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c

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ________

Commission File Number: 001-41610

 

INTERACTIVE STRENGTH INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

82-1432916

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

1005 Congress Ave, Suite 925

Austin , Texas

78701

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (310) 697-8655

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A common stock, $0.0001 par value per share

 

TRNR

 

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

As of June 7, 2023, the registrant had 14,313,185 shares of common stock, $0.0001 par value per share, outstanding.

 

 


 

TABLE OF CONTENTS

 

Risk Factor Summary

 

 

 

Part I. Financial Information

 

 

 

Item 1 Financial Statements

1

 

 

Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations

25

 

 

Item 3 Quantitative and Qualitative Disclosures About Market Risk

45

 

 

Item 4 Controls and Procedures

45

 

 

Part II. Other Information

 

 

 

Item 1 Legal Proceedings

47

 

 

Item 1A Risk Factors

47

 

 

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

101

 

 

Item 5 Other Information

103

 

 

Item 6 Exhibits

105

 

i


 

Risk Factor Summary

 

Our business is subject to numerous risks and uncertainties that could affect our ability to successfully implement our business strategy and affect our financial results. You should carefully consider all of the information in this report and, in particular, the following principal risks and all of the other specific factors described in Item 1A. of this report, “Risk Factors,” before deciding whether to invest in our company.

We have incurred operating losses in the past, expect to incur operating losses in the future, and may not achieve profitability, or if we achieve profitability, be able to maintain it in the future.

Our past financial results may not be a reliable indicator of our ability to successfully establish our product and service offerings in the marketplace, or of our future performance, and our revenue growth rate is likely to slow as our business matures.

We have a limited operating history with which to evaluate and predict the profitability of our subscription model, and any new revenue models we may introduce in the future may be unsuccessful.

Our negative cash flows from operations, history of losses, and significant accumulated deficit raise substantial doubt about our ability to continue as a “going concern.”

If we fail to compete successfully, we may fail to obtain a meaningful market share, which in turn would harm our business, financial condition, and results of operations.

Our results of operations and other financial and non-financial business metrics may fluctuate from period to period and our results from any prior periods, or any historical trends reflected in such results, may not be indicative of our future financial or operating performance.

We derive a significant majority of our revenue from sales of our Forme Studio equipment and if sales of our Forme Studio equipment decline, it would materially and negatively affect our future revenue and results of operations. Further, our membership revenue is largely dependent on our ability to sell our Forme Studio equipment.

Our results of operations could be adversely affected if we are unable to accurately forecast consumer demand for our products and services and adequately manage our inventory.

If we are unable to sustain competitive pricing levels for our premium connected fitness hardware products and memberships to the Forme platform, our business could be adversely affected.

Changes in how we market our products and services could adversely affect our marketing expenses and membership levels.

The market for our products and services is still in the early stages of growth and if the market does not continue to grow, grows more slowly than we expect, or fails to grow as large as we expect, or if our products and services do not gain market acceptance, our business, financial condition, and results of operations may be adversely affected.

Our revenue could decline if customers are no longer able to finance their purchases of our products due to changes in credit markets and decisions made by credit providers.

We may be unable to attract and retain members, which could have an adverse effect on our business and rate of growth.

If we are unable to attract or otherwise retain personal trainers and health coaches, as well as fitness instructors, including to produce and provide fitness content on our platform, our business, financial condition, and results of operations could be harmed.

If we fail to cost-effectively attract new members, provide high-quality member support, or increase utilization of the Forme platform by existing members, our business, financial condition, and results of operations could be harmed.

Changes to our pricing methodologies or business model could adversely affect our ability to attract or retain members as well as qualified personal trainers, health coaches, and fitness instructors.

If we are unable to anticipate consumer preferences and successfully develop and introduce new, innovative, and updated products and services in a timely manner or effectively manage the introduction of new or enhanced products and services, our business may be adversely affected.

If we fail to successfully expand our commercial and corporate wellness business, it could negatively impact our ability to grow our business and gain market share.

If we are unable to manage our growth effectively, our brand, company culture, and financial performance may suffer.

If we are unable to successfully expand our retail showroom footprint, it could adversely affect our ability to expand our business.

ii


 

Design, manufacturing, and other defects in our products, or technical or performance issues related to our products or services, or similar events may result in claims against us and may cause us to incur significant additional expense to address these issues, and our liability insurance may not be adequate to cover any or all such costs.

The failure or inability of our contract manufacturers to comply with the specifications and requirements of our products could result in a product recall, which could adversely affect our reputation and subject us to significant liability should the use of any of our products cause or be claimed to cause physical harm.

If we are unable to access or use production studios or if we are unable to attract and retain high-quality and innovative fitness instructors or other content production providers, we may not be able to generate interesting and attractive content for our platform.

If we fail to establish and expand our strategic partnerships within the fitness and wellness industries or across the hospitality, fashion, sports and design industries, our ability to increase market share and grow our business may suffer.

We face risks, such as unforeseen costs and potential liability, in connection with content we acquire, produce, license, or distribute through our services.

We face certain risks related to the interaction of our members, trainers, and fitness instructors.

Stockholders owning a significant percentage of our common stock will be able to exert significant influence over matters subject to stockholder approval and may have interests that conflict with those of our other stockholders.

We rely on a limited number of suppliers, manufacturers, and logistics partners for our Forme Studio equipment and are subject to risks related to increases in component and equipment costs, long lead times, supply shortages, and supply changes.

Our payments system depends on third-party providers and is subject to evolving laws and regulations.

Any major disruption or failure of our information technology systems or websites, or our failure to successfully implement upgrades and new technologies effectively, could adversely affect our business and operations.

Any disruption of our use of these third-party services, including those we use for computing, storage, processing, and similar services, could have an adverse effect on our business, financial condition, and results of operations.

If we experience any adverse change to, loss of, or claim that we do not hold necessary licenses to the music content included in our fitness content or otherwise accessible on our platform, it may have an adverse effect on our business, financial condition, and results of operations.

Our member engagement on mobile devices depends upon effective operation with mobile operating systems, networks, and standards that we do not control.

If our marketing efforts are not effective, our ability to grow our business and maintain or expand our market share could suffer.

We rely on third parties to drive traffic to our website, and these providers may change their algorithms or pricing in ways that could damage our business, operations, financial condition, and prospects.

We may not be able to accurately predict our future capital needs and may incur significant expenditures, and we may not be able to obtain additional financing to fund our operations.

If we do not remediate the material weaknesses identified in our internal control over financial reporting, or if we fail to establish and maintain effective internal control, we may not be able to accurately report our financial results or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in the market price of our common stock.

We face risks related to intellectual property, privacy, cybersecurity, tax, and accounting matters, as well as risks related to our international operations and other regulatory matters, including contractor classification, export control, anti-corruption, environmental, ESG, and climate change.

We face risks related to being a public company and our common stock, as well as general risks, including those related to the COVID-19 pandemic, economic conditions, dependence on key personnel, acquisition-related matters, and litigation, among others.

iii


 

Item 1. Financial Statements

INTERACTIVE STRENGTH INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(In thousands, except share and per share amounts)

 

 

 

March 31,

 

 

December 31,

 

 

2023

 

 

2022

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,050

 

 

$

226

 

Accounts receivable, net of allowances

 

 

11

 

 

 

 

Inventories, net

 

 

1,884

 

 

 

4,567

 

Vendor deposits

 

 

3,487

 

 

 

3,603

 

Prepaid expenses and other current assets

 

 

1,276

 

 

 

1,426

 

Total current assets

 

 

7,708

 

 

 

9,822

 

Property and equipment, net

 

 

1,050

 

 

 

1,326

 

Right-of-use-assets

 

 

22

 

 

 

110

 

Intangible assets, net

 

 

3,348

 

 

 

3,834

 

Long-term inventories

 

 

2,702

 

 

 

 

Deferred offering costs

 

 

3,935

 

 

 

2,337

 

Other assets

 

 

6,996

 

 

 

7,018

 

Total Assets

 

$

25,761

 

 

$

24,447

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

8,311

 

 

$

7,743

 

Accrued expenses and other current liabilities

 

 

3,515

 

 

 

5,304

 

Operating lease liability, current portion

 

 

23

 

 

 

106

 

Deferred revenue

 

 

35

 

 

 

29

 

Loan payable

 

 

5,889

 

 

 

6,708

 

Senior secured notes

 

 

2,000

 

 

 

 

Income tax payable

 

 

7

 

 

 

7

 

Convertible note payable

 

 

4,350

 

 

 

4,270

 

Total current liabilities

 

 

24,130

 

 

 

24,167

 

Operating lease liability, net of current portion

 

 

 

 

 

9

 

Warrant liabilities

 

 

594

 

 

 

3,004

 

Total liabilities

 

$

24,724

 

 

$

27,180

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Common stock, par value $0.0001; 50,000,000 and 369,950,000 shares authorized as of March 31, 2023 and December 31, 2022, respectively; 11,774,279 and 2,450,922 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively.

 

 

7

 

 

 

4

 

Additional paid-in capital

 

 

132,279

 

 

 

112,436

 

Accumulated other comprehensive income

 

 

250

 

 

 

365

 

Accumulated deficit

 

 

(131,499

)

 

 

(115,538

)

Total stockholders' equity (deficit)

 

 

1,037

 

 

 

(2,733

)

Total liabilities and stockholders' equity (deficit)

 

$

25,761

 

 

$

24,447

 

 

 

1


 

INTERACTIVE STRENGTH INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

(In thousands, except share and per share amounts)

 

 

Three Months Ended March 31,

 

 

2023

 

 

2022

 

Revenue:

 

 

 

 

 

 

Fitness product revenue

 

$

72

 

 

$

177

 

Membership revenue

 

 

24

 

 

 

12

 

Training revenue

 

 

61

 

 

 

 

Total revenue

 

 

157

 

 

 

189

 

Cost of revenue:

 

 

 

 

 

 

Cost of fitness product revenue

 

 

(743

)

 

 

(554

)

Cost of membership

 

 

(962

)

 

 

(1,489

)

Cost of training

 

 

(103

)

 

 

(304

)

Total cost of revenue

 

 

(1,808

)

 

 

(2,347

)

Gross loss

 

 

(1,651

)

 

 

(2,158

)

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

3,113

 

 

 

4,967

 

Sales and marketing

 

 

600

 

 

 

2,009

 

General and administrative

 

 

15,847

 

 

 

3,162

 

Total operating expenses

 

 

19,560

 

 

 

10,138

 

Loss from operations

 

 

(21,211

)

 

 

(12,296

)

Other income (expense), net:

 

 

 

 

 

 

Other income (expense), net

 

 

117

 

 

 

15

 

Interest income (expense)

 

 

208

 

 

 

(386

)

Gain upon debt forgiveness

 

 

2,595

 

 

 

 

Change in fair value of convertible notes

 

 

(80

)

 

 

(24

)

Change in fair value of warrants

 

 

2,410

 

 

 

 

Total other income (expense), net

 

 

5,250

 

 

 

(395

)

Loss before provision for income taxes

 

 

(15,961

)

 

 

(12,691

)

Income tax expense

 

 

 

 

 

 

Net loss attributable to common stockholders

 

$

(15,961

)

 

$

(12,691

)

Net loss per share - basic and diluted

 

$

(2.09

)

 

$

(43.81

)

Weighted average common stock outstanding—basic and diluted

 

 

7,653,940

 

 

 

289,713

 

 

 

Three Months Ended March 31,

 

 

2023

 

 

2022

 

Net loss

 

$

(15,961

)

 

$

(12,691

)

Other comprehensive loss:

 

 

 

 

 

 

Foreign currency translation (loss) gain

 

 

(115

)

 

 

167

 

Total comprehensive loss

 

$

(16,076

)

 

$

(12,524

)

 

 

2


 

INTERACTIVE STRENGTH INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

(unaudited)

In thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series Seed
 0 - 10

 

Convertible Preferred Stock Series A

 

Series A-1

 

Series A-2

 

Common Stock

 

Class A Common Stock

 

Class B Common Stock

 

Additional Paid-In Capital

 

Accumulated Other Comprehensive (Income) Loss

 

Accumulated Deficit

 

Total Stockholders' Equity (Deficit)

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

 

 

 

 

 

 

 

 

Balances at December 31, 2021

 

42,999

 

$

7,594

 

 

86,703

 

$

19,535

 

 

10,208

 

$

2,604

 

 

 

$

 

 

 

$

 

 

181,362

 

$

3

 

 

31,703

 

$

 

$

37,806

 

$

(159

)

$

(57,313

)

$

(19,663

)

Issuance of Class A common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

267,384

 

 

3

 

 

 

 

 

 

2,060

 

 

 

 

 

 

2,063

 

Issuance of Series A-2 preferred stock upon conversion of convertible notes

 

 

 

 

 

 

 

 

 

 

 

 

 

124,313

 

 

5,926

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Series A-2 preferred stock, net of issuance costs of $97

 

 

 

 

 

 

 

 

 

 

 

 

 

631,292

 

 

30,028

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Class B common stock upon exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

501

 

 

 

 

8

 

 

 

 

 

 

8

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

97

 

 

 

 

 

 

97

 

Foreign currency translation gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

167

 

 

 

 

167

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,691

)

 

(12,691

)

Balances at March 31, 2022

 

42,999

 

$

7,594

 

 

86,703

 

$

19,535

 

 

10,208

 

$

2,604

 

 

755,605

 

$

35,954

 

 

 

$

 

 

448,746

 

$

6

 

 

32,204

 

$

 

$

39,971

 

$

8

 

$

(70,004

)

$

(30,019

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series Seed
 0 - 10

 

Convertible Preferred Stock Series A

 

Series A-1

 

Series A-2

 

Common Stock

 

Class A Common Stock

 

Class B Common Stock

 

Additional Paid-In Capital

 

Accumulated Other Comprehensive (Income) Loss

 

Accumulated Deficit

 

Total Stockholders' Equity (Deficit)

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

 

 

 

 

 

 

 

 

Balances at December 31, 2022

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

 

 

$

 

 

2,416,698

 

 

4

 

 

34,224

 

$

 

 

112,436

 

 

365

 

 

(115,538

)

 

(2,733

)

Issuance of Common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,676,924

 

 

3

 

 

 

 

 

 

 

 

 

 

4,449

 

 

 

 

 

 

4,452

 

Issuance of Common stock upon conversion of Class A Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,416,698

 

 

4

 

 

(2,416,698

)

 

(4

)

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Class B common stock upon exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

646,433

 

 

 

 

14

 

 

 

 

 

 

14

 

Issuance of Common stock upon conversion of Class B Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

680,657

 

 

 

 

 

 

 

 

(680,657

)

 

 

 

 

 

 

 

 

 

 

Stock-based compensation