Industry Segments And Geographic Information

3 Months Ended

Nov. 30, 2011

Industry Segments And Geographic Information [Abstract]

Industry Segments And Geographic Information

Industry Segments and Geographic Information

The Industry Segment "U.S. Division" comprises of the Company's Pasadena facility. In the prior year it was classified as discontinued operations in the consolidated financial statements. The Company at the present time has the U.S. Division and the Corporate Division.

Certain previously reported financial information has been reclassified to conform to the current year's presentation. The impact of such reclassification was not significant to the prior year's overall presentation, except for (1) presenting the Pasadena facility as continuing operations under U.S. Division, which was presented in the prior year as discontinued operations, and (2) the presentation of the various subsidiaries (except for Dynacq-Huai Bei and Sino Bond, which are now shown as part of the Corporate Division) in China as discontinued operations under the Corporate Division, which in the previous year was shown as part of continuing operations under the China Division.

The Company had made the decision to sell its Garland facility as of August 31, 2010, and its operation was classified as discontinued operations for the year ended August 31, 2010. However, the Company closed the Garland facility on September 30, 2011, and accordingly its operations for the fiscal year 2011 and the quarter ended November 30, 2011 continue to be classified as "Discontinued Operations" (see Discontinued Operations below). The Company plans to either sell the Garland facility or pursue converting it into an ambulatory surgical center, if and when the Company can identify and generate a steady referral source for outpatient cases. The Company intended to sell its Pasadena facility also, and had it classified as discontinued operations, as of August 31, 2010. However, since a sale was not consummated during the 12-month period following the decision to sell, the operations of the Pasadena facility have been reclassified as continuing operations for the fiscal year 2011 and the quarter ended November 30, 2011. The Company is continuing to revamp its operations at the Pasadena facility to become profitable again by modifying the business model and controlling expenses. However, there can be no assurance that we will be successful in turning the facility around.

From March 1, 2009 to February 28, 2011, Dynacq Huai Bei Healthcare, Inc. ("Dynacq-Huai Bei"), a wholly owned subsidiary of the Company provided healthcare management services to the Second People's Hospital in Rui An, China. The Company organized Dynacq-Huai Bei in April 2008 under the laws of the People's Republic of China. Dynacq-Huai Bei was responsible for funding any operating deficits, and was entitled to any operating profits, of that hospital during the management period. Due to continued losses at the Second People's Hospital, the Company made the decision to terminate the management agreement with the Rui An City Department of Health, and is currently in negotiation with them to finalize the terms, including the effective date of termination. The Company ceased providing healthcare management services to the Second People's Hospital as of February 28, 2011. The Company has written off the fixed assets and inventory balances as of February 28, 2011, and does not expect any further losses due to the termination of this management agreement related to the Second People's Hospital. We have accounted for the operations of the Second People's Hospital in Rui An, China as discontinued operations, and have reclassified prior period financial statements to exclude them from continuing operations.

Dynacq-Huai Bei and the Rui An City Department of Health had also previously entered into an agreement assigning to Dynacq-Huai Bei the right to manage the Third People's Hospital in Rui An, which hospital is currently under construction. Dynacq-Huai Bei and the Rui An City Department of Health, in November 2010, mutually agreed to terminate this agreement, due to continued delays in the construction of the Third People's Hospital. Accordingly, Dynacq-Huai Bei will not be managing the Third People's Hospital.

The Company has also organized Sino Bond Inc. Limited, a Hong Kong corporation ("Sino Bond") to hold and manage investments in Hong Kong. Sino Bond has entered into a marketing contract related to healthcare services by Dynacq subsidiaries in China and Southeast Asia and invests in debt and equity securities in Europe and Asia, including initial public offerings and pre-initial public offerings.

The Company through its subsidiaries in China and Hong Kong is pursuing growth opportunities in which it will expand into various operations in the following markets to achieve geographic diversity and to take advantage of various potential opportunities, including but not limited to:

• Pharmaceuticals and medical testing kits;

• Healthcare services, including development of medical clinics; and

• Senior housing complex with healthcare amenities.

The various growth opportunities in China and Hong Kong are in varying stages of development, and there is no assurance that any of them will come to fruition and/or be successful.

The Company has invested in various bonds. These investments are classified as available-for-sale securities, and are carried at fair value as of November 30, 2011, based on the quoted market prices as of that date. As of November 30, 2011, these securities are valued at approximately $14.6 million. The Company intends to hold, or sell if market conditions change, and manage these investment securities until it is able to identify and fund other attractive opportunities in China. During the quarter ended November 30, 2011 and 2010, the Company also traded in initial public offerings of equity securities on the Hong Kong Stock Exchange and had losses of $165,592 and $84,579, respectively. The Company, through a subsidiary in Hong Kong, has expanded its investments in debt and equity securities in Europe and Asia and has engaged the services of an investment banker to recommend such investment opportunities. The Company's primary investment focus will be on growth companies from mainland China. The Company anticipates making short-term investments in these entities through initial public offerings (held mostly through the Hong Kong Stock Exchange) and pre-initial public offerings.

Discontinued Operations

On September 29, 2011, the Board of Directors of the Company approved the closure of the Garland facility, included in our U.S. division, effective September 30, 2011. Prior to that, in August 2010, the Board of Directors of the Company had approved a plan to dispose of the Garland facility due to continued operating losses. The Garland facility had experienced decreases in net patient revenues and number of cases, generally attributable to the loss of physicians from our medical staff. The opening of a new hospital near our Garland facility has had a direct adverse impact on our ability to retain members of the medical staff at that facility and consequently on our patient volume. The Garland facility was operating at a loss, and the Board of Directors believes that ceasing operations of the facility at this time is in the Company's best interest. We do not expect to incur any material costs associated with termination of employment of the affected employees beyond accrued obligations for salary and benefits. The Company has estimated a closing cost of $625,000. However, the ongoing losses incurred will be reduced due to the closing of the facility.

The Company had an independent appraisal done in October 2011 for both the hospitals, and based on each hospital's valuation, expected sale proceeds, and expected cash flows has determined that there is no impairment charge required in connection with the foregoing disposal activities.

The Company has discontinued operations of all its foreign subsidiaries, except for Dynacq-HuaiBei and Sino Bond, and has either closed or is in the process of closing them.

The Corporate Division includes interest and other income related to these investments in available-for-sale securities, corporate personnel compensation expenses, and general and administrative expenses. Such expenses and income are not allocated to our operating division, as they relate to our general corporate activities.

We generally evaluate performance based on profit or loss from operations before income taxes and non-recurring charges and other criteria. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. There are no transfers between segments.

Summarized financial information concerning the business segments from continuing operations is as follows:

	Three Months Ended November 30,
	2011			2010
Revenues from external customers
Net patient service revenues
U.S. Division	$	1,844,973		$	2,449,815
Corporate		—			—
Consolidated	$	1,844,973		$	2,449,815
Income (loss) before taxes and discontinued operations
U.S. Division	$	(404,649	)	$	79,705
Corporate		(1,004,293	)		(741,378	)
Consolidated	$	(1,408,942	)	$	(661,673	)

	November 30, 2011		August 31, 2011
Total Assets
U.S. Division	$	8,770,151	$	8,763,015
Corporate		41,778,400		50,550,958
Assets of continuing operations		50,548,551		59,313,973
Assets of discontinued operations		6,748,300		6,909,527
Consolidated	$	57,296,851	$	66,223,500