Wag! (PET) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis, detailing the company's financial condition, results of operations, and the impact of its Chapter 11 bankruptcy filing Item 1. Financial Statements This section presents Wag! Group Co.'s unaudited condensed consolidated financial statements for the periods ended June 30, 2025, highlighting the Chapter 11 bankruptcy filing and going concern uncertainties Unaudited Condensed Consolidated Balance Sheets The balance sheet as of June 30, 2025, reflects a significant decline in cash and a substantial increase in total stockholders' deficit, with liabilities exceeding assets Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $2,669 | $5,630 | | Total assets | $24,402 | $29,438 | | Total liabilities | $32,410 | $29,927 | | Total stockholders' deficit | $(8,008) | $(489) | Unaudited Condensed Consolidated Statements of Operations Revenues declined and net losses widened significantly for both the three and six-month periods ended June 30, 2025, indicating worsening operational performance Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $16,720 | $18,651 | $31,885 | $41,870 | | Net loss | $(6,145) | $(2,251) | $(11,035) | $(6,492) | | Loss per share, basic and diluted | $(0.12) | $(0.06) | $(0.22) | $(0.16) | Unaudited Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2025, the company experienced cash usage across all activities, resulting in a sharp decrease in its ending cash balance Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,254) | $(2,021) | | Net cash used in investing activities | $(603) | $(988) | | Net cash used in financing activities | $(1,104) | $(6,080) | | Net change in cash and cash equivalents | $(2,961) | $(9,089) | | Cash and cash equivalents, end of period | $2,669 | $9,234 | Notes to Unaudited Condensed Consolidated Financial Statements These notes detail the company's Chapter 11 bankruptcy filing, going concern uncertainties, debt obligations, legal contingencies, and significant subsequent events - On July 21, 2025, the company and its subsidiaries filed for Chapter 11 bankruptcy protection, operating as "debtors-in-possession"[26] - Management concluded substantial doubt exists about the company's ability to continue as a going concern due to operating losses, outstanding debt, and Chapter 11 uncertainties[24][31] - A Debtor-in-Possession (DIP) loan agreement for up to $6.5 million was secured to fund operations during bankruptcy proceedings[28] - The proposed reorganization plan will result in the cancellation of all existing equity interests, with the lender, Retriever LLC, receiving 100% of the new common stock[30] - Subsequent to quarter end, the company sold its Furscription software for $5.0 million and was delisted from Nasdaq on July 30, 2025[99][102] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's deteriorating financial performance, including a significant revenue decline and the liquidity crisis that led to its Chapter 11 bankruptcy filing and proposed equity cancellation Key Operating Metrics Comparison | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Platform Participants | 430,000 | 467,000 | (7.9)% | | Revenues | $31,885,000 | $41,870,000 | (23.8)% | | Net loss | $(11,035,000) | $(6,492,000) | 70.0% | - The revenue decrease for the first six months of 2025 was attributed to declines in Services ($1.2 million), Wellness ($7.1 million), and Pet Food & Treats ($1.7 million) revenues, driven by fewer Platform Participants and lower conversion[122] - The company filed for Chapter 11 bankruptcy on July 21, 2025, due to its inability to repay outstanding debt, now operating as a "debtor-in-possession"[138] - The restructuring includes a Debtor-in-Possession (DIP) term loan facility of up to $6.5 million and a planned Exit Facility of up to $18.3 million, with all existing equity to be canceled and 100% of new stock issued to Retriever LLC[140][141][142] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is omitted as the company qualifies as a smaller reporting company - As a smaller reporting company, Wag! Group Co. is not required to provide this information[158] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of June 30, 2025, due to material weaknesses in internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were not effective as of June 30, 2025[160] - Ineffectiveness stems from material weaknesses in internal control risk assessment resources, technical accounting evaluation, and IT general controls, including logical access, segregation of duties, and program change controls[161] - A remediation plan is underway, involving hiring experienced personnel, redesigning IT controls, and engaging third-party consultants to enhance internal controls[163][166] PART II. OTHER INFORMATION This section covers legal proceedings, critical new risk factors related to the Chapter 11 bankruptcy, and other required disclosures Item 1. Legal Proceedings This section details ongoing legal disputes in California and New York regarding the classification of pet caregivers as independent contractors, with potential significant liabilities - The company is involved in legal proceedings concerning the alleged misclassification of pet caregivers as independent contractors in California and New York[76][78][80] - California has assessed potential unemployment insurance contributions of $1.7 million and an additional $1.3 million, while New York has assessed approximately $1.8 million, all of which the company is contesting without a recorded reserve[78][80] Item 1A. Risk Factors This section outlines critical new risks, primarily the total loss for existing equity holders due to the Chapter 11 reorganization plan, along with delisting and foreclosure risks - Total Loss for Equity Holders: The Chapter 11 reorganization plan, if approved, will cancel all existing equity interests, resulting in a complete loss for current stockholders and warrant holders[170][171] - Delisting from Nasdaq: The company's securities were delisted from Nasdaq on July 30, 2025, now trading on the less liquid Pink Open Market, potentially depressing prices and limiting investor flexibility[184][186] - Risk of Foreclosure: The senior secured loan is in default due to bankruptcy, allowing the lender, Retriever LLC, to potentially foreclose on substantially all company assets, which would materially harm the business[181][182] - Operational and Financial Uncertainty: Significant risks during Chapter 11 include inability to generate sufficient cash flow, maintain vendor credit terms, and retain customers and employees[172][174] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - There were no unregistered sales of equity securities[187] Item 3. Defaults Upon Senior Securities The Chapter 11 bankruptcy filing on July 21, 2025, constituted an event of default on the company's material debt agreements, accelerating approximately $16.3 million in obligations - The Chapter 11 filing triggered an event of default on the company's senior debt[187] Debt in Default | Debt Instrument | Amount in Default (approx.) | | :--- | :--- | | Financing Agreement | $16.3 million | | PPP Loan | $40,000 | - As a result of the default, principal and interest on these debts are immediately due and payable, though collection efforts are automatically stayed by the Chapter 11 filing[188] Item 4. Mine Safety Disclosures This section is not applicable to the company's business operations - Not applicable[189] Item 5. Other Information The company reported no other material information required to be disclosed under this item - No officers or directors adopted or terminated a Rule 10b5-1 trading arrangement during the last fiscal quarter[190] Item 6. Exhibits This section provides an index of all exhibits filed with the Form 10-Q, including corporate governance documents and officer certifications - Lists exhibits filed with the report, including the Restated Certificate of Incorporation, financing agreements, and CEO/CFO certifications[191]