 2024. The prior year investing activities included cash inflows related to the sale of short-term investments held by the Company, which did not recur in 2025.

Financing Activities

Net cash provided by financing activities was $6,822,500 for the year ended December 31, 2025, compared to $8,738,976 for the year ended December 31, 2024, a decrease of $1,916,476. The primary source of financing cash in 2025 was $4,999,500 received from the exercise of Series A Preferred Stock warrants. Additional financing activity during 2025 included $2,520,000 in PIPE loans, net of debt discounts which were offset by $687,000 in repayments of related party loans.

The following significant financing transactions during 2025 were non-cash in nature and therefore excluded from the statement of cash flows, but are material to understanding the Company's capital structure:

Non-Cash Financing Transaction		Amount
Exchange of PIPE Notes and Series A & Series B Warrants for Series A Convertible Preferred Stock and Warrants		$	5,651,310
Series A Convertible Preferred Stock issued in exchange of PIPE Notes			4,558,841
Series A Convertible Preferred Stock dividends converted to Class A Common Stock			4,693,111
PIPE principal converted to Class A Common Stock			3,213,000
Dividend note principal converted to Class A and Class B Common Stock			3,905,561

These non-cash transactions resulted in the elimination of all outstanding PIPE Convertible Note obligations and significantly all of the dividend note obligations, significantly improving the Company's balance sheet and eliminating the associated interest burden going forward.

Debt Obligation and Near-Term Maturities

As of December 31, 2025, we have approximately $1,749,471 in scheduled debt payments due within the next twelve months. The JP Morgan Chase line of credit balance of $802,738 matures on December 31, 2026, and we intend to seek renewal or replacement of this facility prior to maturity. The ARJ Trust notes of $650,000 mature on March 3, 2026, and we expect to seek extension of this loan prior to maturity while we satisfy this obligation through available cash on hand. The two annual installments of the Carver Note for $37,000 each are due on March 31, 2026 and September 30, 2026. The McKettrick Note annual installment of $250,000 is due on December 21, 2026. We expect to fund all near-term debt obligations through unrestricted cash on hand and cash generated from operations.

We maintain a $2,000,000 revolving line of credit with JP Morgan Chase, secured by $2,100,000 in restricted cash pledged as collateral. As of December 31, 2025, $802,738 was outstanding under the facility, leaving available borrowing capacity of $1,197,262.

The Company has an outstanding loan of $1,600,000 from Chris Jones, our Chief Executive Officer, which bears no interest and has no stated maturity date. During the year ended December 31, 2025, the Company voluntarily repaid $400,000 of this obligation. Because this loan has no stated maturity or formal repayment schedule it is classified as a short-term obligation; however, as a related party arrangement with no documented terms, there can be no assurance as to the timing of any future repayment demands.

The Company has a gross sales royalty representing a perpetual obligation requiring minimum monthly payments of the greater of $20,833 or a percentage of monthly revenues based on trailing twelve-month revenue levels, currently fixed at 2.4% of applicable revenues. The outstanding balance of this obligation was $1,000,000 as of December 31, 2025. During the year ended December 31, 2025, royalty payments totaled $663,014. This obligation has no stated maturity date and therefore no scheduled principal maturities; it will continue to require cash outlays in perpetuity unless terminated through a change of control buyout or reduced through the exercise of the one-time buy-down option, each as provided in the Royalty Agreement.

Capital Expenditure Requirements

Our capital expenditures consist primarily of capitalized software development costs associated with the continued development of our suite of software platforms. During the year ended December 31, 2025, we capitalized $3,231,490 in software development costs, compared to $1,701,471 in 2024, reflecting the expansion of our development program to a full annual cycle. We expect to continue investing in software development at similar levels in 2026 as we advance our product roadmap. These expenditures are expected to be funded through cash on hand and cash generated from operations.

Sufficiency of Capital Resources

Based on our current unrestricted cash position of $7,849,785, available borrowing capacity of $1,197,262 under our JP Morgan Chase line of credit, and management's assessment of expected operating cash flows, we believe our existing resources will be sufficient to fund our operations, meet our debt service obligations as they come due, and continue our software development investment program for at least the next twelve months from the date of this filing.

However, our long-term liquidity depends on our ability to improve operating cash flows through revenue growth and cost management, and to access additional financing if required. We have historically funded our operations through a combination of revenue, debt financings, and equity issuances. While we have no committed financing arrangements in place beyond the JP Morgan Chase line of credit, we believe additional financing sources would be available to us if needed; however, there can be no assurance that such financing would be available on acceptable terms or at all. Our ability to raise equity capital is also subject to our continued compliance with Nasdaq listing requirements, including during the one-year Mandatory Panel Monitor period that runs through August 2026, as described in Note 1 to the consolidated financial statements.

Off-Balance Sheet Arrangements

As of December 31, 2025, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Known Trends, Events, and Uncertainties

The emergence and effects of public health crises, such as pandemics and epidemics, along with geopolitical conflicts, including the consequences of the ongoing war between Russia and Ukraine and between Israel and various factors in the Middle East, including related sanctions and countermeasures, are difficult to predict, and could adversely impact geopolitical and macroeconomic conditions, the global economy, and contribute to increased market volatility, which may in turn adversely affect our business and operations.

Other than as discussed above and elsewhere in this report, we are not aware of any trends, events or uncertainties that are likely to have a material effect on our financial condition.

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 December 31, 2025, we recorded an allowance of $1,553,000 against gross accounts receivable of $2,613,709, representing a reserve rate of 59.4%. 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 $261,000, 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 year ended December 31, 2025, we recorded $2,199,985 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 December 31, 2025, capitalized software development costs, net of accumulated amortization, were $3,633,661, and amortization expense was $1,137,950 for the year ended December 31, 2025, compared to $161,350 for the year ended December 31, 2024.

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 $3,633,661 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 $538,582, which would be material to our results of operations.

Income Tax Valuation Allowance

We maintain a full valuation allowance against all of our deferred tax assets due to uncertainty regarding our ability to generate sufficient future taxable income to realize those benefits. As of December 31, 2025, the cumulative valuation allowance was $5,633,400. The determination of whether a valuation allowance is required involves significant judgment about the weight of both positive and negative evidence regarding future taxable income, including our history of cumulative losses, current operating trends, and the feasibility of tax planning strategies.

This estimate is highly sensitive to changes in management's assessment of future profitability. If we were to conclude that it is more likely than not that some or all of our deferred tax assets will be realized, we would reduce the valuation allowance accordingly, resulting in a tax benefit and increase in net income in the period of the change. Conversely, if our deferred tax assets were to increase due to continued losses and we maintain a full valuation allowance, no additional income statement impact would result. Additionally, we have not completed an analysis under Section 382 of the Internal Revenue Code to determine whether ownership changes resulting from our 2025 equity transactions have limited our ability to utilize our net operating loss carryforwards. If a Section 382 limitation applies, a portion of our deferred tax assets related to net operating losses may need to be written off, which could be material.