UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2023~~March 31, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________________ to ____________________

Commission File Number: 001-40764

Wag! Group Co.

(Exact name of registrant as specified in its charter)


Delaware			88-3590180
(State or other jurisdiction of ~~incorporation)~~incorporation or organization)			(~~IRS~~I.R.S. Employer Identification No.)


55 Francisco Street, Suite 360 San Francisco, California			94133
(Address of principal executive offices)			(Zip Code)

(707) 324-4219

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

PET

The Nasdaq Global Market

Warrants, each whole warrant exercisable for one share of Common Stock at an exercise price of $11.50 per share

PETWW

The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

There were ~~39,245,262~~40,620,162 shares of common stock outstanding as of ~~November 1, 2023.~~May 2, 2024.

TABLE OF CONTENTS


		Page Number
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Unaudited Condensed Consolidated Balance Sheets	4
	Unaudited Condensed Consolidated Statements of Operations	5
	Unaudited Condensed Consolidated Statements of ~~Redeemable Preferred Stock and~~ Stockholders’ Equity (Deficit)	6
	Unaudited Condensed Consolidated Statements of Cash Flows	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2622
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3328
Item 4.	Controls and Procedures	3429

	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	3530
Item 1A.	Risk Factors	3530
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3530
Item 3.	Defaults Upon Senior Securities	3530
Item 4.	Mine Safety Disclosures	3530
Item 5.	Other Information	3530
Item 6.	Exhibits	3530
	Signatures	3733

Table of Contents

~~Cautionary Note Regarding Forward-Looking Statements~~CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q ~~including, without limitation, statements under the headings “Management's Discussion and Analysis of Financial Condition and Results of Operations,”~~ contains ~~certain~~ forward-looking statements within the meaning of the Private Securities Litigation Reform Act of ~~1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in~~1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)~~. Some of the~~, which are statements that involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements ~~can be identified by the use of forward-looking words. Statements that are not historical in nature, including the~~because they contain words ~~“anticipate,” “expect,” “suggests,” “plan,” “believe,” “intend,” “estimates,” “targets,” “projects,” “should,” “could,” “would,”~~such as “may,” “will,” ~~“forecast,~~“shall,” ~~and~~“should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are ~~intended~~not limited to, ~~identify forward-looking statements. These~~ statements ~~include those related to the Company’s~~about:

•our ability to further develop and advance ~~its~~our pet service offerings and achieve scale;

•our ability to attract personnel; ~~and~~

•market opportunity, anticipated growth, and future financial performance, including management’s financial outlook for the future. Forward-looking statements are predictions, projections, and other statements about future events that are based on current expectations and assumptions and, as a result, are subject to risks and uncertainties. Many factors could cause actual future events to differ materially from the forward-looking statements in this Quarterly Report on Form 10-Q, including but not limited to: future;

•market adoption of ~~the Company’s~~our pet service offerings and solutions; ~~the~~

•our ability ~~of the Company~~ to protect ~~its~~our intellectual property;

•changes in the competitive industries in which ~~the Company operates;~~ we operate;

•changes in laws and regulations affecting ~~the Company’s~~our business; ~~the Company’s~~

•our ability to implement ~~its~~our business plans, forecasts, and other expectations, and identify and realize additional partnerships and opportunities; and

•the risk of downturns in the market and the technology industry. ~~The foregoing list of factors is not exhaustive.~~

You should ~~carefully consider~~not rely upon forward-looking statements as predictions of future events. The outcome of the ~~foregoing~~events described in these forward-looking statements is subject to risks, uncertainties and other factors ~~and the other risks and uncertainties, including information~~ described ~~under~~in Part ~~II,~~I, Item 1A, Risk Factors, of ~~this Quarterly Report on Form 10-Q and other documents filed by the Company from time to time with the Securities and Exchange Commission, including~~ our Annual Report on Form 10-K for the year ended December 31, ~~2022. These~~2023 and elsewhere in this Quarterly Report on Form 10-Q, as well as in our other filings ~~identify~~with the Securities and ~~address other important~~Exchange Commission (“SEC”). Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could ~~cause actual~~have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, toevents or circumstances could differ materially from those ~~contained~~described in the forward-looking statements. ~~Forward-looking~~

The forward-looking statements ~~speak~~made in this Quarterly Report on Form 10-Q relate only to events as of the date ~~they~~on which the statements are made. ~~Readers are cautioned not~~We undertake no obligation to ~~put undue reliance on~~update any forward-looking statements ~~and~~made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law, the Company assumes no obligation and does not intend to update or revise these forward-looking statements, whether as a result of new information, future events, or otherwise. The Company does not give any assurance that it will achieve its expectations.law.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

WAG! GROUP CO.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


			September 30, 2023		December 31, 2022
			(in thousands, except par value amounts)
		March 31, 2024						March 31, 2024		December 31, 2023
		(in thousands, except par value amounts)							(in thousands, except par value amounts)
ASSETS	ASSETS						ASSETS
Current assets:	Current assets:
Cash and cash equivalents
Cash and cash equivalents
Cash and cash equivalents	Cash and cash equivalents		$	22,304	$	38,966
Accounts receivable, net	Accounts receivable, net		8,485		5,872
Prepaid expenses and other current assets	Prepaid expenses and other current assets		3,496		2,585
Total current assets	Total current assets		34,285		47,423
Property and equipment, net	Property and equipment, net		71		88
Operating lease right-of-use assets	Operating lease right-of-use assets		1,119		695
Intangible assets, net	Intangible assets, net		8,036		2,590
Goodwill	Goodwill		4,646		1,451
Other assets	Other assets		63		64
Total assets	Total assets		$	48,220	$	52,311
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)							LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:	Current liabilities:
Accounts payable
Accounts payable
Accounts payable	Accounts payable		$	8,686	$	7,174
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities		4,404		4,765
Deferred revenue	Deferred revenue		1,768		2,232
Deferred purchase consideration – current portion	Deferred purchase consideration – current portion		724		750
Operating lease liabilities – current portion	Operating lease liabilities – current portion		300		306
Notes payable – current portion	Notes payable – current portion		1,589		1,264
Total current liabilities	Total current liabilities		17,471		16,491
Operating lease liabilities – non-current portion	Operating lease liabilities – non-current portion		899		435
Notes payable – non-current portion, net of debt discount and warrant allocation of $5,037 and $7,008 as of September 30, 2023 and December 31, 2022, respectively			25,709		24,970
Deferred purchase consideration – non-current portion			—		493
Notes payable – non-current portion, net of debt discount and warrant allocation of $3,280 and $4,563 as of March 31, 2024 and December 31, 2023, respectively
Other non-current liabilities	Other non-current liabilities		218		—
Total liabilities	Total liabilities		44,297		42,389
Commitments and contingencies (Note 9)
Stockholders’ equity:
Common stock, $0.0001 par value; 110,000 shares authorized as of both September 30, 2023 and December 31, 2022; 39,238 and 36,849 issued and outstanding as of September 30, 2023 and December 31, 2022, respectively			4		4
Commitments and contingencies (Note 8)							Commitments and contingencies (Note 8)
Stockholders’ equity (deficit):
Common stock, $0.0001 par value; 110,000 shares authorized as of both March 31, 2024 and December 31, 2023; 40,540 and 39,597 issued and outstanding as of March 31, 2024 and December 31, 2023, respectively
Common stock, $0.0001 par value; 110,000 shares authorized as of both March 31, 2024 and December 31, 2023; 40,540 and 39,597 issued and outstanding as of March 31, 2024 and December 31, 2023, respectively
Common stock, $0.0001 par value; 110,000 shares authorized as of both March 31, 2024 and December 31, 2023; 40,540 and 39,597 issued and outstanding as of March 31, 2024 and December 31, 2023, respectively
Additional paid-in capital	Additional paid-in capital		162,188		158,335
Accumulated deficit	Accumulated deficit		(158,269)		(148,417)
Total stockholders’ equity			3,923		9,922
Total liabilities and stockholders’ equity			$	48,220	$	52,311
Total stockholders’ equity (deficit)
Total liabilities and stockholders’ equity (deficit)

See the accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

WAG! GROUP CO.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


		Three Months Ended				Nine Months Ended
		September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
		(in thousands, except per share amounts)
		Three Months Ended
		Three Months Ended
		Three Months Ended
		March 31, 2024
		March 31, 2024
		March 31, 2024
		(in thousands, except per share amounts)
		(in thousands, except per share amounts)
		(in thousands, except per share amounts)
Revenues	Revenues	$	21,800	$	15,379	$	62,243	$	37,829
Costs and expenses:	Costs and expenses:
Costs and expenses:
Costs and expenses:
Cost of revenues (exclusive of depreciation and amortization shown separately below)
Cost of revenues (exclusive of depreciation and amortization shown separately below)
Cost of revenues (exclusive of depreciation and amortization shown separately below)	Cost of revenues (exclusive of depreciation and amortization shown separately below)	1,441		1,021		3,710		3,027
Platform operations and support	Platform operations and support	2,968		5,641		9,630		11,035
Platform operations and support
Platform operations and support
Sales and marketing	Sales and marketing	12,755		11,290		36,788		24,656
Royalty		—		—		1,791		—
Sales and marketing
Sales and marketing

General and administrative

General and administrative

General and administrative	General and administrative	4,682		23,781		14,487		28,546
Depreciation and amortization	Depreciation and amortization	414		134		1,170		431
Depreciation and amortization
Depreciation and amortization
Total costs and expenses	Total costs and expenses	22,260		41,867		67,576		67,695
Interest expense, net		1,683		735		4,972		784
Other expense, net		12		13,708		21		13,708
Loss before income taxes and equity in net earnings of affiliate		(2,155)		(40,931)		(10,326)		(44,358)
Total costs and expenses
Total costs and expenses
Interest expense
Interest expense
Interest expense
Interest income
Interest income
Interest income
Loss on extinguishment of debt
Loss on extinguishment of debt
Loss on extinguishment of debt
Other income, net
Other income, net
Other income, net
Loss before income taxes
Loss before income taxes
Loss before income taxes
Income taxes	Income taxes	41		—		79		13
Equity in net earnings of equity method investments		—		—		553		—
Income taxes
Income taxes

Net loss

Net loss

Net loss	Net loss	$	(2,196)	$	(40,931)	$	(9,852)	$	(44,371)
Loss per share, basic and diluted	Loss per share, basic and diluted	$	(0.06)	$	(1.67)	$	(0.26)	$	(3.60)
Loss per share, basic and diluted
Loss per share, basic and diluted
Weighted-average common shares outstanding used in computing loss per share, basic and diluted	Weighted-average common shares outstanding used in computing loss per share, basic and diluted	38,987		24,534		38,061		12,322
Weighted-average common shares outstanding used in computing loss per share, basic and diluted
Weighted-average common shares outstanding used in computing loss per share, basic and diluted

See the accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

WAG! GROUP CO.

CONDENSED CONSOLIDATED STATEMENTS OF ~~REDEEMABLE PREFERRED STOCK AND~~ STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

Redeemable Preferred Stock Common Stock
Shares Amount Shares Amount Additional Paid-in Capital Accumulated Deficit Total Stockholders' Equity
(in thousands) (in thousands)
Balance as of December 31, 2022 — $ — 36,849 $ 4 $ 158,335 $ (148,417) $ 9,922
Issuance of common stock from exercise of stock options and restricted stock units 580 — 54 54
Stock-based compensation 1,342 1,342
Net loss (3,787) (3,787)
Balance as of March 31, 2023 — — 37,429 4 159,731 (152,204) 7,531
Issuance of common stock from exercise of stock options and restricted stock units 1,298 — 36 36
Stock-based compensation 1,121 1,121
Shares issued for acquisition 49 — 225 225
Net loss (3,869) (3,869)
Balance as of June 30, 2023 — $ — 38,776 $ 4 $ 161,113 $ (156,073) $ 5,044
Issuance of common stock from exercise of stock options and restricted stock units 462 — 10 10
Stock-based compensation 1,065 1,065
Net loss (2,196) (2,196)
Balance as of September 30, 2023 — $ — 39,238 $ 4 $ 162,188 $ (158,269) $ 3,923


	Common Stock
	Shares	Amount		Additional Paid-in Capital		Accumulated Deficit		Total Stockholders' Equity (Deficit)
	(in thousands)
Balance as of December 31, 2023	39,597	$	4	$	163,376	$	(161,734)	$	1,646
Issuance of common stock from exercise of stock options and vesting of restricted stock units	943	—		61				61
Stock-based compensation				1,296				1,296
Net loss						(4,241)		(4,241)
Balance as of March 31, 2024	40,540	4		164,733		(165,975)		(1,238)

Redeemable Preferred Stock Common Stock
Shares Amount Shares Amount Additional Paid-in Capital Accumulated Deficit Total Stockholders' Equity (Deficit)
(in thousands) (in thousands)
Balance as of December 31, 2021 24,545 $ 110,265 6,297 $ 1 $ 3,736 $ (109,850) $ (106,113)
Reverse recapitalization (686) — (176) — —
As adjusted, beginning of period 23,859 110,265 6,121 1 3,736 (109,850) (106,113)
Issuance of Series P preferred stock, net of issuance costs 1,100 10,925 —
Stock-based compensation 54 54
Net loss (2,350) (2,350)
Balance as of March 31, 2022 24,959 121,190 6,121 1 3,790 (112,200) (108,409)
Issuance of common stock from exercise of stock options 20 — — —
Stock-based compensation 40 40
Net loss (1,090) (1,090)
Balance as of June 30, 2022 24,959 121,190 6,141 1 3,830 (113,290) (109,459)
Issuance of common stock from exercise of stock options and restricted stock units 49 — — —
Stock-based compensation 23,922 23,922
Conversion of preferred stock to common stock (24,959) (121,190) 24,959 2 121,188 121,190
Business Combination with CHW, net of transaction costs and other related shares 6,646 1 10,543 10,544
Issuance of Community Shares 300 — 1,971 1,971
Net loss (40,931) (40,931)
Balance as of September 30, 2022 — $ — 38,095 $ 4 $ 161,454 $ (154,221) $ 7,237


	Common Stock
	Shares	Amount		Additional Paid-in Capital		Accumulated Deficit		Total Stockholders' Equity
	(in thousands)
Balance as of December 31, 2022	36,849	$	4	$	158,335	$	(148,417)	$	9,922
Issuance of common stock from exercise of stock options and vesting of restricted stock units	580	—		54				54
Stock-based compensation				1,342				1,342
Net loss						(3,787)		(3,787)
Balance as of March 31, 2023	37,429	4		159,731		(152,204)		7,531

See the accompanying notes to unaudited condensed consolidated financial statements.

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WAG! GROUP CO.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


			Nine Months Ended
			September 30, 2023		September 30, 2022
			(in thousands)
		Three Months Ended						Three Months Ended
		March 31, 2024					March 31, 2024		March 31, 2023
		(in thousands)						(in thousands)
Cash flow from operating activities:	Cash flow from operating activities:
Net loss	Net loss		$	(9,852)	$	(44,371)
Adjustments to reconcile net loss to net cash used in operating activities:
Net loss
Net loss
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Stock-based compensation
Stock-based compensation
Stock-based compensation	Stock-based compensation		3,528		24,016
Non-cash interest expense	Non-cash interest expense		2,021		224
Depreciation and amortization	Depreciation and amortization		1,170		431
Change in fair value of derivative liability			—		13,708
Issuance of Community Shares			—		1,971
Equity in net earnings of equity method investments			(553)		—
Other			12		—
Reduction in carrying amount of operating lease right-of-use assets

Loss on extinguishment of debt
Loss on extinguishment of debt
Loss on extinguishment of debt

Changes in operating assets and liabilities, net of effect of acquired business:
Changes in operating assets and liabilities, net of effect of acquired business:
Changes in operating assets and liabilities, net of effect of acquired business:	Changes in operating assets and liabilities, net of effect of acquired business:
Accounts receivable	Accounts receivable		(2,573)		(3,698)
Accounts receivable
Accounts receivable
Prepaid expenses and other current assets	Prepaid expenses and other current assets		(463)		(512)
Operating lease right-of-use assets and liabilities			48		19
Operating lease liabilities
Other assets	Other assets		1		—
Accounts payable	Accounts payable		2,762		2,662
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities		(452)		1,674
Deferred revenue	Deferred revenue		(491)		298
Other non-current liabilities	Other non-current liabilities		218		—
Net cash used in operating activities			(4,624)		(3,578)
Net cash provided by (used in) operating activities
Cash flows from investing activities:	Cash flows from investing activities:
Proceeds from sale and maturity of short-term investments			—		2,550
Cash paid for acquisitions, net of cash acquired
Cash paid for acquisitions, net of cash acquired
Cash paid for acquisitions, net of cash acquired	Cash paid for acquisitions, net of cash acquired		(9,152)		—
Cash paid for equity method investment	Cash paid for equity method investment		(1,470)		—
Purchase of property and equipment	Purchase of property and equipment		(40)		(36)

Net cash used in investing activities
Net cash used in investing activities
Net cash used in investing activities
Cash flows from financing activities:

Repayment of debt

Repayment of debt

Repayment of debt
Debt prepayment penalty
Proceeds from exercises of stock options
Other	Other		—		(562)
Net cash provided by (used in) investing activities			(10,662)		1,952
Cash flows from financing activities:
Proceeds from exercises of stock options			100		—
Proceeds from debt, net of discount			—		29,445
Repayment of debt			(907)		(331)
Proceeds from issuance of Series P preferred stock, net of issuance costs			—		10,925
Proceeds from Business Combination with CHW, net of transaction costs			—		11,485
Other			(569)		—
Net cash provided by (used in) financing activities			(1,376)		51,524
Net change in cash, cash equivalents, and restricted cash			(16,662)		49,898
Cash, cash equivalents, and restricted cash, beginning of period			38,966		2,845
Cash, cash equivalents, and restricted cash, end of period			$	22,304	$	52,743
Supplemental disclosures of cash flow information:
Interest paid			$	3,724	$	784
Income taxes paid			$	23	$	14
Noncash investing and financing activities:
Conversion of preferred stock to common stock			$	—	$	121,188
Forward Share Purchase Agreements			$	—	$	5,242
Net cash used in financing activities
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period

See the accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

WAG! GROUP CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Description of Business

Wag! Group Co. (“Wag!,” “Wag,” the “Company,” “we,” or “our”), formerly known as CHW Acquisition Corporation (“CHW”), is incorporated in Delaware with headquarters in San Francisco, California. The Company develops and supports proprietary ~~marketplace~~ technologies available ~~as a~~via website and mobile app (“platform” or “marketplace”) that enable ~~independent pet caregivers (“PCG”)~~end users, such as Pet Parents, to connect with ~~Pet Parents (“Services”)~~independent service and ~~third-party service partners~~product providers to ~~provide a suite of pet wellness~~obtain services and products (“Wag! Wellness” or “Wellness”), including pet expert advice, pet wellness plans, and a pet insurance comparison tool. The platform allows Pet Parents (also referred to as “end-user(s)”), who require specific pet care services, to make service requests on the platform, which are then fulfilled by PCGs.products. The Company operates in the United States.

On August 9, 2022 (the “Closing Date” or “Merger Date”), Wag! Labs, Inc. (“Legacy Wag!”), CHW , and CHW Merger Sub, Inc. (“Merger Sub”) pursuant to the terms of the Business Combination Agreement and Plan of Merger (the “CHW Business Combination Agreement”) dated February 2, 2022, completed the business combination of Legacy Wag! and CHW which was effected by the merger of Merger Sub with and into Legacy Wag!, with Legacy Wag! surviving the Merger as a wholly owned subsidiary of CHW (the “Merger,” and, together with the other transactions contemplated by the CHW Business Combination Agreement, the “CHW Business Combination”). Upon completion of the Merger on August 9, 2022, following the approval at the extraordinary general meeting of the stockholders of CHW held on July 28, 2022 (the “Special Meeting”), the Company changed its name to Wag! Group Co. (“Post-Combination Company”) and effectively assumed all of CHW’s material operations. Refer to Note 3, ~~Business Combination with CHW, for more information regarding the Merger.~~

2. Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated interim financial information of the Company has been prepared in accordance with Article 10 of the Securities and Exchange Commission’s (“SEC”) Regulation S-X. Accordingly, as permitted by Article 10 of Regulation S-X, it does not include all of the information required by generally accepted accounting principles in the U.S. (“U.S. GAAP”) for complete financial statements. The condensed consolidated balance sheet as of December 31, ~~2022~~2023 was derived from the audited financial statements at that date and does not include all the disclosures required by U.S. GAAP, as permitted by Article 10 of Regulation S-X. The Company’s unaudited condensed consolidated financial statements as of ~~September 30, 2023~~March 31, 2024 and for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2024 and 2023 ~~and 2022~~ include Wag! Group Co. and all of its subsidiaries. In the opinion of management, the accompanying financial information contains all adjustments, consisting of normal recurring adjustments, necessary to state fairly the Company’s unaudited condensed consolidated financial statements as of ~~September 30, 2023~~March 31, 2024 and for the three ~~and nine~~ months ended ~~September 30, 2023~~March 31, 2024 and ~~2022.~~2023. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2022, or the 2022 10-K.~~2023 (the “2023 10-K”). Operating results for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2024 and 2023 ~~and 2022~~ are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2023.~~

The number of shares and per share amounts prior to the Merger have been retroactively restated as shares reflecting conversion at the exchange ratio of 0.97 established in the CHW Business Combination. See Note 3, ~~Business Combination with CHW, for more information regarding the CHW Business Combination.~~2024.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make ~~certain~~ estimates ~~judgments,~~ and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and assumptions on ~~various factors, including~~current facts, historical experience, and on various other ~~assumptions~~factors that ~~are believed~~it believes to be reasonable under the circumstances, ~~when these~~the results of which form the basis for making judgments about the carrying values ~~are not readily available~~of assets and liabilities and the recording of revenues and expenses. Actual results could differ from ~~other sources.~~those estimates.

Significant items subject to estimates and assumptions include, but are not limited to, fair values of financial instruments, ~~assumptions used in the~~ valuation of ~~common and preferred stock,~~intangible assets acquired, valuation of stock-based compensation and warrants, and the valuation allowance for deferred income taxes. Actual results may differ from these estimates.

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Recently Adopted Accounting Pronouncements

In ~~June 2016,~~August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~No. 2016-13,~~ ~~Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~ (“ASU 2016-13”). This ASU changes the impairment model for most financial assets, requiring the use of an expected loss model which requires entities to estimate the lifetime expected credit loss on financial assets measured at amortized cost. Such credit losses will be recorded as an allowance to offset the amortized cost of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. In addition, credit losses relating to available-for-sale debt securities will now be recorded through an allowance for credit losses rather than as a direct write-down to the security. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The adoption of this guidance during the first quarter of 2023 did not have a material impact on the Company’s condensed consolidated financial statements.

~~New Accounting Pronouncements~~

~~In August 2020, the FASB issued ASU~~ No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). This ASU simplifies the accounting for convertible instruments by eliminating certain accounting models, resulting in fewer embedded conversion features being separately recognized from the host contract, and also amends the guidance for derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. Additionally, the amendments in this ASU affect the diluted ~~EPS~~earnings per share (“EPS”) calculation for convertible instruments. It requires that the effect of potential share settlement be included in the diluted EPS calculation when a convertible instrument may be settled in cash or shares; the if-converted method as opposed to the treasury stock method is required to calculate diluted EPS for these types of convertible instruments. The amendments in this update are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. The adoption of this guidance during the first quarter of 2024 did not have a material impact on the Company’s condensed consolidated financial statements.

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New Accounting Pronouncements

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). This ASU improves reportable segment disclosures, primarily through enhanced disclosures about significant segment expenses. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is evaluating the potential impact of this adoption on its condensed consolidated financial statements.

In ~~August~~December 2023, the FASB issued ASU No. ~~2023-05,~~2023-09, ~~Business Combinations—Joint Venture Formations (Subtopic 805-60)~~Income Taxes (Topic 740): ~~Recognition and Initial Measurement~~Improvements to Income Tax Disclosures (“ASU ~~2023-05”~~2023-09”). This ASU ~~requires a joint venture~~improves the transparency of income tax disclosures by requiring: (1) consistent categories and greater disaggregation of information in the rate reconciliation, and (2) income taxes paid disaggregated by jurisdiction. Additionally, the amendments in this ASU improve the effectiveness and comparability of disclosures by: (1) adding disclosures of pretax income (or loss) and income tax expense (or benefit) to ~~recognize and initially measure its assets and liabilities using a new basis of accounting upon formation, i.e. at fair value (with exceptions to fair value measurement that are~~be consistent with ~~the business combinations guidance).~~U.S. Securities and Exchange Commission (“SEC”) Regulation S-X, and (2) removing disclosures that no longer are considered cost beneficial or relevant. The amendments in this update are effective for ~~all newly-formed joint venture entities with a formation date on or~~fiscal years beginning after ~~January 1, 2025,~~December 15, 2024, with early adoption permitted. ~~Joint ventures formed prior to the adoption date may elect to apply the new guidance retrospectively back to their original formation date.~~ The Company is evaluating the potential impact of this adoption on its condensed consolidated financial statements.

Equity Method Investment

During the fourth quarter of 2022, the Company’s subsidiary, Compare Pet Insurance Services, Inc., entered into an agreement to invest $1.5 million for 49% ownership in a new limited liability company, which was funded in the first quarter of 2023. The investment was accounted for as an equity method investment, with the Company’s proportionate share of the investee’s net income recognized in equity in net earnings of equity method investment within the Company’s consolidated statement of operations, as the Company had less than 50% ownership and did not control the entity. During the ~~nine~~three months ended ~~September 30, 2023,~~March 31, 2024, the Company ~~recognized $1.8 million of Royalty expenses~~did not recognize any activity within its condensed consolidated statements of operations related ~~to fees payable~~ to the equity method investee.

During the third quarter of 2023, the Company acquired the outstanding 51% ownership of the limited liability company for an aggregate purchase price of approximately $2.2 million. The Company accounted for the transaction as an asset acquisition using the cost accumulation model to determine the cost to be allocated to the assets acquired, which resulted in the derecognition of royalties payable to the equity method investee of approximately $1.8 million and the recognition of intangible assets acquired of approximately $0.2 million and cash acquired of $2.5 million. As a result of the transaction, the limited liability company became a wholly-owned subsidiary of the Company and the Company began consolidating the entity as part of its condensed consolidated financial statements.

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Revenue Recognition

The Company recognizes revenue in accordance with ~~ASC~~FASB Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. Through its Services offerings, the Company principally generates Services revenue from service fees charged to ~~PCGs~~Pet Caregivers to successfully complete a pet care service to a Pet Parent via the platform. The Company also generates revenue from subscription fees paid by Pet Parents for Wag! Premium and fees paid by ~~PCGs~~Pet Caregivers to join the platform. Additionally, through its Wellness and Pet Food & Treat offerings, the Company generates revenue through commission fees paid by third-party service partners in the form of ‘revenue-per-action’ or conversion activity defined in our agreements with the respective third-party service partner. For some of the Company’s arrangements with third-party service partners, the transaction price is considered variable, and an estimate of the transaction price is recorded when the action occurs. The estimated transaction price used in the variable consideration is based on historical data with the respective third-party service partner and the consideration is measured and settled monthly.

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The Company enters into terms of service with ~~PCGs~~Pet Caregivers and Pet Parents to use the platform (“Terms of Service Agreements”), as well as an Independent Contractor Agreement (“ICA”) with ~~PCGs~~Pet Caregivers (the ICA, together with the Terms of Service Agreements, the “Agreements”). The Agreements govern the fees the Company charges the ~~PCGs~~Pet Caregivers and Pet Parents, where applicable, for each transaction. Upon acceptance of a transaction, ~~PCGs~~Pet Caregivers agree to perform the services that are requested by a Pet Parent. The acceptance of a transaction request combined with the Agreements establishes enforceable rights and obligations for each transaction. A contract exists between the Company and its customers after both the ~~PCGs~~Pet Caregivers and Pet Parent accept a transaction request and the ~~PCGs~~Pet Caregivers ability to cancel the transaction lapses. For Wag! Wellness and Pet Food & Treat revenues, the Company enters into agreements with third-party service partners which define the action by a Pet Parent that results in the Company earning and receiving a commission fee from the third-party service partner.

Wag!’s service obligations are performed, and revenue is recognized, for fees earned related to the facilitation and completion of a pet service transaction between the Pet Parent and the ~~PCG~~Pet Caregiver through the use of our platform. Revenue generated from the Company’s Wag! Premium subscription is recognized on a ratable basis over the contractual period, which is generally one month to one year depending on the type of subscription purchased by the Pet Parent. ~~Unused~~Prepaid subscription amounts are included in ~~Deferred~~deferred revenue within the Company’s condensed consolidated balance sheets. Revenue related to the fees paid by the ~~PCG~~Pet Caregiver to join the platform are recognized upon processing of the applications. Wag! Wellness and Pet Food & Treat revenue performance ~~obligation is~~obligations are completed, and revenue is recognized, when an end-user completes an action or conversion activity.

Principal vs. Agent Considerations

Judgment is required in determining whether the Company is the principal or agent in transactions with ~~PCGs~~Pet Caregivers and Pet Parents. The Company ~~evaluated~~evaluates the presentation of revenues on a gross or net basis based on whether the Company controls the service provided to the Pet Parent and is the principal (i.e., “gross”), or whether the Company arranges for other parties to provide the service to the Pet Parent and is an agent (i.e. “net”).

The Company’s role in a transaction on the platform is to facilitate ~~PCGs~~Pet Caregivers finding, applying, and completing a successful pet care service for a Pet Parent. The Company has concluded it is the agent in transactions with ~~PCGs~~Pet Caregivers and Pet Parents because, among other factors, the Company’s role is to facilitate pet service ~~opportunities and~~opportunities; it is not responsible for ~~nor controls~~and does not control the delivery of pet services provided by the ~~PCGs~~Pet Caregivers to the Pet Parents.

Gift Cards

The Company sells gift cards that can be redeemed by Pet Parents through the platform. Proceeds from the sale of gift cards are deferred and recorded as contract liabilities in Deferred revenue within the Company’s condensed consolidated balance sheets until Pet Parents use the card to place orders on our platform. When gift cards are redeemed, revenue is recognized on a net basis as the difference between the amounts collected from the purchaser less amounts remitted to ~~PCGs.~~Pet Caregivers. Unused gift cards are included in Deferred revenue within the Company’s condensed consolidated balance sheets.

The Company recognizes breakage revenue based on historical redemption patterns.

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Incentives

The Company offers discounts and promotions to encourage use of the Company’s platform. These promotions are generally pricing actions in the form of discounts that reduce the price Pet Parents pay ~~PCGs~~Pet Caregivers for services. These promotions result in a lower fee earned by the Company from the ~~PCG.~~Pet Caregiver. Accordingly, the Company records the cost of these promotions as a reduction of ~~revenues at the time the PCG service is completed.~~revenues. Discounts on services offered through our subscription program are also recorded as a reduction of revenues.

Loss Per Share

The Company follows the two-class method when computing loss per share when shares issued meet the definition of participating securities. The two-class method determines loss per share for each class of common stock and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to stockholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

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For periods in which the Company reports net losses, diluted loss per share is the same as basic loss per share because potentially dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

3. Business Combination with CHW

~~As described in Note 1,~~ ~~Organization~~On August 9, 2022 (the “Closing Date” or “Merger Date”), Wag! Labs, Inc. (“Legacy Wag!”), CHW, and ~~Description~~CHW Merger Sub, Inc. (“Merger Sub”) pursuant to the terms of the Business Combination Agreement and Plan of Merger (the “CHW Business Combination Agreement”) dated February 2, 2022, completed the business combination of Legacy Wag! and CHW which was effected by the merger of Merger Sub with and into Legacy Wag!, with Legacy Wag! surviving the Merger ~~with CHW was consummated on August 9, 2022. The CHW Business Combination was accounted for~~ as a ~~reverse recapitalization in accordance~~wholly-owned subsidiary of CHW (the “Merger,” and, together with ~~accounting principles generally accepted in~~ the ~~United States of America. Under this method of accounting, CHW was treated as the acquired company for financial reporting purposes. Accordingly, for accounting purposes,~~other transactions contemplated by the CHW Business Combination ~~was treated as~~Agreement, the ~~equivalent~~“CHW Business Combination”). Upon completion of ~~Wag! issuing shares for~~ the ~~net assets~~Merger on August 9, 2022, following the approval at the extraordinary general meeting of the stockholders of CHW ~~accompanied by a recapitalization. The shares~~held on July 28, 2022 (the “Special Meeting”), the Company changed its name to Wag! Group Co. (“Post-Combination Company”) and ~~net earnings (loss) per common share prior to the Merger have been retroactively restated as shares reflecting the exchange ratio established in the Merger (0.97 shares~~effectively assumed all of the Company’s common stock for each share of Legacy Wag! common stock). The net assets of CHW have been recognized at carrying value, with no goodwill or other intangible assets recorded. Wag! accounted for the acquisition of CHW based on the amount of net assets acquired upon consummation.

~~Wag! has been determined to be the accounting acquirer based on evaluation of the following facts and circumstances:~~CHW’s material operations.

•~~Wag!’s shareholders have a majority of the voting power of the Post-Combination Company;~~

•~~Wag! appointed the majority of the board of directors of the Post-Combination Company;~~

•~~Wag!’s existing management comprises the management of the Post-Combination Company;~~

•~~Wag! comprises the ongoing operations of the Post-Combination Company; and~~

•~~Wag! is the larger entity based on historical revenue and has the larger employee base.~~

~~In connection with the Special Meeting and~~For more information regarding the CHW Business Combination, ~~the holders of 9,593,970 shares of CHW’s ordinary shares, par value $0.0001 per share, exercised their right~~refer to redeem their shares for cash at a redemption price of approximately $10.00 per share, for an aggregate redemption amount of $95,939,700. As a result, the Company received approximately $29.1 million, of which $23.9 million was placed in escrow (and classified as Restricted Cash) in accordanceNote 3, Business Combination with the Forward Share Purchase Agreements (see section below titled “Forward Share Purchase Agreements” for additional information). As of the date of the Merger, the Company also entered into a financing arrangement Blue Torch Finance, LLC and received net proceeds of $29.4 million from a Secured Note (see Note 8, ~~Long-Term Debt~~CHW, for additional information). Additionally, the Company received $5 million from a PIPE and Backstop Investor as a result of the agreement entered into by CHW with the PIPE and Backstop Investor party on February 2, 2022 that closed immediately prior to the ~~Merger.~~

~~Upon the consummation of the Merger, the following transactions occurred (the “Conversion”):~~

i.all outstanding shares of Legacy Wag!’s preferred stock, except for Legacy Wag! Series P Shares (as described in part (vi) below), were converted into shares of the Company’s common stock, par value $0.0001 per share, at the then-effective conversion rate as calculated pursuant to the CHW Business Combination Agreement;

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~~ii.~~the cancellation of each issued and outstanding share of Legacy Wag!’s common stock and the conversion into the right to receive a number of shares of the Company’s common stock equal to the exchange ratio of 0.97 shares of the Company’s common stock for each share of Legacy Wag! common stock;

~~iii.~~the conversion of 91,130 warrants issued and outstanding by Legacy Wag! in 2017 to two lenders (the “Legacy Wag! Common Warrants”) into warrants exercisable for shares of the Company’s common stock with the same terms except for the number of shares exercisable and the exercise price, each of which were adjusted using an exchange ratio of 0.97 for Legacy Wag! Common Warrants (further described in Note 10, ~~Redeemable Preferred Stock and Stockholders’ Deficit~~);

~~iv.~~the conversion of all outstanding vested and unvested options to purchase shares of Legacy Wag! common stock (the “Legacy Wag! Options”) into options exercisable for shares of the Company’s common stock with the same terms and conditions as were applicable to the Legacy Wag! Options immediately prior to the Conversion, except for the number of shares exercisable and the exercise price, each of which were adjusted using the exchange ratio of 0.97 for Legacy Wag! Options;

v.the conversion of the outstanding restricted stock unit award covering shares of Legacy Wag! common stock (each, a “Legacy Wag! RSU Award”) into awards covering a number of shares of Wag! common stock (rounded down to the nearest whole number) with the same terms and conditions as were applicable to the Legacy Wag! RSU Awards immediately prior to the Conversion, except for the number of shares subject to the award, which was adjusted using the exchange ratio of 0.97 for Legacy Wag! RSU Awards;

~~vi.the conversion of 1,100,000 shares of Legacy Wag! Series P Shares into the Company’s common stock on a one-for-one basis;~~

~~vii.~~the issuance and sale of 500,000 CHW ordinary shares for a purchase price of $10.00 per share and an aggregate purchase price of $5,000,000 immediately prior to or substantially concurrently with the Merger Date;

~~viii.immediately prior to the Effective Time, each CHW ordinary share (including any Sponsor Shares (as defined below) not forfeited) was converted into shares of the Company’s common stock;~~

~~ix.the cancellation of 13,327 founder shares held by the Sponsor in accordance with the terms of the CHW Founders Stock Letter (as defined below) and the CHW Business Combination Agreement;~~

x.the issuance of 300,000 Wag! Community Shares (“Community Shares”) that the Company may distribute to members of the pet wellness and welfare community as identified by our officers and directors; and

~~xi.~~the cancellation of 20,000 founder shares held by Sponsor in connection with the CHW Business Combination and in accordance with the CHW Founders Stock Letter and the CHW Business Combination Agreement.

~~Forward Share Purchase Agreements~~

Simultaneously with the closing of the CHW Business Combination, the Company deposited $24.7 million into an escrow account pursuant to Forward Share Purchase Agreements (“FPAs”) entered into by CHW on August 5, 2022. In accordance with the FPAs, on the date of the purchase by the Company of the Investor Shares (“Put Date”), the participating investors could elect to sell and transfer to the Company, and the Company would purchase,Consolidated Financial Statements included in the aggregate, up to 2,393,378 shares of common stock of the Company, consisting of shares of common stock then held by the Investors and not sold and repurchased by the Investor since the Merger Date. In conjunction with the sale of the Investor Shares to the Company, each Investor was obligated to notify the Company and the Escrow Agent in writing five business days prior to the Put Date whether or not such Investor was exercising its right to sell the Investor Shares that such Investor held to the Company pursuant to the FPAs (each, a “Shares Sale Notice”). If a Shares Sale Notice was timely delivered by an Investor to the Company and the Escrow Agent, the Company was obligated to purchase from such Investor the Investor Shares held by such Investor on the Put Date. If the Investor sold any Investor Shares in the open market after the Merger Date and prior to Put Date (such sale, the “Early Sale” and such shares, the “Early Sale Shares”), the Escrow Agent would release from the escrow account to the Company an amount equal to $10.30 per Early Sale Share sold in such Early Sale.

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The Company’s purchase of the Investor Shares will be made with funds from the escrow account attributed to the Investor Shares. In the event that an Investor sold any Investor Shares in an Early Sale, it was required to provide notice to the Company and the Escrow Agent within three business days of such sale, and the Escrow Agent would release from the escrow account for the Company’s use without restriction an amount equal to the pro rata portion of the escrow attributed to the Investor Shares which the Investor has sold. In the event that the Investor chooses not to sell to the Company any Investor Shares that the Investor owned as of the three-month anniversary of the Merger Date, the Escrow Agent would release all remaining funds from the escrow account for the Company’s use without restriction. The Company accounts for the FPAs as a derivative liability, remeasured to fair value on a recurring basis, with changes in fair value recorded to earnings. For more information, see Note 4, ~~Fair Value Measurements~~.

On November 1, 2022, the Company entered into an amendment to an FPA (the “Amended Agreement”) for approximately 1.0 million shares. The Amended Agreement modified the date by which such holders may elect to have the Company repurchase their shares to November 23, 2022. No other terms were modified. Effective November 9, 2022, holders of 1.4 million shares subject to Forward Share Purchase Agreements, elected to have the Company repurchase their remaining shares for an aggregate repurchase price of $14.8 million. The remaining investor and holder of 1.0 million shares did not elect to sell its shares to the Company as of the extension date per the Amended Agreement and, as such, the Escrow Agent released the corresponding funds from the escrow account for the Company’s use without restriction in total of $9.8 million.

~~Financing Agreement~~

~~On the Merger Date, the Company entered into a financing agreement with Blue Torch Finance, LLC. See Note 8,~~ ~~Long-Term Debt,~~ ~~for additional information.~~

~~Reverse Recapitalization~~

The following table reconciles the elements of the CHW Business Combination, accounted for as a reverse recapitalization, to the Condensed Consolidated Statements of Cash Flows and the Condensed Consolidated Statements of Stockholders' Deficit for the year ended December 31, 2022):


	~~Reverse Recapitalization~~
	~~(in thousands)~~
~~Cash – CHW’s trust (net of redemptions)~~	$	~~28,330~~
~~Cash – PIPE and Backstop Investor~~	~~5,202~~
~~Payment of transaction costs and other related expenses~~	~~(12,488)~~
~~Payment of deferred transaction costs~~	~~(9,318)~~
~~Proceeds from merger with CHW, net of issuance costs as of the Merger Date~~	~~11,726~~
~~Reversal of APIC impact recorded upon issuance of Forward Share Purchase Agreements (“FPAs”) in August 2022~~	~~(23,203)~~
~~Cash received from FPA at Put Date~~	~~9,837~~
~~APIC impact of FPA at Put Date, net of cash received~~	~~4,229~~
~~Proceeds from merger with CHW, net of issuance costs as of December 31, 2022~~	$	~~2,589~~

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						~~Number of Shares~~
						~~(in thousands)~~
~~CHW public shares, prior to redemptions(1)~~						~~12,500~~
~~Less redemption of CHW shares~~						~~(9,594)~~
~~CHW public shares, net of redemptions~~						~~2,906~~
~~Sponsor Shares~~						~~3,118~~
~~PIPE and Backstop Shares~~						~~500~~
~~CHW Business Combination and Financing Shares~~						~~6,524~~
~~Other share activity (Analyst Shares(2), Warrant Exercises)~~						~~122~~
~~CHW Business Combination, Financing Shares and Other Related Shares~~						~~6,646~~
~~Legacy Wag! Shares(3)~~						~~31,100~~
~~Total shares of common stock immediately after CHW Business Combination~~						~~37,746~~

~~(1) Includes 2,393,378 shares of common stock of the Company subject to the Forward Share Purchase Agreements.~~

~~(2) 50,000 shares were issued to Craig-Hallum Capital Group LLC at a price of $4.83 per share.~~

(3) The number of Legacy Wag! shares was determined from the shares of Legacy Wag! common and preferred stock outstanding immediately prior to the closing of the CHW Business Combination of 30,863,283, which are presented net of the common and preferred stock redeemed, converted at the exchange ratio of approximately 0.97 shares of the Company’s common stock for each share of Legacy Wag! common and preferred stock, with the exception of 1,100,000 Legacy Wag! Series P Shares which converted into the Company’s common stock on a one-for-one basis.

Earnout Compensation

In connection with the CHW Business Combination, Legacy Wag! stockholders and certain members of management and employees of Legacy Wag! that held either a share of common stock, a Legacy Wag! Option or a Legacy Wag! RSU Award ~~(collectively “Eligible Company Equityholders”)~~ at the date of the Merger have the contingent right to Earnout Shares. The aggregate number of Earnout Shares and Management Earnout Shares is 10,000,000 and 5,000,000 shares of Wag! common stock, respectively. The Earnout Shares will be issued following the CHW Business Combination, only if certain Wag! share price conditions are met over a ~~three-year~~three-year period from the effective Merger Date. The Earnout Shares are subject to the occurrence of certain triggering events based on a ~~three year~~three-year period from the Merger Date as defined in the CHW Business Combination Agreement as:

1.5,000,000 shares are earned if the stock price of the Company is or exceeds $12.50 for 20 out of any 30 consecutive trading days (“Triggering Event I”)

2.5,000,000 shares are earned if the stock price of the Company is or exceeds $15.00 for 20 out of any 30 consecutive trading days (“Triggering Event II”); and

3.5,000,000 shares are earned if the stock price of the Company is or exceeds $18.00 for 20 out of any 30 consecutive trading days (“Triggering Event III”) (collectively, the “Triggering Events”).

Additionally, if there is a change of control transaction, the agreed upon selling price of the Company on a per share basis, would be the fair value of the shares inclusive of the resulting triggered Earnout Shares upon consummation of the proposed transaction. The per share price in a change in control would be used to determine whether the Triggering Events have been met, and depending on the per share price, a certain number of shares will be issued.

The Earnout Shares and Management Earnout Shares are classified as equity transactions at initial issuance and at settlement when and if the triggering conditions are met. The Earnout Shares are equity-classified since they do not meet the liability classification criteria outlined in FASB ASC Topic 480, Distinguishing Liabilities from Equity, and are both (i) indexed to the Company’s own shares and (ii) meet the criteria for equity classification. Until the shares are issued upon a Triggering Event, the Earnout Shares are not included in shares outstanding. As of the date of the CHW Business Combination, the Earnout Share awards had a total fair value of $23.9 million determined using a Monte Carlo fair value methodology in each of the $12.50, $15.00, and $18.00 Earnout tranches multiplied by the number of Earnout Shares allocated to each individual pursuant to the calculation defined in the CHW Business Combination Agreement. ~~The following table provides a range of assumptions used to determine fair value:~~

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Stock Price Dividend Yield Volatility Risk-Free Interest Rate Expected Term
Earnout Shares $ 8.28 — % 44.00 % 3.20 % 3 years

As a result of the issuance of Community Shares, stock-based compensation expense incurred in connection with the Earnout Shares, and fair value measurement of the FPAs, the Company incurred $39.5 million in transaction-related charges during the three and nine months ended September 30, 2022 in Platform operations and support, Sales and marketing, General and administrative, and Other expense, net within its condensed consolidated statements of operations.

4. Fair Value Measurements

The following tables provide information about the Company’s financial instruments that are measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques utilized to determine such values as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022:~~2023:


			September 30, 2023
			Level 1		Level 2		Level 3		Total
			(in thousands)
		March 31, 2024											March 31, 2024
		Level 1									Level 1	Level 2	Level 3	Total
		(in thousands)											(in thousands)
Assets:	Assets:
Cash equivalents:	Cash equivalents:
Cash equivalents:
Cash equivalents:
Money market funds
Money market funds
Money market funds	Money market funds		$	13,797	$	—	$	—	$	13,797
Total cash equivalents	Total cash equivalents		13,797		—		—		13,797
Total assets at fair value	Total assets at fair value		$	13,797	$	—	$	—	$	13,797


			December 31, 2022
			Level 1		Level 2		Level 3		Total
			(in thousands)
		December 31, 2023											December 31, 2023
		Level 1									Level 1	Level 2	Level 3	Total
		(in thousands)											(in thousands)
Assets:	Assets:
Cash equivalents:	Cash equivalents:
Cash equivalents:
Cash equivalents:
Money market funds
Money market funds
Money market funds	Money market funds		$	31,690	$	—	$	—	$	31,690
Total cash equivalents	Total cash equivalents		31,690		—		—		31,690
Total assets at fair value	Total assets at fair value		$	31,690	$	—	$	—	$	31,690

The Company’s money market funds were valued using Level 1 inputs because they were valued using quoted prices in active markets. As of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the Company’s cash equivalents approximated their estimated fair value. As such, there are no unrealized gains or losses related to the Company’s cash equivalents.

5. ~~Leases~~

The Company leases office space under non-cancellable lease agreements which expire between 2023 and 2028. Certain of these arrangements have free rent, escalating rent payment provisions, lease renewal options, and tenant allowances. Rent expense is recognized on a straight-line basis over the noncancellable lease term.

In June 2023, the Company entered into a non-cancellable agreement to lease office space in Phoenix, Arizona to replace its existing office space in Phoenix. The base rent is approximately $0.9 million in the aggregate over the original lease term of 65 months from the commencement date.

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~~As of September 30, 2023, maturities of operating lease liabilities were as follows:~~

Amount
(in thousands)
2023 $ 20
2024 414
2025 424
2026 216
2027 175
2028 163
Total lease payments 1,412
Less: imputed interest (213)
Present value of lease liabilities $ 1,199

As the implicit rate in the Company's leases is generally unknown, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. The Company gives consideration to its existing credit arrangements, term of the lease, total lease payments and adjust for the impacts of collateral, as necessary, when calculating its incremental borrowing rates. The lease terms may include options to extend or terminate the lease when it is reasonably certain the Company will exercise any such options. The weighted-average remaining lease term and the weighted-average discount rate used to calculate the present value of lease liabilities are as follows:

September 30,
2023 December 31,
2022
Weighted-average remaining lease term 4.0 years 2.3 years
Weighted-average discount rate 7.8 % 8.6 %

6. Goodwill and Other Intangible Assets

Goodwill recorded in connection with the Company’s acquisitions is primarily attributable to the assembled workforce and anticipated operational synergies. Goodwill is reviewed for impairment at least annually, absent any interim indicators of impairment. Goodwill was $4.6 million and ~~$1.5~~$4.6 million as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively. ~~The increase in~~There were no additions to or impairments of goodwill during the ~~nine~~three months ended ~~September 30, 2023 was due to the acquisitions of businesses during 2023 as further discussed in Note 14,~~ ~~Acquisitions~~.March 31, 2024.

The gross carrying amounts and accumulated amortization of the Company’s intangible assets with determinable lives as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 were as follows:


			September 30, 2023
			Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
			(in thousands)
		March 31, 2024									March 31, 2024
		Gross Carrying Amount							Gross Carrying Amount	Accumulated Amortization		Net Carrying Amount
		(in thousands)									(in thousands)
Finite-lived intangible assets:	Finite-lived intangible assets:
Customer relationships and licenses	Customer relationships and licenses		$	7,686	$	(1,268)	$	6,418
Customer relationships and licenses
Customer relationships and licenses
Media brand
Developed technology	Developed technology		1,073		(415)		658
Trademarks	Trademarks		1,052		(141)		911
Pharmacy board licenses	Pharmacy board licenses		5		(5)		—
Total finite-lived intangible assets	Total finite-lived intangible assets		9,816		(1,829)		7,987
Indefinite-lived intangible assets	Indefinite-lived intangible assets		49		—		49
Total intangible assets	Total intangible assets		$	9,865	$	(1,829)	$	8,036

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			December 31, 2022
			Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
			(in thousands)
		December 31, 2023									December 31, 2023
		Gross Carrying Amount							Gross Carrying Amount	Accumulated Amortization		Net Carrying Amount
		(in thousands)									(in thousands)
Finite-lived intangible assets:	Finite-lived intangible assets:
Customer relationships and licenses	Customer relationships and licenses		$	2,166	$	(422)	$	1,744
Customer relationships and licenses
Customer relationships and licenses
Media brand
Developed technology	Developed technology		783		(226)		557
Trademarks	Trademarks		291		(56)		235
Pharmacy board licenses	Pharmacy board licenses		5		—		5
Total finite-lived intangible assets	Total finite-lived intangible assets		3,245		(704)		2,541
Indefinite-lived intangible assets	Indefinite-lived intangible assets		49		—		49
Total intangible assets	Total intangible assets		$	3,294	$	(704)	$	2,590

Amortization expense related to customer relationships and licenses, media brand, developed technology, trademarks, and pharmacy board licenses is recorded in depreciation and amortization within the Company’s condensed consolidated statements of operations. Amortization expense of intangible assets with determinable lives was ~~$0.4~~$0.5 million and ~~$0.1~~$0.4 million for the three months ended ~~September 30,~~March 31, 2024 and 2023, ~~and 2022, respectively, and $1.1 million and $0.4 million for the nine months ended September 30, 2023 and 2022,~~ respectively.

7.6. Contract Liabilities

The timing of ~~services~~Services revenue recognition may differ from the timing of invoicing to or collections from customers. The Company’s contract liabilities balance, which is included in Deferred revenue within the Company’s condensed consolidated balance sheets, is primarily comprised of unredeemed gift cards, prepayments received from consumers for Wag! Premium subscriptions, and certain consumer credits for which the revenue is recognized over time as they are used for services on its platform. The contract liabilities balance was ~~$1.8~~$1.7 million and ~~$2.2~~$1.8 million as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively. Revenues recognized related to the Company’s contract liabilities as of the beginning of the year was ~~$0.6~~$0.4 million and $0.3 million for the three months ended ~~September 30,~~March 31, 2024 and 2023, ~~and 2022, respectively, and $1.5 million and $0.8 million for the nine months ended September 30, 2023 and 2022,~~ respectively.

8.7. Long-Term Debt

Paycheck Protection Program Loan

On August 5, 2020, the Company received loan proceeds of approximately $5.1 million from a financial institution pursuant to the Paycheck Protection Program (the “PPP Loan”) established by the Coronavirus Aid, Relief, and Economic Security Act, of which $3.5 million was subsequently forgiven. The PPP Loan matures on August 5, 2025 and bears interest at a fixed rate of 1.00%. Principal and interest payments are payable monthly.

During the ~~nine~~three months ended ~~September 30,~~March 31, 2024 and 2023, ~~and 2022,~~ the Company repaid a total amount of ~~$0.3~~$0.1 million and ~~$0.3~~$0.1 million, respectively, on amounts outstanding under the PPP Loan. As of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the amount outstanding under the PPP Loan was ~~$0.9~~$0.7 million and ~~$1.2~~$0.8 million, respectively.

During the three months ended ~~September 30,~~March 31, 2024 and 2023, ~~and 2022,~~ the Company recognized ~~$2 thousand and $3 thousand, respectively,~~immaterial amounts of interest expense relating to the PPP Loan. ~~During the nine months ended September 30, 2023 and 2022, the Company recognized $8 thousand and $11 thousand, respectively, of interest expense relating to the PPP Loan.~~

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Blue Torch Financing and Warrant Agreement

On August 9, 2022, ~~Legacy Wag!~~the Company entered into a financing agreement and warrant agreement with Blue Torch Finance, LLC (together with its affiliated funds and any other parties providing a commitment thereunder, including any additional lenders, agents, arrangers or other parties joined thereto after the date thereof, collectively, ~~the “Debt Financing Sources”~~“Blue Torch”), pursuant to which, among other things, ~~the Debt Financing Sources~~Blue Torch agreed to extend an approximately $32.2 million senior secured term loan ~~credit facility~~ (the ~~“Credit Facility”~~“Financing Agreement”). ~~Legacy Wag! is the primary borrower under the Credit Facility, the Company is a parent guarantor and substantially all of the Company’s existing and future subsidiaries are subsidiary guarantors.~~ The ~~Credit Facility~~Financing Agreement is secured by a first priority security interest in substantially all assets of the Company and ~~the guarantors.~~its subsidiaries.

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The ~~Credit Facility~~Financing Agreement bears interest at a floating rate of interest equal to, at ~~Legacy Wag’s~~the Company’s option, Secured Overnight Financing Rate (“SOFR”) plus 10.00% per annum or the reference rate plus 9.00% per annum, with the reference rate defined as the greatest of:

•2.00% per annum;

•the federal funds effective rate plus 0.50% per annum;

•one-month SOFR plus 1.00% per annum; and

•the prime rate announced by the Wall Street Journal from time to time.

SOFR will be subject to a floor of 1.00% per annum, and the reference rate will be subject to a floor of 2.00% per annum. Interest will be payable in arrears at the end of each SOFR interest period (but at least every three months) for SOFR borrowings and quarterly in arrears for reference rate borrowings.

The ~~Credit Facility~~Financing Agreement matures in three years after the Closing Date and is subject to quarterly amortization payments of principal, in an aggregate amount equal to 2.00% of the outstanding principal amount ~~of the Credit Facility~~ in the first year after closing, 3.00% of the outstanding principal amount ~~of the Credit Facility~~ in the second year after closing, and 5.00% of the outstanding principal amount ~~of the Credit Facility~~ in the third year after closing. The remaining outstanding principal balance of the ~~Credit Facility~~Financing Agreement is due and payable in full on the maturity date. In addition to scheduled amortization payments, the ~~Credit Facility~~Financing Agreement contains customary mandatory prepayment provisions that require principal prepayments of the ~~Credit Facility~~loan upon certain triggering events, including receipt of asset sale proceeds outside of the ordinary course of business, receipt of certain insurance proceeds, and receipt of proceeds of non-permitted debt. The ~~Credit Facility~~loan may also be voluntarily prepaid at any time, subject to the payment of a prepayment ~~premium.~~premium and a make-whole payment. The prepayment premium is payable for voluntary payments and certain mandatory prepayments, and is equal toto: (i) an interest make-whole payment plus 3.00% of the principal amount of such prepayment in the first year after ~~closing,~~closing; (ii) 2.00% of the principal amount of such prepayment in the second year after ~~closing,~~closing; and (iii) 0% thereafter.

The ~~Credit Facility~~Financing Agreement contains customary representations and warranties, affirmative covenants, financial reporting requirements, negative covenants and events of default. The negative covenants ~~included in the Financing Agreement~~ impose restrictions on the ability of ~~Legacy Wag,~~ the ~~guarantors,~~Company and ~~their~~its subsidiaries to incur indebtedness, grant liens, make investments, make acquisitions, declare and pay restricted payments, prepay junior or subordinated debt, sell assets, and enter into transactions with affiliates, in each case, subject to certain customary exceptions. ~~In addition, the Credit Facility requires compliance with certain financial covenants, specifically a monthly minimum revenue covenant and a minimum liquidity covenant.~~

~~Legacy Wag’s~~The Company’s obligations under the ~~Blue Torch~~ Financing Agreement are guaranteed by certain of its subsidiaries meeting materiality ~~thresholds set forth in the Blue Torch Financing Agreement (the "Financing Agreement").~~thresholds. Such obligations, including the guarantees, are secured by substantially all of the personal property of the Company and its subsidiary guarantors, including pursuant to a Security Agreement simultaneously entered into on August 9, 2022. The ~~Blue Torch~~ Financing Agreement establishes the following financial covenants: (i) ~~Legacy Wag's~~the Company's trailing annual aggregate revenue shall exceed certain thresholds as of the end of each monthly computation period as defined therein; and (ii) ~~Liquidity~~liquidity shall not be less than $5 million at any time. The Company was in compliance with these covenants as of September 30, 2023. During the first quarter of 2023, the Company received a waiver regarding covenants for timely reporting and execution of agreements with respect the creation of a new wholly owned subsidiary to hold the Dog Food Advisor assets. The facility was fully drawn upon as of September 30, 2023.March 31, 2024.

As of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the interest rate for borrowings under the ~~Term Loan~~Financing Agreement was ~~15.65%~~15.57% and ~~14.84%~~15.61%, respectively.

During the three months ended March 31, 2024, the Company repaid a total amount of $5.2 million on amounts outstanding under the Financing Agreement, which included a $5.0 million prepayment that was treated as an extinguishment of debt for accounting purposes and resulted in a $0.7 million loss on extinguishment of debt. During the three months ended March 31, 2023, the Company repaid a total amount of $0.2 million on amounts outstanding under the Financing Agreement. As of March 31, 2024 and December 31, 2023, the amount outstanding under the Financing Agreement was $26.0 million and $31.2 million, respectively.

During the three months ended March 31, 2024 and 2023, the Company recognized $1.2 million and $1.2 million, respectively, of interest expense relating to the Financing Agreement.

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During the nine months ended September 30, 2023 and 2022, the Company repaid a total amount of $0.6 million and zero, respectively, on amounts outstanding under the Credit Facility. As of September 30, 2023 and December 31, 2022, the amount outstanding under the Credit Facility was $31.4 million and $32.0 million, respectively.

During the three months ended September 30, 2023 and 2022, the Company recognized $1.2 million and $0.6 million, respectively, of interest expense relating to the Credit Facility. During the nine months ended September 30, 2023 and 2022, the Company recognized $3.7 million and $0.6 million, respectively, of interest expense relating to the Credit Facility.

On the closing of the ~~Credit Facility, Legacy Wag!~~Financing Agreement, the Company also entered into the Lender Warrant Agreement with Vstock Transfer, LLC as warrant agent, pursuant to which affiliates of Blue Torch ~~Capital LP (“Blue Torch”)~~ received 1,896,177 warrants to acquire common stock of the Company, par value $0.0001 per share (“Common Stock”), for $11.50 per whole share (such warrants, the “Lender Warrants”). The Lender Warrants were issued pursuant to the SPAC Warrant Agreement (as defined in the CHW Business Combination Agreement) and are subject to the terms and conditions thereof, as modified (whether reflected in the terms of the Lender Warrants issued on the Merger Date, or in an amendment to or exchange for the Lender Warrants consummated after the Merger Date) to provide that (i) the exercise period of the Lender Warrants will terminate on the earliest to occur of (x) the date that is ten years after completion of the CHW Business Combination, (y) liquidation of the Company, and (z) redemption of the Lender Warrants as provided in the SPAC Warrant Agreement (the “Lender Warrant Expiration Date”), (ii) Blue Torch has the ability to net exercise the Lender Warrants (based on the fair value of the stock at the time of net exercise, fair value being equal to the public trading price at the time of exercise) on a cashless basis, (iii) Blue Torch received the benefit of certain customary representations and warranties from the Company, and (iv) the Lender Warrants are not required to be registered under the Securities Act.

At the date of issuance, the Company classified the Lender Warrants as equity and recognized them in additional paid-in capital within its condensed consolidated balance sheet. As the Lender Warrants were classified as equity, the Company will not remeasure the Lender Warrants each accounting period. The Company estimated the fair value of warrants exercisable for common stock using the Black-Scholes option valuation model. The Black-Scholes option valuation model inputs are based on the estimated fair value of the underlying common stock at the valuation measurement date, the remaining contractual term of the warrant, the risk-free interest rates, the expected dividends, and the expected volatility of the price of the Company’s underlying stock.

As the Lender Warrants were classified as equity, the proceeds were allocated based on the relative fair values of the financial instruments issued as a whole.

Total Debt

As of ~~September 30, 2023,~~March 31, 2024, annual scheduled principal payments of debt were as follows:


			Amount
			(in thousands)
2023			$	357
		Amount			Amount
		(in thousands)			(in thousands)
2024	2024		1,751
2025	2025		30,227
Total principal payments	Total principal payments		$	32,335

9.8. Commitments and Contingencies

Legal and Other Contingencies

From time to time, the Company may be a party to litigation and subject to claims, including non-income tax audits, in the ordinary course of business. The Company accrues a liability when management believes information available to it prior to the issuance of the consolidated financial statements indicates it is probable a loss has been incurred as of the date of the consolidated financial statements and the amount of loss can be reasonably estimated. The Company adjusts its accruals to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. Legal costs are expensed as incurred. Although the results of litigation and claims cannot be predicted with certainty, management concluded that there was not a reasonable probability that it had incurred a material loss during the periods presented related to such loss contingencies. Therefore, the Company has not recorded a reserve for any such contingencies.

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Given the inherent uncertainties and unpredictability of litigation, the ultimate outcome of ongoing matters cannot be predicted with certainty but the Company believes it has valid defenses with respect to the legal matters pending against it. Nevertheless, the consolidated financial statements could be materially adversely affected in a particular period by the resolution of one or more of these contingencies. Regardless of the outcome, litigation can have an adverse impact on the Company because of judgment, defense, and settlement costs, diversion of management resources, and other factors. Liabilities established to provide for contingencies are adjusted as further information develops, circumstances changes, or contingencies are resolved; such changes are recorded in the accompanying statements of operations during the period of the change and reflected in accrued expenses and other current liabilities on the accompanying consolidated balance sheets.

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The Company has been and continues to be involved in numerous legal proceedings related to ~~PCG~~Pet Caregiver classification. In California, Assembly Bill No. 5 (AB-5) implemented a presumption that workers are employees. However, AB-2257 exempts agencies providing referrals for certain animal services, including dog walking, from AB-5. The Company believes that it falls within this exemption. Nevertheless, the interpretation or enforcement of the exemption could change. The United States Department of Labor announced on October 11, 2022 that it would publish a Notice of Proposed Rulemaking regarding the classification of workers as independent contractors or employees. ~~We are~~The Company is monitoring the development of the proposed rule and will evaluate in a future period any potential impact of the final rule, when issued, on ~~our~~its operations.

The Company is subject to audits by taxing authorities and other forms of investigation, audit, or inquiry conducted by federal, state, or local governmental agencies. Due to the inherent uncertainties in the final outcome of such matters, the Company can give no assurance that it will prevail in such matters, which could have an adverse effect on the Company’s business. In addition, the Company may be subject to greater risk of legal claims or regulatory actions as it increases and continues its operations in jurisdictions where the laws and regulations governing online marketplaces or the employment classification of service providers who use online marketplaces are uncertain or unfavorable.

In November 2019, California issued an assessment alleging various violations and penalties related to alleged misclassification of pet caregivers who use the Company’s platform as independent contractors. The Company has challenged both the legal basis and the amount of the assessment, of $1.7 million in unemployment insurance contributions for ~~our~~its independent contractors. In April 2022, the California Employment Development Department ("CA EDD") initiated a routine employment tax audit of the ~~Company. We are~~Company and alleges the Company owes approximately $1.3 million in additional unemployment insurance contributions for its independent contractors. The Company is engaged in ongoing discussions with the CA EDD including providing additional data that has been requested, in order to determine what, if any, additional assessments are warranted. CA EDD alleges the Company owes approximately $1.3 million in unemployment insurance contributions for our independent contractors. In response, we submitted a Petition for Reassessment and ~~intend~~intends to defend ~~ourselves~~itself vigorously in this pending matter. The Company believes given the inherent uncertainties of litigation, the outcome of this matter is not considered probable nor estimable and, therefore, the Company has not recorded a reserve.

In August 2018, the New York State Department of Labor (“NY DOL”) issued an Investigation Report assessing the Company with approximately $0.2 million in unemployment insurance contributions for ~~our~~its independent contractors. In August 2023, the Company completed payments of $0.4 million to the NY DOL, which represented the amount of the assessment plus interest and was recognized in general and administrative expenses within the Company’s condensed consolidated statement of operations during the third quarter of 2023.

In December 2019, Wag Hotels, Inc. filed a lawsuit against the Company alleging various claims related to breach of contract and trademark infringement. On June 29, 2023, the parties agreed to a settlement amount of $0.5 million to resolve all claims, with an initial payment up front and the remaining payments over 25 months. The settlement was executed on August 30, 2023. The $0.5 million ~~has been~~was recognized in general and administrative expenses within the Company’s condensed consolidated statement of operations during the second quarter of 2023 and the Company has recorded a corresponding liability in Accrued expenses and other current liabilities and Other non-current liabilities within its condensed consolidated balance sheet as of ~~September 30, 2023.~~March 31, 2024.

In December 2023, the NY DOL issued an investigation report assessing the Company with approximately $1.8 million in unemployment insurance contributions, including interest and penalties, for its independent contractors. On January 19, 2024, the Company submitted a request for hearing contesting assessment. The Company believes given the inherent uncertainties of litigation, the outcome of this matter is not considered probable nor estimable and, therefore, the Company has not recorded a reserve.

As of ~~September 30, 2023,~~March 31, 2024, management did not believe that the outcome of pending matters would have a material effect on the Company’s financial position, results of operations, or cash flows.

~~10. Redeemable Preferred Stock and Stockholders’ Equity (Deficit)~~

~~Accumulated Other Comprehensive Income~~

~~There were no changes in accumulated other comprehensive income for the three and nine months ended September 30, 2023 and 2022.~~

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~~Preferred Stock~~

On January 28, 2022, Legacy Wag! issued 1.1 million convertible preferred shares (“Series P”) in exchange for $11 million of cash. Series P was issued on substantially similar terms to Legacy Wag!’s other convertible preferred share issuances, except for the Series P convertible share agreement, which contained an adjustment provision that provided for additional shares to be issued based on a formula if the proposed Merger was not completed, as defined in the Company’s Certificate of Incorporation. Upon consummation of the Merger, the Series P shares converted into the Company’s common stock on a one-for-one basis.

In connection with the Merger, all redeemable convertible preferred stock were converted to common stock of the Company. As such, all outstanding shares of Legacy Wag!’s preferred stock, except for Legacy Wag! Series P Shares (as described above), were converted into shares of the Company’s common stock, par value $0.0001 per share, at the then-effective conversion rate of approximately 0.97.

Pursuant to the Company’s Certificate of Incorporation, the Company is authorized to issue 1,000,000 shares of preferred stock having a par value of $0.0001 per share. The Company’s board of directors has the authority to issue preferred stock and to determine the rights, preferences, privileges, and restrictions, including voting rights, of those shares. As of September 30, 2023, no shares of preferred stock were issued and outstanding.

9. Stockholders’ Equity (Deficit)

Common Stock ~~Warrants~~

~~Legacy Wag! Common Warrants~~

Prior to January 2019, the Company granted 91,310 warrants to purchase common stock. The weighted average exercise price for the warrants were $1.54, and the term of the warrants were 10 years. The warrants were valued on the date of grant using the Black-Scholes Merton (“Black-Scholes”) option pricing model. Upon consummation of the Merger, these warrants were unexercised at the date of the Merger and, as a result, were adjusted using an exchange ratio of 0.97 for Legacy Wag! Common Warrants. During the quarter ended September 30, 2022, the two Legacy Wag! holders net exercised their warrants on a cashless basis for 72,434 shares.

~~CHW Public and Private Placement~~ Warrants

Prior to the Merger, CHW issued 12,500,000 of Public Warrants and 4,238,636 of Private Warrants (together, the “Warrants”) in connection with its initial public offering to CHW Acquisition Sponsor, LLC, the sponsor of CHW. After consummation of the Merger on August 9, 2022, the 4,238,636 Private Warrants held by the Sponsor were exchanged for 3,895,564 warrants to purchase shares of common stock of the Company issuable upon the exercise of Private Placement Warrants originally issued to CHW and the 12,500,000 shares of common stock that are issuable upon the exercise of Public Warrants remained outstanding. Each whole warrant entitles the registered holder to purchase one share of common stock at a price of $11.50 per share, subject to adjustment, at any time commencing on September 8, 2022, which was the later of 30 days after the completion of the CHW Business Combination or 12 months from CHW's IPO closing date. The Warrants will expire on the fifth anniversary of the CHW Business Combination, or earlier upon redemption or liquidation.

Management has concluded that the Warrants issued pursuant to the CHW's IPO qualify for equity accounting treatment. The Warrants were not subject to revaluation at the Merger Date, and as such, the original valuation performed by CHW in connection with its IPO in September 2021 still applies. The following table provides quantitative information regarding fair value measurements at issuance on September 1, 2021:

Share Price Exercise Price Dividend Yield Volatility Risk-Free Interest Rate Expected Term
CHW Warrants $ 10.00 $ 11.50 — % 22.00 % 1.31 % 5 years

~~The fair value as of September 1, 2021 was $1.32 per share. As of September 30, 2023, the Company had 12,500,000 of Public Warrants and 3,895,564 of Private Warrants outstanding, respectively.~~

The Company may call the Warrants for redemption:

•in whole or in part;

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•at a price of $0.01 per warrant;

•upon a minimum of 20 days’ prior written notice of redemption; and

•if, and only if, the reported last sale price of the Public Shares equals or exceeds $16.50 per share (as adjusted for share subdivisions, share consolidations, share capitalizations, rights issuances, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date the Company sends the notice of redemption to the warrant holders.

If the Company calls the Warrants for redemption, management will have the option to require all holders that wish to exercise the public warrants to do so on a “cashless basis,” as described in the warrant agreement.

The exercise price and number of shares of common stock issuable upon exercise of the Warrants may be adjusted in certain circumstances including in the event of a share dividend, recapitalization, reorganization, merger or consolidation. However, the Warrants will not be adjusted for issuance of common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the Warrants.

Management has concluded that the Warrants issued pursuant to the CHW IPO qualify for equity classification.

~~11.~~Accumulated Other Comprehensive Income

There were no changes in accumulated other comprehensive income for the three months ended March 31, 2024 and 2023.

10. Revenues

The following table presents the Company’s revenues disaggregated by offering:


		Three Months Ended				Nine Months Ended
		September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
		(in thousands)
		Three Months Ended
		Three Months Ended
		Three Months Ended
		March 31, 2024
		March 31, 2024
		March 31, 2024
		(in thousands)
		(in thousands)
		(in thousands)
Services revenue	Services revenue	$	6,551	$	5,866	$	18,159	$	15,973
Wellness revenue	Wellness revenue	13,546		9,513		39,426		21,856
Pet food & treats revenue		1,703		—		4,658		—
Wellness revenue
Wellness revenue
Pet Food & Treats revenue
Pet Food & Treats revenue
Pet Food & Treats revenue
Total revenues	Total revenues	$	21,800	$	15,379	$	62,243	$	37,829
Total revenues
Total revenues

~~12.~~

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11. Stock-Based Compensation

The Company has stock-based compensation plans, which are more fully described in Note 2,12, ~~Summary of Significant Accounting Policies, and Note 11,~~ ~~Stockholders’ Equity (Deficit) and Mezzanine Equity~~Stock-Based Compensation, to the Consolidated Financial Statements included in the ~~2022~~2023 10-K. During the ~~nine~~three months ended ~~September 30, 2023,~~March 31, 2024, the Company granted restricted stock units (“RSUs”) subject to service conditions.

~~The following table provides information about stock-based compensation expense by financial statement line item:~~

Three Months Ended Nine Months Ended
September 30,
2023 September 30,
2022 September 30,
2023 September 30,
2022
(in thousands)
Platform operations and support $ 209 $ 2,856 $ 815 $ 2,874
Sales and marketing 174 2,068 533 2,073
General and administrative 682 18,998 2,180 19,069
Total stock-based compensation expense $ 1,065 $ 23,922 $ 3,528 $ 24,016

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Stock Options

The following table summarizes the activities for all stock options under the Company’s stock-based compensation plans for the ~~nine~~three months ended ~~September 30, 2023:~~March 31, 2024:

Number of Options Outstanding

Weighted-Average Exercise Price

Weighted-Average Remaining Contractual Life

Aggregate Intrinsic Value(1)

(in thousands)

Outstanding as of December 31, 2022

7,194

0.40

7.19 years

19,292

Number of Options Outstanding

Weighted-Average Exercise Price

Weighted-Average Remaining Contractual Life

Aggregate Intrinsic Value(1)

(in thousands)

Outstanding as of December 31, 2023

Granted

—

Exercised

(986)

0.10

Exercised

Forfeited or expired

(22)

2.75

Outstanding as of September 30, 2023

6,186

0.45

6.43 years

10,051

Forfeited or expired

Outstanding as of March 31, 2024

Exercisable as of March 31, 2024

Vested and expected to vest as of March 31, 2024

(1) The intrinsic value is the amount by which the current market value of the underlying stock exceeds the exercise price of the stock awards.

There were no stock options granted during the three months ended March 31, 2024 and 2023. The total intrinsic value of stock options exercised during the three months ended March 31, 2024 and 2023 was $1.2 million and $1.2 million, respectively.

As of March 31, 2024, the total unrecognized compensation cost related to all nonvested stock options was $11 thousand and the related weighted-average period over which it is expected to be recognized was approximately 1.29 years.

Restricted Stock Units

The following table summarizes the activities for all ~~restricted stock units (“RSUs”)~~RSUs under the Company’s stock-based compensation plans for the ~~nine~~three months ended ~~September 30, 2023:~~March 31, 2024:


			Number of Shares	Weighted-Average Grant Date Fair Value Per Share
			(in thousands)
Outstanding and nonvested as of December 31, 2022			4,195	$	2.44
		Number of Shares				Number of Shares	Weighted-Average Grant Date Fair Value Per Share
		(in thousands)
Outstanding and nonvested as of December 31, 2023
Outstanding and nonvested as of December 31, 2023
Outstanding and nonvested as of December 31, 2023
Granted	Granted		1,999	$	2.34
Vested	Vested		(1,354)	$	2.45
Forfeited	Forfeited		(130)	$	2.36
Outstanding and nonvested as of September 30, 2023			4,710	$	2.39
Outstanding and nonvested as of March 31, 2024

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The total vesting date fair value of RSUs which vested during the three months ended March 31, 2024 and 2023 was $0.7 million and $31 thousand, respectively.

As of ~~September 30, 2023,~~March 31, 2024, the total unrecognized compensation cost related to all nonvested ~~restricted stock units~~RSUs was ~~$10.7~~$10.3 million and the related weighted-average period over which it is expected to be recognized was approximately ~~2.33~~1.90 years.

Stock-Based Compensation Expense

~~13.~~The following table provides information about stock-based compensation expense by financial statement line item:


	Three Months Ended
	March 31, 2024		March 31, 2023
	(in thousands)
Platform operations and support	$	210	$	337
Sales and marketing	223		196
General and administrative	863		809
Total stock-based compensation expense	$	1,296	$	1,342

12. Income Taxes

The quarterly income tax provision reflects an estimate of the corresponding quarter’s state taxes in the United States. The provision for income tax expense for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2024 and 2023 ~~and 2022~~ was determined based upon estimates of the Company’s annual effective tax rate for the years ending December 31, ~~2023~~2024 and ~~2022,~~2023, respectively. Since the Company is in a full valuation allowance position due to losses incurred since inception, the provision for taxes consists solely of certain state income taxes.

~~Table of Contents~~

~~14.~~13. Acquisitions

~~Acquisition of Compare Pet Insurance~~

On August 3, 2021, the Company acquired Compare Pet Insurance, Inc. (“CPI”) for $3.5 million in cash consideration, and $0.2 million in common stock consideration, consisting of a total of 639,000 units of common stock. Of the cash consideration purchase price, $1.5 million was paid on the acquisition date and the remaining $2.0 million paid pro-rata quarterly over the next three years starting in the fourth quarter of 2021. The deferred purchase consideration, which was recorded at its fair value on the acquisition date, is presented in accrued expenses and other current liabilities, as well as other non-current liabilities on the condensed consolidated balance sheet. As of September 30, 2023 and December 31, 2022, the amounts included in accrued expenses and other current liabilities, as well as other non-current liabilities on the condensed consolidated balance sheet, were $0.7 million and $1.2 million, respectively.

Acquisition of Dog Food Advisor

On January 5, 2023, the Company entered into an Asset Purchase Agreement with Clicks and Traffic LLC ~~(“Dog Food Advisor”)~~ to purchase its Dog Food Advisor ~~(“DFA”)~~ assets for cash consideration of $9.0 million. Of the $9.0 million inof cash ~~consideration. Of the cash~~ consideration, ~~purchase price,~~ $8.1 million was paid on the acquisition date and the remaining $0.9 million was deposited into an escrow account as an indemnification ~~hold back~~holdback for a period of 12 months. No working capital was acquired ~~from Dog Food Advisor.~~as part of the transaction. The Company incurred less than $0.1 million in transaction-related costs during the first quarter of 2023 in connection with the acquisition, ~~of DFA,~~ which are included in general and administrative expenses within the Company’s condensed consolidated statement of operations. The acquisition marked the Company’s entrance into the Pet Food & Treats market, in line with its strategy to be an all-inclusive, trusted partner for the premium Pet Parent.

The ~~preliminary~~assets acquired were recognized at fair value as of the date of the acquisition. During 2023, the Company finalized the analysis of the purchase ~~consideration allocation was as follows:~~price and no adjustments were made to the assessed fair values. The following table summarizes the final fair values assigned to the assets acquired:


	January 5, 2023
	(in thousands)
Intangible assets	$	5,950
Goodwill	3,050
Total purchase consideration	$	9,000

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The table below summarizes the fair value and the estimated useful lives of the acquired intangible assets:

January 5,
2023

Estimated Weighted-Average Useful Life

(in thousands)

Developed technology and website content

1,950

5 years

Strategic customer relationships and subscriber lists

3,600

8 years

Trademarks

400

10 years

Total intangible assets

5,950

7 years

As of September 30, 2023, the purchase price allocated to the fair value of assets acquired, including intangibles, recorded in conjunction with the DFA acquisition remains preliminary as the Company is in the process of assessing the acquired intangible assets in order to finalize the accounting for the business combination. The preliminary purchase price allocation has been developed based on estimates with assumptions made by management. Although the Company does not expect the final allocation to vary significantly, there may be adjustments made to the preliminary purchase price allocation that could result in changes to the preliminary fair values allocated, assigned useful lives, and associated amortization recorded. Goodwill recognized as a result of this acquisition is deductible for tax purposes.

Pro forma disclosures required under ASC 805-10-50 are not presented because the pro forma impacts on the current period and prior year comparable period are not material.

~~Table of Contents~~

Acquisition of ~~Maxbone, Inc.~~maxbone

On April 6, 2023, the Company acquired ~~Maxbone,~~100% of the outstanding equity interests of MaxBone, Inc. (“maxbone”), a top-tier digital platform for modern pet essentials, for cash consideration of $0.5 million ~~in cash consideration~~ and ~~100,000~~0.1 million common shares with a fair value of $0.2 million as of the closing date. Of the $0.2 million of common stock consideration, $0.1 million was issued on the acquisition date and the remaining $0.1 million will be issued in the future after the indemnification holdback period expires 12 months after the acquisition close. The acquisition expanded the Company’s reach into the Pet Supplies market, while remaining committed to the needs and standards of the premium Pet Parent.

Acquisition of WoofWoofTV

~~15.~~On December 15, 2023, the Company acquired 100% of the outstanding equity interests of Rowlo Woof Limited (“WoofWoofTV”), a digital media publishing company focusing on content for dog lovers, for cash consideration of $1.3 million. Of the $1.3 million of cash consideration, $1.1 million was paid on the acquisition date and the remaining $0.2 million was deposited into an escrow account as an indemnification holdback for a period of 12 months. The Company accounted for the transaction as an asset acquisition, as substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable asset.

The table below summarizes the fair value and the estimated useful life of the acquired intangible asset:

December 15,
2023

Estimated Weighted-Average Useful Life

(in thousands)

Media brand

1,250

2 years

Total intangible assets

1,250

2 years

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14. Loss Per Share

The following ~~participating~~ securities have been excluded from the computation of diluted loss per share for the periods presented because including them would have been anti-dilutive:

Nine Months Ended

September 30,
2023

September 30,
2022

(in thousands)

Three Months Ended

March 31,
2024

March 31,
2023

(in thousands)

Earnout Shares

15,000

Options and RSUs issued and outstanding

10,896

7,420

Warrants issued and outstanding

18,292

Delayed share issuance related to acquisition

—

Shares related to acquisition indemnification holdback

Total

44,239

40,712

All unvested Earnout Shares are excluded from basic and diluted loss per share as such shares are contingently issuable only when the share price of the Company’s common stock exceeds specified thresholds, which had not been achieved as of ~~September 30, 2023.~~March 31, 2024.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are one of the largest online marketplaces for pet care and strive to be the #1 platform for busy Pet Parents, offering access to 5-star dog walking and pet sitting, expert pet advice, wellness plans, and one-on-one training from our community of more than ~~450,000~~500,000 local ~~pet caregivers~~Pet Caregivers nationwide, in addition to pet insurance options from the leading pet insurance companies.

Our proprietary marketplace technology, which is available as a mobile app and website, ~~(“platform” or “marketplace”),~~ enables independent ~~pet caregivers (“PCGs”)~~Pet Caregivers to connect with Pet Parents. Through our cutting-edge technologies and multi-faceted platforms, Wag! connects Pet Parents with ~~PCGs~~Pet Caregivers who provide pet care services. Our marketplace enables Pet Parents to find a wide array of pet services provided by ~~PCGs~~Pet Caregivers and third-party service partners, such as walking, pet sitting and boarding, advice from licensed pet experts, home visits, training services, and pet insurance comparison tools.

Beyond providing unrivaled services to premium Pet Parents, Wag! has expanded its reach to become the button on the phone for the paw. Wag!, once purely synonymous with pet services, is now a key player in the wellness space via the management and operation of Petted.com, a pet insurance comparison service, as well as the acquisition of Furmacy, which ~~delivers~~creates prescription management software to simplify pet prescriptions. Additionally, in 2023, Wag! ~~has~~ expanded into the Pet Food & Treats market by acquiring one of the most visited and trusted dog food marketplaces: Dog Food Advisor. Wag! is confident that the addition of Dog Food Advisor will unlock tremendous value and insights for recurring and new customers alike; those who we already provide an unparalleled marketplace experience to in the wellness space and longtime customers who rely on Dog Food Advisor as a subject matter expert. In April 2023, we acquired ~~Maxbone, Inc., a top-tier digital platform for modern pet essentials,~~maxbone, expanding our reach into the Pet Supplies market.

Components of Our Results of Operations

The following is a summary of the principal line items comprising our operating results.

Revenues

We provide an online marketplace that enables Pet Parents to connect with ~~PCGs~~Pet Caregivers for various pet services. We recognize ~~revenues~~revenue in accordance with ASC 606, Revenue from Contracts with Customers, from the following distinct streams: (1) service fees charged to ~~PCGs,~~Pet Caregivers, (2) subscription fees for Wag! Premium and other fees paid by Pet Parents, ~~for Wag! Premium,~~ (3) joining fees paid by ~~PCGs~~Pet Caregivers to join and be listed on our platform, (4) wellness revenue through affiliate fees, and (5) Pet Food & Treat revenue also through affiliate fees. For some of the Company’s arrangements with third-party service providers, the transaction price is considered variable and an estimate of the transaction price is recorded when the action occurs. The estimated transaction price used in the variable consideration is based on historical data with the respective third-party service partner and the consideration is measured and settled monthly.

Cost of Revenues, Excluding Depreciation and Amortization

Cost of revenues consists of costs directly related to revenue-generating transactions, which primarily includes fees paid to payment processors, hosting and platform-related infrastructure costs, product costs, third-party costs for background checks for ~~PCGs,~~Pet Caregivers, and other costs arising as a result of revenue transactions that take place on our platform, excluding depreciation and amortization.

Platform Operations and Support

Platform operations and support expenses include personnel-related compensation costs of technology and operations teams, and third-party operations support costs.

Sales and Marketing

Sales and marketing expenses include personnel-related compensation costs of the marketing team and advertising expenses. Sales and marketing expenses are expensed as incurred.

Royalty

Royalty expenses represent fees paid by us to be the exclusive marketer of certain pet insurance products.

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General and Administrative

General and administrative expense includes personnel-related compensation costs for employees on corporate functions, such as management, accounting, and legal as well as insurance and other expenses used to run the business, together with outside party service costs of related items such as auditors and lawyers.

Depreciation and Amortization

Depreciation and amortization expenses primarily consist of depreciation and amortization expenses associated with our property and equipment. Amortization includes expenses associated with our capitalized software and website development.

Interest Expense, Net

Interest expense, net consists primarily of interest incurred on debt and interest earned on our cash, cash equivalents, and short-term investments.

Key Operating and Financial Metrics and Non-GAAP Financial Measures

We regularly review several metrics, including the following key financial metrics and non-GAAP financial measures, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections, and make strategic decisions. These key financial metrics and non-GAAP financial measures are set forth below for the periods presented:


		Three Months Ended						Nine Months Ended
		September 30, 2023			September 30, 2022			September 30, 2023			September 30, 2022
		(in thousands, except percentages)
U.S. GAAP measures:
		Three Months Ended
		Three Months Ended
		Three Months Ended
		March 31, 2024
		March 31, 2024
		March 31, 2024
		(in thousands, except percentages)
		(in thousands, except percentages)
		(in thousands, except percentages)
Platform Participants (as of period end)
Platform Participants (as of period end)
Platform Participants (as of period end)
Revenues
Revenues
Revenues	Revenues	$	21,800		$	15,379		$	62,243		$	37,829
Net loss	Net loss	$	(2,196)		$	(40,931)		$	(9,852)		$	(44,371)
Net loss
Net loss
Net loss margin
Net loss margin
Net loss margin	Net loss margin	(10.1)		%	(266.1)		%	(15.8)		%	(117.3)		%
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	$	(2,297)		$	568		$	(4,624)		$	(3,578)
Non-GAAP measures:
Net cash provided by (used in) operating activities
Net cash provided by (used in) operating activities
Adjusted EBITDA (loss)(1)
Adjusted EBITDA (loss)(1)
Adjusted EBITDA (loss)(1)	Adjusted EBITDA (loss)(1)	$	1,007		$	(461)		$	717		$	(3,448)
Adjusted EBITDA (loss) margin(1)	Adjusted EBITDA (loss) margin(1)	4.6		%	(3.0)		%	1.2		%	(9.1)		%
Adjusted EBITDA (loss) margin(1)
Adjusted EBITDA (loss) margin(1)

* Comparisons between positive and negative numbers are not meaningful.

(1)Adjusted EBITDA (loss) and Adjusted EBITDA (loss) margin are non-GAAP measures which may not be comparable to similarly-titled measures used by other companies. See below for a reconciliation of Adjusted EBITDA (loss) to net loss.

Platform Participants

A Platform Participant is defined as a Pet Parent or Pet Caregiver who transacted on the Wag! platform for a service in the quarter. Services include dog walking, sitting, boarding, drop-ins, training, premium telehealth services, wellness plans, and pet insurance plan comparison.

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Non-GAAP Financial Measures

Adjusted EBITDA (Loss) and Adjusted EBITDA (Loss) Margin

Adjusted EBITDA (loss) means net loss adjusted to exclude, where applicable in a given period, interest expense, net; income taxes; depreciation and amortization; stock-based compensation; integration and transaction costs associated with acquired businesses; severance costs; and ~~legal settlements.~~loss on extinguishment of debt. Adjusted EBITDA (loss) margin represents Adjusted EBITDA (loss) divided by ~~Total~~ revenues. We use Adjusted EBITDA (loss) and Adjusted EBITDA (loss) margin, which are both non-GAAP metrics, to evaluate and assess our operating performance and the operating leverage in our business, and for internal planning and forecasting purposes. We believe that Adjusted EBITDA (loss) and Adjusted EBITDA (loss) margin, when taken collectively with our U.S. GAAP results, may be helpful to investors because they provide consistency and comparability with past financial performance and assist in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their U.S. GAAP results.

~~Table of Contents~~

Non-GAAP financial measures are presented for supplemental informational purposes only. Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as substitutes for financial information presented in accordance with U.S. GAAP. There are a number of limitations related to the use of non-GAAP financial measures versus comparable financial measures determined under U.S. GAAP. For example, other companies in our industry may calculate these non-GAAP financial measures differently or may use other measures to evaluate their performance. All of these limitations could reduce the usefulness of these non-GAAP financial measures as analytical tools. Investors are encouraged to review the related non-GAAP financial measures and the reconciliations of these non-GAAP financial measures to their most directly comparable U.S. GAAP financial measures and to not rely on any single financial measure to evaluate our business.

The following table provides a reconciliation of net loss to Adjusted EBITDA (loss):


		Three Months Ended						Nine Months Ended
		September 30, 2023			September 30, 2022			September 30, 2023			September 30, 2022
		(in thousands, except percentages)
		Three Months Ended
		Three Months Ended
		Three Months Ended
		March 31, 2024
		March 31, 2024
		March 31, 2024
		(in thousands, except percentages)
		(in thousands, except percentages)
		(in thousands, except percentages)
Net loss	Net loss	$	(2,196)		$	(40,931)		$	(9,852)		$	(44,371)
Interest expense, net	Interest expense, net	1,683			735			4,972			784
Interest expense, net
Interest expense, net
Income taxes
Income taxes
Income taxes	Income taxes	41			—			79			13
Depreciation and amortization	Depreciation and amortization	414			134			1,170			431
Depreciation and amortization
Depreciation and amortization
Stock-based compensation
Stock-based compensation
Stock-based compensation	Stock-based compensation	1,065			23,922			3,528			24,016
Integration and transaction costs associated with acquired business	Integration and transaction costs associated with acquired business	—			—			189			—
Integration and transaction costs associated with acquired business
Integration and transaction costs associated with acquired business
Severance costs	Severance costs	—			—			131			—
Legal settlement		—			—			500			—
Change in fair value of derivative liability		—			13,708			—			13,708
Issuance of Community Shares		—			1,971			—			1,971
Severance costs
Severance costs
Loss on extinguishment of debt
Loss on extinguishment of debt
Loss on extinguishment of debt

Adjusted EBITDA (loss)

Adjusted EBITDA (loss)

Adjusted EBITDA (loss)	Adjusted EBITDA (loss)	$	1,007		$	(461)		$	717		$	(3,448)
Revenues	Revenues	$	21,800		$	15,379		$	62,243		$	37,829
Revenues
Revenues
Adjusted EBITDA (loss) margin	Adjusted EBITDA (loss) margin	4.6		%	(3.0)		%	1.2		%	(9.1)		%
Adjusted EBITDA (loss) margin
Adjusted EBITDA (loss) margin

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Comparison of the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2024 and 2023 ~~and 2022~~

The following table sets forth our results of operations for the three ~~and nine~~ months ended ~~September 30, 2023~~March 31, 2024 and ~~2022.~~2023. These results of operations are not necessarily indicative of the future results of operations that may be expected for any future period.


		Three Months Ended				Change			Nine Months Ended				Change
		September 30, 2023		September 30, 2022		$	%		September 30, 2023		September 30, 2022		$	%
		(in thousands, except percentages)
		Three Months Ended
		Three Months Ended
		Three Months Ended
		March 31, 2024
		March 31, 2024
		March 31, 2024
		(in thousands, except percentages)
		(in thousands, except percentages)
		(in thousands, except percentages)
Revenues	Revenues	$	21,800	$	15,379	6,421	41.8	%	$	62,243	$	37,829	24,414	64.5	%
Costs and expenses:	Costs and expenses:
Costs and expenses:
Costs and expenses:
Cost of revenues (exclusive of depreciation and amortization shown separately below)
Cost of revenues (exclusive of depreciation and amortization shown separately below)
Cost of revenues (exclusive of depreciation and amortization shown separately below)	Cost of revenues (exclusive of depreciation and amortization shown separately below)	1,441		1,021		420	41.1	%	3,710		3,027		683	22.6	%
Platform operations and support	Platform operations and support	2,968		5,641		(2,673)	(47.4)	%	9,630		11,035		(1,405)	(12.7)	%
Platform operations and support
Platform operations and support
Sales and marketing	Sales and marketing	12,755		11,290		1,465	13.0	%	36,788		24,656		12,132	49.2	%
Royalty		—		—		—	100.0	%	1,791		—		1,791	100.0	%
Sales and marketing
Sales and marketing

General and administrative

General and administrative

General and administrative	General and administrative	4,682		23,781		(19,099)	(80.3)	%	14,487		28,546		(14,059)	(49.3)	%
Depreciation and amortization	Depreciation and amortization	414		134		280	209.0	%	1,170		431		739	171.5	%
Depreciation and amortization
Depreciation and amortization
Total costs and expenses	Total costs and expenses	22,260		41,867		(19,607)	(46.8)	%	67,576		67,695		(119)	(0.2)	%
Interest expense, net		1,683		735		948	129.0	%	4,972		784		4,188	534.2	%
Other expense, net		12		13,708		(13,696)	(99.9)	%	21		13,708		(13,687)	(99.8)	%
Loss before income taxes and equity in net earnings of affiliate		(2,155)		(40,931)		38,776	(94.7)	%	(10,326)		(44,358)		34,032	(76.7)	%
Total costs and expenses
Total costs and expenses
Interest expense
Interest expense
Interest expense
Interest income
Interest income
Interest income
Loss on extinguishment of debt
Loss on extinguishment of debt
Loss on extinguishment of debt
Other income, net
Other income, net
Other income, net
Loss before income taxes
Loss before income taxes
Loss before income taxes
Income taxes	Income taxes	41		—		41	100.0	%	79		13		66	507.7	%
Equity in net earnings of equity method investments		—		—		—	100.0	%	553		—		553	100.0	%
Income taxes
Income taxes

Net loss	Net loss	$	(2,196)	$	(40,931)	38,735	(94.6)	%	$	(9,852)	$	(44,371)	34,519	(77.8)	%

Net loss

Net loss

* Comparisons between positive and negative numbers and with a zero are not meaningful.

** Percentage figures included in the below section have been calculated on the basis of rounded figures as presented and not on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in the table above or the condensed consolidated financial statements.

Revenues

Revenues increased by ~~$6.4~~$2.6 million, or approximately ~~41.8%~~12.6%, from ~~$15.4~~$20.6 million for the three months ended ~~September 30, 2022~~March 31, 2023 to ~~$21.8~~$23.2 million for the three months ended ~~September 30, 2023.~~March 31, 2024. The increase was primarily attributable to a ~~$4.0~~$1.9 million increase in Wellness revenue ~~as a result of increased activity~~ and a ~~$1.7~~$0.8 million increase in Pet Food & Treats revenue as a result of ~~our acquisition of Dog Food Advisor in the first quarter of 2023 and launch of Cat Food Advisor in the third quarter of 2023. The increase also includes~~ a ~~$0.7 million~~10% increase in Services revenue from increased Pet Parents’ engagement of PCGs to provide pet care services as a result of increased return-to-office and travel trends, and growth in ancillary services such as Wag! Premium subscriptions and Wag! Store.

~~Table of Contents~~

Revenues increased by $24.4 million, or approximately 64.5%, from $37.8 million for the nine months ended September 30, 2022 to $62.2 million for the nine months ended September 30, 2023. The increase was primarily attributable to a $17.6 million increase in Wellness revenue as a result of increased activity and a $4.7 million increase in Pet Food & Treats revenue as a result of our acquisition of Dog Food Advisor in the first quarter of 2023 and launch of Cat Food Advisor in the third quarter of 2023. The increase also includes a $2.2 million increase in Services revenue from increased Pet Parents’ engagement of PCGs to provide pet care services as a result of increased return-to-office, and growth in ancillary services such as Wag! Premium subscriptions and Wag! Store.Platform Participants year-over-year.

Cost of Revenues, Exclusive of Depreciation and Amortization

Cost of revenues, exclusive of depreciation and amortization, increased by ~~$0.4~~$0.5 million, or approximately ~~41.1%~~53.0%, from $1.0 million for the three months ended ~~September 30, 2022~~March 31, 2023 to ~~$1.4~~$1.6 million for the three months ended ~~September 30, 2023.~~March 31, 2024. The increase was primarily attributable to ana $0.6 million increase in Wellness and other product ~~costs in connection with the sale of merchandise.~~

Cost of revenues, exclusive of depreciation and amortization, increased by $0.7 million, or approximately 22.6%, from $3.0 million for the nine months ended September 30, 2022 to $3.7 million for the nine months ended September 30, 2023. The increase was primarily attributable to an increase in product costs in connection with the sale of merchandise.costs.

Platform Operations and Support

Platform operations and support expenses decreased by ~~$2.7~~$0.2 million, or approximately ~~(47.4)%~~6.6%, from ~~$5.6~~$3.2 million for the three months ended ~~September 30, 2022~~March 31, 2023 to $3.0 million for the three months ended ~~September 30, 2023.~~March 31, 2024. The decrease was primarily attributable to a ~~$2.7~~$0.3 million decrease in ~~stock-based compensation due to the impact of the Earnout Shares in 2022 (See Note 3,~~ ~~Business Combination with CHW, to the Condensed Consolidated Financial Statements included in Part I, Item 1,~~ ~~Financial Statements, of this Quarterly Report on Form 10-Q).~~

Platform operations and support expenses decreased by $1.4 million, or approximately (12.7)%, from $11.0 million for the nine months ended September 30, 2022 to $9.6 million for the nine months ended September 30, 2023. The decrease was primarily attributable to a $2.5 million decrease in stock-based compensation due to the impact of the Earnout Shares in 2022,personnel costs, partially offset by a ~~$1.3~~$0.2 million increase in ~~employee personnel costs related to our expansion initiatives in the operations and technology areas.~~professional services.

Sales and Marketing

Sales and marketing expenses increased by ~~$1.5~~$2.4 million, or approximately ~~13.0%~~17.9%, from ~~$11.3~~$13.3 million for the three months ended ~~September 30, 2022~~March 31, 2023 to ~~$12.8~~$15.7 million for the three months ended ~~September 30, 2023.~~March 31, 2024. The increase was primarily attributable to a ~~$2.8~~$3.2 million increase in investing in new and expanding existing partnerships related to our Wellness offerings, ~~and a $0.6 million increase in professional services and other advertising costs,~~ partially offset by a ~~$1.9~~$0.8 million decrease in ~~stock-based compensation due to the impact~~personnel costs.

Table of ~~the Earnout Shares in 2022.~~Contents

Sales and marketing expenses increased by $12.1 million, or approximately 49.2%, from $24.7 million for the nine months ended September 30, 2022 to $36.8 million for the nine months ended September 30, 2023. The increase was primarily attributable to a $12.0 million increase in investing in new and expanding existing partnerships related to our Wellness offerings, a $0.9 million increase in employee personnel costs, and a $0.7 million increase in professional services, partially offset by a $1.0 million decrease in advertising costs.

~~Royalty~~

~~Royalty expenses were $1.8 million for the nine months ended September 30, 2023. These expenses represent fees paid by us to be the exclusive marketer of certain pet insurance products.~~

General and Administrative

General and administrative expenses decreased by ~~$19.1~~$0.7 million, or approximately ~~(80.3)%~~14.9%, from ~~$23.8~~$5.0 million for the three months ended ~~September 30, 2022~~March 31, 2023 to ~~$4.7~~$4.2 million for the three months ended ~~September 30, 2023. The decrease was primarily attributable to an $18.8 million decrease in stock-based compensation expense due to the impact of the Earnout Shares in 2022.~~

~~Table of Contents~~

General and administrative expenses decreased by $14.1 million, or approximately (49.3)%, from $28.5 million for the nine months ended September 30, 2022 to $14.5 million for the nine months ended September 30, 2023.March 31, 2024. The decrease was primarily attributable to a ~~$16.9~~$0.5 million decrease in ~~stock-based compensation expense due to the impact of the Earnout Shares in 2022, partially offset by a $1.4 million increase in business licenses, fees, and permits~~personnel costs and a ~~$1.1~~$0.2 million ~~increase~~decrease in ~~legal and accounting fees to meet our growth needs and requirements of being a public company.~~administrative costs.

Depreciation and Amortization

Depreciation and amortization expenses increased by ~~$0.3~~$0.2 million, or approximately ~~209.0%~~51.7%, from ~~$0.1 million for the three months ended September 30, 2022 to~~ $0.4 million for the three months ended ~~September 30, 2023.~~March 31, 2023 to $0.6 million for the three months ended March 31, 2024. The increase was primarily attributable to the acquisitions of ~~Dog Food Advisor~~maxbone and ~~Maxbone in 2023 and the related amortization of acquired intangible assets.~~

Depreciation and amortization expenses increased by $0.7 million, or approximately 171.5%, from $0.4 million for the nine months ended September 30, 2022 to $1.2 million for the nine months ended September 30, 2023. The increase was primarily attributable to the acquisitions of Dog Food Advisor and MaxboneWoofWoofTV in 2023 and the related amortization of acquired intangible assets.

Interest Expense, Net

Interest expense, net was as follows:


	Three Months Ended				Change
	March 31, 2024		March 31, 2023		$	%
	(in thousands, except percentages)
Interest expense	$	1,885	$	1,874	11	0.6	%
Interest income	(152)		(244)		92	(37.7)	%
Interest expense, net	$	1,733	$	1,630	103	6.3	%

Interest expense, net increased by ~~$0.9~~$0.1 million, or approximately ~~129.0%~~6.3%, from ~~$0.7~~$1.6 million for the three months ended ~~September 30, 2022~~March 31, 2023 to $1.7 million for the three months ended ~~September 30, 2023.~~March 31, 2024. The increase was primarily attributable to a decrease in interest income as a result of a decreased balance of money market funds.

Loss on Extinguishment of Debt

During the three months ended March 31, 2024, we recognized a $0.7 million loss on extinguishment of debt related to the $5.0 million prepayment of the Blue Torch Financing ~~and Warrant~~ Agreement ~~entered into in connection with the closing of the CHW Business Combination.~~

Interest expense, net increased by $4.2 million, or approximately 534.2%, from $0.8 million for the nine months ended September 30, 2022 to $5.0 million for the nine months ended September 30, 2023. The increase was primarily attributable to interest related to the Blue Torch Financing and Warrant Agreement entered into in connection with the closing of the CHW Business Combination.

~~For further information on the debt and warrant agreement, refer to~~(See Note 8,7, Long-Term Debt, to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form ~~10-Q.~~

~~Other Expense, Net~~

~~The $13.7 million of other expense, net for the three and nine months ended September 30, 2022 was primarily due to changes in the fair value of our Forward Purchase Agreements. See Note 3,~~ ~~Business Combination with CHW, to the Condensed Consolidated Financial Statements included in Part I, Item 1,~~ ~~Financial Statements, of this Quarterly Report on Form 10-Q for further information regarding the Forward Purchase Agreements.~~10-Q).

Liquidity and Capital Resources

We have historically generated negative cash flows from operations and have primarily financed our operations through private and public sales of equity securities and debt. As of ~~September 30, 2023,~~March 31, 2024, we had cash and cash equivalents of ~~$22.3~~$12.6 million.

We expect operating losses ~~and negative cash flows from operations~~ to continue in the foreseeable future as we continue to invest in growing our business. Our primary ~~use~~uses of cash ~~includes~~include operating costs such as product and technology expenses, marketing expenses, personnel expenses and other expenditures necessary to support our operations and our growth. ~~Based upon our current operating plans,~~Although we ~~believe~~currently anticipate that our existing cash and cash equivalents will be sufficient to meet our ~~short-~~working capital, capital expenditure, and ~~long-term capital requirements. Our forecast of~~debt obligation needs for at least the ~~period of time through which our financial resources will be adequate~~next 12 months, we may seek additional financing in the near or long term, including to ~~support our operations is a forward-looking statement~~refinance or repay amounts due under the Financing Agreement that ~~involves risks and uncertainties, and actual results could vary materially.~~matures in August 2025. Accordingly, we may need to engage in equity or debt financings to secure additional funds.

Our future capital requirements and the adequacy of available funds will depend on many factors, including, but not limited to, our ability to grow our revenue and the impact of the factors described in Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, ~~2022~~2023 (“~~2022~~2023 10-K”). We may seek additional equity or debt financing. See the section titled “Risk Factors—Risks Related to Our Operations—We may require additional capital to support business growth and this capital might not be available on acceptable terms, or at all” within the ~~2022~~2023 10-K.

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~~For proceeds, payments and additional financing arrangements arising from the CHW Business Combination, please see Note 3,~~ ~~Business Combination with CHW,~~ ~~to the Condensed Consolidated Financial Statements included in Part I, Item 1,~~ ~~Financial Statements, of this Quarterly Report on Form 10-Q for additional detail.~~

Cash Flows

The following table summarizes our cash flows for the periods indicated:

Nine Months Ended

September 30,
2023

September 30,
2022

(in thousands)

Three Months Ended

March 31,
2024

March 31,
2023

(in thousands)

Net cash provided by (used in):

Operating activities

(4,624)

(3,578)

Investing activities

(10,662)

1,952

Financing activities

(1,376)

51,524

Net change in cash, cash equivalents, and restricted cash

(16,662)

49,898

Net change in cash and cash equivalents

Changes in Cash Flows From Operating Activities

Net cash ~~used in~~provided by operating activities for the ~~nine~~three months ended ~~September 30, 2023~~March 31, 2024 was ~~$4.6~~$0.2 million, an ~~increase~~improvement of ~~$1.0~~$3.7 million from ~~$3.6 million for the nine months ended September 30, 2022. The increase in~~ net cash used in operating activities of $3.6 million for the three months ended March 31, 2023. The improvement in net cash provided by operating activities was primarily due to ~~$1.4~~$3.4 million of ~~unfavorable~~favorable changes in operating assets and liabilities ~~partially offset by~~and a ~~$0.3~~$0.4 million decrease in net loss excluding non-cash and reconciling items disclosed within our condensed consolidated statement of cash flows. The ~~$1.4~~$3.4 million of ~~unfavorable~~favorable changes in operating assets and liabilities was primarily driven by favorable changes in accounts payable, accounts receivable, and prepaid expenses and other current assets, partially offset by unfavorable changes in accrued expenses and other current liabilities and deferred ~~revenue, partially offset by favorable changes in accounts receivable, other non-current liabilities, and accounts payable.~~revenue.

Changes in Cash Flows from Investing Activities

Net cash ~~provided by (used in)~~used in investing activities for the ~~nine~~three months ended ~~September 30, 2023~~March 31, 2024 was ~~an outflow of $10.7~~$0.3 million, a decrease of ~~$12.6~~$10.2 million from ~~an inflow of $2.0~~$10.5 million for the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023. The decrease was primarily due to a ~~$9.2~~$9.0 million ~~increase~~decrease in cash paid for acquisitions, net of cash acquired ~~a $2.6 million decrease in proceeds from the sale and maturities of short-term investments,~~ and a $1.5 million ~~increase~~decrease in cash paid for equity method ~~investments.~~investments, partially offset by a $0.3 million increase in purchases of property and equipment.

Changes in Cash Flows from Financing Activities

Net cash ~~provided by (used in)~~used in financing activities for the ~~nine~~three months ended ~~September 30, 2023~~March 31, 2024 was $5.6 million, an ~~outflow~~increase of ~~$1.4 million, a decrease of $52.9~~$5.2 million from ~~an inflow of $51.5~~$0.4 million ~~provided by financing activities~~ for the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023. The ~~decrease~~increase is primarily due to a ~~$29.4~~$5.1 million ~~decrease~~increase in ~~proceeds from~~repayment of debt ~~net~~related to a $5.0 million prepayment of ~~discount, an $11.5 million decrease~~the Financing Agreement during the first quarter of 2024 (See Note 7, Long-Term Debt, to the Condensed Consolidated Financial Statements included in ~~proceeds from the Business Combination with CHW, net~~Part I, Item 1, Financial Statements, of ~~transaction costs, and a $10.9 million decrease in proceeds from the issuance of Series P preferred stock, net of issuance costs.~~this Quarterly Report on Form 10-Q).

Paycheck Protection Program Loan

On August 5, 2020, the Company received loan proceeds of approximately $5.1 million from a financial institution pursuant to the Paycheck Protection Program established by the Coronavirus Aid, Relief, and Economic Security Act, of which $3.5 million was subsequently forgiven. The PPP Loan matures on August 5, 2025 and bears interest at a fixed rate of 1.00%. Principal and interest payments are payable monthly, and as of ~~September 30, 2023,~~March 31, 2024, the amount outstanding under the PPP Loan was ~~$0.9~~$0.7 million.

For additional information regarding the PPP Loan, refer to Note 8,7, Long-Term Debt, to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

~~Table of Contents~~

Blue Torch Financing and Warrant Agreement

On August 9, 2022, ~~Legacy Wag!~~we entered into a financing agreement and warrant agreement with Blue Torch, Finance, LLC (together with its affiliated funds and any other parties providing a commitment thereunder, including any additional lenders, agents, arrangers or other parties joined thereto after the date thereof, collectively, the “Debt Financing Sources”), pursuant to which, among other things, ~~the Debt Financing Sources~~Blue Torch agreed to extend an approximately $32.2 million senior secured term loan ~~credit facility~~ (the ~~“Credit Facility”~~“Financing Agreement”). ~~Legacy Wag! is the primary borrower under the Credit Facility, the Company is a parent guarantor and substantially all of the Company’s existing and future subsidiaries are subsidiary guarantors.~~ The ~~Credit Facility~~Financing Agreement is secured by a first priority security interest in substantially all assets of ~~the Company~~us and ~~the guarantors.~~our subsidiaries.

Table of Contents

For additional information regarding the ~~Blue Torch financing arrangements,~~Financing Agreement, refer to Note 8,7, Long-Term Debt, to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined by applicable rules and regulations of the SEC, that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources.

Critical Accounting Policies and Estimates

U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities atas of the date of the financial statements and the reported amounts of ~~revenue~~revenues and expenses during the year. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of ~~revenue, costs~~revenues and expenses. Actual results could differ from those estimates.

There have been no material changes to our critical accounting policies since the ~~2022~~2023 10-K. For a description of critical accounting policies that affect our significant judgments and estimates used in the preparation of our condensed consolidated financial statements, see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the ~~2022~~2023 10-K.

JOBS Act Accounting Election

We are an “emerging growth company,” as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period. Accordingly, our consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

New Accounting Pronouncements

See discussion under Note 2, Significant Accounting Policies, to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q for information on new accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we are not required to provide the information required by this Item.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, refers to controls and other procedures that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Because there are inherent limitations in all control systems, a control system, no matter how well conceived and operated, can provide only reasonable, as opposed to absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of 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 control. 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.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~September 30, 2023.~~March 31, 2024. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, due to the material weaknesses in internal control over financial reporting described below, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective at a reasonable assurance level.

Previously Reported Material Weaknesses in Internal Control over Financial Reporting

As previously disclosed in our ~~2022~~2023 10-K, in connection with the audit of our financial statements for the fiscal year ended December 31, ~~2022,~~2023, we identified the following material weaknesses, which still exist as of ~~September 30, 2023.~~March 31, 2024. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. We identified a material weakness in our internal control over financial reporting related to insufficient resources needed to fully implement our internal control risk assessment process, evaluate the technical accounting aspects of certain material transactions and effectively design and implement certain process level controls. We also identified a material weakness regarding the risk assessment process related to information technology general controls and activities of service organizations, the design and implementation of logical access, segregation of duties and program change controls and certain process level controls related to information used in the execution of those controls that impact our financial reporting processes.

These material weaknesses resulted in the immaterial misstatement of our consolidated financial statements for the year ended December 31, ~~2022.~~2023 and for quarterly periods in 2023. Additionally, 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 detected.

Remediation ~~Plans~~Plan

To address our material weaknesses, we have added accounting and finance personnel and implemented new financial accounting processes, controls, and systems. We are continuing to take steps to remediate the material weaknesses described above through implementing enhancements and controls within our accounting and proprietary systems, utilizing additional qualified accounting and finance resources and further evolving our accounting close processes. We will not be able to fully remediate these ~~control deficiencies~~material weaknesses until these steps have been completed and the controls have been operating effectively for a sufficient period of time.

Changes in Internal Control over Financial Reporting

~~As described above, there have been~~There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our ~~most recent fiscal~~ quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

See discussion under Note 9,8, Commitments and Contingencies, to the Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

Item 1A. Risk Factors

Risks affecting our business are discussed in Part I, Item 1A, Risk Factors, of our ~~Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 10-K”).~~2023 10-K. There have been no material changes to our risk factors as previously disclosed in our ~~2022~~2023 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)None.

(b)None.

(c)None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

(a)None.

(b)None.

(c)AsOn February 16, 2024, Garrett Smallwood, our Chief Executive Officer, modified a ~~smaller reporting company, we~~Rule 10b5-1 plan originally adopted on June 14, 2023 to change the amount of shares to be sold under the plan, the price limits for sales under the plan and timing of sales under the plan. The modified Rule 10b5-1 plan is intended to satisfy the affirmative defense in Rule 10b5-1(c) and provides for the sale from time to time of an aggregate of up to 800,000 shares of common stock issuable upon the exercise of options. The duration of the trading plan is until December 31, 2024, or earlier if all transactions under the trading plan are ~~not required~~completed.

On February 16, 2024, Adam Storm, our President and Chief Product Officer, modified a Rule 10b5-1 plan previously adopted on June 14, 2023 to ~~provide~~change the ~~information required by this Item.~~amount of shares to be sold under the plan, the price limits for sales under the plan and timing of sales under the plan. The modified Rule 10b5-1 plan is intended to satisfy the affirmative defense in Rule 10b5-1(c) and provides for the sale from time to time of an aggregate of up to 267,200 shares of common stock issuable upon the exercise of options. The duration of the trading plan is until December 31, 2024, or earlier if all transactions under the trading plan are completed.

Item 6. Exhibits

(a)Exhibit Index:

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Table of Contents

Incorporated by Reference

Exhibit Number

Description

Form

Exhibit

Filing Date

3.1

Corrected Certificate of Incorporation of Wag! Group Co.

8-K

3.1

3/8/2024

3.2

Bylaws of Wag! Group Co.

8-K

3.2

8/15/2022

4.1

Warrant Agreement, dated as of August 30, 2021, by and between CHW and VStock Transfer LLC, as warrant agent

S-4

4.1

9/2/2021

4.2

Specimen Common Stock Certificate

S-1

4.2

9/14/2022

4.3

Specimen Warrant Certificate

S-1

4.3

9/14/2022

4.4

CHW Founders Stock Letter, dated as of February 2, 2022, by and among the Sponsor, Jonah Raskas, Mark Grundman and CHW

8-K

10.6

2/3/2022

4.5

Amended and Restated Registration Rights Agreement dated August 9, 2022, by and among Wag! Group Co. and the other signatories thereto

8-K

10.2

8/15/2022

4.6

PIPE and Backstop Subscription Agreement, dated as of February 2, 2022, by and between CHW and the other signatories thereto

8-K

10.3, 10.4, 10.5

2/3/2022

10.1#

2014 Equity Plan of Wag Labs, Inc.

S-1

10.16

9/14/2022

10.2#

Form of 2014 Equity Plan Stock Option Grant Notice and Agreement (Installment Exercise) of Wag Labs, Inc.

S-1

10.17

9/14/2022

10.3#

Form of 2014 Equity Plan Stock Option Grant Notice and Agreement (Early Exercise) of Wag Labs, Inc.

S-1

10.18

9/14/2022

10.4#

Form of 2014 Equity Plan Restricted Stock Unit Grant Notice and Agreement of Wag Labs, Inc.

S-1

10.19

9/14/2022

10.5#

2020 Management Carve-out Bonus Plan of Wag Labs, Inc.

S-1

10.15

9/14/2022

10.6#

Wag! Group Co. 2022 Omnibus Incentive Plan

10-K

10.6

3/20/2024

10.7#

Wag! Group Co. 2022 Employee Stock Purchase Plan

10-K

10.7

3/20/2024

10.8#

Form of Restricted Stock Unit Grant Notice and Grant Agreement under the Wag! Group Co. 2022 Omnibus Incentive Plan

S-8

99.2

12/1/2022

10.9#

Form of Wag Labs, Inc. Executive Offer Letter

S-1

10.14

9/14/2022

10.10#

Form of Wag Labs, Inc. Earnout Letter

S-1

10.13

9/14/2022

10.11#

Form of Wag! Group Co. Director Offer Letter

S-1

10.12

9/14/2022

10.12†

Financing Agreement, dated August 9, 2022, between Blue Torch Finance, LLC and Wag! Group Co. and the other parties signatories thereto

8-K

10.6

8/15/2022

10.13†

Security Agreement, dated August 9, 2022, between Blue Torch Finance, LLC and Wag! Group Co. and the other parties signatories thereto

8-K

10.8

8/15/2022

10.14†

Warrant Agreement, dated August 9, 2022, between Blue Torch Capital LLC and Wag! Group Co.

8-K

10.7

8/15/2022

31.1*

Rule 13a–14(a)/15d–14(a) Certification of Principal Executive Officer

31.2*

Rule 13a–14(a)/15d–14(a) Certification of Principal Financial Officer

32.1**

Section 1350 Certification of Principal Executive Officer and Principal Financial Officer

101.INS*

XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH*

Inline XBRL Taxonomy Extension Schema Document

101.CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104*

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Table of Contents

~~Exhibit Number~~

~~Description~~

~~Reference~~

~~3.1~~

~~Certificate of Incorporation of Wag! Group Co.~~

~~(a)~~

~~3.2~~

~~Bylaws of Wag! Group Co.~~

~~(a)~~

~~31.1~~

~~Rule13a–14(a)/15d–14(a) Certification of Principal Executive Officer~~

~~31.2~~

~~Rule13a–14(a)/15d–14(a) Certification of Principal Financial Officer~~

~~32.1~~

~~Section1350 Certification of Principal Executive Officer and Principal Financial Officer~~

~~101.INS~~

~~XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document~~

~~101.SCH~~

~~Inline XBRL Taxonomy Extension Schema Document~~

~~101.CAL~~

~~Inline XBRL Taxonomy Extension Calculation Linkbase Document~~

~~101.DEF~~

~~Inline XBRL Taxonomy Extension Definition Linkbase Document~~

~~101.LAB~~

~~Inline XBRL Taxonomy Extension Label Linkbase Document~~

~~101.PRE~~

~~Inline XBRL Taxonomy Extension Presentation Linkbase Document~~

~~104~~

~~Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)~~

* Filed herewith.

** Furnished herewith.

~~(a)Previously filed on August 15, 2022 as an Exhibit to the Company’s Current Report on Form 8-K and is incorporated herein by reference.~~

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			WAG! GROUP CO.

			By:			/s/ GARRETT SMALLWOOD
						Garrett Smallwood
						Chief Executive Officer and Chairman
						(Principal Executive Officer)

Date: ~~November~~May 9, ~~2023~~2024


			By:			/s/ ALEC DAVIDIAN
						Alec Davidian
						Chief Financial Officer
						(Principal Financial and Accounting Officer)

Date: ~~November~~May 9, ~~2023~~2024

3733


	Redeemable Preferred Stock			Common Stock
	Shares	Amount		Shares	Amount		Additional Paid-in Capital		Accumulated Deficit		Total Stockholders' Equity
	(in thousands)			(in thousands)
Balance as of December 31, 2022	—	$	—	36,849	$	4	$	158,335	$	(148,417)	$	9,922
Issuance of common stock from exercise of stock options and restricted stock units				580	—		54				54
Stock-based compensation							1,342				1,342
Net loss									(3,787)		(3,787)
Balance as of March 31, 2023	—	—		37,429	4		159,731		(152,204)		7,531
Issuance of common stock from exercise of stock options and restricted stock units				1,298	—		36				36
Stock-based compensation							1,121				1,121
Shares issued for acquisition				49	—		225				225
Net loss									(3,869)		(3,869)
Balance as of June 30, 2023	—	$	—	38,776	$	4	$	161,113	$	(156,073)	$	5,044
Issuance of common stock from exercise of stock options and restricted stock units				462	—		10				10
Stock-based compensation							1,065				1,065
Net loss									(2,196)		(2,196)
Balance as of September 30, 2023	—	$	—	39,238	$	4	$	162,188	$	(158,269)	$	3,923


	Stock Price		Dividend Yield		Volatility		Risk-Free Interest Rate		Expected Term
Earnout Shares	$	8.28	—	%	44.00	%	3.20	%	3 years


	September 30, 2023		December 31, 2022
Weighted-average remaining lease term	4.0 years		2.3 years
Weighted-average discount rate	7.8	%	8.6	%


	Share Price		Exercise Price		Dividend Yield		Volatility		Risk-Free Interest Rate		Expected Term

CHW Warrants	$	10.00	$	11.50	—	%	22.00	%	1.31	%	5 years