Energy 1 (EGOC) 10-Q 2008 Q1 Quarterly report

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008

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)

Indicate by check mark whether the Registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days:  Yes  x    No  ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 Large accelerated filer  ¨         Accelerated filer  ¨    Non-Accelerated filer  ¨Small Business Issuer  x

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at May 20, 2008
Common stock, $0.001 par value	56,897,292

Part I. Financial Information

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Income	5
	Condensed Consolidated Statement of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management Discussion & Analysis of Financial Condition and Results of Operations	15
Item 3	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	19
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	21
Item 1A	Risk Factors	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3.	Defaults Upon Senior Securities	22
Item 4.	Submission of Matters to a Vote of Security Holders	22
Item 5	Other information	22
Item 6.	Exhibits	22

CERTIFICATIONS

Exhibit 31 – Management certification

Exhibit 32 – Sarbanes-Oxley Act

PART I FINANCIAL INFORMATION

General

The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q. 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, 2007. 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 March 31, 2008 are not necessarily indicative of the results that can be expected for the year ended December 31, 2008.

3

DAIRY FRESH FARMS INC.

CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
	2008			2007
	(Unaudited)			(Audited)
ASSETS:
CURRENT ASSETS
Cash	$	14,786		$	299,665
Prepaid expenses and other current assets		-			458
Total current assets		14,786			300,123
Property, plant and equipment, net		6,466			7,325
TOTAL ASSETS	$	21,252		$	307,448
LIABILITIES AND STOCKHOLDERS' DEFICIENCY:
CURRENT LIABILITIES:
Accounts payable and accrued liabilities	$	307,933		$	243,636
Management contracts payable		491,468			357,788
Note payable		39,158			41,030
Loan payable from affiliates		1,031,668			1,284,857
Total current liabilities		1,870,227			1,927,311
TOTAL LIABILITIES		1,870,227			1,927,311
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY:
Common stock, $0.001 par value, 75,000,000 shares authorized,
56,897,292 issued and outstanding as of March 31, 2008;
56,883,478 issued and outstanding as of December 31, 2007 respectively		43,593			43,593
Additional paid-in-capital		4,686,501			4,686,501
Accumulated comprehensive loss		(235,460	)		(312,402	)
Accumulated deficit		(6,343,609	)		(6,037,555	)
TOTAL STOCKHOLDERS' DEFICIENCY		(1,848,975	)		(1,619,863	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY	$	21,252		$	307,448

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

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DAIRY FRESH FARMS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE PERIOD ENDED MARCH 31, 2008 AND 2007 (UNAUDITED)

	2008			2007
REVENUES:
Revenue	$	-		$	-
		-			-
OPERATING EXPENSES:
General and administrative expenses		306,054			448,805
Total operating expenses		306,054			448,805
OPERATING LOSS		(306,054	)		(448,805	)
LOSS BEFORE TAXES		(306,054	)		(448,805	)
PROVISION FOR (BENEFIT FROM) INCOME TAXES		-			-
NET LOSS	$	(306,054	)	$	(448,805	)
NET LOSS PER SHARE:
Basic and diluted:	$	(0.01	)	$	(0.03	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted:		56,883,478			15,658,748

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

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DAIRY FRESH FARMS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE PERIOD ENDED MARCH 31, 2008 AND 2007 (UNAUDITED)

	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(306,054	)	$	(448,805	)
Adjustments to reconcile net loss to net cash used in operating activities:
Issuance of stock as consideration for services		-			1,012,017
Conversion of notes payable to common stock		-			59,978
Depreciation and amortization		859			855
Changes in operating assets and liablities:
Accounts receivable		-			(560	)
Prepaid and other current assets		458			(668,127	)
Accounts payable and accrued liabilities		140,884			(56,561	)
Management contracts payable		133,680			(8,569	)
Net cash used in operating activities		(30,173	)		(109,772	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable		(1,872	)		(59,978	)
Repayment of advance to affiliates		(253,189	)		-
Net cash provided by financing activities		(255,061	)		(59,978	)
EFFECT OF CHANGES IN EXCHANGE RATES ON CASH		355			1,646
DECREASE IN CASH		(284,879	)		(168,104	)
CASH, BEGINNING OF YEAR		299,665			375,858
CASH, END OF YEAR	$	14,786		$	207,754
SUPPLEMENTAL CASH FLOW INFORMATION:
		2008			2007
Interest paid	$	-		$	-
Taxes paid	$	-		$	-

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

6

Dairy Fresh Farms Inc.

Notes to Interim Consolidated Financial Statements

March 31, 2008

(Unaudited)

1- GOVERNING STATUTES AND NATURE OF OPERATIONS

Dairy Fresh Farms Inc. (“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 includes the following subsidiaries.

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.

Great Bear Explorations Inc.

Great Bear Explorations Inc. is a Canadian oil and gas exploration business. This corporation has recently acquired a 35% interest in Peace East Energy Corp, which has joint venture and farm out agreements with the Tall Cree First Nation. The agreements provide for Peace East to participate in oil and gas activities on the First Nation Reserve lands (approximately 8,200 ha.) and to post and bid on other lands that have been extensively analyzed by the Peace East over the last 18 months. The “Peace East” area is located in Northern Western Alberta

Interim Financial Statements

The accompanying interim unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. For further information, refer to the financial statements and footnotes thereto included in our Form 10-KSB Report for the fiscal year ended December 31, 2007.

2 - GOING CONCERN

The accompanying interim consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As shown in the interim consolidated financial statements for the period ended March 31, 2008, the company incurred a net loss of $156,054 for the three months period, and accumulated deficit of $ 6,193,609 since inception. The future of the company is dependant upon its ability to obtain financing, resume operations and achieve profitability. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amount of and classification of liabilities that might be necessary in the event that the Company cannot continue in existence.

The management of the Company is actively seeking new financing and has reduced expenses in order to preserve cash reserves.

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Dairy Fresh Farms Inc.

Notes to Interim Consolidated Financial Statements

March 31, 2008

(Unaudited)

3 - ACCOUNTING POLICIES

Basis of Presentation

These interim financial statements have been prepared in U.S. dollars and in accordance with the generally accepted accounting principles in the United States of America.

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 also recorded its revenues in accordance with Staff Accounting Bulletin (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 .

Loss Per Share

The Company has presented the basic loss per share computed on the basis of the weighted average number of common shares outstanding during the year.

Advertising

The Company expenses advertising costs as they are incurred.

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 may 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.

Depreciation

Property and equipment are depreciated over their useful lives according to the following methods and annual rates:

	Method		Rate
Computer hardware		Declining balance		30	%
Furniture and fixtures		Declining balance		20	%
Leasehold improvements		Straight line		Shorter of useful life or remaining lease term

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Dairy Fresh Farms Inc.

Notes to Interim Consolidated Financial Statements

March 31, 2008

(Unaudited)

Income taxes

The Company uses the liability method in providing income taxes on all transactions that have been recognized in the financial statements. This method requires the adjustment of deferred taxes to reflect the tax rates at which future amounts will be settled or realized. The effects of tax rate changes on future deferred tax liabilities and deferred tax benefits, as well as other changes in income tax laws are recognized in net earnings in the period in which such changes are enacted. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

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 stockholders’ deficit.

Stock-based compensation

On September 6, 2006, the Company’s 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 the option price thereof. The per share option price of options granted under the Plan will not be 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 granted for a term not greater than ten years from the date of grant.

The Company has adopted SFAS No. 123 (R) “Share-Based Payments” in accounting for the Plan. SFAS No. 123 (R) requires measurement of compensation cost for all stock-based awards at fair market value at the date of grant and recognition of compensation expense over the service period for awards expected to vest. The fair market 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 upon historical volatilities of the Company’s stock for a period approximating the expected life; the risk-free rate is based upon the U.S. Treasury yield curve in effect at the time of the 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. To date, no options have been granted under the Plan.

9

Dairy Fresh Farms Inc.

Notes to Interim Consolidated Financial Statements

March 31, 2008

(Unaudited)

Oil & Gas Agreements, Leases and Licenses, net

Resource (oil and gas) agreements, comprising interests in oil and gas leases and/or licenses are stated at cost and amortized over the lease term Exploration and development costs are amortized on a straight-line basis over estimated useful lives using the straight-line method..

4 - OIL & GAS AGREEMENTS and RELATED EXPLORATION AND DEVELOPMENT

As of March 31, 2008 and December 31, 2007, the Company’s Oil & Gas Agreements comprised the following:

Peace East Energy Corp: Agreements with Tallcree First Nation Energy Companies Tallcree Energy, Inc. And Netaskinan Energy, Inc.

5 - PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

	December 31 2007
	Cost		Accumulated Depreciation		Net
		$		$		$
Leasehold improvements		10,796		9,717		1,079
Computer equipment		6,229		4,348		1,881
Furniture and fixtures		8,628		4,314		4,314
		25,653		18,379		7,274
	March 31 2008
		Cost		Accumulated Depreciation		Net
		$		$		$
Leasehold improvements		10,796		9,899		897
Computer equipment		6,229		4,530		1,699
Furniture and fixtures		8,628		4,758		3,870
		25,653		19,187		6,466

Depreciation expense for the periods ended March 31, 2008 and December 31, 2007 was $ 853 and $6,226, respectively.

10

Dairy Fresh Farms Inc.

Notes to Interim Consolidated Financial Statements

March 31, 2008

(Unaudited)

6 - 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.

(a) During the periods ended March 31, 2008 and December 31, 2007, the Company incurred management services to companies controlled by officers of the Company. The management fees payable are $225,000 and $355,314 as of March 31, 2008 and December 31, 2007.

(b) Related parties or other entities affiliated with Great Bear paid approx $200,000 and $600,000 in expenses relating to oil and gas properties and agreements that had been entered into. The net balance of the loans payable to affiliates as of March 31, 2008 and December 31, 2007 was $1,031,688 and $1284,857. 

7 - CAPITAL STOCK

Authorized

75,000,000 Common shares

Issued and fully paid

	March 31, 2008		December 31, 2007
		$		$
56,897,292 Common Shares (56,897,292 in December 31, 2007)		43,593		43,593

(a) Prior to the reverse takeover transaction, Dairy fresh Farms Inc. implemented a reverse six for one share split.

(b) On March 3, 2005, 6351492 Canada Inc., a wholly owned subsidiary of Dairy fresh Farms Inc., acquired all of the issued common shares of Dairy Fresh Technologies Ltd. in exchange for 9,250,000 shares of 6351492 Canada Inc, which are exchangeable for 9,250,000 restricted shares of common stock of Dairy Fresh Farms Inc. The net deficit position of Dairy Fresh Farms Inc. of $11,688 as of the date of the reverse takeover transaction has been charged to the deficit of Dairy Fresh Technologies Ltd., the legal subsidiary.

(c) The expenses related to the reverse takeover transaction were approximately $15,000, of which $1,719 has been netted against the equity, which represents the cash balance in Dairy Fresh Farms Inc. and the balance has been expensed against operations.

(d) As part of the reverse takeover transaction, the company issued 1,500,000 fully paid common shares as a finder’s fee to the Company’s advisors.

11

Dairy Fresh Farms Inc.

Notes to Interim Consolidated Financial Statements

March 31, 2008

(Unaudited)

8- LOSS PER SHARE

For the purpose of the loss per share calculation, 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.

714,285 warrants were issued on October 30, 2006 at $0.75 per warrant and expire October 2008.

The total warrants at March 31, 2008 and December 31, 2007 were 714,285 and 714,285, respectively.

10- FINANCIAL INSTRUMENTS

The fair value of the short-term financial assets and liabilities approximates their carrying amount given that they will mature shortly.

11 - NEW ACCOUNTING PRONOUNCEMENTS

FASB Interpretation 48

In June 2006, FASB Interpretation 48 “Accounting for Uncertainty in Income Taxes” was issued which clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on de−recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

This Interpretation is effective for fiscal years beginning after December 15, 2006, and earlier application of the provisions of this Interpretation is encouraged if the enterprise has not yet issued financial statements, including interim financial statements, in the period this Interpretation is adopted. The Company’s adoption of FIN 48 has not had an impact on its consolidated financial statements.

SFAS No. 157

In September 2006, the FASB issued SFAS No. 157,  ‘Fair Value Measurements’, which establishes a framework for measuring 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 issued for fiscal years beginning after November 15, 2007. The Company is evaluating the impact SFAS 157 will have on the consolidated financial statements.

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 N0. 115’ to reduce earnings volatility caused by related assets and liablities 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 its adoption of SFAS No. 159 will have a significant impact on the consolidated financial position, results of operations or cash flows.

12

Dairy Fresh Farms Inc.

Notes to Interim Consolidated Financial Statements

March 31, 2008

(Unaudited)

SFAS No 160

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS No. 160”), which amends Accounting Research Bulletin 51, Consolidated Financial Statements, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also clarifies that anoncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 also changes the way the consolidated income statement is presented by requiring consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. SFAS No. 160 requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated and requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent owners and the interests of the noncontrolling owners of a subsidiary. SFAS No. 160 is effective for fiscal periods, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company does not expect the adoption of SFAS No. 160 to have a material impact on its financial statements.

SFAS No. 141(R)

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (SFAS No. 141(R)). This Statement replaces SFAS No. 141, Business Combinations, and requires an acquirer to recognize the assets acquired, the liabilities assumed, including those arising from contractual contingencies, any contingent consideration, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the statement. SFAS No. 141(R) also requires the acquirer in a business combination achieved in stages (sometimes referred to as a step acquisition) to recognize the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair values (or other amounts determined in accordance with SFAS No. 141(R)). In addition, SFAS No. 141(R)'s requirement to measure the noncontrolling interest in the acquiree at fair value will result in recognizing the goodwill attributable to the noncontrolling interest in addition to that attributable to the acquirer.

SFAS No. 141(R) amends SFAS No. 109, Accounting for Income Taxes, to require the acquirer to recognize changes in the amount of its deferred tax benefits that are recognizable because of a business combination either in income from continuing operations in the period of the combination or directly in contributed capital, depending on the circumstances. It also amends SFAS No. 142, Goodwill and Other Intangible Assets, to, among other things, provide guidance on the impairment testing of acquired research and development intangible assets and assets that the acquirer intends not to use. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is currently evaluating the potential impact that the adoption of SFAS No. 141(R) could have on its consolidated financial statements.

SAB No. 110

On December 21, 2007 the SEC staff issued Staff Accounting Bulletin No. 110 (“SAB No. 110”), which, effective January 1, 2008, amends and replaces SAB No. 107, Share-Based Payment. SAB No.110 expresses the views of the SEC staff regarding the use of a "simplified" method in developing an estimate of expected term of "plain vanilla" share options in accordance with FASB Statement No. 123(R), Share-Based Payment. Under the "simplified" method, the expected term is calculated as the midpoint between the vesting date and the end of the contractual term of the option. The use of the "simplified" method, which was first described in Staff Accounting Bulletin No. 107, was scheduled to expire on December 31, 2007. SAB No. 110 extends the use of the "simplified” method for "plain vanilla" awards in certain situations. The SEC staff does not expect the "simplified" method to be used when sufficient information regarding exercise behavior, such as historical exercise data or exercise information from external sources, becomes available. The Company is currently evaluating the potential impact that the adoption of SAB No. 110 could have on its consolidated financial statements.

13

Dairy Fresh Farms Inc.

Notes to Interim Consolidated Financial Statements

March 31, 2008

(Unaudited)

Disclosure about Derivative Instruments and Hedging Activities

In March 2008, the FASB issued SFAS No. 161, “Disclosure about Derivative Instruments and Hedging Activities,” an amendment of FASB Statement No. 133, (SFAS 161). This statement requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation. The Company is required to adopt SFAS 161 on January 1, 2009. The Company is currently evaluating the potential impact of SFAS No. 161 on the Company’s consolidated financial statements.

Determination of the Useful Life of Intangible Assets

In April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets,”, which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of intangible assets  under FASB 142 “Goodwill and Other Intangible Assets”.  The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of the expected cash flows used to measure the fair value of the asset under FASB 141 (revised 2007) “Business Combinations” and other U.S. generally accepted accounting principles.    The Company is currently evaluating the potential impact of FSP FAS 142-3 on its consolidated financial statements.

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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−Q, 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−Q should be read in conjunction with the Company’s consolidated financial statements and notes to consolidated financial statements included in its 2007 Annual Report on Form 10−KSB. In addition, you are urged to read this report in conjunction with the risk factors described herein.

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 twelve months ended December 31, 2007.

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.

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The Company management realized that the opportunities in its current business is one that is evolving. A move to promote the brands as a licensing opportunity has been decided by management as the best course of action for the near term. The business model which originally included just the dairy side has also expanded into a new area. That being said interest for funding the original dairy business with a new focus on licensing is still high. The company is continuing to keep its trademarks and business associations current. These include the Ontario Dairy Council, Canadian Heart and Stroke Foundation “Health Check TM” and the its “Dairy Fresh Farms TM” plus “New Generation TM” and “Drink to your hearts content TM”.

The Company realizes that it has to look at different opportunities in order to expand on it’s current business plan and to provide for the long term success of the Company. After a considerable and lengthy overview of opportunities, management determined that it would be in the best interests of the Company and its shareholders to enter into an agreement to merge an operating entity into the Company.

On October 23, 2007, we entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with Great Bear Explorations Inc., an Alberta, Canada corporation (“GBE”). Pursuant to the terms and conditions of the Merger Agreement, GBE merged with and into our company (the “Merger”).

Also as a result of the Merger all of the outstanding shares of GBE common stock were converted into the right to receive, on a pro rata basis, thirty million (30,000,000) shares of our common stock as set forth in the Merger Agreement.

Great Bear Explorations Inc. is a development stage Canadian company engaged in the oil and gas exploration industry. This corporation has acquired a 35% interest in Peace East Energy Corp, whose assets consists of primarily joint venture and farm out agreements in North Central Alberta Canada. These agreements provide for Peace East to participate in oil and gas activities on certain property (approximately 8,200 ha.) and to post and bid on other properties that have been extensively analyzed by the Peace East over the last 18 months. In addition Peace East has given Great Bear Exploration first right of refusal for the remaining 65%. The geographical areas of interests of these agreements are situated in the north central area of Alberta, Canada

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. While our significant accounting policies are described in more detail in the notes to the condensed consolidated financial statements included in the Form 10-KSB for the year ended December 31, 2006, we believe that the following accounting policies require the application of significant judgments and estimates.

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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 efforts over the next 12 months primarily on our business opportunities in Western Canada. If we are not able to raise additional funds on a timely basis, any progress with respect to our product and product lines will be limited and our potential revenues will be adversely affected.

In additions, management will be devoting time to expanding the operations of our newly acquired business, Great Bear Explorations

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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.

Off-Balance Sheet Arrangements

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

Liquidity and Capital Resources

At March 31, 2008, we have an accumulated deficit of $6,343,609 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 March 31, 2008, we have $14,786 in cash.

Assuming our funding is raised, we intend to focus our efforts over the next twelve months on creating and entering into marketing and sales agreements in 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, 2007 states that the net loss incurred during the year ended December 31, 2007, 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, 2007, as well as the accumulated deficit as of March 31, 2008, and the other factors described in Note 2 to the consolidated financial statements included in the Company’s Quarterly Report on Form 10-Q raise substantial doubt about the Company’s ability to continue as a going concern. 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.

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On October 23, 2007, we entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with Great Bear Explorations Inc., an Alberta, Canada corporation (“GBE”). Pursuant to the terms and conditions of the Merger Agreement, GBE merged with and into our company (the “Merger”).

Also as a result of the Merger all of the outstanding shares of GBE common stock were converted into the right to receive, on a pro rata basis, thirty million (30,000,000) shares of our common stock as set forth in the Merger Agreement.

Great Bear Explorations Inc.

Great Bear Explorations Inc. is a development stage Canadian company engaged in the oil and gas exploration industry. This corporation has acquired a 35% interest in Peace East Energy Corp, whose assets consists of primarily joint venture and farm out agreements in North Central Alberta Canada. These agreements provide for Peace East to participate in oil and gas activities on certain property (approximately 8,200 ha.) and to post and bid on other properties that have been extensively analyzed by the Peace East over the last 18 months. In addition Peace East has given Great Bear Exploration first right of refusal for the remaining 65%. The geographical areas of interests of these agreements are situated in the north central area of Alberta, Canada

Additional Information

We file reports and other materials with the Securities and Exchange Commission. These documents may be inspected and copied at the Commission’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C., 20549. You can obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. You can also get copies of documents that the Company files with the Commission through the Commission’s Internet site at www.sec.gov.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not hold any derivative instruments and do not engage in any hedging activities.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.  Our management, with the participation of our President, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our President concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our President, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

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Management’s Report on Internal Control over Financial Reporting.  Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Furthermore, smaller reporting companies face additional limitations.  Smaller reporting companies employ fewer individuals and find it difficult to properly segregate duties.  Often, one or two individuals control every aspect of the Company’s operation and are in a position to override any system of internal control.  Additionally, smaller reporting companies tend to utilize general accounting software packages that lack a rigorous set of software controls.

Our management, with the participation of the Chief Executive Officer, evaluated the effectiveness of the Company’s internal control over financial reporting as of March 31, 2008.  In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework.  Based on this evaluation, our management, with the participation of the President, concluded that, as of March 31, 2008, our internal control over financial reporting was effective.

(b)  Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1.Legal Proceedings

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries' officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

ITEM 1A - Risk Factors

We have updated the risk factors previously disclosed in Annual Report on Form 10–KSB for the year ended December 31, 2007, which was filed with the Securities and Exchange Commission on April 15, 2008 (the “Fiscal 2007 10–KSB”). We believe there are no changes that constitute material changes from the risk factors previously disclosed in the Fiscal 2007 10–KSB except as disclosed below.

Our Common Stock Is Subject To Penny Stock Regulation

Our shares are subject to the provisions of Section 15(g) and Rule 15g-9 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), commonly referred to as the "penny stock" rule. Section 15(g) sets forth certain requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act. The Commission generally defines penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. Rule 3a51-1 provides that any equity security is considered to be penny stock unless that security is: registered and traded on a national securities exchange meeting specified criteria set by the Commission; authorized for quotation on the NASDAQ Stock Market; issued by a registered investment company; excluded from the definition on the basis of price (at least $5.00 per share) or the registrant's net tangible assets; or exempted from the definition by the Commission. Since our shares are deemed to be "penny stock", trading in the shares will be subject to additional sales practice requirements on broker/dealers who sell penny stock to persons other than established customers and accredited investors.

The Liquidity Of Our Common Stock Is Seriously Limited And There Is A Limited Market For Our Common Stock

Our stock is currently being traded on the NASDAQ Over-The-Counter Bulletin Board, and the liquidity of our common stock is limited. The Bulletin Board is a limited market and subject to substantial restrictions and limitations in comparison to the NASDAQ system. Any broker/dealer that makes a market in our stock or other person that buys or sells our stock could have a significant influence over its price at any given time.

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ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS SECURITIES

There were no changes in securities and small business issuer purchase of equity securities during the period ended March 31, 2008.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

There were no defaults upon senior securities during the period ended March 31, 2008.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to the vote of securities holders during the period ended March 31, 2008, except that the Company filed a preliminary information statement with the Securities and Exchange Commission on May 1, 2008.

(1) Elect Ian Morrice, Allen Soltis and Ron Evans, C.A to the Company's Board of Directors to hold office until the next Company's Annual Meeting of Stockholders or until his successor is duly elected and qualified; and

(2) Ratify that the name of the Company was changed to Great Bear Oil and Gas Inc. ; and

(3) Ratified an amendment to the Articles of Incorporation to create of a preferred stock and authorized one hundred million (100,000,000) preferred shares, increase the number of authorized shares to four hundred million common shares, and effect a one for ten reverse stock split, each action to be effective as of the filing of an amendment to the Company’s Articles of Incorporation with the Nevada Secretary of State; and

(4) Ratified the appointment of Jewett, Schwartz, Wolfe & Associates as the Company’s independent certified public accountant; and

(5) Ratified the 2008 Stock option Plan.

ITEM 5.  OTHER INFORMATION

There is no information with respect to which information is not otherwise called for by this form.

ITEM 6. EXHIBITS

31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
31.2	Certification of Chief Financial 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 Chief Financial 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/Ian Morrice
	Ian Morrice
	Chief Executive Officer
Date: May 20, 2008
	By	/s/ Ron Evans
	Ron Evans
	Principal Accounting Officer

 

Date May 20, 2008

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