Interactive Strength, Inc.
For the period ended Dec 31, 2024. Filed Mar 31, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Mar 31, 2025
TRNR$1.22+2.5%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-04-01.
0000950170-24-039531
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-03-31.
0000950170-25-047848
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
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Tables are not compared: 12 previous and 10 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (55)
Current report
Interactive Strength Inc. is the parent company of two leading brands serving the commercial and at-home markets with specialty fitness equipment and virtual training: CLMBR and FORME. CLMBR manufactures vertical climbing equipment and provides a unique digital and on-demand training platform. FORME is a hardware manufacturer and digital fitness service provider that combines award-winning smart gyms with live 1:1 personal training (from real humans) to deliver an immersive experience. The combination of technology with expert training leads to better outcomes for both consumers and trainers alike. CLMBR and FORME offer unique fitness solutions for both the commercial and at-home markets.
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April 2023 – Interactive Strength went public on NASDAQ with ticker TRNR
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February 2024 – Acquired substantially all of the assets of CLMBR, Inc.
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Acquire complementary businesses that generate attractive synergies
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We acquired CLMBR, Inc. in February 2024 and believe that there are other compelling businesses to be acquired.
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We expect that we will be able to acquire revenue-generating businesses, which would generate higher earnings and cashflow through synergies with our existing business. Our team has significant experience in M&A and we are one of the few companies in our industry with a public currency, which we believe makes us an attractive acquiror.
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Leverage well established equipment distributors to scale in commercial channels
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We have high value partnerships with distributors, including Woodway, to sell CLMBR and FORME products into a variety of commercial environments. These relationships allow us to leverage the sales knowledge, relationships and specialization of third parties to accelerate our sales initiatives. Importantly, this construct allows us to make the vast majority of our sales related expenses variable, as we typically pay commissions only when units are sold.
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Target Sport Specific Markets
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We intend to reach sport specific markets, specifically golf, tennis and pickleball, which have historically been underserved by the fitness market. Golf is one of the fastest growing sports in the United States. According to the National Golf Foundation, golf participation grew 10% year-over-year surpassing 41.1 million in 2022. In 2023, on-course golfers rose for the fifth consecutive year. Similarly for tennis, according to data from the United States Tennis Association, and the Tennis Industry Association Participation and Engagement Study, in 2022 there were 23.6 million players, a 33% increase since the beginning of 2020. Pickleball has solidified its status as America's fastest-growing sport for the third consecutive year. According to the 2023 Sports & Fitness Industry Association's (SFIA) Topline Participation Report, participation in pickleball almost doubled in 2022, showing an 85.7 percent increase year-over-year and a staggering 158.6 percent increase over the past three years. Each of these sports, as well as others, benefit greatly from high quality strength and conditioning as well as the style of training that can be provided by both a cable-based system and vertical climbing. Providing greater access to quality training is a high value service in both commercial and direct to consumer markets.
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Gain on debt forgiveness
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Loss on issuance of warrants
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Loss on issuance of warrants consists of fair value of issuance of warrants issued in connection with Registered
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Direct Offering and Best Efforts Offering.
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Loss upon extinguishment of debt and accounts payable
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Loss on debt extinguishment was a result of conversion of promissory loans and senior secured debt into convertible notes.
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Change in Fair Value of Earn Out
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The change in fair value of earn out consists of the change in the fair value of the outstanding contingent considerations since the previous reporting period.
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Change in Fair Value of Derivatives
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The change in fair value of derivatives consists of the change in the fair value of the outstanding derivatives since the previous reporting period.
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Fitness product revenue increased $3.4 million, or 592%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase was primarily attributable to the acquisition of CLMBR, Inc.
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Membership revenue increased $0.6 million, or 451%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase was primarily attributable to the acquisition of CLMBR, Inc.
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Training revenue increased $0.4 million, or 154%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase was primarily attributable to the acquisition of CLMBR, Inc.
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Fitness product cost of revenue for the year ended December 31, 2024 increased $1.5 million, or 66%, compared to the year ended December 31, 2023. The increase is primarily due to increase in sales from the acquisition of CLMBR, Inc.
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General and administrative expense decreased $18.9 million, or 51%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, respectively. The decrease was due primarily to decrease of $16.5 million in stock-based compensation expenses, a decrease of $1.8 million in professional fees mostly related to the IPO, a decrease in depreciation and amortization of internal use software of $0.8 million, and a decrease of $1.9 million in consulting expense mostly attributable to IPO and other various expense decrease of $0.3 million, increase of $1.2 million in non-comparable transaction and integration costs, and $1.2 million of software subscriptions some which was attributable to CLMBR, Inc. acquisition.
Current report
The changes in other (expense) income was primarily attributable to the loss on issuance of common stock to lender in connection with entering Equity Line of Credit Agreement of $0.4 million, loss on exchange of warrants issued for equity with 2023 Convertible Note lender of $0.3 million and foreign currency exchange losses of $0.3 million.
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Interest expense increased $6.1 million for the year ended December 31, 2024, as compared to the year ended December 31, 2023. The increase in interest expense was driven by interest and amortization of debt discounts and debt issuance costs from December 2023 convertible note of $1.4 million, interest and amortization of debt discounts and debt issuance costs from Term Loan of $1.3 million, interest and amortization of debt discounts and debt issuance costs from February 2024 convertible note of $4.2 million and interest on shareholder loans of $0.3 million offset by decrease in amortization of debt discount on IPO Bridge loans of $1.3 million.
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Loss on issuance of warrants
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Loss on issuance of warrants consists of fair value of issuance of warrants issued in connection with Registered Direct Offering and Best Efforts Offering.
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Loss on extinguishment of debt and accounts payable
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Loss on extinguishment of debt and accounts payable was a result of conversion of promissory loans and senior secured debt into convertible notes and amendment of February 2024 Convertible Note.
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Change in Fair Value of Convertible Notes, Change in the Fair Value of Earn out, Change in Fair Value of Derivatives, Change in Fair Value of Warrants
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The change in fair value of convertible notes was driven by the conversion of bridge loans to Series A Preferred Stock. The change in the fair value of earn out was due to the Company's remote chance of obtaining the 2024 unit sales targets. The change in fair value of derivatives was due to the Loss Restoration agreement. The change in fair value of warrants was attributable to the warrants issued with December 2023 Note, February 2024 Convertible Note and Registered Direct Offering in May 2024 and Best Efforts Offering in July 2024.
Current report
In order to execute its emerging growth strategy, the Company has been heavily dependent on financing from lenders and capital from private and public investors (collectively “outside capital”) since its inception and expects to remain heavily dependent on outside capital for the foreseeable future until such time that the Company’s operations reach a scale of profitability that allows it to fund its obligations primarily with cash inflows from operations. However, management can provide no assurance the Company will ever be able to generate sufficient cash inflows to reduce or eliminate its reliance on outside capital.
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The Company’s available liquidity to fund its operations over the next twelve months beyond the issuance date was limited to approximately $2.3 million of cash and cash equivalents However, based on the Company’s anticipated liquidity needs, the foregoing available liquidity will not be sufficient to fund the Company’s obligations as they become over the next year beyond the issuance date due absent management’s ability to secure additional outside capital.
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In the past, the Company has been unable to remain in compliance with certain qualifications required by the Nasdaq Capital Markets in order for the Company’s common stock to remain listed on the Nasdaq. These requirements include a minimum stockholders’ equity balance of $2.5 million, a minimum of
Current report
500,000 publicly held shares, and a minimum trading price of $1.00 per share for a sustained period of time (collectively the “Rules”). During the two fiscal years ended December 31, 2024, the Company received three notices from the Listing Qualifications staff of the Nasdaq (the “Staff”) with respect to the Company’s noncompliance with these requirements, as follows:
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The first notice dated August 22, 2023, notified the Company that it did not comply with the minimum $2.5 million stockholders’ equity requirement for continued listing set forth in Nasdaq Listing Rule 5550(b)(1) (the “Rule 1”) but was granted a period of time to regain compliance. On November 25, 2024, the Company received a letter from the Staff stating that the Company has demonstrated compliance with Rule 1. The letter also stated that the Company will be subject to a Mandatory Panel Monitor for a period of one year from the date of the letter in accordance with the requirements of Nasdaq Listing Rule 5815(d)(4)(B). If, within that one-year monitoring period, the Staff finds that the Company failed to remain in compliance with Rule 1, the Company will not be permitted to provide the Staff with a plan of compliance with respect to that deficiency, the Staff will not be permitted to grant additional time for the Company to regain compliance with respect to that deficiency, and the Company will not be afforded an applicable cure or compliance period. Instead, the Staff will issue a Delist Determination Letter and the Company will have an opportunity to request a new hearing with the Panel. While the Company will have the opportunity to present to the Panel, no assurance can be provided that the Staff will grant the Company a compliance plan and allow the Company’s securities to remain listed on the Nasdaq.
Current report
The second notice dated November 13, 2024 notified the Company that it did not comply with the minimum 500,000 publicly held shares requirement for continued listing set forth in Nasdaq Listing Rule 5550(a)(4) (“Rule 2”) but was granted a period of time to regain compliance. On December 23, 2024, the Company received a letter from the Staff confirming that the Company has demonstrated compliance with Rule 2. The letter also stated that the Company will be subject to a Mandatory Panel Monitor for a period of one year from the date of the letter in accordance with the requirements of Nasdaq Listing Rule 5815(d)(4)(B). If, within that one-year monitoring period, the Staff finds that the Company failed to remain in compliance with Rule 2, the Company will not be permitted to provide the Staff with a plan of compliance with respect to that deficiency, the Staff will not be permitted to grant additional time for the Company to regain compliance with respect to that deficiency, and the Company will not be afforded an applicable cure or compliance period. Instead, the Staff will issue a Delist Determination Letter and the Company will have an opportunity to request a new hearing with the Panel. While the Company will have the opportunity to present to the Panel, no assurance can be provided that the Staff will grant the Company a compliance plan and allow the Company’s securities to remain listed on the Nasdaq.
Current report
Net cash used in operating activities of $14.8 million for the year ended December 31, 2024, was primarily due to a net loss of $34.9 million offset by depreciation and amortization of $6.1 million, stock-based compensation of $10.3 million, amortization of debt discount and non cash interest of $6.3 million, change in fair value of convertible notes of $0.1 million, loss on extinguishment of debt and accounts payable of $1.5 million, loss on issuance of common stock issued to lender in connection with equity line of credit of $0.4 million, loss on issuance of common stock issued in Best Efforts Offering of $0.3 million, warrants issued to service providers $5.9 million, non cash lease expense of $0.3 million, loss on exchange of warrants for equity of $0.4 million and, partially offset by decrease in operating assets and liabilities of $1.5 million, change in fair value of derivatives of $0.5 million, change in the fair value of warrants of $9.3 million, change in fair value of earn out of $1.3 million.
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Removed paragraphs (174)
Previous report
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Previous report
Forme is a digital fitness platform that combines premium connected fitness hardware products with expert customizable coaching deliver an immersive experience and better outcomes for both consumers and trainers. Our health coaching services encompass guidance and coaching on nutrition, recovery, sleep, and other health and lifestyle categories. Our coaching services are delivered primarily by our team of more than 50 trainers. All of our coaches can deliver personal training and 32 can deliver health coaching in other areas of wellness. We believe we are the pioneer brand in the emerging sector of virtual health coaching and that our products and services are accelerating a powerful shift towards outcome-driven fitness solutions.
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Recent Developments
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Equity Line of Credit
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On December 12, 2023, the Company entered into that certain common stock purchase agreement (the “Equity Line Purchase Agreement”) with an accredited investor (the “Equity Line Investor”) which was declared effective by the SEC on January 19, 2024. Under the terms and subject to the conditions of the Equity Line Purchase Agreement, the Company has the right, but not the obligation, to sell to the Equity Line Investor, and the Equity Line Investor is obligated to purchase, up to the lesser of (a) $20,000,000 in aggregate gross purchase price of newly issued Common Stock (the “Equity Line Securities”) and (b) the Exchange Cap (as defined in the Equity Line Purchase Agreement) (the “Equity Line Financing”).
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Series A Preferred Stock Certificate
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On January 6, 2024, the Board of Directors of the Company approved the Company’s Series A Convertible Preferred Stock, par value $0.0001 per share (“Series A Preferred Stock”). The Series A Preferred Stock is subject to certain rights, preferences, privileges, and obligations, including voluntary and mandatory conversion provisions, as well as beneficial ownership restrictions and share cap limitations, as set forth in the Certificate of Designation of Series A
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Convertible Preferred Stock (the “Series A Certificate”). Certain outstanding promissory notes were amended by the Company and existing investors of the Company on January 8, 2024 to allow for the conversion into shares of the Series A Preferred Stock. The Series A Preferred Stock can be issued at any time and, subject to certain exceptions as set forth in the Series A Certificate, any subsequent mandatory or voluntary conversion into common stock of the Company, par value $0.0001 per share (“Common Stock”) shall be at a conversion price at least equal to or above the closing price per share of our common stock as reported on the Nasdaq Stock Market on the last trading day immediately preceding the date that the Series A Certificate was approved by the Company’s board of directors, subject to customary adjustments for stock splits and combinations.
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The Series A Certificate designated 5,000,000 shares of the Company’s preferred stock as Series A Preferred Stock. Subject to certain restrictions as specified in the Series A Certificate, and applicable legal and regulatory requirements, including without limitation, the listing requirements of the Nasdaq Stock Market, (i) each share of Series A Preferred Stock is convertible, at the option of the holder, at any time, provided that such conversion occurs at least 12 months following the Original Issuance Date (as defined in the Series A Certificate), into such whole number of fully paid and non-assessable shares of Common Stock as is determined by dividing the Original Issue Price (as defined in the Series A Certificate) by the Conversion Price (as defined in the Series A Certificate) in effect at the time of conversion, and (ii) upon the earliest Mandatory Conversion Time (as defined in the Series A Certificate) all outstanding shares of Series A Preferred Stock will automatically be converted into shares of Common Stock. Dividends will accrue on each share of Series A Preferred Stock at the rate per annum of 8% of the Original Issue Price of such share, plus the amount of previously accrued dividends, compounded annually, subject to certain restrictions and provisions as set forth in the Series A Certificate. The Series A Preferred Stock will not have any voting rights, other than any vote required by law or the Company’s certificate of incorporation (which does not currently provide for any such voting rights). The Series A Certificate became effective January 8, 2024.
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Series B Preferred Stock Certificate
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On January 21, 2024, the Board of Directors of the Company approved the Series B Certificate. The Series B Certificate designated 1,500,000 shares of the Company’s preferred stock as Series B Preferred Stock. Subject to certain conversion restrictions as specified in the Series B Certificate, and applicable legal and regulatory requirements, including without limitation, the listing requirements of the Nasdaq Stock Market, subject to and upon the receipt of the approval of the stockholders of the Company, and provided that such conversion occurs at least 24 months following the Original Issuance Date (as defined in the Series B Certificate), each share of Series B Preferred Stock shall be automatically converted into such whole number of fully paid and non-assessable shares of Common Stock as is determined by dividing the Original Issue Price (as defined in the Series B Certificate) by the Conversion Price (as defined in the Series B Certificate) in effect at the time of conversion. In the event that stockholder approval is not obtained, the holders of the Series B Preferred Stock may voluntarily convert the Series B Preferred Stock into common stock, provided that in no event shall the number of shares of common stock issued upon such voluntary conversion exceed 19.99% of the total number of shares of common stock outstanding as of immediately prior to the execution of the Asset Purchase Agreement. The Series B Preferred Stock will not have any voting rights, other than any vote required by law or the Company’s certificate of incorporation (which does not currently provide for any such voting rights) and will not be entitled to any dividends. The Series B Certificate became effective February 2, 2024.
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Senior Secured Promissory Note
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On February 1, 2024, the Company entered into a Senior Secured Convertible Promissory Note (the "Note") with Treadway Holdings LLC, a lender, in the aggregate principal amount of $6,000,000, which is convertible into shares of the Company’s common stock, par value $0.0001 per share. The Note accrues interest at a rate of 2.0% per month. The maturity date of the Note is December 15, 2024.
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Credit Agreement
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On February 1, 2024, the Company, entered into a Credit Agreement with Vertical Investors LLC, (the “Lender”) pursuant to which the Company agreed to borrow from the Lender a term loan in the aggregate principal amount of $7,968,978. The maturity date of the Note is June 28, 2024.
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CLMBR Acquisition and Series B Preferred Stock Issuance
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On February 2, 2024, pursuant to the Asset Purchase Agreement, the Company completed the Acquisition for a total purchase price enterprise value of approximately $15.4 million, consisting of the issuance at closing of shares of Common Stock with a value of $1.5 million, 1,428,922 shares and shares of non-voting Series B preferred stock with a value of $3.0 million, 1,500,000 shares to the equity holders of the Sellers (each of whom is an “accredited investor” as defined in Rule 501 under the Securities Act), the assumption by the Company of $1.5 million of subordinated debt, and the retirement of $9.4 million of senior debt.
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Series A Preferred Stock Issuance
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On February 15, 2024, the Company issued 2,377,258 shares of the Company’s Series A Convertible Preferred Stock to four accredited investors, each of whom was an existing investor of the Company, upon the conversion of certain outstanding promissory notes with a then-outstanding aggregate amount of approximately $4.3 million.
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Woodway Distribution Agreement
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On February 20, 2024, the Company entered into an Exclusive Distribution Agreement with WOODWAY USA, INC., pursuant to which the Company granted to the Distributor the exclusive right to sell and distribute the Company’s CLMBR product anywhere in the world in the commercial market. The Distribution Agreement has a five year term and is automatically renewable for further five year terms unless the Distributor cancels at least 90 days prior to the expiration of the term. Pursuant to the Distributor Agreement, the Distributor will place an order for 2,150 units of the Company’s CLMBR product. If all units are sold this will generate up to approximately $7 million in net revenue to the Company.
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Key Operational and Business Metrics
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In addition to the measures presented in our consolidated financial statements, we use the following key operational and business metrics to evaluate our business, measure our performance, develop financial forecasts, and make strategic decisions. We may in the future elect to use additional metrics, discontinue the use of current metrics, or adjust our methodology or definitions of our operational and business metrics as our business evolves.
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NM - Not meaningful.
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Households
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We believe our ability to expand the number of households is an indicator of our market penetration and growth. Total households are defined as individuals or entities with an active paid membership and training.
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Members
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Our total member count is a key indicator of the size of our future revenue opportunity. We define a member as someone who has a unique profile on our platform, either as the primary membership owner or an associated user within the household.
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ARR
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Given the recurring nature of usage on our platform, we view annual recurring revenue as an important indicator of our progress towards growth targets and of the overall health of the member base. We calculate ARR at a point in time by multiplying the latest monthly period’s subscription and training revenue by 12.
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ARPH
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We believe that our average revenue per household, which we refer to as ARPH, is a strong indication of our ability to deliver value to our members and we use this metric to track expanding usage on our platform by our existing members. We calculate ARPH on a monthly basis as our total revenue in that period divided by the number of households determined as of the last day of that period. For a quarterly or annual period, ARPH is determined as the weighted average monthly ARPH over such three or 12-month period.
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Net Dollar Retention Rate
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Our ability to maintain long-term revenue growth and achieve profitability is dependent on our ability to retain and grow revenue from our existing members. To help us measure our performance in this area, we monitor our net dollar retention rate. We calculate net dollar retention rate monthly by starting with the revenue from the cohort of all members during the corresponding month 12 months prior, or the Prior Period Revenue. We then calculate the revenue from these same members as of the current month, or the Current Period Revenue, including any expansion and net of any contraction or attrition from these members over the last 12 months. The calculation also includes revenue from members that generated revenue before, but not in, the corresponding month 12 months prior, but subsequently generated revenue in the current month and are therefore reflected in the Current Period Revenue. We include this group of re-engaged members in this calculation because our members may use our platform for workouts that stop and start over time. We then divide the total Current Period Revenue by the total Prior Period Revenue to arrive at the net dollar retention rate for the relevant month. For a quarterly or annual period, the net dollar retention rate is determined as the average monthly net dollar retention rates over such three or 12-month period.
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Results of Operations
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Results of Operations for the Years Ended December 31, 2023 and 2022
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Fitness product revenue increased $0.0 million, or 8%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. This increase was primarily attributable to an increase in Studio with Lift installations.
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Membership revenue increased $0.1 million, or 92%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily attributable to the year-over-year growth in our memberships and price increase from $39 to $49 effective in August 2022.
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Training revenue increased $0.2 million, or 219%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily attributable to the launch of our Live 1:1 personal training services.
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Fitness product cost of revenue for the year ended December 31, 2023 decreased $0.1 million, or 5%, compared to the year ended year ended December 31, 2022. The decrease is primarily due to a decrease in the inventory valuation reserve expense in the year ended December 31, 2023 compared to the year ended December 31, 2022.
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Reworded paragraphs (39)
Previous wording
During the year ended December 31, 2023 and 2022, we generated total revenue of $1.0 million and $0.7 million, respectively, and incurred net losses of $51.4 million and $58.2 million, respectively. As we generated recurring net losses and negative operating cash flow during the research and development stage of the Forme Studio and Forme Studio Lift products, we have funded our operations primarily with gross proceeds from the sales of our redeemable convertible preferred stock, the sale of our SAFE notes, the issuance of convertible notes, the issuance of promissory notes, and the issuance of common stock.
Current wording
During the years ended December 31, 2024 and 2023, we generated total revenue of $5.4 million and $1.0 million, respectively, and incurred net losses of $(34.9) million and $(51.4) million, respectively. As we generated recurring net losses and negative operating cash flow during the research and development stage of the FORME Studio and FORME Studio Lift products, we have funded our operations primarily with gross proceeds from the sales of our redeemable convertible preferred stock, the sale of our SAFE notes, the issuance of convertible notes, the issuance of promissory notes, and the issuance of common stock.
Previous wording
We intend to expand the international reach of our product and service offerings. With more than 180 million people belonging to gyms globally in 2019, according to IHRSA, we believe there is significant opportunity to grow internationally. For example, we are currently evaluating potential international expansion in the United Kingdom and Canada, although we have not yet made any definitive plans regarding such expansion or the potential timing thereof. We plan to continue to pursue disciplined international expansion by targeting countries with high fitness penetration and spend, as well as the presence of boutique fitness, and where we believe Forme’s value proposition will resonate.
Current wording
We intend to expand the international reach of our product and service offerings. With more than 180 million people belonging to gyms globally in 2019, according to IHRSA, we believe there is significant opportunity to grow internationally. For example, we are currently evaluating potential international expansion in the United Kingdom and Canada, although we have not yet made any definitive plans regarding such expansion or the potential timing thereof. We plan to continue to pursue disciplined international expansion by targeting countries with high fitness penetration and spend, as well as the presence of boutique fitness, where we believe both CLMBR and FORME’s value propositions will resonate.
Previous wording
We intend to increase uptake of our add-on memberships and services by providing a compelling member experience focused on introducing our members to the variety of services available on our platform and specifically, the value-added benefits of our coaching and personal training offering. We believe our ability to provide service offerings at a number of price points will serve as a valuable lever for growth by increasing overall service revenues over time.
Current wording
We intend to increase the uptake of our add-on memberships and services by providing compelling member experience focused on introducing our members to the variety of services available on our platform and specifically, the value-added benefits of our coaching and personal training offering. We believe our ability to provide service offerings at a number of price points will serve as a valuable lever for growth by increasing overall service revenues over time.
Previous wording
We derive a significant majority of our revenue from sales of our Forme Studio and Forme Lift equipment and if sales of our Forme Studio and Forme Lift equipment decline, it would materially and negatively affect our future revenue and results of operations.
Current wording
We derive a significant majority of our revenue from sales of our CLMBR, FORME Studio and FORME Studio Lift equipment and if sales of our CLMBR, FORME Studio and FORME Studio Lift equipment decline, it would materially and negatively affect our future revenue and results of operations.
Previous wording
Our membership revenue is largely dependent on our ability to sell our Forme Studio equipment and if sales of our Forme Studio equipment decline, our membership revenue would decline, and it would materially and negatively affect our future revenue and results of operations. Similarly, we may be unable to attract and retain members, which could have an adverse effect on our business and rate of growth.
Current wording
Our membership revenue is largely dependent on our ability to sell our CLMBR, FORME Studio equipment and if sales of our FORME Studio equipment decline, our membership revenue would decline, and it would materially and negatively affect our future revenue and results of operations. Similarly, we may be unable to attract and retain members, which could have an adverse effect on our business and rate of growth.
Previous wording
Connected Fitness Product revenue consists of sales of our connected fitness products and related accessories, delivery and installation services, and extended warranty agreements offered through a third-party. Fitness Product revenue is recognized at the time of delivery, except for extended warranty revenue which is recognized over the warranty period. For the third-party extended warranty service sold along with the connected fitness products, we do not obtain control of the warranty before transferring it to the customers. Therefore, we account for revenue related to the fees paid to the third-party extended warranty provider on a net basis, by recognizing only the net commission we retain. Connected fitness product revenue represented 59% of total revenue for the year ended December 31, 2023, and 78% of total revenue for the year ended December 31, 2022.
Current wording
Connected Fitness Product revenue consists of sales of our connected fitness products and related accessories, delivery and installation services, and extended warranty agreements offered through a third-party. Fitness Product revenue is recognized at the time of delivery, except for extended warranty revenue which is recognized over the warranty period. For the third-party extended warranty service sold along with the connected fitness products, we do not obtain control of the warranty before transferring it to the customers. Therefore, we account for revenue related to the fees paid to the third-party extended warranty provider on a net basis, by recognizing only the net commission we retain. Connected fitness product revenue represented 74% and 59% of total revenue for the years ended December 31, 2024 and 2023, respectively.
Previous wording
Membership revenue consists of revenue generated from our monthly Connected Fitness membership. Membership revenue represented 15% of total revenue for the year ended December 31, 2023, and 11% of total revenue for the year ended December 31, 2022.
Current wording
Membership revenue consists of revenue generated from our monthly Connected Fitness membership. Membership revenue represented 14% and 15% of total revenue for the years ended December 31, 2024 and 2023, respectively.
Previous wording
Training revenue consists of sales of our personal training services delivered through our connected fitness products and third-party mobile devices. Training revenue is recognized at the time of delivery. Training revenue represented 26% of total revenue for the year ended December 31, 2023, and 11% of total revenue for the year ended December 31, 2022.
Current wording
Training revenue consists of sales of our personal training services delivered through our connected fitness products, in-person classes and third-party mobile devices. Training revenue is recognized at the time of delivery. Training revenue represented 12% and 26% of total revenue for the years ended December 31, 2024 and 2023, respectively.
Previous wording
Connected Fitness Product cost of revenue consists of Studio and Studio Lift and accessories product costs, including manufacturing costs, duties and other applicable importing costs, shipping and handling costs, packaging, warranty replacement costs, fulfillment costs, and warehousing costs.
Current wording
Connected Fitness Product cost of revenue consists of CLMBR and Studio and Studio Lift and accessories product costs, including manufacturing costs, duties and other applicable importing costs, shipping and handling costs, packaging, warranty replacement costs, fulfillment costs, warehousing costs, and certain allocated costs related to management and facilities expenses associated with supply chain logistics.
Previous wording
Training cost of revenue includes costs associated with personnel related expenses.
Current wording
Training cost of revenue includes costs associated with personnel related expenses and rent expense.
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Research and development expense primarily consists of personnel and facilities-related expenses, consulting and contractor expenses, tooling and prototype materials, and software platform expenses. We capitalize certain qualified costs incurred in connection with the development of internal-use software and software to be sold or marketed which may also cause research and development expenses to vary from period to period.
Current wording
Research and development expense primarily consists of personnel and facilities-related expenses, engineering costs, consulting and contractor expenses, tooling and prototype materials, and software platform expenses. We capitalize certain qualified costs incurred in connection with the development of internal-use software and software to be sold or marketed which may also cause research and development expenses to vary from period to period.
Previous wording
Other (expense) income, net consists of unrealized foreign currency gains and losses.
Current wording
Other (expense) income, net consists of unrealized currency gains and losses, loss on exchange of warrants for equity, and fair value of issuance of Loss Restoration Agreement derivative.
Previous wording
Interest expense consists of interest associated with the related party loans.
Current wording
Interest expense consists of interest associated with the related party loans, term loans, convertible notes, senior secured notes and waiver consideration granted to December 2023 Notes and Equity Line of Credit.
Previous wording
Gain on forgiveness of debt of $2.6 million related to the third-party Content Provider.
Current wording
Gain on debt extinguishment was a result of forgiveness of debt of $2.6 million related to the third-party content provider.
Previous wording
For the year ended December 31, 2023 and 2022, $0.9 million and $0.0 million of stock-based compensation was capitalized as software costs, respectively.
Current wording
For the years ended December 31, 2024 and 2023, $0.6 million and $0.9 million of stock-based compensation was capitalized as software costs, respectively.
Previous wording
In December 2022, the Company enacted a restructuring cost savings initiative which resulted in employee terminations in both December 2022 and January 2023. In association with the January 2023 terminations, the Company accelerated the vesting of a number of individual option awards, resulting in the accelerated vesting of 5,938 shares on the date of modification. Also in January 2023, the Company repriced 301,537 option awards. Both the accelerated vesting and repricing were accounted for as an equity award modifications under ASC Topic 718 which resulted in adjustment of the award value to reflect the fair value at the modification date and acceleration of the recognition schedule in the case of awards which were modified to have accelerated vesting. The adjustment resulted in additional expense of $0.5 million.
Current wording
In December 2022, the Company enacted a restructuring cost savings initiative which resulted in employee terminations in both December 2022 and January 2023. In association with the January 2023 terminations, the Company accelerated the vesting of a number of individual option awards, resulting in the accelerated vesting of 148 shares on the date of modification. Also in January 2023, the Company repriced 76 option awards. Both the accelerated vesting and repricing were accounted for as an equity award modifications under ASC Topic 718 which resulted in adjustment of the award value to reflect the fair value at the modification date and acceleration of the recognition schedule in the case of awards which were modified to have accelerated vesting. The adjustment resulted in additional expense of $0.5 million.
Previous wording
Membership cost of revenue for the year ended December 31, 2023 decreased $1.9 million, or 33%, compared to the year ended December 31, 2022. The decrease is primarily related to the decrease in personnel-related expenses from a reduction in headcount.
Current wording
Membership cost of revenue for the year ended December 31, 2024 decreased $0.5 million, or 13%, compared to the year ended December 31, 2023. The decrease is primarily related to the decrease in amortization of content costs of $0.4 million and decrease in personnel-related expenses from a reduction in headcount of $0.1 million.
Previous wording
Training cost of revenue for the year ended December 31, 2023 decreased $1.1 million, or 73%, compared to the year ended December 31, 2022. The increase is primarily attributable to the launch of our Live 1:1 personal training services.
Current wording
Training cost of revenue for the year ended December 31, 2024 increased $0.6 million, or 163%, compared to the year ended December 31, 2023. The increase is primarily attributable to the acquisition of CLMBR, Inc. with addition of in-training studio expenses including rent of $0.3 million.
Previous wording
Our gross loss decreased by $3.3 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 due to the decrease in personnel-related expenses from reduction in headcount.
Current wording
Our gross loss decreased by $2.8 million, or 50% for the year ended December 31, 2024 compared to the year ended December 31, 2023. With the addition of the CLMBR business in 2024 our revenues increased $4.4 million or 459% and our cost of revenue only increased $1.7 million or 26%. Also, the CLMBR fitness product revenues which accounted for the majority of our 2024 revenue has higher gross margin than the FOMRE fitness product revenue. Our membership gross loss deceased as a result of higher revenue from CLMBR acquisition and lower content amortization and decrease in personnel-related expenses from reduction in headcount.
Previous wording
Research and development expense decreased $9.9 million, or 50%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022, respectively. The decrease was primarily due to a decrease in personnel-related expenses from a reduction in headcount of $9.7 million, and a decrease in 3rd party engineering services of $5.0 million, partially offset by an increase of $4.8 million in stock-based compensation expenses.
Current wording
Research and development expense which includes engineering expenses decreased $3.1 million, or 30%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, respectively. The decrease was primarily due to a decrease in personnel-related expenses from a reduction in headcount of $0.1 million, and a decrease in software and subscriptions of $0.6 million, a decrease of $2.7 million in stock-based compensation expenses, offset by increase in 3rd party engineering services of $0.3 million.
Previous wording
Sales and marketing expense decreased $4.6 million, or 74%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022, respectively. The decrease was primarily due to a decrease in personnel-related expenses from a reduction in headcount of $2.6 million, a decrease of $1.9 million in advertising and marketing, and a decrease of $0.3 million in rent expense due to the closure of retail locations, partially offset by an increase of $0.2 million in stock-based compensation expenses.
Current wording
Sales and marketing expense decreased $0.6 million, or 34%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, respectively. The decrease was primarily due to a decrease in personnel-related expenses from a reduction in headcount of $0.1 million, a decrease of $0.3 million in advertising and marketing, a decrease in consulting expenses of $0.4 million, and a decrease of $0.5 million in stock based compensation expense, partially offset by an increase of $0.5 million in amortization of intangibles from CLMBR, Inc. acquisition and $0.2 million increase in demo units sent to customers.
Previous wording
Gain on debt extinguishment was a result of forgiveness of debt of $2.6 million related to the third-party content provider for the year ended December 31, 2023, and forgiveness of PPP loan of $0.5 million for the year ended December 31, 2022.
Current wording
Gain on debt extinguishment was a result of forgiveness of debt of $2.6 million related to the third-party content provider for the year ended December 31, 2023.
Previous wording
As an emerging growth company, the Company is subject to certain inherent risks and uncertainties associated with the development of an enterprise. In this regard, since the Company’s inception, substantially all of management’s efforts have been devoted to making investments in research and development including the development of revenue generating products and services and the development of a commercial organization, all at the expense of short-term profitability.
Current wording
As an emerging growth company, the Company is subject to certain inherent risks and uncertainties associated with the development of an enterprise. In this regard, since the Company’s inception, substantially all of management’s efforts have been devoted towards the development of its brands and services, their penetration in the marketplace, and the development of a commercial organization, all at the expense of short-term profitability.
Previous wording
Since its inception, the Company has incurred significant operating losses and used net cashflows in its operations. For the year ended December 31, 2023, the Company incurred a net operating loss of $54.5 million and used net cash in its operations of $15.4 million. As of December 31, 2023, the Company had an accumulated deficit of $166.9 million. Management expects the Company will continue to incur significant operating losses and use net cash in its operations for the foreseeable future.
Current wording
The Company has incurred significant operating losses and used net cash flows in its operations since inception. In this regard, the Company incurred a net operating loss of $29.2 million and used net cash in its operations of $14.8 million during the year ended December 31, 2024, and had an accumulated deficit of $202.6 million as of December 31, 2024.
Previous wording
The Company expects to incur substantial expenditures to invest in its operations and growth for the foreseeable future. In order to fund these investments, the Company will need to secure additional sources of credit from lenders or capital investment from public and private investors (collectively “outside capital”). While the Company is actively seeking to secure additional outside capital (and has historically been able to successfully secure such capital) to fund its operations, no additional outside capital has been secured or was deemed probable of being secured as of the issuance date. In addition, management can provide no assurance the Company will be able to secure additional outside capital or on acceptable terms. Absent an ability to secure additional outside capital in the very near term, the Company will be unable to meet fund its operations over the next 12 months beyond the issuance date.
Current wording
While the Company is actively seeking to secure additional outside capital (and has historically been able to successfully secure such capital), no additional outside capital has been secured or was deemed probable of being secured as of the issuance date. In addition, management can provide no assurance that the Company will be able to secure additional outside capital or on acceptable terms.
Previous wording
As of December 31, 2023, the Company had total outstanding debt of approximately $10.0 million, all of which was classified as current in the accompanying consolidated balance sheet. Approximately $5.8 million of this debt pertains to personal loans from certain individual related parties disclosed in Note 21. Several of these loans matured prior to December 31, 2023, but their repayment has been temporarily waived, and the remaining loans are scheduled to mature over the next 12 months beyond the issuance date. Further as disclosed in Note 22, the Company entered into a credit agreement with Vertical for an $8 million term loan with a maturity date of June 2024, a $6 million senior secured promissory note due in December 2024 and assumed $1.5 million of subordinated debt in conjunction with its acquisition of CLIMBR on February 7, 2024. However, as disclosed in Note 22, $4.3 million of these loans were converted into 2,377,258 shares of the Company’s Series A Convertible Preferred Stock on February 15, 2024 and $3.8 million of these loans were converted into 2,038,039 shares of the Company’s Series A Convertible Preferred Stock on March 29, 2024 and the maturity date on the term loan with Vertical was extended to December 2024. Accordingly, as of the issuance date, the Company’s total outstanding debt was approximately $18.0 million, plus accrued, but unpaid interest and penalties on delayed interest payments, all of which is currently due or scheduled to mature over the next 12 twelve months beyond the issuance date. While the Company is actively seeking to secure additional outside capital (and has historically been able to successfully secure such capital) to repay these outstanding borrowings, no additional outside capital has been secured or was deemed probable of being secured as of the issuance date. In addition, management can provide no assurance the Company will be able to secure additional outside capital or on acceptable terms. In the event the Company is unable to secure additional outside capital and/or secure amendments or waivers from its lenders to defer or modify the repayment terms of the Company’s outstanding indebtedness, management will be required to seek other strategic alternatives, which may include, among others, a significant curtailment of the Company’s operations, a sale of certain of the Company’s assets, a sale of the entire Company to strategic or financial investors, and/or allowing the Company to become insolvent by filing for bankruptcy protection under the provisions of the U.S. Bankruptcy Code.
Current wording
Included in the Company’s anticipated liquidity needs is a substantial amount of outstanding debt that is scheduled to mature over the next twelve months beyond the issuance date. As of disclosed in Notes 11, 22, and Note 25, the Company had total outstanding debt of approximately $11.1 million, as of the issuance date. All of the outstanding debt is scheduled to mature over the next twelve months beyond the issuance date, for which the Company does not have sufficient liquidity to repay if a cash settlement is required. In the event the Company is unable to refinance its outstanding debt, settle some or all of the debt with shares of the Company’s common or preferred stock, secure additional outside capital, and/or secure amendments or waivers from its lenders to defer or modify the repayment terms, management will be required to seek other strategic alternatives to settle this indebtedness, which may include, among others, a significant curtailment of the Company’s operations, a sale of certain of the Company’s assets, a sale of the entire Company to strategic or financial investors, and/or allowing the Company to become insolvent by filing for bankruptcy protection under the provisions of the U.S. Bankruptcy Code.
Previous wording
The Company received a deficiency letter from the Nasdaq Stock Market (“Nasdaq”) on January 26, 2024 notifying the Company that, for the last 30 consecutive business days, the closing bid price for the Company’s common stock, par value $0.0001 per share (the “Common Stock”) has been below the minimum $1.00 per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (“Rule 5550(a)(2)”). The Nasdaq deficiency letter has no immediate effect on the listing of the Common Stock, and the Common Stock will continue to trade on The Nasdaq Capital Market under the symbol “TRNR” at this time. The Company has 180 calendar days, or until July 24, 2024, to regain compliance. To regain compliance, the closing bid price of the Company’s securities must be at least $1.00 per share for a minimum of ten consecutive business days. If compliance is not regained by July 24, 2024, the Company may be eligible for additional time to regain compliance or if otherwise not eligible, the Company may request a hearing before a hearings panel. In the Company fails regain compliance and/or secure an extension, the Company will be subject to being delisted from the Nasdaq market. If a delisting occurs, the Company will be faced with a number of material adverse consequences, including limited availability of market quotations for its common stock; limited news and analyst coverage; decreased ability to obtain additional financing or failure to comply with the covenants required by the Company’s borrowing arrangement; limited liquidity for the Company’s stockholders due to thin trading; and a potential loss of confidence by investors, employees and other third parties who do business with the Company.
Current wording
As of December 31, 2024 and through the issuance date, the Company was in compliance with the Rules. However, management can provide no assurance that the Company will be able to remain in compliance with the Rules over the next twelve months beyond the issuance date and, if compliance is not maintained, the Staff will not require the Company’s securities to be delisted from the Nasdaq. If a delisting occurs, the Company will be faced with a number of material adverse consequences, including limited availability of market quotations for its common stock; limited news and analyst coverage; decreased ability to obtain additional financing; limited liquidity for the Company’s stockholders due to thin trading; and a potential loss of confidence by investors, employees and other third parties who do business with the Company.
Previous wording
In May 2021, we entered into two agreements with a third-party content provider (“Content Provider”), a service agreement and a collaboration agreement. Per the service agreement, Forme is to provide content creation services for the Content Provider in which we are to produce workout content using the Content Provider’s trainers and studios. Under the collaboration agreement, both we and the Content Provider agree to jointly market their partnership; in addition, the collaboration agreement provides us with a license to use the Content Provider’s content and marks on our Studio fitness ecosystem (i.e., the “License”). The license issued to us allows us to reproduce, modify, prepare derivative works based upon, distribute, publicly display, publicly perform the content and the modified content, to market, advertise or promote Forme, perform specified activities, and provide our customers access to and use of the Content Provider’s content, throughout the world on our Studio products and in any media, so long as such other media is associated or related to the use of our Studio products.
Current wording
In May 2021, we entered into two agreements with a third-party content provider (“Content Provider”), a service agreement and a collaboration agreement. Per the service agreement, FORME is to provide content creation services for the Content Provider in which we are to produce workout content using the Content Provider’s trainers and studios. Under the collaboration agreement, both we and the Content Provider agree to jointly market their partnership; in addition, the collaboration agreement provides us with a license to use the Content Provider’s content and marks on our Studio fitness ecosystem (the “License”). The License issued to us allows us to reproduce, modify, prepare derivative works based upon, distribute, publicly display, publicly perform the content and the modified content, to market, advertise or promote FORME, perform specified activities, and provide our customers access to and use of the Content Provider’s content, throughout the world on our Studio products and in any media, so long as such other media is associated or related to the use of our Studio products.
Previous wording
A liability for total minimum commitment (the license fee) on a quarterly basis was recognized as a liability of $2.3 million as of December 31, 2022. In March 2023, both agreements with the Content Provider were terminated by mutual agreement and no payments remain due or payable thereunder and the liability was recognized as a gain on settlement for the year ended December 31, 2023.
Current wording
In March 2023, both agreements with the Content Provider were terminated by mutual agreement and no payments remain due or payable thereunder and the liability was recognized as a gain on settlement for the year ended December 31, 2023.
Previous wording
The Notes were in the aggregate amount of $154,875 and $449,750 for 94,908 and 299,832 shares as of December 31, 2023 and December 31, 2022, respectively. The Notes are secured by a pledge of collateral, representing the shares of stock sold. Interest is charged at the mid-term Applicable Federal Rate as of the date of the Note and compounded annually. Per the terms of the Notes, 51% of the initial amounts of the outstanding principal balances plus any accrued and unpaid interest, represent a full recourse note, and 49% of the initial amounts represent a nonrecourse note. The Company analyzed the terms of the Notes and concluded that the recourse portion of the notes are nonrecourse in nature as the Company does not have intention to seek repayment beyond the shares issued despite the recourse legal terms, and thus will be treated the same as the nonrecourse portion of the Notes. All Notes were outstanding as of December 31, 2023 and December 31, 2022, and are not recorded on the balance sheet.
Current wording
The Notes were in the aggregate amount of $154,875 and 24 shares as of December 31, 2024 and December 31, 2023, respectively. The Notes are secured by a pledge of collateral, representing the shares of stock sold. Interest is charged at the mid-term Applicable Federal Rate as of the date of the Note and compounded annually. Per the terms of the Notes, 51% of the initial amounts of the outstanding principal balances plus any accrued and unpaid interest, represent a full recourse note, and 49% of the initial amounts represent a nonrecourse note. The Company analyzed the terms of the Notes and concluded that the recourse portion of the notes are nonrecourse in nature as the Company does not have intention to seek repayment beyond the shares issued despite the recourse legal terms, and thus will be treated the same as the nonrecourse portion of the Notes. All Notes were outstanding as of December 31, 2024 and December 31, 2023, and are not recorded on the balance sheet.
Previous wording
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Subsequent changes in fair value of these financial assets and liabilities are recognized in earnings when they occur. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurement or assumptions that market participants would use in pricing the assets or liabilities, such as inherent risk, transfer restrictions, and credit risk.
Current wording
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Subsequent changes in fair value of these financial assets and liabilities are recognized in earnings when they occur. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurement or assumptions that market participants would use in pricing the assets or liabilities, such as inherent risk, transfer restrictions, and credit risk.
Previous wording
We apply the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Current wording
The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Previous wording
Our material financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, convertible notes, embedded derivatives and warrants. The carrying amounts of current financial instruments, which include cash, accounts receivable, accounts payable and accrued expenses, approximate their fair values due to the short-term nature of these instruments.
Current wording
The Company’s material financial instruments consist primarily of cash and cash equivalents, accounts payable, accrued expenses, bridge notes, convertible notes, embedded derivatives and warrants. The carrying amounts of current financial instruments, which include cash, accounts receivable, accounts payable and accrued expenses, approximate their fair values due to the short-term nature of these instruments.
Previous wording
We capitalize certain eligible software development costs incurred in connection with our internal use software in accordance with ASC 350-40, Internal-use Software and ASC 985, Software. These capitalized costs also relate to our Studio software that is accessed by our customers on a membership basis as well as certain costs associated with our information systems. Capitalized software costs are amortized over the estimated useful life, which is three years. Capitalization begins once the application development stage begins, management has authorized and committed to funding the project, it is probable the project will be completed, and the software will be used to perform the function intended. Internal costs including stock based compensation and external costs, if direct and incremental, are capitalized until the software is substantially complete and ready for our intended use. We expense all costs incurred that relate to planning and post-implementation phases of development.
Current wording
The Company capitalizes certain eligible software development costs incurred in connection with its internal use software in accordance with ASC 350-40, Internal-use Software and ASC 985, Software. These capitalized costs also relate to the Company’s Studio software that is accessed by its customers on a membership basis as well as certain costs associated with its information systems. Capitalized software costs are amortized over the estimated useful life of three years. Capitalization begins once the application development stage begins, management has authorized and committed to funding the project, it is probable the project will be completed, and the software will be used to perform the function intended. Internal and external costs, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use. The Company expenses all costs incurred that relate to planning and post-implementation phases of development. Intangible assets are assessed for impairment when events or circumstances indicate the existence of a possible impairment, and none were identified in the year ended December 31, 2024.
Previous wording
As permitted under ASC Topic 825, Financial Instruments, we have elected the fair value option to account for our November 2022 convertible notes. In accordance with ASC Topic 825, we record these convertible notes at fair value with changes in fair value recorded as a component of other expense, net in the consolidated statement of operations and comprehensive loss. As a result of applying the fair value option, direct costs and fees related to the convertible notes were expensed as incurred and were not deferred. In addition, the convertible notes meet other applicable criteria for electing fair value option under ASC Topic 825. In May 2023, upon closing of the Company's IPO, the convertible notes issued in November 2022 were converted into an aggregate of 565,144 shares of common stock.
Current wording
As permitted under ASC Topic 825, Financial Instruments, the Company has elected the fair value option to account for its November 2022 convertible notes. In accordance with ASC Topic 825, the Company records these convertible notes at fair value with changes in fair value recorded as a component of other income (expense), net in the consolidated statement of operations and comprehensive loss. As a result of applying the fair value option, direct costs and fees related to the convertible notes were expensed as incurred and were not deferred. In addition, the convertible notes meet other applicable criteria for electing fair value option under ASC Topic 825.
Previous wording
In connection with the Company’s issuance of the December 2023 Notes, the Company bifurcated the embedded conversion option and redemption rights and recorded embedded conversion option and redemption rights as a short term derivative liability in the Company’s balance sheet in accordance with FASB ASC 815, Derivatives and Hedging. The convertible debt and the derivative liability associated with the December 2023 Notes is presented on the consolidated balance sheet as convertible note payable and the embedded derivatives. The convertible debt is carried at amortized cost. The derivative liability will be remeasured at each reporting period using the lattice model with changes in fair value recorded in the consolidated statements of operations in other expense (income). See Note 10 for further details.
Current wording
In connection with the Company’s issuance of the December 2023 Convertible Notes (the “December 2023 Notes”), the Company bifurcated the embedded conversion option and redemption rights and recorded the embedded conversion option and redemption rights as a short term derivative liability in the Company’s consolidated balance sheet in accordance with FASB ASC 815, Derivatives and Hedging. The convertible debt and the derivative liability associated with the December 2023 Notes is presented on the consolidated balance sheets as convertible note payable and the embedded derivatives, respectively. The convertible debt is carried at amortized cost. The derivative liability will be remeasured at each reporting period using the lattice model with changes in fair value recorded in the consolidated statements of operations in other income (expense). See Note 11 for further details.
Previous wording
In December 2020, our board of directors adopted the 2020 Equity Incentive Plan (the “2020 Plan”), and in April 2023, our board of directors adopted the 2023 Equity Incentive Plan (the “2023 Plan”). Following the completion of our initial public offering, no additional awards and no additional shares of our common stock remained available for future issuance under the 2020 Plan. However, the 2020 Plan continues to govern the terms and conditions of the outstanding awards previously granted thereunder. Stock-based awards are measured at the grant date based on the fair value of the award and are recognized as expense, net of actual forfeitures, on a straight-line basis over the requisite service period, which is generally the vesting period of the respective award. We estimate the fair value of stock options using the Black-Scholes option pricing model. The determination of the grant date fair value of stock awards issued is affected by a number of variables, including the fair value of our common stock, the expected common stock price volatility over the expected life of the awards, the expected term of the stock option, risk-free interest rates, and the expected dividend yield of our common stock. We derive our volatility from the average historical stock volatilities of several peer public companies over a period equivalent to the expected term of the awards. We estimate the expected term based on the simplified method for employee stock options considered to be “plain vanilla” options, as our historical share option exercise experience does not provide a reasonable basis upon which to estimate the expected term. The risk-free interest rate is based on the United States Treasury yield curve in effect at the time of grant.
Current wording
In December 2020, the Board of Directors adopted the 2020 Equity Incentive Plan (“the 2020 Plan”) and in April 2023, our board of directors adopted the 2023 Equity Incentive Plan (the “2023 Plan”). Stock-based awards are measured at the grant date based on the fair value of the award and are recognized as expense, net of actual forfeitures, on a straight-line basis over the requisite service period, which is generally the vesting period of the respective award. The Company estimates the fair value of stock options using the Black-Scholes option pricing model. The determination of the grant date fair value of stock awards issued is affected by a number of variables, including the fair value of the Company’s common stock, the expected common stock price volatility over the expected life of the awards, the expected term of the stock option, risk-free interest rates, and the expected dividend yield of the Company’s common stock. The Company derives its volatility from the average historical stock volatilities of several peer public companies over a period equivalent to the expected term of the awards. The Company estimates the expected term based on the simplified method for employee stock options considered to be “plain vanilla” options, as the Company’s historical share option exercise experience does not provide a reasonable basis upon which to estimate the expected term. The risk-free interest rate is based on the United States Treasury yield curve in effect at the time of grant. Expected dividend yield is 0.0% as the Company has not paid and does not currently anticipate paying dividends on its common stock.
Previous wording
The Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards, with a catch up so that the stock-based compensation recognized at any date is equal the portion of the grant-date value of the award that is vested at that date. Stock-based compensation expense is classified in the accompanying consolidated statement of operations in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient's service payments are classified. For the year ended December 31, 2022, the Company recognized an additional stock-based compensation expense of $1.1 million as a result of a modification related to accelerated option vesting. For the year ended December 31, 2023, the Company recognized an additional stock-based compensation expense of $0.5 million as a result of a modification related to accelerated option vesting and repricing of options.
Current wording
Stock-based compensation expense is classified in the accompanying consolidated statement of operations in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.
Previous wording
In preparing our financial statements as of and for the years ended December 31, 2023 and December 31, 2022, management identified material weaknesses in our internal control over financial reporting. The material weaknesses we identified related to (1) the lack of a sufficient number of trained professionals with the expertise to design, implement, and execute a formal risk assessment process and formal accounting policies, procedures, and controls over accounting and financial reporting to ensure the timely and accurate recording of financial transactions while maintaining a segregation of duties; (2) certain system limitations in our accounting software and the overall control environment (3) the lack of a sufficient number of trained professionals with the appropriate U.S. GAAP technical expertise to identify, evaluate, and account for complex transactions and review valuation reports prepared by external specialists and (4) the lack of sufficient processes and precise review and procedures to ensure the proper accounting for stock based compensation expenses, and the recording of those expenses completely and accurately in the appropriate period.
Current wording
In preparing our financial statements as of and for the years ended December 31, 2024 and December 31, 2023, management identified material weaknesses in our internal control over financial reporting. The material weaknesses we identified related to (1) the lack of a sufficient number of trained professional with the expertise to design, implement, and execute a formal risk assessment process and formal accounting policies, procedures, and control over accounting and financial reporting to ensure the timely and accurate recording of financial transactions while maintaining a segregation of duties (2) the lack of a sufficient number of trained professionals with the appropriate U.S. GAAP technical expertise to identify, evaluate, and account for complex transactions and review valuation reports prepared by external specialists and (3) management failed to design and implement adequate internal controls over the recording of stock-based compensation expense including a precise review and procedures to ensure the proper accounting for stock based compensation expenses, and the recording of those expenses completely and accurately in the appropriate period.
Rearranged previous paragraphs (6)
Previous report — wording carried elsewhere
In connection with the Company’s issuance of its December 2023 Notes, the Company bifurcated the embedded conversion option and redemption rights and recorded embedded conversion option and redemption rights as a short term derivative liability in the Company’s balance sheet in accordance with FASB ASC 815, Derivatives and Hedging. The convertible debt and the derivative liability associated with the December 2023 Notes is presented on the consolidated balance sheet as convertible note payable and the embedded derivatives. The convertible debt is carried at amortized cost. The derivative liability will be remeasured at each reporting period using the lattice model with changes in fair value recorded in the consolidated statements of operations in other expense (income). See Note 10 for further details.
Previous report — wording carried elsewhere
Net cash used in investing activities of $7.6 million for the year ended December, 2022 was primarily related to the development of internal-use software, software to be sold and markets and content, and purchases of property and equipment.
Previous report — wording carried elsewhere
In May 2021, we entered into two agreements with a third-party content provider (“Content Provider”), a service agreement and a collaboration agreement. Per the service agreement, The Company was to provide content creation services for the Content Provider in which we are to produce workout content using the Content Provider’s trainers and studios. Under the collaboration agreement, both we and the Content Provider agreed to jointly market their partnership; in addition, the collaboration agreement provided us with a license to use the Content Provider’s content and marks on our Studio fitness ecosystem (i.e., the “License”). The license issued to us allowed us to reproduce, modify, prepare derivative works based upon, distribute, publicly display, publicly perform the content and the modified content, to market, advertise or promote the Company, perform specified activities, and provide our customers access to and use of the Content Provider’s content, throughout the world on our Studio products and in any media, so long as such other media is associated or related to the use of our Studio products. In December 2022, the Company determined that the Content Provider’s content would no longer be used on the Company’s platform, leading to a triggering event. Upon further analysis, it was determined that this content was abandoned in December 2022 with no remaining fair value. As such, the Company recorded an impairment loss of $2.3 million within general and administrative costs on the Consolidated Statement of Operations and Comprehensive Loss as of December 31, 2022.
Previous report — wording carried elsewhere
On November 10, 2023, the Company issued secured promissory notes (the "November Bridge Notes"). As permitted under ASC Topic 825, Financial Instruments, we have elected the fair value option to account for our November 2023 Bridge Notes. In accordance with ASC Topic 825, we record these bridge notes at fair value with changes in fair value recorded as a component of other expense, net in the consolidated statement of operations and comprehensive loss. As a result of applying the fair value option, direct costs and fees related to the bridge notes were expensed as incurred and were not deferred. In addition, the bridge notes meet other applicable criteria for electing fair value option under ASC Topic 825. As of December 31, 2023, there are $1.7 million of notes outstanding measured at fair value related to the November 2023 Bridge Notes.
Previous report — wording carried elsewhere
Our training services are personal training services delivered through the Connected Fitness Products and third- party mobile devices. Training revenue is recognized at the time of delivery.
Previous report — wording carried elsewhere
Expected dividend yield is 0.0% as we have not paid and does not currently anticipate paying dividends on our common stock.