Interactive Strength (TRNR) risk factors, FY2024 10-K

Risks Related to Our Business and Industry

1. 01We have incurred operating losses in the past, expect to incur operating losses in the future, and may not achieve profitability, or, if we achieve profitability, be able to maintain it in the future
2. 02We have a limited operating history; and our past financial results may not be a reliable indicator of our ability to successfully establish our product and service offerings in the marketplace, or of our future performance, and our revenue growth rate is likely to slow as our business matures
3. 03Our business, financial condition, and results of operations are subject to risks associated with rising interest rates, which could negatively impact our customers’ ability to finance their purchases of our products or to make timely payments and our ability to obtain additional financing
4. 04We have a limited operating history with which to evaluate and predict the profitability of our recurring revenue model and any new revenue models we may introduce in the future may be unsuccessful
5. 05If we fail to compete successfully against existing and future competitors, we may fail to obtain a meaningful market share, which in turn would harm our business, financial condition, and results of operations
6. 06Our business may be affected by seasonality
7. 07We derive a significant majority of our revenue from sales of our CLMBR and FORME Studio equipment and if sales of our CLMBR and FORME Studio equipment decline, it could materially and negatively affect our future revenue and results of operations
8. 08Our membership revenue is largely dependent on our ability to sell our CLMBR and FORME Studio equipment
9. 09Our results of operations could be adversely affected if we are unable to accurately forecast consumer demand for our products and services and adequately manage our inventory
10. 10consumer demand, our suppliers and manufacturers may not be able to deliver products to meet our requirements or we may be subject to higher costs in order to secure the necessary production capacity
11. 11If we are unable to sustain competitive pricing levels for our connected fitness hardware products and memberships to the CLMBR and FORME platform, our business could be adversely affected
12. 12Changes in how we market our products and services could adversely affect our marketing expenses and membership levels
13. 13Our revenue could decline if members are no longer able to finance their purchases of our products due to changes in credit markets and decisions made by credit providers
14. 14We may be unable to attract and retain members, which could have an adverse effect on our business and rate of growth
15. 15deteriorating general economic conditions or a change in consumer spending preferences or buying trends
16. 16If we are unable to attract or otherwise access health coaches and personal trainers, and fitness instructors to produce and provide fitness content and services on our platform, our business, financial condition, and results of operations could be harmed
17. 17If we fail to cost-effectively attract, recruit, and retain qualified health coaches, personal trainers, and fitness instructors, our business would be materially and adversely affected
18. 18If we fail to cost-effectively attract new members, or to increase utilization of the CLMBR and FORME platform from existing members, our business, financial condition, and results of operations could be harmed
19. 19Changes to our pricing methodologies or business model could adversely affect our ability to attract or retain members as well as qualified trainers and fitness instructors
20. 20If we are unable to anticipate consumer preferences and successfully develop and introduce new, innovative, and updated products and services in a timely manner or effectively manage the introduction of new or enhanced products and services, our business may be adversely affected
21. 21historically incurred higher levels of sales and marketing expenses accompanying each product and service introduction
22. 22Our success depends on our ability to develop and maintain the value and reputation of the CLMBR and FORME brands
23. 23We have limited operating experience at our current scale of operations. If we are unable to manage our growth effectively, our brand, company culture, and financial performance may suffer
24. 24If our marketing efforts are not effective, our ability to grow our business and maintain or expand our market share could suffer
25. 25We may adjust or re-allocate our advertising spend across channels, product verticals, and geographic markets to optimize the effectiveness of these activities. We expect to increase advertising spend in future periods to continue driving our growth
26. 26Our products and services may be affected from time to time by design and manufacturing or other defects that could adversely affect our business and result in harm to our reputation
27. 27We may be subject to warranty claims that could result in significant direct or indirect costs, or we could experience greater returns than expected, either of which could have an adverse effect on our business, financial condition, and results of operations
28. 28If we fail to offer high-quality member support, our business and reputation will suffer
29. 29Our growth will depend in part on our ability to develop and expand our strategic and commercial relationships with companies across the fitness, wellness, hospitality, fashion, sports and design industries
30. 30If we fail to obtain and retain high-profile strategic relationships, or if the reputation of any of these parties is impaired, our business may suffer
31. 31We face risks, such as unforeseen costs and potential liability in connection with content we acquire, produce, license and/or distribute through our service

Risks Related to Suppliers, Manufacturers, and Other Ecosystem Partners

1. 32We rely on a limited number of suppliers, manufacturers, and logistics partners for our CLMBR and FORME Studio equipment. A loss of any of these partners could negatively affect our business
2. 33We have limited control over our suppliers, manufacturers, and logistics partners, which may subject us to significant risks, including the potential inability to produce or obtain quality products and services on a timely basis or in sufficient quantity
3. 34insufficient warranties and indemnities on components and parts supplied to or by our manufacturers or in connection with performance by our providers
4. 35Increases in component and equipment costs, long lead times, supply shortages, and supply changes could disrupt our supply chain and negatively impact our business, financial condition, and results of operations
5. 36Our ability to maintain a sufficient supply of components and raw materials for our products or to adequately control the costs thereof have been, and may be, negatively impacted by global supply chain constraints, which in turn may be impacted by geopolitical events or other factors beyond our control
6. 37We depend on sole source and limited source suppliers for certain components and parts used in the manufacture of our products. If we are unable to source these components on a timely basis, we will not be able to deliver our products to our customers
7. 38Our manufacturing partners and suppliers are located in Taiwan and China, which exposes us to various risks, including due to tensions between Taiwan and mainland China
8. 39Our payments system depends on third-party providers and is subject to evolving laws and regulations
9. 40Any major disruption or failure of our information technology systems or websites, or our failure to successfully implement upgrades and new technologies effectively, could adversely affect our business and operations
10. 41chain, sell our CLMBR and FORME Studio equipment online, provide services to our members, and otherwise adequately serve our members
11. 42We rely heavily on third parties for most of our computing, storage, processing, and similar services. Any disruption of or interference with our use of these third-party services could have an adverse effect on our business, financial condition, and results of operations
12. 43We face certain risks related to the interaction of our members, trainers, and fitness instructors
13. 44If we experience any adverse change to, loss of, or claim that we do not hold necessary licenses to the music content included in our fitness content or otherwise accessible on our platform, it may have an adverse effect on our business, financial condition, and results of operations
14. 45We are a party to many music license agreements that are complex and impose numerous obligations upon us that may make it difficult to operate our business, and a breach of such agreements could adversely affect our business, financial condition, and results of operations
15. 46comply with certain security and technical specifications
16. 47Our member engagement on mobile devices depends upon effective operation with mobile operating systems, networks, and standards that we do not control
17. 48changes in mobile operating systems, such as iOS and Android, that degrade the functionality of our mobile website or mobile apps or that give preferential treatment to competitive products
18. 49We rely on third parties to drive traffic to our website, and these providers may change their algorithms or pricing in ways that could damage our business, operations, financial condition, and prospects

Risks Related to Our Intellectual Property

1. 50We have in the past, and may in the future, face claims of intellectual property infringement, misappropriation or other violations, which could be time-consuming or costly to defend or settle, result in the loss of significant rights or harm our relationships with our members or reputation in the industry
2. 51pay substantial damages to our members or end-users to discontinue their use of or to replace infringing technology sold to them with non-infringing technology, if available
3. 52significant payments. Even if we were to prevail in such a dispute, any litigation regarding our intellectual property could be costly and time-consuming and divert the attention of our management and key personnel from our business operations
4. 53Patents and Other Registered Intellectual Property
5. 54the coverage claimed in a patent application can be significantly reduced before a patent is issued, and its scope can be reinterpreted after issuance
6. 55we will not lose the ability to assert our intellectual property rights against or to license our technologies to others and collect royalties or other payments
7. 56Trade Secrets and Other Unregistered Intellectual Property
8. 57Monitoring Unauthorized Use of Intellectual Property
9. 58determine the enforceability, scope, and validity of the propriety rights of others
10. 59If we encounter disputes or other issues related to the intellectual property we license from or that we develop with third parties, it could narrow or restrict our ability to use such intellectual property and adversely impact our ability to develop and market our current or new products and services
11. 60We may be involved in lawsuits to protect or enforce our patents or our other intellectual property rights, which could be expensive, time consuming and unsuccessful
12. 61Our use of third-party open source software may pose particular risks to our proprietary software, technologies, products, and services in a manner that could harm our business
13. 62Further, although some open source vendors provide warranty and support agreements, it is common for such software to be available “as-is” with no warranty, indemnity, or support

Risks Related to Privacy, Cybersecurity, and Infrastructure

1. 63We collect, store, process, and use personal information and other member data, which subjects us to legal obligations and laws and regulations related to security and privacy, and any actual or perceived failure to meet those obligations could harm our business
2. 64Cybersecurity risks could adversely affect our business and disrupt our operations
3. 65A breach of our information technology systems or physical security systems, or any actual or perceived violation of privacy or data protection laws, could harm our reputation, business, financial condition, and results of operations
4. 66Data privacy and security are subject to frequently changing rules and regulations, and failure to comply with these rules and regulations could materially and adversely harm our reputation, business, financial condition, and results of operations

Risks Related to Financial, Accounting, and Tax Matters

1. 67We may not be able to accurately predict our future capital needs, and we may not be able to obtain additional financing to fund our operations
2. 68We may need to incur significant expenditures to address the additional operational and control requirements of our growth, either of which could harm our business, financial condition, and results of operations
3. 69Our members’ ability to obtain financing on commercially reasonable terms and our ability to receive timely payments from our members, could adversely affect our results of operations
4. 70Our ability to use our net operating loss to offset future taxable income may be subject to certain limitations
5. 71Fluctuations in exchange rates between and among the currencies of the countries in which we do business could adversely affect our business, financial condition, and results of operations
6. 72If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired
7. 73In preparing our consolidated financial statements, we make good faith estimates and judgments that may change or turn out to be erroneous, which could adversely affect our results of operations for the periods in which we revise our estimates or judgments
8. 74Changes to financial accounting standards may affect our results of operations and could cause us to change our business practices
9. 75results of operations. Although we have reserved for potential payments of possible past tax liabilities in our financial statements, if these liabilities exceed such reserves, our financial condition could be harmed
10. 76Changes in our tax rates or exposure to additional tax liabilities or assessments could affect our profitability, and audits by tax authorities could result in additional tax payments
11. 77Tax regulatory authorities may disagree with our positions and conclusions regarding certain tax positions resulting in unanticipated costs or non-realization of expected benefits

Risks Related to Our International Operations

1. 78Our business, financial condition, and results of operations could be adversely affected by worldwide economic conditions, as well as political and economic conditions in the countries in which we conduct business
2. 79These risks could harm our international operations, delay new product releases, increase our operating costs and hinder our ability to grow our operations and business and, consequently, our business, financial condition, and results of operations could suffer
3. 80Expansion of our business internationally exposes us to numerous legal and regulatory requirements and failure to comply with such requirements, including unexpected changes to such requirements, could adversely affect our results of operations

Risks Related to Regulatory Matters

1. 81Our business is subject to a wide range of laws and regulations, many of which are evolving, and failure to comply with such laws and regulations could harm our business, financial condition, and results of operations
2. 82Challenges to independent contractor classification of certain personnel, including content production personnel, may have adverse business, financial, tax, legal, and other consequences to our business
3. 83harm to our reputation and brand
4. 84We are subject to economic sanctions, export control, and similar laws. Non-compliance with such laws can subject us to criminal or civil liability and harm our business, financial condition, and results of operations
5. 85We could be adversely affected by violations of applicable anti-corruption laws or violations of our internal policies designed to ensure ethical business practices
6. 86Changes to U.S. or foreign trade policy, tariff, or similar regulations may have a material adverse effect on our business, financial condition, and results of operations
7. 87Changes in legislation in U.S. and foreign taxation of international business activities or the adoption of other tax reform policies, as well as the application of such laws, could adversely impact our financial position and results of operations
8. 88We and our third-party manufacturers and suppliers are, or could become, subject to environmental, health, and safety laws, which could increase our costs, restrict our operations and require expenditures that could have a material adverse effect on our business, financial condition, and results of operations

Risks Related to Being a Public Company

1. 89We are an emerging growth company and a smaller reporting company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies and smaller reporting companies could make the Common Stock less attractive to investors
2. 90exemptions from the requirements of holding non-binding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved
3. 91We currently intend to take advantage of the available exemptions described above
4. 92Our management team has limited experience managing a public company

Risks Related to Our Common Stock

1. 93Sales of our currently issued and outstanding stock may become freely tradable pursuant to Rule 144 and may dilute the market for your shares and have a depressive effect on the price of the shares of our common stock
2. 94An active trading market for the Common Stock may not develop or be sustained and stockholders may not be able to sell their shares at or above the price paid for such shares, or at all
3. 95Our share price and trading volume have been, and are likely to continue to be, volatile and an active trading market for the Common Stock may not develop or be sustained and stockholders may not be able to sell their shares at or above the price paid for such shares, or at all
4. 96sales of shares of the Common Stock by us or our stockholders, or the perception that such sales may occur; and
5. 97Our focus on delivering a high-quality and engaging member experience may not maximize short-term financial results, which may yield results that conflict with the market’s expectations and could result in our stock price being negatively affected
6. 98Our common stock is currently listed on Nasdaq under the symbol “TRNR.” Although the Company is not currently in violation of any of Nasdaq’s continued listing requirements, as previously disclosed, at certain points in 2023 and 2024, the Company was in violation of certain continued listing requirements
7. 99If our shares are delisted from Nasdaq and become subject to the penny stock rules, it would become more difficult to trade our shares
8. 100From June 2024 to December 2024, we issued 648,700 shares of common stock pursuant to an At The Market Offering Agreement with H.C. Wainwright & Co., LLC, dated as of May 17, 2024 with a value of $8.4 million
9. 101If securities analysts or industry analysts downgrade the Common Stock, publish negative research or reports, or fail to publish reports about our business, our ordinary share price and trading volume could decline
10. 102Our actual results of operations may not meet our guidance and investor expectations, which would likely cause our share price to decline
11. 103We do not expect to declare or pay any dividends on the Common Stock for the foreseeable future
12. 104Certain provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management, and limit the market price of the Common Stock
13. 105require the approval of our board of directors or the holders of at least 66 2/3% of our outstanding shares of capital stock to amend our bylaws and certain provisions of our certificate of incorporation
14. 106We face risks related to recession, inflation, weak growth, and other economic conditions
15. 107relationships with our customers, suppliers, and lenders and might cause us to not be able to access sources of liquidity, and our borrowing costs could increase. If general macroeconomic conditions deteriorate, our business, financial condition, and results of operations could be materially and adversely affected
16. 108The ongoing inflationary pressures in the United States could increase our operating costs as well as our manufacturing and component costs, among others, which in turn could negatively affect our business, financial condition, and results of operations
17. 109An economic downturn or economic uncertainty may adversely affect consumer discretionary spending and demand for our products and services
18. 110Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by financial institutions, could adversely affect our business, financial condition or results of operations
19. 111Increasing scrutiny and evolving expectations from customers, partners, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us, expose us to new or additional risks, or harm our reputation
20. 112Climate change may have an adverse impact on our business
21. 113in the event of international acquisitions, risks associated with accounting and business practices or regulatory requirements that are different from applicable U.S. practices and requirements
22. 114We depend on our executive officers and other key employees, and the loss of one or more of these employees or an inability to attract or retain highly skilled employees could adversely affect our business
23. 115attention to our business may be diverted from time to time or they may encounter conflicts of interest in allocating their time and resources between us and other business endeavors in which they are engaged
24. 116Our officers and directors may encounter conflicts of interest involving us and other entities with which they may be affiliated, including matters that involve corporate opportunities
25. 117Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce cash resources
26. 118any breach of a director’s duty of loyalty to the corporation or its stockholders
27. 119Litigation and other legal proceedings may adversely affect our business, financial condition, and results of operations
28. 120Catastrophic events may disrupt our business
29. 121Regulations related to conflict minerals may cause us to incur additional expenses and could limit the supply and increase the costs of certain metals used in the manufacturing of our products