MRRM Inc. - Directors' report and management discussion and analysis of the financial condition and results of operations - Interim 2012.Q3 November 30, 2011 (3rd Quarter)

The following discussion and analysis should be read in conjunction with the FY 2012 first quarter statements filed with SEDAR.  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.

MRRM Inc. (the "Company") reported its results for the first time in accordance with International Financial Reporting Standards ("IFRS") in the first quarter of FY 2012. A reconciliation of reported earnings to earnings that would have been reported under Canadian generally accepted accounting principles ("GAAP") is included on page 6 of this Management's  Discussion and Analysis.

The unaudited interim consolidated financial statements were prepared by the Company in accordance with IFRS 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 or for documents go to www.sedar.com  Information is also available on the Corporate website at  www.MRRM.ca.

MONTREAL, Jan. 12, 2012 /CNW Telbec/ -

Consolidated  Income And Comprehensive Income and Equity

Revenues for the period (last year) were $43,443,000 ($47,939,000) decreasing by $4,496,000 (-9.4%). As shown in the segmented information, sales and income from operating activities amounted to $43,463,000 ($47,635,000) being 100.0% (99.4%) of total revenues. Income from corporate totaled -$20,000 ($304,000). Unrealized losses in fair market value of the portfolio amounted to $195,000 compared to unrealized gains of $165,000 last year. Operating Revenues decreased by $4,172,000 (-8.8%) compared to last year. Revenue from Corporate decreased by $324,000; for details refer to Portfolio Income Summary under Corporate Investments.

Costs and expenses for the period (last year) were $43,223,000 ($45,718,000), a decrease of $2,495,000 (-5.5%). Costs related to operating activities, before exchange and interest, decreased by $2,569,000 (-5.6%). Expenses related to corporate increased by $30,000.

Operating results are discussed later on in this report.

The impact of the fluctuating Canadian dollar resulted in a total currency exchange loss of $75,000 versus a gain of $136,000 last year all included under cost of sales. As disclosed in the Notes, the net exposures were as follows: at November 30, 2011, US$1,575,000; at November 30, 2010, US$2,033,000; at February 28, 2011, US$4,487,000; at February 28, 2010, US($450,000).

The company uses foreign exchange contracts to manage foreign exchange exposure. At November 30, 2011, the Company had foreign exchange contracts outstanding allowing the Company to buy USD$11,000,000 at an average rate of 1.0201. The maturity dates of these contracts range from December 2011 to December 2012. The Company has recorded a current and a long term asset on the balance sheet under the caption "derivative financial assets" in the amount of $48,000.

Interest expensed on bank indebtedness and the reducing term loan amounted to $113,000 compared to $92,000 last year for an increase of $21,000. Interest related to the long-term debt was $22,000 compared to $55,000 last year.

Profit before income taxes for the period (last year) was $220,000 ($2,221,000), a decrease of $2,001,000. Profit  from operating activities for the period (last year) was $419,000 ($2,068,000), a decrease of $1,649,000. Profit (loss) from corporate for the period (last year) was -$199,000 ($153,000), a decrease of $352,000.

Income taxes for the period (last year) were $110,000 ($594,000). Details of the income tax components are presented in the Notes to the financial statements.

Profit for the period (last year) were $110,000 ($1,627,000) or $0.04 ($0.64) per share.

Dividends paid during the period amounted to $1,268,000. This represents a special dividend of $0.50 per share. 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 recent fiscal quarters	Nov 30, 2011 (2012.Q3) IFRS	Aug 31, 2011 (2012.Q2) IFRS	May 31, 2011 (2012.Q1) IFRS	Feb 28, 2011 (2011.Q4) IFRS	Nov 30, 2010 (2011.Q3) IFRS	Aug 31, 2010 (2011.Q2) IFRS	May 31, 2010 (2011.Q1) IFRS	Feb 28, 2010 (2010.Q4) GAAP
(Expressed in thousands, except for amounts per share - unaudited)	$	$	$	$	$	$	$	$
Revenues	16,523	12,572	14,348	15,864	15,870	16,471	15,598	15,181
Profit (loss)	407	-119	-178	150	900	413	314	562
Profit (loss) per share	0.16	-0.05	-0.07	0.06	0.35	0.17	0.12	0.22
Dividends per share	0.50	0.00	0.00	0.15	0.00	0.00	0.00	0.10

Revenues for this quarter (last year) were  $16,523,000 ($15,870,000), an increase of $653,000 (4.1%). Revenue from operating activities amounted to $16,471,000 ($15,613,000) being 99.7% (98.4%) of total revenues. Income from corporate totaled $52,000 ($257,000). Operating revenues for this quarter increased  by $858,000 (5.5%) compared to this quarter last year.  Revenue from Corporate decreased by $205,000 of which $238,000 was attributable to unrealized fair value of investments held for trading.

Costs and expenses for this quarter (last year) were $15,953,000 ($14,670,000), an increase of $1,283,000 (8.7%). Costs related to operating activities, before exchange and interest, increased by $1,252,000 (8.6%).

Included in the financial results for this quarter (last year) are investment tax credits of $16,000 ($51,000).

Interest expense for this quarter (last year) was $30,000 ($24,000) and was $37,000 in 2012.Q2 and $46,000 in 2012.Q1. As well this quarter, the Company recovered $3,000 due to variation in fair value of the interest rate swap which is a component of the long term debt facility.

Profit before income taxes for this quarter (last year) was $570,000 ($1,200,000), a decrease of $630,000. Profit  from operating activities was $574,000 ($982,000), a decrease of $408,000 and corporate were -$4,000 ($218,000), a decrease of $222,000.

Income taxes for this quarter (last year) were $163,000 ($300,000). The effective tax rates are presented in the Notes to the financial statements.

Profit for this quarter (last year) was $407,000 ($900,000) or $0.16 ($0.35) per share.

Consolidated Cash Flows, Liquidity and Financial Position

In investing activities, the Company added $1,761,000 of net property, plant and equipment compared to $363,000 last year.

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 $7,000,000 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 the Canadian prime rate for Canadian loans and U.S. base rate for U.S. loans 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. These covenants are being respected and have been met.

Trade and other receivables increased by $2,583,000 compared to last fiscal year-end. 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 $1,145,000 (14.4%) and overall volumes of rice increased by 6.6%.

Marketable securities - see table of investment mix in discussion of results.

Property, plant and equipment increased by $712,000 comprised of additions of $1,761,000 and amortization of $1,049,000.

Bank indebtedness was $4,314,000 compared to a positive cash position of $2,742,000 at last year-end.

Trade and other payables decreased by $374,000 mainly due to timing on rice purchases partly offset by amounts due related to the agency business.

Loan is being repaid in accordance with the arrangements of the five year reducing term facility agreement as described under credit facilities.

Deferred taxes, net liability, increased by $188,000.

Total equity decreased by $633,000 to $18,390,000 from $19,023,000 and represents $7.25 ($7.49) 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 audited consolidated financial statements for the year ending February 28, 2012 will be the first audited annual consolidated financial statements that comply with IFRS. Accordingly, the Company will make an unreserved statement of compliance with IFRS beginning with its 2012 annual consolidated financial statements.  This quarter represents the third quarter that the Company has reported its earnings under IFRS.

The accounting policies set out in Note 5 of the Unaudited Consolidated Interim Financial Statements have been applied in preparing the financial results for the quarter ended November 30, 2011.  The comparative information presented in these consolidated financial statements for the quarter ended November 30, 2010, and the consolidated financial positions at February 28, 2011 and March 1, 2010 ("transition date") have all been revised to reflect earnings and the financial position presented in accordance with IFRS.

First-time adopters of IFRS must apply the provisions of IFRS 1, which requires adopters to retrospectively apply all effective IFRS standards as of the annual reporting date (February 28, 2012) with certain optional and mandatory exemptions.  Outlined below are the IFRS 1 optional and mandatory exemptions applied in the conversion from previous Canadian GAAP to IFRS. To the extent possible, management has attempted to ensure that elections made provide shareholders with consistently prepared financial statements, however certain elections have been made on a prospective basis that have resulted in some inconsistencies between the Company's financial statements and the corresponding comparative amounts. These elections are outlined below.

2012 THIRD QUARTER REPORT

IFRS 1 Optional Exemptions

Borrowing Costs

IAS 23, Borrowing Costs, requires an entity to capitalize the borrowing costs related to all qualifying assets.  The Company elected not to apply this policy retroactively as it is not practical. Therefore, borrowing costs prior to the transition date, if any, are expensed with the exception of one major project that was initiated in 2005 and was commissioned in 2007. Total interest capitalized for this project amounted to $156,000.

Employee Benefits

IFRS 1 provides the option to retrospectively apply the corridor approach under IAS 19, Employee Benefits, for the recognition of actuarial gains and losses, or recognize all cumulative gains and losses deferred under Canadian GAAP in opening retained earnings at the transition date. The Company elected to recognize all cumulative actuarial gains and losses that existed at its transition date in opening retained earnings for all of its employee benefit plans.

Business Combinations

IFRS 1 provides an exemption that allows an entity to elect not to retrospectively restate business combinations prior to the transition date in accordance with IFRS 3, Business Combinations. The retrospective basis would require restatement of all business combinations that occurred prior to the transition date. The Company elected not to retrospectively apply IFRS 3 to business combinations that occurred prior to the transition date and such business combinations have not been restated.

Property Plant and Equipment
In lieu of full retrospective application of IAS 16, Property, Plant and Equipment, on transition, IFRS 1 permits that a first-time adopter, at the date of transition, can either record its property, plant and equipment at fair value or its carrying value. The option can be applied separately to each asset or class of assets. The Company elected a combination of both. The approach taken resulted in our:

• Continuing to recognize our plant, machinery and equipment, software, computers and furniture and fixtures on a historical cost basis with an adjustment to revise the accumulated amortization in accordance with IFRS compliant estimated useful lives; and
  
  
• The deemed cost recorded for the land will be its fair value determined by the latest Ontario Municipal Property Assessment Corporation as at the transition date.

IFRS 1 Mandatory Exceptions

Financial Assets and Liabilities

Financial assets and liabilities that had been de-recognized before the transition under previous GAAP have not been recognized under IFRS.

Estimates

The Company has used estimates under IFRS that are consistent with those applied under previous GAAP (with adjustment for accounting policy differences) unless there is objective evidence those estimates were in error.

Hedge Accounting

Hedge accounting can only be applied prospectively from the transition date to transactions that satisfy the hedge accounting criteria in IAS 39 at that date. Hedging relationships cannot be designated retrospectively and the supporting documentation cannot be created retrospectively. As a result, only hedging relationships that satisfied the hedge accounting criteria as of the transition date are reflected as hedges in the Company's results under IFRS.  Each of the Company's hedging relationships was assessed to conclude that all hedges recorded under Canadian GAAP qualified for hedge accounting under IFRS at the transition date.

Reconciliations of Canadian GAAP to IFRS

In preparing its opening IFRS consolidated financial statements, the Company has adjusted amounts reported previously in financial statements prepared in accordance with Canadian GAAP. A summary of how the transition from Canadian GAAP to IFRS has affected the Company's financial position and financial performance is set out below. For further detail on the transitional adjustments from Canadian GAAP to IFRS see Note 13 of the Unaudited Condensed Interim Financial Statements for the nine months ended November 30, 2011.

Reconciliation of Shareholders' Equity as Reported Under Canadian GAAP to IFRS

Reconciliation of Equity for the period ending		March 1,	November 30,	February 28,
(thousands of CAD dollars)		2010	2010	2011
Equity under GAAP		$17,924	$19,460	$19,054
Changes due to:
Property, Plant and Equipment		263	110	52
Actuarial gains/losses on employee future benefits		(7)	(7)	(158)
Deferred taxes as a result of the above		(65)	(25)	5
Income taxes payable		0	(66)	70
Inventory absorption		0	383	0
		191	395	(31)
Equity under IFRS		$18,115	$19,855	$19,023

Reconciliation of Net Earnings as Reported Under Canadian GAAP to IFRS Reconciliation of Income Statement for the quarter ending November 30, 2010 (thousands of CAD dollars)
Canadian GAAP accounts		Canadian GAAP balance	IFRS adjustments	IFRS reclassifications	IFRS balance	IFRS accounts
Revenues
Sales		$47,635	$0	$0	$47,635	Sales
Increase in fair value of marketable securities held for trading		304	0	0	304	Finance income
		$47,939	$0	$0	$47,939
Expenses						Costs and expenses
Cost of sales, selling and administrative		$45,027	($382)	$997	$45,642	Cost of sales, distribution and administrative
Amortization		867	152	(1,019)	0	Included in cost of sales, distribution and administrative
						Finance cost
Interest on Long-term debt		55	0	0	55	Interest on Long-term debt
Other interest		37	0	0	37	Interest on line of credit
		0	0	22	22	Interest on defined benefit plan
Change in fair value of Swap contract		(38)	0	0	(38)	Change in fair value of swap contract
		$45,948	($230)	$0	$45,718
Earnings before income taxes		$1,991			$2,221	Profit (loss) before income taxes
Income taxes		568	26	0	594	Income taxes
Net result for the period		$1,423	$204	$0	$1,627	Profit (loss)
Total adjustment to equity			$204	$0
Reconciliation of Income Statement for the year ending February 28, 2011 (thousands of CAD dollars)
Canadian GAAP accounts		Canadian GAAP balance	IFRS adjustments	IFRS reclassifications	IFRS balance	IFRS accounts
Revenues
Sales		$63,270	$0	$0	$63,270	Sales
Increase in fair value of marketable securities held for trading		533	0	0	533	Finance income
		$63,803	$0	$0	$63,803
Expenses						Costs and expenses
Cost of sales, selling and administrative		$60,023	$68	$1,330	$61,421	Cost of sales, distribution and administrative
Amortization		1,156	207	(1,363)	0	Included in cost of sales, distribution and administrative
						Finance cost
Interest on Long-term debt		68	0	0	68	Interest on Long-term debt
Other interest		45	0	0	45	Interest on line of credit
		0	87	33	120	Interest on defined benefit plan
Change in fair value of Swap contract		(45)	0	0	(45)	Change in fair value of swap contract
		$61,247	$362	$0	$61,609
Earnings before income taxes		$2,556			$2,194	Profit (loss) before income taxes
Income taxes		557	(116)	0	417	Income taxes
Net result for the year		$1,999	($246)	$0	$1,777	Profit (loss)
Total adjustment to equity			($246)	$0

Reconciliation of Comprehensive Income (Loss) as Reported Under Canadian GAAP to IFRS

Reconciliation of Comprehensive Income for the period ending (thousands of CAD dollars)	March 1, 2010	November 30, 2010	February 28, 2011
Total Comprehensive Income under GAAP	$0	$1,536	$1,510
Changes in net earnings per above	0	204	(246)
Total Comprehensive Income under IFRS	$0	$1,740	$1,264

The following table reflects Earnings per Share as reported under IFRS in the Unaudited Consolidated Interim Statements of Earnings for the nine-month periods ended as indicated below.

	November 30 2011	November 30 2010
Net earnings (loss) attributable to the owners of the parent Company	$110,000	$1,627,000
Weighted average number of shares in circulation	2,535,000	2,535,000
Basic and diluted earnings (loss) per share	$0.04	$0.64

Future Accounting Changes:

At the date of authorization of the Company's financial statements, certain new standards amendments and interpretations to existing standards have been published but not yet effective, and have not been adopted early by the Company.

Management anticipates that all of the relevant pronouncements will be adopted in the Company's accounting policy for the first period beginning after the effective date of the pronouncement.  Information on new standards, amendments and interpretations that are expected to be relevant to the Company's financial statements is provided below.  Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Company's financial statements.

IFRS 9 Financial Instruments

The IASB aims to replace IAS 39 Financial Instruments: Recognition and Measurement in its entirety. The replacement standard (IFRS 9) is being issued in phases.  To date, the chapters dealing with recognition, classification, measurement and de-recognition of financial assets and liabilities have been issued.  These chapters are effective for annual periods beginning on or after January 1, 2013. Further chapters dealing with impairment methodology and hedge accounting are still being developed.

Management has yet to assess the impact that this amendment is likely to have on the financial statements of the Company. However, they do not expect to implement the amendments until all chapters of IFRS 9 have been published and they comprehensively assess the impact of all changes.

IFRS 10 Consolidated Financial Statements

In May 2011, the IASB issued IFRS 10 Consolidated Financial Statements, which is effective for annual periods beginning on or after January 1, 2013, with early adoption permitted. IFRS 10 provides a single model to be applied in the control analysis for all investees. The Company intends to adopt IFRS 10 in its financial statements for the annual period beginning on March 1, 2013. The extent of the impact of adoption of IFRS 10 is not expected to have a material impact.

IFRS 12 Disclosure of Interests in Other Entities

In May 2011, the IASB issued IFRS 12 Disclosure of Interest in Other Entities, which is effective for annual periods beginning on or after January 1, 2013, with early adoption permitted. IFRS 12 contains disclosure requirements for companies that have interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. The Company intends to adopt IFRS 12 in its financial statements for the annual period beginning on March 1, 2013. The extent of the impact of adoption of IFRS 12 is not expected to have a material impact.

IFRS 13 Fair Value Measurement

In May 2011, the IASB published IFRS 13 Fair Value Measurement, which is effective prospectively for annual periods beginning on or after January 1, 2013. IFRS 13 replaces the fair value measurement guidance contained in individual IFRSs with a single source of fair value measurement guidance. The standard also establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements. The Company intends to adopt IFRS 13 prospectively in its financial statements for the annual period beginning on March 1, 2013. The extent of the impact of adoption of IFRS 13 is not expected to have a material impact.

IAS 1 Presentation of Financial Statements

In June 2011, the IASB published amendments to IAS 1 Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income, which are effective for annual periods beginning on or after July 1, 2012 and are to be applied retrospectively. Early adoption is permitted. The amendments require that a company present separately the items of Other Comprehensive Income that may be reclassified to profit or loss in the future from those that would never be reclassified to profit or loss. The Company intends to adopt the amendments in its financial statements for the annual period beginning on March 1, 2013. The extent of the impact of adoption of the amendments is not expected to have a material impact.

IAS 19 Employee Benefits

In June 2011, the IASB published an amended version of IAS 19 Employee Benefits. Adoption of the amendment is required for annual periods beginning on or after January 1, 2013, with early adoption permitted. The amendment is generally applied retrospectively with certain exceptions. The amendment will require actuarial gains and losses to be recognized immediately in other comprehensive income, past service costs to be fully recognized immediately in profit or loss and the recognition of expected return on plan assets in profit or loss to be calculated based on the rate used to discount the defined benefit obligation. The amendment also requires other additional disclosures. The Company intends to adopt the amendment in its financial statements for the annual period beginning on March 1, 2013. The extent of the impact of adoption of the amendment is not expected to have a material impact.

Discussion of Results:

In Dainty Foods, net sales decreased by $4,875,000 (-11.2%) to $38,709,000 for the period and increased by $511,000 (3.6%) for the quarter compared to last year while rice sales volumes decreased by 2.5% for the period and increased by 11.6% for the quarter compared to last year. The net sales reduction is a result of a temporary halt in purchases by a major industrial customer combined with lower selling prices of flour due to increased competitive pressure and the weaker US Dollar.  The loss of volume due to the temporary halt is partially offset by increased volume of other products.  Costs and expenses decreased by $3,274,000 (-7.8%) to $38,811,000 for the period compared to last year in proportion to the decrease in sales. Costs and expenses increased by $1,064,000 (8.0%) to $14,395,000 for the quarter compared to last year. Profit before income taxes for the period decreased by $1,601,000 to -$102,000 compared to last year and by $553,000 for the quarter compared to last year.

The Company continues to pursue new value-added retail products some of which will be outsourced. 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 continue to be developed and are intended to add strength to our retail sales efforts.  Dainty Foods International (DFI) succeeded in penetrating the US private label retail market.

The 2010 rice harvest volume in the United States was the largest on record. Notwithstanding, industry milling yields for the 2010-2011 North American rice crop have widely been characterized as the worst in fifty years due to climatic conditions during the growing season. Low yields forced milling costs upward with the exception of California where a normal year was experienced.

Dainty Foods did not escape the low yield issue. Costs of milling and by-product levels for long grain and medium grain rices have increased dramatically and are beginning to normalize with the receipt of new crop.

Dainty Foods has partially offset the increased costs through negotiated price increases to certain customers. However the negotiation process was only moderately successful due to strong competition from American mills who benefit from the weak US dollar.

Competitive pricing by American rice mills and the weak US dollar have negatively impacted margins for rice flour and bulk bagged food service products.

In Robert Reford, revenue increased by $238,000 (5.9%) to $4,252,000 for the period and by $127,000 for the quarter compared to last year.

Profit before income taxes for the period decreased by $90,000 to $475,000 due to increased operating costs to support the business generated by the partnerships.  Profit increased by $123,000 compared to this quarter last year.

Corporate Investments,  portfolio income is summarized as follows:

	For the period		For the quarter
	2012	2011	2012	2011
Dividend and interest income	$117,000	$112,000	$39,000	$37,000
Capital gains (losses)	$58,000	$27,000	$27,000	-$4,000
Unrealized change in Fair Value	-$195,000	$165,000	-$14,000	$224,000
Totals:	-$20,000	$304,000	$52,000	$257,000

During this quarter, global financial markets declined contributing to a loss in Fair Market Value of $195,000 for the period compared to an unrealized gain of $165,000 last year. The portfolio remains conservatively invested and no significant policy changes are foreseen. The Corporate Investments continue to be held with a long term view.

Investment Mix	Nov 30, 2011 (2012.Q3)	Aug 31, 2011 (2012.Q2)	May 31, 2011 (2012.Q1)	Feb 28, 2011 (2011.Q4)	Nov 30, 2010 (2011.Q3)
Cash & Equivalents	0.9%	4.7%	2.6%	5.6%	5.7%
Bonds	24.0%	24.6%	24.5%	24.6%	26.5%
Preferred Shares	20.2%	16.4%	15.8%	13.0%	13.7%
Canadian Equities	38.9%	38.7%	40.9%	40.8%	38.2%
U.S. & Foreign Equities	16.0%	15.6%	16.2%	16.0%	15.9%

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 IFRS.

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

Profit for the fiscal year will be significantly lower than last year primarily due to higher costs associated with low milling yields of the 2010 North American rice crop. This yield issue began to normalize late in the third quarter as the milling of new crop commenced. Aggressive competitive pricing for rice flour products and bulk bagged rice for the food service market coupled with the value of the American dollar will continue to challenge profitability throughout this fiscal year.

Turmoil in the world rice market due to conflicting variables may result in higher rice prices globally. The Thai government announced a rice purchase scheme which will guarantee growers returns well above current market prices. India recently loosened export rules to include non-Basmati varieties to lower huge domestic inventories accumulated during the last three years. Asian rice harvests have been good to excellent. The American scene is varied as well. Arkansas, the largest rice producing state, decreased long grain acreage by about 35% while medium grain acreage across the U.S.  increased by 11%.

While the Company is anticipating continued growth in food processing and selling and maintaining a strong position within the ship agency services business, growth will be impacted by several factors including (i) the ability of the Company to secure rice at competitive prices (ii) the rate of acceptance of new private label products (iii) the ability within the marketplace to manage price increases to cover increased costs (iv) the yield and quality of rice supply and (v) 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.

Competitive pricing in both retail and industrial segments will continue to impact margins.

Detroit River International Crossing Construction Impact:

Significant construction activities are expected to commence on the Transport Canada property site adjacent to the Dainty Foods facility approximately nine months from now.  Dainty Foods is planning infrastructure changes to the facility to protect our food products from the possibility of airborne contamination.  These changes primarily include fine particle filtration units and enclosing dock loading areas.

The capital cost of the protective measures is approximately 3.2 million dollars and the ongoing costs of the operation and maintenance of the new equipment are approximately $350,000 per year. We committed $400,000 year to date for project design and management.

The company is continuing a negotiation process with Transport Canada to recover the project costs but the outcome of these negotiations is uncertain at this time. Capital costs will be funded from the company's line of credit until a resolution with Transport Canada is reached through negotiations or if necessary, through appropriate legal action.

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 Sustain Revenue
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,  January 12, 2012.

 

 

Lou Younan, Vice-President Finance & CFO, MRRM Inc., [phone], Fax: [phone], [email protected]