WAG! GROUP CO. Administration’s Dialogue and Evaluation of Monetary Situation and Outcomes of Operations (kind 10-Q)

It is best to learn the next dialogue and evaluation of our monetary situation
and outcomes of operations along with our monetary statements and associated
notes included elsewhere on this quarterly report on Type 10-Q, together with the
audited consolidated monetary statements of Wag Labs, Inc. ("Legacy Wag!") as
of December 31, 2021 and 2020 and "Administration's Dialogue and Evaluation of
Monetary Situation and Outcomes of Operations of Wag Labs, Inc" included therein
in addition to our remaining prospectus/provide to change dated July 12, 2022. Except
in any other case acknowledged or because the context in any other case requires, references to "the
Firm," "we," "us," "our," "it," and related references discuss with Wag! Group
Co.("Wag!"), a Delaware company, and its consolidated subsidiaries.

Ahead Trying Statements

This dialogue comprises forward-looking statements inside the which means of
Part 27A of the Securities Act of 1933, as amended and Part 21E of the
Securities Trade Act of 1934, as amended (the "Trade Act").
Ahead-looking statements are recognized by phrases akin to "consider," "could,"
"might," "will," "estimate," "proceed," "anticipate," "intend," "search," "plan,"
"count on," "ought to," "would," "probably," or the unfavourable of those phrases or
related expressions on this Quarterly Report on Type 10-Q. You ought to learn these
statements rigorously as a result of they talk about future expectations, include
projections of future outcomes of operations or monetary situation, or state
different "forward-looking" info. These statements relate to our future
plans, goals, expectations, intentions, and monetary efficiency and the
assumptions that underlie these statements. These forward-looking statements are
topic to sure dangers and uncertainties which are recognized below "Danger
Components" in our Type S-1 filed September 14, 2022, as amended and filed on
October 31, 2022, in addition to in different filings with the SEC on this Quarterly
Report on Type 10-Q. Ahead-looking statements are based mostly on administration's
present beliefs and assumptions and based mostly on info at present obtainable.
These statements, like all statements on this Quarterly Report on Type 10-Q,
converse solely as of their date, and we undertake no obligation to replace or revise
these statements in mild of future developments, besides as required by legislation.

Overview

Our mission is to be the #1 accomplice to busy Pet Mother and father. We consider that being
busy should not cease Pet Mother and father from proudly owning or caring for their pets. We're
devoted to constructing a future wherein each pet has entry to secure,
high-quality care. Wag! exists to make pet possession attainable and to convey pleasure
to pets and people who love them.

Wag! was based in 2015 to resolve the guilt and stress of proudly owning a pet. There
are over 90.5 million US households with a pet, and for a lot of Pet Mother and father,
leaving their pet alone creates stress and guilt, as the prevailing options are
restricted. We launched the Wag! platform to resolve these issues as a result of lonely
pets deserve more healthy and happier lives. Wag! enabled on-demand pet companies,
permitting us to offer a cellular first expertise for 98% of Pet Mother and father on the
app. With quite a few on-demand or scheduled service choices offered by Pet
Caregivers to Pet Mother and father by the platform, we've created a trusted pet
service platform for Pet Mother and father. This has led to roughly 75% of Pet
Mother and father not being bodily at house whereas companies are being delivered and
high-frequency service utilization the place Pet Mother and father use Wag! a mean of 4
to 5 occasions a month. We've got constructed a compelling and trusted shopper model
with a excessive stage of buyer engagement, successfully making a strong platform
to leverage as we quickly broaden our enterprise to new product traces.

Our proprietary market know-how, which is obtainable as a cellular app and
web site ("platform" or "market"), allows unbiased Pet Caregivers to
join with Pet Mother and father. By our cutting- edge applied sciences and
multi-faceted platforms, Wag! connects Pet Mother and father with Pet Caregivers who
present wonderful pet care companies. Our market allows Pet Mother and father to seek out
a wide selection of pet companies offered by Pet Caregivers and third-party service
companions, akin to strolling, pet sitting and boarding, recommendation from licensed pet
consultants, house visits, coaching companies, and pet insurance coverage comparability instruments.

We're one of many largest, on-line marketplaces for pet care and try to be the
#1 platform for busy pet dad and mom, providing entry to 5-star canine strolling, pet
sitting, professional pet recommendation, wellness plans, and one-on-one
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coaching from our neighborhood of 400,000 native pet caregivers nationwide, in
addition to pet insurance coverage choices from the main pet insurance coverage firms.
Making pet dad and mom completely happy is what we do finest. With security and wellness on the
forefront, we've a trusted document of expertise with pet care companies
accomplished by pet caregivers on the Wag! Platform throughout 5,300 cities and 50
states. Wag! additionally operates Petted.com, the nation's largest pet insurance coverage
comparability market. Moreover, the Wag! Pet Caregiver App empowers pet
caregivers to take care of pets of their neighborhood and earn actual cash. For extra
info, go to wag.co.

Because the starting of 2021, month-to-month revenues has usually been steadily
growing resulting in our highest month-to-month revenues within the third quarter of 2022,
averaging over $5.0 million a month, because the Firm was based. From 2020 to
the third quarter of 2022 Cohorts, Pet Father or mother exercise for Pet Mother and father who
joined the platform by September 2022 are considerably outperforming the
2017, 2018, and 2019 Cohorts on a year-to-date foundation. We're nonetheless within the early
levels of progress, however have made vital progress in extending the choices
and attain of our platform since our inception in 2015.

Principal Components Affecting Our Outcomes of Operations and Materials Traits

Our outcomes are impacted by the final financial atmosphere, circumstances and
tendencies referring to pet possession and demand for companies, competitors with different
pet service suppliers, and different components together with promotions, seasonality, and
the effectiveness of our advertising and marketing and promoting campaigns. The first
components that influence our outcomes and current vital alternatives, as properly
as pose dangers and challenges, are described beneath. We consider that our
efficiency and future success rely on the components mentioned beneath, these
talked about within the part titled "Danger Components" and elsewhere on this doc.

Funding in New Companies

Based in 2015, we have been one of many first on-demand pet companies platforms.
Since then, we've remained dedicated to increasing our choices and the attain
of our platform. For instance, prior to now 24 months, we've launched new
options in an effort to extend engagement by each Pet Mother and father and Pet
Caregivers on our platform. For Pet Mother and father, we added direct reserving, the
potential to create most well-liked Pet Caregiver lists, in-home or in-app video canine
coaching choices, pet service requests for cats and different pets, insurance coverage
comparability from prime pet insurance coverage suppliers, browse and chat with Pet Caregivers
earlier than reserving a request, flick through trusted caregivers, and the power to
pre-tip caregivers earlier than the service. For Pet Caregivers, we added options to
present them with the chance to meet highest precedence requests, the
potential to set their very own costs, the power to broaden their attain to new
prospects and develop their enterprise with social media hyperlinks to their profile and
customized HTML Craigslist hyperlinks, in addition to the chance to entry recommendation from
seasoned veterans on the platform and ideas to assist them develop a profitable pet
care enterprise.

Within the first quarter of 2020, we additionally launched our Wag! Premium subscription
service, a month-to-month or annual subscription that provides Pet Mother and father 10% off all
companies, together with waived reserving charges, free recommendation from pet consultants, precedence
entry to top-rated Pet Caregivers, and VIP pet assist. Wag! Premium accounts
for over 50% of our month-to-month lively customers.

Extending Choices and Platform Attain

Since our founding in 2015, we've striven to be the #1 platform for premium
pet companies, together with on-demand strolling, sitting, boarding, coaching, vet
companies, wellness plans, and insurance coverage comparability instruments. Our potential to
set up belief by way of our conventional on-demand companies throughout 5,300 cities in
all 50 states is a key approach for Pet Mother and father to start out experiencing the platform.
We have gotten the button on the telephone for the paw, a spot Pet Mother and father belief
with their pets' well being and well-being. We're extraordinarily excited concerning the
progress in all traces of our enterprise, together with the Wellness class
("Wellness"), which is a serious propulsion for 12 months over 12 months income enhance.
Pet Mother and father are appreciating the choice to talk with a licensed pet professional 24/7,
pet wellness plans, and the power to match pet insurance coverage by our
one-stop-shop platform versus performing their very own in depth analysis. By
simplifying what it takes to be a Pet Father or mother by our digital edge, we're
giving again useful time that pets and their dad and mom can spend collectively. This
is just scratching the
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floor of the Complete Addressable Market (“TAM”) within the pet care {industry}, and we
are excited to see the place our path takes us.

Funding in Innovation and Know-how

The continued growth of our platform capabilities and digital ecosystem
requires substantial ongoing funding in sources and know-how
infrastructure, which might influence EBITDA. Our potential to proceed to include
or develop revolutionary instruments in step with our progress is essential to making sure the
success of our technique. As mentioned above in "- Funding in New Companies",
we're dedicated to innovating new merchandise and options. As well as, we're
constantly integrating and evaluating acquisitions to reinforce our know-how
platforms and launch options which are most useful to Pet Caregivers, Pet
Mother and father, and third-party service companions.

Funding in New Markets

We plan to spend money on present and new markets, in addition to new choices. We
consider that we will additional broaden in present markets, to new markets inside
North America, and internationally by rigorously concentrating on areas with a excessive
anticipated demand for pet companies. We consider there is a chance to broaden
our companies outdoors of our present geographic areas into different nations
and areas the place there's a horny spend per pet to deal with. As we make investments
in new markets and create new choices, we could enhance our advertising and marketing
methods in a fashion that might prolong our advertising and marketing payback goal so as
to speed up progress in every new market.

                     [[Image Removed: pet-20220930_g2.jpg]]

Pet Possession Traits

The COVID-19 pandemic has impacted demand for pet care and has had a major
influence on Pet Father or mother and Pet Caregiver habits. Starting within the first quarter
of 2020, many Pet Mother and father skilled journey restrictions, shelter-in-place
orders, and earn a living from home necessities. Accordingly, firstly of the
COVID-19 pandemic in March 2020, our revenues declined considerably, since many
Pet Mother and father have been house with their pets and didn't require extra pet
companies. The companies that we provide by our platform have been additionally restricted due
to full and partial lockdowns.

Nonetheless, because the begin of the COVID-19 pandemic, roughly 23 million pets
have been adopted by U.S. households by Might 2021. In accordance with the APPA, 70% of
U.S. households personal a pet, which equates to 90.5 million properties. We're targeted
on profiting from this vital alternative to broaden the bottom of Pet
Mother and father utilizing the Wag! platform given the elevated measurement of the market wherein
we function. We consider that the excessive quantity of recent Pet Mother and father, in addition to
return to workplace insurance policies, could proceed to have a constructive impact on the quantity
of bookings for pet companies, and different pet associated companies over the longer
time period.
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Pet Father or mother Preferences and Demand

As 95% of the U.S. inhabitants has entry to the Wag! platform by an iPhone
or Android gadget, our goal for long-term sustained progress is to create a
platform that ends in present Pet Mother and father changing into repeat bookers, collectively
with attracting new Pet Mother and father to our platform and to efficiently convert them
into repeat bookers. We entice Pet Mother and father to our platform by
word-of-mouth and quite a lot of channels, akin to social media, video, and different
on-line and offline channels.

Our proprietary on-demand platform permits Pet Mother and father to simply and conveniently
discover prime rated Pet Caregivers to serve their pet service wants both on-demand
or scheduled at their comfort. Our main cellular app permits Pet Mother and father to
entry Pet Caregivers from wherever, at any time. With roughly 75% of Pet
Mother and father not bodily at house when their pet service is being carried out, our
platform permits Pet Caregivers and Pet Mother and father to keep away from in-person contact if
mandatory or most well-liked by the Pet Father or mother. We consider this positions us properly for
ongoing progress as our platform permits each Pet Mother and father and Pet Caregivers the
potential to mitigate COVID-19 associated issues.

We entice Pet Caregivers to the platform based on viral and
word-of-mouth advertising and marketing methods. We've got industry-leading Internet Promoter Scores
for Pet Caregivers, which common between 45 to 55 as of the third quarter of
2021. Being a Pet Caregiver permits canine lovers to spend time with canines and different
animals, enabling them to steer a wholesome way of life by getting train by
canine strolling whereas concurrently collaborating in an exercise that delights
them.

To serve Pet Mother and father in any given market, a essential density of caregivers should
be current in order that Pet Mother and father have choices and availability for on-demand
companies. Throughout sure peak durations, akin to holidays, we've noticed excessive
Pet Father or mother demand that has resulted in Pet Caregiver constraints in some
markets. Our platform supplies a know-how function that permits Pet Caregivers
to set their very own costs, encouraging Pet Caregivers to be extra engaged throughout
peak durations.

Results of the COVID-19 Pandemic

Along with the foregoing components, our ends in 2020 have been considerably
impacted by the COVID-19 pandemic and the ensuing measures undertaken by
federal, state, and municipal governments. The COVID-19 pandemic has been a
extremely disruptive financial and societal occasion that originally negatively impacted
demand for pet care resulting from shelter-in-place orders, journey restrictions, and
work-from-home necessities carried out in March 2020. Because of this, our month-to-month
revenues in 2020 decreased roughly 80% in comparison with pre-COVID revenues.
Nonetheless, the re-opening of the financial system, regardless of the continuation of the pandemic
and the emergence of recent variants, has resulted in a significant restoration of
revenues in 2021 relative to 2020. Uncertainties within the international financial system could
adversely influence our operations, model companions, prospects, and different enterprise
companions, which can influence future revenues, and require different adjustments to our
operations.

Effectiveness of our word-of-mouth, advertising and marketing and promoting actions

Our goal for long-term, sustained progress is to create a platform that
ends in present Pet Mother and father changing into repeat bookers, along with
attracting new Pet Mother and father to the platform and changing them into repeat
bookers, thus producing a lifetime of bookings from the Pet Father or mother. We entice
Pet Mother and father and Pet Caregivers to the platform by word-of-mouth and a
number of different channels, akin to social media, video, and different on-line and
offline channels. The straightforward to make use of and handy platform organically drives
word-of-mouth advertising and marketing and references amongst Pet Father or mother. Moreover, our
model consciousness promoting actions, together with social media and tv
ads, permit us to succeed in new Pet Mother and father and Pet Caregivers.

When assessing the effectivity and effectiveness of our advertising and marketing spend, we
monitor, amongst different issues, new signal ups and first-time reserving exercise on
the platform.

Our potential to draw Pet Mother and father to the platform may be very environment friendly as we
profit from the community results related to our platform.

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Seasonality

Wag! experiences seasonality within the reserving quantity, which Wag! expects to
proceed and should change into extra substantial. Traditionally, Wag! has skilled
decrease strolling service requests on the platform throughout holidays durations, offset
by larger sitting and boarding requests throughout these durations.

The Enterprise Mixture Settlement and Public Firm Prices

On February 2, 2022, Wag!, CHW and the Merger Sub entered into the Enterprise
Mixture Settlement. Pursuant to the Enterprise Mixture Settlement, on the
Closing, Merger Sub was merged with and into Wag!, with Wag! persevering with because the
surviving company following the Merger, being a completely owned subsidiary of
CHW and the separate company existence of Merger Sub ceased. Upon the
completion of the Enterprise Mixture, Wag! turned the successor registrant
with the SEC, which means that Wag!'s monetary statements for earlier durations will
be disclosed within the registrant's future periodic stories filed with the SEC.

Whereas the authorized acquirer within the Enterprise Mixture Settlement is CHW, for
monetary accounting and reporting functions below U.S. GAAP, Wag! is the
accounting acquirer and the Merger is accounted for as a "reverse
recapitalization." A reverse recapitalization doesn't lead to a brand new foundation of
accounting, and the monetary statements of the mixed firm signify the
continuation of the monetary statements of Wag! in lots of respects. Underneath this
technique of accounting, CHW is handled because the "acquired" firm for monetary
reporting functions. For accounting functions, Wag! is deemed to be the accounting
acquirer within the transaction and, consequently, the transaction is handled as a
recapitalization of Wag! (i.e., a capital transaction involving the issuance of
inventory by CHW for the inventory of Wag!).

Upon the Closing of the Enterprise Mixture and the PIPE and Backstop
Funding, probably the most vital change in our reported monetary place and
outcomes of operations was a rise in money (as in comparison with our steadiness sheet
at September 30, 2022) together with $29.3 million of which $24.7 million is held in
escrow, $5.0 million in gross proceeds from the PIPE and Backstop Funding by
the PIPE and Backstop Investor, and financing association proceeds of $29.4
million. Complete direct and incremental transaction prices of CHW and Wag! by
September 30, 2022 have been roughly $23.4 million, considerably all of which
have been offset to additional-paid-in-capital as prices associated to the reverse
recapitalization. Transaction prices have been roughly $11.8 million, for Wag!
and $11.6 million for CHW for authorized, monetary advisory, and different skilled
charges incurred in consummating the Enterprise Mixture.

Because of the Enterprise Mixture, Wag! is the successor to an SEC
registrant and is listed on the Nasdaq, which would require Wag! to rent
extra personnel and implement procedures and processes to deal with public
firm regulatory necessities and customary practices. We count on to incur
extra annual bills as a public firm for, amongst different issues,
administrators' and officers' legal responsibility insurance coverage, director charges and extra
inside and exterior accounting, authorized and administrative sources, together with
elevated audit and authorized charges.

Elements of Our Outcomes of Operations

The next is a abstract of the principal line gadgets comprising our working
outcomes.

Revenues

We offer a web-based market that allows Pet Mother and father to attach with Pet
Caregivers for varied pet companies. We acknowledge revenues in accordance with
ASC 606, Income from Contracts with its Clients from 4 distinct streams:
(1) service charges charged to Pet Caregivers to be used of the platform to find
pet service alternatives and to efficiently full a pet care service to a
Pet Father or mother, (2) subscription and different charges paid by Pet Mother and father for Wag!
Premium, (3) becoming a member of charges paid by Pet Caregivers to affix and be listed on the
platform, and (4) Wellness income by affiliate charges paid by third-party
service companions based mostly on 'revenue-per-action' or conversion exercise. For some
of the Firm's preparations with third-party service suppliers, the
transaction worth is taken into account variable and an estimate of the transaction
worth is recorded when the motion happens. The estimated transaction worth used
within the variable consideration relies on historic knowledge with the respective
third-party service accomplice and the consideration is measured and settled
month-to-month.
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Price of Revenues, Excluding Depreciation and Amortization

Price of revenues consists of prices straight associated to income producing
transactions, which, primarily consists of charges paid to fee processors for
fee processing charges, internet hosting and platform-related infrastructure prices,
third-party prices for background checks for Pet Caregivers, and different prices
arising because of income transactions that happen on our platform,
excluding depreciation and amortization.

Platform Operations and Help

Platform operations and assist bills embody personnel-related compensation
prices of know-how and operations groups, and third-party operations assist
prices.

Gross sales and Advertising

Gross sales and advertising and marketing bills embody personnel-related compensation prices of the
advertising and marketing crew, promoting bills, and Pet Father or mother incentives. Gross sales and
advertising and marketing bills are expensed as incurred.

Normal and Administrative

Normal and administrative expense consists of personnel-related compensation prices
for workers on company features, akin to administration, accounting, and authorized
in addition to insurance coverage and different bills used to run the enterprise, along with
outdoors get together service prices of associated gadgets akin to auditors and attorneys.

Depreciation and Amortization

Depreciation and amortization bills primarily include depreciation and
amortization bills related to our property and tools. Amortization
consists of bills related to our capitalized software program and web site
growth.

Curiosity Earnings

Curiosity earnings consists primarily of curiosity earned on our money, money
equivalents, and short-term investments.

Change in Honest Worth of Derivatives

The web lower in truthful worth of derivatives consists of truthful worth
remeasurements of the Firm’s legal responsibility categorized Ahead Buy
Agreements.

Key Efficiency Indicators (“KPIs”) and Non-GAAP Measures

We usually evaluate a number of metrics, together with the next key efficiency
indicators, to judge our enterprise, measure our efficiency, establish tendencies
affecting our enterprise, formulate monetary projections and make strategic
selections.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures and the
comparable GAAP measure is internet earnings (loss). Please discuss with the "- Non-GAAP
Measures" part beneath for additional dialogue with respect to how we outline
these measures, in addition to for reconciliations to probably the most comparable U.S. GAAP
measures. Adjusted EBITDA supplies a foundation for comparability of our enterprise
operations between present, previous, and future durations by excluding gadgets from internet
earnings (loss) that we don't consider are indicative of our core working
efficiency. These non-GAAP monetary measures shouldn't be thought-about in
isolation from, or as an alternative to, monetary info offered in
compliance with U.S. GAAP, and might not be akin to equally titled quantities
utilized by different firms or individuals, as a result of they could not calculate these
non-GAAP measures in the identical method.
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Bookings

We outline Bookings as the entire greenback worth of transactions booked by way of the
platform for pet Companies and Wellness companies, in every case with none
adjustment for reductions and refunds, Pet Caregiver earnings, and Pet Father or mother
incentives. Bookings are a sign of the size of our present platform,
which in the end impacts revenues.

We outline Take Fee as revenues as share of Gross Bookings. Take Fee is an
indication of market economics, and is impacted by product choices with
completely different margin constructions. We use take price to establish key revenues drivers
in our enterprise.

Our gross bookings within the three and 9 months ended September 30, 2022 have been
$25 million and $65 million, in comparison with $31 million and $14 million for the
three and 9 months ended September 30, 2021. The rise within the durations
resulted in 2022 are largely attributable to financial restoration from the influence of
the COVID-19 pandemic, return to pre-pandemic ranges of exercise within the journey
{industry}, vital progress in publicity for our platform by way of strategic
partnerships and efficiency advertising and marketing initiatives, and progress of Wag! Wellness
companies since launch within the third quarter of 2021.

The next tables current our non-GAAP measures and key efficiency
indicators for the durations offered (in 1000's besides Adjusted EBITDA
Margin).

                                                Three Months Ended                     9 Months Ended
                                                   September 30,                         September 30,

($ in 1000's, besides percentages)          2022               2021               2022               2021
U.S. GAAP Measures:
Revenues                                  $  15,379          $   5,880          $  37,829          $  12,036
Internet earnings (loss)                         $ (40,931)         $   1,554          $ (44,371)         $  (3,587)
Internet earnings (loss) %                          (266.1) %            26.4  %          (117.3) %           (29.8) %
Internet money flows offered by (utilized in)
working actions                      $     568          $  (2,927)         $  (3,578)         $ (10,350)
Key Efficiency Indicators and non-GAAP
measures:
Adjusted EBITDA                           $    (461)         $  (2,552)         $  (3,448)         $  (7,443)
Adjusted EBITDA Margin                         (3.0) %           (43.4) %            (9.1) %           (61.8) %
Bookings                                  $  25,328          $  13,688          $  64,804          $  30,764
Take Fee                                        61  %              43  %              58  %              39  %

Adjusted EBITDA and Adjusted EBITDA Margin

Along with revenues and internet loss, that are measures offered in accordance
with U.S. GAAP, administration believes that Adjusted EBITDA and Adjusted EBITDA
Margin present related and helpful info that's broadly utilized by analysts,
traders, and rivals in our {industry} to evaluate efficiency. We outline
Adjusted EBITDA as internet earnings (loss), adjusted for curiosity expense,
depreciation and amortization, share-based compensation, earnings taxes, as properly
as different gadgets to be per definitions usually utilized by lenders,
together with transaction prices. Moreover, we exclude the influence sure
non-recurring gadgets which aren't indicative of our working efficiency,
together with however not restricted to, enterprise mixture transaction prices and PPP
Mortgage Forgiveness. We outline Adjusted EBITDA Margin as Adjusted EBITDA divided by
revenues. Nonetheless, try to be conscious that when evaluating Adjusted EBITDA and
Adjusted EBITDA Margin, Wag! could incur future bills just like these excluded
when calculating these measures. Wag!'s presentation of those measures ought to
not be construed as an inference that its future outcomes will likely be unaffected by
uncommon or non-recurring gadgets. Additional, these non-GAAP monetary measures
shouldn't be thought-about in isolation from, or as an alternative to, monetary
info ready in accordance with U.S. GAAP. Wag! compensates for these
limitations by relying totally on its U.S. GAAP outcomes and utilizing Adjusted
EBITDA and Adjusted EBITDA Margin on a supplemental foundation. Wag!'s computation of
Adjusted EBITDA and Adjusted EBITDA Margin might not be akin to different
equally titled measures computed by different firms as a result of not all firms
calculate this measure in the identical style. It is best to evaluate the reconciliation
of
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internet loss to Adjusted EBITDA and Adjusted EBITDA Margin beneath and never depend on any
single monetary measure to judge Wag!’s enterprise.

Adjusted EBITDA and Adjusted EBITDA Margin are helpful to an investor in
evaluating our efficiency as a result of these measures:

•are broadly utilized by analysts, traders, and rivals to measure an organization’s
working efficiency;

•are utilized by our lenders and/or potential lenders to measure our efficiency;
and

•are utilized by our administration for varied functions, together with as a measure of
efficiency and as a foundation for strategic planning and forecasting.

The reconciliations of internet loss, which is probably the most comparable U.S. GAAP measure,
to non-GAAP Adjusted EBITDA for the three and 9 months ended September 30,
2022 and 2021 are as follows:

                                                   Three Months Ended                      9 Months Ended
                                                      September 30,                          September 30,
($ in 1000's)                                 2022                2021               2022                2021
Revenues                                    $    15,379          $   5,880          $   37,829          $  12,036
Adjusted EBITDA reconciliation:
Internet earnings (loss)                               (40,931)             1,554             (44,371)            (3,587)
Add (deduct):
Curiosity expense (earnings)                           735                 (9)                784                  5
Depreciation and amortization                       134                122                 431                232
Share based mostly compensation [1]                     23,922                 60              24,016                182
Issuance of Group Shares to Pet
Caregivers [2]                                    1,971                  -               1,971                  -
Change in truthful worth of derivatives [3]          13,708                  -              13,708                  -
Acquire on forgiveness of PPP mortgage                       -             (3,482)                  -             (3,482)
Tax (profit) expense                                 -               (797)                 13               (793)
Adjusted EBITDA                             $        (461)       $    (2,552)       $     (3,448)       $    (7,443)


[1] Consists of stock-based compensation expense in 2022 incurred in connection
with the Enterprise Mixture of $23.9 million. Of the $23.9 million, $2.8
million is included in Platform operations and assist, $2.1 million in Gross sales
and advertising and marketing, and $19.0 million in Normal and administrative bills on the
condensed consolidated assertion of operations.
[2] Of this quantity, $1.8 million is included Normal and administrative bills
and the rest as contra income on the condensed consolidated assertion of
operations.

[3] Pertains to the adjustments within the truthful worth of Ahead Buy Agreements that
have been entered into previous to the closing of the Enterprise Mixture. See   Observe 3
- Enterprise Combos   and   Observe 6 - Honest Worth Measurements   for extra
particulars.

[4] Excluding the impacts famous in [1] and [2] above, Platform and Operations
Expense is roughly 18% of revenues, Gross sales and advertising and marketing roughly 59%,
and Normal and administrative roughly 19% for the three months ended
September 2022. For the 9 months ended September 30, 2022, excluding the identical
impacts, Platform and Operations Expense is roughly 22% of revenues, Gross sales
and advertising and marketing roughly 59%, and Normal and administrative roughly
20%.

Comparability of the Three and 9 Months ended September 30, 2022 and 2021

The next desk units forth our unaudited condensed consolidated operations
knowledge for the three and 9 months ended September 30, 2022 and 2021. The
info has been ready on the identical foundation as our unaudited consolidated
monetary statements, included elsewhere on this Quarterly Report on Type 10-Q,
and consists of, in our opinion, all changes, essential to state pretty our
outcomes of operations for these durations. This knowledge must be learn in conjunction
with our audited consolidated statements of operations for the years ended
December 31, 2021 and 2020 and our unaudited condensed consolidated statements
of operations for the three and 9 months ended September 30, 2022 and 2021,
included elsewhere herein. These outcomes of
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operations usually are not essentially indicative of the longer term outcomes of operations
that could be anticipated for any future interval.

                                                    Three Months Ended September 30,                                                   9 Months Ended September 30,
($ in 1000's, besides                                                         $                  %                                                             $                   %
percentages)                           2022                  2021             Change             Change                 2022                 2021              Change             Change
Revenues                       $     15,379               $ 5,880          $   9,499                162  %       $     37,829             $ 12,036          $  25,793                 214  %
Prices and bills:
Price of revenues, excluding
depreciation and amortization         1,021                   861                160                 19  %              3,027                1,934              1,093                  57  %
Platform operations and
assist                               5,641                 2,508              3,133                125  %             11,035                7,768              3,267                  42  %
Gross sales and advertising and marketing                  11,290                 3,151              8,139                258  %             24,656                4,991             19,665                 394  %
Normal and administrative           23,781                 1,972             21,809               1106  %             28,546                4,968             23,578                 475  %
Depreciation and amortization           134                   122                 12                 10  %                431                  232                199                  86  %
Complete prices and bills             41,867                 8,614             33,253                386  %             67,695               19,893             47,802                 240  %
Change in truthful worth of
derivatives                         (13,708)                    -            (13,708)                   NM            (13,708)                   -            (13,708)                    NM
Acquire on forgiveness of PPP
mortgage                                      -                 3,482             (3,482)                   NM                  -                3,482             (3,482)                    NM
Curiosity earnings (expense), internet         (735)                    9               (744)                   NM               (784)                  (5)              (779)              15580  %
Loss earlier than earnings taxes            (40,931)                  757            (41,688)                   NM            (44,358)              (4,380)           (39,978)                913  %
Earnings tax profit (expense)              -                   797               (797)                   NM                (13)                 793               (806)                    NM
Internet earnings (loss)              $    (40,931)              $ 1,554          $ (42,485)                   NM       $    (44,371)            $ (3,587)         $ (40,784)               1137  %

*Comparisons between constructive and unfavourable numbers and with a zero usually are not
significant.

** Proportion figures included within the beneath part have been calculated on the
foundation of rounded figures as offered and never on the idea of such quantities prior
to rounding. For that reason, share quantities on this part could fluctuate
barely from these obtained by performing the identical calculations utilizing the
figures within the desk above or the condensed consolidated monetary statements.

Revenues

Revenues elevated by $9.5 million, or roughly 161%, from $5.9 million in
the three months ended September 30, 2021 to $15.4 million for the three months
ended September 30, 2022. The rise was primarily attributable to a $8.0
million enhance in Wellness income which was launched within the third quarter of
2021. The rise additionally features a $2.9 million enhance in Service income due
to a rise in service charges stemming from elevated Pet Mother and father engagement of
Pet Caregivers ("PCGs") to offer pet care companies because of elevated
return-to-office and journey tendencies, progress of Wag! Premium subscription
revenues, and PCG companies. The rise was partially offset by a one-time $0.2
million contra income cost related to the issuance of Group shares
within the third quarter of 2022 in reference to the Enterprise Mixture.

Revenues elevated by $25.8 million, or roughly 215%, from $12.0 million
within the 9 months ended September 30, 2021 to $37.8 million for the 9 months
ended September 30, 2022. The rise was primarily attributable to a $20.3
million enhance in Wellness income which was launched through the third quarter
of 2021. The rise additionally features a $8.6 million enhance in Service income
resulting from a rise in service charges stemming from elevated Pet Mother and father
engagement of Pet Caregivers to offer pet care companies because of
elevated return-to-office and journey tendencies, progress of Wag! Premium
subscription revenues, and PCG companies. The rise was partially offset by a
one-time $0.2 million contra income cost related to the issuance of
Group shares within the third quarter of 2022 in reference to the Enterprise
Mixture.

Price of Revenues, Excluding Depreciation and Amortization

Price of revenues, excluding depreciation and amortization, elevated by $0.1
million, or roughly 11%, from $0.9 million within the three months ended
September 30, 2021 to $1.0 million for the three months ended September 30,
2022. The rise was primarily attributable to a $0.1 million enhance in
background verify prices pushed by a rise in new Pet Caregivers along with
a slight enhance in fee processing charges pushed by larger transaction
quantity.
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Price of revenues, excluding depreciation and amortization, elevated by $1.1
million, or roughly 58%, from $1.9 million within the 9 months ended
September 30, 2021 to $3.0 million for the 9 months ended September 30, 2022.
The rise was primarily attributable to a $0.6 million enhance in background
verify prices pushed by a rise in new Pet Caregivers and a $0.5 million
enhance in fee processing charges pushed by larger transaction quantity and
different associated software program prices.

Platform Operations and Help

Platform operations and assist bills elevated by $3.1 million, or
roughly 125%, from $2.5 million within the three months ended September 30,
2021 to $5.6 million for the three months ended September 30, 2022. The rise
was primarily attributable to a $0.5 million enhance in worker personnel
prices associated to our enlargement initiatives within the operations and know-how
areas and a rise in journey to assist public firm initiatives, offset by
a lower of $0.2 million in skilled service prices arising from system and
course of optimization and discount in using outdoors companies. Moreover,
there was a $2.8 million enhance resulting from inventory compensation expense associated to
Earnout Shares upon closing of the Enterprise Mixture.

Platform operations and assist bills elevated by $3.3 million, or
roughly 42%, from $7.8 million within the 9 months ended September 30, 2021
to $11.0 million for the 9 months ended September 30, 2022. The rise was
primarily attributable to a $1.0 million enhance in personnel-related
compensation prices for our know-how and operations groups, partially offset by
a lower of $0.1 million in services and operations and know-how prices as
properly as a lower of $0.3 million in skilled service prices. Moreover,
there was a $2.8 million enhance resulting from inventory compensation expense associated to
Earnout Shares upon closing of the Enterprise Mixture.

Gross sales and Advertising

Gross sales and advertising and marketing bills elevated by $8.1 million, or roughly 253%,
from $3.2 million within the three months ended September 30, 2021 to $11.3 million
for the three months ended September 30, 2022. The rise was primarily
attributable to a $4.7 million enhance in partnerships, as we spend money on
launching with new companions. Moreover, there was a $1.3 million enhance in
personnel-related compensation prices for our advertising and marketing crew, consultants, and
promoting company prices. Moreover, there was a $2.1 million enhance resulting from
inventory compensation expense associated to Earnout Shares upon closing of the
Enterprise Mixture.

Gross sales and advertising and marketing bills elevated by $19.7 million, or roughly 394%,
from $5.0 million within the 9 months ended September 30, 2021 to $24.7 million
for the 9 months ended September 30, 2022. The rise was primarily
attributable to a $10.6 million enhance in partnerships, as we spend money on
launching with new companions, a $2.9 million enhance in promoting expense,
$4.1 million enhance in personnel-related compensation prices for our advertising and marketing
crew, consultants, and promoting company prices. Moreover, there was a $2.1
million enhance resulting from inventory compensation expense associated to Earnout Shares
upon closing of the Enterprise Mixture.

Normal and Administrative

Normal and administrative bills elevated by $21.8 million, or roughly
1090%, from $2.0 million within the three months ended September 30, 2021 to $23.8
million for the three months ended September 30, 2022. The rise was
primarily because of the one time expense incurred in reference to
Earnout Shares of $19.0 million, and $1.8 million because of the issuance of
Group Shares in reference to the Enterprise Mixture. For additional
info, see   Observe 3 - Enterprise Co    mbinations   of Notes to the
Condensed Consolidated Monetary Statements. The rest of the rise was
resulting from $1.0 million in different administrative bills incurred to be able to
function as a public firm, together with bills associated to compliance with the
guidelines and rules of the SEC and the itemizing requirements of the Nasdaq,
elevated authorized, audit and consulting charges, and worker associated bills to
entice and retain prime expertise.

Normal and administrative bills elevated by $23.6 million, or roughly
475%, from $5.0 million within the 9 months ended September 30, 2021 to $28.5
million for the three months ended September 30, 2022. The rise was
primarily attributable to the one time expense upon the Group Share
issuance, inventory compensation expense resulting from Earnout Shares, and different public
firm administrative bills within the third quarter of 2022, as famous within the
instantly previous paragraph.
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Depreciation and Amortization

Depreciation and amortization bills remained flat from 2021 to 2022. An
enhance in amortization expense arising from the acquisition of CPI in August
2021, was offset by decreased property and tools because of decreased
leased workplace area with depreciating leasehold enhancements.

Depreciation and amortization bills elevated from $0.2 million within the 9
months ended September 30, 2021 to $0.4 million for the 9 months ended
September 30, 2022. The rise of $0.2 million, or roughly 100%, was
primarily attributable to a $0.3 million enhance in amortization expense
arising from the acquisition of CPI, partially offset by a $0.1 million
discount in depreciation expense of property and tools because of
decreased leased workplace area with depreciating leasehold enhancements.

Curiosity Earnings (Expense), internet

Curiosity earnings (expense), internet, modified from $9 thousand earnings within the three
months ended September 30, 2021 to $0.7 million expense for the three months
ended September 30, 2022. The rise in expense was primarily attributable to
curiosity associated to the Blue Torch Financing and Warrant Settlement entered into
in reference to the closing of the Enterprise Mixture with CHW. For additional
info on the debt and warrant settlement, discuss with   Observe     9     -
Debt   of Notes to Condensed Consolidated Monetary Statements.

Curiosity expense, internet, elevated from $5 thousand within the 9 months ended
September 30, 2021 to $784 thousand for the 9 months ended September 30,
2022. The rise was attributable to curiosity associated to the Blue Torch
Financing and Warrant Settlement, as famous within the instantly previous
paragraph.

Liquidity and Capital Sources

Since inception, and in step with our progress technique, we've incurred
working losses and unfavourable money working money flows and have financed our
operations by the sale of fairness securities. For the 9 months ended
September 30, 2022 and 2021, and for the years ended December 31, 2021, and
2020, we had a internet lack of $44.4 million, $3.6 million, $6.3 million, $18.8
million, respectively. We count on that working losses and unfavourable working
money flows might proceed into the foreseeable future as we proceed to speculate
in rising our enterprise. Primarily based upon our present working plans, we consider that
money and equivalents and short-term investments will likely be adequate to fund our
operations for at the least the following 12 months from the date of this quarterly
report on Type 10-Q. Nonetheless, these forecasts contain dangers and uncertainties,
and precise outcomes might fluctuate materially. We've got based mostly this estimate on
assumptions which will show to be flawed, and we might deplete our capital
sources sooner than we count on.

Our future capital necessities and the adequacy of accessible funds will rely
on many components, together with, however not restricted to, our potential to develop our income
and the influence of the COVID-19 pandemic and different components described within the
part titled   Danger Components   included inside Merchandise 1A of Half II of this
Quarterly Report on Type 10-Q. We could search extra fairness or debt financing.
If extra financing is required from outdoors sources, we could not be capable of
increase it on phrases acceptable to us, or in any respect. If we're unable to lift
extra capital when desired, our enterprise, monetary situation, and outcomes
of operations might be adversely affected. Though we could must repurchase
shares pursuant to the Ahead Buy Agreements, we don't consider this to
have an effect on our liquidity place. We positioned $24.7 million in escrow at
the closing of the Enterprise Mixture to safe our buy obligations to
the Buyers below the Ahead Buy Agreements. If any Investor workout routines
its respective choices, we are going to apply funds in escrow to buy these shares.
As these funds are held in escrow and recorded as restricted on our steadiness
sheet, our enterprise technique is not going to be impacted within the occasion that we're
required to buy all or some requisite shares of inventory pursuant to the
Ahead Buy Settlement.

For proceeds, funds and extra financing preparations arising from the
Enterprise Mixture, please see Observe 3 – Enterprise Combos for
extra element.

Contractual Obligations

We enter into long-term contractual obligations and commitments within the regular
course of enterprise, primarily debt obligations and real-estate leases for our
workplace areas. In reference to the closing of the Enterprise Mixture in
August 2022, we entered right into a credit score settlement with Blue Torch Capital LP that
supplies us with as much as $32 million of credit score. Check with   Observe 9     -     Debt
and   Observe     7 - Leases  , included in Merchandise 1 of
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Half I of this 10-Q, for additional particulars, together with curiosity and future
principal funds and lease dedication particulars.

Money Flows

The next desk summarizes our money flows for the durations indicated.

                                                                9 Months Ended
                                                                  September 30,
($ in 1000's)                                               2022          2021
Internet money flows utilized in working actions                 $ (3,578)     $ 

(10,350)

Internet money flows (utilized in) offered by investing actions 1,952

4,956

Internet money flows offered by financing actions               51,524        

2

Internet change in money, money equivalents, and restricted money $ 49,898 $

  (5,392)


Working Actions

Internet money utilized in working actions for the 9 months ended September 30,
2022 was $3.6 million, a lower of $6.8 million from $10.4 million for the
9 months ended September 30, 2021. The lower in money used was primarily
resulting from a rise of $5.9 million in accounts payable, accrued bills and
different liabilities, working lease liabilities, deferred income and different non-
present liabilities, partially offset by a $2.5 million lower in accounts
receivable, and present and different property. Moreover, there was a $3.4 million
enhance in internet loss, excluding the influence of depreciation and stock-based
compensation, and different non-cash gadgets.

Investing Actions

The Firm's investments are categorized as obtainable on the market and we spend money on
a diversified portfolio of investments, primarily short-term U.S. authorities and
company securities, cash market funds, business paper, and company bonds. In
addition, we restrict the focus of our funding in any specific
safety.

Internet money from investing actions for the 9 months ended September 30, 2022
was $2.0 million, a lower of $3.0 million from $5.0 million offered for the
9 months ended September 30, 2021. The lower was primarily resulting from $19.5
million much less of proceeds acquired from the sale and maturities of investments,
offset by $15.6 million of decreased purchases of investments as a direct
reflection of a lower within the Firm's consolidated whole investments at
September 30, 2022.

Financing Actions

Internet money offered by financing actions for the 9 months ended September
30, 2022 was $52 million, a rise of $52 million from $2 thousand for the
9 months ended September 30, 2021. The rise in money offered by financing
actions is primarily resulting from money acquired from the belief account, PIPE and
Backstop Buyers and the financing settlement with Blue Torch Capital LP ("Blue
Torch") for a senior secured Credit score Facility, partially offset by fee of
transaction prices incurred by Wag! and CHW in reference to the Enterprise
Mixture.
Debt

PPP Mortgage

In August 2020, the Firm acquired mortgage proceeds of roughly $5.1 million
from a monetary establishment pursuant to the Paycheck Safety Program (the
"PPP Mortgage") as administered by the U.S. Small Enterprise Administration (the
"SBA") below the Coronavirus Assist, Aid, and Financial Safety Act ("CARES
Act").

In August 2021, the Firm utilized for forgiveness of $3.5 million of the PPP
Mortgage, and in September 2021, the SBA authorised the Firm's mortgage forgiveness
software within the quantity of $3.5 million. The time period of the PPP Mortgage is 5
years with a maturity date of August 2025 and comprises a set annual curiosity
price of 1.00%. Principal and curiosity funds started in November 2021.

For extra info concerning the PPP Mortgage, discuss with Observe 9 – Debt

of

Notes to Condensed Consolidated Monetary Statements.

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Blue Torch Financing and Warrant Settlement

On August 9, 2022, Legacy Wag! entered right into a financing settlement and warrant
settlement with Blue Torch Finance, LLC (along with its affiliated funds and
some other events offering a dedication thereunder, together with any extra
lenders, brokers, arrangers or different events joined thereto after the date
thereof, collectively, the "Debt Financing Sources"), pursuant to which, amongst
different issues, the Debt Financing Sources agreed to increase an roughly
$32.17 million senior secured time period mortgage credit score facility (the "Credit score Facility").
Legacy Wag! is the first borrower below the Credit score Facility, the Firm is a
mum or dad guarantor and considerably the entire Firm's present and future
subsidiaries are subsidiary guarantors. The Credit score Facility is secured by a
first precedence safety curiosity in considerably all property of the Firm and
the guarantors.

For extra info concerning the Blue Torch financing preparations,
discuss with Observe 9 – Debt of Notes to Condensed Consolidated Monetary
Statements.

We would not have any off-balance sheet preparations, as outlined by relevant
guidelines and rules of the SEC, which are fairly more likely to have a present
or future materials impact on our monetary situation, outcomes of operations,
liquidity, capital expenditures, or capital sources.

Crucial Accounting Insurance policies and Estimates

The preparation of economic statements in conformity with U.S. GAAP requires
administration to make estimates and assumptions that have an effect on the reported quantities of
property and liabilities and disclosure of contingent property and liabilities at
the date of the monetary statements and the reported quantities of revenues and
bills through the reporting interval. Precise outcomes might differ, and within the
previous have differed, from these estimates.

Whereas all of our vital accounting insurance policies are described in additional element in

Observe 2 – Abstract of Vital Accounting Insurance policies to our consolidated
monetary statements within the notes to the unaudited condensed consolidated
monetary statements, the Firm has recognized the next estimates as
essential in that they contain a better diploma of judgment and are topic to a
vital diploma of variability:

Income Recognition

The Firm acknowledges income in accordance with ASC 606, Income from
Contracts with its Clients. By its Companies choices, the Firm
principally generates Service income from service charges charged to PCGs to be used
of the platform to find pet service alternatives and to efficiently
full a pet care service to a pet mum or dad. The Firm additionally generates income
from subscription charges paid by pet dad and mom for Wag! Premium, and costs paid by
PCGs to affix the platform. Moreover, by its Wellness choices, the
Firm generates income by fee charges paid by third get together service
companions within the type of 'revenue-per-action' or conversion exercise outlined in
our agreements with the third get together service accomplice. For a few of the Firm's
preparations with third get together service companions, the transaction worth is
thought-about variable, and an estimate of the transaction worth is recorded when
the motion happens. The estimated transaction worth used within the variable
consideration relies on historic knowledge with the respective third-party
service accomplice and the consideration is measured and settled month-to-month.

The Firm enters into phrases of service with PCGs and pet dad and mom to make use of the
platform ("Phrases of Service Agreements"), in addition to an Impartial Contractor
Settlement ("ICA") with PCGs (the ICA, along with the Phrases of Service
Agreements, the "Agreements"). The Agreements govern the charges the Firm
costs the PCGs for every transaction. Upon acceptance of a transaction, PCGs
comply with carry out the companies which are requested by a pet mum or dad. The acceptance
of a transaction request mixed with the Agreements establishes enforceable
rights and obligations for every transaction. A contract exists between the
Firm and the PCGs after each the PCGs and pet mum or dad settle for a transaction
request and the PCGs potential to cancel the transaction lapses. For Wag! Wellness
income, the Firm enters into agreements with third get together service companions
which outline the motion by a pet mum or dad that ends in the Firm incomes and
receiving a fee charge from the third-party service accomplice.

Wag!'s service obligations are carried out, and income is acknowledged for charges
earned from PCGs associated to the facilitation and completion of a pet service
transaction between the pet mum or dad and the PCG by using our platform.
Income generated from the Firm's Wag! Premium subscription is acknowledged on
a ratable
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foundation over the contractual interval, which is mostly one month to 1 12 months
relying on the kind of subscription bought by the pet mum or dad. Unused
subscription quantities are recorded as present card and subscription liabilities on
the condensed consolidated steadiness sheet. Income associated to the charges paid by
the PCG to affix the platform are acknowledged upon processing of the purposes.
Wag! Wellness income efficiency obligation is accomplished, and income is
acknowledged when an end-user completes an motion or conversion exercise.

Enterprise Combos

The Firm accounts for enterprise combos utilizing the acquisition technique of
accounting, which requires, amongst different issues, allocation of the truthful worth of
buy consideration to the tangible and intangible property acquired and
liabilities assumed at their estimated truthful values on the acquisition date. The
extra of the truthful worth of buy consideration over the values of those
identifiable property and liabilities is recorded as goodwill. When figuring out
the truthful worth of property acquired and liabilities assumed, administration makes
vital estimates and assumptions, particularly with respect to the valuation
of intangible property. Administration's estimates of truthful worth are based mostly upon
assumptions believed to be affordable, however that are inherently unsure and
unpredictable and, consequently, precise outcomes could differ from estimates. Throughout
the measurement interval, to not exceed one 12 months from the date of acquisition, the
Firm could document changes to the property acquired and liabilities assumed,
with a corresponding offset to goodwill if new info is obtained associated
to details and circumstances that existed as of the acquisition date. Upon the
conclusion of the measurement interval or remaining dedication of the truthful worth of
property acquired or liabilities assumed, whichever comes first, any subsequent
changes are mirrored within the consolidated statements of operations.
Acquisition prices, akin to authorized and consulting charges, are expensed as incurred.

Inventory-Primarily based Compensation

The Firm has an fairness incentive plan below which it grants fairness awards,
together with inventory choices. The Firm determines compensation expense related
with inventory choices based mostly on the estimated grant date truthful worth technique utilizing the
Black-Scholes valuation mannequin. The Black-Scholes mannequin considers a number of
variables and assumptions in estimating the truthful worth of stock-based awards.
These variables embody per share truthful worth of the underlying frequent inventory,
train worth, anticipated time period, risk-free rate of interest, anticipated inventory worth
volatility over the anticipated time period, and anticipated annual dividend yield.

For all inventory choices granted, the Firm calculates the anticipated time period utilizing
the simplified technique because it has restricted historic train knowledge to offer a
affordable foundation upon which to in any other case estimate anticipated time period, and the choices
have traits of "plain-vanilla" choices. The danger-free rate of interest is
based mostly on the yield obtainable on U.S. Treasury zero-coupon points related in
length to the anticipated time period of the stock-based award. As a result of restricted
buying and selling historical past of the Firm's frequent inventory, the anticipated volatility
assumption is mostly based mostly on volatilities of a peer group of comparable
firms whose share costs are publicly obtainable. The Firm will proceed
to use this course of till a adequate quantity of historic info
concerning the volatility of its personal frequent inventory worth turns into obtainable. The
Firm makes use of a dividend yield of zero, because it has no historical past or plan of
declaring dividends on its frequent inventory.

The Firm usually acknowledges compensation expense utilizing a straight-line
amortization technique over the respective service interval for awards which are
in the end anticipated to vest. Inventory-based compensation expense for the 9
months ended September 30, 2022 and 2021 has been decreased for precise
forfeitures.

In reference to the Enterprise Mixture, Legacy Wag! stockholders and
sure members of administration and workers of Legacy Wag! that held both a
share of frequent inventory, a Legacy Wag! choice or a Legacy Wag! RSU Award
(collectively "Eligible Firm Equityholders") on the date of the Merger, have
the contingent proper to Earnout Shares as extra totally described in   Observe 3 -
Enterprise Combos  . For Eligible Firm Equityholders who have been workers
or members of administration instantly previous to the completion of the Merger, the
rights to the Earnout Shares totally vested on the Merger Date and signify a
separate award from their present share-based fee award. As well as, the
rights of the Earnout awards usually are not dependent upon continued employment by the
worker or administration with the Firm to be able to obtain the Earnout shares
if the circumstances of issuance are met sooner or later. The Firm decided that
the market situation is not going to have an effect on the time period over which the associated
compensation expense will likely be recorded as a result of the worker shouldn't be required to be
employed on the time the market situation is achieved to be able to vest within the
award. As such, all service circumstances have been met and, in accordance with ASC 718,
Compensation - Inventory Compensation ("ASC
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718"), the corporate recorded a cost to inventory compensation of $23.9 million on
the Merger Date for the total truthful worth of the worker and administration Earnout
Shares awarded.

Earnings Taxes

The Firm accounts for earnings taxes utilizing an asset and legal responsibility method,
which requires the popularity of taxes payable or refundable for the present
12 months and deferred tax liabilities and property for the longer term tax penalties of
occasions which were acknowledged within the monetary or tax returns. The
measurement of the deferred gadgets relies on enacted tax legal guidelines. Within the occasion the
future penalties of variations between monetary reporting foundation and the tax
foundation of property and liabilities lead to a deferred tax asset, the Firm
evaluates the chance of having the ability to notice the longer term advantages indicated
by such asset. A valuation allowance associated to a deferred tax asset is recorded
when it's extra probably than not that both some portion or your complete deferred
tax asset is not going to be realized. The Firm data a valuation allowance to
cut back the deferred tax property to the quantity of future tax profit that's extra
probably than to not be realized. We usually evaluate the deferred tax property for
recoverability based mostly on historic taxable earnings or loss, projected future
taxable earnings or loss, the anticipated timing of the reversals of present
short-term variations and tax planning methods. Our judgment concerning future
profitability could change resulting from many components, together with future market circumstances
and the power to efficiently execute the enterprise plans and/or tax planning
methods. Ought to there be a change within the potential to recuperate deferred tax
property, our earnings tax provision would enhance or lower within the interval in
which the evaluation is modified.

The Firm acknowledges a tax profit from unsure tax positions solely whether it is
extra probably than not that the place is sustainable, based mostly solely on its
technical deserves and consideration of the related taxing authorities'
administrative practices and precedents. The tax advantages acknowledged from such
positions are measured based mostly on the biggest profit that has a higher than 50%
probability of being acknowledged upon settlement. The Firm didn't acknowledge
any tax advantages from unsure tax positions through the 9 months ended
September 30, 2022 and 2021.

Accounting for Warrants

The Firm accounts for warrants as both equity-classified or
liability-classified devices based mostly on an evaluation of the devices'
particular phrases and relevant authoritative steering in ASC 480 and ASC 815,
Derivatives and Hedging ("ASC 815"). The evaluation considers whether or not the
devices are free standing monetary devices pursuant to ASC 480, meet
the definition of a legal responsibility pursuant to ASC 480, and whether or not the devices
meet the entire necessities for fairness classification below ASC 815, together with
whether or not the devices are listed to the Firm's personal frequent shares and
whether or not the instrument holders might probably require "internet money settlement"
in a circumstance outdoors of the Firm's management, amongst different circumstances for
fairness classification. This evaluation, which requires using skilled
judgment, is performed on the time of warrant issuance and as of every subsequent
interval finish date whereas the devices are excellent. Administration has concluded
that the Public Warrants and Non-public Placement Warrants issued pursuant to the
Enterprise Mixture qualify for fairness accounting therapy. Moreover, the
Firm considers its warrants ("Lender Warrants") issued at the side of
the Blue Torch Financing Association (see   Observe 9 - Debt   for extra
element) to be fairness categorized since they don't meet the legal responsibility
classification standards. For additional element on the Firm's Warrants (Public,
Non-public and Lender), discuss with   Observe 10 - Stockholders' Deficit and Mezzanine
Fairness  .

Ahead Share Buy Agreements

The Firm accounts for the Ahead Share Buy Agreements ("FPAs"") as a
legal responsibility below ASC 480, Distinguishing Liabilities from Fairness, as a result of it
embodies an obligation to repurchase the Firm's shares by paying money.
Due to this fact, the choice is assessed as a present legal responsibility and is measured at
truthful worth on the Firm's condensed consolidated steadiness sheets. The
unrealized beneficial properties and losses from adjustments within the truthful worth of the FPAs is
mirrored within the Condensed Consolidated Statements of Operations.This legal responsibility
is topic to re-measurement at every steadiness sheet date till exercised, and any
change in truthful worth is acknowledged in our Condensed Consolidated Assertion of
Operations.

In growing these estimates administration makes subjective and complicated judgments
which are inherently unsure and topic to materials change as details and
circumstances develop. Though variability is inherent in these estimates,
administration believes the quantities offered are applicable based mostly upon the details
obtainable upon compilation of the monetary statements.
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New Accounting Pronouncements

See   Observe 2 - Abstract of Vital Accounting Insurance policies   within the notes to the
unaudited condensed consolidated monetary statements included elsewhere on this
Quarterly Report on Type 10-Q.

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