Interactive Strength, Inc.: Form 10-Q for the period ended Jun 30, 2026

The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included in Part I, Item 1. of this Form 10-Q, and together with our audited consolidated financial statements, the related notes thereto and other information set forth in our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the SEC on March 31, 2026 (the "2025 10-K"). Historic results are not necessarily indicative of future results.

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. In some cases, forward-looking statements can be identified by the use of forward-looking terms such as “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target,” “trajectory” or the negative of these terms or other comparable terms. However, the absence of these words does not mean that the statements are not forward-looking. Forward-looking statements include, but are not limited to, statements regarding:

• our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit, operating expenses, including changes in research and development, sales and marketing, and general and administrative expenses (as well as any components of the foregoing), and our ability to achieve and maintain profitability;
• our business model, growth strategy and our ability to effectively manage our growth, the factors which may affect our performance and the potential impact thereof and the potential significance and impact of our key operational and business metrics;
• anticipated trends, growth rates, and challenges in our business and the markets in which we operate;
• our market opportunity, including potential or anticipated growth of the fitness and wellness industry, including the smart home gym and connected fitness sector of this industry;
• our internal estimates as to our market opportunities, including our total addressable market;
• market acceptance of our Connected Fitness hardware and services;
• beliefs and objectives for future operations, products, and services;
• our ability to maintain and increase sales of our Ergatta water rowers, CLMBR vertical climbing machine ("CLMBR") and FORME Studio equipment and Wattbike fitness products, increase memberships to the Ergatta, Wattbike, CLMBR and FORME platforms, and expand our product and service offerings;
• our ability to attract and retain qualified trainers, including personal trainers, and to contract with fitness instructors and other content production personnel;
• our expectations regarding potential changes to our membership or pricing models or to our products and services;
• our plans to expand our commercial and corporate wellness customer base;
• our ability to develop new content, features, equipment, and other services to integrate with or complement the Ergatta, CLMBR, FORME and Wattbike platforms and bring them to market in a timely manner;
• our expectations regarding content costs included in our products and services;
• the effects of seasonal trends on our results of operations;
• our expectations concerning relationships with third-party manufacturers, suppliers, content providers, ecosystem partners, and other third parties, as well as current and potential strategic relationships;
• our expectations regarding our manufacturing and supply chain, including any defects or warranty claims;
• our ability to maintain, protect, and enhance our intellectual property;
• our international expansion plans and ability to continue to expand internationally;
• the effects of increased competition in our markets and our ability to compete effectively;
• our ability to stay in compliance with laws and regulations that currently apply or become applicable to our business both in the United States and internationally;
• economic and industry trends, projected growth, or trend analysis;
• our liquidity position, capital requirements and need for additional financing;
• our expectations regarding the impact of general economic conditions and geopolitical events;
• our expectations regarding the period during which we qualify as an emerging growth company under the JOBS Act and as a smaller reporting company; and
• the imposition of new tariffs or changes in existing tariff rates.

These forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause or contribute to a material difference include those discussed below and under Item 1A. Risk Factors, as well as the risks discussed in the Company’s other filings with the Securities and Exchange Commission (the “SEC”). All forward-looking statements set forth in this Quarterly Report are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations. Forward-looking statements set forth in this Quarterly Report speak only as of the date hereof, and we do not undertake any obligation to update forward-looking statements to reflect subsequent events or circumstances, changes in expectations or the occurrence of unanticipated events, except to the extent required by law. You should carefully read the “Risk Factors” section to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements.

Overview

Interactive Strength Inc. ("we", "us" or the "Company") is the parent company of four leading brands serving the commercial and at-home markets with specialty fitness equipment and virtual training: Wattbike, Ergatta, CLMBR and FORME. Wattbike, acquired in July of 2025, offers a range of high-performance indoor bikes that set the global standard in cycling. Known for unmatched accuracy, realistic ride feel, and advanced performance tracking, Wattbike is trusted by elite athletes, national teams, and fitness enthusiasts around the world. Ergatta, acquired in March 2026, is a game-based connected fitness company. CLMBR offers a premium vertical climbing experience through its patented open-frame design and immersive touchscreen, delivering a high-intensity, low-impact workout that’s both efficient and effective. FORME delivers strength, mobility, and recovery training through immersive content, performance-grade hardware, and expert coaching. Its wall-mounted systems include the Studio, a smart fitness mirror for guided programming and live 1:1 personal training, and the Lift, which adds smart resistance cable training—ideal for high-performance environments and sport-specific development. The combination of technology with expert training leads to better outcomes for both consumers and trainers alike. Wattbike, Ergatta, CLMBR and FORME each offer unique fitness solutions for both the commercial and at-home markets.

Key milestones in our growth history include:

• May 2017 – Interactive Strength Inc. founded
• July 2021 – Commenced commercial delivery of FORME Studio (fitness mirror), our first connected fitness hardware product
• July 2022 – Live 1:1 personal training service launched
• August 2022 – Commenced commercial delivery of FORME Studio Lift (fitness mirror and cable-based digital resistance)
• April 2023 – Interactive Strength went public on NASDAQ with ticker symbol "TRNR"
• February 2024 – Acquired substantially all of the assets of CLMBR, Inc.
• July 2025 - Acquired all of the outstanding equity interests of Wattbike (Holdings) Limited ("Wattbike").
• March 2026 - Acquired all of the outstanding equity interests of Ergatta, Inc. ("Ergatta")
• July 2026 - Executed a purchase agreement to acquire all of the outstanding shares of STEPR Inc. ("STEPR"), which is expected to close late in the third quarter of 2026.

Our revenue is primarily generated from the sale of our connected fitness hardware products and associated recurring membership revenue.

During the six months ended June 30, 2026 and 2025, we generated total revenue of $11.8 million and $2.6 million, respectively, and incurred net losses of $17.8 million and $8.8 million, respectively. As we generated recurring net losses and negative operating cash flow since inception, we have funded our operations primarily with gross proceeds from the issuance of convertible notes, the issuance of promissory notes to unrelated and related parties, and the issuance of common stock.

Business Model and Growth Strategy

Acquire complementary businesses that generate attractive synergies

We acquired CLMBR, Inc. in February 2024 and Wattbike on July 1, 2025. In addition, on March 11, 2026, we completed the acquisition of Ergatta, a connected fitness company that is considered a pioneer in game-based connected fitness. We expect that we will be able to acquire additional revenue-generating businesses, such as STEPR, which would generate higher earnings and cashflows through synergies with our existing business. Our team brings significant experience with M&A transactions and we are one of the few companies in our industry with publicly traded equity securities, which we believe makes us an attractive acquirer.

Leverage well established equipment distributors to scale in commercial channels

We have high value partnerships with numerous fitness equipment distributors around the world, including Woodway, to sell CLMBR, FORME and Wattbike 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.

Expand into new geographies

We intend to expand the international reach of our existing brands by leveraging in-market relationships and sales infrastructure across the brands in our portfolio. For example, with Wattbike, which is based in the United Kingdom, we are currently evaluating potential expansion of that brand in the US, where FORME, CLMBR and Ergatta have well established routes to market in both commercial and residential markets, although we have not yet made any definitive plans regarding such expansion or the potential timing thereof. We plan to pursue disciplined international expansion by targeting countries with sound macroeconomic conditions, favorable growth trends and stable regulatory environments, and importantly, those where we have footholds and low risk routes to market through our existing brand relationships and in market presence.

Build out partnership ecosystem

We intend to continue to build our strategic partner ecosystem with a focus on relationships that enable us to extend our platform to new audiences. We are pursuing opportunities in a number of attractive verticals, including sports, physical therapy and rehabilitation, and telemedicine. We are continuously identifying and evaluating opportunities to apply our coaching know-how in new and innovative ways to expand our reach and impact.

Expand B2B Channel

We intend to expand our sales and marketing efforts into a variety of light commercial settings, including multifamily buildings, hotels, country clubs, universities and performance centers.

Factors Affecting Our Performance

Our financial condition and results of operations have been, and will continue to be, affected by a number of factors, including the following:

• We 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.
• Our membership revenue is largely dependent on our ability to sell our Ergatta, Wattbike, CLMBR and FORME Studio equipment and if sales of such 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.
• If 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.
• Increases 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.
• The sufficiency of our liquidity and capital resources, and our ability to obtain additional funding as needed for our operations and to execute on our strategy.
• Our ability to execute or realize the anticipated benefits of any strategic acquisition or transaction.

We have experienced, and expect to continue to experience, some disruptions to parts of our supply chain, including procuring necessary components or parts in a timely fashion, with suppliers increasing lead times or placing products on allocation and raising prices. In addition, disruptions to commercial transportation infrastructure have increased delivery times for materials and components or parts for our fitness equipment, and has impacted, and could in the future impact, our ability to timely deliver our products to customers. While these supply chain disruptions have resulted in operational challenges, including extended customer order lead times and periodic product allocation, they have not had a material adverse effect on our revenue or liquidity or capital resources for the six months ended June 30, 2026, and we have not implemented any significant mitigation efforts to date as a result. However, we cannot predict the impact to us of any future or prolonged supply chain disruptions or any mitigation efforts we may take going forward. For example, as a result of these supply chain disruptions, we may be required to increase customer order lead times and place some products on allocation. In addition, we may consider additional or alternative third-party manufacturing and logistics providers or suppliers. Such mitigation efforts may result in cost increases and any attempts to offset such increases with price increases may result in reduced sales, increased customer dissatisfaction, or otherwise harm our reputation. Further, if we were to elect to transition or add manufacturing or logistics providers or suppliers, it may result in temporary or additional delays in product delivery or risks related to consistent product quality or reliability. This in turn may limit our ability to fulfill customer orders and we may be unable to satisfy all of the demand for our products. We may in the future also purchase components further in advance, which in return can result in less capital being allocated to other activities such as marketing and other business needs. We cannot quantify the impact of such disruptions at this time or predict the impact of any mitigation efforts we may take in response to supply chain disruptions on our business, financial condition, and results of operations.

In addition, customer demand for our products may be impacted by weak economic conditions, inflation, weak growth, recession, equity market volatility, or other negative economic factors in the United States or other nations. The United States has recently experienced historically high levels of inflation. If the inflation rate continues to increase, it will likely affect our expenses, including, but not limited to, employee compensation expenses, increased manufacturing and supplier costs, and increasing market prices of certain components, parts, supplies, and commodity raw materials, which are incorporated into our products or used by our suppliers to manufacture our products. These components, parts, supplies, and commodities may from time to time become restricted, or general market factors and conditions may affect pricing of such components, parts, supplies and commodities, such as inflation or supply chain constraints. Given our limited operating history, we cannot predict how ongoing or increasing recessionary or inflationary pressures may impact our business, financial condition, and results of operations in the future.

Our products are manufactured primarily in foreign countries, including countries in Asia and sourced from international suppliers. Changes in U.S. trade policy, including the imposition of new tariffs or increases in existing tariff rates on imported goods, could increase our costs and the prices we charge for our products. For example, tariffs on goods imported from countries where our products are manufactured or where we source components could materially increase our cost of revenue. We may not be able to pass increased costs on to our customers, and any price increases we implement may result in reduced demand for our products. We are actively monitoring developments in U.S. trade policy and evaluating potential mitigation strategies, including diversifying our supply chain; however, we cannot predict the ultimate impact of current or future tariffs on our business, financial condition, and results of operations.

RESULTS OF OPERATIONS

Critical Accounting Policies and Estimates

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate these estimates and assumptions, including those described below. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Because of the uncertainty inherent in these matters, actual results may differ from these estimates and could differ based upon other assumptions or conditions.

Some of the estimates and assumptions we have to make under U.S. GAAP require very difficult, subjective and/or complex judgments about matters that are inherently uncertain and, as a result, we have identified those as critical accounting estimates, which are considered critical to an understanding of our historical financial condition and results of operations and are reasonably likely to have a material impact on our future results of operations and financial condition. Critical accounting estimates include those used in estimating the fair value of our convertible notes, preferred stock recognized as liabilities, warrants issued in conjunction with the issuance of such convertible notes, assumptions used in determining the valuation allowance for our deferred tax assets and the impairment of goodwill and intangible assets and estimates and assumptions used in determining the fair value of consideration paid and liabilities assumed in business combinations. For a description of our significant accounting policies, see Note 2 to the Consolidated Financial Statements.

The critical accounting policies that reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements include those noted below.

Fair Value Measurements

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. Our financial instruments that are carried at fair value in our consolidated financial statements consist of convertible notes, warrants and embedded derivative liabilities associated with the issuance of convertible notes, preferred stock accounted for as liabilities and contingent consideration related to acquisition transactions. The fair value of these instruments that are measured at each accounting period are generally determined using Monte Carlo simulations or discounted cash flow analyses and are largely based on unobservable inputs to the valuation methodology (Level 3 inputs - see Note 13 to the Consolidated Financial Statements).

Goodwill and Intangible Assets

Our annual goodwill impairment assessment at October 1, 2025 was performed based on our determination that Wattbike, CLMBR and FORME comprise a single reporting unit based on the guidance provided in Accounting Standards Codification ("ASC") 350, and we performed a quantitative analysis using a combination of income and market approaches. Our reporting unit had fair values in excess of their carrying values, resulting in no impairment of goodwill. We have also determined, with respect to future assessments of goodwill impairment, that Ergatta will also be included in a single reporting unit.

We estimate the fair value of intangible assets acquired in business combinations based on an income approach. Where applicable, we utilize the relief-from-royalty method, which assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to exploit the related benefits of these types of assets. This approach is dependent on a number of factors, including estimates of future growth and trends, royalty rates for this category of intellectual property, discount rates and other variables. For the periods presented, we did not recognize any impairment of intangible assets.

Contingent Consideration

In accordance with ASC 805, Business Combinations, liabilities for contingent consideration assumed in business acquisitions are recorded at fair value at the date of acquisition, with changes in the fair value recorded through earnings at each reporting period. We assess the fair value of this liability based on our estimate of the likelihood that sales projections or forecasted free cash flow, as defined, will be achieved and that the contingent payment will be earned. For the six months ended June 30, 2026 and 2025, we recorded losses on changes in fair value of contingent consideration of $0.5 million $0, respectively, and for the years ended December 31, 2025 and 2024, we recorded gains on changes in fair value of contingent consideration of $0.2 million and $1.3 million, respectively.

Convertible Notes

As permitted under ASC Topic 825, Financial Instruments, we have elected the fair value option to account for some of our convertible notes that were issued in 2025 and 2024 (see Note 11 to the Consolidated Financial Statements). 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 income (expense), net in the accompanying consolidated statements of operations and comprehensive loss. The convertible notes for which we elected the fair value option are valued using a discounted cash flow analysis or Monte Carlo Simulation model, and the assumptions used therein are discussed in Note 13 to the Consolidated Financial Statements. For the six months ended June 30, 2026 and 2025, we recorded a (loss) gain on the change in fair value of convertible notes of ($1.6) million and $6.6 million, respectively, and for the years ended December 31, 2025 and 2024, we recognized a gain (loss) on changes in fair value of convertible notes of $28.6 million and ($0.1 million), respectively.

Warrants and Derivative Liabilities

In connection with convertible notes that we issued in 2026 and 2025 for which we did not elect the fair value option, we issued warrants to purchase our Common Stock which did not meet the requirements for equity classification, and are therefore classified as long-term liabilities in the accompanying consolidated balance sheets with changes in fair value recognized in earnings at each reporting period. We generally utilize a Black-Scholes option pricing model to determine the fair value of these liabilities. For the six months ended June 30, 2026 and 2025 we recognized gains on changes in the fair values of warrants of $0.8 million and $1.0 million, respectively, and for the years ended December 31, 2025 and 2024, we recognized gains on changes in fair value of warrants of $2.8 million and $9.3 million, respectively.

We also recognized derivative liabilities related to these convertible notes for the embedded conversion options contained in the notes, which are also measured at fair value with changes in fair value recorded in earnings in each reporting period. The fair value of these liabilities are generally determined using a Monte Carlo Simulation model, and the key inputs into the model are disclosed in Note 13 to the consolidated financial statements. For the six months ended June 30, 2026 and 2025, we recognized a gain and loss on the changes in fair values of derivatives of $0.2 million and $1.9 million, respectively, and for the years ended December 31, 2025 and 2024, we recognized a gain and loss on changes in fair value of derivatives of $0.5 million and $0.5 million, respectively.

Income Taxes

We maintain a full valuation allowance against all of our net deferred tax assets, and as a result we have historically not recorded an income tax benefit in the accompanying consolidated financial statements despite continued losses since inception. This valuation allowance reflects our assessment of whether it is more likely than not that we will generate sufficient taxable income in the future to be able to utilize our deferred tax assets. In determining whether a valuation allowance is warranted, we evaluate factors such as prior earnings history, expected future earnings, carryback and carryforward periods and tax strategies. Evaluation of these factors requires our management to make certain estimates, assumptions and judgments. We consider all positive and negative evidence to estimate if sufficient future taxable income will be generated to realize our deferred tax assets, and we consider cumulative losses in recent years to be a significant type of negative evidence. As of June 30, 2026 and 2025, we determined that it is more-likely-than-not that our federal and state deferred tax assets will not be realized.

Recent Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies, of the notes to our consolidated financial statements included in the 2025 10-K for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the dates of the statement of financial position included in this quarterly report on Form 10-Q.

Emerging Growth Company and Smaller Reporting Company Status

Under Section 107(b) of the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, an “emerging growth company” can delay the adoption of new or revised accounting standards until such time as those standards would apply to private companies. We have elected this exemption to delay adopting new or revised accounting standards until such time as those standards apply to private companies. As a result, our consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. We will continue to remain an “emerging growth company” until the earliest of the following: (i) the last day of the fiscal year following the fifth anniversary of the date of the completion of our initial public offering; (ii) the last day of the fiscal year in which our total annual gross revenue is equal to or more than $1.235 billion; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates is less than $700.0 million and our annual revenue is less than $100.0 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250.0 million or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Components of Our Operating Results

Revenue

Connected Fitness Products

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.

Membership

Membership revenue consists of revenue generated from our monthly Connected Fitness membership. With the recent acquisition of Ergatta, we expect our membership revenue to increase overall and as a percentage of total revenue during the remainder of 2026.

Training and Other Revenue

Training and other revenue consists of sales of our personal training services delivered through our connected fitness products and third-party mobile devices, and also includes license revenue generated by Ergatta. Training revenue is recognized at the time of delivery.

Cost of Revenue

Connected Fitness Product

Connected Fitness Product cost of revenue consists of Wattbike, Ergatta, CLMBR, 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.

Membership

Membership cost of revenue includes costs associated with personnel related expenses, filming and production costs, hosting fees, music royalties, amortization of capitalized content and amortization of capitalized software development costs.

Training and Other

Training and other revenue cost of revenue includes costs associated with personnel related expenses and rent expense.

Operating Expenses

Research and Development

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.

Sales and Marketing

Sales and marketing expense consists of performance marketing media spend, brand creative expenses, amortization of customer-related and trademark intangible assets, all showroom expenses and related lease payments and sales and marketing personnel-related expenses.

General and Administrative

General and administrative expenses include personnel-related expenses and facilities-related costs primarily for our executive, finance, accounting, legal, human resources, and IT functions. General and administrative expenses also include fees for professional services, principally comprised of legal, audit, tax and accounting services, insurance and depreciation of internal use software.

We expect to incur additional general and administrative expenses as a result of operating as an acquisition-focused public company, including expenses related to compliance and reporting obligations required of public companies, and increased costs for insurance, investor relations expenses, and professional services. As a result, we expect that our general and administrative expenses will increase in absolute dollars in future periods and vary from period to period as a percentage of revenue, but we expect to leverage these expenses over time as we grow our revenue and member base.

Other (Expense) Income, Net

Other (expense) income, net mainly consists of expenses recognized in connection with settlement agreements with a certain lender, changes in fair value of preferred stock, foreign currency gains and losses and, in 2025, charges associated with the convertible notes that were recognized at fair value.

Interest Expense

Interest expense consists of interest associated with our convertible notes and loans payable.

Interest Income

Interest income in 2025 consists of interest associated with the loan receivable.

(Loss) gain upon extinguishment of debt

(Loss) gain on debt extinguishment is primarily the result of gains or losses incurred upon conversion of convertible notes and loans payable into equity, or an exchange of debt instruments.

Change in Fair Value of Convertible Notes

The change in fair value of convertible notes consists of the change in the fair value of the outstanding convertible notes since the previous reporting period.

Change in Fair Value of Earn Out

The change in fair value of earn out consists of the change in the fair value of outstanding contingent consideration liabilities since the previous reporting period.

Change in Fair Value of Derivatives

The change in fair value of derivatives consists of the change in the fair value of the outstanding derivatives since the previous reporting period.

Change in Fair Value of Warrants

The change in fair value of warrants consists of the change in the fair value of the outstanding warrants since the previous reporting period.

Results of Operations for the Three and Six Months Ended June 30, 2026 and 2025

The following tables set forth our condensed consolidated results of operations for the three months ended June 30, 2026 and 2025, which we sometimes refer to as our second fiscal quarter, and for the six months ended June 30, 2026 and 2025. Due to the acquisitions of Wattbike and Ergatta during the past 12 months, our results of operations are not comparable year over year.

(in thousands)

(1) Includes stock-based compensation expense as follows:

(in thousands)

(in thousands)

For the three and six months ended June 30, 2025, $0.1 million and $0.5 million, respectively, of stock-based compensation was capitalized as software costs. No stock-based compensation was capitalized for the three and six months ended June 30, 2026.

(2) Includes depreciation and amortization expense as follows:

(in thousands)

(in thousands)

40

Revenue

The following table shows the components of our consolidated revenue for the three and six months ended June 30, 2026 and 2025:

Fitness product revenue increased by $3.4 million to $4.4 million for the three months ended June 30, 2026, as compared to $0.9 million for the three months ended June 30, 2025. The increase was mainly the result of $3.7 million of revenues associated with Wattbike, which was acquired on July 1, 2025, and $0.6 million of revenues associated with Ergatta, acquired on March 11, 2026, partially offset by decreases in Forme and CLMBR revenue in 2026.

Fitness product revenue increased by $6.8 million to $8.8 million for the six months ended June 30, 2026, as compared to $2.0 million for the 6 months ended June 30, 2025. The increase was primarily due to revenues associated with Wattbike and Ergatta of $7.9 million and $0.7 million, respectively, in 2026, partially offset by decreases in Forme and CLMBR revenue.

Membership revenue was $2.1 million for the three months ended June 30, 2026, as compared to $0.2 million for the three months ended June 30, 2025, and $2.7 million for the six months ended June 30, 2026 as compared to $0.3 million for the six months ended June 30, 2025. Substantially all of our Membership revenue in 2026 is associated with Ergatta.

Training and other revenue was $0.2 million for the three months ended June 30, 2026 as compared to $0.1 million for the three months ended June 30, 2025, and $0.3 million for the six months ended June 30, 2026 as compared to $0.2 million for the six months ended June 30, 2025. The increase is mainly due to digital game content license revenue earned by Ergatta in 2026, partially offset by a decrease in Live 1:1 training sessions.

Cost of Revenue and Gross Margin

The following table shows the components of our cost of revenue and gross margin for the three and six months ended June 30, 2026 and 2025:

(in thousands)

Consolidated cost of revenue for the three months ended June 30, 2026 was $3.4 million, as compared to $1.4 million for the three months ended June 30, 2025. Consolidated cost of revenue for the six months ended June 30, 2026 was $7.0 million, as compared to $3.1 million for the six months ended June 30, 2025. The increases are mainly due to higher cost of fitness product revenue in 2026 resulting from the Wattbike acquisition on July 1, 2025.

For the second quarter of 2026, our gross profit improved to $3.2 million from a gross loss of $0.2 million for the second quarter of 2025, resulting in a gross margin of 48% in the second quarter of 2026 as compared to (16)% in the second quarter of 2025. The improvement is due to the Wattbike and Ergatta acquisitions.

For the six months ended June 30, 2026, our gross profit improved to $4.8 million from a gross loss of $0.5 million for the six months ended June 30, 2025, resulting in a gross margin of 41% in the six months ended June 30, 2026 as compared to (19)% for the six months ended June 30, 2025. We expect further margin improvements in the second half of the year and beyond as we continue to realize synergies from the Wattbike and Ergatta acquisitions, as well as other potential acquisitions which we expect will be accretive to earnings. There can be no assurance, however, that we will achieve anticipated synergies or that future acquisitions will be consummated or accretive to earnings. See “Cautionary Statement Regarding Forward-Looking Statements” above and “Risk Factors” in Part II, Item 1A of this Quarterly Report for a discussion of risks that could cause actual results to differ materially from our expectations.

Operating Expenses

In the second quarter of 2025, we recognized a total of $2.4 million of compensation expense related to the full redemption value of Series LTI Preferred Stock that was issued to our executive officers and members of our Board of Directors on June 14, 2025. Approximately $2.1 million of this expense was recorded as general and administrative expense, and $0.3 million was recorded as research and development expense. The preferred stock was canceled and the corresponding liability was derecognized in the fourth quarter of 2025, however the issuance of the preferred stock resulted in significant operating expense for the three and six months ended June 30, 2025 with no comparable amount for the corresponding periods in fiscal 2026.

Research and Development

Research and development expense was $0.4 million for the second quarter of 2026, as compared to $0.8 million for the second quarter of 2025. The decrease is primarily due to reductions in stock-based compensation and other personnel-related costs of $0.5 million, partially offset by $0.1 million of research and development expenses at Wattbike and Ergatta not present in 2025.

For the six months ended June 30, 2026, research and development expense was $0.9 million, as compared to $2.1 million for the six months ended June 30, 2025. The decrease was due to lower stock-based compensation and other personnel-related costs of $1.3 million and lower engineering costs of $0.2 million, partially offset by $0.3 million of expenses associated with Wattbike and Ergatta not present in 2025.

Sales and Marketing

Sales and marketing expense was $2.2 million for the second quarter of 2026, as compared to $0.2 million for the second quarter of 2025. The increase was largely due to amortization expense for intangible assets acquired in the Ergatta and Wattbike transactions of $0.8 million and $0.2 million, respectively, as well as $1.0 million of other sales and marketing expenses associated with Wattbike and Ergatta, mainly for personnel, digital media and advertising expenses, not present in 2025.

Sales and marketing expense was $3.2 million for the six months ended June 30, 2026, as compared to $0.5 million for the six months ended June 30, 2025. The increase was largely due to amortization expense for intangible assets acquired in the Ergatta and Wattbike transactions of $0.9 million and $0.3 million, respectively, as well as approximately $1.6 million of other sales and marketing expenses associated with Wattbike and Ergatta, mainly for personnel, digital media and advertising expenses, not present in 2025.

General and Administrative

General and administrative expense was $4.0 million for the three months ended June 30, 2026 as compared to $4.6 million for the three months ended June 30, 2025, as the absence of $2.1 million of stock-based compensation expense associated with the LTI Preferred Stock in 2026 was largely offset by general and administrative expenses associated with Ergatta and Wattbike not present in 2025 of approximately $1.6 million, including $0.6 million of stock-based compensation expense related to equity grants issued in the Ergatta transaction.

General and administrative expense was $8.1 million for the six months ended June 30, 2026, as compared to $9.1 million for the six months ended June 30, 2025. The decrease reflects a $4.4 million total reduction in stock-based compensation in 2026 related to our legacy business, largely offset by general and administrative expenses associated with Ergatta and Wattbike of approximately $2.7 million (which includes $0.7 million of compensation expense related to the equity grants issued in the Ergatta transaction) and $0.6 million of increased acquisition transaction costs.

Other Income (Expense), net

(in thousands)

(in thousands)

Other Expense, net

Other expense, net for the three months ended June 30, 2026 of $1.5 million is mainly comprised of the change in fair value of convertible preferred stock of $1.1 million and expense recognized under a settlement agreement in the amount of $0.5 million. For the three months ended June 30, 2025, other expense of $0.9 million is mainly comprised of expense associated with the convertible notes issued in 2025 for which we elected the fair value option.

Other expense, net for the six months ended June 30, 2026 of $4.0 million consists of $2.6 million of expense recognized under settlement agreements, $1.1 million for the change in fair value of convertible preferred stock and a credit loss of $0.2 million recognized upon the settlement of the Sportstech loan receivable.

Interest Expense

Interest expense decreased by $3.0 million for the three months ended June 30, 2026 as compared to the three months ended June 30, 2025, and by $3.3 million for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025. The decreases are mainly attributable to a lower average debt balance for the first six months of 2026 as compared to 2025 and to the higher debt discount amortization on our convertible notes in 2025.

Interest Income

Interest income decreased by $0.2 million for the second quarter of 2026 as compared to the second quarter of 2025, and by $0.4 million for the six months ended June 30, 2026 as compared to the same period of a year ago due to the repayment of the loan receivable from Sportstech in early 2026.

(Loss) Gain on extinguishment of debt

The loss on extinguishment of debt for the three and six months ended June 30, 2026 of $0.6 million and $2.3 million, respectively, was mainly the result of the conversion of Class A Incremental Notes into equity (see Note 11 to the Consolidated Financial Statements), partially offset by gains on extinguishment of other indebtedness.

The gain on extinguishment of debt for the three and six months ended June 30, 2025 of $1.4 million and $4.5 million, respectively, was mainly the result of the conversion of notes formerly held by principal stockholders and certain other indebtedness into equity.

Change in Fair Value of Convertible Notes

We recorded losses on the change in fair value of convertible notes for the three and six months ended June 30, 2026 of $0.3 million and $1.6 million, respectively, and we recorded gains on the change in fair value of convertible notes for the three and six months ended June 30, 2025 of $7.2 million and $6.6 million, respectively. The gains for the three and six months ended June 30, 2025 are mainly due to the decrease in fair value of the convertible notes issued in connection with the Company's acquisition of digital assets in June of 2025 (see Note 11 to the Consolidated Financial Statements).

Change in Fair Value of Earnout

The loss on change in fair value of earnout of $0.5 million for the three and six months ended June 30, 2026 was the result of the increase in fair value of the contingent consideration related to the Ergatta acquisition.

Change in Fair Value of Derivatives

We recognized a gain on the change in fair value of derivatives for the three months and six months ended June 30, 2026 of $0.5 million and $0.2 million, respectively, as compared to a loss on the change in fair value of derivatives for the three and six months ended June 30, 2025 of $0.5 million and $1.9 million, respectively.

Change in Fair Value of Warrants

The gain on the change in fair value of warrants issued in conjunction with the issuance of convertible notes was $0.1 million and $0.5 million for the three months ended June 30, 2026 and 2025, respectively, and $0.8 million and $1.0 million for the six months ended June 30, 2026 and 2025, respectively.

Liquidity and Capital Resources

At June 30, 2026, we had a working capital deficit of $38.9 million, mainly consisting of cash and cash equivalents of $1.0 million, accounts receivable of $3.2 million, inventory of $4.7 million and vendor deposits and other current assets of $1.9 million, more than offset by accounts payable and accrued expenses of $13.1 million, convertible notes and loans payable of $21.4 million, mandatorily redeemable preferred stock of $9.5 million and other current liabilities of $5.1 million. We have incurred an accumulated deficit of $245.4 million since inception, and we had negative cash flows from operations of $5.6 million and $5.7 million for the six months ended June 30, 2026 and 2025, respectively, and $10.4 million and $14.8 million for the years ended December 31, 2025 and 2024, respectively. We also incurred operating losses of $7.4 million and $12.1 million for the six months ended June 30, 2026 and 2025, respectively, and $19.9 million and $29.2 million for the years ended December 31, 2025 and 2024, respectively. We have funded our operations for the last few years through the sale of our debt and equity securities. Our material cash requirements are primarily comprised of:

• Payments to vendors and professional service providers critical to our operations and our obligations as a public company
• Cash portions of the purchase price for strategic acquisitions
• Principal and interest payments on debt scheduled to mature over the next twelve months
• Obligations under legal settlements
• Salaries, wages and benefits to employees
• Sourcing, new product development and commercialization activities for our existing products

As an emerging growth company, we are subject to certain inherent risks and uncertainties associated with the development of an enterprise. Since our 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.

In order to execute our growth strategy, we have been heavily dependent on financing from lenders and capital from private and public investors (collectively “outside capital”) since our inception and we expect to remain heavily dependent on outside capital for the foreseeable future until such time that our operations reach a scale of profitability that allows us to fund our obligations with cash inflows from operations. However, management can provide no assurance that we will ever be able to generate sufficient cash inflows to reduce or eliminate our reliance on outside capital.

Our available liquidity to fund our operations over the next twelve months beyond the issuance date was limited to approximately $1.7 million of cash and cash equivalents However, based on our anticipated liquidity needs, the foregoing available liquidity will not be sufficient to meet our obligations as they become due over the next year beyond the issuance date absent management’s ability to secure additional outside capital, which may not be available on commercially acceptable terms, or at all. The Securities Purchase Agreement that we entered into on January 28, 2025 with an accredited investor allows the investor to purchase up to $16.0 million of additional senior secured convertible notes from us, and we also have an At The Market Offering Agreement in place under which we may issue additional shares of Common Stock of approximately $6.0 million, however these do not represent firm commitments for additional capital. We currently have no firm commitments in place for securing additional outside capital.

Included in our anticipated liquidity needs is approximately $23.1 million of outstanding debt that is scheduled to mature over the next twelve months beyond the issuance date, and we do not have sufficient liquidity to repay such debt if a cash settlement is required. In the event we are unable to refinance our outstanding debt, settle some or all of the debt with shares of our common or preferred stock, secure additional outside capital, and/or secure amendments or waivers from our lenders to defer or modify their 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. These uncertainties raise substantial doubt about our ability to continue as a going concern. The accompanying consolidated financial statements have been prepared on the basis that we will continue to operate as a going concern, which contemplates that we will be able to realize assets and settle liabilities and commitments in the normal course of business for the foreseeable future. Accordingly, the accompanying consolidated financial statements do not include any adjustments that may result from the outcome of these uncertainties.

Cash Flows

Comparison of the six months ended June 30, 2026 and 2025

(in thousands)

Operating Activities

Net cash used in operating activities was $5.6 million for the six months ended June 30, 2026, essentially unchanged from the $5.7 million used in operations for the six months ended June 30, 2025. The following table represents the components of cash used in operating activities:

(in thousands)

Investing Activities

Net cash provided by investing activities of $3.4 million for the six months ended June 30, 2026 was mainly comprised of the repayment of the Sportstech loan receivable in the amount of $6.4 million (see Note 2 to the Consolidated Financial Statements), partially offset by $1.7 million of cash paid in the Ergatta acquisition transaction, net of cash acquired, acquisition of software and content of $0.9 million and property and equipment purchases of $0.3 million. Net cash used in investing activities of $51.0 million for the six months ended June 30, 2025 were comprised of our acquisition of digital assets in June of 2025 in the amount of $45.0 million (see Note 7 to the Consolidated Financial Statements) the loan to Sportstech of $4.3 million and a loan to Wattbike prior to the closing of the acquisition in the amount of $1.2 million.

Financing Activities

Net cash provided by financing activities of $2.7 million for the six months ended June 30, 2026 was primarily from the issuance of convertible notes of $1.6 million and proceeds from the issuance of common stock from an At the Market Offering of $1.5 million, partially offset by the net payment of loans under a line of credit at Wattbike of $0.2 million and the repurchase of our common shares in the amount of $0.2 million.

Net cash provided by financing activities of $59.3 million for the six months ended June 30, 2025 was primarily from proceeds from the issuance of convertible notes and other notes payable in the amount of $56.1 million and $1.8 million, respectively, and At the Market Offering proceeds of $1.6 million.

Foreign Currency Risk

Our foreign currency risk exposure has increased following the acquisition of Wattbike, which has operations in the United Kingdom. A portion of our operating expenses, and following the Wattbike acquisition, a portion of our revenues, are incurred or denominated in foreign currencies, principally British Pounds Sterling and Euros. These amounts are subject to fluctuations due to changes in foreign currency exchange rates. In addition, our suppliers incur many costs, including labor and supply costs, in other currencies. While we are not currently contractually obligated to pay increased costs due to changes in exchange rates, to the extent that exchange rates move unfavorably for our suppliers or our international subsidiaries, they may seek to pass these additional costs on to us or we may experience reduced margins on international sales, which could have a material impact on our gross margins and results of operations. Our operating results and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates. To date, we have not entered into any foreign currency-related derivatives or hedging transactions. However, as our international operations expand, we may enter into derivative or hedging transactions in the future to mitigate foreign currency risk.

Interest rate risk

Substantially all of our outstanding debt instruments have fixed interest rates. As a result, a hypothetical 100 basis point increase in interest rates would not result in a material impact on our cash flows, liquidity or results of operations for the three months ended June 30, 2026 and 2025.

Inflation Risk

While inflation has contributed to increased manufacturing and supplier costs, higher component prices and elevated employee compensation expenses for the six months ended June 30, 2026 and 2025, we do not believe that these inflationary pressures have had a material effect on our business, financial condition or results of operations. However, if our costs become subject to more significant or sustained inflationary pressures, we may not be able to fully offset such higher costs through price increases or other measures. Our inability or failure to do so could harm our business, financial condition, and operating results.

Evaluation of Disclosure Controls and Procedures

Under the supervision, and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in connection with the period ending June 30, 2026. Based on that evaluation, management has concluded that as of the respective period, our disclosure controls and procedures were not effective due to the material weaknesses in internal control over financial reporting described below.

Notwithstanding the material weaknesses in our internal control over financial reporting, management has concluded that the condensed consolidated financial statements included in this Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act for the Company. Management assessed the effectiveness of internal control over financial reporting as of June 30, 2026. In making this assessment, our management used the criteria set forth in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Framework”). Based on this evaluation, our management concluded that our internal control over financial reporting was not effective as of June 30, 2026, because of the material weaknesses described below.

Material Weaknesses

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that a reasonable possibility exists that a material misstatement of our annual or interim consolidated financial statements would not be prevented or detected on a timely basis.

Management concluded that material weaknesses existed as of June 30, 2026. Specifically, management identified deficiencies in the principles associated with the control environment, risk assessment, control activities, information and communication and monitoring components of internal control, based on the criteria established by the COSO Framework, that constitute material weaknesses, either individually or in the aggregate.

• Control Environment: The Company lacked appropriate policies and resources to develop and operate effective internal control over financial reporting, which contributed to the Company’s inability to properly analyze, record and disclose accounting matters accurately and timely. This was further impacted by the lack of sufficient complement of qualified technical accounting and financial reporting personnel. This material weakness contributed to additional material weaknesses further described below.
• Risk Assessment: The Company did not have a formal process to identify, update, and assess risks, including risks around the accounting for complex transactions, that could significantly impact the design and operation of the Company’s control activities.
• Control Activities: The Company did not design and implement effective control activities and identified the following material weaknesses:
• 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 control over accounting and financial reporting to ensure the timely and accurate recording of financial transactions while maintaining a segregation of duties. This, coupled with management’s accounting software system having certain system limitations that do not allow for an effective control environment and the absence of sufficient other mitigating controls, created segregation of duties deficiencies.
• 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.
• The Company 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 expense, and the recording of that expense completely and accurately in the appropriate period.
• Information and Communication: The Company did not have adequate processes and controls for communicating information among the relevant parties.
• Monitoring Activities: The Company did not appropriately select, develop, and perform ongoing evaluations to ascertain whether the components of internal controls are present and functioning. The Company did not evaluate and communicate internal control deficiencies in a timely manner to those parties responsible for taking corrective action, including senior management and the board of directors.

These material weaknesses could result in a misstatement of the account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or timely detected.

Inherent Limitations on Effectiveness of Controls

Our management, including our principal executive officer and principal financial officer, do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Due to inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Remediation Plan and Status

We are committed to remediating the control deficiencies that constituted the above material weakness by implementing changes to our internal control over financial reporting. We are in the process of implementing measures designed to improve our internal control over financial reporting to remediate these material weaknesses, including formalizing our processes and internal control documentation and strengthening supervisory reviews by our financial management; hiring additional qualified accounting and finance personnel and engaging financial consultants to enable the implementation of internal control over financial reporting and segregating duties amongst accounting and finance personnel. In addition, we are planning on implementing an accounting software system with the design and functionality to segregate incompatible accounting duties, which we currently expect will be implemented in our 2026 fiscal year.

While we are implementing these measures, we cannot assure you that these efforts will remediate our material weaknesses and significant deficiencies in a timely manner, or at all, or prevent restatements of our financial statements in the future. In particular, our material weakness related to our accounting software was not fully remediated as of June 30, 2026, as we expect to implement new software later in 2026. If we are unable to successfully remediate our material weaknesses, or identify any future significant deficiencies or material weaknesses, the accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports, and the market price of our common stock may decline as a result.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during the period ended June 30, 2026, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Our business, financial condition, results of operations, and cash flows may be impacted by a number of factors, many of which are beyond our control, including those set forth in the 2025 10-K and in our other filings with the SEC, the occurrence of any one of which could have a material adverse effect on our actual results. Except as set forth below, there have been no material changes to the risk factors previously disclosed in the 2025 10-K. The Company is supplementing the risk factors previously disclosed in the 2025 10-K with the following risk factors.

Our acquisition of Ergatta, or other potential acquisitions, does not provide assurance that the operations of Ergatta or other acquired businesses will be accretive to our earnings or otherwise improve our results of operations.

Acquisitions, such as our recent acquisition of Ergatta, involve the integration of previously separate businesses into a common enterprise in which it is envisioned that synergistic operations and economies of scale will result in improved financial performance. However, realization of these envisioned results is subject to numerous risks and uncertainties including but not limited to:

• Diversion of management time and attention from daily operations;
• Difficulties integrating the acquired business, technologies and personnel into our business;
• Potential loss of key employees, key contractual relationships or key customers of the acquired business; and
• Assumption of the liabilities and exposure to unforeseen liabilities of the acquired business.

Even though our acquisition of Ergatta has been consummated, there is no assurance that the acquisition will be accretive to our earnings or otherwise improve our results of operations.

If we are unable to successfully manage the integration of our acquisitions, we may not benefit from our acquisition strategy.

As part of our growth strategy, we seek to supplement internal growth with targeted acquisitions, including the recent acquisition of Ergatta. We may not be successful in integrating newly acquired companies into our day-to-day operations for a variety of possible reasons, including (a) our inability to retain the skilled managerial, technical, and sales personnel of acquired companies; (b) our inability to retain the customers of acquired companies; (c) our lack of success in integrating the services offered by acquired companies with our services to achieve a single package of service offerings; (d) our inability to establish and maintain uniform standards, controls, policies and procedures throughout our acquired companies; or (e) our inability to devote the management time required to successfully integrate acquired companies due to limited management resources.

Our issuance of convertible debt exposes us to various risks on dilution of our existing stockholders, downward pressure on stock price, impact on future financing and investor confidence.

Our issuance of convertible debt exposes us to various risks, including the following:

Dilution Risk to Existing Shareholders: Our issuance of convertible debt, which may be converted into shares of our common stock, poses a significant risk of dilution to our existing shareholders. Upon conversion, new shares will be issued, increasing the total number of outstanding shares and potentially decreasing the voting power of current shareholders. The extent of dilution will depend on the conversion price and the amount of debt converted.

Downward Pressure on Stock Price: The potential for future dilution from the conversion of debt can create downward pressure on our stock price. Investors may anticipate the increased supply of shares, leading to a negative impact on market valuation.

Impact on Future Financing: The existence of convertible debt on our balance sheet, and the potential for future dilution, may make it more difficult or expensive for us to raise additional capital through equity or debt offerings in the future. Potential investors may be wary of the existing conversion rights or the perceived debt burden.

Market Perception and Investor Confidence: The market's perception of our financial health and growth prospects can be influenced by our capital structure, including the amount and terms of our convertible debt. Negative perceptions could impact investor confidence and our stock valuation.

Our securities may be subject to immediate suspension and delisting if we fail to maintain a minimum market value of listed securities of at least $5 million.

The Nasdaq Stock Market, LLC has adopted a new continued listing requirement that companies listed on Nasdaq must maintain a minimum Market Value of Listed Securities (“MVLS”) of at least $5 million. Following the SEC's approval, the SEC received notices of intention to petition for review of the rule, which automatically stayed the rule's effectiveness pending further Commission action. The rule is therefore not currently in effect, and there is no prescribed timeline for the SEC to complete its review or for the stay to be lifted. Under the new rule, if our MVLS is below $5 million for 30 consecutive business days, Nasdaq Staff will issue a Staff Delisting Determination and our securities will be immediately subject to suspension and delisting. Unlike certain other Nasdaq continued listing deficiencies, we would not be entitled to a cure or compliance period before receiving that determination. Although we may request a hearing and the Hearings Panel may grant an exception for up to 180 days from the Staff Delisting Determination, any such exception would require us to demonstrate compliance with all applicable initial listing requirements, which may be more difficult than satisfying continued listing standards.

If the market price of our securities declines, or if other factors cause our MVLS to fall below the $5 million threshold for the required period, our securities could be suspended and delisted from Nasdaq with limited advance opportunity to regain compliance. Delisting could adversely affect the liquidity and market price of our securities, reduce the ability of investors to trade our securities on a national securities exchange, impair our ability to raise capital, trigger negative investor perception and result in our securities trading on an over-the-counter market or other less liquid trading market. In addition, if our securities are suspended and delisted from Nasdaq, it would result in an event of default under some of our debt agreements. The prospect of delisting also could create additional downward pressure on the trading price of our securities and may make it more difficult for us to consummate financing, strategic or other transactions on acceptable terms, or at all.