UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-Q
  (Mark
One)
  R
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For the
quarterly period ended March 31, 2009
  or
  £
              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
 (Exact
name of registrant as specified in its charter)
 
 Colorado
              84-0888594(State
      or other jurisdiction of incorporation or organization)
              (I.R.S. Employer Identification
      No.)
 
 1530
      – 9th
      Avenue S.E., Calgary, Alberta
              T2G 0T7(Address
      of principal executive offices)
              (Zip
      Code)
  (403)
693-8000
 (Registrant’s  telephone
number, including area code)
 
 (Former
name, former address and former fiscal year, if changed since last
report)
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
 
 (1)
      Yes [X] No [  ](2)
      Yes [X] No [  ]
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
 Yes
      [  ] No [  ]
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
 
 Large
      accelerated filer
              [  ]
              Accelerated
      filer
              [  ]Non-accelerated
      filer
              [  ]
              Smaller
      reporting company
              [X](Do
      not check if a smaller reporting company)
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 
 Yes
      [  ] No [X]
  
 
 APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
 PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
 
 Indicate by check mark whether the
registrant filed all documents and reports required to be filed by Section 12,
13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
 Yes
      [  ] No [  ]
 
 APPLICABLE
ONLY TO CORPORATE ISSUERS
 
 Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
  17,154,406
common shares outstanding as of April 23, 2009.
  
  FACT
CORPORATION
 TABLE
OF CONTENTS
 
 
 PagePART
      IItem
      1.   Financial Statements
                  
                  
                  4Item
      2.   Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
                  
                  
                  5Item
      3.    Quantitative and Qualitative Disclosures About
      Market Risk
                  
                  
                  8Item
      4T.  Controls and Procedures
                  
                  
                  8PART
      IIItem
      1.   Legal Proceedings
                  
                  
                  9Item
      1A. Risk Factors
                  
                  
                  9Item
      2.   Unregistered Sales of Equity Securities and Use of
      Proceeds
                  
                  
                  9Item
      3.   Defaults Upon Senior Securities
                  
                  
                  9Item
      4.   Submission of Matters to a Vote of Security
      Holders
                  
                  
                  9Item
      5.   Other Information
                  
                  
                  9Item
      6.   Exhibits
                  
                  
                  10Signatures
                  
                  
                  10
  3
  PART
I
  ITEM
1.                      FINANCIAL
STATEMENTS
 
 The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Article 210
8-03 of Regulation S-X.  Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.  In the opinion of management, all
adjustments considered necessary for a fair presentation have been
included.  All such adjustments are of a normal recurring
nature.  Operating results for the three month period ended March 31,
2009, are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 2009.  For further information refer
to the consolidated financial statements and footnotes thereto included in the
Company’s Annual Report on Form 10-K for the year ended December 31,
2008.
  PageUnaudited
      Consolidated Financial StatementsConsolidated
      Balance Sheets
                  
                  
                  F-1Consolidated
      Statements of Operations and Comprehensive Loss
                  
                  
                  F-2Consolidated
      Statements of Cash Flows
                  
                  
                  F-3Notes
      to Unaudited Consolidated Financial Statements
                  
                  F-4
      to F-6
 
 4
 
 FACT
      CORPORATION
                              Consolidated
      Balance Sheets
                              (Unaudited)March
      31, 2009
                            
                            
                            December
      31, 2008Current
      AssetsCash
                            
                            $
                            127,997
                            
                            
                            $
                            230,341Inventory
                            
                            
                            61,314
                            
                            
                            
                            131,170Accounts
      receivable
                            
                            
                            154,493
                            
                            
                            
                            107,702Prepaid
      expense
                            
                            
                            5,341
                            
                            
                            
                            3,391Total
      Current Assets
                            
                            
                            349,145
                            
                            
                            
                            472,604Investment
      in Capital Reserve Canada Ltd.
                            
                            
                            56
                            
                            
                            
                            88Property
      and EquipmentIntellectual
      property
                            
                            
                            936,690
                            
                            
                            
                            998,950Real
      Property (net of accumulated depreciation of  $1,052 and
      $988)
                            
                            
                            579
                            
                            
                            
                            643Total
      Property and Equipment
                            
                            
                            937,269
                            
                            
                            
                            999,593Total
      Assets
                            
                            $
                            1,286,470
                            
                            
                            $
                            1,472,285LIABILITIES
      AND STOCKHOLDERS’ DEFICITCurrent
      LiabilitiesAccounts
      payable and accrued expenses
                            
                            $
                            501,957
                            
                            
                            $
                            561,911Accounts
      payable (related parties)
                            
                            
                            568,773
                            
                            
                            
                            559,940Loans
      payable (related parties)
                            
                            
                            1,133,938
                            
                            
                            
                            913,243Loan
      payable
                            
                            
                            269,268
                            
                            
                            
                            458,906Current
      portion of long-term debt and acquisition cost
                            
                            
                            139,700
                            
                            
                            
                            129,953Total
      Current Liabilities
                            
                            
                            2,613,636
                            
                            
                            
                            2,623,953Long-Term
      LiabilitiesAcquisition
      cost payable
                            
                            
                            1,490,805
                            
                            
                            
                            1,523,931Total
      Long-Term Liabilities
                            
                            
                            1,490,805
                            
                            
                            
                            1,523,931Total
      Liabilities
                            
                            
                            4,104,441
                            
                            
                            
                            4,147,884Commitments
      and contingenciesStockholders'
      DeficitClass
      A Common Stock - authorized 100,000,000 shares of no par value; 17,154,406
      issued and outstanding as at March 31, 2009  and December 31,
      2008
                            
                            
                            23,103,924
                            
                            
                            
                            23,103,924Class
      A Common stock warrants
                            
                            
                            -
                            
                            
                            
                            -Additional
      paid in capital
                            
                            
                            428,770
                            
                            
                            
                            428,770Accumulated
      deficit
                            
                            
                            (26,490,861
                            )
                            
                            
                            (26,344,646
                            )Accumulated
      other comprehensive income
                            
                            
                            140,196
                            
                            
                            
                            136,353Total
      Stockholders' Deficit
                            
                            
                            (2,817,971
                            )
                            
                            
                            (2,675,599
                            )Total
      Liabilities and Stockholders' Deficit
                            
                            $
                            1,286,470
                            
                            
                            $
                            1,472,285
 The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
  F-1
  FACT
      CORPORATION
                    Consolidated
      Statements of Operations and Comprehensive Loss
                    (Unaudited)For
      the three months ended
                    March
      31,2009
                  
                  
                  2008RevenuesFunctional
      food premix
                  
                  $
                  462,234
                  
                  
                  $
                  661,952Rental
      income (net of operating expenses)
                  
                  
                  17,042
                  
                  
                  
                  14,237479,276
                  
                  
                  
                  676,189Costs
      of Goods Sold – Functional food premix
                  
                  
                  389,220
                  
                  
                  
                  550,505Gross
      Profit
                  
                  
                  90,056
                  
                  
                  
                  125,684Costs
      and ExpensesLegal
                  
                  
                  18,735
                  
                  
                  
                  26,721Consulting
      fees
                  
                  
                  77,811
                  
                  
                  
                  44,374Depreciation
      and amortization
                  
                  
                  62,324
                  
                  
                  
                  62,339Other
      Administrative expenses
                  
                  
                  46,056
                  
                  
                  
                  78,036204,926
                  
                  
                  
                  211,470(Loss)
      from operations
                  
                  
                  (114,870
                  )
                  
                  
                  (85,786
                  )Other
      income and expensesUnrealized
      gain (loss)  on disposal of marketable
securities
                  
                  
                  (32
                  )
                  
                  
                  -Tax
      (Paid) /refunded
                  
                  
                  -
                  
                  
                  
                  (309
                  )Interest
      expense
                  
                  
                  (31,313
                  )
                  
                  
                  (24,302
                  )(31,345
                  )
                  
                  
                  (24,611
                  )Provision
      for income taxes
                  
                  
                  -
                  
                  
                  
                  -Net
      (Loss)
                  
                  $
                  (146,215
                  )
                  
                  $
                  (110,397
                  )Net
      (Loss) per Common Share, basic and diluted
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.01
                  )Weighted
      Average Number of Common Shares Used in calculation
                  
                  
                  17,154,406
                  
                  
                  
                  17,154,406Comprehensive
      lossNet
      loss
                  
                  $
                  (146,215
                  )
                  
                  $
                  (110,397
                  )Foreign
      currency translation adjustment
                  
                  
                  3,843
                  
                  
                  
                  10,899Comprehensive
      loss
                  
                  $
                  (142,372
                  )
                  
                  $
                  (99,498
                  )
 
 The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
  F-2
  
 FACT
      CORPORATION
                    Consolidated
      Statements of Cash Flows
                    (Unaudited)For
      the three months ended
                    March
      31,2009
                  
                  
                  2008Cash
      From Operating Activities:Net
      (loss)
                  
                  $
                  (146,215
                  )
                  
                  $
                  (110,397
                  )Reconciling adjustmentsDepreciation,
      depletion and amortization
                  
                  
                  62,323
                  
                  
                  
                  62,339Accrued
      interest
                  
                  
                  31,313
                  
                  
                  
                  -Unrealized
      loss on securities
                  
                  
                  32
                  
                  
                  
                  -Changes in operating assets and
      liabilitiesAccounts
      receivable
                  
                  
                  (46,981
                  )
                  
                  
                  90,360Inventory
                  
                  
                  69,856
                  
                  
                  
                  (49,113
                  )Prepaid
      Expense
                  
                  
                  (1,982
                  )
                  
                  
                  -Accounts
      payable and accrued expenses
                  
                  
                  (47,189
                  )
                  
                  
                  (718
                  )Net
      Cash Flows Used In Operating Activities
                  
                  
                  (78,843
                  )
                  
                  
                  (7,529
                  )Cash
      From Financing Activities:Loan
      proceeds (repayment)
                  
                  
                  -
                  
                  
                  
                  10,000Loan
      proceeds (repayment)  related party loans
                  
                  
                  -
                  
                  
                  
                  24,302Acquisition
      cost payable
                  
                  
                  (23,380
                  )
                  
                  
                  (45,399
                  )Net
      Cash Flows Used In Financing Activities
                  
                  
                  (23,380
                  )
                  
                  
                  (11,097
                  )Foreign
      currency translation adjustment
                  
                  
                  (121
                  )
                  
                  
                  10,346Net
      change in cash and cash equivalents
                  
                  
                  (102,344
                  )
                  
                  
                  (8,280
                  )Cash
      at beginning of period
                  
                  
                  230,341
                  
                  
                  
                  105,053Cash
      at end of period
                  
                  $
                  127,997
                  
                  
                  $
                  96,773Supplemental
      disclosure of cash flow information:Interest
      paid
                  
                  $
                  -
                  
                  
                  $
                  -Income
      taxes paid (refund)
                  
                  $
                  -
                  
                  
                  $
                  309
 
 The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
 
 F-3
  FACT
CORPORATION
 Notes
to the Consolidated Financial Statements for the three months ended March 31,
2009
 (Unaudited
– prepared by Management)
 
 Note
1- Basis of presentation
 
 The
accompanying unaudited condensed consolidated financial statements of FACT
Corporation (the “Company”) have been prepared in accordance with Securities and
Exchange Commission requirements for interim financial statements. Therefore,
they do not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. The financial statements should be read in conjunction with the
Company’s audited consolidated financial statements for the year ended December
31, 2008.
 
 The
interim financial statements present the balance sheet, statements of operations
and cash flows of FACT Corporation. The financial statements have been prepared
in accordance with accounting principles generally accepted in the United
States.
 
 The
interim financial information is unaudited.  In the opinion of
management, all adjustments necessary to present fairly the financial position
as of March 31, 2009, and the results of operations, and cash flows presented
herein have been included in the financial statements. All such adjustments are
of a normal and recurring nature.  Interim results are not necessarily
indicative of results of operations for the full year.
 
 Note
2 – Recently Issued Accounting Pronouncements
  In
December 2007, the FASB issued SFAS No. 141 (revised 2007), BUSINESS
COMBINATIONS. This revision to SFAS No. 141 requires an acquirer to recognize
the assets acquired, the liabilities assumed, and any non-controlling interest
in the acquiree at the acquisition date, at their fair values as of the
acquisition date, with limited exceptions. This revision also requires that
acquisition-related costs be recognized separately from the assets acquired and
that expected restructuring costs be recognized as if they were a liability
assumed at the acquisition date and recognized separately from the business
combination. In addition, this revision requires that if a business combination
is achieved in stages, that the identifiable assets and liabilities, as well as
the non-controlling interest in the acquiree, be recognized at the full amounts
of their fair values.
 
 In
December 2007, the FASB issued SFAS No. 160, NONCONTROLLING INTERESTS IN
CONSOLIDATED FINANCIAL STATEMENTS, an amendment of ARB No. 51.
The objective of this statement is to improve the relevance, comparability, and
transparency of the financial statements by establishing accounting and
reporting standards for the Noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. The Company believes that this statement will
not have any impact on its financial statements, unless it deconsolidates a
subsidiary.
 
 In March
2008, the FASB issued SFAS No. 161, DISCLOSURES ABOUT DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES (an amendment to SFAS No. 133). This statement is effective
for financial statements issued for fiscal years and interim periods beginning
after November 15, 2008 and requires enhanced disclosures with respect to
derivative and hedging activities. The Company will comply with the disclosure
requirements of this statement if it utilizes derivative instruments or engages
in hedging activities upon its effectiveness.
 
 In
April 2008, the FASB issued FASB Staff Position No. 142-3,
DETERMINATION OF THE USEFUL LIFE OF INTANGIBLE ASSETS (“FSP No. 142-3”) to
improve the consistency between the useful life of a recognized intangible asset
(under SFAS No. 142) and the period of expected cash flows used to measure
the fair value of the intangible asset (under SFAS No. 141(R)). FSP
No. 142-3 amends the factors to be considered when developing renewal or
extension assumptions that are used to estimate an intangible asset’s useful
life under SFAS No. 142. The guidance in the new staff position is to be
applied prospectively to intangible assets acquired after December 31,
2008. In addition, FSP No. 142-3 increases the disclosure requirements
related to renewal or extension assumptions. The Company does not believe
implementation of FSP No. 142-3 will have a material impact on its financial
statements.
  F-4
  FACT
CORPORATION
 Notes
to the Consolidated Financial Statements for the three months ended March 31,
2009
 (Unaudited
– prepared by Management)
 
 Note
2 – Recently Issued Accounting Pronouncements (Continued)
 
 In May
2008, the FASB issued Statement No. 162, THE HIERARCHY OF GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES.  This statement identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States (the GAAP hierarchy).  This statement is effective
60 days following the SEC’s approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, “the Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.”
 
 In May
2008, the FASB issued Statement No. 163,ACCOUNTING FOR FINANCE
GUARANTEE INSURANCE CONTRACTS – AN INTERPRETATION OF FASB STATEMENT NO. 60.The premium revenue
recognition approach for a financial guarantee insurance contract links premium
revenue recognition to the amount of insurance protection and the period in
which it is provided. For purposes of this statement, the amount of insurance
protection provided is assumed to be a function of the insured principal amount
outstanding, since the premium received requires the insurance enterprise to
stand ready to protect holders of an insured financial obligation from loss due
to default over the period of the insured financial obligation.  This
Statement is effective for financial statements issued for fiscal years
beginning after December 15, 2008.
 
 In
June 2008, the FASB issued FASB Staff Position Emerging Issues Task
Force (EITF) No. 03-6-1, DETERMINING WHETHER INSTRUMENTS GRANTED IN
SHARE-BASED PAYMENT TRANSACTIONS ARE PARTICIPATING SECURITIES (“FSP EITF No.
03-6-1”).  Under FSP EITF No. 03-6-1, unvested share-based payment
awards that contain rights to receive nonforfeitable dividends (whether paid or
unpaid) are participating securities, and should be included in the two-class
method of computing EPS. FSP EITF No. 03-6-1 is effective for fiscal years
beginning after December 15, 2008, and interim periods within those years,
and is not expected to have a significant impact on the Company’s financial
statements.
 
 In
November 2008, the Emerging Issues Task Force (“EITF”) issued Issue
No. 08-7, ACCOUNTING FOR DEFENSIVE INTANGIBLE ASSETS (“EITF 08-7”). EITF
08-7 applies to all acquired intangible assets in which the acquirer does not
intend to actively use the asset but intends to hold (lock up) the asset to
prevent its competitors from obtaining access to the asset (a defensive asset),
assets that the acquirer will never actually use, as well as assets that will be
used by the acquirer during a transition period when the intention of the
acquirer is to discontinue the use of those assets. EITF 08-7 is effective as of
January 1, 2009. The Company does not expect the adoption of EITF 08-7 to
have a material impact on its financial statements.
 
 On
January 12, 2009 the FASB issued a final Staff Position ("FSP") amending the
impairment guidance in EITF Issue No. 99-20, Recognition of Interest Income and
Impairment on Purchased Beneficial Interests and Beneficial Interests That
Continue to Be Held by a Transferor in Securitized Financial Assets to achieve
more consistent determination of whether another-than-temporary impairment has
occurred. This FSP does not have an impact on the Company at the present
time.
 
 On April
1, 2009 the FASB issued FSP FAS 141(R)-1 that amends and clarifies FASB No. 141
(revised 2007), Business Combinations, to address application issues on initial
recognition and measurement, subsequent measurement and accounting, and
disclosures of assets and liabilities arising from contingencies in a business
combination.
  F-5
  FACT
CORPORATION
 Notes
to the Consolidated Financial Statements for the three months ended March 31,
2009
 (Unaudited
– prepared by Management)
 
 Note
2 – Recently Issued Accounting Pronouncements (Continued)
 
 On April
9, 2009 the FASB issued three FSPs intended to provide additional application
guidance and enhance disclosures regarding fair value measurements and
impairments of securities. FSP FAS 157-4, Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly, provides guidelines for
making fair value measurements more consistent with the principles presented in
FASB Statement No. 157, Fair Value Measurements. FSP FAS 107-1 and APB 28-1,
Interim Disclosures about Fair Value of Financial Instruments, enhances
consistency in financial reporting by increasing the frequency of fair value
disclosures. FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments, provides additional guidance designed to
create greater clarity and consistency in accounting for and presenting
impairment losses on securities. These FSPs do not have an impact on the Company
at the present time.
 
 None of
the above new pronouncements has current application to the Company, but may be
applicable to the Company's future financial reporting.
 
 Note
3 – Subsequent Events
 
 On April
6, 2009, the Company’s Board of Directors appointed Denise Gurley Vice
President-Sales in conjunction with an employment contract whereunder, among
other consideration, Ms. Gurley was granted a total of 110,000 stock options
exercisable into shares of Class A common stock at $0.35 per share.  
The options were granted under the Company’s 2008 Stock Option and Stock Award
Plan and vest ratably on a quarterly basis over the term of the first year of
employment.
  F-6
  ITEM
2.                      MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  This
quarterly report contains forward-looking statements relating to future events
or our future financial performance.  In some cases, you can identify
forward-looking statements by terminology such as "may", "should", "intends",
"expects", "plans", "anticipates", "believes", "estimates", "predicts",
"potential", or "continue" or the negative of these terms or other comparable
terminology.  These statements are only predictions and involve known
and unknown risks, uncertainties and other factors which may cause our or our
industry's actual results, levels of activity or performance to be materially
different from any future results, levels of activity or performance expressed
or implied by these forward-looking statements.
  Such
factors include, among others, the following:  international, national
and local general economic and market
conditions:  demographic  changes; the ability of the
Company to sustain,  manage or  forecast  its
growth;  the ability of the Company to successfully make and integrate
acquisitions;  raw material costs and availability;  new
product  development
and  introduction;  existing  government
regulations  and  changes  in,  or  the  failure  to  comply  with,   government
regulations;  adverse publicity;  competition; the loss of
significant customers or
suppliers;  fluctuations  and  difficulty in
forecasting  operating  results; changes in business
strategy or
development  plans;  business  disruptions;  the
ability  to
attract  and  retain  qualified  personnel;  the  ability
to protect technology; and other factors referenced in this and previous
filings.
  Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity or
performance.  Except as required by applicable law, including the
securities laws of the United States, we do not intend to update any of the
forward-looking statements to conform these statements to actual
results.
 
 Given
these uncertainties, readers of this Form 10-Q and investors are cautioned not
to place undue reliance on such forward-looking statements.  The
Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
  All
dollar amounts stated herein are in US dollars unless otherwise
indicated.
 
 The management’s discussion and analysis of our
financial condition and results of operations are based upon our financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America ("GAAP").  The
following discussion of our financial condition and results of operations should
be read in conjunction with our audited consolidated financial statements for
the years ended December 31, 2008, and 2007, together with notes thereto. 
As used in this quarterly report, the terms "we", "us", "our", and the "Company"
mean FACT Corporation, unless the context clearly requires
otherwise.
 
 General
Overview
 
 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.   Presently the Company’s
primary revenue stream is generated by the sale of these functional bake mixes
in a wholesale format.
 
 The
Company also has minimal operations through its wholly-owned subsidiary, Wall
Street Real Estate Investments Ltd. which generates revenues through the rental
and sub-lease of office space in Calgary, Alberta.
 
 The
Company further has one dormant subsidiary, FACT Products, Inc., which holds the
proprietary rights to an Italian crème product, not currently in
production.
  5
  Executive
Summary
 
 ·
              Net
      revenues in the three months ended March 31, 2009 decreased by 28% over
      the comparative three month period with a 30% reduction to gross
      revenues;
 
 ·
              Operating
      expenses for the three months ended March 31, 2009 decreased by 3% over
      the comparative three month period.  The overall decrease to
      operating expenses reported was minor due to the fact that while the
      Company experienced substantial decreases in certain operating accounts,
      these were offset by substantial increases to other operating accounts,
      resulting in an overall shift of cost centers with a fairly insignificant
      net change in overall costs.   The Company reported a
      decrease of 30%  to legal expenses and a decrease of 41% to
      general administrative  expenses, with an increase to consulting
      fees of 75% period over period, as a result of recruitment fees paid with
      respect to a new hire during the period, and the retention of a consultant
      to assist in the Company’s three year forward-planning and acquisition
      strategies;
 
 ·
              The
      Company’s net loss for the three months ended March 31, 2009 increased by
      32% over the comparative period predominantly as a result of decreased net
      revenue, an increase to  interest expenses and a minor reduction
      to overall operating expenses.
 
 Discussion and
Analysis
 
 Commodity
Trends
 
 FACT
Corporation and our contracted blending facilities are purchasers of wheat,
corn, soybean, sugar, alternative sweeteners and certain other commodities which
are used in the manufacture of our functional bake mixes.  We also
contract with trucking companies for the transportation of our wholesale goods,
as well as warehouses for storage of our products, both of which use gas and/or
natural gas.  FACT and its contracted suppliers monitor worldwide
supply and cost trends of commonly used commodities in an attempt to secure
favorable pricing and mitigate the impact of fluctuating prices of high usage
commodities.
 
 During
the three months ended March 31, 2009, aggregate commodity costs remained
relatively constant across the Company’s product lines, allowing FACT to offer
more favorable pricing to its customers with respect to certain products.
Transportation costs decreased substantially as a result of decreasing gas
prices, and transportation surcharges previously levied by our contracted
logistics companies were withdrawn.  Accordingly the cost of the
Company’s wholesale blended products decreased, and a percentage of the decrease
in costs was passed along to our customers where possible, to reflect stabilized
ingredient prices and reduced transportation costs.
 
 We expect
fluctuations and uncertainty in the commodity and other raw material costs to
continue, particularly for dairy, grains and energy.  We will endeavor
to pass increased costs and/or savings along to our customers where possible to
allow the Company to maintain our current business margins.  However,
if we are to realize increased costs which cannot be passed along, or should we
fail to price our products competitively where savings could be secured for our
customers, cost increases and/or loss of sales as a result of non-competitive
pricing could result in a reduction to our bottom line profits and our top line
sales.
 
 Dependence On One or a Few
Major Customers
 
 The
Company’s revenues for fiscal years ended December 31, 2008 and 2007 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 account for
approximately ninety nine per cent (99%) of premix sales.  During the
three months ended March 31, 2009, sales to key customer Prince Donuts were
reduced by 14% as compared to sales over the same period in the prior fiscal
year, meanwhile sales to customer Western Bagel Baking corporation were reduced
by 47% over the comparative period.  The Company believes decline in
sales reflects the uncertain economic condition in the United States and the
impact of this uncertainty on sales to the end consumer.  While we
believe sales to Western Bagel will continue at a constant level during the
current fiscal year, we anticipate sales to this customer over the year will
reflect a reduction from prior year sales as a result of a more competitive
marketplace and less consumer dollars available to spend
overall.   During March 2008, FACT customer Prince Donuts advised
the Company of a hold on future purchases while extraordinarily high inventory
levels required reduction for certain of their customer
base.   The Company was advised this hold on purchases would
remain in effect until mid May 2008, at which point high inventory levels should
have normalized and regular order volumes should continue.  However,
customer Prince Donuts did not order any products from FACT Group during the
second quarter of fiscal 2008 as a result of this hold on
purchases.
  6
  Subsequent
to June 30, 2008 Prince Donuts resumed orders, though during the three month
period ended September 30, 2008, and to the end of the fiscal year ended
December 31, 2008 sales volumes were substantially reduced compared to the same
period in the prior year.  During the three month period to March 31,
2009, FACT has continued to experience a decrease in sales to customer Prince
Donuts.  At the date of this report, the Company believes that it does
not have complete information from customer Prince Donuts as to the status of
sales of finished products to its customer, and therefore, we anticipate that
this key account may be , or already has been lost.   We have not
recorded any sales from Customer Prince Donuts since the close of the three
month period ended March 31, 2009.  While FACT Group has hired a new
full time sales professional, and is actively working to successfully close
additional client accounts to assist in better diversifying our revenue base and
address the negative impact of such heavy reliance on a few major customers, it
is unknown if we will be successful in this endeavor in the immediate
future.  It is anticipated that until such time as FACT establishes a
more diverse range of products in the marketplace, it will remain reliant on a
small number of key customers to drive sales.  A loss of any one of
these customers, and specifically Prince Donuts, without identifying and
securing new customers could seriously impact on our business.
 
 Liquidity
and Capital Resources
 
 Summary of Working Capital
and Stockholders' Equity
 
 As of
March 31, 2009, the Company had negative working capital of $2,264,491 and
negative Stockholders' Equity of $2,817,971 compared with negative working
capital of $2,151,349 and negative Stockholders' Equity of $2,675,599 as of
December 31, 2008.  The Company’s negative working capital has
increased as a result of the reduction to accounts receivable and use of cash to
settle certain accounts payable.
 
 Liquidity
 
 The
Company believes that cash from operations and existing credit facilities
currently provide sufficient liquidity to meet our present working capital
needs, including debt servicing obligations. In order to implement our 2008
through 2010 plans for growth, our debt retirement plans and other expansion
plans,  the Company anticipates it may require between $1,000,000 and
$5,000,000 over the next three years to fully implement its 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
master brand food products, expanded management resources and support staff, and
other day to day operational activities.  Depending on the success of
each segment of the staggered implementation of our growth initiatives the
Company will require varying amounts of funds over the next three years in order
to realize its goals. Should the Company fail to achieve anticipated benchmarks
over the 2008, 2009 and 2010 fiscal years; the amount of capital required will
be reduced accordingly.  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 any
revenue shortfalls with respect to 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 as we implement our growth initiatives; however, we
cannot 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, if
and when required.
 
 Sources of Working
Capital
 
 During
the three months ended March 31, 2009 the Company's primary sources of working
capital have come from revenues generated from our functional foods business and
monthly rental income.
 
 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.   As at
March 31, 2009 the remaining balance due with respect to this obligation totaled
$1,630,505.  The obligation has been paid from the Company’s revenues
and the Company anticipates it will continue to be able to pay this obligation
from revenues.  The current minimum portion due and payable over the
next twelve months totals $139,700.
  7
  Results
of Operations
 
 Comparison of three month
periods ended March 31, 2009 and 2008
 
 For the
three month periods ended March 31, 2009 and 2008, the Company incurred
operating losses of $114,870 and $85,786, respectively.  Legal fees
decreased from $26,721 (2008) to $18,735 (2009) and administrative expenses
decreased over the respective periods from $78,036 (2008) to $46,056 (2009),
predominantly as a result of a decrease to freight charges and warehousing fees
in the current period.  Consulting fees  increased
substantially from $44,374 (2008) to $77,811 (2009) as a result of fees paid to
a recruitment firm in respect of a new hire, and monthly consulting fees paid as
a result of a contract entered into in February 2009.   Fiscal
2009 operations reflect a decrease in gross revenues from $676,189 (2008) to
$479,276 (2009).  This decrease in revenues can be attributed directly
to a shortfall in orders from both of the Company’s key
customers.  While the Company believes that this shortfall is
partially a reflection of the current economic environment in the United States
and decreasing inventory levels on hand at the retail level, we also believe
that sales will continue to decrease to one of our key customer accounts based
on a lack of forecasts or future-dated orders from this customer.  As
a result of this decrease in sales volumes, the Company has reduced its
inventory levels accordingly from $131,170 (December 31, 2008) to $61,314 (March
31, 2009).  Associated costs of goods sold relating to functional
premix sales has also decreased from $550,505 (2008) to $389,220
(2009).  The Company’s gross margin on the sale of functional bake
mixes was reduced over the respective periods as we offered more competitive
pricing to our customers in an attempt to boost gross sales
volumes.
 
 Depreciation
and amortization expenses remained constant during the comparative three month
periods totaling $62,324 (2009) and $62,339 (2008) as the Company recorded
recurring expenses related to the amortization of its intellectual property and
fixed assets in the normal course of business.
 
 Interest
expense increased over the comparative three months ended March 31, 2009
totaling $24,302 (2008) and $31,313 (2009) as the Company was unable to allocate
proceeds to retire debt.
 
 Net
losses for the two completed three month periods were $110,397 (2008) and
$146,215 (2009) respectively.
  Off-
Balance Sheet Arrangements
 
 
 The
Company presently does not have any off-balance sheet arrangements.
 
 ITEM
3.                      QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 Not
applicable
 
 ITEM
4T.                    CONTROLS
AND PROCEDURES
 
 Evaluation of Disclosure Controls and Procedures
 
 Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended (Exchange Act), as of September 30, 2008.  Based on this
evaluation, our principal executive officer and principal financial officer
concluded that our disclosure controls and procedures are effective in alerting
them on a timely basis to material information relating to our Company required
to be included in our reports filed or submitted under the Exchange
Act.
 
 Changes
in Internal Controls
 
 There
were no significant changes (including corrective actions with regard to
significant deficiencies or material weaknesses) in our internal controls over
financial reporting that occurred during the quarter ended March 31, 2009, that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
  8
  PART
II – OTHER INFORMATION
 
  ITEM
1.                      LEGAL
PROCEEDINGS
 
 The
Company is presently involved in certain litigation more particularly described
in our Form 10-K for the fiscal year ended December 31, 2008, as filed with the
Securities and Exchange Commission on April 14, 2009.
 
 ITEM
1A.                    RISK
FACTORS
 
 Not
Applicable
 
 ITEM
2.                      UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
 Not
Applicable
 
 ITEM
3.                      DEFAULTS
UPON SENIOR SECURITIES
 
 Not
Applicable
 
 ITEM
4.    SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
 
 Not
applicable
 
 ITEM
5.                      OTHER
INFORMATION
 
 On
February 1, 2009, the Company entered into a 6 month consulting contract with H
H and Company LLC to provide executive-level, operational management support to
FACT Corporation and wholly-owned subsidiary, FACT Group Inc.  Among other
directives, H H and Company will assist the Company’s CEO in completing a
strategic operating plan for 2009 through 2011, synergistic acquisition
strategies and other planning mechanisms.
 
 On April
6, 2009, the Company’s Board of Directors appointed Denise Gurley Vice
President-Sales in conjunction with an employment contract whereunder, among
other consideration, Ms. Gurley was granted a total of 110,000 stock options
exercisable into shares of Class A common stock at $0.35 per share.  
The options were granted under the Company’s 2008 Stock Option and Stock Award
Plan and vest ratably over a one year period.  Ms. Gurley is a sales
management professional, having spent most of her career working with Fortune
500 consumer packaged goods companies. Ms. Gurley brings an extensive background
in on-premise accounts, the convenience channel, Mass merchandisers, the
Supermarket channel and new business acquisitions and will work direct with
FACT’s senior executive to grow FACT’s wholesale premix business, and other
sales initiatives.  Ms. Gurley’s career highlights include key management
positions at Twinlab Incorporated, and The Coca Cola Company/Minute Maid
Company.  Ms. Gurley has a Bachelor of Arts in Business Administration
from the University of North Carolina Charlotte.
  9
  ITEM
6.                      EXHIBITS
 
 REGULATION
      S-K NUMBER
                    EXHIBIT
                    
                    REFERENCE3.1(i)
                    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, 19903.1(ii)
                    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,
      20023.1(iii)
                    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,
      20023.2
                    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, 199410.1
                    2008
      Stock Option and Stock Award Plan
                    
                    Incorporated
      by reference to the Exhibits previously filed with FACT Corporation’s
      Definitive 14C on August 22, 2008.31(i)(ii)
                    Section
      302 Certification - Principal Executive Officer and Principal Financial
      Officer
                    
                    Filed
      herewith32(i)(ii)
                    Certification
      Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002
                    
                    Filed
      herewith
 
 SIGNATURES
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 11th day of
May, 2009
 
 FACT
CORPORATION
 
 
 By: /s/ Jacqueline
Danforth
 Name:
Jacqueline R. Danforth
 Title:  President,
Principal Executive, Financial and Accounting Officer
  10