pet-20240930

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, 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 or organization)			(I.R.S. Employer Identification No.)


2261 Market Street, Suite 86056 San Francisco, California(1)			94114(1)
(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 49,791,120 shares of common stock outstanding as of November 7, 2024.

(1) We are a remote-first company. Accordingly, we do not maintain a headquarters. For purposes of compliance with applicable requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, stockholder communications required to be sent to our principal executive offices may be directed to the email address: IR@wagwalking.com

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 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	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31

	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	34
Item 6.	Exhibits	34
	Signatures	36

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, 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”), 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 because they contain words such as “may,” “will,” “shall,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “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 not limited to, statements about:

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

•our ability to attract and retain personnel;

•market opportunity, anticipated growth, and future financial performance, including management’s financial outlook for the future;

•market adoption of our pet service offerings and solutions;

•our need to obtain additional financing or refinance our existing indebtedness which has caused management to determine that there is substantial doubt regarding our ability to continue as a going concern;

•the intended use of the net proceeds from our recent underwritten registered public offering of common stock;

•our plan to refinance our existing indebtedness;

•our ability to protect our intellectual property;

•changes in the competitive industries in which we operate;

•changes in laws and regulations affecting our business;

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

•the risk of downturns in the market and the technology industry; and

•our ability to regain compliance with the Nasdaq Global Market’s continued listing requirements.

You should not rely upon forward-looking statements as predictions of future events. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2023, our Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, and this Quarterly Report on Form 10-Q, as well as in our other filings with the Securities and 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 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, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements 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.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

WAG! GROUP CO.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	September 30, 2024		December 31, 2023
	(in thousands, except par value amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	8,445	$	18,323
Accounts receivable, net	6,548		10,023
Prepaid expenses and other current assets	3,258		3,428
Total current assets	18,251		31,774
Property and equipment, net	1,515		347
Operating lease right-of-use assets	816		1,045
Intangible assets, net	7,312		8,828
Goodwill	4,646		4,646
Other assets	52		57
Total assets	$	32,592	$	46,697
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,252	$	9,919
Accrued expenses and other current liabilities	3,184		4,015
Deferred revenue	1,778		1,781
Deferred purchase consideration – current portion	—		547
Operating lease liabilities – current portion	401		386
Notes payable – current portion, net of debt discount and warrant allocation of $1,730 as of September 30, 2024	19,015		1,751
Total current liabilities	29,630		18,399
Operating lease liabilities – non-current portion	556		816
Notes payable – non-current portion, net of debt discount and warrant allocation of $4,563 as of December 31, 2023	—		25,664
Other non-current liabilities	31		172
Total liabilities	30,217		45,051
Commitments and contingencies (Note 8)
Stockholders’ equity:
Common stock, $0.0001 par value; 110,000 shares authorized as of both September 30, 2024 and December 31, 2023; 49,785 and 39,597 issued and outstanding as of September 30, 2024 and December 31, 2023, respectively	4		4
Additional paid-in capital	176,859		163,376
Accumulated deficit	(174,488)		(161,734)
Total stockholders’ equity	2,375		1,646
Total liabilities and stockholders’ equity	$	32,592	$	46,697

See the accompanying notes to unaudited condensed consolidated financial statements.

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WAG! GROUP CO.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023
	(in thousands, except per share amounts)
Revenues	$	13,204	$	21,800	$	55,074	$	62,243
Costs and expenses:
Cost of revenues (exclusive of depreciation and amortization shown separately below)	1,146		1,441		3,874		3,710
Platform operations and support	2,798		2,968		8,472		9,630
Sales and marketing	8,862		12,755		35,554		36,788
Royalty	—		—		—		1,791
General and administrative	4,231		4,682		12,279		14,487
Depreciation and amortization	583		414		1,741		1,170
Total costs and expenses	17,620		22,260		61,920		67,576
Interest expense	1,497		1,915		4,979		5,686
Interest income	(105)		(232)		(332)		(714)
Loss on extinguishment of debt	454		—		1,180		—
Other expense, net	—		12		—		21
Loss before income taxes	(6,262)		(2,155)		(12,673)		(10,326)
Income taxes	—		41		81		79
Equity in net earnings of equity method investments	—		—		—		553
Net loss	$	(6,262)	$	(2,196)	$	(12,754)	$	(9,852)
Loss per share, basic and diluted	$	(0.13)	$	(0.06)	$	(0.30)	$	(0.26)
Weighted-average common shares outstanding used in computing loss per share, basic and diluted	47,780		38,987		42,941		38,061

See the accompanying notes to unaudited condensed consolidated financial statements.

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WAG! GROUP CO.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)


	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)
Issuance of common stock from exercise of stock options and vesting of restricted stock units	808	—		48				48
Stock-based compensation				1,656				1,656
Shares related to acquisition indemnification holdback	46	—		—				—
Net loss						(2,251)		(2,251)
Balance as of June 30, 2024	41,394	4		166,437		(168,226)		(1,785)
Issuance of common stock from exercise of stock options and vesting of restricted stock units	984	—		5				5
Stock-based compensation				1,847				1,847
Issuance of common stock upon registered public offering, net of issuance costs	7,407	—		8,570				8,570
Net loss						(6,262)		(6,262)
Balance as of September 30, 2024	49,785	$	4	$	176,859	$	(174,488)	$	2,375


	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
Issuance of common stock from exercise of stock options	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 vesting of 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

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, 2024		September 30, 2023
	(in thousands)
Cash flow from operating activities:
Net loss	$	(12,754)	$	(9,852)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	4,799		3,528
Non-cash interest expense	1,768		2,021
Depreciation and amortization	1,741		1,170
Reduction in carrying amount of operating lease right-of-use assets	229		256
Equity in net earnings of equity method investments	—		(553)
Loss on extinguishment of debt	1,180		—
Other	—		12
Changes in operating assets and liabilities, net of effect of acquired business:
Accounts receivable	3,475		(2,573)
Prepaid expenses and other current assets	170		(463)
Other assets	5		1
Accounts payable	(4,667)		2,762
Accrued expenses and other current liabilities	(831)		(452)
Deferred revenue	(3)		(491)
Operating lease liabilities	(245)		(208)
Other non-current liabilities	(141)		218
Net cash used in operating activities	(5,274)		(4,624)
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired	(128)		(9,152)
Cash paid for equity method investment	—		(1,470)
Purchase of property and equipment	(1,265)		(40)

Net cash used in investing activities	(1,393)		(10,662)
Cash flows from financing activities:

Repayment of debt	(11,233)		(907)
Debt prepayment penalty	(100)		—
Proceeds from exercises of stock options	114		100
Proceeds from registered public offering of common stock, net of issuance costs	8,570		—
Other	(562)		(569)
Net cash used in financing activities	(3,211)		(1,376)
Net change in cash and cash equivalents	(9,878)		(16,662)
Cash and cash equivalents, beginning of period	18,323		38,966
Cash and cash equivalents, end of period	$	8,445	$	22,304

See the accompanying notes to unaudited condensed consolidated financial statements.

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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 technologies available via website and mobile app (“platform” or “marketplace”) that enable end users, such as Pet Parents, to connect with independent service and product providers to obtain services and products. The Company operates in the United States.

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, 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, 2024 and for the three and nine months ended September 30, 2024 and 2023 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, 2024 and for the three and nine months ended September 30, 2024 and 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, 2023 (the “2023 10-K”). Operating results for the three and nine months ended September 30, 2024 and 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.

Liquidity and Going Concern

Pursuant to the requirements of FASB ASC Topic 205-40, Presentation of Financial Statements—Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for one year from the date these financial statements are issued. This evaluation does not take into consideration the potential mitigating effect of management's plans that have not been fully implemented or are not within control of the Company as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company's ability to continue as a going concern. The mitigating effect of management's plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued.

As of September 30, 2024, the Company had cash and cash equivalents of approximately $8.4 million and accounts receivable of $6.5 million, and the amount outstanding under its debt obligations was $20.7 million, of which $20.3 million and $0.4 million related to the Financing Agreement and PPP Loan, respectively. Additionally, for the nine months ended September 30, 2024, net loss was $12.8 million and net cash used in operating activities was $5.3 million. The Company’s ability to continue as a going concern is dependent on its ability to generate significant cash flows, obtain sufficient proceeds from any future offerings of securities, renegotiate the existing terms of the Financing Agreement, and/or obtain alternative financing prior to the maturity of the Financing Agreement in August 2025. The Company expects operating losses to continue in the foreseeable future as it continues to invest in growing its business. To alleviate these conditions, the Company completed a registered public offering of common stock in July 2024 for net proceeds of approximately $8.6 million (See Note 9, Stockholders’ Equity (Deficit), for more information) and management is actively engaged in discussions to refinance the Financing Agreement. However, there can be no assurance that the Company will be able to complete the refinancing as it is ultimately outside of the control of the Company.

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Due to the Company’s projected cash needs (which includes amounts due under the Financing Agreement) combined with its current liquidity level and history of net losses and cash used to fund operating activities, there is substantial doubt regarding the Company’s ability to continue as a going concern for a period of at least one year from the date of issuance of these unaudited condensed consolidated financial statements.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared assuming the Company will continue as a going concern. The going concern basis of presentation assumes that the Company will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. This also means that the accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of the uncertainties described above, which could be material.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates 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 current facts, historical experience, and various other factors that it believes 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 revenues and expenses. Actual results could differ from those estimates.

Significant items subject to estimates and assumptions include, but are not limited to, fair values of financial instruments, valuation of 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.

Recently Adopted Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 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.

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 December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). This ASU 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 be consistent with 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 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.

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In November 2024, the FASB issued ASU No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”). This ASU improves financial reporting by requiring that public business entities disclose additional information about specific expense categories in the notes to financial statements at interim and annual reporting periods that is generally not presented in the financial statements today. The amendments in this update are effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. 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 months ended September 30, 2024, the Company did not recognize any activity within its condensed consolidated statements of operations related to the equity method investee.

During the third quarter of 2023, the Company acquired the remaining 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.

Revenue Recognition

The Company recognizes revenue in accordance with 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 Pet Caregivers to successfully complete a pet care service for 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 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.

The Company enters into terms of service with Pet Caregivers and Pet Parents to use the platform (“Terms of Service Agreements”), as well as an Independent Contractor Agreement (“ICA”) with Pet Caregivers (the ICA, together with the Terms of Service Agreements, the “Agreements”). The Agreements govern the fees the Company charges the Pet Caregivers and Pet Parents, where applicable, for each transaction. Upon acceptance of a transaction, 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 Pet Caregivers and Pet Parent accept a transaction request and the 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 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. Prepaid subscription amounts are included in deferred revenue within the Company’s condensed consolidated balance sheets. Revenue related to the fees paid by the Pet Caregiver to join the platform are recognized upon processing of the applications. Wag! Wellness and Pet Food & Treat revenue performance obligations are completed, and revenue is recognized, when an end-user completes an action or conversion activity.

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Principal vs. Agent Considerations

Judgment is required in determining whether the Company is the principal or agent in transactions with Pet Caregivers and Pet Parents. The Company 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 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 Pet Caregivers and Pet Parents because, among other factors, the Company’s role is to facilitate pet service opportunities; it is not responsible for and does not control the delivery of pet services provided by the 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 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.

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 Pet Caregivers for services. These promotions result in a lower fee earned by the Company from the Pet Caregiver. Accordingly, the Company records the cost of these promotions as a reduction of 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.

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

On August 9, 2022 (the “Merger Date”), Wag! Labs, Inc. (“Legacy Wag!”), CHW Acquisition Corporation (“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. and effectively assumed all of CHW’s material operations.

For more information regarding the CHW Business Combination, refer to Note 3, Business Combination with CHW, to the Consolidated Financial Statements included in the 2023 10-K.

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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 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 only if certain Wag! share price conditions are met over a three-year period from the Merger Date. The Earnout Shares are subject to the occurrence of certain triggering events based on a 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.

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, 2024 and December 31, 2023:


	September 30, 2024
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Cash equivalents:
Money market funds	$	4,832	$	—	$	—	$	4,832
Total cash equivalents	4,832		—		—		4,832
Total assets at fair value	$	4,832	$	—	$	—	$	4,832


	December 31, 2023
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Cash equivalents:
Money market funds	$	11,388	$	—	$	—	$	11,388
Total cash equivalents	11,388		—		—		11,388
Total assets at fair value	$	11,388	$	—	$	—	$	11,388

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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, 2024 and December 31, 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. 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 as of both September 30, 2024 and December 31, 2023, respectively. There were no additions to or impairments of goodwill during the nine months ended September 30, 2024.

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


	September 30, 2024
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
	(in thousands)
Finite-lived intangible assets:
Customer relationships and licenses	$	7,686	$	(2,398)	$	5,288
Media brand	1,250		(521)		729
Developed technology	1,073		(669)		404
Trademarks	1,052		(338)		714
Pharmacy board licenses	5		(5)		—
Total finite-lived intangible assets	11,066		(3,931)		7,135
Indefinite-lived intangible assets	177		—		177
Total intangible assets	$	11,243	$	(3,931)	$	7,312


	December 31, 2023
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
	(in thousands)
Finite-lived intangible assets:
Customer relationships and licenses	$	7,686	$	(1,550)	$	6,136
Media brand	1,250		(52)		1,198
Developed technology	1,073		(479)		594
Trademarks	1,052		(201)		851
Pharmacy board licenses	5		(5)		—
Total finite-lived intangible assets	11,066		(2,287)		8,779
Indefinite-lived intangible assets	49		—		49
Total intangible assets	$	11,115	$	(2,287)	$	8,828

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 $0.5 million and $0.4 million for the three months ended September 30, 2024 and 2023, respectively, and $1.6 million and $1.1 million for the nine months ended September 30, 2024 and 2023, respectively.

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6. Contract Liabilities

The timing of 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 million and $1.8 million as of September 30, 2024 and December 31, 2023, respectively. Revenues recognized related to the Company’s contract liabilities as of the beginning of the year was $0.2 million and $0.7 million for the three months ended September 30, 2024 and 2023, respectively, and $0.9 million and $1.6 million for the nine months ended September 30, 2024 and 2023, respectively.

7. Long-Term Debt

Paycheck Protection Program Loan

SEC Form 10-Q filed by Wag! Group Co.