Wag! Group (PET) Risk Factors

We have and plan to continue to invest in new offerings and initiatives to further differentiate the company from our competitors. Developing and delivering new offerings and initiatives increases our expenses and organizational complexity. We have and may continue to experience difficulties in developing and implementing these new offerings and initiatives. Our new offerings and initiatives have a high degree of risk, as they may involve unproven businesses with which we have limited or no prior development or operating experience. There can be no assurance that consumer demand for such offerings and initiatives will exist or be sustained at the levels that we anticipate, that we will be able to successfully manage the development and delivery of such offerings and initiatives, or that any of these offerings or initiatives will gain sufficient market acceptance to generate sufficient revenues to offset associated expenses or liabilities. It is also possible that offerings developed by others will render our offerings and initiatives noncompetitive or obsolete. Even if we are successful in developing new offerings and initiatives, regulatory authorities may subject us or our users to new rules, taxes, or restrictions or more aggressively enforce existing rules, taxes, or restrictions, that could increase our expenses or prevent us from successfully commercializing these initiatives. If we do not realize the expected benefits of our investments, we may fail to grow and our business, operating results, and financial condition would be materially adversely affected.

Our business depends on our intellectual property and proprietary technology, the protection of which is crucial to the success of our business. We rely on a combination of trademark, copyright, and trade secret laws, license agreements, intellectual property assignment agreements, and confidentiality agreements and procedures and technology measures to protect our intellectual property. We generally attempt to protect our intellectual property, technology, and confidential information by requiring our employees and consultants who develop intellectual property on our behalf to enter into confidentiality and invention assignment agreements and third parties we share information with to enter into nondisclosure agreements. These agreements may not, however, effectively prevent unauthorized use or disclosure of our confidential information, intellectual property, or technology and may not provide an adequate remedy in the event of unauthorized use or disclosure of our confidential information or technology, or infringement of our intellectual property. In addition, our proprietary information may otherwise become known or be independently developed by our competitors or other third parties. To the extent that our employees, consultants, contractors, and other third parties use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our intellectual property rights and other proprietary rights, and failure to obtain or maintain protection for our proprietary information could adversely affect our competitive business position. Other parties may unintentionally or willfully disclose, obtain or use our technologies or systems, which may allow unauthorized parties to copy aspects of our platform or other software, technology, and functionality or obtain and use information that we consider proprietary. Unauthorized parties may also attempt to or successfully obtain our intellectual property, confidential information and trade secrets through various methods, including through scraping of public data or other content from our website or mobile applications, cybersecurity attacks, and legal or other methods of protecting this data may be inadequate. Monitoring unauthorized use and disclosures of our intellectual property, proprietary technology, or confidential information can be difficult and expensive and despite our efforts to protect our intellectual property rights, we cannot be sure that the steps taken will prevent misappropriation or infringement of our intellectual property rights. Our platform also relies upon content and information that we publish on our website and mobile applications and that is created and posted by Pet Caregivers, Pet Parents, or other third parties. We face potential liability and expense for claims for trademark and copyright infringement, defamation, libel and negligence, among others, that could be asserted against us, in addition to our Pet Caregivers and Pet Parents. Failure to identify and prevent illegal or inappropriate content from being uploaded to our platform may subject us to negative publicity, private enforcement or liability, such as payment of damages, limiting the dissemination of content, and suspension or removal of our platform from app distribution channels. Any intellectual property claims, lawsuits, arbitration proceedings, or other legal or regulatory proceedings against us cannot be predicted with any degree of certainty. Any claims, whether meritorious or not, could be time-consuming, result in costly litigation, be harmful to our reputation and brand, require significant management attention, and divert significant resources. It is possible that a resolution of one or more such proceedings could result in substantial damages, settlement costs, fines, and penalties. These proceedings could also result in sanctions, consent decrees, injunctions, or other orders requiring a change in our business practices or could require us to seek a license to continue practices found to be in violation of a third party's rights, which license may not be available on reasonable terms, or at all. Any of these consequences could adversely affect our business, financial condition, and operating results.

Our business involves the collection, storage, processing, and transmission of personal information and other sensitive and proprietary data of Pet Parents and Pet Caregivers. Additionally, we maintain sensitive and proprietary information relating to our business, such as our own proprietary information, other confidential information, and personal information relating to individuals such as our employees. Given the nature of the information we use and store, we may experience cyberattacks, hacks, ransomware attacks, data loss, unauthorized access to or use of data (including personal information) or other data security incidents, and thus the secure maintenance of this information is critical to our business and reputation. The breach, disruption or failure of our security measures has in the past and may in the future result in unauthorized persons obtaining access to our user data. For example, we have been subject to phishing, credential stuffing and distributed denial-of-service attacks, and therefore we cannot guarantee that no such attacks or other attacks will occur in the future or that they will not be successful. Our systems and processes may not be effective in protecting the data of those who use our platform or may be unable to anticipate or prevent these attacks, react in a timely manner, or implement adequate preventive measures and may face delays in detection or remediation of, or other responses to, security breaches and other privacy-data protection and security-related incidents. In addition, these incidents can originate on our vendors' information systems, which can then be leveraged to access our information systems, further preventing our ability to successfully identify and mitigate the attack. Accordingly, we may experience data security breaches, cyberattacks, hacks, ransomware attacks, data loss, unauthorized access to or use of data (including personal information) or other data security incidents. Further, the IT and infrastructure used in our business, including open source software and third-party software and systems, is vulnerable to cyberattacks or security breaches and to damages from computer viruses, worms, and other malicious software programs or other attacks, covert introduction of malware to computers and networks, human error and application malfunction, unauthorized access, including impersonation of unauthorized users, efforts to discover and exploit any security vulnerabilities or securities weaknesses, and other similar disruptions, which may permit third parties to access data, including personal information and other sensitive data of Pet Parents and Pet Caregivers, our employees' personal information, or other sensitive, confidential or proprietary data that it maintains or that otherwise is accessible through those systems. In 2018, we experienced an incident in which some of our data was inadvertently exposed. The incident was quickly contained and there was no material impact on our operations or financial results. Additionally, we also share information with third-party service providers to conduct our business and if any of our business partners or service providers with whom we share information fail to implement adequate data-security practices or fail to comply with our terms and policies or otherwise suffer a network or other security breach, our users' information may be improperly accessed, used or disclosed and our business could be adversely affected. In addition, hardware, software, or applications we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security, or users on our platform could have vulnerabilities on their own devices that are unrelated to our systems and platform but could mistakenly be attributed to us. Employee error, malfeasance, or other errors in the storage, use, or transmission of any of these types of data also could result in an actual or perceived privacy, data protection, or security breach or other security incident. In addition, outside parties may attempt to fraudulently induce employees, service providers, users or customers to disclose sensitive information in order to gain access to our data or the data or accounts of our users or other parties. Although we have policies restricting access to the information we store, there is a risk that these policies may not be effective in all cases. Any actual or perceived breach of privacy or data protection, or any actual or perceived security breach or other incident that impacts our platform or systems, other IT and infrastructure used in our business, or data maintained or processed in our business, could interrupt our operations, result in our platform being unavailable, result in loss or improper access to, or acquisition or disclosure of, data, result in fraudulent transfer of funds, harm our reputation, brand and competitive position, damage our relationships with third-party partners, or result in claims, litigation, regulatory investigations and proceedings, increased credit card processing fees and other costs, and significant legal, regulatory and financial exposure, including, but not limited to, ongoing monitoring by regulators and any such incidents or any perception that our security measures are inadequate could lead to loss of Pet Parents' and Pet Caregivers' confidence in, or decreased use of, our platform, any of which could adversely affect our business, financial condition, and operating results. Any actual or perceived breach of privacy, data protection or security, or other security incident, impacting any entities with which we share or disclose data (including, for example, our third-party technology providers) could have similar effects. Further, any cyberattacks or actual or perceived security, privacy or data protection breaches, and other incidents directed at, or suffered by, our competitors could reduce confidence in our industry and, as a result, reduce confidence in us. We also expect to incur significant costs in an effort to detect and prevent privacy, data protection and security breaches, and other privacy-, data protection- and security-related incidents and we may face increased costs and requirements to expend substantial resources in the event of an actual or perceived privacy, data protection, or security breach or other incident occurs. While we maintain cyber insurance that may help provide coverage for these types of incidents, we cannot assure you that our insurance will be adequate to cover all of our costs and liabilities related to any incidents, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could adversely affect our business, reputation, results of operations, and financial condition.

We are subject to income taxes and non-income taxes in various U.S. jurisdictions, and such tax laws and rates vary by jurisdiction. We are subject to review and audit by U.S. federal, state and local tax authorities. Such tax authorities may disagree with tax positions we take, and if any such tax authority were to successfully challenge any such position, our financial results and operations could be materially and adversely affected. In particular, such tax authorities may raise questions about, or challenge or disagree with, our calculation, reporting, or collection of taxes and may require us to collect taxes in jurisdictions in which we do not currently do so or to remit additional taxes and interest and could impose associated penalties and fees. Further, even in jurisdictions where we are collecting taxes and remitting such taxes to the appropriate authorities, we have failed and in the future may fail to accurately calculate, collect, report, and remit such taxes. A successful assertion by one or more tax authorities requiring us to collect taxes in jurisdictions in which we do not currently do so or to collect additional taxes in a jurisdiction in which we currently collect taxes, could result in substantial tax liabilities, including taxes on past sales, as well as penalties and interest, could discourage Pet Parents and Pet Caregivers from utilizing our offerings, or could otherwise harm our business, financial condition, and operating results. We are currently subject to audits by taxing authorities and other forms of investigation, audit, or inquiry conducted by federal, state, or local governmental agencies. We are also subject to routine IRS audits, including those regarding 1099 Statements. As of December 31, 2023, management did not believe that the outcome of pending matters would have a material adverse effect on our financial position, results of operations, or cash flows. For more information, see Note 9, Commitments and Contingencies, to the Consolidated Financial Statements included in Part II, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. New tax laws or regulations could be enacted at any time, which could adversely affect our business operations and financial performance. Further, existing tax laws and regulations could be interpreted, modified or applied adversely to us. Significant judgment is required on an ongoing basis to evaluate applicable tax obligations and as a result, amounts recorded are estimates and are subject to adjustments. In many cases, the ultimate tax determination is uncertain because it is not clear how new and existing statutes might apply to our business. As a result of these and other factors, the ultimate amount of tax obligations owed may differ from the amounts recorded in our financial statements and any such difference may adversely affect our operating results in future periods in which we change our estimate of tax obligations or in which the ultimate tax outcome is determined.

We collect, store, transmit, and process a large volume of personal information relating to users on our platform, as well as personally identifiable information relating to users on our platform, such as email addresses, phone numbers, and home address, as well as personal information relating to other individuals such as our employees and job applicants. In addition to contractual obligations, numerous local, municipal, state, federal, and international laws, rules and regulations address privacy and the collection, storing, transmitting, use, disclosure, disposal, protection, and other processing of certain types of data, including personal information. These laws, rules, and regulations regulating the personal information collected, transmitted, stored, and processed by us evolve frequently and their scope may continually change, through new legislation, amendments to existing legislation and changes in enforcement and may be inconsistent from one jurisdiction to another. In addition there has been a noticeable increase in class actions in the United States where plaintiffs have utilized a variety of laws, including state wiretapping laws, in relation to the use of chatbots, cookies, and other tracking technologies. Complying with these laws requires significant costs and expenses, and any actual or perceived failure by us or our third party service providers to comply could result in significant liability and negative publicity. Such consequences could materially adversely affect our business, operating results, and financial condition. For example, certain U.S. states have adopted new or modified laws and regulations relating to privacy, the processing of information and electronic marketing, that apply to our business. The CCPA went into effect in 2020 and imposes a range of obligations on covered businesses that process personal information about California residents. Other states, including Virginia, Colorado, Connecticut, and Utah, among others, have enacted similar data privacy laws and comparable data privacy legislation may be passed at a state, federal, or international level. Numerous class-action suits have been filed in recent years against companies who conduct telemarketing and/or SMS texting programs in violation of federal and state laws, including the TCPA, with many resulting in multi-million-dollar settlements to the plaintiffs. We may also be subject to specific data security frameworks and/or laws that require us to maintain a certain level of security. For example, the Federal Trade Commission expects a company's data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities. This creates a patchwork of overlapping but different laws relating to the processing of personal information, which increases the complexity of compliance and has required, and may in the future require, us to modify our data processing practices and policies and to incur substantial compliance-related costs and expenses that are likely to increase over time. Our efforts to comply with the various data privacy, data protection and information security laws, regulations, and frameworks, alongside contractual obligations relating to the processing of personal information, may not be effective and could greatly increase the cost of operating our platform, require significant changes to our operations, or even prevent us from providing our platform in jurisdictions in which we currently operate and in which we may operate in the future, all of which may have a material and adverse impact on our business, financial condition and results of operations. Moreover, any failure, or perceived failure, by us, our third-party providers, Pet Parents, or Pet Caregivers, to comply with data privacy laws, rules, or regulations, industry standards, and other requirements could result in proceedings or actions against us by individuals, consumer rights groups, government agencies, or others. We could incur significant costs in investigating and defending such claims and, if found liable, pay significant damages or fines or be required to make changes to our business. Further, these proceedings and any subsequent adverse outcomes may subject us to significant negative publicity and any erosion of trust which could damage our reputation and operating results. Even if not subject to legal challenge, the perception of privacy concerns, whether or not valid, may harm our reputation and brand which could materially adversely affect our business, financial condition, and operating results.

We operate in a highly competitive environment and face significant competition in attracting users. Current and potential competitors (including any new entrants into the market, friends, family, neighbors, other digital marketplaces for pet care services, large commercial kennels and daycares) may enjoy substantial competitive advantages over us, such as greater name recognition, longer operating histories, greater category share in certain markets, market-specific knowledge, previously established or stronger relationships with customers, larger existing user bases in certain markets, more successful marketing capabilities, and substantially greater financial, technical, and other resources than we have. Competitors may be able to provide users with a better or more complete experience, or respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, or user requirements or preferences. Some of our competitors could adopt aspects of our business model, which could affect our ability to differentiate our offerings from competitors. Our industries may also experience significant consolidation or the entrance of new players. If our competitors are successful, we may face reduced demand for our platform and slower growth, which could materially adversely affect our business, operating results, and financial condition. We believe our ability to compete effectively depends upon many factors both within and beyond our control, including the popularity, utility, ease of use, performance, and reliability of our offerings compared to those of our competitors; the prices of offerings and the fees we charge pet care providers and Pet Parents on our platform; our ability to attract and retain high quality Pet Caregivers; the perceived safety of offerings on our platform; our ability, and the ability of our competitors, to develop new offerings; and our ability to attract, retain, and motivate talented employees.

Trust in our brand is essential to the strength of our business. Maintaining and enhancing our brand and reputation is critical to our ability to attract users and employees and to compete effectively. We are heavily dependent on the perceptions of those who use our platform to help make word-of-mouth recommendations that contribute to our growth. Negative perception of our platform or company and negative publicity or negative experiences on our platform may harm our brand and reputation and could adversely affect our business, operating results, and financial condition. Any incident, whether actual or rumored to have occurred, involving the safety or security of pets, Pet Caregivers, Pet Parents, or other members of the public, fraudulent activity and transactions on our platform, or incidents that are mistakenly attributed to us and any media coverage or social media posts resulting therefrom, could create a negative public perception of our platform, which would adversely impact our ability to attract and retain users. The impact of these issues may be more pronounced if we are seen to have failed to provide prompt and appropriate support or our platform policies are perceived to be too permissive, too restrictive, or providing unsatisfactory resolutions. We have been the subject of media reports, social media posts, blogs, and other forums that contain allegations about our business or activity on our platform that create negative publicity. As a result of these complaints and negative publicity, some Pet Caregivers have refrained from and may in the future refrain from, offering services through our platform and some Pet Parents have refrained from and may in the future refrain from using our platform, which could materially adversely affect our business, operating results, and financial condition. Our brand and reputation could also be harmed if we fail to comply with regulatory requirements as interpreted by certain governments or agencies or otherwise fails, or are perceived to fail, to act responsibly in a number of other areas, such as: animal welfare; safety and security; cybersecurity; privacy practices and data protection; provision of information about users and activities on our platform. In addition, we rely on users to provide trustworthy reviews and ratings that others may rely upon to help decide whether or not to utilize a particular offering and that we use to enforce quality standards. We rely on these reviews to further strengthen trust among members of our community. Our users may be less likely to rely on reviews and ratings if they believe that our review system does not generate trustworthy reviews and ratings. We have procedures in place to combat fraud or abuse of our review system, but cannot guarantee that these procedures are or will be effective. In addition, if our Pet Parents do not leave reliable reviews and ratings, other potential Pet Caregivers or Pet Parents may disregard those reviews and ratings, and our systems that use reviews and ratings to make quality standards transparent would be less effective, which could reduce trust within our community and damage our brand and reputation and could materially adversely affect our business, operating results, and financial condition.

Any expansion of our operations internationally involves risk, including many of the same operational risks we face in expanding our U.S. operations. Our ability to manage our business and conduct our operations internationally requires considerable management attention and resources, and is subject to unique challenges, including growing a business in an environment of multiple languages, cultures, customs, legal systems, alternative dispute systems, regulatory systems, foreign currency rules and regulations, adverse tax consequences, and commercial infrastructures, and challenges obtaining and protecting intellectual property rights. In addition, international expansion may increase our risks in complying with various laws and standards, including with respect to anti-corruption, anti-bribery, export controls, privacy, and trade and economic sanctions.

A significant natural disaster, such as an earthquake, fire, hurricane, tornado, flood or significant power outage, could disrupt our operations, mobile networks, the Internet or the operations of our third-party technology providers. In particular, our corporate headquarters are located in the San Francisco Bay Area, a region known for seismic activity. In addition, any public health crises, such as the COVID-19 pandemic, other epidemics, political crises, such as terrorist attacks, war and other political or social instability and other geopolitical developments, or other catastrophic events, whether in the United States or abroad, could adversely affect our operations or the economy as a whole. The impact of any natural disaster, act of terrorism or other disruption to us or our third-party providers' abilities could result in decreased demand for our offerings, those of our third-party providers, or a delay in the provision of such offerings, which could adversely affect our business, financial condition and results of operations. All of the aforementioned risks may be further increased if our disaster recovery plans prove to be inadequate. Other events beyond our control can result in declines in travel or continued hybrid work arrangements. Because these events or concerns and the full impact of their effects, are largely unpredictable, they can dramatically and suddenly affect travel and work behavior by consumers and therefore demand for our platform and pet services, which would materially adversely affect our business, operating results, and financial condition. In response to the economic challenges and uncertainty resulting from the COVID-19 pandemic and its impact on our business, we moved to a hybrid workplace setup in which employees have the voluntary option to go to the office. However there is no requirement for employees to go to the office every day at this time nor any plans for such a requirement in the immediate future. We are positioned to leverage technology for employees and teams to work from home and accomplish their work without going into the office. In addition, our business and results of operations are also subject to global economic conditions, including any resulting effect on spending by us or our customers. If general economic conditions deteriorate in the United States, discretionary spending may decline and demand for premium pet offerings may be reduced. Also, an economic downtown caused by factors outside of our control, including the COVID-19 pandemic, has led or could lead to a general decrease in travel and spending on pet care services and such downturns in the future may materially adversely impact demand for our platform and our revenue. Such a shift in Pet Parent behavior would materially adversely affect our business, operating results, and financial condition.