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Medcath Corp – ‘10-K’ for 9/30/12

On:  Friday, 12/14/12, at 12:52pm ET   ·   For:  9/30/12   ·   Accession #:  1193125-12-502900   ·   File #:  1-35208

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-K

(Mark One)

For the fiscal year ended September 30, 2012

or

Commission File Number 000-33009

MedCath Corporation

(Exact name of registrant as specified in its charter)

10800 Sikes Place, Suite 200

Charlotte, North Carolina 28277

(Address of principal executive offices, including zip code)

(704) 815-7700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  x    No  ¨     The registrant is required to file this Annual Report on Form 10-K, but on October 30, 2012, the registrant filed a Form 15 certification and notification of termination of registration of the registrant’s common stock $0.01 par value, under section 12(g) of the Securities Exchange Act of 1934 and suspension of the Company’s duty to file reports under sections 13 and 15(d) of the Securities Exchange Act of 1934.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ¨    No  x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The aggregate market value of the Registrant’s common stock held by non-affiliates as of March 31, 2012 was approximately $160.0 million (computed by reference to the closing sales price of $7.86 for such stock on the Nasdaq Global Market^® on such date).

Table of Contents

MEDCATH CORPORATION

FORM 10-K

TABLE OF CONTENTS

2

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FORWARD-LOOKING STATEMENTS

Some of the statements and matters discussed in this report and in exhibits to this report constitute forward-looking statements. Words such as “expects,” “anticipates,” “approximates,” “believes,” “estimates,” “intends” and “hopes” and variations of such words and similar expressions are intended to identify such forward-looking statements. We have based these statements on our current expectations and projections about future events. These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from those projected in these statements. The forward-looking statements contained in this report include, among others, statements about the following:

Although these statements are made in good faith based upon assumptions our management believes are reasonable on the date they are made, we cannot assure you that we will achieve our goals. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report and its exhibits might not occur or results could differ materially from those reflected in forward-looking statements. Our forward-looking statements speak only as of the date of this report or the date they were otherwise made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We urge you to review carefully all of the information included in, or incorporated by reference into, this report and the discussion of risk factors.

Unless otherwise noted, the following references in this report will have the meanings below:

PART I

Overview and Background of Strategic Options Process

Through partnerships with physicians, we previously owned and operated hospitals that focused on providing high acuity services, including the diagnosis and treatment of cardiovascular disease. We opened our first hospital in 1996. On March 1, 2010 we announced that our Board of Directors had formed a Strategic Options Committee to consider the sale either of our equity or the sale of our individual hospitals and other assets as the Board of Directors had determined that selling our assets or equity may provide the highest return for our stockholders. We retained Navigant Capital Advisors as our financial advisor to assist in this process. At that time we had majority ownership interests in eight hospitals, minority ownership interests in two hospitals, a minority ownership interest in a hospital real estate venture, and owned MedCath Partners, a division of MedCath that owned and managed cardiac diagnostic and therapeutic facilities. Since we made that announcement, we have sold all eight of our majority owned hospitals, our equity interest in the two minority owned hospitals, our equity interest in a real estate venture and our MedCath Partners division.

On September 22, 2011, at a special meeting of stockholders, our stockholders approved (a) the sale of all or substantially all of our remaining assets prior to filing a certificate of dissolution and (b) the dissolution and complete liquidation of the Company (as described in Section 356(a) of the Internal Revenue Code of 1986, as amended, after the Board of Directors of the Company had concluded that the implementation of a formal plan of dissolution (the “Plan of Dissolution”) was in the best interest of the Company and its stockholders. Accordingly, we adopted the liquidation basis of accounting as of September 22, 2011 since the liquidation and dissolution of the Company was imminent.

As a result of the adoption of a formal Plan of Dissolution, our activities have been limited to realizing the value of our remaining assets; making tax and regulatory filings; winding down our remaining business activities and making distributions to our stockholders. Winding down our remaining business activities includes our corporate division functions, realizing the value of corporate held assets and paying the creditors of previously sold hospitals in which we retained net working capital.

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We filed a certificate of dissolution on September 21, 2012 in accordance with Section 275 of the General Corporation Law of the State of Delaware (“DGCL”) in order to dissolve the Company (the “Filing”) and most of its subsidiaries. The Filing has not been made for the Company’s subsidiaries which are parties to pending litigation filed by our former partners in the hospital located in San Antonio, Texas (See Risk Factors – “Uninsured risks from other legal matters that could adversely affect our net assets in liquidation”) which was sold as part of our Plan of Dissolution.

As of September 30, 2012, the Company’s remaining assets included a 50% interest in a partnership that owns a medical office building in Austin, Texas (which was sold on December 5, 2012) and a catheterization lab that was retained after the sale of the MedCath Partners division. As we seek to liquidate these remaining assets, we are managing our wind-down operations from our corporate office located in Charlotte, North Carolina.

Management’s goal is to have all assets liquidated as soon as practical while seeking to maximize stockholder value. Payroll and related costs and other expenses are expected to be incurred through September 30, 2015, in order to complete the wind down process. Accordingly, estimated expenses anticipated to occur from October 1, 2012 to September 30, 2015 have been accrued as of September 30, 2012 in our financial statements prepared on the liquidation basis of accounting. The Company may transfer all its assets to a liquidating trust prior to September 30, 2015 and may make additional liquidating distributions (each such distribution, a “post-Filing distribution”) prior to September 30, 2015.

Since announcement of the Strategic Options Committee and commencement of our strategic options process, the Company has completed the following transactions:

Subsequent to our adoption of the Plan of Dissolution on September 22, 2011, we have completed the following transactions:

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In connection with our stockholder’s approval of the Plan of Dissolution, our Board of Directors declared a liquidating distribution of $6.85 per share of common stock outstanding on September 22, 2011, which was paid October 13, 2011 to stockholders of record on October 6, 2011. This was the first liquidating distribution declared under the Plan of Dissolution. The Board of Directors declared a second liquidating distribution of $6.33 per share of common stock outstanding on August 28, 2012, which was paid September 21, 2012 to stockholders of record on September 10, 2012. The Filing to dissolve the Company was made on September 21, 2012. On the same date, NASDAQ Stock Market LLC removed the Company’s common stock from listing on the NASDAQ Global Market.

Plan of Dissolution

As a result of the September 22, 2011 approval of the Plan of Dissolution by our stockholders, the following events have occurred, or the Company anticipates will occur:

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Authority to Sell any Remaining Assets

The Plan of Dissolution which was approved by our stockholders gave the Board of Directors, to the fullest extent permitted by law, the authority to liquidate all of our assets in the manner that is in the best interest of the Company’s stockholders. Accordingly, the stockholder approval which we have received constitutes to the fullest extent permitted by law, approval of our sale of any and all of our remaining assets, on such terms and conditions as the Board of Directors, in its absolute discretion and without further stockholder approval, may determine, including without limitation the use of seller financing or other arrangements by the Company in connection with the sale of any of the remaining assets.

Dissolution Under the General Corporation Law of the State of Delaware

As set forth above, we made the Filing on September 21, 2012. Once our certificate of dissolution was filed and effective, we ceased to conduct other business, except for the purpose of winding down our affairs, and closed our stock transfer books. Under the DGCL, the Company will continue to exist for three years after the dissolution becomes effective (i.e., until at least September 21, 2015), or for such longer period as the Delaware Court of Chancery shall direct, for the purposes of prosecuting and defending suits, whether civil, criminal or administrative, by or against the Company, and enabling us to gradually settle and close our business, to dispose of and convey our property, to discharge our liabilities and to distribute to the stockholders any remaining assets, but not for the purpose of continuing the business for which the Company was organized. However, within such three year period the Company may elect to transfer all of its assets and liabilities to a liquidating trust for the benefit of our stockholders.

Dissolution Process

The Plan of Dissolution provides that the Board of Directors will dissolve the Company and liquidate our assets in accordance with the provisions of Sections 280 and 281(a) of the DGCL. These procedures require the Company to:

Our Board of Directors and our remaining officers will oversee our liquidation and dissolution. As compensation for the foregoing, our remaining officers will continue to receive salary and benefits as determined by the Board of Directors. Our Board of Directors will receive compensation during this period, although the amount of such compensation has not been finally determined. Our President and Chief Executive Officer intends to retire on December 17, 2012 and our Chief Financial Officer will assume the additional title and duties of President on that date. In addition, two of our directors will retire on December 17, 2012. We may also elect to further reduce the size of our Board of Directors at any time.

Distributions to Stockholders

We will continue to incur claims, liabilities and expenses from our wind-down operations, including corporate operating costs, salaries and benefits, income taxes, payroll and local taxes, and miscellaneous office expenses. We also anticipate that expenses for professional fees and other expenses of liquidation may be significant. These expenses will reduce the amount of assets available, if any, for distribution to our stockholders.

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Before making any post-Filing liquidating distribution to stockholders, we must pay and discharge, or make adequate provision for the payment, satisfaction and discharge of all known and uncontested liabilities and obligations, including costs and expenses incurred and anticipated to be incurred in connection with the sale of our remaining assets. We will reserve assets in a contingency reserve deemed by management and the Board of Directors to be adequate to provide for such pending liabilities and obligations that have not arisen but might arise. The amount of any contingency reserve is also subject to the approval of the Delaware Court of Chancery. The amount of any contingency reserve may be materially impacted by any liabilities arising from the ICD Investigation, which liabilities the Company cannot currently estimate and which may be material.

Our Board of Directors will determine, in its sole discretion and in accordance with applicable law, the timing, the amount and kind of any post-Filing liquidating distribution made to stockholders, subject to the approval of the Delaware Court of Chancery. Any post-Filing liquidating distributions will be made to stockholders on a pro rata basis. Our stockholders of record as of the effective time of the Filing will be the stockholders entitled to receive payment of any post-Filing liquidating distributions.

Liquidating Trusts or Limited Liability Companies

Although no decision has been made, if deemed advisable by the Board of Directors for any reason, we may elect to transfer any or all of our assets to one or more trusts or limited liability companies established for the benefit of stockholders, subject to the claims of creditors. Thereafter these assets will be sold by the trust or limited liability companies or, subject to the satisfaction of claims of creditors, distributed to our stockholders as approved by the trustees of the trusts or managers of the limited liability companies or trusts, as applicable. Our Board of Directors is authorized to appoint one or more trustees of each liquidating trust or one or more managers of each limited liability company and to cause the Company to enter into a liquidating trust agreement or limited liability company agreement with the trustee(s) or manager(s) of each such trust or limited liability company on such terms and conditions as may be approved by the Board of Directors. Our Board of Directors and management may determine to transfer assets to a liquidating trust or limited liability company in circumstances where the nature of an asset is not susceptible to distribution (for example, interests in intangibles) or where our Board of Directors determines that it would not be in the best interests of the Company and our stockholders for those assets to be distributed directly to the stockholders at that time. If all of our assets (other than the contingency reserve) are not sold or distributed prior to the third anniversary of the effectiveness of the Dissolution, we may transfer in final distribution those remaining assets to a liquidating trust or limited liability company, or we may petition the Delaware Court of Chancery to extend the three year period. Our Board of Directors may also elect in its discretion to transfer the contingency reserve, if any, to a liquidating trust or limited liability company owned by our stockholders. Our Board of Directors believes the flexibility provided by the Plan of Dissolution with respect to the liquidating trusts or limited liability companies to be advisable. The trust or limited liability company would be evidenced by a trust agreement or limited liability company agreement. The purpose of the trust or limited liability company would be to serve as a temporary repository for the trust or limited liability company property prior to its disposition or distribution to our stockholders. The transfer to the trust or limited liability company and distribution of interests therein to our stockholders would enable us to divest ourselves of the trust or limited liability company property and permit our stockholders to enjoy the economic benefits of ownership of the trust or limited liability company property. Pursuant to a trust agreement or limited liability company agreement, as applicable, the trust or limited liability company property would be transferred to the trustees or managers immediately prior to the distribution of interests in the trust or limited liability company to our stockholders, to be held for the benefit of the stockholder beneficiaries subject to the terms of the trust agreement or limited liability company agreement, as applicable, which are approved by our Board of Directors.

Potential Creditor Claims if Holdback Insufficient

If a court holds at any time that we have failed to make adequate provision for our expenses and liabilities or if the amount ultimately required to be paid in respect of such liabilities exceeds the amount available from the Holdback, our creditors could seek an injunction preventing us from making post-Filing liquidating distributions to our stockholders. Any such action could delay or substantially diminish the amount of any cash distributions to stockholders.

If we fail to create an adequate Holdback for payment of our expenses and liabilities, creditors could assert claims against each stockholder receiving a distribution or dividend for the payment of any shortfall, up to the amounts previously received by the stockholder in post-Filing liquidating distributions from us.

Suspension of Duty to File SEC Reports

On September 21, 2012, after we made the Filing, NASDAQ Stock Market LLC filed a Form 25 with the Securities and Exchange Commission (the “SEC”) notifying the SEC of removal of the Company’s common stock, $.01 par value (the “Common Stock”) from listing and registration under section 12(b) of the Securities Exchange Act of 1934 (the “Exchange Act”). On October 29, 2012, the Company filed a Form 15 with the SEC, certifying that the Company had as of that date only 128 holders of record of the outstanding shares of Common Stock and notifying the SEC of termination of registration of the Common Stock under section 12(g) of the Exchange Act and suspension of the Company’s duty to file reports under sections 13 and 15(d) of the Exchange Act. The Company’s duty to file periodic, current and other reports with the SEC under the Exchange Act was suspended effective upon filing of the Form 15 with the SEC. The Company expects that this Annual Report on Form 10-K, including any necessary amendments thereto, will be the final report the Company files with the SEC.

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Although the Company will no longer be filing current and periodic reports with the SEC, the Company intends to post periodically on its website a statement of net assets and a statement of changes in net assets and to post from time to time information about any material developments with respect to any significant transactions for disposing of the Company’s remaining assets, any significant developments in claims, litigation, investigations and any other future events that could materially impact the timing or amount of liquidating distributions, if any, to be made to the Company’s stockholders of record as of the effectiveness of the Filing.

The reports, statements and other information we have previously submitted to the SEC may be read and copied at the Public Reference Room of the SEC at 100 F Street NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at (800) SEC-0330. In addition, the SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers, like us, that file electronically.

We maintain a website at www.medcath.com that investors and interested parties can access and obtain copies, free-of-charge, of all reports and information we have previously submitted to the SEC. This information includes copies of our proxy statements, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to the Exchange Act. Information on our website is not incorporated into this Form 10-K or our other filings with the SEC.

Employees

As of September 30, 2012, we employed ten persons, including nine full-time employees and one part-time employee, to assist in the liquidation process. None of our employees is a party to a collective bargaining agreement and we consider our current relationships with our employees to be good. We believe we offer our employees competitive wages and benefits and offer a professional work environment that we believe will help us retain the staff we need during our wind-down period.

Environmental Matters

We were subject to various federal, state and local laws and regulations governing the use, storage, discharge and disposal of hazardous materials, including medical waste products. We believe that all of our facilities and practices complied with these laws and regulations and we do not anticipate that any of these laws will have a material effect on our wind-down. We cannot predict, however, whether environmental issues may arise in the future.

Insurance

Like most healthcare providers, we are subject to claims and legal actions in the ordinary course of business. To cover these claims, we maintained professional malpractice liability insurance and general liability insurance in amounts and with deductibles and levels of self-insured retention that we believe are sufficient for our historical operations. We also maintained umbrella liability coverage to cover claims not covered by our professional malpractice liability or general liability insurance policies. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — General and Professional Liability Risk.”

We can offer no assurances that our professional liability and general liability insurance, nor our recorded reserves for self-insured retention, will cover all claims against us.

Reimbursement

Medicare. Medicare is a federal program that provides hospital and medical insurance benefits to persons age 65 and over, some disabled persons and persons with end-stage renal disease. Under the Medicare program, we were paid for certain inpatient and outpatient services performed by our hospitals. MedCath Partners and some of its affiliates also received payment for medical services under the Medicare program.

Medicare payments for inpatient acute services are generally made pursuant to a prospective payment system (“PPS”). Under this system, hospitals are paid a prospectively determined fixed amount for each hospital discharge based on the patient’s diagnosis. Specifically, each discharge is assigned to a DRG. Based upon the patient’s condition and treatment during the relevant inpatient stay, each DRG is assigned a fixed payment rate that is prospectively set using national average costs per case for treating a patient for a particular diagnosis. The DRG rates are adjusted by an update factor each federal fiscal year, which begins on October 1. The update factor is determined, in part, by the projected increase in the cost of goods and services that are purchased by hospitals, referred to as the market basket index. DRG payments do not consider the actual costs incurred by a hospital in providing a particular inpatient service; however, such payments are adjusted by a predetermined geographic adjustment factor assigned to the geographic area in which the hospital is located.

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While hospitals generally do not receive direct payments in addition to a DRG payment, hospitals may qualify for an outlier payment when the relevant patient’s treatment costs are extraordinarily high and exceed a specified threshold. Outlier payments, which were established by Congress as part of the DRG prospective payment system, are additional payments made to hospitals for treating patients who are costlier to treat than the average patient. In general, a hospital receives outlier payments when its costs, as determined by using gross charges adjusted by the hospital’s cost-to-charge ratio, exceed a certain threshold established annually by the Centers for Medicare and Medicaid Services (“CMS”). Outlier payments are subject to multiple factors including but not limited to: (1) the hospital’s estimated operating costs based on its historical ratio of costs to gross charges; (2) the patient’s case acuity; (3) the CMS established threshold; and, (4) the hospital’s geographic location. CMS is required by law to limit total outlier payments to between five and six percent of total DRG payments. CMS periodically changes the threshold in order to bring expected outlier payments within the mandated limit. An increase to the cost threshold reduces total outlier payments by (1) reducing the number of cases that qualify for outlier payments and (2) reducing the dollar amount hospitals receive for those cases that qualify. CMS historically has used a hospital’s most recently settled cost report to set the hospital’s cost-to-charge ratios. Those cost reports are typically two to three years old.

Outpatient services are also subject to a prospective payment system.

Medicaid. Medicaid is a health insurance program for low-income individuals, which is funded jointly by the federal and individual state governments and administered locally by each state. Most state Medicaid payments for hospitals are made under a prospective payment system or under programs that negotiate payment levels with individual hospitals. Medicaid reimbursement is often less than a hospital’s cost of services.

The Medicare and Medicaid programs are subject to statutory and regulatory changes, retroactive and prospective rate adjustments, administrative rulings, court decisions, executive orders and freezes and funding reductions, all of which may adversely affect our wind-down.

Annual Cost Reports. Hospitals participating in the Medicare and some Medicaid programs, whether paid on a reasonable cost basis or under a prospective payment system, are required to meet certain financial reporting requirements. Federal and, where applicable, state regulations require submission of annual cost reports identifying medical costs and expenses associated with the services provided by each hospital to Medicare beneficiaries and Medicaid recipients.

Annual cost reports required under the Medicare and some Medicaid programs are subject to routine governmental audits. These audits may result in adjustments to the amounts ultimately determined to be due to us under these reimbursement programs and result in a recoupment of monies paid. Finalization of these audits and determination of amounts earned under these programs often takes several years. Providers can appeal any final determination made in connection with an audit.

Program Adjustments. The Medicare, Medicaid and other federal healthcare programs are subject to statutory and regulatory changes, administrative rulings, interpretations and determinations, and requirements for utilization review and new governmental funding restrictions, all of which may materially increase or decrease program payments as well as the timing of payment to facilities. The final determination of amounts earned under the programs often requires many years, because of audits by the program representatives, providers’ rights of appeal and the application of numerous technical reimbursement provisions. We believe that we have made adequate provision for such adjustments. Until final adjustment, however, previously determined allowances could become either inadequate or more than ultimately required.

Commercial Insurance. Our hospitals provided services to individuals covered by private healthcare insurance. Private insurance carriers paid our hospitals or in some cases reimburse their policyholders based upon the hospital’s established charges and the coverage provided in the insurance policy. We cannot predict whether or how payment by third party payors for the services provided by all hospitals and other facilities may change or whether these payors will elect to audit paid claims and attempt to recover resulting overpayments. Modifications in methodology or reductions in payment or future audits by these payors could adversely affect us.

Regulation

Overview. The healthcare industry is required to comply with extensive government regulation at the federal, state and local levels. Under these laws and regulations, hospitals must meet requirements to be licensed under state law and be certified to participate in government programs, including the Medicare and Medicaid programs. These requirements relate to matters such as the adequacy of medical care, equipment, personnel, operating policies and procedures, emergency medical care, maintenance of records, relationships with physicians, cost reporting and claim submission, rate-setting, compliance with building codes and environmental protection. If the Company’s hospitals and other healthcare facilities failed to comply with applicable laws and regulations, we could be subject to criminal penalties and civil sanctions. We believe that our hospitals and other healthcare facilities were operated in substantial compliance with then applicable federal, state, and local regulations and standards.

Fraud and Abuse Laws

Overview. Various federal and state laws govern financial and other arrangements among healthcare providers and prohibit the submission of false or fraudulent claims to the Medicare, Medicaid and other government healthcare programs. Penalties for violation of these laws include civil and criminal fines, imprisonment and exclusion from participation in federal and state healthcare programs. For example the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) broadened the scope of certain fraud and abuse laws by adding several civil

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and criminal statutes that apply to all healthcare services, whether or not they are reimbursed under a federal healthcare program. Among other things, HIPAA established civil monetary penalties for certain conduct, including upcoding and billing for medically unnecessary goods or services. In addition, the federal False Claims Act allows an individual to bring a lawsuit on behalf of the government, in what are known as qui tam or whistleblower actions, alleging false Medicare or Medicaid claims or other violations of the statute. The use of these private enforcement actions against healthcare providers has increased dramatically in the recent past, in part because the individual filing the initial complaint may be entitled to share in a portion of any settlement or judgment.

Physician Self-Referral Law. Section 1877 of the Social Security Act, commonly known as the Stark Law, prohibits physicians from referring Medicare and Medicaid patients for certain designated health services to entities in which physicians or any of their immediate family members have a direct or indirect ownership or compensation arrangement unless an exception applies. The term “designated health services,” includes inpatient and outpatient hospital services, and some radiology services. Sanctions for violating the Stark Law include civil monetary penalties, including up to $15,000 for each improper claim and $100,000 for any circumvention scheme, and exclusion from the Medicare or Medicaid programs. There are various ownership and compensation arrangement exceptions to the self-referral prohibition, including an exception for a physician's ownership in an entire hospital — as opposed to an ownership interest in a hospital department — if the physician is authorized to perform services at the hospital. This exception is commonly referred to as the “whole hospital exception.” There is also an exception for ownership of publicly traded securities in a company that has stockholder equity exceeding $75 million at the end of its most recent fiscal year or on average during the three previous fiscal years, as long as the physician acquired the securities on terms generally available to the public and the securities are traded on one of the major exchanges. Additionally, there is an exception for certain indirect ownership and compensation arrangements. Exceptions are also provided for many of the customary financial arrangements between physicians and providers, including employment contracts, personal service arrangements, isolated financial transactions, payments by physicians, leases, and recruitment agreements, as long as these arrangements meet certain conditions.

As discussed, there are various ownership and compensation arrangement exceptions to the Stark Law. In addressing the whole hospital exception, the Stark regulations specifically reiterate the statutory requirements for the exception. Additionally, the exception requires that the hospital qualify as a “hospital” under the Medicare program. The Stark Law and the Stark Regulations may also apply to certain compensation arrangements between hospitals and physicians.

CMS finalized certain proposed changes to the Stark Law in the 2009 IPPS final rule published on August 19, 2008. These changes were effective October 1, 2009. Specifically, the 2009 IPPS final rule limited the ability of hospitals to enter into under arrangements with physicians and physician-owned entities and thus, physician-owned joint venture entities deemed to be “performing DHS” were required to comply with one of the more limited Stark Law “ownership” exceptions, rather than the previously acceptable Stark Law “compensation” exceptions. In addition, the 2009 IPPS final rule included a prohibition on per unit compensation in space and equipment lease transactions. Effective October 1, 2009, we restructured certain equipment lease transactions with physicians that included per unit or per use compensation as well as certain of our arrangements with community hospitals in order to comply with these new rules and regulations. While we have now terminated our participation in these arrangements as part of our wind-down process and we believe that such restructured arrangements complied with applicable law, we cannot be assured, however, that if reviewed, government officials will agree with our interpretation of applicable law.

There have been few enforcement actions taken and relatively few cases interpreting the Stark Law to date. As a result, there is little indication as to how courts will interpret and apply the Stark Law; however, enforcement is expected to increase. We believe we structured our financial arrangements with physicians prior to disposition to comply with the statutory exceptions included in the Stark Law and the Stark regulations. In particular, we believe that physician ownership in the Company’s affiliated hospitals met the whole hospital exception. In addition, we expect that we met other exceptions as appropriate for other financial arrangements with physicians.

Civil Monetary Penalties. The Social Security Act contains provisions imposing civil monetary penalties for various fraudulent and/or abusive practices, including, among others, hospitals which knowingly make payments to a physician as an inducement to reduce or limit medically necessary care or services provided to Medicare or Medicaid beneficiaries. In July 1999, the OIG issued a Special Advisory Bulletin on gainsharing arrangements. The bulletin warns that clinical joint ventures between hospitals and physicians may implicate these provisions as well as the anti-kickback statute, and specifically refers to specialty hospitals, which are marketed to physicians in a position to refer patients to the hospital, and structured to take advantage of the whole hospital exception. Hospitals specializing in heart, orthopedic, and maternity care are mentioned, and the bulletin states that these hospitals may induce investor-physicians to reduce services to patients through participation in profits generated by cost savings, in violation of a civil monetary penalty provision. Despite this initial broad interpretation of this civil monetary penalty law, since 2005 the OIG has issued various advisory opinions which declined to sanction a particular gainsharing arrangement under this civil monetary penalty provision, or the anti-kickback statute, because of the specific circumstances and safeguards built into the arrangement. We believe that the ownership distributions paid to physicians by our previously owned hospitals do not constitute payments made to physicians under gainsharing arrangements. We cannot assure you, however, that government officials will agree with our interpretation of applicable law.

False Claims Prohibitions. False claims are prohibited by various federal criminal and civil statutes. In addition, the federal False Claims Act prohibits the submission of false or fraudulent claims to the Medicare, Medicaid, and other government healthcare programs. Penalties for violation of the False Claims Act include substantial civil and criminal fines, including treble damages, imprisonment, and exclusion from participation in federal healthcare programs. In addition, the False Claims Act allows an individual to bring lawsuits on behalf of the government, in what are known as qui tam or whistleblower actions, alleging false Medicare or Medicaid claims or other violations of the statute.

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A number of states, including states in which we operated, have adopted their own false claims provisions as well as their own whistleblower provisions whereby a private party may file a civil lawsuit in state court.

Healthcare Industry Investigations

The federal government, private insurers and various state enforcement agencies have increased their scrutiny of providers’ business arrangements and claims in an effort to identify and prosecute fraudulent and abusive practices. There are ongoing federal and state investigations in the healthcare industry regarding multiple issues including cost reporting, billing and charge-setting practices, unnecessary utilization, physician recruitment practices, physician ownership of healthcare providers and joint ventures with hospitals. Certain of these investigations have targeted hospitals and physicians. We had substantial Medicare, Medicaid and other governmental billings, which could result in heightened scrutiny of our historical operations. In addition, because the federal and state fraud and abuse laws are complex and constantly evolving, we cannot assure you that government investigations will not result in interpretations that are inconsistent with industry practices, including our prior practices. Evolving interpretations of current or the adoption of new federal or state laws or regulations could result in retrospective scrutiny of the arrangements previously entered into by each of our former hospitals. In public statements surrounding current investigations, governmental authorities have taken positions on a number of issues, including some for which little official interpretation previously has been available, that appear to be inconsistent with practices that have been common within the industry and that previously have not been challenged in this manner. In some instances, government investigations that in the past have been conducted under the civil provisions of federal law may now be conducted as criminal investigations.

A number of healthcare investigations are national initiatives in which federal agencies target an entire segment of the healthcare industry. One example involved the federal government’s initiative regarding hospitals’ improper requests for separate payments for services rendered to a patient on an outpatient basis within three days prior to the patient’s admission to the hospital, where reimbursement for such services is included as part of the reimbursement for services furnished during an inpatient stay. The government targeted all hospital providers to ensure conformity with this reimbursement rule. Further, the federal government continues to investigate Medicare overpayments to prospective payment system hospitals that incorrectly report transfers of patients to other prospective payment system hospitals as discharges. Law enforcement authorities, including the OIG and the United States Department of Justice, are also increasing scrutiny of various types of arrangements between healthcare providers and potential referral sources, including so-called contractual joint ventures, to ensure that the arrangements are not designed as a mechanism to exchange remuneration for patient care referrals and business opportunities. Investigators have also demonstrated a willingness to look behind the formalities of a business transaction to determine the underlying purpose of payments between healthcare providers and potential referral sources. The OIG has also investigated certain hospitals with a particularly high proportion of Medicare reimbursement resulting from outlier payments.

It is possible that governmental or regulatory authorities could initiate investigations on these or other subjects at our former facilities and such investigations could result in significant costs in responding to such investigations and penalties to us. It is also possible that our executives, managers and former hospital board members, many of whom have worked at other healthcare companies that are or may become the subject of federal and state investigations and private litigation, could be included in governmental investigations or named as defendants in private litigation. The positions taken by authorities in any investigations of us, our executives, managers, former hospital board members or other healthcare providers, and the liabilities or penalties that may be imposed could have a material effect on our wind-down.

You should carefully consider and evaluate all of the information included in this report, including the risk factors set forth. The following is not an exhaustive discussion of all of the risks facing our company. Additional risks not presently known to us or that we currently deem immaterial may impair our wind-down.

We cannot predict the timing, amount or mechanics of any potential future distributions to our stockholders.

Many unknown variables will affect the amount, timing and mechanics of any potential future distributions to stockholders. Factors that could have a material effect on the amount of any potential future distributions include, but are not limited to, a failure to sell remaining assets, the amount of asset and corporate wind-down related operating and other expenses, MedCath’s tax treatment, inability to collect amounts owed to MedCath and any required reserves to address potential liabilities, including retained and contingent liabilities, including but not limited to those arising from the sales of the assets of both MedCath or its individual hospitals, and/or other unforeseen events. These and other factors, such as the procedures established under Delaware law for the dissolution of a Delaware corporation, could also delay the timing of any potential distributions.

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Stockholders may not be able to recognize a loss for federal income tax purposes until they receive a final distribution from us, which may be three years or more after the Filing.

As a result of our liquidation, for federal income tax purposes, stockholders will recognize gain or loss equal to the difference between (1) the sum of the amount of cash and the aggregate fair market value of any property distributed to them (reduced by any liability assumed or subject to which it is taken), and (2) their tax basis in their shares of our common stock. A shareholder’s tax basis in our shares will depend upon various factors, including the shareholder’s cost and the amount and nature of any distributions received with respect thereto. A shareholder generally may recognize a loss only when he, she or it has received a final distribution from us, which may be as much as three years (or up to ten years if the Company elects to comply with Section 281(b) of the Delaware General Corporation Law) after our Dissolution. Furthermore, gain on the distributions in liquidation of the Company will be recognized with respect to a share only when the amount of the aggregate distributions (in money or in the fair market value of property distributed to the stockholder or on his behalf) with respect to such share exceeds the tax basis in such share. After the stockholder has received distributions with respect to a share that equal his tax basis in such share, all distributions with respect to such share will be taxable as capital gain. We urge each stockholder to consult with his or her own tax advisors regarding tax consequences of the distributions.

Future cash distributions to stockholders could be substantially reduced and delayed as part of our liquidation and dissolution due to the pending ICD Investigation.

On March 12, 2010, the DOJ issued a Civil Investigative Demand (“CID”) to one of the Company’s hospitals regarding ICD implantations (the “ICD Investigation”). The CID was issued in connection with an ongoing, national investigation relating to ICDs and Medicare coverage requirements for these devices. The CID requested certain documents and patient medical records regarding the implantation of ICDs for the period 2002 to the present. The Company has provided materials responsive to the CID.

On September 17, 2010, consistent with letters received by other hospitals and hospital systems, the DOJ sent a letter notifying the Company of the DOJ’s investigation of eight Company hospitals (including the hospital receiving the CID) regarding ICD implantations. Of such hospitals, the Company is not liable for findings for two of these hospitals under the terms of the sales agreements of these two hospitals. In its letter, the DOJ stated that its review was preliminary and its data suggests that Company hospitals may have submitted claims for ICDs and related services that were inconsistent with Medicare policy.

The primary focus of the DOJ’s investigation involves ICDs implanted since October 1, 2003 within prohibited timeframes (i.e., timeframe violations). A “timeframe violation” involves an ICD implanted for “primary prevention” (i.e., prevention of sudden cardiac death in patients without a history of induced or spontaneous arrhythmias) within 30 days of a myocardial infarction, or within 90 days of a coronary artery bypass graft or percutaneous transluminal coronary angioplasty. The timeframes do not apply to ICDs implanted for “secondary prevention” (i.e., prevention of sudden cardiac death in patients who have survived a prior cardiac arrest or sustained ventricular tachyarrhythmia).

On November 19, 2010, the DOJ provided the Company a spreadsheet detailing instances (based upon the DOJ’s data) in which an ICD was implanted at the eight Company hospitals in potential violation of the applicable timeframes. The data provided by the DOJ is “raw,” and the Company understands that, as of this date, such data had not been analyzed by the DOJ. Additionally, the DOJ confirmed that some of the ICDs identified in its data as alleged timeframe violations were in fact appropriately implanted and billed to Medicare, including those implanted for secondary prevention.

Since November 2010, the Company has developed and presented arguments to the DOJ supporting the ICD implantations under investigation. On August 30, 2012, the DOJ publicly released a proposed framework for potential resolution of the ICD Investigation. The Company has reviewed and continues to provide input to the DOJ regarding the investigation. As discussed above, the Company has complied with all requests from the DOJ for information and is actively engaged in discussions with the DOJ regarding the issues involved in the ICD Investigation.

Pursuant to the DOJ’s requests, the Company has entered into tolling agreements that tolled the statute of limitations for allegations related to ICDs until April 30, 2013. To date, the DOJ has not asserted any claims against the Company and the Company expects to continue to have input into the investigation. The Company is unable to evaluate the outcome of the investigation and is unable to reasonably estimate the amounts to be repaid, which may be material upon resolution of the investigation. However, the Company understands that this investigation is being conducted under the False Claims Act which could expose the Company to treble damages should the DOJ’s preliminary analysis of the Company’s hospitals’ ICD claims be substantiated. The Company’s total ICD net revenue historically has been a material component of total net patient revenue and the results of this investigation could have a material effect on the Company’s net assets in liquidation and the amount it will be able to distribute to its stockholders in connection with any post-Filing liquidating distributions.

Cash distributions to stockholders could be substantially limited and delayed since, as part of our liquidation and dissolution, the Company is required to make adequate provision to satisfy all of our known and unknown liabilities before authorizing any cash distribution to stockholders.

Prior to making any post-Filing liquidating distributions, the Company must pay, or establish reserves to pay, the Company’s liabilities (which may be material), including without limitation (a) any liabilities arising out of the ICD Investigation, (b) other currently unknown or unanticipated liabilities, and (c) any additional liabilities that may arise or be identified after the Filing. However, the process of accounting for our liabilities (including those that are presently unknown) involve assumptions, estimates and complex valuations.

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These uncertainties could impede the Board’s ability to make, and diminish the amount available, for distribution to our stockholders. Substantial time may be required for us to determine the extent of our liabilities to known third party creditors and claimants and for us to settle or judicially resolve any claims that are contested. Furthermore, pursuant to the DGCL, we may be subject to claims being commenced against us for liabilities unknown to us after dissolution. A period of time, likely more than nine months but potentially a significantly longer period, must elapse before we may make any post-Filing liquidating distributions, if any, to allow for the notice and claims process. Such distributions may be made in more than one installment over an extended period of time.

If our Holdback is insufficient to satisfy our liabilities, creditors could assert claims against us seeking to prevent distributions or against our stockholders to the extent of distributions received.

If a court holds at any time that we have failed to make adequate provision for our expenses and liabilities or if the amount ultimately required to be paid in respect of such liabilities exceeds the amount available from the Holdback, our creditors could seek an injunction preventing us from making post-Filing liquidating distributions to our stockholders. Any such action could delay or substantially diminish the amount of any cash distributions to stockholders.

If we fail to create an adequate Holdback for payment of our expenses and liabilities, creditors could assert claims against each stockholder receiving a distribution for the payment of such stockholder’s pro rata share of any shortfall, up to the amounts previously received by the stockholder in post-Filing liquidating distributions from us.

The directors and officers of the Company will continue to receive benefits from the Company following the sale of all or substantially all of the remaining assets, the Complete Liquidation and the Dissolution.

Following the Filing, we will continue to indemnify each of our current and former directors and officers to the extent permitted under the DGCL and the Company’s certificate of incorporation, bylaws and agreements as in effect at the time of the Filing. In addition, we intend to maintain directors’ and officers’ insurance coverage throughout the wind down period and through the lapse of the statute of limitations period on potential claims.

We depend on key personnel including our senior management who are important to the success of the liquidation of our business.

We have entered into an employment contract with Lora Ramsey, our Chief Financial Officer who will become the Company’s President in addition to serving as our Chief Financial Officer, upon the retirement in December 2012 of Art Parker, the Company’s President and Chief Executive Officer. The successful winding down of our affairs will depend to a significant extent on the employment and services of Mrs. Ramsey. The loss of this relationship could have a material adverse effect on the process of winding down our affairs and our ability to settle and close our business, to dispose of and convey our remaining property, to discharge our liabilities and to distribute to our stockholders any remaining assets.

We may have fiduciary duties to our partners that may prevent us from acting solely in our best interests.

We held our ownership interests in hospitals and other healthcare businesses through ventures organized as limited liability companies or limited partnerships. As general partner, manager or owner of the majority interest in these entities, we may have special legal responsibilities, known as fiduciary duties, to our partners who own an interest in a particular entity. Our fiduciary duties may include not only a duty of care and a duty of full disclosure but also a duty to act in good faith at all times as manager or general partner of the limited liability company or limited partnership. This duty of good faith includes an obligation to act in the best interest of each business, without being influenced by any conflict of interest we may have as a result of our own business interests to the extent they might conflict.

We also have a duty to operate our business for the benefit of our stockholders. As a result, we may have had conflicts between our fiduciary duties to our partners in our hospitals and other healthcare businesses, and our responsibility to our stockholders. We cannot assure you that any dispute between us and our partners with respect to a particular business decision or regarding the interpretation of the provisions of the hospital operating agreement will be resolved or that, as a result of our fiduciary duties, any dispute resolution will be on terms favorable or satisfactory to us.

Companies within the healthcare industry continue to be the subject of federal and state investigations.

Both federal and state government agencies as well as private payors have heightened and coordinated civil and criminal enforcement efforts as part of numerous ongoing investigations of healthcare organizations including hospital companies. Like others in the healthcare industry, we receive requests for information from these governmental agencies in connection with their regulatory or investigative authority which, if determined adversely to us, could have a material effect on our financial condition or our ability to make distributions to our shareholders.

In addition, the Office of Inspector General and the U.S. Department of Justice have, from time to time, undertaken national enforcement initiatives that focus on specific billing practices or other suspected areas of abuse. Moreover, healthcare providers are subject to civil and criminal false claims laws, including the federal False Claims Act, which allows private parties to bring what are called whistleblower lawsuits against private companies doing business with or receiving reimbursement under government programs. These are sometimes referred to as “qui tam” lawsuits.

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Because qui tam lawsuits are filed under seal, we could be named in one or more such lawsuits of which we are not aware or which cannot be disclosed until the court lifts the seal from the case. Defendants determined to be liable under the False Claims Act may be required to pay three times the actual damages sustained by the government, plus mandatory civil penalties of between $5,500 and $11,000 for each separate false claim. Typically, each fraudulent bill submitted by a provider is considered a separate false claim, and thus the penalties under a false claim case may be substantial. Liability arises when an entity knowingly submits a false claim for reimbursement to a federal healthcare program. In some cases, whistleblowers or the federal government have taken the position that providers who allegedly have violated other statutes, such as the anti-kickback statute or the Stark Law, have thereby submitted false claims under the False Claims Act. Thus, it is possible that we have liability exposure under the False Claims Act.

Some states have adopted similar state whistleblower and false claims provisions. Publicity associated with the substantial amounts paid by other healthcare providers to settle these lawsuits may encourage current and former employees of ours and other healthcare providers to seek to bring more whistleblower lawsuits. Some of our previous activities could become the subject of governmental investigations or inquiries. Any such investigations of us, our current or former executives or managers could result in significant liabilities or penalties to us, as well as adverse publicity.

In June 2011, we reached agreement with the United States Attorneys’ Office in Phoenix regarding an excluded individual at one of the Company’s former hospitals. As part of the settlement agreement, the Company denied engagement in any wrongdoing or illegal conduct and the settlement agreement does not contain any admission of liability. On June 27, 2011, the Company paid approximately $0.2 million to settle the matter.

During 2012, the DOJ/OIG has been investigating one of the Company’s former hospitals regarding certain procedures performed at the hospital during the period January 2003 through December 2009. To date, the DOJ/OIG has not requested any documents or patient medical records from the hospital nor requested to meet with any Company personnel or representatives. The Company retains responsibility for any potential hospital liability associated with the investigation and intends to cooperate with the investigation. The DOJ/OIG has not asserted any claims against the Company. Because the investigation is in its early stages, the Company is unable to evaluate the outcome of the investigation and is unable to reasonably estimate the amounts to be repaid, if any.

See also the discussion above regarding the risk that future cash distributions to stockholders could be substantially reduced and delayed as part of our liquidation and dissolution due to the pending ICD investigation.

Ongoing audits by Recovery Audit Contractors (“RAC”) could have a material effect on our net assets in liquidation.

In 2005, the CMS began using RACs to detect Medicare overpayments not identified through existing claims review mechanisms. The RAC program relies on private auditing firms to examine Medicare claims filed by healthcare providers and fees are paid to the RACs on a contingency basis.

RACs perform post-discharge audits of medical records to identify Medicare overpayments resulting from incorrect payment amounts, non-covered services, incorrectly coded services, and duplicate services. The CMS has given RACs the authority to look back at claims up to three years old, provided that the claim was paid on or after October 1, 2007. Claims identified as overpayments will be subject to the Medicare appeals process. The Health Care Reform Laws expanded the RAC program’s scope to include Medicaid claims by requiring all states to enter into contracts with RACs. During the last quarter, there has been an increase in RAC activity nationwide. Even though we believe the claims for reimbursement submitted to the Medicare and Medicaid program by our former facilities have been accurate, we are unable to reasonably estimate what the potential result of future RAC audits or other reimbursement matters could be.

Uninsured risks from legal actions related to professional liability could adversely affect our net assets in liquidation.

In recent years, physicians, hospitals, diagnostic centers and other healthcare providers have become subject, in the normal course of business, to an increasing number of legal actions alleging negligence in performing services, negligence in allowing unqualified physicians to perform services or other legal theories as a basis for liability. Many of these actions involve large monetary claims and significant defense costs. Our subsidiaries that previously owned hospitals may be subject to such legal actions even though a particular physician at one of our hospitals or other facilities was not our employee and the governing documents for the medical staffs of each of our previously owned hospitals required physicians who provide services, or conduct procedures, at our hospitals to meet all licensing and specialty credentialing requirements and to maintain their own professional liability insurance.

We have established a reserve for malpractice claims based on actuarial estimates using our historical experience with malpractice claims and assumptions about future events. Due to the considerable variability that is inherent in such estimates, including such factors as changes in medical costs and changes in actual experience, there is a reasonable possibility that the recorded estimates will change by a material amount in the near term. Also, there can be no assurance that the ultimate liability we experience under our self-insured retention for medical malpractice claims will not exceed our estimates. It is also possible that such claims could exceed the scope of coverage, or that coverage could be denied.

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Uninsured risks from other legal matters could adversely affect our net assets in liquidation.

On September 18, 2012 the former physician-controlled partners in the limited partnership that previously owned a hospital located in San Antonio, Texas (the “Plaintiffs”) filed a lawsuit in the District Court of Bexar County, Texas against San Antonio Hospital Management, Inc., San Antonio Holdings, Inc. and MedCath Incorporated (the “San Antonio Defendants”), each of which is a direct or indirect subsidiary of the Company. In their lawsuit, which has subsequently been removed by the San Antonio Defendants to and is currently pending in the United States District Court for the Western District of Texas, the Plaintiffs allege that the San Antonio Defendants breached certain contractual obligations, fiduciary and other duties which they purportedly owed to the San Antonio Defendants in connection with the sale of the hospital interests of the Plaintiffs to the San Antonio Defendants and the defense of allegations by the DOJ regarding its ICD Investigation (the “San Antonio Action”). The Plaintiffs are seeking compensatory damages of $3.3 million, exemplary damages of $6.6 million and other relief. The San Antonio Defendants intend to vigorously defend the San Antonio Action. If the San Antonio Action is adversely determined, the amounts available for future distribution to our stockholders could be reduced.

None.

Through November 2012, our executive offices were located in Charlotte, North Carolina in approximately 32,580 square feet of leased commercial office space. On November 12, 2012, the Company entered into agreements whereby the Company relocated to approximately 2,362 square feet, paid a termination fee of $845,000 and cancelled the lease of the 32,580 square feet of commercial office space. Pursuant to the terms of the agreements, the Company will not be required to pay a rental fee to the landlord through November 11, 2015.

We are involved in various litigation and proceedings in the ordinary course of our business. Other than the ICD Investigation and the San Antonio Action described in our Risk Factors above, we do not believe, based on our experience with past litigation, and taking into account our applicable insurance coverage and the expectations of counsel with respect to the amount of our potential liability, the outcome of any such litigation, individually or in the aggregate, will have a material effect upon our net assets in liquidation. See “Risk Factors – Future cash distribution to stockholders could be substantially reduced and delayed as part of our liquidation and dissolution due to the pending ICD Investigation” and “Uninsured risks from other legal matters could adversely affect our net assets in liquidation.”

PART II

Through September 21, 2012, our common stock traded on the Nasdaq Global Market^® under the symbol “MDTH.” On that date, NASDAQ Stock Market LLC filed a Form 25 with the SEC notifying the SEC of removal of the Company’s Common Stock from listing on the NASDAQ Global Market. Upon the effectiveness of the filing of a certificate of dissolution with the Secretary of State of the State of Delaware (the “Filing”) at 5:00 p.m. Eastern Daylight Time on September 21, 2012, the Company closed its stock transfer books and discontinued recording transfers of its common stock, par value $0.01 per share. The Company will not record any further transfers of shares of its Common Stock on its books except by will, intestate succession or operation of law. Therefore, shares of the Company’s Common Stock will no longer be voluntarily transferable on the Company’s stock transfer books for transfers made after the effectiveness of the Filing. From and after the effectiveness of the Filing, the Company’s stockholders shall have only such rights and obligations as are provided for under the DGCL for stockholders of a dissolved corporation. The following table sets forth, for the periods indicated (through September 21, 2012 for the fourth quarter of fiscal year ended September 30, 2012), the high and low sale prices per share of our common stock as reported by the Nasdaq Global Market^®:

In connection with our stockholder’s approval of the Plan of Dissolution, our Board of Directors declared a liquidating distribution of $6.85 per share of common stock outstanding on September 22, 2011, which was paid October 13, 2011 to stockholders of record on October 6, 2011. This was the first liquidating distribution declared under the Plan of Dissolution. On August 28, 2012, our Board of Directors approved a pre-Filing liquidating distribution (the “Pre-Filing Liquidating Distribution”) to the holders of the Company’s outstanding shares of common stock, par value $.01, of $6.33 per share. The Company’s Board of Directors set September 10, 2012 as the record date and September 21, 2012 as the payable date for the Pre-Filing Liquidating Distribution.

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Section 382 Rights Plan

On June 13, 2011, the Company entered into the Section 382 Rights Plan (the “Rights Plan”), between the Company and American Stock Transfer & Trust Company, LLC as rights agent. In connection with the adoption of the Rights Plan, on June 13, 2011, the Board of Directors of the Company declared a dividend of one preferred share purchase right (the “Rights”) for each outstanding share of common stock of the Company under the terms of the Plan. The dividend was paid on June 29, 2011 to the stockholders of record as of the close of business on June 29, 2011 (the “Record Date”). Each Right entitles the registered holder to purchase from the Company one one-thousandths of a share of Series A Junior Participating Preferred Stock, par value $0.01 per share, of the Company (the “Preferred Stock”) at a price of $20.00 per one one-thousandths of a share of Preferred Stock, subject to adjustment.

By adopting the Plan, the Board is seeking to preserve for the Company’s stockholders the value or availability of certain of the Company's tax attributes (the “Tax Attributes”). The Company currently has Tax Attributes which may entitle the Company to either reduce income taxes that may otherwise become due or to seek a refund of income taxes due with respect to the Company’s future tax years totaling up to as much as $8.0 million of tax reductions. These Tax Attributes may be materially reduced or eliminated by a “change of ownership” of the Company under Section 382 of the Internal Revenue Code (a “change of ownership”). If a change of ownership were to occur, the actual amount of Tax Attributes that could be materially reduced or eliminated would depend upon various factors, which among others include: (i) when the change of ownership occurred, (ii) the order in which certain hospitals owned by the Company are sold, (iii) the final sale price of certain hospitals owned by the Company and (iv) the timing of the liquidation of certain of the Company’s subsidiary limited liability companies or limited partnerships which have already sold their hospitals. Generally, a change of ownership will occur if the percentage of the Company’s stock owned by one or more “five percent stockholders” increases by more than fifty percentage points over the lowest percentage of stock owned by such stockholders at any time during the prior three-year period or, if sooner, since the last change of ownership experienced by the Company.

The Plan is intended to act as a deterrent to any person acquiring 4.99% or more of the outstanding shares of the Company’s Common Stock or any existing 4.99% or greater holder from acquiring any additional shares without the approval of the Board. This would mitigate the threat that share ownership changes present to the Company’s Tax Attributes because changes in ownership by a person owning less than 4.99% of the Common Stock are not included in the calculation of “change of ownership” for purposes of Section 382 of the Internal Revenue Code. The Plan includes a procedure whereby the Board may consider requests to exempt certain proposed acquisitions of Common Stock from the applicable ownership trigger if the Board determines that the requested acquisition will not limit or impair the value or availability of the Tax Attributes to the Company.

The Rights will cause substantial dilution to a person or group that acquires 4.99% or more of the Common Stock on terms not approved by the Company’s Board of Directors. The Rights should not interfere with any merger or other business combination approved by the Board at any time prior to the first date that a person or group has become an Acquiring Person.

The Rights Agreement was amended on August 28, 2012 to (i) provide the Company’s Board of Directors the authority, in its sole and absolute discretion, to exempt any Person from being deemed an Acquiring Person under the Rights Agreement, (ii) permit the Company’s Board of Directors, in its sole and absolute discretion, to terminate the Rights Agreement and all of the Rights established thereunder at any time, and (iii) eliminate certain potential notice requirements under the Rights Agreement in connection with the dissolution of the Company. Should there nonetheless be an “ownership change” as defined in Section 382 of the Code, the expected refund of income taxes to the Company could be substantially reduced and the Company may lose the right to deduct losses incurred after the Filing that pertain to events that existed prior to the Filing (“Built-in-losses”), which losses could be significant.

Furthermore, on October 29, 2012, the Company filed a Form 15 with the SEC, certifying that the Company had as of that date only 128 holders of record of the outstanding shares of Common Stock and the Rights and notifying the SEC of termination of registration of the Common Stock and the Rights under section 12(g) of the Exchange Act and suspension of the Company’s duty to file reports under sections 13 and 15(d) of the Exchange Act. The Company’s duty to file periodic, current and other reports with the SEC under the Exchange Act was suspended effective upon filing of the Form 15 with the SEC. The Company expects that this Annual Report on Form 10-K, including any necessary amendments thereto, will be the final report the Company files with the SEC.

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The following graph illustrates, for the period from September 30, 2007 through September 21, 2012 (the date of cessation of trading of our common stock on the NASDAQ Global Market), the cumulative total shareholder return of $100 invested (assuming that all dividends, if any, were reinvested) in (1) our common stock, (2) the NASDAQ Composite Stock Index and (3) the S&P Health Care Facilities Index.

The selected consolidated financial data have been derived from our audited consolidated financial statements. The selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, appearing elsewhere in this report.

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The following table sets forth our selected net assets and changes to our net assets as of and for the year ended September 30, 2012 and as of September 30, 2011 and for the period September 22, 2011 to September 30, 2011:

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The following table sets forth our selected consolidated financial data as of and for the 2011 fiscal period and the years ended September 30, 2010, 2009 and 2008.

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report.

Overview and Background of Strategic Options Process

In partnership with physicians, we previously owned and operated hospitals that focused on providing high acuity services, including the diagnosis and treatment of cardiovascular disease. We opened our first hospital in 1996. On March 1, 2010 we announced that our Board of Directors had formed a Strategic Options Committee to consider the sale either of our equity or the sale of our individual hospitals and other assets as the Board of Directors had determined that selling our assets or equity may provide the highest return for our stockholders. We retained Navigant Capital Advisors as our financial advisor to assist in this process. At that time we had majority ownership interests in eight hospitals, minority ownership interests in two hospitals, a minority ownership interest in a hospital real estate venture, and owned MedCath Partners, a division of MedCath that owned and managed cardiac diagnostic and therapeutic facilities. Since we made that announcement, we have sold all eight of our majority owned hospitals, our equity interest in the two minority owned hospitals, our equity interest in a real estate venture and our MedCath Partners division.

On September 22, 2011, at a special meeting of stockholders, our stockholders approved the Plan of Dissolution. Accordingly, we adopted the liquidation basis of accounting as of September 22, 2011 since the liquidation and dissolution of the Company was imminent.

As a result of the adoption of a formal Plan of Dissolution, our activities have been limited to realizing the value of our remaining assets; making tax and regulatory filings; winding down our remaining business activities and making distributions to our stockholders. Winding down our remaining business activities includes our corporate division functions, realizing the value of corporate held assets and paying the creditors of previously sold hospitals in which we retained net working capital.

We made the Filing on September 21, 2012 in order to dissolve the Company and most of its subsidiaries. The Filing has not been made for the Company’s subsidiaries which are parties to the San Antonio Action (See Risk Factors- “Uninsured risks from other legal matters could adversely affect our net assets in liquidation”) which hospital was sold as part of our Plan of Dissolution.

As of September 30, 2012, the Company’s remaining assets included a partnership that owns a medical office building in Austin, Texas (which was sold on December 5, 2012) and a catheterization lab that was retained after the sale of the MedCath Partners division. As we seek to liquidate these remaining assets, we are managing our wind-down operations from our corporate office located in Charlotte, North Carolina.

Management’s goal is to have all assets liquidated as soon as practical while ensuring maximum stockholder value. Payroll and related costs and other expenses are expected to be incurred through September 30, 2015, in order to complete the wind down process. Accordingly, estimated expenses anticipated to occur from October 1, 2012 to September 30, 2015 have been accrued as of September 30, 2012 in our financial statements prepared on the liquidation basis of accounting. The Company may transfer all its assets to a liquidating trust prior to September 30, 2015 and may make additional liquidating distributions prior to September 30, 2015.

Since announcement of the Strategic Options Committee and commencement of our strategic options process, the Company has completed the following transactions:

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Subsequent to our adoption of the Plan of Dissolution on September 22, 2011, we have completed the following transactions:

In connection with our stockholder’s approval of the Plan of Dissolution, our Board of Directors declared a liquidating distribution of $6.85 per share of common stock outstanding on September 22, 2011, which was paid October 13, 2011 to stockholders of record on October 6, 2011. This was the first liquidating distribution declared under the Plan of Dissolution. The Board of Directors declared a second liquidating distribution of $6.33 per share of common stock outstanding on August 28, 2012, which was paid September 21, 2012 to stockholders of record on September 10, 2012. The Filing to dissolve the Company was made on September 21, 2012. On the same date, NASDAQ Stock Market LLC removed the Company’s Common Stock from listing on the NASDAQ Global Market.

Plan of Dissolution

As a result of the September 22, 2011 approval of the Plan of Dissolution by our stockholders, the following events have occurred, or the Company anticipates will occur:

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Authority to Sell any Remaining Assets

The Plan of Dissolution which was approved by our stockholders gave the Board of Directors, to the fullest extent permitted by law, the authority to liquidate all of our assets in the manner that is in the best interest of the Company’s stockholders. Accordingly, the stockholder approval which we have received constitutes to the fullest extent permitted by law, approval of our sale of any and all of our remaining assets, on such terms and conditions as the Board of Directors, in its absolute discretion and without further stockholder approval, may determine, including without limitation the use of seller financing or other arrangements by the Company in connection with the sale of any of the remaining assets.

Dissolution Under the General Corporation Law of the State of Delaware

As set forth above, we made the Filing on September 21, 2012. Once our certificate of dissolution was filed and effective, we ceased to conduct other business, except for the purpose of winding down our affairs, and closed our stock transfer books. Under the DGCL, the Company will continue to exist for three years after the dissolution becomes effective (i.e., at least until September 21, 2015), or for such longer period as the Delaware Court of Chancery shall direct, for the purposes of prosecuting and defending suits, whether civil, criminal or administrative, by or against the Company, and enabling us to gradually settle and close our business, to dispose of and convey our property, to discharge our liabilities and to distribute to the stockholders any remaining assets, but not for the purpose of continuing the business for which the Company was organized. However, within such three year period the Company may transfer all of its assets and liabilities to a liquidating trust for the benefit of our stockholders.

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Dissolution Process

The Plan of Dissolution provides that the Board of Directors will dissolve the Company and liquidate our assets in accordance with the provisions of Sections 280 and 281(a) of the DGCL. These procedures require the Company to:

Our Board of Directors and our remaining officers will oversee our liquidation and dissolution. As compensation for the foregoing, our remaining officers will continue to receive salary and benefits as determined by the Board of Directors. Our Board of Directors will receive compensation during this period, although the amount of such compensation has not been finally determined. Our President and Chief Executive Officer intends to retire on December 17, 2012 and our Chief Financial Officer will assume the additional title and duties of President on that date. In addition, two of our directors will retire on December 17, 2012. We may also elect to further reduce the size of our Board of Directors at any time.

Distributions to Stockholders

We will continue to incur claims, liabilities and expenses from our wind-down operations, including corporate operating costs, salaries and benefits, income taxes, payroll and local taxes, and miscellaneous office expenses. We also anticipate that expenses for professional fees and other expenses of liquidation may be significant. These expenses will reduce the amount of assets available, if any, for distribution to our stockholders.

Before making any post-Filing liquidating distributions to stockholders, we must pay and discharge, or make adequate provision for the payment, satisfaction and discharge of all known and uncontested liabilities and obligations, including costs and expenses incurred and anticipated to be incurred in connection with the sale of our remaining assets. We will reserve assets in a contingency reserve deemed by management and the Board of Directors to be adequate to provide for such pending liabilities and obligations that have not arisen but might arise. The amount of any contingency reserve is also subject to the approval of the Delaware Court of Chancery. The amount of any contingency reserve may be materially impacted by any liabilities arising from the ICD Investigation, which liabilities the Company cannot currently estimate and which may be material.

Our Board of Directors will determine, in its sole discretion and in accordance with applicable law, the timing, the amount and kind of any post-Filing liquidating distribution made to stockholders, subject to the approval of the Delaware Court of Chancery. Any additional liquidating distributions will be made to stockholders on a pro rata basis. Our stockholders of record as of the effective time of the Filing will be the stockholders entitled to receive payment of any post-Filing liquidating distributions.

Suspension of Duty to File SEC Reports

On September 21, 2012 after we made the Filing, NASDAQ Stock Market LLC filed a Form 25 with the SEC notifying the SEC of removal of the Company’s Common Stock from listing and registration under section 12 (b) of the Exchange Act. On October 29, 2012, the Company filed a Form 15 with the SEC, certifying that the Company had as of that date only 128 holders of record of the outstanding shares of Common Stock and notifying the SEC of termination of registration of the Common Stock under section 12(g) of the Exchange Act and suspension of the Company’s duty to file reports under sections 13 and 15(d) of the Exchange Act. The Company’s duty to file periodic, current and other reports with the SEC under the Exchange Act was suspended effective upon filing of the Form 15 with the SEC. The Company expects that this Annual Report on Form 10-K, including any necessary amendments thereto, will be the final report the Company files with the SEC.

Although the Company will no longer be filing current and periodic reports with the SEC, the Company intends to post periodically on its website a statement of net assets and a statement of changes in net assets and to post from time to time information about any material developments with respect to any significant transactions for disposing of the Company’s remaining assets, any significant developments in claims, litigation, investigations and any other future events that could materially impact the timing or amount of liquidating distributions, if any, to be made to the Company’s stockholders of record as of the effectiveness of the Filing.

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Liquidating Trusts or Limited Liability Companies

Although no decision has been made, if deemed advisable by the Board of Directors for any reason, we may elect to transfer any or all of our assets to one or more trusts or limited liability companies established for the benefit of stockholders, subject to the claims of creditors. Thereafter these assets will be sold by the trust or limited liability companies or, subject to the satisfaction of claims of creditors, distributed to our stockholders as approved by the trustees of the trusts or managers of the limited liability companies or trusts, as applicable. Our Board of Directors is authorized to appoint one or more trustees of each liquidating trust or one or more managers of each limited liability company and to cause the Company to enter into a liquidating trust agreement or limited liability company agreement with the trustee(s) or manager(s) of each such trust or limited liability company on such terms and conditions as may be approved by the Board of Directors. Our Board of Directors and management may determine to transfer assets to a liquidating trust or limited liability company in circumstances where the nature of an asset is not susceptible to distribution (for example, interests in intangibles) or where our Board of Directors determines that it would not be in the best interests of the Company and our stockholders for those assets to be distributed directly to the stockholders at that time. If all of our assets (other than the contingency reserve) are not sold or distributed prior to the third anniversary of the effectiveness of the Dissolution, we may transfer in final distribution those remaining assets to a liquidating trust or limited liability company, or we may petition the Delaware Court of Chancery to extend the three year period. Our Board of Directors may also elect in its discretion to transfer the contingency reserve, if any, to a liquidating trust or limited liability company owned by our stockholders. Our Board of Directors believes the flexibility provided by the Plan of Dissolution with respect to the liquidating trusts or limited liability companies to be advisable. The trust or limited liability company would be evidenced by a trust agreement or limited liability company agreement. The purpose of the trust or limited liability company would be to serve as a temporary repository for the trust or limited liability company property prior to its disposition or distribution to our stockholders. The transfer to the trust or limited liability company and distribution of interests therein to our stockholders would enable us to divest ourselves of the trust or limited liability company property and permit our stockholders to enjoy the economic benefits of ownership of the trust or limited liability company property. Pursuant to a trust agreement or limited liability company agreement, as applicable, the trust or limited liability company property would be transferred to the trustees or managers immediately prior to the distribution of interests in the trust or limited liability company to our stockholders, to be held for the benefit of the stockholder beneficiaries subject to the terms of the trust agreement or limited liability company agreement, as applicable, which are approved by our Board of Directors.

Potential Creditor Claims if Holdback Insufficient

If a court holds at any time that we have failed to make adequate provision for our expenses and liabilities or if the amount ultimately required to be paid in respect of such liabilities exceeds the amount available from the Holdback, our creditors could seek an injunction preventing us from making post-Filing liquidating distributions to our stockholders. Any such action could delay or substantially diminish the amount of any cash distributions to stockholders.

If we fail to create an adequate Holdback for payment of our expenses and liabilities, creditors could assert claims against each stockholder receiving a distribution or dividend for the payment of any shortfall, up to the amounts previously received by the stockholder in post-Filing liquidating distributions from us.

Liquidation Basis of Accounting Critical Accounting Policies and Estimates

Liquidation Basis of Accounting

Basis of Consolidation – As a result of the Company’s Board approving the Plan of Dissolution and the stockholders’ approval of the Plan of Dissolution, the Company adopted the liquidation basis of accounting effective September 22, 2011. This basis of accounting is considered appropriate when liquidation of a company is imminent. Under this basis of accounting, assets are valued at their net realizable values and liabilities are stated at their estimated settlement amounts.

Use of Estimates – The conditions required to adopt the liquidation basis of accounting were met on September 22, 2011 (the “Effective Date”). The conversion from the going concern to liquidation basis of accounting required management to make significant estimates and judgments. In addition, the Company is required to periodically evaluate the reasonableness of such estimates and adjust such estimates as new information becomes available.

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In order to record assets at estimated net realizable value and liabilities at estimated settlement amounts under the liquidation basis of accounting, the Company recorded the following adjustments as of September 22, 2011, the date of adoption of the liquidation basis of accounting:

The Company used an independent third party market offer and subsequent disposition values to determine the reasonableness of the Company’s write up of its investment in and advances to affiliates, subsequent disposition values to determine the reasonableness of the Company’s write down of subsidiary investments and third party valuations to determine the write up of property, plant and equipment. Prepaid expenses and other assets and other long-term obligations were written off as they will not provide any future cash flow to the Company and have no future net realizable value. The increase in the deferred income taxes, net was based on the Company’s computation of the income tax impact of the total adjustments to mark assets to their net realizable value and liabilities to estimated settlement amount.

The adjustments outlined above had a direct impact on the settlement amount of the Company’s noncontrolling interests, which represents the minority owners’ share of the Company’s consolidated subsidiaries. As a result, the Company recorded the following adjustment to the net settlement amount of noncontrolling interests on the Statement of Changes in Net Assets in Liquidation as of September 22, 2011:

In addition, during the year ended September 30, 2012, the Company made the following adjustments to such estimates and recognized the net operations and distributions as part of the wind down process as follows:

See discussion for these changes in Net Assets and Liabilities in Liquidation below.

Accrued Cost of Liquidation

The Company accrued the estimated costs expected to be incurred during the dissolution period. The dissolution period estimated provides time for the Company to sell its remaining assets and file articles of dissolution. Under DGCL, the dissolution period after the filing of the articles of dissolution must be a minimum of three years. In determining its total estimated costs to liquidate as of September 22, 2011, the Company estimated that it would incur costs through September 30, 2015 as follows:

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The estimates were based on prior history, known future events, contractual obligations and the estimated time to complete the liquidation. The Company recorded total accrued liabilities of $60.7 million as of September 30, 2011, excluding the distribution payable and obligations under capital leases, on the statement of net assets as of September 30, 2011. The $60.7 million was the total expected payments for the settlement of liabilities after the $25.8 million in additional accruals the Company recorded upon adoption of the liquidation basis of accounting. The $60.7 million included $35.1 million in accrued liabilities related to the Company’s corporate division and $25.6 million related to the Company’s previously sold entities and Bakersfield Heart Hospital (“BHH”). Total accrued liabilities as of September 30, 2011 did not include any amount related to the ICD Investigation since the Company was unable to reasonably estimate the amounts to be repaid, if any, upon resolution of the investigation.

Subsequent to September 30, 2011, the Company has disposed of its interest in BHH, settled certain liabilities retained upon disposition of other hospital entities and recorded the following activities related to the Company’s corporate division liabilities during the year ended September 30, 2012 (in thousands):

We adjusted our information technology costs during the 2012 fiscal year to account for a long-term agreement we entered into to outsource our corporate information technology services. In addition, our costs to provide transition services to buyers of our hospitals increased as buyers extended their transition service periods. Our legal, board and other fees were increased to account for costs incurred related to on-going litigation, the ICD investigation, extended and complex sale transactions and the dissolution process. These increases were offset by a decline in our estimated contract breakage costs. Subsequent to September 30, 2012, we terminated the lease of our corporate office for $0.8 million. We were able to negotiate a lower termination cost than previously estimated as the landlord of the building had a party interested in our office space in Charlotte, NC. Of our total estimated remaining wind-down costs, approximately 50% is fixed and determinable and will be incurred over the next three years.

Net Assets and Liabilities in Liquidation

In connection with the Company’s stockholders’ approval of the Plan of Dissolution, the Board of Directors declared a liquidating distribution of $6.85 per share of common stock outstanding on September 22, 2011, which was paid October 13, 2011 to stockholders of record on October 6, 2011. This was the first liquidating distribution declared in connection with the Plan of Dissolution and aggregated $139.4 million resulting in a corresponding reduction of dividends payable. On August 28, 2012, the Board of Directors approved a pre-Filing liquidating distribution (the “Pre-Filing Liquidating Distribution”) to the holders of the Company’s outstanding shares of common stock, par value $.01, of $6.33 per share. The Company’s Board of Directors set September 10, 2012 as the record date and September 21, 2012 as the payable date for the Pre-Filing Liquidating Distribution. This Pre-Filing Liquidating Distribution decreased net assets in liquidation by $128.8 million during the year ended September 30, 2012.

Absent the above discussed $6.33 per share Pre-Filing Liquidating Distribution, net assets in liquidation increased by $10.3 million for the year ended September 30, 2012 due to the following:

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Impact of Unknown Contingencies on Net Asset Realizable Value

The Company has estimated an aggregate amount for potential unknown contingencies of $48.0 million (the “Holdback”). The Holdback is intended to make reasonable provision for all of the Company’s contingent liabilities, including without limitation (a) any liabilities arising out of the ICD Investigation, the amount of which is currently unknown, (b) other currently unknown or unanticipated liabilities due to the government for unknown reimbursement claims, such as recovery audits (“RAC” audits), cost report settlements, and any other unknown contingent liability that may arise during the normal course of operations during the wind-down period, including legal claims and governmental investigations, as previously disclosed, and (c) any additional liabilities that may arise or be identified during the wind down process. The Holdback is not intended to satisfy recorded wind-down liabilities because those have already been reflected in the Company’s net asset value as reflected on the Statement of Net Assets. All statements relating to the Holdback are forward-looking statements. The amount of the Holdback could be more or less than the amount necessary to satisfy all of the Company’s contingent liabilities if one or more of the underlying assumptions or expectations used in preparing the estimated amount prove to be inaccurate.

Management and the Board of Directors will continue to evaluate the adequacy of the Holdback and may make adjustments to the Holdback as they determine to be appropriate prior to making any additional distributions.

The Holdback does not take into consideration any tax benefits that may be realized as part of the wind-down process. The realization of our total assets is based on the timing of certain events including the realization of our income tax receivable and deferred tax assets. Furthermore, the Company’s deferred income tax assets do not include any tax benefits for income tax losses expected to be incurred subsequent to September 30, 2013.

On June 13, 2011, the Company entered into a Section 382 stockholders rights plan (the “Section 382 Rights Plan”) seeking to preserve for the Company’s stockholders the value or availability of certain of the Company’s tax attributes. Had there nonetheless been an “ownership change” under and as defined in Section 382 of the Internal Revenue Code of 1986, as amended, the expected refund of income taxes would have be substantially reduced and the Company could have lost the right to deduct losses incurred after the Filing that pertain to events that existed prior to the Filing (“Built-in-losses”), which losses could be significant. Built-in-losses would include any or all losses incurred as a result of the potential unknown contingencies underlying the estimated Holdback amount. To mitigate the risk of an “ownership change” occurring and causing the Company’s stockholders to lose the economic benefit of the deductions that would otherwise be available for any Built-in-losses that are incurred, the Board of Directors set the payable date for the Pre-Filing distribution on the date the Company made the Filing. As a result, the Company’s common stock did not trade ex-dividend prior to or on the date the Filing, which is September 21, 2012. The Company’s common stock ceased trading after the date of the Filing. To the Company’s knowledge, an ownership change did not occur prior to September 21, 2012.

Impact of Previously Unrealized Tax Attributes on Net Asset Realizable Value

The total assets available for stockholder distribution previously reported did not take into consideration $8.0 million, or $0.39 per common share, in tax attributes that were not recognizable under GAAP until we had a definitive plan in place to dissolve certain of our partnerships. These tax attributes became recognizable upon the formal dissolution of certain of our partnerships during the fourth quarter of fiscal 2012 and is included in income tax receivable on the Statement of Net Assets as of September 30, 2012.

Going Concern

Basis of Consolidation. We have included in our consolidated financial statements hospitals over which we exercise substantive control, including all entities in which we own more than a 50% interest, as well as variable interest entities in which we are the primary beneficiary. We have used the equity method of accounting for entities, including variable interest entities, in which we hold less than a 50% interest and over which we do not exercise substantive control, and are not the primary beneficiary. Accordingly, the hospitals in which we hold a minority interest are excluded from the net revenue and operating results of our consolidated company and our consolidated hospital division.

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A number of our diagnostic and therapeutic facilities (now divested) were excluded from the net revenue and operating results of our consolidated company and our consolidated MedCath Partners division. Our minority interest in the results of operations for the periods discussed for these entities is recognized as part of the equity in net earnings of unconsolidated affiliates in our statements of income in accordance with the equity method of accounting.

As described above, since this announcement of our Strategic Options Committee in March, 2010 and the date of adoption of liquidation basis of accounting, we have sold seven of our majority owned hospitals, our equity interest in one of our minority owned hospitals and our MedCath Partners division, including a minority venture owned by our MedCath Partners division. Accordingly, for all periods presented, the results of operations for these entities have been excluded from continuing operations and are reported in income (loss) from discontinued operations, net of taxes.

Revenue Sources by Payor. We receive payments for our services rendered to patients from the Medicare and Medicaid programs, commercial insurers, health maintenance organizations, and our patients directly. Generally, our net revenue is determined by a number of factors, including the payor mix, the number and nature of procedures performed and the rate of payment for the procedures. Since cardiovascular disease disproportionately affects those age 55 and older, the proportion of net revenue we derive from the Medicare program is higher than that of most general acute care hospitals. The following table sets forth the percentage of consolidated net revenue we earned by category of payor for the periods presented.

A significant portion of our net revenue is derived from federal and state governmental healthcare programs, including Medicare and Medicaid, and we expect the net revenue that we receive from the Medicare program as a percentage of total consolidated net revenue will remain significant in future periods. Our payor mix may fluctuate in future periods due to changes in reimbursement, market and industry trends with self-pay patients and other similar factors.

The Medicare and Medicaid programs are subject to statutory and regulatory changes, retroactive and prospective rate adjustments, administrative rulings, court decisions, audits, investigations, executive orders and freezes and funding reductions, all of which may significantly affect our business. In addition, reimbursement is generally subject to adjustment and possible recoupment following audit by all third party payors, including commercial payors and the contractors who administer the Medicare program for CMS as well as the OIG. Final determination of amounts due providers under the Medicare program often takes several years because of such audits, as well as resulting provider appeals and the application of technical reimbursement provisions. We believe that adequate provision has been made for any adjustments that might result from these programs; however, due to the complexity of laws and regulations governing the Medicare and Medicaid programs, the manner in which they are interpreted and the other complexities involved in estimating our net revenue, there is a possibility that recorded estimates will change by a material amount in the near term. See Item 1 Business and Item 1A Risk Factors.

Critical Accounting Policies and Estimates

General. The discussion and analysis of our financial condition and results of operations are based on our audited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our consolidated financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on a regular basis and make changes as experience develops or new information becomes known. Actual results may differ from these estimates under different assumptions or conditions.

We define critical accounting policies as those that (1) involve significant judgments and uncertainties, (2) require estimates that are more difficult for management to determine and (3) have the potential to result in materially different results under different assumptions and conditions. We believe that our critical accounting policies are those described below. For a detailed discussion of the application of these and other accounting policies, see Note 2 to the consolidated financial statements included elsewhere in this report.

Revenue Recognition. Amounts we receive for treatment of patients covered by governmental programs such as Medicare and Medicaid and other third-party payors such as commercial insurers, health maintenance organizations and preferred provider organizations are generally less than our established billing rates. Payment arrangements with third-party payors may include prospectively determined rates per discharge or per visit, a discount from established charges, per diem payments, reimbursed costs (subject to limits) and/or other similar contractual arrangements. As a result, net revenue for services rendered to patients is reported at the estimated net realizable amounts as services are rendered. We account for the difference between the estimated realizable rates under the reimbursement program and the standard billing rates as contractual adjustments.

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The majority of our contractual adjustments were system-generated at the time of billing based on either government fee schedules or fee schedules contained in our managed care agreements with various insurance plans. Portions of our contractual adjustments are performed manually and these adjustments primarily relate to patients that have insurance plans with whom our former hospitals do not have contracts containing discounted fee schedules, also referred to as non-contracted payors and patients that have secondary insurance plans following adjudication by the primary payor. Estimates of contractual adjustments are made on a payor-specific basis and based on the best information available regarding our interpretation of the applicable laws, regulations and contract terms. While subsequent adjustments to the systematic contractual allowances can arise due to denials, short payments deemed immaterial for continued collection effort and a variety of other reasons, such amounts have not historically been significant.

We continually review the contractual estimation process to consider and incorporate updates to the laws and regulations and any changes in the contractual terms of our programs. Final settlements under some of these programs are subject to adjustment based on administrative review and audit by third parties, which can take several years to determine. From a procedural standpoint, for government payors, primarily Medicare, we recognize estimated settlements in our consolidated financial statements based on filed cost reports. We subsequently adjust those settlements as we obtain new information from audits or reviews by the fiscal intermediary and, if the result of the fiscal intermediary audit or review impacts other unsettled and open cost reports, then we recognize the impact of those adjustments. We estimate settlements based on models designed to approximate our cost report filings and revise our estimates in February of each year upon completion of the actual cost report and tentative settlement. Due to the complexity of laws and regulations governing the Medicare and Medicaid programs, the manner in which they are interpreted, and the other complexities involved in estimating our net revenue, there is a reasonable possibility that recorded estimates will change by a material amount in the near term.

We provided care to patients who meet certain criteria under our charity care policy without charge or at amounts less than our established rates. Patients that receive charity care discounts must provide a complete and accurate application, be in need of non-elective care and meet certain federal poverty guidelines established by the U.S. Department of Health and Human Services. Because we do not pursue collection of amounts determined to qualify as charity care, they are not reported as net revenue.

Allowance for Doubtful Accounts. Accounts receivable primarily consist of amounts due from third-party payors and patients in our hospital division. The remainder of our accounts receivable principally consist of amounts due from billings to hospitals for various cardiovascular care services performed in our MedCath Partners Division. To provide for accounts receivable that could become uncollectible in the future, we establish an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. We estimate this allowance based on such factors as payor mix, aging and the historical collection experience and write-offs of our respective hospitals and other business units. Adverse changes in business office operations, payor mix, economic conditions or trends in federal and state governmental healthcare reimbursement could affect our collection of accounts receivable.

When possible, we will attempt to collect co-payments from patients prior to admission for inpatient services as a part of the pre-registration and registration processes. If unsuccessful, we will also attempt to reach a mutually agreed-upon payment arrangement at that time. To the extent possible, the estimated amount of the patient’s financial responsibility is determined based on the services to be performed, the patient’s applicable co-payment amount or percentage and any identified remaining deductible and co-insurance percentages. If payment arrangements are not provided upon admission or only a partial payment is obtained, we will attempt to collect any estimated remaining patient balance upon discharge. We also comply with the requirements under applicable law concerning collection of Medicare co-payments and deductibles. Patients who come to our hospitals for outpatient services are expected to make payment or adequate financial arrangements before receiving services. Patients who come to the emergency room are screened and stabilized to the extent of the hospital’s capability for any emergency medical condition in accordance with applicable laws, rules and other regulations in order that financial arrangements do not delay such screening, stabilization, and appropriate disposition.

Professional Liability Risk. We are self-insured for medical malpractice up to certain maximum liability amounts. Although the amounts accrued are actuarially determined based on analysis of historical trends of losses, settlements, litigation costs and other factors, the amounts we will ultimately disburse could differ from such accrued amounts.

Long-Lived Assets. Long-lived assets, which include finite lived intangible assets, are evaluated for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset and its eventual disposition are less than its carrying amount. The determination of whether or not long-lived assets have become impaired involves a significant level of judgment in the assumptions underlying the approach used to determine the estimated future cash flows expected to result from the use of those assets. Changes in our strategy, assumptions and/or market conditions could significantly impact these judgments and require adjustments to recorded amounts of long-lived assets. See Notes 5 and 12 for a discussion of impairment charges that the Company has recorded to write-down certain long-lived assets.

Basis of Presentation — The Company follows the accounting standard which establishes accounting and reporting standards pertaining to ownership interests in subsidiaries held by parties other than the parent, the amount of net income attributable to the parent and to the noncontrolling interests, changes in a parent’s ownership interest and the valuation of any retained noncontrolling equity investment when a subsidiary is deconsolidated. This accounting standard also has disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. This accounting standard generally requires the Company to clearly identify and present ownership interests in subsidiaries held by parties other than the Company in the consolidated financial statements within

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the equity section but separate from the Company’s equity. However, in instances in which certain redemption features that are not solely within the control of the issuer are present, classification of noncontrolling interests outside of permanent equity is required. It also requires the amounts of consolidated net income attributable to the Company and to the noncontrolling interests to be clearly identified and presented on the face of the consolidated statements of operations; changes in ownership interests to be accounted for as equity transactions; and when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary and the gain or loss on the deconsolidation of the subsidiary to be measured at fair value. The implementation of this accounting standard results in the cash flow impact of certain transactions with noncontrolling interests being classified within financing activities. Such treatment is consistent with the view that under this accounting standard, transactions between the Company and noncontrolling interests are considered to be equity transactions.

Profits and losses are allocated to the noncontrolling interest in the Company’s subsidiaries in proportion to their ownership percentages and reflected in the aggregate as net income attributable to noncontrolling interests. If, however, the cumulative net losses of a hospital exceed its initial capitalization and committed capital obligations of our partners, then we recognize a disproportionately higher share, up to 100%, of the hospital’s losses, instead of the smaller pro-rata share of the losses that normally would be allocated to us based upon our percentage ownership (with the exception of losses incurred at Harlingen Medical Center, which are shared proratably based on each investors ownership percentage). The disproportionate allocation to us of a hospital’s losses would reduce our consolidated net income in that reporting period. When the same hospital has earnings in a subsequent period, a disproportionately higher share, up to 100%, of the hospital’s earnings will be allocated to us to the extent we have previously recognized a disproportionate share of that hospital’s losses. The disproportionate allocation to us of a hospital’s earnings would increase our consolidated net income in that reporting period.

The determination of disproportionate losses to be allocated is based on the specific terms of each hospital’s operating agreement, including each partner’s contributed capital, obligation to contribute additional capital to provide working capital loans, or to guarantee the outstanding obligations of the hospital. During each of our fiscal years 2011 and 2010, our disproportionate recognition of earnings and losses in our hospitals had a net negative impact of $(5.8) million and $(12.2) million, respectively, on our reported income from continuing operations before income taxes and discontinued operations.

The physician partners of the Company’s subsidiaries typically are organized as general partnerships, limited partnerships or limited liability companies that are not subject to federal income tax. Each physician partner shares in the pre-tax earnings of the subsidiary in which it is a partner. Accordingly, the income or loss attributable to noncontrolling interests in each of the Company’s subsidiaries are generally determined on a pre-tax basis. In accordance with this new accounting standard, total net income attributable to noncontrolling interests are presented after net (loss) income.

Income Taxes. Income taxes are computed on the pretax income based on current tax law. Deferred income taxes are recognized for the expected future tax consequences or benefits of differences between the tax bases of assets or liabilities and their carrying amounts in the consolidated financial statements. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before we are able to realize their benefit or their future deductibility is uncertain.

Developing the provision for income taxes requires significant judgment and expertise in federal and state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and, if necessary, any valuation allowances that may be required for deferred tax assets. Our judgments and tax strategies are subject to audit by various taxing authorities. While we believe we have provided adequately for our income tax liabilities in our consolidated financial statements, adverse determinations by these taxing authorities could have a material adverse effect on our consolidated financial condition and results of operations.

The Company is required to file federal and state tax returns in the United States. The preparation of these tax returns requires the Company to interpret the applicable tax laws and regulations in effect in such jurisdictions, which could affect the amount of tax paid by the Company. The Company, in consultation with its tax advisors, bases its tax returns on interpretations that are believed to be reasonable under the circumstances. The tax returns, however, are subject to routine reviews by the various taxing authorities in the jurisdictions in which the Company files its returns. As part of these reviews, a taxing authority may disagree with respect to the interpretations the Company used to calculate its tax liability and therefore require the Company to pay additional taxes and associated penalties and interest.

The Company accrues an amount for its estimate of probable additional income tax liability. The Company recognizes the impact of an uncertain income tax position on the income tax return at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than 50% likelihood of being sustained.

Share-Based Compensation — Compensation expense for share-based awards made to employees and directors are recognized based on the estimated fair value of each award over the awards’ vesting period. We estimate the fair value of share-based payment awards on the date of grant using, either an option-pricing model for stock options or the closing market value of our stock for restricted stock and restricted stock units, and expense the value of the portion of the award that is ultimately expected to vest over the requisite service period in the Company’s statement of operations.

We calculated the share-based compensation expense for each stock option on the date of grant by using a Black-Scholes option pricing model. The key assumptions used in the Black-Scholes option pricing model are the expected life of the stock option, the risk free interest rate and expected volatility. The expected volatility used in the Black-Scholes option pricing model incorporates historical share-price volatility and was based on an analysis of historical prices of our stock. The expected volatility reflects the historical volatility for a duration consistent with the contractual life of the options. The expected life of the stock options granted represents the period of time that the options are expected to be outstanding. The risk-free interest rates are based on zero-coupon United States Treasury yields in effect at the date of grant consistent with the expected exercise timeframes.

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Stock options awarded to employees are fully vested at the time of grant, with the condition that the optionee is prohibited from selling the share of stock acquired upon exercise of the option for a specified period of time. As a result, total share-based compensation is recorded for stock options on the option grant date.

During fiscal 2010 we granted shares of restricted stock and restricted stock units to employees and directors, respectively. Restricted stock granted to employees, excluding executives of the Company, vested in equal annual installments over a three year period. Executives of the Company (defined by us as vice president or higher) received two restricted stock grants. The first grant of restricted stock vested in equal annual installments over a three year period. The second grant of restricted stock vested over a three year period based on established performance conditions. All unvested restricted stock granted to employees became fully vested upon a change in control of the Company as defined in the Company’s 2006 Stock Option and Award Plan, which occurred on September 30, 2011. As a result, the Company recognized an expense of $0.4 million for the acceleration of 129,988 share of Restricted Stock granted to employees. Restricted stock units granted to directors are fully vested at the date of grant and would have paid in the form of common stock upon each applicable director’s termination of service on the board. However, the Compensation Committee approved the termination of the director’s restricted stock unit plan under which the restricted stock units were granted to directors. As a result, the previously granted units were converted to the shares of common stock on August 1, 2011.

Recent Accounting Pronouncements: See Note 3 of our consolidated financial statements included elsewhere in this report for additional disclosures.

Results of Operations

2011 Fiscal Period Compared to Fiscal Year 2010

Statement of Operations Data. The following table presents our results of operations in dollars and as a percentage of net revenue: