Interactive Strength, Inc. (Forme) — Q2 2023 Form 10-Q
Business and period: The company sells connected fitness equipment and accessories and offers recurring memberships and personal training. This unaudited report covers the three and six months ended June 30, 2023; financial statement amounts below are in U.S. dollars unless noted.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $316,000 | $97,000 | $473,000 | $286,000 |
| Gross loss | $(1.138) million | $(1.521) million | $(2.788) million | $(3.679) million |
| Operating loss | $(11.938) million | $(11.457) million | $(33.148) million | $(23.753) million |
| Net loss | $(13.602) million | $(11.970) million | $(29.563) million | $(24.661) million |
| Adjusted EBITDA (non-GAAP) | $(5.731) million | $(9.876) million | $(10.157) million | $(20.648) million |
- Q2 gross margin was approximately negative 360%. Revenue remained small relative to cost of revenue.
- For the first six months, operating cash used was $11.2 million, versus $23.1 million in the prior-year period. Investing cash used was $0.9 million; financing provided $13.7 million. Cash at June 30 was $1.403 million.
- At June 30, current assets were $8.549 million and current liabilities $16.430 million. Total liabilities were $16.704 million; stockholders’ equity was $5.011 million.
- Current loan payable was $6.034 million, primarily related-party notes. The notes had matured and were in default; repayment had been temporarily waived. The filing reports an August 4, 2023 default notice from a principal stockholder.
Changes, financing, and unusual items
- Q2 revenue rose year over year, principally reflecting higher fitness product sales, membership growth and pricing, and the launch of live one-to-one training. Six-month revenue increased 65%.
- Lower research and development and sales and marketing costs reflected reduced headcount and lower marketing spend. General and administrative expense rose to $7.883 million in Q2 from $2.481 million, driven substantially by stock-based compensation and higher professional and advisory costs.
- Stock-based compensation was $18.938 million for the first half, versus $0.178 million a year earlier. It materially affected GAAP expenses and is excluded from Adjusted EBITDA.
- The company completed its IPO in May 2023 at $8 per share and reported 14.179 million shares outstanding at June 30, compared with 2.451 million at year-end 2022. Convertible notes and several warrant issuances also converted or were exercised in connection with the IPO.
- First-half other income included a $2.595 million gain on settlement of a content-provider arrangement and a $2.266 million gain from changes in warrant fair value. These items, along with fair-value movements and stock compensation, affect comparisons of reported results.
Outlook, risks, and contingencies
- Going concern: Management stated that available liquidity at the financial-statement issuance date was insufficient to fund operations and meet obligations for the next 12 months without additional outside capital. The filing says this raises substantial doubt about the company’s ability to continue as a going concern. Management cited cost reductions, new capital, and strategic arrangements as possible responses, without assurance of success; more severe alternatives could include curtailing operations, selling assets or the company, or bankruptcy.
- A June 2023 agreement provided for up to $15.8 million of 10% senior secured notes due June 25, 2025; none had been issued as of June 30. The company says it expects to rely on outside capital.
- In August 2023, the company signed a non-binding letter of intent to acquire a privately held fitness hardware company using cash and company shares. No definitive agreement or closing was assured.
- Key business risks include continuing losses, dependence on equipment sales, limited operating history, member retention and demand, competition, supply-chain constraints, and the need for additional financing. The company reported material weaknesses in financial reporting controls, including insufficient trained accounting personnel and controls; remediation efforts were planned but not assured.
- The company provided no specific financial guidance in the filing. Management described growth plans involving coaching services, partnerships, corporate wellness, and potential geographic expansion, but these are plans rather than committed targets.
Investor facts to verify
- Whether the company secured sufficient financing after the filing and how the matured, defaulted related-party notes were addressed.
- Whether the proposed acquisition advanced to a definitive agreement, and its financing, dilution, and integration implications.
- Whether equipment sales and membership growth can improve revenue scale and gross economics; the filing identifies equipment sales as the principal revenue source.
- Progress in remediating material weaknesses and the effect of continuing stock-based compensation and potential share issuance on reported results and ownership.
- Reconcile IPO proceeds and share issuance details across the filing’s narrative, cash-flow statement, and equity disclosures before relying on a single proceeds figure.