MBN announces second quarter results



    TORONTO, June 14 /CNW/ -

    MESSAGE TO SHAREHOLDERS

    Revenue for Middlefield Bancorp Limited ("MBN" or the "Company") for the
second quarter of 2007 declined to $0.8 million, from $1.0 million in the
comparable quarter last year while for the six months ended April 30, 2007,
revenue modestly exceeded the comparable amount from the previous year.
Investment income decreased due to reduced gains realized from the disposition
of investments during the second 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 2006, in respect of which a
significant gain was realized.
    During the second quarter, the Company adopted a defensive posture in
light of market volatility by moving largely to cash and short-term
investments. Recently, MBN began a selective program of investing in large
Canadian-based oil and gas companies in light of the favourable commodity
price outlook as well as income trusts that could become acquisition targets
in the near-term.
    As of April 30, 2007, MBN's balance sheet remained strong with
approximately $3.75 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 April 30
    (all amounts in thousands,           Three Months           Six Months
     except per share amounts)         2007       2006       2007       2006
    -------------------------------------------------------------------------
    Revenue                        $806,000   $995,000 $1,530,000 $1,455,000
    Gain on sale of assets, net           -          -          -  4,382,000
    Net income                      215,000    456,000    372,000  3,058,000
    Diluted earnings per share         0.02       0.05       0.04       0.33
    -------------------------------------------------------------------------
    

    MANAGEMENT'S DISCUSSION AND ANALYSIS
    April 30, 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 $0.8 million during the second quarter of 2007,
representing a decrease of $0.2 million from the prior year comparable period.
The decrease in investment income was primarily as a result of reduced gains
realized from dispositions of investments. However, for the six months ended
April 30, 2007, revenue exceeded the comparable amount from the previous year.
As a result of the sale of the 2M assets in 2006, there was no oil and gas
revenue during 2007. During the second quarter, the Company adopted a
defensive posture in light of market volatility by moving largely to cash and
short-term investments. After the close of the quarter, MBN began a selective
program of investing in large Canadian-based oil and gas companies in light of
the favourable commodity price outlook as well as income trusts that could
become acquisition targets in the near-term.
    Production expenses in the second quarter of 2007 were minimal and
primarily reflect fixed expenses related to maintaining our remaining oil and
gas properties. General and administrative expenses in the second quarter of 
2007 increased approximately $0.1 million to $0.4 million relative to the
second 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 second quarter of 
2007 were nominal whereas the 2006 expense was primarily comprised of capital
expenditures that were not recoverable. The 2007 expense is comprised of
accretion expenses in respect of the Company's asset retirement obligations.
    A nominal income tax expense has been recorded in the 2007 second quarter
which is comparable to the second quarter of 2006. The non-controlling
interest of $0.2 million in the quarter ended April 30, 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
second quarter of 2007 compared to $0.5 million or $0.05 per share on a
diluted basis in the prior year comparable quarter.

    
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                            2007                 2006                 2005
                         Q2     Q1     Q4     Q3     Q2     Q1     Q4     Q3
    -------------------------------------------------------------------------

    Total Revenue       806    724    900    180    995    460  1,249  1,232
    Net Income:
      - Total           215    157  3,214    (47)   456  2,602    422    480
      - Per Common
         Share
        - Basic        0.02   0.02   0.36  (0.01)  0.05   0.29   0.05   0.06
        - Diluted      0.02   0.02   0.35  (0.01)  0.05   0.28   0.05   0.05
    -------------------------------------------------------------------------
    

    CAPITAL RE

SOURCES, LIQUIDITY AND CAPITAL EXPENDITURES Cash used in operating activities, excluding changes in non-cash operating working capital, amounted to $0.1 million in the 2007 second quarter compared to usage of $0.2 million in the comparable 2006 period. Increased interest earnings and distribution income served to reduce cash used in operating activities in the quarter ended April 30, 2007. Cash used in investing activities amounted to $2.8 million in the second quarter of 2007, compared to $8.1 million of cash provided in the comparable quarter in 2006. The Company purchased additional short-term investments in the second quarter of 2007 thus reducing its cash reserves. FINANCIAL POSITION Short-term investments increased 61% to $32.3 million at April 30, 2007 from October 31, 2006 and were comprised of investments in money-market securities. Marketable securities of $2.2 million at April 30, 2007 were down 83% from the 2006 year end as a result of a conversion to cash and short-term investments. A nominal income tax recoverable amount was recorded in 2007 in respect of a tax loss carryback. Changes in respect of all other assets and liabilities were minimal. The total number of common shares outstanding at April 30, 2007 and June 13, 2007 was 9.3 million. 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. The Company is following a two-track investment strategy. The first track involves investing opportunistically in a portfolio of publicly-listed securities with near-term appreciation potential. The current areas of focus are the Canadian oil and gas sector, based in part upon our favourable outlook for commodity prices, as well as selected income trusts with near-term capital appreciation potential as a result of takeover bids. The second track involves acquiring businesses in those areas in which we possess the greatest expertise, including the real estate, resource and financial services sectors. For example, we are seeing some consolidation within the investment management sector and intend to pursue attractive opportunities that play to our strengths in this area. MBN remains committed to investing our capital wisely with a view to maximizing shareholder value. Middlefield Bancorp trades on the TSX under the symbol "MBN". June 14, 2007 MIDDLEFIELD BANCORP LIMITED CONSOLIDATED BALANCE SHEETS (UNAUDITED) April 30, October 31, (All amounts in thousands) 2007 2006 ------------------------------------------------------------------------- ASSETS Current assets Cash $ 561 $ 2,791 Short-term investments 32,260 20,012 Marketable securities (note 2) 2,153 12,401 Receivables 45 55 Prepaid expenses 74 42 Income taxes recoverable 14 - ------------------------------------------------------------------------- 35,107 35,301 Property, plant and equipment, net 16 16 Future income tax assets 248 271 ------------------------------------------------------------------------- $ 35,371 $ 35,588 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES Current liabilities Payables and accruals $ 290 $ 242 Income taxes payable - 756 ------------------------------------------------------------------------- 290 998 Asset retirement obligations 343 362 ------------------------------------------------------------------------- 633 1,360 ------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Share capital (note 3) 12,336 12,085 Retained earnings 22,402 22,143 ------------------------------------------------------------------------- 34,738 34,228 ------------------------------------------------------------------------- $ 35,371 $ 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 (unaudited) Three Months Ended Six Months Ended April 30 April 30 (All amounts in thousands, except per share amounts) 2007 2006 2007 2006 ------------------------------------------------------------------------- REVENUE (NOTE 2) Investment income $ 806 $ 995 $ 1,530 $ 1,387 Oil and gas, net of royalties - - - 68 ------------------------------------------------------------------------- 806 995 1,530 1,455 ------------------------------------------------------------------------- Gain on sale of assets, net - - - 4,382 ------------------------------------------------------------------------- EXPENSES Production 15 9 30 27 General and administrative (note 2) 387 307 686 530 Depreciation, depletion and accretion 5 80 10 84 ------------------------------------------------------------------------- 407 396 726 641 ------------------------------------------------------------------------- Income before income tax expense 399 599 804 5,196 Income tax expense 16 59 7 1,969 ------------------------------------------------------------------------- Income before non-controlling interest 383 540 797 3,227 Non-controlling interest 168 84 425 169 ------------------------------------------------------------------------- Net income 215 456 372 3,058 Retained earnings, beginning of period, as previously reported 22,242 18,882 22,143 16,298 Adjustment (note 2) - - 10 - ------------------------------------------------------------------------- Retained earnings, beginning of period, as adjusted 22,242 18,882 22,153 16,298 Repurchase of shares (55) (192) (123) (210) ------------------------------------------------------------------------- Retained earnings, end of period $ 22,402 $ 19,146 $ 22,402 $ 19,146 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic earnings per share (note 4) $ 0.02 $ 0.05 $ 0.04 $ 0.34 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Diluted earnings per share (note 4) $ 0.02 $ 0.05 $ 0.04 $ 0.33 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 (unaudited) Three Months Ended Six Months Ended April 30 April 30 (All amounts in thousands) 2007 2006 2007 2006 ------------------------------------------------------------------------- OPERATING Net income $ 215 $ 456 $ 372 $ 3,058 Items not involving cash: Gain on sale of assets, net - - - (4,382) Gain on sale of investments (259) (693) (397) (822) Unrealized gain on investments (48) (88) (110) (161) Depreciation, depletion and accretion 5 80 10 84 Future income tax expense 8 19 23 349 Stock-based compensation - 1 1 2 ------------------------------------------------------------------------- (79) (225) (101) (1,872) Net change in non-cash operating working capital (1,266) (814) (745) 2,080 ------------------------------------------------------------------------- (1,345) (1,039) (846) 208 ------------------------------------------------------------------------- INVESTING Proceeds from sale of assets - - - 19,129 Costs associated with sale of assets - - - (719) Proceeds from sale of investments 35,111 15,417 82,961 37,584 Purchase of investments (37,933) (7,272) (84,444) (48,500) Purchase of property, plant and equipment (23) (39) (28) (82) ------------------------------------------------------------------------- (2,845) 8,106 (1,511) 7,412 ------------------------------------------------------------------------- FINANCING Issue of shares 356 341 356 341 Repurchase of shares (100) (337) (229) (369) ------------------------------------------------------------------------- 256 4 127 (28) Net increase in cash (3,934) 7,071 (2,230) 7,592 Cash, beginning of period 4,495 723 2,791 202 ------------------------------------------------------------------------- Cash, end of period $ 561 $ 7,794 $ 561 $ 7,794 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Supplementary disclosure of cash flow information: Income taxes paid $ - $ 18 $ 759 $ 77 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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, securities traded on an active market 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 (Decrease) ------------------------------------------------------------------------- Consolidated balance sheet - April 30, 2007 ------------------------------------------------------------------------- Marketable securities $ 112 Retained earnings, beginning of period 10 Retained earnings, end of period 107 ------------------------------------------------------------------------- Consolidated statements of Three Months Ended Six Months Ended income and retained earnings April 30, 2007 April 30, 2007 ------------------------------------------------------------------------- Investment income $ 96 $ 136 General and administrative expenses 28 39 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 3. SHARE CAPITAL As at June 13, 2007 the Company had 9,279,048 common shares issued and outstanding and stock options outstanding for 185,000 common shares. 4. EARNINGS PER SHARE (all amounts in thousands, Three Months Ended Six Months Ended except per share amounts) April 30 April 30 2007 2006 2007 2006 ------------------------------------------------------------------------- Net income $ 215 $ 456 $ 372 $ 3,058 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average common shares outstanding for basic earnings per share 9,208 8,972 9,130 8,968 Add: Dilutive effect of stock options outstanding 69 411 119 422 ------------------------------------------------------------------------- Weighted average common shares outstanding for diluted earnings per share 9,277 9,383 9,249 9,390 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic earnings per share $ 0.02 $ 0.05 $ 0.04 $ 0.34 ------------------------------------------------------------------------- Diluted earnings per share $ 0.02 $ 0.05 $ 0.04 $ 0.33 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 5. RECLASSIFICATIONS Certain prior period balances have been reclassified to conform with the current year presentation. On May 2, 2007 MBN received approval from the Toronto Stock Exchange to renew its normal course issuer bid (the "Bid"). The notice of intention (the "Notice") provides for the renewed Bid to commence on May 4, 2007 and enables the Company to purchase up to 5% of the common shares outstanding, during the next 12 month period. MBN believes that the current market price does not reflect the underlying value of its common shares. Shareholders may obtain a copy of the Notice, without charge, by contacting the Company. 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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