See notes to unaudited consolidated financial statements.

MEDCATH CORPORATION4

MEDCATH CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

(Going Concern Basis)

(In thousands, except per share data)

(Unaudited)

See notes to unaudited consolidated financial statements.

MEDCATH CORPORATION5

MEDCATH CORPORATION

CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWS

(Going Concern Basis)

(In thousands)

(Unaudited)

See notes to unaudited consolidated financial statementsstatements.

MEDCATH CORPORATION6

MEDCATH CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(All tables in thousands, except percentages and per share data)

1. Business and Basis of Presentation

MedCath Corporation (the “Company” or “MedCath”) historically owned and operated hospitals in partnership with physicians whom the Company believes have established reputations for clinical excellence.physicians. On March 1, 2010 the Company announced that its Board of Directors had formed a Strategic Options Committee to consider the sale either of the Company’s equity or the sale of its individual hospitals and other assets as the Board of Directors determined that selling the Company’s assets or equity may provide the highest return for the Company’s stockholders. At that time the Company had majority ownership interests in eight hospitals, minority ownership interests in two hospitals, a minority ownership interest in a hospital real estate venture, and also owned MedCath Partners, a division of the Company that managed cardiac diagnostic and therapeutic facilities. Since this announcement through December 31, 2011,June 30, 2012, the Company has sold sevenall eight of its majority owned hospitals, including Bakersfield Heart Hospital (“BHH”), which was sold on June 30, 2012, its equity interest in the two minority owned hospitals, its equity interest in thea real estate venture and the MedCath Partners division, including a venture that was minority owned through the Company’s MedCath Partners division. Accordingly, asAs of December 31, 2011,June 30, 2012, the Company’s single remaining hospital interest isassets which it will seek to liquidate include an investment in a 53.3% ownership interestpartnership that owns a medical office building in Bakersfield Heart Hospital in Bakersfield, California with 47 licensed beds.Austin, Texas and two catheterization labs that were retained after the sale of the MedCath Partners division. The Company manages its wind-down operations from its corporate office located in Charlotte, North Carolina.

On September 22, 2011, at a special meeting of stockholders and following the recommendation of the Board of Directors, the Company’s stockholders approved (a) the sale of all or substantially all of the remaining assets of the Company prior to filing a certificate of dissolution and the complete liquidation of the Company (as described in Section 356(a) of the Internal Revenue Code of 1986, as amended, and (b) the dissolution of the Company under the Delaware General Corporation Law (“Plan of Liquidation”). Accordingly, the Company adopted the liquidation basis of accounting as of September 22, 2011 (See Note 2) since the liquidation and dissolution of the Company was imminent.

As a result of the adoption of a formal Plan of Dissolution, the Company’s activities are now limited to operating Bakersfield Heart Hospital,winding down its affairs, including but not limited to, fulfilling transition service obligations to the purchaserbuyer of its hospitals, realizingBHH; seeking to realize the value of its remaining assets; making tax and regulatory filings; winding down its remaining business activities and making distributions to its stockholders. Winding downsatisfying its remaining business activities includes the corporate division functions, managing Bakersfield Heart Hospital until its value is realized through a sale transaction, realizing the value of corporate held assets and paying the creditors of previously sold hospitals in which the Company retained net working capital.liabilities.

Basis of Presentation — The Company’s unaudited interim consolidated financial statements as of December 31, 2011June 30, 2012 and September 30, 2011 and for the three and nine month periods ended December 31,June 30, 2012 and 2011 and 2010 have been prepared in accordance with accounting principles generally accepted in the United States of America hereafter, (“generally accepted accounting principles”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). These unaudited interim consolidated financial statements reflect, in the opinion of management, all material adjustments necessary to fairly present the Company’s assets in liquidation, its changes in net assets in liquidation, and the results of operations and financial position for the periods presented. All intercompany transactions and balances have been eliminated.

Certain information and disclosures normally included in the notes to consolidated financial statements have been condensed or omitted as permitted by the rules and regulations of the SEC, although the Company believes the disclosures are adequate to make the information presented not misleading. The unaudited interim consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2011. During the threenine months ended December 31, 2011,June 30, 2012, the Company has not made any material changes in the selection or application of its critical accounting policies that were set forth in its Annual Report on Form 10-K for the fiscal year ended September 30, 2011.

Segment Reporting -— Operating segments are components of an enterprise about which separate financial information is available and evaluated regularly by the chief operating decision maker in deciding how to allocate resources and evaluate performance. Two or more operating segments may be aggregated into a single reportable segment if the segments have similar economic and overall industry characteristics, such as customer class, products and service. The Company’s chief operating decision maker, its Chief Executive Officer, evaluates performance and makes operating decisions about allocating resources based on financial data presented on a consolidated basis. Through March 31, 2011, the Company’s reportable segments consisted of the Hospital Division and the MedCath Partners Division. However, during the third quarter of fiscal 2011, the Company disposed of its interest in the Partners Division. Accordingly, the Company’s sole reporting segment is the Hospital Division.

7

MEDCATH CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(All tables in thousands, except percentages and per share data)

2. Plan of Dissolution and Liquidation Basis of Accounting

Plan of Dissolution— The Company’s Plan of Dissolution provides for the completion of the voluntary liquidation, winding up and dissolution of the Company. As a result of the stockholders approval of the Plan of Dissolution, the Company will seek to (i) sell its remaining assets, (ii) pay, or establish a reserve to pay, all of the Company’s liabilities, including without limitation (a) any liabilities arising out of the United States Department of Justice (“DOJ”(the “DOJ”) inplantableimplantable cardioverter defibrillator (“ICD”) Investigation (see Note 6), (b) other currently unknown or unanticipated liabilities, and (c) a reserve of such additional amount as the Company’s Board of Directors determines to be necessary or appropriate under the General Corporation Law of the State of Delaware (“DGCL”) with respect to additional liabilities that may arise after the Company files for dissolution, and (iii) make one or more additional liquidating distributions. Thereafter, the Company will file a certificate of dissolution in accordance with Section 275 of the DGCL (the “Filing”) in order to dissolve and will attempt to liquidate any of its remaining unsold assets, satisfy or make reasonable provisions for the satisfaction of its remaining obligations, and make distributions to stockholders of any available liquidation proceeds, as well as any remaining cash on hand. Although not currently contemplated by the Company’s Board of Directors, if at any time prior to the Filing the Company’s Board of Directors determines that the Plan of Dissolution is not in the best interests of its stockholders, the Board of Directors may direct that the Plan of Dissolution be abandoned, or may amend or modify the Plan of Dissolution, to the extent permitted by the DGCL, without further stockholder approval. After the Filing, the Board of Directors may seek stockholder approval for the revocation of the Dissolution if it determines that the Plan of Dissolution is no longer in the best interests of the Company and its stockholders.

MedCath’s Board of Directors believes the conditions outlined in the Company’s August 17, 2011 Proxy Statement to file a certificate of dissolution in accordance with Section 275 of the DGCL by September 22, 2012 have been satisfied. As a result, the Company currently anticipates making the Filing and a liquidating distribution (the “Pre-Filing Distribution”) to its stockholders of $5.83 to $6.33 per share as part of the Plan of Dissolution on September 21, 2012. Such Pre-Filing Distribution is expected to be approved by the Board of Directors no later than August 30, 2012.

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.

Accrued Cost of Liquidation

The Company accrued the estimated costs expected to be incurred during the dissolution period. The dissolution period provides time for the Company to sell its remaining assets and file articlesits certificate of dissolution. Under DGCL, the dissolution period after the filing of the articlescertificate of dissolution must be a minimum of three years. In determining its total estimated costs to liquidate, the Company estimated that it will incur costs through September 30, 2015. The estimates were based on prior history, known future events, contractual obligations and the estimated time to complete the liquidation. The Company has recorded total accrued liabilities of $35.8$23.9 million excluding obligations under capital leases, on the statement of net assets as of December 31, 2011.June 30, 2012. The $35.8$23.9 million is the total expected payments for the settlement of liabilities. The $35.8$23.9 million includes $23.7$17.3 million in accrued liabilities related to the Company’s corporate division and $12.1$6.6 million related to the Company’s previously sold entities and for Bakersfield Heart Hospital.entities. Total accrued liabilities recorded in accordance with Generally Accepted Accounting Principles (“GAAP”) do not include any amount related to the DOJ ICD investigation since the Company is unable to reasonably estimate the amounts that could have to be repaid, if any, upon resolution of the investigation. Activities relative toinvestigation or any amount for unknown contingencies (see “Impact of Unknown Contingencies on Net Asset Realizable Value” in Item 2 of this Form 10Q). The pre-tax change in liquidation accruals related to the Company’s corporate division for the three and nine months ended December 31, 2011June 30, 2012 are as follows (in millions):

8

MEDCATH CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(All tables in thousands,millions, except percentages and per share data)

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 underin connection with the Plan of Dissolution and aggregated $139.4 million resulting in a corresponding reduction of dividends payable.

Net assets in liquidation decreased $0.6 million for the three months ended June 30, 2012 and increased $1.8 million for the nine months ended June 30, 2012. The dispositiondecrease for the three months ended June 30, 2012 is a result of approximately $0.2 million loss in operations, net of tax, related to retained partnerships in which we sold certain assets. We incurred expenses related to professional fees and patient refunds for these partnerships which are not included in the corporate wind down costs. We also adjusted the net realizable value of certain of our assets down by $0.2 million, net of tax, and increased our total estimated corporate wind down costs by approximately $0.2 million, net of tax, during the three month period ended June 30, 2012.

The increase in net assets for the nine month period ended June 30, 2012 was due to results of operations including the operations of Bakersfield Heart Hospital for the first nine months prior to the sale of the hospital on June 30, 2012. The Company’s 34.82% minority ownership interest in Harlingen Medical Center (“HMC”) in Harlingen, Texas,operations for the first nine months ended June 30, 2012 includes $2.7 million, net of tax and its 36.06% ownership interest in HMC Realty, LLC, a real estate venture in Harlingen, Texas, which held the real estatenoncontrolling interests, related to Harlingen Medical Center, for total consideration of $9.0 million to Prime Health Services. The transaction was completed on November 30, 2011 and resulted in a reduction of $8.5 million to investment in affiliates. In addition,an agreement the Company paid approximately $0.5 millionentered into in April 2012 with the United States Department of closing costsHealth and Human Services, the Secretary of Health and Human Services and the Centers for Medicare and Medicaid Services (referred to collectively as “HHS”). This agreement was part of an industry-wide settlement with HHS related to such disposition.litigation that was pending for several years contending that acute care hospitals in the U.S. were underpaid from the Medicare inpatient prospective payment system during a number of prior years. The underpayments resulted from calculations related to rural floor budget neutrality adjustments that were implemented in connection with the Balanced Budget Act of 1997.

The operations for the nine months ended June 30, 2012 were offset by the reduction in the net realizable value of assets of approximately $2.1 million based on updated indications of market value, and an increase of approximately $1.5 million in estimated corporate wind down costs. The corporate wind down costs were increased during the nine months ending June 30, 2012 to account for professional fees expected to be incurred related to our on-going DOJ investigation, legal costs to be incurred related to the dissolution process, and costs to be incurred to outsource our corporate IT function to a third party.

9

MEDCATH CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(All tables in thousands, except percentages and per share data)

3. Recent Accounting Pronouncements

The following is a summary of new accounting pronouncements that may apply to the Company.

Recent Accounting Pronouncements

In August 2010, the FASB issued Accounting Standard Updates (“ASU”) 2010-24, “Health Care Entities (Topic 954): Presentation of Insurance Claims and Related Insurance Recoveries,” which clarifies that a health care entity should not net insurance recoveries against a related claim liability. The guidance provided in this ASU is effective as of the beginning of the first fiscal year beginning after December 15, 2010, fiscal 2012 for the Company. The adoption of this ASU did not have any impact on the Company’s consolidated financial statements.

In August 2010, the FASB issued ASU 2010-23, “Health Care Entities (Topic 954): Measuring Charity Care for Disclosure,” which requires a company in the healthcare industry to use its direct and indirect costs of providing charity care as the measurement basis for charity care disclosures. This ASU also requires additional disclosures of the method used to identify such costs. The guidance provided in this ASU is effective for fiscal years beginning after December 15, 2010, fiscal 2012 for the Company. The adoption of this ASU did not have any impact on the Company’s previously reported results of operations. However, the following additional disclosures outline the Company’s policy on provision of charity care and the aggregate direct and indirect costs of providing such care for the three and nine months ended December 31, 2010:June 30, 2011:

The Company providesprovided care to patients who meetmet certain criteria under our charity care policy without charge or at amounts less than the Company’s established rates. Patients that receivereceived charity care discounts musthad to 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 the Company does not pursue collection of amounts determined to qualify as charity care, they arewere not reported as net revenue. The aggregate direct and indirect cost of provision of such care based on the assigned diagnosis-related group to such patients aggregated $0.4$0.1 million and $0.5 million for the three monthsand nine month periods ended December 31, 2010.June 30, 2011, respectively.

In July 2011, the FASB issued ASU 2011-07, “Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities,” whereby a health care entity is required to present the provision for bad debts as a component of net revenues within the revenue section of the statement of operations. A health care entity that recognizes significant amounts of patient services revenue at the time the services are rendered even though it does not assess the patient’s ability to pay will be required to disclose the following:

Public entities will be required to provide these disclosures and statement of operations presentation for fiscal years and interim periods within those years beginning after December 15, 2011, fiscal 2013 for the Company, with early adoption permitted. The Company is evaluating the potential impacts the adoption of this ASU will have on its consolidated financial statements.

MEDCATH CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(All tables in thousands, except percentages and per share data)

4. Discontinued Operations

The results of operations for the three and nine month period from October 1, 2010 to December 31, 2010periods ending June 30, 2011 include the continuing and discontinued operations of the Company. Discontinued operations are not presented separately under the liquidation basis of accounting. However, on September 30, 2011, the Company completed the sale of Hualapai Mountain Medical Center (“HMMC”) in Kingman, Arizona, to Kingman Regional Medical Center and the sale of the Company’s interest in Louisiana Medical Center & Heart Hospital (“LMCHH”) to Cardiovascular Care Group (“CCG”). MedCath financed CCG’s purchase with a secured promissory note that was initially scheduled to mature 60 days after closing, subject to extension at CCG’s election for up to 60 additional days. CCG paid the amount due under that promissory note on January 9, 2012. The total amount paid to MedCath was $22.1 million, which reflected accrued interest and adjustments for final net working capital. In addition, on June 30, 2012, the Company entered into a definitive equity purchase agreement and completed the sale of its 53.31% equity interest in BHH and its secured loans to BHH to CCG. The purchase price for the Company’s equity interest in and secured loans to BHH was $38.9 million including the final net working capital settlement. These twothree sales were completed subsequent to the adoption of the Plan of Dissolution, as approved by the Company’s stockholders on September 22, 2011, and therefore are not presented as discontinued operations in the accompanying statement of operations for the three and nine month periodperiods ended December 31, 2010.June 30, 2011.

Prior to its adoption of the liquidation basis of accounting on September 22, 2011, the Company sold its interests in certain businesses and reported the results of operations of those businesses as discontinued operations in its previously issued financial statements for

10

MEDCATH CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(All tables in thousands, except percentages and per share data)

the fiscal year ended September 30, 2011. As a result, the Company has reclassified the results of operations of the following entities within income from discontinued operations, net of taxes in the accompanying statement of operations for the three and nine month periodperiods ended December 31, 2010.June 30, 2011. The net realizable value of the assets and settlement amount of liabilities on the statement of net assets in liquidation includes the assets and liabilities of all continuing and discontinued operations.

Effective August 1, 2011, the Company sold its ownership interest and management rights in Arkansas Heart Hospital (“AHH”) to AR-MED, LLC, which is majority owned by Dr. Bruce Murphy, a physician affiliated with Little Rock Cardiology Clinic, P.A., and an existing investor in AHH.LLC. The transaction valued AHH at $73.0 million plus a percentage of the hospital’s available cash. The purchaser and Dr. Murphy havehas agreed to indemnify MedCath for liabilities arising from the pre-closing operations of the hospital, including but not limited to any liabilities that may arise from the pending ICD investigation (see Note 6).

Effective August 1, 2011, the Company sold the majority of the assets of Heart Hospital of New Mexico (“HHNM”) to Lovelace Health System, Inc., which is an affiliate of Ardent Health Services, based in Nashville, Tennessee. The transaction valued the assets at $119.0 million. The limited liability company that owned HHNM, of which 74.8% is owned by MedCath, retained its net working capital. In order to obtain the required approval of HHNM’s physician partners to the sale of HHNM, MedCath paid $22.0 million of the Company’s net proceeds from the sale to such physician partners. Such payment was allocated as an additional noncontrolling interest.

Effective May 4, 2011 the Company sold the majority of the assets of its seven cardiac diagnostic and therapeutic facilities (which are referred to as the MedCath Partners division) to DLP Healthcare, a joint venture of LifePoint Hospitals, Inc. and Duke University Health System. The transaction valued the assets sold at $25.0 million and involved the sale of certain North Carolina-based assets related to the operation of cardiac catheterization laboratories in North Carolina. MedCath retained working capital related to the assets sold and also retained assets related to catheterization labs leased to two health care systems outside of North Carolina. Further, MedCath retained certain assets and liabilities arising from this business that arose before closing. The transaction was completed effective May 4, 2011.

As the sale of the MedCath Partners division met the criteria for classification as a discontinued operation, the previously reported gains and losses on sale of its equity interests have also been reclassified to discontinued operations. Such transactions are as follows:

MEDCATH CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(All tables in thousands, except percentages and per share data)

During November 2010, the Company entered into an agreement to sell substantially all of the assets of TexSan Heart Hospital (San Antonio, Texas) (“TexSan”) to Methodist Healthcare System of San Antonio for $76.25 million, plus retained working capital. The transaction closed on December 31, 2010 with the Company retaining all accounts receivable and the hospital’s remaining liabilities. In addition, the Company acquired the partnership’s minority investors’ ownership in accordance with the terms of a call option agreement. See Note 6 for further discussion. The gain of $32.4$34.2 million has been included in income from discontinued operations for the threenine months ended December 31, 2010.June 30, 2011. Subsequent to June 30, 2011, the gain was reduced by $1.9 million for additional noncontrolling interests.

During August 2010, the Company entered into a definitive agreement to sell certain of the hospital assets and liabilities, plus certain net working capital of Arizona Heart Hospital (Phoenix, Arizona) (“AzHH”) to Vanguard Health Systems for $32.0 million and the assumption of capital leases of $0.3 million. The transaction closed on October 1, 2010 with the limited liability company which owned AzHH retaining all accounts receivable and the hospital’s remaining liabilities. As part of its assessment of long-lived assets in June 2010, the Company recognized an impairment charge of $5.2 million based on its potential sales value of AzHH. Accordingly, the Company recognized a nominal gain on the sale for the threenine months ended December 31, 2010.June 30, 2011.

During February 2010, the Company entered into an agreement to sell substantially all of the assets of Heart Hospital of Austin (Texas) (“HHA”) to St. David’s Healthcare Partnership L.P. for $83.8 million plus retention of working capital. The transaction closed on November 1, 2010. The gain of $35.7 million has been included in income from discontinued operations for the threenine months ended December 31, 2010.June 30, 2011.

11

MEDCATH CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(All tables in thousands, except percentages and per share data)

The Company has entered into transition services agreements with the buyers of certain of its sold assets that extend into fiscal 2012. As a result, the Company entered into a managed services agreement with McKesson Technologies, Inc. (“McKesson”) whereby McKesson would employ the majority of the Company’s information technology employees effective November 1, 2010. In addition, to facilitate collection of outstanding accounts receivable at such entities, on February 11, 2011 the Company entered into a master agreement for revenue cycle outsourcing with Dell Marketing L.P. (“Dell”) whereby Dell would assume the responsibility for collection of outstanding accounts receivable for the Company’s current and disposed of entities. Furthermore, Dell retained the services of certain employees that had been employed by the Company on or before March 7, 2011 and effective March 1, 2011, Dell has sublet certain space that had been previously utilized by Company personnel involved in the collection of accounts receivable.

The results of operations of discontinued operations included in the consolidated statement of operations are as follows:

5. Investments in Affiliates

The Company’s determination of the appropriate consolidation method to follow with respect to investments in affiliates is based on the amount of control the Company has and the ownership level in the underlying entity. Investments in entities that the Company does not control, but over whose operations the Company has the ability to exercise significant influence (including investments where the Company has a less than 20% ownership) are accounted for under the equity method. The Company additionally considers if it is the primary beneficiary of (and therefore should consolidate) any entity whose operations the Company does not control. At December 31, 2011, all of the Company’s investments in unconsolidated affiliates are accounted for using the equity method. As of December 31, 2011, the Company’s net realizable value in a partnership that owns a medical office building located in Austin, Texas represents the Company’s sole remaining unconsolidated affiliate.

MEDCATH CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(All tables in thousands, except percentages and per share data)

On November 30, 2011, the Company entered into a definitive agreement and simultaneously sold its ownership interest in Harlingen Medical Center and HMC Realty, LLC to Prime Healthcare Services (“Prime”). The transaction valued the Company’s combined ownership interest in Harlingen Medical Center and HMC Realty, LLC at $9.0 million. Anticipated net proceeds to the Company from the sale, along with the recapture of prior losses attributable to the operation of Harlingen Medical Center, resulted in a tax gain on the transaction of $20.4 million. As a result of the tax gain, the net after-tax proceeds from the transaction were $0.3 million. The Company had previously adjusted its investments in Harlingen Medical Center and HMC Realty, LLC to their net realizable value and had adjusted it deferred income taxes based on this gain. Accordingly, no adjustment to the net assets in liquidation was required for this transaction during the threenine months ended December 31, 2011.June 30, 2012.

On October 1, 2010, the Company sold its interest in Avera Heart Hospital of South Dakota for $25.1 million to Avera McKennan whereby Avera McKennan purchased a MedCath subsidiary which was the indirect owner of a one-third ownership interest. Prior to its disposition, the Company had accounted for its investment in Avera Heart Hospital of South Dakota using the equity method of accounting. The Company recognized a gain on the disposition of $15.4 million.million during the nine months ended June 30, 2011.

As of June 30, 2012, the Company’s net realizable value in a partnership that owns a medical office building located in Austin, Texas represents the Company’s sole remaining unconsolidated affiliate.

6. Contingencies and Commitments

Put and Call Options — During August 2010, the Company amended its partnership agreement with one of its hospitals, whereby call and put options were added relative to the Company’s noncontrolling interest in the hospital. The call allowed the Company to acquire all of the noncontrolling interest in the hospital owned by physician investors for the net amount of the physician investors’ unreturned capital contributions adjusted upward for any proportionate share of additional proceeds upon a disposition transaction. The put allowed the Company’s noncontrolling stockholders in the hospital to put their shares to the Company for the net amount of the physician investors’ unreturned capital contributions.

The noncontrolling stockholders’ recorded basis in their partnership interest was zero prior to the amendment of this agreement. Accordingly, the Company recognized a redeemable noncontrolling interest. Furthermore, upon exercise, the Company converted the outstanding balance of the noncontrolling interest in this partnership together with amounts due from the noncontrolling stockholders into a net obligation, of which $3.0$3.5 million remains outstanding as of December 31, 2011.June 30, 2012.

12

MEDCATH CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(All tables in thousands, except percentages and per share data)

Contingencies —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 significantly affect the Company. In addition, reimbursement is generally subject to adjustment following audit by third party payors, including commercial payors as well as the contractors who administer the Medicare program for the Centers for Medicare and Medicaid Services (“CMS”).

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. The Company believes that adequate provisions have 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 net revenue, there is a possibility that recorded estimates will change by a material amount in the future.

The $5.4 million positive impact related to the Company’s operations for the first nine months ended June 30, 2012 includes $2.7 million, net of tax and noncontrolling interests, related to an agreement the Company entered into in April 2012 with the United States Department of Health and Human Services, the Secretary of Health and Human Services and the Centers for Medicare and Medicaid Services (referred to collectively as “HHS”). This agreement was part of an industry-wide settlement with HHS related to litigation that was pending for several years contending that acute care hospitals in the U.S. were underpaid from the Medicare inpatient prospective payment system during a number of prior years. The underpayments resulted from calculations related to rural floor budget neutrality adjustments that were implemented in connection with the Balanced Budget Act of 1997. The Company received $3.3 million of the cash settlement (before minority interest and taxes) prior to June 30, 2012 and has $1.6 million reflected in accounts receivable as of June 30, 2012 on the Statement of Net Assets. The $1.6 million has been retained by the fiscal intermediary. The Company is in process of seeking payment from the fiscal intermediary as soon as possible as the Company believes that the withholding of the payment is not permitted under the settlement agreement.

During March 2012, CMS issued new Supplemental Security Income (“SSI”) ratios utilized for calculating Medicare Disproportionate Share Hospital reimbursements (“Medicare DSH”) for federal fiscal years 2006 through 2009. As a result of these new SSI ratios, acute care hospitals are required to recalculate their Medicare DSH for the affected years and record adjustments for differences in estimated reimbursements. As a result, the Company recognized a negative adjustment of $0.3 million to the statement of net assets and within the operations line on the statement of changes in net assets during the nine month period ending June 30, 2012.

In 2005, CMS began using recovery audit contractors (“RAC”) to detect Medicare overpayments not identified through existing claims review mechanisms. 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. 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 by December 31, 2010. The Company believes the claims for reimbursement submitted to the Medicare and Medicaid programs by the Company’s facilities have been accurate, however the Company is unable to reasonably estimate what the potential result of future RAC audits or other reimbursement matters could be.

The Company is involved in various claims and legal actions in the ordinary course of business, including malpractice claims arising from services provided to patients that have been asserted by various claimants and additional claims that may be asserted for known incidents through December 31, 2011. These claims and legal actions are in various stages, and some may ultimately be brought to trial. Moreover, additional claims arising from services provided to patients in the past and other legal actions may be asserted in the future. The Company is protecting its interests in all such claims and actions and does not expect the ultimate resolution of these matters to have a material impact on the Company’s net assets in liquidation.

MEDCATH CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(All tables in thousands, except percentages and per share data)

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 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.

Based upon the Company’s legal advisors’ discussions and meetings with the DOJ, the primary focus of the investigations involves ICDs implanted since October 1, 2003 within prohibited timeframes (i.e., timeframe violations). A “timeframe violation” involves an

13

MEDCATH CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(All tables in thousands, except percentages and per share data)

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.

On February 17, 2011, legal counsel for the Company met with representatives of the DOJ to discuss the agency’s review of the patient medical records provided in response to the CID. In addition to discussing the DOJ’s review process, DOJ reconfirmed that certain ICD implantations were not being examined by the agency. As noted above, these include implantations prior to October 1, 2003 and implantations for secondary (rather than primary) prevention. With respect to primary prevention implantations, the Company discussed clinical comments supporting the implantations and agreed to additional meetings and presentations regarding those implantations for other Company hospitals.

During the period since March 2011 through December 2011 legal counsel for the Company has met on multiple occasions with representatives of the DOJ to discuss the investigation and present preliminary findings regarding an internal review of a Company hospital other than the hospital subject to the CID. These preliminary findings were submitted to the DOJ and continue to be discussed by the parties. The Company intends to similarly present and submit findings for its other hospitals under investigation.

As discussed above, the Company has complied with all requests from the DOJ for information, is actively engaged in discussions with the DOJ regarding the issues involved in the ICD Investigation, and continues to reviewdevelop and present arguments supporting the ICD implantations under 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 October 31, 2012. To date, the DOJ has not asserted any claims against the Company and the Company expects to continue to have input into the investigation. Because the investigation is in its early stages, however, theThe Company is unable to evaluate the outcome of the investigationsinvestigation and is unable to reasonably estimate the amounts to be repaid, which may be material upon resolution of the investigations.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 its planned liquidation and dissolution.

On January 8, 2009,In addition to the California Supreme Court ruledabove matters, the Company is involved inProspect Medical Group, Inc., et al. v. Northridge Emergency Medical Group, et al. (2009) 45 Cal. 4^th 497, various claims and legal actions in the ordinary course of business, including malpractice claims arising from services provided to patients that under California’s Knox-Keene statute healthcare providershave been asserted by various claimants and additional claims that may not billbe asserted for known incidents through June 30, 2012. These claims and legal actions are in various stages, and some may ultimately be brought to trial. Moreover, additional claims arising from services provided to patients for covered emergency out-patient services for which health plans or capitated payors are invoiced byin the provider but failpast and other legal actions may be asserted in the future. The Company is taking steps to pay the provider. The California Supreme Court held that the only recourse for healthcare providers is to pursue the payors directly. TheProspect decisiondefend its interests in all such claims and actions and does not applyexpect the ultimate resolution of these additional matters to amounts thathave a material impact on the health plan or capitated payor is not obligated to pay under the terms of the insured’s policy or plan. Although the decision only considered emergency providers and referred to HMOs and capitated payors, future court decisions on how the so-called “balance billing” statute is interpreted does pose a risk to healthcare providers that perform emergency or other out-patient servicesCompany’s net assets in the state of California.

MEDCATH CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(All tables in thousands, except percentages and per share data)

During October, 2009, a purported class action law suit was filed by an individual against the Bakersfield Heart Hospital, a consolidated subsidiary of the Company. In the complaint the plaintiff alleges that under California law, and specifically under the Knox-Keene Healthcare Service Plan Act of 1975 and under the Health and Safety Code of California, California prohibits the practice of “balance billing” for patients who are provided emergency services. On November 24, 2010, the court granted the Bakersfield Heart Hospital’s motion to strike plaintiff’s class allegations, which the plaintiff appealed. Thereafter, the parties discussed settlement and the matter settled in February 2011. The parties executed a Settlement and Release Agreement, and plaintiff dismissed his Complaint with prejudice and his pending appeal. Local counsel has advised that plaintiff’s counsel could locate another class representative to reinstitute the case, but the possibility became more remote as time passes due to the statute of limitations.liquidation.

During June 2011, and 2010, the Company entered into a one-year claims-made policy providing coverage for medical malpractice claim amounts in excess of $2.0 million of retained liability per claim. The Company also purchased additional insurance to reduce the retained liability per claim to $0.3 million for the MedCath Partners Division, for each respective fiscal year. Because of the Company’s self-insured retention levels, the Company is required to recognize an estimated expense/liability for the amount of retained liability applicable to each malpractice claim. As of December 31, 2011June 30, 2012 and September 30, 2011, the total estimated liability for the Company’s self-insured retention on medical malpractice claims, including an estimated amount for incurred but not reported claims, was $1.2$0.3 million and $0.6 million, respectively, which is included in other accrued liabilities in the consolidated statements of net assets. The Company maintains this reserve based on actuarial estimates using the Company’s historical experience with claims and assumptions about future events.

In addition to reserves for medical malpractice, the Company also maintains reserves for self-insured workman’s compensation, healthcare and dental coverage. The total estimated reserve for self-insured liabilities for workman’s compensation, employee health and dental claims was $0.4 million$0 and $1.0 million as of December 31, 2011June 30, 2012 and September 30, 2011, respectively, which is included in other accrued liabilities in the consolidated statements of net assets. The Company maintains this reserve based on historical experience with claims. The Company maintains commercial stop loss coverage for health and dental insurance program of $0.2 million per plan participant.

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MEDCATH CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(All tables in thousands, except percentages and per share data)

7. Per Share Data

Basic — The calculation of basic earnings per share includes 150,900194,100 of restricted stock units that have vested but as of December 31, 2010June 30, 2011 have not been converted into common stock.

Diluted — The calculation of diluted earnings per share considers the potential dilutive effect of options to purchase 913,812782,562 shares of common stock at prices ranging from $9.95 to $33.05, which were outstanding at December 31, 2010June 30, 2011, as well as 309,405259,000 shares of restricted stock which were outstanding at December 31, 2010. DilutiveJune 30, 2011. No options of 3,941 have been included in the calculation of diluted earnings (loss) per share at December 31, 2010. Of the outstandingor restricted stock options, 897,500 options have not beenwere included in the calculation of diluted earnings per share at December 31, 2010, becausefor the options were anti-dilutive.three and nine months ended June 30, 2011, as the consideration of such shares would be anti-dilutive due to the loss from continuing operations, net of tax.

8. Stock Based Compensation

Compensation expense from the grant of equity awards made to employees and directors are recognized based on the estimated fair value of each award over each applicable awards vesting period. The Company estimates the fair value of equity awards on the date of grant using, either an option-pricing model for stock options or the closing market price of the Company’s stock for restricted stock and restricted stock units. Stock based compensation expense is recognized on a straight-line basis over the requisite service period for the awards that are ultimately expected to vest. Stock based compensation expense recorded during the three and nine months ended December 31, 2010June 30, 2011 was $1.9 million.$0.4 million and $3.3 million, respectively. The associated tax benefits related to the compensation expense recognized for the three and nine months ended December 31, 2010June 30, 2011 was $0.8 million. During the three months ended December 31, 2010, 18,325 stock options were cancelled.$0.2 million and $1.3 million, respectively.

Restricted Stock Awards

There were no43,200 grants of restricted stock during the three monthsnine month period ended December 31, 2010.June 30, 2011. All restricted stock granted became fully vested on September 30, 2011. During the three monthsand nine month periods ended December 31, 2010, 423,980June 30, 2011, 17,062 and 452,234 restricted stock awards and units previously granted became vested.vested, respectively.

9. Subsequent Events

MedCathOn July 2, 2012 the Company received a secured promissory note$38.1 million of the $38.9 million sales proceeds from CCG for its purchase of LMCHH that was to mature on January 31, 2012. CCG paid the amountsale BHH. The remaining balance due under that promissory note on January 9, 2012. The total amount paid to MedCath was approximately $22.1 million, which reflected accrued interest and adjustmentsis for final net working capital.capital adjustments that are being finalized by the Company and the buyer.

Item  2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the interim unaudited consolidated financial statements and related notes included elsewhere in this report, as well as the audited consolidated financial statements and related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2011.

Overview and Background of Strategic Options Process

We are a healthcare provider that historically owned and operated hospitals that are focused on providing high acuity services, including the diagnosis and treatment of cardiovascular disease. 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 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 managed cardiac diagnostic and therapeutic facilities. Since this announcement, we have sold sevenall of our majority owned hospitals, our equity interest in the two minority owned hospitals, our equity interest in the hospital real estate venture and our MedCath Partners division, including a venture that was minority owned through our MedCath Partners division. We are headquarted in Charlotte, North Carolina.

Accordingly, asAs of December 31, 2011,June 30, 2012, we had asold our 53.3% ownership interest in and secured loans to Bakersfield Heart Hospital (“BHH”) in Bakersfield, California. We manage ourCalifornia, which was funded by the buyer on July 2, 2012.

As of June 30, 2012, the Company’s remaining hospital from our corporateassets which it intends to liquidate include an investment in a partnership that owns a medical office locatedbuilding in Charlotte, North Carolina.Austin, Texas and two catheterization labs that were retained after the sale of the MedCath Partners division. The Company receives rental income related to the two catheterization labs and is seeking to sell its interest in the medical office building.

On September 22, 2011, at a special meeting of stockholders and following the recommendation of the Board of Directors, ourthe Company’s stockholders approved (a) the sale of all or substantially all of ourthe remaining assets of the Company prior to filing a certificate of dissolution and the complete liquidation of the Company (as described in Section 356(a) of the Internal Revenue Code of 1986, as amended, and (b) the dissolution of the Company under the Delaware General Corporation Law (“Plan of Liquidation”). Accordingly, wethe Company adopted the liquidation basis of accounting as of September 22, 2011 (See Note 2) since the liquidation and dissolution of the Company was considered imminent.

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As a result of the adoption of a formal Plan of Dissolution and the disposition of our interests in BHH, the Company’s activities are now limited to operating Bakersfield Heart Hospital, fulfilling transition service obligations to the purchaserbuyer of our hospitals, realizingBHH; seeking to realize the value of ourits remaining assets; making tax and regulatory filings; winding down ourits remaining business activities and making distributions to our stockholders. Winding down oursatisfying its remaining business activities includes continuing our corporate division functions, managing our remaining hospital, Bakersfield Heart Hospital, until its value is realized through a sale transaction, realizing the value of corporate held assets and paying the creditors of previously sold hospitals in which we retained net working capital.liabilities.

Management’s goal is to liquidate all of the Company’s remaining assets as soon as practical while seeking to maximize stockholder value. We currently anticipate that all of the remaining operating assets of the Company will be sold in calendar 2012, and that an additional liquidating distribution will be paid immediately before the Company files a certificate of dissolution, subject to the Company’s obligation to pay or make provisions to satisfy all of its expenses and liabilities. After the sale of its operating assets, theThe Company intends to retain an amount of assets that the Company estimates are needed to ensure that it has sufficient assets to pay or satisfy all of its remaining expenses and liabilities.liabilities and complete the wind down of its affairs. Payroll and related costs and other expenses are currently anticipated to be incurred at least through September 30, 2015 in order to complete all required regulatory filings and audits. Accordingly, our estimate of expenses anticipated to be incurred during the period from JanuaryJuly 1, 2012 to September 30, 2015 havehas been accrued as of December 31, 2011June 30, 2012 in our financial statements prepared on the liquidation basis of accounting. SuchThis estimate of expenses does not include any estimate of liabilities arising from the ICD Investigation or other unknown or anticipatedunanticipated liabilities. The Company may transfer all of its assets to a liquidating trust prior to September 30, 2015 and may make additional liquidating distributions prior to September 30, 2015. Since the 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 threefour transactions including:

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In connection with our stockholders’ 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 underin connection with the Plan of Dissolution.

Plan of Dissolution

AsOn August 17, 2011, MedCath filed a resultproxy statement with the SEC (the “Proxy”) seeking stockholder approval of a plan of complete liquidation and dissolution of the September 22, 2011 approvalCompany (the “Plan of Dissolution”). The stockholders of MedCath approved the Plan of Dissolution by our stockholders, the following events have occurred, or the Company anticipates the following will occur:on September 22, 2011.

Changes in Net Assets in Liquidation

The Company’s net asset valueThree Month Period Ended June 30, 2012

Net assets in liquidation decreased approximately $1.3$0.6 million for the three months ended June 30, 2012. The decrease is a result of approximately $0.2 million loss, net of tax, in operations related to retained partnerships in which we sold certain assets. We incurred expenses related to professional fees and patient refunds for these partnerships which are not included in the corporate wind down costs. We also adjusted the net realizable value of certain of our assets down by $0.2 million, net of tax, and increased our total estimated corporate wind down costs by approximately $0.2 million, net of tax, during the three month period from Septemberended June 30, 20112012.

Activities (prior to December 31, 2011.income tax) relative to liquidation accruals related to the Company’s corporate division for the three month period ended June 30, 2012 are as follows (in millions):

Our outsourcing information technology and central business office function expense declined due to our ability to offset the cost with transition service fee revenue and a reduction in cost to collect on accounts. We increased our legal, board and other professional fees to account for an anticipated increase in legal costs associated with the on-going ICD investigation and our wind down activities. Our estimated lease expense was increased to adjust for CPI increases and utility costs associated with our leased space. This increase was offset by a decline in the overall estimated contract breakage costs due to updated estimates.

Nine Month Period Ended June 30, 2012

Net assets in liquidation increased $1.8 million for the nine months ended June 30, 2012. The changeincrease in net assets was due to a $0.3results of operations including the operations of BHH for the first nine months prior to the sale of the hospital as of June 30,

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2012. The Company’s operations for the first nine months ended June 30, 2012 includes $2.7 million, positive impactnet of tax and noncontrolling interests, related to an agreement the Company entered into in April 2012 with the United States Department of Health and Human Services, the Secretary of Health and Human Services and the Centers for Medicare and Medicaid Services (referred to collectively as “HHS”). This agreement was part of an industry-wide settlement with HHS related to litigation that was pending for several years contending that acute care hospitals in the U.S. were underpaid from the Medicare inpatient prospective payment system during a number of prior years. The underpayments resulted from calculations related to rural floor budget neutrality adjustments that were implemented in connection with the Balanced Budget Act of 1997.

The operations a $1.1 millionfor the nine months ended June 30, 2012 were offset by the reduction in the net realizable value of assets of approximately $2.1 million based on updated indications of market value, and a $0.5an increase of approximately $1.5 million decreasein estimated corporate wind down costs. The corporate wind down costs were increased during the nine months ending June 30, 2012 to account for professional fees expected to be incurred related to our on-going DOJ investigation, legal costs to be incurred related to the reduction in estimated net liquidationdissolution process, and costs during the wind-down period.

The net realizable value of assets decline of $1.1 million was dueto be incurred to outsource our corporate IT function to a $0.2 million reduction of the note receivable balance due related to the sale of one of the Company’s hospitals, a $0.2 million decrease in the estimated net realizable value of deposits that management now believes are not collectible and a $1.8 million reduction in the net realizable value of the Company’s investment in a partnership that owns a medical office building as a result of recent market offers. These declines were offset by a $1.1 million increase in our deferred tax assets in liquidation.third party.

Activities relative to liquidation accruals related to the Company’s corporate division for the three monthsnine month period ended December 31, 2011June 30, 2012 are as follows (in millions):

Our Salaries, wages and benefits wereaccrual was adjusted by $0.8$0.5 million to account for an increase in transition service revenues that offset our salaries, wages and benefits expense. We entered into several transition services agreements during fiscal 2011 with buyers of our assets to provide information technology and business office support. Some of these services were extended beyond their original service end date. We also entered into a new transition services agreement during our first quarter of fiscal 2012 with the buyer of Harlingen Medical Center (“HMC”). We sold our equity interest in HMC effective November 30, 2011. The revenue we derive from these services offsets the expenses we incur at our corporate office to provide these services. In addition, the extension of these services increased our estimated expense related to our outsourcing of information technology and central business office functions by $1.5 million.functions. The reduction in insurance and office storage expenses was due to our ability to manage costs at the corporate level during the first quarter of fiscal 2012 offset by higher anticipated legal, board and professional fees related to the ICD investigation.

Impact of Unknown Contingencies on Net Asset Realizable Value —— The net realizable value of our assets under Generally Accepted Accounting Principles (“GAAP”) mayGAAP at any time does not represent the same amount we believe is distributable to our stockholders if we were to present a range of estimated proceeds available for distribution to our stockholders as presented in our August 17, 2011 proxy filing.stockholders. The net realizable value of our assets under GAAP at December 31, 2011June 30, 2012, for example, does not take into consideration any estimated range of potential unknown contingencies. Accounting for contingencies under GAAP requires that the contingency be probable and estimable in order to be accrued. However, based on our prior experience,history, we do expect that we will incur contingencies during our wind-down period that we cannot estimate in accordance with GAAP at this time. Such

The Company has estimated an aggregate amount for potential unknown contingencies may include any amounts dueof approximately $48.0 to creditors as a result$58.0 million (the “Holdback”). The Holdback will be held by the Company after the Pre-Filing Distribution and used after the Filing in accordance with the DGCL to satisfy all of the DGCL process we will follow once we file for articlesCompany’s contingent liabilities, including without limitation (a) any liabilities arising out of dissolution, any amountsthe DOJ’s 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. Weclaims and governmental investigations, as previously disclosed, and (c) a reserve of such additional amount as the Board of Directors determines to be necessary or appropriate under the DGCL with respect to additional liabilities that may arise or be identified after the Filing. 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 aamount prove to be inaccurate. Certain important factors, risks and uncertainties that could cause the actual amount to differ materially from the estimated range of potential unknown contingenciesare described in our proxy filingthe risk factors included in the Proxy and the Company’s Annual Report on Form 10-K, as amended, filed with the Securities Exchange CommissionSEC on December 14, 2011.

MedCath’s management and 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 the Pre-Filing Distribution. The amount of the Pre-Filing Distribution is subject to the approval by the Board of Directors, which is expected no later than August 30, 2012 and is subject to numerous risk factors listed in the August 17, 2011 to be between $5.2 million to $19.8 millionProxy and the Company’s Form 10-K filed with the SEC on December 14, 2011.

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The Holdback does not includingtake into consideration any contingency, whichtax benefits that may be material,realized as part of the wind-down process. 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. Should there none the less be 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 could be substantially reduced and the Company may lose the right to deduct losses incurred after the Filing that may arisepertain 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 DOJ’s investigation relatedpotential unknown contingencies underlying the estimated Hold Back amount of $48.0 to $58.0 million. 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 expects to set the payable date for the Pre-Filing distribution on the date the Company will make the Filing. As a result, the Company’s common stock will not trade ex-dividend prior to or on the date the Filing is made, which is currently expected to be made on September 21, 2012. The Company’s common stock, which trades on the Nasdaq Global Market^® under the symbol “MDTH”, will cease trading on that market after the date of the Filing.