Contingencies

Due to the uncertainties associated with the stop-loss fee dispute cases, the Company has accrued an amount of $11.3 million, and an additional amount of $3.7 million in interest payable, as accrued liabilities. For a detailed discussion of this, see Revenue Recognition Policy under Notes to Consolidated Financial Statements.

The Company maintains various insurance policies that cover its Pasadena facility including occurrence medical malpractice coverage. In addition, all physicians granted privileges at the Pasadena facility are required to maintain medical malpractice insurance coverage. The Company also maintains general liability and property insurance coverage, including flood coverage. The Company does not currently maintain workers’ compensation coverage in Texas. In regard to the Employee Health Insurance Plan, until April 2014, the Company was self-insured with specific and aggregate re-insurance with stop-loss levels appropriate for the Company’s group size. Effective May 1, 2014, the Company has taken coverage for its employees under a fully insured health plan.

We do not carry director and officer liability insurance. As permitted under Nevada law and pursuant to our governing documents and indemnification agreements with certain of our officers and directors, we indemnify our directors and officers against monetary damages, including advancing expenses, to the fullest extent permitted by Nevada law.

Ping S. Chu, James G. Gerace (both former members of our Board of Directors), and Eric G. Carter (former legal counsel) along with eleven other claimants instigated a series of lawsuits making claims against Ella Y.T.C. Chan (in her individual capacity and in her capacity as Independent Executrix of the Estate of Chiu M. Chan, Deceased, our former Chief Executive Officer and director), Eric K. Chan (our current Chief Executive Officer and director), and Dynacq Healthcare, Inc. All claims were settled in mediations and as part of the settlements Dynacq repurchased 530,616 shares of Dynacq common stock in August 2014, and 427,886 shares of Dynacq stock subsequently in April 2015. These buybacks represent all stock held by each of the claimants. Additionally, as part of this settlement, Dynacq settled claims made by Eric G. Carter for payment of attorney fees, and claims by a company controlled by Mr. Carter, for breach of contract. The Company recognized $2,047,652 of expense associated with these settlements during the fiscal year ended August 31, 2014. This amount is reported as other operating expenses in the consolidated statements of operations. A portion of the settlements were attributed to the repurchase of the Company’s common stock.

The Company is routinely involved in litigation and administrative proceedings that are incidental to its business. Specifically, all judicial review of unsatisfactory determinations of reimbursement amounts due us for our Texas facilities’ fees must be made in the district courts of Travis County, Texas in what can often be a lengthy procedure.