MBN announces first quarter results



    TORONTO, March 15 /CNW/ -

    MESSAGE TO SHAREHOLDERS

    Revenue for Middlefield Bancorp Limited ("MBN" or the "Company") for the
first quarter of 2007 increased to $0.7 million, up from $0.5 million in the
comparable quarter last year. Investment income increased as a result of
trading and increased distributions received on marketable securities during
the first quarter of 2007. MBN did not record any oil and gas revenue in 2007
as a result of the sale of the majority of the oil and gas assets of 2M Energy
Corp. ("2M") in the first quarter of 2006, in respect of which a significant
gain was realized.
    In light of the recent volatility in oil and natural gas prices as well
as the broader equity market, the Company maintained its defensive posture by
remaining largely in cash and short-term investments.
    As of January 31, 2007, MBN's balance sheet remained strong with
approximately $4.00 per share in cash, short-term investments and marketable
securities, and no debt outstanding. Consolidated financial results are
attached.

    
    FINANCIAL SUMMARY

    -------------------------------------------------------------------------
    For the periods ended January 31
    (all amounts in thousands, except
     per share amounts)                                   2007          2006
    -------------------------------------------------------------------------
    Revenue                                          $     724     $     460
    Gain on sale of assets, net                              -         4,382
    Net income                                             157         2,602
    Diluted earnings per share                            0.02          0.28
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    MANAGEMENT'S DISCUSSION AND ANALYSIS
    January 31, 2007 and 2006 (unaudited)

    The following Management's Discussion and Analysis ("MD&A") should be
read in conjunction with the attached unaudited interim consolidated financial
statements that have been prepared by management and approved by the board of
directors. These statements have not been reviewed by MBN's external auditors.
Readers should also refer to the MD&A in MBN's 2006 Annual Report. Additional
information relating to MBN, including MBN's annual information form, is
available on SEDAR at www.sedar.com.
    The reader should be aware that historical results are not necessarily
indicative of future performance. This MD&A contains forward-looking
statements, including statements regarding expected future events, financial
results, objectives and opportunities of MBN, government actions and industry
performance, which are subject to substantial risks and uncertainties.
Forward-looking statements include statements that are predictive in nature,
that depend upon or refer to future events, results, expectations and
performance, or that include words such as "expects", "anticipates",
"intends", "will" or negative versions thereof and other similar wording. MBN
cautions that actual events, results, expectations or performance will be
affected by a number of factors (many of which are beyond its control) and may
differ materially from those based upon the forward-looking statements in the
MD&A, including as a result of: general economic, political, market and
business factors and conditions; commodity price fluctuations; interest and
foreign exchange rate fluctuations; statutory and regulatory developments;
unexpected judicial or regulatory proceedings; and catastrophic events.
Readers are cautioned that the foregoing list of factors is not exhaustive and
to avoid placing undue reliance on forward-looking statements due to the
inherent uncertainty of such statements. Forward-looking statements are based
on the estimates and opinions of MBN's management at the time the statements
were made. MBN does not undertake, and specifically disclaims, any obligation
to update or revise any forward-looking statements.

    RESULTS OF OPERATIONS

    MBN generated revenue of $0.7 million during the first quarter of 2007,
representing an increase of $0.2 million over the prior year comparable
period. The increase in investment income was primarily as a result of trading
and increased distributions on investments in marketable securities. As a
result of the sale of the 2M assets, there was no oil and gas revenue during
the first quarter. In light of the recent volatility in oil and natural gas
prices as well as the broader equity market, the Company maintained its
defensive posture by remaining largely in cash and short-term investments.
    Production expenses in the first quarter of 2007 were comparable to last
year and primarily reflect fixed expenses related to maintaining our remaining
oil and gas properties. General and administrative expenses in the first
quarter of 2007 increased approximately $0.1 million to $0.3 million relative
to the first quarter of 2006, primarily as a result of the Company's increased
share of expenses of the variable interest entities in which it invested.
    Depreciation, depletion and accretion expenses in the first quarter of
2007 were nominal and comparable to last year. The expense is comprised of
accretion expenses in respect of the Company's asset retirement obligations.
    A nominal income tax recovery has been recorded in the 2007 first quarter
as a result of a loss for tax purposes in the quarter. The comparable quarter
in 2006 reflects a $1.9 million tax expense in respect of the gain on sale of
the oil and gas assets. The non-controlling interest of $0.3 million in the
quarter ended January 31, 2007 compared to $0.1 million last year reflects the
share of earnings of the variable interest entities that relates to other
investors. The net income of the Company has not changed as a result of the
consolidation of variable interest entities.
    MBN recorded net income of $0.2 million or $0.02 per diluted share in the
first quarter of 2007 compared to $2.6 million or $0.28 per share on a diluted
basis in the prior year comparable quarter.

    
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                       2007             2006                     2005
                         Q1     Q4     Q3     Q2     Q1     Q4     Q3     Q2
    -------------------------------------------------------------------------
    Total Revenue       724    900    180    995    460  1,249  1,232  1,064
    Net Income:
      - Total           157  3,214    (47)   456  2,602    422    480    459
      - Per Common
         Share
        - Basic        0.02   0.36  (0.01)  0.05   0.29   0.05   0.06   0.05
        - Diluted      0.02   0.35  (0.01)  0.05   0.28   0.05   0.05   0.05
    -------------------------------------------------------------------------
    

    CAPITAL RE

SOURCES, LIQUIDITY AND CAPITAL EXPENDITURES Cash used in operating activities, excluding changes in non-cash operating working capital, was nominal in the 2007 first quarter compared to usage of $1.6 million in the comparable 2006 period. The use of cash in the 2006 first quarter related to the income tax expense recorded in respect of the sale of assets. Cash provided by investing activities amounted to $1.3 million in the first quarter of 2007, compared to a use of cash of $0.7 million in the comparable quarter in 2006. The Company sold some of its marketable securities in the first quarter of 2007 thus adding to its cash reserves. FINANCIAL POSITION MBN's working capital position was $34.4 million at January 31, 2007, up slightly from $34.3 million at the 2006 year end primarily due to earnings generated in the first quarter of 2007. Short-term investments increased 23% to $24.6 million at January 31, 2007 and were comprised of investments in money-market securities. Marketable securities of $6.7 million at January 31, 2007 were down 46% from the 2006 year end as a result of a conversion to cash and short-term investments. The January 31, 2007 payables amounted to $1.5 million compared to $0.2 million at October 31, 2006. The increase was due primarily to an investment in marketable securities for which settlement occurred after quarter end. Income taxes payable of $0.8 million at the end of the 2006 year was paid in the first quarter of 2007. A nominal income tax recoverable amount was recorded in the 2007 first quarter in respect of a tax loss carryback. Changes in respect of all other assets and liabilities during the quarter ended January 31, 2007 were minimal. The total number of common shares outstanding at January 31, 2007 and March 15, 2007 was 9.0 million and 9.3 million, respectively. CRITICAL ACCOUNTING ESTIMATES AND CHANGES IN ACCOUNTING POLICIES Critical accounting estimates have been disclosed in the MD&A of the Company in its October 31, 2006 annual report. The Company adopted, effective November 1, 2006, new accounting standards in respect of financial instruments and comprehensive income, as disclosed in its October 31, 2006 MD&A. RISK MANAGEMENT The risks and risk management procedures of the Company have been disclosed in its MD&A in the October 31, 2006 annual report. These risks and risk management procedures remain unchanged at present. OUTLOOK With significant cash and no debt, MBN is in an excellent position to capitalize on investment opportunities. We will continue to concentrate on those areas in which we possess the greatest expertise, including the resource and financial services sectors. For example, we are seeing some consolidation within the investment management sector and intend to pursue appropriate opportunities that play to our strengths in this area. MBN remains committed to investing our capital with a view to maximizing shareholder value. Middlefield Bancorp trades on the TSX under the symbol "MBN". March 15, 2007 MIDDLEFIELD BANCORP LIMITED CONSOLIDATED BALANCE SHEETS (UNAUDITED) January 31, October 31, (All amounts in thousands) 2007 2006 ------------------------------------------------------------------------- ASSETS Current assets Cash $ 4,495 $ 2,791 Short-term investments 24,591 20,012 Marketable securities (note 2) 6,692 12,401 Receivables 47 55 Prepaid expenses 38 42 Income taxes recoverable 22 - ------------------------------------------------------------------------- 35,885 35,301 Property, plant and equipment, net 16 16 Future income tax assets 256 271 ------------------------------------------------------------------------- $ 36,157 $ 35,588 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES Current liabilities Payables and accruals $ 1,529 $ 242 Income taxes payable - 756 ------------------------------------------------------------------------- 1,529 998 Asset retirement obligations 362 362 ------------------------------------------------------------------------- 1,891 1,360 ------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Share capital (note 3) 12,024 12,085 Retained earnings 22,242 22,143 ------------------------------------------------------------------------- 34,266 34,228 ------------------------------------------------------------------------- $ 36,157 $ 35,588 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements. It is recommended that readers refer to the accompanying Management's Discussion and Analysis which provides additional information regarding these consolidated financial statements. Approved on behalf of the Board: "signed" "signed" Director: Murray J. Brasseur Director: George S. Dembroski MIDDLEFIELD BANCORP LIMITED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS For the three months ended January 31 (unaudited) (All amounts in thousands, except per share amounts) 2007 2006 ------------------------------------------------------------------------- Revenue (Notes 2 and 5) Investment income $ 724 $ 392 Oil and gas, net of royalties - 68 ------------------------------------------------------------------------- 724 460 ------------------------------------------------------------------------- Gain on sale of assets, net - 4,382 ------------------------------------------------------------------------- EXPENSES Production 15 18 General and administrative (note 2) 299 223 Depreciation, depletion and accretion 5 4 ------------------------------------------------------------------------- 319 245 ------------------------------------------------------------------------- Income before income taxes 405 4,597 Income tax expense (recovery) (9) 1,910 ------------------------------------------------------------------------- Income before non-controlling interest 414 2,687 Non-controlling interest 257 85 ------------------------------------------------------------------------- Net income 157 2,602 Retained earnings, beginning of period, as previously reported 22,143 16,298 Adjustment (note 2) 10 - ------------------------------------------------------------------------- Retained earnings, beginning of period, as adjusted 22,153 16,298 Repurchase of shares (68) (18) ------------------------------------------------------------------------- Retained earnings, end of period $ 22,242 $ 18,882 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic earnings per share (note 4) $ 0.02 $ 0.29 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Diluted earnings per share (note 4) $ 0.02 $ 0.28 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements. It is recommended that readers refer to the accompanying Management's Discussion and Analysis which provides additional information regarding these consolidated financial statements. MIDDLEFIELD BANCORP LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS For the three months ended January 31 (unaudited) (All amounts in thousands) 2007 2006 ------------------------------------------------------------------------- OPERATING Net income $ 157 $ 2,602 Items not involving cash: Gain on sale of assets, net - (4,382) Gain on sale of marketable securities (138) (129) Unrealized gain on marketable securities (62) (73) Depreciation, depletion and accretion 5 4 Future income tax expense 15 330 Stock-based compensation 1 1 ------------------------------------------------------------------------- (22) (1,647) Net change in non-cash operating working capital 521 2,894 ------------------------------------------------------------------------- 499 1,247 ------------------------------------------------------------------------- INVESTING Proceeds from sale of assets - 19,129 Costs associated with sale of assets - (719) Proceeds from sale of marketable securities 47,850 22,167 Purchase of marketable securities (46,511) (41,228) Purchase of property, plant and equipment (5) (43) ------------------------------------------------------------------------- 1,334 (694) ------------------------------------------------------------------------- FINANCING Repurchase of shares (129) (32) ------------------------------------------------------------------------- Net increase in cash 1,704 521 Cash, beginning of period 2,791 202 ------------------------------------------------------------------------- Cash, end of period $ 4,495 $ 723 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Supplementary disclosure of cash flow information: Income taxes paid $ 759 $ 59 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements. It is recommended that readers refer to the accompanying Management's Discussion and Analysis which provides additional information regarding these consolidated financial statements. MIDDLEFIELD BANCORP LIMITED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED 1. SIGNIFICANT ACCOUNTING POLICIES The interim consolidated financial statements of Middlefield Bancorp Limited (the "Company") have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). They follow the same accounting policies and methods of application as the Company's consolidated financial statements for the year ended October 31, 2006 except for the changes in accounting policies for financial instruments, as described below. The Company's interim consolidated financial statements do not include all disclosures required by GAAP for annual financial statements and accordingly, should be read in conjunction with the consolidated financial statements for the year ended October 31, 2006 as set out on pages 10 to 21 of the Company's 2006 Annual Report. 2. CHANGES IN ACCOUNTING POLICIES Effective November 1, 2006, the Company prospectively adopted the accounting standards as outlined in the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 3855 "Financial Instruments - Recognition and Measurement" and Handbook Section 1530 "Comprehensive Income". The adoption of Section 1530 did not have any impact on the consolidated financial statements. The Company previously valued exchange-traded securities at the lower of cost and fair value, with the fair value determined using closing prices, and brokerage commissions related to investments in marketable securities were added to the cost of the securities when purchased. With the adoption of the new requirements under Section 3855, exchange-traded securities are valued at closing bid prices and brokerage commissions are expensed and included in the consolidated statements of income and retained earnings. The following table summarizes the effects in 2007 of the change in accounting policy and presents the increase in certain financial statement items as a result of adopting the new accounting standards as compared to the value of those items under the previous standards. (all amounts in thousands) Increase ------------------------------------------------------------------------- Consolidated balance sheets - January 31, 2007 ------------------------------------------------------------------------- Marketable securities $ 50 Retained earnings, beginning of period 10 Retained earnings, end of period 39 ------------------------------------------------------------------------- Consolidated statements of income and retained earnings - Three months ended January 31, 2007 ------------------------------------------------------------------------- Investment income $ 40 General and administrative expenses 11 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 3. SHARE CAPITAL As at March 15, 2007 the Company had 9,282,848 common shares issued and outstanding and stock options outstanding for 185,000 common shares. 4. EARNINGS PER SHARE (all amounts in thousands, except per share amounts) 2007 2006 ------------------------------------------------------------------------- Net income $ 157 $ 2,602 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average common shares outstanding for basic earnings per share 9,055 8,964 Add: Dilutive effect of stock options outstanding 168 433 ------------------------------------------------------------------------- Weighted average common shares outstanding for diluted earnings per share 9,223 9,397 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic earnings per share $ 0.02 $ 0.29 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Diluted earnings per share $ 0.02 $ 0.28 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 5. SEGMENTED INFORMATION (All amounts in thousands) The Company operates in the following industry segments: (i) Oil and Gas: 2M Energy Corp., a wholly-owned subsidiary of Middlefield Bancorp Limited, is focused on opportunities in the oil and gas sector, and (ii) Investments and Other: The Company is involved in merchant banking and investing activities. Industry Segments 2007 Investments Oil and Gas And Other Total ------------------------------------------------------------------------- Gain on sale of marketable securities $ - $ 138 $ 138 Unrealized gain on marketable securities - 62 62 Interest revenue - 477 477 Other revenue - 47 47 ------------------------------------------------------------------------- Total revenue - 724 724 Production costs (15) - (15) General and administrative expense - (299) (299) Depreciation, depletion and accretion (5) - (5) Income tax (expense) recovery 5 4 9 Non-controlling interest - (257) (257) ------------------------------------------------------------------------- Net income $ (15) $ 172 $ 157 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Total assets, January 31, 2007 $ 336 $ 35,821 $ 36,157 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Total expenditures for additions to property, plant and equipment $ 5 $ - $ 5 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 2006 Investments Oil and Gas And Other Total ------------------------------------------------------------------------- Revenue $ 68 $ - $ 68 Gain on sale of marketable securities - 129 129 Unrealized gain on marketable securities - 73 73 Interest revenue - 190 190 ------------------------------------------------------------------------- Total revenue 68 392 460 Gain on sale of assets, net 4,382 - 4,382 Production costs (18) - (18) General and administrative expense (172) (51) (223) Depreciation, depletion and accretion (4) - (4) Income tax expense (1,809) (101) (1,910) Non-controlling interest - (85) (85) ------------------------------------------------------------------------- Net income $ 2,447 $ 155 $ 2,602 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Total assets, October 31, 2006 $ 327 $ 35,261 $ 35,588 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Total expenditures for additions to property, plant and equipment $ 43 $ - $ 43 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 6. RECLASSIFICATIONS Certain prior period balances have been reclassified to conform with the current year presentation. CORPORATE INFORMATION Middlefield Bancorp Limited is a Canadian merchant bank managed by Middlefield Group. The Company's principal objective is to create long term shareholder value through a twofold strategy of strategic investing in businesses with strong management and exceptional prospects for longer term earnings growth and special situation investing where there is excellent potential for significant capital appreciation. Our aim is to produce a steady stream of growing earnings from strategic investments supplemented by earnings from special situation activities. The Company's board of directors and management include experienced and successful individuals who have committed their own capital to the Company. DIRECTORS LEGAL COUNSEL Thomas I.A. Allen, Q.C.(2) Ogilvy Renault Counsel, Ogilvy Renault AUDITORS Murray J. Brasseur Deloitte & Touche LLP Chairman and Director Middlefield Bancorp Limited BANKER Bank of Nova Scotia George S. Dembroski(1),(2) Corporate Director STOCK EXCHANGE LISTING Toronto Stock Exchange H. Roger Garland(1) Symbol: MBN Corporate Director HEAD OFFICE W. Garth Jestley One First Canadian Place President and Director 58th Floor Middlefield Bancorp Limited P.O. Box 192 Toronto, Ontario Charles B. Young(1),(2) M5X 1A6 Chairman, Ascend Capital Management Web Site: www.middlefield.com Email: invest@middlefield.com (1) Audit Committee Member (2) Corporate Governance Committee Member

For further information:

For further information: visit our website at www.middlefield.com or
contact W. Garth Jestley at (416) 847-5346

Organization Profile

MIDDLEFIELD BANCORP LIMITED

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