Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

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 and six months ended June 30, 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.

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 Class A common stock was reduced from 1,000,000,000 shares to 100,000,000 shares, and the number of authorized shares of Class B common stock was reduced from 10,000,000 to 1,000,000. All share amounts have been retroactively adjusted for the Reverse Stock Split.

Results of Operations

Comparison of the Three Months Ended June 30, 2026, to the Three Months Ended June 30, 2025

		2026				2025				Variance
Revenue, net		$	5,792,180			$	4,310,864			$	1,481,316
Cost of revenue			2,326,282				2,537,654				(211,372	)
Total gross profit			3,465,898				1,773,210				1,692,688
Operating expenses
Salaries, wages and benefits			1,240,565				1,006,210				234,355
Selling, general and administrative			2,447,339				2,637,026				(189,687	)
Operating loss			(222,006	)			(1,870,026	)			1,648,020
Other expenses, net			(225,802	)			(1,451,444	)			1,225,642
Loss before income taxes		$	(447,808	)		$	(3,321,470	)		$	2,873,662

Revenues

Revenues increased by $1,481,316, or 34.4% for the three months ended June 30, 2026, compared to the three months ended June 30, 2025. The increase is primarily attributable to higher product acceptance, which resulted in increased revenue recognition from product sales, as well as the recognition of previously deferred revenue upon satisfaction of the applicable revenue recognition criteria.

Cost of Revenues

Cost of revenue decreased by $211,372, or 8.3% for the three months ended June 30, 2026, as compared to the three months ended June 30, 2025. The decrease was partially attributable to (i) the allocation of salaries and wages of warehouse employees of $330,204 during the three months ended June 30, 2026, compared to its absence during the prior year period, (ii) the increase in shipping costs of $192,590 during the three months ended June 30, 2026 as compared to the prior year period, (iii) inventory adjustments decreased by $328,276, reflecting reduced inventory write-downs and other inventory-related adjustments, and (iv) other product cost variances decreased by $405,890 as compared to the prior year period.

Operating Expenses

Total operating expenses increased by $44,668, for the three months ended June 30, 2026, as compared to the three months ended June 30, 2025.

Salaries, Wages and Benefits

Salaries, wages and benefits increased by $234,355, or 23.3%, to 1,240,565 for the three months ended June 30, 2026, compared to $1,006,210 the three months ended June 30, 2025. The increase was primarily due to a reduction in employee compensation capitalized as software development costs, which resulted in a greater portion of payroll cost being recognized as operating expense during the current-year period. Employee compensation capitalized as software development costs decreased to $933,603 for the three months ended June 30, 2026, from $1,298,247 in the prior year period.

Selling, General and Administrative

Selling, general and administrative decreased by $189,687, or 7.2%, to $2,447,339 for the three months ended June 30, 2026, compared to $2,637,026, for the three months ended June 30, 2025. The overall decrease was primarily attributable to a $323,248 decrease in bad debt expense in accordance with the Company's accounting policy for recording the allowance for doubtful accounts, as well as a $166,619 decrease in other selling, general and administrative expenses. These decreases were partially offset by an increase in amortization expense related to capitalized software costs to $286,513 for the three months ended June 30, 2026, from $111,188 for the comparable prior-year period, and an increase in rent expense of $124,855, primarily resulting from a lease modification executed during the year ended December 31, 2025, which increased the Company's monthly lease payments.

Other Expenses, net

Other expenses, net decreased by $1,225,642, or 84.4%, for the three months ended June 30, 2026, compared with the three months ended June 30, 2025. The decrease was primarily attributable to the elimination of interest expense 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.

Comparison of the Six Months Ended June 30, 2026, to the Six Months Ended June 30, 2025

		2026				2025				Variance
Revenue, net		$	10,812,442			$	9,700,094			$	1,112,348
Cost of revenue			4,663,548				4,489,173				174,375
Total gross profit			6,148,894				5,210,921				937,973
Operating expenses
Salaries, wages and benefits			2,033,976				2,953,026				(919,050	)
Selling, general and administrative			5,631,503				5,362,145				269,358
Operating loss			(1,516,585	)			(3,104,250	)			1,587,665
Other expenses, net			(378,517	)			(2,887,542	)			2,509,025
Loss before income taxes		$	(1,895,102	)		$	(5,991,792	)		$	4,096,690

Revenues

Revenues increased by $1,112,348 for the six months ended June 30, 2026, compared to the six months ended June 30, 2025. The increase is primarily attributable to higher product acceptance, which resulted in increased revenue recognition from product sales, increase in revenue from the franchise division, as well as the recognition of previously deferred revenue upon satisfaction of the applicable revenue recognition criteria.

Cost of Revenues

Cost of revenue increased by $174,375, or 3.9% for the six months ended June 30, 2026, as compared to the six months ended June 30, 2025. The increase was partially attributable to (i) the allocation of salaries and wages of warehouse employees of $528,277 during the six months ended June 30, 2026, compared to its absence during the prior year period, (ii) the increase in shipping costs of $227,341 during the six months ended June 30, 2026 as compared to the prior year period, (iii) inventory adjustments decreased by $379,210, reflecting reduced inventory write-downs and other inventory-related adjustments, and (iv) other product cost variances decreased by $202,033 as compared to the prior year period.

Operating Expenses

Salaries, Wages and Benefits

Salaries, wages and benefits decreased by $919,050, or 31.1%, to $2,033,976 for the six months ended June 30, 2026, compared to $2,953,026 for the six months ended June 30, 2025. The decrease was primarily attributable to a lower amount of employee compensation being capitalized as software development costs during the current-year period. The Company capitalized $1,999,668 of employee compensation as software development costs during the six months ended June 30, 2026, compared to $1,568,778 during the corresponding prior year period.

Selling, General and Administrative

Selling, general and administrative increased by $269,358, or 5.0%, to $5,631,503 for the six months ended June 30, 2026, compared to $5,362,145, for the six months ended June 30, 2025. The overall increase was primarily attributable to an increase in amortization expense related primarily to capitalized software costs of $755,726 for the six months ended June 30, 2026, compared to $211,488 for the six months ended June 30, 2025, and an increase in rent expense of $124,855, primarily resulting from a lease modification executed during the year ended December 31, 2025, which increased the Company's monthly lease payments. The increases were partially offset by an decrease of $264,318 in bad debt expense in accordance with the Company's accounting policy for recording the allowance for doubtful accounts, a decrease of $212,235 in legal fees, as well as a $192,540 decrease in other selling, general and administrative expenses.

Other Income (Expenses)

Other expenses, net decreased by $2,509,025, or 86.9%, for the six months ended June 30, 2026, compared with the six months ended June 30, 2025. The decrease was primarily attributable to the elimination of interest expense 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 June 30, 2026, we had cash on hand of $8,474,349 and a working capital deficit of $2,345,394 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 $4,094,910, an increase of accounts receivable, net of $204,304, an increase in inventory of $528,059, and an increase in prepaid expenses of $72,704, which was partially offset by an increase in accounts payable of $481,822, an increase in other current liabilities of $129,704 and a decrease in deferred revenue of $379,836 and a decrease of $150,000 in note payable to related parties.

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 primarily with the sale of equity and convertible notes, although no assurances can be given that such financing will be available on acceptable terms or at all. 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 six months ended June 30, 2026, our cash used in operating activities was $1,400,386 compared to $1,354,546 during the six months ended June 30, 2025.

During the six months ended June 30, 2026, our net cash used in investing activities was $2,175,802 as compared to net cash used in investing activities of $1,614,744 during the six months ended June 30, 2025. The increase in cash used in investing activities was primarily due to an increase in capitalized costs for software development.

During the six months ended June 30, 2026, our net cash used in financing activities was $518,726 compared to net cash provided of $2,246,572 during the six months ended June 30, 2025. The decrease in cash provided by financing activities was primarily due to repurchase of treasury stock and cash payment of $150,000 for repayment of notes payable to a related party during the six months ended June 30, 2026, compared to $268,500 of such payments during the six months ended June 30, 2025, as well as $2,520,000 in cash proceeds from the convertible PIPE notes in 2025.

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. The 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 June 30, 2026, we recorded an allowance of $1,372,500 against gross accounts receivable of $2,637,513, representing a reserve rate of 52.0%. 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 $264,000, 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 June 30, 2026, capitalized software development costs, net of accumulated amortization, were $4,877,603, and amortization expense was $755,726 for the six months ended June 30, 2026, compared to $433,058 for the six months ended June 30, 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 $4,877,603 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 $813,000, 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.