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Business Context and Reporting Period

Company: Healthcare Acquisition Corp. (HAQ), a Delaware corporation organized as a "blank check" company.

Reporting Period: Fiscal year ended December 31, 2006.

Business Model: HAQ was formed to acquire one or more domestic or international assets or an operating business in the healthcare industry. As of December 31, 2006, the company had no operations generating revenue and was in the development stage.

Recent Development: On January 19, 2007 (subsequent to the reporting period), HAQ entered into a definitive Merger Agreement with PharmAthene, Inc., a biodefense company. Upon consummation, HAQ will change its name to PharmAthene, Inc.

Key Financial Metrics

Liquidity: The company holds approximately $70.9 million in a trust account invested in U.S. government securities or money market funds. Approximately $675,000 is held outside the trust for working capital and transaction expenses.

Debt: No long-term debt outstanding. The company repaid $250,000 in promissory notes to initial stockholders in 2005.

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased by approximately 215% year-over-year, driven primarily by interest and dividend income earned on the trust fund ($1.8 million in 2006 vs. $566k in 2005).
• Expense Increase: Operating expenses rose to $644,378 in 2006 from $260,779 in 2005. Increases were attributed to higher capital-based taxes, professional fees, travel, and insurance costs associated with the search for a business combination.
• Net Income: Net income increased to $1.02 million in 2006 from $277k in 2005, reflecting the higher investment income outweighing the increase in operating expenses.
• Trust Fund Balance: The trust fund balance grew by approximately $2.25 million due to interest earnings.

Outlook, Risks, and Unusual Items

Merger with PharmAthene: The company is in the process of merging with PharmAthene, Inc. Consideration includes 12.5 million shares of HAQ common stock, $12.5 million in 8% convertible notes, and up to $10 million in milestone payments. The transaction is subject to shareholder approval and regulatory conditions.

Liquidation Deadline: If a business combination is not consummated by August 3, 2007, the company is obligated to liquidate and distribute the trust fund to public stockholders. Warrants will expire worthless upon liquidation.

Risks:

• No Operating History: Investors have no basis to evaluate the company's ability to achieve its business objective.
• Trust Fund Claims: Third-party claims (e.g., from vendors) could reduce the amount available for distribution to stockholders upon liquidation, though officers have agreed to be personally liable to protect the trust.
• Regulatory: Future operations will be subject to extensive government regulation, including FDA oversight for medical devices and drugs.
• Conflicts of Interest: Officers and directors have other business affiliations and may have conflicts in allocating time or selecting targets.

Unusual Items: The company incurred $90,000 in management fees in 2006 paid to an affiliate (Equity Dynamics, Inc.) for office space and administrative services. Additionally, a $500,000 success fee is payable to an advisor upon the successful completion of the PharmAthene merger.

Investor Verification Checklist

• Merger Approval: Verify the status of the shareholder vote and proxy statement regarding the PharmAthene merger.
• Trust Fund Integrity: Confirm the current balance of the trust fund and any potential claims against it.
• Liquidation Timeline: Monitor the August 3, 2007 deadline for the completion of a business combination.
• PharmAthene Financials: Review the financial statements and risk factors of PharmAthene, Inc., as the post-merger entity will effectively be PharmAthene.
• Warrant Terms: Understand that warrants are exercisable only after a business combination and will expire worthless if the company liquidates.