Northstar Healthcare reports net loss of $1.4M in first-quarter 2010

Northstar Healthcare Inc. (TSX:NHC) today announced its financial results for the first quarter ended March 31, 2010. All dollar amounts are in United States currency; percentage calculations are based on the numbers in the financial statements and may not correspond to rounded figures presented in this release.

Detailed information relating to the first quarter ended March 31, 2010 is available in Northstar's Management's Discussion and Analysis (MD&A) and Consolidated Financial Statements, which are available on the company's web site at: www.northstar-healthcare.com and at www.sedar.com. This information is not intended to provide a comprehensive comparison of financial results.

In the first quarter ended March 31, 2010, Northstar reported net patient service revenue of $3.1 million, compared with $5.5 million in the corresponding period of 2009. The 2010 amount included $0.6 million in revenue collected in 2010 but attributable to prior periods. Excluding this amount, the company generated revenue of $2.5 million in the first quarter of 2010. The year-over-year reduction in revenue was attributable to a 39.8% decrease in case volume and a 23.9% decrease in the overall reimbursement rate.

Case volume declined 12.2% at the Kirby Center and 72.9% at Palladium-Houston, where non-partner physicians are no longer performing cases, reflecting the difficulty in receiving reimbursements for these cases. The decrease in the reimbursement rate at both ASCs is attributable to volume decreases in case specialties with higher reimbursement rates.

Northstar recorded a loss from operations of $1.6 million and a net loss of $1.4 million, or $0.10 per share, in the first quarter of 2010. These amounts include the $0.6 million revenue attributable to prior periods. In the corresponding 2009 period, the loss from operations was $0.3 million and the net loss was $1.7 million, or $0.12 per share.

Cash flows provided by operating activities in the first quarter of 2010 were nominal. This compares with positive $3.0 million in the corresponding period in 2009. The company noted that cash flow from operating activities in both periods included positive changes in working capital, which amounted to $1.5 million in 2010 and $2.7 million in 2009. At March 31, 2010, the company had working capital of $6.4 million, including cash of $5.7 million, with no long-term debt.

The positive cash flow related to changes in working capital reflects management's efforts to effectively manage cash while it awaits resolution to the binding arbitration claims against Northstar's founder, Dr. Donald Kramer, and related entities. As previously reported, these claims were made under agreements relating to the company's acquisition of its interests in Palladium-Houston. The arbitration is being held before the American Arbitration Association in Texas.

"We expect the arbitration proceedings to conclude in the late third quarter or early fourth quarter," said Steve Linehan, CEO of Northstar. "The successful resolution of these claims is critical for Northstar. It would be an important first step in enabling us to re-syndicate or sell the Palladium-Houston facility, which would represent a major factor in determining the future value and direction of Northstar."

Northstar also indicated that the company is examining the potential for new sources of revenue. "Amongst our strategic growth opportunities, we're reviewing proposals to leverage Northstar's core competency in ASC management by offering our services - on a fee basis - to third party ASCs or to doctors' business offices that are underperforming," added Mr. Linehan. "There are a number of interested parties, including several with which we're already in discussions."

As previously reported, Dr. Donald Kramer, the former CEO of Northstar, has announced that he intends to make an offer to acquire all of the issued and outstanding common shares of Northstar. As of this date, Dr. Kramer has requested lists of Northstar's securityholders (which will be provided in accordance with applicable laws) but has not made a formal offer for Northstar. Should one be received from him or from any other party, the company's board will, consistent with its fiduciary duties and in consultation with its financial and legal advisors, review and consider it and respond in the appropriate manner. Dr Kramer has also issued a claim against the members of Northstar's board of directors in their personal capacities. This claim alleges that Northstar's public disclosure included defamatory statements relating to the resyndication of Palladium - Houston partnership. The Company notes that the issuance of this claim followed Dr. Kramer's announcement of his intention to make the above offer. Northstar and its board of directors intend to vigorously contest Dr. Kramer's claim.