MRRM Inc. - Directors' report and management discussion and analysis of the financial condition and results of operations - Interim 2008.Q2 - August 31, 2007



    The following discussion and analysis should be read in conjunction with
    the preceding year's Annual Report. The Company's interim quarterly
    statements for fiscal year 2008 are for the quarter ended as indicated
    above. Included in these documents may be forward-looking statements
    with respect to the Company. These forward-looking statements by their
    nature necessarily involve risks and uncertainties that could cause
    actual results to differ materially from those contemplated by such
    statements. The Company considers the assumptions on which these
    forward-looking statements are based to be reasonable at the time they
    were prepared but cautions the reader that these assumptions regarding
    future events, many of which are beyond the control of the Company, may
    ultimately prove to be incorrect.

    These interim unaudited consolidated financial statements have not been
    reviewed by the Company's auditors. Certain comparative figures have been
    reclassified to conform with the presentation adopted in the  financial
    statements.

    Additional documents and information are available at the System for
    Electronic Document Analysis and Retrieval (SEDAR) and can be assessed
    through the internet: For MRRM's profile goto www.sedar.com or for
    documents goto www.sedar.com  Information is also available on the
    Corporate website at www.MRRM.ca.

    MONTREAL, Oct. 11 /CNW Telbec/ -

    Consolidated  Earnings

    Revenues for this period compared to this period (last year) were
$25,597,000 ($23,705,000), an increase of $1,892,000 (8.0%). As shown in the
segmented information, revenue from operating activities amounted to
$25,479,000 ($23,560,000) being 99.5% (99.4%) of total revenues. Income from
corporate totaled $118,000 ($145,000). Operating revenues increased by
$1,919,000 (8.1%) compared to last year. Revenue from Corporate decreased by
$27,000. The decrease in Corporate revenue was mainly due to less dividend
income.
    Costs and expenses for this period (last year) were $25,479,000
($23,407,000), an increase of $2,072,000 (8.9%). Costs related to operating
activities, before exchange and interest, increased by $2,078,000 (8.8%). Cost
of sales increased in relation to sales and margins continued to improve
slightly when compared to the last fiscal quarter. Overall selling and
administrative expenses increased slightly compared to last year.
    Operating results are discussed later on in this report.
    The impact of the fluctuating Canadian dollar combined with a shift in
the company's position of US dollars resulted in a currency exchange gain of
$18,000 for the period compared to a loss last year of $1,000. As disclosed in
the Notes, the net exposures were as follows: at August 31, 2007, US$439,000;
at August 31, 2006, US($1,546,000), at May 31, 2007, US$1,050,000; at May 31,
2006, US($3,437,000) and at February 28, 2007, US($1,148,000). The above US
dollars include the equivalents for euro and pounds sterling which are not
material. No exchange futures were outstanding at quarter-end.
    Interest expensed on bank indebtedness and the reducing term loan
amounted to $141,000. Interest of $48,000 pertaining to the Time-Wise project
was capitalized in the first quarter. Total interest accrued and paid amounted
to $189,000, an increase of $61,000 compared to last year. Interest related to
the long-term debt was $99,000.

    Change in fair value of investments held for trading

    During the first quarter, as disclosed in the Notes to the Consolidated
Financial Statements (Notes), the Company adopted section 3855 of the CICA
Handbook, Financial Instruments - Revenue Recognition. This new standard
requires that the marketable securities be recorded at fair value. The Change
in fair value of investments held-for-trading, which records this adjustment
for the current period, is presented in the statement of earnings as a
separate item. This adjustment for the current period resulted in a negative
impact of $118,000.
    The Earnings before income taxes for this period was flat compared to
$298,000 last year. Earnings from operating activities were $103,000
($236,000), a decrease of $133,000 and corporate, including the change in fair
value of investments, were -$103,000 ($62,000).
    Income taxes for the period were $10,000 ($85,000). The effective tax
rate for this period as a percentage of earnings is not presented as the
number is somewhat meaningless due to the amounts involved. Combined and per
entity amounts are presented in the Notes to the financial statements.
    Net Earnings (loss) for the period were -$10,000 ($213,000) or $0.00
($0.08) per share.
    Dividends paid during the period amounted to $127,000 ($254,000). As
indicated in the MD&A for the first quarter, the declaration of the quarterly
dividend has been suspended in order to support the cash requirements
resulting from the Time-Wise investment. The declaration and payment of
dividends is at the discretion of the Board of Directors

    Summary of Quarterly Results

    The following financial summary is derived from the company's financial
statements for each of the eight most recently completed fiscal quarters.

    
    Summary of
    Quarterly
    Financial
    Results for
    the eight
    most      Aug 31, May 31, Feb 28, Nov 30, Aug 31, May 31, Feb 28, Nov 30,
    recent      2007    2007    2007    2006    2006    2006    2006    2005
    fiscal     (2008.  (2008.  (2007.  (2007.  (2007.  (2007.  (2006.  (2006.
    quarters      Q2)     Q1)     Q4)     Q3)     Q2)     Q1)     Q4)     Q3)
              ------- ------- ------- ------- ------- ------- ------- -------
                   $       $       $       $       $       $       $       $
    (Expressed
    in thousands,
    except for
    amounts per
    share -
    unaudited)
    -------------------------------------------------------------------------
    Revenues  12,885  12,712  13,295  13,456  11,726  11,979  11,446  11,328

    Net
     Earnings
     (loss)      121    (131)    701     179     277     (64)    402     263

    Earnings
    (loss)
     per share  0.05   (0.05)   0.28    0.07    0.11   (0.03)   0.15    0.11

    Dividends
     per
     share      0.00    0.05    0.20    0.05    0.05    0.05    0.20    0.05


    Revenues for this quarter were $12,885,000 ($11,726,000), an increase of
$1,159,000 (9.9%). Revenue from operating activities amounted to $12,812,000
($11,674,000) being 99.4% (99.6%) of total revenues. Income from corporate
totaled $73,000 ($52,000). Operating revenues for the quarter increased by
$1,138,000 (9.7%) compared to this quarter last year. Revenue from Corporate
increased by $21,000 mainly attributable to realizing more capital gains this
quarter compared to this quarter last year.
    Costs and expenses for the quarter were $12,551,000 ($11,281,000), an
increase of $1,270,000 (11.3%). Costs related to operating activities, before
exchange and interest, increased by $1,303,000 (11.5%). This quarter included
an initial investment in listing fees and other marketing activity applicable
to the Time-Wise product line; excluding these expenses, overall costs and
expenses were in-line with the increase in sales.
    Included in the financial results for this quarter is an investment tax
credit accrual of $100,000 representing a total accrual of $245,500 pertaining
to fiscal year 2007; the accrual in this quarter last year was also $100,000
pertaining to fiscal year 2006.
    The currency exchange in this quarter resulted in a gain of $40,000
compared to a loss this quarter last year of $26,000, a variance of $66,000.
    Interest expense increased to $94,000 compared to $61,000 this quarter
last year and from $47,000 in 2008.Q1; this increase is attributable to the
long-term debt.
    Change in fair value of investments held for trading for the quarter
resulted in a negative impact of $131,000, as explained above.
    Earnings before income taxes for the quarter were $203,000 ($445,000)
decreasing by $242,000. Earnings from operating activities were $323,000
($423,000) and corporate, including the change in fair value of investments,
were - $120,000 ($22,000).
    Income taxes for the quarter were $82,000 ($168,000). Please refer to the
explanation above for the changes in the effective tax rates.
    Net earnings for the quarter were $121,000 ($277,000) or $0.05 ($0.11) per
share.

    Consolidated Cash Flows, Liquidity and Balance Sheets

    Cash used in operating activities before changes for non-cash items was
$10,000 for the period compared to cash generated of $213,000 last year.
Non-cash operating items used $452,000 for the period compared to $843,000
generated last year. The usage of funds was mainly applied to payments of
payables relating to capital and inventory purchases outstanding at last
year-end offset partially by a reduction in current inventories.
    In investing activities, the Company added $487,000 of net property, plant
and equipment of which $319,000 was used for the investment in the new value
added Time-Wise rice line, for a total investment since inception of
$3,626,000 against an approved budget of $3.6M. This total includes
capitalized interest of $156,000. The project became available for production
during the second quarter of 2008.
    In financing activities, bank indebtedness increased by $1,462,000 to
cover the $462,000 of operating activities as well as the $568,000 of
investing activities and the long-term debt and dividend payments. The first
payments aggregating $305,000 were made on the long-term reducing debt and a
first quarter dividend was disbursed of $127,000.
    Working capital amounted to $1,201,000 at the end of this period, a
decrease of $510,000 compared to the $1,711,000 at last fiscal year-end. This
change was attributable to the investing and financing activities, net of
working capital generated from operations.

    Available credit facilities

    The credit facilities available and reported at last year-end remain
unchanged. The facilities are comprised of a revolving line of credit for
$4,750,000 CDN {or its US equivalent}which bears interest at either the
Canadian prime and/or U.S. base rates and optionally the Company may take
advantage of Bankers Acceptances, and a 5 year reducing term facility
initially borrowed at fiscal year-end 2007 for $3,500,000 at a rate fixed for
interest and fees of 5.83% for the term of the loan. The financial covenants
and arrangements relating to these facilities are detailed in the Notes to the
audited consolidated financial statements filed for last year-end. These
covenants are being respected and have been met.
    Receivables increased by $618,000 compared to last fiscal year-end. The
regular account balances are substantially current, there are no anticipated
serious collection issues and any potential write-offs have been provided for
in the accounts.
    Inventories decreased by $2,047,000 (-29.7%) while overall volumes of rice
and components decreased by 27.5%. The decrease related mainly to bulk rice.
    Marketable securities, effective last quarter, are recorded at fair value
in accordance with the new Financial Instruments - Revenue Recognition
standard discussed above. The total adjustment for the unrealized gain amounts
to $1,031,000 of which $1,149,000 pertained to the balance sheet at last
fiscal year-end and was, net of future taxes, accounted for in opening
Retained Earnings. The adjustment for this period was a reduction of $118,000
and was attributable to market losses in the second quarter related to the
Canadian and the American & Foreign equity markets. The investment mix has
been generally maintained through these market changes. Marketable securities
at February 28, 2007 were recorded at cost.
    Property, plant and equipment decreased by $35,000 being net of $487,000
of additions and $522,000 of amortization. The new Time-Wise project came
on-line in June of this quarter.
    Bank indebtedness was $2,860,000 compared to $1,398,000 at last year-end.
The increase of $1,462,000 is explained under financing activities.
    Payables decreased by $2,203,000, mainly due to decreased inventories.
    Accrued benefit liability decreased to reflect a revised actuarial
calculation and includes imputed interest as funding of the SERP is accounted
for internally. Payments from the SERP began in July.
    Long-term debt is being repaid in accordance with the arrangements of the
five year reducing term facility agreement as described under credit
facilities.
    Future income taxes, net increased by $204,000 including a charge of
$164,000 for the fair value adjustment pertaining to the unrealized gain at
August 31, 2007.
    Shareholders' equity increased by $828,000 to $16,720,000 from $15,892,000
being $6.60 ($6.27) per share.
    Capital stock remained unchanged at $539,000 and represents 2,535,000
issued common shares.
    Retained earnings were adjusted in accordance with the required accounting
for the marketable securities at fair value. The opening balance was increased
by $965,000 being the unrealized gain at last fiscal year-end of $1,149,000
less the applicable future income taxes of $184,000.

    The MRRM Inc. shares have a very limited distribution and are
    infrequently traded on the TSX-Venture Exchange under the symbol MRR.
                                             www.TSX-Venture Exchange


    Discussion of Results:

    In Dainty Foods, net sales increased by $2,062,000 (9.2%) for the period
and by $1,265,000 (11.5%) for the quarter compared to last year while overall
rice volumes were basically flat. Costs and expenses increased by $2,002,000
(8.9%) for the period and by $1,204,000 (11.1%) for the quarter. Earnings
before interest and exchange increased by $37,000 compared to this period last
year while earnings before income taxes for the period increased by $60,000,
and compared to this quarter last year by $61,000. The increases in sales and
costs were mainly attributable to increases in the price of bulk rice compared
to last year. As indicated in the last Annual Report and the MD&A for 2008.Q1,
the cost of rice has been tracking at ten year highs during the past few
quarters with little likelihood that this is to change in the near future;
this situation still prevails today. Recent selling price increases in our
branded and private label items have helped to improve this situation and
increases have been introduced beginning in 2008.Q3 for the canned rice
products. The canned rice products had not been increased for many years and
the price increases are intended to ensure these products continue to be
considered as very good value by our loyal consumers. The investment in the
new Time-Wise rice line continues to show encouraging results and while the
Company anticipates this value added product line will be a good contributor
to margins it is still premature to expect significant returns in this year.
The Canadian retailers have committed to list a number of Dainty SKUs and have
or are in the process of arranging for a number of selected private label
items. Listing fees have been recorded for a number of SKUs at these major
retailers and additional investments in marketing related areas are
contemplated either later this year or early next year. Shipments are expected
to grow over the balance of this fiscal year but with more noticeable growth
into next year.
    As previously indicated, highlights of the Time-Wise product line are:
cooks like pasta, decreases the preparation time of traditional parboiled rice
from 20 minutes to 10 minutes and whole grain brown parboiled rice from
45 minutes to 15 minutes and does not contain additives. The new product line
will target different market segments than our Dainty canned rice.
    As indicated above, sales volumes are relatively flat; this pertains
mainly to bulk and bagged rice shipments and sales within these markets remain
extremely competitive. The company is actively pursuing new value-added retail
type products some of which will be outsourced until volumes and economies
develop to a point where in-house production is viable. This minimizes capital
investment while enhancing Dainty Foods' offerings in the retail marketplace.
    In Robert Reford, revenue decreased by $143,000 (-13.5%) for the period
and by $127,000 (-20.3%) for the quarter compared to last year. As indicated
in the MD&A for 2008.Q1, the decrease for the period results primarily from an
overall reduction in container and bulk activity. The industry continues to
experience a significant downturn in imports to the Great Lakes. Movements
related to our ship operators servicing the steel industry for both the USA
and Canada have experienced significant reductions in activity and this, along
with a decrease in other commodities, has resulted in significant decreases in
ships transiting the seaway and consequently in revenue levels. During this
quarter, a major account serviced by Furncan-Reford in the Maritimes advised
that its world service, with a call to the port of Halifax, was to be
discontinued due to reduced cargo volumes. A partial service has been
maintained and Reford continues to act as agent for the account.
    While the loss for the period was $50,000 compared to earnings last year
of $143,000 and this decrease was the result of the reduction in revenues, the
quarter had earnings of $32,000; positive results for the next quarters will
depend on an economic upturn.
    As reported previously, during the past several months a detailed study
had taken place within the Operations department to determine what can be done
to improve operational efficiencies by standardizing agency document
processing with the aid of software enhancements to our systems as well as to
fully integrate the various related functions. As a result of this work
significant development has been done in-house on the agency accounting phase
of the project which was released during this quarter. The project with
Innovation Maritime, a non-profit corporation recognized by the Quebec
ministry of education as a college teaching center to produce the
documentation and scheduling phases of this effort, is progressing as planned.
The cost will be approximately $120,000 and is to be amortized over four
years. The release of these phases is scheduled for next March.
    Since interest and exchange are accounted for on a consolidated basis,
exchange and earned interest attributed to ship agency services are allocated
to agency revenue and interest income is netted under costs and expenses.

    In Corporate Investments, portfolio income is summarized as follows:

                                                           2008         2007
                                                           ----         ----

    Dividend income                                     $57,000      $77,000

    Interest income                                     $24,000      $26,000

    Capital gains                                       $37,000      $42,000

    Unrealized change in Fair Value                   ($118,000)           -
                                                      ----------   ----------
                                                      ----------   ----------

    Totals:                                                   -     $145,000
                                                      ----------   ----------

    Certification

    The Company's management, under the direction and supervision of the Chief
Executive Officer and Chief Financial Officer, continually evaluates the
effectiveness of the Company's disclosure controls and procedures and has
concluded that such disclosure controls and procedures are effective.
    The Company's management is also responsible for establishing and
maintaining internal controls over financial reporting. These controls were
designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with Canadian GAAP.
    There have been no changes in the Company internal controls over financial
reporting during this quarter that have materially affected, or are reasonably
likely to materially affect, its internal control over financial reporting.

    Outlook

    While the Company is anticipating continued growth in food processing and
selling and ship agency services, actual growth attained in 2008 will be
impacted by several factors including (i) the demand for our new Time-Wise
value added products (ii) the ability of the Company to secure rice from the
U.S. at appropriate prices (iii) the ability within the marketplace to obtain
price increases in a timely manner to cover increased costs, and (iv) general
economic conditions in Canada, the U.S. and the rest of the world.
    Indications are that the Time-Wise products will provide additional
growth, that the current rice market provides an environment to secure rice at
competitive prices and economic conditions are likely to support growth in the
food processing and selling operations. The markets that the ship agency
services operate in have experienced a very slow start in the first half of
this year and it is likely that any recovery will not recapture current lost
volumes. Overall the current expectation is for the company to achieve
satisfactory levels of profitability in the rice processing division however
it is unlikely that the agency division will match last year's level of
performance.

    Risks and Uncertainties

    Overview

    Management of risk includes properly identifying, communicating and
controlling the risks which may cause a serious impact to the business.
Management is confident that the Company employs effective procedures to
address all material risks.
    The following items were discussed in the MD&A in the last Annual Report
and remain principally unchanged. Please refer to these documents for this
information.
      Ability to Achieve Revenue Results
      Ability to Address Cost and Expense Concerns
      Economic Conditions
      Environment

    In Recognition

    Mr. Robert Blanchard, our CEO, retired on June 30th, 2007 after 16 years
of service to the Company. We thank you Mr. Blanchard for guiding us so
diligently during your tenure and wish you many happy and healthy years of
retirement.
    Mr. Terry Henderson, President of Dainty Foods, assumed the responsibility
as MRRM's CEO at the Meeting of the Board of Directors following the last
Annual General Meeting.
    Mr. David Wayland, our CFO who has been with the company since 1976, is
anticipating retirement within the next year. We are pleased to report that
Mr. Louis (Lou) Younan has recently been hired to fill this function. Lou is
located in the Windsor office and had been working in the food industry for
over twenty-two years and has acted as CFO of a major food processor for nine
years. He will be working closely with Dave as he moves towards retirement.
    We are extremely proud to report that on February 23, 2007 MRRM Inc.
celebrated its 125th anniversary of continuous operation under its own name
and that of its predecessor corporation, Mount Royal Rice Milling and
Manufacturing Company, and Mount Royal Rice Mills Limited. We are very
grateful and wish to say a special thank you to all those directly associated
with the Company presently and in the past as well as our loyal customers and
suppliers who have made the achievement of 125 years of survival and success a
reality.


    On behalf of the Board

    (signed)                             (signed)

    Nikola M. Reford                     Terry Henderson
    Chairman                             President & Chief Executive Officer


    Dated at Montreal (Westmount), Quebec, October 11, 2007.



    MRRM Inc.

    CONSOLIDATED EARNINGS
    And RETAINED EARNINGS

    -------------------------------------------------------------------------
                                               For the               For the
                                               -------               -------
    (unaudited)                      SIX Months Ending        Quarter Ending
                                     -----------------        --------------
                               August 31,  August 31,  August 31,  August 31,
                               ---------  ----------  ----------   ---------
                                    2007        2006        2007        2006
                                    ----        ----        ----        ----
                                    '000        '000        '000        '000

    Revenues
      Sales                       25,479      23,560      12,812      11,674
      Interest and investment
       income                         81         103          48          52
      Gain on disposal of
       marketable securities          37          42          25           0
                               ----------  ----------  ----------  ----------

                                  25,597      23,705      12,885      11,726
                               ----------  ----------  ----------  ----------

    Costs and expenses
      Cost of sales, selling
       and administrative         24,834      22,811      12,217      10,961
      Amortization                   522         467         280         233
      Exchange loss (gain)           (18)          1         (40)         26
      Interest expense (a)           141         128          94          61
                               ----------  ----------  ----------  ----------

                                  25,479      23,407      12,551      11,281
                               ----------  ----------  ----------  ----------

    Earnings (Loss) before
     the following item              118         298         334         445
      Change in fair value
       of investments held
       for trading                  (118)          0        (131)          0
                               ----------  ----------  ----------  ----------

    Earnings (Loss) before
     income taxes                      0         298         203         445

    Income taxes (recovery)
      Current                        (10)         12          17          45
      Future                          20          73          65         123
                               ----------  ----------  ----------  ----------
                                      10          85          82         168
                               ----------  ----------  ----------  ----------

    Net earnings (loss)              (10)        213        $121        $277
                                                       ----------  ----------
                                                       ----------  ----------
      Retained earnings,
       beginning of year          15,353      15,147
      Adjustment to fair value
       for investments held
       for trading                   965           0
                               ----------  ----------

                                  16,308      15,360

      Dividends                      127         254          $0        $127
                               ----------  ----------  ----------  ----------
                                                       ----------  ----------

    Retained earnings, end
     of period                   $16,181     $15,106
                               ----------  ----------
                               ----------  ----------

    Basic earnings (loss)
     per share                     $0,00       $0,08       $0,05       $0,11
                                   -----       -----       -----       -----
    -------------------------------------------------------------------------
    (a) Additional information is included in the Notes to Consolidated
        Financial Statements..


    MRRM Inc.

    CONSOLIDATED CASH FLOWS

    -------------------------------------------------------------------------
                                             For the                 For the
                                             -------                 -------
    (unaudited)                    SIX Months Ending          Quarter Ending
                                   -----------------          --------------
                               August 31,  August 31,  August 31,  August 31,
                               ---------   ---------   ---------   ---------
                                    2007        2006        2007        2006
                                    ----        ----        ----        ----
                                    '000        '000        '000        '000

    OPERATING ACTIVITIES

    Net earnings (loss)              (10)        213         121         277
    Non-cash items
      Change in fair value of
       investments held for
       trading                       118           0         131           0
      (Gain) on disposal of
       marketable securities         (37)        (42)        (25)          0
      Amortization                   522         467         280         233
      Pension benefit cost          (110)        133        (119)         66
      Future income taxes             20          72          64         122
                                      --          --          --         ---
                                     503         843         452         698
      Change in receivables         (618)        194         154        (147)
      Change in inventories        2,047        (315)      1,028        (817)
      Change in income taxes
       receivable                      0           0           0          37
      Change in tax credits
       receivable                    (94)       (100)        (94)       (100)
      Change in prepaids              83          79         135          40
      Change in payables          (2,203)        341        (346)        648
      Change in income taxes
       payable                      (180)         14        (132)         29
                               ----------  ----------  ----------  ----------

    Cash flows from operating
     activities (a)                 (462)      1,056       1,197         388
                               ----------  ----------  ----------  ----------

    INVESTING ACTIVITIES

    Marketable securities         (1,006)     (1,927)       (345)     (1,369)
    Disposal of marketable
     securities                      925       1,835         294       1,318
    Property, plant and
     equipment                      (487)     (2,071)       (163)        227
    Disposal of equipment              0          10           0          10
                               ----------  ----------  ----------  ----------

    Cash flows from investing
     activities                     (568)     (2,153)       (214)        186
                               ----------  ----------  ----------  ----------

    FINANCING ACTIVITIES

    Bank indebtedness              1,462       1,351        (831)       (447)
    Long-term debt                  (305)          0        (152)          0
    Dividends                       (127)       (254)          0        (127)
                               ----------  ----------  ----------  ----------
    Cash flows from financing
     activities                    1,030       1,097        (983)       (574)
                               ----------  ----------  ----------  ----------

    Net change in cash                 0           0           0           0

    Cash, beginning of period          0           0           0           0
                               ----------  ----------  ----------  ----------

    Cash end of period                $0          $0          $0          $0
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------


    Dividends per share            $0,05       $0,10       $0,00       $0,05
                                   -----       -----       -----       -----
    -------------------------------------------------------------------------
    (a) Additional information is included in the Notes to Consolidated
        Financial Statements..


    MRRM Inc.
    (Formerly: Mount Royal Rice Mills Limited)

    CONSOLIDATED BALANCE SHEETS

    -------------------------------------------------------------------------
    (unaudited)                                           As at        As at
                                                     August, 31  February 28
                                                     ----------  -----------
                                                           2007         2007
                                                           ----         ----
                                                           '000         '000
    ASSETS
    Current
      Cash
      Receivables                                         4,979        4,361
      Inventories                                         4,835        6,882
      Tax credits receivable                              1,046          952
      Prepaids                                              137          220
      Future income taxes                                    22           17
                                                      ----------   ----------
                                                         11,019       12,432

    Marketable securities, at fair value (note 1)         5,011        3,862

    Property, plant and equipment, net                   15,894       15,929
                                                      ----------   ----------

                                                        $31,924      $32,223
                                                      ----------   ----------
                                                      ----------   ----------

    LIABILITIES

    Current
      Bank indebtedness                                   2,860        1,398
      Payables                                            6,310        8,513
      Income taxes                                            9          189
      Current portion of long-term debt                     639          621
                                                      ----------   ----------
                                                          9,818       10,721

    Accrued benefit liability                               662          772
    Long-term debt, reducing term loan maturing
     in 2012                                              2,556        2,879
    Future income taxes                                   2,168        1,959
                                                      ----------   ----------

                                                         15,204       16,331
                                                      ----------   ----------

    SHAREHOLDERS' EQUITY

    Capital stock
      Common shares, without nominal or par value
       authorized in an unlimited number
      Issued     2,535,000 shares                           539          539

    Retained earnings                                    16,181       15,353
                                                      ----------   ----------
                                                         16,720       15,892
                                                      ----------   ----------

                                                        $31,924      $32,223
                                                      ----------   ----------
                                                      ----------   ----------
    -------------------------------------------------------------------------


    MRRM Inc.

    NOTES To CONSOLIDATED FINANCIAL STATEMENTS

    -------------------------------------------------------------------------
    (unaudited)

    1- Accounting Policies and Supplementary Information

    The unaudited interim consolidated financial statements were prepared by
the Company in accordance with Canadian generally accepted accounting
principles and have not been reviewed by the Company's auditors.
    The accounting policies and procedures used in preparing these unaudited
interim consolidated financial statements are the same as those used in
preparing the audited annual consolidated financial statements for the year
ended February 28, 2007, except for the accounting for changes in the value of
the marketable securities as explained hereunder. These unaudited interim
statements should be read along with the audited annual statements and notes
included in the Company's last Annual Report. Certain comparative figures have
been reclassified to conform with the presentation adopted at last fiscal
year-end.
    As referenced in the Notes to Consolidated Financial Statements for the
last fiscal year, effective with the beginning of the 1st quarter of the
current year, the Company adopted Section 3855 of the CICA Handbook, Financial
Instruments - Recognition and Measurement. Under this new standard, all
financial assets must be classified as held for trading, held-to-maturity,
loans and receivables or available for sale. All financial liabilities are
classified as held for trading or other financial liabilities.
    The portfolio of Marketable securities has been designated as a financial
asset held for trading. These investments are recorded at fair value based on
the current bid price at the balance sheet date with fair value changes
recorded and disclosed in the Statement of Earnings.
    The application of the new accounting policy resulted in an increase to
the investment asset of $1,031,000, an increase to the Future income tax
liability of $164,000 and an increase to beginning Retained Earnings of
$965,000 (being the unrealized gain at last fiscal year-end of $1,149,000 less
applicable future income taxes of $184,000). For this period, the change in
fair value is negative and amounts to $118,000; this has been included in the
future income tax calculation.
    The Company uses an interest rate swap arrangement through its bankers to
effectively fix the variable rate pertaining to the Reducing term loan which
matures in February 2012. This arrangement has fixed the interest rate at
5.83% to maturity. Were the Company to settle this swap agreement at the
reporting date, the estimated fair value based on quotes received from the
Company's lender would be favorable by $16,400, this value was favorable by
$17,900 at the end of the previous quarter. The position at February 28, 2007
was unfavorable by $29,600. These amounts are before income taxes and have not
been recorded in the financial statements.
    The Company is subject to debt covenants related to the revolving line of
credit and to the reducing long-term loan. These covenants are being respected
and have been met.
    Foreign exchange exposure: At August 31, 2007, net US$439,000; at
August 31, 2006, net US($1,546,000), at May 31, 2007, net US$1,050,000; at May
31, 2006, net US($3,437,000) and at February 28, 2007, net US($1,148,000). The
above US numbers include equivalent for euro and pounds stirling which are not
material. No exchange futures were outstanding at the end of the quarter.


                                             For the                 For the
                                             -------                 -------
                                   SIX Months Ending          Quarter Ending
                                   -----------------          --------------
                               August 31,  August 31,  August 31,  August 31,
                               ---------   ---------   ---------   ---------
                                    2007        2006        2007        2006
                                    ----        ----        ----        ----
                                    '000        '000        '000        '000

    2 - Information included
        in the Statement Of
        Earnings

        Income taxes paid
         (received)                 $210         $56        $192         $39
                                    ----         ---        ----         ---
                                    ----         ---        ----         ---
        Investment tax credit       $100        $100        $100        $100
                                    ----        ----        ----        ----
                                    ----        ----        ----        ----

        Interest on long-term
         debt                        $99          $0         $49          $0
        Interest on bank
         indebtedness and other      $90        $128         $45         $61
                                     ---        ----         ---         ---
        Total Interest paid         $189        $128         $94         $61
        Less, interest
         capitalized                 $48          $0          $0          $0
                                     ---          --          --          --
        Interest expensed           $141        $128         $94         $61
                                    ----        ----         ---         ---
                                    ----        ----         ---         ---

    3 - Income Taxes

        Combined basic federal
         and provincial income
         tax rate                     $0        $101                    35,3%
        Non-taxable portion of
         capital (gains) losses      $13         -$7                    -2,8%
        Tax-free income (net)       -$19        -$26                    -9,9%
        Other                        $16         $17                     6,0%
                                     ---         ---                     ----
                                     $10         $85          - % (*)   28,6%
                                     ---         ---          -------   -----
                                     ---         ---          -------   -----

    4 - Segmented Information

        Revenue
        Food processing and
         selling                  24,559      22,497      12,312      11,047
        Ship agency services         920       1 063         500         627
                                     ---       -----         ---         ---
        Operating                 25,479      23,560      12,812      11,674
        Corporate                    118         145          73          52
                                     ---         ---          --          --
                                 $25,597     $23,705     $12,885     $11,726
                                 -------     -------     -------     -------
                                 -------     -------     -------     -------
        Earnings
        Food processing and
         selling                     153          93         291         230
        Ship agency services         (50)        143          32         193
                                     ----        ---          --         ---
        Operating                    103         236         323         423
        Corporate, including
         change in fair value
         of marketable
         securities                 (103)         62        (120)         22
                                    -----         --        -----         --
        Earnings before
         income taxes                  0         298         203         445
        Income Taxes                  10          85          82         168
                                      --          --          --         ---
        Net Earnings (Loss)         ($10)       $213        $121        $277
                                    ----        ----        ----        ----
                                    ----        ----        ----        ----

        Assets
        Food processing and
         selling                  26 252      25 016      (1 312)        436
        Ship agency services         685       1 317          (3)         87
                                     ---       -----          ---         --
        Operating                 26 937      26 333      (1 315)        523
        Corporate                  4 987       3 833         (73)         45
                                   -----       -----         ----         --
                                 $31 924     $30 166     ($1 388)       $568
                                 -------     -------     --------       ----
                                 -------     -------     --------       ----

        Capital expenditures
        Food processing and
         selling                     485       2 063         162        (230)
        Ship agency services           2           8           1           3
                                       -           -           -           -
        Operating                    487       2 071         163        (227)
        Corporate                      0           0           0           0
                                       -           -           -           -
                                    $487      $2 071        $163       ($227)
                                    ----      ------        ----       ------
                                    ----      ------        ----       ------

        Amortization
        Food processing and
         selling                     504         447         271         223
        Ship agency services          18          20           9          10
                                      --          --           -          --
                                    $522        $467        $280        $233
                                    ----        ----        ----        ----
                                    ----        ----        ----        ----

    (*) The combined basic income tax rate and adjustments are not meaningful
        for this quarter and have been omitted.
    




For further information:

For further information: D.M. Wayland, Secretary-treasurer & CFO, MRRM 
Inc., (514) 908-7777, Fax: (514) 906-0220, mr@mrrm.ca

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