**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**









**FORM
      10-QSB**







**(Mark
      One)**


**x**
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
                2006**





**OR**




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




**Commission
      file number: 333-111486**





**DAIRY
      FRESH FARMS INC.**




**(Name
      of small business issuer in its charter)**


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


****





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


**-------------------------------------------------------**


**(Address
      of principal executive offices)**





**Tel:
      613-724-2484**


**--------------------**


**(Issuer's
      telephone number)**





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


**None**




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


**Common
      Stock, $0.001 par value per share**


**(Title
      of Class)**






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




As
      of
      November 15, 2006, there were 19,378,049 shares
      of
      the registrant's common stock outstanding.





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





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







**DAIRY
      FRESH FARMS INC.**




**Part
                  I. Financial Information**
              **Page**Item
                  1. Financial Statements:Unaudited
                  Condensed Consolidated Statements of Operations for the Three and
                  Nine
                  Months Ended September 30, 2006 and 2005
              4Unaudited
                  Condensed Consolidated Statements of Cash Flows for the Nine Months
                  Ended
                  September 30, 2006 and 2005
              5Unaudited
                  Condensed Consolidated Balance Sheets as at September 30, 2006
                  and
                  December 31, 2005
              6Unaudited
                  Notes to Condensed Consolidated Financial Statements
              7Item
                  2. Management's Discussion and Analysis or Plan of
                  Operations
              14Item
                  3. Controls and Procedures
              22**Part
                  II. Other Information**Item
                  1. Legal Proceedings
              22Item
                  2. Unregistered Sales of Equity Securities and Use of
                  Proceeds
              22Item
                  3. Defaults upon Senior Securities
              23Item
                  4. Submission of Matters to a Vote of Security Holders
              23Item
                  5. Other Information
              23Item
                  6. Exhibits
              23Signatures
              24




2




PART
      I
      FINANCIAL INFORMATION





General





The
      accompanying condensed consolidated financial statements have been prepared
      in
      accordance with the instructions to Form 10-QSB. Therefore, they do not include
      all information and footnotes necessary for a complete presentation of financial
      position, results of operations, cash flow, and stockholders’ deficit in
      conformity with generally accepted accounting principles in the United States
      of
      America. Except as disclosed herein, there has been no material change in the
      information disclosed in the notes to the consolidated financial statements
      included in the Company’s annual report on Form 10-KSB for the year ended
      December 31, 2005. In the opinion of management, all adjustments considered
      necessary for a fair presentation of the results of operations and financial
      position have been included and all such adjustments are of a normal recurring
      nature. The December 31, 2005 consolidated condensed balance sheet data was
      derived from audited consolidated financial statements, but does not include
      all
      disclosures required by generally accepted accounting principles. Operating
      results for the quarter ended September 30, 2006 are not necessarily indicative
      of the results that can be expected for the full year ending December 31, 2006.




3







**Unaudited
      Condensed Consolidated Statements of Operations**


Expressed
      in U.S. Dollars





Three
                months
            
            Three
                months
            
            Nine
                months
            
            Nine
                monthsended
            
            ended
            
            ended
            
            endedSeptember
            
            September
            
            September
            
            September30,
                2006
            
            30,
                2005
            
            30,
                2006
            
            30,
                2005$
            
            $
            
            $
            
            $Revenues
            
            
            -
            
            
            44,900
            
            
            -
            
            
            118,831Operating
                expensesFreight
                and product costs
            
            
            -
            
            
            17,266
            
            
            1,234
            
            
            38,359Advertising
                and product support
            
            
            834
            
            
            258,217
            
            
            17,617
            
            
            642,316Depreciation
                of property and equipment
            
            
            1,029
            
            
            1,119
            
            
            3,058
            
            
            3,275Finder’s
                fee for reverse takeover transaction
            
            
            -
            
            
            -
            
            
            -
            
            
            100,000Interest
                and bank charges, net
            
            
            1,845
            
            
            4,020
            
            
            7,850
            
            
            4,660Management
                fees
            
            
            87,302
            
            
            106,815
            
            
            272,602
            
            
            301,081Office
            
            
            3,882
            
            
            5,571
            
            
            8,076
            
            
            16,890Professional
                fees
            
            
            63,159
            
            
            72,685
            
            
            148,744
            
            
            164,014Rent
            
            
            4,267
            
            
            2,515
            
            
            12,584
            
            
            9,628Telecommunications
            
            
            3,044
            
            
            3,528
            
            
            11,213
            
            
            10,679Travel
            
            
            38,462
            
            
            28,311
            
            
            84,965
            
            
            79,871203,824
            
            
            500,047
            
            
            567,943
            
            
            1,370,773Net
                loss
            
            
            (203,824
            )
            
            (455,147
            )
            
            (567,943
            )
            
            (1,251,942
            )Basic
                and diluted loss per share
            
            
            (0.01
            )
            
            (0.03
            )
            
            (0.04
            )
            
            (0.10
            )Weighted
                number of shares outstanding
            
            
            15,681,792
            
            
            14,127,500
            
            
            15,674,195
            
            
            13,015,717










4







**Unaudited
      Condensed Consolidated Statements of Cash Flows**


Expressed
      in U.S. Dollars







Nine
                months
            
            Nine
                monthsended
            
            endedSeptember
            
            September30,
                2006
            
            30,
                2005$
            
            $*OPERATING
                ACTIVITIES*Net
                loss
            
            
            (567,943
            )
            
            (1,251,942
            )Non-cash
                items:Depreciation
                of property and equipment
            
            
            3,058
            
            
            3,275Finders
                fee for reverse takeover transaction
            
            
            -
            
            
            100,000Issuance
                of shares in exchange for services
            
            
            26,250
            
            
            -Changes
                in working capital items:Accounts
                receivable
            
            
            (17,955
            )
            
            (39,238
            )Prepaid
                expenses
            
            
            (58,616
            )
            
            (25,278
            )Accounts
                payable and accrued liabilities
            
            
            (48,399
            )
            
            281,131Management
                contracts payable
            
            
            226,484
            
            
            104,457Cash
                flows used in operating activities
            
            
            (437,121
            )
            
            (827,595
            )*INVESTING
                ACTIVITIES*Purchase
                of property and equipment and cash flowsused
                in investing activities
            
            
            -
            
            
            (10,529
            )*FINANCING
                ACTIVITIES*Issuance
                of convertible debt
            
            
            923,356
            
            
            788,663Proceeds
                from notes payable
            
            
            88,637
            
            
            -Cash
                flows provided by financing activities
            
            
            1,011,993
            
            
            788,663Effect
                of changes in exchange rates on cash
            
            
            5,866
            
            
            701Net
                increase (decrease) in cash
            
            
            580,738
            
            
            (48,760
            )Cash,
                beginning of period
            
            
            12,976
            
            
            90,578Cash,
                end of period
            
            
            593,714
            
            
            41,818Non-cash
                financing transactions:Issuance
                of shares to settle accounts payable
            
            
            13,010
            
            
            -Issuance
                of convertible debt to settle management fees payable
            
            
            48,750
            
            
            -










5







**Unaudited
      Condensed Consolidated Balance Sheets**


Expressed
      in U.S. Dollars







September
            
            December30,
                2006
            
            31,
                2005*ASSETS*
            
            $
            
            $Current
                assetsCash
            
            
            593,714
            
            
            12,976Accounts
                receivable, net
            
            
            83,441
            
            
            61,675Prepaid
                expenses
            
            
            59,618
            
            
            387736,773
            
            
            75,038Property
                and equipment, net
            
            
            11,042
            
            
            13,571747,815
            
            
            88,609*LIABILITIES*Current
                liabilitiesAccounts
                payable and accrued liabilities
            
            
            312,914
            
            
            360,903Management
                contracts payable
            
            
            700,966
            
            
            500,704Convertible
                debenture loans
            
            
            982,029
            
            
            -Notes
                payable
            
            
            89,542
            
            
            -2,085,451
            
            
            861,607*SHAREHOLDERS'
                DEFICIENCY*Common
                shares, $0.001 par value, voting, 75,000,000 authorized shares, 15,681,792
                shares issued and outstanding as of September 30, 2006 and 15,620,792
                shares as of December 31, 2005
            
            
            2,377
            
            
            2,316Contributed
                surplus
            
            
            1,581,094
            
            
            1,541,895Accumulated
                comprehensive loss
            
            
            (143,577
            )
            
            (107,622
            )Deficit
            
            
            (2,777,530
            )
            
            (2,209,587
            )(1,337,636
            )
            
            (772,998
            )747,815
            
            
            88,609








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




6


**Dairy
      Fresh Farms Inc.**


**Notes
      to Condensed Consolidated Financial Statements**


**September
      30, 2006**


Expressed
      in U.S. Dollars


(Unaudited)







***1
      - BASIS OF PRESENTATION***




The
      accompanying unaudited condensed consolidated financial statements of Dairy
      Fresh Farms Inc. (“Dairy Fresh” or the “Company”) and its subsidiaries have been
      prepared pursuant to the rules and regulations of the United States Securities
      and Exchange Commission (“SEC”). Certain information and footnote disclosures
      normally included in financial statements prepared in accordance with generally
      accepted accounting principles in the United States of America (“US GAAP”) have
      been condensed or omitted pursuant to such rules and regulations. These
      condensed consolidated financial statements should be read in conjunction with
      the financial statements and notes included in the latest annual report on
      Form
      10-KSB. These statements have been prepared on the same basis as the audited
      consolidated financial statements for the year ended December 31, 2005 and,
      in
      the opinion of management, include all adjustments considered necessary for
      a
      fair presentation of financial position, results of operations and cash flows
      of
      the Company. The December 31, 2005 condensed consolidated balance sheet data
      was
      derived from audited consolidated financial statements, but does not include
      all
      disclosures required by generally accepted accounting principles. The results
      of
      operations for the three and nine months ended September 30, 2006 are not
      necessarily indicative of the results to be expected for the full
      year.




***2 - COMPANY
      BACKGROUND AND LIQUIDITY***




***COMPANY
      BACKGROUND***





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





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




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





7


**Dairy
      Fresh Farms Inc.**


**Notes
      to Condensed Consolidated Financial Statements**


**September
      30, 2006**


Expressed
      in U.S. Dollars


(Unaudited)







***2 - COMPANY
      BACKGROUND AND LIQUIDITY (continued)***




***LIQUIDITY***





The
      Company has incurred a net loss of $203,824 and $567,943 during the three and
      nine months ended September 30, 2006. In addition, the Company generated
      negative cash flows from operations of $437,121 for the nine months ended
      September 30, 2006 and has generated negative cash flows from operations since
      inception. As at September 30, 2006, the Company had a working capital
      deficiency of $1,348,678 ($786,569 - December 31, 2005) and a shareholders’
deficiency of $ 1,337,636
      ($772,998 - December 31, 2005).




The
      auditors’ report on the Company’s consolidated financial statements as of
      December 31, 2005 states that the net loss incurred during the year ended
      December 31, 2005, the accumulated deficit as of that date and the other factors
      described in Note 2 to the Consolidated Financial Statements included in the
      Company’s Annual Report on Form 10-KSB for the year ended December 31, 2005
      raise substantial doubt about the Company’s ability to continue as a going
      concern. The auditors’ report on the Company’s financial statements for the year
      ended December 31, 2004 contained a similar statement. The consolidated
      financial statements have been prepared assuming the Company will continue
      as a
      going concern and do not include any adjustments that might result from the
      outcome of this uncertainty.





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





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




8


**Dairy
      Fresh Farms Inc.**


**Notes
      to Condensed Consolidated Financial Statements**


**September
      30, 2006**


Expressed
      in U.S. Dollars


(Unaudited)







***3 - RELATED
      PARTY TRANSACTIONS***





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





**Three
                months ended**
              **September
                30, 2006**
            
            **Three
                months ended**
              **September****30,
                2005**
            
            **Nine
                months ended**
              **September
                30, 2006**
            
            **Nine
                months ended**
              **September
                30, 2005**$
            
            $
            
            $
            
            $Expenses:Management
                fees (a)
            
            
            87,302
            
            
            106,815
            
            
            272,602
            
            
            301,081Bookkeeping
                fees (b)
            
            
            2,278
            
            
            2,278
            
            
            4,778
            
            
            11,474




Amounts
                due to and due from related parties:
            
            **September
                30, 2006**
            
            **December
                31, 2005**$
            
            $Management
                fees payable (a)
            
            
            700,966
            
            
            500,704Bookkeeping
                fees payable (b)
            
            
            2,278
            
            
            2,175Amount
                due from companies under common control (c)
            
            
            11,186
            
            
            8,827Notes
                payable to related parties (d)
            
            
            26,862
            
            
            -Amount
                due to a company under common control (e)
            
            
            6,982
            
            
            6,705Convertible
                debt (f)
            
            
            49,248
            
            
            -




(a)
      During the three and nine months periods ended September 30, 2006 and September
      30, 2005, the Company engaged the management services of four companies
      controlled by officers of the Company.




(b)
      During the three and nine months periods ended September 30, 2006 and September
      30, 2005, the Company engaged the bookkeeping services of a firm controlled
      by
      an officer of the Company.




9




**Dairy
      Fresh Farms Inc.**


**Notes
      to Condensed Consolidated Financial Statements**


**September
      30, 2006**


Expressed
      in U.S. Dollars


(Unaudited)







***3 - RELATED
      PARTY TRANSACTIONS (continued)***




(c)
      The
      Company paid legal expenses for Dairy One Technologies Limited and Purple Cow
      Investments Inc., companies under common control, during the year ended December
      31, 2005 and nine months ended September 30, 2006 resulting in the above amount
      receivable from companies under common control. The legal fees paid during
      the
      three and nine months ended September 30, 2006 are $Nil and $1,907,
      respectively. There were no legal fees paid during the three and nine months
      ended September 30, 2005.




(d
      ) The
      Company issued $26,862 of 5% promissory notes to an officer of the Company
      during the nine month period ended September 30, 2006. The notes are repayable
      when a major financing is completed.




(e)
      The
      Company incurred royalty expense to Dairy One Technologies Limited, a company
      under common control, in the amount of $6,705 during the year ended December
      31,
      2005. The amount payable as at September 30, 2006 is $6,982 (December 31, 2005
      -
      $6,705). The Company expensed $nil in the three and nine months ended September
      30, 2006 and $3,332 and $ 7,829
      in
      the three and nine months ended September 30, 2005, respectively.




(f)
      In
      August 2006, the Company issued convertible debt to its Chief Executive Officer
      as payment of management fees payable.




***4
      - CONVERTIBLE DEBENTURE LOANS***




Convertible
      debenture loans are unsecured and were repayable on or before September 15,
      2006
      with 10% interest if the Company did not withdraw its SB-2 registration
      statement. Loans are automatically converted into units of the Company upon
      the
      Company completing or withdrawing its current SB-2 registration statement and
      raising $1 million. The conversion of the loan will be performed at $0.70 per
      share into common shares of the Company and warrants exercisable over a period
      of 24 months at $0.75 per share.




***5
      - NOTES PAYABLE***




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




10


**Dairy
      Fresh Farms Inc.**


**Notes
      to Condensed Consolidated Financial Statements**


**September
      30, 2006**


Expressed
      in U.S. Dollars


(Unaudited)







***6
      - LOSS PER SHARE***




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




The
      total
      warrants outstanding at September 30, 2006 and December 31, 2005 were 2,220,792
      and 2,220,792, respectively.




***7
      - SHAREHOLDERS’ EQUITY***




In
      February 2006, 26,000 common shares were issued as payment for professional
      fees
      incurred in the year ended December 31, 2005, valued at $0.50 per share which
      represents the fair value of the Company’s share when the services were
      completed. The excess in the par value is recorded in contributed
      surplus.




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




***8
      -COMPREHENSIVE LOSS***




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





**Three
                months ended**
              **September
                30, 2006**
            
            **Three
                months ended**
              **September
                30, 2005**
            
            **Nine
                months ended**
              **September
                30, 2006**
            
            **Nine
                months ended**
              **September
                30, 2005**$
            
            $
            
            $
            
            $Net
                loss as reported
            
            
            (203,824
            )
            
            (455,147
            )
            
            (567,943
            )
            
            (1,251,942
            )Foreign
                currency translation adjustment
            
            
            (3,208
            )
            
            (46,342
            )
            
            (35,955
            )
            
            (52,465
            )Comprehensive
                loss
            
            
            (207,032
            )
            
            (501,489
            )
            
            (603,898
            )
            
            (1,304,407
            )




11




**Dairy
      Fresh Farms Inc.**


**Notes
      to Condensed Consolidated Financial Statements**


**September
      30, 2006**


Expressed
      in U.S. Dollars


(Unaudited)







***9
      - SUBSEQUENT EVENTS***




Subsequent
      to September 30, 2006, the Company converted the outstanding debentures to
      common shares. This resulted in the Company issuing 1,428,573 common shares
      and
      714,286 warrants.





Subsequent
      to September 30, 2006, the Company issued 1,767,684 common shares to the
      companies controlled by the officers of the Company as settlement of management
      fees payable amounting to $470,881.





Subsequent
      to September 30, 2006, the Company issued 500,000 common shares as payment
      for
      investor relations services valued at $0.25 per share.




***10
      - NEW ACCOUNTING PRONOUNCEMENTS***




**FASB
      Interpretation 48**





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





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





**SFAS
      No. 156**





In
      March
      2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
      Instruments - an Amendment of SFAS No. 140” (“SFAS 156”). This Statement amends
      SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and
      Extinguishments of Liabilities” *,* with
      respect to the accounting for separately recognized servicing assets and
      servicing liabilities. This Statement is effective for fiscal years beginning
      after September 15, 2006. The Company does not expect the adoption of SFAS
      156
      will have a material impact on its consolidated financial position, results
      of
      operations or cash flows.




12


**Dairy
      Fresh Farms Inc.**


**Notes
      to Condensed Consolidated Financial Statements**


**September
      30, 2006**


Expressed
      in U.S. Dollars


(Unaudited)







***10
      - NEW ACCOUNTING PRONOUNCEMENTS (continued)***





**SFAS
      157**





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157 (“SFAS 157”), “Fair Value Measurements”, which defines fair value,
      establishes guidelines for measuring fair value and expands disclosures
      regarding fair value measurements. SFAS 157 does not require any new fair value
      measurements but rather eliminates inconsistencies in guidance found in various
      prior accounting pronouncements. SFAS 157 is effective for fiscal years
      beginning after November 15, 2007. Earlier adoption is permitted, provided
      the
      company has not yet issued financial statements, including for interim periods,
      for that fiscal year. The Company does not expect the adoption of SFAS 157
      will
      have a material impact on its consolidated financial position, results of
      operations or cash flows.





**SAB
      108**




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




13


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





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





Management’s
      Discussion and Analysis of Financial Condition and Results of Operations
      ("MD&A") should be read in conjunction with the Company’s consolidated
      condensed financial statements included herein. Further, this quarterly report
      on Form 10−QSB should be read in conjunction with the Company’s consolidated
      financial statements and notes to consolidated financial statements included
      in
      its 2005 Annual Report on Form 10−KSB. In addition, you are urged to read this
      report in conjunction with the risk factors described herein.





**BACKGROUND**





This
      discussion and analysis of financial position and results of operations is
      prepared as at September 30, 2006 and should be read in conjunction with the
      condensed consolidated financial statements for the three and nine months ended
      September 30, 2006. These condensed consolidated financial statements have
      been
      prepared using the generally accepted accounting principles in the United States
      of America on the same basis as the audited consolidated financial statements
      for the year ended December 31, 2005 and, in the opinion of management, include
      all adjustments considered necessary for a fair presentation of financial
      position, results of operations and cash flows of the Company.





**Company’s
      overview**




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





14


The
      Company will launch an expanded product line and in Ultra High Temperature
      (UHT)
      form when planned financing as discussed under “Liquidity and Capital Resources”
is completed. Consequently there were no revenues in the three and nine months
      ended September 30, 2006.





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




**Critical
      accounting policies and estimates**




Our
      discussion and analysis of our financial condition and results of operations
      are
      based on our condensed consolidated financial statements, which have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America. The preparation of financial statements requires
      application of management’s subjective judgments, often requiring the need to
      make estimates about the effect of matters that are inherently uncertain and
      may
      change in the subsequent periods. Our actual results may differ substantially
      from these estimates under different assumptions or conditions. While our
      significant accounting policies are described in more detail in the notes to
      the
      consolidated financial statements included in the Form 10-KSB for the year
      ended
      December 31, 2005, we believe that the following accounting policies require
      the
      application of significant judgments and estimates.





**Revenue
      recognition**




The
      Company had 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.





15





**Plan
      of operation**





The
      plan
      of operation for the Company was developed over a three-year period. Management
      started by studying the Australian experience as it related to the Canadian
      marketplace. Significant sales numbers had been delivered out of Sydney, Australia
      but with both market changes and potential differing Canadian tastes management
      decided to take another approach to tackling the Canadian market. Camelford
      Graham Research Group undertook an independent market research study. This
      study
      was conducted in Vancouver, British Columbia and Montreal, Quebec. The results
      from the study were published in December 2003 with resulting findings focusing
      our operations on several very important areas.





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





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





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





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





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





With
      the
      completion of our $1 million financing we intend to focus our sales and
      marketing efforts over the next 12 months primarily on expanding our
      distribution and retail share in Western Canada. We are continuing to raise
      funds for the growth of our distribution and retail share in the rest of Canada.
      In such event, if we are unable to raise additional funds on a timely basis
      or
      at all, any progress with respect our products and, therefore, our potential
      revenues would be adversely affected.





16





**RESULTS
      OF OPERATIONS**





**Fluctuations
      in operating results**





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




**Revenues**




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 and ended on December 10, 2005. These stores are
      all
      located in the western provinces of Canada. As a result of the trial period
      ending there were no sales in the three and nine months ended September 30,
      2006.


**OPERATING
      EXPENSES**




**Advertising
      and product support**





With
      the
      launch of the Company’s initial two products there was a marketing program
      established to support sales in the three and nine months ended September 30,
      2005. The majority of the focus was on in-store demos. With the products off
      shelves, there was little in the way of initiatives in this advertising and
      product support in the three and nine months ended September 30,
      2006. ****




17


**Finder’s
      fee**




As
      part
      of the reverse takeover transaction in March 2005, the Company issued 1,500,000
      fully paid common shares as a finder’s fee to the Company’s
      advisor.




**Management
      fees**




Management
      fees decreased about 7% from the quarter ended June 30, 2006 with no changes
      to
      the management structure. Certain of the senior management team have temporarily
      reduced their compensation to preserve cash.




**Professional
      fees**




Professional
      fees in the quarter ended September 30, 2006 include an investment in licensing
      strategies in the Middle East and are consistent with the previous period.




**Travel**




Travel
      costs were at $38,462 for the quarter ended September 30, 2006. Travel costs
      increased during the quarter ended September 30, 2006 due to senior management
      maintaining a presence for financing and business activity in Western Canada
      and
      Frankfurt Germany where the Company is listed.





**Off-Balance
      Sheet Arrangements**




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





**New
      Accounting Pronouncements**





**FASB
      Interpretation 48**





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





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





**SFAS
      No. 156**





In
      March
      2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
      Instruments - an Amendment of SFAS No. 140” (“SFAS 156”). This Statement amends
      SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and
      Extinguishments of Liabilities” *,* with
      respect to the accounting for separately recognized servicing assets and
      servicing liabilities. This Statement is effective for fiscal years beginning
      after September 15, 2006. The Company does not expect the adoption of SFAS
      156
      will have a material impact on its consolidated financial position, results
      of
      operations or cash flows.





18


**SFAS
      157**





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157 (“SFAS 157”), “Fair Value Measurements”, which defines fair value,
      establishes guidelines for measuring fair value and expands disclosures
      regarding fair value measurements. SFAS 157 does not require any new fair value
      measurements but rather eliminates inconsistencies in guidance found in various
      prior accounting pronouncements. SFAS 157 is effective for fiscal years
      beginning after November 15, 2007. Earlier adoption is permitted, provided
      the
      company has not yet issued financial statements, including for interim periods,
      for that fiscal year. The Company does not expect the adoption of SFAS 157
      will
      have a material impact on its consolidated financial position, results of
      operations or cash flows.





**SAB
      108**





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




19




**Liquidity
      and Capital Resources**




At
      September 30, 2006, we have an accumulated deficit of $2,777,530 and we expect
      to incur additional losses in the short term at least until such time, if ever,
      that our products are manufactured and marketed profitably. We have financed
      our
      operations since inception primarily through the private placements of equity
      and debt securities. From our inception through September 30, 2006, we have
      received net proceeds of approximately $1,943,000 from private sales of our
      convertible debentures. We have been able to reduce our cash requirements with
      the deferral of management contracts of $700,966. The payment terms have not
      been defined for these management contracts.





At
      September 30, 2006, we have $593,714 in cash. Net cash used in operating
      activities was $437,121 for the nine months ended September 30, 2006 compared
      to
      $827,595 for the nine months ended September 30, 2005. The decrease in net
      cash
      used in operations in primarily due to a lower level of activity.





Net
      cash
      provided by financing activities was $1,011,993 for the nine months ended
      September 30, 2006 compared to $788,663 for the nine months ended September
      30,
      2005. The net cash provided by financing activities in the nine months ended
      September 30, 2006 was due to the net proceeds of $88,637 raised in a private
      note payable and $923,356 raised via an issuance of debt convertible to common
      shares.





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.





With
      the
      completion of our $1 million financing we intend to focus our sales and
      marketing efforts over the next twelve months on expanding our distribution
      and
      retail share in the Western Canadian marketplace. We are continuing our
      financing efforts for the expansion of our retail and distribution in the rest
      of the Canadian marketplace. In such event, if we are unable to raise additional
      funds on a timely basis or at all, any progress with respect to our products
      and, therefore, our potential revenues, would be adversely
      affected.





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





The
      condensed consolidated financial statements have been prepared on the going
      concern basis, which assumes the realization of assets and liquidation of
      liabilities in the normal course of operations.





20




If
      the
      Company was not to continue as a going concern, it would likely not be able
      to
      realize its assets at values comparable to the carrying values reflected in
      the
      condensed consolidated financial statements. As described elsewhere in this
      report, at September 30, 2006, there are certain conditions that currently
      exist
      which raise substantial doubt about the validity of this assumption. While
      the
      Company anticipates raising additional private placement funds to remove the
      substantial doubt, these private placements are not assured. Failure to raise
      additional funds may result in the Company curtailing operations or writing
      assets and liabilities down to liquidation values, or both.





The
      auditors’ report on the Company’s consolidated financial statements as of
      December 31, 2005 states that the net loss incurred during the year ended
      December 31, 2005, the accumulated deficit as of that date, and the other
      factors described in Note 2 to the consolidated financial statements included
      in
      the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2005,
      raise substantial doubt about the Company’s ability to continue as a going
      concern. The auditors’ report on the Company’s financial statements for the year
      ended December 31, 2004 contained a similar statement. The consolidated
      financial statements have been prepared assuming the Company will continue
      as a
      going concern and do not include any adjustments that might result from the
      outcome of this uncertainty.




**Risks
      Related to Our Company**




We
      have
      not been profitable since our inception in 2003. As of September 30, 2006,
      we
      have an accumulated deficit of $2,777,530 primarily as a result of our start
      up
      expenses. We may never realize sufficient revenues from the sale of our products
      or be profitable. Each of the following factors, among others, may influence
      the
      timing and extent of our profitability, if any:





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


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


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


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





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





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




21




**ITEM
      3. CONTROLS AND PROCEDURES**




**Evaluation
      of Disclosure Controls and Procedures**





We
      carried out an evaluation, under the supervision and with the participation
      of
      our management, including our Chief Executive Officer and Principal Financial
      and Accounting Officer, of the effectiveness of our disclosure controls and
      procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
      Exchange Act of 1934 as of the end of the period covered by this report. Based
      on that evaluation, our Chief Executive Officer and Principal Financial and
      Accounting Officer have concluded that our disclosure controls and procedures
      as
      of September 30, 2006 were not effective due to material weakness in our
      internal controls over financial reporting described below, and other factors
      related to the Company’s financial reporting processes.





As
      disclosed in the Company’s Form 10-KSB for the year ended December 31, 2005,
      both the Company and its independent registered public accounting firm
      identified certain significant internal control deficiencies that we considered
      to be, in the aggregate, a material weakness. The primary concern was the
      adequacy of review of supporting schedules that result in adjusting journal
      entries being entered into the accounting systems that were inaccurate or
      disclosures in the notes to the financial statements that were incorrect or
      inadequate. These inaccuracies were not detected by the control procedures
      of
      management reviewing the schedules and supporting documentation, resulting
      in
      errors appearing on the financial statements and subsequent detection in the
      audit. The other area of concern was the inadequate segregation of duties among
      the administrative staff. Due to the size of our Company and the costs
      associated to remediate these issues, we still consider these concerns to be
      relevant.





**Changes
      in Internal Controls**





There
      have been no material changes in our internal controls over financial reporting
      or in other factors that could materially affect, or are reasonably likely
      to
      affect, our internal controls over financial reporting during the quarter ended
      September 30, 2006.





PART
      II OTHER INFORMATION




Item
      1.
      Legal Proceedings




Not
      applicable





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





In
      February 2006, 26,000 common shares were issued as payment for professional
      fees
      incurred in the year ended December 31, 2005, valued at $0.50 per share which
      represents the fair value of the Company’s share when the services were
      completed. The excess in the par value is recorded in contributed
      surplus.




22




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





Item
      3.
      Defaults Upon Senior Securities





Not
      applicable





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





None.





Item
      5.
      Other Information





None.





Item
      6.
      Exhibits




A.
      Exhibits:




31.1
              Certification
                  of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
                  Act.31.2
              Certification
                  of Principal Financial and Accounting Officer Pursuant to Section
                  302 of
                  the Sarbanes-Oxley Act.32.1
              Certification
                  of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
                  Act.32.2
              Certification
                  of Principal Financial and Accounting Officer Pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act.




23





**SIGNATURES**





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




DAIRY
              FRESH FARMS
              INC.By:
            /s/ Robert
              HarrisonRobert
              HarrisonChief
                Executive Officer




Date:
                November 24, 2006


By:
            /s/ Don
              PatersonDon
              PatersonPrincipal
              Financial and Accounting Officer




Date
                November 24, 2006




24