As filed with the Securities and Exchange Commission on January 27, 2006.
Registration No. 333-111486
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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DAIRY FRESH FARMS INC
Nevada 2023 98-0407549
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
413 Churchill Avenue N., Ottawa, Ontario, Canada K1Z 5C7
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 613-724-2484
(Name, address, including zip code, and telephone number, including area
code, of agent for service of process)
Copies of communications to:
JOSEPH I. EMAS
1224 WASHINGTON AVENUE
MIAMI BEACH, FLORIDA 33139
TELEPHONE NO.: (305) 531-1174
FACSIMILE NO.: (305) 531-1274
Approximate date of proposed sale to public: From time to time after the
effective date of this registration statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. |X|
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
Proposed
Maximum
Offering
Price Proposed Maximum
Title of Each Class of Amount to be Per Share Aggregate Amount of
Securities to be Registered Registered (1) Offering Price Registration Fee
- ------------------------------------------------------- --------------------- ------------ -------------------- --------------------
Common Shares, $.001 par value (2) 13,220,792 0.75 9,915,594. $1,060.
- ------------------------------------------------------- --------------------- ------------ -------------------- --------------------
Total $1,060.
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(1) (1) Estimated solely for the purpose of calculating the registration fee
required by Section 6(B) of the Securities Act and computed pursuant to
Rule 457 under the Securities Act of 1933, this price is calculated based
upon the average of the high and low price as reported on the "Pink
Sheets" on January 26, 2006.
(2) Represents shares to be sold by our Selling Shareholders.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS DECLARED EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY 27, 2006.
2
PROSPECTUS
DAIRY FRESH FARMS INC.
13,220,792 SHARES OF OUR COMMON STOCK
The Selling Shareholders named in this prospectus are offering to sell up to
13,220,792 shares of Dairy Fresh Farms Inc. ("we", "us", "our" or the "Dairy
Fresh Farms Inc.") common stock held by the Selling Shareholders. The prices at
which the Selling Shareholders may sell the shares will be determined by the
prevailing market price for the shares or in negotiated transactions. We will
not receive proceeds from the sale of our shares by the Selling Shareholders.
The Selling Shareholders, and any broker-dealers or agents that are involved in
selling the shares, may be deemed to be "underwriters" within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them, may be deemed to be underwriting commissions or
discounts under the Securities Act. The Selling Shareholders have informed us
that they do not have any agreements or understandings, directly or indirectly,
with any person to distribute the common stock.
Investing in our securities involves risk, see "Risk Factors" page 8. Any
investor who cannot afford to sustain the total loss of their investment should
not purchase the securities offered herein. Neither the Securities and Exchange
Commission, nor any state securities commission has approved or disapproved of
these securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The total costs of this offering, estimated at $_______, shall be borne by us.
Our common stock is traded on the "Pink Sheets" under the symbol "DYFR.PK"
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
All dealers that effect transactions in these securities whether or not
participating in this offering may be required to deliver a prospectus. This is
in addition to the dealer's obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
The Date of this Prospectus is: January 27, 2006
3
TABLE OF CONTENTS
PAGE
Prospectus Summary............................................................5
The Resale Offering...........................................................6
Summary of Financial Data.....................................................7
Risk Factors..................................................................8
Where You Can Find More Information..........................................14
Capitalization...............................................................14
Use of Proceeds..............................................................15
Determination of Offering Price; Market for Common Equity
and Related Stockholder Matters .............................................15
Dividends....................................................................15
Dilution.....................................................................16
Equity Compensation Plan Information.........................................16
Selling Shareholders.........................................................16
Plan of Distribution.........................................................22
Penny Stock Rules / Section 15(g) of the Exchange Act .......................24
Legal Proceedings ...................................................24
Directors, Executive Officers and Control Persons ...........................25
Executive Compensation ......................................................29
Security Ownership of Certain Beneficial Owners and Management ..............30
Description of Securities.................................................31
Disclosure of Commission Position of Indemnification for
Securities Act Liabilities; Anti-takeover, Limited Liability
and Indemnification Provisions ..............................................32
Certain Relationships and Related Transactions...............................33
Organization within Last Five Years .........................................33
Description of Business ..................................................34
Management's Discussion and Analysis or Plan of Operation....................35
Description of Property ..................................................40
Certain Relationships and Related Transactions ..............................40
Financial Statements.........................................................42
Interests of Names Experts and Counsel.......................................43
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure...................................................................43
Additional Information.......................................................43
Part II - Information Not Required In Prospectus ............................46
Exhibits .............................................................49
4
PROSPECTUS SUMMARY
This summary highlights important information about our company and business.
Because it is a summary, it may not contain all of the information that is
important to you. To understand this offering fully, you should read this entire
prospectus and the financial statements and related notes included in this
prospectus carefully, including the "Risk Factors" section. Unless the context
requires otherwise, "we," "us," "our", " and the "Company" and similar terms
refer to Dairy Fresh Farms Inc., and any subsidiaries collectively, while the
term "Dairy Fresh" refers to Dairy Fresh Farms Inc. in its corporate capacity
We were incorporated under the laws of the State of Nevada in February, 2003.
Our business plan is to expand a unique patented dairy process in Canada. The
all-natural process results in a healthier milk-based product which is Low in
Cholesterol, Trans-Fat Free, Lactose Free, Low in Saturated Fat, 99% Fat Free,
with high levels of Omega-6 and 3 and Monounsaturate Fat enhanced without
compromising great taste.
We are authorized to issue 75,000,000 shares of common stock, par value $.001
per share, of which 15,620,792 shares are issued as of December 23, 2005.
Where You Can Find Us
Our principal executive offices are located at 413 Churchill Avenue N., Ottawa,
Ontario, Canada K1Z 5C7. Our telephone number is 613-724-2484.
About Our Business
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 has launched a 2 litre regular milk and a 1 litre lactose
free product with Canada Safeway stores in Western Canada.
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.
Our products are produced under a co-packing agreement with Lucerne's Dairy [a
division of Safeways] in Western Canada.
The product was developed in Sydney, Australia where, in management's opinion,
it has achieved outstanding results.
Our strong and experienced management team believes this process will provide
the Dairy Industry with the products they need in today's health conscious
environment. We are in the business of branding "Dairy Fresh Farms(TM)" and
developing licensing agreements for the manufacture and distribution of its
innovative dairy products. The Canadian Heart and Stroke Foundation's has
provided a "Health Check" of approval on "Diary Fresh Farms(TM)"
5
"Dairy Fresh Farms(TM)" is a patented technology that produces
monounsaturated-enhanced dairy products. This breakthrough technology transforms
low fat dairy products into creamy great tasting healthy products. The US
Government's National Cholesterol Education Program (NCEP) Guidelines (May 15,
2001) recommended that up to 80% of total caloric intake through fat be consumed
as monounsaturated fats to lower serum cholesterol.
"Canola has a very low level of saturated fatty acids, a high level of
monounsaturated fatty acids and the essential Omega-3s. Adding canola oil to
skim milk adds these nutritional components, along with Vitamin E and K, without
compromising the taste. Canola would also complement the `mouth feel' of a much
higher fat level milk product without adding cholesterol to the drinker's diet."
(Alberta Canola Producers Commission)
"31%, or 90 million people, in North America have lactose maldigestion".
(Journal of the American College of Nutrition Vol. 20, No. 2, 198S-207S, 2001)
"Dairy Fresh Farms(TM)" meets this market demand.
"Dairy Fresh Farms(TM)" is Trans Fat Free - "Like saturated fat (the kind mainly
found in dairy products and meat and poultry), trans fat has been shown to boost
levels of the artery-clogging LDL- cholesterol or `bad' cholesterol. And to make
matters worse, trans fat also lowers the amount of the protective
HDL-cholesterol (the `good' cholesterol) in the blood - a double whammy that
makes foods high in trans fat much more of a threat to heart health than those
previously avoided by the cholesterol-conscious." (Rosie Schwartz, dietitian,
Jan. 2004, Ottawa Citizen)
THE RESALE OFFERING
Company Dairy Fresh Farms Inc.
Securities Being Offered
By Selling Shareholders 13,220,792 shares of our common stock may be
resold by our Selling Shareholders. The
offering price will be determined by market
factors and the independent decisions of the
Selling Shareholders.
Securities Outstanding We are authorized to issue 75,000,000 shares
of common stock, $.001 par value, of which
15,620,792 shares are currently issued and
outstanding.
Use of Proceeds We will not receive any proceeds from the
sale of the underlying common stock
currently held by the Selling Shareholders.
6
SUMMARY OF FINANCIAL DATA
(in thousand, except per share amounts)
The summary of financial data as of and for the year ended December 31, 2004 is
derived from and should be read in conjunction with our audited consolidated
financial statements for the year ended December 31, 2004, including the notes
to those financial statements, which are included elsewhere in this registration
statement along with the section titled "Management's Discussion and Analysis or
Plan of Operation". The summary of financial data is derived from and should be
read in conjunction with unaudited financial statements and notes to financial
statements for nine-months ended September 30, 2005 and 2004.
Year May 14, 2002
Nine-month period ended ended (Inception) Through
September 30, December 31, December 31,
--------------------------- ------------- ------------
2005 2004 2004 2004
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(unaudited)
Revenue $ 118,831 $ -- $ -- $ --
----------- ------------- ------------- ------------
Expenses:
Direct Expenses 38,359 -- -- --
Operating Expenses 1,332,414 162,492 331,329 535,637
----------- ------------- ------------- ------------
Interest expense, net -- -- -- --
----------- ------------- ------------- ------------
Net loss (1,251,942) (162,492) (331,329) (535,637)
=========== ============= ============= ============
Basic and diluted loss per common
share ($0.10) ($0.02) ($0.04) ($0.06)
=========== ============= ============= ============
Weighted average number of shares
outstanding - basic and diluted 13,015,717 9,250,00 9,250,000 9,250,000
The following table provides a summary of our balance sheet data at September
30, 2005 (unaudited):
September 30, 2005 (unaudited)
------------------------------
Balance sheet data:
Cash $ 41,818
Working capital (deficiency) $(1,104,543)
Total assets $ 156,889
Current Liabilities $(1,246,608)
Stockholders' equity (Deficit) $(1,089,719)
7
RISK FACTORS
An investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below and the other information in this
prospectus before investing in our common stock. If any of the following risks
occur, our business, operating results and financial condition could be
seriously harmed. The trading price of our common stock could decline due to any
of these risks, and you may lose all or part of your investment. This prospectus
also contains forward-looking statements that involve risks and uncertainties.
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including the risks
faced by us described below and elsewhere in this prospectus. We caution you to
review the cautionary statements set forth in this prospectus. Please refer to
"Risks Associated with Forward-looking Statements" on page 16.
Risks Related To Our Business
Because we have a limited operating history, it will be difficult for you to
evaluate our business.
Our future operations are contingent upon increasing revenues and raising
capital for expansion of our markets. Because we have a limited operating
history you will have difficulty evaluating our business and future prospects.
You should consider our prospects in light of the risks, uncertainties, expenses
and difficulties we will face as an emerging business.
If we are unable to obtain financing to support our future growth plans, we will
have to curtail our operations and our growth plans, which will negatively
affect the value of your investment.
Our Plan of Operations involves development and marketing costs. We may need
additional funding from bank financing or financing from a debt or equity
offering. If we are unable to obtain financing when needed on favorable terms,
we may be forced to curtail our operations and our growth plans, which will
negatively affect the value of your investment.
We are directly or indirectly subject to extensive regulations which may
increase our costs, lead to delays, fines or restrictions on our business and
negatively affect our potential profitability.
Our operations may be, directly or indirectly, subject to Canadian and United
States federal, state or local laws. These Canadian and United States
regulations will subject us to increased regulation costs, and possibly fines or
restrictions on conducting our operations. In addition, potential future foreign
markets have different regulations related to the environment, labor relations,
currency fluctuations, exchange controls, customs, foreign tax increases, import
and export, investment and taxation which will also subject us to increased
regulation costs and possibly fines or restrictions on conducting our
operations. If we are unable to meet the requirements of the regulations in any
jurisdictions, our operations in such jurisdictions may be delayed or
prohibited. Any of these regulations may increase our costs and negatively
affect our potential profitability.
Our results of operations may highly fluctuate from quarter to quarter as we
continue to grow, therefore you cannot use these results to predict how we may
perform in the future.
8
As a result of our limited operating history, we do not have historical
financial data for a significant number of periods in which to base our planned
operating expenses. Our expense levels are based in part on our projections as
to future revenues that are expected to increase. It is anticipated that as we
mature, our sales and operating results may fluctuate from quarter to quarter
and from year to year due to a combination of factors, including, among others:
o general domestic and international legal, economic, political and
market conditions;
o demand for our products and services;
o number, timing and significance of product enhancements and new
product introductions by us and our competitors;
o volume, timing of, and ability to fulfill orders from clients;
o changes in the level of operating expenses;
o expenses incurred in connection with our plans to fund greater
levels of sales and marketing activities and operations and develop
new distribution channels and services;
o product defects and other product or service quality problems;
o increases in our costs of borrowing;
o seasonal variations in the sale of our products; and
o pricing changes in the industry.
Any unfavorable changes in these or other factors could have a material adverse
effect on our business, financial conditions and results of operation.
If we lose our key personnel, our business and prospects may be adversely
affected.
Our performance is dependent on the services of certain key employees and
consultants, particularly Nicolas Matossian, Chairman of the Board of Directors,
Robert C. Harrison, President and Chief Executive Officer and Director, Don
Paterson, Chief Financial Officer and Director, Ian Morrice, Executive
Vice-President and Richard Farrell, Bcomm, LLB, SIA, Director. The loss of
services of any of our key consultants could have a material adverse effect on
our business and financial condition. There is no assurance that we would be
able to hire and retain other management if we lose the services of our key
consultants.
We will need additional capital.
Our capital requirements in connection with our operations will be substantial.
Our management anticipates that we will require additional working capital in
the future even if we raise the maximum amount in this offering. There are no
assurances that such additional capital will be available or on terms that are
acceptable to us. Further, even if available, additional equity or convertible
debt financing, if used, could result in substantial dilution of shareholder
interests. Currently, our plan of operation includes looking for private
capital. There can be no assurances that such capital can be raised or that if
capital is raised, it will be sufficient for our needs.
Risks Related To This Offering
Our shares will be "Penny Stocks" which are subject to certain restrictions that
could adversely affect the liquidity of an investment in us.
We currently trade our stock on the "pink sheets" and intend to trade our common
stock in the over-the-counter market. The stock price will likely be at less
than $5.00 per share. Such shares are referred to as "penny stocks" within the
definition of that term contained in Rules 15g-1 through 15g-9 promulgated under
the Securities Exchange Act of 1934, as amended. These rules impose sales
practices and disclosure requirements on certain broker-dealers who engage in
certain transactions involving penny stocks. These additional sales practices
and disclosure requirements could impede the sale of our securities, including
securities purchased herein, in the secondary market. In general, penny stocks
9
are low priced securities that do not have a very high trading volume.
Consequently, the price of the stock is volatile and you may not be able to buy
or sell the stock when you want. Accordingly, the liquidity for our securities
may be adversely affected, with related adverse effects on the price of our
securities.
Under the penny stock regulations, a broker-dealer selling penny stocks to
anyone other than an established customer or "accredited investor" (generally,
an individual with a net worth in excess of $1,000,000 or annual income
exceeding $200,000 or $300,000 together with his or her spouse) must make a
special suitability determination for the purchaser and must receive the
purchaser's written consent to the transaction prior to the sale, unless the
broker-dealer is otherwise exempt. In addition, unless the broker-dealer or the
transaction is otherwise exempt, the penny stock regulations require the
broker-dealer to deliver, prior to any transaction involving a penny stock, a
disclosure schedule prepared by the Securities and Exchange Commission relating
to the penny stock. A broker-dealer is also required to disclose commissions
payable to the broker-dealer and the Registered Representative and current
quotations for the securities. A broker-dealer is additionally required to send
monthly statements disclosing recent price information with respect to the penny
stock held in a customer's account and information with respect to the limited
market in penny stocks.
There is a limited public market for our common stock, and even if a market
develops, it will likely be thin and subject to manipulation.
Our common stock is listed on the "pink sheets and there is currently a limited
public market for our common stock. We have not taken any steps to enable our
common stock to be quoted on the OTC Bulletin Board, and can provide no
assurance that our common stock will ever be quoted on any quotation service
other than the "pink sheets and that a market for our common stock will ever
develop. As a result, stockholders may be unable to liquidate their investments,
or may encounter considerable delay in selling shares of our common stock.
Neither we nor our selling stockholders have engaged an underwriter for this
offering, and we cannot assure you that any brokerage firm will act as a market
maker of our securities. A trading market may not develop in the future, and if
one does develop, it may not be sustained. If an active trading market does
develop, the market price of our common stock is likely to be highly volatile
due to, among other things, the nature of our business and because we are a new
public company with a limited operating history. Further, even if a public
market develops, the volume of trading in our common stock will presumably be
limited and likely be dominated by a few individual stockholders. The limited
volume, if any, will make the price of our common stock subject to manipulation
by one or more stockholders and will significantly limit the number of shares
that one can purchase or sell in a short period of time. The market price of our
common stock may also fluctuate significantly in response to the following
factors, most of which are beyond our control:
o variations in our quarterly operating results;
o changes in securities analysts' estimates of our financial
performance;
o changes in general economic conditions and consumers tastes;
o changes in market valuations of similar companies;
o announcements by us or our competitors of significant new contracts,
acquisitions, strategic partnerships, or capital commitments; and
o the addition or loss of key employees or consultants.
10
The equity markets have, on occasion, experienced significant price and volume
fluctuations that have affected the market prices for many companies' securities
and that have often been unrelated to the operating performance of these
companies. Any such fluctuations may adversely affect the market price of our
common stock, regardless of our actual operating performance. As a result,
stockholders may be unable to sell their shares, or may be forced to sell them
at a loss.
Obtaining additional capital through the future sale of common stock and
derivative securities will result in dilution of stockholder interests.
We plan to raise additional funds in the future by issuing additional shares of
common stock or securities such as convertible notes, options, warrants or
preferred stock that are convertible into common stock. Any such sale of common
stock or other securities will lead to further dilution of the equity ownership
of existing holders of our common stock.
A sale of a substantial number of shares of our common stock may cause the price
of our common stock to decline.
If our shareholders sell substantial amounts of our common stock in the public
market, including shares registered in this prospectus, the market price of our
common stock could fall. These sales also might make it more difficult for us to
sell equity or equity-related securities in the future at a time and price that
we deem reasonable or appropriate.
If a greater market for our common stock develops, the market price for our
common shares is particularly volatile given our status as a relatively unknown
company with a small and thinly traded public float, limited operating history
and lack of profits which could lead to wide fluctuations in our share price.
The price at which you purchase our common shares may not be indicative of the
price that will prevail in the trading market. You may be unable to sell your
common shares, at or above your purchase price, which may result in substantial
losses to you.
11
Our operating results are likely to fluctuate significantly in the future
due to a variety of factors, many of which are outside of our control. While our
stock trades on the "pink sheets", there is a limited market for our stock. If
market for our common stock develops and our operating results fluctuate
negatively in any future quarter, the volatility in our share price is
attributable to a number of factors. First, as noted above, our common shares
are sporadically and thinly traded. As a consequence of this lack of liquidity,
the trading of relatively small quantities of shares by our shareholders may
disproportionately influence the price of those shares in either direction. The
price for our shares could, for example, decline precipitously in the event that
a large number of our common shares are sold on the market without commensurate
demand, as compared to a seasoned issuer which could better absorb those sales
without adverse impact on its share price. Secondly, we are a speculative or
"risky" investment due to our limited operating history and lack of profits to
date, and uncertainty of future market acceptance for our potential products. As
a consequence of this enhanced risk, more risk-adverse investors may, under the
fear of losing all or most of their investment in the event of negative news or
lack of progress, be more inclined to sell their shares on the market more
quickly and at greater discounts than would be the case with the stock of a
seasoned issuer. Many of these factors are beyond our control and may decrease
the market price of our common shares, regardless of our operating performance.
We cannot make any predictions or projections as to what the prevailing market
price for our common shares will be at any time, including as to whether our
common shares will sustain their current market prices, or as to what effect
that the sale of shares, or the availability of common shares for sale at any
time, will have on the prevailing market price.
Shareholders should be aware that, according to SEC Release No. 34-29093, the
market for penny stocks has suffered in recent years from patterns of fraud and
abuse. Such patterns include (1) control of the market for the security by one
or a few broker-dealers that are often related to the promoter or issuer; (2)
manipulation of prices through prearranged matching of purchases and sales and
false and misleading press releases; (3) boiler room practices involving
high-pressure sales tactics and unrealistic price projections by inexperienced
sales persons; (4) excessive and undisclosed bid-ask differential and markups by
selling broker-dealers; and (5) the wholesale dumping of the same securities by
promoters and broker-dealers after prices have been manipulated to a desired
level, along with the resulting inevitable collapse of those prices and with
consequent investor losses. Our management is aware of the abuses that have
occurred historically in the penny stock market. Although we do not expect to be
in a position to dictate the behavior of the market or of broker-dealers who
participate in the market, management will strive within the confines of
practical limitations to prevent the described patterns from being established
with respect to our securities. The occurrence of these patterns or practices
could increase the volatility of our share price.
To date, we have not paid any cash dividends and no cash dividends will be paid
in the foreseeable future.
We do not anticipate paying cash dividends on our common shares in the
foreseeable future. We may not have enough funds to legally pay dividends. Even
if funds are legally available to pay dividends, we may nevertheless decide in
our sole discretion not to pay dividends.
Volatility in our common share price may subject us to securities litigation,
thereby diverting our resources that may have a material adverse effect on our
results of operations.
As discussed in the preceding risk factor, the market for our common shares is
characterized by significant price volatility when compared to seasoned issuers,
and we expect that our share price will continue to be more volatile than a
seasoned issuer for the indefinite future. In the past, plaintiffs have often
initiated securities class action litigation against a company following periods
of volatility in the market price of its securities. We may in the future be the
target of similar litigation. Securities litigation could result in substantial
costs and liabilities and could divert management's attention and resources.
12
We are subject to the certain anti-takeover provisions under Nevada law, which
could discourage or prevent a potential takeover of our company that might
otherwise result in you receiving a premium over the market price for your
common shares.
As a Nevada corporation, we are subject to certain provisions of the Nevada
Revised Statutes anti-takeover rules and may inhibit a non-negotiated merger or
other business combination. These provisions are intended to encourage any
person interested in acquiring us to negotiate with, and to obtain the approval
of, our Board of Directors in connection with such a transaction. However,
certain of these provisions may discourage a future acquisition of us, including
an acquisition in which the shareholders might otherwise receive a premium for
their shares. As a result, shareholders who might desire to participate in such
a transaction may not have the opportunity to do so.
The trading price of our common stock may decrease due to factors beyond our
control.
The stock market from time to time has experienced extreme price and volume
fluctuations, which have particularly affected the market prices for emerging
growth companies and which often have been unrelated to the operating
performance of the companies. These broad market fluctuations may adversely
affect the market price of our common stock. If our shareholders sell
substantial amounts of their common stock in the public market, the price of our
common stock could fall. These sales also might make it more difficult for us to
sell equity, or equity related securities, in the future at a price we deem
appropriate.
We will incur increased costs as a result of being a public company, which could
adversely affect our operating results.
As a public company, we will incur significant legal, accounting and other
expenses that we did not incur as a private company. In addition, the
Sarbanes-Oxley Act of 2002 and the new rules subsequently implemented by the
Securities and Exchange Commissions, the NASDAQ National Market and the Public
Company Accounting Oversight Board have imposed various new requirements on
public companies, including requiring changes in corporate governance practices.
We expect these rules and regulations to increase our legal and financial
compliance costs and to make some activities more time-consuming and costly. We
expect these new rules to add substantial costs, which could materially
adversely affect our results and operations.
Forward-Looking Statements
This prospectus includes forward-looking statements that involve risks and
uncertainties. These forward-looking statements include statements under the
captions "Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis or Plan of Operation, and elsewhere in this prospectus.
You should not rely on these forward-looking statements which apply only as of
the date of this prospectus. These statements refer to our future plans,
objectives, expectations and intentions. We use words such as "believe,"
"anticipate," "expect," "intend," "estimate" and similar expressions to identify
forward-looking statements. This prospectus also contains forward-looking
statements attributed to third parties relating to their estimates regarding the
growth of certain markets. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this prospectus.
Our actual results could differ materially from those discussed in these
forward-looking statements. Factors that could contribute to these differences
include those discussed in the preceding pages and elsewhere in this prospectus.
13
Risks associated with forward-looking statements.
This prospectus contains certain forward-looking statements regarding
management's plans and objectives for future operations, including plans and
objectives relating to our planned marketing efforts and future economic
performance. The forward-looking statements and associated risks set forth in
this prospectus include or relate to:
(1) Our ability to obtain a meaningful degree of consumer acceptance for
our products now and in the future,
(2) Our ability to market our products on a global basis at competitive
prices now and in the future,
(3) Our ability to maintain brand-name recognition for our products now
and in the future,
(4) Our ability to maintain an effective distributors network,
(5) Our success in forecasting demand for our products now and in the
future,
(6) Our ability to maintain pricing and thereby maintain adequate profit
margins,
(7) Our ability to achieve adequate intellectual property protection and
(8) Our ability to obtain and retain sufficient capital for future
operations.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement with the U.S. Securities and Exchange
Commission, or the SEC, on Form SB-2 (as Dairy Fresh Farms Inc, formally
Northwest Horizon Ltd.) under the Securities Act to register the shares of our
common stock being offered by this prospectus. This prospectus omits some
information contained in the registration statement and its exhibits, as
permitted by the rules and regulations of the SEC. For further information about
us and our securities, you should review the registration statement and its
exhibits, which may be inspected, without charge, at the SEC's public reference
facilities at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of all or
any portion of the registration statement may be obtained from the public
reference facilities of the SEC on payment of prescribed fees. Please call the
SEC at 1-800-SEC-0330 for further information regarding the public reference
facilities. The SEC maintains a website, http://www.sec.gov, that contains
reports, proxy statements and information statements and other information
regarding registrants that file electronically with the SEC, including the
registration statement.
Statements in this prospectus as to the contents of any contract or other
document referred to in this prospectus are not necessarily complete and, in
each instance, reference is made to the copy of that contract or other document
filed as an exhibit to the registration statement, each statement being
qualified in all respects by that reference.
We are subject to the informational and periodic reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance with the requirements of the Exchange Act, file periodic reports,
proxy statements, and other information with the SEC. These periodic reports,
proxy statements, and other information will be available for inspection and
copying at the regional offices, public reference facilities and Web site of the
SEC referred to above.
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 2005.
14
You should read this table in conjunction with our financial statements,
including the notes to our financial statements, which appear elsewhere in this
prospectus.
September 30, 2005
(Unaudited)
Stockholders' equity :
Common stock - $0.01 par value, 75,000,000 shares
authorized; 14,127,500 shares issued and outstanding $ 442,809
Additional paid-in capital 380,906
Accumulated comprehensive loss (114,167)
Accumulated deficit (1,799,267)
-----------
Total capitalization (1,089,719)
===========
USE OF PROCEEDS
We will not receive any proceeds from the sale of 13,220,792 shares of common
stock offered through this prospectus by the Selling Shareholders.
DETERMINATION OF OFFERING PRICE; MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Dairy Fresh's Common Stock recently began trading on the "pink sheets" under the
stock symbol DYFR.PK as of the fourth quarter of 2005. The high and low closing
bid information for our Common Stock is based on information received from
Bloomberg L.P., Pinksheets.com and Market Services, and a company market maker.
High Low
December 31, 2005 $0.78 $0.78
January 27, 2006 $0.75 $0.75
The quotations set forth above reflect inter-dealer prices, without retail
markup, markdown, or commission, and may not necessarily represent actual
transactions. The shares of common stock are being offered for sale by the
selling stockholders at prices established on the "pink sheets" or in negotiated
transactions during the term of this offering. These prices will fluctuate based
on the demand for the shares.
DIVIDENDS
We do not anticipate paying cash dividends on our common shares in the
foreseeable future. We may not have enough funds to legally pay dividends. Even
if funds are legally available to pay dividends, we may nevertheless decide in
our sole discretion not to pay dividends.
15
DILUTION
The common stock to be sold by the Selling Shareholders is common stock that is
currently issued and outstanding.
EQUITY COMPENSATION PLAN INFORMATION
The Company has not implemented a stock option based compensation plan at this
time. There are plans to introduce an option plan in the second quarter of 2006.
SELLING SHAREHOLDERS
The following table presents information regarding the Selling Shareholders.
Unless otherwise stated below, to our knowledge no Selling Shareholders nor any
affiliate of such shareholder has held any position or office with, been
employed by, or otherwise has had any material relationship with us or our
affiliates, during the three years prior to the date of this prospectus. None of
the Selling Shareholders are members of the National Association of Securities
Dealers, Inc. The Selling Shareholders may be deemed to be "underwriters" within
the meaning of the Securities Act of 1933. The number and percentage of shares
beneficially owned before and after the sales is determined in accordance with
Rule 13d-3 and 13d-5 of the Exchange Act, and the information is not necessarily
indicative of beneficial ownership for any other purpose. We believe that each
individual or entity named has sole investment and voting power with respect to
the securities indicated as beneficially owned by them, subject to community
property laws, where applicable, except where otherwise noted. The total number
of common shares sold under this prospectus may be adjusted to reflect
adjustments due to stock dividends, stock distributions, splits, combinations or
recapitalizations.
The Selling Shareholders named in this prospectus are offering all of the
13,220,792 shares of common stock offered through this prospectus. These shares
were acquired from us in a private placement that was exempt from registration
under Regulation D of the Securities Act of 1933. None of our Selling Share
holders are broker-dealers or have any affiliation with any broker dealers.
The following table provides information regarding the beneficial ownership of
our common stock held by each of the selling shareholders, including:
1. the number of shares owned by each prior to this offering;
2. the percentage owned prior to the offering;
3. the total number of shares that are to be offered for each;
4. the total number of shares that will be owned by each upon completion of the
offering; and
16
5. the percentage owned by each upon completion of the offering.
17
- -----------------------------------------------------------------------------------------------------
Shares of Percent of Shares of Shares of
common Common common common
Stock owned Stock owned Stock to be Stock owned
prior prior to sold under After
Name of selling stockholder to offering offering (1a) the Offering offering (2)
- -----------------------------------------------------------------------------------------------------
Robert C. Harrison Ltd.(3) 1,208,333 7.7% 1,208,333 *
- -------------------------------- ---------------- ------------- -------------- --------------
Trumpeter Development Ltd. 1,403,333 9.0% 1,403,333 *
(4)
- -------------------------------- ---------------- ------------- -------------- --------------
Harley Ltd. (5) 1,200,000 7.7% 1,200,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Fleur D'Eau Trust 1,208,333 7.7% 1,208,333 *
(6)
- -------------------------------- ---------------- ------------- -------------- --------------
NBCN Clearing Inc. in trust for 305,000 2.0% 305,000 *
Dr. Peter Morrice
- -------------------------------- ---------------- ------------- -------------- --------------
David Gelinas 112,500 * 112,500 *
- -------------------------------- ---------------- ------------- -------------- --------------
Cherrie Foster 112,500 * 112,500 *
- -------------------------------- ---------------- ------------- -------------- --------------
Tony Bond 132,500 * 132,500 *
- -------------------------------- ---------------- ------------- -------------- --------------
Tom Hogan 32,000 * 32,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Paul Hogan 40,000 * 40,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
1395165 Ontario Inc. (8) 32,000 * 32,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Lori Loeb "In Trust" 32,000 * 32,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Paul McTaggart 112,500 * 112,500 *
- -------------------------------- ---------------- ------------- -------------- --------------
1384702 Ontario Inc.(9) 193,636 1.2% 193,636 *
- -------------------------------- ---------------- ------------- -------------- --------------
Shawn Comiskey 120,000 * 120,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
John Horwitz 40,000 * 40,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Taras Zalusky 16,000 * 16,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
1362364 Ontario Inc.(10) 80,000 * 80,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Embrylin Investments Ltd. 213,031 1.3% 213,031 *
(11)
- -------------------------------- ---------------- ------------- -------------- --------------
Steve Tierney 8,000 * 8,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Dana Tierney 8,000 * 8,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Frank Tierney 8,000 * 8,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Doug Laughton 8,000 * 8,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Ian Stauffer 8,000 * 8,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Gundyco In Trust for 40,000 * 40,000 *
Nicolas Matossian
- -------------------------------- ---------------- ------------- -------------- --------------
Gundyco In Trust for 40,000 * 40,000 *
Don Paterson
- -------------------------------- ---------------- ------------- -------------- --------------
Alex Barta 20,000 * 20,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Dairy Technologies Inc. 2,416,666 15.5% 2,416,666 *
- -------------------------------- ---------------- ------------- -------------- --------------
Don Paterson "In Trust" 63,335 * 63,335 *
- -------------------------------- ---------------- ------------- -------------- --------------
Taki Gettas 10,000 * 10,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Michael Bradley 18,333 * 18,333 *
- -------------------------------- ---------------- ------------- -------------- --------------
Ian Morrice "In Trust" 8,000 * 8,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
18
Finkelstein Capital Inc. 150,000 1.0% 150,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Claude Veillette 120,000 * 120,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Andrew Barakett 150,000 1.0% 150,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Arthur Silber 40,000 * 40,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
141136 Canada Ltd. (13) 60,000 * 60,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Charles Alexander 30,000 * 30,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Marc Menard 8,200 * 8,200 *
- -------------------------------- ---------------- ------------- -------------- --------------
Gestion Steven Unsworth (14) 20,000 * 20,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
1441311 Ontario Inc. (15) 80,000 * 80,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Jane Green 100,000 * 100,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Massimiliano (Max) Fanutz 163,000 1.0% 163,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
John P. Comiskey 20,000 * 20,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Jeff Comiskey 8,150 * 8,150 *
- -------------------------------- ---------------- ------------- -------------- --------------
Sandy Comisy 28,150 * 28,150 *
- -------------------------------- ---------------- ------------- -------------- --------------
19
P. Tommarello 10,000 * 10,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Marbel Management Ltd. (16) 100,000 * 100,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
138613 Canada Inc. (17) 10,000 * 10,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Jacques Klein 40,000 * 40,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
George Geracimo 40,000 * 40,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Lloyd Cooper 40,000 * 40,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Palos Capital Pool L.P. (18) 50,000 * 50,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Jeffery N. Shapiro 20,000 * 20,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
DiGiovanni & Bruzzese Inc. (19) 20,000 * 20,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Dr. Voosman Investments (20) 50,000 * 50,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Shapco Management Inc. (21) 40,000 * 40,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Goal Investments Ltd. (22) 20,000 * 20,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Admintech Inc. (23) 40,000 * 40,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Xipe Holding Corp. (24) 50,000 * 50,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Robert Hughes 20,000 * 20,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Costa Thomas 20,000 * 20,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Burrard Capital Ltd. (25) 51,333 * 51,333 *
- -------------------------------- ---------------- ------------- -------------- --------------
Gestion CD LAM Inc. (26) 51,333 * 51,333 *
- -------------------------------- ---------------- ------------- -------------- --------------
Toyma Capital Inc. (27) 291,333 * 291,333 *
- -------------------------------- ---------------- ------------- -------------- --------------
Robert Villeneuve 21,000 * 21,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Claude Vaillette 80,000 * 80,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Alex Barta 5,993 * 5,993 *
- -------------------------------- ---------------- ------------- -------------- --------------
Eris Salvatori 49,500 * 49,500 *
- -------------------------------- ---------------- ------------- -------------- --------------
Maria Valais 28,800 * 28,800 *
- -------------------------------- ---------------- ------------- -------------- --------------
Finkelstein Capital (28) 750,000 4.8% 750,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Marie-France Giguere 6,625 * 6,625
Francis Mailhot's wife.
- -------------------------------- ---------------- ------------- -------------- --------------
Oliver Mailhot 6,625 * 6,625
- -------------------------------- ---------------- ------------- -------------- --------------
3516776 Canada Inc. (29) 86,000 * 86,000
- -------------------------------- ---------------- ------------- -------------- --------------
Eric Boyd 75,000 * 75,000
- -------------------------------- ---------------- ------------- -------------- --------------
Gestion CD LAM (30) 50,000 * 50,000
- -------------------------------- ---------------- ------------- -------------- --------------
Services Financiers 223,750 1.4% 223,750
Francis Mailhot Inc. (31)
- -------------------------------- ---------------- ------------- -------------- --------------
Peter Nikiforos 7,500 * 7,500
- -------------------------------- ---------------- ------------- -------------- --------------
Costa Thomas 7,500 * 7,500
- -------------------------------- ---------------- ------------- -------------- --------------
2964-2097 Qc Inc. (32) 50,000 * 50,000
- -------------------------------- ---------------- ------------- -------------- --------------
Rahn and Bodmer (33) 44,000 * 44,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
John Schwinghamer 10,000 * 10,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Bill Karson 200,000 1.3% 200,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
John Buchanan 80,000 * 80,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Albert Giordano 155,000 * 155,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
20
Kevin Higgins 75,000 * 75,000 *
- -------------------------------- ---------------- ------------- -------------- --------------
Joanna Cumberland 20,000 * 20,000 *
*less than 1%
(1) Based on 15,620,792 shares of common stock issued and outstanding as
of December22, 2005.
(2) Assumes the sale of all shares registered by each selling
shareholder.
(3) Robert C. Harrison Ltd. is controlled by Robert C. Harrison.
(4) Trumpeter Development Ltd. is controlled by Ian Morrice. (5) Harley
Ltd. is controlled by Donald Paterson.
(6) Fleur D'Eau Trust ATC Cayman Islands Trustees is controlled by
Nicolas Matossian.
(7) NBCN Clearing Inc. in trust for Dr. Peter Morrice is controlled by
Dr. Peter Morrice.
(8) 1395165 Ontario Inc. is controlled by Mr. Arthur Loeb.
(9) 1384702 Ontario Inc. is controlled by Mr. Scott Devries.
(10) 1362364 Ontario Inc. is controlled by Mr. Joseph Comiskey.
(11) Embrylin Investments Ltd. is controlled by Terry McLaughlin.
(12) Dairy Technologies Inc. is controlled by Richard Farrell and David
Hibbard.
(13) 141136 Canada Ltd is controlled by Eris Salvitori
(14) Gestion Steven Unsworth is controlled by Francis Hughes
(15) 1441311 Ontario Inc is controlled by Paul Green
(16) Marbel Management Ltd. is controlled by Dr. John Marc Vincent
(17) 138613 Canada Inc. is controlled by J. Mandel
(18) Palos Capital Pool L.P. is controlled by M. Haddad
(19) DiGiovanni and Bruzzese Inc. is controlled by P. Papointe
(20) Dr. Voosman Investments is controlled by G. Shapiro
(21) Shapco Management Inc. is controlled by G. Shapiro
(22) Goal Investments Ltd. is controlled by G. Shapiro
(23) Admintech Inc. is controlled by G. Shapiro
(24) Xipe Holdings Corp. is controlled by Robert Cavolet
(25) Burrard Capital Ltd. is controlled by Euro Catalysts Capital Markets
(26) Gestion CD LAM Inc. is controlled by Euro Catalysts Capital Markets
(27) Toyma Capital Inc. is controlled by Jean Francis Amyot.
(28) Finkelstein Capital is controlled by Jean Francis Amyot.
(29) 3516776 Canada Inc. is controlled by Fiducie Phaneuf-Lord
(30) Gestion CD LAM is controlled by Jean - Guy Lambert
(31) Services Financiers Francis Mailhot Inc. is controlled by Francis
Mailhot
(32) 2964-2097 Qc. Inc. is controlled by Gaetan Morin
(33) Rahn and Bodmer is controlled by Francis Mailhot.
The named party beneficially owns and has sole voting and investment power over
all shares or rights to these shares. The numbers in this table assume that none
of the selling shareholders sells shares of common stock not being offered in
this prospectus or purchases additional shares of common stock, and assumes that
all shares offered are sold.
None of the Selling Shareholders:
(a) has had a material relationship with us other than as a shareholder at
any time within the past three years; or
(b) has never been one of our officers or directors.
21
PLAN OF DISTRIBUTION
The Selling Shareholders may sell some or all of their common stock in one or
more transactions. As used in this prospectus, "Selling Shareholders" includes
the donees, transferees or others who may later hold the Selling Shareholder's
interests. The Selling Shareholders will act independently of us in making
decisions with respect to the timing, manner and size of each sale. The Selling
Shareholders may, from time to time, sell all or a portion of its shares of
common stock on the "pink sheets" or on any national securities exchange or
automated inter-dealer quotation system on which our common stock may be listed
or traded, in negotiated transactions or otherwise, at prices then prevailing or
related to the current market price or at negotiated prices. One or more
underwriters on a firm commitment or best efforts basis may sell the shares of
common stock directly or through brokers or dealers or in a distribution. The
methods by which the shares of common stock may be sold include:
o a block trade (which may involve crosses) in which the broker or
dealer engaged will attempt to sell the shares of common stock as
agent, but may position and resell a portion of the block, as
principal, to facilitate the transaction,
o purchases by a broker or dealer, as principal, and resale by such
broker or dealer for its account pursuant to this prospectus,
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers or through market makers,
o transactions in put or call options or other rights (whether
exchange-listed or otherwise) established after the effectiveness of
the registration statement of which this prospectus is a part, and
o privately-negotiated transactions.
In addition, any of the shares of common stock that qualify for sale pursuant to
Rule 144 promulgated under the Securities Act of 1933 may be sold in
transactions complying with that Rule, rather than pursuant to this prospectus.
For sales to or through broker-dealers, these broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Shareholders or the purchasers of the shares, or both. We have advised
the Selling Shareholders that the anti-manipulative provisions of Regulation M
under the Securities Exchange Act of 1934 may apply to its sales in the market
and have informed it that it must deliver copies of this prospectus. We are not
aware, as of the date of this prospectus, of any agreements between any Selling
Shareholders and broker-dealers with respect to the sale of the shares of common
stock.
Any broker-dealers or agents participating in the distribution of our shares may
be deemed to be "underwriters" within the meaning of the Securities Act of 1933,
and any commissions received by any broker-dealer or agent and profit on any
resale of shares of common stock may be deemed to be underwriting commissions
under the Securities Act of 1933. The commissions received by a broker-dealer or
agent may be in excess of customary compensation.
At a time a particular offer of shares is made by a Selling Shareholders, a
prospectus supplement, if required, will be distributed that sets forth the
names of any underwriters, dealers or agents and any discounts, commissions and
other terms constituting compensation from a Selling Shareholders and any other
required information.
22
In connection with distributions of a Selling Shareholder's shares, or
otherwise, the Selling Shareholders may enter into hedging transactions with
broker-dealers or others, prior to or after the effective time of the
arrangement. These broker-dealers may engage in short sales of shares or other
transactions in the course of hedging the positions assumed by them or
otherwise. A Selling Shareholders may also:
o enter into option or other transactions with broker-dealers or
others that may involve the delivery to those persons the shares,
and broker-dealers may resell those shares pursuant to this
prospectus, and
o pledge the shares to a broker-dealer or others and, upon a default,
these persons may effect sales of the shares pursuant to this
prospectus.
We have advised the Selling Shareholders that open positions in shares of common
stock covered by this prospectus prior to the registration statement, of which
this prospectus is a part, being declared effective by the U.S. Securities and
Exchange Commission may constitute a violation of Section 5 of the Securities
Act of 1933. Each of the Selling Shareholders advised us that it did not have an
open position in the common stock covered by this prospectus at the time of its
response to our inquiry.
In order to comply with securities laws of some states, if applicable, the
shares of our common stock may be sold only through registered or licensed
broker-dealers.
The Selling Shareholders will be subject to applicable provisions of the
Securities Exchange Act of 1934 and its rules and regulations, including without
limitation, Rule 102 under Regulation M. These provisions may limit the timing
of purchases and sales of our common stock by the Selling Shareholders. Rule 102
under Regulation M provides, with limited exceptions, that it is unlawful for a
Selling Shareholders or its affiliated purchaser to, directly or indirectly, bid
for or purchase or attempt to induce any person to bid for or purchase, for an
account in which the Selling Shareholders or affiliated purchaser has a
beneficial interest in any securities that are the subject of the distribution
during the applicable restricted period under Regulation M. All of the above may
affect the marketability of our common stock.
Because it is possible that a significant number of shares could be sold at the
same time under this prospectus, these sales, or that possibility, may have a
depressive effect on the market price of our common stock.
We will receive none of the proceeds from the sale of the shares of common stock
by the Selling Shareholders, except upon exercise of the outstanding common
stock purchase warrant.
We will pay all costs and expenses incurred in connection with the registration
under the Securities Act of 1933 of the shares of common stock offered by the
Selling Shareholders, including all registration and filing fees, listing fees,
printing expenses, and our legal and accounting fees. The Selling Shareholders
will pay all of their own brokerage fees and commissions, if any, incurred in
connection with the sale of its shares of common stock.
We cannot assure you, however, that the Selling Shareholders will sell all or
any of the shares of common stock they may offer. In order to comply with state
securities laws, if applicable, the securities will be sold only through
registered or licensed brokers or dealers. In various states, the securities may
not be sold unless the securities have been registered or qualified for sale in
such state or an exemption from registration or qualification is available and
is complied with. Under applicable rules and regulation of the Securities
Exchange Act of 1934, as amended, any person engaged in a distribution of the
securities may not simultaneously engage in market-making activities in these
prior to the commencement of such distribution
23
All of the foregoing may affect the marketability of the securities.
Pursuant to the various agreements we have with the Selling Shareholders, we
will pay all the fees and expenses incident to the registration of the
securities, other than the Selling Shareholders' pro rata share of the
underwriting discounts and commissions, if any, which are to be paid by the
Selling Shareholders.
Should any substantial change occur regarding the status or other matters
concerning the Selling Shareholders, we will file a Rule 424(b) prospectus
disclosing such matters.
PENNY STOCK RULES / SECTION 15(G) OF THE EXCHANGE ACT
Our shares are covered by Section 15(g) of the Securities Exchange Act of 1934,
as amended, and Rules 15g-1 through 15g-6 promulgated thereunder. They impose
additional sales practice requirements on broker/dealers who sell our securities
to persons other than established customers and accredited investors who are
generally institutions with assets in excess of $5,000,000, or individuals with
net worth in excess of $1,000,000 or annual income exceeding $200,000, or
$300,000 jointly with their spouses.
Rule 15g-1 exempts a number of specific transactions from the scope of the penny
stock rules. Rule 15g-2 declares unlawful broker/dealer transactions in penny
stocks unless the broker/dealer has first provided to the customer a
standardized disclosure document.
Rule 15g-3 provides that it is unlawful for a broker/dealer to engage in a penny
stock transaction unless the broker/dealer first discloses, and subsequently
confirms to the customer, current quotation prices or similar market information
concerning the penny stock in question.
Rule 15g-4 prohibits broker/dealers from completing penny stock transactions for
a customer unless the broker/dealer first discloses to the customer the amount
of compensation or other remuneration received as a result of the penny stock
transaction.
Rule 15g-5 requires that a broker/dealer executing a penny stock transaction,
other than one exempt under Rule 15g-1, disclose to its customer, at the time
of, or prior to, the transaction, information about the sales persons
compensation.
Rule 15g-6 requires broker/dealers selling penny stocks to provide their
customers with monthly account statements.
Rule 15g-9 requires broker/dealers to approve the transaction for the customer's
account; obtain a written agreement from the customer setting forth the identity
and quantity of the stock being purchased; obtain from the customer information
regarding his investment experience; make a determination that the investment is
suitable for the investor; deliver to the customer a written statement for the
basis for the suitability determination; notify the customer of his rights and
remedies in cases of fraud in penny stock transactions; and, contact the NASD's
toll free telephone number and the central number of the North American
Administrators Association for information on the disciplinary history of
broker/dealers and their associated persons.
The application of the penny stock rules may affect your ability to resell your
shares due to broker-dealer reluctance to undertake the above described
regulatory burdens.
LEGAL PROCEEDINGS
We are not a party to any pending material legal proceedings and are not aware
of any threatened or contemplated proceeding by any governmental authority
against us.
24
DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS
Our directors, executive officers and control persons their respective ages as
of January 26, 2006 are as follows:
Name Age Position
- ---- --- --------
Nicolas Matossian 63 Chairman of the Board of Directors
Robert C. Harrison 60 President , Chief Executive Officer, Director
Don Paterson 53 Chief Financial Officer, Director
Ian Morrice 47 Executive Vice President
Richard Farrell 43 Director
Business Experience
All of our directors serve until their successors are elected and qualified by
our shareholders, or until their earlier death, retirement, resignation or
removal. The following is a brief description of the business experience of our
executive officers, director and significant employees:
Nicolas Matossian, Chairman of the Board of Directors
Dr. Matossian became CEO of Dairy Fresh Technologies Ltd. on December 1, 2001.
His educational background includes a B.A. from McGill University, Montreal, a
M.B.A. from Harvard University, Boston and a Ph.D. from McGill University,
Montreal.
Dr. Matossian was a Professor of Economics, Faculty of Management at McGill
University in Montreal 1967-1970; Director of Operations Manitoba Development
Corporation 1970-1973; Managing Partner ERA Consulting Economics Inc.; Economic
and Business Consultant to the Federal Government (CDN) and to Major
Corporations and Financial Institutions 1973-1992. Senior Consultant and later
Chief Operating Officer Cedar Group Inc., publicly listed U.S. Holding
Corporation (sales of U.S. $600 million) and owner of Dominion Bridge Inc.
(Pipeline and Fabrication) Canada SteenBecker HVAC Contractors Canada / U.S.;
Unimetric Corporation Industrial Fasteners U.S. / France; McConnell Dowell
Corporation (66% owned) Engineering and Construction. Publicly listed Australian
Corp. Davie Shipbuilding-Ship and Platform Builders, Canada. During his tenure
as COO, Dr. Matossian was a Director of the parent and of each of the
subsidiaries.
Other accomplishments of Dr. Matossian include his position as City Councilor
for the City of Westmount (Montreal) since 1990. He was awarded Canada Council
Grant for Economic Research. Knighted to the Order of St. Maurice & Lazare
Dynastic Order of the Royal House of Savoy (Italy). He is Chairman of Fund N-77
for the Montreal Children's Hospital.
25
Robert C. Harrison, President and Chief Executive Officer and Director
Mr. Harrison became President and CEO of Dairy Fresh Technologies Ltd in
October 2002. His academic background is extensive, including Accounting,
Finance, Human Resources and Marketing from Sheridan College in Toronto,
Ontario; Strategic Planning, International Agri-Business from Harvard Business
School in Boston, Mass.
His skill summary includes expert sales contract negotiator, highly developed
leadership skills, complete understanding of the branding, licensing,
distribution and warehousing business in Canada and the United States.
From 1966-1990 at Neilson Dairy, a division of George Weston Limited, he rose to
Senior Vice President and General Manager of the Dairy Frozen Division (sales
$500 million), with over 700 employees both salaried and unionized remaining
strike-free under his stewardship. From 1991-1996 he was President and CEO of
Robert C. Harrison Food Brokers Inc. He created a unique food and non-food
brokerage business with a focus on food and mass-merchandising retailers
nationally and, excellent relationship development with Loblaws, A&P, Provigo,
Sobey's, Safeway and Loeb.
1997-2002 Mr. Harrison was President and CEO of Stoney Creek Ice Cream Delicious
Alternative Desserts Ltd. He revamped the manufacturing, warehousing and
distribution to make a world-class dairy manufacturing facility. He negotiated
licensing and trademark agreements with notable companies such as Cadbury
(frozen desserts), Movenpick Ice Cream (Switzerland), Ben & Jerry's Ice Cream
(Vermont, U.S.) and exclusive distribution agreement with Tropicana frozen
products.
Don Paterson, Chief Financial Officer, Director
Mr. Paterson was appointed CFO of Dairy Fresh Technologies Ltd. on December 1,
2001. His educational background includes B.Com from the University of Ottawa
1973-1977 and St. Francis Xavier University 1971-1972. Chartered Accountant
Designation Alberta Institute 1979 and Ontario Institute 1980. His career
includes controllership of Lumonics Inc., a publicly traded manufacturer of
laser equipment for medical and industrial applications with sales of $50
million and Vice President Finance of a national food service Company with sales
value in excess of $22 million. He is currently owner of Paterson & Company, an
Ottawa based public accounting firm servicing a variety of retail, construction
and service companies. As well, he is a management consultant, Immigration
Investment Program (Canada) (1991 to present). Mr. Paterson is a past Director
of the Ottawa Senators Hockey Club (NHL).
Ian Morrice, Executive Vice-President
Mr. Morrice was appointed Executive Vice President of Dairy Fresh Technologies
Ltd. on January 1, 2002. Prior to this he was Founder, Chairman and CEO of
Pritchard Morrice Inc., a private Company that specialized in Urban Scapes
(1982-1988). Mr. Morrice also founded Rare Earth Environmental (1991 to present)
and is past Director of Palladium Foods Inc. (Corel Centre) and Hard Rock the
Byward Market Inc. He is Co-Founder of the Ottawa Senators NHL Hockey Team. He
is currently a member of the Farmers Federation of Ontario 1998 to present. His
educational background includes B.A. Honours from Carleton University, Ottawa
1978-1982 in Urban Studies with postgraduate work in Demographics.
26
Richard Farrell, Bcomm, LLB, SIA, Director
Mr. Farrell, is one of the founding Shareholder of Dairy Fresh Technologies Ltd.
Prior to Dairy Technologies, He was an Investment Banker in Australia for 10
years with various advisory firms, including Ernst & Young Corporate Finance,
Deloitte Touche Corporate Finance and Beerworth & Partners (M&A). Mr. Farrel is
well experienced with mergers and acquisitions, capital raisings, commercial
law, licensing arrangements and corporate structuring.
Family Relationships
There are no family relationships between any two or more of our directors or
executive officers. There is no arrangement or understanding between any of our
directors or executive officers and any other person pursuant to which any
director or officer was or is to be selected as a director or officer, and there
is no arrangement, plan or understanding as to whether non-management
shareholders will exercise their voting rights to continue to elect the current
board of directors. There are also no arrangements, agreements or understandings
to our knowledge between non-management shareholders that may directly or
indirectly participate in or influence the management of our affairs.
Involvement in Certain Legal Proceedings
To the best of our knowledge, during the past five years, none of the following
occurred with respect to a present or former director or executive officer of
the Company: (1) any bankruptcy petition filed by or against any business of
which such person was a general partner or executive officer either at the time
of the bankruptcy or within two years prior to that time; (2) any conviction in
a criminal proceeding or being subject to a pending criminal proceeding
(excluding traffic violations and other minor offenses); (3) being subject to
any order, judgment or decree, not subsequently reversed, suspended or vacated,
of any court of any competent jurisdiction, permanently or temporarily
enjoining, barring, suspending or otherwise limiting his involvement in any type
of business, securities or banking activities; and (4) being found by a court of
competent jurisdiction (in a civil action), the Securities and Exchange
Commission or the commodities futures trading commission to have violated a
Federal or state securities or commodities law, and the judgment has not been
reversed, suspended or vacated.
27
Board Committees and Independence
All of the directors serve until the next annual meeting of common shareholders
and until their successors are elected and qualified by our common shareholders,
or until their earlier death, retirement, resignation or removal. Our Bylaws
authorized the Board of Directors to designate from among its members one or
more committees and alternate members thereof, as they deem desirable, each
consisting of one or more of the directors, with such powers and authority (to
the extent permitted by law and these Bylaws) as may be provided in such
resolution.
Our board of directors intends to establish two committees, specifically an
Audit Committee, and a Compensation Committee. The principal functions of the
Audit Committee are to recommend the annual appointment of the Company's
auditors concerning the scope of the audit and the results of their examination,
to review and approve any material accounting policy changes affecting the
Company's operating results and to review the Company's internal control
procedures. The principal functions of the Compensation Committee are to review
and recommend compensation and benefits for the executives of the Company.
The entire Board of Directors will perform the function of the Audit Committee
until we appoint directors to serve on the Audit Committee.
28
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth for the years ended December 31, 2005, 2004, and
2003 the compensation awarded to, paid to, or earned by, our Chief Executive
Officer and our four other most highly compensated executive officers whose
total compensation during the last fiscal year exceeded $100,000. No other
officer had compensation of $100,000 or more for 2005, 2004, and 2003.
Annual Compensation Long Term Compensation
------------------- ---------------------------------------------------------------------
Awards Payouts
------------------------------ ------------------------------------
`
Securities All
Underlying Other
Name and Principal Other Annual Restricted Options/ LTIP Compen-
Position Year Salary Bonus Compensation Stock Award (s) SARs (#) Payouts sation
- ---------------------- ------- ---------- ------ ------------ --------------- ------------ --------- -----------
Robert C. Harrison 2005 $100,000 -- -- -- -- -- --
Pre. And CEO*
2004 $95,500 --
2003 $46,500 --
Ian C. Morrice 2005 $100,000 -- -- -- -- -- --
Executive VP*
2004 $95,500
2003 $46,500
*Compensation is earned through management agreements with the Company.
Options/SAR Grants in Last Fiscal Year
None.
Employment Agreements
The management agreement for Robert C. Harrison is for a period of three years
and provides for an annual salary of $100,000 USD. In addition, Mr. Harrison
will receive standard benefits and any bonus as determined by our Board of
Directors. A new employment agreement is in front of the compensation committee
and will be ratified at the next board meeting. The effective date of this new
contract is January 1, 2006.
The management agreement for Ian C. Morrice is for a period of three years and
provides for an annual salary of $100,000 USD. In addition, Mr. Morrice Harrison
will receive standard benefits and any bonus as determined by our Board of
Directors. A new employment agreement is in front of the compensation committee
and will be ratified at the next board meeting. The effective date of this new
contract is January 1, 2006.
Aggregated Option Exercises and Fiscal Year-End Option Value Table
None.
29
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the common stock as of January 26, 2006, by (i) each person who is
known by the Company to own beneficially more than 5% of the any classes of
outstanding Stock, (ii) each director of the Company, (iii) each of the Chief
Executive Officers and the two (2) most highly compensated executive officers
who earned in excess of $100,000 for all services in all capacities
(collectively, the "Named Executive Officers") and (iv) all directors and
executive officers of the Company as a group.
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 and 13d-5 of the Exchange Act, and the information is
not necessarily indicative of beneficial ownership for any other purpose. We
believe that each individual or entity named has sole investment and voting
power with respect to the securities indicated as beneficially owned by them,
subject to community property laws, where applicable, except where otherwise
noted. Unless otherwise stated, the address of each person is 413 Churchill
Avenue N., Ottawa, Ontario, Canada K1Z 5C7.
--------------------------------------------------------- ------------------- ----------------------
Name of Shareholder Number of Shares Percentage
Owned
--------------------------------------------------------- ------------------- ----------------------
Dairy Technologies Inc. (1) 2,416,666 18.34%
--------------------------------------------------------- ------------------- ----------------------
Finkelstein Capital Inc. (2) 1,028,600 7.8%
--------------------------------------------------------- ------------------- ----------------------
Robert C. Harrison Ltd (3) 1,208,333 9.18%
--------------------------------------------------------- ------------------- ----------------------
Purple Cow Investments Inc. (4) 5,825,001 44.3%
--------------------------------------------------------- ------------------- ----------------------
Les Services Financiers Francis Mailhot (5) 236,250 1.7%
--------------------------------------------------------- ------------------- ----------------------
Total Shares Held by Directors, Officer, Control and or 3,220,972 81.39%
Affiliates
--------------------------------------------------------- ------------------- ----------------------
Total Shares Held by Public 2,400,000 18.61%
--------------------------------------------------------- ------------------- ----------------------
Total Shares Outstanding 15,620,972 100%
--------------------------------------------------------- ------------------- ----------------------
--------------------------------------------------------- ------------------- ----------------------
Warrants (6) 2,220,972
--------------------------------------------------------- ------------------- ----------------------
Options (7) 0
--------------------------------------------------------- ------------------- ----------------------
Total Shares Outstanding on a Fully Diluted Basis 17,841,944
--------------------------------------------------------- ------------------- ----------------------
(1) Dairy Technologies Inc. is owned and controlled by Richard Farrell
(50%) a Director of the Northwest Horizon Corp. and it is also owned
by David Hibbard (50%) who is an affiliate of Dairy Fresh Farms Inc.
Northwest Horizon Corp..
(2) Finkelstein Capital Inc. is controlled by Jean-Francois Amyot and
Francis Mailhot, a past Director of Dairy Fresh Farms Inc.
(3) Robert C. Harrison Ltd is a Company owned and controlled by Robert
C. Harrison, who is the President and CEO and a Director of Dairy
Fresh Farms Inc..
(4) Purple Cow Investments Inc. is a Company owned and controlled by
Nicolas Matossian (30%), Mr. Matossian is the Chairman of the Board
of Directors of Dairy Fresh Farms Inc., Ian Morrice (30%), Mr.
Morrice is the Executive Vice-President of Dairy Fresh Farms Inc.
and Don Paterson (30%) who is the Chief Financial Officer and (10%)
of Purple Cow Investment is owned by friends and family members of
the major shareholders.
(5) Les Services Financiers is controlled by Francis Mailhot, a former
director of Dairy Fresh Farms Inc.
(6) A total of 2,220,792 share purchase warrants where issued granted
the holder the option to purchase one share at USD $0.75 per share
and in the event all warrants are exercised a total of 2,220,792
shares will be issued, which will procure the Company with a total
proceed of USD $1,665,729.
(7) No options of Dairy Fresh Farms Inc. have been issued at the time of
the filing of this document. As of the date of this document there
is no option plan in place.
30
Changes in Control
We are not aware of any arrangements that may result in a change in control of
the Company.
DESCRIPTION OF SECURITIES
General
Our authorized capital stock consists of 75,000,000 shares of common stock, par
value $ .001.
Common Stock
The shares of our common stock presently outstanding, and any shares of our
common stock issues upon exercise of stock options and/or warrants, will be
fully paid and non-assessable. Each holder of common stock is entitled to one
vote for each share owned on all matters voted upon by shareholders, and a
majority vote is required for all actions to be taken by shareholders. In the
event we liquidate, dissolve or wind-up our operations, the holders of the
common stock are entitled to share equally and ratably in our assets, if any,
remaining after the payment of all our debts and liabilities and the liquidation
preference of any shares of preferred stock that may then be outstanding. The
common stock has no preemptive rights, no cumulative voting rights, and no
redemption, sinking fund, or conversion provisions. Since the holders of common
stock do not have cumulative voting rights, holders of more than 50% of the
outstanding shares can elect all of our Directors, and the holders of the
remaining shares by themselves cannot elect any Directors. Holders of common
stock are entitled to receive dividends, if and when declared by the Board of
Directors, out of funds legally available for such purpose, subject to the
dividend and liquidation rights of any preferred stock that may then be
outstanding.
Preferred Stock
None.
Dividend Policy
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain future earnings, if any, to finance the expansion of
our business. As a result, we do not anticipate paying any cash dividends in the
foreseeable future.
Options
The Company has no options issued.
Warrants:
The Company has 2,220,972 warrants issued.
As of January 26, 2006, outstanding warrants to acquire shares of the Company's
common stock are as follows:
Exercise Price Expiration Date Number of Shares Reserved
-------------- --------------- -------------------------
$0.75 2007 2,220,972
31
Amendment of our Bylaws
Our bylaws may be adopted, amended or repealed by the affirmative vote of
a majority of our outstanding shares. Subject to applicable law, our bylaws also
may be adopted, amended or repealed by our board of directors.
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES; ANTI-TAKEOVER, LIMITED LIABILITY AND INDEMNIFICATION PROVISIONS
Certificate of Incorporation and Bylaws. Pursuant to our amended certificate of
incorporation, our board of directors may issue additional shares of common or
preferred stock. Any additional issuance of common stock could have the effect
of impeding or discouraging the acquisition of control of us by means of a
merger, tender offer, proxy contest or otherwise, including a transaction in
which our stockholders would receive a premium over the market price for their
shares, and thereby protects the continuity of our management. Specifically, if
in the due exercise of its fiduciary obligations, the board of directors were to
determine that a takeover proposal was not in our best interest, shares could be
issued by the board of directors without stockholder approval in one or more
transactions that might prevent or render more difficult or costly the
completion of the takeover by:
o diluting the voting or other rights of the proposed acquirer or
insurgent stockholder group;
o putting a substantial voting block in institutional or other hands
that might undertake to support the incumbent board of directors; or
o effecting an acquisition that might complicate or preclude the
takeover.
The Nevada Revised Statutes Act (the "Nevada Act") permits a Nevada corporation
to indemnify a present or former director or officer of the corporation (and
certain other persons serving at the request of the corporation in related
capacities) for liabilities, including legal expenses, arising by reason of
service in such capacity if such person shall have acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and in any criminal proceeding if such person had no reasonable
cause to believe his conduct was unlawful. However, in the case of actions
brought by or in the right of the corporation, no indemnification may be made
with respect to any matter as to which such director or officer shall have been
adjudged liable, except in certain limited circumstances. Our Articles of
Incorporation provide that we shall indemnify directors and executive officers
to the fullest extent now or hereafter permitted by the Nevada Act. The
indemnification provided by the Nevada Act and our Articles of Incorporation is
not exclusive of any other rights to which a director or officer may be
entitled. The general effect of the foregoing provisions may be to reduce the
circumstances which an officer or director may be required to bear the economic
burden of the foregoing liabilities and expense.
We may also purchase and maintain insurance for the benefit of any director or
officer that may cover claims for which we could not indemnify such person.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to our directors, officers, and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange
32
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities is
asserted by one of our directors, officers, or controlling persons in connection
with the securities being registered, we will, unless in the opinion of our
legal counsel the matter has been settled by controlling precedent, submit the
question of whether such indemnification is against public policy to court of
appropriate jurisdiction. We will then be governed by the court's decision.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to our directors, officers, and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
In the event that a claim for indemnification against such liabilities is
asserted by one of our directors, officers, or controlling persons in connection
with the securities being registered, we will, unless in the opinion of our
legal counsel the matter has been settled by controlling precedent, submit the
question of whether such indemnification is against public policy to court of
appropriate jurisdiction. We will then be governed by the court's decision.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Related Party Transactions Within The Past Two Years. The following are
certain transactions or proposed transactions during the last two years to which
we were a party, or proposed to be a party, in which certain persons had a
direct or indirect material interest.
We have not entered into any material transactions with any director, executive
officer, and nominee for director, beneficial owner of five percent (5%) or more
of our common stock, or family members of such persons with an aggregate value
in excess of $60,000.
ORGANIZATION WITHIN LAST FIVE YEARS
Northwest Horizon Corporation was incorporated on February 5, 2003, in the State
of Nevada as a development stage Company.
Northwest Horizon Corporation was formed to establish a transportation broker
specializing in the long-haul trucking industry of Western Canada. A
transportation broker finds a trucking Company to facilitate the transportation
of both raw materials and finished products from a pick up location to a
specified destination point.
On January 18, 2005, the Management of the Company announced that they concluded
that the Company will not be unable to raise the necessary funds to operate the
current business and continue with the existing business model and plan.
Accordingly, management sought new opportunities that could be acquired via a
reverse merger transaction or alternative business opportunities with the intent
to assure that the Company becomes a viable going concern.
On February 2, 2005, the Company executed a letter of intent whereby Northwest
Horizon proposed to exchange shares of Northwest Horizon Corporation for one
hundred percent (100%) of the outstanding shares of Dairy Fresh Technologies
Ltd. ("DFTL"), a federally chartered Canadian corporation.
33
On February 28, 2005, we completed the acquisition of Dairy Fresh
Technologies Ltd., a Canadian Company, pursuant to an Agreement and Plan of
Merger. At the effective time of the merger, September 1, 2003, Dairy Fresh
Technologies Ltd. was be merged with and into our wholly owned subsidiary,
6351492 CANADA INC., a Canadian corporation. We then changed our name to Dairy
Fresh Farms Inc.
DESCRIPTION OF BUSINESS
Dairy Fresh Farms is in the business of selling its patented and branded New
Generation Dairy products to the Canadian Market Place. We have completed our
Beta Stage market launch in Western Canada within 205 Safeway Stores. The
product was first introduced on January 15th, 2005 with the introduction of in
store demonstrations and taste testing, coupon promotion trade advertisement and
radio ads we have achieved sales in excess of our business models forecasts. Our
goal is to introduce 2 more carton sizes (SKU's) in Western Canada in 2006 to
broaden the choices for consumers.
The next steps will involve the distribution of the liquid milk product to the
wider market place. We are aiming to roll this out to the remaining major
distributors in Western Canada first then move into the larger markets in
Eastern Canada starting after the second quarter of 2006.
The timing and speed of this roll out is directly linked to the timely financing
of our company so that we can properly fund our business plan.
"Dairy Fresh Farms(TM)" is a patented technology that produces
monounsaturated-enhanced dairy products. This breakthrough technology transforms
low fat dairy products into creamy great tasting healthy products.
The US Government's NCEP Guidelines (May 15, 2001) recommended that up to 80% of
total caloric intake through fat be consumed as monounsaturated fats to lower
serum cholesterol.
"Canola has a very low level of saturated fatty acids, a high level of
monounsaturated fatty acids and the essential Omega-3s. Adding canola oil to
skim milk adds these nutritional components, along with Vitamin E and K, without
compromising the taste. Canola would also complement the `mouth feel' of a much
higher fat level milk product without adding cholesterol to the drinker's diet."
(Alberta Canola Producers Commission) "31%, or 90 million people, in North
America have lactose maldigestion". (Journal of the American College of
Nutrition Vol. 20, No. 2, 198S-207S, 2001) "Dairy Fresh .Farms(TM)" meets this
market demand.
"Dairy Fresh Farms(TM)" is Trans Fat Free - "Like saturated fat (the kind mainly
found in dairy products and meat and poultry), trans fat has been shown to boost
levels of the artery-clogging LDL- cholesterol or `bad' cholesterol. And to make
matters worse, trans fat also lowers the amount of the protective
HDL-cholesterol (the `good' cholesterol) in the blood - a double whammy that
makes foods high in trans fat much more of a threat to heart health than those
previously avoided by the cholesterol-conscious." (Rosie Schwartz, dietitian,
Jan. 2004, Ottawa Citizen)
34
The following product extensions are also possible with additional development:
monounsaturated-enhanced Ice Cream, Soft-Serve, Frozen Desserts, Cultured
Products, Cottage Cheeses, Coffee Creamers, Spreads, Sour Creams, Cream Cheeses,
Dips, weight loss drinks and Organics. These additional products will be
developed once we have created a bridgehead with the Liquid Milk into the
market. Our goal is to concentrate our efforts and focus on one product at a
time so as to not stray from the business model. These additional product
extensions are suggested purely as examples of the total size of food basket we
are aiming at.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with, and is qualified in
its entirety by, our financial statements and the notes thereto and other
financial information included elsewhere in this Annual Report on Form 10-KSB.
This Annual Report, including the following Management's Discussion and
Analysis, and other reports filed by the Registrant from time to time with the
Securities and Exchange Commission (collectively the "Filings") contain
forward-looking statements which are intended to convey our expectations or
predictions regarding the occurrence of possible future events or the existence
of trends and factors that may impact our future plans and operating results.
These forward-looking statements are derived, in part, from various assumptions
and analyses we have made in the context of our current business plan and
information currently available to us and in light of our experience and
perceptions of historical trends, current conditions and expected future
developments and other factors we believe to be appropriate in the
circumstances. You can generally identify forward-looking statements through
words and phrases such as "seek", "anticipate", "believe", "estimate", "expect",
"intend", "plan", "budget", "project", "may be", "may continue", "may likely
result", and similar expressions. When reading any forward-looking statement you
should remain mindful that all forward-looking statements are inherently
uncertain as they are based on current expectations and assumptions concerning
future events or future performance of our company, and are subject to risks,
uncertainties, assumptions and other factors relating to our industry and
results of operations.
Should one or more of these risks or uncertainties materialize, or should the
underlying assumptions prove incorrect, actual results may differ significantly
from those anticipated, believed, estimated, expected, intended or planned.
Each forward-looking statement should be read in context with, and with an
understanding of, the various other disclosures concerning our company and our
business made in our Filings. You should not place undue reliance on any
forward-looking statement as a prediction of actual results or developments. We
are not obligated to update or revise any forward-looking statement contained in
this report to reflect new events or circumstances unless and to the extent
required by applicable law.
Company's Overview
Dairy Fresh 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 has launched 2
litre regular milk and a 1 litre lactose free product with Canada Safeway stores
in Western Canada.
35
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.
Our products are produced under a co-packing agreement with Lucerne's Dairy [a
division of Safeways] in Western Canada.
Critical accounting policies and estimates
Our discussion and analysis of our financial condition and results of operations
are based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of financial statements in accordance with generally accepted
accounting principles in the United States 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 consolidated financial statements
included in the Form 10QSB, we believe that the following accounting policies
require the application of significant judgments and estimates.
Revenue recognition
The Company has entered into a co-packing agreement with a supplier. Under the
terms of this agreement, the supplier manufactures the dairy products per the
specifications and instructions of the Company and ships directly to the
retailer. The supplier invoices and collects directly from the retailer. The
supplier subtracts its manufacturing cost and markup, as well as freight and
submits the net amount to the Company..
The Company records the 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 is not the primary obligor in the arrangement, as it relies
on the supplier to provide the goods. Also, the Company has limited liability to
assume risk of non-payment by its retailers.
The Company also records its revenue 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 recognizes revenue when the product is shipped from the supplier.
Stock based compensation
The Company has not implemented a stock option based compensation plan at this
time. There are plans to introduce an option plan in the second quarter of 2006.
In December 2004, the FASB issued a revision of SFAS 123 ("SFAS 123(R)") that
will require compensation costs related to share-based payment transactions to
be recognized in the statement of operations. With limited exceptions, the
amount of compensation cost will be measured based on the grant-date fair value
of the equity or liability instruments issued. In addition, liability awards
will be remeasured each reporting period. Compensation cost will be recognized
over the period that an employee provides service in exchange for the award.
SFAS 123(R) replaces SFAS 123 and is effective for the company as of January 1,
2006. We expect that the adoption of SFAS 123(R) may have a material impact to
the financial statements.
36
Plan of operation
The plan of operations for the Company was developed over a two 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 the
Sydney Australia market but with both distance 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 both Vancouver, British Columbia and
Montreal, Quebec. The results from the study where published in December 2003
with resulting findings focusing our operations on several very important areas.
Firstly, 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.
Secondly, 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.
Our cash flow projections plan for an equity financing of $5.0 million USD
during the second quarter of 2006, together with sales from our initial product
launch across the country. However, if our sales do not meet our projections or
our expenses exceed our expectations, then we may need to raise additional funds
through additional public or private offerings of our securities. 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.
We intend to focus our sales and marketing efforts over the next 12 months
primarily on expanding our distribution and retail share in the rest of the
Canadian market place.
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
37
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.
Quarter ended September 30, 2005
compared to the quarter ended September 30, 2004
and the quarter ended June 30, 2005
Revenue
The Company's two-litre regular milk product was listed with 134 Canada Safeway
stores and the one litre lactose free product was listed with all 204 Safeway
stores on January 12, 2005. These stores are all located in the western
provinces. Net sales for the period ended September 30, 2005 were $44,900 on
129,422 litres or $161,778 gross manufacturing sales.[June 30,2005 were $34,077
on 97,363 litres or $121,703 gross manufacturing sales]. There were no
comparative sales figures for the period ended September 30, 2004. Sales
increased 32% during the quarter ended September 30, 2005 over the previous
quarter. Safeway had an exclusive sales period until March 7th, 2005. The
Company is currently negotiating with a number of retailers and distributors in
western Canada for the listing of the Company's two products during the next
couple of months.
Operating Costs
Advertising and product support
With the launch of the companies initial two products there was a marketing
program established to support sales. The majority of the focus was on in-store
demos. There were approximately 300 in-store demos with over 100,000 samples
during this quarter compared to 400 demos and 125,000 samples in the previous
period.
In addition there were advertisements in Safeway flyers, a radio campaign and
distribution of coupons offering price savings. The Company expensed $258,217
for the quarter ended September 30, 2005 compared to $214,930 for the previous
quarter. This increase was due to a radio campaign in Vancouver and surrounding
area and a decrease in in-store demos.
Investor relations
The Company entered into a contract with ROI Group Associates Inc. of New York
to provide investor relations services and public relations with the investment
community. This contract started on June 1st of 2005. The Company expensed
$56,293 during the quarter ended September 30, 2005 compared to $23,777 in the
quarter ended June 30, 2005.
38
Management fees
Management fees remained the same as the previous period with no changes to the
management structure.
Professional fees
Professional fees have increased due to the share exchange and the reverse take
over transaction. Audit and legal requirements for the Securities and Exchange
Commission regulatory filings were new for the Company.
Travel
With the launch of the Company products in western Canada there was increased
travel activity by management for all aspects of Company operations. Travel
costs were consistent at $28,311 for the quarter compared to $28,321 for the
previous quarter.
Off-Balance Sheet Arrangements
The Company did not engage in any off-balance sheet arrangements during the
quarter.
Liquidity and Capital Resources
At September 30, 2005, we had a deficit accumulated of approximately $1,800,000
and we expect to incur additional losses in the short term at least until such
time, if ever, that we manufacture and market our products profitably. We have
financed our operations since inception primarily through the private placements
of equity and debt securities. From our inception through September 30, 2005, we
have received net proceeds of approximately $930,000 from private sales of our
convertible debentures. We have also been able to manage our cash flow through
the deferral of management contracts payable.
At September 30, 2005 we had approximately $42,000 in cash. Net cash used in
operating activities was approximately $75,000 for the quarter ended September
30, 2005 compared to approximately $450,000 for the quarter ended June 30, 2005
and $35,000 for the quarter ended September30, 2004. The decrease in net cash
used in operations during the quarter was primarily due to a deferral of current
liabilities.
Net cash provided by financing activities was approximately $122,000 for the
fiscal quarter ending September 30, 2005 compared to approximately $360,000 for
the quarter ending September 30, 2005. The net cash provided by financing
activities in the quarter ended September 30, 2005 was primarily due to the net
proceeds of approximately $122,000 raised in private sales of convertible debt
securities.
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.
39
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 notes in the unaudited financial statements at and for the quarter ended
September 30, 2005, contain an explanatory paragraph raising substantial doubt
of the Company's ability to continue as a going concern and describe the
conditions which raise this doubt and management's plans.
DESCRIPTION OF PROPERTY
The lease of office space ended on September 30th 2005 we are now on a month to
month lease with the landlord while we negotiate a new lease. Our lease is
currently based on $18,000 per year pro-rated per month. Management anticipates
that future lease payments will be budgeted approximately as follows:
Year ended December 31,
2005 $18,000_
2006 $20,000 Budgeted
2007 $22,000 Budgeted
2008 $24,200 Budgeted
2009 $26,600 Budgeted
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as described below, none of the following parties has, since our date of
incorporation, had any material interest, direct or indirect, in any transaction
with us or in any presently proposed transaction that has or will materially
affect us:
o Any of our directors or officers;
o Any person proposed as a nominee for election as a director;
o Any person who beneficially owns, directly or indirectly, shares
carrying more than 10% of the voting rights attached to our
outstanding shares of common stock;
o Any of our promoters;
o Any relative or spouse of any of the foregoing persons who has the
same house address as such person.
40
The Company entered into the following related party transactions during the
nine months ending September 2005. These transactions were concluded in the
normal course of operations at the exchange amount, which is the amount
established and accepted by the parties.
9 months 12 months
unaudited unaudited
2005 2004
$ $
Expenses
Management fees (a) 301,081 84,774
Amounts due to and due from related parties
Amount due from a Company under common control (b) 1,624 4,079
(a) During the periods ended September 30, 2005 and September 30, 2004, the
Company paid for management services to three companies controlled by officers
of the Company. Of the above amounts, $376,895 is payable as at September 30,
2005 and $257,561 is payable as at December 31, 2004.
(b) The Company paid legal expenses for a Company under common control during
the year ended December 31, 2003 resulting in the above amount receivable from a
Company under common control.
Stockholders of Our Common Shares
As of January 27, 2006, we have 136 registered shareholders.
Rule 144 Shares
Apart from the founder's shares, most of our common stock will be available for
resale to the public in accordance with the volume and trading limitations of
Rule 144 of the Securities Act of 1933, as amended. In general, under Rule 144
as currently in effect, a person who has beneficially owned shares of a
company's common stock for at least one year is entitled to sell within any
three month period a number of shares that does not exceed the greater of:
1. 1% of the number of shares of the company's common stock then outstanding
which, in our case, will equal approximately 150,000 shares of common stock as
of January 26, 2006; or
2. the average weekly trading volume of the company's common stock during the
four calendar weeks preceding the filing of a notice on Form 144 with respect to
the sale.
Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about our
company.
41
Under Rule 144(k), a person who is not one of our company's affiliates at any
time during the three months preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, is entitled to sell
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Stock Option Grants
None.
Registration Rights
We have not granted registration rights to the Selling Shareholders or to any
other persons.
FINANCIAL STATEMENTS
The financial statements required by this Item, the accompanying notes thereto
and the reports of independent accountants are included as part of this Form
SB-2 immediately following the signature page.
42
Interests of Named Experts and Counsel
None of the experts named herein was or is a promoter, underwriter, voting
trustee, director, officer or employee of our company. Further, none of the
experts was hired on a contingent basis and none of the experts named herein
will receive a direct or indirect interest in our company.
Legal Matters
The validity of the common stock offered hereby will be passed upon for us by
our independent legal counsel, Joseph I. Emas, Esq., 1224 Washington Avenue,
Miami Beach, Florida.
Independent Registered Public Accounting Firm
The financial statements of Dairy Fresh Technologies Ltd. as of December 31,
2004 and December 31, 2003 have been audited by Raymond Chabot Grant Thornton
LLP, an independent Registered Public Accounting Firm, as set forth in their
report included herein. The financial statements referred to above are included
in reliance on the report of such firm given on their authority as experts in
accounting and auditing.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
We have had no disagreements on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures with
any of our accountants for the year ended December 31, 2004. Effective April 4,
2005, we declined to renew the engagement of Amisano Hanson as the independent
registered public accounting firm engaged to audit the financial statements of
the Registrant and engaged Raymond Chabot Grant Thornton LLP as its new
independent. We have had no disagreements on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedures
with any of our accountants for the year ended December 31, 2003. We have not
had any other changes in nor have we had any disagreements, whether or not
resolved, with our accountants on accounting and financial disclosures during
our two recent fiscal years or any later interim period.
ADDITIONAL INFORMATION
Currently, we are not required to deliver our annual report to security holders.
However, we will voluntarily send an annual report, including audited financial
statements, to any shareholder that requests it. We are subject to the
information requirements of the Securities Exchange Act of 1934 and in
accordance therewith will file reports, proxy statements and other information
with the Commission and provide shareholders with the information required under
the Securities Act of 1934.
We are filing this registration statement on form SB-2 under the Securities Act
of 1933, as amended, with the Securities and Exchange Commission with respect to
the shares of our common stock offered through this prospectus. This prospectus
is filed as a part of that registration statement and does not contain all of
the information contained in the registration statement and exhibits. Statements
made in this registration statement are summaries of the material terms of the
referenced contracts, agreements or documents of Dairy Fresh Farms Inc. and are
not necessarily complete. We refer you to our registration statement and each
exhibit attached to it for a more detailed description of matters involving
Dairy Fresh Farms Inc., and the statements we have made in this prospectus are
qualified in their entirety by reference to these additional materials.
43
You may inspect the registration statement, exhibits and schedules filed with
the Securities and Exchange Commission at the Commission's principal office in
Washington, D.C. Copies of all or any part of the registration statement may be
obtained from the Public Reference Room of the Securities and Exchange
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549: l-800-SEC-0330.
Please call the Commission at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. The Securities and Exchange Commission
also maintains a web site at http://www.sec.gov that contains reports, proxy
statements and information regarding registrants that file electronically with
the Commission.
44
We have not authorized any dealer, salesperson or other person to provide any
information or make any representations about Computer Software Innovations,
Inc. except the information or representations contained in this prospectus. You
should not rely on any additional information or representations if made.
You should rely only on the information contained in this prospectus. This
prospectus does not constitute an offer to sell or a solicitation of an offer
buy any securities:
o except the common stock offered by this prospectus;
o in any jurisdiction in which the offer or solicitation is not
authorized;
o in any jurisdiction where the dealer or other salesperson is not
qualified to make the offer or solicitation;
o to any person to whom is it unlawful to make the offer or
solicitation; or
o to any person who is not a United States resident or who is outside
the jurisdiction of the United States.
Dealer Prospectus Delivery Obligation
Until , all dealers that effect transactions in these securities, whether or not
participating in this offering, must be required to deliver a prospectus. This
is in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters.
Prospectus
13,220,792 Shares of Common Stock
DAIRY FRESH FARMS INC.
January 27, 2006
45
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
Anti-Takeover, Limited Liability and Indemnification Provisions
Our officers and directors are indemnified as provided by the Nevada Revised
Statutes (the "NRS") and our bylaws.
Under the NRS, director immunity from liability to a company or its shareholders
for monetary liabilities applies automatically unless it is specifically limited
by a company's articles of incorporation that is not the case with our articles
of incorporation. Excepted from that immunity are:
(1) a willful failure to deal fairly with the company or its
shareholders in connection with a matter in which the director has a
material conflict of interest;
(2) a violation of criminal law (unless the director had reasonable
cause to believe that his or her conduct was lawful or no reasonable
cause to believe that his or her conduct was unlawful);
(3) a transaction from which the director derived an improper personal
profit; and
(4) willful misconduct.
Our bylaws provide that we will indemnify our directors and officers to the
fullest extent not prohibited by Nevada law; provided, however, that we may
modify the extent of such indemnification by individual contracts with our
directors and officers; and, provided, further, that we shall not be required to
indemnify any director or officer in connection with any proceeding (or part
thereof) initiated by such person unless:
(1) such indemnification is expressly required to be made by law;
(2) the proceeding was authorized by our Board of Directors;
(3) such indemnification is provided by us, in our sole discretion,
pursuant to the powers vested us under Nevada law; or
(4) such indemnification is required to be made pursuant to the bylaws.
Our bylaws provide that we will advance all expenses incurred to any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was our director or
officer, or is or was serving at our request as a director or executive officer
of another company, partnership, joint venture, trust or other enterprise, prior
to the final disposition of
46
the proceeding, promptly following request. This advanced of expenses is to be
made upon receipt of an undertaking by or on behalf of such person to repay said
amounts should it be ultimately determined that the person was not entitled to
be indemnified under our bylaws or otherwise.
Our bylaws also provide that no advance shall be made by us to any officer in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, if a determination is reasonably and promptly made: (a) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to the proceeding; or (b) if such quorum is not obtainable, or,
even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, that the facts known to the
decision- making party at the time such determination is made demonstrate
clearly and convincingly that such person acted in bad faith or in a manner that
such person did not believe to be in or not opposed to our best interests.
Other Expenses of Issuance and Distribution
The following statement sets forth the estimated expenses in connection with the
offering described in the Registration Statement.
Securities and Exchange Commission Fee....................... $ 1,104
Accountants' Fees and Expenses...............................
Legal Fees and Expenses......................................
Blue Sky Fees and Expenses...................................
Printing and Mailing Costs
Miscellaneous................................................
--------
TOTAL $
========
To be calculated in the final prospectus.
Sales of Unregistered Securities.
As of September 20, 2005, we completed a Securities Purchase Agreement with
accredited investors for the sale of $930,000 of our convertible debentures. The
convertible debentures were converted to shares of our common stock at one share
of common stock for each $1.00 in debentures. The offer and sale of such
securities were effected in reliance on the exemptions for sales of securities
not involving a public offering, as set forth in Rule 506 promulgated under the
Securities Act and in Section 4(2) of the Securities Act, based on the
following: (a) the investors confirmed to us that they were "accredited
investors," as defined in Rule 501 of Regulation D promulgated under the
Securities Act and had such background, education and experience in financial
and business matters as to be able to evaluate the merits and risks of an
investment in the securities; (b) there was no public offering or general
solicitation with respect to the offering; (c) the investors were provided with
certain disclosure materials and all other information
47
requested with respect to our company; (d) the investors acknowledged that all
securities being purchased were "restricted securities" for purposes of the
Securities Act, and agreed to transfer such securities only in a transaction
registered under the Securities Act or exempt from registration under the
Securities Act; and (e) a legend was placed on the certificates representing
each such security stating that it was restricted and could only be transferred
if subsequent registered under the Securities Act or transferred in a
transaction exempt from registration under the Securities Act. For non-United
States entities, we completed the offering pursuant to Rule 903 of Regulation S
(i.e., Category 3) of the Securities Act. Each purchaser represented to us in
the subscription agreement that he was a non-U.S. person as defined in
Regulation S. We did not engage in a distribution of this offering in the United
States. Each purchaser represented his intention to acquire the securities for
investment only and not with a view toward distribution. Each purchaser
represented to us that he will resell such securities only in accordance with
the provisions of Regulation S which prohibit sales to or for the benefit of a
U.S. person, pursuant to registration under the Act, or pursuant to an available
exemption from registration and agrees not to engage in hedging transactions
with regard to such securities unless in compliance with the Act. Appropriate
legends were affixed to the stock certificate issued to each purchaser in
accordance with Regulation S which, among other things, precludes transfers
except as provided above. Each purchaser was given adequate access to sufficient
information about us to make an informed investment decision. None of the
securities were sold through an underwriter and accordingly, there were no
underwriting discounts or commissions involved. Each subscription agreement
precluded transfer except under the above conditions. No registration rights
were granted to any of the purchasers.
We did not utilize an underwriter for any of the foregoing.
48
Exhibit
Number Description
3.1 Articles of Incorporation (incorporated by reference from
Registration Statement on Form SB-2 filed with the Securities and
Exchange Commission on December 23, 2003).
3.2 Bylaws (incorporated by reference from Registration Statement on
Form SB-2 filed with the Securities and Exchange Commission on
December 23, 2003).
5.1 Legal opinion of Joseph I. Emas, Attorney At Law with consent to use
(1)
23.1 Consent of Accountants (1)
23.2 Consent of Joseph I. Emas (included in Exhibit 5.1) (1)
(1) Filed herewith.
49
Undertakings
The undersigned registrant hereby undertakes:
(a) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 14 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(b) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(2) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(3) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually, or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement; notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement; and
(4) To include any material information with respect to the plan of
distribution not previously disclosed inthe Registration Statement or any
material change to such information in the Registration Statement
(i) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to
be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof; and
(ii) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the Offering.
50
(c) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
51
Signatures
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the 27th day of
January, 2006.
/s/ Robert C. Harrison
----------------------
By: Robert C. Harrison
President, CEO, Director
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
Signatures Title Date
/s/ Robert C. Harrison
- -----------------------
Robert C. Harrison President, Chief Executive Officer, January 27, 2006
Director
/s/ Nicolas Matossian
- -----------------------
Nicolas Matossian Chairman of the Board of Directors January 27, 2006
/s/ Don Paterson
- ----------------------- Chief Financial Officer, Director January 27, 2006
Don Paterson
/s/ Richard Farrell
- -----------------------
Richard Farrell Director January 27, 2006
52
DAIRY FRESH TECHNOLOGIES LTD.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
DECEMBER 31, 2004
Report of Independent Registered Public Accounting
Firm 2
Financial Statements
Operations 3
Deficit 4
Accumulated comprehensive loss 4
Cash Flows 5
Balance Sheet 6
Notes to Financial Statements 7 - 12
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of
Dairy Fresh Technologies Ltd. (A Development Stage Company)
We have audited the balance sheets of Dairy Fresh Technologies Ltd. (A
Development Stage Company) as at December 31, 2004 and 2003 and the statements
of operations, deficit, comprehensive loss and cash flows for the years ended
December 31, 2004 and 2003 and the period from inception (May 14, 2002) through
December 31, 2004. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purposes of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dairy Fresh Technologies Ltd as
at December 31, 2004 and 2003 and the results of its operations and its cash
flows for the years ended December 31, 2004 and 2003 and the period from
inception (May 14, 2002) through December 31, 2004 in conformity with generally
accepted accounting principles in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2, the Company
incurred a net loss of $331,329 during the year ended December 31, 2004, and, as
of that date, the Company's current liabilities exceeded its current assets by
$321,808. These factors, among others, as discussed in Note 2 to the financial
statements, raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Raymond Chabot Grant Thornton LLP
Chartered Accountants
Ottawa, Canada
February 21, 2005 except as to Note 13 which is as of March 3, 2005
2
DAIRY FRESH TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY)
OPERATIONS
Year ended December 31,
Expressed in U.S. Dollars
PERIOD FROM
INCEPTION
(MAY 14, 2002)
TO DECEMBER
31, 2004 2004 2003
--------- --------- ---------
$ $ $
--------- --------- ---------
REVENUES
Operating expenses
Rent 12,502 6,482 6,020
Travel 62,231 46,095 15,283
Research and development 60,805 60,805
Advertising 30,259 26,153 4,106
Management fees 284,782 191,126 93,656
Office 9,156 6,571 1,939
Telecommunications 18,203 12,284 5,673
Membership fees 2,105 785 1,049
Professional fees 51,838 39,462 6,018
Interest and bank charges 683 482 163
Depreciation of property and
equipment 3,073 1,889 1,084
--------- --------- ---------
535,637 331,329 195,796
--------- --------- ---------
NET LOSS (535,637) (331,329) (195,796)
========= ========= =========
The accompanying notes are an integral part of these financial statements.
3
DAIRY FRESH TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY)
DEFICIT
COMPREHENSIVE LOSS
Year ended December 31,
Expressed in U.S. Dollars
2004 2003
--------- ---------
$ $
CAPITAL STOCK
5,000,000 Class A common shares 65 65
========= =========
CONTRIBUTED SURPLUS
Balance, beginning of year - -
Additions 282,406 -
--------- ---------
Balance, end of year 282,406 -
========= =========
ACCUMULATED COMPREHENSIVE INCOME (LOSS)
Balance, beginning of year (18,332) 48
Foreign currency translation adjustments (43,370) (18,380)
--------- ---------
Balance, end of year (61,702) (18,332)
========= =========
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE
Balance, beginning of year (204,308) (8,512)
Net loss (331,329) (195,796)
--------- ---------
Balance, end of year (535,637) (204,308)
========= =========
Total shareholders' deficit (314,868) (222,575)
========= =========
COMPREHENSIVE LOSS
Foreign currency translation adjustments (43,370) (18,380)
Net loss (331,329) (195,796)
--------- ---------
Total comprehensive loss (374,699) (214,176)
========= =========
The accompanying notes are an integral part of these financial statements.
4
DAIRY FRESH TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY)
CASH FLOWS
Year ended December 31,
Expressed in U.S. Dollars
PERIOD FROM
INCEPTION
(MAY 14, 2002)
TO DECEMBER 31,
2004 2004 2003
--------- --------- ---------
$ $ $
OPERATING ACTIVITIES
Net loss (535,637) (331,329) (195,796)
Non-cash items
Depreciation of property and equipment 3,073 1,889 1,084
Changes in working capital items (Note 4) 248,156 154,108 89,934
--------- --------- ---------
Cash flows used in operating activities (284,408) (175,332) (104,778)
--------- --------- ---------
INVESTING ACTIVITIES
Advances to company under common control (4,074) (605) (614)
Property and equipment (8,773) (7,612)
--------- --------- ---------
Cash flows used in investing activities (12,847) (605) (8,226)
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from the issuance of convertible
debenture loans 125,459 125,459
Advances from a shareholder 254,392 122,531 121,378
Issuance of Class A common shares 65
--------- --------- ---------
Cash flows provided by financing activities 379,916 247,990 121,378
--------- --------- ---------
Effect of changes in exchange rates on cash 7,917 6,730 1,200
--------- --------- ---------
NET INCREASE IN CASH 90,578 78,783 9,574
Cash, beginning of year 11,795 2,221
--------- --------- ---------
Cash, end of year 90,578 90,578 11,795
========= ========= =========
The accompanying notes are an integral part of these financial statements.
5
DAIRY FRESH TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
December 31,
Expressed in U.S. Dollars
2004 2003
--------- ---------
$ $
ASSETS
Current assets
Cash 90,578 11,795
Accounts receivable (Note 5) 16,722 14,290
Prepaid expenses 14,532 348
--------- ---------
121,832 26,433
Property and equipment (Note 6) 6,940 8,366
--------- ---------
128,772 34,799
========= =========
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities 50,415 23,073
Management contracts payable (Note 7) 257,561 89,949
Convertible debenture notes (Note 8) 135,664
--------- ---------
443,640 113,022
Due to a shareholder (Note 7) 144,352
--------- ---------
443,640 257,374
Commitments and contingencies (Note 11)
SHAREHOLDERS' DEFICIT
Capital stock (Note 9) 65 65
Contributed surplus (Note 7) 282,406
Accumulated comprehensive loss (61,702) (18,332)
Deficit accumulated during the development stage (535,637) (204,308)
--------- ---------
(314,868) (222,575)
--------- ---------
128,772 34,799
========= =========
The accompanying notes are an integral part of these financial statements.
6
DAIRY FRESH TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31,
Expressed in U.S. Dollars
- --------------------------------------------------------------------------------
1 - GOVERNING STATUTES AND NATURE OF OPERATIONS
Dairy Fresh Technologies Ltd. (the Company), 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 (TM)" produces
monounsaturated-enhanced dairy products.
2 - GOING CONCERN
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern.
As shown in the accompanying financial statements, the Company has incurred a
net loss of $331,329 ($195,796 in 2003) and had no revenues. The future of the
Company is dependent on the continued support of shareholders and suppliers and
upon its ability to obtain financing and achieve profitability. The 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 the Company cannot continue in
existence.
3 - ACCOUNTING POLICIES
BASIS OF PRESENTATION
These financial statements have been prepared in U.S. dollars and in accordance
with 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 financial statements and notes to 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.
DEPRECIATION
Property and equipment are depreciated over their estimated useful lives
according to the following methods and annual rates:
Methods Rates
----------------- -----------------
Computer hardware Declining balance 30%
Furniture and fixtures Declining balance 20%
Leasehold improvements Shorter of useful
life or remaining
Straight-line lease term
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as they are incurred.
7
DAIRY FRESH TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31,
Expressed in U.S. Dollars
- --------------------------------------------------------------------------------
3 - ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company uses the liability method of accounting for income taxes. Under this
method, deferred income tax assets and liabilities are determined according to
differences between the carrying amounts and tax bases of assets and
liabilities. They are measured by applying enacted or substantively enacted tax
rates and laws at the date of the financial statements for the years in which
the temporary differences are expected to reverse. Valuation allowances are
established when it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
COMPREHENSIVE INCOME
Comprehensive income includes net income and other comprehensive income ("OCI").
OCI refers to changes in equity from transactions and other economic 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.
ADVERTISING
The Company expenses the cost of advertising and promotion as incurred.
Advertising costs charged to operations were $26,153 in 2004 and $4,106 in 2003.
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 in effect 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 loss as a
component of the shareholders' deficit.
4 - INFORMATION INCLUDED IN THE STATEMENT OF CASH FLOWS
The changes in working capital items are detailed as follows:
2004 2003
-------- --------
$ $
Accounts receivable (5,378) (9,366)
Prepaid expenses (13,093)
Accounts payable and accrued liabilities 23,713 16,347
Management contracts payable 148,866 82,953
-------- --------
154,108 89,934
======== ========
8
DAIRY FRESH TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31,
Expressed in U.S. Dollars
- --------------------------------------------------------------------------------
5 - ACCOUNTS RECEIVABLE
2004 2003
-------- --------
$ $
Rent receivable relating to subleasing of office space 16,722 10,156
Due from a company under common control (Note 7) 4,134
-------- --------
16,722 14,290
======== ========
6 - PROPERTY AND EQUIPMENT
2004
-------- -------- --------
ACCUMULATED
COST DEPRECIATION NET
-------- -------- --------
$ $ $
Leasehold improvements 8,861 2,658 6,203
Computer equipment 1,099 611 488
Furniture and fixtures 415 166 249
-------- -------- --------
10,375 3,435 6,940
======== ======== ========
2003
-------- -------- --------
Accumulated
Cost depreciation Net
-------- -------- --------
$ $ $
Leasehold improvements 8,252 825 7,427
Computer equipment 1,024 375 649
Furniture and fixtures 387 97 290
-------- -------- --------
9,663 1,297 8,366
======== ======== ========
7 - RELATED PARTY TRANSACTIONS
The Company entered into the following related party transactions during the
year. These transactions were concluded in the normal course of operations at
the exchange amount, which is the amount established and accepted by the
parties.
2004 2003
--------- ---------
$ $
Expenses
Management fees (a) 191,126 93,656
Amounts due to and due from related parties
Amount due to a shareholder (b) 144,352
Amount due from a company under common control (c) 4,134
(a) During the years ended December 31, 2003 and December 31, 2004, the Company
paid for management services to three companies controlled by officers of the
Company. Of the above amounts, $257,561 is payable as at December 31, 2004 and
$89,949 was payable as at December 31, 2003.
9
DAIRY FRESH TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31,
Expressed in U.S. Dollars
- --------------------------------------------------------------------------------
7 - RELATED PARTY TRANSACTIONS (CONTINUED)
(b) A shareholder of the Company has advanced funds for operations during the
past two years. These advances were non-interest bearing with no fixed terms of
repayment, however during the year ended December 31, 2004 these advances were
forgiven and an equivalent amount was added to contributed surplus.
(c) The Company paid legal expenses for a company under common control during
the year ended December 31, 2003 resulting in the above amount receivable from a
company under common control.
8 - CONVERTIBLE DEBENTURE NOTES
Convertible debenture notes are unsecured and are repayable April 15, 2005 with
10% interest if the Company does not complete its share exchange transaction
with a public company (see Note 13). Loans are automatically converted into
units of the Company upon the Company being merged with a publicly traded
company which will trade on the NASD OTCCB. The conversion of the loan will be
completed at $0.50 per common share and one warrant exercisable over a period of
24 months at 0.75.
9 - CAPITAL STOCK
AUTHORIZED
An unlimited number of participating Class A common shares, conferring two
votes per share, entitled to dividends at the discretion of the directors
and cancellable by the Company;
An unlimited number of participating Class B common shares, conferring one
vote per share, entitled to dividends at the discretion of the directors
and cancelable by the Company;
An unlimited number of participating Class C common shares, non-voting,
entitled to dividends at the discretion of the directors and cancellable by
the Company.
An unlimited number of non-participating Class A special shares, conferring
two votes per share, entitled to dividends at the discretion of the
directors, cancellable by the Company and redeemable at $1.00 CDN per
share;
An unlimited number of non-participating Class B special shares, conferring
one vote per share, entitled to dividends at the discretion of the
directors, cancellable by the Company and redeemable at $0.50 CDN per
share;
An unlimited number of non-participating Class C special shares,
non-voting, no dividends, cancellable by the Company and redeemable at
$1.00 CDN per share;
An unlimited number of non-participating Class D special shares,
non-voting, no dividends, cancellable by the Company and redeemable at
$0.50 CDN per share;
2004 2003
-------- --------
$ $
ISSUED AND FULLY PAID
5,000,000 Class A common shares 65 65
======== ========
10
DAIRY FRESH TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31,
Expressed in U.S. Dollars
- --------------------------------------------------------------------------------
10 - INCOME TAXES
The future income tax asset resulting from business losses is not recorded in
the financial statements. These losses, which are available to reduce income
taxes in future years, aggregate $586,857 and are detailed as follows:
Federal Provincial
--------- ---------
$ $
2009 10,975 10,975
2010 225,034 225,034
2014 350,848 350,848
--------- ---------
586,857 586,857
========= =========
11 - COMMITMENT
The Company has entered into a long-term lease agreement expiring on September
30, 2005 which requires lease payments of $35,169 for the rental of office
space. The minimum lease payment for the next year is $35,169. The lease
contains a renewal option for an additional period of three years which the
Company may exercise by giving a three-month notice.
12 - FINANCIAL INSTRUMENTS
The following methods and assumptions were used to determine the estimated fair
value of each class of financial instruments.
SHORT-TERM FINANCIAL INSTRUMENTS
The fair value of the short-term financial assets and liabilities approximates
their carrying amount given that they will mature shortly.
ADVANCES FROM A SHAREHOLDER
The fair value of shareholder advances' cannot be determined, as they do not
include any terms of payment (Note 7).
11
DAIRY FRESH TECHNOLOGIES LTD. (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31,
Expressed in U.S. Dollars
- --------------------------------------------------------------------------------
13 - SUBSEQUENT EVENT
On March 3, 2005, the Company consumated a merger of 6351492 Canada Inc., a
Canadian corporation and a wholly owned subsidiary of Northwest Horizon
Corporation ("Northwest"), a Nevada Corporation. Northwest is a publicly
reporting company registered with the United States Securities and Exchange
Commission whose stock does not currently trade. Each outstanding share of the
Company will be converted into shares of Northwest's wholly owned subsidiary,
6351492 Canada Inc., with the right to convert to shares of Northwest common
stock. As a result of this share exchange, the shareholders of Dairy Fresh now
control Northwest, this transaction will be accounted for as a reverse takeover
transaction.
Subsequent to year end, the Company received an additional $175,000 in proceeds
from the issuance of convertible debentures, these debentures have the same
terms as those described in Note 8.
12
Dairy Fresh Farms Inc.
Condensed Consolidated Financial Statements
September 30, 2005
Condensed Consolidated Financial Statements and Notes to Consolidated Financials
Statements F-3
(a) Condensed Statements of Operations for the Three and Nine Months Ended
September 30, 2005 and 2004 (unaudited) F-4
(b) Consolidated Statements of Cash Flows for the Nine Months Ended September
30, 2005 and 2004 (unaudited) F-5
(c) Consolidated Balance Sheet for the Nine Months Ended September 30, 2005
(unaudited) and Year Ended December 31, 2004 (audited) F-6
(d) Notes to Consolidated Financial Statements (audited) F-7
Dairy Fresh Farms Inc.
Condensed Consolidated Operations and Comprehensive Loss
Expressed in U.S. Dollars
================================================================================
Three months Three months
ended September ended September Nine months ended Nine months ended
30, 2005 30, 2004 September 30, 2005 September 30, 2004
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
--------------------------------------------------------------------------------
$ $ $ $
Revenues 44,900 -- 118,831 --
--------------------------------------------------------------------------------
Operating expenses
Direct expenses 17,266 -- 38,359 --
Advertising and product support 258,217 9,221 642,316 13,476
Investor relations 56,293 -- 80,070 --
Depreciation of property and equipment 1,119 -- 3,275 --
Finder's fee for reverse takeover
transaction -- -- 100,000 --
Interest and bank charges, net 4,020 237 4,660 313
Management fees 106,815 791 301,081 85,565
Membership fees 613 558 1,483 793
Office 4,958 387 15,407 4,119
Professional fees 16,392 4,777 83,944 16,047
Rent 2,515 3,507 9,628 7,768
Telecommunications 3,528 2,023 10,679 6,616
Travel 28,311 11,932 79,871 27,795
--------------------------------------------------------------------------------
500,047 33,433 1,370,773 162,492
--------------------------------------------------------------------------------
Net loss (455,147) (33,433) (1,251,942) (162,492)
================================================================================
Basic and diluted loss per share ($0.03) ($0.00) ($0.10) ($0.02)
================================================================================
Weighted average number of shares outstanding 14,127,500 9,250,000 13,015,717 9,250,000
================================================================================
================================================================================
The accompanying notes are an integral part of the financial statements.
4
Dairy Fresh Farms Inc.
Condensed Consolidated Cash Flows
Expressed in U.S. Dollars
================================================================================
Nine months Nine months
ended September ended September
30, 2005 30, 2004
(Unaudited) (Unaudited)
--------------------------------------
$ $
OPERATING ACTIVITIES
Net loss (1,251,942) (162,492)
Non-cash items:
Depreciation of property and equipment 3,275 --
Finders fee for reverse takeover transaction 100,000 --
Changes in working capital items (Note 5) 321,072 91,026
--------------------------------------
Cash flows used in operating activities (827,595) (71,466)
--------------------------------------
INVESTING ACTIVITIES
Purchase of property and equipment (10,529) --
--------------------------------------
Cash flows used in investing activities (10,529) --
--------------------------------------
FINANCING ACTIVITIES
Net proceeds from capital stock issued 305,196 --
Issuance of convertible debt 483,467 --
Advances from a shareholder -- 64,121
--------------------------------------
Cash flows provided by financing activities 788,663 64,121
--------------------------------------
Effect of changes in exchange rates on cash 701 (119)
--------------------------------------
Net decrease in cash (48,760) (7,464)
Cash, beginning of period 90,578 11,795
--------------------------------------
Cash, end of period 41,818 4,331
======================================
================================================================================
The accompanying notes are an integral part of the financial statements.
5
Dairy Fresh Farms Inc.
Condensed Consolidated Balance Sheet
Expressed in U.S. Dollars
================================================================================
September December
30, 2005 31, 2004
(Unaudited) (Audited)
--------------------------
$ $
ASSETS
Current assets
Cash 41,818 90,578
Accounts receivable, net 58,598 16,722
Prepaid expenses 388 14,532
Deferred costs 41,261 --
--------------------------
142,065 121,832
Property and equipment 14,824 6,940
--------------------------
156,889 128,772
==========================
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities 361,339 50,415
Management contracts payable (Notes 6) 376,895 257,561
Convertible debenture loans (Note 7) 508,374 135,664
--------------------------
1,246,608 443,640
--------------------------
SHAREHOLDERS' DEFICIENCY
Capital stock (Note 7) 442,809 65
Contributed surplus 380,906 282,406
Accumulated comprehensive loss (Note 8) (114,167) (61,702)
Accumulated Deficit (1,799,267) (535,637)
--------------------------
(1,089,719) (314,868)
--------------------------
156,889 128,772
==========================
================================================================================
The accompanying notes are an integral part of the financial statements.
6
Dairy Fresh Farms Inc.
Notes to Unaudited Financial Statements
Three Months Ended September 30, 2005
1 - BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements have been
prepared on the same basis as the audited annual consolidated financial
statements. In the opinion of management, these unaudited Condensed Consolidated
Financial Statements include all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of the financial
position, results of operations and cash flows of Dairy Fresh Farms Inc., a
Nevada Corporation and its consolidated subsidiaries, Dairy Fresh Technologies
Ltd. and 6351492 Canada Inc. (collectively referred to as the "Company"). The
results of operations for the nine months ended September 30, 2005 are not
necessarily indicative of the results to be expected for the full year. Certain
information and footnote disclosures normally contained in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted. These Condensed
Consolidated Financial Statements should be read in conjunction with the Notes
to Consolidated Financial Statements for the year ended December 31, 2004
contained in the Company's Annual Report on Form 10-KSB.
Dairy Fresh Farms Inc. 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.
Development stage activities
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, however as of 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. During
the current period, the Company was acquired 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 (TM)", produces
monounsaturated-enhanced dairy products. Dairy Fresh Technologies Ltd. was also
in the development stage until January 1, 2005.
The Company has a functional currency of Canadian dollars and a reporting
currency of United States dollars.
2 - GOING CONCERN
The accompanying Condensed Consolidated Financial Statements have been prepared
assuming that the Company will continue as a going concern.
7
As shown in the accompanying Condensed Consolidated Financial Statements, the
Company incurred a net loss of $1,251,942 ($162,492 in 2004) and until January
2005 had no revenues. The future of the Company is dependant upon its ability to
obtain financing and achieve profitability. The accompanying Condensed
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.
3 - REVERSE TAKEOVER TRANSACTION
On March 3, 2005, Dairy Fresh Technologies Ltd. consummated a merger of 6351492
Canada Inc. ("Canada Inc."), a Canadian corporation and a fully owned subsidiary
of Dairy Fresh Farms Inc. with and into Dairy Fresh Farms Inc., a Nevada
corporation, with Dairy Fresh Farms Inc. as the surviving entity.
In these transactions, the outstanding common Dairy Fresh Technologies Ltd.
shares were acquired by Canada Inc. in exchange for 9,250,000 shares of Dairy
Fresh Farms Inc. As a result of this share exchange, the shareholders of Dairy
Fresh Technologies Ltd. now control Dairy Fresh Farms Inc. This transaction has
been accounted for as a reverse takeover transaction in Dairy Fresh Farms Inc.'s
condensed consolidated financial statements.
This reverse acquisition is treated as a capital transaction in substance since
this transaction was accomplished through the use of a non-operating enterprise.
No goodwill or intangible assets are recorded following this transaction. Dairy
Fresh Technologies Ltd. is treated as the acquirer for accounting purposes. The
historical financial statements prior to the acquisition are those of Dairy
Fresh Technologies Ltd.
8
4 - ACCOUNTING POLICIES
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 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 has entered into a co-packing agreement with a supplier. Under the
terms of this agreement, the supplier manufactures the dairy products per the
specifications and instructions of the Company and ships directly to the
retailer. The supplier invoices and collects directly from the retailer. The
supplier subtracts its manufacturing cost and mark-up, as well as freight and
brokerage and submits the net amount to the Company.
The Company records the 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 is not the primary obligor in the arrangement, as it relies
on the supplier to provide the goods. Also, the Company has limited liability to
assume risk of non-payment by its retailers.
The Company also records 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 recognizes revenue when the
product is shipped from the supplier.
Direct Expenses
The Company expenses costs for product quality assurance, shipping and brokerage
as incurred.
Advertising
The Company expenses advertising costs as they are incurred.
Coupons
As part of its advertising program, the Company commits to a consumer coupon
program that require the Company to estimate and accrue the expected costs of
such programs. The Company records the coupons as a liability when issued based
upon the expected customer redemption rate.
Allowance for Doubtful Accounts
Accounts receivable are shown net of any allowances for doubtful accounts.
9
Deferred Costs
Commissions paid for convertible debentures are shown as deferred costs. These
are netted against share capital upon conversion of the convertible debentures.
5 - INFORMATION INCLUDED IN THE STATEMENT OF CASH FLOWS
The changes in working capital items are detailed as follows:
2005 2004
$ $
Accounts receivable (39,238) (4,019)
Prepaid expenses 14,144 --
Deferred costs (39,422) --
Accounts payable and accrued liabilities 281,131 9,480
Management contracts payable 104,457 85,565
------------------------
321,072 91,026
========================
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.
2005 2004
$ $
Expenses
Management fees (a) 301,081 85,565
Royalty expense (b) 3,332 0
Amounts due to and due from related parties
Amount due from a company under common
control (c) 1,624 4,079
(a) During the periods ended September 30, 2005 and September 30, 2004, the
Company incurred management fees to three companies controlled by officers of
the Company. Of the above amounts, $376,895 is payable as at September 30, 2005
and $257,561 is payable as at December 31, 2004.
(b) The Company paid royalty expense to Dairy One Technologies Limited, a
related party in the amount of $3,332 (2004 - $0). At September 30, 2005 there
is an account payable for this in amount of $3,332 (2004 - $0).
(c) The Company paid legal expenses for a company under common control during
the year ended December 31, 2003 resulting in the above amount receivable from a
company under common control.
10
7 - CAPITAL STOCK
Authorized
75,000,000 Common shares
Issued and fully paid
Number $
Dairy Fresh Technologies Ltd.
Balance as at December 31, 2004 and prior to the reverse
takeover transaction 5,000,000 65
============================
Dairy Fresh Farms Inc.
Common shares as at December 31, 2004 and prior to the reverse
takeover transaction 14,400,000 65
Effect of reverse share split prior to reverse takeover
transaction (a) (12,000,000) --
Common shares issued in exchange for common shares of Dairy
Fresh Technologies Ltd. (b) 9,250,000 --
Reverse takeover expenses funded by cash balance in Dairy
Fresh Farms Inc. (c) (1,719)
Common shares issued to advisors after reverse takeover
transaction (d) 1,500,000 1,500
Common shares issued upon conversion of debentures, net of
costs of issuance (e) 977,500 442,963
----------------------------
14,127,500 442,809
============================
(a) Prior to the reverse takeover transaction, Dairy Fresh Farms Inc.
implemented a reverse six for one share split, which reduced the issued common
shares from 14,400,000 to 2,400,000.
(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 finders fee to the Company's advisors.
(e) During the first quarter of the current year, Convertible Debenture loans
were converted into common shares of Dairy Fresh Farms Inc. The number of shares
from the conversion of the debentures was 977,500. The issue costs of $47,969
are netted against the proceeds of the common shares issued. The net proceeds of
this share issuance were $442,963, of which $305,196 was from debentures issued
in 2005.
For the purposes of earning per share calculations, the weighted average common
shares outstanding, basic and diluted have been retroactively restated to
reflect the effect of the six for one share split and restated for the reverse
takeover exchange ratio.
11
8 - ACCUMULATED COMPREHENSIVE LOSS
September 30, 2005 December 31, 2004
(Unaudited) (Audited)
Balance, beginning of period (61,702) (18,332)
Foreign currency translation adjustment (52,465) (43,370)
Balance, end of period (114,167) (61,702)
9 - 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 Sheet. The components of comprehensive
loss are as follows:
Three months Three months
ended September ended September Nine months ended Nine months ended
30, 2005 30, 2004 September 30, 2005 September 30, 2004
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
---------------------------------------------------------------------------------
$ $ $ $
Net loss as reported (455,147) (33,433) (1,251,942) (162,492)
Foreign currency translation adjustment (46,342) (5,069) (52,465) (12,905)
---------------------------------------------------------------------------------
Comprehensive loss (501,489) (38,502) (1,304,407) (175,397)
=================================================================================
10 - RECLASSIFICIATIONS
Certain prior period amounts have been reclassified to conform to the current
period presentation.
11 - SUBSEQUENT EVENTS
On October 4, 2005, additional Convertible Debenture Loans were converted into
common shares of Dairy Fresh Farms Inc. The number of shares from the conversion
of the debentures was 963,292. The issue costs of $41,260 were netted against
the proceeds of the common shares issued. The net proceeds of this share
issuance were $467,114.
12
Power of Attorney
ALL MEN BY THESE PRESENT, that each person whose signature appears below
constitutes and appoints Robert C. Harrison, his true and lawful
attorney-in-fact and agent, with full power of substitution and re-substitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all pre- or post-effective amendments to this registration statement, and to
file the same with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any one of them, or their or his substitutes,
may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
January 27, 2006
/s/ Robert C. Harrison
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By: Robert C. Harrison
President, CEO