NOTE 4 - COMMON STOCK WARRANTS

3 Months Ended

Jun. 30, 2011

Derivative Instruments and Hedging Activities Disclosure [Text Block]

NOTE 4 - COMMON STOCK WARRANTS

On April 13, 2010, the Company issued warrants (the “Omnibus Warrants”) to purchase its common stock for a period of three years at an exercise price of $0.07 per share in the following denominations: 139.0 million shares to KPC or its designees and 96.0 million shares to the Term Lender or its designees. The Omnibus Warrants also provide the holders with certain pre-emptive, information and registration rights. As of April 13, 2010, the Company recorded warrant expense and the related warrant liability of $2.9 million, representing fair value.  As of June 30, 2011, the fair value of the Omnibus Warrants was $2.0 million.

In addition, on April 13, 2010, the Company issued a three-year warrant (the “Release Warrant”) to acquire up to 170.0 million shares of common stock at $0.07 per share to Dr. Chaudhuri who facilitated a release enabling the Company to recover amounts due from the Company’s prior lender and a $1.0 million reduction in principal of its outstanding debt, among other benefits to the Company. As a result, the Company recorded the fair value of the Release Warrant ($2.1 million) as an offsetting cost of the recovery of amounts due from the Company’s prior lender. The Release Warrant also provides the holder with certain pre-emptive, information and registration rights. As of June 30, 2011, the fair value of the Release Warrant was $1.4 million.

The Omnibus Warrants and the Release Warrant are collectively referred to as the “April Warrants.” The net loss recorded related to the April Warrants for the three months ended June 30, 2011 and 2010 was $3.3 million and $1.9 million, respectively.

The fair value of warrants issued by the Company is estimated using the Black-Scholes valuation model, which the Company believes is the appropriate valuation method under the circumstances. Since the Company’s stock is thinly traded, the expected volatility is based on an analysis of the Company's stock and the stock of eight other publicly traded companies that own hospitals.

The risk-free interest rate is based on the average yield on U.S. Treasury notes with maturity commensurate with the terms of the warrants. The dividend yield reflects that the Company has not paid any cash dividends since inception and does not anticipate paying cash dividends in the foreseeable future.  The assumptions used in the Black-Scholes valuation model are as follows.

	June 30, 2011		April 13, 2010
Expected dividend yield		0.0%		0.0%
Risk-free interest rate		0.4%		1.7%
Expected volatility		43.0%		68.4%
Expected term (in years)		1.8		3.0