UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-KSB

Amendment No. 1



[ X ]     ANNUAL REPORT UNDER  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended    December 31, 2006



[  ]     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to ______________



Commission File Number        000-17232



FACT CORPORATION

(Name of small business issuer in its charter)



|COLORADO                                                       | 84-0888594                          
|-------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)



|1530-9th Ave S.E., Calgary, Alberta Canada | T2G0T7    
|------------------------------------------ | ----------
|(Address of principal executive offices)   | (Zip Code)

Registrants telephone number, including area code   (403) 693-8000





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



|Title of each class |  |  | Name of each exchange on which registered
|------------------- |  |  | -----------------------------------------
|None                |  |  | None                                     



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



|Class A Common Shares
|---------------------
|(Title of Class)     



Check whether the issuer (1) 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 (2) has been subject to such filing requirements for the past 90 days.

Yes     [ X ]       No   [  ]



Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.

[  ]



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





State issuer's net revenues for its most recent fiscal year:

$1,803,579







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State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act):



Aggregate market value of voting and non-voting common equity held by non-affiliates is $5,152,355 based on a price of $0.64 per share which is the last price at which common equity was sold on April 13, 2007.





(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST 5 YEARS)



Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.

Yes     [  ]       No   [   ]



(APPLICABLE ONLY TO CORPORATE REGISTRANTS)



State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:



As of  March 28, 2007, the Issuer had a total of 17,154,406 shares of common stock issued and outstanding.



DOCUMENTS INCORPORATED BY REFERENCE



If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB (e.g. Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1990).



Transitional Small Business Disclosure Format (Check one): _________Yes

__________No















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Note to Reader  Reason for Amendment



On or about June 24, 2005, management of FACT Corporation (the Registrant) received a comment letter from the Securities and Exchange Commission in regard to certain clarifications that the Securities and Exchange Commission requested we provide with respect to disclosures contained our Form 10-KSB filing for the fiscal year ended December 31, 2004.  Additionally the Securities and Exchange Commission requested an explanation of the accounting treatment applied to certain acquisitions and divestitures which occurred in prior fiscal years.   In a series of correspondence letters between the Company and the Securities and Exchange Commission over the period from June 2005 to October 2006, Management undertook an analysis of the Registrants disclosure and accounting treatments, and the suggested revisions provided by the Securities and Exchange Commission.  As a result on April 16, 2007, the Company filed its Form 10-KSB for the fiscal year ended December 31, 2006, with certain current period adjustments, and also restated certain figures for the prior fiscal year ended December 31, 2005.  Further, the document as filed included as Note 2, a detailed note to the financial statements explaining the impact of those items which had been revised in prior periods, and the underlying reason(s) for same.



On July 24, 2007 and September 27, 2007 respectively, Management of the Registrant received further comment letters from the Securities and Exchange Commission in regard to the amended disclosures and restated figures provided in our Form 10-KSB for the fiscal year ended December 31, 2006.  In these letters, the Securities and Exchange Commission requested further clarification of the treatment of certain restated figures and suggested further amendments to the presentation of the restatements and other areas of the Form 10-KSB as filed.



As a result of these requests, Management has revised and augmented both the presentation and the narrative discussion of the prior year restatements, and has revised the valuation of  a certain transaction whereby certain Class C shares were converted to shares of Class A common stock. We have also considered and revised where necessary the note disclosure and the impact of these items to our Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Cash Flows and Consolidated Statements of Stockholders Equity.



In connection with the changes described above, the Registrant is hereby re-filing the Financial Statements  and the Notes to the Financial Statements, in this Amendment No. 1 to its annual report on Form 10-KSB for the fiscal year ended December 31, 2006.  The document as filed no longer contains the Report of Independent Registered Public Accounting Firm as the restatements presented have not been audited by the Companys current independent registered public account firm.   The Company does not intend to complete a re-audit of the comparative figures presented in this report for the fiscal year ended December 31, 2005, as the impact of the restatements does not alter the originally audited the Statement of Operations for the 2005 fiscal year presented, but rather is limited to the retained earnings presented on the Balance Sheet and Statement of Stockholders Equity.  The Company plans to file its Form 10-KSB for the fiscal year ended December 31, 2007 including audited comparative figures for the fiscal year ended December 31, 2006, with the  note disclosure on the restatements to prior periods included in this report, when filed.





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ITEM 1.     DESCRIPTION OF BUSINESS.



(a)

Business Development



FACT Corporation was incorporated under the laws of the State of Colorado on August 3, 1982 and is referred to herein as either "FACT", "the Company", "we", "us" or "our".  FACT Corporation predominantly operates  in the functional food industry through its wholly owned subsidiary, Food and Culinary Technology Group Inc., (FACT Group) developing, licensing and supplying turnkey functional bake mixes to customers who manufacture, distribute, and market bakery and pasta products to consumers through a variety of conventional and alternative channels including retail, food service and specialty markets. The Companys primary revenue stream is generated by the sale of these functional bake mixes in a wholesale format.  The Company has also developed a line of home-use retail baking mixes under its Nutrition FirstTM brand for cookies, brownies and other products.  During fiscal year 2005, the Company commenced a test market for its home-use line of products via an online internet store at www.eatwellstaywell.net.  Due to insufficient funds, the Company was unable to continue with marketing and advertising efforts as proposed, and the site was discontinued prior to the close of fiscal year 2005 pending a review of the business proposal upon receipt of additional funding.  The Company is currently reviewing 2007 to 2010 growth initiatives.



As of the date of this filing, the Company has three (3) wholly-owned subsidiaries, Wall Street Investment Corp. ("WSIC"), Wall Street Real Estate Ltd., (Wall Street), and FACT Group. WSIC currently has no business operations.  The Company had intended to dissolve or divest WSIC during the fiscal year 2006; however, this did not occur and is now planned for completion in fiscal year 2007.  Wall Street was incorporated in the Province of Alberta, Canada on July 23, 2002 for the purpose of holding commercial real estate assets.  During fiscal year 2005 Wall Street disposed of all of its assets and the Company intends to pursue a divestiture of this inactive subsidiary during fiscal year 2007.  FACT Group was incorporated in the State of Nevada on August 14, 2001 for the purpose of acquiring an interest in certain proprietary functional food formulations, and was acquired by the Company on November 7, 2001. FACT Group has a wholly owned subsidiary, FACT Products Inc., which was incorporated in the State of Nevada on November 5, 2001 as FACT Bread Company, Inc.  Presently FACT Products, Inc. has the rights to the Aunt Lydias crèmes however, due to problems with the product, the Company has discontinued operations and the company has determined that it will spin-off this subsidiary by way of a dividend to the shareholders of the Company whereby each shareholder of the Company will receive one share of FACT Products Inc. for every five shares of the Company with a record date for the spin-off of the shares of January 10, 2007.   The Company is presently in the process of preparing the necessary filings with the Securities and Exchange Commission to effect the spin-off.



As the Company is a U.S. corporation, all dollar amounts used herein refer to U.S. dollars unless otherwise stated.



(b)

Business of Issuer



Current Operations



The Company presently undertakes all of its business operations indirectly through its wholly-owned subsidiaries.  These operations consist of the sale of bake mixes and other food products to commercial customers.  The Company continues to hold a passive investment in a public corporation which is a former subsidiary of the Company.  The Company continues to divest this investment as the market allows, and intends to have all divestitures complete by the close of fiscal year 2007.  The sole focus of the Company's business is presently its operations in the functional foods industry. A discussion of each segment of the Company's current business operations is provided below.



Functional Food Business



Through a share exchange agreement between the Company and the shareholders of FACT Group, executed in November 2001, the Company issued a total of 2,000,000 shares of its Class C common stock in consideration for all of the issued and outstanding shares of FACT Group, a company intending on operating in the functional food business.  The acquisition included certain proprietary formulas for functional dough and batter based products.   The acquisition of FACT Group required that the formulations be held in escrow contingent upon the Company providing capitalization to FACT Group in the amount of $3 million and the payment of $2 million in royalties to certain of the shareholders of FACT Group. As a result of a settlement of a dispute with such certain shareholders (the Plaintiffs), the formulas to the premixes and other intellectual property have been released to the Company,

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the requirement for funding of $3 million was discontinued, and the Plaintiffs returned all of their Class A common shares and their Class C common shares to the Company.  Certain amounts due to the Plaintiffs for services rendered were forgiven.   The purchase price for the intellectual property remains at $2 million, to be paid in the form of royalties based on pounds of product sold by FACT Group.   FACT Group is obligated to pay the following minimum annual royalty payments:





2007  $  76,895

2008  $  99,963

2009  $129,953

2010  $168,938

2011  $219,620

2012  $285,506

2013 - all remaining royalties become due and payable as one balloon payment.



As part of the settlement of the dispute noted above, FACT Group also agreed to pay a maximum of $233,333 in additional income to two (2) of the Plaintiffs calculated on a monthly basis from September 1, 2003through December 31, 2006 and payable from November 1, 2003 to February 28, 2007. As at the end of the current fiscal year, the total amount paid to the Plaintiffs totaled $177,686, with no further obligation.  As additional terms of the settlement, the Plaintiffs were prohibited from competing with FACT Group for five (5) years, must keep all trade secrets confidential and were required to provide training for FACT Group's new technical support personnel.



FACT Group holds the rights to certain formulations for the production of dough and batter-based functional food products ranging from breads, bagels, pastas, and pizza shells, to sweet baked goods, snack bars and confectionery, as well as other foods derived from a dough, batter or mix. Commercial sales of premix commenced in November 2002. Presently, FACT Group sells its Nutrition FirstTM premixes and products to manufacturers, distributors and food service clients, who incorporate the premix into finished products to market and sell to the end consumer under their own retail brand/label, paying FACT Group a fee for each pound of premix purchased. FACT Groups premixes enable customers to make claims on their end products pertaining to a variety of market positions including a reduction in refined carbohydrates, increased fiber, low or no sugar, organic and all-natural positioning, weight management benefits, and other tangible benefits.  FACT Group also entered into a licensing agreement with a North American bakery ingredient distributor that sells products containing FACT Groups premixes under its own brand name.  FACT Group receives a royalty for each pound of premix sold by such distributor. FACT Group is currently in negotiations with a number of potential new customers for the supply of functional premixes across various other product channels including donuts, brownies, muffins and other sweet goods products.  The Company also hopes to conclude agreements in fiscal year 2007 to market its line of at-home mixes for bread, muffins, cookies, cakes, brownies, pancakes, waffles and scones.   FACT Group is also pursuing other methods to increase sales and distribution of its line of premixes and finished products.  In January 2005, FACT Group launched an online store at www.eatwellstaywell.net where the consumer could directly purchase home-use versions of some of the more popular commercial bake mixes, including brownies, cookies, an all-purpose bake mix and other products.  This line of retail size mixes was also marketed under the Companys Nutrition FirstTM brand.   The Company discontinued its retail distribution and the online store during fiscal year 2005 due to insufficient funding to launch the proposed marketing campaign and to maintain the costs of the inventory and the online website.   FACT Group is currently pursuing additional premix licensing agreements with large suppliers to the bakery industry.  FACT Group has secured arrangements with two independent blending facilities in New Jersey and New York for the preparation of premix for use in end consumer products.  Fiscal year 2007 plans include expanding the Companys commercial premix distribution base, seeking alternate channels to introduce the Companys product lines, an advertising and marketing campaign to re-launch its on-line store (as funding permits) and potential merger and acquisition opportunities with complimentary organizations operating in the functional foods segment.



Functional foods can be described as foods designed to deliver specific health benefits to the consumer, and whose inherent health benefits go beyond basic nutrition, including the prevention of disease and the promotion of wellness through nutrition. FACT Groups vision is to be a competitive supplier of nutrition solutions to commercial customers so they can create food products with added health benefits, positioned as healthy alternative foods to serve as part of the North American consumer's everyday diet. FACT Group intends to become a leader in product development and a key ingredient/premix supplier to the functional foods industry. Primary areas of focus are consumers with the following concerns: diabetes, carbohydrate control, glucose management, weight management, heart disease and digestive health.

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FACT Group formulations are not patented, but are trade secrets, as is common in the food industry, and will remain proprietary by way of stringent non-disclosure and confidentiality agreements executed with the blending facilities. Customers also execute confidentiality agreements and are serviced under premix supply agreements which do not allow access to FACT Groups premix formulations in their entirety.   FACT Group does not require any governmental approval for its existing line of products, and is currently in the process of trademarking its master brand “Nutrition FirstTM”.



Sales from the premixes and other complimentary products in 2006 accounted for ninety-nine (99%) of the Company’s total revenues.  While the Company’s revenues are increasing and it is nearing profitability, the Company still reported losses at the close of fiscal 2006.  The Company believes 2007 will be its first profitable year of operations. Current year losses are predominantly the result of amortization expenses relating to its intellectual property, a one time write down of the value of certain passive investments in marketable securities, and interest expenses.  The Company no longer considers its investment in FACT Group an investment in a developing business.  FACT Group has a proven track record of year over year revenue since the close of fiscal year 2002, and expects to continue to see increasing revenue growth.  FACT Groups ability to continue to execute its business plan and achieve profitable operations will be impacted by numerous factors including the following:  maintenance of existing customers and acquisition of new customers through supply and licensing agreements; acceptance of the Companys customers end products by the retail consumer; acceptance of the Companys branded products by the retail consumer; access to sufficient amounts of key ingredients for uninterrupted supply of the Companys premixes to customers; protection of the Companys proprietary formulations and continuing development of new commercial formulations; the onset of competitive products in the retail marketplace and ongoing financing to meet operational overhead until such time as FACT Group can consistently achieve sufficient sales to meet ongoing expenses and growth initiatives.



Competitive Business Conditions and the Companys Competitive Position in the Industry



FACT Group is presently operating in an emerging growth industry which experienced a rush of new competitors to the marketplace in fiscal years 2003 and 2004.  During 2004 and early 2005, the competitive landscape was further impacted with the failure of several of these emerging enterprises which, having entered the marketplace quickly, over-saturated the market with numerous line extensions and new product offerings, only to suffer poor consumer acceptance levels, resulting in diminished sales and ultimately, product failure.   This phenomenon also extended to several larger, well established food companies that, in an effort to secure profitable segments of the market with rapid product introductions, experienced poor consumer take-off at the retail grocery level, resulting in a withdrawal of newly launched items.  Additionally, various larger and smaller food companies with sales dependent on traditional bakery goods were adversely impacted by the quick introduction and rapid expansion of functional bakery products, in particular the low carb segment of this functional market, resulting in more commercial product failures, dramatic sales declines and overall instability in the bakery segment of the food industry.  Larger food conglomerates entered the functional arena in late fiscal year 2004 and early fiscal year 2005 marketing products to cater to the mainstream interests of the consumer including increased fiber and reduced sugar product offerings.  This foray into the industry has been particularly successful and is continuing to see good consumer response.  The Company believes this market has now progressed to a more stable operating environment, and that its unique collection of product offerings will have enhanced sales potential now that the market has settled and consumer demands and preferences have been assessed.



While direct competitors with FACT Group are limited, the Company considers bakery ingredient suppliers offering high fiber, or low glycemic bakery premixes, as well as premixes designed to offer a reduction in refined carbohydrates which can be incorporated into end-products and marketed to manufacturers, food service and quick-serve restaurants, direct competitors.  Now that FACT Group has also developed its own line of home-use baking mixes, competition will also exist from other branded and private label bakery mixes targeting the weight loss, glucose management and fiber enhancement segments of the market.



However, the segment of the functional foods industry in which the Company is operating, breads, grains and baked goods, accounts for approximately forty percent (40%) of total sales in the Companys segment of the food industry, allowing room for a vast competitive landscape. Total food product and other sales across the U.S. nutrition market totaled $69 billion in 2005, leaving FACT Group ample opportunity to secure a profitable segment of the market share.  Presently the Company estimates there are between the (10) and fifteen (15) like organizations (excluding large food conglomerates that provide products catering to the fringe of the functional market) providing the industry products which may be considered similar to those marketed by FACT Group.  Many of these companies are much larger and better financed than FACT Group.

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Sources and Availability of Raw Materials and the Names of Principal Suppliers



FACT Group relies on the supply of several key ingredients from large food grade ingredient manufacturers, such as ADM and Sensus America, in order to supply the Companys  customers with its line of premixes and products.  While FACT Group has entered into supply agreements with certain of these suppliers, the Company does not have volume agreements in place with respect to all of its key ingredients.  Should there be a shortage of raw ingredients or sizeable fluctuation in commodity pricing, FACT Group may not be able to adequately service its existing or future customers.  FACT Group is constantly evaluating its formulations to ensure it has alternatives to these key ingredients in order to avoid any unexpected ingredient supply issues.  Additionally, during fiscal year 2007 FACT intends to investigate possible commodity hedging opportunities to further secure its profitability during times of unstable commodity prices for certain key components of its commercial formulations.



Dependence On One or a Few Major Customers



FACT Groups revenues for fiscal years 2005, 2006 and to the date of this report rely heavily on sales made to two (2) key customers.  Western Bagel Baking Corporation of Van Nuys, California and Prince Donuts Inc. of Linden, NY.  Together these two (2) customers accounted for approximately eighty two per cent (82%) of premix sales to the end of fiscal year 2005 and ninety eight per cent (98%) to the end of fiscal year 2006.  As at the date of this report, FACT Group is actively working to successfully close additional client accounts that should assist in better diversifying our revenue base.  It is anticipated that until such time as FACT Group establishes a more diverse range of products in the marketplace, it will remain reliant on a small number of key customers to drive sales.



Amount of Time Spent During Each of the Last Two Fiscal Years on Research and Development Activities and if Applicable the Extent to which the Cost of Such Activities are Borne by Customers



During the past two (2) fiscal years, FACT Group has reduced the time and resources from that previously spent commercializing its premixes for commercial sales. While there were new product additions in fiscal year 2006, much of this work was completed in collaboration with one of FACT Groups key distributors in order to keep expenditures to a minimum and  to draw from the experience of a diverse product development team.  Amounts expended by FACT Group in pursuit of such activities are borne exclusively by FACT Group. FACTs operating plans for fiscal year 2007 through 2010 call for increased expenditures on research and development related to customized product lines for mens, womens, seniors and childrens health, and therefore, the Company would expect to see some of these costs borne by customers.



Distribution Methods



The Company distributes its products directly to customers from its contracted warehouse space on the East and West coasts.  The Companys line of premixes is also distributed to clients through a licensing agreement under which a large North American bakery ingredient manufacturer has licensed FACT Groups formulations to blend and sell under their own brand.



Need for Government Approval of Principal Products



FACT Group uses only those raw ingredients which have already received government approval for use in food products. All its premixes contain Generally Regarded As Safe (GRAS) ingredients which have received Food and Drug Administration (FDA) approval as required.



Other Food Products



During fiscal year 2003, FACT Groups wholly owned subsidiary, FACT Products, acquired the exclusive world-wide license to a line of imported, shelf stable, non-dairy whipped toppings which it markets under the brand name Aunt Lydias Italian Cremes.



The toppings are available in four flavors including chocolate, strawberry, vanilla and mocha.   The toppings are lower in fat, have no cholesterol and do not require refrigeration.   The products were manufactured in Italy and exported to North America.



The distribution of these products undertaken by FACT Products, was unsuccessful in getting these products to market due to technical product problems and insufficient funding to undertake the necessary research and

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development to correct the technical problems.  As a result, FACT Products was forced to discontinue distribution of the products and was faced with certain liabilities for product returns, warehousing and disposal of the remaining products.  Presently, there remains an amount outstanding in the approximate amount of $143,354 due to the manufacturer of the products. The manufacturer has commenced legal proceedings in an effort to recover the alleged  amount outstanding during the last quarter of fiscal year 2006.   FACT Products is disputing the amount and has filed a counterclaim for defective product, for the loss of business related to the defective product and to recover any out-of-pocket costs relating to the defective product.  The parties have commenced settlement negotiations pursuant to a request by the manufacturer.  As of the date of this filing, the parties have not reached a settlement.  FACT Group determined to spin off the operations of FACT Products during 2006 and set a record date of January 10, 2007, for the spin-off.  The intent of the spin-off is to raise funds to undertake further product research, development and marketing with new management, the majority of which will be unrelated to the Company.  If a settlement with the manufacturer cannot be reached, then FACT Products would be required to continue with the litigation and if it is unable to raise the required funds under its plans to spin-off and seek a financing, it may be required to seek the protection of the bankruptcy courts.  It is not expected that this litigation will impact on the operations of the Company or on FACT Group.  The spin-off is expected to be completed prior to the close of fiscal year 2007.



Amount of Time Spent During Each of the Last Two Fiscal Years on Research and Development Activities and if Applicable the Extent to Which the Cost of Such Activities are Borne by Customers



The Company has not spent any time on research and development of the Aunt Lydia products, though during 2004, time was allocated to new packaging formats such as thirty six (36) unit shippers and three (3) unit multi-packs to expand the product formats available to retail supermarkets and club stores. There is no further research and development planned on this discontinued product line.



Real Estate



The Company divested itself of all of its real estate assets during the fiscal year 2005.



Investments in Marketable and Non-Marketable Securities



During fiscal year 2005, the Company divested its interests in Texas T Minerals Inc., a public reporting Alberta corporation, and its private subsidiary, Texas T Petroleum Ltd.. The Company originally made these investments with the intent of becoming more actively involved in the oil and gas industry, specifically through the commercialization of a proprietary and patented heavy oil upgrading technology under development by these companies. These companies divested their interest in this heavy oil upgrading technology in December 2001 (transaction closed March 2002), shortly after the Company determined to change its focus to the food industry with the acquisition of FACT Group in November 2001. Prior to December 31, 2005, the Company divested all of its shares of the public reporting company for CAD$0.15 per share for total CAD proceeds of $13,466 (US$11,069).  The Company recorded a loss of $7,417 with respect to the transaction in fiscal year 2005.



During fiscal 2005, the Company also agreed with the other shareholders of the private company, Texas T Petroleum Ltd., to transfer its shares of the company to the remaining shareholders, on a pro rata basis in exchange for forgiveness of the Companys current share of  outstanding liabilities due and payable. The transaction resulted in the write-down of the Companys recorded interest in the private company in the total amount of $112,510.



The Company acquired an interest in shares in a second reporting corporation, Australian Oil & Gas, during 2003 by way of settlement of a claim in bankruptcy relating to a lease for space in one of the Companys rental properties.  These securities were divested in their entirety during fiscal year 2006. The Company received proceeds of $18,743 and recorded a loss of $3,027 relating to this transaction.



During fiscal year 2005, the Company acquired 500,000 shares of Capital Reserve Canada Limited, a public reporting issuer and formerly a wholly owned subsidiary of the Company, as part of an agreement with various third parties whereby the Company transferred all of its rights and interest in a convertible loan negotiated with Capital Reserve Canada Limited earlier in the year.  Under the terms of the divestiture agreement, the Company received cash consideration totaling $400,000 and 500,000 free-trading shares of Capital Reserve Canada Limited.  The fair value of the shares received and the value of the cash proceeds offset the total value of the convertible loan for financial reporting purposes resulting in a loss on the original investment of $266,944.  The securities remained on the books of the Company with a market value of $250,000 at the close of fiscal year 2005.  During fiscal year 2006,

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the Company commenced the sale of these securities realizing proceeds of $2,100 prior to the end of the year.  At 2006 fiscal year end the Company still held a total of 481,800 shares of Capital Reserve Canada Limited with a market value of $19,272.  Accordingly, the Company wrote-down the book value of the investment, recording a loss of $7,000 with respect to sales of securities completed during the year, and a permanent decline on the value of the securities of $221,628.



Investments in developing companies are highly speculative and the Company's ability to recover its investment will be impacted by numerous factors including the marketability and liquidity of the common shares of the companies, the companies' abilities to continue to operate their businesses and factors affecting the business environment in which the companies operate.  Presently, the Company has no plans to make further investments of this nature.



Employees



The Company and its subsidiaries do not have any direct employees.  All of the Companys employees work on a contract basis.  As of April 14, 2007, the Company and its subsidiaries had one (1) full-time contract employee and four (4) part-time contract employees providing various administrative and support services through consulting companies. The tasks and duties undertaken by employees include corporate management, legal counseling, administration, accounting, sales and marketing, and product development. The Company contracts with certain other consultants to provide product development services, sales support, marketing and advertising support, investor relations activities and property management, as required.



ITEM  2.     DESCRIPTION OF PROPERTY.



The Companys subsidiary, Wall Street, presently leases 3,840 square feet of office space at 1530-9th Ave S.E., Calgary, Alberta Canada, from Sun Prairie Resources Ltd., from which location the Company and all its subsidiaires carry on operations. The lease is for a four (4) year term ending on July 31, 2010.  There is no provision in the lease for renewal.



Under the terms of the lease, Wall Street pays monthly rent at a fixed rate of $9.87 (CAD$11.50) per square foot for a total of $3,158 (CAD$3,680) per month, plus operating costs of approximately $7.09 (CAD$8.26) per square foot totaling $2,268 (CAD$2,643), plus applicable taxes.  Annual fluctuations in operating costs as a result of actual costs versus budgeted costs may result in adjustments to the operating costs for each ensuing year.



Minimum annual lease payments (inclusive of estimated operating costs) are as follows:



1

- $65,110

2

- $65,110

3

- $65,110

4

- $37,981



Wall Street has sublet the space as follows:



-

International Securities Group Inc. has a sublease for 729 square feet on a month-to-month basis at a rate of $1,030 (CAD$1,200) per month, inclusive of operating costs, plus applicable taxes;

-

FACT Corporation has a sublease for 768 square feet on a month-to-month basis at a rate of $1,085 (CAD$1,264) per month, inclusive of operating costs, plus applicable taxes.

-

Toggle Networks has a sublease of 2,344 square feet expiring August 31, 2007, which generates revenue of

$3,581 (CAD$4,173) per month, inclusive of operating costs, plus applicable taxes. Toggle Networks has verbally advised Wall Street of their intent to renew their sublease for an additional term expiring on July 31, 2010, at $12.01 (CAD$14.00) per sq. ft plus operating costs.  The lease is currently in the process of being prepared for execution.



Wall Street has entered into discussions with both FACT Corporation and International Securities Group Inc. to finalize leases for the remaining term of the Wall Street lease and expects to complete these negotiations immediately upon finalization of the lease with Toggle Networks.



Neither the Company, nor its subsidiaries, own any properties or any real estate.



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ITEM 3.     LEGAL PROCEEDINGS.



On May 26, 2006, FACT Group filed a complaint in the Superior Court of the State of New Jersey, Chancery Division, Monmouth County (the Complaint) against Ore Enterprises LLC, d.b.a. Smartblendz, Avigdor Orr and Michael Baum.  In the Complaint, FACT Group alleges, among other things, that Baum, a former consultant to FACT Group, and Orr have misappropriated certain of FACT Groups proprietary trade secrets in order to recreate FACT Groups premixes and other baked-goods products to be sold in direct competition with FACT Group.  The Complaint further alleges intentional interference with existing and prospective economic advantage, breach of contract, breach of duty of loyalty and breach of the covenant of good faith and fair dealing.  FACT Group is seeking (1) to enjoin and restrain Baum, Orr and Smartblendz from using or disclosing the trade secrets of FACT; (2) to impose a constructive trust in regard to all profits obtained by the use of the trade secrets; (3) for other compensatory, consequential and punitive damages; (4) for reasonable attorneys fees and costs of the suit; and, (5) other further relief as the court may deem proper.    On or about August 10, 2006, defendants Ore Enterprises, Orr and Smartblendz (Defendents) filed an Answer and Counterclaim denying FACT Groups allegations. In the counterclaim, Defendents allege claims of intentional interference with contractual relationships, intentional interference with existing and prospective economic advantage and defamation/slander and libel.  FACT Group has filed an answer to the counterclaim, in which it denied all allegations contained therein.   Defendant Michael Baum declined to file an answer to FACT Groups Complaint; rather, he filed a motion to compel arbitration of FACT Groups claims against him pursuant to a former consulting agreement he had with FACT Group.  Mr. Baums motion was denied subsequent to the year end December 31, 2006, and he has been required to prepare and submit an answer.  Prior to December 31, 2006, the Defendants agreed to a permanent injunction, the form and content of which has been drafted by the Company and submitted to opposing counsel for review.  The Company has commenced discovery of Baum and Orr in an effort to provide additional detail for the proposed injunction.  Defendant Orr has commenced Chapter 13 proceedings in the State of NJ.  The Company intends to continue to pursue all available remedies.



On November 20, 2006, FACT Group and FACT Products, Inc. were served with a complaint in the civil action in the Superior Court of the State of New Jersey, Chancery Division, Monmouth County (the CO.DA.P. Complaint) by CO.DA.P Cola Dairy Products, SPA (CO.DA.P.), an Italian corporation.  Under the CO.DA.P. Complaint, CO.DA.P is seeks judgment against FACT Group and/or FACT Products for alleged outstanding accounts payable totaling $94,414, with interest.  FACT Group and FACT Products have filed an answer and counterclaim to the CO.DA.P. Complaint   In its counterclaim, Fact Products (the party in interest) alleges defective product design and negligence and seeks damages for lost business, past and future.  In its answer, FACT Group denies it is a proper party to the litigation.  As at the date of this filing, CO.DA.P has requested that the companies enter into settlement negotiations.

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



No matters were submitted to the Companys security holders for a vote during the fourth quarter of uts fiscal year ending December 31, 2006.

PART II

ITEM 5.      MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.



(a)

The Company's common stock trades on the Over-the-Counter Bulletin Board (OTC/BB) under the symbol "FCTOA".  Following is a report of high and low bid prices for the last two (2) fiscal years.



|Year 2006                  | High | Low 
|-------------------------- | ---- | ----
|4th Quarter ended 12/31/06 | 0.93 | 0.33
|3rd Quarter ended 9/30/06  | 0.56 | 0.30
|2nd Quarter ended 6/30/06  | 0.77 | 0.26
|1st Quarter ended 3/31/06  | 0.46 | 0.26





|Year 2005                  | High | Low 
|-------------------------- | ---- | ----
|4th Quarter ended 12/31/05 | 0.41 | 0.20
|3rd Quarter ended 9/30/05  | 0.40 | 0.15
|2nd Quarter ended 6/30/05  | 0.72 | 0.38
|1st Quarter ended 3/31/05  | 0.85 | 0.43

10



The information as provided above was provided by Pink Sheets.  The quotations provided herein may reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.



As of April 16, 2007, there were 14 market makers in the Companys stock. The last available reported trade by the OTC/BB prior to the filing of this report was April 13, 2007 at $0.64.

.



As of March 28, 2007, there were 684record holders of the Companys Class A common stock.



During the last two (2) fiscal years, no cash dividends have been declared on the Company's stock.



Securities Authorized for Issuance under Equity Compensation Plans



All outstanding stock options expired unexercised during the fiscal year ended December 31, 2006.



At a shareholders meeting held on July 17, 2003, the shareholders approved a 2003 stock option and stock award plan of up to 1,000,000 stock options whereby employees, officers, directors and/or consultants of the Company may be compensated through the granting of stock options and stock awards. The Plan will be for such number of shares that is equal to twenty percent (20%) of the Corporations total issued and outstanding shares as at the time that the Corporation adopts a formal written Plan. Directors will be eligible for no more than 25% of the shares authorized under the Plan and executive officers will be eligible for no more than 25% of the shares authorized under the Plan.  The Corporation has not yet adopted a formal written Plan and no options have been granted under the Plan as at the date of this report.



(b)

RECENT SALES OF UNREGISTERED SECURITIES



During the quarter ended December 31, 2006, the Company did not issue any unregistered securities.



ITEM 6.     MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.



a.

Plan of Operation



At present, based on current operations, the Company does not have sufficient cash and liquid assets to satisfy its cash requirements on a monthly basis. While the Company does generate income from sales of functional premixes on a monthly basis, these proceeds are not sufficient to meet the Company's current monthly overhead, which includes the on-going business of the Company, FACT Group and two dormant subsidiaries. The Company will require approximately $5,000,000 to cover its anticipated overhead and operational needs, inclusive of inventory, for the upcoming twelve-month period.  Revenues generated from operations are expected to contribute $5,250,000 in gross revenues and are expected to be sufficient to meet all operational overhead for the coming twelve months.    While the Company has projected gross revenues from its food operations of approximately $5,250,000 over the upcoming twelve months, such projections are subject to numerous factors that are beyond our control. Projected operational costs and overhead of $5,000,000 include approximately $4,450,000 for inventory and premix costs associated with the Companys functional foods business and $550,000 in general operating expenses, exclusive of amortization and depreciation, relating to the Company and all of its existing subsidiaries,. The Company may be required to raise approximately $300,000 to meet its projected costs should it not be successful in achieving its projected gross revenues. The Company expects that it will be able to obtain additional equity and/or debt financing to meet this need.



The Companys budget of $550,000 in general operating expenses includes the expenditure of approximately $150,000 over the next twelve months on ongoing product refinement, technical support, the development of second and third generation functional formulations, including amounts paid to employees and consultants retained for the purposes of providing research and development support.



Included in the cash requirements noted above of $5,000,000 over the next twelve months is an amount of approximately $350,000 with respect to the operations of FACT Group, exclusive of inventory requirements and forecasted costs of goods sold.  From the date of acquisition November 2001 to December 31, 2006, the Company has funded a total of $901,409 (net of associated interest charges) to FACT Group in respect of its ongoing operational expenses.



Should it be required, and if the Company is able to negotiate favorable terms, the Company may look to raise funds in excess of the current cash requirement by way of debt or equity financing in order to accelerate its growth.  The

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Company is currently assessing strategic mergers and/or joint ventures with complementary businesses in order to enhance and support its current operational objectives.



The Company anticipates that its subsidiary FACT Group will hire an additional one to three employees during the upcoming twelve months should the functional foods business meet projected operational and revenue targets. The Company will also look to retain one additional employee to assist in corporate development and financial operations.





b.

Management's Discussion and Analysis of Financial Condition and Results of Operations



IMPORTANT FACTORS THAT MIGHT AFFECT OUR BUSINESS, OUR RESULTS OF OPERATIONS AND OUR STOCK PRICE.



Although we believe that expectations that are expressed in these forward-looking statements are reasonable, we cannot promise that our expectations will turn out to be correct. Our actual results could be materially different from our expectations, due to a variety of factors, including the following:



FUNCTIONAL FOODS BUSINESS:

*

We may not be able to continue to profitably market formulations for our current functional premixes or commercialize products under development. Our branded line of home-use products available lat our on-line store may not receive consumer acceptance.  Existing supply agreements with customers and ongoing expressions of interest from potential customers may not result in new or continuing supply or licensing agreements or generation of revenues in the time frame we envision.

*

While we have to date been able to secure supply and licensing contracts with recognized food industry clients, our products may not gain the necessary market acceptance from the end-of-the-line retail consumer in order to substantiate repeat sales to existing and/or future clients.

*

We may not be successful in educating the mainstream community as to the benefits of our products, even in partnership with larger, more experienced client firms and the proper resources.

*

We may not be able to secure favorable long-term agreements with our ingredient suppliers, and as a result may not be able to provide our clients product in a timely fashion and at the right price point.

*

Larger, more capitalized and more resourceful corporations have begun to introduce products into the marketplace in direct competition to our client's products, and our premixes, and we may not be able to successfully maintain or increase market share.

*

Even if we secure multiple clients and our products gain the requisite market acceptance, we may not be able to successfully expand our business to meet our projected growth, or respond effectively to the industry's demand for new products.

*

While our formulations will be protected under stringent non-disclosure and confidentiality agreements, that may not provide the Company adequate protection and others may be able to develop similar formulations.



INVESTMENTS IN MARKETABLE AND NON-MARKETABLE SECURITIES:



The Company has received equity in a public reporting Alberta corporation, Capital Reserve Canada Ltd.  in settlement of certain loans receivable. The ability of the Company to recover its initial investment, realize a gain or recover value for the non-cash settlement of a liability is subject to numerous external factors including: the marketability of the acquired securities, the liquidity of the market for the securities, the ability of the corporation in which the Company owns shares to continue to operate their businesses and achieve successful operations, and factors affecting the business environment of the corporation in which the Company owns shares.



GENERAL OPERATIONS:

*

Despite the growth of the Companys primary business over the past 36 months, the Company still has limited operating history and, therefore, little history on which to base any forecasts.

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*

Although the Company has divested many of its non-core assets and investments, we still have investments which require liquidation, each of which are subject to substantial external risk factors which may affect the Company's ability to recognize value.

*

We have incurred substantial operating losses and risk never becoming profitable.

*

Shareholders will face substantial dilution of their equity ownership percentage if we have to issue additional shares to raise capital or make new acquisitions. The extent of potential dilution depends significantly on the market price of our outstanding shares and may cause significant dilution in the value of your investment.

*

While the Company anticipates we will have sufficient revenues from operations to continue to operate, there is no guarantee this will occur.  The Company may be unable to obtain further financing prior to achieving profitable results.

Forward-looking statements included in this report speak only as of the filing date of this report and we do not undertake any obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.



Overview



The Companys primary operations are the food industry.  We also have certain passive equity investments in marketable securities.



The following paragraphs provide an overview of the industry sector in which the Company will focus its resources, and in which we are currently developing our business directly and through certain wholly owned subsidiaries.



Functional Foods Industry



In 1989, Stephen DeFelice, chairman of the Foundation for Innovation in Medicine, first introduced the term, "nutraceutical" to describe foods with nutritional and pharmaceutical qualities. More recently the term "nutraceutical" has become commonly substituted for the term "functional".  We believe that the most accurate description of  functional foods are foods, similar in appearance to conventional foods that are consumed as part of a usual diet, which demonstrate physiological benefits and/or reduce the risk of chronic diseases beyond basic nutritional functions.  To answer North America's appetite for health, many ingredient suppliers have developed functional ingredients for use in foods. In 2001 Mintel, a firm of industry analysts, suggested the market for functional foods in the US was approx $1.4 billion, with a global market at that time of approx $47 Billion.  Todays nutrition market which also encompasses the functional foods market, has sales of approximately $69 billion per annum (2005) with the functional segment of this market growing at a rate of 14% per year, a trend expected to continue to 2010,  The trend indicates continuing growth and we see this as a particularly attractive niche  provided we can offer quality products as we grow and continue to secure market share.



We believe that the mainstream consumer is changing.   We expect that as people learn more about the links between diet and health, and as the necessity for special needs diets is growing rapidly in North America, consumers will recognize the benefits offered by functional foods, and that they will continue to actively seek these products to include  in their daily diets. We believe that the key is to offer consumers added health benefits in foods they already enjoy, and to make certain they taste good in order to establish repeat sales of functional products. Companies intending on competing in this sector must also be willing to make a commitment to provide the consumer with educational materials and information to help them make healthier choices.



FACT Group has developed a line of functional dough and batter based formulations in order to supply and license turnkey premixes providing health benefits to a variety of customers for the manufacture of finished products, including  a variety of breads, bagels, pasta, pizza crust and sweet baked goods such as cookies, muffins, donuts and cakes.   All our products have been specially formulated for manufacturers to complement their existing non-functional products and capture significant incremental revenue with no change to existing manufacturing processes. This product line was expanded in early 2005 with the introduction of a test market of our products at our online store at www.eatwellstaywell.net where we directly offered the consumer our line of home-use bake mixes under our Nutrition FirstTM brand.  This site was discontinued during the year due to lack of financing.  During 2006 the Company further expanded its product line to include organic and all natural product offerings.



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Use of FACT Group’s proprietary premixes enable consumers and manufacturers to address numerous health conditions, including the following concerns:



. Weight Management/Control/Obesity

. Diabetes/Glucose Control

. Heart Disease

. Carbohydrate Management

. Digestive Health

. Dietary fiber enhancement



Industry statistics gathered by FACT Group estimate that:



•

Approximately 187 million Americans (63%) are overweight, with 100 million of those being classified as obese as a result of their Body Mass Index;

•

Over 35 million people are on a diet at any given time, and 300,000 deaths a year are related to obesity;

•

Cardiovascular disease is tied with cancer as the leading cause of disease-related death in the United States, accounting for two out of five deaths. More than 2,500 Americans die from Cardiovascular Disease each day;

•

Each year, 62 million people are diagnosed with digestive problems, which entails severe stomach and digestive problems. A diet including increased fiber is presently the only treatment that seems to help;

•

There are over 20 million known cases of diabetes in the U.S. (that is over 7%), up 40% in the past 10 years. There are 54 million more Americans with pre-diabetes, a condition where the pancreas is not producing enough insulin to regulate blood levels, but not at serious enough levels to be diagnosed;

•

Close to half of all people in the United States have high cholesterol levels which is directly impacted by Diet, Weight and Physical Activity.



By eating products made with FACT Groups functional premixes as a part of a regular daily diet, end consumers do not have to dramatically change their lifestyle in order to reap the benefits of reduced digestible carbohydrates, glucose management, increased fiber, reduced calories, low sodium, no added sugar and no cholesterol.



FACT Groups products are developed keeping in mind that taste is important, and we believe that we must achieve good taste to ensure FACT Groups success in the marketplace.  Weight management, carbohydrate control and fiber enhancement solutions through healthy, functional foods is a large and growing segment of the overall food category and through sales of premix to manufacturers, who create a variety of food products, FACT Group hopes to be able to provide solutions to consumers in supermarkets, specialty health food stores, restaurants, foodservice distributors and convenience stores with minimal associated overhead.



The multiple benefits associated with the products created from FACT Groups functional premixes should allow our commercial customers to position new functional products to suit their current market positioning, generate line extensions or create entirely new product lines with functional benefits.



In fiscal 2003, FACT Group entered into a licensing agreement with a major bakery ingredient distributor for the sale of premixes manufactured using our formulations, under the distributors own brand.  Additionally, we have developed a line of snack bars using our functional premixes, which we hope to be able to bring to market along with a renewed campaign to market our home-use line of bake mixes.  The bars and retail size bake mixes can also be customized and marketed to our commercial clients.



FACT Group has made application to trademark its own symbol for brand recognition, Nutrition FirstTM. FACT Group presently uses this trademark not only for its line of premixes available to manufacturers, but also on its own line of home-use products for sale directly to the consumer.  Ultimately FACT Group is hopeful its trademark will stand as a symbol of quality ingredients on customers end packaging in support of the health benefit positions they intend to market, adding value, similar to the NutraSweet® swirl.



Present Situation



FACT Group is currently marketing and selling its functional premixes for breads, bagels, pasta and sweet goods products to independent manufactures and a major bakery ingredient distributor.  FACTs revenue stream is presently dependent on two key customers which account for approximately 99% of the Companys total annual

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sales.  The Company is in advanced negotiations with several potential clients for the provision of premixes and products across various new segments including snack bars, retail size mixes, sweet goods and new product formats.



The Company anticipates it will achieve gross sales of approximately $5,250,000 in fiscal 2007 from the sale of premix and products to the consumer, as well as existing and new customers across its various product categories.



In the event the Company is unable to achieve its targeted gross sales, the Company may seek to raise additional equity or debt capital of up to $300,000, which proceeds will be used to fund the operations of FACT Group including its 2007 marketing and advertising plans and the re-introduction of our online store, www.eatwellstaywell.net, and the marketing of new product offerings. The Company may also seek to raise a larger sum to implement an accelerated growth plan in fiscal 2007. As at the date of this report the Company does not have commitments to provide these funds. The Company expects to realize funds during the current fiscal year to assist with its ongoing operations through the sale of certain real estate assets and other marketable securities presently under agreement for sale or targeted for divestiture.  Should FACT Group achieve its forecasted sales of $5,250,000 million in fiscal 2007, it should provide for profitability by the end of fiscal 2007.



Our products



Products currently being marketed by the Company include formulations for bread, bagels, fresh pasta and sweet baked goods, including ready-to-eat snack bars, which offer the consumer a combination of added health benefits including: no sugar, no cholesterol, less refined carbohydrates, low fat, high fiber and low sodium. The foundation or core of each of the end products is a dough or batter based system, the composition of which varies depending on the product type and flavor. The Company currently uses an independent blending facility located in New York state, to blend the dry ingredients forming our premix. Agreements with the blending facility allows FACT Group to maintain control over its proprietary formulations and ensure the formulations remain proprietary. The blend of dry ingredients for each product category, referred to as "premix", is then delivered to FACT Groups customers for addition of the balance of ingredients, manufacturing of product and distribution. Products are distributed under the clients' brand or private label. Revenues are generated by way of a fixed cost per pound of premix sold to the customer.  FACT Group also generates revenue through a licensing agreement with a major North American bakery ingredient distributor.  This distributor pays FACT Group a royalty for each pound of premix sold under their own label.  The distributors private label premix is manufactured using FACT Groups proprietary formulations, Additionally, FACT Group intends to continue to work towards securing private labeling agreements during fiscal 2007 for its line of ready-to-eat snack bars and other line extensions.



Targeted industry segments



Bread



The U.S. bread market is divided into 2 product categories: packaged branded bread i.e. (Wonder bread) and fresh bakery bread. Bakery breads are produced on site by supermarket in-store bakeries or by other retailers, including independent bakeries. FACT Group will focus their efforts on this premium segment. The majority of the growth in the bread market, which is 5%-6% per annum, has been in the fresh, gourmet (artisan) and boutique segments.



Sales of in-store or independent bakery breads has grown at a rate of 7% annually since 1993 and translates into a $5 billion industry. Sales of these premium breads are coming at the expense of packaged breads.  Boutique bakery breads sales are experiencing an annual growth rate of 25% and are now exceeding $300 million for this segment.  Of late, industry reports indicate a decline in overall bread sales of between 15% and 20%.  Various industry authorities attribute this decline to the segment of the consumer population seeking controlled carbohydrate offerings.  Recently, the market focus on whole grains by large food conglomerates has rejuvenated the regular bread aisle and packaged breads with consumers displaying an elevated interest in bread products perceived as healthier offerings which provide 100% whole wheat or multigrain products offering increased fiber in order to help consumers meet minimum servings under the US Recommended Daily allowance (RDA). FACT Groups premixes for bread and bread-based products offer an alternative solution for manufacturers in the bread industry.  FACT Groups line of bread products are reduced in digestible carbohydrates and naturally high in fiber, making them suitable for controlled carbohydrate diets, those seeking increased fiber as well as other diet conscious consumers.



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Pasta



The U.S. market in dry pasta sales are approximately $2.5 billion. With the addition of the food service contribution to pasta sales, the category jumps to over $5 billion in annual sales.   The pasta category has also experienced a decline in sales in 2003, 2004 and 2005, which is believed to be associated with the trend towards reduced carb product offerings and the consumers increased desire to consume carbohydrate products which are also high in fiber.



Pasta is similar to bread from a formulation perspective and FACT Groups proprietary mixes work in a similar fashion as they do in bread.



For pasta products, FACT Group provides functional benefits by creating a unique high fiber, reduced digestible carbohydrate formulation. While there are high fiber pastas on the market today, achieved by the addition of whole grains, FACT Group has taken a different approach to the market by not only improving the taste of high fiber pasta, but concurrently reducing net digestible carbohydrates using state of the art fibers clinically proven to have numerous health benefits. FACT Group sees opportunities for customers across the pasta category including dry and fresh pasta. Initially, customers will include smaller branded, private label and specialty manufacturers.  FACT developed a line of reduced carb, high fiber pastas for distribution under the Quick Quisine label by one of our commercial clients under license from Atkins Nutritional Inc. in fiscal 2005.  Unfortunately with the unexpected financial problems experienced by Atkins Nutritionals during fiscal 2005, the distribution of the product line did not come to fruition.  The Company hopes to see this product re-introduced at a later date and is working to introduce the product to other potential clients.



Sweet Goods



The ready baked sweet goods category represents some $13.8 billion in annual US sales. The key market elements include cookies at $7.1 billion and sweet goods such as muffins, brownies, etc. that are largely sold in the baked goods aisle at $3.7 billion. Some $3.1 billion of total sweet goods are sold as refrigerated/frozen items available chiefly in supermarkets.



FACT Groups formulations can offer a wide range of traditional product offerings that are better for you.  This category is mature and ripe for innovation as consumers are looking for answers to living a healthier lifestyle without sacrificing taste or quality. FACT Group has a number of product options available in this category including cookies, muffins, brownies, cakes, scones, donuts, pancakes and waffles.  During late fiscal 2005 the Company entered  into an arrangement to provide a local New Jersey bakery with a line of healthy alternative mixes for muffins as a replacement to the bakerys existing product line.  These products are distributed by a major weight loss company across North America.  FACT hopes to provide line extensions for this manufacturer during fiscal 2006.



Portion Controlled/ Individually Wrapped/Ready-to-eat Convenience

Consumers lifestyles and time demands have driven dramatic growth in individually wrapped, ready-to-eat

snacking items. Individually wrapped cookies, brownies, muffins etc. are widely available from supermarkets, convenience stores and vending machines. These items are sold both individually packaged or in multi packs.



FACT Group is pursuing this rapidly growing format with potential customers in two market segments.  One set of customers see the opportunity to build distribution of low calorie/high fiber individual products in the supermarket and club store channels. Another set of potential customers are focusing on the weight management aspect of portion controlled units that allow dieters to control calories and enjoy the benefits of reduced refined carbohydrate/high fiber benefits while still enjoying full flavored taste. In fiscal 2004 FACT Group developed an attractive line of reduced carbohydrate, high fiber snack bars fortified with 25% of the recommended daily allowance of 17 essential vitamins and minerals which it hopes to revise and market during fiscal 2007.  FACT has also been actively working on revised formulations for individually wrapped brownies, blondies, cookies and other products during fiscal 2006.



The Direct to Consumer Opportunity



With the rapidly growing market trend towards reduced carbohydrate/ increased fiber products, and a desire by the consumer to return to the kitchen, at-home retail sized mixes in this category have seen substantial growth.

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Additionally, the health conscious consumer is motivated to actively seek out products to suit their dietary needs.  Subsequent to the close of fiscal 2004 FACT launched a test market for an online store at www.eatwellstaywell.net to take advantage of this attractive opportunity.  At the site the Company sold a variety of bake at home mixes, including brownies, cookies, an all-purpose bake mix and other fare under its Nutrition First brand from its internet store.   The Company developed a complete marketing and advertising plan for implementation but was been unable to continue with its plans due to lack of funding in fiscal 2005.  The Company intends to revisit the its online store and retail bake mix line in fiscal 2007.



Key customer segments



Manufacturers

Distributors

Retailers and Food Service

Specialty/Health/Diet

Direct to Consumer



Other Food Products



During fiscal 2003 FACT Products Inc., a wholly owned subsidiary of FACT Group Inc., acquired a line of imported shelf stable, non-dairy whipped toppings known as Aunt Lydias Italian Crèmes.   FACT Products has the exclusive worldwide rights to the Aunt Lydias brand crèmes and commenced marketing the product towards the end of fiscal 2004.  The crèmes are unique in formulation and come in four flavors including vanilla, chocolate, strawberry and mocha, and do not require refrigeration to stay fresh.  Though the Company executed multiple purchase orders from an East Coast retail supermarket chain during late fiscal 2004 and early fiscal 2005, the Company was not able to successfully market the product due to product performance issues and a lack of marketing dollars.  Presently the Company has ceased all distribution of the product.  FACT Products has been named in a civil action filed by the manufacturer of the crème products.  See LEGAL PROCEEDINGS above for additional details.



Milestones



NEAR TERM GOALS (2007)



The Companys near term goals include a continuing focus on the ongoing operation of our functional foods business.  FACT Group intends to increase its presence in marketplace by continuing to provide premix to customers who will launch functional food products and further develop our corporate infrastructure. The Company is hoping to see the continuance of improved sales of its premixes during fiscal 2007, with a focus on brining its products to a wider array of commercial clients, as well as increasing product diversification in the marketplace.  Additionally, the Company will revisit its 2005 plans to direct resources towards an online store to market our own line of retail at-home mixes directly to the consumer.  These marketing plans would call for promotional offers, and a focused internet and print advertising campaign to help establish recognition for our master brand, “Nutrition FirstTM”. FACT also intends to expand its product offerings in the individually packaged serving size to appeal to a wider range of consumers, in a wider array of formats including organic and all-natural product offerings.



FACT Group is aggressively pursuing additional supply and licensing arrangements with corporations established in the food industry for the manufacture, marketing and distribution of our line of functional premixes. It is the intent of the Company that additional customers will launch products containing our functional premixes throughout the year so that revenues generated from the functional food business will assist the Company in finally achieving profitability during fiscal 2007.



Presently the Company is in negotiation with several additional clients for the supply and licensing of our functional premixes for a variety of sweet baked goods and private label opportunities. The Company is hopeful it will finalize these negotiations throughout fiscal 2007.



To further enhance our ability to increase revenues in fiscal 2007 the Company may also look to complete strategic mergers or acquisitions with complimentary businesses.   In this manner the Company may be able to access previously unavailable distribution channels in a more expedient manner.





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INTERMEDIATE TERM GOALS (2008-2009)



Building on our near-term plan for development, the Company hopes to experience substantial growth  over  the intermediate term. Our objectives include the following:

*

Growth for of our line of at-home products under our master brand, Nutrition First, for direct market to the end consumer via internet and other channels.  Potential expansion of this line to include a unique off-shoot of products specially directed to the diabetic and glucose management markets.

*

Expand our client base to include supply and licensing partnerships with additional medium to large sized industry participants and certain major industry participants in the manufacturing, distribution, quick serve restaurant and food service channels.  The Company will also pay special focus to the public school meal system in the hopes of locating a channel to provide healthier product offerings in local and national educational facilities;

*

Formation of an Asian and  European division to market and launch products in international markets;

*

Ongoing successful education of retail consumers through public relations initiatives and mass media coverage;

*

Continue to develop and refine new lines of second and third generation functional products, perhaps to include a line of premixes for end products which would be marketed as supplements as opposed to food products;

These initiatives will require additional capitalization of an amount that is as yet undetermined, however, the Company believes it can achieve these goals provided funds can be made available through profits from ongoing premix and product sales, additional debt and/or equity financing, or conventional credit arrangements with major banking institutions.



LONG TERM GOALS (2009 AND BEYOND)



The Company intends to achieve successful market penetration in numerous segments of the functional foods industry, generating escalating positive cash flows on an annual basis so that the Company becomes a competitive leading participant in the industry. Management will look to have its first, second and third generation of functional premixes and other products widely distributed across Europe, Asia and North America with a view to expanding to other international markets, while continuing to supply premixes to various food manufacturers, distributors and major retailers under private label and other conventional arrangements.



Financial Outlook



The Company successfully divested its commercial and residential real estate holdings in fiscal 2005 and therefore did not generate revenues from those real estate operations during this current fiscal year.  The Company also disposed of various passive investments during the year in order to streamline our day to day operations.   Our 2007 mandate calls for the divestiture of all remaining passive investments as soon as practicable, which will provide the Company additional funds for ongoing working capital and the settlement of outstanding debts. ToO that end the Company has already announced the spin-off of its dormant subsidiary FACT Products during fiscal 2007.  The Company expects to focus on increasing the revenue stream generated by the supply and licensing of its commercial functional food premixes during fiscal 2007.



The Company may seek to raise approximately $300,000 dollars in the form of debt and/or equity financing in the near term to assist with growth objectives, and may seek to raise a larger sum to implement an accelerated growth plan.  As noted above, we will continue to look to divest those remaining passive assets not directly related to our core business of functional food products. This should provide the Company adequate resources to continue operations and establish increased cash flows to cover operational expenses and achieve profitability by the close of fiscal 2007. There is no assurance that the Company will be successful in raising this amount of capital or meeting its anticipated operational goals.



Results of Operations



Comparison of 2006 and 2005



For the years ended December 31, 2006, and 2005 the Company incurred operating losses of $840,533 and $923,995 respectively. Fiscal 2005 operations have been restated in the current year, to include a loss from continuing

18



operations of $1,364,347, and income from discontinued operations of $440,350 in order to reflect the Companys divestiture of the leasing segment of operations during fiscal 2005. Fiscal 2006 operations include a substantial increase in revenues from $713,655 (2005) to $1,803,579 (2006). This increase in revenues can be attributed directly to increased sales of bake mix products from the Companys primary operations in the food industry during 2006.  Associated costs of goods sold relating to functional premix sales increased from $635,732 (2005) to $1,524,556 (2006).   The Companys gross margin on the sale of functional bake mixes increased over the respective periods from 10.3% (2005) to 14.5% (2006) as a result of the addition of a new product segment which during the introductory phase provided an increased profit margin on related product sales. The costs of goods sold associated with the whipped topping products which were discontinued in early 2005 decreased over the comparative years from $ $154,170 (2005) to $11,276 (2006). Fiscal 2006 whipped topping costs were related to disposal fees for remaining inventory.   Legal fees increased substantially from $Nil (2005) to $79,652 (2006) as a direct result of the Companys involvement in certain legal matters more particularly described in Item 3 above. Consulting fees and services settled by the issuance of shares decreased from a combined total of $387,023 (2005) to $230,479 as a direct result of the Companys cessation of investor relations and public relations activities during fiscal 2006.  Associated administrative expenses also decreased from $309,040 (2005) to $226,860 as the Company worked during fiscal 2006 to further streamline its operations.  Depreciation and amortization expenses remained relatively constant during the comparative fiscal years at $252,440 (2006) and $256,933 (2005) as the Company recorded recurring expenses related to the amortization of its intellectual property and fixed assets in the normal course.



During fiscal 2005 the Company divested its remaining  interest in a private corporation and wrote down a total of $112,510 at the time of the transaction.  There was no comparable transaction in fiscal 2006.



During fiscal 2005 the Company wrote down $266,944 as a result of an agreement reached with certain arms length third parties whereby the Company agreed to accept $400,000 cash and 500,000 shares of the common stock of Capital Reserve Canada Limited as consideration for assignment of the convertible note between the Company and Capital Reserve Canada.  The Company has recorded the shares received as part of this transaction on its balance sheet at a value of $250,000 which amount represents the average market price of $0.50 per share at the time of the transaction.  During fiscal 2006, the Company recorded and expense of $221,628 as a permanent decline in the value of the shares based on an assessment of the liquidity of the market for the securities and the average market price of the shares at fiscal year end.



During fiscal 2005 the Company wrote down an account receivable which it deemed to be uncollectible in the amount of $34,948.  There was no comparable transaction during fiscal 2006.



During the fiscal year ended December 31 2005, the Company sold certain marketable securities and recorded a loss of $7,417 in respect of the transaction.  During fiscal 2006, the Company continued to liquidate its marketable securities and recorded a loss of $10,027 with respect to the sale of certain of these securities.



During the fiscal year ended December 31, 2005, the Company disposed of its commercial and residential real properties.  The operations of this segment of the Companys operations have been restated in the fiscal 2005 statements as discontinued operations.   Income from operations totaling $440,350 has been recorded on the Companys Consolidated Statements of Operations with respect to the discontinued operations during fiscal 2005.  There is no comparable activity in fiscal 2006.



Interest expenses and fees decreased substantially in fiscal 2006 as the Company retired various loans and mortgages and the associated debt serving obligations upon the sale of its commercial real properties during fiscal 2005.  Additionally amounts recorded as interest income as a result of certain convertible notes entered into between the Company and Capital Reserve Canada Limited during fiscal 2005 were eliminated when the Company entered into an agreement to retire this obligation at the close of fiscal 2005 and accordingly there were no similar entries during fiscal 2006.



Net losses for the two completed fiscal years were $840,533 (2006) and $923,995 (2005) respectively,



Liquidity and Capital Resources



Summary of Working Capital and Stockholders' Equity



As of December 31, 2006, the Company had negative working capital of $1,146,388 and negative Stockholders' Equity of $1,703,126 compared with negative working capital of $456,099 and negative Stockholders' Equity of

19



$860,570 as of December 31, 2005. The Companys negative working capital has increased as a result of the reduction to accounts receivable and the increase to both accounts payable and current loans payable over the current fiscal year.



Liquidity



The Company anticipates it may require approximately $300,000 over the next twelve months to fully implement its existing business plan, which includes significant marketing efforts, the continued development and refinement of functional food formulations and products, a consumer awareness and public relations campaign, concepts for development, manufacturing and distribution of a line of our own master brand food products via the internet, expanded management resources and support staff, and other day to day operational activities.  The Company may require additional funds over the next three years to assist in realizing its goals should it not achieve anticipated bench marks over the 2007, 2008 and 2009 fiscal years.  The amount and timing of additional funds required can not be definitively stated as at the date of this report and will be dependent on a variety of factors.   As of the filing of this report, the Company has been successful in raising funds required to meet our existing revenue shortfall for the funding of our operations. Funds have been raised through private loans, equity financing and conventional bank debt, as well as through the sale of certain active and passive investments. The Company anticipates revenues generated from its functional food business will greatly reduce the requirement for additional funding; however, we can not be certain the Company will be successful in achieving revenues from those operations. Furthermore the Company cannot be certain that we will be able to raise any additional capital to fund our ongoing operations.



Sources of Working Capital



During 2006 the Company's primary sources of working capital have come from revenues generated from our functional foods business, and the net proceeds from:

*

$24,942 in the collection of certain outstanding accounts receivable relating to rental income due from prior periods;

*

$66,205 as a revolving line of credit from certain related parties;

*

$248,888 in the collection of withholding taxes recoverable with respect to the sale of the Companys real property in fiscal 2005, and,

*

$350,000 from the proceeds of an agreement entered into regarding the assignment of a convertible note with Capital Reserve Canada Limited.

*

$20,843 from sale of certain marketable securities; and,

*

$60,000 in loan proceeds from arms length third parties.

The Company is also aggressively pursuing the liquidation of its remaining passive investments.



Material Commitments for Capital Expenditures



Pursuant to a settlement agreement entered into between FACT LLC and Steven Schechter, Jennifer Flynn and Steven Capodicasa, FACT Group has an obligation to pay a total of $2,000,000 in royalty payments over 10 years.



c.

Off Balance Sheet Arrangements



The Company presently does not have any off-balance sheet arrangements.

20





ITEM 7.      FINANCIAL STATEMENTS





21





FACT CORPORATION



FINANCIAL STATEMENTS

AS AT THE FISCAL YEARS ENDED DECEMBER 31, 2006 and 2005



AMENDED AND RESTATED









F-1







INDEX TO FINANCIAL STATEMENTS













FACT CORPORATION



FINANCIAL STATEMENTS



AMENDED AND RESTATED







|                                               | Page       
|---------------------------------------------- | -----------
|                                               |            
|                                               |            
|                                               |            
|Financial Statements:                          |            
|                                               |            
|Consolidated Balance Sheets                    | F-3 to F-4 
|                                               |            
|Consolidated Statements of Operations          | F-5        
|                                               |            
|Consolidated Statements of Cash Flows          | F-6 to F-7 
|                                               |            
|Consolidated Statement of Stockholders Equity | F-8        
|                                               |            
|Notes to Financial Statements                  | F-9 to F-33
|                                               |            
|                                               |            

F-2



|FACT CORPORATION
Consolidated Balance Sheets                                                            
|--------------------------------------------------------------------------------------------------------
|                                                                                                        
|                                                                                                        
|                                                                                                        
|Current Assets                                                                                          
|Cash                                                                                                    
|Inventory                                                                                               
|Accounts receivable (Note 4)                                                                            
|Account receivable  Capital Reserve Canada Ltd.                                                        
|Prepaid expenses and deposits                                                                           
|Total Current Assets                                                                                    
|                                                                                                        
|Investment in Capital Reserve Canada Ltd.(Note 17)                                                      
|Investment in Australian Oil and Gas(Note 7)                                                            
|                                                                                                        
|Property and Equipment                                                                                  
|Intellectual property (Note 3)                                                                          
|Real Property (net of accumulated depreciation of $188 in 2006) (Note 5)                                
|Office equipment and computers (net of accumulated depreciation of $31,684 for 2006 and $28,471 in 2005)
|Total Property and Equipment                                                                            
|                                                                                                        
|Total Assets                                                                                            
|                                                                                                        
|                                                                                                        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                    
|Current Liabilities                                                                                     
|Accounts payable and accrued expenses                                                                   
|Accounts payable (related parties)                                                                      
|Loans payable (related parties) (Note 8)                                                                
|Loan payable (Note 9)                                                                                   
|Current portion of long-term debt and acquisition cost                                                  
|Total Current Liabilities                                                                               
|                                                                                                        
|Long Term Liabilities                                                                                   
|Loan payable (related party) (Note 8)                                                                   
|Acquisition cost payable (Note 3)                                                                       
|Total Long-Term Liabilities                                                                             
|                                                                                                        
|Total Liabilities                                                                                       
|Commitments and contingencies                                                                           



F-3



|FACT CORPORATION
Consolidated Balance Sheets                                                                                                                  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                              
|                                                                                                                                                              
|                                                                                                                                                              
|Stockholders' Equity                                                                                                                                          
|Class A Common Stock - authorized 100,000,000 shares of no par value; 17,274,406 issued and outstanding as at December 31, 2006 and December 31, 2005 (Note 9)
|Class A Common stock warrants                                                                                                                                 
|Accumulated deficit                                                                                                                                           
|Accumulated other comprehensive (loss)                                                                                                                        
|Total Stockholders' Equity                                                                                                                                    
|Total Liabilities and Stockholders' Equity                                                                                                                    

F-4



|FACT CORPORATION
Consolidated Statements of Operations      
|------------------------------------------------------------
|                                                            
|                                                            
|Revenues                                                    
|Functional food premix                                      
|Italian Crème sales                                         
|Consulting income                                           
|Rental income                                               
|                                                            
|Costs and Expenses                                          
|Functional food premix                                      
|Italian Crème costs                                         
|Legal                                                       
|Consulting fees                                             
|Consulting fees/services settled by the issue of shares     
|Depreciation and amortization                               
|Other Administrative expenses                               
|Write down accounts receivable                              
|Write down investment in Capital Reserve Canada Limited     
|Equity loss in Texas T Petroleum Ltd                        
|                                                            
|(Loss) from operations                                      
|                                                            
|Other income and expenses                                   
|Interest income                                             
|Interest expense                                            
|Loss on disposal of marketable securities                   
|                                                            
|Provision for income taxes                                  
|Loss before discontinued operations                         
|Discontinued operations                                     
|Net (Loss)                                                  
|                                                            
|Net (Loss) per Common Share, basic and diluted              
|Continuing operations                                       
|Discontinued operations                                     
|Net (Loss)                                                  
|                                                            
|Weighted Average Number of Common Shares Used in Calculation
|Other comprehensive income                                  
|Net loss                                                    
|Foreign currency translation adjustment                     
|Unrealized profit (loss) on marketable securities           
|Total other comprehensive income                            

F-5



|FACT CORPORATION
Consolidated Statements of Cash Flows
|------------------------------------------------------
|                                                      
|                                                      
|                                                      
|Cash From Operating Activities:                       
|Net (loss)                                            
|Reconciling adjustments                               
|Depreciation, depletion and amortization              
|Equity in Texas T Petroleum Ltd                       
|Issuance of shares for settlement of services         
|Write down investment in Capital Reserve Canada       
|Write down uncollectible account                      
|Write down investment in Texas T Petroleum Ltd.       
|Loss on sale of securities                            
|Changes in operating assets and liabilities           
|Accounts receivable                                   
|Prepaid expenses and deposits                         
|Inventory                                             
|Accounts payable and accrued expenses                 
|Net Cash Flows From Operating Activities              
|                                                      
|Cash From Investing Activities:                       
|Acquisition of property and equipment                 
|Proceeds from sale of securities                      
|Net Cash Flows From Investing Activities              
|                                                      
|Cash From Financing Activities:                       
|Loan proceeds                                         
|Proceeds (Repayment) of related party loans           
|Acquisition cost payable                              
|Capital contribution by an officer                    
|Net Cash Flows From Financing Activities              
|                                                      
|Cash Flows From Discontinued Operations:              
|Proceeds from sale of  property                       
|Cash flows from operations                            
|Net Cash Flows From Discontinued Operations           
|                                                      
|Foreign currency translation adjustment               

F-6



|FACT CORPORATION
Consolidated Statements of Cash Flows                                                                
|----------------------------------------------------------------------------------------------------------------------
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Net change in cash and cash equivalents                                                                               
|Cash at beginning of period                                                                                           
|Cash at end of period                                                                                                 
|                                                                                                                      
|Supplemental disclosure of cash flow information:                                                                     
|Interest paid                                                                                                         
|Income taxes paid                                                                                                     
|                                                                                                                      
|Non-cash investing and financing transactions:                                                                        
|Acquisition of shares of Capital Reserve Canada Limited                                                               
|Recovery on disposition of Capital Canada (net of impairment of $325,000 (2004))                                      
|Recovery of value of shares of FACT Corporation previously eliminated due to cross ownership by Texas T Petroleum Ltd.
|Return to treasury of common shares                                                                                   







F-7



|FACT CORPORATION
Consolidated Statements of Shareholders Equity
(Restated)                                                    
|-------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                               
|                                                                                                                               
|Balance at December 31, 2004                                                                                                   
|Stock issuances related to services                                                                                            
|Capital Contribution by Officer                                                                                                
|Re-addition of shares of FACT Corporation held by Texas T Petroleum Ltd. upon divestiture of interest in Texas T Petroleum Ltd.
|Reverse impairment due to distribution of CRCL shares                                                                          
|Foreign currency translation adjustment                                                                                        
|Unrealized gain on marketable securities                                                                                       
|Return of shares for cancellation                                                                                              
|Cancellation/expiry of warrants                                                                                                
|Net loss for the period ended December 31, 2005                                                                                
|Balance at December 31, 2005                                                                                                   
|Cancellation/expiry of warrants                                                                                                
|Net loss for the period ended December 31, 2005                                                                                
|Foreign currency translation adjustment                                                                                        
|Balance at December 31, 2006                                                                                                   

F-8





FACT Corporation

Notes to Financial Statements

Years Ended December 31, 2006 and 2005

(Restated)



Note 1- Summary of Significant Accounting Policies



This summary of significant accounting policies of FACT Corporation (the Company) is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management who are responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles in the United States of America and have been consistently applied in the preparation of the financial statements, which are stated in U.S. Dollars.



Organization



The Company was incorporated under the laws of the State of Colorado on August 3, 1982 as Capital Reserve Corporation for the purpose of operating as a financial services holding company.  The Company commenced operations soliciting various life, accident and health insurance policies in three states in the U.S. until October 1994 when it could no longer meet certain requirements to continue operations. The Company carried out various other operations between 1995 and the close of fiscal 1998, all of which operations had ceased by early 1999.



In 1999, the Company's principal place of business moved to Canada. In December 1999, the Company formed a wholly owned subsidiary, Capital Reserve Canada Limited, an Alberta corporation ("Capital Canada"), to locate and acquire producing oil and gas assets in Canada.  This subsidiary was divested  in  fiscal 2004 by way of a distribution of shares to the shareholders of the Company.



On November 7, 2001 the Company entered into a Share Exchange Agreement with the shareholders of Food and Culinary Technology Group Inc. (FACT), a Nevada corporation, whereby all of the issued and outstanding shares of FACT were exchanged for 2,000,000 shares of the Companys Class C common stock. (Note 2)



On February 8, 2002, the Company changed its name to FACT Corporation.



On July 23, 2002 the Company formed a wholly owned subsidiary, Wall Street Real Estate Limited (WSRE), an Alberta corporation. WSRE purchased from the Company, certain commercial real estate located at 1528-1530 9th Avenue S.E., Calgary, Alberta, Canada.  This commercial property was divested during fiscal 2005.



As of December 31, 2006, the Company has three wholly owned subsidiaries, Wall Street Investments Corporation (WSIC) (dormant Colorado corporation), FACT and WSRE.  FACT Products Inc. (formerly FACT Bread Company Inc.), a Nevada corporation, was incorporated in November 2001 and is a wholly owned subsidiary of FACT.



Operations



Real Property

As at the fiscal year ended December 31, 2004 the Company owned three real properties located in the City of Calgary; two of which were commercial buildings and the other, residential.  The commercial properties were sold during the fiscal year ended December 31, 2005 and the residential property was divested according to the terms of an option agreement entered into in fiscal 2000 (Note 15).  As at the fiscal year ended December 31, 2005, the Company no longer owns any real property.  Operations associated with the companies leasing activities in fiscal 2005 have been presented as discontinued operations.



Functional Food Business

The Company entered the functional food industry in November 2001 with the acquisition of FACT.  During the year ended December 31, 2002 the Company commenced sales of its functional food formulations. All but 1% of revenues for the current fiscal year were derived from these ongoing operations in the food industry.

F-9



FACT Corporation

Notes to Financial Statements

Years Ended December 31, 2006 and 2005

(Restated)



The Company continues to pursue further commercial supply and licensing contracts for its existing line of functional food formulations, premixes and products.



Use of Estimates in the preparation of the financial statements



The preparation of the Company's financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates.



Basis of Consolidation



The consolidated financial statements for 2006 and 2005 include the Company and its wholly owned subsidiaries FACT, WSRE and FACT Products Inc.  All significant inter-company accounts and transactions have been eliminated.  The consolidated financial statements for the fiscal year ended December 31, 2005 have been restated to reflect the divestiture of the Companys commercial real properties and other real estate operations as discontinued operations.



Depreciation and Amortization



Depreciation has been provided in amounts sufficient to relate the costs of depreciable assets to operations over their estimated useful lives principally on the straight-line method from two to five years for office equipment and computers and over 25 years for buildings.



The Companys intellectual property is amortized on a 10 year straight line basis.



Cash and Cash Equivalents



The Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents.



Currency



The functional currency of the Company's Canadian subsidiaries is the Canadian dollar. The functional currency of  FACT and FACT Products Inc. is the United States Dollar. The Company translates amounts into United States dollars using the current rate method.  Under this method, assets and liabilities are translated to United States dollars at current exchange rates and income statement accounts are translated at the average rates prevailing during the period. Related translation adjustments are reported as other comprehensive income, a component of stockholders equity.



(Loss) Per Share



(Loss) per share of common stock is computed by dividing the net loss by the weighted average number of common shares (including both Class A and c) outstanding during the year.  Fully diluted earnings per share are not presented because they are anti-dilutive.



Gain (Loss) per share has been stated separately during fiscal 2005 to reflect the discontinued operations from the Companys real estate operations.



Inventory

The companys inventory consists of functional premix food products and shelf stable non-dairy whipped toppings is valued at the lesser of cost or net realizable value using the average cost method.





F-10



FACT Corporation

Notes to Financial Statements

Years Ended December 31, 2006 and 2005

(Restated)



Fair Value of Financial Instruments

Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 107 (SFAS 107), Disclosure About Fair Value of Financial Instruments. SFAS 107 requires disclosure of fair value information about financial instruments when it is practicable to estimate that value. The carrying amount of the Companys accounts receivable, prepaid expenses and other current expenses, and the current portions of notes payable approximate their estimated fair values due to their short-term maturities.  The fair market value of long term debt can not be determined due to a lack of comparability of similar market instruments.



Valuation of Long-Lived Assets

The Company periodically analyzes its long-lived assets for potential impairment, assessing the appropriateness of lives and recoverability of unamortized balances through measurement of undiscounted operating cash flows on a basis consistent with accounting principles generally accepted in the United States of America.

Income taxes

The Company records deferred taxes in accordance with Statement of Financial Accounting Standards (SFAS) 109, "Accounting for Income Taxes."  The statement requires recognition of deferred tax assets and liabilities for temporary differences between the tax bases of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted tax rates in effect for the year in which the differences are expected to reverse.  A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.

Revenue recognition

Revenues are recognized in accordance with SEC Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements."  Under SAB 101, product revenues (or service revenues) are recognized when persuasive evidence of an arrangement exists, delivery has occurred (or service has been performed), the sales price is fixed and determinable and collectibility is reasonably assured. Revenue for food products is recognized when the Company has concluded arrangements with customers and the product is shipped. The Company has not experienced any material expense in satisfying warranties and returns.

Other

The Company has selected December 31 as its year-end.



The Company consists of one (1) operating segment.



The Company expenses advertising costs as incurred and the total amounts for 2006 and 2005 were minimal.



The Company paid no cash dividends in 2006 or 2005.



Reclassifications



Certain reclassifications have been made to previously reported statements to conform to the Companys current financial statement format.



Basis of Presentation  Going Concern

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which contemplates continuation of the Company as a going concern.  However, the Company has insufficient working capital and is sustaining losses, and therefore may be forced to discontinue operations. This fact raises substantial doubt about the Companys ability to continue as a going concern.  Management plans to raise additional capital to complete its business plan.



F-11



FACT Corporation

Notes to Financial Statements

Years Ended December 31, 2006 and 2005

(Restated)



Note 2  Restatement of Financial Statements

As at the fiscal year ended December 31, 2006 the Company restated certain figures included in prior fiscal periods as detailed below.  A tabular representation of the impact of these adjustments to the Balance Sheets, Statements of Operations, Statements of Stockholders Equity and Statements of Cash Flows for the fiscal years ended December 31, 2004, 2005 and 2006 is included at the end of this Note, followed by additional tabular disclosure detailing the impact of adjustments and the restatements on the respective fiscal quarters of 2004, 2005 and 2006 as well as the impact of certain discontinued operations on each quarterly period for fiscal 2005 and 2004 :



Valuation of 2,000,000 Class C shares issued as part of the acquisition of FACT Group (Note 3)

The Company has revalued the dollar amount originally attributed to the issuance of the Class C shares with respect to the acquisition of FACT Group in fiscal 2001.  An amount of $540,000 originally recorded for the Class C shares has been reduced by $49,626 in order to reflect the revised valuation of the shares.  The Company conducted a detailed analysis of the projected future cash flows of FACT Group, discounted to present day and risked based on the probability of successfully achieving projected revenues.  As a result the dollar value attributed to the issuance of the Class C shares has been historically restated as $490,374.



Award benefit received by holders of 2,000,000 Class C shares (Note 3)

The Company has restated its financial statements to include $14,400,000 as a stock award benefit expensed in the fiscal year ended December 31, 2004.  The benefit arose as a result of the conversion of 2,000,000 shares of Class C common stock to 12,000,000 shares of Class A common stock on February 2, 2004, and was calculated by conducting an analysis of the value of the Companys Class C common stock converted on the basis of 6 shares of Class A common stock for each 1 share of Class C common stock, immediately before and after conversion  based on the quoted price of the Companys common stock as of that date.  At the time of the conversation, the Board of Directors of the Company amended the conversion provisions in order to maintain the originally contemplated number of Class A common shares (12,000,000) to be received by the Class C holders.  As a result, the effect of a reverse split on a 4 for 1 basis effective August 31, 2003 applied to the Companys Class A common stock, did not impact holders of the Companys Class C common stock.  The Board of directors determined to amend the conversion provisions of the Class C shares at the time of conversion pursuant to the settlement of certain ongoing  litigation, the forgiveness of certain liabilities and obligations of the Company in respect to the aforementioned settlement agreed to by the Class C shareholders, and in order to allow the Class C shareholders to continue to maintain effective control in consideration for their agreement to the terms of settlement.



Restatement of value of Intellectual Property

The Company has restated its financial statements to reflect an adjustment to the original carrying value of the intellectual property (IP) acquired as part of the acquisition of FACT in fiscal 2001 (Note 3).  The value of the intellectual property was formerly comprised of three components: (1) the value of the royalty obligation to acquire the IP, the value of the Class C shares issued as part of the transaction and (3) certain additional payments to the original owners of the IP which arose during fiscal 2003.  As a result of the Companys review the value of the IP has been retroactively adjusted.  Adjustments include a reduction to the originally recorded value of the Class C shares by $49,626, and the reallocation of the additional compensation payments required during fiscal 2004, 2005 and 2006, totaling an accumulated $177,686, to retained earnings over each of the respective fiscal years.



Amortization of Intellectual Property

The Company has restated its financial statements to include the amortization of the Companys intellectual property commencing the close of fiscal 2003.  The restated book value of the Companys intellectual property totaling $2,490,374 has been retroactively amortized on a 10 year straight line basis.



Adjustment to Cash Flow Statement for fiscal year 2005

The Company has restated its 2005 Consolidated Statements of Cash Flow to correct the presentation of  certain marketable securities received as consideration with respect to a note payable formerly recorded under Investing Activities, as a non-cash transaction.

F-12



FACT Corporation

Notes to Financial Statements

Years Ended December 31, 2006 and 2005

(Restated)



Note 2  Restatement of Financial Statements (contd)



Consolidated Balance Sheets December 31, 2004, 2005 and 2006



|                                                                 |   | Restated
December
31,
2006 |  |   | Original
December
31,
2006 (1) |  |   | Restated
December
31,
2005 |  |   | Original
December
31,
2005 (2) |  |   | Restated
December
31,
2004 |  |   | Original
December
31,
2004
|---------------------------------------------------------------- | - | -------------------------- |  | - | ------------------------------ |  | - | -------------------------- |  | - | ------------------------------ |  | - | -------------------------- |  | - | --------------------------
|Current Assets                                                   |   |                            |  |   |                                |  |   |                            |  |   |                                |  |   |                            |  |   |                           
|Cash                                                             | $ | 212,571                    |  | $ | 212,571                        |  | $ | 159,839                    |  | $ | 159,839                        |  | $ | 44,904                     |  | $ | 44,904                    
|Inventory                                                        |   | 72,564                     |  |   | 72,564                         |  |   | 50,188                     |  |   | 50,188                         |  |   | 314,457                    |  |   | 314,457                   
|Accounts receivable                                              |   | 486,060                    |  |   | 486,060                        |  |   | 767,336                    |  |   | 767,336                        |  |   | 79,233                     |  |   | 79,233                    
|Account receivable  Capital Reserve Canada Ltd.                 |   | -                          |  |   | -                              |  |   | -                          |  |   | -                              |  |   | 325,559                    |  |   | 325,559                   
|Prepaid expenses and deposits                                    |   | -                          |  |   | -                              |  |   | -                          |  |   | -                              |  |   | 39,082                     |  |   | 39,082                    
|Total Current Assets                                             |   | 771,195                    |  |   | 771,195                        |  |   | 977,362                    |  |   | 977,362                        |  |   | 803,235                    |  |   | 803,235                   
|                                                                 |   |                            |  |   |                                |  |   |                            |  |   |                                |  |   |                            |  |   |                           
|Investment in Texas T Companies                                  |   |                            |  |   |                                |  |   |                            |  |   |                                |  |   | 72,070                     |  |   | 72,070                    
|Investment in Capital Reserve Canada Ltd.                        |   | 19,272                     |  |   | 19,272                         |  |   | 250,000                    |  |   | 250,000                        |  |   | 68                         |  |   | 68                        
|Investment in Australian Oil and Gas                             |   | -                          |  |   | -                              |  |   | 21,770                     |  |   | 21,770                         |  |   | 7,265                      |  |   | 7,265                     
|                                                                 |   |                            |  |   |                                |  |   |                            |  |   |                                |  |   |                            |  |   |                           
|Property and Equipment                                           |   |                            |  |   |                                |  |   |                            |  |   |                                |  |   |                            |  |   |                           
|Intellectual property                                            |   | 1,497,024                  |  |   | 1,497,024                      |  |   | 1,746,062                  |  |   | 2,770,678                      |  |   | 1,995,099                  |  |   | 2,770,678                 
|Real Property  (Net of accumulated depreciation)                 |   | 1,190                      |  |   | 1,190                          |  |   | -                          |  |   | -                              |  |   | 2,754,876                  |  |   | 2,754,876                 
|Office equipment and computers (Net of accumulated depreciation) |   | -                          |  |   | -                              |  |   | 3,213                      |  |   | 3,213                          |  |   | 11,172                     |  |   | 11,172                    
|Total Property and Equipment                                     |   | 1,498,214                  |  |   | 1,498,214                      |  |   | 1,749,275                  |  |   | 2,773,891                      |  |   | 4,761,147                  |  |   | 5,536,726                 
|                                                                 |   |                            |  |   |                                |  |   |                            |  |   |                                |  |   |                            |  |   |                           
|Total Assets                                                     | $ | 2,288,681                  |  | $ | 2,288,681                      |  | $ | 2,998,407                  |  | $ | 4,023,024                      |  | $ | 5,643,785                  |  | $ | 6,419,364                 
|                                                                 |   |                            |  |   |                                |  |   |                            |  |   |                                |  |   |                            |  |   |                           
|Current Liabilities                                              |   |                            |  |   |                                |  |   |                            |  |   |                                |  |   |                            |  |   |                           
|Accounts payable and accrued expenses                            | $ | 770,948                    |  | $ | 770,948                        |  | $ | 587,065                    |  | $ | 587,065                        |  | $ | 621,220                    |  | $ | 621,220                   
|Accounts payable (related parties)                               |   | 510,262                    |  |   | 510,262                        |  |   | 316,165                    |  |   | 316,165                        |  |   | 244,300                    |  |   | 244,300                   
|Loans payable (related parties)                                  |   | 499,478                    |  |   | 837,739                        |  |   | 471,082                    |  |   | 1,084,748                      |  |   | 1,139,851                  |  |   | 1,139,851                 
|Loan payable                                                     |   | 60,000                     |  |   | 60,000                         |  |   | -                          |  |   | -                              |  |   | 2,296,250                  |  |   | 2,296,250                 
|Current portion of  long-term debt and acquisition cost          |   | 76,895                     |  |   | 76,895                         |  |   | 59,150                     |  |   | 154,639                        |  |   | 112,500                    |  |   | 112,500                   
|Total Current Liabilities                                        |   | 1,917,583                  |  |   | 2,255,844                      |  |   | 1,433,462                  |  |   | 2,142,618                      |  |   | 4,414,121                  |  |   | 4,414,121                 
|                                                                 |   |                            |  |   |                                |  |   |                            |  |   |                                |  |   |                            |  |   |                           
|Long Term Liabilities                                            |   |                            |  |   |                                |  |   |                            |  |   |                                |  |   |                            |  |   |                           
|Loan Payable (related Party)                                     |   | 338,261                    |  |   | -                              |  |   | 613,666                    |  |   | -                              |  |   | -                          |  |   | -                         
|Acquisition Cost payable                                         |   | 1,735,964                  |  |   | 1,735,964                      |  |   | 1,811,848                  |  |   | 1,811,848                      |  |   | 1,821,051                  |  |   | 1,965,101                 
|Total Liabilities                                                |   | 3,991,807                  |  |   | 3,991,807                      |  |   | 3,858,977                  |  |   | 3,954,466                      |  |   | 6,235,172                  |  |   | 6,379,222                 

F-13



FACT Corporation

Notes to Financial Statements

Years Ended December 31, 2006 and 2005

(Restated)



Note 2  Restatement of Financial Statements (contd)



Consolidated Balance Sheets December 31, 2004, 2005 and 2006



|                                                                                                                                                  |   | Restated
December
31,
2006 |  |   | Original
December
31,
2006(1) |  |   | Restated
December
31,
2005 |  |   | Original
December
31,
2005 (2) |  |   | Restated
December
31,
2004 |  |   | Original
December
31,
2004
|------------------------------------------------------------------------------------------------------------------------------------------------- | - | -------------------------- |  | - | ----------------------------- |  | - | -------------------------- |  | - | ------------------------------ |  | - | -------------------------- |  | - | --------------------------
|                                                                                                                                                  |   |                            |  |   |                               |  |   |                            |  |   |                                |  |   |                            |  |   |                           
|Stockholders Equity                                                                                                                              |   |                            |  |   |                               |  |   |                            |  |   |                                |  |   |                            |  |   |                           
|Class A Common Stock  authorized 100,000,000 shares
of  no par value:
17,274,406 at December 31,2006 and 2005 and
16,836,367 at December 31,2004 |   | 23,103,924                 |  |   | 8,991,924                     |  |   | 23,083,469                 |  |   | 8,733,095                      |  |   | 22,470,004                 |  |   | 8,119,630                 
|Class A Common stock warrants                                                                                                                     |   | -                          |  |   | -                             |  |   | 20,455                     |  |   | 20,455                         |  |   | 47,985                     |  |   | 47,985                    
|Accumulated deficit                                                                                                                               |   | (24,917,170)               |  |   | (10,805,170)                  |  |   | (24,076,637)               |  |   | (8,797,135)                    |  |   | (23,152,642)               |  |   | (8,170,739)               
|Accumulated other comprehensive (loss)                                                                                                            |   | 110,120                    |  |   | 110,120                       |  |   | 112,143                    |  |   | 112,143                        |  |   | 43,266                     |  |   | 43,266                    
|Total Stockholders Equity                                                                                                                        |   | (1,703,126)                |  |   | (1,703,126)                   |  |   | (860,570)                  |  |   | 68,558                         |  |   | (591,387)                  |  |   | 40,142                    
|Total Liabilities and Stockholders Equity                                                                                                       | $ | 2,288,681                  |  | $ | 2,288,681                     |  | $ | 2,998,407                  |  | $ | 4,023,024                      |  | $ | 5,643,785                  |  | $ | 6,419,364                 





Notes:

(1)

The figures provided above as the original December 31, 2006 figures correspond to the Consolidated Balance Sheet figures filed in our Form 10-KSB as at April 16, 2007 and include certain restatements and adjustments from prior periods disclosed in the filing as at that date under Note 2.  The schedules set out below under the heading Consolidated Statements of Stockholders Equity (Deficit) - December 2004, 2005 and 2006 under the column heading Accumulated Deficit  Original and Class A common stock  Original Amount will not confirm to the balance sheet figures presented above as they do not incorporate any of the restatements or adjustments impacted in our April 16, 2007 filing.



(2)

The figures provided as the original December 31, 2005 figures correspond to the figures filed in our Form 10-KSB filing as at April17, 2006 and do not include any of the restatements or adjustments presented at a later date.  At the time of the Companys filing of its fiscal 2006 Form 10-KSB an amended and restated set of financial statements for the period ended December 31, 2005 was filed which will include certain, but not all, of the adjustments provided in this report.

F-14



FACT Corporation

Notes to Financial Statements

Years Ended December 31, 2006 and 2005

(Restated)



Note 2  Restatement of Financial Statements (contd)



Consolidated Statements of Operations

December 31, 2004, 2005 and 2006



|                                                        |   | Restated
December
31,
2006 |  |   | Original
December
31,
2006 |  |   | Restated
December
31,
2005 |  |   | Original
December
31,
2005 |  |   | Restated
December
31,
2004 |  |   | Original
December
31,
2004
|------------------------------------------------------- | - | -------------------------- |  | - | -------------------------- |  | - | -------------------------- |  | - | -------------------------- |  | - | -------------------------- |  | - | --------------------------
|Revenues                                                |   |                            |  |   |                            |  |   |                            |  |   |                            |  |   |                            |  |   |                           
|Functional food premix                                  | $ | 1,783,554                  |  | $ | 1,783,554                  |  | $ | 708,947                    |  | $ | 708,947                    |  | $ | 918,690                    |  | $ | 918,690                   
|Italian Crème sales                                     |   | -                          |  |   | -                          |  |   | 4,326                      |  |   | 4,326                      |  |   | 274,206                    |  |   | 274,206                   
|Consulting income                                       |   | -                          |  |   | -                          |  |   | 382                        |  |   | 382                        |  |   | 11,700                     |  |   | 11,700                    
|Rental income                                           |   | 20,025                     |  |   | 20,025                     |  |   | -                          |  |   | 86,673                     |  |   | 213,011                    |  |   | 213,011                   
|                                                        |   | 1,803,579                  |  |   | 1,803,579                  |  |   | 713,655                    |  |   | 800,329                    |  |   | 1,417,607                  |  |   | 1,417,607                 
|                                                        |   |                            |  |   |                            |  |   |                            |  |   |                            |  |   |                            |  |   |                           
|Costs and Expenses                                      |   |                            |  |   |                            |  |   |                            |  |   |                            |  |   |                            |  |   |                           
|Functional food premix                                  |   | 1,524,556                  |  |   | 1,524,556                  |  |   | 635,732                    |  |   | 635,732                    |  |   | 507,132                    |  |   | 507,132                   
|Italian Crème costs                                     |   | 11,276                     |  |   | 11,276                     |  |   | 154,170                    |  |   | 154,170                    |  |   | 224,854                    |  |   | 224,854                   
|Impairment of inventory                                 |   | -                          |  |   | -                          |  |   | -                          |  |   | -                          |  |   | 134,176                    |  |   | 134,176                   
|Legal                                                   |   | 79,652                     |  |   | 79,652                     |  |   | -                          |  |   | 10,138                     |  |   | 70,888                     |  |   | 70,888                    
|Consulting fees                                         |   | 230,479                    |  |   | 230,479                    |  |   | 160,163                    |  |   | 145,823                    |  |   | 292,134                    |  |   | 228,684                   
|Consulting fees/services settled by the issue of shares |   | -                          |  |   | -                          |  |   | 241,200                    |  |   | 241,200                    |  |   | 56,400                     |  |   | 56,400                    
|Depreciation and amortization                           |   | 252,440                    |  |   | 252,440                    |  |   | 256,933                    |  |   | 15,476                     |  |   | 342,719                    |  |   | 93,682                    
|Other Administrative expenses                           |   | 226,860                    |  |   | 226,860                    |  |   | 309,094                    |  |   | 399,977                    |  |   | 315,052                    |  |   | 315,052                   
|Stock benefit                                           |   | -                          |  |   | -                          |  |   | -                          |  |   | -                          |  |   | 14,400,000                 |  |   |                           
|Write down accounts receivable                          |   | -                          |  |   | -                          |  |   | 34,948                     |  |   | 34,948                     |  |   | -                          |  |   | -                         
|Write down investment in Capital Reserve Canada Limited |   | -                          |  |   | -                          |  |   | 266,944                    |  |   | 266,944                    |  |   | -                          |  |   | -                         
|Write down of bad debt                                  |   | -                          |  |   | -                          |  |   | -                          |  |   | -                          |  |   | 9,082                      |  |   | 3,500                     
|Equity in loss of Texas T Petroleum Ltd.                |   | -                          |  |   | -                          |  |   | 112,510                    |  |   | 112,510                    |  |   | 48,562                     |  |   | 48,562                    
|                                                        |   | 2,546,891                  |  |   | 2,546,891                  |  |   | 2,171,694                  |  |   | 2,016,917                  |  |   | 16,400,999                 |  |   | 1,682,930                 
|                                                        |   |                            |  |   |                            |  |   |                            |  |   |                            |  |   |                            |  |   |                           
|(Loss) from Operations                                  | $ | (743,312)                  |  | $ | (743,312)                  |  | $ | (1,458,039)                |  | $ | (1,216,588)                |  | $ | (14,983,392)               |  | $ | (265,323)                 
|                                                        |   |                            |  |   |                            |  |   |                            |  |   |                            |  |   |                            |  |   |                           



F-15



FACT Corporation

Notes to Financial Statements

Years Ended December 31, 2006 and 2005

(Restated)



Note 2  Restatement of Financial Statements (contd)



Consolidated Statements of Operations

December 31, 2004, 2005 and 2006



|                                                             |   | Restated
December
31,
2006 |  |   | Original
December
31,
2006 |  |   | Restated
December
31,
2005 |  |   | Original
December
31,
2005 |  |   | Restated
December
31,
2004 |  |   | Original
December
31,
2004
|------------------------------------------------------------ | - | -------------------------- |  | - | -------------------------- |  | - | -------------------------- |  | - | -------------------------- |  | - | -------------------------- |  | - | --------------------------
|                                                             |   |                            |  |   |                            |  |   |                            |  |   |                            |  |   |                            |  |   |                           
|Other income and expenses                                    |   |                            |  |   |                            |  |   |                            |  |   |                            |  |   |                            |  |   |                           
|Other income                                                 |   | -                          |  |   | -                          |  |   | -                          |  |   | -                          |  |   | 35                         |  |   | 35                        
|Interest income                                              |   | -                          |  |   | -                          |  |   | 264,300                    |  |   | 264,300                    |  |   | 65,269                     |  |   | 65,269                    
|Interest expense                                             |   | (87,195)                   |  |   | (87,195)                   |  |   | (163,191)                  |  |   | (239,635)                  |  |   | (395,631)                  |  |   | (395,631)                 
|Loss on disposal of marketable securities                    |   | (10,027)                   |  |   | (10,027)                   |  |   | (7,417)                    |  |   | (7,417)                    |  |   | -                          |  |   | -                         
|Gain on disposal of assets                                   |   | -                          |  |   | -                          |  |   | -                          |  |   | 572,944                    |  |   | 347                        |  |   | 347                       
|                                                             |   | (97,221)                   |  |   | (97,221)                   |  |   | 93,692                     |  |   | 590,192                    |  |   | (329,980)                  |  |   | (329,980)                 
|Provision for income taxes                                   |   |                            |  |   |                            |  |   | -                          |  |   | -                          |  |   | -                          |  |   | -                         
|Loss before discontinued operations                          |   | (840,533)                  |  |   | (840,533)                  |  |   | (1,364,347)                |  |   | (626,397)                  |  |   | (15,313,372)               |  |   | (595,303)                 
|Discontinued operations                                      |   | -                          |  |   | -                          |  |   | 440,350                    |  |   | -                          |  |   | 5,582                      |  |   | -                         
|Net (Loss)                                                   | $ | (840,533)                  |  | $ | (840,533)                  |  | $ | (923,995)                  |  | $ | (626,397)                  |  | $ | (15,307,790)               |  | $ | (595,303)                 
|                                                             |   |                            |  |   |                            |  |   |                            |  |   |                            |  |   |                            |  |   |                           
|Net (Loss) per Common Share, basic and diluted               |   |                            |  |   |                            |  |   |                            |  |   |                            |  |   |                            |  |   |                           
|Continuing operations                                        |   | (0.05)                     |  |   | (0.05)                     |  |   | (0.08)                     |  |   | (0.04)                     |  |   | (1.04)                     |  |   | (0.04)                    
|Discontinued operations                                      |   | -                          |  |   | -                          |  |   | 0.03                       |  |   | -                          |  |   | 0.00                       |  |   | -                         
|Net (Loss)                                                   |   | (0.05)                     |  |   | (0.05)                     |  |   | (0.05)                     |  |   | (0.04)                     |  |   | (1.04)                     |  |   | (0.04)                    
|                                                             |   |                            |  |   |                            |  |   |                            |  |   |                            |  |   |                            |  |   |                           
|Weighted Average Number of Common Shares Used in Calculation |   | 17,170,545                 |  |   | 17,170,545                 |  |   | 17,039,444                 |  |   | 17,039,444                 |  |   | 2,735,542                  |  |   | 2,735,542                 
|                                                             |   |                            |  |   |                            |  |   |                            |  |   |                            |  |   |                            |  |   |                           
|Net loss                                                     |   | (840,533)                  |  |   | (840,533)                  |  |   | (923,995)                  |  |   | (626,397)                  |  |   | (15,307,790)               |  |   | (595,303)                 
|Foreign currency translation adjustment                      |   | 2,023                      |  |   | 2,023                      |  |   | 60,618                     |  |   | (76,615)                   |  |   | 86,568                     |  |   | 86,568                    
|Unrealized profit (loss) on marketable securities            |   | -                          |  |   | -                          |  |   | 8,258                      |  |   | 8,258                      |  |   | (15,096)                   |  |   | (15,096)                  
|Total other comprehensive income                             | $ | (838,510)                  |  | $ | (838,510)                  |  | $ | (855,119)                  |  | $ | (694,754)                  |  | $ | (15,236,318)               |  | $ | (523,831)                 







F-16



FACT Corporation

Notes to Financial Statements

Years Ended December 31, 2006 and 2005

(Restated)



Note 2  Restatement of Financial Statements (contd)



Consolidated Statements Stockholders Equity (Deficit)

December 31, 2004, 2005 and 2006



|                                                                           | Class A Common Stock | Class C Common Stock | Warrants   | Accumulated Deficit | Accumulated Other Comprehensive
Income (Loss) | Total Shareholders
Equity
|-------------------------------------------------------------------------- | -------------------- | -------------------- | ---------- | ------------------- | --------------------------------------------- | --------------------------
|                                                                           | Shares               | Amount               | Shares     | Amount              | Shares                                        | Amount                    
|                                                                           | Restated             | Original             | Restated   | Original            | Restated                                      | Original                  
|Balance at December 31,2003                                                | 4,652,337            | 4,652,337            | 7,807,855  | 7,807,855           | 2,000,000                                     | 2,000,000                 
|Stock issuances related to private placements                              | 72,593               | 72,593               | 10,393     | 10,393              |                                               |                           
|Capital Contribution by Officer                                            |                      |                      | 6,916      | 6,916               |                                               |                           
|Elimination of shares of FACT Corporation held by Texas T Petroleum Ltd.   |                      |                      | 7,205      | 7,205               |                                               |                           
|Foreign currency translation adjustment                                    |                      |                      |            |                     |                                               |                           
|Unrealized loss on marketable securities                                   |                      |                      |            |                     |                                               |                           
|Cancellation/expiry of warrants                                            |                      |                      | 15,861     | 15,861              |                                               |                           
|Conversion of Class C shares to Class A common shares at ration of 6 for 1 | 12,000,000           | 12,000,000           | 14,890,374 | 540,000             | (2,000,000)                                   | (2,000,000)               
|Stock issuances related to services                                        | 91,250               | 91,250               | 56,400     | 56,400              |                                               |                           
|Distribution of CCRL to shareholder (less impairment of recoverability)    |                      |                      | (325,000)  | (325,000)           |                                               |                           
|Net loss for the period ended December 31,2004                             |                      |                      |            |                     |                                               |                           
|Balance at December 31,2004                                                | 16,816,180           | 16,816,180           | 22,470,004 | 8,119,630           | -                                             | -                         
|Stock issuances related to services                                        | 480,000              | 480,000              | 241,200    | 241,200             |                                               |                           
|Capital Contribution by Officer                                            |                      |                      | 22,368     | 22,368              |                                               |                           



F-17



FACT Corporation

Notes to Financial Statements

Years Ended December 31, 2006 and 2005

(Restated)



Note 2  Restatement of Financial Statements (contd)



Consolidated Statements Stockholders Equity (Deficit)

December 31, 2004, 2005 and 2006



|                                                                                                                                 | Class A Common Stock | Class C Common Stock | Warrants   | Accumulated Deficit | Accumulated Other Comprehensive
Income (Loss) | Total Shareholders
Equity
|-------------------------------------------------------------------------------------------------------------------------------- | -------------------- | -------------------- | ---------- | ------------------- | --------------------------------------------- | --------------------------
|                                                                                                                                 | Shares               | Amount               | Shares     | Amount              | Shares                                        | Amount                    
|                                                                                                                                 | Restated             | Original             | Restated   | Original            | Restated                                      | Original                  
|                                                                                                                                 |                      |                      |            |                     |                                               |                           
|Re-addition of shares of FACT Corporation held by Texas T Petroleum Ltd. Upon divestiture of  interest in Texas T Petroleum Ltd. | 20,187               | 20,187               | 8,278      | 8,278               |                                               |                           
|Reverse impairment due to distribution of CRCL shares                                                                            |                      |                      | 325,000    | 325,000             |                                               |                           
|Foreign currency translation adjustment                                                                                          |                      |                      |            |                     |                                               |                           
|Unrealized gain on marketable securities                                                                                         |                      |                      |            |                     |                                               |                           
|Return of shares for cancellation                                                                                                | (41,961)             | (41,961)             | (10,910)   | (10,910)            |                                               |                           
|Cancellation/expiry of warrants                                                                                                  |                      |                      | 27,530     | 27,530              |                                               |                           
|Net loss for the period ended December 31,2005                                                                                   |                      |                      |            |                     |                                               |                           
|Balance at December 31,2005                                                                                                      | 17,274,406           | 17,274,406           | 23,083,469 | 8,733,095           |                                               |                           
|Cancellation/expiry of warrants                                                                                                  | -                    | -                    | 20,455     | 20,455              |                                               |                           
|Net loss for the period ended December 31,2006                                                                                   |                      |                      |            |                     |                                               |                           
|Foreign currency translation adjustment                                                                                          |                      |                      |            |                     |                                               |                           
|Balance at December 31,2006                                                                                                      | 17,274,406           | 17,274,406           | 23,103,924 | 8,753,550           |                                               |                           





F-18



FACT Corporation

Notes to Financial Statements

Years Ended December 31, 2006 and 2005

(Restated)



Note 2  Restatement of Financial Statements (contd)



Consolidated Statements of Cash Flows - December 31, 2004, 2005 and 2006



|                                                                                             |   | Restated
December
31,
2006 |   | Original
December
31,
2006 |   | Restated
December
31,
2005 |   | Original
December
31,
2005 |   | Restated
December
31,
2004 |   | Original
December
31,
2004
|-------------------------------------------------------------------------------------------- | - | -------------------------- | - | -------------------------- | - | -------------------------- | - | -------------------------- | - | -------------------------- | - | --------------------------
|Cash flows from operating activities:                                                        |   |                            |   |                            |   |                            |   |                            |   |                            |   |                           
|Net (loss)                                                                                   | $ | (840,533)                  | $ | (840,533)                  | $ | (1,364,347)                | $ | (626,397)                  | $ | (15,307,790)               | $ | (595,305)                 
|Adjustments to reconcile net loss to net cash                                                |   |                            |   |                            |   |                            |   |                            |   |                            |   |                           
|Provided by (used in) operating activities:                                                  |   |                            |   |                            |   |                            |   |                            |   |                            |   |                           
|Depreciation, depletion and amortization                                                     |   | 252,434                    |   | 252,434                    |   | 264,514                    |   | 15,476                     |   | 342,719                    |   | 93,682                    
|Stock benefits                                                                               |   |                            |   |                            |   |                            |   |                            |   | 14,400,000                 |   |                           
|Gain (loss) disposal of assets                                                               |   |                            |   |                            |   |                            |   | (583,854)                  |   | -                          |   | -                         
|Equity in Texas T Petroleum Ltd.                                                             |   |                            |   |                            |   | (50,648)                   |   | (50,648)                   |   | 371                        |   | 371                       
|Adjustment to cash at beginning of period from
disposition of Capital Reserve Canada Limited |   | -                          |   | -                          |   | -                          |   | -                          |   | 3,920                      |   | 3,920                     
|Issuance of shares for settlement of services                                                |   |                            |   |                            |   | 241,200                    |   | 241,200                    |   | 56,400                     |   | 56,400                    
|Write down investment in Capital Reserve Canada limited.                                     |   | 221,628                    |   | 221,628                    |   | 266,944                    |   | 266,944                    |   | -                          |   | -                         
|Write down uncollectible account                                                             |   | -                          |   | -                          |   | 34,948                     |   | 34,948                     |   | 9,082                      |   | 3,500                     
|Write down investment in Texas T Petroleum Ltd.                                              |   | -                          |   | -                          |   | 112,510                    |   | 112,510                    |   |                            |   |                           
|Loss on sale of securities                                                                   |   | 10,027                     |   | 10,027                     |   | 7,417                      |   | 7,417                      |   | (339)                      |   | (339)                     
|Changes in operating assets and liabilities                                                  |   |                            |   |                            |   |                            |   |                            |   |                            |   |                           
|(Increase) Decrease in accounts receivable                                                   |   | 281,276                    |   | 281,276                    |   | (589,367)                  |   | (339,435)                  |   | 36,575                     |   | 36,575                    
|(Increase) Decrease in prepaid expenses and deposits                                         |   | -                          |   | -                          |   | 39,082                     |   | 39,082                     |   | (12,570)                   |   | (12,570)                  
|(Increase) Decrease in inventory                                                             |   | (22,376)                   |   | (22,376)                   |   | 264,269                    |   | 264,269                    |   | (256,169)                  |   | (256,169)                 
|Increase  (Decrease) in accounts payable and accrued expenses                                |   | 378,988                    |   | 378,988                    |   | 18,111                     |   | 37,710                     |   | 269,056                    |   | 269,056                   
|Total cash flows provided by (used in) operating activities                                  |   | 281,444                    |   | 281,444                    |   | (755,365)                  |   | (580,779)                  |   | (458,745)                  |   | (400,877)                 
|                                                                                             |   |                            |   |                            |   |                            |   |                            |   |                            |   |                           
|Cash flows from investing activities:                                                        |   |                            |   |                            |   |                            |   |                            |   |                            |   |                           
|Acquisition of  property and equipment                                                       |   | (1,373)                    |   | (1,373)                    |   | (4,749)                    |   | (4,749)                    |   | (16,400)                   |   | (16,400)                  
|Proceeds from disposal of real property                                                      |   | -                          |   | -                          |   |                            |   | 3,327,820                  |   | -                          |   | -                         
|Acquisition of shares in Capital Reserve Canada Ltd.                                         |   | -                          |   | -                          |   |                            |   | (249,932)                  |   | -                          |   | (68)                      
|Disposition oil and gas assets net accretion                                                 |   | -                          |   | -                          |   | -                          |   |                            |   | -                          |   | 6,959                     
|Proceeds from sale of securities                                                             |   | 20,843                     |   | 20,843                     |   | 11,069                     |   | 11,069                     |   | 9,714                      |   | 9,714                     
|Total cash flows provided by (used in) investing activities                                  |   | 19,470                     |   | 19,470                     |   | 6,320                      |   | 3,084,207                  |   | (6,686)                    |   | 205                       
|                                                                                             |   |                            |   |                            |   |                            |   |                            |   |                            |   |                           





F-19





FACT Corporation

Notes to Financial Statements

Years Ended December 31, 2006 and 2005

(Restated)



Note 2  Restatement of Financial Statements (contd)



Consolidated Statements of Cash Flows - December 31, 2004, 2005 and 2006



|                                                                                                                       |   | Restated
December
31,
2006 |   | Original
December
31,
2006 |   | Restated
December
31,
2005 |   | Original
December
31,
2005 |   | Restated
December
31,
2004 |   | Original
December
31,
2004
|---------------------------------------------------------------------------------------------------------------------- | - | -------------------------- | - | -------------------------- | - | -------------------------- | - | -------------------------- | - | -------------------------- | - | --------------------------
|Cash flows from financing activities:                                                                                  |   |                            |   |                            |   |                            |   |                            |   |                            |   |                           
|Proceeds from Loan                                                                                                     |   | 60,000                     |   | 60,000                     |   | -                          |   | -                          |   | 427,599                    |   | 427,599                   
|Repayment of long-term debt                                                                                            |   | -                          |   | -                          |   | -                          |   | -                          |   | (48,709)                   |   | (48,709)                  
|Reduction to loan payable                                                                                              |   | -                          |   | -                          |   | -                          |   | (2,296,250)                |   | (433,627)                  |   | (433,627)                 
|Proceeds (Repayment) of related party loans                                                                            |   | (247,009)                  |   | (247,009)                  |   | (55,103)                   |   | (55,103)                   |   | 479,730                    |   | 479,730                   
|Acquisition cost payable                                                                                               |   | (59,150)                   |   | (59,150)                   |   | (42,954)                   |   | (111,114)                  |   | (31,676)                   |   | (95,127)                  
|Capital contribution by an officer                                                                                     |   | -                          |   | -                          |   | 22,368                     |   | 22,368                     |   | 6,916                      |   | 6,916                     
|Proceeds from sale of common stock (net of offering costs)                                                             |   | -                          |   | -                          |   | -                          |   | -                          |   | 19,600                     |   | 19,600                    
|Total cash flows provided by (used in) financing activities                                                            |   | (246,159)                  |   | (246,159)                  |   | (75,689)                   |   | (2,440,099)                |   | 419,833                    |   | 356,382                   
|Cash flows from discontinued operations:                                                                               |   |                            |   |                            |   |                            |   |                            |   |                            |   |                           
|Proceeds from sale of property                                                                                         | $ | -                          | $ | -                          | $ | 1,031,570                  | $ | -                          | $ | -                          | $ | -                         
|Cash flows from operations                                                                                             |   | -                          |   | -                          |   | (132,594)                  |   | -                          |   | 1,309                      |   | -                         
|Total cash flows provided by (used in) discontinued operations                                                         |   | -                          |   | -                          |   | 898,976                    |   | -                          |   | 1,309                      |   | -                         
|                                                                                                                       |   |                            |   |                            |   |                            |   |                            |   |                            |   |                           
|Foreign currency translation adjustment                                                                                |   | (2,023)                    |   | (2,023)                    |   | 40,693                     |   | 51,606                     |   | 39,840                     |   | 39,840                    
|                                                                                                                       |   |                            |   |                            |   |                            |   |                            |   |                            |   |                           
|Net change in cash                                                                                                     |   | 52,732                     |   | 52,732                     |   | 114,935                    |   | 114,935                    |   | (4,449)                    |   | (4,449)                   
|                                                                                                                       |   |                            |   |                            |   |                            |   |                            |   |                            |   |                           
|Cash balance at beginning of period                                                                                    |   | 159,839                    |   | 159,839                    |   | 44,904                     |   | 44,904                     |   | 49,353                     |   | 49,353                    
|                                                                                                                       |   |                            |   |                            |   |                            |   |                            |   |                            |   |                           
|Cash balance at end of period                                                                                          |   | 212,571                    |   | 212,571                    |   | 159,839                    |   | 159,839                    |   | 44,904                     |   | 44,904                    
|                                                                                                                       |   |                            |   |                            |   |                            |   |                            |   |                            |   |                           
|Supplemental disclosure of cash flow information:                                                                      |   |                            |   |                            |   |                            |   |                            |   |                            |   |                           
|Interest paid                                                                                                          |   | 34,636                     |   | 34,636                     |   | 239,635                    |   | 239,635                    |   | 395,631                    |   | 395,631                   
|Income taxes paid                                                                                                      |   |                            |   |                            |   |                            |   |                            |   |                            |   |                           
|                                                                                                                       |   |                            |   |                            |   |                            |   |                            |   |                            |   |                           
|Non-cash investing and financing transactions:                                                                         |   |                            |   |                            |   |                            |   |                            |   |                            |   |                           
|Acquisition of shares of Capital Reserve Canada Limited                                                                |   | -                          |   | -                          |   | (250,000)                  |   | -                          |   | -                          |   | -                         
|Recovery on disposition of Capital Canada (net of impairment of $325,000 (2004))                                       |   | -                          |   | -                          |   | 325,000                    |   | 325,000                    |   | 325,559                    |   | 325,559                   
|Recovery of value of shares of FACT Corporation previously eliminated due to cross ownership by Texas T Petroleum Ltd. |   | -                          |   | -                          |   | 8,278                      |   | 8,278                      |   | -                          |   | -                         
|Return to treasury of common shares                                                                                    |   | -                          |   | -                          |   | (10,910)                   |   | (10,910)                   |   | -                          |   | -                         

F-20





FACT Corporation

Notes to Financial Statements

Years Ended December 31, 2006 and 2005

(Restated)



Note 2  Restatement of Financial Statements (contd)



Quarterly results for the years ended December 31, 2004, 2005 and 2006



|Fiscal year ended December 31, 2004
|-----------------------------------
|                                   
|                                   
|                                   
|Depreciation and amortization:     
|Consulting fees                    
|Stock benefit                      
|Total Adjustment                   





|Fiscal year ended December 31, 2005
|-----------------------------------
|                                   
|                                   
|                                   
|Depreciation and amortization:     
|Consulting fees                    
|Total Adjustment                   



F-21





FACT Corporation

Notes to Financial Statements

Years Ended December 31, 2006 and 2005

(Restated)



Note 2  Restatement of Financial Statements (contd)



Quarterly results for the years ended December 31, 2004, 2005 and 2006





|Fiscal year ended December 31, 2006
|-----------------------------------
|                                   
|                                   
|                                   
|Depreciation and amortization:     
|Consulting fees                    
|Total
Adjustment                   



Disposition of subsidiaries fiscal 2005 and 2005



Quarterly impact of discontinued operations in fiscal year ended December 31, 2004:



|                                                    |   | First quarter |   | Second quarter |   | Third quarter |   | Fourth quarter
|--------------------------------------------------- | - | ------------- | - | -------------- | - | ------------- | - | --------------
|Petroleum and nature gas revenue (net of royalties) | $ | 12,808        | $ | 23,718         | $ | 34050         | $ | 43,245        
|Cost and administrative expense                     |   | (8,238)       |   | (14,943)       |   | (26,916)      |   | (37,662)      
|Profit (loss)                                       |   | 4,570         |   | 8,775          |   | 7,134         |   | 5,583         
|Earnings (loss) from discontinued operations        | $ | 4,570         | $ | 8,775          | $ | 7,134         | $ | 5,583         



Quarterly impact of discontinued operations in fiscal year ended December 31, 2005:



|                                                 |   | First quarter |   | Second quarter |   | Third quarter |   | Fourth quarter
|------------------------------------------------ | - | ------------- | - | -------------- | - | ------------- | - | --------------
|Rental and interest income net of operating cost | $ | 69,094        | $ | 109,613        | $ | 85,645        | $ | 86,571        
|Cost and administrative expense                  |   | 35,410        |   | 170,342        |   | 196,053       |   | (219,162)     
|Profit (loss)                                    |   | 33,684        |   | (60,729)       |   | (110,406)     |   | (132,591)     
|Gain on disposal                                 |   | -             |   | 723,866        |   | 546,156       |   | 552,049       
|Earnings (loss) from discontinued operations     | $ | 33,684        | $ | 663,137        | $ | 435,750       | $ | 419,458       

F-22



FACT Corporation

Notes to Financial Statements

Years Ended December 31, 2006 and 2005

(Restated)



Note 3 - Acquisition of Food and Culinary Technology Group Inc. (FACT), Intellectual Property, and Issuance of Class C Common Stock



On November 20, 2001, the Company acquired all of the issued and outstanding shares of FACT in exchange for 2,000,000 shares of the Companys Class C common stock. The acquisition is treated as an asset acquisition and the Class C shares issued upon the acquisition have been valued based on an analysis of FACTs future cash flows, discounted at a rate of 20% to present day and impaired at a rate of 50% to account for the high risk factor associated with the nature of the start up of operations in a relatively unknown category of the food market, functional foods. The assets acquired consist principally of certain intellectual property, formulas, patent rights and other intangible assets. The value attributed to the Class C common shares is $490,374, which amount has been amortized annually since on a straight line basis over a period of 10 years commencing December 2003, following the successful completion of two years of revenue generating operations.



The 2,000,000 shares of the Companys Class C common stock that were issued on November 20, 2001, were convertible into a total of 12,000,000 shares of the Companys Class A common stock.  On August 6, 2003, the Company completed a 4 for 1 reverse split which impacted its Class A common stock.  The consolidation did not impact the Class C holders, and as a result an amount of $288,000, which represents the award benefit to the holders of the Class C common stock at the date of the reverse split, discounted at a rate of 80% due to the illiquidity in the market for the Companys Class A common shares,  has been expenses in the fiscal year ended December 31, 2003.  As of February 11, 2004, all of the holders of the Companys Class C common stock elected to convert all of their shares into shares of Class A common stock.  During the second quarter of fiscal 2004, the Class C common stock was canceled and a total of 12,000,000 shares of Class A common stock were issued.



Prior to the acquisition, FACT had entered into an agreement to acquire certain intellectual property, formulas, patent rights and other intangible assets (the Intellectual Property) owned by F.A.C.T. Group LLC, a New Jersey limited liability company (the LLC), for $2,000,000 to be paid in cash pursuant to terms described herein and by the issuance of shares of FACTs common stock.



In August 2003, the Company and the member owners of LLC entered into a Settlement Agreement to resolve certain disputes and claims that had arisen between the parties. As a result, the parties agreed that the following consideration would be paid in connection with the acquisition of the Intellectual Property:



a.           Royalty payments shall be paid to the LLC calculated on the sale of bakery and pasta products at a rate of $0.05 per pound of premix sold until a total of $2,000,000 has been paid.



b.

FACT is obligated to make minimum royalty payments each year. In year 2006, the minimum amount of royalty payments to be paid is $59,150. For each subsequent year, the minimum amount increases by 30%. Amounts for the next 6 years are as follows:



2007  $  76,895

2008  $  99,963

2009  $129,953

2010  $168,938

2011  $219,620

2012  $285,506



Upon reaching 2012, all remaining royalties become due and payable.







F-23



FACT Corporation

Notes to Financial Statements

Years Ended December 31, 2006 and 2005

(Restated)



Note 3  Acquisition of Food and Culinary Technology Group Inc. (FACT), Intellectual Property, and Issuance of Class C Common Stock Contd.



c.           An additional royalty payment of $20,000 was made to the LLC in 2003.



d.            Additional consideration of up to $233,333 to be paid to two (2) of the LLCs member owners in monthly payments over the period of time commencing on September 1, 2003 through December 2006. Such amount will be decreased in the event that such member owners personally earn more than a certain amount in any of the stated years or if the amount of royalty payments is in excess of $150,000 in any year.  The amounts paid to the LLC owners with respect to this provision are expensed annually as consulting fees.  At the close of fiscal 2006 the Company fulfilled the requirements under this provision and a total of $177,686 had been paid as additional consideration.



Statements of Financial Accounting Standards No. 142 Goodwill and Other Intangible Assets addresses financial accounting and reporting: (1) at the date of acquisition of goodwill and intangible assets apart from goodwill acquired other than in a business combination and (2) all goodwill and intangible assets apart from goodwill subsequent to their acquisition. A principal requirement of this statement is to determine the useful lives of intangible assets and amortize or not amortize the intangible assets accordingly. Intangible assets apart from goodwill with finite lives are to be amortized over their useful lives to their residual value, if any, whereas goodwill and intangible assets apart from goodwill with indefinite lives are not to be amortized. Another principal requirement of this statement relates to impairment of intangible assets. This statement, in its entirety, became effective for the Company on January 1, 2002. Certain provisions of the statement were effective July 1, 2001 since the intangible assets were acquired after that date. Management believes that currently the intangible assets have an indefinite useful life, but expects that once significant commercial operations commence using the intangible assets, an estimated useful life will be determinable and the intangible assets will be amortized.



Note 4   Accounts Receivable



The  following schedule provides an analysis of the Companys accounts receivable:



|                                                                          |   | 2006    |   | 2005   
|------------------------------------------------------------------------- | - | ------- | - | -------
|Withholding tax recoverable on sale of real property (a)                  | $ | 29,492  | $ | 276,291
|Trade receivables                                                         |   | 456,568 |   | 141,045
|Proceeds from sale of Capital Reserve Canada Limited note receivables (b) |   | -       |   | 350,000
|                                                                          | $ | 486,060 | $ | 767,336

(a)

During the year the Company successfully concluded the sale of its two commercial properties located in Calgary, Alberta, Canada (Note 4).  The balance due to the Company after retirement of all underlying mortgages and loans secured by the two properties was reduced by a recoverable tax hold-back of CDN$310,000 (US$276,291).  The Company is taking the appropriate actions to secure the release of this amount, which is presently withheld for tax purposes by the Canadian tax authorities.  During fiscal 2006 the Company was successful in recovering $246,799 from the Canadian tax authorities as a result of certain filings.  Management expects to realize the remaining balance of these proceeds during fiscal 2007.

(b)

During the year ended December 31, 2005, the Company reached an agreement with various third parties whereby it transferred all of its rights and interest in a convertible loan due from former subsidiary Capital Reserve Canada Limited (Note 17).  Under the terms of the agreement, the Company received cash consideration totaling $400,000 and 500,000 free-trading shares of Capital Reserve Canada Limited.  The cash proceeds were to be received over 120 days in five installments, including two $50,000 payments and three payments of $100,000 each. The Company received the initial $50,000 payment and the free trading shares prior to the close of fiscal 2005, all remaining payments were received in fiscal 2006.

F-24



FACT Corporation

Notes to Financial Statements

Years Ended December 31, 2006 and 2005

(Restated)



Note 5   Investment in Real Properties (Discontinued operations)



During the fiscal year ended December 31, 2005 the Company divested all of its real properties.   The operations relating to these properties have been presented as discontinued operations for fiscal 2005. Results from discontinued operations include:



|                                                 |   | 2006 |   | 2005     
|------------------------------------------------ | - | ---- | - | ---------
|                                                 |   |      |   |          
|Rental and interest income net of operating cost | $ | -    | $ | 86,571   
|                                                 |   |      |   |          
|Cost and administrative expenses                 |   | -    |   | (219,162)
|                                                 |   |      |   |          
|Loss from discontinued operations                |   | -    |   | (132,594)
|                                                 |   |      |   |          
|Gain on disposal                                 |   | -    |   | 572,944  
|                                                 |   |      |   |          
|Earnings (loss) from discontinued operations     | $ | -    | $ | 440,350  
|                                                 |   |      |   |          

The completed transactions involved purchase agreements with two unrelated buyers for the Companys commercial real properties for combined gross proceeds of CDN$3,525,000. After commissions and fees of approximately CDN$130,000, the sale proceeds were used to retire outstanding mortgages against the two properties held by Standard Life and the Alberta Treasury Branches totaling CDN$2,235,000.  The CDN$1,160,000 balance due the Company was reduced by a recoverable tax hold-back of CDN$310,000.  The Company is taking the appropriate actions to secure the release of the CDN$310,000 presently withheld for tax purposes by the Canadian tax authorities.  Management expects to realize these proceeds during fiscal 2005.  The divestiture of these two properties resulted in a net gain of $758,973.

Under the terms of a trust agreement entered into in fiscal 2000 between the Company and Mr. Scott Lawler (See Note 15), a member of the Companys board of directors, Mr. Lawler elected his option to acquire a residential property acquired in fiscal 2000 by the Company for his personal use.  Under the terms of the agreement Mr. Lawler was responsible for mortgage payments, improvements to the property and taxes during the term of his use of the property.  Additionally under the agreement, Mr. Lawler had the option to acquire the property by (1) assuming the mortgage, (2) acquiring a new mortgage or (3) paying out the remaining balance of the mortgage.  As part of his election to acquire the property, Mr. Lawler has returned to treasury a total of 41,961 common shares issued to Mr. Lawler in fiscal 2000 in consideration for proceeds provided to the Company as a down payment for the property.  As a result of Mr. Lawlers election to acquire the property, a mortgage in the amount of CDN$454,882 was retired during the year and the Company has recorded a loss on the disposition of $186,029 including a gain of $10,910 attributed to the return of the shares.

The net effect of the above-noted transactions resulted in a gain on disposal of $572,944 and earnings from discontinued operations of $440,350.

Note 6 - Investment in Texas T Companies (Texas T Resources, Inc and Texas T Petroleum Limited)



During the year 2000, the Company agreed with Texas T Resources Inc. ("Resources") (a public reporting Alberta corporation) to fund a portion of the acquisition of a heavy oil upgrading technology by Resources' majority owned subsidiary, Texas T Petroleum Ltd., (Petroleum) (a private Colorado company).  Petroleum would acquire a 50% interest in Carbon Resources Limited, a Cyprus company, which holds the rights to the heavy oil upgrading technology known as "CPJ".





F-25



FACT Corporation

Notes to Financial Statements

Years Ended December 31, 2006 and 2005

(Restated)



Note 6 - Investment in Texas T Companies (Texas T Resources, Inc and Texas T Petroleum Limited)  Contd



On August 1, 2000, in consideration of cash proceeds advanced to Resources for the development of the upgrading technology, the Company entered into a private placement agreement with Resources for the purchase of 2,000,000 units at $0.0677 per unit (each unit comprised of one common share and one share purchase warrant entitling the Company to purchase one additional share at $0.0880 for a period of two years from the date of issue).



Subsequently in the fiscal year 2000, the Company also completed a private placement with Petroleum, and acquired 2,000,000 Units at $0.50 per unit (each unit comprised of one share and one share purchase warrant entitling the Company to purchase one additional share at $1.00 per share for a period of two years from the date of issue). On March 6, 2001, Petroleum completed a reverse split of its share capital at the rate of 10:1, which resulted in the Company's shareholdings in Petroleum being reduced from 2,000,000 Units to 200,000 Units. The Company's percentage ownership of Petroleum remained constant following the reverse split.



On July 3, 2001, the Company completed a Stock Exchange Agreement with an unrelated third party where the Company exchanged 652,252 units of Resources for 106,101 common shares of Petroleum.



In accordance with the Statement of Financial Accounting Standards No. 115 (SFAS 115), investments and securities may be classified as (1) Securities held-to-maturity, (2) Trading Securities or (3) Securities available for sale. The Company considers these securities to be Securities available for sale, and, in accordance with SFAS 115, are valued at fair value with unrealized gains or losses recorded in stockholders' equity.



As of December 31, 2004, the Company owned 89,775 shares of Resources, which was recorded at $16,397 based on the quoted market price of the stock at that date. During the fiscal year ended December 31, 2005 the Company divested all of its shares of Resources for CAD$0.15 per share for total CAD proceeds of $13,466 (US$11,069).  The Company recorded a loss of $7,417 with respect to the transaction.



During the year ended December 31, 2005 the Company also agreed with the other shareholders of Texas T Petroleum Ltd. to transfer its shares of Texas T Petroleum Ltd. to the remaining shareholders, on a pro rata basis in exchange for forgiveness of the Companys current share of  outstanding liabilities due and payable. The transaction has resulted in the write down of the Companys recorded interest in Texas T Petroleum Ltd. in the total amount of $112,510.



The Company held no interest in the Texas T companies at the year ended December 31, 2005.



Note 7  Investment in Australian Oil and Gas Corporation



Australian Oil and Gas Corporation, (formerly Synergy Technologies Corporation) a former leaseholder at one of the Companys commercial properties, filed for protection under Chapter 11 of the US Bankruptcy Courts in fiscal 2002 and completed a re-organization plan in fiscal 2003. At the time of filing for bankruptcy, Australian Oil and Gas was indebted to the Company in the amount of $222,627, which amount included past due lease payments, lease rejection costs as allowable under the US Bankruptcy Act and associated legal fees.  As part of the reorganization, during fiscal 2003 the Company received cash proceeds in the amount of $5,489 and common stock in the amount of 0.862999 of one share of Australian Oil and Gas for every dollar amount of the Companys claim, amounting to 174,988 shares of the common stock of Australian Oil and Gas with a fair market value of $1,801 at the time of receipt.   As of December 31, 2005, the Company owns 174,988 shares of Australian Oil and Gas which has been recorded at $21,770 based on the quoted market price of the stock at that date.  During the year ended December 31, 2006 the Company sold all of its shares of Australian Oil and Gas for proceeds totaling $18,743.  The Company recorded a loss of $3,027 with respect to the divestiture.



F-26



FACT Corporation

Notes to Financial Statements

Years Ended December 31, 2006 and 2005

(Restated)



Note 8Loans Payable (related parties)

Loans Payable from various related parties have the following terms at December 31:

|Repayment terms    |  | Interest rate |   | 2006    |   | 2005     
|------------------ |  | ------------- | - | ------- | - | ---------
|Demand             |  | 10%           |   | 162,658 |   | 147,309  
|Demand             |  | 10%           |   | -       |   | 17,940   
|Demand             |  | 10%           |   | 336,820 |   | 305,832  
|Due within 2 years |  | 10%           |   | 338,261 |   | 613,666  
|                   |  |               | $ | 837,739 | $ | 1,084,747

The loan payable of $338,261 is secured by liens on the Company's accounts receivable and investments and bears interest at a rate of 10% p.a., maturing on June 20, 2008. This amount is reflected in Long Term Liabilities. Interest is accrued monthly until maturity, at which time principal and all accrued and unpaid interest becomes due and payable.



Note 9 Loans Payable



a.

During the fiscal year ended December 31, 2006, the Company received loans from two arms length third parties totaling $60,000.  The loans are repayable on demand and bear interest at a rate of 10% per annum.



b.

The Companys subsidiary, Wall Street Real Estate Ltd., has a loan of $356,987 (CDN$462,000), payable on demand with ATB Financial (ATB). The loan is secured by a mortgage on real estate located at 1528-1530, 9th Avenue S.E., Calgary, Alberta, Canada and bears interest at the Prime Lending rate of the ATB (6.25% as of December 31, 2004) plus 2%, payable on the last day of each month. The loan had a balance outstanding of $346,614 as at December 31, 2004.  This loan was retired in full during fiscal 2005 concurrent with the sale of the underlying real estate.



c.

The Company had a loan of $386,350 (CDN$500,000) with Access Mortgage Corporation Limited which became due and payable on February 1, 2004.  The loan was secured by a second mortgage on the real estate located at 1528-1530, 9th Avenue S.E., Calgary, Alberta, Canada and was subject to interest at a rate of 1.5% per month, payable on the first day of each month.  The Company prepaid the interest in the total amount of $69,543 (CDN$90,000) at the time the mortgage was obtained in fiscal 2003.  During fiscal 2004 the Company negotiated an extension of this loan for a period of 30 days, during which time it negotiated a new mortgage with a different lender in the total amount of $427,599 (CAD$515,000).  Proceeds from the new loan were used to retire the original loan in full.  The new loan was granted on March 17, 2004 from Securus Financial, an unrelated third party.  The loan is secured by a second mortgage on the real estate located at 335 25th Street S.E., Calgary, Alberta, Canada and bears interest at a rate of 13% per annum.  The Company paid a commitment fee of $11,938 (CDN $15,450) to Securus with respect to the transaction. The loan becomes due and payable on September 30, 2005.  This loan was retired in full concurrent with the sale of the commercial property located at 335 25th Street SE.



d.

The Company has a real estate mortgage on the commercial property located at 335 25th Street SE, Calgary, Alberta with a five year term that is amortized over 15 years at an interest rate of 8.6% with Standard Life. On September 1, 2005, the mortgage can either be repaid or renewed with the interest rate converted to the then prevailing rate.  As of December 31, 2004 the mortgage balance was $1,103,076 (CDN$1,328,543).  This loan was retired in full concurrent with the sale of the commercial property in the first quarter of fiscal 2005.



e.

The Company assumed a variable interest rate real estate mortgage on a residential property from the ATB in the amount  of $440,606 (CDN$570,217) amortized over 25 years, due and payable on May 1, 2005.  As of December 31, 2004 the mortgage balance was $395,951 (CDN$476,883).  On May 1, 2005, the mortgage can either be repaid or renewed with the interest rate converted to the then prevailing rate.  The Company renewed the mortgage prior to its expiry for an additional term, and the loan was retired in full concurrent with the transfer of the underlying property.

F-27



FACT Corporation

Notes to Financial Statements

Years Ended December 31, 2006 and 2005

(Restated)



Note 10  Common stock



There were no transactions during the fiscal year ended December 31, 2006.



During the year ended December 31, 2005, the Company had the following transactions:



A total of 360,000 common shares were issued as payment for services rendered by unrelated third parties.  A further 120,000 common share were reserved for issuance for services rendered prior to year end, but not yet issued as of the date of this report.  A total of 480,000 common shares were valued at $241,200 for a weighted price per share of $0.5025 based on the market price of the shares at the time of issue.



A total of 41,961 shares were returned to the Company for cancellation by an officer and director of the Company as part of the terms of an agreement entered into in 2000.  (See Note 4).  The canceled shares were valued at $10,910 based on the market price of the stock at the time of the transaction.  The shares were not yet canceled as at the year ended December 31, 2005.



During the year ended December 31, 2004, the Company had the following transactions:



The Company converted its 2,000,000 Class C common shares into 12,000,000 Class A common shares.  The conversion ratio was at 6 for 1.



The Company sold 72,593 Units to private investors for total proceeds of $19,600, with each Unit consisting of one common share and one share purchase warrants entitling the holder to acquire an additional common share for a period of two years at $0.34 per share.



A total of 90,250 common shares were issued as payment for services rendered by unrelated parties.  The common shares were valued at $56,400 for a weighted price per share of $0.85.



Note 11  Stock-Based Compensation



Issuance of stock options



During the year ended December 31, 2001, the Company adopted a stock option and stock award plan effective April 1, 2001. The plan allows the Board of Directors, or its appointed administrator, to grant stock awards or stock options to employees, directors, and consultants, in a quantity not to exceed 1,000,000 shares and subject other provisions of the plan. Characteristics of the options, including vesting, execution price, and expiration, are determined by the Board of Directors. During 2001, the Company granted non-qualified stock options to directors, employees and consultants for 650,000 shares of Class A common stock. No options were issued during 2002.  During 2003, the Company canceled a total of 600,000 of the options previously granted to officers, directors, employees and consultants and obtained shareholder approval for a 2003 Stock Option and Award Plan (the Plan).  Under the 2003 Plan 1,000,000 shares may be issued to employees, officers, directors and/or consultants.  On August 26, 2003 the Board of Directors set the exercise price for stock options granted under the 2003 Plan at $0.41 per share, which price represents 110% of the closing price of the Companys shares on that date.  There were no options granted during the years ended December 31, 2005 and 2006.



F-28



FACT Corporation

Notes to Financial Statements

Years Ended December 31, 2006 and 2005

(Restated)



Note 11 Stock-Based Compensation Contd.



The following is a table of outstanding options and changes during 2006 and 2005:



|                                                |                   |               | Employee Options |   | Non-employee Options |      | Weighted Average Exercise Price
|----------------------------------------------- | ----------------- | ------------- | ---------------- | - | -------------------- | ---- | -------------------------------
|Options Outstanding, December 31, 2002          | 112,500           |               | 50,000           |   | 4.00                
|                                                | Options granted:  |               |                  |   |                      | 4.00
|                                                |                   | Employees     |                 |   |                     |      |                               
|                                                |                   | Non-employees |                 |   | 6,250                |      | 4.00                           
|                                                | Options exercised |              |                  |  |                      |    
|                                                | Options canceled  | (100,000)     |                  |  |                      |    
|Options Outstanding, December 31, 2005 and 2004 | 12,500            |               | 56,250           |   | 4.00                
|Options expired                                 | (12,500)          |               | (56,250)         |   |                    
|Options Outstanding, December 31, 2006          |                  |               |                 |   |                    



Note 12  Warrants



The Company had outstanding warrants to purchase 165,186 and 440,811 shares of its Class A common stock at  December 31, 2005 and 2004, respectively, at prices ranging from $0.25 to $6.00 per share.



The following schedule shows the warrants outstanding and changes made during the years ending December 31, 2006, 2005 and 2004:



|                                       | Number  |   | Weighted Average Exercise Price
|-------------------------------------- | ------- | - | -------------------------------
|                                       |         |   |                                
|                                       |         |   |                                
|Warrants outstanding December 31, 2004 | 440,811 |   | 0.32                           
|                                       |         |   |                                
|Changes during the year 2005:          |         |   |                                
|Issued                                 | -       |   | -                              
|Expired                                | 275,625 |   | 0.31                           
|                                       |         |   |                                
|Warrants outstanding December 31, 2005 | 165,186 | $ | 0.34                           
|                                       |         |   |                                
|Changes during the year 2006:          |         |   |                                
|Issued                                 | -       |   | -                              
|Expired                                | 165,186 | $ | -                              
|                                       |         |   |                                
|Warrants outstanding December 31, 2006 | -       | $ | -                              



Where appropriate an allocation has been made in the consolidated statements of stockholders equity between common stock and common stock warrants to give effect to the estimated fair value of the common stock warrants.





F-29



FACT Corporation

Notes to Financial Statements

Years Ended December 31, 2006 and 2005

(Restated)



Note 13  Related Party Transactions

During the year ended December 31, 2005, the Company entered into a loan agreement in the total amount of $250,000 with respect to amounts previously advanced from International Securities Group Inc., which is owned by a member of the Companys Board of Directors, W. Scott Lawler.   As at the year ended December 31, 2005 a total of $293,405 was due to International Securities Group Inc., including interest accrued during the most recently completed fiscal year totaling $27,545 calculated at 10% per annum.  During fiscal 2006, a further $12,429 was added to the principal balance of the loan and accrued interest totaled  $30,986 for a balance of $336,820 as at December 31, 2006.



Note 14 Recent Accounting Pronouncements



In February 2006, FASB issued Financial Accounting Standards No. 155, Accounting for Certain Hybrid Financial Instruments  an amendment of FASB Statements No. 133 and 140.  This Statement amends FASB Statements No. 133, Accounting for Derivative Instruments and Hedging Activities, and No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. The Company does not expect SFAS 155 to have a material effect on the Companys financial statements.



In March 2006, FASB issued Financial Accounting Standards No. 156, Accounting for Servicing of Financial Assets  an amendment of FASB Statement No. 140.This Statement amends FASB Statement 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.  The Company does not expect SFAS 156 to have a material effect on the Companys financial statements.



In September 2006, FASB issued Financial Accounting Standards No. 157, Fair Value Measurements.   This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice.  The Company does not expect SFAS 157 to have a material effect on the Companys financial statements.



In September 2006, FASB issued Financial Accounting Standards No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans  an amendment of FASB Statements No. 87, 88, 106, and 132(R).  This Statement improves financial reporting by requiring an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This Statement also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions.  The Company does not expect SFAS 158 to have a material effect on the Companys financial statements.



Note 15  Income Taxes



As of December 31, 2006 the Company had approximately $6,773,303 of net operating loss carryover that expires between 2021 and 2025.  The Company had deferred tax assets of approximately $2,740,789 relating to the net operating loss carryover.  A valuation allowance has been provided for the total amount since the amounts, if any, of future revenues necessary to be able to utilize the carryover, are uncertain.  A reconciliation of income taxes computed using the statutory federal income tax compared to the effective tax rate is as follows:





F-30



FACT Corporation

Notes to Financial Statements

Years Ended December 31, 2006 and 2005

(Restated)



Note 15  Income Taxes  Contd.



|                                                    | 2006   |   | 2005   |  
|--------------------------------------------------- | ------ | - | ------ | -
|Federal tax computed at the expected statutory rate | (35.0) | % | (35.0) | %
|State income tax, net of federal tax benefit        | (3.0)  |   | (3.0)  |  
|Estimated foreign income taxes                      | (3.6)  |   | (3.6)  |  
|Net change in valuation allowance                   | 41.0   |   | 41.0   |  
|                                                    |        |   |        |  
|Income tax expense - effective rate                 | 00.0   | % | 00.0   | %



Because of the 50% change in ownership rules of the Internal Revenue Code, certain prior net operating loss carryforwards are no longer available from periods before 2001.  Carryover of net operating losses available may also be restricted due  to future changes in ownership.



Note 16  Consulting Agreement (Related party)



On April 24, 2000, the Company entered into a Consulting Agreement with its former President and a current member of its Board of Directors, Mr. W. Scott Lawler, pursuant to which Mr. Lawler agreed to relocate to Calgary, Alberta, Canada, to work at the Company's facilities in Calgary and devote more substantial time to the operations of the Company.  The term of the Consulting Agreement is two (2) years, with an option on Mr. Lawler's part to extend for one (1) additional year.  Upon the conclusion of the Consulting Agreement, the Company and Mr. Lawler agreed to an extension to the original agreement for a period of one (1) year.  Mr. Lawlers consulting agreement calls for an annual salary of $75,000.00, with automatic salary increases of tenpercent (10%) at the end of each year.  In addition, under the terms of the agreement Mr. Lawler is to receive a stock option package should the Company implement a stock option plan during the term of his contract.  In March 2001 the shareholders of the Company approved a stock option and award plan, and effective September 10, 2001, Mr. Lawler was granted 200,000 stock options for exercise at $1.00 per share for a period of five years from the grant date.  During the current fiscal year, the 200,000 options previously granted to Mr. Lawler were canceled.



As a further inducement for Mr. Lawler to move to Calgary on the Company's behalf, the Company purchased a home for Mr. Lawler's use.  The purchase price of the home was $629,750 (CDN$815,000).



The Company assumed a variable interest rate mortgage from Alberta Treasury Branches in the amount of $440,607 (CDN$570,217), amortized over 25 years, due and payable on May 1, 2005.  The monthly payments of principal and interest, property taxes and all other payments are to be paid by Mr. Lawler. Title to the property is in the name of the Company.  Mr. Lawler provided funds to the Company in the amount of $167,842 to pay for the down payment and all closing costs associated with the purchase in the form of a subscription for shares of Capital Reserve's common stock at the purchase price of $1.00 per share.



If and when the property is sold, the Company will receive any and all gains (and/or losses) from such sale, less the cost of any approved improvements to the property paid for by Mr. Lawler.  However, Mr. Lawler has the option of acquiring title to the property (and thus all resulting gains or losses) by (a) assuming or paying off the Company's mortgage; and (b) surrendering to the Company the 167,842 shares of common stock obtained from the Company.  During the year the Company completed a 4 for 1 reverse split of its common stock reducing the number of shares for surrender to 41,961.

Mr. Lawler elected his option to this property in fiscal 2005.   As a result of Mr. Lawlers election to acquire the property, a mortgage in the amount of CDN$454,882 was retired during the year and the Company has recorded a loss on the disposition of $186,029 including a gain of $10,910 attributed to the return of the shares.



F-31



FACT Corporation

Notes to Financial Statements

Years Ended December 31, 2006 and 2005

(Restated)



Note 17- Distribution of Capital Canada



By the end of fiscal 2002, initial sales had commenced in FACT Group, and the Company determined there was enough merit to commence the divestiture of certain of the Companys non-core assets.  As a result the Company decided to spin-off its operating oil and gas subsidiary, Capital Canada, to its shareholders, subject to the filing and approval of a 20-F registration statement with the SEC, which was first filed by Capital Canada on  July 11, 2003.  During the final quarter of fiscal 2004, the spin-off became effective and the Company ceased to consolidate the financial records for Capital Canada for purposes of financial reporting.  The Companys board of directors continues to share a director in common with Capital Reserve Canada Limited.



On July 1, 2005, the Company agreed to enter into a convertible loan with Capital Reserve Canada Limited. in the principal amount of $662,059 convertible for a period of two years from July 1, 2005 at $0.05 per share.  The Company agreed to accrue interest on the loan back to the initial date of the loan which was March 1, 2000 at the rate of Bank of America prime plus 1% compounded annually.  Accrued interest as at the date of this report is reflected on the Companys income statement.  During the fiscal year ended December 31, 2004, the gross amount of the loan was reduced by $325,000 to reflect managements assessment of amounts recoverable.  If not converted the note plus accrued interest will be due on June 30, 2007.



During November 2005, the Company reached an agreement with various third parties whereby it transferred all of its rights and interest in the above-noted convertible loan.  Under the terms of the agreement, the Company will receive cash consideration totaling $400,000 and 500,000 free-trading shares of Capital Reserve Canada Limited.  The cash proceeds are to be received over 120 days in five installments, including two $50,000 payments and three payments of $100,000 each. Prior to the end of the year the Company received the initial $50,000 payment and the free trading shares.  As a result the Company recorded the total value of the convertible loan including all interest applicable under the agreement on its balance sheet.  The fair value of the shares received and the value of the cash proceeds offset the total value of the loan resulting in a loss on the original investment of $266,944.   The securities remained on the books of the Company with a market value of $250,000 at the close of fiscal 2005.



During fiscal 2006 the Company commenced the sale of these securities realizing proceeds of $2,100 prior to the end of the year.  At year end the Company still held a total of 481,800 shares of Capital Reserve Canada Ltd. with a market value of $19,272.  Accordingly the Company wrote down the book value of the investment, recording a loss of $7,000 with respect to sales of securities completed during the year, and a permanent decline on the value of the securities of $221,628.



Note 18  Commitments



The Companys subsidiary, Wall Street, presently leases 3,840 square feet of office space at 1530-9th Ave S.E., Calgary, Alberta Canada, from Sun Prairie Resources Ltd., from which location the Company and all its subsidiaires carry on operations. The lease is for a four year term ending on July 31, 2010.  There is no provision in the lease for renewal.



Under the terms of the lease Wall Street pays monthly rent at a fixed rate of $9.87 (CAD$11.50) per square foot for a total of $3,158 (CAD$3,680) per month, plus operating costs of approximately $7.09 (CAD$8.26) per square foot totaling $2,268 (CAD$2,643), plus applicable taxes.  Annual fluctuations in operating costs as a result of actual costs versus budgeted costs may result in adjustments to the operating costs for each ensuing year.



Minimum Annual lease payments (inclusive of estimated operating costs) are as follows:

2007 - $65,110

2008 - $65,110

2009 - $65,110

2010 - $37,981

F-32



FACT Corporation

Notes to Financial Statements

Years Ended December 31, 2006 and 2005

(Restated)



Note 18  Commitments Contd



Wall Street has sublet the space as follows:



-

International Securities Group Inc. has a sublease for 729 square feet on a month to month basis at a rate of $1,030 (CAD$1,200) per month, inclusive of operating costs, plus applicable taxes;

-

FACT Corporation has a sublease for 768 square feet on a month to month basis at a rate of $1,085 (CAD$1,264)  per month, inclusive of operating costs, plus applicable taxes xes.

-

Toggle Networks has a sublease of 2,344 square feet expiring August 31, 2007 which generates revenue of

$3,581 (CAD$4,173) per month, inclusive of operating costs, plus applicable taxes. Toggle Networks has verbally advised Wall Street of their intent to renew their sublease for an additional term expiring on July 31, 2010 at $12.01 (CAD$14.00) per sq. ft plus operating costs.  The lease is currently in the process of being prepared for execution.



Wall Street has entered into discussions with both FACT Corporation and International Securities Group Inc. to finalize leases for the remaining term of the Wall Street lease and expects to complete these negotiations immediately upon finalization of the lease with Toggle Networks.



Note 19  Subsequent Events



Shareholders of FACT Corporation as of January 10, 2007, will receive dividend shares of FACT Products Inc. on the basis of 1 share for every 5 shares of FACT Corporation.   The Company expects to complete the distribution during fiscal 2007.





F-33





ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.



Not applicable





ITEM 8A.  CONTROLS AND PROCEDURES.



We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the United States Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our President and acting Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.



We carried out an evaluation, under the supervision and with the participation of our management, including our President and acting Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14 as of the end of period covered by this report.  Based upon the foregoing, our President and our acting Chief Financial Officer concluded that our disclosure controls and procedures are effective.



There were no changes in our internal control over financial reporting identified in connection with the evaluation referred to in the immediately preceding paragraph that occurred during our last fiscal quarter that has materially affected or is reasonably likely to materially affect, our  internal control over financial reporting.





ITEM 8B.   OTHER INFORMATION



Not Applicable





PART III



ITEM 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORTE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.



The following table sets forth the names and ages of all directors and executive officers of FACT as of the date of this report, indicating all positions and offices with FACT and its subsidiaries held by each such person:



|NAME                | AGE | POSITION                                                                                                                                                                                                                                                                                                                                                
|------------------- | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Jacqueline Danforth | 35  | President, Secretary/Treasurer and Director of FACT Corporation, President, Secretary and Director of Food and Culinary Technology Group Inc., President, Secretary-Treasurer and Director of FACT Products Inc., President and Director of Wall Street Investment Corp., President, Secretary, Treasurer and a Director of Wall Street Real Estate Ltd.
|W. Scott Lawler     | 45  | Director of FACT Corporation, Director and Treasurer of Food and Culinary Technology Group Inc., Director of FACT Products Inc., Secretary and Director of Wall Street Investment Corp.. and a Director of Wall Street Real Estate Ltd.                                                                                                                 
|Paul Litwack        | 52  | Director of FACT Corporation, Director of Food and Culinary Technology Group, Inc.                                                                                                                                                                                                                                                                      
|Dr. Brian Raines    | 69  | Director of FACT Corporation                                                                                                                                                                                                                                                                                                                            



The Companys directors are elected by the holders of FACT's common stock. Cumulative voting for directors is not permitted. The term of office of directors of FACT ends at the next annual meeting of FACT's shareholders or when their successors are elected and qualified. The annual meeting of shareholders is specified in FACT's bylaws to be held within six months from the Company's fiscal year

22



end or within 15 months from the date of the last annual meeting. The Company did not hold a  Shareholders' Annual Meeting in 2006, the last Shareholders Annual Meeting was held on January 28, 2005.  The Company intends to hold a Shareholders Annual Meeting in May of 2007.  The term of office of each officer of FACT ends at the next annual meeting of our Board of Directors, expected to take place immediately after the next annual meeting of shareholders, or when his successor is elected and qualifies. Except as otherwise indicated below, no organization by which any officer or director previously has been employed is an affiliate, parent, or subsidiary of FACT.



JACQUELINE R. DANFORTH,Ms. Danforth has been a member of the Board of Directors and the President of FACT Corporation since August 7, 2001. Ms. Danforth has been a director and Secretary of Food and Culinary Technology Group Inc. since its acquisition by the Company, November 7, 2001, and President since July 22, 2002.  Ms. Danforth was also named President, Secretary-Treasurer and appointed to the Board of Directors of FACT Products Inc. on November 5, 2001, and has been President and a director of Wall Street Investment Corp since its re-instatement November 15, 2001.  Ms. Danforth became the President, Secretary and Treasurer, as well as a director of Wall Street Real Estate Ltd. upon its incorporation on July 23, 2002. Over the past ten years, Ms. Danforth has worked for both private and publicly traded companies, providing management and direction. She has extensive experience in start up operations, and her range of experience with publicly traded corporations listed on both Canadian and US exchanges includes all aspects of public reporting, corporate finance and shareholder communications. She has worked in a broad range of industry sectors including natural resources and technology. Ms. Danforth continues to provide consulting services to other private and public corporations on a limited basis, and sits as a director on several private and public boards. She is Canadian-born and educated, well traveled and currently resides in the United States.   She is the President and sole director of Argonaut Management Group, Inc., her private consulting company.





W. SCOTT LAWLER, Mr. Lawler became a director of FACT Corporation on November 1, 1999 and served as President of FACT from November 1, 1999 to August 7, 2001, a director of Capital Reserve Canada Limited since its inception on December 8, 1999, a Director of Wall Street Investment Corp since November 1, 1999, a Director and Treasurer of Food and Culinary Technology Group Inc. since August 15, 2001, and a director of FACT Products Inc. since November 5, 2001. Mr. Lawler is an attorney and is admitted in the State of California.. Mr. Lawler received a Bachelor's Degree in business management in 1984 from Brigham Young University and his Juris Doctorate degree from U.S.C. Law Center in 1988. Mr. Lawler was admitted to the California State Bar in 1988. Mr. Lawler has been the principal of Lawler & Associates, specializing in corporate and securities matters, since 1995. Mr. Lawler is currently the President and sole shareholder of International Securities Group, Inc., a private consulting company.



DR. BRIAN RAINES,Dr. Raines was appointed to the Board of directors of FACT in January 2003.  Dr. Raines is also the Director of Science for FACT Group and has spent 40 years in various scientific and technical positions in the food industry.  From 1998 to present, Dr. Raines has served as a consultant, providing basic scientific research adaptation in the specific area of nutraceuticals and functional foods.  From 1990 to 1998 (retirement), Dr. Raines served as Vice President of Technical Services for Unilever Canada/Lipton.  From 1980 to 1990, Dr. Raines served as Director of Research and Quality Control for Unilever/Lawrys Foods, Los Angeles.  Prior to this he served in various technical management positions for Mars Inc., Berthelet and Leger.  Dr. Raines is an active member of the Canadian Institute of Food Science and Technology and is currently serving as International Liasion.  He is a past National President and Chair of the Toronto section.  He is also a member of the Scientific Advisory Board of The National Institute of Nutrition.  Dr. Raines has chaired various committees of the Institute of Food Technologies/USA and was awarded the distinguished service award for the Q.A. Division in 1992.  Dr. Raines has a B.Sc. from Concordia Montreal and a Ph.D. from North Carolina State University.  He is also a Fellow of the Canadian and American Institutes of Food Technology.



PAUL LITWACK,Mr. Litwack was appointed to the Board of Directors of FACT Corporation and FACT Group Inc. in January 2003.  Mr. Litwack joined DA-TECH CORPORATION, an electronic manuFACTuring services company in 1999 and currently serves as Chairman and Chief Executive Officer.  During the five years prior to joining DA-TECH, Mr. Litwack was Chief Executive Officer of Frankford Chocolate & Candy Company. From 1990 to 1993, Mr. Litwack was with Northfield Foods Inc. as vice President  Marketing/Sales and General Manager of their Ashe County Division.  Prior to that, Mr. Litwack served as the Director of New Products and then the Director of Frozen Desserts for Kraft General Foods Dairy Products Division.  Mr. Litwack earned a BS in Engineering from Brown University in 1976 and an MBA from the Wharton School of Finance and Commerce in 1978.

23



None of our executive officers or directors have been involved in any bankruptcy proceedings within the last five years, been convicted in or has pending any criminal proceeding, been subject to any order, judgment or decree enjoining, barring, suspending or otherwise limiting involvement in any type of business, securities or banking activity or been found to have violated any federal, state or provincial securities or commodities laws.



Section 16(a) Beneficial Ownership Reporting Compliance



The following represents each officer, director and beneficial owner of more than 10% of our securities who did not file on a timely basis reports required by Section 16(a) of the Securities Exchange Act of 1934 during the most recent fiscal year:



|Name            | Reporting Person                 | Form 3/# of transactions | Form 4/# of transactions | Form 5/# of transactions
|--------------- | -------------------------------- | ------------------------ | ------------------------ | ------------------------
|W. Scott Lawler | Member of the Board of Directors | N/A                      | Late/1                   | N/A                     



Code of Ethics



As of the date of this report, the Company has not adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions.  The Company is presently reviewing a code of ethics which has been presented for adoption.   Upon adoption, the Company will file a copy of its code of ethics with the Securities and Exchange Commission as an exhibit to its annual report for the period during which the code of ethics is adopted.



Corporate Governance



There have been no material changes to the procedures by which security holders may recommend nominees to the small business issuers board of directors.



The Board of Directors presently does not have an audit committee. Since there are only two independent members of the Board it is not feasible at this time to have an audit committee.   The Board of Directors performs the same functions as an audit committee.  The Board of Directors in performing its functions as an audit committee has determined that it does not have an audit committee financial expert.

24





ITEM 10.     EXECUTIVE COMPENSATION.



The following table sets forth information for the individuals who served as the senior executive officer of the Company during any portion of the last 3 fiscal years. No disclosure need be provided for any executive officer, other than the PEO, whose total annual salary and bonus for the last completed fiscal year did not exceed $100,000.  Accordingly, no other executive officers of the Company are included in the table.



SUMMARY COMPENSATION TABLE

|Name and Principal Position          | Year | Salary
($)(1) | Bonus
($) | Stock Awards
($) | Option
Awards
($) | Non-Equity Incentive Plan Compensation
($) | Nonquali-fied Deferred
Compen-sation
($) | All Other Compen-sation
($) | Total
($)
|------------------------------------ | ---- | ------------- | --------- | ---------------- | ----------------- | ------------------------------------------ | ---------------------------------------- | --------------------------- | ---------
|Jacqueline Danforth, President & CEO | 2006 | $60,933       | -0-       | -0-              | -0-               | -0-                                        | -0-                                      | $60,933                     | -0-      
|                                     | 2005 | $82,500       | -0-       | -0-              | -0-               | -0-                                        | -0-                                      | $82,500                     | $82,500  
|                                     | 2004 | $82,500       | -0-       | -0-              | -0-               | -0-                                        | -0-                                      | $82,500                     | $82,500  

(1) For 2006 Ms. Danforth received payments of $40,311andthe balance of $20,622 was accrued.  Ms. Danforth was on maternity leave from March 17, 2007 to November 1, 2007;

For 2005 Ms. Danforth received payments of $42,000 and the balance of $40,500 was accrued;

For 2004 Ms. Danforth received payments of $41,256 and the balance of $41,244 was accrued.



OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END



|                    | Option Awards                                                       | Stock Awards                                                         
|------------------- | ------------------------------------------------------------------- | ---------------------------------------------------------------------
|Name                | Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable | Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|Jacqueline Danforth | -0-                                                                 | -0-                                                                  
|Paul Litwack        | -0-                                                                 | -0-                                                                  
|W. Scott Lawler     | -0-                                                                 | -0-                                                                  
|Brian Raines        | -0-                                                                 | -0-                                                                  



25



There were no stock options granted during the fiscal year ended December 31, 2006.  The Companys Board of Directors and shareholders approved a Stock Option and Award plan for up to 1,000,000 options during fiscal 2003 (the Plan).There have been no awards or options granted under the Plan as of the date of this report.



DIRECTOR COMPENSATION



|Name                | Fees
Earned
or
Paid in
Cash
($) | Stock
Awards
($) | Option Awards
($) | Non-Equity
Incentive Plan
Compensation
($) | Nonqualified
Deferred Compensation
Earnings
($) | All Other
Compensation
($) | Total
($)
|------------------- | ------------------------------- | ---------------- | ----------------- | ------------------------------------------ | ----------------------------------------------- | -------------------------- | ---------
|Jacqueline Danforth | -0-                             | -0-              | -0-               | -0-                                        | -0-                                             | -0-                        | -0-      
|Paul Litwack        | -0-                             | -0-              | -0-               | -0-                                        | -0-                                             | -0-                        | -0-      
|W. Scott Lawler     | -0-                             | -0-              | -0-               | -0-                                        | -0-                                             | -0-                        | -0-      
|Brian Raines        | -0-                             | -0-              | -0-               | -0-                                        | -0-                                             | -0-                        | -0-      



The Company has made no arrangements for the remuneration of its directors, except that they will be entitled to receive reimbursement for actual, demonstrable out-of-pocket expenses, including travel expenses, if any, made on the Companys behalf.  No remuneration has been paid to the Companys officers or directors for services to date.



ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



Securities Authorized for Issuance Under Equity Compensation Plans.



The following table sets forth information as of the fiscal year ended December 31, 2006 in regard to any securities authorized for issuance under equity compensation plans.



|Equity Compensation Plan Information                      
|----------------------------------------------------------
|Plan category                                             
|Equity compensation plans
approved by security holders    
|                                                          
|Equity compensation plans
not approved by security holders



The Company has a Stock Option and Award plan for up to 1,000,000 options which was approved during fiscal 2003 (the Plan).There have been no awards or options granted under the Plan as of the date of this report.





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Security ownership of certain beneficial owners.





The following table sets forth information, as of March 21, 2007, with respect to the beneficial ownership of the Companys common stock by each person known by the Company to be the beneficial owner of more than 5% of the outstanding common stock.  Information is also provided regarding beneficial ownership of common stock if all outstanding options, warrants, rights and conversion privileges (to which the applicable 5% shareholders  have the right to exercise in the next 60 days) are exercised and additional shares of common stock are issued.





|TITLE OF
CLASS | NAME AND ADDRESS OF BENFICIAL OWNER                         | AMOUNT AND NATURE OF BENEFICIAL OWNER | PERCENT OF
CLASS(1)
|-------------- | ----------------------------------------------------------- | ------------------------------------- | -------------------
|Class A Common | Daniel Koyich
1451 Acadia Dr.S.E.,
Calgary, AB T2J 5B1      | 1,000,000 Class A common shares       | 5.82%              
|Class A Common | Thomas Ringoir
R.R. Site 32, Box 2,
Calgary, Alberta T3Z 3K | 1,000,000 Class A common shares       | 5.82%              

(1)Based on 17,154,406 shares of common stock issued and outstanding.



Security Ownership of Management



The following table sets forth information, as of March 21, 2007, with respect to the beneficial ownership of the Companys common stock by each of the Company's officers and directors, and by the officers and directors of the Company as a group. Information is also provided regarding beneficial ownership of common stock if all outstanding options, warrants, rights and conversion privileges (to which the applicable officers and directors have the right to exercise in the next 60 days) are exercised and additional shares of common stock are issued.



|TITLE OF
CLASS | NAME OF BENFICIAL OWNER                                                                                                                                                                                                                                                                                                                                                                                    | AMOUNT AND NATURE OF BENEFICIAL OWNER                                                                                          | PERCENT OF
CLASS
|-------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------ | ----------------
|Class A Common | W. Scott Lawler, director of FACT Corporation, director of Food and Culinary Technology Group, Inc., director of FACT Products Inc., Director of Wall Street Real Estate Ltd. and Secretary and a director of Wall Street Investment Corp. 
c/o 1530-9th Ave S.E. 
Calgary, Alberta, Canada T2G OT7                                                                                                        | 4,998,231 Class A common shares held in the name of International Securities Group Inc.(2)
4,319 shares held directly.         | 29.16%          
|Class A Common | Jacqueline R. Danforth, President, Secretary, Treasurer and director of FACT Corporation; President, director and Secretary of Food and Culinary Technology Group, Inc., director of FACT Products Inc., President, Secretary, Treasurer and director of Wall Street Real Estate Ltd. and President and director of Wall Street Investment Corp (9)
c/o 1530-9th Ave S.E. Calgary, Alberta, Canada T2G OT7 | 118,410 Class A common shares directly and 300,369 shares are held indirectly in the name of Argonaut Management Group Inc.(3) | 2.44%           

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|TITLE OF
CLASS | NAME OF BENFICIAL OWNER                                                                    | AMOUNT AND NATURE OF BENEFICIAL OWNER                                                | PERCENT OF
CLASS
|-------------- | ------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------ | ----------------
|Class A Common | Dr. Brian Raines, director of FACT Corporation (4)                                         | 960,000 Class A common shares held in the name of Food Information Services Inc. (5) | 5.58%           
|Class A Common | Paul Litwack, director of FACT Corporation and Food and Culinary Technology Group Inc. (6) | 360,000 Class A common shares                                                        | 2.09%           
|Common         | All Officers and Directors
as a group                                                      | 6,741,329 Common shares                                                              | 39.27%          

(1)Based on 17,154,406 shares of Class A common stock outstanding.

(2) Mr. Lawler is the beneficial owner of International Securities Group Inc.

(3) Ms. Danforth is the beneficial owner of Argonaut Management Group Inc.

(4) Dr. Raines will receive incentive stock options for 100,000 shares under the Companys 2003 Stock Option and Stock Award Plan.  The stock options have not yet been issued.

(5)  Food Information Services Inc. is a Florida corporation owned by Dr. Raines.

(6) Mr. Litwack will receive incentive stock options for 100,000 shares under the Companys 2003 Stock Option and Stock Award Plan.  The stock options have not yet been issued.



Changes in Control



There are no arrangements known to the Company which may result in a change of control of the Company.





ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Ultimate Resort Destinations Inc., a Nevada corporation,  holds a  Secured Convertible Debenture issued to it by the Company in the total amount of $650,000 dated December 31, 2002 and originally maturing on December 31, 2004.   During the month of December 2004, the Company renegotiated the terms of the Debenture with the lender to extend the note for a period up to an additional 12 months, or December 31, 2005.  Interest will continue to accrue at a rate of 18% per annum, and shall accrue until maturity, at which time the principal and all accrued and unpaid interest shall become due and payable. During fiscal year ended December 31, 2005, the Company paid an amount of $200,905 which was applied first to interest and then to principal.  At December 31, 2005, the debenture was renegotiated to extend the term for a further 30 months to June 30, 2008.  Subsequent to the fiscal year ended December 31, 2005, the Company paid down an amount of $27,476 against interest and $181,785 against principal on the debenture and the debenture holder agreed to a reduction in the interest rate to 10% per annum. During fiscal 2006, the Company reduced the loan by a further payment of $65,717 as to principal. As at the date of this report, the sole director and officer of Ultimate Resort Destinations Inc. is Mr. Clifford Larry Winsor who is Ms. Danforths stepfather. The outstanding balance of the loan including interest as at December 31, 2006 totaled $338,261.

During the fiscal year ended December, 31 2005, the Company entered into a loan agreement in the total amount of $250,000 with respect to amounts previously advanced, with International Securities Group Inc., which is owned by a member of the Companys Board of Directors, W. Scott Lawler.    The loan is at an interest rate of 10% per annum and has so specific terms of repayment.  During fiscal 2006 the principal amount of the loan was increased by $12,429, and accrued interest totaling  $30,986 for a balance of $336,820 as at December 31, 2006.





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ITEM 13.     EXHIBITS.



Exhibits:



|REGULATION S-B NUMBER | EXHIBIT                                                                                                                                                                                            |  | REFERENCE                                                                                                                                                             
|--------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1                   | Articles of Incorporation, as amended                                                                                                                                                              |  | Incorporated by reference to the Exhibits previously filed with Capital Reserve Corporations Annual Report on Form 10-KSB for the fiscal year ended December 31, 1990
|3.2                   | Amended Bylaws                                                                                                                                                                                     |  | Incorporated by reference to the Exhibits previously filed with Capital Reserve Corporations Annual Report on Form 10-KSB for the fiscal year ended December 31, 1994
|3.3                   | Articles of Amendment to Articles of Incorporation, filed with the State of Colorado Secretary of State on November 26, 2001                                                                       |  | Incorporated by reference to the Exhibits previously filed with FACT Corporations Annual Report for Form 10-KSB for the fiscal year ended December 31, 2002 herewith 
|3.4                   | Articles of Amendment to Articles of Incorporation, filed with the State of Colorado Secretary of State on February 8, 2002                                                                        |  | Incorporated by reference to the Exhibits previously filed with FACT Corporations Annual Report for Form 10-KSB for the fiscal year ended December 31, 2002 herewith 
|10.5                  | Share Exchange Agreement dated November 20, 2001 by and between Capital Reserve Corporation, Food and Culinary Technology Group, Inc. and Shareholders of Food and Culinary Technology Group, Inc. |  | Incorporated by reference to the Exhibits previously filed with the Registrants Annual Report on Form 10-KSB for the fiscal year ended December 31, 2001.             
|10.7                  | Fourth Amendment to the Share Exchange Agreement dated February 2, 2004.                                                                                                                           |  | Incorporated by reference to the Exhibits previously filed with the Registrants Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003.             
|10.8                  | Amended and Restated Shareholders Agreement dated February 2, 2004                                                                                                                                 |  | Incorporated by reference to the Exhibits previously filed with the Registrants Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003.             
|10.9                  | Mortgage between FACT Corporation and 948783 Alberta Inc. dated March 17, 2004                                                                                                                     |  | Incorporated by reference to the Exhibits previously filed with the Registrants Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003.             
|10.10                 | Offer to Purchase between FACT Corporation and Calfrac Well Services Ltd. dated December 21, 2004                                                                                                  |  | Incorporated by reference to the Exhibits previously filed with the Registrants Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004.             

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|10.11 | Removal of Conditions and Amending Agreement dated February 25, 2005 between FACT Corporation and Calfrac Well Services Ltd. |  | Incorporated by reference to the Exhibits previously filed with the Registrants Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004.
|----- | ---------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



|31 | Section 302 Certification- Chief Executive Officer                                                                    |  | Filed herewith
|-- | --------------------------------------------------------------------------------------------------------------------- |  | --------------
|32 | Certification Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | Filed herewith





ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES



The following table sets forth the fees billed to the Company for professional services rendered by the Company's principal accountant, for the year ended December 31, 2006 and December 31, 2005:

|Services           | 2006   | 2005   
|------------------ | ------ | -------
|Audit fees         | $6,000 | $15,000
|Audit related fees | $3,750 |        
|Tax fees           | -      |        
|Total fees         | $9,750 | $15,000

Audit fees consist of fees for the audit of the Company's annual financial statements or the financial statements of the Companys subsidiaries or services that are normally provided in connection with the statutory and regulatory filings of the annual financial statements.

Audit-related services include the review of the Company's financial statements and quarterly reports that are not reported as Audit fees.

Tax fees included tax planning and various taxation matters.

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SIGNATURES



In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



FACT CORPORATION



By:/s/ Jacqueline R. DanforthName: Jacqueline R. Danforth
Title: President. Principal Executive, Financial and Accounting Officer
Date: February 12, 2008



In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated, who constitute the entire board of directors:



By:/s/ Jacqueline R. DanforthName: Jacqueline R. Danforth
Title: President and Member of the Board of Directors 
Date: February 12, 2008



By:/s/ Dr. Brian Raines

Name: Dr. Brian Raines

Title: Member of the Board of Directors
Date: February 12, 2008



By:/s/ Paul Litwack

Name:  Paul Litwack
Title: Member of the Board of Directors
Date: February 12, 2008







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