COMMITMENTS AND CONTINGENT LIABILITIES	12 Months Ended
Dec. 31, 2014
COMMITMENTS AND CONTINGENT LIABILITIES
COMMITMENTS AND CONTINGENT LIABILITIES	NOTE Q - COMMITMENTS AND CONTINGENT LIABILITIES Commitments In April 2014, in connection with the settlement of a patent infringement dispute, the Company’s wholly owned subsidiary, Southern Prosthetic Supplies (“SPS”), entered into an agreement to purchase and distribute a total of $4.5 million of prosthetic gel liners over five years. As of December 31, 2014, $3.0 million of the non-cancellable purchase commitment was outstanding with $0.5 million, $1.0 million, $1.0 million, and $0.5 million of purchases due by April of 2016, 2017, 2018, and 2019, respectively. At the time of the legal settlement, the Company recorded a loss on legal settlement of $0.2 million. The Company also recorded an estimated loss of $3.4 million associated with the non-cancellable purchase commitment in accordance with ASC 440-10-25-4 based on the terms of the agreement, the product shelf life and estimated sales of the liners over the life of the product. Contingencies Legal Proceedings In November 2014, a securities class action complaint was filed in federal district court in Texas against the Company. The case, City of Pontiac General Employees’ Retirement System v. Hanger, et al., C.A. No. 1:14-cv-01026-SS, is currently pending before the United States District Court for the Western District of Texas. The complaint names as defendants the Company and certain of its current and former officers and directors for allegedly making materially false and misleading statements regarding, among other things, its financial statements, Recovery Audit Contractor (“RAC”) audit success rate, the Company’s implementation of new financial systems, same-store sales growth, and the adequacy of the Company’s internal processes and controls. The complaint alleges violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. The complaint seeks unspecified damages, costs and attorneys’ fees, and equitable relief. On April 1, 2016, the court granted the Company’s motion to dismiss the lawsuit for failure to state a claim upon which relief can be granted, and permitted plaintiffs to file an amended complaint. On July 1, 2016, plaintiffs filed an amended complaint. Defendants moved to dismiss plaintiffs’ latest complaint and, on January 26, 2017, the court granted the Company’s motion to dismiss the lawsuit with prejudice all claims against all defendants for failure to state a claim. On February 24, 2017, plaintiffs filed a notice of appeal to the United States Fifth Circuit Court of Appeals. The Company has accrued legal fees associated with defending itself against this claim as of December 31, 2014. Legal Proceedings - Subsequent Events Subsequent to December 31, 2014, in February and August of 2015, two separate shareholder derivative suits were filed in Texas state court against the Company related to the announced restatement of certain financial statements of the Company. The cases were subsequently consolidated into Judy v. Asar, et. al., Cause No. D-1-GN-15-000625. On October 25, 2016, plaintiffs in that action filed an amended complaint, and the case is currently pending before the 345th Judicial District Court of Travis County, Texas. The amended complaint in the consolidated derivative action names as defendants the Company and certain of its current and former officers and directors. It alleges claims for breach of fiduciary duty based, inter alia, on the defendants’ alleged failure to exercise good faith to ensure that the Company had in place adequate accounting and financial controls and that its disclosures regarding its business, financial performance, and internal controls were truthful and accurate. The complaint seeks unspecified damages, costs and attorneys’ fees and equitable relief. On June 6, 2016, the Board of Directors appointed a Special Litigation Committee of the Board (the “Special Committee”). The Board delegated to the Special Committee the authority to (1) determine whether it is in the best interests of the Company to pursue any of the allegations made in the derivative cases filed in Texas state court against the Company (which cases were consolidated into the Judy case discussed above), (2) determine whether it is in the best interests of the Company and its shareholders to pursue any remedies against any of the Company’s current or former employees, officers or directors as a result of the conduct discovered in the Investigation, and (3) otherwise resolve claims or matters relating to the findings of the Investigation. The Special Committee retained independent legal counsel to assist and advise it in carrying out its duties, and reviewed and considered the evidence and various factors relating to the best interests of the Company. In accordance with its findings and conclusions, the Special Committee determined that it is not in the Company’s best interest to pursue any of the claims in the Judy derivative case. Also, in accordance with its findings and conclusions, the Special Committee determined that it is not in the best interests of the Company and its shareholders to pursue legal remedies against any of the Company’s current or former employees, officers or directors. On April 14, 2017, the Company filed a motion to dismiss the consolidated derivative action based on the resolution by the Special Committee that it is not in the best interest of the Company and its shareholders to pursue the derivative claims. Counsel for the derivative plaintiffs have indicated that they will oppose the motion to dismiss. Management intends to vigorously defend against the shareholder derivative actions and the appeal in the securities class action. At this time, we cannot predict how the Courts will rule on the merits of the claims and/or the scope of the potential loss in the event of an adverse outcome. The Company believes this matter represents a reasonably possible loss contingency as defined in ASC 450. Should the Company ultimately be found liable, the resulting damages could have a material adverse effect on our consolidated financial position, liquidity and results of our operations. However, due to the preliminary nature of this matter, at this time, the Company is unable to estimate the possible loss or range of possible loss if the Company were found liable. During 2014, the Company accrued estimated legal fees associated with defending itself against this action. Governmental Inquiries The Securities and Exchange Commission’s Division of Enforcement has made inquiries of the Company concerning the circumstances surrounding the restatement and related matters. The Company has responded to those inquiries and provided requested documentation to the Staff of the Division of Enforcement. By letter dated January 10, 2017, the Staff of the Division of Enforcement notified the Company that it had concluded its investigation of these matters and, based on information it had as of that date, did not intend to recommend an enforcement action by the Commission against the Company. The information in the Staff’s letter was provided under the guidelines set out in the final paragraph of Securities Act Release No. 5310. Other The Company is subject to legal proceedings and claims which arise from time to time in the ordinary course of its business, including additional payments under business purchase agreements. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions will not have a materially adverse effect on the consolidated financial position, liquidity or results of operations of the Company. The Company is in a highly regulated industry and receives regulatory agency inquiries from time to time in the ordinary course of its business, including inquiries relating to the Company’s billing activities. To date these inquiries have not resulted in material liabilities, but no assurance can be given that future regulatory agencies’ inquiries will be consistent with the results to date or that any discrepancies identified during a regulatory review will not have a material adverse effect on the Company’s consolidated financial statements. Guarantees and Indemnifications In the ordinary course of its business, the Company may enter into service agreements with service providers in which it agrees to indemnify or limit the service provider against certain losses and liabilities arising from the service provider’s performance of the agreement. The Company has reviewed its existing contracts containing indemnification or clauses of guarantees and does not believe that its liability under such agreements is material to the Company’s operations.

NOTE Q - COMMITMENTS AND CONTINGENT LIABILITIES

Commitments

In April 2014, in connection with the settlement of a patent infringement dispute, the Company’s wholly owned subsidiary, Southern Prosthetic Supplies (“SPS”), entered into an agreement to purchase and distribute a total of $4.5 million of prosthetic gel liners over five years. As of December 31, 2014, $3.0 million of the non-cancellable purchase commitment was outstanding with $0.5 million, $1.0 million, $1.0 million, and $0.5 million of purchases due by April of 2016, 2017, 2018, and 2019, respectively. At the time of the legal settlement, the Company recorded a loss on legal settlement of $0.2 million. The Company also recorded an estimated loss of $3.4 million associated with the non-cancellable purchase commitment in accordance with ASC 440-10-25-4 based on the terms of the agreement, the product shelf life and estimated sales of the liners over the life of the product.

Contingencies

Legal Proceedings

In November 2014, a securities class action complaint was filed in federal district court in Texas against the Company. The case, City of Pontiac General Employees’ Retirement System v. Hanger, et al., C.A. No. 1:14-cv-01026-SS, is currently pending before the United States District Court for the Western District of Texas. The complaint names as defendants the Company and certain of its current and former officers and directors for allegedly making materially false and misleading statements regarding, among other things, its financial statements, Recovery Audit Contractor (“RAC”) audit success rate, the Company’s implementation of new financial systems, same-store sales growth, and the adequacy of the Company’s internal processes and controls. The complaint alleges violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. The complaint seeks unspecified damages, costs and attorneys’ fees, and equitable relief.

On April 1, 2016, the court granted the Company’s motion to dismiss the lawsuit for failure to state a claim upon which relief can be granted, and permitted plaintiffs to file an amended complaint. On July 1, 2016, plaintiffs filed an amended complaint. Defendants moved to dismiss plaintiffs’ latest complaint and, on January 26, 2017, the court granted the Company’s motion to dismiss the lawsuit with prejudice all claims against all defendants for failure to state a claim. On February 24, 2017, plaintiffs filed a notice of appeal to the United States Fifth Circuit Court of Appeals. The Company has accrued legal fees associated with defending itself against this claim as of December 31, 2014.

Legal Proceedings - Subsequent Events

Subsequent to December 31, 2014, in February and August of 2015, two separate shareholder derivative suits were filed in Texas state court against the Company related to the announced restatement of certain financial statements of the Company. The cases were subsequently consolidated into Judy v. Asar, et. al., Cause No. D-1-GN-15-000625. On October 25, 2016, plaintiffs in that action filed an amended complaint, and the case is currently pending before the 345th Judicial District Court of Travis County, Texas.

The amended complaint in the consolidated derivative action names as defendants the Company and certain of its current and former officers and directors. It alleges claims for breach of fiduciary duty based, inter alia, on the defendants’ alleged failure to exercise good faith to ensure that the Company had in place adequate accounting and financial controls and that its disclosures regarding its business, financial performance, and internal controls were truthful and accurate. The complaint seeks unspecified damages, costs and attorneys’ fees and equitable relief.

On June 6, 2016, the Board of Directors appointed a Special Litigation Committee of the Board (the “Special Committee”). The Board delegated to the Special Committee the authority to (1) determine whether it is in the best interests of the Company to pursue any of the allegations made in the derivative cases filed in Texas state court against the Company (which cases were consolidated into the Judy case discussed above), (2) determine whether it is in the best interests of the Company and its shareholders to pursue any remedies against any of the Company’s current or former employees, officers or directors as a result of the conduct discovered in the Investigation, and (3) otherwise resolve claims or matters relating to the findings of the Investigation. The Special Committee retained independent legal counsel to assist and advise it in carrying out its duties, and reviewed and considered the evidence and various factors relating to the best interests of the Company. In accordance with its findings and conclusions, the Special Committee determined that it is not in the Company’s best interest to pursue any of the claims in the Judy derivative case. Also, in accordance with its findings and conclusions, the Special Committee determined that it is not in the best interests of the Company and its shareholders to pursue legal remedies against any of the Company’s current or former employees, officers or directors.

On April 14, 2017, the Company filed a motion to dismiss the consolidated derivative action based on the resolution by the Special Committee that it is not in the best interest of the Company and its shareholders to pursue the derivative claims. Counsel for the derivative plaintiffs have indicated that they will oppose the motion to dismiss.

Management intends to vigorously defend against the shareholder derivative actions and the appeal in the securities class action. At this time, we cannot predict how the Courts will rule on the merits of the claims and/or the scope of the potential loss in the event of an adverse outcome. The Company believes this matter represents a reasonably possible loss contingency as defined in ASC 450. Should the Company ultimately be found liable, the resulting damages could have a material adverse effect on our consolidated financial position, liquidity and results of our operations. However, due to the preliminary nature of this matter, at this time, the Company is unable to estimate the possible loss or range of possible loss if the Company were found liable. During 2014, the Company accrued estimated legal fees associated with defending itself against this action.

Governmental Inquiries

The Securities and Exchange Commission’s Division of Enforcement has made inquiries of the Company concerning the circumstances surrounding the restatement and related matters. The Company has responded to those inquiries and provided requested documentation to the Staff of the Division of Enforcement. By letter dated January 10, 2017, the Staff of the Division of Enforcement notified the Company that it had concluded its investigation of these matters and, based on information it had as of that date, did not intend to recommend an enforcement action by the Commission against the Company. The information in the Staff’s letter was provided under the guidelines set out in the final paragraph of Securities Act Release No. 5310.

Other

The Company is subject to legal proceedings and claims which arise from time to time in the ordinary course of its business, including additional payments under business purchase agreements. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions will not have a materially adverse effect on the consolidated financial position, liquidity or results of operations of the Company.

The Company is in a highly regulated industry and receives regulatory agency inquiries from time to time in the ordinary course of its business, including inquiries relating to the Company’s billing activities. To date these inquiries have not resulted in material liabilities, but no assurance can be given that future regulatory agencies’ inquiries will be consistent with the results to date or that any discrepancies identified during a regulatory review will not have a material adverse effect on the Company’s consolidated financial statements.

Guarantees and Indemnifications

In the ordinary course of its business, the Company may enter into service agreements with service providers in which it agrees to indemnify or limit the service provider against certain losses and liabilities arising from the service provider’s performance of the agreement. The Company has reviewed its existing contracts containing indemnification or clauses of guarantees and does not believe that its liability under such agreements is material to the Company’s operations.