Energy 1 (EGOC) 10QSB Quarterly report (small business)

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2007

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 333-111486

DAIRY FRESH FARMS INC.

(Name of small business issuer in its charter)

Nevada	98-0407549
(State or other jurisdiction of incorporation )	(I.R.S.Employer identification No.)

413 Churchill Avenue N. Ottawa, Ontario, Canada K1Z 5C7

(Address of principal executive offices)

Tel: 613-724-2484

(Issuer's telephone number)

Securities registered under Section 12(b) of the Exchange Act:

None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $0.001 par value per share

(Title of Class)

Check whether the issuer: (i) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days. Yes x  No ¨

As of July 31, 2007, there were 23,003,549 shares of the registrant's common stock outstanding.

Transitional Small Business Disclosure Format (check one) Yes ¨ No x

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).   Yes o; No x

	Page
Part I. Financial Information
Item 1.   Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements		3
(a)  Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2007 and 2006.		4
(b) Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2007 and 2006.		5
(c)  Unaudited Condensed Consolidated Balance Sheets as at June 30, 2007 and December 31, 2006.		6
(d)  Unaudited Notes to Condensed Consolidated Financial Statements.		7
Item 2. Management's Discussion and Analysis or Plan of Operations		13
Item 3. Controls and Procedures		19
Part II. Other Information
Item 1. Legal Proceedings		20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		20
Item 3. Defaults upon Senior Securities		20
Item 4. Submission of Matters to a Vote of Security Holders		20
Item 5. Other Information		20
Item 6. Exhibits		20
Signatures		21

2

PART I FINANCIAL INFORMATION

General

The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-QSB. Therefore, they do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flow, and stockholders’ deficit in conformity with generally accepted accounting principles in the United States of America. Except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements included in the Company’s annual report on Form 10-KSB for the year ended December 31, 2006. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the quarter ended June 30, 2007 are not necessarily indicative of the results that can be expected for the year ended December 31, 2007.

3

Dairy Fresh Farms Inc.

Condensed Consolidated Statements of Operations

Expressed in U.S. Dollars

	Unaudited
	Three Months Ended						Six Months Ended
	June 30						June 30
	2007			2006			2007			2006
	$			$			$			$
Operating expenses
Freight and product costs		1,288			996			13,361			1,229
Advertising		3,779			1,750			7,122			16,783
Depreciation of property and equipment		912			1,028			1,767			2,029
Interest and bank charges, net		10,691			3,468			10,634			6,005
Management fees		82,192			93,924			159,306			185,300
Office		2,481			2,108			5,528			4,199
Investor relations		243,727			-			481,761			-
Professional fees		4,864			52,779			51,639			85,585
Rent		4,358			4,299			8,446			8,317
Telecommunications		2,810			3,847			7,505			8,169
Travel		14,720			21,940			24,620			46,503
		371,822			186,139			771,689			364,119
Net loss		(371,822	)		(186,139	)		(771,689	)		(364,119	)
Other comprehensive loss
Foreign currency translation adjustment		23,455			(36,833	)		(58,747	)		(32,747	)
Comprehensive loss		(348,367	)		(222,972	)		(830,436	)		(396,866	)
Net loss per share, basic and diluted	$	(0.02	)	$	(0.01	)	$	(0.03	)	$	(0.02	)
Weighted average common shares outstanding		23,003,549			15,681,782			22,225,273			15,670,333

The accompanying notes are an integral part of the condensed consolidated financial statements.

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Dairy Fresh Farms Inc.

Condensed Consolidated Statements of Cash Flows

Expressed in U.S. Dollars

	Six months ended June 30
	2007			2006
	$			$
OPERATING ACTIVITIES
Net income (loss)		(771,689	)		(364,119	)
Adjustments to reconcile net income (loss) to net cash provide by (used in) operating activities
Depreciation and amortization		969			2,029
Issuance of common stocks in exchange for services		1,020,600			26,616
Changes in working capital items
Accounts receivable		49,056			(11,021	)
Prepaid expenses		(425,457	)		-
Accounts payable and accrued liabilities		(111,152	)		58,385
Management contracts payable		(25,161	)		193,549
Cash flows used in operating activities		(262,834	)		(94,561	)
INVESTING ACTIVITIES
Purchase of property and equipment		-			-
Cash flows used in investing activities		-			-
FINANCING ACTIVITIES
Issuance of convertible debt					49,413
Proceeds from notes payable					88,238
Repayment of notes payable		(57,641	)		-
Cash flows provided by financing activities		(57,641	)		137,651
Effect of changes in exchange rates on cash		16,602			(64	)
Net increase in cash		(303,873	)		43,026
Cash, beginning of period		375,858			12,976
Cash, end of period		71,985			56,002

The accompanying notes are an integral part of the condensed consolidated financial statements.

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Dairy Fresh Farms Inc.

Condensed Consolidated Balance Sheets

Expressed in U.S. Dollars

	June 30			December 31
	2007			2006
	$			$
Assets
Current assets
Cash		71,985			375,858
Accounts receivable		28,657			77,713
Prepaid expenses		488,634			387
		589,276			453,958
Property and equipment		8,624			9,593
		597,900			463,551
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities		347,341			458,493
Management contracts payable (Notes 6)		188,749			213,910
Notes payable		28,174			85,815
		564,264			758,218
SHAREHOLDERS' DEFICIENCY
Common shares, $0.001 par value, voting, 75,000,000 authorized shares, 23,003,549 shares issued and outstanding as of June 30, 2007 and 19,391,549 shares as of December 31, 2006		9,699			6,087
Contributed surplus		4,233,707			3,153,719
Accumulated comprehensive loss		(166,369	)		(107,622	)
Deficit		(4,043,401	)		(3,352,711	)
		33,636			(294,667	)
		597,900			463,551

The accompanying notes are an integral part of the condensed consolidated financial statements.

6

Dairy Fresh Farms Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2007

Expressed in U.S. Dollars

(Unaudited)

1 - BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Dairy Fresh Farms Inc. (“Dairy Fresh” or the “Company”) and its subsidiaries have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes included in the latest annual report on Form 10-KSB. These statements have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2006 and, in the opinion of management, include all adjustments considered necessary for a fair presentation of financial position, results of June 30, 2007 are not necessarily indicative of the results to be expected for the full year.

2 - COMPANY BACKGROUND AND LIQUIDITY

COMPANY BACKGROUND

The Company was incorporated under the name of Northwest Horizon Corporation in the State of Nevada, United States of America on February 5, 2003. The name was changed to Dairy Fresh Farms Inc. on August 11, 2005.

The Company was in the development stage until January 1, 2005. The Company originally intended to establish itself as a transportation broker specializing in trucking as the efficient mode of transporting both raw materials and finished products to their destination. On December 17, 2004 the Board of Directors passed a resolution indicating that the Company would be unable to raise the necessary funds to proceed with this original plan.

On March 3, 2005, the company merged via a reverse takeover with Dairy Fresh Technologies Ltd. Dairy Fresh Technologies Ltd. was incorporated under the Canada Business Corporations Act on May 14, 2002 to develop and exploit a unique patented dairy process in Canada. This patent, "Dairy Fresh Farms ™" produces monounsaturated-enhanced dairy products. Dairy Fresh Technologies Ltd. was also in the development stage until January 1, 2005.

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Dairy Fresh Farms Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2007

Expressed in U.S. Dollars

(Unaudited)

LIQUIDITY

The Company has incurred a net loss of $371,822 and $771,689 during the three and six months ended June 30, 2007. In addition, the Company generated negative cash flows from operations of $262,834 for the six months ended June 30, 2007 and has generated negative cash flows from operations since inception.

The audit states that the net loss incurred during the year ended December 31, 2006, the accumulated deficit as of that date and the other factors described in Note 2 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2006 raise substantial doubt about the Company’s ability to continue as a going concern. The auditors’ report on the Company’s financial statements for the year ended December 31, 2005 contained a similar statement. The consolidated financial statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.

Management plans to address these issues by continuing to seek new financing and continuing to control expenses. The Company’s ability to continue as a going concern is subject to management’s ability to successfully implement the above plans. Failure to implement these plans could have a material adverse effect on the Company’s position and/or results of operation and may necessitate a reduction in operating activities. These condensed consolidated financial statements do not include adjustments that may be required if the assets are not realized and the liabilities settled in the normal course of operations.

In the longer term, the Company has to generate the levels of revenue which would result in cash sufficiency and it may need to continue to raise capital by selling additional equity or by obtaining credit facilities. No assurance can be given that any such financing will be available or that, if available, it can be obtained on terms favourable to the company.

8

Dairy Fresh Farms Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2007

Expressed in U.S. Dollars

(Unaudited)

3 - RELATED PARTY TRANSACTIONS

The Company entered into the following related party transactions. These transactions were concluded in the normal course of operations at the exchange amount, which is the amount established and accepted by the parties.

	Three months ended June 30, 2007 (Unaudited)		Three months ended June 30. 2006 (Unaudited)		Six months ended June 30, 2007 (Unaudited)		Six months ended June 30. 2006 (Unaudited)
							$
Expenses
Management fees (a)		82,192		93,924		159,306		187,550

Amounts due to and due from related parties	June 30, 2007		June 30, 2006
Amount due from companies under common control (b)		10,820		11,157
Notes payable to related parties (c)		25,983		26,793
Amount due to a company under common control (d)		6,754		6,964

(a) During the six month periods ended June 30, 2007 and June 30, 2006, the Company incurred management services to four companies controlled by officers of the Company. The management fees payable are $188,749 as at June 30, 2007 and $715,962 as at June 30, 2006

(b) The Company paid legal expenses for Dairy One Technologies Limited and Purple Cow Investments Inc., companies under common control, during the year ended December 31, 2006 resulting in the above amount receivable from companies under common control. The legal fees paid during the three and six months ended June 30, 2007 were $Nil.

(c) The Company issued $28,174 of 5% promissory notes to an officer of the Company during the year ended December 31, 2006. The notes are repayable when a major financing is completed.

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Dairy Fresh Farms Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2007

Expressed in U.S. Dollars

(Unaudited)

(d) The Company incurred royalty expense to Dairy One Technologies Limited, a company under common control. The amount payable as at June 30, 2007 is $6,754 (June 30, 2006 - $6,964). The Company expensed $nil in the three and six months ended June 30, 2007 and $nil in the three and six months ended June 30, 2006, respectively.

4 - NOTES PAYABLE

Notes payable bear interest at 5%, unsecured and repayable when a major financing is completed.

5 - LOSS PER SHARE

For the purpose of the loss per share computation, the weighted average number of common shares outstanding has been used. Had the treasury stock method been applied to the unexercised share warrants, the effect on the loss per share would be anti-dilutive.

The total warrants outstanding at June 30, 2007 and June 30, 2006 were 2,935,078 and 2,220,792 respectively.

6 - SHAREHOLDERS’ EQUITY

In February 2007, the Company issued 3,402,000 common shares were issued as payment for professional fees incurred for the period from October 1, 2006 to December 31, 2007, valued at $0.30 per share which represents the fair value of the Company’s share when the services were completed. The excess in the par value is recorded in contributed surplus.

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Dairy Fresh Farms Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2007

Expressed in U.S. Dollars

(Unaudited)

In February 2007, the Company issued 210,000 common shares to repay a Note Payable to an Officer of the Company. The shares were valued at $0.30 per share which represents the fair value of the Company’s share when the Note Payable was repaid. The excess in the par value is recorded in contributed surplus.

8 -COMPREHENSIVE LOSS

Comprehensive loss includes changes in the balances of items that are reported directly in a separate component of shareholders’ equity in the Company’s unaudited condensed consolidated balance sheets. The components of comprehensive loss are as follows:

	Three months ended June 30, 2007 (Unaudited)			Three months ended June 30, 2006 (Unaudited)			Six months ended June 30, 2007 (Unaudited)			Six months ended June 30, 2006 (Unaudited)
	$			$			$			1$
Net loss as reported		(371,822	)		(186,139	)		(771,689	)		(364,119	)
Foreign currency translation adjustment		23,455			(36,833	)		(58,747	)		(32,747	)
Comprehensive loss		(348,367	))		(222,972	)		(830,436	)		(396,866	)

9 - NEW ACCOUNTING PRONOUNCEMENTS

FASB Interpretation 48

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109”, (“FIN No. 48”), which clarifies the accounting for uncertainty in tax positions. FIN No. 48 requires that the Company recognize the impact of a tax position, if that position is more likely than not of not being sustained on audit, based on the technical merits of the position. FIN No. 48 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. The provisions of FIN No. 48 will be effective for fiscal year ends beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company expects that the adoption of FIN No. 48 will not have a material impact on the consolidated financial position and results of operations or cash flows.

11

Dairy Fresh Farms Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2007

Expressed in U.S. Dollars

(Unaudited)

SFAS No. 157

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which establishes a framework for measuring fair value under other accounting pronouncements that require fair value measurements and expands disclosures about such measurements. SFAS No. 157 does not require any new fair value measurements, but rather it creates a consistent method for calculating fair value measurements to address non-comparability of financial statements containing fair value measurements utilizing different definitions of fair value. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company does not anticipate that the adoption of SFAS No. 157 will have a significant impact on the consolidated financial position, results of operations or cash flows.

SFAS No. 159

On February 15, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities: Including an amendment of FASB Statement No. 115”, to reduce earnings volatility caused by related assets and liabilities measured differently under GAAP. SFAS No. 159 allows all entities to make an irrevocable instrument-by-instrument election to measure eligible items at fair value in their entirety. In addition, unrealized gains and losses will be reported in earnings at each reporting date. SFAS No. 159 also establishes presentation and disclosure requirements that focus on providing information about the impact of electing the fair value option. SFAS No. 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007, concurrent with the adoption of SFAS No. 157. The Company does not anticipate that the adoption of SFAS No. 159 will have a significant impact on the consolidated financial position, results of operations or cash flows.

SAB 108

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (‘SAB 108’). SAB 108 provides interpretative guidance on how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in the current year financial statements. SAB 108 requires registrants to quantify misstatements using both an income statement (‘rollover’) and balance sheet (‘iron curtain’) approach and evaluate whether either approach results in a misstatement that, when all relevant quantitative and qualitative factors are considered, are material. If prior years errors that had been previously considered immaterial now are considered material based on either approach, no restatement is required so long as management properly applied its previous approach and all relevant facts and circumstances were considered. If prior years are not restated, the cumulative effect adjustment is recorded in opening accumulated earnings of the beginning of the fiscal year of adoption. SAB 108 is effective for fiscal years ending after November 15, 2006. The company has determined that there will be no material impact to the financial statements upon the adoption of thsi bulletin.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and Results of Operation contains various "forward looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933, regarding future events or the future financial performance of the Company that involve risks and uncertainties. Certain statements included in this Form 10−QSB, including, without limitation, statements related to anticipated cash flow sources and uses, and words including but not limited to “anticipates", "believes", "plans", "expects", "future" and similar statements or expressions, identify forward looking statements. Any forward looking statements herein are subject to certain risks and uncertainties in the Company’s business, including but not limited to, reliance on key customers and competition in its markets, market demand, product performance, technological developments, maintenance of relationships with key suppliers, difficulties of hiring or retaining key personnel and any changes in current accounting rules, all of which may be beyond the control of the Company. The Company's actual results could differ materially from those anticipated in these forward looking statements as a result of certain factors, including those set forth therein.

Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the consolidated condensed financial statements included herein. Further, this quarterly report on Form 10−QSB should be read in conjunction with the Company’s consolidated financial statements and notes to consolidated financial statements included in its 2006 Annual Report on Form 10−KSB. In addition, you are urged to read this report in conjunction with the risk factors described herein.

BACKGROUND

This June 30, 2007 and should be read in conjunction with June 30, 2007. These condensed consolidated financial statements have been prepared using the generally accepted accounting principles in the United States of America on the same basis as the audited consolidated financial statements for the year ended December 31, 2006 and, in the opinion of management, include all adjustments considered necessary for a fair presentation of financial position, results of operations and cash flows of the Company.

Company’s overview

Dairy Fresh Farms Inc. (“Dairy Fresh” or the “Company”) and its wholly owned subsidiary, Dairy Fresh Technologies Ltd., have the exclusive license in Canada to develop and exploit the patented formula for a healthy milk based product ”Dairy Fresh Farms”. The Company launched a test trial of 2-litre regular milk and a 1-litre lactose free product with Canada Safeway stores in Western Canada during the period of January 2005 to December 2005.

The Company will launch an expanded product line and in Ultra High Temperature (UHT) form when planned financing as discussed under “Liquidity and Capital Resources” is completed. Consequently, there are no revenues in the three and six months ended June 30, 2007.

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Dairy Fresh Farms is an all natural process resulting in a healthier milk based product which is low in cholesterol, trans fat free, lactose free, low in saturated fat, 99% fat free and has high levels of omega 6 and 3 and monounsaturated fat enhanced without compromising great taste.

Critical accounting policies and estimates

Our discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements requires application of management’s subjective judgments, often requiring the need to make estimates about the effect of matters that are inherently uncertain and may change in the subsequent periods. Our actual results may differ substantially from these estimates under different assumptions or conditions. The Company’s significant accounting policies are indicated below.

Accounting Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts recorded in the consolidated financial statements. These estimates are based on management’s best knowledge of current events and actions that the Company may undertake In the future. Actual results may differ from these estimates.

Revenue Recognition

The Company will record revenue on a net basis in compliance with EITF 99-19, “Reporting Revenues Gross as a Principle versus Net as an Agent”. This is because the Company was not the primary obligor in the arrangement, as it relied on the supplier to provide the goods. Also, the Company had limited liability to assume risk of non-payment by retailers.

The Company also recorded its revenues in accordance with SAB 104 which requires that four basic criteria must be met before revenue can be recognized: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or service has been rendered; (iii) the fee is fixed and determinable; and (iv) collectibility is reasonably assured. The Company recognized revenue when the product was shipped from the supplier.

Allowance for Doubtful Accounts

Accounts receivable are shown net of any allowances for doubtful accounts. The Company determines its allowance for doubtful accounts by considering a number of factors, including the age of the receivable, discussions that have occurred with the customer and management’s judgement as to the overall collectibility of the receivable from that customer. The Company writes off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts in the period of the recovery.

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The Company determined that no allowance was necessary for the six months ended June 30, 2007 or for the year ended December 31, 2006.

Comprehensive income (loss)

Comprehensive income (loss) includes net income (loss) and other comprehensive income (“OCI”). OCI refers to changes in net assets from transactions and other events and circumstances other than transactions with shareholders. These changes are recorded directly as a separate component of shareholders’ equity (deficiency) and excluded from net income (loss). The only other comprehensive income (loss) item for the Company relates to foreign currency translation arising from the translation of the financial statements from the functional currency into the reporting currency.

Foreign currency translation

The Company’s reporting currency is the U.S. dollar and the functional currency is the Canadian dollar.

The translation of the Company’s financial statements from the functional currency to its reporting currency is performed as follows:

All assets and liabilities are translated into U.S. dollars at the rate of exchange at the balance sheet date. Revenues, expenses and cash flow amounts are translated at the weighted average exchange rates for the period. The resulting translation adjustments are included in comprehensive income (loss) as a component of the shareholders’ deficit.

Stock-based compensation

On September 6, 2006, our shareholders approved the adoption of a Stock Option Plan (hereafter referred to as the “Plan”) whereby 2,685,388 shares of common stock may be granted under this Plan. The Plan will be administered by the Board of Directors, who will determine the terms of the option agreements, the key employees and directors to whom options are to be granted; the number of shares subject to each option and the exercise price thereof. The per share exercise price of options granted under the Plan will be not less than the fair market value of the shares on the date the options are granted. The Plan also provides for the issuance of stock appreciation rights at the discretion of the Board of Directors and provides for the issuance of restricted stock awards at the discretion of the Board of Directors. Options will be exercisable for a term that will not be greater than ten years from the date of grant.

We have adopted SFAS No. 123 (R) “Share-Based Payments” in accounting for our stock option plan. SFAS No. 123 (R) requires measurement of compensation cost for all stock-based awards at fair value on the date of grant and recognition of compensation expense over the service period for awards expected to vest. The fair value of stock options is determined using the Black Scholes valuation model. The expected dividend yield is based on historical dividend payouts, the expected volatility is based on historical volatilities of the Company stock for a period approximating the expected life; the risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option; and the expected life represents the period of time the options are expected to be outstanding.

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To date, no options have been granted under the Stock Option Plan.

Plan of operation

The plan of operation for the Company was developed over a three-year period. Management started by studying the Australian experience as it related to the Canadian market place. Significant sales numbers had been delivered out of Sydney,

Australia but with both market changes and potential differing Canadian tastes management decided to take another approach to tackling the Canadian market. Camelford Graham Research Group undertook an independent market research study. This study was conducted in Vancouver, British Columbia and Montreal, Quebec. The results from the study were published in December 2003 with resulting findings focusing our operations on several very important areas.

First, the size of the opportunity was much larger than originally anticipated due to the intent to purchase numbers that resulted from this study. This meant that management had to revise the packing sizes for the Dairy Fresh Farms upwards to accommodate the anticipated demand.

Second, the study directed management to launch in Western Canada as a first step into the rest of the country. It was perceived that the logistics and more importantly the market reception would be very favorable with a product launch in the West. This decision was also reinforced with the effort and support that Canada Safeway stores and their manufacturing division Lucerne Foods gave our group with initial manufacturing test runs and distribution expertise.

Finally, it was felt that perfecting the launch strategy in Western Canada would give Dairy Fresh Farms a strong base of operations prior to moving into the much larger and diverse markets of both Ontario and Quebec.

The most significant conclusion from our test launch with Canada Safeway/Lucerne was the need to produce the product in Ultra High Temperature (UHT) format, which will provide extended shelf life to approximately 45 days. This is necessary to build brand awareness with the customers during the early stages of growth and allow sufficient distribution time, as the product is rolled out to other retailers. Otherwise the company would need to spend excessive amounts on marketing and in store demos in order to move the product on a timely basis.

We finished our test launch in December 2005. We are currently actively seeking new financing. When the financing is completed, we will resume our production and distribution plan for Western Canada and the rest of Canada.

Assuming our funding is raised, we intend to focus our sales and marketing efforts over the next 12 months primarily on expanding our distribution in Canada. If we are not able to raise additional funds on a timely basis, any progress with respect to our products and our potential revenues will be adversely affected.

RESULTS OF OPERATIONS

Fluctuations in operating results

Our results of operations have fluctuated significantly from period to period and are likely to continue to do so in the future. We anticipate that our annual results of operations will be impacted for the foreseeable future by several factors including the progress and timing of expenditures related to product launches. Due to these fluctuations, we believe that the period-to-period comparisons of our operating results are not a good indication of our future performance.

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OPERATING EXPENSES

Advertising and product support

With the launch of the Company’s initial two products there was a marketing program established to support sales in the year ended December 31, 2005. The majority of the focus was on in-store demos. With the products off the shelves, there was little in the way of initiatives in the three and six months ended June 30, 2007.

Management fees

Management fees for the six months ended June 30, 2007 were approximately 15% lower than for the six months ended June 30, 2006 with no changes to the management structure. Certain of the senior management team have reduced their compensation to preserve cash.

Investor Relations

Investor Relations in the three and six month period ended June 30, 2007 include a significant investment for advisory services regarding a proposed financing transaction as well as preparation of corporate materials such as business plans and corporate presentations.

Travel

Travel costs for the six months ended June 30, 2007 decreased 53% from the six months ended June 30, 2006 due to the lack of product support requirements. Travel costs reflect senior management maintaining a presence for financing and business activity in Western Canada.

Off-Balance Sheet Arrangements

The Company did not engage in any off-balance sheet arrangements during the quarter.

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Liquidity and Capital Resources

At June 30, 2007, we have an accumulated deficit of $4,043,401 and we expect to incur additional losses in the short term at least until such time, if ever, that our products are manufactured and marketed profitably. We have financed our operations since inception primarily through the private placements of equity and debt securities.

At June 30, 2007 we have $71,985 in cash. Net cash used in operating activities was $262,834 for the six months ended June 30, 2007 compared to $94,561 for the six months ended June 30, 2006.

We expect to put our current capital resources to the following uses:

-      for the marketing and sales of our products;

-      to continue our product line expansion;

-      for working capital purposes, including for additional salaries and wages as our organization grows and as we expand our presence in the Canadian Market and for additional professional fees and expenses and other operating costs.

Assuming our funding is raised, we intend to focus our sales and marketing efforts over the next twelve months on expanding our distribution and retail share in the rest of the Canadian marketplace. In such event, if we are unable to raise additional funds on a timely basis or at all, any progress with respect to our products and, therefore, our potential revenues, would be adversely affected.

In the event that our plans change, our assumptions change or prove inaccurate, or if our existing cash resources, together with other funding resources including anticipated sales of our products, otherwise prove to be insufficient to fund our operations, we could be required to seek additional financing. We have no current arrangements with respect to sources of additional financing.

The auditors’ report on the Company’s consolidated financial statements as of December 31, 2006 states that the net loss incurred during the year ended December 31, 2006, the accumulated deficit as of that date, and the other factors described in Note 2 to the consolidated financial statements included in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2006, raise substantial doubt about the Company’s ability to continue as a going concern. The auditors’ report on the Company’s financial statements for the year ended December 31, 2005 contained a similar statement. The consolidated financial statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.

Risks Related to Our Company

We have not been profitable since our inception in 2003. As of June 30, 2007, we have an accumulated deficit of $4,043,401 primarily as a result of our start up expenses. We may never realize sufficient revenues from the sale of our products or be profitable. Each of the following factors, among others, may influence the timing and extent of our profitability, if any:

-      the completion and success of financing to provide marketing and administration support for the launch of our product;

-      the market acceptance of Dairy Fresh Farms with the Canadian Consumer;

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-      our ability to effectively and efficiently manufacture, market and distribute our products; and

-      our ability to sell our products at competitive prices which exceed our per unit costs.

We anticipate that, if cash generated from operations is insufficient to satisfy our requirements, we will require additional funding to continue to market our products. We will continue to rely on private funding. However, our projections of future cash needs and cash flows may differ from actual results.

Our plan to sell additional equity securities or convertible debt could result in dilution to our stockholders. We can give no assurance that we will be able to generate adequate funds from operations, that funds will be available to us from debt or equity financing or that, if available, we will be able to obtain such funds on favorable terms and conditions. If we cannot obtain such funds if needed, we would need to curtail or cease some or all of our operations.

ITEM 3. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial and Accounting Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Principal Financial and Accounting Officer have concluded that our disclosure controls and procedures as of March 31, 2007 were not effective due to material weakness in our internal controls over financial reporting described below, and other factors related to the Company’s financial reporting processes and information technology security protocols.

As disclosed in the Company’s Form 10-KSB for the year ended December 31, 2006, both the Company and its independent registered public accounting firm identified certain significant internal control deficiencies that we considered to be, in the aggregate, a material weakness. The primary concern was the adequacy of review of supporting schedules that result in adjusting journal entries being entered into the accounting systems that were inaccurate or disclosures in the notes to the financial statements that were incorrect or inadequate. These inaccuracies were not detected by the control procedures of management reviewing the schedules and supporting documentation, resulting in errors appearing on the financial statements and subsequent detection in the audit. The other area of concern was the inadequate segregation of duties among the administrative staff. Due to the size of our Company and the costs associated to remediate these issues, we still consider these concerns to be relevant.

Changes in Internal Controls

There have been no material changes in our internal controls over financial reporting or in other factors that could materially affect, or are reasonably likely to affect, our internal controls over financial reporting during the quarter ended March 31, 2007.

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PART II OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In February 2007, the Company issued 3,402,000 shares of common stock as payment for professional fees incurred for the period from October 1, 2006 to December 31, 2007, valued at $0.30 per share which management believes represents the fair value of the Company’s common stock when the services were completed. The excess in the par value is recorded in contributed surplus.

In February 2006, the Company issued 35,000 shares of common stock in exchange for professional fees incurred. The shares were valued at $0.75 per share which management believes represents the fair value of the Company’s share when the services were completed. The excess in the par value is recorded in contributed surplus.

In February 2007, the Company issued 210,000 shares of common stock to repay a Note Payable to an Officer of the Company. The shares were valued at $0.30 per share which management believes represents the fair value of the Company’s share when the Note Payable was repaid. The excess in the par value is recorded in contributed surplus.

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits

A. Exhibits:

31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.

31.2 Certification of Principal Financial and Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.

32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.

32.2 Certification of Principal Financial and Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(b) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Ottawa, Canada.

DAIRY FRESH FARMS INC.
By	/s/ Robert Harrison
	Robert Harrison
	Chief Executive Officer

Date: August 14, 2007

By	/s/ Don Paterson
	Don Paterson
	Principal Accounting Officer

Date August 14, 2007

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