Interactive Strength, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. Interactive Strength sells connected fitness equipment and digital membership and training services through FORME and CLMBR. The February 2, 2024 acquisition of CLMBR affects comparability with the prior-year quarter.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $0.363 million | $0.157 million |
| Gross loss / gross margin | $(1.200) million / (331%) | $(1.651) million / (1,052%) |
| Operating expenses | $8.241 million | $19.560 million |
| Operating loss | $(9.441) million | $(21.211) million |
| Net loss | $(11.394) million | $(15.961) million |
| Adjusted EBITDA, non-GAAP | $(3.449) million | $(4.427) million |
| Net cash used in operations | $(2.959) million | $(4.738) million |
- Revenue mix in Q1 2024: fitness products $53,000; memberships $155,000; training $155,000. Membership and training revenue rose primarily following the CLMBR acquisition; fitness product revenue declined 26%.
- Gross loss narrowed by $451,000, with management attributing the improvement primarily to a prior-year inventory valuation reserve. The business remained substantially below break-even at the gross-profit level.
- Operating expenses fell 58%, mainly reflecting lower stock-based compensation ($3.366 million versus $14.639 million) and lower personnel and prior-year IPO-related costs. Acquisition-related costs were $764,000.
- Other expense was $1.953 million, versus $5.250 million of other income in Q1 2023. Q1 2024 included $2.000 million interest expense, $1.066 million debt-extinguishment loss and a $1.799 million warrant fair-value gain. Prior-year results included $2.595 million of debt-forgiveness gain and a $2.410 million warrant fair-value gain.
- Cash and cash equivalents were reported as zero at March 31, 2024 and December 31, 2023. Cash flow was $(1.710) million from investing and $4.615 million provided by financing; the filing reports no net change in cash for Q1 2024.
- At March 31, current assets were $8.879 million and current liabilities were $38.533 million. Total current debt was $19.114 million; all was classified as current. The company reported an accumulated deficit of $178.305 million.
Material changes and transactions
- The CLMBR asset acquisition closed February 2, 2024, for stated consideration of approximately $15.9 million, including cash, common and Series B preferred shares, contingent consideration, and retirement or assumption of debt. Preliminary purchase accounting included $13.2 million goodwill and $6.9 million identifiable intangible assets.
- The company issued a $6.0 million secured convertible note in February, bearing interest at 2% per month and maturing December 15, 2024, and entered a term-loan agreement with Vertical Investors. Warrants issued alongside financing and a distribution agreement contributed to reported warrant liabilities of $937,000 at quarter-end.
- Common shares outstanding increased from 14.192 million at December 31, 2023 to 19.434 million at March 31, 2024. The filing also lists 5.854 million warrants and 3.412 million options excluded from diluted loss per share as anti-dilutive.
Outlook, risks and unusual items
- Going concern: Management states that substantial doubt exists about the company’s ability to continue as a going concern. As of the financial statement issuance date, it reported approximately zero cash, no financing source sufficient to fund the next 12 months, and a need for additional outside capital. Management warned that failure to obtain financing or lender relief could require significant operating cuts, asset or company sale, or bankruptcy proceedings.
- Subsequent debt modification: On April 24, 2024, the company amended its Vertical loan, including extending maturity to December 31, 2024 and requiring $60,000 monthly interest payments and principal payments tied to future capital raises. The filing reports approximately $16.1 million total debt as of issuance, due or scheduled to mature within 12 months.
- Nasdaq listing: The company received a deficiency notice because its bid price was below $1.00. It had until July 24, 2024 to regain compliance, subject to possible additional procedures; delisting could impair liquidity and access to financing.
- Legal contingency: DK City seeks enforcement of an approximately $2.25 million arbitration award against CLMBR. The company disputes liability; it recorded a $2.25 million accrued liability assumed in the acquisition.
- Controls: Management concluded disclosure controls were ineffective and identified material weaknesses involving staffing and U.S. GAAP expertise, accounting systems, risk assessment and financial reporting controls, and stock-based compensation procedures. Remediation was planned, but not assured.
- Management outlook: The filing provides no specific financial guidance. Management expects continued operating losses and cash use, while describing commercial-channel growth, partnerships and acquisitions as strategic priorities. It also cites competition, supply-chain disruption, product demand, and the ability to raise capital as key risks.
Important facts for investors to verify
- Current cash, near-term cash needs, and whether additional financing or lender amendments have been secured since the filing.
- Debt balances, maturity dates, payment terms and any defaults or waivers, including the effects of the April 24 loan modification.
- Progress toward Nasdaq’s minimum-bid-price requirement and any extension, reverse split or delisting developments.
- CLMBR acquisition performance, final purchase-price allocation, earn-out terms, and the status and potential cost of the DK City claim.
- Potential dilution from preferred-stock conversion, warrants, options and subsequent securities issuances.
- Remediation of the disclosed material weaknesses and whether subsequent filings identify any accounting corrections or restatements.