##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2010
 OR
 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 1-34085
 PET DRX CORPORATION
 (Exact name of registrant as specified in its charter)
 Delaware(State or other jurisdiction of 
incorporation or organization)
    
    56-2517815(I.R.S. Employer
Identification No.)215 Centerview Drive, Suite 360
Brentwood, Tennessee(Address of principal executive offices)
    
    37027(Zip Code)
 (615) 369-1914  (Registrants telephone number, including area code)
 þ o
 o o
  Non-accelerated filer o
    

Large accelerated filer o
    
    Accelerated filer o
(Do not check if a smaller reporting company)
    

Smaller reporting company þ
 o þ




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##### 



PET DRX CORPORATION AND SUBSIDIARIES
 TABLE OF CONTENTS
 PagePart I. Financial InformationItem 1. Financial StatementsCondensed, Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009
    
    1Condensed, Consolidated Statements of Operations for the three and six months
ended June 30, 2010 and 2009
    
    2Condensed, Consolidated Statements of Cash Flows for the six months
ended June 30, 2010 and 2009
    
    3Notes to Condensed, Consolidated Financial Statements
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    18Item 4. Controls and Procedures
    
    18Part II. Other InformationItem 1. Legal Proceedings
    
    19Item 1A. Risk Factors
    
    19Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    19Item 6. Exhibits
    
    19EX-31.1EX-32.1




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##### Table of Contents



PART I: FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 PET DRX CORPORATION AND SUBSIDIARIES
 
 CONDENSED, CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and number of shares)
 June 30,
    
    
    December 31,2010
    
    
    2009(Unaudited)AssetsCurrent Assets:Cash and cash equivalents
    
    $
    3,161
    
    
    $
    2,650Trade accounts receivable, net
    
    
    469
    
    
    
    385Inventory, net
    
    
    885
    
    
    
    901Prepaid expenses and other
    
    
    1,018
    
    
    
    1,155Total current assets
    
    
    5,533
    
    
    
    5,091Property and equipment, net
    
    
    4,484
    
    
    
    6,306Goodwill
    
    
    26,525
    
    
    
    26,525Other intangible assets, net
    
    
    5,166
    
    
    
    5,663Restricted cash
    
    
    
    
    
    
    425Other
    
    
    316
    
    
    
    290Total assets
    
    $
    42,024
    
    
    $
    44,300Liabilities And Stockholders (Deficit) EquityCurrent Liabilities:Current portion of long-term obligations, net of debt discount
    
    $
    20,340
    
    
    $
    2,853Accounts payable
    
    
    1,849
    
    
    
    1,583Accrued interest
    
    
    8,424
    
    
    
    129Accrued payroll and other expenses
    
    
    8,600
    
    
    
    4,611Warrant liabilities
    
    
    3,527
    
    
    
    Obligations under capital leases, current portion
    
    
    444
    
    
    
    320Deferred rent, current portion
    
    
    11
    
    
    
    9Total current liabilities
    
    
    43,195
    
    
    
    9,505Long-term liabilities:Convertible debt, less current portion, net of debt discount
    
    
    
    
    
    
    11,257Term notes, less current portion
    
    
    
    
    
    
    1,726Warrant liabilities
    
    
    
    
    
    
    2,914Obligations under capital leases, less current portion
    
    
    332
    
    
    
    369Deferred rent, less current portion
    
    
    630
    
    
    
    549Total long term liabilities
    
    
    962
    
    
    
    16,815Total liabilities
    
    
    44,157
    
    
    
    26,320Stockholders (deficit) equity:Common stock, par value $0.0001, 90,000,000 shares authorized, 23,753,760 and 23,714,460
outstanding as of June 30, 2010 and December 31, 2009, respectively, net of treasury
shares of 1,361,574 at June 30, 2010 and December 31, 2009, respectively
    
    
    2
    
    
    
    2Additional paid-in-capital
    
    
    86,698
    
    
    
    86,345Accumulated deficit
    
    
    (88,833
    )
    
    
    (68,367
    )Total stockholders (deficit) equity
    
    
    (2,133
    )
    
    
    17,980Total liabilities and stockholders (deficit) equity
    
    $
    42,024
    
    
    $
    44,300
 See Notes to Condensed, Consolidated Financial Statements
 1




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PET DRX CORPORATION AND SUBSIDIARIES
 
 CONDENSED, CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenue
    
    $
    15,358
    
    
    $
    16,702
    
    
    $
    31,067
    
    
    $
    33,424Direct costs
    
    
    14,530
    
    
    
    14,848
    
    
    
    28,941
    
    
    
    29,887Hospital contribution
    
    
    828
    
    
    
    1,854
    
    
    
    2,126
    
    
    
    3,537Selling, general, and administrative expenses
    
    
    6,326
    
    
    
    2,220
    
    
    
    8,164
    
    
    
    4,560Loss from operations
    
    
    (5,498
    )
    
    
    (366
    )
    
    
    (6,038
    )
    
    
    (1,023
    )Gain (loss) on change in fair value of warrant liabilities
    
    
    157
    
    
    
    (5,565
    )
    
    
    (613
    )
    
    
    (3,593
    )Interest income
    
    
    
    
    
    
    4
    
    
    
    1
    
    
    
    6Interest expense
    
    
    (12,322
    )
    
    
    (1,456
    )
    
    
    (13,802
    )
    
    
    (2,789
    )Loss before provision for income taxes
    
    
    (17,663
    )
    
    
    (7,383
    )
    
    
    (20,452
    )
    
    
    (7,399
    )(Benefit) provision for income taxes
    
    
    (16
    )
    
    
    
    
    
    
    14
    
    
    
    5Net loss
    
    $
    (17,647
    )
    
    $
    (7,383
    )
    
    $
    (20,466
    )
    
    $
    (7,404
    )Basic and diluted loss per common share
    
    $
    (0.74
    )
    
    $
    (0.31
    )
    
    $
    (0.86
    )
    
    $
    (0.31
    )Shares used for computing basic and diluted loss per share
    
    
    23,775
    
    
    
    23,660
    
    
    
    23,775
    
    
    
    23,660
 See Notes to Condensed, Consolidated Financial Statements
 2




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PET DRX CORPORATION AND SUBSIDIARIES
 
 CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Six Months EndedJune 30,2010
    
    
    2009Cash flows (used in) provided by operating activities:Net loss
    
    $
    (20,466
    )
    
    $
    (7,404
    )Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    1,599
    
    
    
    1,345Amortization of debt discount
    
    
    4,981
    
    
    
    1,986Loss on change in fair value of warrant liabilities
    
    
    613
    
    
    
    3,593Paid-in-kind interest on loans
    
    
    433
    
    
    
    313Share-based compensation
    
    
    345
    
    
    
    323Impairment of fixed assets
    
    
    
    
    
    
    59Deferred rent
    
    
    83
    
    
    
    105Restricted cash
    
    
    425
    
    
    
    Other
    
    
    (26
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (84
    )
    
    
    (79
    )Inventory
    
    
    16
    
    
    
    47Prepaid expenses and other
    
    
    137
    
    
    
    42Accounts payable
    
    
    266
    
    
    
    (970
    )Accrued payroll and other expenses
    
    
    12,284
    
    
    
    (1,694
    )Other
    
    
    
    
    
    
    5Net cash provided by (used in) operating activities
    
    
    606
    
    
    
    (2,329
    )Cash flows provided by investing activities:Property and equipment additions
    
    
    (167
    )
    
    
    (146
    )Proceeds from sale of assets
    
    
    1,150
    
    
    
    841Net cash provided by investing activities
    
    
    983
    
    
    
    695Cash flow (used in) provided by financing activities:Payment of debt waiver fees
    
    
    
    
    
    
    (100
    )Payment of debt financing costs
    
    
    
    
    
    
    (307
    )Deferral of legal settlement to term loan
    
    
    
    
    
    
    21Payments on notes payable
    
    
    (922
    )
    
    
    (1,693
    )Payments on capital lease obligations
    
    
    (164
    )
    
    
    (140
    )Net proceeds from 12% secured convertible notes
    
    
    
    
    
    
    6,500Proceeds from stock option exercise
    
    
    8
    
    
    
    Net cash (used in) provided by financing activities
    
    
    (1,078
    )
    
    
    4,281Increase in cash and cash equivalents
    
    
    511
    
    
    
    2,647Consolidated cash and cash equivalents at beginning of period
    
    
    2,650
    
    
    
    1,723Consolidated cash and cash equivalents at end of period
    
    $
    3,161
    
    
    $
    4,370Supplemental disclosures of cash flow information:Interest
    
    $
    309
    
    
    $
    414Supplemental schedule of noncash investing and financing activities:Retirement of debt to offset related party receivable
    
    $
    
    
    
    $
    141Common stock warrants issued as payment of offering costs
    
    $
    
    
    
    $
    4,374
 See Notes to Condensed, Consolidated Financial Statements
 3




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PET DRX CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of Presentation
   2. New Accounting Pronouncements
 Adopted
    4




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PET DRX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 2. New Accounting Pronouncements, continued
   Issued
    5




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PET DRX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 3. Goodwill and Other Intangible Assets
   As of June 30, 2010
    
    
    As of December 31, 2009Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountCovenants not-to-compete
    
    $
    684
    
    
    $
    (551
    )
    
    $
    133
    
    
    $
    684
    
    
    $
    (478
    )
    
    $
    206Non-contractual customer relationships
    
    
    8,118
    
    
    
    (3,085
    )
    
    
    5,033
    
    
    
    8,118
    
    
    
    (2,661
    )
    
    
    5,457Total
    
    $
    8,802
    
    
    $
    (3,636
    )
    
    $
    5,166
    
    
    $
    8,802
    
    
    $
    (3,139
    )
    
    $
    5,663
   Remainder of 2010
    
    $
    4882011
    
    
    8912012
    
    
    7892013
    
    
    7162014
    
    
    657Thereafter
    
    
    1,625Total
    
    $
    5,166
 4. Property and Equipment, net
  June 30,
    
    
    December 31,2010
    
    
    2009Buildings
    
    $
    930
    
    
    $
    2,787Leasehold improvements
    
    
    1,068
    
    
    
    1,047Equipment
    
    
    4,252
    
    
    
    3,872Furniture and equipment
    
    
    611
    
    
    
    606Computer equipment & software
    
    
    2,381
    
    
    
    2,357Construction-in-progress
    
    
    36
    
    
    
    37Total property and equipment
    
    
    9,278
    
    
    
    10,706Less-accumulated depreciation and amortization
    
    
    (4,794
    )
    
    
    (4,400
    )Total property and equipment, net
    
    $
    4,484
    
    
    $
    6,306
 6




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##### Table of Contents



PET DRX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 4. Property and Equipment, net, continued
   5. Long-Term Obligations
  June 30,
    
    
    December 31,2010
    
    
    2009Convertible notes
    
    Convertible notes payable, maturing from 2010 to 2014,
secured by substantially all of the Companys assets,
various interest rates ranging from 7.0% to 12.5%,
net of debt
discount(1) of $3.5 million
at December 31, 2009
    
    $
    16,878
    
    
    $
    11,464Promissory notes
    
    Notes payable, maturing from 2010 to 2013, secured by
assets and stock of certain subsidiaries, various interest
rates ranging from 6.5% to 12.0%
    
    
    3,342
    
    
    
    4,100Earn-out notes
    
    Notes payable, various maturities through 2010, interest
rates ranging from none to 8.0%
    
    
    120
    
    
    
    272Total debt obligations
    
    
    20,340
    
    
    
    15,836Less-current portion, net of debt discount
    
    
    (20,340
    )
    
    
    (2,853
    )Long-term portion
    
    $
    
    
    
    $
    12,983
 
 (1)
    
    The
unamortized debt discount on the long-term obligations was written off to interest expense during the quarter ended June 30, 2010. On June 2, 2010, the Company and VCA Antech, Inc., entered into a definitive merger agreement,
see Note 12, Merger Agreement, for a more detailed discussion, whereby VCA Antech, Inc., in a
two-step transaction will purchase all of the outstanding common shares of the Company. The
proceeds from the sale of the Company will first be applied to pay down all, or substantially all,
of the Companys debt; accordingly all debt balances have been classified as current in the
condensed, consolidated balance sheet as of June 30, 2010, and
debt discount and debt premiums were expensed. In addition, all future payments under long-term
obligations as of June 30, 2010 are reflected as to be paid during the remainder of 2010.  Remainder of 2010
    
    $
    28,700
  7




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PET DRX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 5. Long-Term Obligations, continued
 12% Senior Secured Convertible Notes
   Amendment to Convertible Note
 nd nd nd
 6. Stockholders Equity
  Common Stock Warrants
  8




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##### Table of Contents



PET DRX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 7. Calculation of Loss Per Common Share
   Six Months EndedJune 30,2010
    
    
    2009Convertible debenture notes, if converted to common stock
    
    
    2,654
    
    
    
    1,413Warrants for common stock
    
    
    16,225
    
    
    
    23,871Options for common stock
    
    
    3,331
    
    
    
    3,474Total
    
    
    22,210
    
    
    
    28,758
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net loss
    
    
    (17,647
    )
    
    
    (7,383
    )
    
    
    (20,466
    )
    
    
    (7,404
    )Weighted average common shares outstanding:Basic
    
    
    23,775
    
    
    
    23,660
    
    
    
    23,775
    
    
    
    23,660Effect of dilutive common stock equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted
    
    
    23,775
    
    
    
    23,660
    
    
    
    23,775
    
    
    
    23,660Basic and diluted net loss per common share
    
    $
    (0.74
    )
    
    $
    (0.31
    )
    
    $
    (0.86
    )
    
    $
    (0.31
    )
 8. Share-Based Compensation
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Direct costs
    
    $
    
    
    
    $
    8
    
    
    $
    7
    
    
    $
    18Selling, general and administrative expenses
    
    
    261
    
    
    
    143
    
    
    
    338
    
    
    
    305Total
    
    $
    261
    
    
    $
    151
    
    
    $
    345
    
    
    $
    323
 9




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##### Table of Contents



PET DRX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 8. Share-Based Compensation, continued
 Stock Option Activity
  Stock
    
    
    
    
    
    
    WeightedOptions
    
    
    Stock
    
    
    AverageAvailable
    
    
    Options
    
    
    Exercisefor Grant
    
    
    Outstanding
    
    
    PriceBalance as of December 31, 2009
    
    
    2,890
    
    
    
    3,205
    
    
    $
    2.05Granted
    
    
    (425
    )
    
    
    425
    
    
    
    0.40Exercised
    
    
    
    
    
    
    
    
    
    
    Forfeited or canceled
    
    
    24
    
    
    
    (24
    )
    
    
    0.35Balance as of March 31, 2010
    
    
    2,489
    
    
    
    3,606
    
    
    $
    1.86Granted
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    (39
    )
    
    
    0.20Forfeited or canceled
    
    
    236
    
    
    
    (236
    )
    
    
    4.47Balance as of June 30, 2010
    
    
    2,725
    
    
    
    3,331
    
    
    $
    1.68Vested at June 30, 2010
    
    
    
    
    
    
    3,331
    
    
    $
    1.68Exercisable at June 30, 2010
    
    
    
    
    
    
    2,062
    
    
    $
    2.15
  9. Fair Value
  Level 1 
  
  Observable inputs such as quoted prices in active markets;Level 2 
  
  Inputs, other than quoted prices, that are observable for the asset or liability,
either directly or indirectly. These include quoted prices for similar assets or liabilities in
active markets and quoted prices for identical or similar assets or liabilities in markets that are
not active; andLevel 3 
  
  Unobservable inputs in which there is little or no market data, which require the
reporting entity to develop its own assumptions.   Merger Agreement Subsequent Events
 10. Contingencies
 Phaneendra Kondiona vs. Gene Burleson, et al. Merger Agreement
  10




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PET DRX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 11. Warrant Liabilities
    Balance as of December 31, 2009
    
    $
    2,914Mark-to-market adjustment to fair value at March 31, 2010
    
    
    770Balance as of March 31, 2010
    
    
    3,684Mark-to-market adjustment to fair value at June 30, 2010
    
    
    (157
    )Balance as of June 30, 2010
    
    $
    3,527
  June 30,
    
    March 31,
    
    December 31,2010
    
    2010
    
    2009Weighted- average volatility (1)
    
    
    28.9
    %
    
    
    28.9
    %
    
    
    29.9
    %Expected dividends
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Expected term (2)
    
    0.003 years
    
    
    2.8-7.6 years
    
    
    3.0-7.8 yearsRisk-free rate (3)
    
    
    0.1
    %
    
    
    1.5%  - 3.4
    %
    
    
    1.7%  - 3.5
    %
 
 (1)
    
    We estimated the volatility of our common stock on the valuation date based on
historical volatility of the common stock of a peer group of public companies as the Company
has limited stock price history and it would not be practical to use internal volatility.(2)
    
    The expected term represents the period of time that we expect the warrants to be
outstanding. In conjunction with our sale to VCA Antech, Inc., see
Note 13, Subsequent Events, all of the outstanding
warrants at June 30, 2010 will be cancelled and paid out in
accordance with the Merger Agreement, see Note 12, Merger
Agreement.(3)
    
    The risk-free interest rate is based on the implied yield in effect on U.S. Treasury
zero-coupon issues with equivalent remaining terms. 11




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PET DRX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 12. Merger Agreement
  13. Subsequent Events
 Merger
Agreement,
 12




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion should be read in conjunction with our condensed, consolidated
financial statements and notes thereto provided under Part I, Item 1 of this Quarterly Report on
Form 10-Q (the Form 10-Q). The Companys disclosure and analysis in this Form 10-Q contain some
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995 that set forth anticipated results based on managements plans and assumptions. From time to
time, the Company also provides forward-looking statements in other materials it releases to the
public, as well as oral forward-looking statements. Such statements give the Companys current
expectations or forecasts of future events; they do not relate strictly to historical or current
facts. The Company has tried, wherever possible, to identify such statements by using words such as
anticipate, estimate, expect, project, intend, plan, believe, will, target,
forecast and similar expressions in connection with any discussion of future operating or
financial performance or business plans or prospects. In particular, these include statements
relating to future actions, business plans and prospects, future performance or results of current
and anticipated services, sales efforts, expenses, interest rates, the outcome of contingencies,
such as legal proceedings, and financial results.
 The Company cannot guarantee that any forward-looking statement will be realized. Achievement
of future results is subject to risks, uncertainties and potentially inaccurate assumptions. Should
known or unknown risks or uncertainties materialize, or should underlying assumptions prove
inaccurate, actual results could differ materially from past results and those anticipated,
estimated or projected. Investors should keep this in mind as they consider forward-looking
statements. Factors that may cause our plans, expectations, future financial condition and results
to change are described under the heading Risk Factors in Item 1A of our Annual Report on Form
10-K for the year ended December 31, 2009 filed with the SEC on March 31, 2010.
 The forward-looking information set forth in this Quarterly Report on Form 10-Q is as of the
date of this report, and the Company undertakes no obligation to publicly update forward-looking
statements, whether as a result of new information, future events or otherwise. Investors are
advised, however, to consult any further disclosures the Company makes on related subjects in its
reports to the SEC filed after the date hereof at the SECs website at www.sec.gov
 Overview
 General
   Subsequent Events, , Merger agreement,
 13




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Business Strategy
  
    
    recruit and retain top veterinary professionals;
    
    provide high quality veterinary care to our customers;
    
    increase veterinary hospital visits through advertising, market positioning, consumer
education, wellness programs and branding;
    
    increase veterinary hospital margins through same-store revenue growth and cost savings
realized through consolidated purchasing arrangements for high volume items such as food
and medical supplies and generally lower costs through economies of scale;
    
    increase veterinary hospital productivity through professional development and
training, integration of performance data collection systems, application of productivity
standards to previously under-managed operations and removal of administrative burdens from
veterinary professionals;
    
    pursue acquisitions of additional veterinary hospitals, with a focus on continuing to
develop hub and spoke networks that will improve customer service; and
    
    capture valuation arbitrage differentials between individual practice value and larger
consolidated enterprise value.
 Seasonality
  Overview of Our Financial Results
  Merger Agreement,
 14




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##### Table of Contents



Results of Operations
  Revenue
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    % Change
    
    
    2010
    
    
    2009
    
    
    % ChangeRevenues
    
    $
    15.4
    
    
    $
    16.7
    
    
    
    (8.0
    )%
    
    $
    31.1
    
    
    $
    33.4
    
    
    
    (7.1
    )%
  15




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##### Table of Contents



Direct Costs
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    % Change
    
    
    2010
    
    
    2009
    
    
    % ChangeTotal direct costs
    
    $
    14.5
    
    
    $
    14.8
    
    
    
    (2.1
    )%
    
    $
    28.9
    
    
    $
    29.9
    
    
    
    (3.2
    )%Hospital Contribution margin as
a percentage of total net revenue
    
    
    5.4
    %
    
    
    11.1
    %
    
    
    
    
    
    
    6.8
    %
    
    
    10.6
    %
   Selling, General and Administrative Expense (SG&A)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    % Change
    
    
    2010
    
    
    2009
    
    
    % ChangeSelling, general and administrative
    
    $
    6.3
    
    
    $
    2.2
    
    
    
    185.0
    %
    
    $
    8.2
    
    
    $
    4.6
    
    
    
    79.0
    %As a percentage of total net
revenue
    
    
    41.2
    %
    
    
    13.3
    %
    
    
    
    
    
    
    26.3
    %
    
    
    13.6
    %
  Interest Expense
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    % Change
    
    
    2010
    
    
    2009
    
    
    % ChangeInterest Expense
    
    $
    12.3
    
    
    $
    1.5
    
    
    
    746.3
    %
    
    $
    13.8
    
    
    $
    2.8
    
    
    
    394.9
    %As a percentage of total net revenue
    
    
    80.2
    %
    
    
    8.7
    %
    
    
    
    
    
    
    44.4
    %
    
    
    8.3
    %
  16




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##### Table of Contents



Liquidity and Capital Resources
 Subsequent Events,
 Cash Flows from Operating Activities
   Cash Flows from Investing Activities
  Cash Flows from Financing Activities
  17




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##### Table of Contents



Other Metrics
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net
loss
    
    $
    (17,647
    )
    
    $
    (7,383
    )
    
    $
    (20,466
    )
    
    $
    (7,404
    )Severance and transaction costs
    
    
    3,320
    
    
    
    
    
    
    
    3,320
    
    
    
    Depreciation
    
    
    359
    
    
    
    403
    
    
    
    1,102
    
    
    
    816Amortization
    
    
    247
    
    
    
    263
    
    
    
    497
    
    
    
    529(Gain) loss on change in fair value of warrant liabilities
    
    
    (157
    )
    
    
    5,565
    
    
    
    613
    
    
    
    3,593Interest expense, net
    
    
    12,322
    
    
    
    1,452
    
    
    
    13,801
    
    
    
    2,783(Benefit) provision for income taxes
    
    
    (16
    )
    
    
    
    
    
    
    14
    
    
    
    5Adjusted EBITDA
    
    $
    (1,572
    )
    
    $
    300
    
    
    $
    (1,119
    )
    
    $
    322
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Hospital
contribution
    
    $
    828
    
    
    $
    1,854
    
    
    $
    2,126
    
    
    $
    3,537Depreciation at
hospitals
    
    
    277
    
    
    
    318
    
    
    
    954
    
    
    
    643Amortization at
hospitals
    
    
    247
    
    
    
    263
    
    
    
    497
    
    
    
    529Hospital
EBITDA
    
    $
    1,352
    
    
    $
    2,435
    
    
    $
    3,577
    
    
    $
    4,709
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  18




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##### Table of Contents



Changes in Internal Control over Financial Reporting
  
 PART II: OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Contingencies.
 
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 6. Exhibits
 ExhibitNo.
    
    Description31.1*
    
    Certification of Principal
Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1*
    
    Certification of Principal
Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed or furnished herewith. 19




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##### Table of Contents



SIGNATURES
  PET DRX CORPORATIONDate: August 23, 2010
    By:

/s/
Dawn OlsenDawn OlsenPrincipal Executive Officer & Principal Financial Officer 20




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNo.
    
    Description31.1*
    
    Certification of Principal
Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1*
    
    Certification of Principal
Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed or furnished herewith. 21