**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-K**





ý
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





**For
      the fiscal year ended December 31, 2006**





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





**For
      the transition period from__________ to__________**




**Commission
      file number: 000-51596**





**ECHO
      HEALTHCARE ACQUISITION CORP.**


(Exact
      name of registrant as specified in its charter)





**Delaware**
            ****
            **56-2517815**(State
                or other jurisdiction of
              incorporation
                or organization)
            
            (I.R.S.
                Employer Identification No.)**8000
                Towers Crescent Drive, Suite 1300****Vienna,
                VA**
            ****
            **22182**(Address
                of principal executive offices)
            
            (Zip
                Code)**Registrant’s
                telephone number, including area code: (703)
                448-7688**




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





**Title
                of each class**
            ****
            **Name
                of each exchange on which registered**Units,
                each consisting of one share of Common Stock, $0.0001 par value,
                and One
                Warrant
            
            Over-the-counter
                bulletin boardCommon
                Stocks, $0.0001 par value
            
            Over-the-counter
                bulletin boardWarrants
                to Purchase Common Stock
            
            Over-the-counter
                bulletin board





**Securities
      registered pursuant to section 12(g) of the Act: NONE**




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes o  No  ý




Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act. Yes o  No ý




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




Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. o




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):




Large
                accelerated filero
            
            Accelerated
                filero
            
            Non-accelerated
                filerý




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




The
      aggregate market value of the registrant’s voting and non-voting common stock
      held by non-affiliates of the registrant (without admitting that any person
      whose shares are not included in such calculation is an affiliate) computed
      by
      reference to the price at which the common stock was last sold on June 29,
      2006
      was $55,141,414.




As
      of
      March 30, 2007, the registrant had 8,750,000 shares of common stock
      outstanding.




**DOCUMENTS
      INCORPORATED BY REFERENCE**




None.












**PART
      I**




This
      annual report on Form 10-K (“Form 10-K”) was prepared and relates to Echo
      Healthcare Acquisition Corp. (the “Company”) as of December 31, 2006. Since that
      date there has been a subsequent event on February 16, 2007, in which we entered
      into an amended and restated Agreement and Plan of Merger (“Amended and Restated
      Merger Agreement”) with PetDRx Acquisition Company (“Merger Sub”), our
      wholly-owned Delaware subsidiary, and XLNT Veterinary Care, Inc., a Delaware
      corporation (“XLNT”), which amended and restated the Merger Agreement originally
      entered into on September 11, 2006 (“Merger Agreement”), pursuant to which
      Merger Sub will merge into XLNT, with XLNT continuing as the surviving entity,
      and XLNT will become our wholly-owned subsidiary. Following completion of the
      merger, the resulting company’s name will be changed to PetDRx Corporation.
      Because we will have no other operating business following the merger, XLNT
      will
      effectively become a public company at the conclusion of the merger. XLNT is
      headquartered in San Jose, California. As of March 31, 2007, XLNT operates
      26
      veterinary hospitals in the state of California. An announcement of the Amended
      Agreement and filing of the related Form 8-K, including all related exhibits,
      was made on February 20, 2007. An excerpt of the Form 8-K filing is provided
      below.




When
      reading this Form 10-K, please note that all references are to us as we existed
      prior to the September 11, 2006 Merger Agreement. Whether or not the merger
      is
      consummated may have a material impact on us. Disclosures related to such impact
      will be filed in our proxy filing soliciting stockholder approval of the
      proposed merger.




***Excerpts
      from February 20, 2007 Form 8-K filing***






The
      Company, Merger Sub and XLNT entered into an amended and restated Merger
      Agreement (the “Amended and Restated Merger Agreement”) on February 16, 2007,
      that included the following modifications (capitalized terms used but not
      defined in this report have the meanings given to them in the Amended and
      Restated Merger Agreement):




·
            The
                formula for the aggregate merger consideration (“Aggregate Merger
                Consideration”) payable in the merger will include revenues attributable
                to hospitals or clinics that are acquired by XLNT on or before March
                31,
                2007.




·
            Aggregate
                Merger Consideration shall be a number of shares of the Company’s common
                stock equal to the quotient obtained by dividing (1) the sum of (A)
                two
                times the lesser of (x) the consolidated gross revenues of XLNT for
                the
                year ended December 31, 2006, including the revenues for the year
                ended
                December 31, 2006 attributable to hospitals or clinics that are acquired
                by XLNT prior to the Closing Date (each an “Acquisition Candidate”), and
                (y) $60.0 million, but in no event less than $57.5 million (“Baseline
                Revenues”), and (B) the excess over $60.0 million of XLNT’s Baseline
                Revenues (“Incremental Revenues”), multiplied by 1.15 (the sum of Baseline
                Revenues and Incremental Revenues being hereinafter referred to as
                the
                “Adjusted Baseline Revenues”), plus (C) in the event the threshold
                requirements for the Management Performance Bonus Pool are met (as
                described below), an amount equal to (the “Operational Improvement
                Amount”) the excess of the consolidated gross revenues of XLNT for the
                annualized period beginning on January 1, 2007 and ending on the
                last day
                of the fiscal quarter (based on the 2007 calendar year) immediately
                preceding the Closing Date, determined on a pro forma basis to include
                the
                revenues for such period attributable to the Completed Acquisitions,
                over
                105% of the Adjusted Baseline Revenues multiplied by (i) 1.15 in
                the event
                XLNT’s 2007 Consolidated EBITDA margin for the period beginning on January
                1, 2007 and ending on the last day of the fiscal quarter (based on
                the
                calendar year) immediately preceding the Closing Date (the “2007
                Year-To-Date EBITDA Margin”) has increased by at least 100 basis points
                over the greater of (x) XLNT’s 2006 adjusted EBITDA margin for the
                trailing twelve month period ended December 31, 2006, determined
                on a pro
                forma basis to include the revenues for such period attributable
                to the
                Completed Acquisitions, and (y) 16.2% (the “2006 Pro Forma EBITDA Margin”)
                or (ii) 1.33 in the event that XLNT’s 2007 Year-To-Date EBITDA Margin has
                increased by at least 250 basis points over XLNT’s 2006 Pro Forma EBITDA
                Margin plus (D) the Net Cash Amount; by (2) the product of (a) the
                amount
                of cash in the Company’s trust fund at the Closing (without deduction for
                amounts paid in connection with obtaining a fairness opinion from
                a
                nationally recognized financial advisor and the conversion by the
                Company’s public stockholders voting against the Merger of up to 19.9% of
                the Company’s shares of common stock issued in its initial public offering
                (the “IPO”) into a pro rata share of the funds held in the Company’s trust
                fund established in connection with the IPO) divided by the number
                of
                shares of the Company’s common stock then issued and outstanding
                (excluding therefrom any shares of the Company’s common stock issuable
                upon the exercise or exchange of other Company securities which by
                their
                terms are convertible into or exercisable or exchangeable for the
                Company’s common stock) multiplied by (b) 1.25. However, the product
                determined in (2) above shall not exceed $7.20 (as adjusted for events
                set
                forth in the Amended and Restated Merger Agreement).









·
            The
                exchange ratio pursuant to which shares of XLNT common stock will
                be
                exchanged for shares of Echo common stock will be equal to the quotient
                of
                (x) the Aggregate Merger Consideration, divided by the sum of (y)
                (i) the
                total number of outstanding shares of XLNT common stock (assuming
                that all
                shares of XLNT’s convertible preferred stock are converted into common
                stock prior to the closing) plus (ii) the number of shares of XLNT
                common
                stock issuable upon exercise of all vested and unvested options and
                warrants, determined using the treasury method of
                accounting.





·
            The
                parties will calculate the final working capital and net cash amount
                within 30 days following the closing of the Merger. If the final
                working
                capital is positive, then the Company shall issue to the exchange
                agent
                such number of additional shares of Echo Common Stock as is equal
                to the
                quotient determined by dividing the net cash amount (which shall
                not
                exceed the amount by which XLNT’s final working capital is positive and
                shall be reduced dollar-for-dollar by the amount of cash in Echo’s trust
                fund in excess of $52.0 million (after payment of all transaction
                expenses, amounts payable to Echo stockholders requesting redemption
                and
                deferred IPO expenses)) by the Echo common stock per share issue
                price. In
                addition, if the requirements for the Management Performance Bonus
                Pool
                are met, Echo shall issue to the exchange agent such number of additional
                shares of Echo common stock as is equal to the quotient determined
                by
                dividing the Operational Improvement Amount by the Echo common stock
                per
                share issue price. If any additional amounts are determined to be
                owing
                following the delivery of a notice of disagreement in accordance
                with the
                Amended and Restated Merger Agreement, then certificates for the
                additional shares of Echo common stock (or any cash in lieu of fractional
                shares) shall be deposited with the exchange agent within 30 days
                of such
                determination. In each case discussed above, the number of shares
                of Echo
                common stock to be delivered to the exchange agent shall be reduced
                by the
                number of shares of Echo common stock required by the terms of the
                Amended
                and Restated Merger Agreement to be delivered to the escrow agent,
                for
                distribution by the exchange agent to XLNT’s stockholders in an amount
                equal to each such stockholder’s pro rata interest in such amount
                following the 18 month anniversary of the closing of the subject
                transaction.




·
            XLNT
                will be permitted to incur up to $15 million in principal amount
                of
                indebtedness that carries an interest rate not to exceed thirteen
                percent
                (13%).




·
            The
                expiration date of the merger agreement has been extended until March
                21,
                2008.




·
            The
                companies agreed to delete the covenant in the merger agreement that
                restricted XLNT to 19,500,000 shares of common stock
                outstanding.




·
            Between
                the date of signing of the Amended and Restated Merger Agreement
                and March
                31, 2007, XLNT shall not enter into any definitive acquisition agreement
                with a hospital or clinic it seeks to acquire (each, an
                “Acquisition****Candidate”)
                unless such definitive acquisition agreement includes a termination
                right
                exercisable by the XLNT if XLNT and the Company determine that such
                Acquisition Candidate will not be able to provide its audited financial
                statements that will be required by the Company’s Form S-4 (“Significant
                Acquisition Audits”) on or before May 10,
                2007.




·
            Between
                the date of signing of the Amended and Restated Merger Agreement
                and March
                31, 2007, XLNT shall only consummate an acquisition with an Acquisition
                Candidate if XLNT and Echo determine that such Acquisition Candidate
                will
                be able to provide its audited financial statements that constitute
                Significant Acquisition Audits on or before May 10, 2007.




·
            Subsequent
                to March 31, 2007, XLNT will not enter into any term sheet, letter
                of
                intent, definitive acquisition agreement or similar agreements with
                an
                Acquisition Candidate or consummate any acquisition with an Acquisition
                Candidate if the result of taking such action would be to require
                that any
                financial information, including, without limitation, any financial
                statements (whether or not audited), relating to such Acquisition
                Candidate be included in the proxy statement/prospectus to be filed
                by
                Echo or that any of the financial information or then existing disclosure
                contained or to be contained in the proxy statement/prospectus would
                be
                required by applicable requirements of the Securities and Exchange
                Commission (“SEC”) to be amended in any manner to include information
                and/or disclosure regarding such Acquisition
                Candidate.




2




·
            XLNT
                will provide to Echo XLNT’s historical audits on or before March 31, 2007.
                XLNT will provide to Echo any other audited financial statements
                that may
                be required by the SEC due to any acquisitions of Acquisition Candidates
                completed subsequent to December 31, 2006 that either individually
                or in
                the aggregate meet any significance tests then prescribed by the
                SEC for
                determining financial statement disclosure requirements relevant
                to Echo’s
                proxy statement/prospectus (“Significant Acquisition Audits”) on or before
                May 10, 2007. For purposes of the Amended and Restated Merger Agreement,
                XLNT’s historical audits and the Significant Acquisition Audits are
                referred to collectively as the “Audited Financial Statements.” In
                addition, XLNT will provide Echo with XLNT’s unaudited interim financial
                statements for the quarter ended March 31, 2007 on or before May
                10,
                2007.




·
            On
                the closing date of the Merger, in the event XLNT shall have complied
                with
                certain obligations set forth in the Amended and Restated Merger
                Agreement
                relating to the convening of the XLNT stockholder meeting and the
                delivery
                by XLNT of the financial statements required for inclusion in the
                Company’s proxy statement/prospectus, certain members of XLNT’s management
                team and consultants as designated by the Compensation Committee
                of XLNT’s
                board of directors and approved by Echo shall be eligible to participate
                in a management performance bonus pool (“Management Performance Bonus
                Pool”) with maximum awards not to exceed $1.0 million in the aggregate.
                The maximum aggregate awards shall be (i) $500,000 in the event XLNT’s
                2007 Year-To-Date EBITDA Margin has increased by at least 100 basis
                points
                over XLNT’s 2006 Pro Forma EBITDA Margin or (ii) $1.0 million in the event
                that XLNT’s 2007 Year-To-Date EBITDA Margin has increased by at least 250
                basis points over XLNT’s 2006 Pro Forma EBITDA
                Margin.




The
      foregoing description of the Amended and Restated Merger Agreement does not
      purport to be complete and is qualified in its entirety by reference to the
      complete text of the Amended and Restated Merger Agreement dated February 16,
      2007, attached as Exhibit 10.1 to the Company’s Form 8-K filed February 20,
      2007.




**Cautionary
      Statements**




The
      Amended and Restated Merger Agreement has been included to provide investors
      with information regarding its terms. Except for its status as the contractual
      document that establishes and governs the legal relations among the parties
      thereto with respect to the transactions described above, the Amended and
      Restated Merger Agreement is not intended to be a source of factual, business
      or
      operational information about the parties.




The
      representations, warranties and covenants contained in the Amended and Restated
      Merger Agreement were made only for purposes of such agreement and as of
      specific dates, were solely for the benefit of the parties to such agreement,
      and may be subject to limitations agreed to by the contracting parties,
      including being qualified by disclosures exchanged between the parties in
      connection with the execution of the Amended and Restated Merger Agreement.
      The
      representations and warranties may have been made for the purposes of allocating
      contractual risk between the parties to the Amended and Restated Merger
      Agreement instead of establishing these matters as facts and may be subject
      to
      standards of materiality applicable to the contracting parties that differ
      from
      those applicable to investors. Investors are not third-party beneficiaries
      under
      the Amended and Restated Merger Agreement and should not rely on the
      representations, warranties and covenants or any descriptions thereof as
      characterizations of the actual state of facts or condition of the Company
      or
      any of its subsidiaries.




This
      report is being made in respect of a proposed merger transaction involving
      the
      Company and XLNT. In connection with the transaction, the Company will file
      with
      the SEC a registration statement on Form S-4, which shall contain a prospectus
      and proxy statement and other documents concerning the proposed transaction
      as
      soon as practicable. Before making any voting or investment decision,
      stockholders are urged to read these documents carefully and in their entirety
      when they become available because they will contain important information
      about
      the proposed transaction.




The
      final
      prospectus and proxy statement will be mailed to the Company’s stockholders. In
      addition, the registration statement on Form S-4, final prospectus and proxy
      statement and other documents will be available free of charge at the SEC’s Web
      site, www.sec.gov, and the Company’s website, www.echohealthcare.com.
      Stockholders may also obtain free copies of the documents filed with SEC by
      the
      Company by directing a request to: Echo Healthcare Acquisition Corp., 8000
      Towers Crescent Drive, Suite 1300, Vienna, Virginia 22182, Attn: Joel Kanter.




The
      Company and its directors and executive officers, Morgan Joseph & Co. Inc.,
      Roth Capital Partners, LLC and directors, officers and affiliates of XLNT may
      be
      deemed to be participants in the solicitation of proxies in respect to the
      proposed transactions. Information regarding the Company’s directors and
      executive officers is detailed in its prospectus previously filed with the
      SEC
      on March 17, 2006, and will be available, together with information concerning
      the directors, officers and affiliates of XLNT, in the Form S-4 and final
      prospectus and proxy statement relating to the proposed transactions, when
      they
      become available.




3


**Item
      1.** **** **Business.**




**General**




We
      were
      incorporated in Delaware on June 10, 2005 as a blank check company formed for
      the purpose of acquiring, through a merger, capital stock exchange, asset
      acquisition or other similar business combination one or more domestic or
      international operating businesses in the healthcare industry. While we may
      seek
      to effect business combinations with more than one target business, our initial
      business combination must be with a target whose fair market value is at least
      equal to 80% of our net assets at the time of such acquisition.




A
      registration statement for our initial public offering was declared effective
      on
      March 17, 2006. On March 22, 2006, we consummated our initial public offering
      of
      6,250,000 units. On March 27, 2006, we consummated the closing of an additional
      937,500 units that were subject to the underwriters’ over-allotment option. Each
      unit consists of one share of common stock, par value $0.0001 per share and
      one
      warrant. Each warrant entitles the holder to purchase from us one share of
      our
      common stock at an exercise price of $6.00 per share. Our common stock and
      warrants began trading separately on June 6, 2006.




Concurrently
      with the closing of our initial public offering, certain of our initial
      stockholders and directors purchased an aggregate of 458,333 warrants (“Founding
      Director Warrants”) in a private placement transaction (the “Private Placement”)
      at an offering price of $1.20 per Founding Director Warrant, generating gross
      proceeds to us of $550,000, which was deposited in our trust account along
      with
      net proceeds from the Offering. The Founding Director Warrants entitle the
      holders to purchase, when exercised, one share of our common stock, at $6.00
      per
      share. The Founding Director Warrants were sold to accredited investors in
      a
      private placement transaction under exemptions provided by Section 4(2) of
      the
      Securities Act of 1933, as amended, and Rule 506 promulgated thereunder.




Our
      gross
      proceeds from the sale of our units, together with the proceeds of our Private
      Placement, were approximately $58,050,000. Of this amount, $54,947,000 was
      deposited in trust. Approximately $233,000 of the remaining proceeds were
      available to be used by us to provide for business, legal and accounting due
      diligence on prospective acquisitions and continuing general and administrative
      expenses.




Our
      filings with the SEC, including our annual report on Form 10-K, quarterly
      reports on Form 10-Q, current reports on Form 8-K and amendments to those
      reports are accessible free of charge on our website at
      www.echohealthcare.com.




**Effecting
      a business combination**




***General***




We
      are
      not presently engaged in, and if a business combination is not consummated
      by us
      prior to the prescribed liquidation of the trust account we may not engage
      in,
      any substantive commercial business. The proceeds held in the trust account
      may
      be used as consideration to pay the sellers of a target business with which
      we
      ultimately complete a business combination and to pay the additional
      underwriting discount to the underwriters and other deferred expenses upon
      the
      consummation of a business combination. Any amounts not paid as consideration
      to
      the sellers of the target business may be used to finance operations of the
      target business or to effect other acquisitions, as determined by our board
      of
      directors at that time. A business combination may involve the acquisition
      of,
      or merger with, a company that does not need substantial additional capital
      but
      which desires to establish a public trading market for its shares, while
      avoiding what it may deem to be adverse consequences to undertaking a public
      offering itself. While we may seek to effect business combinations with more
      than one target business, we will probably have the ability, as a result of
      our
      limited resources, to effect only a single business combination.




***Opportunity
      for stockholder approval of business combination***




Prior
      to
      the completion of a business combination, we will submit the transaction to
      our
      stockholders for approval, even if the nature of the acquisition is such as
      would not ordinarily require stockholder approval under applicable state law.
      In
      connection with seeking stockholder approval of a business combination, we
      will
      furnish our stockholders with proxy solicitation materials prepared in
      accordance with the Securities Exchange Act of 1934, which, among other matters,
      will include a description of the operations of the target business and certain
      required financial information regarding the business.




4


In
      connection with the stockholder vote required to approve any business
      combination, all of our initial stockholders have agreed to vote the shares
      of
      common stock owned by them prior to our initial public offering in the same
      manner as a majority of the public stockholders who vote at the special or
      annual meeting called for the purpose of approving a business combination.
      Our
      initial stockholders have also agreed that if they acquire shares of common
      stock in or following our initial public offering, they will vote such acquired
      shares in favor of a business combination. As a result, any of our initial
      stockholders that acquire shares during or after our initial public offering
      may
      not exercise conversion rights with respect to those shares in the event that
      the business combination transaction is approved. We will proceed with the
      business combination only if a majority of the shares of common stock voted
      by
      the public stockholders are voted in favor of the business combination and
      public stockholders owning less than 20% of the shares sold in our initial
      public offering exercise their conversion rights. Voting against the business
      combination alone will not result in conversion of a stockholder’s shares into a
      pro rata share of the trust account. Such stockholder must have also exercised
      its conversion rights described below.




***Conversion
      rights***




At
      the
      time we seek stockholder approval of any business combination, we will offer
      each public stockholder, other than our initial stockholders, the right to
      have
      such stockholder’s shares of common stock converted to cash if the stockholder
      votes against the business combination and the business combination is approved
      and completed. The actual per-share conversion price will be equal to the amount
      in the trust account, prior to deduction of any deferred costs and inclusive
      of
      any interest (net of any taxes due on such interest, which taxes, if any, shall
      be paid from the trust account, and calculated as of two business days prior
      to
      the consummation of the proposed business combination), divided by the number
      of
      shares sold in our initial public offering. Deferred underwriting and other
      offering costs consist of deferred underwriting fees, legal and printing fees
      incurred through December 31, 2006 that were related to the Offering and were
      charged to stockholders’ equity upon completion of the Offering. Without taking
      into any account interest earned on the trust account or taxes payable on such
      interest, the initial per-share conversion price would have been $7.64 or $0.36
      less than the per-unit offering price of $8.00. Because the initial per share
      conversion price is $7.64 per share (plus any interest net of taxes payable),
      which is lower than the $8.00 per unit price paid in the offering and, which
      may
      be lower than the market price of the common stock on the date of the
      conversion, there may be a disincentive on the part of public stockholders
      to
      exercise their conversion rights. The term “public stockholders” means the
      holders of common stock sold as part of the units in our initial public offering
      or in the aftermarket, including any initial stockholders to the extent that
      they purchase or acquire such shares.




An
      eligible stockholder may request conversion at any time after the mailing to
      our
      stockholders of the proxy statement and prior to the vote taken with respect
      to
      a proposed business combination at a meeting held for that purpose, but the
      request will not be granted unless the stockholder votes against the business
      combination and the business combination is approved and completed. Any request
      for conversion, once made, may be withdrawn at any time up to the date of the
      meeting. It is anticipated that the funds to be distributed to stockholders
      entitled to convert their shares who elect conversion will be distributed
      promptly after completion of a business combination. Public stockholders who
      convert their stock into their share of the trust account still have the right
      to exercise the warrants that they received as part of the units. We will not
      complete any business combination if public stockholders, owning 20% or more
      of
      the shares sold in our initial public offering, exercise their conversion
      rights. We will only structure or consummate a business combination in which
      all
      stockholders exercising their conversion rights, up to 19.99%, are entitled
      to
      receive their pro rata portion of the trust account (net of taxes payable).
      Additionally, we will not propose a business combination to our stockholders
      which includes a provision that such business combination will not be
      consummated if stockholders owning less than 19.99% vote against such business
      combination and exercise their conversion rights as described
      herein.




***Liquidation
      if no business combination***




If
      we do
      not complete a business combination within 18 months after March 22, 2006,
      or
      within 24 months if a letter of intent or definitive agreement has been executed
      within 18 months after March 22, 2006 and the business combination has not
      yet
      been consummated within such 18 month period, we will be dissolved and will
      distribute to all of our public stockholders, in proportion to their respective
      equity interests, an aggregate sum equal to the amount in the trust account,
      inclusive of any interest (net of taxes payable), plus any remaining net assets.
      Our initial stockholders have waived their rights to participate in any
      liquidation distribution with respect to shares of common stock owned by them
      immediately prior to our initial public offering. There will be no distribution
      from the trust account with respect to our warrants, which will expire
      worthless.




5


If
      we
      were to expend all of the net proceeds of our initial public offering, other
      than the proceeds deposited in the trust account, and taking into account
      interest earned on the trust account, the current per-share liquidation price
      as
      of December 31, 2006 would be $7.84 or $0.16 less than the per-unit offering
      price of $8.00. The proceeds deposited in the trust account could, however,
      become subject to the claims of our creditors, which could have priority over
      the claims of our public stockholders. We cannot assure you that the actual
      per-share liquidation price will not be less than $7.84 due to claims of
      creditors.




Our
      Chairman and all of our executive officers have agreed pursuant to agreements
      with us and Morgan Joseph & Co. that, if we distribute the proceeds held in
      trust to our public stockholders, they will be personally liable under certain
      circumstances (for example, if a vendor or a prospective target business does
      not waive any rights or claims to the trust account) to pay debts and
      obligations to vendors, prospective target businesses or other entities that
      are
      owed money by us for services rendered or products sold to us in excess of
      the
      net proceeds of our initial public offering not held in the trust account,
      to
      the extent necessary to ensure that such claims do not reduce the amount in
      the
      trust account. We cannot assure you, however, that they would be able to satisfy
      those obligations.




If
      we are
      unable to complete the business combination contemplated by the Amended and
      Restated Merger Agreement with XLNT by March 22, 2008, then upon notice from
      us,
      the trustee of the trust account will commence liquidating the investments
      constituting the trust account and will turn over the proceeds to our transfer
      agent for distribution to our public stockholders. We anticipate that our
      instruction to the trustee would be given promptly after the expiration of
      the
      applicable 24-month period.




Our
      public stockholders will be entitled to receive funds from the trust account
      only in the event of our liquidation or if the stockholders seek to convert
      their respective shares into cash upon a business combination that the
      stockholder voted against and which is actually completed by us. In no other
      circumstances will a stockholder have any right or interest of any kind to
      or in
      the trust account. Voting against the business combination alone will not result
      in conversion of a stockholder’s shares into a pro rata share of the trust
      account. Such stockholder must have also exercised its conversion rights
      described above.




***Competition***




If
      we
      succeed in effecting the business combination with XLNT, there will be, in
      all
      likelihood, intense competition from competitors in the veterinary healthcare
      industry. For a more complete description of the risks that will be applicable
      to us following the business combination with XLNT, see “Item 1A - Risk Factors”
below. We cannot assure you that, subsequent to a business combination, we
      will
      have the resources or ability to compete effectively.




If
      we do
      not consummate the business combination with XLNT or the Amended and Restated
      Merger Agreement is otherwise terminated, and we elect to pursue an alternative
      target business, there can be no assurance that we will identify viable target
      businesses, be able to enter into acquisition agreements or otherwise consummate
      alternative business combinations. We compete against a variety of businesses,
      investment funds, private equity funds, blank-check companies, and other
      entities that may have better access to capital and financial resources and
      there can be no assurance that we will be able to compete against these entities
      and successfully consummate a business combination if the XLNT merger is not
      consummated.




***Facilities***




We
      maintain our executive offices at 8000 Towers Crescent Drive, Suite 1300,
      Vienna, Virginia 22182. We have agreed to pay Windy City, Inc., an affiliated
      party of which Mr. Kanter is the president and a director, $7,500 a month for
      office space, $5,500 of which shall be deferred until completion of our initial
      business combination, at which our executive offices are located, and utilities
      and personnel. These offices consist of approximately 500 square feet of office
      space. This arrangement is being agreed to by Windy City, Inc. for our benefit
      and is not intended to provide Mr. Kanter compensation in lieu of salary. We
      believe, based on rents and fees for similar services in the Vienna, Virginia
      area, that the fee charged by Windy City, Inc. is at least as favorable as
      we
      could have obtained from an unaffiliated third-party. We consider our current
      office space adequate for our current operations.




***Employees***
  We
        have
        three executive officers, each of whom are members of our board of directors.
        These individuals are not obligated to contribute any specific number of
        hours
        per week and intend to devote only as much time as they deem necessary to
        our
        affairs. The executive officers are also involved with business ventures
        other
        than the Company. We have no employees.


6


**Executive
      Officers of Our Company**




As
      of
      March 31, 2007, the executive officers of our Company are:




***Gene
      E. Burleson*** (age
      66)
      is our Chairman of the Board and Chief Executive Officer and has served in
      this
      capacity since our Company’s inception. He previously served as Chairman of the
      Board of Directors of Mariner Post-Acute Network, Inc., an operator of long-term
      care facilities, from January 2000 to June 2002. Mr. Burleson also served as
      Chairman of the Board of Directors of Alterra Healthcare Corporation, a
      developer and operator of assisted living facilities, during 2003 and as a
      member of the board of directors from 1995 to 2003. Mr. Burleson currently
      serves on the Board of Directors of: Deckers Outdoor Corporation (Nasdaq:DECK),
      an outdoor shoe company; Prospect Medical Holdings, Inc. (AMEX:PZZ), a provider
      of management services to affiliated independent physician associations; SunLink
      Health Systems, Inc. (AMEX:SSY), an owner and operator of acute care hospitals;
      and Nesco Industries, Inc. (OTCBB:NESK.OB), a manufacturer of aqueous polymer
      Hydrogel used for wound care and transdermal drug delivery systems. In addition,
      Mr. Burleson is involved with several private companies, including BioHorizons
      Implant Systems, Inc., a provider of dental implants and related products;
      Med
      Images, Inc., a provider of integrated documentation services to surgeons and
      hospitals through multimedia technology; Marina Medical, Inc., a provider of
      medical billing and accounts receivable management services to hospital based
      physicians; Footcare Associates, Inc., a provider of therapeutic and diabetic
      footwear; and David Braun Productions, Inc., a producer of children’s television
      programming. Mr. Burleson served as Chairman of the Board of GranCare (formerly
      an NYSE listed company) from 1989 to 1997. Additionally, Mr. Burleson served
      as
      President and Chief Executive Officer of GranCare from 1990 to 1997. Upon
      completion of the merger of GranCare’s pharmacy operations with Vitalink
      Pharmacy Services, Inc. in 1997, he became Chief Executive Officer and a
      Director of Vitalink Pharmacy Services Inc. (formerly an NYSE listed company).
      Mr. Burleson resigned as Chief Executive Officer and Director of Vitalink
      Pharmacy Services, Inc. in 1997. From 1986 to 1989, Mr. Burleson served as
      President, Chief Operating Officer and a Director of AMI, an owner and operator
      of acute care hospitals. Based in London from 1981 to 1986, Mr. Burleson served
      as Managing Director of AMI’s international operations. Mr. Burleson graduated
      from East Tennessee State University with a Bachelor of Science in accounting
      and earned an M.B.A. in 1972.




***Joel
      Kanter*** (age
      50)
      is our President and Secretary and has served in this capacity since our
      Company’s inception. He has served as President of Windy City, Inc., a
      privately-held investment firm, since 1986. From 1995 to 1999, Mr. Kanter served
      as the Chief Executive Officer and President of Walnut Financial Services,
      Inc.,
      a publicly traded company (formerly listed on Nasdaq). Walnut Financial’s
      primary business focus was the provision of different forms of financing to
      small businesses. Walnut Financial accomplished this objective by providing
      equity financing to start-up and early stage development companies, bridge
      financing and factoring services to small and medium-sized companies, and by
      providing later stage institutional financing to more mature enterprises through
      an institutional fund it ran for the Teachers Retirement System of Illinois.
      Over the course of its 13 year history, Walnut Financial provided financing
      to
      over 300 companies, including many that became well known ventures including
      Plax Mouthwash (Oral Research Laboratories), Sonicare Toothbrushes (Optiva
      Corp.), the first manufacturer of Global Positioning System devices (Magellan
      Corp.), the largest and only nationwide Preferred Provider Organization (First
      Health), what became the country’s fifth largest nursing home company
      (GranCare), and the third largest U.S. institutional pharmacy company (Vitalink
      Pharmacy Services, Inc.). Walnut Financial was acquired by THCG, Inc. in 1999.
      From 1985 through 1986, Mr. Kanter served as Managing Director of The Investors’
Washington Service, an investment advisory company specializing in providing
      advice to large institutional clients regarding the impact of federal
      legislative and regulatory decisions on debt and equity markets. Clients
      included Amoco Oil, AT&T, Bankers Trust, Chase Manhattan Bank, General
      Motors and J.C. Penney. Mr. Kanter serves on the Board of Directors of several
      public companies including I-Flow Corporation (Nasdaq:IFLO), Magna-Lab, Inc.
      (OTC Bulletin Board:MAGLA.OB) Nesco Industries, Inc. (OTCBB:NESK.OB), a
      manufacturer of aqueous polymer Hydrogel used for wound care and transdermal
      drug delivery systems; and Prospect Medical Holdings, Inc. (AMEX:PZZ), a
      provider of management services to affiliated independent physician
      associations. Mr. Kanter served on the board of Encore Medical Corporation
      (Nasdaq: ENMC) prior to its going-private merger with Blackstone in November
      2006. Mr. Kanter also serves on the board of directors of several private
      companies, including XLNT Veterinary Care, Inc., an operator of veterinary
      hospitals; Med Images, Inc., a provider of integrated documentation services
      to
      surgeons and hospitals through multimedia technology; Modigene Inc., a life
      sciences company that is developing technology to extend the life of proteins;
      MathMastery, Inc., a company that develops homework help products for the
      educational market; and Prescient Medical, Inc. an early stage company seeking
      methods to identify and treat vulnerable plaque in cardiology patients. He
      is
      the past President of the Board of Trustees of The Langley School in McLean
      Virginia and a current Trustee at the Georgetown Day School in Washington,
      D.C.
      Mr. Kanter graduated from Tulane University in 1978 with a Bachelor of Science
      in Psychology and a Bachelor of Arts in Political Science.




7


***Kevin
      Pendergest*** (age
      53),
      is our Chief Financial Officer, Treasurer and a director of our Company and
      has
      served in this capacity since our Company’s inception. He also serves as the
      president of Strategic Alliance Network (“SAN”), a company he founded in 1995
      and for which he also served as president from 1995 to 2002. SAN is a financial
      services advisory firm that provides assistance in mergers and acquisitions,
      financing, restructuring and turnaround management to companies in the
      healthcare industry. From 2002 until 2005, Mr. Pendergest served as the
      Executive Vice President and Chief Financial Officer of Sun Healthcare Group,
      Inc. (Nasdaq:SUNH), one of the nation’s largest providers of long-term care.
      From 1990 to 1995, Mr. Pendergest served as the Executive Vice President and
      Chief Financial Officer of GranCare (formerly listed on NYSE), a company that
      provided long-term care services. Prior to that Mr. Pendergest spent thirteen
      years working for two national public accounting firms, including serving as
      partner in charge of healthcare consulting for the western region of a
      predecessor to Deloitte & Touche. Mr. Pendergest is a Certified Public
      Accountant and holds a Bachelor of Science in Accounting from the University
      of
      Dayton.




**Item
      1A. Risk Factors.**




Statements
      in this Annual Report under the captions “Business” and “Management’s Discussion
      and Analysis of Financial Condition and Results of Operations,” as well as oral
      statements that may be made by us or by our officers, directors or employees
      acting on our behalf, that are not historical fact constitute “forward-looking
      statements” within the meaning of the Private Securities Litigation Reform Act
      of 1995. Such forward-looking statements involve known and unknown risks,
      uncertainties and other factors that could cause our actual results to be
      materially different from the historical results or from any results expressed
      or implied by such forward-looking statements. Such factors include, but are
      not
      limited to, the risk factors set forth below.




We
      do not
      intend to update any forward-looking statements to reflect events or
      circumstances after the date of such statements or to reflect the occurrence
      of
      anticipated or unanticipated events.




**Risks
      Associated with Our Company**




***If
      we are unable to complete the business combination with XLNT, we will not have
      enough time to negotiate and consummate another business combination and will
      be
      required to liquidate.***




We
      must
      complete our business combination by March 22, 2008. Accordingly, if we are
      unable to complete the business combination with XLNT, it is unlikely that
      we
      will have enough time to negotiate and consummate another business combination.
      We will therefore be forced to liquidate our assets. If we are unable to
      complete a business combination and are forced to liquidate our assets, the
      per-share liquidation distribution could be less than the purchase price per
      share that purchasers paid for our securities because of the expenses of the
      initial public offering and our general and administrative expenses.
      Furthermore, there will be no distribution with respect to our outstanding
      warrants and, accordingly, the warrants will expire worthless if we liquidate
      before the completion of a business combination.




***If
      third parties bring claims against us, the proceeds held in trust could be
      reduced and the per share liquidation price received by stockholders could
      be
      less than their purchase price per share.***




Our
      placing of funds in trust may not protect those funds from third party claims
      against us. The proceeds held in trust could be subject to claims which could
      take priority over the claims of our public stockholders. There can be no
      assurance that the per-share liquidation price including interest (net of any
      taxes due on such interest, which taxes, if any, shall be paid from the trust
      account), will not be less than the purchase price per share that purchasers
      paid for our securities due to claims of creditors. If we are unable to complete
      a business combination and are forced to liquidate, our Chairman and executive
      officers will be personally liable under certain circumstances (for example,
      if
      a vendor or a prospective target business does not waive any rights or claims
      to
      the trust account) to ensure that the proceeds in the trust account are not
      reduced by the claims of various vendors, prospective target businesses or
      other
      entities that are owed money by us for services rendered or products sold to
      us,
      to the extent necessary to ensure that such claims do not reduce the amount
      in
      the trust account. However, we cannot assure you that our Chairman and executive
      officers will be able to satisfy those obligations.




8


***Upon
      consummation of our business combination with XLNT, there will be a substantial
      number of shares of our common stock available for resale in the future that
      may
      increase the volume of common stock available for sale in the open market and
      may cause a decline in the market price of our common stock.***




The
      consideration to be issued in the merger with XLNT will include shares of our
      common stock and options and to purchase shares of our common stock. Except
      for
      a portion of the shares that will be held by certain affiliates of XLNT and
      are
      subject to a lock-up period, the shares will be freely saleable immediately
      after the consummation of the merger. The presence of this additional number
      of
      shares of common stock eligible for trading in the public market may have an
      adverse effect on the market price of our common stock.




***Our
      initial stockholders, including our officers and directors, control a
      substantial interest in us and thus may influence certain actions requiring
      stockholder vote.***




All
      of
      our officers and directors own stock in our Company, but have waived their
      right
      to receive distributions upon our liquidation with respect to their shares
      purchased prior to our initial public offering. Additionally, some of our
      officers and directors own warrants to purchase additional shares of our common
      stock. The shares and warrants owned by our directors and officers will be
      worthless if we do not consummate the business combination with XLNT. The
      personal and financial interests of our directors and officers may influence
      their motivation in accepting any changes or waiving any terms with respect
      to
      our business combination with XLNT. Consequently, our directors’ and officers’
discretion in agreeing to such changes or waivers may result in a conflict
      of
      interest when determining whether such changes or waivers are appropriate and
      in
      our stockholders’ best interest.




***Changes
      in the market price of our common stock may increase the our liability and
      expense related to our derivative instruments.***




The
      accounting for derivative instruments and the assumptions used to value them
      have materially affected our financial statements and are expected to do so
      in
      the future. Factors that would have an effect on the fair value of derivative
      instruments and related derivative expense or income include, but are not
      limited to, the price of our common stock and risk free interest rates. For
      example, if the price of our common stock increases, generally the fair value
      of
      the derivative instrument liabilities will increase and this will result in
      a
      corresponding increase in the derivative instrument expense recorded in our
      statement of operations. Alternatively, if the price of our common stock
      decreases, it generally will cause the fair value of the derivative instrument
      liabilities to decrease and this will result in a corresponding increase in
      derivative instrument income to be recorded in our statement of operations.
      The
      above changes could be mitigated by the change in the remaining term of the
      instruments over time and possible principal payments made during the life
      of
      the instruments. We currently do not pay dividends and as such, the payment
      of
      dividends would not have an impact on the fair value of the derivative
      instrument liabilities.




***Our
      outstanding warrants and options may have an adverse effect on the market price
      of our common stock and make it more difficult to effect a business combination.***




We
      currently have 8,270,833 shares of common stock reserved for issuance upon
      exercise of issued and outstanding warrants, the option to purchase 312,500
      units that we granted to the representatives of the underwriters in the initial
      public offering (including the warrants underlying the option), and the Founding
      Director Warrants purchased in the private placement concurrently with our
      initial public offering. To the extent we issue shares of common stock to effect
      a business combination, the potential for the issuance of substantial numbers
      of
      additional shares upon exercise of these warrants and options could make us
      a
      less attractive acquisition vehicle in the eyes of a target business because
      such securities, when exercised, will increase the number of issued and
      outstanding shares of our common stock, reduce the ownership the stockholders
      would have had excluding the shares issued from the exercise of warrants and
      options, and may reduce the value of the shares issued to complete the business
      combination. Accordingly, our warrants and options may make it more difficult
      to
      effectuate a business combination or increase the cost of the target business.
      Additionally, the sale, or even the possibility of the sale, of the shares
      underlying the warrants and options could have an adverse effect on the market
      price for our securities or on our ability to obtain future public financing.
      If
      and to the extent these warrants and options are exercised, stockholders may
      experience dilution to their holdings.




9


***We
      are a development stage company with no operating history and, accordingly,
      you
      will not have any basis on which to evaluate our ability to achieve our business
      objective.***




We
      are a
      recently incorporated development stage company with no operating results to
      date. Since we do not have an operating history, you will have no basis upon
      which to evaluate our ability to achieve our business objective, which is to
      acquire an operating business. We will not generate any revenues until, at
      the
      earliest, after the consummation of a business combination.




***If
      we are forced to liquidate before a business combination, our public
      stockholders will receive less than $8.00 per share upon distribution of the
      trust fund and our warrants will expire worthless.***




If
      we are
      unable to complete a business combination and are forced to liquidate our
      assets, the per-share liquidation will be less than $8.00 because of the
      expenses of the initial public offering, our general and administrative expenses
      and the costs of seeking a business combination. Furthermore, there will be
      no
      distribution with respect to our outstanding warrants and, accordingly, the
      warrants will expire worthless if we liquidate before the completion of a
      business combination. See “Item 1 - Business - Liquidation if no business
      combination.”




***You
      will not be entitled to protections normally afforded to investors of blank
      check companies.***




Since
      the
      net proceeds of our initial public offering are intended to be used to complete
      a business combination with a target business that had not been identified
      as of
      the date of the initial public offering, we may be deemed to be a “blank check”
company under the United States securities laws. However, since we have net
      tangible assets in excess of $5,000,000 received from the successful
      consummation of the initial public offering and filed a Current Report on Form
      8-K with the SEC upon consummation of the initial public offering including
      an
      audited balance sheet demonstrating this fact, we are exempt from rules
      promulgated by the SEC to protect investors of blank check companies such as
      Rule 419 of the Securities Act of 1933. Accordingly, investors will not be
      afforded the benefits or protections of those rules. Because we are not subject
      to Rule 419, our units were immediately tradable upon the initial public
      offering and we have a longer period of time to complete a business combination
      in certain circumstances.




***We
      may be unable to obtain additional financing, if required, to complete a
      business combination or to fund the operations and growth of the target
      business, which could compel us to restructure the transaction or abandon a
      particular business combination.***




Although
      we believe that the net proceeds of our initial public offering are sufficient
      to allow us to consummate a business combination, we cannot currently ascertain
      the capital requirements for any particular transaction. If the net proceeds
      of
      the initial public offering prove to be insufficient, because of the size of
      the
      business combination, or because we become obligated to convert into cash a
      significant number of shares from dissenting stockholders, we may be required
      to
      seek additional financing. We cannot assure you that such financing would be
      available on acceptable terms, if at all. To the extent that additional
      financing proves to be unavailable when needed to consummate a particular
      business combination, we would be compelled to restructure the transaction
      or
      abandon that particular business combination and seek an alternative target
      business candidate. In addition, it is possible that we could use a portion
      of
      the funds available under our limited recourse revolving line of credit to
      make
      a deposit, down payment or fund a “no-shop” provision with respect to a
      particular proposed business combination, although we do not have any current
      intention to do so. In the event that we were ultimately required to forfeit
      such funds (whether as a result of our breach of the agreement relating to
      such
      payment or otherwise), we may not have a sufficient amount of working capital
      available outside of the trust account to conduct due diligence and pay other
      expenses related to finding a suitable business combination without securing
      additional financing. If we were unable to secure additional financing, we
      would
      most likely fail to consummate a business combination in the allotted time
      and
      would be forced to liquidate. In addition, if we consummate a business
      combination, we may require additional financing to fund the operations or
      growth of the target business. The failure to secure additional financing could
      have a material adverse effect on the continued development or growth of the
      target business. None of our officers, directors or stockholders is required
      to
      provide any financing to us in connection with or after a business
      combination.




10


***If
      third parties bring claims against us, the proceeds held in trust could be
      reduced and the per-share liquidation price received by stockholders may be
      adversely affected.***




Our
      placing of funds in trust may not protect those funds from third party claims
      against us. Although we will seek to have all vendors, prospective target
      businesses or other entities with which we execute agreements waive any right,
      title, interest or claim of any kind in or to any monies held in the trust
      account for the benefit of our public stockholders, there is no guarantee that
      they will execute such agreements, and it is not a condition to our doing
      business with anyone. Examples of possible instances where we may engage a
      third
      party that refused to execute a waiver include the engagement of a third party
      consultant whose particular expertise or skills are believed by management
      to be
      significantly superior to those of other consultants that would agree to execute
      a waiver or in cases where management is unable to find a provider of required
      services willing to provide the waiver. In any event, our management would
      perform an analysis of the alternatives available to it and would only enter
      into an agreement with a third party that did not execute a waiver if management
      believed that such third party’s engagement would be significantly more
      beneficial to us than any alternative. In addition, there is no guarantee that
      such entities will agree to waive any claims they may have in the future as
      a
      result of, or arising out of, any negotiations, contracts or agreements with
      us
      and not seek recourse against the trust account for any reason. Accordingly,
      the
      proceeds held in trust could be subject to claims that could take priority
      over
      the claims of our public stockholders and the per-share liquidation price could
      be less than the original conversion price of $7.64 per share held in the trust
      account, plus interest (net of any taxes due on such interest, which taxes,
      if
      any, shall be paid from the trust account), due to claims of such creditors.
      If
      we are unable to complete a business combination and are forced to liquidate,
      our Chairman and executive officers will be personally liable under certain
      circumstances (for example, if a vendor or a prospective target business does
      not waive any rights or claims to the trust account) to ensure that the proceeds
      in the trust account are not reduced by the claims of various vendors,
      prospective target businesses or other entities that are owed money by us for
      services rendered or products sold to us, to the extent necessary to ensure
      that
      such claims do not reduce the amount in the trust account. However, we cannot
      assure you that our Chairman and executive officers will be able to satisfy
      those obligations.




***We
      intend to issue shares of our capital stock to complete a business combination
      with XLNT, which would reduce the equity interest of our stockholders and likely
      cause a change in control of our ownership.***




Our
      amended and restated certificate of incorporation authorizes the issuance of
      up
      to 25,000,000 shares of common stock, par value $.0001 per share, and 1,000,000
      shares of preferred stock, par value $.0001 per share. We currently have
      7,979,167 authorized but unissued shares of our common stock available for
      issuance (after appropriate reservation for the issuance of shares upon full
      exercise of our outstanding warrants and the unit purchase option granted to
      the
      underwriters) and all of the 1,000,000 shares of preferred stock available
      for
      issuance. In connection with the proposed business combination with XLNT, we
      intend to issue a substantial number of additional shares of our common stock
      to
      complete a business combination with XLNT. The issuance of additional shares
      of
      our common stock or any number of shares of our preferred stock:




·
            may
                significantly reduce the equity interest of investors in our initial
                public offering;




·
            will
                likely cause a change in control if a substantial number of our shares
                of
                common stock are issued, which may affect, among other things, our
                ability
                to use our net operating loss carry forwards, if any, and most likely
                also
                result in the resignation or removal of our present officers and
                directors; and




·
            may
                adversely affect prevailing market prices for our common
                stock.




***It
      is likely that some of our current officers and directors will resign upon
      consummation of a business combination and we will have only limited ability
      to
      evaluate the management of the target business.***




Our
      ability to successfully effect a business combination will be totally dependent
      upon the efforts of our key personnel. The future role of our key personnel
      following a business combination, however, cannot presently be fully
      ascertained. Although we expect several of our management and other key
      personnel, particularly our chairman of the board and chief financial officer,
      to remain associated with us following a business combination, we may employ
      other personnel following the business combination. Moreover, our current
      management will only be able to remain with the combined company after the
      consummation of a business combination if they are able to negotiate the same
      as
      part of any such combination. If management negotiates to be retained
      post-business combination as a condition to any potential business combination,
      such negotiations may result in a conflict of interest. While we intend to
      closely scrutinize any additional individuals we engage after a business
      combination, we cannot assure you that our assessment of these individuals
      will
      prove to be correct. These individuals may be unfamiliar with the requirements
      of operating a public company as well as United States securities laws which
      could cause us to have to expend time and resources helping them become familiar
      with such laws. This could be expensive and time-consuming and could lead to
      various regulatory issues, which may adversely affect our
      operations.




11


Although
      we closely scrutinized the management of the target business with whom we
      entered into an agreement, we cannot assure you that our assessment of the
      target business’ management will prove to be correct. In addition, we cannot
      assure you that the future management will have the necessary skills,
      qualifications or abilities to manage a public company. Furthermore, the future
      role of our officers and directors, if any, in the target business cannot
      presently be stated with any certainty. Moreover, our current management will
      only be able to remain with the combined company after the consummation of
      a
      business combination if they are able to negotiate the same in connection with
      any such combination. Any such negotiations may result in a conflict of
      interest. While it is possible that one or more of our directors will remain
      associated in some capacity with us following a business combination, it is
      unlikely that any of them will devote their full efforts to our affairs
      subsequent to a business combination. Moreover, we cannot assure you that our
      officers and directors will have significant experience or knowledge relating
      to
      the operations of the particular target business.




Following
      a business combination, we may seek to recruit additional managers to supplement
      the incumbent management of the target business. We cannot assure you that
      we
      will have the ability to recruit additional managers, or that additional
      managers will have the requisite skills, knowledge or experience necessary
      to
      enhance the incumbent management.




***If
      management were to negotiate to be retained by the company post-business
      combination as a condition to any potential business combination, such
      negotiations may result in a conflict of interest.***




Our
      current management will only be able to remain with the combined company after
      the consummation of a business combination if they are able to negotiate
      mutually agreeable employment terms as part of any such combination, which
      terms
      would be disclosed to stockholders in any proxy statement relating to such
      transaction. The financial interest of our officers and directors could
      influence their motivation in selecting a target business, and thus, there
      may
      be a conflict of interest when determining whether a particular business
      combination is in the stockholders’ best interest. The Amended and Restated
      Merger Agreement with XLNT currently provides that Mr. Burleson will remain
      as
      Chairman of the Board.




***Our
      officers and directors may allocate their time to other businesses thereby
      causing conflicts of interest in their determination as to how much time to
      devote to our affairs. This could have a negative impact on our ability to
      consummate a business combination.***




Our
      officers and directors are not required to commit their full time to our
      affairs, which may result in a conflict of interest in allocating their time
      between our operations and other businesses. We do not intend to have any full
      time employees prior to the consummation of a business combination. Each of
      our
      officers is engaged in several other business endeavors and is not obligated
      to
      contribute any specific number of hours per week to our affairs. If our
      officers’ other business affairs require them to devote more substantial amounts
      of time to such affairs, it could limit their ability to devote time to our
      affairs and could have a negative impact on our ability to consummate a business
      combination. For a discussion of potential conflicts of interest that you should
      be aware of, see “Item 10 - Directors and Executive Officers of the Registrant —
Conflicts of Interest.” We cannot assure you that these conflicts will be
      resolved in our favor.




***Certain
      of our officers and directors are currently affiliated with XLNT and thus may
      have conflicting fiduciary duties.***




Certain
      of our officers and directors are currently involved with XLNT. Conflicts of
      interest may have arisen and could arise in the future in connection with
      negotiating the terms of and completing the business combination with XLNT.
      Conflicts that may arise may not be resolved in our favor. For a complete
      discussion of our management’s business affiliations and the potential conflicts
      of interest that you should be aware of, see “Item 10 - Directors and Executive
      Officers of the Registrant.” We cannot assure you that these conflicts will be
      resolved in our favor.




12


***Certain
      of our officers and directors could become affiliated with entities engaged
      in
      business activities similar to those conducted by XLNT and accordingly may
      have
      conflicting fiduciary duties in determining to which entity a business
      opportunity should be presented.***




Certain
      of our officers and directors could become affiliated with entities engaged
      in
      business activities similar to those conducted by XLNT and accordingly may
      have
      conflicting fiduciary duties in determining to which entity a business
      opportunity should be presented. If such affiliations arise, such officers
      and
      directors may have conflicting fiduciary obligations with regard to presenting
      certain potential business opportunities to those entities that may be of
      interest to us. Our officers and directors may in the future become affiliated
      with other entities, including other “blank check” companies, engaged in
      business activities similar to those we intend to conduct. Accordingly, such
      officers and directors may become subject to conflicts of interest regarding
      us
      and other business ventures in which they may be involved, which conflicts
      may
      have an adverse effect on our ability to consummate a business combination.
      For
      a complete discussion of our management’s business affiliations and the
      potential conflicts of interest that you should be aware of, see “Item 10 -
      Directors and Executive Officers of the Registrant.” We cannot assure you that
      these conflicts will be resolved in our favor.




***All
      of our directors own shares of our securities that will not participate in
      liquidation distributions and therefore they may have a conflict of interest
      in
      determining whether a particular target business is appropriate for a business
      combination.***




All
      of
      our directors own shares of common stock in our Company that were issued prior
      to our initial public offering but have waived their right to receive
      distributions with respect to these shares upon our liquidation if we are unable
      to complete a business combination. Certain of our directors and initial
      stockholders have also purchased $550,000 of warrants directly from us in a
      private placement transaction concurrently with the closing of our initial
      public offering at a purchase price of $1.20 per warrant. Additionally,
      designees of our President and Secretary, Joel Kanter, purchased in the open
      market a total of 379,528 of our warrants (the “Market Purchase Warrants”).
      These purchases of Market Purchase Warrants if subsequently exercised would
      result in management owning more than a 20% interest in our Company. The
      purchase of founding director warrants and Market Purchase Warrants, together
      with any other acquisitions of our shares (or warrants which are subsequently
      exercised), could allow our initial stockholders to influence the outcome of
      matters requiring stockholder approval, including the election of directors
      and
      approval of significant corporate transactions after completion of our initial
      business combination. The Market Purchase Warrants will not be sold until the
      consummation of a business combination; however, they may be transferable in
      certain limited circumstances, such as by will in the event of death, but the
      transferees receiving such Market Purchase Warrants will be subject to the
      same
      sale restrictions imposed on Mr. Kanter and/or his designees. The shares and
      warrants owned by our seven directors will be worthless if we do not consummate
      a business combination. The personal and financial interests of these directors
      may influence their motivation in identifying and selecting a target business
      and completing a business combination in a timely manner. Consequently, our
      directors’ discretion in identifying and selecting XLNT as a suitable target
      business may have resulted in a conflict of interest when determining whether
      the terms, conditions and timing of the business combination with XLNT are
      appropriate and in our stockholders’ best interest.




***Our
      initial stockholders will not receive reimbursement for any out-of-pocket
      expenses incurred by them to the extent that such expenses exceed the portion
      of
      net proceeds of the offering that is not placed in the trust account, unless
      the
      business combination is consummated, and therefore they may have a conflict
      of
      interest.***




Our
      initial stockholders will not receive reimbursement for any out-of-pocket
      expenses incurred by them to the extent that such expenses exceed the portion
      of
      net proceeds of the offering that is not placed in the trust account, unless
      the
      business combination is consummated. The financial interest of such persons
      could influence their motivation in selecting a target business and thus, there
      may be a conflict of interest when determining whether a particular business
      combination is in the stockholders’ best interest.




***If
      our common stock becomes subject to the SEC’s penny stock rules, broker-dealers
      may experience difficulty in completing customer transactions and trading
      activity in our securities may be adversely affected.***




If
      at any
      time we have net tangible assets of $5,000,000 or less and our common stock
      has
      a market price per share of less than $5.00, transactions in our common stock
      may be subject to the “penny stock” rules promulgated under the Securities
      Exchange Act of 1934. Under these rules, broker-dealers who recommend such
      securities to persons other than institutional accredited investors
      must:




·
            make
                a special written suitability determination for the
                purchaser;




13




·
            receive
                the purchaser’s written agreement to a transaction prior to
                sale;




·
            provide
                the purchaser with risk disclosure documents that identify certain
                risks
                associated with investing in “penny stocks” and that describe the market
                for these “penny stocks” as well as a purchaser’s legal remedies;
                and




·
            obtain
                a signed and dated acknowledgment from the purchaser demonstrating
                that
                the purchaser has actually received the required risk disclosure
                document
                before a transaction in a “penny stock” can be
                completed.




If
      our
      common stock becomes subject to these rules, broker-dealers may find it
      difficult to effectuate customer transactions and trading activity in our
      securities may be adversely affected. As a result, the market price of our
      securities may be depressed, and you may find it more difficult to sell our
      securities.




***It
      is probable that we will only be able to complete one business combination,
      which will cause us to be solely dependent on a single
      business.***




Our
      initial business combination must be with a business with a fair market value
      of
      at least 80% of our net assets at the time of such acquisition. We currently
      have no restrictions on our ability to seek additional funds through the sale
      of
      securities or through loans. As a consequence, we could seek to acquire a target
      business that has a fair market value significantly in excess of 80% of our
      net
      assets. Although as of the date of this Form 10-K we have not engaged or
      retained, had any discussions with, or entered into any agreements with, any
      third party regarding any such potential financing transactions, we could seek
      to fund such a business combination by raising additional funds through the
      sale
      of our securities or through loan arrangements. However, if we were to seek
      such
      additional funds, any such arrangement would only be consummated simultaneously
      with our consummation of a business combination. Consequently, it is probable
      that we will have the ability to complete only a single business combination,
      although this may entail the simultaneous acquisitions of several assets or
      closely related operating businesses at the same time. However, should our
      management elect to pursue more than one acquisition of target businesses
      simultaneously, our management could encounter difficulties in consummating
      all
      or a portion of such acquisitions due to a lack of adequate resources, including
      the inability of management to devote sufficient time to the due diligence,
      negotiation and documentation of each acquisition. Furthermore, even if we
      complete the acquisition of more than one target business at substantially
      the
      same time, there can be no assurance that we will be able to integrate the
      operations of such target businesses.




Accordingly,
      the prospects for our ability to effect our business strategy may
      be:




·
            solely
                dependent upon the performance of a single business;
                or




·
            dependent
                upon the development or market acceptance of a single or limited
                number of
                products, processes or services.




In
      this
      case, we will not be able to diversify our operations or benefit from the
      possible spreading of risks or offsetting of losses, unlike other entities
      which
      may have the resources to complete several business combinations in different
      industries or different areas of a single industry. Furthermore, since our
      business combination may entail the simultaneous acquisitions of several assets
      or operating businesses at the same time and may be with different sellers,
      we
      will need to convince such sellers to agree that the purchase of their assets
      or
      businesses is contingent upon the simultaneous closings of the other
      acquisitions.




***We
      may be unable to obtain additional financing, if required, to complete a
      business combination or to fund the operations and growth of the target
      business, which could compel us to restructure the transaction or abandon a
      particular business combination.***




Although
      we believe that the net proceeds of the initial public offering will be
      sufficient to allow us to consummate a business combination, if the net proceeds
      of our initial public offering prove to be insufficient, we will be required
      to
      seek additional financing. We cannot assure you that such financing would be
      available on acceptable terms, if at all. To the extent that additional
      financing proves to be unavailable when needed to consummate a particular
      business combination, we would be compelled to restructure the transaction
      or
      abandon that particular business combination and seek an alternative target
      business candidate. In addition, it is possible that we could use a portion
      of
      the funds available under the limited recourse revolving line of credit to
      make
      a deposit, down payment or fund a “no-shop” provision with respect to a proposed
      business combination, although we do not have any current intention to do so.
      In
      the event that we were ultimately required to forfeit such funds (whether as
      a
      result of our breach of the agreement relating to such payment or otherwise),
      we
      may not have a sufficient amount of working capital available outside of the
      trust account or available under the limited recourse line of credit to conduct
      due diligence and pay other expenses related to finding a suitable business
      combination without securing additional financing. If were unable to secure
      additional financing, we would most likely fail to consummate a business
      combination in the allotted time and would be forced to liquidate, resulting
      in
      a loss of a portion of your investment. In addition, if we consummate a business
      combination, we may require additional financing to fund the operations or
      growth of the target business. The failure to secure additional financing could
      have a material adverse effect on the continued development or growth of the
      target business. Other than a commitment to provide additional working capital
      of up to $750,000 in the form of a limited recourse revolving line of credit
      agreement, none of our officers, directors or stockholders is required to
      provide any financing to us in connection with or after a business
      combination.




14


***Our
      initial stockholders, including our officers and directors, control a
      substantial interest in us and thus may influence certain actions requiring
      a
      stockholder vote.***




Our
      initial stockholders (including all of our officers and directors) collectively
      own approximately 20% of our issued and outstanding shares of common stock.
      Certain of our directors and initial stockholders have also purchased $550,000
      of warrants directly from us concurrently with the closing of our initial public
      offering at a price per warrant of $1.20. Additionally, pursuant to the terms
      of
      a warrant purchase agreement with the underwriters, the designees of our
      President and Secretary, Joel Kanter, purchased in the open market a total
      of
      379,528 of our warrants. These purchases of Market Purchase Warrants may result
      in management having greater than a 20% interest in our Company if these
      warrants are subsequently exercised. The purchase of Founding Director Warrants
      by directors and certain of our initial stockholders and Market Purchase
      Warrants by designees of Joel Kanter, together with any other acquisitions
      of
      our shares (or warrants which are subsequently exercised), could allow the
      initial stockholders to influence the outcome of matters requiring stockholder
      approval, including the election of directors and approval of significant
      corporate transactions after completion of our initial business combination.
      The
      Market Purchase Warrants cannot be sold until after consummation of a business
      combination; however, the purchasers may be able to transfer such Market
      Purchase Warrants in certain limited circumstances such as by will in the event
      of their death, but the transferees receiving such warrants will be subject
      to
      the same sale restrictions imposed on Mr. Kanter’s designees.




Our
      board
      of directors is divided into two classes, each of which will generally serve
      for
      a term of two years with only one class of directors being elected in each
      year.
      It is unlikely that there will be an annual meeting of stockholders to elect
      new
      directors prior to the consummation of a business combination, in which case
      all
      of the current directors will continue in office at least until the consummation
      of the business combination. If there is an annual meeting, as a consequence
      of
      our “staggered” board of directors, initially only a minority of the board of
      directors will be considered for election and our initial stockholders, because
      of their ownership position, will have considerable influence regarding the
      outcome. Accordingly, our initial stockholders will continue to exert control
      at
      least until the consummation of a business combination. In addition, our initial
      stockholders and their affiliates and relatives are not prohibited from
      purchasing units in our initial public offering or in the open market. If they
      do, we cannot assure you that our initial stockholders will not have
      considerable influence upon the vote in connection with a business
      combination.




***Our
      outstanding warrants may have an adverse effect on the market price of common
      stock and may make it more difficult to effect a business
      combination.***




We
      currently have outstanding 7,958,333 warrants to purchase 7,958,333 shares
      of
      common stock. To the extent we issue shares of common stock to effect a business
      combination, the potential for the issuance of substantial numbers of additional
      shares upon exercise of these warrants could make us a less attractive
      acquisition vehicle in the eyes of a target business as such securities, when
      exercised, will increase the number of issued and outstanding shares of our
      common stock and reduce the value of the shares issued to complete the business
      combination. Accordingly, our warrants may make it more difficult to effectuate
      a business combination or increase the cost of the target business.
      Additionally, the sale, or even the possibility of sale, of the shares
      underlying the warrants could have an adverse effect on the market price for
      our
      securities or on our ability to obtain future public financing. If and to the
      extent these warrants are exercised, you may experience dilution to your
      holdings.




15


***If
      our initial stockholders and purchasers of the Founding Director Warrants
      exercise their registration rights, it may have an adverse effect on the market
      price of our common stock and the existence of these rights may make it more
      difficult to effect a business combination.***




Our
      initial stockholders are entitled to require us to register the resale of their
      shares of common stock at any time after the date on which their shares are
      released from escrow, which, except in limited circumstances, shall occur in
      two
      equal increments: (i) 781,250 shares on the expiration of three years from
      the
      date of the initial public offering; and (ii) 781,250 shares on our having
      completed an initial business combination and the last sale price of our common
      stock thereafter equals or exceeds $11.50 per share for any 20 trading days
      within any 30 trading day period beginning after we complete our initial
      business combination. In addition, the holders of the Founding Director Warrants
      can demand that we register those warrants and the underlying shares of common
      stock at any time after the Founding Director Warrants become exercisable by
      their terms. The holders of the Founding Director Warrants are also entitled
      to
      require us to register the resale of shares of common stock underlying the
      Founding Director Warrants when such warrants become exercisable by their terms.
      If our initial stockholders and the purchasers of the Founding Director Warrants
      exercise their registration rights with respect to all of their securities,
      then
      there will be an additional 1,562,500 shares of common stock and 458,333
      warrants and/or up to 458,333 shares of common stock issued upon the exercise
      of
      the warrants that will be eligible for trading in the public market. The
      presence of this additional number of securities eligible for trading in the
      public market may have an adverse effect on the market price of our common
      stock. Furthermore, the shares placed in escrow and subject to the completion
      of
      a business combination and the attainment of a sales price equal to or greater
      than $11.50 as discussed above may be considered contingent shares because
      the
      completion of a business combination and the attainment of such price per share
      cannot be assured. Because the shares are to be released to the initial
      stockholders (all of whom are officers and/or directors or are a related party
      to an officer and director) upon meeting these performance and market
      conditions, we may be required to recognize a charge based on the fair value
      of
      the shares at the time the shares are released from the escrow. (The amount
      of
      such charge could be equal to the number of shares times the market value at
      such date. Based on the target price of $11.50, such charge would be
      approximately $8,984,000. The current value of the shares to be held in escrow
      and conditioned only by the passage of time, is approximately $5,313,000, based
      on the unit offering price of $8.00 per unit less the warrant private placement
      price of $1.20 per warrant.)




***If
      we are deemed to be an investment company, we may be required to institute
      burdensome compliance requirements and our activities may be restricted, which
      may make it difficult for us to complete a business
      combination.***




If
      we are
      deemed to be an investment company under the Investment Company Act of 1940,
      our
      activities may be restricted, which, among other problems, may make it difficult
      for us to complete a business combination. Such restrictions
      include:




·
            restrictions
                on the nature of our investments;
                and




·
            restrictions
                on the issuance of securities.




In
      addition, we may have imposed upon us burdensome requirements,
      including:




·
            registration
                as an investment company;




·
            adoption
                of a specific form of corporate structure;
                and




·
            reporting,
                record keeping, voting, proxy and disclosure requirements and other
                rules
                and regulations.




We
      do not
      believe that our anticipated principal activities will subject us to the
      Investment Company Act of 1940. To this end, the proceeds held in trust may
      only
      be invested by the trust agent in “government securities” with specific maturity
      dates. By restricting the investment of the proceeds to these instruments,
      we
      intend to meet the requirements for the exemption provided in Rule 3a-1
      promulgated under the Investment Company Act of 1940. If we were deemed to
      be
      subject to the act, compliance with these additional regulatory burdens would
      require additional expense for which we have not budgeted.




16


***Our
      directors may not be considered “independent” under the policies of the North
      American Securities Administrators Association, Inc.***




All
      of
      our officers and directors own shares of our common stock, and no salary or
      other compensation will be paid to our officers and directors for services
      rendered by them on our behalf prior to or in connection with a business
      combination. We believe that four members of our board of directors are
“independent” as that term is commonly used. However, under the policies of the
      North American Securities Administrators Association, Inc., because our
      directors may receive reimbursement for out-of-pocket expenses incurred by
      them
      in connection with activities on our behalf such as identifying potential target
      businesses and performing due diligence on suitable business combinations,
      state
      securities administrators could take the position that such individuals are
      not
“independent.” If this were the case, they would take the position that we would
      not have the benefit of independent directors examining the propriety of
      expenses incurred on our behalf and subject to reimbursement. Additionally,
      there is no limit on the amount of out-of-pocket expenses that could be incurred
      and there will be no review of the reasonableness of the expenses by anyone
      other than our board of directors, which would include persons who may seek
      reimbursement, or a court of competent jurisdiction if such reimbursement is
      challenged. Although we believe that all actions taken by our directors on
      our
      behalf will be in our best interests, whether or not any directors are deemed
      to
      be “independent,” we cannot assure you that this will actually be the case. If
      actions are taken or expenses are incurred that are actually not in our best
      interests, it could have a material adverse effect on our business and
      operations and the price of our stock held by the public
      stockholders.




***Acquisitions
      that we may undertake would involve a number of inherent risks, any of which
      could cause us not to realize the benefits anticipated to
      result.***




It
      is
      possible that, following our initial acquisition, our strategy will include
      expanding our operations and other capabilities through acquisitions of
      businesses and assets. Acquisition transactions involve various inherent risks,
      such as:




·
            uncertainties
                in assessing the value, strengths and potential profitability of,
                and
                identifying the extent of all weaknesses, risks, contingent and other
                liabilities (including environmental liabilities) of, acquisition
                or other
                transaction candidates;




·
            the
                potential loss of key customers, management and employees of an acquired
                business;




·
            the
                ability to achieve identified operating and financial synergies
                anticipated to result from an acquisition or other
                transaction;




·
            problems
                that could arise from the integration of the acquired business;
                and




·
            unanticipated
                changes in business, industry or general economic conditions that
                affect
                the assumptions underlying the acquisition or other transaction
                rationale.




Any
      one
      or more of these factors could cause us not to realize the benefits anticipated
      to result from the acquisition of businesses or assets or could result in
      unexpected liabilities associated with these acquisition
      candidates.




***In
      the event we acquire a business that is unable to satisfy regulatory
      requirements relating to internal controls, or if its internal controls over
      financial reporting are not effective, our business and our stock price could
      suffer.***




Section
      404 of the Sarbanes-Oxley Act of 2002 requires companies to do a comprehensive
      evaluation of their internal controls, including an evaluation of any target
      businesses acquired by a company. In the event the internal controls over
      financial reporting of a target business cannot satisfy the regulatory
      requirements relating to internal controls or if these internal controls over
      financial reporting are not effective, we may not be able to complete a business
      combination with the target business without substantial cost or significant
      risks to our Company or our management may be unable to certify as to the
      effectiveness of the internal controls and our auditor may be unable to publicly
      attest to this certification following the completion of a business combination.
      Our efforts to comply with Section 404 and related regulations regarding our
      management’s required assessment of internal controls over financial reporting
      and our independent auditors’ attestation of that assessment may require the
      commitment of significant financial and managerial resources or may prevent
      a
      business combination with certain target businesses. If we fail to timely
      complete our evaluation, if our management is unable to certify the
      effectiveness of the internal controls of our Company or the acquired business
      or if our auditors cannot attest to management’s certification, we could be
      subject to regulatory scrutiny and loss of public confidence, which could have
      an adverse effect on our business and our stock price.




17


***XLNT’s
      inability to fulfill its indemnification obligations to us under our acquisition
      agreements could increase our liabilities and adversely affect our results
      of
      operations and financial position.***




Our
      Amended and Restated Merger Agreement with XLNT provides that XLNT as part
      of
      the merger consideration will agree to retain responsibility for and indemnify
      us against damages resulting from certain third-party claims or other
      liabilities. These third-party claims and other liabilities include, without
      limitation, premium payments to funds created under applicable Federal laws,
      costs associated with various litigation matters, and certain environmental
      liabilities. If XLNT fails to satisfy its obligations with respect to claims
      and
      retained liabilities covered by the Amended and Restated Merger Agreement,
      it
      could have an adverse effect on our results of operations and financial position
      because claimants may successfully assert that we are liable for those claims
      and/or retained liabilities. In addition, certain obligations of XLNT to
      indemnify us will terminate upon expiration of the applicable indemnification
      period and will not cover damages in excess of the applicable coverage limit.
      The assertion of third-party claims after the expiration of the applicable
      indemnification period or in excess of the applicable coverage limit, or the
      failure of any seller to satisfy its indemnification obligations with respect
      to
      breaches of its representations and warranties, could have an adverse effect
      on
      our results of operations and financial position.




***If
      the directors and officers who committed to make loans to us fail to do so,
      such
      failure could have a material adverse effect on the financial condition of
      our
      Company.***




Certain
      of our directors and stockholders have entered into a limited recourse revolving
      line of credit agreement with us to provide us with up to $750,000 available
      at
      any time of working capital to operate our Company prior to the consummation
      of
      a business combination. There can be no assurance that these directors and
      stockholders will have the financial resources available to meet their
      commitments to provide the additional working capital pursuant to the terms
      of
      the limited recourse revolving line of credit as the obligations thereunder
      come
      due. The funds we receive from our directors and stockholders will not be held
      in trust and will only be used for the payment of expenses relating to the
      due
      diligence of potential target businesses, deposits, down payments or funding
      of
“no-shop” provisions in connection with a particular business combination, legal
      and other professional fees and expenses, for working capital and for general
      corporate purposes. If any of the directors and stockholders who committed
      to
      provide the additional working capital to us fail to do so, such failure could
      have a material adverse effect on the financial condition of our Company, and
      as
      a result, we may not be able to consummate a business combination.




**Risks
      Associated with XLNT and the Veterinary Healthcare
      Industry**




If
      we
      successfully consummate a business combination with XLNT, about which no
      assurances can be given, our proposed business will be subject to numerous
      risks, including the following:




***XLNT
      has a limited operating history and may incur losses in the foreseeable
      future.***




XLNT
      was
      organized in 2004 and does not have a significant operating history. XLNT
      acquired its first two veterinary hospitals in September 2004 and acquired
      additional veterinary hospitals throughout 2005, 2006 and in the first quarter
      of 2007. XLNT has incurred losses to date. XLNT is currently developing its
      operational infrastructure and faces additional risks similar to those of other
      businesses with limited operating history. XLNT’s prospects must be considered
      in light of the risks, expenses, delays, problems and difficulties frequently
      encountered in the establishment of a new business. Operating results may also
      vary depending on a number of factors, many of which are outside XLNT’s control,
      including:




·
            changes
                in XLNT’s pricing policies or those of its
                competitors;




·
            the
                hiring and retention of key
                personnel;




·
            fluctuation
                in costs related to acquisitions of
                businesses;




·
            wage
                and cost pressures;




18




·
            availability
                of facilities that are suitable for
                acquisition;




·
            viability
                of the hub and spoke model;




·
            hiring
                and retention of veterinarians;




·
            increased
                competition and pricing pressure;
                and




·
            seasonal
                and general economic factors.




***XLNT
      may be unable to successfully execute and manage its growth
      strategy.***




XLNT’s
      success depends in part on its ability to build a position as a leading regional
      animal health care services company through internal growth initiatives and
      a
      disciplined acquisition program of established veterinary hospitals. XLNT may
      be
      unable to successfully execute its growth and acquisition strategy, and as
      a
      result, its business may be materially harmed.




XLNT
      intends, as part of its growth strategy, to acquire additional veterinary
      hospitals. There are no assurances that such acquisitions will in fact occur
      or
      that they will occur on the terms and conditions currently contemplated. XLNT
      may not be able to attract or compete successfully for prospective acquisition
      candidates or achieve sufficient “cluster” hospitals in any market it may target
      in order to achieve targeted efficiencies. In addition, acquisitions may take
      longer than anticipated or may not be cost effective.




Results
      of operations may be materially adversely affected if XLNT is unable to manage
      its growth effectively, which may increase costs of operations and hinder XLNT’s
      ability to execute its business strategy. XLNT’s internal revenue growth from
      new services and pet pharmaceuticals as well as its expected cost savings may
      not develop as anticipated, and reduction in its expected rate of internal
      growth may cause XLNT’s revenue and margins to decrease from management’s
      expectations.  Expected growth may place a significant strain on management
      and operational systems and resources.  If XLNT’s business grows as
      expected, XLNT will need to improve and enhance its overall financial and
      managerial controls, reporting systems and procedures, and expand, train and
      manage its workforce.  XLNT will also need to increase the capacity of
      current systems to meet additional demands.




***XLNT
      may have difficulties integrating acquired
      businesses.***




XLNT
      may
      not be able to achieve anticipated operational cost synergies or effectively
      integrate individual acquired veterinary hospitals and related practices with
      XLNT. Difficulties with such integration may, among other things, impose
      substantial cost and delay. The process of integrating the operations of an
      acquired business, including its personnel, into XLNT could cause interruptions
      to XLNT’s business and may require a disproportionate amount of the time and
      attention of XLNT’s management. In addition, any interruption or deterioration
      in service resulting from an acquisition may result in a customer’s decision to
      stop using such hospital. For these reasons, XLNT may not realize the
      anticipated benefits of an acquisition, either at all or in a timely manner.




***The
      significant competition in the animal heath care services industry could cause
      XLNT to reduce prices or lose market share.***




The
      animal health care services industry is highly competitive. XLNT’s primary
      competitors in most markets are individual practitioners or small, regional,
      multi-clinic practices.  In addition, regional pet care companies and some
      national companies with greater financial resources, including super-stores,
      may
      develop multi-regional networks of veterinary hospitals in markets in which
      XLNT
      operates or intends to operate. To compete successfully, XLNT may be required
      to
      reduce prices, increase operating costs or take other measures that could have
      an adverse effect on its financial condition, results of operations, margins
      and
      cash flow. This competition could impair XLNT’s ability to attract and retain
      business.




In
      addition, XLNT’s business may be adversely affected by an increase in
      competition from online pet pharmacy companies, such as PetCareRx and PetMeds.
      The sale of pet medication by online providers is often at lower prices than
      at
      a veterinarian’s office. Most pet owners buy their pet’s medication directly
      from the veterinarian, offering the convenience of purchasing the animal’s
      medication at the time of visit. However, recently there has been an increase
      in
      advertising for discount pet medicines, which can impact the amount of
      point-of-care sales for some veterinarians. The online suppliers may affect
      the
      sales of chronic condition medications.




19


***Loss
      of key personnel could adversely affect our business.***




The
      results of operations of XLNT will depend, in part, on its ability to attract
      and retain highly qualified directors, executive officers and other employees.
      While certain of XLNT’s executive officers will enter into employment agreements
      with XLNT, there can be no assurance that XLNT will be able to continue to
      attract and retain highly qualified persons for such positions. The loss of
      key
      management personnel could have a material adverse effect on XLNT.




***XLNT
      may experience difficulties recruiting or retaining skilled veterinary
      professionals.***




Key
      veterinarians at hospitals acquired by XLNT may elect to not continue employment
      with XLNT. In addition, XLNT may not be able to recruit or retain adequate
      numbers of veterinarians or pet care professionals necessary to support XLNT’s
      business plan due to periodic shortages, which could disrupt its business. 
Skilled veterinarians are in shortage from time to time in particular regional
      markets.  During these shortages, XLNT may be unable to hire enough
      qualified veterinarians to adequately staff its veterinary hospitals in these
      regions, in which event XLNT may lose market share and its revenues and
      profitability may decline.




***XLNT
      requires a significant amount of cash to service our debt and expand our
      business as planned.***




XLNT’s
      operations, including acquiring additional veterinary hospitals and
      consolidating such hospitals, will consume substantial amounts of capital.
      XLNT
      expects capital and operating expenditures to increase over the next several
      years as it pursues its acquisition program. If XLNT seeks outside financing,
      no
      assurance can be given that additional financing will be available when needed,
      or that, if available, such financing will be obtained on terms acceptable
      to
      XLNT. XLNT’s inability to obtain sufficient funds from operations and external
      sources would hurt XLNT’s business, prospects, financial condition and results
      of operations, which all may be materially adversely affected.




***If
      XLNT’s subsidiaries cannot make distributions or dividends to XLNT, XLNT will
      not have funds to make payments to service its current debt or future
      debt.***




XLNT
      depends primarily on the payment of dividends and distributions from its
      subsidiaries, which may be limited by their earnings, available cash and
      outstanding liabilities.  XLNT is a separate legal entity from its
      subsidiaries, and XLNT does not have significant operations of its own.  If
      XLNT’s subsidiaries incur losses and are unable to  pay dividends to XLNT,
      it may not have funds with which to pay amounts under its various debt
      instruments or corporate overhead.  If XLNT issues mezzanine debt, that
      debt may have priority over certain of the current debt instruments, which
      could
      increase the risk of default on those current debt instruments.




***Incurring
      substantial amounts of debt could adversely affect our
      business.***




*Leverage* .
      XLNT
      may utilize a leveraged capital structure to, among other things, fund its
      acquisition program, and XLNT has issued promissory notes and other forms of
      debt in connection with past acquisitions and may likely do so in the future,
      including the possibility of issuing mezzanine debt. As a result, XLNT is and
      in
      the future may be subject to the risks normally associated with debt financing,
      including, (i) the risk that cash flow from operations will be insufficient
      to
      meet required payments of principal and interest, (ii) the risk that existing
      debt (which will not have been fully amortized at maturity) will not be able
      to
      be refinanced or that the terms of such refinancings will not be as favorable
      to
      XLNT, and (iii) the risk that necessary capital expenditures will not be able
      to
      be financed on favorable terms or at all.




*Risk
      of Rising Interest Rates.* XLNT may
      incur indebtedness in the future that also bears interest at a variable rate
      or
      may be required to refinance its debt at higher rates. By its very nature,
      a
      variable interest rate will move up or down based on changes in the economy
      and
      other factors, all of which are beyond the control of XLNT. Accordingly, there
      can be no assurance that such rates will not rise significantly and,
      consequently, that XLNT would be required to pay more interest than is
      anticipated. A significant increase in market interest rates could jeopardize
      XLNT’s ability to pay required debt service on loans and could possibly result
      in a default under the loan and/or foreclosure.




20


*Covenants.* Various
      credit facilities or other debt obligations may require XLNT to comply with
      a
      number of financial and other covenants on an ongoing basis. Failure to comply
      with such covenants may limit XLNT’s ability to borrow funds or may cause a
      default under its then-existing indebtedness.




*Limitations
      on Debt.* The
      Second Amended and Restated Certificate of Incorporation of XLNT does not
      contain any limitation on the amount of indebtedness XLNT may incur.
      Accordingly, XLNT could become highly leveraged, resulting in an increase in
      debt service that could increase the risk of default on XLNT’s indebtedness.




***XLNT’s
      liquidity may not be sufficient to pay its expenses.***




XLNT
      intends to maintain sufficient liquidity to pay fixed expenses, such as rent
      and
      personnel costs. However, it is possible in certain scenarios (such as a
      significant decrease in revenue) that XLNT’s liquidity will not be adequate to
      pay its fixed costs.




***XLNT
      is subject to local market risks as a result of the geographic concentration
      of
      its operations.***




XLNT’s
      initial operations are in the California market, with possible further
      development in other markets, all of which may be subject to risks relating
      to
      the local economy (such as, among other things, earthquake risks).




***A
      economic downturn could materially adversely affect XLNT’s
      business.***




XLNT’s
      business may be materially adversely affected by negative trends in the general
      economy that reduce consumer spending.  XLNT’s business depends on the
      ability and willingness of animal owners to pay for its services. This
      dependence could make XLNT more vulnerable to any reduction in consumer
      confidence or disposable income as compared to companies in other industries
      that are less reliant on consumer spending, such as the human health care
      industry, in which a large portion of payments are made by insurance
      programs.




***Any
      failure in our information technology systems could adversely affect XLNT’s
      operations.***




Any
      failure in XLNT’s information technology systems could significantly increase
      costs, reduce XLNT’s capacity to provide services and related items and
      otherwise disrupt XLNT’s operations.  XLNT could lose customers and revenue
      as a result of a system failure.  XLNT’s computer systems may be vulnerable
      to damage or interruption from a variety of sources, including
      telecommunications failures, electricity brownouts or blackouts, malicious
      human
      acts and natural disasters.  Moreover, despite network security measures,
      some of XLNT’s servers may be potentially vulnerable to physical or electronic
      break-ins, computer viruses and similar disruptive problems.  Despite the
      precautions XLNT intends to take, unanticipated problems affecting its systems
      could cause interruptions in its information technology systems. Insurance
      policies may not adequately compensate XLNT for any losses that may occur due
      to
      any failures in such systems.




***Governmental
      regulation could adversely affect XLNT’s business.***




XLNT
      and
      its veterinary hospital and veterinary care practitioners are subject to various
      local, state and federal regulations and zoning and other requirements. If
      XLNT
      fails to comply with governmental regulations applicable to its business,
      various governmental agencies may impose fines, institute litigation or preclude
      us from operating in certain states.  The laws of many states prohibit
      business corporations from providing, or holding themselves out as providers
      of,
      veterinary medical care.  These laws vary from state to state and are
      enforced by the courts and by regulatory authorities with broad
      discretion.  XLNT plans to operate primarily in states with manageable
      regulatory issues, however, XLNT may experience difficulty expanding its
      operations into other states with differing laws related to veterinary medical
      care, and existing state regulations may change.  Given varying and
      uncertain interpretations of the veterinary laws of each state, XLNT may not
      be
      in compliance with restrictions on the corporate practice of veterinary medicine
      in all states.  A determination that XLNT is in violation of applicable
      restrictions on the practice of veterinary medicine in any state in which it
      operates could have a material adverse effect on XLNT, particularly if it is
      unable to restructure its operations to comply with the requirements of that
      state.




All
      of
      the states in which XLNT will operate impose various registration requirements.
      To fulfill these requirements, XLNT will register each of its facilities with
      appropriate governmental agencies and, where required, will appoint a licensed
      veterinarian to act on behalf of each facility. All veterinary doctors
      practicing in its hospitals are required to maintain valid state licenses to
      practice.




21


***The
      possible implementation of pet insurance could adversely affect XLNT’s
      business.***




The
      possible implementation of pet insurance and XLNT’s operation under such
      insurance could impose additional fees and costs upon XLNT and reduce the
      revenue from services and related items. If XLNT does not accept such insurance
      or chooses not to participate in pet insurance programs, it could place it
      in a
      competitive disadvantage. Acceptance of pet insurance could result in a
      reduction in fees or the possible imposition of caps for services. The
      involvement of insurance companies could also increase various administrative
      requirements related to the submission and processing of claims resulting in
      a
      delay in payments or disputes regarding the terms and amounts of available
      coverage.




***A
      decrease in the frequency of animal vaccinations could adversely affect our
      business.***




In
      the
      summer of 2003, the Centers for Disease Control and Prevention updated a
      publication on animal vaccinations, which called for less frequent canine
      revaccinations. The study concluded that some vaccinations remain effective
      for
      periods of three to five years, suggesting that veterinarians should decrease
      the frequency of vaccinations. This could adversely affect XLNT’s results of
      operations.




***Environmental
      liabilities could adversely affect our business.***




Under
      various laws, ordinances and regulations, an owner of real estate may be
      required to remove or remediate certain hazardous or toxic substances such
      as
      asbestos, lead or petroleum, and may be held strictly liable for failure to
      comply with such laws. Accordingly, liability may be imposed whether the owner
      knew of, or was responsible for, the presence of such hazardous or toxic
      substances. The presence of such substances, or the failure to properly
      remediate such substances, may adversely affect XLNT’s ability to sell or rent a
      veterinary hospital or to borrow using such veterinary hospital as collateral.
      In addition, compliance costs incurred in abating these conditions and any
      related litigation may be substantial. XLNT intends to obtain insurance with
      respect to environmental liabilities where deemed appropriate by the Board
      of
      XLNT. XLNT, however, cannot guarantee that insurance coverage will be available
      at all times or in sufficient amounts to address these risks or that any
      coverage obtained will protect fully against future liability.




**Item
      1B. Unresolved Staff Comments**




We
      have
      received no written comments regarding our periodic or current reports from
      the
      staff of the SEC that remain unresolved.




**Item
      2. Properties.**




We
      maintain our executive offices at 8000 Towers Crescent Drive, Suite 1300,
      Vienna, VA 22182. We have agreed to pay Windy City, Inc., an affiliated third
      party of which Mr. Kanter is president and a director, $7,500 per month for
      office space, utilities and personnel. Windy City, Inc. has agreed to defer
      the
      payment of $5,500 per month of the administrative fees until the consummation
      of
      a business combination or the liquidation of our Company. In the event we must
      liquidate our Company, these fees will not be paid with proceeds of our initial
      public offering held in trust. We believe that based on rents and fees for
      similar services in the Vienna, Virginia area, that the fee charged by Windy
      City, Inc. is at least as favorable as we could have obtained from an
      unaffiliated person. We consider our current office space adequate for our
      current operations.




**Item
      3. Legal Proceedings.**




To
      the
      knowledge of management, there is no litigation currently pending or
      contemplated against us or any of our officers or directors in their capacity
      as
      such.




**Item
      4. Submission of Matters to a Vote of Security Holders.**




No
      matter
      was submitted to a vote of security holders during the fourth quarter of the
      fiscal year ended December 31, 2006.




22




**PART
      II**




**Item
      5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.**




Our
      units
      began trading on March 22, 2006, and our common stock and warrants started
      trading separately as of June 6, 2006. Each of our units consists of one share
      of our common stock and one warrant and trades on the OTC Bulletin Board under
      the symbol “EHHAU.OB.” Our common stock and warrants trade on the OTC Bulletin
      Board under the symbols “EHHA.OB” and “EHHAW.OB” respectively. Each warrant
      entitles the holder to purchase from us one share of our common stock at an
      exercise price of $6.00 commencing the later of the completion of a business
      combination with a target business or March 17, 2007. Our warrants will expire
      at 5:00 p.m., New York City time, on March 17, 2010, or earlier upon
      redemption.




In
      addition, as part of the initial public offering, we issued an option to
      purchase 312,500 units for $10.00 per unit to the representative of the
      underwriters which, if exercised, will result in the issuance of 312,500 common
      shares and 312,500 warrants. The warrants entitle the holder to purchase from
      us
      one share of common stock at an exercise price of $6.00 commencing the later
      of
      a business combination with a target business or March 17, 2007. The warrants
      issued to underwriters will expire March 17, 2010.




The
      following table sets forth, for the calendar quarter indicated, the quarterly
      high and low sales prices of our units, common stock and warrants as reported
      on
      the OTC Bulletin Board since our units commenced public trading on March 22,
      2006 and since such common stock and warrants commenced public trading on June
      6, 2006.




****
            
            **OTC
                Bulletin Board******
            
            **Common
                Stock**
            
            **Warrants**
            
            **Units******
            
            **High**
            
            **Low**
            
            **High**
            
            **Low**
            
            **High**
            
            **Low****2006
                First Quarter**(1)
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            $
            8.27
            
            $
            8.15**2006
                Second Quarter**(2)
            
            $
            7.40
            
            $
            7.20
            
            $
            0.85
            
            $
            0.75
            
            $
            8.75
            
            $
            7.94**2006
                Third Quarter**
            
            $
            7.49
            
            $
            7.46
            
            $
            0.79
            
            $
            0.64
            
            $
            8.50
            
            $
            7.87**2006
                Fourth Quarter**
            
            $
            7.44
            
            $
            7.38
            
            $
            0.92
            
            $
            0.62
            
            $
            8.35
            
            $
            8.00


****


(1)
                The
                    figures for the first quarter 2006 are only from March 22, 2006,
                    the date
                    on which our units first commenced trading on the OTC Bulletin
                    Board,
                    through March 31, 2006.




(2)
                Our
                    common stock and warrants commenced trading on the OTC Bulletin
                    Board on
                    June 6, 2006.




**Holders**




As
      of
      March 30, 2007, there were ten holders of record of our common
      stock.




**Dividends**




We
      have
      not paid any dividends on our common stock to date and do not intend to pay
      dividends prior to the completion of a business combination. The payment of
      dividends in the future will be contingent upon our revenues and earnings,
      if
      any, capital requirements and general financial condition subsequent to
      completion of a business combination. The payment of any dividends subsequent
      to
      a business combination will be within the discretion of our then board of
      directors. It is the present intention of our board of directors to retain
      all
      earnings, if any, for use in our business operations and, accordingly, our
      board
      does not anticipate declaring any dividends in the foreseeable
      future.




23


**Recent
      Sales of Unregistered Securities**




(a)
              During
                  the past three years, we sold the shares of common stock in the
                  table set
                  forth immediately below without registration under the Securities
                  Act, as
                  adjusted for the stock splits discussed
                  below.




**Name**
            
            
            **Number
                of Shares**Eugene
                A. Bauer
            
            
            111,607Gene
                E. Burleson(1)
            
            
            357,907Gary
                A. Brukardt(1)(2)
            
            
            123,449Alastair
                Clemow(2)
            
            
            115,308Joel
                Kanter(2)
            
            
            97,656Kevin
                Pendergest(1)
            
            
            117,158Richard
                Martin(2)
            
            
            169,173Windy
                City, Inc.(2)
            
            
            20,427Chicago
                Investments, Inc.(2)
            
            
            449,815





(1)
                In
                    March 2006, Mr. Burleson purchased at the founders’ price 11,615 shares of
                    common stock from Mr. Brukardt and 47,835 shares of common stock
                    from Mr.
                    Pendergest.




(2)
                In
                    March 2006, Chicago Investments, Inc. purchased at the founders’ price 918
                    shares of common stock from Mr. Brukardt, 19,737 shares of common
                    stock
                    from Mr. Clemow, 39,062 shares of common stock from Mr. Kanter,
                    17,955
                    shares of common stock from Mr. Martin and 34,540 shares of common
                    stock
                    from Windy City, Inc.




Such
      shares were issued in July of 2005 in connection with our organization pursuant
      to the exemption from registration contained in Section 4(2) of the Securities
      Act as they were sold to sophisticated, wealthy individuals. The shares issued
      to the individuals and entities above were sold for an aggregate offering price
      of $25,000 at an average purchase price of approximately $0.01 per share. On
      November 10, 2005, we effected a four-for-ten reverse stock split, effectively
      raising the purchase price of our common stock to $.03 per share. On January
      29,
      2006, we effected a five-for-three stock split, effectively decreasing the
      purchase price of our common stock to approximately $.02 per share. The sole
      purpose of the stock splits authorized by our board of directors was to maintain
      the initial stockholders’ collective ownership at 20% of our issued and
      outstanding shares of common stock immediately after the offering, excluding
      the
      underwriters’ exercise of the over-allotment option, if any, because the
      proposed aggregate offering price of shares of common stock in the initial
      public offering was modified by our board of directors.




Concurrently
      with the consummation of our initial public offering, certain of our directors
      and stockholders purchased a combined total of 458,333 of our warrants from
      us
      at a price of $1.20 per warrant. These warrants, which we collectively refer
      to
      as the Founding Director Warrants, will not be sold or transferred by the
      purchasers who initially purchase these warrants from us until the completion
      of
      our initial business combination. The $550,000 purchase price of the Founding
      Director Warrants were added to the proceeds of our initial public offering
      held
      in the trust account pending our completion of one or more business
      combinations. If we do not complete one or more business combinations that
      meet
      the criteria described in this Form 10-K, then the $550,000 purchase price
      of
      the Founding Director Warrants will become part of the liquidating distribution
      to our public stockholders and the Founding Director Warrants will expire
      worthless. Such warrants were sold pursuant to an exemption from registration
      contained in Section 4(2) of the Securities Act as they were sold to
      sophisticated, wealthy individuals.




**Use
      of Proceeds from our Initial Public Offering**




On
      March
      22, 2006, we consummated our initial public offering of 6,250,000 units. On
      March 27, 2006, we consummated the closing of an additional 937,500 units that
      were subject to the underwriters’ over-allotment option. Each unit consists of
      one share of common stock and one warrant. Each warrant entitles the holder
      to
      purchase from us one share of our common stock at an exercise price of $6.00.
      The underwriters in the offering were Morgan Joseph & Co., Inc., Roth
      Capital Partners, LLC, and Legend Merchant Group, Inc. The securities sold
      in
      the offering were registered under the Securities Act on a registration
      statement on Form S-1 (No. 333-126650). The SEC declared the registration
      statement effective on March 17, 2006.




24


Upon
      consummation of our initial public offering, we received net cash proceeds
      of
      approximately $45,447,000, not inclusive of deferred underwriting and other
      accrued offering costs (see Note C to our audited financial statements included
      elsewhere herein). On March 27, 2006, the underwriters for our initial public
      offering exercised their over-allotment option and purchased 937,500 additional
      units. The net proceeds from the exercise of the over-allotment option were
      approximately $6,975,000, after deducting underwriting discounts of $525,000,
      not including deferred amounts totaling $225,000. The net proceeds deposited
      into the trust account remain on deposit in the trust account and have earned
      $2,116,719 in interest through December 31, 2006. A portion of the proceeds
      of
      the offering that were not required to be deposited into the trust account
      were
      used to repay notes payable to certain of our founding stockholders totaling
      $150,000.




**Item
      6. Selected Financial Data.**




The
      following is a summary of selected financial data of the Company for the period
      from June 10, 2005 (inception) to December 31, 2005, and the year ended January
      1, 2006 to December 31, 2006, which should be read in conjunction with the
      financial statements of the Company and the notes thereto:




**SELECTED
      FINANCIAL DATA**




**Income
      statement data**




****
            
            **Year
                Ended**
              **December
                31, 2006**
            
            **Period
                from**
              **June
                10, 2005**
              **(inception)
                to**
              **December
                31, 2005**
            
            **Period
                from**
              **June
                10, 2005**
              **(inception)
                to**
              **December
                31, 2006**Loss
                from operations
            
            $
            (547,675
            )
            $
            (138,120
            )
            $
            (685,795
            )Interest
                income
            
            $
            2,116,719
            
            
            —
            
            $
            2,116,719Loss
                on derivative liabilities
            
            $
            (366,776
            )
            
            —
            
            $
            (366,776
            )Income
                before provision for income taxes
            
            $
            1,202,268
            
            $
            (138,120
            )
            $
            (1,064,148
            )Provision
                for income taxes
            
            $
            (676,481
            )
            
            —
            
            $
            (676,481
            )Net
                income (loss)
            
            $
            525,787
            
            $
            (138,120
            )
            $
            387,667Basic
                weighted average number of common shares outstanding
            
            
            6,551,798
            
            
            1,562,500Net
                income (loss) per share - basic
            
            $
            0.08
            
            $
            (0.09
            )Diluted
                weighted average number of common shares outstanding
            
            
            7,609,271Net
                income per share - diluted
            
            $
            0.07
            
            $
            (0.09
            )




**Balance
      sheet data**




****
            
            **December
                31, 2006**
            
            **December
                31, 2005**Cash
            
            $
            25,847
            
            $
            14,807Investments
                held in trust account
            
            
            56,403,718
            
            
            —Total
                Assets
            
            
            56,755,547
            
            
            616,220Total
                liabilities, including $11,263,172****of
                common stock subject to possible conversion
            
            
            20,451,218
            
            
            729,340Total
                stockholders’ equity
            
            
            36,304,329
            
            
            (113,120
            )Total
                liabilities and stockholders’ equity
            
            
            56,755,547
            
            
            616,220




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




**Overview**




We
      were
      formed on June 10, 2005 as a blank check company for the purpose of acquiring,
      through a merger, capital stock exchange, asset acquisition or other similar
      business combination, one or more domestic or international operating businesses
      in the healthcare industry. We intend to use cash derived from the net proceeds
      of our initial public offering, which closed on March 22, 2006, and the exercise
      by the underwriters of their over-allotment option, which closed on March 27,
      2006, together with our limited recourse revolving line of credit for up to
      $750,000, or our Line of Credit, and any additional financing arrangements
      that
      we undertake, to effect a business combination.




25


Through
      December 31, 2006, our efforts have been limited to organizational activities,
      activities relating to our initial public offering, and activities related
      to
      pursuing potential target businesses; we have not generated any revenues. For
      the period from June 10, 2005 (inception) to December 31, 2005, we generated
      a
      net loss of approximately $139,000.




As
      of
      December 31, 2006, we had accrued expenses and accrued offering costs of
      approximately $612,000 and $152,713 respectively. In addition, we had cash
      of
      approximately $26,000, which was principally funded pursuant to an aggregate
      $240,300 draw on our Line of Credit.




On
      March
      22, 2006, we consummated our initial public offering. The net proceeds from
      our
      initial public offering were approximately $45,446,690, after deducting offering
      expenses of approximately $1,053,300 and underwriting discounts of $3,500,000,
      including deferred amounts totaling approximately $1,793,200.




On
      March
      27, 2006, the underwriters for our initial public offering exercised their
      over-allotment option and purchased 937,500 additional units. The net proceeds
      from the exercise of the over-allotment option were approximately $6,975,000,
      after deducting underwriting discounts of $525,000, including deferred amounts
      totaling $225,000. Except for the cost of the underwriting, we have not yet
      determined the amount of any expenses attributable to the sale of units pursuant
      to the exercise of the over-allotment option.




As
      of
      March 27, 2006, after giving effect to the sale of units pursuant to our initial
      public offering and the exercise of the over-allotment option and proceeds
      from
      the sale of warrants to founding directors totaling $550,000, approximately
      $54,947,000 was held in trust, and we had approximately $233,000 of our offering
      proceeds not held in trust available to us for our activities in connection
      with
      identifying and conducting due diligence of a suitable business combination,
      and
      for general corporate matters. Through December 31, 2006, the funds held in
      trust had earned $2,116,719 in interest income.




**Critical
      Accounting Policies and Accounting Estimates**




The
      preparation of financial statements and related disclosures in conformity with
      accounting principles generally accepted in the United States requires
      management to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities, disclosure of contingent assets and liabilities at
      the
      date of the financial statements, and revenues and expenses during the periods
      reported. Actual results could materially differ from those estimates.




There
      is
      a significant estimate related to the valuation of the derivative liabilities.
      This valuation is based on the market value of the Company’s warrants.  The
      Company also makes a significant estimate in connection with its calculation
      of
      the current tax liability.




**Results
      of Operations and Known Trends or Future Events**




We
      have
      neither engaged in any operations nor generated revenues to date.  Since
      our inception, our only activities have been organizational activities and
      those
      necessary to prepare for our initial public offering, and thereafter, certain
      activities related to pursuing a target business.  We will not generate any
      operating revenues until the completion of a business combination, if any. 
We have generated non-operating income in the form of interest income on cash
      and cash equivalents and our other short term investments.




For
      the
      year ended December 31, 2006, we had net income of $525,787 derived primarily
      from income related to the cash held in our trust account less a loss on a
      change in our derivative liabilities, compared to a net loss of $(138,120)
      for
      the period from June 10, 2005 (date of inception) through December 31, 2005.
      For
      the period from June 10, 2005 (date of inception) through December 31, 2006,
      we
      had net income of approximately $387,667, derived primarily from income related
      to the cash held in our trust account less a loss on a change in our derivative
      liabilities.




**Developments
      in Finding a Suitable Business Target**




On
      September 11, 2006, we entered into an Agreement and Plan of Merger by and
      among
      us, Pet DRx Acquisition Company (“Merger Sub”), our newly formed, wholly-owned
      subsidiary, and XLNT Veterinary Care, Inc. (“XLNT”), pursuant to which Merger
      Sub will merge with and into XLNT (the “Merger”), with XLNT continuing as the
      surviving entity. We subsequently entered into an Amended and Restated Merger
      Agreement with XLNT and Merger Sub on February 16, 2007 (the “Amended and
      Restated Merger Agreement”). Following the Merger, we anticipate changing our
      name to Pet DRx Corporation. Because we will have no other operating business
      following the Merger, XLNT will effectively become a public company at the
      conclusion of the Merger. XLNT is headquartered in San Jose,
      California.




26


Pursuant
      to the Amended and Restated Merger Agreement, (i) each share of XLNT’s common
      stock, par value $.0001 per share (“XLNT Common Stock”) issued and outstanding
      immediately prior to the effective time (“Effective Time”) of the Merger
      (including XLNT Common Stock issued upon conversion of XLNT Series A preferred
      stock, par value $.0001 per share and XLNT Series B Preferred Stock (
      collectively, “XLNT Preferred Stock”), as contemplated by clause (ii) below)
      shall be converted into and represent the right to receive such number of shares
      of our common stock as is determined by multiplying such share by the Exchange
      Ratio (as defined below) (the “Merger Consideration”) and (ii) each share of
      XLNT Preferred Stock issued and outstanding immediately prior to the Effective
      Time will be converted into shares of XLNT Common Stock pursuant to and in
      accordance with the terms of the XLNT Preferred Stock and shall thereafter
      represent the right to receive the Merger Consideration. Each share of capital
      stock of XLNT held in treasury of XLNT or held by us or any of our subsidiaries
      will be cancelled and retired, and no payment will be made with respect
      thereto.




The
      aggregate Merger Consideration payable by us in connection with the Merger
      (the
“Aggregate Merger Consideration”) shall be a number of shares of the Company’s
      common stock equal to the quotient obtained by dividing (1) the sum of (A)
      two
      times the lesser of (x) the consolidated gross revenues of XLNT for the year
      ended December 31, 2006, including the revenues for the year ended December
      31,
      2006 attributable to hospitals or clinics that are acquired by XLNT prior to
      the
      Closing Date (each an “Acquisition Candidate”), and (y) $60.0 million, but in no
      event less than $57.5 million (“Baseline Revenues”), and (B) the excess over
      $60.0 million of XLNT’s Baseline Revenues (“Incremental Revenues”), multiplied
      by 1.15 (the sum of Baseline Revenues and Incremental Revenues being hereinafter
      referred to as the “Adjusted Baseline Revenues”), plus (C) in the event the
      threshold requirements for the Management Performance Bonus Pool are met (as
      described below), an amount equal to (the “Operational Improvement Amount”) the
      excess of the consolidated gross revenues of XLNT for the annualized period
      beginning on January 1, 2007 and ending on the last day of the fiscal quarter
      (based on the 2007 calendar year) immediately preceding the Closing Date,
      determined on a pro forma basis to include the revenues for such period
      attributable to the Completed Acquisitions, over 105% of the Adjusted Baseline
      Revenues multiplied by (i) 1.15 in the event XLNT’s 2007 Consolidated EBITDA
      margin for the period beginning on January 1, 2007 and ending on the last day
      of
      the fiscal quarter (based on the calendar year) immediately preceding the
      Closing Date (the “2007 Year-To-Date EBITDA Margin”) has increased by at least
      100 basis points over the greater of (x) XLNT’s 2006 adjusted EBITDA margin for
      the trailing twelve month period ended December 31, 2006, determined on a pro
      forma basis to include the revenues for such period attributable to the
      Completed Acquisitions, and (y) 16.2% (the “2006 Pro Forma EBITDA Margin”) or
      (ii) 1.33 in the event that XLNT’s 2007 Year-To-Date EBITDA Margin has increased
      by at least 250 basis points over XLNT’s 2006 Pro Forma EBITDA Margin plus (D)
      the Net Cash Amount; by (2) the product of (a) the amount of cash in the
      Company’s trust fund at the Closing (without deduction for amounts paid in
      connection with obtaining a fairness opinion from a nationally recognized
      financial advisor and the conversion by the Company’s public stockholders voting
      against the Merger of up to 19.9% of the Company’s shares of common stock issued
      in its initial public offering (the “IPO”) into a pro rata share of the funds
      held in the Company’s trust fund established in connection with the IPO) divided
      by the number of shares of the Company’s common stock then issued and
      outstanding (excluding therefrom any shares of the Company’s common stock
      issuable upon the exercise or exchange of other Company securities which by
      their terms are convertible into or exercisable or exchangeable for the
      Company’s common stock) multiplied by (b) 1.25. However, the product determined
      in (2) above shall not exceed $7.20 (as adjusted for events set forth in the
      Amended and Restated Merger Agreement). The amount determined pursuant to (2)
      above is the Parent Common Stock Per Share Issue Price.




The
      Exchange Ratio pursuant to which shares of XLNT common stock will be exchanged
      for shares of Echo common stock will be equal to the quotient of (x) the
      Aggregate Merger Consideration, divided by the sum of (y) (i) the total number
      of outstanding shares of XLNT common stock (assuming that all shares of XLNT’s
      Preferred Stock are converted into common stock prior to the closing) plus
      (ii)
      the number of shares of XLNT common stock issuable upon exercise of all vested
      and unvested options and warrants, determined using the treasury method of
      accounting.




If
      at the
      closing of the Merger the indebtedness of XLNT exceeds $16,500,000 (excluding
      accounts payable incurred in the ordinary course of business and any XLNT
      convertible notes that are converted into XLNT Common Stock on or prior to
      the
      closing date of the Merger)(the “Excess Indebtedness”), the Aggregate Merger
      Consideration shall be reduced on a pro rata basis by an amount equal to the
      Excess Indebtedness divided by the Parent Common Stock Per Share Issue Price.
      To
      the extent XLNT has third party expenses that will not be paid prior to closing,
      such expenses will reduce the Aggregate Merger Consideration in an amount equal
      to the quotient obtained by dividing such expenses by the per share issue price
      of the Merger Consideration. XLNT has agreed that ten percent of the shares
      of
      our common stock received as Merger Consideration shall be held in an escrow
      account for purposes of funding XLNT’s indemnification obligations under the
      Amended and Restated Merger Agreement (the “Escrow Fund”).




27


We
      have
      agreed to register the shares of our common stock representing the Aggregate
      Merger Consideration on a registration statement on Form S-4.




In
      connection with the evaluation of the Merger, our Board of Directors appointed
      a
      special committee (“Special Committee”) consisting of independent directors
      Eugene A. Bauer, Gary A. Brukardt, Alastair J. Clemow, and Dr. Richard O.
      Martin. The Amended and Restated Merger Agreement and the transactions
      contemplated thereby were approved unanimously by our Board of Directors upon
      the unanimous recommendation of the Special Committee of our Board of
      Directors.




The
      vesting of all outstanding options granted or issued under XLNT’s stock option
      plans (each, an “XLNT Option”) will be accelerated. Each unexercised and
      outstanding warrant to acquire XLNT Common Stock (each an “XLNT Warrant”) and
      each XLNT Option shall be automatically converted at the Effective Time into
      an
      option or warrant, as appropriate, to purchase that number of shares of our
      common stock equal to the number of shares of XLNT Common Stock subject to
      the
      XLNT Option or XLNT Warrant, as appropriate, immediately prior to the Effective
      Time multiplied by the Exchange Ratio, with an exercise price per share equal
      to
      the exercise price per share that existed under the corresponding XLNT Option
      or
      XLNT Warrant, as appropriate, divided by the Exchange Ratio, and with other
      terms and conditions that are the same as the terms and conditions of such
      XLNT
      Option or XLNT Warrant, as appropriate, immediately before the Effective
      Time.




The
      Merger is subject to customary closing conditions, including approval of the
      transaction by our stockholders and the stockholders of XLNT, the expiration
      or
      termination of any applicable antitrust waiting periods, receipt of any other
      regulatory approvals, and other customary closing conditions. In addition to
      the
      standard closing conditions, the Amended and Restated Merger Agreement contains
      the following conditions to our obligations, some of which were specifically
      negotiated by us:




·
            XLNT’s
                representations and warranties must be true and correct, disregarding
                any
                materiality qualifiers contained therein, except where such failure
                to be
                true and correct, individually or in the aggregate, has not had,
                and would
                not reasonably be likely to result in a Material Adverse Effect (as
                defined in the Amended and Restated Merger
                Agreement).




·
            Certain
                stockholders of XLNT and of us shall have executed a Lock-up Agreement,
                a
                Co-Sale Agreement and a Board Voting Agreement, as
                applicable.




·
            Nothing
                shall have occurred that results in a material adverse effect as
                defined
                by the Amended and Restated Merger
                Agreement.




·
            Holders
                of 20% or more of our common stock cannot have exercised conversion
                rights
                under our Amended and Restated Certificate of
                Incorporation.




·
            Holders
                of 5% or more of XLNT Common Stock cannot have exercised dissenters’
                rights under Delaware law.




·
            XLNT
                must have a positive working capital as of the end of the month
                immediately preceding the month in which the closing of the merger
                occurs.




XLNT’s
      obligations are conditioned upon the accuracy of our representations and
      warranties and each of our founding stockholders executing a lock-up agreement.
      The parties presently anticipate closing the Merger by December 31, 2007.




We
      and
      XLNT have made customary representations, warranties and covenants in the
      Amended and Restated Merger Agreement, including, among others, XLNT’s covenant
      not to directly or indirectly, solicit, initiate or encourage competing offers
      or engage in discussions regarding an acquisition proposal, but XLNT may, prior
      to the adoption of the Amended and Restated Merger Agreement by its
      stockholders, respond to unsolicited written competing offers if its special
      committee or board of directors determines that a failure to respond would
      likely be a breach of its fiduciary responsibilities. If an unsolicited
      acquisition proposal is received that XLNT’s board determines is a better
      opportunity for XLNT and its stockholders (a “Superior Proposal”), XLNT must
      provide us with prior written notice of the receipt of the Superior Proposal.
      Generally speaking, a “Superior Proposal” must be for the acquisition of at
      least 90% of XLNT’s stock or all or substantially all of its assets and have
      terms determined to be superior to our offer.




28


XLNT
      has
      also agreed that between the date of the signing of the Amended and Restated
      Merger Agreement and the closing of the Merger, XLNT shall continue to present
      for the approval of its Board of Directors, in a manner consistent with its
      current practice, new letters of intent or definitive agreements for any
      hospital or clinic acquisitions or group of hospital or clinic acquisitions.
      If
      any such hospital or clinic acquisition, or group of hospital or clinic
      acquisitions, presented to XLNT’s Board of Directors at a particular time, have
      a purchase price (aggregated in the case of a group of acquisitions) that
      exceeds either (i) six times such target’s (or targets’) trailing twelve month
      earnings before interest, taxes, depreciation and amortization (“EBITDA”) as of
      the end of the most recent fiscal quarter of such target or (ii) 1.1 times
      the
      aggregate of such target’s (or targets’) trailing twelve month revenue as of the
      end of the most recent fiscal quarter of such target (or targets), any such
      acquisition or group of acquisitions shall be subject to the approval of an
      acquisition committee (“Acquisition Committee”) of our Board of Directors
      consisting of one person that we expect to designate as our post-closing Board
      of Directors nominee, one member of our Special Committee and an additional
      person who is a member of our Board of Directors. If the Acquisition Committee
      does not respond within seven days after a potential acquisition is presented
      to
      it, it will be deemed to have approved the acquisition.




XLNT’s
      stockholders will indemnify us and our representatives, assigns, and successors
      for any breach of any representation or warranty by XLNT, the failure to fulfill
      a covenant by XLNT, or the settlement of any claim for dissenter rights to
      the
      extent such claim exceeds $7.20 per share. We will indemnify XLNT’s stockholders
      and their representatives, assigns and successors for any breach of any
      representation or warranty by us or the failure to fulfill a covenant by us.
      The
      indemnifications of XLNT’s stockholders are subject to a first-dollar basket and
      are limited to the Escrow Fund. Our indemnification obligations are also subject
      to a first-dollar basket and will not exceed an aggregate of an amount equal
      to
      ten percent of the Aggregate Merger Consideration.




The
      Amended and Restated Merger Agreement contains certain termination rights for
      both us, on the one hand, and XLNT, on the other, and provides that, upon the
      termination of the Amended and Restated Merger Agreement under specified
      circumstances, XLNT will be required to pay a fee of $5 million to us plus
      documented, reasonable out-of-pocket expenses incurred by us in pursuing the
      transactions contemplated by the Amended and Restated Merger Agreement.




The
      Amended and Restated Merger Agreement may be terminated by either party upon
      the
      occurrence of any of the following:




·
            By
                mutual written agreement;




·
            if
                the Merger has not occurred by March 21,
                2008;




·
            if
                a governmental entity has issued a non-appealable final decree, order
                or
                ruling or other final action permanently restraining or otherwise
                prohibiting the Merger;




·
            Our
                stockholders reject the proposed transaction (provided that such
                right to
                terminate shall be predicated on our Board’s continued support of
                transaction); or




·
            Holders
                of 20% or more of our common stock exercise their conversion
                rights.




XLNT
      can
      terminate the Amended and Restated Merger Agreement upon the occurrence of
      any
      of the following:




·
            we
                have breached any of our representations, warranties or covenants
                and any
                curable breach has not been cured by thirty days after XLNT notifies
                us of
                such breach;




·
            XLNT
                decides to accept a “Superior Proposal”;
                or




29




·
            If
                XLNT’s stockholders fail to approve (provided that such right to terminate
                shall be predicated on the XLNT Board’s continued support of
                transaction).




We
      can
      terminate the Amended and Restated Merger Agreement upon the occurrence of
      any
      of the following:




·
            XLNT
                has breached any of its representations, warranties or covenants
                and any
                curable breach has not been cured by thirty days after we notify
                XLNT of
                such breach;




·
            XLNT
                fails to deliver certain required historical audited financial statements
                by March 31, 2007; or




·
            XLNT’s
                Baseline Revenues (as defined in the Amended and Restated Merger
                Agreement) are less than $57,500,000 or its 2006 adjusted EBITDA
                (as
                defined in the Amended and Restated Merger Agreement) (together with
                any
                Acquisition Candidates) based on the trailing twelve month period
                ending
                December 31, 2006 is less than $9,775,000, which termination right
                shall
                be exercisable within five (5) business days after: (a) XLNT notifies
                us
                that XLNT does not reasonably believe that it will meet one of the
                foregoing targets; or (b) March 31, 2007 if either or both of the
                targets
                are not met due to the failure by XLNT to complete the acquisition
                of
                certain acquisition candidates.




In
      connection with the Amended and Restated Merger Agreement, certain stockholders
      of XLNT that beneficially own shares of XLNT Common Stock or XLNT Preferred
      Stock (the “XLNT Affiliates”) have entered into a Voting Agreement with us and
      Merger Sub pursuant to which the XLNT Affiliates granted us an irrevocable
      proxy
      to vote the shares of XLNT Common Stock or XLNT Preferred Stock that they
      collectively own and any subsequently acquired shares in favor of adoption
      the
      Amended and Restated Merger Agreement and approval of the Merger, subject to
      certain limited exceptions. The Voting Agreement, with certain exceptions,
      also
      restricts the parties to the agreement from transferring any shares subject
      to
      the agreement.




The
      XLNT
      Affiliates have also agreed to vote against (i) any action, transaction,
      proposal, agreement or amendment to XLNT’s charter or bylaws that would be
      reasonably expected to materially prevent, impede, or adversely affect the
      Merger or any related transactions, and (ii) any competing proposal to acquire
      XLNT, subject to certain limited exceptions. The XLNT Affiliates will grant
      to
      us an irrevocable proxy with respect to the foregoing matters. The XLNT
      Affiliates also agree to a “no-shop” provision and to not deposit their shares
      in a voting trust.




**Liquidity
      and Capital Resources**




We
      will
      use substantially all of the net proceeds of our initial public offering
      discussed above to acquire one or more operating businesses, including
      identifying and evaluating prospective acquisition candidates, selecting one
      or
      more operating businesses, and structuring, negotiating and consummating the
      business combination, including the making of a down payment or the payment
      of
      exclusivity or similar fees and expenses, if any. However, we may not use all
      of
      the proceeds held in the trust account in connection with a business
      combination, either because the consideration for the business combination
      is
      less than the proceeds in trust or because we finance a portion of the
      consideration with capital stock or debt securities that we can issue. In that
      event, the proceeds held in the trust account as well as any other net proceeds
      not expended will be used to finance the operations of the target business
      or
      businesses.




We
      may
      issue additional capital stock or debt securities to finance a business
      combination. See “—Developments in Finding a Suitable Business Target.” The
      issuance of additional capital stock, including upon conversion of any
      convertible debt securities we may issue, or the incurrence of debt, could
      have
      material consequences on our business and financial condition. The issuance
      of
      additional shares of our capital stock (including upon conversion of convertible
      debt securities):




·
            may
                significantly reduce the equity interest of our
                stockholders;




·
            will
                likely cause a change in control if a substantial number of our shares
                of
                common stock or voting preferred stock are issued, which may affect,
                among
                other things, our ability to use our net operating loss carry forwards,
                if
                any, and may also result in the resignation or removal of one or
                more of
                our present officers and directors;
                and




30




·
            may
                adversely affect prevailing market prices for our common
                stock.




Similarly,
      if we issue debt securities, it could result in:




·
            default
                and foreclosure on our assets if our operating revenues after a business
                combination are insufficient to pay our debt
                obligations;




·
            acceleration
                of our obligations to repay the indebtedness even if we make all
                principal
                and interest payments when due if we breach the covenants contained
                in any
                debt securities, such as covenants that require the satisfaction
                or
                maintenance of certain financial ratios or reserves, without a waiver
                or
                renegotiation of such covenants;




·
            an
                obligation to immediately repay all principal and accrued interest,
                if
                any, upon demand to the extent any debt securities are payable on
                demand;
                and




·
            our
                inability to obtain additional financing, if necessary, to the extent
                any
                debt securities contain covenants restricting our ability to obtain
                additional financing while such security is outstanding, or to the
                extent
                our existing leverage discourages other potential
                investors.




We
      believe that we have sufficient funds available under our Line of Credit to
      allow us to operate for at least the next 12 months, assuming that a business
      combination is not consummated during that time. Over this time period, we
      anticipate making the following expenditures:




·
            approximately
                $250,000 of expenses for legal and accounting fees attendant to the
                due
                diligence investigations, structuring and negotiating of a business
                combination;




·
            approximately
                $50,000 for reimbursement of out-of-pocket expenses for the due diligence
                and investigation of a target
                business;




·
            approximately
                $50,000 of expenses in legal and accounting fees relating to our
                reporting
                obligations to the SEC;




·
            approximately
                $352,000 for general working capital that will be used for miscellaneous
                expenses and reserves, including expenses of structuring and negotiating
                a
                business combination, including the making of a down payment or the
                payment of exclusivity or similar fees and expenses;
                and




·
            approximately
                $42,000 for administrative fees relating to office space for twenty-one
                (21) months. However, an additional $115,500 in the administrative
                fees
                will be deferred and shall be payable upon the consummation of a
                business
                combination. In the event we must liquidate our Company prior to
                such a
                business combination, these fees will not be paid with proceeds of
                our
                public offering held in trust.




At
      December 31, 2006, we had total assets of $56,755,547, stockholders’ equity of
      $36,304,329 (not including $11,263,172 that may be converted to cash by
      stockholders voting against a business combination) and a Line of Credit
      obligation of $240,300.




The
      following table shows the amounts due in connection with the contractual
      obligations described below as of December 31, 2006.




**Payments
                due by period****Total**
            
            **Less
                than**
              **1
                year**
            
            **1-3
                years**
            
            **3-5
                years**
            
            **More
                than**
              **5
                years**Long-term
                debt (1)
            
            $
            240,300
            
            $
            —
            
            $
            240,300
            
            $
            —
            
            $
            —Administrative
                Fees Obligations (2)
            
            $
            112,500
            
            $
            90,000
            
            $
            22,500
            
            
            —
            
            
            —Total
            
            $
            352,800
            
            $
            90,000
            
            $
            262,800
            
            $
            —
            
            $
            —




(1)
            As
                of December 31, 2006, we had drawn $240,300 on our Line of Credit
                which
                will become due at the consummation of a business combination, which
                could
                occur in less than one year but may occur as late as March 22,
                2008.




(2)
            The
                administrative fees obligations represent the full amount of rent
                payable
                to Windy City, Inc. for office space, utilities and personnel, $5,500
                per
                month of which is deferred until the consummation of a business
                combination.




31




During
      the year ended December 31, 2006, there were payments to directors and officers
      of $178,829 representing reimbursement of road show and board meeting expenses.




After
      our
      initial public offering, we actively engaged in sourcing a suitable business
      combination candidate. We have met with target companies, service professionals
      and other intermediaries to discuss our Company, the background of our
      management and our combination preferences. In the course of these discussions,
      we also spent time explaining the capital structure of the initial public
      offering, the combination approval process and the timeline under which we
      are
      operating before the proceeds of the offering are returned to
      investors.




**Off-Balance
      Sheet Arrangements; Commitments and Contractual
      Obligations**




As
      of
      December 31, 2006, we did not have any off-balance sheet arrangements as defined
      in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or
      contractual obligations other than our payments to Windy City, Inc. as described
      above. No unaudited quarterly operating data is included in this Form 10-K
      as we
      have conducted no operations to date.




**Item
      7A. Quantitative and Qualitative Disclosures about Market
      Risk**




Market
      risk is the sensitivity of income to changes in interest rates, foreign currency
      exchange rates, commodity prices, equity prices, and other market-driven rates
      or prices. We are not presently engaged in and, if a suitable business target
      is
      not identified by us prior to the prescribed liquidation date of the trust
      fund,
      we may not engage in, any substantive commercial business. Accordingly, we
      are
      not and, until such time as we consummate a business combination, we will not
      be, exposed to risks associated with foreign exchange rates, commodity prices,
      equity prices or other market-driven rates or prices. The net proceeds of our
      initial public offering held in the trust fund have been invested only in
      securities meeting certain conditions under Rule 2a-7 promulgated under the
      Investment Company Act of 1940. Given our limited risk exposure related to
      these
      short-term securities, we do not view the interest rate risk to be significant.
      The value of our warrants will vary based on the market value of our common
      stock.




**Item
      8. Financial Statements and Supplementary Data.**




Reference
      is made to our financial statements beginning on page F-1 of this
      report.




**Item
      9. Changes in and Disagreements with Accountants on Accounting and Financial
      Disclosure.**




Not
      applicable.




**Item
      9A. Controls and Procedures.**




Our
      management carried out an evaluation, with the participation of our Chief
      Executive Officer and our Chief Financial Officer, of the effectiveness of
      our
      disclosure controls and procedures as of December 31, 2006. Based upon that
      evaluation, our Chief Executive Officer concluded that our disclosure controls
      and procedures were effective to ensure that information required to be
      disclosed by us in reports that we file or submit under the Securities Exchange
      Act of 1934 is recorded, processed, summarized and reported, within the time
      periods specified in the rules and forms of the SEC.




32


**Internal
      Controls**




We
      do not
      currently, and are not required to, maintain an effective system of internal
      controls as defined by Section 404 of the Sarbanes-Oxley Act of 2002. We will
      be
      required to comply with the internal control requirements of the Sarbanes-Oxley
      Act for the fiscal year ending December 31, 2007 .




As
      of the
      date of this report on Form 10-K, we have not completed an assessment, nor
      have
      our auditors tested our systems, of internal control. We expect that we will
      assess the internal controls of our target business or businesses preceding
      the
      completion of a business combination and will then implement a schedule for
      implementation and testing of such additional controls as we may determine
      are
      required to state that we maintain an effective system of internal controls.
      A
      target business may not be in compliance with the provisions of the
      Sarbanes-Oxley Act regarding the adequacy of its internal controls. Many small
      and mid-sized target businesses we consider for a business combination may
      have
      internal controls that need improvement in areas such as:




·
            staffing
                for financial, accounting and external reporting areas, including
                segregation of duties;




·
            reconciliation
                of accounts;




·
            proper
                recordation of expenses and liabilities in the period to which they
                relate;




·
            proof
                of internal review and approval of accounting
                items;




·
            documentation
                of key accounting assumptions, estimates and/or conclusions;
                and




·
            documentation
                of accounting policies and
                procedures.




Because
      it will take time, management involvement and perhaps outside resources to
      determine what internal control improvements are necessary for us to meet
      regulatory requirements and market expectations for our operation of a target
      business, we may incur significant expense in meeting our public reporting
      responsibilities, particularly in the areas of designing, enhancing, or
      remediating internal and disclosure controls. Doing so effectively may also
      take
      longer than we expect, thus increasing our exposure to financial fraud or
      erroneous financial reporting.




Once
      our
      management’s report on internal controls is complete, we will retain our
      independent auditors to assess management’s report on internal controls and to
      render an opinion on such report when required by Section 404. Additional
      matters concerning a target business’s internal controls may be identified in
      the future when the assessment and testing is performed.




There
      has
      not been any change in our internal control over financial reporting in
      connection with the evaluation required by Rule 13a-15(d) under the Exchange
      Act
      that occurred during the quarter ended December 31, 2006, that has materially
      affected, or is reasonably likely to materially affect, our internal control
      over financial reporting.




**Item
      9B. Other Information.**




Not
      applicable.




33




**PART
      III**




**Item
      10. Directors and Executive Officers of the Registrant**




Our
      current directors and executive officers are as follows:




**Name**
            
            **Age
                at**
              **12/31/06**
            
            **Position**Gene
                E. Burleson
            
            66
            
            Chairman
                and Chief Executive OfficerJoel
                Kanter
            
            50
            
            President,
                Secretary and DirectorKevin
                W. Pendergest
            
            53
            
            Chief
                Financial Officer, Treasurer and DirectorEugene
                A. Bauer
            
            64
            
            DirectorGary
                A. Brukardt
            
            60
            
            DirectorAlastair
                Clemow
            
            56
            
            DirectorRichard
                O. Martin
            
            66
            
            Director




***Gene
      E. Burleson*** ,
      our
      Chairman of the Board and Chief Executive Officer, served as Chairman of the
      Board of Directors of Mariner Post-Acute Network, Inc., an operator of long-term
      care facilities, from January 2000 to June 2002. Mr. Burleson also served as
      Chairman of the Board of Directors of Alterra Healthcare Corporation, a
      developer and operator of assisted living facilities, during 2003 and as a
      member of the board of directors from 1995 to 2003. Mr. Burleson currently
      serves on the Board of Directors of: Deckers Outdoor Corporation (Nasdaq:DECK),
      an outdoor shoe company; Prospect Medical Holdings, Inc. (AMEX:PZZ), a provider
      of management services to affiliated independent physician associations; SunLink
      Health Systems, Inc. (AMEX:SSY), an owner and operator of acute care hospitals;
      and Nesco Industries, Inc. (OTCBB:NESK.OB), a manufacturer of aqueous polymer
      Hydrogel used for wound care and transdermal drug delivery systems. In addition,
      Mr. Burleson is involved with several private companies, including BioHorizons
      Implant Systems, Inc., a provider of dental implants and related products;
      Med
      Images, Inc., a provider of integrated documentation services to surgeons and
      hospitals through multimedia technology; Marina Medical, Inc., a provider of
      medical billing and accounts receivable management services to hospital based
      physicians; Footcare Associates, Inc., a provider of therapeutic and diabetic
      footwear; and David Braun Productions, Inc., a producer of children’s television
      programming. Mr. Burleson served as Chairman of the Board of GranCare (formerly
      an NYSE listed company) from 1989 to 1997. Additionally, Mr. Burleson served
      as
      President and Chief Executive Officer of GranCare from 1990 to 1997. Upon
      completion of the merger of GranCare’s pharmacy operations with Vitalink
      Pharmacy Services, Inc. in 1997, he became Chief Executive Officer and a
      Director of Vitalink Pharmacy Services Inc. (formerly an NYSE listed company).
      Mr. Burleson resigned as Chief Executive Officer and Director of Vitalink
      Pharmacy Services, Inc. in 1997. From 1986 to 1989, Mr. Burleson served as
      President, Chief Operating Officer and a Director of AMI, an owner and operator
      of acute care hospitals. Based in London from 1981 to 1986, Mr. Burleson served
      as Managing Director of AMI’s international operations. Mr. Burleson graduated
      from East Tennessee State University with a Bachelor of Science in accounting
      and earned an M.B.A. in 1972.




***Joel
      Kanter*** ,
      our
      President and Secretary, has served as President of Windy City, Inc., a
      privately-held investment firm, since 1986. From 1995 to 1999, Mr. Kanter served
      as the Chief Executive Officer and President of Walnut Financial Services,
      Inc.,
      a publicly traded company (formerly listed on Nasdaq). Walnut Financial’s
      primary business focus was the provision of different forms of financing to
      small businesses. Walnut Financial accomplished this objective by providing
      equity financing to start-up and early stage development companies, bridge
      financing and factoring services to small and medium-sized companies, and by
      providing later stage institutional financing to more mature enterprises through
      an institutional fund it ran for the Teachers Retirement System of Illinois.
      Over the course of its 13 year history, Walnut Financial provided financing
      to
      over 300 companies, including many that became well known ventures including
      Plax Mouthwash (Oral Research Laboratories), Sonicare Toothbrushes (Optiva
      Corp.), the first manufacturer of Global Positioning System devices (Magellan
      Corp.), the largest and only nationwide Preferred Provider Organization (First
      Health), what became the country’s fifth largest nursing home company
      (GranCare), and the third largest U.S. institutional pharmacy company (Vitalink
      Pharmacy Services, Inc.). Walnut Financial was acquired by THCG, Inc. in 1999.
      From 1985 through 1986, Mr. Kanter served as Managing Director of The Investors’
Washington Service, an investment advisory company specializing in providing
      advice to large institutional clients regarding the impact of federal
      legislative and regulatory decisions on debt and equity markets. Clients
      included Amoco Oil, AT&T, Bankers Trust, Chase Manhattan Bank, General
      Motors and J.C. Penney. Mr. Kanter serves on the Board of Directors of several
      public companies including I-Flow Corporation (Nasdaq:IFLO), Magna-Lab, Inc.
      (OTC Bulletin Board:MAGLA.OB) Nesco Industries, Inc. (OTCBB:NESK.OB), a
      manufacturer of aqueous polymer Hydrogel used for wound care and transdermal
      drug delivery systems; and Prospect Medical Holdings, Inc. (AMEX:PZZ), a
      provider of management services to affiliated independent physician
      associations. Mr. Kanter served on the board of Encore Medical Corporation
      (Nasdaq: ENMC) prior to its going-private merger with Blackstone in November
      2006. Mr. Kanter also serves on the board of directors of several private
      companies, including XLNT Veterinary Care, Inc., an operator of veterinary
      hospitals; Med Images, Inc., a provider of integrated documentation services
      to
      surgeons and hospitals through multimedia technology; Modigene Inc., a life
      sciences company that is developing technology to extend the life of proteins;
      MathMastery, Inc., a company that develops homework help products for the
      educational market; and Prescient Medical, Inc. an early stage company seeking
      methods to identify and treat vulnerable plaque in cardiology patients. He
      is
      the past President of the Board of Trustees of The Langley School in McLean
      Virginia and a current Trustee at the Georgetown Day School in Washington,
      D.C.
      Mr. Kanter graduated from Tulane University in 1978 with a Bachelor of Science
      in Psychology and a Bachelor of Arts in Political Science.




34




***Kevin
      Pendergest*** ,
      our
      Chief Financial Officer, Treasurer and a director of our Company, serves as the
      president of Strategic Alliance Network (“SAN”), a company he founded in 1995
      and for which he also served as president from 1995 to 2002. SAN is a financial
      services advisory firm that provides assistance in mergers and acquisitions,
      financing, restructuring and turnaround management to companies in the
      healthcare industry. From 2002 until 2005, Mr. Pendergest served as the
      Executive Vice President and Chief Financial Officer of Sun Healthcare Group,
      Inc. (Nasdaq:SUNH), one of the nation’s largest providers of long-term care.
      From 1990 to 1995, Mr. Pendergest served as the Executive Vice President and
      Chief Financial Officer of GranCare (formerly listed on NYSE), a company that
      provided long-term care services. Prior to that Mr. Pendergest spent thirteen
      years working for two national public accounting firms, including serving as
      partner in charge of healthcare consulting for the western region of a
      predecessor to Deloitte & Touche. Mr. Pendergest is a Certified Public
      Accountant and holds a Bachelor of Science in Accounting from the University
      of
      Dayton.




***Eugene
      A. Bauer, M.D.*** ,
      a
      director of our Company, is Chief Executive Officer of Neosil, Inc., an early
      stage dermatology pharmaceutical company, and Professor-Emeritus in the School
      of Medicine at Stanford University. Dr. Bauer is one of three co-founders and
      a
      member of the Board of Directors of Connetics Corporation (Nasdaq:CNCT), a
      company focused on pharmaceuticals for skin diseases, and for which, since
      October 2005, Dr. Bauer has served as Director Emeritus. He is also a member
      of
      the Board of Directors of Neosil, Inc., an early stage dermatology
      pharmaceutical company, Protalex, Inc. (OTCBB:PRTX), a company engaged in the
      development of biopharmaceutical drugs for treating autoimmune and inflammatory
      diseases, Peplin, Ltd., an Australian company focused on topical anti-skin
      cancer products, and the American Dermatological Association. He has served
      on
      several not-for-profit boards of directors, including the boards of directors
      of
      Stanford Hospital and Clinics, the Lucile Salter Packard Children’s Hospital,
      and UCSF Stanford Health Care. During 2003 and 2004, Dr. Bauer served as a
      Senior Client Partner for the North American Health Care Division of Korn/Ferry
      International (NYSE:KFY), a company that provides executive human capital
      solutions, with services ranging from corporate governance and chief executive
      recruitment to executive search, middle management recruitment, strategic
      management assessment and executive coaching and development. From 2002 to
      2003,
      Dr. Bauer was a Senior Consultant for this same division. Dr. Bauer served
      as
      Vice President for Medical Affairs of Stanford University from 1997 to 2000,
      as
      Vice President for the Medical Center from 2000 to 2001 and as dean of the
      School of Medicine from 1995 to 2001. In these positions, Dr. Bauer was
      responsible on behalf of Stanford University for all financial and strategic
      activities of the School of Medicine, the Stanford University Hospital, the
      Faculty Practice and the Lucile Packard Children’s Hospital. In the aggregate,
      the annual budgets of these four entities approximated $1.5 billion. Dr. Bauer
      has been a professor at Stanford University since 1988. Dr. Bauer received
      his
      Bachelor of Science from Northwestern University in 1964 and his M.D. from
      Northwestern University Medical School in 1967.




***Gary
      A. Brukardt*** ,
      a
      director of our Company, serves as President and Chief Executive Officer of
      Specialty Care Services Group. He previously served as President and Chief
      Executive Officer of Renal Care Group (NYSE:RCI) from 2003 to 2006. Mr. Brukardt
      was Executive Vice President and Chief Operating Officer of Renal Care Group
      from 1996 until 2003. From 1991 to 1996, he served as Executive Vice President
      of Baptist Health Care Affiliates in Nashville, Tennessee, where he was
      responsible for all external affairs, such as occupational medicine
      centers/programs, urgent care, home health care, managed care, corporate health
      services, management of four rural hospitals and three hospital joint ventures,
      an ambulatory surgery center and all external physician and hospital
      relationships. In addition, from 1991 to 1996, Mr. Brukardt served as Chairman
      of HealthNet Management, Inc., a managed care company. Mr. Brukardt received
      his
      Bachelor of Arts at the University of Wisconsin at Oshkosh and his M.B.A. in
      International Management from Thunderbird, School of Global
      Management.




35


***Alastair
      J.T. Clemow, PhD*** ,
      a
      director of our Company, serves as President and Chief Executive Officer of
      Nexgen Spine Inc., a private company developing an artificial spinal implant.
      Previously, Dr. Clemow served as the President and Chief Executive Officer
      of
      Gelifex Inc., a medical device company developing an innovative spinal nucleus
      replacement implant, which was acquired by Synthes Spine in 2004. Since 2000
      Dr.
      Clemow has been Principal of Tanton Technologies, an organization that provides
      strategic and technical assessment of new medical device opportunities for
      large, mid-cap and early stage development companies. Prior to that, Dr. Clemow
      served in numerous positions with Johnson & Johnson (NYSE:JNJ) from 1981 to
      2000, including Vice President of Worldwide Business Development for Ethicon
      Endo-Surgery Inc., Vice President of New Business Development for Johnson &
Johnson Professional Inc., and Director of Research and Development of Johnson
      & Johnson Orthopedics. Dr. Clemow holds an M.B.A. in Finance from Columbia
      University and a PhD in Metallurgy from University of Surrey, Guildford, U.K.
      Dr. Clemow served on the board of Encore Medical Corporation (Nasdaq:ENMC)
      prior
      to its merger with Blackstone in November 2006. He serves on the boards of
      HydroCision Inc., Modigene Inc., Klingler Advanced Aesthetics and BioMedical
      Enterprises Inc.




***Richard
      O. Martin, PhD*** ,
      a
      director of our Company, retired in 2001 as President of Medtronic
      Physio-Control Corp. (NYSE:MDT), the successor company to Physio-Control
      International Corporation, the worldwide leader in external defibrillation,
      monitoring and noninvasive pacing devices. Dr. Martin became President of
      Physio-Control International Corporation in 1991 when Physio-Control
      International Corporation was part of Eli-Lilly (NYSE:LLY). During his tenure
      at
      Physio-Control International Corporation, Dr. Martin instituted company-wide
      quality improvement programs, rebuilt the management team after separation
      from
      the company’s pharmaceutical parent, and was instrumental in taking the company
      public in 1995. In September, 1998, Physio-Control International Corporation
      merged with Medtronic, Inc. Previously, Dr. Martin was with Sulzermedica, Inc.,
      where he was Vice President of Cardiovascular Business Development. Prior to
      that, he held several senior executive positions in engineering, marketing
      and
      sales with Intermedics, Inc. before being named President and Chief Operating
      Officer of that company in 1985. Dr. Martin also served as Director, President
      and Chief Operating Officer of Positron Corporation during 1989 and 1990. Before
      joining the corporate world, he taught at Christian Brothers College and the
      University of Tennessee. Dr. Martin served on the board of the Northwest
      affiliate of the American Heart Association and was its Chairman from 1997
      to
      1999. He served on the board of the Medical Device Manufacturers Association
      and
      was its Chairman from 1996 to 1998. He served as a board member of the
      Washington Council of AeA (formerly American Electronics Association), the
      U.S.’s largest trade association representing the high tech industry, from 1991
      to 2001 and as AeA’s national chairman during 2000 through 2001. Dr. Martin
      currently serves on the boards of CardioDynamics International Corporation
      (Nasdaq:CDIC), a company that develops, manufactures and markets noninvasive
      impedance cardiography diagnostic and monitoring technologies and
      electrocardiograph electrode sensors; Inovise Medical, a company that develops
      and markets advanced electrocardiographic systems; Cardiac Dimensions, an early
      stage company that develops minimally invasive tools for mitral valve repair;
      Prescient Medical, an early state company developing diagnostic and therapeutic
      products designed to prevent heart attaches caused by vulnerable plaque; and
      MDdatacor, a company developing medical data mining software. Dr. Martin served
      on the board of Encore Medical Corporation prior to its merger with Blackstone
      in November 2006. **** Dr.
      Martin received his BSEE in 1962 from Christian Brothers College; MSEE in 1964
      from Notre Dame; and PhD in Electrical Engineering in 1970 from Duke
      University.




Our
      board
      of directors is divided into two classes with only one class of directors being
      elected in each year and each class serving a two-year term. The term of office
      of the first class of directors, consisting of Eugene A. Bauer, Gary Brukardt,
      Alastair Clemow and Richard Martin, will expire in 2007 at our first annual
      meeting of stockholders. The term of office of the second class of directors,
      consisting of Gene E. Burleson, Joel Kanter and Kevin Pendergest, will expire
      in
      2008 at the second annual meeting.




These
      individuals will play a key role in identifying and evaluating prospective
      acquisition candidates, selecting the target business, and structuring,
      negotiating and consummating its acquisition. Except for Mr. Kanter and his
      relationship with Encore Medical Corporation, which was acquired by a blank
      check company sponsored by Mr. Kanter in 1995 and Mr. Kanter and Mr. Burleson’s
      relationship to HealthMont, Inc., which was acquired by a private blank check
      company sponsored by Messrs. Kanter and Burleson in 2000, none of these
      individuals has been a principal of or affiliated with a public company or
      blank
      check company that executed a business plan similar to our business plan and
      none of these individuals is currently affiliated with such an entity. Although
      they were not sponsors of the blank-check corporation that acquired Encore
      Medical Corporation, Drs. Clemow and Martin have served as members of the board
      of directors of Encore Medical Corporation since 2003 and 1996, respectively.
      However, we believe that the skills and expertise of these individuals, their
      collective access to acquisition opportunities and ideas, their contacts, and
      their transaction expertise should enable them to identify and effect an
      acquisition although we cannot assure you that they will, in fact, be able
      to do
      so.




36


***Conflicts
      of Interest***




Joel
      Kanter, our President and a director of our Company, currently owns 25,000
      shares of common stock of XLNT, a warrant to purchase 20,000 shares of XLNT
      common stock at an exercise price of $2.40 per share, and an option to purchase
      18,000 shares of XLNT common stock at an exercise price of $4.40 per share.
      Gene
      Burleson, our Chief Executive Officer and our Chairman of the Board, currently
      owns 20,833 shares of Series A Convertible Preferred Stock of XLNT and a warrant
      to purchase 1,500 shares of XLNT common stock at an exercise price per share
      of
      $4.40.




Kevin
      Pendergest, our Chief Financial Officer and a director of our Company, is the
      president of Strategic Alliance Network, Inc. (“SAN”), which is currently a
      party to a consulting agreement with XLNT, pursuant to which for a monthly
      fee
      of $25,000 from September 1, 2006, to March 31, 2007, subject to certain renewal
      terms, SAN is providing consulting and business advisory services to
      XLNT.




**Section
      16(a) Beneficial Ownership Reporting Compliance**




Section
      16(a) of the Securities Exchange Act of 1934 requires our directors and
      executive officers and persons who own more than 10% of a registered class
      of
      our equity securities, to file with the SEC initial reports of ownership and
      reports of changes in beneficial ownership of our common stock and our other
      equity securities. Directors, officers and greater than 10% stockholders are
      required by SEC regulations to furnish us with all Section 16(a) forms they
      file.




To
      our
      knowledge, based solely upon our review of the copies of such reports furnished
      to us, we believe that all of our directors, officers and greater than 10%
      stockholders have complied with the applicable Section 16(a) reporting
      requirements except that: the initial reports of ownership of Messrs. Burleson,
      Brukardt, Clemow, Kanter and Pendergest, Drs. Bauer and Martin, and Chicago
      Investments, Inc. were filed late and one Form 4 filed on June 6, 2006 on behalf
      of Dr. Martin and Messrs. Burleson and Brukardt was filed late.




**Director
      Independence**




Our
      board
      of directors has determined that Drs. Bauer, Clemow and Martin and Mr. Brukardt
      are “independent directors” as defined under Rule 10A-3 of the Exchange
      Act.




**Board
      of Directors and Committees of the Board**




Our
      board
      of directors had eighteen **** meetings
      during the fiscal year ended December 31, 2006 and acted by unanimous written
      consent one time. During the fiscal year ended December 31, 2006, each member
      of
      the board participated in at least 75% of all board and applicable committee
      meetings held during the period for which he was a director.




We
      do not
      currently have a Compensation Committee. None of our officers or directors
      currently receive compensation. We will not pay any compensation to any of
      our
      directors or officers until following the consummation of a business
      combination.




Our
      board
      of directors has established a Nominating and Corporate Governance Committee
      and
      an Audit Committee to devote attention to specific subjects and to assist the
      board in the discharge of its responsibilities. The functions of these
      committees and their current members are set forth below.




***Nominating
      and Governance Committee***




The
      Nominating and Corporate Governance Committee is responsible for assisting
      identifying and recommending qualified candidates for director nominees to
      the
      board, and leading the board in its annual review of the board’s performance.
      All members of the Nominating and Corporate Governance Committee qualify as
      independent under the definition promulgated by the SEC. The Nominating and
      Corporate Governance Committee had no meetings during 2006. Gary Brukardt,
      Eugene Bauer and Richard Martin are the current members of the Nominating and
      Corporate Governance Committee. The Nominating and Corporate Governance
      Committee may consider candidates recommended by stockholders as well as from
      other sources such as other directors or officers, third party search firms
      or
      other appropriate sources. For all potential candidates, the Nominating and
      Corporate Governance Committee may consider all factors is deems relevant,
      such
      as a candidate’s personal integrity and sound judgment, business and
      professional skills and experience, independence, knowledge of the industry
      in
      which we operate, possible conflicts of interest, diversity, the extent to
      which
      the candidate would fill a present need in the board, and concern for the
      long-term interests of the stockholders. A copy of the Nominating and Corporate
      Governance Committee’s written charter is available on our website at
      www.echohealthcare.com, and we will also send a copy of such charter to you
      upon
      written request.




37


***Audit
      Committee***




The
      Audit
      Committee appoints and retains the firm selected to serve as our independent
      auditors and monitors the performance of such firm; reviews and approves the
      scope of the annual audit and evaluates with the independent auditors our annual
      audit and annual financial statements; oversees our internal accounting
      controls; reviews pre-approves all non-audit services to be performed by the
      independent auditors, if any; and considers the effect of such performance
      on
      the auditor’s independence. Eugene Bauer, Alastair Clemow and Richard Martin are
      the current members of the Audit Committee. All members of the Audit Committee
      satisfy the current independence standards promulgated by the SEC, as such
      standards apply specifically to members of audit committees. The board has
      determined that Richard Martin is an “audit committee financial expert,” as the
      SEC has defined that term in Item 401 of Regulation S-K. The Audit Committee
      had
      four meetings during 2006.




**Code
      of Conduct and Ethics**




We
      have
      adopted a code of conduct and ethics applicable to our directors, officers
      and
      employees in accordance with applicable federal securities laws. A copy of
      our
      code of conduct and ethics is available on our website at
      www.echohealthcare.com, and we will also send a copy of such code of conduct
      and
      ethics to you upon written request.




**Item
      11. Executive Compensation**




None
      of
      our executive officers have received any compensation for services rendered.
      Commencing on the effective date of our initial public offering and continuing
      through March 22, 2008, we have agreed to pay Windy City, Inc., an affiliated
      third party of which Mr. Kanter is president and a director, $7,500 per month
      for office space, utilities and personnel. Windy City, Inc. has agreed to defer
      the payment of $5,500 per month of the administrative fees until the
      consummation of a business combination or the liquidation of our Company. In
      the
      event we must liquidate our Company, these fees will not be paid with proceeds
      of our initial public offering held in trust. This arrangement is being agreed
      to by Windy City, Inc., the affiliate of Mr. Kanter, for our benefit and is
      not
      intended to provide Mr. Kanter compensation in lieu of a salary. We believe
      that
      such fees are at least as favorable as we could have obtained from an
      unaffiliated person. No other executive officer or director has a relationship
      with or interest in Windy City, Inc.




Other
      than this $7,500 per-month fee, no compensation of any kind, including finder’s
      and consulting fees, will be paid to any of our officers and directors, or
      any
      of their respective affiliates, for services rendered prior to or in connection
      with a business combination. However, these individuals will be reimbursed
      for
      any out-of-pocket expenses incurred in connection with activities on our behalf
      such as identifying potential target businesses and performing due diligence
      on
      suitable business combinations. Such individuals may be paid consulting,
      management or other fees from target businesses as a result of the business
      combination, with any and all amounts being fully disclosed to stockholders,
      to
      the extent then known, in the proxy solicitation materials furnished to the
      stockholders. There is no limit on the amount of these out-of-pocket expenses
      and there will be no review of the reasonableness of the expenses by anyone
      other than our board of directors, which includes persons who may seek
      reimbursement, or a court of competent jurisdiction if such reimbursement is
      challenged. Because none of our directors may be deemed “independent,” we will
      generally not have the benefit of independent directors examining the propriety
      of expenses incurred on our behalf and subject to reimbursement.




During
      the fiscal year ended December 31, 2006, the directors did not receive any
      cash
      compensation for their service as members of the board of
      directors.




**Item
      12. Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters**




The
      following table sets forth information regarding the beneficial ownership of
      our
      common stock as of March 30, 2007, by:




·
            each
                person known by us, as a result of such person’s public filings with the
                SEC and the information contained therein, to be the beneficial owner
                of
                more than 5% of its outstanding shares of common stock;




38




·
            each
                of our officers and directors; and




·
            all
                of our officers and directors as a group.




Unless
      otherwise indicated, we believe that all persons named in the table have sole
      voting and investment power with respect to all shares of common stock
      beneficially owned by them.




**Name
                and Address of**
              **Beneficial
                Owner****(1)**
            
            
            **Amount
                and Nature of**
              **Beneficial
                Ownership**
            
            **Percentage
                of Outstanding**
              **Common
                Stock****(2)**Eugene
                A. Bauer
            
            
            111,607
            
            
            1.3%Gene
                E. Burleson
            
            
            357,907
            
            
            4.1%Gary
                A. Brukardt
            
            
            123,449
            
            
            1.4%Alastair
                Clemow
            
            
            115,308
            
            
            1.3%Joel
                Kanter (3)
            
            
            118,083
            
            
            1.3%Kevin
                Pendergest
            
            
            117,158
            
            
            1.3%Richard
                Martin
            
            
            169,173
            
            
            1.9%All
                directors and executive officers as a group (7
                individuals)
            
            
            1,112,685
            
            
            12.7%**5%
                Beneficial Owners:**Chicago
                Investments, Inc.(4)
            
            
            449,815
            
            
            5.1%D.B.
                Zwirn & Co., L.P.(5)
            
            
            475,000
            
            
            5.4%Fir
                Tree, Inc.(6)
            
            
            573,500
            
            
            6.6%The
                Baupost Group, L.L.C.(7)
            
            
            684,700
            
            
            7.8%




(1)
              Unless
                  otherwise indicated, the business address of each of the individuals
                  is
                  8000 Towers Crescent Drive, Suite 1300, Vienna, Virginia
                  22182.
  (2)
              Based
                  on 8,750,000 total shares outstanding at March 30,
                  2007.
  (3)
              Mr.
                  Kanter is the president and a director of Windy City, Inc. As such,
                  Mr.
                  Kanter exercises discretionary voting power over the 20,427 shares
                  held by
                  Windy City, Inc.
  (4)
              Based
                  on the Schedule 13G filed on February 14, 2007, Chicago Investments,
                  Inc.
                  has sole voting power over 449,815 shares. Chicago Investments,
                  Inc. is a
                  majority-owned subsidiary of Chicago Holdings, Inc., which is ultimately
                  owned by entities controlled by, or established for the benefit
                  of, the
                  Kanter family (consisting generally of the descendants of Beatrice
&
                  Maurice Kanter and Henry & Helen Krakow). Joshua S. Kanter, Joel
                  Kanter’s brother, is the President and a director of both corporations.
                  Joel Kanter is neither an officer nor a director of these
                  entities.
  (5)
              Based
                  on the Schedule 13G filed on February 6, 2007, D.B. Zwirn & Co., L.P.,
                  DBZ GP, LLC, Zwirn Holdings, LLC, and Daniel B. Zwirn may each
                  be deemed
                  the beneficial owner of (i) 159,410 Shares owned by D.B. Zwirn
                  Special
                  Opportunities Fund, L.P. and (ii) 315,590 Shares owned by D.B.
                  Zwirn
                  Special Opportunities Fund, Ltd. The address for each of these
                  parties,
                  other than D.B. Zwirn Special Opportunities Fund, Ltd., is 745
                  Fifth
                  Avenue, 18thFloor, New York NY 10151. The address for D.B. Zwirn Special Opportunities
                  Fund, Ltd. is c/o Goldman Sachs (Cayman) Trust, Limited, P.O. Box
                  896
                  George Town, Harbour Centre, 2ndFloor, Grand Cayman, Cayman Islands, British West Indies.
  (6)
              Based
                  on the Schedule 13G filed on February 14, 2007, Fir Tree, Inc.
                  share
                  voting power over 400,353 shares with Sapling, LLC and over 173,147
                  shares
                  with Fir Tree Recovery Master Fund, L.P. The address of Fir Tree,
                  Inc. and
                  Sapling, LLC is 505 Fifth Avenue 23rdFloor, New York, NY 1001, and the address of Fir Tree Recovery
                  Master
                  Fund, L.P. is c/o Admiral Administration Ltd., Admiral Financial
                  Center,
                  5thFloor, 90 Fort Street, Box 32021 SMB, Grand Cayman, Cayman Islands.
  (7)
              Based
                  on the Schedule 13G filed on February 13, 2007, The Baupost Group,
                  L.L.C.,
                  whose address is 10 St. James Avenue, Suite 2000, Boston, Massachusetts
                  02116, has sole voting power over 684,700
                  shares.
  39




All
      of
      the shares of common stock owned by our initial stockholders prior to our
      initial public offering were placed into an escrow account maintained by
      Corporate Stock Transfer, Inc., acting as escrow agent. These shares will be
      released from escrow in two equal increments:




·
            781,250
                shares on the expiration of three years from the date of the initial
                public offering; and




·
            781,250
                shares on our having completed an initial business combination and
                the
                last sale price of our common stock thereafter equals or exceeds
                $11.50
                per share for any 20 trading days within any 30 trading day period
                beginning after we complete our initial business
                combination.




The
      foregoing restrictions are subject to certain limited exceptions such as
      transfers to family members and trusts for estate planning purposes, upon death
      of an escrow depositor, transfers to an estate or beneficiaries, or other
      specified transfers. Even if transferred under these circumstances, the shares
      will remain in the escrow account. The shares are releasable from escrow prior
      to the above dates only if following the initial business combination, we
      consummate a transaction in which all of the stockholders of the combined entity
      have the right to exchange their shares of common stock for cash, securities
      or
      other property. If the price of our common stock fails to reach the trigger
      price for the required number of trading days described above, the 781,250
      shares subject to this condition will remain in escrow until a transaction
      is
      consummated in which all stockholders of the combined entity have the right
      to
      exchange their common stock for cash, securities or other property, or until
      we
      cease operations.




Certain
      of the shares to be placed in escrow are subject to performance and market
      conditions as defined in the agreement, the attainment of which can not be
      assured, and may be considered contingent shares. As a result, upon placement
      in
      escrow, these shares may not be included in the per share calculations. The
      agreement provides that the shares are to be released to the initial
      stockholders (all of whom are officers and/or directors or are a related party
      to an officer and director) upon meeting certain performance and market
      conditions. Accordingly, we may be required to recognize a charge based on
      the
      fair value of the shares at the time the shares are released from the escrow.
      (The amount of such charge could be equal to the number of shares times the
      market value at such date. Based on the target price of $11.50, such charge
      would be approximately $8,984,000. As of December 31, 2006, the value of the
      shares to be held in escrow and conditioned only by the passage of time, is
      approximately $5,313,000, based on the unit offering price of $8.00 per unit
      less the warrant private placement price of $1.20 per warrant.)




During
      the escrow period, the holders of these shares will not be able to sell or
      transfer their securities, except to their spouses and children or trusts
      established for their benefit, but will retain all other rights as our
      stockholders, including, without limitation, the right to vote their shares
      of
      common stock and the right to receive cash dividends, if declared. If dividends
      are declared and payable in shares of common stock, such dividends will also
      be
      placed in escrow. If we are unable to effect a business combination and thus
      we
      liquidate, none of our initial stockholders will receive any portion of the
      liquidation proceeds with respect to common stock owned by them prior to the
      date of the initial public offering.




The
      merger with XLNT Veterinary Care, Inc. is expected to result in a change of
      control of our Company. See “Risk Factors- Risks Relating to Our Company - *We
      intend to issue shares of our capital stock to complete a business combination
      with XLNT, which would reduce the equity interest of our stockholders and likely
      cause a change in control of our ownership* .”




**Item
      13. Certain Relationships and Transactions**




In
      June
      of 2005, we issued an aggregate of 2,343,750 shares of common stock to the
      individuals set forth below for $25,000 in cash, at an average purchase price
      of
      approximately $0.01 per share. On November 10, 2005, we effected a four-for-ten
      reverse stock split, effectively raising the purchase price of our common stock
      to $.03 per share. On January 29, 2006, we effected a five-for-three stock
      split, effectively decreasing the purchase price of our common stock to
      approximately $.02 per share. The sole purpose of the stock splits authorized
      by
      our board of directors was to maintain the initial stockholders’ collective
      ownership at 20% of our issued and outstanding shares of common stock
      immediately after the offering, excluding the underwriters’ exercise of the
      over-allotment option, if any, because the proposed aggregate offering price
      of
      shares of common stock in the initial public offering was modified by our board
      of directors.




40


Following
      the stock splits described above and the transfers noted below, there were
      1,562,500 shares of common stock outstanding as of the date prior to our initial
      public offering as follows:




**Name**
            
            
            **Number
                of Shares**Eugene
                A. Bauer
            
            
            111,607Gene
                E. Burleson (1)
            
            
            357,907Gary
                A. Brukardt (1)(2)
            
            
            123,449Alastair
                Clemow (2)
            
            
            115,308Joel
                Kanter (2)
            
            
            97,656Kevin
                Pendergest (1)
            
            
            117,158Richard
                Martin (2)
            
            
            169,173Windy
                City, Inc. (2)
            
            
            20,427Chicago
                Investments, Inc. (2)
            
            
            449,815




(1)
              In
                  March 2006, Mr. Burleson purchased at the founders’ price 11,615 shares of
                  common stock from Mr. Brukardt and 47,835 shares of common stock
                  from Mr.
                  Pendergest.
  (2)
              In
                  March 2006, Chicago Investments, Inc. purchased at the founders’ price 918
                  shares of common stock from Mr. Brukardt, 19,737 shares of common
                  stock
                  from Mr. Clemow, 39,062 shares of common stock from Mr. Kanter,
                  17,955
                  shares of common stock from Mr. Martin and 34,540 shares of common
                  stock
                  from Windy City, Inc.




Concurrently
      with the consummation of our initial public offering, certain of our directors
      and stockholders purchased a combined total of 458,333 of our warrants from
      us
      at a price of $1.20 per warrant. These warrants, which we collectively refer
      to
      as the Founding Director Warrants, will not be sold or transferred by the
      purchasers who initially purchase these warrants from us until the completion
      of
      our initial business combination. The $550,000 purchase price of the Founding
      Director Warrants were added to the proceeds of our initial public offering
      held
      in the trust account pending our completion of one or more business
      combinations. If we do not complete one or more business combinations that
      meet
      the criteria described in this Form 10-K, then the $550,000 purchase price
      of
      the Founding Director Warrants will become part of the liquidating distribution
      to our public stockholders and the Founding Director Warrants will expire
      worthless. Such warrants were sold pursuant to an exemption from registration
      contained in Section 4(2) of the Securities Act as they were sold to
      sophisticated, wealthy individuals.




Prior
      to
      our initial public offering, Messrs. Burleson, Pendergest and Brukardt, Dr.
      Clemow, Dr. Martin, Windy City, Inc. and Chicago Investments, Inc. loaned us
      a
      total of $200,000, which was used to pay a portion of the expenses of our
      initial public offering, such as SEC registration fees, NASD registration fees
      and legal and accounting fees and expenses. These loans were repaid without
      interest upon the consummation of our initial public offering.




We
      have a
      limited recourse revolving line of credit from certain directors and
      stockholders under which we may have up to $750,000 of outstanding borrowings
      at
      any time. The revolving line of credit terminates upon the earlier of the
      completion of a business combination or the liquidation of the company. The
      revolving line of credit bears interest at a rate equal to the rate of interest
      to be paid on the funds held in the trust account and has no recourse against
      the funds in the trust account, which funds will be distributed to the public
      stockholders if we do not consummate a business combination within the requisite
      time periods.




We
      have
      entered into the Amended and Restated Merger Agreement with XLNT, in two of
      our
      directors have an ownership interest and with whom one of our directors has
      entered into a consulting agreement. See “Directors and Executive Officers of
      the Registrant – Conflicts
      of
      Interest.”




We
      will
      reimburse our officers and directors for any reasonable out-of-pocket business
      expenses incurred by them in connection with certain activities on our behalf
      such as identifying and investigating possible target businesses and business
      combinations. There is no limit on the amount of out-of-pocket expenses
      reimbursable by us, and there will be no review of the reasonableness of the
      expenses by anyone other than our board of directors, which would include
      persons who may seek reimbursement, or a court of competent jurisdiction if
      such
      reimbursement is challenged.




41


Our
      Audit
      Committee of the Board of Directors will review and approve, in advance, all
      related-party transactions, as required by the SEC or any other regulatory
      body
      to which the company is subject.




**Item
      14. Principal Accountant Fees and Services**




***Audit
      Fees***




During
      the fiscal year ended December 31, 2006, we paid our principal accountant
      $37,000 for the services they performed throughout the year, including in
      connection with our initial public offering, the financial statements included
      in the Current Report on Form 8-K filed with the SEC on March 24, 2006, the
      review of our Quarterly Reports on Form 10-Q for the quarters ended March 31,
      2006, June 30, 2006 and September 30, 2006, the restatement of our Quarterly
      Reports on Form 10-Q for the quarters ended March 31, 2006 and June 30, 2006
      and
      the December 31, 2006 audit and Annual Report on Form 10-K.




***Audit-Related
      Fees***




During
      2006, our principal accountant did not render assurance and related services
      reasonably related to the performance of the audit or review of financial
      statements.




***Tax
      Fees***




During
      2006, our principal accountant did not render services to us for tax compliance,
      tax advice and tax planning.




***All
      Other Fees***




During
      2006, there were no fees billed for products and services provided by the
      principal accountant other than those set forth above.




**Policy
      on Audit Committee Pre-Approval of Audit and Permissible Non-audit Services
      of
      Independent Auditors**




Consistent
      with SEC policies regarding auditor independence, the Audit Committee has
      responsibility for appointing, setting compensation and overseeing the work
      of
      the independent auditor. In recognition of this responsibility, the Audit
      Committee has established a policy to pre-approve all audit and permissible
      non-audit services provided by the independent auditor.




1. ***Audit*** services
      include audit work performed in the preparation of financial statements, as
      well
      as work that generally only the independent auditor can reasonably be expected
      to provide, including comfort letters, statutory audits, and attest services
      and
      consultation regarding financial accounting and/or reporting
      standards.




2. ***Audit-Related*** services
      are for assurance and related services that are reasonably related to the audit
      or review of our financial statements.




3. ***Tax*** services
      include all services performed by the independent auditor’s tax personnel except
      those services specifically related to the audit of the financial statements,
      and includes fees in the areas of tax compliance, tax planning, and tax
      advice.




4. ***Other
      Fees*** are
      those associated with products or services not captured in the other
      categories.




42


**PART
      IV**




**Item
      15. Exhibits and Financial Statement Schedules.**




(a)  The
        following documents are filed as a part of this Report:


1.
            **Financial
                Statements:**




Index
                to Financial Statements and SchedulesReport
                of Independent Registered Public Accounting FirmConsolidated
                Balance SheetsConsolidatedStatements of OperationsConsolidatedStatements
                of Change in Stockholders’ Equity(Deficiency)Consolidated
                Statements of Cash FlowsNotes
                to Consolidated Financial Statements




**2.**
            **Financial
                Statement Schedule(s):**




All
      schedules are omitted for the reason that the information is included in the
      financial statements or the notes thereto or that they are not required or
      are
      not applicable.




**3.
      Exhibits:**




**Exhibit**
              **No.**
            
            **Description**1.1
            
            Form
                of Underwriting Agreement between the Registrant and Morgan Joseph
&
                Co. Inc. (Incorporated by reference to Exhibit 1.1 of the Registrant’s
                Registration Statement on Form S-1, as amended, filed on March 3,
                2006.)1.2
            
            Form
                of Selected Dealers Agreement. (Incorporated by reference to Exhibit
                1.2
                of the Registrant’s Registration Statement on Form S-1, as amended, filed
                on February 2, 2006.)3.1
            
            Amended
                and Restated Certificate of Incorporation. (Incorporated by reference
                to
                Exhibit 3.1 of the Registrant’s Quarterly Report on Form 10-Q filed on May
                11, 2006.)3.2
            
            By-laws.
                (Incorporated by reference to Exhibit 3.2 of the Registrant’s Registration
                Statement on Form S-1, filed on July 15, 2005.)4.1
            
            Specimen
                Unit Certificate. (Incorporated by reference to Exhibit 4.1 of the
                Registrant’s Registration Statement on Form S-1 filed on July 15,
                2005.)4.2
            
            Specimen
                Common Stock Certificate. (Incorporated by reference to Exhibit 4.2
                of the
                Registrant’s Registration Statement on Form S-1 filed on July 15,
                2005.)4.3
            
            Specimen
                Warrant Certificate. (Incorporated by reference to Exhibit 4.3 of
                the
                Registrant’s Registration Statement on Form S-1 filed on July 15,
                2005.)4.4
            
            Form
                of Warrant Agent Agreement between Corporate Stock Transfer, Inc.
                and the
                Registrant. (Incorporated by reference to Exhibit 4.4 of the Registrant’s
                Registration Statement on Form S-11, as amended, filed on February
                2,
                2006.)10.1
            
            Form
                of Restated Investment Management Trust Agreement between Corporate
                Stock
                Transfer, Inc. and the Registrant. (Incorporated by reference to
                Exhibit
                10.1 of the Registrant’s Registration Statement on Form S-11, as amended,
                filed on February 2, 2006.)10.2
            
            Form
                of Stock Escrow Agreement between the Registrant, Corporate Stock
                Transfer, Inc. and the Existing Stockholders. (Incorporated by reference
                to Exhibit 10.2 of the Registrant’s Registration Statement on Form S-11,
                as amended, filed on February 2, 2006.)10.3
            
            Form
                of Registration Rights Agreement among the Registrant and the Existing
                Stockholders. (Incorporated by reference to Exhibit 10.3 of the
                Registrant’s Registration Statement on Form S-11, as amended, filed on
                February 2, 2006.)10.4
            
            Form
                of Subordinated Revolving Line of Credit Agreement. (Incorporated
                by
                reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K
                filed on March 24, 2006.)




43




10.5
            
            Form
                of Restated Warrant Purchase Agreement. (Incorporated by reference
                to
                Exhibit 10.5 of the Registrant’s Registration Statement on Form S-11, as
                amended, filed on February 2, 2006.)10.6
            
            Letter
                Agreement among the Registrant, Morgan Joseph & Co. Inc. and Eugene A.
                Bauer. (Incorporated by reference to Exhibit 10.6 of the Registrant’s
                Registration Statement on Form S-1, as amended, filed on March 8,
                2006.)10.7
            
            Letter
                Agreement among the Registrant, Morgan Joseph & Co. Inc. and Gary A.
                Brukardt. (Incorporated by reference to Exhibit 10.7 of the Registrant’s
                Registration Statement on Form S-1, as amended, filed on March 8,
                2006.)10.8
            
            Letter
                Agreement among the Registrant, Morgan Joseph & Co. Inc. and Gene E.
                Burleson. (Incorporated by reference to Exhibit 10.8 of the Registrant’s
                Registration Statement on Form S-1, as amended, filed on March 8,
                2006.)10.9
            
            Letter
                Agreement among the Registrant, Morgan Joseph & Co. Inc. and Alastair
                Clemow. (Incorporated by reference to Exhibit 10.9 of the Registrant’s
                Registration Statement on Form S-1, as amended, filed on March 8,
                2006.)10.10
            
            Letter
                Agreement among the Registrant, Morgan Joseph & Co. Inc. and Joel
                Kanter. (Incorporated by reference to Exhibit 10.10 of the Registrant’s
                Registration Statement on Form S-1, as amended, filed on March 8,
                2006.)10.11
            
            Letter
                Agreement among the Registrant, Morgan Joseph & Co. Inc. and Richard
                Martin. (Incorporated by reference to Exhibit 10.11 of the Registrant’s
                Registration Statement on Form S-1, as amended, filed on March 8,
                2006.)10.12
            
            Letter
                Agreement among the Registrant, Morgan Joseph & Co. Inc. and Kevin
                Pendergest. (Incorporated by reference to Exhibit 10.12 of the
                Registrant’s Registration Statement on Form S-1, as amended, filed on
                March 8, 2006.)10.13
            
            Letter
                Agreement among the Registrant, Morgan Joseph & Co. Inc. and Windy
                City, Inc. (Incorporated by reference to Exhibit 10.13 of the Registrant’s
                Registration Statement on Form S-1, as amended, filed on March 8,
                2006.)10.14
            
            Letter
                Agreement among the Registrant, Morgan Joseph & Co. Inc. and Chicago
                Investments, Inc. (Incorporated by reference to Exhibit 10.14 of
                the
                Registrant’s Registration Statement on Form S-1, as amended, filed on
                March 8, 2006.)10.15
            
            Office
                Services Agreement between the Registrant and Windy City, Inc.
                (Incorporated by reference to Exhibit 10.15 of the Registrant’s
                Registration on Form S-1, as amended, filed August 25,
                2005.)10.16
            
            Promissory
                Note, dated June 23, 2005, issued to Gene E. Burleson in the amount
                of
                $25,000. (Incorporated by reference to Exhibit 10.16 of the Registrant’s
                Registration Statement on Form S-1 filed on July 15,
                2005.)10.17
            
            Promissory
                Note, dated July 8, 2005, issued to Windy City, Inc. in the amount
                of
                $25,000. (Incorporated by reference to Exhibit 10.17 of the Registrant’s
                Registration Statement on Form S-1 filed on July 15,
                2005.)10.18
            
            Promissory
                Note, dated July 11, 2005, issued to Kevin Pendergest in the amount
                of
                $22,500. (Incorporated by reference to Exhibit 10.18 of the Registrant’s
                Registration Statement on Form S-1 filed on July 15,
                2005.)10.19
            
            Promissory
                Note, dated July 15, 2005, issued to Richard Martin in the amount
                of
                $25,000. (Incorporated by reference to Exhibit 10.19 of the Registrant’s
                Registration Statement on Form S-1 filed on August 25,
                2005.)10.20
            
            Promissory
                Note, dated July 22, 2005, issued to Alastair Clemow in the amount
                of
                $15,000 . (Incorporated by reference to Exhibit 10.20 of the Registrant’s
                Registration Statement on Form S-1 filed on August 25,
                2005.)10.21
            
            Promissory
                Note, dated July 28, 2005, issued to Gary A. Brukardt in the amount
                of
                $10,000 . (Incorporated by reference to Exhibit 10.21 of the Registrant’s
                Registration Statement on Form S-1 filed on August 25,
                2005.)10.22
            
            Promissory
                Note, dated September 26, 2005, issued to Windy City, Inc. in the
                amount
                of $13,750. (Incorporated by reference to Exhibit 10.22 of the
                Registrant’s Registration Statement on Form S-11, as amended, filed on
                February 2, 2006.)10.23
            
            Promissory
                Note, dated September 26, 2005, issued to Gene E. Burleson in the
                amount
                of $13,750. (Incorporated by reference to Exhibit 10.23 of the
                Registrant’s Registration Statement on Form S-11, as amended, filed on
                February 2, 2006.)10.24
            
            Promissory
                Note, dated January 4, 2006, issued to Chicago Investments, Inc.
                in the
                amount of $25,000. (Incorporated by reference to Exhibit 10.24 of
                the
                Registrant’s Registration Statement on Form S-11, as amended, filed on
                February 2, 2006.)10.25
            
            Promissory
                Note, dated January 17, 2006 issued to Gene E. Burleson in the amount
                of
                $25,000. (Incorporated by reference to Exhibit 10.25 of the Registrant’s
                Registration Statement on Form S-11, as amended, filed on February
                2,
                2006.)10.26
            
            Form
                of Unit Option Purchase Agreement by and among the Registrant, Morgan
                Joseph & Co. and Roth Capital Partners, LLC. (Incorporated by
                reference to Exhibit 10.26 of the Registrant’s Registration Statement on
                Form S-11, as amended, filed on February 2, 2006.)10.27
            
            Founding
                Director Warrant Purchase Agreement among the Registrant and Certain
                Directors of the Registrant. (Incorporated by reference to Exhibit
                10.2 of
                the Registrant’s Current Report on Form 8-K filed on March 24,
                2006.)10.28
            
            Amended
                and Restated Agreement and Plan of Merger by and among Echo Healthcare
                Acquisition Corp., Pet DRx Acquisition Company, and XLNT Veterinary
                Care,
                Inc., dated February 16, 2007. (Incorporated by reference to Exhibit
                10.1
                of the Registrant’s Form 8-K filed February 20, 2007.)14.1
            
            Code
                of Ethics and Conduct. (Incorporated by reference to Exhibit 14.1
                of the
                Registrant’s Registration Statement on Form S-1, as amended, filed August
                25, 2005.)




44


**SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.




**ECHO
                HEALTHCARE ACQUISITION CORP.**Date:
                April 2, 2007By:
            /s/
                Gene BurlesonGene
                Burleson
              *Chairman
                  of the Board and Chief Executive Officer*




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated.




**Name**
            
            **Position**
            
            **Date**/s/
                Gene BurlesonGene
                E. Burleson
            
            Chairman
                and Chief Executive Officer
            
            April
                2, 2007/s/
                Joel KanterJoel
                Kanter
            
            President,
                Secretary and Director
              (Principal
                Executive Officer)
            
            April
                2, 2007/s/
                Kevin PendergestKevin
                Pendergest
            
            Chief
                Financial Officer, Treasurer and Director
              (Principal
                Financial and Accounting Officer)
            
            April
                2, 2007/s/
                Eugene A. BauerEugene
                A. Bauer
            
            Director
            
            April
                2, 2007/s/
                Gary A. BrukardtGary
                A. Brukardt
            
            Director
            
            April
                2, 2007/s/
                Alastair ClemowAlastair
                Clemow
            
            Director
            
            April
                2, 2007/s/
                Richard MartinRichard
                Martin
            
            Director
            
            April
                2, 2007





45




**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES**




**Echo
      Healthcare Acquisition Corp. And Subsidiary**


**(a
      corporation in the development stage)**




**Report
                of Independent Registered Public Accounting Firm**
            F-2******Financial
                statements******Consolidated
                Balance sheets as of December 31, 2006 and
                2005
            F-3Consolidated
                Statement of Operations for the year ended
                December 31, 2006, for the period June 10, 2005 (date of inception)
                through December 31, 2005, and for the period June 10, 2005 (date
                of
                inception) through December 31, 2006
            F-4Consolidated
                Statement of Stockholders’ Equity for the year
                ended December 31, 2006 and for the period June 10, 2005 (date of
                inception) through December 31, 2005
            F-5Consolidated
                Statement of Cash Flows for the year ended
                December 31, 2006, for the period June 10, 2005 (date of inception)
                through December 31, 2005, and for the period June 10, 2005 (date
                of
                inception) through December 31, 2006
            F-6**Notes
                to Consolidated financial statements**
            F-7




F-1


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM**





Board
      of Directors and Stockholders of


Echo
      Healthcare Acquisition Corp.:





We
      have audited the accompanying balance sheets of Echo Healthcare Acquisition
      Corp. (a development stage company) (the “Company”) as of December 31, 2006 and
      2005 and the related statements of operations, changes in stockholders’ equity
      (deficiency) and cash flows for the year ended December 31, 2006, the period
      from June 10, 2005 (date of inception) through December 31, 2005 and from June
      10, 2005 (date of inception) through December 31, 2006. These financial
      statements are the responsibility of the Company’s management. Our
      responsibility is to express an opinion on these financial statements based
      on
      our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our opinion, the financial statements referred to above present fairly, in
      all
      material respects, the financial position of Echo Healthcare Acquisition Corp.
      as of December 31, 2006 and 2005 and the related statements of operations and
      cash flows for the year ended December 31, 2006, the period from June 10, 2005
      (date of inception) through December 31, 2005 and from June 10, 2005 (date
      of
      inception) through December 31, 2006 in conformity with U.S. generally accepted
      accounting principles.




Eisner
      LLP





New
      York, New York


March
      30, 2007





F-2




**EchoHealthcare
      Acquisition Corp. And
      Subsidiary**


**(a
      development stage company)**


**Consolidated
      Balance Sheets**




**December
                31,**
              **2006**
            
            **December
                31,**
              **2005****ASSETS**Current
                Assets:Cash
            
            $
            25,847
            
            $
            14,807Prepaid
                expenses
            
            
            41,104
            
            
            —Total
                current assets
            
            
            66,951
            
            
            14,807Investments
                held in Trust Fund
            
            
            56,403,718
            
            
            —Deferred
                offering costs
            
            
            —
            
            
            601,413Deferred
                acquisition costs
            
            
            284,878Total
                assets
            
            $
            56,755,547
            
            $
            616,220**LIABILITIES
                AND STOCKHOLDERS’ EQUITY (DEFICIENCY)**Current
                liabilities:Accrued
                expenses
            
            $
            611,550
            
            $
            136,052Derivative
                liabilities
            
            
            6,165,250Notes
                Payable to Founding Stockholders
            
            
            —
            
            
            150,000Line
                of Credit from Founding Stockholders
            
            
            240,300
            
            
            —Accrued
                offering costs
            
            
            152,713
            
            
            443,288Deferred
                underwriting and other offering costs
            
            
            2,018,233
            
            
            —Total
                current liabilities
            
            
            9,188,046
            
            
            729,340**COMMITMENTS
                AND CONTINGENCIES**Common
                stock subject to possible conversion,1,436,781shares at a conversion value of approximately$7.84****per
                share,
              including
                accretion of allocated income of $279,267 (net of $143,865 income
                taxes)
            
            
            11,263,172
            
            
            —**STOCKHOLDERS’
                EQUITY (DEFICIENCY)**Preferred
                stock—$.0001 par value; 1,000,000 shares authorized; 0 issued and
                outstanding
            
            
            —
            
            
            —Common
                stock—$.0001 par value, 25,000,000 shares authorized; 8,750,000 and
                1,562,500 issued and outstanding (which includes1,436,781shares
                subject to possible conversion)
            
            
            875
            
            
            156Additional
                paid-in capital
            
            
            36,195,054
            
            
            24,844Retained
                earnings (deficit) accumulated during the development
                stage
            
            
            108,400
            
            
            (138,120
            )Total
                stockholders’ equity (deficiency)
            
            
            36,304,329
            
            
            (113,120
            )Total
                liabilities and stockholders’ equity (deficiency)
            
            $
            56,755,547
            
            $
            616,220




See
      notes
      to consolidated financial statements.




F-3




**Echo
      Healthcare Acquisition Corp. And
      Subsidiary**


**(a
      development stage company)**


**Consolidated
      Statements of Operations**




**Year
                ended**
              **December
                31, 2006**
            
            **June
                10, 2005**
              **(Date
                of Inception) through**
              **December
                31, 2005**
            
            **June
                10, 2005**
              **(Date
                of Inception) through**
              **December
                31, 2006**Revenue
            
            $
            0
            
            $
            0
            
            $
            0Operating
                expenses
            
            
            (547,675
            )
            
            (1,000
            )
            
            (548,675
            )Organization
                costs
            
            
            0
            
            
            (137,120
            )
            
            (137,120
            )Operating
                loss
            
            
            (547,675
            )
            
            (138,120
            )
            
            (685,795
            )Loss
                on derivative liabilities
            
            
            (366,776
            )
            
            0
            
            
            (366,776
            )Interest
                income
            
            
            2,116,719
            
            
            0
            
            
            2,116,719Income/(loss)
                before provision for income taxes
            
            
            1,202,268
            
            
            (138,120
            )
            
            1,064,148Provision
                for income taxes
            
            
            (676,481
            )
            
            0
            
            
            (676,481
            )Net
                Income/(loss)
            
            $
            525,787
            
            $
            (138,120
            )
            $
            387,667Weighted
                average number of shares outstanding—basic
            
            
            6,551,798
            
            
            1,562,500Net
                income per share—basic
            
            $
            0.08
            
            $
            (0.09
            )Net
                Income
            
            
            525,787Weighted
                average shares outstanding
            
            
            6,551,798Shares
                from assumed conversion of warrants
            
            
            1,057,473Weighted
                average number of shares outstanding - diluted
            
            
            7,609,271Net
                income per share - diluted
            
            $
            0.07
            
            $
            (0.09
            )




See
      notes
      to consolidated financial statements.




F-4




**Echo
      Healthcare Acquisition Corp. And
      Subsidiary**


**(a
      development stage company)**


**Consolidated
      Statements of Stockholders’ Equity (Deficiency)**





**Common
                Stock****Shares**
            
            **Amount**
            
            **Additional**
              **Paid-In
                Capital**
            
            **Deficit
                Accumulated During the Development Stage**
            
            **Total
                Stockholders’ Equity (Deficiency)****Balance
                - June 10, 2005 (date of inception)**
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            -0-Contributions
                from Founding Stockholders
            
            
            1,562,500
            
            $
            156
            
            $
            24,844
            
            
            
            
            $
            25,000Net
                loss for the period ended December 31, 2005
            
            
            
            
            
            
            
            
            
            
            $
            (138,120
            )
            
            (138,120
            )**Balance
                - December 31, 2005**
            
            
            1,562,500
            
            $
            156
            
            $
            24,844
            
            $
            (138,120
            )
            $
            (113,120
            )Sale
                of 7,187,500 Units, net of underwriter’s discount and offering expenses
                (includes1,436,781
                shares subject to possible conversion, excludes Derivative
                Liabilities)
            
            
            7,187,500
            
            
            719
            
            
            52,402,489
            
            
            
            
            
            52,403,208Proceeds
                subject to possible conversion of1,436,781shares
            
            
            
            
            
            
            
            
            (10,983,905
            )
            
            
            
            
            (10,983,905
            )Proceeds
                from issuance of underwriter’s purchase option
            
            
            
            
            
            
            
            
            100
            
            
            
            
            
            100Reclassification
                of proceeds allocated to warrants - derivatives liability
            
            
            
            
            
            
            
            
            (5,798,474
            )
            
            
            
            
            (5,798,474
            )Proceeds
                from sale of warrants to Founding Stockholders
            
            
            
            
            
            
            
            
            550,000
            
            
            
            
            
            550,000Accretion
                of trust fund income for the period relating to common stock subject
                to
                redemption, net of tax
            
            
            
            
            
            
            
            
            
            
            
            (279,267
            )
            
            (279,267
            )Net
                income for the year
            
            
            
            
            
            
            
            
            
            
            
            525,787
            
            
            525,787Balance
                **– December 31, 2006**
            
            $
            8,750,000
            
            $
            875
            
            $
            36,195,054
            
            $
            108,400
            
            $
            36,304,329




See
      notes
      to consolidated financial statements.




F-5




**Echo
      HealthcareAcquisition Corp. And
      Subsidiary**


**(a
      development stage company)**


**Consolidated
      Statements of Cash Flows**





**January
                1, 2006 through December 31, 2006**
            
            **June
                10, 2005 (Date of Inception) through December 31,
                2005**
            
            **June
                10, 2005 (Date of Inception) through December 31,
                2006****Cash
                flows from operating activities:**Net
                income (loss)
            
            $
            525,787
            
            $
            (138,120
            )
            $
            387,667Adjustments
                to reconcile net income (loss) to net cash used by operating
                activities:Loss
                on derivative liabilities
            
            
            366,776
            
            
            
            
            
            366,776Changes
                in:Prepaid
                Expenses
            
            
            (41,104
            )
            
            
            
            
            (41,104
            )Accrued
                expenses
            
            
            190,620
            
            
            136,052
            
            
            326,671Net
                cash generated by operating activities
            
            
            1,042,079
            
            
            (2,068
            )
            
            1,040,010**Cash
                flows from investing activities:******Increase
                in Investments held in Trust Fund
            
            
            (56,403,718
            )
            
            
            
            
            (56,403,718
            )****Net
                cash used in investing activities
            
            
            (56,403,718
            )
            
            
            
            
            (56,403,718
            )**Cash
                flows from financing activities:**Proceeds
                from notes payable to Founding Stockholders
            
            
            50,000
            
            
            150,000
            
            
            200,000Proceeds
                from Line of Credit from Founding Stockholders
            
            
            240,300
            
            
            
            
            
            240,300Payments
                on notes payable to Founding Stockholders
            
            
            (200,000
            )
            
            
            
            
            (200,000
            )Proceeds
                from sale of common stock to Founding Stockholders
            
            
            —
            
            
            25,000
            
            
            25,000Gross
                proceeds from public offering
            
            
            57,500,000
            
            
            
            
            
            57,500,000Proceeds
                from issuance of underwriter’s purchase option
            
            
            100
            
            
            
            
            
            100Proceeds
                from sale of warrants to Founding Stockholders
            
            
            550,000
            
            
            
            
            
            550,000Costs
                of offering
            
            
            (2,767,721
            )
            
            (158,125
            )
            
            (2,925,845
            )Net
                cash provided by financing activities
            
            
            55,372,679
            
            
            16,875
            
            
            55,389,555**Net
                increase (decrease) in cash**
            
            
            11,040
            
            
            14,807
            
            
            25,847Cash—beginning
                of period
            
            
            14,807
            
            
            0
            
            
            0**Cash—end
                of period**
            
            $
            25,847
            
            $
            14,807
            
            $
            25,847Supplemental
                schedule of non-cash financing activities(Payment
                of accrued) Accrual of deferred offering costs
            
            $
            (290,575
            )
            
            
            
            $
            152,713Accrual
                of deferred underwriting and other offering costs
            
            $
            2,018,233
            
            $
            443,288
            
            $
            2,018,233Warrant
                obligation in connection with sale of units in offering andthe
                warrants underlying the underwriters’
                unit
                purchase option
            
            $
            5,798,474
            
            
            
            
            $
            5,798,474Accrual
                of deferred acquisition costs
            
            $
            284,878
            
            
            
            
            $
            284,878Income
                taxes paid
            
            $
            660,000
            
            
            
            
            $
            660,000




See
      notes
      to consolidated financial statements.





F-6




**EchoHealthcare
      Acquisition Corp. And
      Subsidiary**


**(a
      development stage company)**


**Notes
      to Consolidated Financial Statements**




**NOTE
      A—ORGANIZATION AND BUSINESS OPERATIONS**




Echo
      Healthcare Acquisition Corp. (the “Company”) was incorporated in Delaware on
      June 10, 2005. The Company was formed for the purpose of acquiring, through
      a
      merger, capital stock exchange, asset acquisition, or other similar acquisition
      one or more domestic or international operating businesses in the healthcare
      industry (“Acquisition”). The Company has neither engaged in any operations nor
      generated revenue to date. The Company is considered to be in the development
      stage and is subject to the risks associated with activities of development
      stage companies. The Company has selected December 31 as its fiscal year end.
      On
      September 5, 2006, the Company incorporated a wholly-owned subsidiary, PetDRx
      Acquisition Corp. (“PetDRx Acquisition Corp.”) for the sole purpose of acquiring
      XLNT Veterinary Care, Inc., as described in Note G below. As of December 31,
      2006, there were no assets and liabilities, and there were no activities for
      the
      period from September 5, 2006 through December 31, 2006 for PetDRx Acquisition
      Corp.




On
      March
      16, 2006, the Company amended and restated its Certificate of Incorporation
      to
      reduce the number of authorized shares of common stock from 100,000,000 shares
      to 25,000,000 shares.




The
      registration statement for the Company’s initial public offering of Units (as
      described in Note C) (“Offering”) was declared effective on March 17, 2006. The
      Company consummated the Offering on March 22, 2006 and received net cash
      proceeds of approximately $45,447,000, not inclusive of deferred underwriting
      and other accrued offering costs (see Notes D and H) on the sale of 6,250,000
      Units. On March 27, 2006, the underwriters for the Company’s Offering exercised
      their over-allotment option and purchased 937,500 additional units. The net
      proceeds from the exercise of the over-allotment option were approximately
      $6,975,000, after deducting underwriting discounts of $525,000, not including
      deferred amounts totaling $225,000.




The
      Company’s management has broad discretion with respect to the specific
      application of the net proceeds of the Offering, although substantially all
      of
      the net proceeds of the Offering are intended to be generally applied toward
      an
      Acquisition. Furthermore, there is no assurance that the Company will be able
      to
      successfully effect an Acquisition. An amount of $54,947,000, from the net
      proceeds of the Offering (including the exercise of the over-allotment option)
      together with the proceeds from the sale of 458,333 warrants at $1.20 per
      warrant to the founding directors for $550,000 is being held in a trust account
      (“Trust Fund”) and invested in government securities until the earlier of (i)
      the consummation of its first Acquisition or (ii) the distribution of the Trust
      Fund as described below. The remaining net proceeds (not held in the Trust
      Fund)
      together with borrowings under the Company’s Working Capital Line of Credit (see
      Note D) may be used to pay for business, legal and accounting due diligence
      on
      prospective acquisitions and continuing general and administrative
      expenses.




The
      Company, now that it has signed a merger agreement with XLNT Veterinary Care,
      Inc. (“XLNT”), will submit such transaction for stockholders’ approval. In the
      event that holders of 20% or more of the shares issued in the Offering vote
      against the Acquisition and exercise their conversion rights, the Acquisition
      will not be consummated.




The
      Company’s initial stockholders (the “Founding Stockholders”) have agreed to vote
      their 1,562,500 shares
      of
      common stock in accordance with the vote of the majority in interest of all
      other stockholders of the Company (“Public Stockholders”) with respect to an
      Acquisition. After consummation of an Acquisition, these voting safeguards
      will
      no longer be applicable.




With
      respect to an Acquisition that is approved and consummated, any Public
      Stockholder who voted against such Acquisition may demand that the Company
      convert its shares into a pro rata share of the Trust Fund. The per share
      conversion price will equal the amount in the Trust Fund, calculated as of
      two
      business days prior to the consummation of the proposed Acquisition, divided
      by
      the number of shares of common stock held by Public Stockholders at the
      consummation of the Offering. Accordingly, Public Stockholders holding up to
      19.99% of the aggregate number of shares owned by all Public Stockholders may
      seek conversion of their shares in the event of an Acquisition. Such Public
      Stockholders are entitled to receive their per share interest in the Trust
      Fund
      computed without regard to the shares held by the Founding Stockholders.
      Accordingly, a portion of the net proceeds from the Offering and the interest
      earned thereon (19.99% of the amount held in the Trust Fund) has been classified
      as common stock subject to possible conversion in the accompanying December
      31,
      2006 balance sheet. The Company is permitted to seek disbursements of amounts
      held in the Trust for related tax obligations.




In
      the
      event that the Company does not consummate an Acquisition within 18 months
      from
      the date of the consummation of the Offering, or 24 months from the consummation
      of the Offering if certain extension criteria have been satisfied (the
“Acquisition Period”), the proceeds held in the Trust Fund will be distributed
      to the Company’s Public Stockholders. In the event of such distribution, it is
      likely that the per share value of the residual assets remaining available
      for
      distribution (including Trust Fund assets) will be less than the initial public
      offering price per share in the Offering (assuming no value is attributed to
      the
      warrants (“Warrants”) contained in the Units offered in the Offering discussed
      in Note C).




F-7
 
  **Echo
          Healthcare Acquisition Corp. And Subsidiary**
 **(a
          development stage company)**
 **Notes
          to Consolidated Financial Statements**


**NOTE
      B—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**




**[1]**
            **Use
                of estimates:**




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenue and expenses during
      the reporting period. Actual results could differ from those
      estimates.




**[2]**
            **Deferred
                offering costs:**




Deferred
      offering costs at December 31, 2005 consist principally of legal and
      underwriting fees incurred through the balance sheet date that are related
      to
      the Offering.




**[3]**
            **Accrued
                offering costs:**




Accrued
      offering costs consist of legal, accounting and miscellaneous fees incurred
      through December 31, 2006 and December 31, 2005 that were related to the
      Offering and were charged to stockholders’ equity upon completion of the
      Offering.




**[4]**
            **Income
                taxes:**




Deferred
      income taxes are provided for the differences between the bases of assets and
      liabilities for financial reporting and income tax purposes. A valuation
      allowance is established when necessary to reduce deferred tax assets to the
      amount expected to be realized.




The
      Company recorded a deferred income tax asset for the tax effect of start-up
      costs and temporary differences, aggregating approximately $37,000 at December
      31, 2005. In recognition of the uncertainty regarding the ultimate amount of
      income tax benefits to be derived, the Company recorded a full valuation
      allowance at December 31, 2005.




In
      late
      March 2006, the net proceeds from the Offering were invested in a taxable U.S.
      government portfolio. Since the interest generated from the portfolio is fully
      taxable at the federal level, the Company determined no valuation allowance
      was
      necessary as of December 31, 2006.




**[5]**
            **Accrued
                expenses:**




Accrued
      expenses are primarily composed of legal fees $521,000 and printing expenses
      of
      $17,000.




**[6]**
            **Deferred
                underwriting and other offering costs:**




Deferred
      underwriting and other offering costs consist of deferred underwriting fees
      (see
      Note C), legal and printing fees (see Note H) incurred through December 31,
      2006
      that were related to the Offering and were charged to stockholders’ equity upon
      completion of the Offering.




**[7]**
            **Income/(Loss)
                per common share:**




Income/(Loss)
      per share is computed by dividing net income (loss) applicable to common
      stockholders by the weighted average number of common shares outstanding for
      the
      period. The per share effects of potential common shares such as warrants,
      aggregating 6,998,954 shares, have been included in the period from March 22,
      2006 through December 31, 2006. Potential common shares in connection with
      the
      underwriters’ purchase option (see Note C) aggregating 625,000 have not been
      included because the effect would be antidilutive. The effect of loss on
      derivative liabilities attributed to warrants was not included in the
      calculation of adjusted net income for diluted earnings because the effect
      is
      antidilutive. Shares held in escrow that are subject to performance conditions
      are not considered outstanding for purposes of per share calculations (see
      Note
      C).




F-8
 
  **Echo
          Healthcare Acquisition Corp. And Subsidiary**
 **(a
          development stage company)**
 **Notes
          to Consolidated Financial Statements**


The
      following table presents pro forma income per share attributable to common
      stockholders subject to possible conversion and not subject to possible
      conversion:




**Year
                ended**
              **December
                31, 2006**Net
                income
            
            $
            525,787Interest
                income attributable to common stock subject to possible
                conversion
            
            
            (279,267
            )Pro
                forma net income attributable to common stockholders not subject
                to
                possible conversion
            
            $
            246,520Pro
                forma weighted average number of shares outstanding, excluding shares
                subject to possible conversion –
                basic
            
            
            5,432,495Pro
                forma net income per share, excluding shares subject to possible
                conversion - basic
            
            $
            0.05Net
                income
            
            $
            525,787Interest
                income attributable to common stock subject to possible
                conversion
            
            
            (279,267
            )Loss
                on derivative liabilities attributed to warrants*
            
            
            —Pro
                forma net income attributable to common stockholders not subject
                to
                possible conversion less gain on derivative liabilities attributed
                to
                warrants
            
            $
            246,520Pro
                forma weighted average number of shares outstanding excluding shares
                subject to possible conversion – basic
            
            
            5,432,495Shares
                from assumed conversion on warrants
            
            
            1,057,473Pro
                forma weighted average number of shares outstanding, excluding shares
                subject to possible conversion – diluted
            
            
            6,489,968Pro
                forma net income per share, excluding shares subject to possible
                conversion – diluted
            
            $
            0.04




*
            Not
                included in calculation as results are
                anti-dilutive




**[8]**
            **New
                Accounting Pronouncements:**




In
      June
      2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an
      interpretation of FASB Statement No. 109” (“FIN 48”), which prescribes a
      recognition threshold and measurement attribute for the financial statement
      recognition and measurement of a tax position taken or expected to be taken
      in a
      tax return. FIN 48 also provides guidance on derecognition, classification,
      interest and penalties, accounting in interim periods, disclosure and
      transition. FIN 48 is effective for fiscal years beginning after December 15,
      2006. We do not expect the adoption of FIN 48 to have a material impact on
      our
      financial reporting, and we are currently evaluating the impact, if any, the
      adoption of FIN 48 will have on our disclosure requirements.




In
      February 2007, FASB issued Financial Accounting Standard No. 159 (“FAS 159”).
      The fair value option established by FAS 159 permits all entities to choose
      to
      measure eligible items at fair value at specified election dates. A business
      entity shall report unrealized gains and losses on items for which the fair
      value option has been elected in earnings (or another performance indicator
      if
      the business entity does not report earnings) at each subsequent reporting
      date.
      We will be required to adopt FAS 159 in our fiscal year beginning January 1,
      2008. We are currently evaluating the impact, if any, the adoption of FAS 159
      will have on our financial statements.




F-9
 
  **Echo
            Healthcare Acquisition Corp. And Subsidiary**
 **(a
            development stage company)**
 **Notes
            to Consolidated Financial Statements**


The
      Company does not believe that any recently issued, but not yet effective,
      accounting standards if currently adopted would have a material effect on the
      accompanying financial statements.




**[9]**
            **Accounting
                for Warrants and Derivative Instruments**




On
      March
      22, 2006, the Company sold 6,250,000 Units in the Offering. On March 27, 2006,
      the underwriters for the initial public offering exercised their over-allotment
      option and purchased an additional 937,500 Units. Each Unit consists of one
      share of the Company’s common stock and one warrant (“Warrant”). Each Warrant
      entitles the holder to purchase from the Company one share of common stock
      at an
      exercise price of $6.00 commencing on the later of (a) March 17, 2007 or (b)
      the
      completion of an Acquisition. The Warrants will expire March 17, 2010. The
      Warrants will be redeemable, at the Company’s option at a price of $.01 per
      Warrant upon 30 days notice after the Warrants become exercisable, only in
      the
      event that the last sale price of the common stock is at least $11.50 per share
      for any 20 trading days within a 30 trading day period ending on the third
      day
      prior to the date on which notice of redemption is given.




The
      Company sold to Morgan Joseph & Co. Inc. and Roth Capital Partners, LLC, the
      underwriters, an option, for $100, to purchase up to a total of 312,500 Units
      at
      $10.00 per Unit.




Statement
      of Financial Accounting Standard (“SFAS”) No. 133, “Accounting for Derivative
      Instruments and Hedging Activities,” as amended, requires all derivatives to be
      recorded on the balance sheet at fair value. Furthermore, paragraph 11(a) of
      SFAS No. 133 precludes contracts issued or held by a reporting entity that
      are
      both (1) indexed to its own stock and (2) classified as stockholders’ equity in
      its statement of financial position from being treated as derivative
      instruments. If the freestanding financial instrument is indexed to the issuer’s
      own stock, the provisions of Emerging Issues Task Force (the “Task Force”) EITF
      00-19, “Accounting for Derivative Financial Instruments Indexed to, and
      Potentially Settled in, a Company’s Own Stock” (“EITF 00-19”), must be applied
      to determine whether it should be classified as an asset/liability instrument
      or
      as an equity instrument. A contract designated as an equity instrument must
      be
      included within equity, and no fair value adjustments are required from period
      to period. Under the provisions of EITF 00-19, a contract designated as an
      asset
      or a liability must be carried at fair value on a company’s balance sheet, with
      any changes in fair value recorded in the company’s results of operations. Under
      EITF Issue No. 00-19, if an equity-related financial instrument (1) acquires
      physical or net-share settlement by delivery of registered shares and does
      not
      specify any circumstances under which net-cash settlement would be permitted
      or
      required and (2) the contract does not specify how the contract would be settled
      in the event the issuer is unable to deliver registered shares, then net-cash
      settlement is assumed and asset or liability classification is required. While
      the Warrants to purchase the 7,500,000 shares are indexed to the Company’s
      common stock, the fact that the shares underlying the Warrants are registered
      and the Company must maintain an effective registration statement, **** requires
      the Company to classify these instruments as a liability in accordance with
      EITF
      00-19, since net cash settlement is assumed if the Company is unable to deliver
      registered shares. In accordance with EITF 00-19, the 7,187,500 Warrants issued
      as part of the Units sold in the Offering and the Warrants issued with the
      underwriters purchase option to purchase 312,500 shares are separately accounted
      for as liabilities. The fair value of these Warrants is shown on the Company’s
      balance sheets and the unrealized changes in the values of these derivatives are
      shown on the Company’s statements of operations as “Gain (loss) on derivative
      liabilities.” The fair value of the Warrants, which amounted to $5,798,474 at
      the issue date was estimated based on the market price of the Units. To the
      extent that the market price increases or decreases, the Company’s derivative
      liabilities will also increase or decrease, including the effect on the
      Company’s statement of operations.




The
      founding director warrants to purchase 458,333 shares of common stock are
      considered equity instruments, as all criteria to be accounted for as an equity
      instrument have been fulfilled.




The
      Company performed a valuation of the option to purchase 312,500 units, and
      then
      allocated its fair value to its two components, the underlying 312,500 shares
      and the embedded Warrants to purchase additional 312,500 shares. The fair value
      at inception was calculated to be $484,742, or $1.55 per unit, of which $436,268
      was allocated to the 312,500 shares included in the Units and $48,474 was
      allocated to the Warrants to purchase an additional 312,500 shares, according
      to
      their respective fair values.




The
      pricing model the Company uses for determining fair values of the purchase
      option is the Black-Scholes Pricing Model. Valuations derived from this model
      are subject to ongoing internal and external verification and review. The model
      uses market-sourced inputs such as interest rates, market prices and
      volatilities. Selection of these inputs involves management’s judgment and may
      impact net income.




F-10
 
  **Echo
            Healthcare Acquisition Corp. And Subsidiary**
 **(a
            development stage company)**
 **Notes
            to Consolidated Financial Statements**


In
      particular, the Company uses volatility rates based upon a sample of comparable
      companies in its industry, special purpose acquisition corporations. At the
      time
      a company to be acquired has been identified and agreements to acquire are
      in
      place, the volatility rates will be based on comparable companies to the
      acquired company. The Company uses a risk-free interest rate, which is the
      rate
      on U.S. Treasury instruments, for a security with a maturity that approximates
      the estimated remaining contractual life of the derivative. The volatility
      factor used in the Black-Scholes Pricing Model has a significant effect on
      the
      resulting valuation of the derivative liabilities on the Company’s balance
      sheet. The volatility for the calculation of the embedded derivatives was
      approximated at 0.27. The volatility calculation of 27% is based on the
      four-year volatility of a subgroup of the Russell 2000 Healthcare Index. This
      volatility rate will likely change in the future. The Company uses the closing
      market price of the Company’s common stock at the end of each reporting period
      when a derivative is valued at fair value. The Company’s stock price will also
      change in the future. To the extent that the Company’s stock price increases or
      decreases, the Company’s derivative liabilities will also increase or decrease,
      absent any change in volatility rates and risk-free interest rates.




**NOTE
      C — INITIAL PUBLIC OFFERING** ****




On
      March
      22, 2006, the Company sold 6,250,000 units (“Units”) in the Offering. On March
      27, 2006, the underwriters for our initial public offering exercised their
      over-allotment option and purchased an additional 937,500 Units. Each Unit
      consists of one share of the Company’s common stock and one Warrant.
      Accordingly, 7,187,500 Warrants are outstanding at December 31, 2006. Each
      Warrant entitles the holder to purchase from the Company one share of common
      stock at an exercise price of $6.00 commencing on the later of (a) March 17,
      2007 or (b) the completion of an Acquisition. The Warrants will expire March
      17,
      2010. The Warrants will be redeemable, at the Company’s option at a price of
      $.01 per Warrant upon 30 days notice after the Warrants become exercisable,
      only
      in the event that the last sale price of the common stock is at least $11.50
      per
      share for any 20 trading days within a 30 trading day period ending on the
      third
      day prior to the date on which notice of redemption is given.




The
      Company sold to Morgan Joseph & Co. Inc. and Roth Capital Partners, LLC, the
      underwriters, an option, for $100, to purchase up to a total of 312,500 units
      at
      $10.00 per Unit. The sale of the option has been accounted for as a cost
      attributable to the Offering. Accordingly, there is no net impact on the
      Company’s financial position or results of operations, except for recording of
      the $100 proceeds from the sale and the underlying warrants included in the
      underwriters’
      unit purchase option. The option has been valued at the date of issuance at
      $484,742, based upon a Black-Scholes model, using an expected life of four
      years, volatility of 27% and a risk-free interest rate of 4.35%.
      Because the Company does not have a trading history, the Company needed to
      estimate the potential volatility of its Units, which will depend on a number
      of
      factors which cannot be ascertained at this time. The Company referred to this
      subgroup of the four-year volatility of the Russell 2000 Healthcare Index
      because its management believes that the volatility of these constituent
      companies is a reasonable benchmark to use in estimating the expected volatility
      for the Company’s Units. Although an expected life of four years was taken into
      account for purposes of assigning a fair value to the option, if the Company
      does not consummate an Acquisition within the prescribed time period and
      liquidates, the option would become worthless.




The
      Units
      issuable upon exercise of this option are identical to the Units in the
      Offering. The option is exercisable commencing on the later of the consummation
      of a business combination or one year from March 17, 2006, and expires five
      years from the date of issuance. The option and the 312,500 units, the 312,500
      shares of common stock and the 312,500 Warrants underlying such units, and
      the
      312,500 shares of common stock underlying such Warrants, are subject to a
      180-day lock-up. The underwriters will not sell, transfer, assign, pledge,
      or
      hypothecate this option or the securities underlying this option, nor will
      they
      engage in any hedging, short sale, derivative, put, or call transaction that
      would result in the effective economic disposition of this option or the
      underlying securities for a period of 180 days from the date of the Offering.
      However, the option may be transferred to any underwriter and selected dealer
      participating in the Offering and their bona fide officers or partners. Although
      the purchase option and its underlying securities have been registered, the
      option grants holders demand and “piggy back” registration rights for periods of
      five and seven years, respectively, from March 17, 2006. These rights apply
      to
      all of the securities directly and indirectly issuable upon exercise of the
      option. The exercise price and number of Units issuable upon exercise of the
      option may be adjusted in certain circumstances including in the event of a
      stock dividend, or our recapitalization, reorganization, merger or
      consolidation. However, the option exercise price or underlying Units will
      not
      be adjusted for issuances of common stock at a price below the option exercise
      price. The option may be exercised for cash, or on a “cashless” basis, at the
      holder’s option, such that the holder may receive a net amount of shares equal
      to the appreciated value of the option (the difference between the exercise
      prices of the option and the underlying Warrants, and the market price of the
      underlying securities). The Company must maintain the effectiveness of the
      registration of the shares underlying the underwriters’ purchase option. The
      agreement does not provide for specific liquidated damages.




F-11
 
  **Echo
            Healthcare Acquisition Corp. And Subsidiary**
 **(a
            development stage company)**
 **Notes
            to Consolidated Financial Statements**


Certain
      Founding Stockholders purchased an aggregate of 458,333 warrants concurrently
      with the closing of the Offering at a price of $1.20 per warrant directly from
      the Company. They have agreed that these warrants purchased by them will not
      be
      sold or transferred until completion of an Acquisition. In exchange for agreeing
      to purchase such warrants, these Founding Stockholders were sold an aggregate
      of
      171,662 shares of previously issued Common Stock from other Founding
      Stockholders in a private transaction for a purchase price equal to the initial
      price paid by selling Founding Stockholders. The transaction is accounted for
      as
      an equity transaction and had no effect on the financial position or operations
      of the Company.




The
      Company agreed to pay the Underwriters of the Offering fees equal to 7.0% of
      the
      gross proceeds, of which the Underwriters have agreed to defer 3.0% of their
      fees (totaling $1,725,000) until consummation of an Acquisition. The Company
      will pay the deferred fees upon an Acquisition out of the proceeds of the
      Offering held in trust. If there is no Acquisition, these Fees will not be
      paid.




Upon
      consummation of the Offering, all shares of common stock owned by the Founding
      Stockholders were placed into an escrow account maintained by Corporate Stock
      Transfer, Inc., acting as escrow agent. These shares will be released from
      escrow in two equal increments:




·
            781,250
                shares on the expiration of three years from March 17, 2006;
                and




·
            781,250
                shares upon the completion of an Acquisition and the last sale price
                of
                the Company’s common stock thereafter equals or exceeds $11.50 per share
                for any 20 trading days within any 30 trading day period beginning
                after
                the Company completes its initial
                Acquisition.




The
      foregoing restrictions are subject to certain limited exceptions such as
      transfers to family members and trusts for estate planning purposes, upon death
      of an escrow depositor, transfers to an estate or beneficiaries, or other
      specified transfers. Even if transferred under these circumstances, the shares
      will remain in the escrow account. The shares are releasable from escrow prior
      to the above dates only if following the initial Acquisition, the Company
      consummates a transaction in which all of the stockholders of the combined
      entity have the right to exchange their shares of common stock for cash,
      securities or other property. If the price of the Company’s common stock fails
      to reach the trigger price for the required number of trading days described
      above, the 781,250 shares subject to this condition will remain in escrow until
      a transaction is consummated in which all stockholders of the combined entity
      have the right to exchange their common stock for cash, securities or other
      property, or until the Company ceases operations.




The
      shares placed in escrow subject to performance and market conditions as defined
      in the agreement, the attainment of which can not be assured, are considered
      contingent shares. As a result, these shares are not included in the income
      (loss) per common share calculations. The agreement provides that the shares
      are
      to be released to the initial stockholders (all of whom are officers and/or
      directors or are a related party to an officer and director) upon meeting
      certain performance and market conditions. Accordingly, the Company may be
      required to recognize a charge based on the fair value of the shares at the
      time
      the shares are released from the escrow. (The amount of such charge could be
      equal to the number of shares times the market value at such date. Based on
      the
      target price of $11.50, such charge would be approximately $8,984,000.)




**NOTE
      D—NOTES PAYABLE TO AND LINE OF CREDIT FROM FOUNDING
      STOCKHOLDERS**




The
      Company had issued notes totaling $200,000 to certain of its Founding
      Stockholders. The notes were satisfied on March 22, 2006.




Certain
      of the Company’s Founding Stockholders have entered into a limited recourse
      revolving line of credit agreement (the “Working Capital Line of Credit”),
      pursuant to which the Company may have up to $750,000 of borrowings outstanding
      at any time. Amounts outstanding under the Working Capital Line of Credit will
      bear interest at a rate equal to the rate of interest earned on the net proceeds
      of the offering held in the Trust Fund. During the year ended December 31,
      2006,
      this interest rate has ranged from approximately 4.5% to approximately
      5.1%.  No interest shall be payable until the principal of the loan becomes
      payable. The loans under the Working Capital Line of Credit shall be payable
      only upon the consummation of the initial Acquisition or upon certain events
      of
      default. If the Company does not consummate the initial Acquisition within
      two
      years following the completion of the offering, the loans under the limited
      recourse revolving line of credit agreement shall terminate and the payees
      shall
      have no right to repayment thereunder. At December 31, 2006, $240,300 had been
      advanced under this Working Capital Line of Credit. The Company has incurred
      interest of $5,401 through December 31, 2006, which is included in accrued
      expenses. The amounts borrowed under the Working Capital Line of Credit incur
      interest at the same rate of interest earned on the funds held in the Company’s
      trust account.




**NOTE
      E —RELATED PARTY TRANSACTION**




The
      Company has agreed to pay a Founding Stockholder an administrative fee of $7,500
      per month, $5,500 of which shall be deferred until the completion of the initial
      Acquisition, for office space and general and administrative services from
      March
      22, 2006 through the effective date of the initial Acquisition. If there is
      no
      Acquisition, the deferred fees will not be paid. During the year ended December
      31, 2006, $50,919 had been recorded as expense. At December 31, 2006, the
      Company had a liability of $52,919, which is included in accrued expenses.
      The
      amounts borrowed under our working capital line of credit accrue interest at
      the
      same rate of interest earned on our funds held in trust.




F-12
 
  **Echo
          Healthcare Acquisition Corp. And Subsidiary**
 **(a
          development stage company)**
 **Notes
          to Consolidated Financial Statements**


**NOTE
      F — OFFICERS AND DIRECTORS**




The
      Company’s officers and directors have agreed with Morgan Joseph & Co. Inc.
      and Roth Capital Partners, LLC, that during the first 40 trading day period
      beginning the later of the date the separate trading of the common stock and
      the
      Warrants has commenced or 60 days after the end of the “restricted period,” they
      or certain of their affiliates or designees collectively will purchase up to
      $300,000 of Warrants in the public marketplace at prices not to exceed $1.20
      per
      Warrant. They have further agreed that any Warrants purchased by them or their
      affiliates or designees will not be sold or transferred until the completion
      of
      an Acquisition. The Company’s officers and directors, in accordance with their
      agreement with Morgan Joseph & Co. Inc., have purchased the Warrants during
      the aforementioned 40 trading day period during the months of June and July
      2006
      and collectively hold 173,848 Warrants as a result of such
      purchases.




**NOTE
      G —PROPOSED ACQUISITION**




On
      September 11, 2006, the Company entered into an Agreement and Plan of Merger
      (the “Merger Agreement”) by and among the Company, Pet DRx Acquisition Company
      (“Merger Sub”), a newly formed, wholly-owned subsidiary of the Company, and
      XLNT, pursuant to which Merger Sub will merge with and into XLNT (the “Merger”),
      with XLNT continuing as the surviving entity. Because the Company will have
      no
      other operating business following the Merger, XLNT will effectively become
      a
      public company at the conclusion of the Merger. XLNT is headquartered in San
      Jose, California and operates veterinary care clinics and hospitals in the
      State
      of California. On February 16, 2007, the Company, Merger Sub and XLNT entered
      into an Amended and Restated Merger Agreement(“Amended and Restated Merger
      Agreement”) (See Note J - Subsequent Event).




The
      Chief
      Executive Officer and the President of the Company own shares and warrants
      of
      XLNT. In addition, XLNT pays a monthly fee of $25,000 in connection with a
      consulting agreement which commenced on September 1, 2007, to an entity of
      which
      the Chief Financial Officer of the Company is the president.




Echo
      has
      agreed to register the shares of the Company’s common stock representing the
      Aggregate Merger Consideration on a registration statement on Form
      S-4.




**NOTE
      H —COMMITMENTS AND OTHER MATTERS**




On
      January 29, 2006, Powell Goldstein LLP agreed to defer its legal fees related
      to
      the Offering totaling $200,000 until the completion of the initial Acquisition
      or the liquidation of the Company, in which case the deferred fees would not
      be
      payable out of the net proceeds of the offering held in trust. These fees
      constitute a cost of the offering and an obligation of the Company. If there
      is
      no Acquisition, this obligation will not be paid.




On
      January 29, 2006, Tri-State Financial, which provided financial printing
      services in connection with the Offering, agreed to defer payment of 20% its
      printing fees until the completion of the initial Acquisition or the liquidation
      of the Company, in which case the deferred fees would not be payable out of
      the
      net proceeds of the offering held in trust. These fees, totaling $93,233,
      constitute a cost of the offering and an obligation of the Company. If there
      is
      no Acquisition, this obligation will not be paid.




**NOTE
      I — DEFERRED ACQUISTION COSTS**




As
      of
      December 31, 2006, the Company has accumulated $284,878 in deferred costs
      related to the proposed acquisition of XLNT. These costs will be capitalized
      contingent upon the completion of the Merger following the required approval
      by
      the Company’s stockholders and the fulfillment of certain other conditions. If
      the Acquisition is not completed, these costs will be recorded as expense.
      Deferred acquisition costs are comprised of legal services provided by Powell
      Goldstein.




F-13


**Echo
        Healthcare Acquisition Corp. And Subsidiary**
 **(a
        development stage company)**
 **Notes
        to Consolidated Financial Statements**




**NOTE
      J - SUBSEQUENT EVENT**




On
      February 16, 2007, the Company, Merger Sub and XLNT entered into the Amended
      and
      Restated Merger Agreement, which included the following significant
      terms(capitalized terms used but not defined in this report have the meanings
      given to them in the Amended and Restated Merger Agreement):




·
            The
                formula for the aggregate merger consideration (“Aggregate Merger
                Consideration”) payable in the merger will include revenues attributable
                to hospitals or clinics that are acquired by XLNT on or before March
                31,
                2007.




·
            Aggregate
                Merger Consideration shall be a number of shares of the Company’s common
                stock equal to the quotient obtained by dividing (1) the sum of (A)
                two
                times the lesser of (x) the consolidated gross revenues of XLNT for
                the
                year ended December 31, 2006, including the revenues for the year
                ended
                December 31, 2006 attributable to hospitals or clinics that are acquired
                by XLNT prior to the Closing Date (each an “Acquisition Candidate”), and
                (y) $60.0 million, but in no event less than $57.5 million (“Baseline
                Revenues”), and (B) the excess over $60.0 million of XLNT’s Baseline
                Revenues (“Incremental Revenues”), multiplied by 1.15 (the sum of Baseline
                Revenues and Incremental Revenues being hereinafter referred to as
                the
                “Adjusted Baseline Revenues”), plus (C) in the event the threshold
                requirements for the Management Performance Bonus Pool are met (as
                described below), an amount equal to (the “Operational Improvement
                Amount”) the excess of the consolidated gross revenues of XLNT for the
                annualized period beginning on January 1, 2007 and ending on the
                last day
                of the fiscal quarter (based on the 2007 calendar year) immediately
                preceding the Closing Date, determined on a pro forma basis to include
                the
                revenues for such period attributable to the Completed Acquisitions,
                over
                105% of the Adjusted Baseline Revenues multiplied by (i) 1.15 in
                the event
                XLNT’s 2007 Consolidated EBITDA margin for the period beginning on January
                1, 2007 and ending on the last day of the fiscal quarter (based on
                the
                calendar year) immediately preceding the Closing Date (the “2007
                Year-To-Date EBITDA Margin”) has increased by at least 100 basis points
                over the greater of (x) XLNT’s 2006 adjusted EBITDA margin for the
                trailing twelve month period ended December 31, 2006, determined
                on a pro
                forma basis to include the revenues for such period attributable
                to the
                Completed Acquisitions, and (y) 16.2% (the “2006 Pro Forma EBITDA Margin”)
                or (ii) 1.33 in the event that XLNT’s 2007 Year-To-Date EBITDA Margin has
                increased by at least 250 basis points over XLNT’s 2006 Pro Forma EBITDA
                Margin plus (D) the Net Cash Amount; by (2) the product of (a) the
                amount
                of cash in the Company’s trust fund at the Closing (without deduction for
                amounts paid in connection with obtaining a fairness opinion from
                a
                nationally recognized financial advisor and the conversion by the
                Company’s public stockholders voting against the Merger of up to 19.9% of
                the Company’s shares of common stock issued in the Offering into a pro
                rata share of the funds held in the Company’s trust fund established in
                connection with the Offering) divided by the number of shares of
                the
                Company’s common stock then issued and outstanding (excluding therefrom
                any shares of the Company’s common stock issuable upon the exercise or
                exchange of other Company securities which by their terms are convertible
                into or exercisable or exchangeable for the Company’s common stock)
                multiplied by (b) 1.25. However, the product determined in (2) above
                shall
                not exceed $7.20 (as adjusted for events set forth in the merger
                agreement).




·
            The
                exchange ratio pursuant to which shares of XLNT common stock will
                be
                exchanged for shares of Echo common stock will be equal to the quotient
                of
                (x) the Aggregate Merger Consideration, divided by the sum of (y)
                (i) the
                total number of outstanding shares of XLNT common stock (assuming
                that all
                shares of XLNT’s convertible preferred stock are converted into common
                stock prior to the closing) plus (ii) the number of shares of XLNT
                common
                stock issuable upon exercise of all vested and unvested options and
                warrants, determined using the treasury method of
                accounting.




·
            The
                parties will calculate the final working capital and net cash amount
                within 30 days following the closing of the Merger. If the final
                working
                capital is positive, then the Company shall issue to the exchange
                agent
                such number of additional shares of the Company’s common stock as is equal
                to the quotient determined by dividing the net cash amount (which
                shall
                not exceed the amount by which XLNT’s final working capital is positive
                and shall be reduced dollar-for-dollar by the amount of cash in the
                Company’s trust fund in excess of $52.0 million (after payment of all
                transaction expenses, amounts payable to the Company stockholders
                requesting redemption and deferred Offering expenses)) by the Company’s
                common stock per share issue price. In addition, if the requirements
                for
                the Management Performance Bonus Pool are met, the Company shall
                issue to
                the exchange agent such number of additional shares of the Company’s
                common stock as is equal to the quotient determined by dividing the
                Operational Improvement Amount by the Company’s common stock per share
                issue price. If any additional amounts are determined to be owing
                following the delivery of a notice of disagreement in accordance
                with the
                Amended and Restated Merger Agreement, then certificates for the
                additional shares of the Company’s common stock (or any cash in lieu of
                fractional shares) shall be deposited with the exchange agent within
                30
                days of such determination. In each case discussed above, the number
                of
                shares of the Company’s common stock to be delivered to the exchange agent
                shall be reduced by the number of shares of the Company’s common stock
                required by the terms of the Amended and Restated Merger Agreement
                to be
                delivered to the escrow agent, for distribution by the exchange agent
                to
                XLNT’s stockholders in an amount equal to each such stockholder’s pro rata
                interest in such amount following the 18 month anniversary of the
                closing
                of the subject transaction.




F-14


**Echo
        Healthcare Acquisition Corp. And Subsidiary**
 **(a
        development stage company)**
 **Notes
        to Consolidated Financial Statements**




·
            XLNT
                will be permitted to incur up to $15 million in principal amount
                of
                indebtedness that carries an interest rate not to exceed thirteen
                percent
                (13%).




·
            The
                expiration date of the merger agreement has been extended until March
                21,
                2008.




·
            The
                companies agreed to delete the covenant in the merger agreement that
                restricted XLNT to 19,500,000 shares of common stock
                outstanding.




·
            Between
                the date of signing of the Amended and Restated Merger Agreement
                and March
                31, 2007, XLNT shall not enter into any definitive acquisition agreement
                with a hospital or clinic it seeks to acquire (each, an
                “Acquisition****Candidate”)
                unless such definitive acquisition agreement includes a termination
                right
                exercisable by the XLNT if XLNT and the Company determine that such
                Acquisition Candidate will not be able to provide its audited financial
                statements that will be required by the Company’s Form S-4 (“Significant
                Acquisition Audits”) on or before May 10,
                2007.




·
            Between
                the date of signing of the Amended and Restated Merger Agreement
                and March
                31, 2007, XLNT shall only consummate an acquisition with an Acquisition
                Candidate if XLNT and the Company determine that such Acquisition
                Candidate will be able to provide its audited financial statements
                that
                constitute Significant Acquisition Audits on or before May 10, 2007.




·
            Subsequent
                to March 31, 2007, XLNT will not enter into any term sheet, letter
                of
                intent, definitive acquisition agreement or similar agreements with
                an
                Acquisition Candidate or consummate any acquisition with an Acquisition
                Candidate if the result of taking such action would be to require
                that any
                financial information, including, without limitation, any financial
                statements (whether or not audited), relating to such Acquisition
                Candidate be included in the proxy statement/prospectus to be filed
                by the
                Company or that any of the financial information or then existing
                disclosure contained or to be contained in the proxy statement/prospectus
                would be required by applicable requirements of the Securities and
                Exchange Commission (“SEC”) to be amended in any manner to include
                information and/or disclosure regarding such Acquisition
                Candidate.




·
            XLNT
                will provide to the Company XLNT’s historical audits on or before March
                31, 2007. XLNT will provide to the Company any other audited financial
                statements that may be required by the SEC due to any acquisitions
                of
                Acquisition Candidates completed subsequent to December 31, 2006
                that
                either individually or in the aggregate meet any significance tests
                then
                prescribed by the SEC for determining financial statement disclosure
                requirements relevant to the Company’s proxy statement/prospectus
                (“Significant Acquisition Audits”) on or before May 10, 2007. For purposes
                of the Amended and Restated Merger Agreement, XLNT’s historical audits and
                the Significant Acquisition Audits are referred to collectively as
                the
                “Audited Financial Statements.” In addition, XLNT will provide the Company
                with XLNT’s unaudited interim financial statements for the quarter ended
                March 31, 2007 on or before May 10,
                2007.




·
            On
                the closing date of the Merger, in the event XLNT shall have complied
                with
                certain obligations set forth in the Amended and Restated Merger
                Agreement
                relating to the convening of the XLNT stockholder meeting and the
                delivery
                by XLNT of the financial statements required for inclusion in the
                Company’s proxy statement/prospectus, certain members of XLNT’s management
                team and consultants as designated by the Compensation Committee
                of XLNT’s
                board of directors and approved by the Company shall be eligible
                to
                participate in a management performance bonus pool (“Management
                Performance Bonus Pool”) with maximum awards not to exceed $1.0 million in
                the aggregate. The maximum aggregate awards shall be (i) $500,000
                in the
                event XLNT’s 2007 Year-To-Date EBITDA Margin has increased by at least 100
                basis points over XLNT’s 2006 Pro Forma EBITDA Margin or (ii) $1.0 million
                in the event that XLNT’s 2007 Year-To-Date EBITDA Margin has increased by
                at least 250 basis points over XLNT’s 2006 Pro Forma EBITDA
                Margin.




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