MBN’s public market activities in 2010 spanned a number of industries in which Middlefield possesses expertise but were concentrated in the oil and gas sector. Overall, investment performance did not live up to expectations as gains from various profitable investment activities were more than offset by losses incurred elsewhere in the portfolio.

Regarding profitable activities, MBN capitalized on several attractively valued investment opportunities among mid- and senior-market capitalization oil and gas companies. Investments included Peyto Exploration and Development Corp., Bonavista Energy Corporation, Suncor Energy Inc. and EnCana Corporation. Once these stocks appreciated beyond our estimation of fair value, we sold down the positions at an aggregate gain of approximately $0.7 million.

Investment losses related primarily to positions in natural gas that were assumed based upon the favourable near-term price forecast and other positive fundamental analysis provided by our oil and gas consultant, Groppe, Long and Littell (“GL&L”) of Houston. To-date, these positions have performed poorly for several reasons. However, GL&L estimates that the cost of such drilling significantly exceeds the current realized price of the gas produced. Attractive gas price hedges which had previously offset higher costs have masked this reality but are now expiring and cannot be replaced in the current gas price environment. In addition, the surge in natural gas drilling activity over the past year has been supported, in part, by large inflows of foreign investment in shale-focused joint ventures to exploit the excitement surrounding these plays, notwithstanding that the cost of such drilling, by GL&L’s estimates, has been approximately double the cash flow from production. In light of this, GL&L believes that the natural gas drilling activity experienced in 2010 is unsustainable and is forecasting significantly higher prices in 2011. MBN concurs with this view and maintains a positive outlook for the natural gas securities in its portfolio.

Outlook

As a result of additional monetary and fiscal stimulus programs initiated by the U.S. and other OECD nations, these economies continue to gradually recover. In addition, on-going growth in the economies of developing nations such as China, India and Brazil is expected to sustain the demand for natural resources. In light of this economic backdrop and our expectation of continuing low interest rates in Canada, we anticipate that the Canadian economy will experience steady growth over the next 12 months and the oil and gas sector will outperform the broad equity market.

With respect to investment plans, MBN will continue to focus on areas in which we possess expertise including the financial services, resources and Canadian real estate sectors. We remain of the view that the price of natural gas will increase significantly over the next several months and will therefore continue to implement strategies to capitalize on this outlook. In addition, the Company will continue to seek strategic investment opportunities that offer exceptional prospects for long-term growth as well as special situation investment opportunities that offer the potential for significant gains. MBN’s balance sheet remains strong with approximately $1.70 per share in cash, marketable securities and deposits with brokers and no debt outstanding at year end.

We would like to thank our directors and staff for their commitment and support over the past year

Murray J.Brasseur
Chairman

W.Garth Jestley
President