MBN announces third quarter results



    TORONTO, Sept. 13 /CNW/ -

    MESSAGE TO SHAREHOLDERS

    Revenue for Middlefield Bancorp Limited ("MBN" or the "Company") for the
third quarter of 2007 increased to $0.5 million, from $0.2 million in the
comparable quarter last year. Revenue also increased for the nine months ended
July 31, 2007, from $1.6 million last year to $2.0 million in 2007. Investment
income increased due to increased earnings generated by the investments of the
Company. 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 third quarter, the Company selectively invested 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. However, MBN continues to remain largely in cash and
short-term investments, none of which include asset-backed commercial paper.
    As of July 31, 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 July 31
    (all amounts in thousands,        Three Months            Nine Months
     except per share amounts)      2007        2006        2007        2006
    -------------------------------------------------------------------------
    Revenue                    $     497   $     180   $   2,027   $   1,635
    Gain on sale of assets, net        -           -           -       4,382
    Net income (loss)                 (6)        (47)        366       3,011
    Diluted earnings (loss) per
     share                             -       (0.01)       0.04        0.32
    -------------------------------------------------------------------------
    

    MANAGEMENT'S DISCUSSION AND ANALYSIS

    July 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 $0.5 million during the third quarter of 2007,
representing an increase of $0.3 million over the prior year comparable
period. The increase in investment income was primarily as a result of
increased earnings generated by the investments of the Company. For the nine
months ended July 31, 2007, revenue of $2.0 million exceeded the $1.6 million
recorded 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 third quarter, the
Company 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. However,
MBN continues to remain largely in cash and short-term investments.
    Production expenses in the third 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 third quarter of
2007 increased approximately $0.1 million to $0.2 million relative to the
third quarter of 2006, primarily as a result of the Company's increased share
of expenses of the variable interest entities ("VIEs") in which it invested.
    Depreciation, depletion and accretion expenses in the third 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 on
its remaining non-producing oil and gas assets.
    An income tax expense of $0.1 million has been recorded in the 2007 third
quarter which primarily reflects the Company's share of income tax expenses of
the VIEs. The non-controlling interest of $0.2 million in the quarter ended
July 31, 2007 compared to $0.1 million last year reflects the share of
earnings of the VIEs that relates to other investors. The net income of the
Company has not changed as a result of the consolidation of VIEs.
    MBN recorded a net loss of $6,000 or nil on a per diluted share basis in
the third quarter of 2007 compared to a net loss of $47,000 or $0.01 per share
on a diluted basis in the prior year comparable quarter.

    
    -------------------------------------------------------------------------
                               2007                     2006             2005
                         Q3     Q2     Q1     Q4     Q3     Q2     Q1     Q4
    -------------------------------------------------------------------------
    Total Revenue       497    806    724    900    180    995    460  1,249
    Net Income (Loss):
      - Total            (6)   215    157  3,214    (47)   456  2,602    422
      - Per Common Share
        - Basic           -   0.02   0.02   0.36  (0.01)  0.05   0.29   0.05
        - Diluted         -   0.02   0.02   0.35  (0.01)  0.05   0.28   0.05
    -------------------------------------------------------------------------
    

    CAPITAL RE

SOURCES, LIQUIDITY AND CAPITAL EXPENDITURES Cash provided by operating activities, excluding changes in non-cash operating working capital, amounted to $0.1 million in the 2007 third quarter compared to a nominal amount in the comparable 2006 period. Increased earnings on investments served to increase cash provided by operating activities in the quarter ended July 31, 2007. Cash provided by investing activities amounted to $0.6 million in the third quarter of 2007, compared to $6.7 million of cash used in the comparable quarter in 2006. The Company sold additional investments in the third quarter of 2007 thus increasing its cash reserves. FINANCIAL POSITION Short-term investments increased 28% to $25.7 million at July 31, 2007 from October 31, 2006 and were comprised of investments in money-market securities. Marketable securities of $8.0 million at July 31, 2007 were down 36% from the 2006 year end as a result of a move to short-term investments due to market volatility. A $0.1 million income tax recoverable amount was recorded in 2007 in respect of a tax loss carryback. An income tax payable of $0.8 million at October 31, 2006 was paid in 2007. Payables and accruals increased to $0.3 million at July 31, 2007 from $0.2 million last year end due to investment purchases that settled after the end of the third quarter. Changes in respect of all other assets and liabilities were minimal. There were 9.3 million common shares outstanding at July 31, 2007 and 9.2 million outstanding at September 12, 2007. CRITICAL ACCOUNTING ESTIMATES AND CHANGES IN ACCOUNTING POLICIES Critical accounting estimates were 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 were disclosed 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 continues to be in an excellent position to capitalize on investment opportunities. The Company is following a two-track investment strategy. The first track involves investing 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 prudently with a view to maximizing shareholder value. Middlefield Bancorp trades on the TSX under the symbol "MBN". MIDDLEFIELD BANCORP LIMITED CONSOLIDATED BALANCE SHEETS (UNAUDITED) July 31, October 31, (All amounts in thousands) 2007 2006 ------------------------------------------------------------------------- ASSETS Current assets Cash $ 1,245 $ 2,791 Short-term investments 25,690 20,012 Marketable securities (note 2) 7,952 12,401 Receivables 23 55 Prepaid expenses 51 42 Income taxes recoverable 61 - ------------------------------------------------------------------------- 35,022 35,301 Property, plant and equipment, net 16 16 Future income tax assets 234 271 ------------------------------------------------------------------------- $ 35,272 $ 35,588 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES Current liabilities Payables and accruals $ 289 $ 242 Income taxes payable - 756 ------------------------------------------------------------------------- 289 998 Asset retirement obligations 311 362 ------------------------------------------------------------------------- 600 1,360 ------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Share capital (note 3) 12,310 12,085 Retained earnings 22,362 22,143 ------------------------------------------------------------------------- 34,672 34,228 ------------------------------------------------------------------------- $ 35,272 $ 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 Nine Months Ended July 31 July 31 (All amounts in thousands, except per share amounts) 2007 2006 2007 2006 ------------------------------------------------------------------------- REVENUE (NOTE 2) Investment income $ 497 $ 182 $ 2,027 $ 1,569 Oil and gas, net of royalties - (2) - 66 ------------------------------------------------------------------------- 497 180 2,027 1,635 ------------------------------------------------------------------------- Gain on sale of assets, net - - - 4,382 ------------------------------------------------------------------------- EXPENSES Production 10 13 40 40 General and administrative (note 2) 234 149 920 679 Depreciation, depletion and accretion 4 17 14 101 ------------------------------------------------------------------------- 248 179 974 820 ------------------------------------------------------------------------- Income before income tax expense 249 1 1,053 5,197 Income tax expense (recovery) 76 (36) 83 1,933 ------------------------------------------------------------------------- Income before non- controlling interest 173 37 970 3,264 Non-controlling interest 179 84 604 253 ------------------------------------------------------------------------- Net income (loss) (6) (47) 366 3,011 Retained earnings, beginning of period, as previously reported 22,402 19,146 22,143 16,298 Adjustment (note 2) - - 10 - ------------------------------------------------------------------------- Retained earnings, beginning of period, as adjusted 22,402 19,146 22,153 16,298 Repurchase of shares (34) (89) (157) (299) ------------------------------------------------------------------------- Retained earnings, end of period $ 22,362 $ 19,010 $ 22,362 $ 19,010 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic earnings (loss) per share (note 4) $ - $ (0.01) $ 0.04 $ 0.33 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Diluted earnings (loss) per share (note 4) $ - $ (0.01) $ 0.04 $ 0.32 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 Nine Months Ended July 31 July 31 (All amounts in thousands) 2007 2006 2007 2006 ------------------------------------------------------------------------- OPERATING Net income (loss) $ (6) $ (47) $ 366 $ 3,011 Items not involving cash: Gain on sale of assets, net - - - (4,382) Loss (gain) on sale of investments (70) 289 (467) (533) Unrealized loss (gain) on investments 184 (276) 74 (437) Depreciation, depletion and accretion 4 17 14 101 Future income tax expense 14 38 37 387 Stock-based compensation - - 1 2 ------------------------------------------------------------------------- 126 21 25 (1,851) Net change in non-cash operating working capital (1) (740) (746) 1,340 ------------------------------------------------------------------------- 125 (719) (721) (511) ------------------------------------------------------------------------- INVESTING Proceeds from sale of assets - - - 19,129 Costs associated with sale of assets - - - (719) Proceeds from sale of investments 27,621 4,847 110,582 42,431 Purchase of investments (26,966) (11,481) (111,410) (59,981) Purchase of property, plant and equipment (36) (19) (64) (101) ------------------------------------------------------------------------- 619 (6,653) (892) 759 ------------------------------------------------------------------------- FINANCING Issue of shares - - 356 341 Repurchase of shares (60) (161) (289) (530) ------------------------------------------------------------------------- (60) (161) 67 (189) ------------------------------------------------------------------------- Net increase (decrease) in cash 684 (7,533) (1,546) 59 Cash, beginning of period 561 7,794 2,791 202 ------------------------------------------------------------------------- Cash, end of period $ 1,245 $ 261 $ 1,245 $ 261 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Supplementary disclosure of cash flow information: Income taxes paid $ 33 $ 52 $ 792 $ 129 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 (decrease) 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 - July 31, 2007 ------------------------------------------------------------------------- Marketable securities $ (7) Retained earnings, beginning of period 10 Retained earnings, end of period (23) ------------------------------------------------------------------------- Three Months Nine Months Consolidated statements of income Ended Ended and retained earnings July 31, 2007 July 31, 2007 ------------------------------------------------------------------------- Investment income $ (106) $ 30 General and administrative expenses 24 63 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 3. SHARE CAPITAL As at September 12, 2007 the Company had 9,238,648 common shares issued and outstanding and stock options outstanding for 185,000 common shares. 4. EARNINGS (LOSS) PER SHARE Three Months Ended Nine Months Ended July 31 July 31 (All amounts in thousands, except per share amounts) 2007 2006 2007 2006 ------------------------------------------------------------------------- Net income (loss) $ (6) $ (47) $ 366 $ 3,011 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average common shares outstanding for basic earnings (loss) per share 9,277 9,158 9,180 9,032 Add: Dilutive effect of stock options outstanding 19 186 85 343 ------------------------------------------------------------------------- Weighted average common shares outstanding for diluted earnings (loss) per share 9,296 9,344 9,265 9,375 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic earnings (loss) per share $ 0.00 $ (0.01) $ 0.04 $ 0.33 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Diluted earnings (loss) per share $ 0.00 $ (0.01) $ 0.04 $ 0.32 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 5. 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 Ogilvy Renault Thomas I.A. Allen, Q.C.(2) Counsel, Ogilvy Renault AUDITORS Deloitte & Touche LLP Murray J. Brasseur Chairman and Director BANKER Middlefield Bancorp Limited Bank of Nova Scotia George S. Dembroski(1)(2) STOCK EXCHANGE LISTING Corporate Director Toronto Stock Exchange Symbol: MBN H. Roger Garland(1) Corporate Director HEAD OFFICE One First Canadian Place W. Garth Jestley 58th Floor President and Director P.O. Box 192 Middlefield Bancorp Limited Toronto, Ontario M5X 1A6 Charles B. Young(1)(2) 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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