Dynacq Healthcare, Inc., a Delaware corporation, is a holding company that through its subsidiaries develops and manages general acute hospitals that provide specialized general surgeries. The Company's strategy is to develop and operate general acute hospitals designed to handle specialized general surgeries such as bariatric, orthopedic and neuro spine surgeries. The Company's hospitals include operating rooms, pre- and post-operative space, intensive care units, nursing units, and modern diagnostic facilities. The Company's facilities are specifically designed to handle complex orthopedic and general surgeries, such as spine and bariatric surgeries.

The Company normally does not participate in any managed care contracts nor does it receive a substantial amount of reimbursement from Medicare or Medicaid. The bulk of the surgeries are either covered by workers' compensation insurance or by commercial insurers on an out-of-network health plan basis, and are relatively complex surgeries. Except for emergency room patients, the surgeries are typically pre-certified by the insurance carriers. The Company believes that, as a result, the per-procedure revenue generated by the Company is comparatively higher than the per-procedure revenue generated by other hospitals.

During the fiscal year ended August 31, 2003 the Company expanded its hospitals from one to three. Other key events in fiscal year 2003 include:

The Company’s Ambulatory Surgery Center in Pasadena, Texas ceased to operate in November 2002 and consequently surrendered its lease and its license. Vista Hospital in Pasadena, Texas, near Houston (the “ Pasadena Facility”) was allowed to modify its hospital license and lease the space previously occupied by the Ambulatory Surgery Center, thereby increasing the Pasadena Facility’s surgical suites from four to eight. The Pasadena Facility contributed 84% of net patient revenues in fiscal year 2003.

In January 2003, the Company opened its second hospital—Vista Surgical Hospital of Baton Rouge (the “Baton Rouge Facility”), a 49,500 square foot 35-bed facility with four surgical suites on approximately 20 acres of land. The Baton Rouge Facility contributed 12% of net patient revenues in fiscal year 2003.

In August 2003, the Company acquired the total assets of a 113-bed hospital (which is now licensed for 79 beds), a medical office building and 22.7 acres of land in the Dallas-Fort Worth area for approximately $8.5 million including the assumption of approximately $2.9 million of liabilities. The Company has completed renovations at that facility, named Vista Hospital of Dallas (the “ Garland Facility”), with six surgical suites, and started performing surgical procedures in late November 2003.