MRRM Inc. - Directors' report and management discussion and analysis of the financial condition and results of operations - Interim 2009.Q2 - August 31, 2008



    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 2009 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

    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. 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 accessed
    through the internet: For MRRM's profile go to www.sedar.com or for
    documents go to www.sedar.com Information is also available on the
    Corporate website at www.MRRM.ca .

    MONTREAL, Oct. 9 /CNW Telbec/ -

    Consolidated Earnings And Comprehensive Income and Retained Earnings
    --------------------------------------------------------------------

    Revenues for this period (last year) were $27,410,000 ($25,577,000)
increasing by $1,833,000 (7.2%). As shown in the segmented information, sales
and income from operating activities amounted to $27,254,000 ($25,577,000)
being 99.4% (100.0%) of total revenues. Income from corporate totaled
$156,000 ($0,000). Operating Revenues increased by $1,677,000 (6.6%) compared
to last year. Revenue from Corporate increased by $156,000 of which $172,000
was attributable to a higher unrealized fair value of investments held for
trading.
    Costs and expenses for this period (last year) were $26,837,000
($25,577,000), an increase of $1,260,000 (4.9%). Costs related to operating
activities, before exchange and interest, increased by $1,247,000 (4.9%).
Expenses related to corporate increased by $6,000. Overall margins continue to
improve when compared to this period last year.

    Operating results are discussed later on in this report.

    The impact of the fluctuating Canadian dollar resulted in a currency
exchange gain of $43,000 for the period compared to a gain this period last
year of $18,000. As disclosed in the Notes, the net exposures were as follows:
at August 31, 2008, US($69,000); at August 31, 2007, US$439,000; at May 31,
2008, US$3,880,000 & at May 31, 2007, US$1,050,000; at February 29, 2008,
US$1,438,000 & February 28, 2007, US($1,148,000); at November 30, 2007,
US($440,000) & November 30, 2006, US($5,616,000). The above US dollars include
the equivalents for euros and pounds sterling which are not material.
    During the first quarter, the Company entered into foreign exchange
futures maturing this fiscal year which cover a significant portion of its USF
requirements. The Company uses the fair value accounting method for such
instruments. Under this method any unrealized gains or losses caused by
fluctuation to the market value are to be recorded in income for the period.
As these fluctuations on an interim basis represent a temporary gain or loss
and will not impact the financial results of the fiscal year, these gains or
losses have not been recorded on the interim financial statements.
    Interest expensed on bank indebtedness and the reducing term loan
amounted to $172,000 compared to $141,000 this period last year for an
increase of $31,000. Interest of $48,000 pertaining to the Time-Wise project
was capitalized in the first quarter last year. Total interest accrued and
paid amounted to $172,000 compared to $189,000 this period last year. Interest
related to the long-term debt was $80,000 compared to $99,000 this period last
year.
    The Earnings before income taxes for this period were $573,000 compared
to $0,000 last year, an increase of $573,000. Earnings from operating
activities were $526,000 ($103,000), an increase of $423,000. Earnings from
corporate were $47,000 compared to $-103,000, an increase of $150,000.
    Income taxes for the period were $172,000 ($10,000). The effective tax
rates are presented in the Notes to the financial statements.
    Net Earnings (loss) for the period were $401,000 (-$10,000) or
$0.16 ($0.00) per share.
    Dividends paid during the period last year amounted to $127,000. 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    Aug 31, May 31, Feb 29, Nov 30, Aug 31, May 31, Feb 28, Nov 30,
     most       2008    2008    2008    2007    2007    2007    2007    2006
     recent    (2009.  (2009.  (2008.  (2008.  (2008.  (2008.  (2007.  (2007.
     fiscal       Q2)     Q1)     Q4)     Q3)     Q2)     Q1)     Q4)     Q3)
     quarters ------- ------- ------- ------- ------- ------- ------- -------
    -------------------------------------------------------------------------
    (Expressed
     in
     thousands,
     except for
     amounts per
     share -
     unaudited)    $       $       $       $       $       $       $       $
    -------------------------------------------------------------------------
    Revenues  13,911  13,499  10,625  12,548  12,810  12,767  13,289  13,553
    -------------------------------------------------------------------------
    Net
     Earnings
     (loss)      287     114    (134)    214     121    (131)    701     179
    -------------------------------------------------------------------------
    Earnings
     (loss)
     per share  0.11    0.05   (0.05)   0.08    0.05   (0.05)   0.28    0.07
    -------------------------------------------------------------------------
    Dividends
     per share  0.00    0.00    0.00    0.00    0.00    0.05    0.20    0.05
    -------------------------------------------------------------------------

    Revenues for this quarter were $13,911,000 ($12,810,000), an increase of
$1,101,000 (8.6%). Revenue from operating activities amounted to $13,888,000
($12,868,000) being 99.8% (100.5%) of total revenues. Income from corporate
totaled $23,000 ($-58,000). Operating revenues for the quarter increased by
$1,020,000 (7.9%) compared to this quarter last year. Revenue from Corporate
increased by $81,000 of which $76,000 was attributable to a change in fair
value of investments held for trading.
    Costs and expenses for the quarter were $13,478,000 ($12,607,000), an
increase of $871,000 (6.9%). Costs related to operating activities, before
exchange and interest, increased by $866,000 (7.0%). Initial investments in
listing fees of $129,000 and other marketing activity applicable to the
Time-Wise product line were recorded last year during the second quarter. No
such expenditures have been incurred thus far this year.
    Included in the financial results for this quarter are investment tax
credits of $77,000 representing 85% of total claimed for Federal and Ontario
pertaining to fiscal year 2008. The comparative amount for this quarter last
year was $100,000.
    The currency exchange in this quarter resulted in a loss of $8,000
compared to a gain this quarter last year of $40,000, a variance of $48,000.
    Interest expense for this quarter was $77,000 compared to $94,000 this
quarter last year and was $95,000 in 2009.Q1.
    Earnings before income taxes for this quarter were $433,000 compared to
$203,000 last year, an increase of $230,000. Earnings from operating
activities were $470,000 ($323,000), an increase of $147,000 and corporate
were $-37,000 ($-120,000), an increase of $83,000.
    Income taxes for the quarter were $146,000 ($82,000). The effective tax
rates are presented in the Notes to the financial statements.
    Net earnings for the quarter were $287,000 ($121,000) or $0.11 ($0.05) per
share.

    Consolidated Cash Flows, Liquidity and Balance Sheets
    -----------------------------------------------------

    Cash generated by operating activities, net earnings before changes for
non-cash items was $401,000 for the period compared to a usage of $10,000 last
year. Non-cash operating items used $993,000 for the period compared to usage
of $429,000 for this period last year. The increase in receivables was a
significant contributor.
    In investing activities, the Company added $211,000 of net property, plant
and equipment compared to $502,000 for this period last year; last year, this
amount included $319,000 for the investment in the new value added Time-Wise
rice line which became available for commercial production in June 2007.
    In financing activities, bank indebtedness increased by $963,000 of which
$627,000 of funds were used in operations, $11,000 used for investing
activities and $325,000 to cover the long-term debt payments.
    Working capital amounted to $1,308,000 at the end of this period, an
increase of $573,000 compared to $735,000 at last fiscal year-end. This change
was attributable to a net increase in current assets of $3,704,000 and a net
increase in current liabilities of $3,131,000.

    Available credit facilities

    The credit facilities available and reported at last year-end remain
substantially unchanged. The facilities are comprised of a revolving line of
credit for $4,750,000 CDN (or its US equivalent) and a 5 year reducing term
facility initially borrowed at fiscal year-end 2007 for $3,500,000. The
revolving line of credit bears interest at either the Canadian prime and/or
U.S. base rates and optionally the Company may take advantage of Bankers
Acceptances. The reducing term facility is at a combined fixed rate 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 $2,257,000 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 increased by $1,290,000 (17.3%) while overall volumes of rice
decreased by 5.4%.
    Marketable securities - see table below for financial summary. The
investment mix has been generally maintained through these market
fluctuations.
    Property, plant and equipment decreased by $393,000 comprised of additions
of $212,000, disposals of $8,000, and amortization of $597,000.
    Bank indebtedness was $4,261,000 compared to $3,298,000 at last year-end,
an increase of $963,000 as explained above.
    Payables increased by $1,796,000 mainly arising from increases in amounts
due to the agency business and to the value of rice purchases.
    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 liability, increased by $1,000 including an
increase of $8,000 due to the fair value pertaining to the unrealized gain at
August 31, 2008.
    Shareholders' equity increased by $401,000 to $17,201,000 from $16,800,000
and represents $6.79 ($6.63) per share.
    Capital stock remained unchanged at $539,000 and represents
2,535,000 issued common shares.
    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
                                                    ------------------------

    Critical Accounting Policies:
    -----------------------------

    The Company's critical accounting policies are those that it believes are
the most important in determining its financial condition and results. A
summary of the Company's significant accounting policies, including the
critical accounting policies, is set out in the notes to the consolidated
financial statements in the annual report for the year ended February 29,
2008. An extract of these policies is set out in the notes to the quarterly
consolidated financial statements.

    Future Accounting Changes:
    International Financial Reporting Standards

    In 2005, the Accounting Standards Board of Canada (AcSB) announced that
accounting standards in Canada are to converge with IFRS. In May 2007, the
CICA published an updated version of its "Implementation Plan for
Incorporating International Financial Reporting Standards into Canadian GAAP".
This plan includes an outline of the key decisions that the CICA will need to
make as it implements the Strategic Plan for publicly accountable enterprises
that will converge Canadian generally accepted accounting standards with IFRS.
While IFRS uses a conceptual framework similar to Canadian GAAP, there are
significant differences in accounting policy which must be addressed. The CICA
has confirmed the changeover date from current Canadian GAAP to IFRS to be
January 1, 2011.
    The Company has formed a committee which is currently assessing the future
impact of these new standards on its consolidated financial statements.

    Discussion of Results:
    ----------------------

    In Dainty Foods, net sales increased by $1,407,000 (5.7%) for the period
and by $796,000 (6.5%) for the quarter compared to last year while overall
rice sales volumes increased by 3.7% for the period and 4.3% for the quarter.
Costs and expenses increased by $1,209,000 (5.0%) and increased by
$820,000 (6.8%) for the quarter and earnings before income taxes for the
period increased by $198,000 and decreased by $24,000 compared to this quarter
last year.
    The increase in sales and costs for the period and the quarter were mainly
attributable to increased sales of flour and bagged rice compared to last
year. As indicated in the last Annual Report and MD&A, the cost of rice had
been tracking at an all time high leading into this fiscal year with little
likelihood that this will change in the near future. As reported in Q1,
indications are that new crop prices will soften somewhat but still remain
extremely high compared to last year. Although the 2008 American rice harvest
has been negatively affected by the recent hurricanes, the extent of the
impact on yield, price, and quality cannot be determined at this time.
    Recent selling price increases on our branded and private label items as
well as price increases that were introduced in the second half of last fiscal
year have contributed to improved margins.
    Although cost of sales increased in line with increased sales, and
operating, selling, and administrative expenses decreased slightly for the
period, earnings before income taxes increased by $198,000.
    The investment in the new Time-Wise rice line continues to produce
encouraging results. The Company anticipates this value added product line
will be a good contributor to margins. The Canadian retailers have listed a
number of Dainty "Stock Keeping Units of Measure" (SKUs) as well as a number
of selected private label items in the second half of last fiscal year.
    The company continues to pursue 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 outsourcing will minimize capital
investment while enhancing Dainty Foods' offerings in the retail marketplace
for both branded and private label items. New selling relationships are also
being developed that are intended to add strength to our retail sales efforts.
    Recent sales efforts in the United States have been productive. Several
retailers have committed to the introduction of Time-Wise products and will
begin initial shipments in Q3.
    In Robert Reford, revenue increased by $270,000 (26.5%) for the period and
by $224,000 (40.3%) for the quarter compared to last year.
    Earnings before income taxes for the period increased by $225,000 for the
period and by $171,000 compared to this quarter last year.
    While these increases are very favourable, based on current market
conditions, and recent developments in the North American economy,
expectations for the next quarter are uncertain due to possible labour unrest
in the St. Lawrence seaway.
    As mentioned in the last MD&A, on July 1, 2008 this division entered into
a joint revenue sharing agreement with Norton Lilly International, Inc. to
handle vessel and port operations coast to coast in Canada as well as at
U.S. Great Lakes. This relationship has had a slight positive impact on
revenue to date.

    In Corporate Investments, portfolio income is summarized as follows:

                                     For the period          For the quarter
                                ---------------------   ---------------------
                                    2009        2008        2009        2008
                                    ----        ----        ----        ----
    Dividend and interest
     income                      $99,000     $81,000     $74,000     $48,000
    Capital gains                 $3,000     $37,000      $3,000     $25,000
    Unrealized change in
     Fair Value                  $54,000   -$118,000    -$54,000   -$131,000
                                ---------  ----------  ----------  ----------
    Totals:                     $156,000          $0     $23,000    -$58,000
                                ---------  ----------  ----------  ----------
                                ---------  ----------  ----------  ----------

    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's 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

    Indications are that the Time-Wise products will provide additional growth
and although rice prices are at record highs, the current market still
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 experienced a
good start in this quarter, however, as previously mentioned, expectations for
the next quarter are uncertain due to possible labour unrest in the
St. Lawrence seaway.
    While the Company is anticipating continued growth in food processing and
selling, and while it will be maintaining a strong position within the ship
agency services business, growth in fiscal 2009 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 U.S. rice mills at
competitive prices (iii) the ability within the marketplace to obtain price
increases in a timely manner to cover increased costs, and (iv) general
economic conditions.

    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

    For further information regarding financial risk management, please refer
to the Notes to the interim financial statements.

    On behalf of the Board

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

    Dated at Montreal (Westmount), Quebec, October 9, 2008.


    MRRM Inc.
    CONSOLIDATED EARNINGS
    And COMPREHENSIVE INCOME

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (unaudited)            For the SIX Months Ending  For the Quarter Ending
                           -------------------------- -----------------------

                               August 31,  August 31,  August 31,  August 31,
                               ----------  ----------  ----------  ----------
                                    2008        2007        2008        2007
                                   ------      ------      ------      ------
                                    '000        '000        '000        '000
    Revenues
      Sales                       27,254      25,577      13,888      12,868
      Increase (decrease) in
       fair value of investments
       held for trading              156           0          23         (58)
                               ----------  ----------  ----------  ----------

                                  27,410      25,577      13,911      12,810
                               ----------  ----------  ----------  ----------

    Costs and expenses
      Cost of sales, selling
       and administrative         26,111      24,917      13,094      12,264
      Amortization                   597         537         299         289
      Exchange (gain) loss           (43)        (18)          8         (40)
      Interest (a)                   172         141          77          94
                               ----------  ----------  ----------  ----------

                                  26,837      25,577      13,478      12,607
                               ----------  ----------  ----------  ----------

    Earnings before income
     taxes                           573           0         433         203
                               ----------  ----------  ----------  ----------

    Income taxes (recovery)
      Current                        172         (10)        129          17
      Future                           0          20          17          65
                               ----------  ----------  ----------  ----------

                                     172          10         146          82
                               ----------  ----------  ----------  ----------

    Net earnings (loss)             $401        ($10)       $287        $121
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------

    Basic earnings per share       $0.16      ($0.00)      $0.11       $0.05
                                  -------     -------     -------     -------
                                  -------     -------     -------     -------

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (a) Additional information is included in the Notes to Consolidated
        Financial Statements.


    MRRM Inc.
    CONSOLIDATED RETAINED EARNINGS

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (unaudited)            For the SIX Months Ending  For the Quarter Ending
                           -------------------------- -----------------------

                               August 31,  August 31,  August 31,  August 31,
                               ----------  ----------  ----------  ----------
                                    2008        2007        2008        2007
                                   ------      ------      ------      ------
                                    '000        '000        '000        '000

    Balance, beginning of
     period                       16,261      15,353      16,375      16,060
    Adjustment to fair value
     for investments held for
     trading                           0         965           0           0
    Net earnings (loss)              401         (10)        287         121
                               ----------  ----------  ----------  ----------

                                  16,662      16,308      16,662      16,181

    Dividends                          0         127           0           0
                               ----------  ----------  ----------  ----------

    Balance, end of period       $16,662     $16,181     $16,662     $16,181
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    MRRM Inc.
    CONSOLIDATED CASH FLOWS

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (unaudited)            For the SIX Months Ending  For the Quarter Ending
                           -------------------------- -----------------------

                               August 31,  August 31,  August 31,  August 31,
                               ----------  ----------  ----------  ----------
                                    2008        2007        2008        2007
                                   ------      ------      ------      ------
                                    '000        '000        '000        '000

    OPERATING ACTIVITIES
    Net earnings (loss)              401         (10)        287         121
    Defined benefit plan
     payments                        (35)         (8)        (19)         (4)
                                     ----         ---        ----         ---
                                     366         (18)        268         117

    Non-cash items
      Change in fair value of
       investments held for
       trading                       (57)         81          51         106
      Loss on disposal of
       equipment                       7           0           7           0
      Amortization                   597         537         299         289
      Accrued benefit cost            15         (74)          8         (83)
      Future income taxes              1          20          18          64
                                      ---        ----        ----        ----
                                     929         546         651         493
      Change in receivables       (2,257)       (618)     (1,398)        154
      Change in inventories       (1,290)      2,047      (2,006)      1,028
      Change in tax credits
       receivable                   (273)        (94)       (273)        (94)
      Change in prepaids             116          83          69         135
      Change in payables           1,796      (2,231)      1,604        (378)
      Change in income taxes
       payable                       352        (180)        328        (132)
                               ----------  ----------  ----------  ----------

    Cash flows from operating
     activities (a)                 (627)       (447)     (1,025)      1,206
                               ----------  ----------  ----------  ----------

    INVESTING ACTIVITIES

    Marketable securities            (77)       (634)        (77)        (78)
    Disposals of marketable
     securities                      277         553          66          27
    Property, plant and
     equipment                      (212)       (502)        (98)       (172)
    Disposal of equipment              1           0           1           0
                               ----------  ----------  ----------  ----------

    Cash flows from investing
     activities                      (11)       (583)       (108)       (223)
                               ----------  ----------  ----------  ----------

    FINANCING ACTIVITIES

    Bank indebtedness                963       1,462       1,296        (831)
    Long-term debt                  (325)       (305)       (163)       (152)
    Dividends                          0        (127)          0           0
                               ----------  ----------  ----------  ----------
    Cash flows from financing
     activities                      638       1,030       1,133        (983)
                               ----------  ----------  ----------  ----------

    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            $0.00       $0.05       $0.00       $0.00
                                  -------     -------     -------     -------
                                  -------     -------     -------     -------

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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    February
                                                          ------    --------
                                                              31,         29,
                                                              --          --
                                                            2008        2008
                                                            ----        ----
                                                            '000        '000
    ASSETS
    Current
      Receivables                                          6,436       4,179
      Inventories                                          8,761       7,471
      Tax credits receivable                               1,168         895
      Prepaids                                                56         172
      Future income taxes                                     15          15
                                                       ----------  ----------
                                                          16,436      12,732

    Marketable securities, at fair value (note 1)          4,754       4,897

    Property, plant and equipment, net                    15,427      15,820
                                                       ----------  ----------

                                                         $36,617     $33,449
                                                       ----------  ----------
                                                       ----------  ----------
    LIABILITIES
    Current
      Bank indebtedness                                    4,261       3,298
      Payables                                             9,740       7,944
      Income taxes                                           380          28
      Current portion of long-term liabilities               747         727
                                                       ----------  ----------
                                                          15,128      11,997

    Accrued long-term benefit liability                      626         646
    Long-term debt, reducing term loan maturing in
     2012                                                  1,877       2,222
    Future income taxes                                    1,785       1,784
                                                       ----------  ----------

                                                          19,416      16,649
                                                       ----------  ----------

    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                                    16,662       16,261
                                                       ----------  ----------
                                                         17,201       16,800
                                                       ----------  ----------

                                                        $36,617      $33,449
                                                       ----------  ----------
                                                       ----------  ----------

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    MRRM Inc.
    NOTES To CONSOLIDATED FINANCIAL STATEMENTS

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (unaudited)                               August 31,     2008
                                              ----------     ----

    1- Accounting Policies, Financial Risk management 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 29, 2008 except for new accounting policies that have been
adopted effective March 1, 2008. 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.

    Changes in accounting policies

    The Company adopted Canadian Institute of Chartered Accountants (CICA)
Handbook Section 1535, Capital Disclosures; Section 3031, Inventories; Section
3862, Financial Instruments - Disclosures; and Section 3863, Financial
Instruments - Presentation on March 1, 2008.

    Capital Disclosures

    In December 2006, the Canadian Institute of Chartered Accountants (CICA)
published Section 1535, "Capital Disclosures". This new standard establishes
disclosure requirements concerning capital such as: qualitative information
about an entity's objectives, policies and processes for managing capital;
quantitative data about what it regards as capital; whether the entity has
complied with any externally imposed capital requirements and, if not, the
consequences of such non-compliance. The Company has adopted this Section as
of March 1, 2008. Additional informations are presented in Note 7, "Capital
disclosures".

    Inventories

    The Company has adopted section 3031, this section provides more extensive
guidance on measurement, and expands disclosure requirements to increase
transparency.
    Raw materials and supplies are recorded at the lower of cost, determined
on a weighted average basis, and net realizable value, being the estimated
selling price of finished goods less the estimated costs of completion of the
finished goods. Under the previous policy raw materials and supplies were
recorded at the lower of cost, determined on a weighted average basis, and
replacement cost.
    Finished goods are recorded at the lower of cost and net realizable value.
Finished goods include the cost of direct labour, direct materials and
variable and fixed overhead related to production, including amortization,
applied at a standard rate, which approximates actual costs. There is no
financial impact to reported financial statements as a result of this new
standard.
    Inventory valuation follows the accounting policy disclosed in the annual
audited financial statements with the exception of the treatment of temporary
inventory costing fluctuations which are not taken into income as they are
temporary in nature. Fluctuations, if any, in inventory costing resulting from
temporary production cost variances will be absorbed in income by fiscal year
end.

    Future accounting standards

    In February 2008, the CICA issued new Section 3450, "Research and
Development Costs". The new section sets out standards for recognition,
measurement, presentation and disclosure. The new standard is effective for
fiscal years beginning on or after November 1, 2008 and the Company will
implement it as of March 1, 2009. The Company is currently assessing the
impact.
    Also in February 2008, Canada's Accounting Standards Board (AcSB)
confirmed that Canadian GAAP, as used by publicly accountable enterprises,
will be superseded by International Financial Reporting Standards (IFRS) for
fiscal years beginning on or after January 1, 2011. The Corporation will be
required to report under IFRS for its interim and annual financial statements
for the fiscal year ending February 29, 2012. The Corporation is currently
preparing its IFRS conversion plan. The plan will be aimed in particular at
identifying the differences between IFRS and the Corporation's accounting
policies, assessing their impact and, where necessary, analyzing the various
policies that the Corporation could elect to adopt.

    2- Financial Instruments and Financial Risk factors

    The Company's financial instruments recognized in the balance sheet
consist of cash, marketable securities, accounts receivable, accounts payable,
accrued liabilities and bank loan. The carrying value of these balance sheet
items approximates their fair market value. The Company is exposed to a number
of different financial risks arising from normal course business exposure, as
well as the Company's use of financial instruments. These risk factors include
credit risk, interest rate risk, liquidity risk, currency risk and price risk.

    Fair value

    Receivables, bank indebtedness and payables are financial instruments
whose fair values approximate their carrying values due to their short-term
maturity. The portfolio of marketable securities has been designated 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 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
unfavorable by $67,500 compared to a favorable position of $16,400 for the
same period last year. This value was unfavorable by $62,200 at last fiscal
year-end. These amounts are before income taxes and have not been recorded in
the financial statements.

    Credit risk

    Credit risk relates to the risk that a party to a financial instrument
will not fulfill some or all of its obligations, thereby, causing the Company
to sustain a financial loss. The credit risk for the Company relates to
accounts receivable. Credit risk is reduced by the active monitoring of the
accounts receivable. The Company performs ongoing credit reviews of all its
customers and establishes an allowance for doubtful accounts receivable when
accounts are determined to be noncollectable.

    Interest rate risk

    Receivables and payables are non-interest bearing. Bank indebtedness bears
interest at either the Canadian prime and/or U.S. base rates and optionally
the Company may take advantage of Bankers Acceptances. The interest rate risk
relating to the reducing term loan is as described under Fair value above. For
this quarter, a 0.5% hypothetical increase in the prime rate on bank
indebtedness would increase interest expense by approximately $4,000. A 0.5%
decrease in the prime rate would have had a reverse effect.

    Liquidity risk

    The Company is subject to debt covenants related to the revolving line of
credit and to the reducing long-term loan. The Company believes that future
cash flows from operations and availability under existing credit facilities
from banking institutions will be sufficient to meet its obligations. Under
senior management's supervision, the Company manages its liquidities according
to financial forecast and expected cash flows.

    Currency risk

    The Company is exposed to foreign currency risks due to its imports of
bulk rice from the USA and overseas. These risks are partially offset by sales
in U.S. funds and by the purchase of forward exchange futures. Last quarter,
the Company has entered into foreign exchange futures maturing this fiscal
year which cover a significant portion of its USD requirements. The Company
uses the fair value accounting method for such instruments. Under this method
any unrealized gains or losses caused by fluctuation to the market value are
to be recorded in income for the period. As these fluctuations on an interim
basis represent a temporary gain or loss and will not impact the financial
results of the fiscal year, these gains or losses have not been recorded on
the interim financial statements.
    Foreign exchange exposure: At August 31, 2008, net US($69,000); at
August 31, 2007, net US$439,000; at May 31, 2008, net US$3,880,000; at May 31,
2007, net US$1,050,000; at February 29, 2008, net US$1,438,000; at February
28, 2007, net US($1,148,000); at November 30, 2007, net US($440,000); at
November 30, 2006, net US ($5,616,000). The above US numbers include
equivalent for euro and pounds stirling which are not material.

    Price risk

    The Company's price risk arises from changes in raw material prices, which
are significantly influenced by the fluctuating underlying markets. The
Company's objectives in managing its price risk are three fold: i) to protect
its financial results for the period from significant fluctuations in raw
material costs, ii) to anticipate, to the extent possible, and plan for
significant changes in the raw material markets and iii) to ensure sufficient
availability of raw materials required to meet the Company's manufacturing
requirements. To manage its exposure to price risks, the Company closely
monitors current and anticipated changes in market prices and develops pre-
buying strategies and patterns, and seeks to adjust its selling prices when
market conditions permit. Historical results indicate management's ability to
rapidly identify fluctuations in raw material prices and, to the extent
possible, incorporate such fluctuations in the Company's selling prices.


                           For the SIX Months Ending  For the Quarter Ending
                           -------------------------- -----------------------

                               August 31,  August 31,  August 31,  August 31,
                               ----------  ----------  ----------  ----------
                                    2008        2007        2008        2007
                                   ------      ------      ------      ------
                                    '000        '000        '000        '000


    3- Information included in the Statement Of Earnings

    Income taxes paid (received)    $181       ($170)       $200       ($150)
                                    ----       ------       ----       ------
                                    ----       ------       ----       ------
    Investment tax credit            $77        $100         $77        $100
                                     ---        ----         ---        -----
                                     ---        ----         ---        -----

    Interest on long-term debt       $80         $99         $38         $49
    Interest on bank
     indebtedness and other          $92         $90         $39         $45
                                     ---         ---         ---         ----
    Total Interest paid             $172        $189         $77         $94
    Less, interest capitalized        $0         $48          $0          $0
                                      --         ---          --          ---
                                      --         ---          --          ---
    Interest expensed               $172        $141         $77         $94
                                    ----        ----         ---         ----
                                    ----        ----         ---         ----


    4- Increase (decrease) in fair value of investments held for trading

    Interest and dividend
     income                          $99         $81         $74         $48
    Net change in fair value
     of investments held for
     trading                         $57        ($81)       ($51)      ($106)
                                     ---        -----       -----      ------
                                    $156          $0         $23        ($58)
                                    ----          --         ---        -----
                                    ----          --         ---        -----

    5- Income Taxes                                                         %
                                                                           --
    Combined basic federal and
     provincial income tax
     rate                           $191          $0        33.2%
    Non-taxable portion of
     capital (gains) losses          ($1)        $13        (0.1)%
    Tax-free income (net)           ($23)       ($19)       (4.0)%
    Other                             $5         $16         0.9%
                                      --         ---         ----
                                    $172         $10        30.0%         - %
                                    ----         ---        -----         ---
                                    ----         ---        -----         ---

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


    MRRM Inc.
    NOTES To CONSOLIDATED FINANCIAL STATEMENTS
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (unaudited)            For the SIX Months Ending  For the Quarter Ending
                           -------------------------- -----------------------

                               August 31,  August 31,  August 31,  August 31,
                               ----------  ----------  ----------  ----------
                                    2008        2007        2008        2007
                                   ------      ------      ------      ------
                                    '000        '000        '000        '000

    6- Segmented Information

      Revenue
        Food processing and
         selling                  25,966      24,559      13,108      12,312
        Ship agency services       1,288       1,018         780         556
                                   -----       -----         ---         ----
        Operating                 27,254      25,577      13,888      12,868
        Corporate                    156           0          23         (58)
                                     ---          --          --         ----
                                 $27,410     $25,577     $13,911     $12,810
                                 -------     -------     --------    --------
                                 -------     -------     --------    --------
      Earnings
        Food processing and
         selling                     351         153         267         291
        Ship agency services         175         (50)        203          32
                                     ---         ----        ---          --
        Operating                    526         103         470         323
        Corporate                     47        (103)        (37)       (120)
                                      --        -----        ----       -----
      Earnings before income
       taxes                         573           0         433         203
      Income Taxes                   172          10         146          82
                                     ---          --         ---          --

      Net Earnings (loss)           $401        ($10)       $287        $121
                                    ----        -----       ----        -----
                                    ----        -----       ----        -----
      Assets
        Food processing and
         selling                  30,919      26,252       2,897      (1,312)
        Ship agency services         955         685         491          (3)
                                     ---         ---         ---          ---
        Operating                 31,874      26,937       3,388      (1,315)
        Corporate                  4,743       4,987         (29)        (73)
                                   -----       -----         ----        ----
                                 $36,617     $31,924      $3,359     ($1,388)
                                 -------     -------      ------     --------
                                 -------     -------      ------     --------
      Capital expenditures
        Food processing and
         selling                     209         500          95         171
        Ship agency services           3           2           3           1
                                      --          --          --          ---
        Operating                    212         502          98         172
        Corporate                      0           0           0           0
                                      --          --          --          ---
                                    $212        $502         $98        $172
                                    ----        ----         ---        -----
                                    ----        ----         ---        -----
      Amortization
        Food processing and
         selling                     570         519         285         280
        Ship agency services          27          18          14           9
                                      --          --          --          ---
                                    $597        $537        $299        $289
                                    -----       -----       -----       -----
                                    -----       -----       -----       -----

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    7- Capital disclosures

    The Company defines its capital as long-term debt (including the current
portion), shareholders' equity, minus cash and cash equivalents. Capital is
calculated as follows:


    Short-term and current
     portion of long-term debts
                                   5,008       3,499       1,306        (822)
    Long-term debt                 1,877       2,556        (173)       (161)
    Shareholders' equity          17,201      16,720         287         121
                                  ------      ------         ---         ----
                                 $24,086     $22,775      $1,420       ($862)
                                 -------     -------      ------       ------
                                 -------     -------      ------       ------
    

    The Company's objectives for managing its capital structure is to ensure
financial capacity, liquidity and flexibility to maintain a strong capital
base to sustain ongoing development and operations.
    Company's credit facilities are subject to a number of covenants and
those have been met as indicated under "Liquidity risk". Those covenants are
as follows: i) A revolving line of credit secured by accounts receivable and
marketable securities; and ii) Maintain a Debt Service Coverage ratio of not
less than 1.25 on a pre-dividend basis and 1.00 on a post-dividend basis.

    8- Subsequent event

    Subsequent to August 31, 2008, as at close of business on September 30th,
the decrease in value in marketable securities is estimated at 4.3% compared
to the decrease in the Dow Jones industrial average of 6.0%. There are no
impaired assets in the portfolio.
    %SEDAR: 00009058EF




For further information:

For further information: Mr. Lou Younan, Chief Financial Officer,
younl@dainty.ca, (519) 972-8888, Fax: (519) 966-3298

Organization Profile

MRRM Inc.

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