890908--11/21/2006--DYNACQ_HEALTHCARE

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Risks Related to our Business We have had a history of losses in recent years. Our ability to borrow under our Credit Agreement is limited by our borrowing base. Our credit facility contains certain covenants that may limit our flexibility and prevent us from taking certain actions. A significant percentage of our revenues are generated through relatively few physicians. Our inability to fully fund or negotiate an extension for the construction of the China Project may place our investment in that project at risk. Our expansion into international operations could be harmed by economic, political, regulatory and other risks associated with doing business in foreign countries. We may not be successful in our newly created bariatric programs. We are subject to substantial uninsured liabilities for which we have incurred, and may continue to incur, significant expenses. We indemnify our directors and officers against certain liabilities and do not presently carry director and officer liability insurance. Our inability currently to acquire and develop additional hospitals, or to sell existing facilities held for sale, could limit our future growth. We are dependent on certain key personnel. Risks Associated with our Industry Recent changes in Texas law could adversely affect the Company s operations, collections experience and liquidity. If we fail to comply with the extensive laws and complex government regulations applicable to us, we could suffer penalties or be required to make significant changes to our operations. The failure of any of our workers compensation physicians to participate in a health care network or be on the approved doctor list could negatively impact our operations. If laws governing the corporate practice of medicine change, we may be required to restructure some of our relationships. Our revenues may continue to decrease due to a reduction in payments from third-party payers, a shift in the surgical mix and/or other circumstances over which we have no control. We are dependent upon the good reputation of our physicians. Our hospitals face competition for patients from other hospitals and healthcare providers. Our hospitals face competition for staffing, which may increase our labor costs and reduce profitability. Market Risks Related to Our Stock A single stockholder controls a majority of our outstanding shares. Our common stock has a limited trading market, which could affect your ability to sell shares of our common stock and the price you may receive for our common stock. Future issuance of additional shares of our stock could cause dilution of ownership interests and adversely affect our stock price. We have not paid cash dividends on our common stock and do not expect to do so in the foreseeable future.

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890908--11/21/2006--DYNACQ_HEALTHCARE_INC