U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB

(Mark One)

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

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

8,031,931 shares of Class A common stock, no par value, as of May 19, 2003.

2,000,000 shares of Class C common stock, no par value, as of May 19, 2003.

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

The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-QSB and Rule 10-01 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 periods ended March 31, 2003 and 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. For further information refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2002.

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The financial statements included herein have been prepared by FACT Corporation (the "Company") without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as allowed by such rules and regulations, and the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these financial statements be read in conjunction with the December 31, 2002, audited financial statements and the accompanying notes included in the Annual Report on Form 10-KSB. While management believes the procedures followed in preparing these financial statements are reasonable, the accuracy of the amounts are in some respects dependent upon the facts that will exist, and procedures that will be accomplished by the Company later in the year.

The management of the Company believes that the accompanying unaudited financial statements contain all adjustments (including normal recurring adjustments) necessary to present fairly the operations and cash flows for the periods presented.

The amounts for December 31, 2002 were taken from the Company's audited financial statements for that date.

The Company was incorporated under the laws of the State of Colorado on August 3, 1982. At March 31, 2003, the Company has four wholly owned subsidiaries, Wall Street Real Estate Ltd., Wall Street Investments Corp., Capital Reserve Canada Limited and Food and Culinary Technology Group, Inc. ("FACT Group"). FACT Bread Company Inc. is a wholly owned subsidiary of FACT Group.

The Company and its subsidiary Wall Street Real Estate Ltd. own and lease real property in the City of Calgary, Alberta, Canada. The Company and its subsidiary Capital Reserve Canada Limited also own an interest in a producing oil and gas property located in Alberta, Canada, which was divested on May 16, 2003. The Company's primary operations are the business of FACT Group in Freehold, New Jersey, including the supply and license of functional food formulations to various manufacturers, ingredient distributors and food service clients.

Loans Payable from various related parties have the following terms at March 31, 2003 and December 31, 2002 respectively:

Loans payable to related parties included in Long Term Liabilities includes an amount due of $682,997 which is secured by a third charge on the Company's commercial properties, as well as the Company's accounts receivable and investments. The loan is convertible into the Company's common stock at the rate of $0.40 until maturity, December 31, 2004. Interest on the debenture is accrued at a rate of 18% p.a., and is payable monthly on the last day of each month until maturity, at which time principal and all accrued and

F-7

unpaid interest shall be due and payable. If the shares underlying the debenture are registered by the Company with the SEC in an effective registration statement and the market price of the Company's Class A Common Stock exceeds $1.00 for a ten (10) period of time, the balance of this debenture and all accrued and unpaid interest thereon will automatically convert into shares of Class A Common Stock.  

Pursuant to an agreement dated May 16, 2003, the Company's subsidiary, Capital Reserve Canada Limited disposed of its oil and gas leases. The consideration was provisionally agreed at for $150,000 CDN ($101,955).

F-8 

Certain information in this report, including the following discussion, may include forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. The Company intends the disclosure in these sections and throughout this report on Form 10-QSB to be covered by the safe harbor provisions for forward-looking statements. All statements regarding the Company's expected financial position and operating results, its business strategy, its financing plans, and the outcome of any contingencies are forward-looking statements. These statements can sometimes by identified by the Company's use of words such as "may", "believe", "plan", "will", "anticipate", "estimate", "expect", "intend", and other phrases of similar meaning. Known and unknown risks, uncertainties and other factors could cause the actual results to differ materially from those contemplated by the statements. The forward-looking information is based on various factors and was derived using numerous assumptions.

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 premix, rental income and income from producing oil and gas properties on a monthly basis, these proceeds are not sufficient to meet the Company's current monthly overhead, which includes the on-going business of three operational subsidiaries. Additionally, the Company is divesting its interests in its operating oil and gas subsidiary, Capital Canada, in the first half of fiscal 2003, at which point, income will be restricted to sales of functional premix and rental income. The Company will require approximately $1.7 million to cover its anticipated overhead and operational needs for the upcoming twelve month period (excluding oil and gas operations). Revenues generated from existing operations (excluding oil and gas operations) are expected to offset operational overhead by approximately $457,000, including projected net revenues of $308,000 from its functional food business and $149,000 from its commercial rental properties, during the upcoming twelve months. While the Company has projected net revenues from its functional foods operations of approximately $308,000 over the upcoming twelve months, there is no guarantee these projections will be achieved. Therefore, the Company may be required to raise up to an additional $1.55 million to meet its projected costs. The Company expects that it will be able to obtain additional equity and/or debt financing to meet this need. The Company has identified a source for this purpose, however, no funding commitment has been received as of the filing date of this report. The Company may be required to identify additional sources for financing, and intends to contact investors that have previously provided funds to the Company.

The Company's operational plans call for the expenditure of approximately $302,500 over the next twelve months on ongoing product refinement, technical support, development of second and third generation functional formulations, market research and clinical testing, including salaries paid to employees and consultants retained for the purposes of providing research and development support. The Company does not intend to participate in any further development of its existing oil and gas properties and has commenced the spin off of Capital Canada, which it expects will be concluded during the second quarter of 2003. In addition the Company intends to divest its real estate assets and equity investments in order to focus on the management and operation of its developing functional foods business. In the event the Company does divest these other assets, funds derived from the sales will reduce our requirement to raise additional capital. It is impossible to determine the exact impact a sale of one or all of these assets would have on the current cash requirement.

Additionally, under the terms of the agreements whereby the Company acquired its ownership of FACT Group, the Company is required to provide total capitalization of $3 million to FACT Group in order to finalize the acquisition. Included in the cash requirements noted above of $1.7 million over the next twelve months is an amount of $912,055 with respect to the operations of FACT Group. At March 31, 2003, the Company had funded a total of $607,532 to FACT Group in respect of its ongoing operational expenses.

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Should it be required, and the Company be able to negotiate favorable terms, the Company may look to raise funds in excess of the current cash requirement of $1.7 million by way of debt or equity financing in order to fulfill the $3 million capitalization requirement referenced above within the upcoming twelve months. Alternately, if it becomes apparent there is no further requirement to raise capital for the operations of FACT Group should the Company be successful in reaching positive cash flow during fiscal 2004, the Company will look to negotiate an amendment to the acquisition agreements relating to the capitalization provisions currently in place.

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.

For the three month periods ended March 31, 2003 and 2002 the Company incurred operating losses of $403,129 and $212,398 respectively. March 31, 2003 losses included a substantial increase in consulting fees from $138,085 (2002) to $214,035 (including fees settled by the issuance of common shares) as a result of the ongoing operations of its functional food business. There was also a substantial increase in the associated administrative expenses which increased to $207,470 (cash expenses and expenses settled by the issuance of shares) from $89,631 (2002) due to the Company's program to increase corporate exposure and attract additional investment from new and existing shareholders. During the three months ended March 31, 2003, the Company generated revenues from sales of petroleum and natural gas, rental income, and sales of functional food premixes totaling $105,562. Revenues for the same three months in 2002 were limited to sales of petroleum and natural gas and rental income totaling $75,397. Revenues from sales of petroleum and natural gas during the three months ended March 31, 2002 of $10,176 more than doubled over the corresponding three month period during 2003 to $23,842, while associated production costs (including depletion) were substantially decreased. Rental income decreased over the comparative three month periods from $65,221 (2002) to $44,595 (2003) as a result of a vacancy in one of the Company's commercial real estate properties, resulting from the filing for Chapter 11 protection by a lead tenant in November 2002. Functional food premix sales were substantially increased during the quarter ended March 31, 2003 totaling $37,125 versus no sales during the same three months in fiscal 2002.

Other income and expenses reflect a substantial increase in interest expenses over the comparative periods from $31,415 (2002) to $101,617 (2003). Interest expenses increased in the three months ended March 31, 2003 as a result of funds obtained during the quarter through conventional mortgages and loans from private investors to meet a shortfall from its operations.

During the fiscal year ended December 31, 2002 there were certain extraordinary expenses recorded which substantially increased the operating loss for the year. There have been no such similar events during the three months ended March 31, 2003.

Net losses for the two completed quarters ended March 31, 2003 and 2002 were $488,009 (2003) and $240,401 (2002) respectively.

As of March 31, 2003, the Company had negative working capital of $1,478,585 and negative Stockholders' Equity of $175,063 compared with negative working capital of $1,005,451 and Stockholders' Equity of $223,981 as of December 31, 2002. The Company's working capital has been decreased as a result of the addition to current liabilities of additional loans. Stockholders' Equity declined predominantly as a result of the operating losses for the period. Additionally, the Company was unable to obtain additional capital investment in amounts sufficient to fund operating losses and cash used as described in our financial statements.

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Financing activities during the three month period resulted in an increase to loans payable of $341,954 from figures reported at the year ended December 31, 2002 as a result of a second mortgage obtained on certain of the Company's commercial real estate properties. Accounts payable and accrued liabilities remained relatively constant over the comparative three month periods for the quarters ended March 31, 2003 and 2002.

The Company was unable to obtain additional capital investment in amounts sufficient to fund operating losses and cash used as described in our financial statements for the period ended March 31, 2003.

The Company anticipates it will require approximately $1.7 million 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 2003, 2004 and 2005 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. 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.

During the three months ended March 31, 2003 the Company's primary sources of working capital have come from revenues generated from our operating oil and gas properties, commercial rental properties and sales of functional premix, as well as the net proceeds from:

The Company is actively pursuing the divestiture of its real estate and completion of a spin-off of its operational subsidiary, Capital Canada, as well as the liquidation of all marketable and non-marketable securities. On March 6, 2003 the Company announced the pending distribution of all of the issued and outstanding shares of its wholly owned subsidiary, Capital Canada, to the existing shareholders of the Company on the basis of one (1) share of Capital Canada for every five (5) shares of the Company. Holders of the Company's Class C common stock do not have the right to participate in this distribution. As of March 31, 2003 Capital Canada is in debt to the Company in the amount of $658,578, the repayment of which amount, and any subsequent amounts to the date of the spin-off, will be recorded as account receivable on the balance sheet of the Company, repayment of which will be negotiated by the Boards of the Company and Capital Canada, once Capital Canada has an independent Board of Directors in place. The Company anticipates this transaction will close during the second quarter of fiscal 2003, and that repayment terms for the amount due can be finalized at that time. The Company will look to establish the most aggressive repayment plan available during negotiation with Capital Canada's independent Board. Additionally, concurrent with the spin off of Capital Canada, the Company will lose certain incremental income from two real estate leases entered into between Capital Canada and two third parties, which income is currently realized through consolidation of Capital Canada's operations for purposes of Fact's financial reporting. The Company does not expect this loss in incremental income to greatly impact its financial position.

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Pursuant to an agreement dated May 16, 2003, the Company's subsidiary, Capital Reserve Canada Limited disposed of its oil and gas leases. The consideration has been provisionally agreed at for $150,000 CDN (US $101,955).

The Company's sole executive officer, Ms. Jacqueline Danforth, who serves as the Company's principal executive officer and principal accounting officer, has implemented the Company's disclosure controls and procedures to ensure that material information relating to the Company is made known to Ms. Danforth. Ms. Danforth has evaluated the effectiveness of the Company's disclosure controls and procedures as of a date within 90 days prior to the filing date (the "Evaluation Date") of this quarterly report.

Based on such evaluation, Ms. Danforth has concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures are effective in alerting her on a timely basis to material information relating to the Company that is required to be included in our reports filed or submitted under the Securities Exchange Act of 1934. Moreover, there were no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of such recent evaluation.

Prior to the filing date of this quarterly report, the Company had not adopted a complete set of written policies, controls and procedures. The Company is now developing such written document and expects that in the process of such undertaking it will discover internal control policies and practices that the Company should implement and follow that are not part of its current practice.

Not Applicable

On January 6, 2003 the Company issued 7,698 shares of its restricted Class A Common Stock to Mr. Michael Baum, a consultant to FACT Group, for services rendered in the amount of $3,000. The shares were valued at $0.389 per share and were issued pursuant to exemptions provided by Section 4(2) of the Securities Act and Reg. D. No commissions or finders fees were paid by the Company in connection with the sale of these shares.

On January 9, 2003 the Company issued 42,857 shares of its restricted Class A Common Stock to three members of F.A.C.T. Group LLC, Steven Schechter, Jennifer Flynn and Steven Capodicasa in settlement of $15,000 with respect to certain royalty payment obligations. The shares were valued at the ten day average trading price of the Company's common stock, or $0.37 per share, and were issued pursuant to exemptions provided by Section 4(2) of the Securities Act and Reg. D. No commissions or finders fees were paid by the Company in connection with the sale of these shares.

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On January 10, 2003 the Company issued 8,182 shares of its Class A Common Stock to Mr. Byron Cox, a consultant to FACT Corporation for services rendered in the amount of CDN$5,000 (US$3,272). The shares were valued at $0.399 per share and were issued pursuant to exemptions provided by Section 4(2) of the Securities Act and Reg. D. No commissions or finders fees were paid by the Company in connection with the sale of these shares.

On February 9, 2003, the Company entered into a Consulting Agreement with Chapman, Spira & Carson, LLC a New York Limited Liability corporation ("Chapman"), whereby Chapman was retained to locate capital and financing opportunities for the Company. Pursuant to such agreement, the Company issued to Chapman 35,000 restricted shares of its Class A Common Stock in settlement of fees totaling $10,000. The shares were issued at a deemed price of $0.35 per share. The shares were issued pursuant to exemptions provided by Section 4(2) of the Securities Act and Reg. D. No commissions or finders fees were paid by the Company in connection with the sale of these shares.

On February 27, 2003 the Company issued a total of 22,500 shares of its restricted Class A Common to Karim Demirdache pursuant to a private placement offering. The shares were issued pursuant to exemptions provided by Section 4(2) of the Securities Act and Reg. D. The private placement contemplated the issue of up to 2,000,000 units, each unit comprised of one share of common stock and a warrant to purchase an additional share of common stock for $0.75 for a period of two years from the date of issuance. No commissions or finders fees were paid in connection with this offering. The net proceeds to the Company realized from this offering were $9,000.

Not Applicable

Not Applicable

Not Applicable

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: May 19, 2003

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I, Jacqueline Danforth, certify that:

1. I have reviewed this quarterly report of FACT Corporation.

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. As the registrant's sole certifying officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and I have:

- designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to me by others within the registrant, particularly during the period in which the quarterly report is being prepared;

- evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

- presented in this quarterly report my conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation of the Evaluation Date.

5. I have disclosed, based on my most recent evaluation, to the registrant's auditors:

- all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and

- Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls.

6. I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of my most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 19, 2003

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In connection with the Quarterly Report of FACT Corporation (the "Company") on Form 10-QSB for the period ended March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jacqueline Danforth, President, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

Date: May 19, 2003.

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