SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB

(Mark One)

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

For the fiscal year ended December 31, 2003

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

For the transition period from ___________ to _____________

Commission file number: 0-17232

FACT CORPORATION
(Name of small business issuer in its charter)

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

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

(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. X Yes ______No

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of 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. _______

State issuer's revenues for its most recent fiscal year: $757,537

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.):

$9,541,430 as of April 13, 2004

Note: If determining whether a person is an affiliate will involve an unreasonable effort and expense, the issuer may calculate the aggregate market value of the common equity held by non-affiliates on the basis of reasonable assumptions, if the assumptions are stated.

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 _______

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

16,745,117 as of April 13, 2004.

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

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 premixes 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 also operates in the food industry through FACT Products Inc., ("FACT Products"), a wholly owned subsidiary of FACT Group, supplying a line of shelf stable non-dairy whipped toppings.

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". In mid 2001, the Company determined advancement of its oil and gas investments and other investments in marketable securities had not progressed as expected, and the Board of Directors determined to locate a new project of merit in a rapid growth industry with the goal of achieving positive cash flow within 36 months. The plan called for the divestiture of the Company's interests in any unrelated projects as quickly as was determined to be practicable. During fiscal year 2001, as a result of this mandate, the Company completed a share exchange agreement with a private Nevada corporation in the functional foods business, FACT Group, whereby FACT Group became the Company's wholly-owned subsidiary. The Company determined that if successful, the functional food business and other food products would develop into its sole operating business. On August 11, 2003, FACT Products acquired the rights to a shelf stable non-dairy whipped topping which it markets under the brand name "Aunt Lydia's Italian Cremes".

As of the date of this filing, the Company has four (4) wholly-owned subsidiaries, Wall Street Investment Corp. ("WSIC"), Wall Street Real Estate Ltd., ("Wall Street"), Capital Reserve Canada Limited ("Capital Canada") and FACT Group. WSIC currently has no business operations. Wall Street Real Estate Ltd. was incorporated in the Province of Alberta, Canada on July 23, 2002 for the purpose of holding commercial real estate assets. Capital Canada was incorporated in the Province of Alberta, Canada, on December 8, 1999 for the purpose of locating and acquiring oil and gas properties. 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.

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. Capital Canada filed Amendment #4 to the 20-F on March 16, 2004 and hopes the spin-off will take effect during the second quarter 2004. Additionally, the Board of Directors resolved to divest its interests in all commercial real estate holdings as market conditions permitted during fiscal 2003. The Company was unable to complete the intended divestiture plans during 2003 and is targeting the close of fiscal 2004 to have divested all of its other investments and subsidiaries except for FACT Group and its wholly owned subsidiary, FACT Products which will operate exclusively in the food business.

The Company is presently engaged in a range of business operations indirectly through its wholly-owned subsidiaries and directly through the Company. These operations include: operations in the food industry consisting of the sale of premixes and other food products to commercial customers; commercial real estate operations for the generation of rental income; oil and gas operations; and passive investments in public and private corporations for the purpose of capital appreciation. The Company's business is primarily focused on its operations in the functional foods industry. As stated in "Business Development" above, the Company is presently accessing opportunities for the divestiture of its other assets and investments, and has commenced the spin off of its wholly owned subsidiary Capital Canada. A discussion of each segment of the Company's current business operations is provided below.

1

Through a share exchange agreement between the Company and the shareholders of FACT Group, completed in November 2001, the Company issued a total of 2,000,000 shares of its Class C common stock in consideration for all of all the issued and outstanding shares of FACT Group, a company 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 formulation 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. In May, 2003, those certain shareholders of FACT Group filed litigation against FACT Group and the Company to terminate the share exchange agreement. On August 14, 2003, the Company and FACT Group reached a settlement with the Plaintiffs. As a result of this settlement, the formulas to the premixes and other intellectual property have been released to the Company. The requirement for funding of $3million is no longer included in the agreement and the plaintiffs return 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:

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 Healthy Lifestyle™ 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 pre-mix purchased. FACT Group's premixes enable customers to make claims on their end products pertaining to a variety of market positions including, reduced digestible carbohydrates, increased fiber, weight management benefits, and other tangible benefits. FACT Group has 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 snack bars, donuts, brownies, and 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. FACT Group intends to launch and market a product line under its own brand direct to consumers via the internet, direct mail and other alternative channels during 2004. FACT Group also has developed a line of snack bars which are market ready and are intended to be sold through various channels during 2004. 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 the State of New York for the preparation of premix for use in end consumer products.

2

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 the foremost provider of turnkey functional premixes 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 supplier to the functional foods industry. Key areas of focus are consumers with the following concerns: diabetes, carbohydrate control, weight management, heart disease and digestive health.

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 trade marking its master brand "Healthy Lifestyle™".

Sales of FACT Group's premixes in fiscal 2003 accounted for 66% of the Company's total revenues, which met the Company's intended goal to have operations of this subsidiary become the Company's primary source of income. Presently, the Company's investment in FACT Group constitutes an investment in a developing business. 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 our customers' end products by the retail consumer; access to sufficient amounts of key ingredients for uninterrupted supply of our premixes to customers; protection of our proprietary formulations; the onset of competitive products in the retail marketplace and ongoing financing to meet operational overhead until such time as FACT Group has achieved sufficient sales to meet expenses.

FACT Group is presently operating in an emerging growth industry which has recently experienced a rush of new competitors to the marketplace. While direct competitors with FACT Group are limited, we consider bakery ingredient suppliers offering high fiber or reduced digestible carbohydrate bakery premixes which can be incorporated into end-products and are marketed to manufacturers, food service and quick serve restaurants direct competitors. The segment of the functional foods industry in which we are operating, breads, grains and baked goods, accounts for approximately 40% of total sales in our segment of the food industry, allowing room for a vast competitive landscape. FACT Group has ample opportunity to secure a profitable segment of the market share. Presently we estimate there are between 10 and 15 organizations 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.

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 our customers with our line of premixes and products. While FACT Group has entered into supply agreements with certain of these suppliers, we do not have volume agreements in place with respect to all of our key ingredients. Should there be a shortage of raw ingredients, FACT Group may not be able to adequately service its existing or future customers. FACT Group is constantly evaluating our formulations to ensure we have alternatives to these key ingredients in order to avoid any unexpected ingredient supply issues.

FACT Group's revenues for fiscal 2003 and to the date of this report rely heavily on sales made to a single customer. Western Bagel Baking Corporation of Van Nuys, California, accounted for approximately 85% of FACT Group's premix sales to the end of fiscal 2003. To the date of this report, FACT Group has successfully closed additional client accounts that should assist in better diversifying our revenue base. It is anticipated that until such time as FACT Group establishes its products in the marketplace, it will remain reliant on a small number of key customers to drive sales.

3

During the past two fiscal years, FACT Group has allocated substantial time and resources to completing the commercialization of its premixes for commercial sales. These efforts were predominantly expended during fiscal 2002 and during the first quarter of fiscal 2003, with product sales being the focus for the balance of fiscal 2003. Amounts expended by FACT Group in pursuit of such activities are borne exclusively by FACT Group.

FACT distributes its products directly to customers from its contracted warehouse space on the East and West coasts. FACT's line of premixes are 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.

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

During fiscal 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".

We intend to distribute the "Aunt Lydia's Italian Cremes" through conventional channels including retail supermarkets and club stores.

The Company is aware of several other whipped topping products that are sold under brand names, such as Reddi Whip and also under private labels in major supermarket chains. To the knowledge of the Company, all of these products require refrigeration to stay fresh. Aunt Lydia's Italian Cremes are shelf stable, non dairy toppings which should provide some form of competitive advantage in the marketplace for both our anticipated customers and the end consumer as they do not require refrigeration. The Company is also unaware of any other imported whipped toppings or any toppings available in mocha flavor, which should provide some additional competitive advantage.

The whipped topping products are manufactured under contract by a supplier in Italy and are imported into the United States. The Company is unable to comment at this time on the availability of raw materials due to the early stages of business growth.

At this time we have only recently concluded our first purchase order for the whipped topping products from a retail supermarket chain. The Company will require additional operational experience with the product before we can determine the potential for dependence on one or a few major customers. The Company had announced a purchase order for these products from Publix in 2003 but this sale has not yet been consummated.

4

The Company has not spent any time on research and development of the Aunt Lydia's products.

The Company owns two commercial buildings in the City of Calgary, Alberta, which are presently generating rental income.

The first commercial building, held directly by the Company, offers approximately 22,145 square feet of office space and laboratory space. As at December 31, 2003, the Company had leased out 16,068 of the total available square footage in this building. As at the date of this report, the Company has leased out 17,526 square feet of the total available square footage in this building and has executed a leasing agreement with a licensed realtor to lease the remaining square footage. At December 31, 2003 this facility had a total of 3 primary tenants (one of which is Capital Canada, a wholly owned subsidiary of the Company that sublets all of its available lease area to two additional tenants). Each of the primary tenants are signed to long-term lease agreements expiring in 2005 or 2007. The two subtenants have subleases with Capital Canada, one of which expires on October 2005 and the other is a month-to-month sublease. As at the date of this report, the Company had executed three further leases. This leaves the Company with approximately 4305 sq feet of laboratory space and 319 sq ft of office space remaining to lease. The additional leases executed subsequent to December 31, 2003 are short-term leases ranging from month to month for 200 sq ft, a one year term for 805 sq ft and a two year term for 453 sq ft. Certain of the three leases are short-term leases and so the Company will be required to find new tenants for the space as those leases expire. None of these leases are considered primary leases for the purposes of this report.

The second commercial building, held by the Company's wholly owned subsidiary, Wall Street Real Estate Ltd., serves as one of the Company's two corporate offices, as well as an additional source of rental income. The building has approximately 7,680 square feet of office space divided equally into two condominium units. The Company occupies a total of 768 square feet and has leased out all of the remaining available space to two tenants. Both leases carry five-year terms, and expire in 2006 and 2007. One of the leases also includes an option to purchase 3,840 square feet of space expiring January 2007.

The Company also owns a single family residence located in a lakeside community in Calgary, Alberta which was purchased by the Company for use by its then-President, Mr. W. Scott Lawler, as an enticement for him to relocate to Calgary, Alberta. This home is approximately 6,300 square feet on 1/3 of an acre. Mr. Lawler occupies the property and makes all payments related to the property's mortgage, including insurance and property taxes. Mr. Lawler has an option to acquire this property from the Company, and indicated as of the end of fiscal 2002 his intent to exercise this option in the first half of 2003. The exercise of the option did not conclude during 2003 but is expected to conclude by June 30, 2004.

The Company has invested over $2.8 million in its commercial and residential real estate. The realizable value of this real estate is dependent on a fluctuating real estate market in the City of Calgary, Alberta. In addition, while the rental market for commercial real estate in Calgary, Alberta is presently favorable, the market is subject to fluctuations in these conditions and the Company may not be able to fully lease its income generating properties. The ability of the Company to lease these properties at full capacity is impacted by various market conditions, including a necessity for our lease rates to remain competitive in the surrounding market areas. In addition the Company's ability to continue to collect a majority of the payments owed under its current lease agreements could become contingent upon the success of the major tenants occupying each property. Currently, a portion of the Company's revenue stream is generated through lease payments from three developing businesses who may not realize revenues or continue to realize revenues in the normal course of business. In the event these companies default under their lease obligations, and the Company can not find suitable replacement tenants, the Company's financial position could be adversely impacted.

The Company has entered into property management agreements with respect to the operations of both its commercial properties. The Company intended to look for favorable divestiture opportunities for all its real estate holdings in fiscal 2003, however it was unable to finalize any transactions and expects to be able to divest of all of its real estate holdings in fiscal 2004.

5

The Company owns interests in a producing oil and gas property in Washington County, Colorado and oil and gas leases in Montana though its wholly owned subsidiary, Capital Canada.

The Kejr 23-11 came on production in December 1996 and the Kejr 24-11, which was a marginal well, was brought on production by the operator in June 1997. A third well drilled on the Kejr leases, the Keela 34-10, was a dry hole and was shut in.

The operation of the Kejr wells and the sale of the oil are managed by the operator, Merit Energy Company ("Merit") and thus Capital Canada is dependent upon the expertise of Merit to deliver the output of these wells in the most beneficial manner possible. The operating agreement executed between Capital Canada and the operator, Merit, requires Merit to comply with any and all environmental and other governmental agency laws, regulations and permit requirements. Merit carries excess liability insurance with a limit of $5,000,000 at a cost of $180.00 per annum. Capital Canada's portion of the liability insurance is $18.00 per annum which is included in the monthly billings for operating costs from the operator of the property. The lease operating costs are current.

6

Capital Canada was advised that the insurance costs would be $12,000 per annum for extra coverage over and above that carried by Merit as operator, but declined to effect such coverage as the costs were prohibitive. Any losses or damages caused in the operation of this well that is not covered by operator's insurance would be a liability for Capital Canada. Capital Canada believes that the liability insurance carried by the operator is sufficient to pay for any and all claims which may arise from the operation of the well or any breaches of environmental laws, save for any claims which may be due to operator negligence or fraud. Capital Canada could be named in any litigation brought against the operator by any party and may be found liable should the operator be unable to pay any awards from such litigation. In such event, Capital Canada could be unable to pay and may not be able to continue to exist. Capital Canada will also be liable for a pro-rata portion of expenses incurred in the event the wells are shut-in which are estimated to be 10% of $6,000 total costs. Production from these wells is minimal. Present revenues average approximately $63.00 per month.

Until May 15, 2003, Capital Canada owned a 5% interest in six wells and a gathering facility in a producing oil and gas field known as Chestermere located in Alberta, Canada, operated by Compton Petroleum and its subsidiary, Hornet Energy Ltd. Revenues on this property were generated from the sale of oil, gas and natural gas liquids. Capital Canada participated in programs for the ongoing development of this property over the past three years. Capital expenditures have included various work-overs, recompletions and the drilling of one development well. The well drilled was deemed uneconomical and was shut in pending additional evaluation. Production from this property initially met the payment obligations to the Alberta Treasury Branches for a loan negotiated on the acquisition of the leases, as well as providing some working capital for Capital Canada. However, Capital Canada participated in the drilling of a well on this property which was unsuccessful and all of the subsequent cash flow from the property was used to pay down the drilling obligations. During 2002 and the first quarter of 2003 this property was not producing sufficient cash flow to pay the drilling obligations and the ongoing payments required under the loan with the Alberta Treasury Branches, therefore the Board of Directors determined to sell the property to pay off the loan to Alberta Treasury Branches and to retire the debt owed to Hornet Energy Ltd. from operations. On May 15, 2003, the Company sold this property to Hornet Energy Ltd. for CDN$152,099 or approximately US$111,923 and the forgiveness of outstanding operating expenses. The funds received by Capital Canada paid off the above noted loan with Alberta Treasury Branches in full, funded the drilling of the exploration well in Montana and paid down a total of $57,526 of the intercompany debt with FACT Corporation.

As at the date of this report, less than 1% of the Company's existing revenue stream is derived from revenues obtained from oil and gas operations. Upon completion of the spin-off of Capital Canada these revenues will be gone. The spin-off of Capital Canada is not expected to significantly impact the Company's cash flow projections for fiscal 2004 forward. The Company has analyzed certain requirements for compliance with existing environmental regulations concerning abandonment of shut -in wells and site restoration and has included an estimate of these future costs in its financial statements to December 31, 2003. These obligations will no longer be an obligation of the Company when the spin-off of Capital Canada is completed.

The Company did not report any reserves to other agencies since the beginning of the last fiscal year.

Following is a table showing production data for the last three fiscal years:

* 6 mcf of gas equals one barrel of oil

7

The Company had two producing wells at end of the fiscal year December 31, 2003. Both wells were located in the Washington County, Colorado. The Company disposed of its producing interests in Canada on May 15, 2003 and information relating to these interests not reflected in this table.

As at December 31, 2003 Capital Canada holds a total of 177.1 total gross acres and 95.8 total net acres that it acquired on June 10, 2003. This acreage relates to several sections of land in Montana known as the Indian Creek leases.

During the last three fiscal years Capital Canada drilled one net productive dry development well in the Chestermere field in Alberta, Canada. The well was drilled in the fiscal year ending 2001. There were no other wells drilled during the last three fiscal years.

Capital Canada participated in the drilling of an exploratory well during 2003 on its recently acquired Montana Leases. The well was a dry hole.

There are no present wells being drilled. Capital Canada intends to review oil and gas acquisitions both drilling prospects and existing production after completion of the spin off from FACT Corporation. Should FACT Corporation not complete the spin off then it will look to sell the oil and gas assets and divest itself of Capital Canada.

Capital Canada does not have any delivery commitments or any short or long term contractual obligations.

We currently do not conduct any marketing activities. When we have oil and gas producing properties, the sale of the extracted products is determined by existing market conditions. We do not believe that any marketing activities will be necessary to conduct operations following the acquisition of any of the properties described above. The properties described above currently have operators who will be responsible for the marketing. Should we take on the operatorship of a property then one of the responsibilities would be the marketing of the products. At this time, we have no plans for becoming an operator.

8

Our competition comes from other oil and gas companies that are acquiring oil and gas assets that we would contemplate acquiring due to its investment and capital costs compared to our financial capabilities. Since our financial resources are severely limited at this time, we are at a distinct disadvantage when competing against companies with significant assets.

The Company has made equity investments in a public reporting Alberta corporation and its private subsidiary. 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) and are currently reviewing new business opportunities. The Company will look to divest its interest in these companies as the opportunity becomes available.

Through the sale of certain oil and gas development leases in fiscal 2002 the Company also acquired an interest in a further public reporting corporation. The Company divested itself of these securities on June 10, 2003 by way of an agreement between its wholly owned subsidiary and Terra Nostra Technology Ltd. The terms of the agreement are described above under "oil and gas properties".

The Company acquired an interest in shares in a second reporting corporation 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.

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.

As of April 9, 2004, the Company and its subsidiaries had 3 full-time contract employees and 3 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, oil and gas project review and property management as is required.

The Company currently has investments in commercial and residential real property located in the City of Calgary, Alberta. Its policy regarding real estate investments has been to invest in commercial properties that it believes will generate positive monthly net income. There are presently no limitations on the number of mortgages that may be placed on any property owned by the Company. The Company intends to divest its existing commercial real estate holdings in fiscal 2004 and does not anticipate any new acquisitions of real estate. All operations of the Company's commercial real estate assets are handled through property management companies.

9

The Company holds a fee simple title to this property. The Company has no present plans for the improvement of this property, and management believes the property is adequately covered by insurance.

Presently the property has an occupancy rate of 79%, with three primary tenants that each occupies between 10% and 30% of the total space in the building. The Company has entered into head lease agreements with each of these 3 tenants, one of which is the Company's wholly-owned subsidiary, Capital Canada. Capital Canada has subleased all of its available square footage to two corporate entities.

The first head lease agreement for 6,546 square feet of office space is between the Company and Toshiba, which was assigned to the Company upon the purchase of the building. The Toshiba lease generates $53,923(CDN $75,282) in annual rental payments and expires July 31, 2005. Annual lease rates per square foot remain constant at $8.23 (CDN $11.50) plus operating costs. Toshiba is a major supplier of office equipment.

The third head lease agreement is with the Company's wholly owned subsidiary Capital Canada for 3,136 square feet of office space and lab space for a term of 5 years, expiring on October 31, 2005 at an annual lease rate of $24,256 (CDN$33,864), or $8.60 (CDN$12.00) per square foot. Capital Canada has subleased all available space to two tenants, the first tenant has a sublease on an escalating rate which expires on October 31, 2005. The current rate of rate of $12.89 ($18.00CDN) is the maximum rate under the sublease. The second sublease at $10.03 ($14.00CDN) per sq foot plus an equipment cost of $ 173.64 ($242CDN) per month expired on December 31, 2003 and has continued on a month to month basis. As at the date of this report this tenant has entered into an additional head lease with the Company for one year, therefore the Company believes that this tenant will maintain the existing month to month at least until April 30, 2005. The subleases are both to companies involved in the chemical industry. Presently the Company receives incremental income from these leases through consolidation of Capital Canada's operations for purposes of FACT's financial reporting. Upon the completion of the spin-off of Capital Canada, the Company will only receive rental income from Capital Canada, and will no longer benefit from the incremental income generated by Capital Canada's two subtenants.

The expiration dates for the various leases and sub-leases are detailed in the following table:

* There are two subleases one of which expires on October 31, 2005 and the other which is presently month to month.

The Company received an offer to purchase this property for $1,898,169($2,650,000CDN) which is expected to close May 31, 2004. The closing will be conditional on the Company being able to lease the vacant laboratory space. As of the date of this report the Company had leased all but 4,614 square feet of the vacant space. The Company has retained a leasing agent to lease the remaining space.

10

This property is a two-story commercial building located in the City of Calgary. The building is comprised of approximately 7,680 square feet of usable office space divided equally into two condominium units.

The Company has no present plans for the improvement of this property and management believes that this property is adequately covered by insurance.

This property has an occupancy rate of 100%. The Company has entered into head lease agreements with two tenants that occupy 50% and 40% of the of the total space in the building respectively. The Company has retained 768 square feet for its own use.

The first head lease agreement for 3,072 square feet of office space is between the Company and International Securities Group Inc. ("ISG"), a related party. ISG is a junior venture capital company, whose sole shareholder is a director of the Company. ISG's director and sole shareholder, Mr. W. Scott Lawler, is also a member of the Company's Board of Directors (See "ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS"). The ISG lease currently generates $19,804 (CDN $27,648) in annual rental payments and expires July 31, 2006. Annual lease rates per square foot are $6.45 (CDN $9.00), plus operating costs. ISG has subleased 1,811 square feet of office space to its clients, all of whom are junior development companies.

The second head lease agreement for 3,840 square feet of office is between the Company and 5 Crowns Investment Corporation ("5 Crowns"). This lease currently generates $24,755 (CDN $34,560) in annual rental payments and expires January 31, 2007. Annual lease rates per square foot are $6.45(CDN $9.00), plus operating costs. 5 Crowns, a private offshore investment company, in turn has sublet the entire premises to Westsphere Asset Management Inc. whose principal business is that of a holding company for wholly owned subsidiaries. Additionally, 5 Crowns has an option to purchase the building on the following schedule:

The option is null and void after February 1, 2007.

The Company has listed the condominium unit at 1530-9^th Ave S.E., Calgary Alberta for sale as of the date of this report. The asking price is $120 ($155 CDN) per sq ft of net rentable space or $459,911($595,200CDN).

This property is a single family residence located in a lakeside community and was purchased by the Company for use by its then President and as an enticement for him to relocate to Calgary, Alberta. This home is approximately 6,300 square feet on 1/3 of an acre, with an acquisition cost of $629,751(CDN $815,000), and the book value as of December 31, 2003, net of depreciation totaling $55,377 (CDN $71,667) is $574,374 (CDN$743,333), comprised of $243,401 (CDN$315,000) for land and $386,350 (CDN$500,000) for buildings and improvements

The Company has a fee simple title to this property. It is the opinion of management that this property is adequately covered by insurance.

11

The property is depreciated over 25 years using the straight line method of depreciation which is the same method adopted for tax purposes. Annual property taxes are $5104 ($7,125CDN).

Mr. Lawler occupies the property and makes all payments related to the property's mortgage, insurance and property taxes. There are no present plans to make any further improvements to this property, it was anticipated that during the fiscal year ended December 31, 2003 Mr. Lawler would exercise an option to acquire this property from the Company. This option exercise did not occur but the Company expects that it will occur by June 30, 2004.

The Company holds a fee simple title to this property. In purchasing this property, the Company received a mortgage in the initial amount of $1,236,320 (CDN $1,600,000) secured by the property. The mortgage is held by Standard Life and had a balance of $1,082,872 (CDN$1,401,414) as at December 31, 2003. The balance accrues interest at the rate of 8.60% per annum and the loan is amortized over fifteen years, maturing on September 1, 2005. Monthly payments of principal and interest total $12,138 (CDN$15,709). If all principal and interest payments are made as required between now and the maturity date, the loan will have a balance of $1,026,566 (CDN$1,328,544) at maturity. The loan cannot be prepaid.

There is a second mortgage on this property with Access Mortgage Corporation Limited as at January 2003 and a third charge on this property by way of a convertible debenture, both of which are more particularly described below.

The Company received an original mortgage on this property of $211,115, secured by the property, for a period of one year from a related party. The mortgage accrued interest at the rate of 10% per annum, expiring April 11, 2002. This holder released the property from the mortgage thereafter, and the balance due was converted to a secured convertible debenture, accruing interest at 18% per annum and payable on December 31, 2004. During the course of fiscal 2002 the Company transferred title on this property to its wholly owned subsidiary, Wall Street Real Estate Ltd., and obtained a loan secured by the property in the principal amount of $356,987 (CDN$462,000) from the Alberta Treasury Branches ("ATB"). As at December 31, 2003 the mortgage had a remaining balance of $339,773 (CDN$439,722).

The ATB loan bears interest at a rate of Canadian prime (4.5% as of December 31, 2002), plus 2%. The loan is amortized over 20 years and matures annually on June 30. Monthly payments of principal and interest are $3,014 (CDN$3,900). There is a second mortgage on this property with Access Mortgage Corporation Limited as at January, 2003 and a third charge on this property by way of a convertible debenture, both of which are more particularly described below.

The Company obtained a mortgage on this property from the Alberta Treasury Branches in the initial amount of $440,606 (CDN$570,217), secured by the property. The balance accrues interest at a rate of Canadian Prime less 0.25 %, compounded, and adjusted on a semi-annual basis. As at December 31, 2003 the effective rate of interest was 4.29%. The loan is amortized over 25 years and matures on May 1, 2005. As at December 31, 2003 the mortgage had a remaining balance of $390,514 (CDN$505,389). If all principal and interest payments, but no prepayments, are made as required up to the maturity date, the loan will have a balance of $370,646 (CDN$479,677). Up to 20% of the original loan amount may be prepaid in each calendar year without incurring a penalty. Monthly payments of principal and interest are $3,020 (CDN$3,908). Mr. Lawler has the option to purchase the property.

During fiscal 2002, the Company converted its mortgage with the related party lender in the initial amount of $211,115, as well as certain other loans advanced to the Company by this lender, to a secured convertible debenture in the amount of $650,000 bearing interest at a rate of 18% p.a. and secured by a third charge over the Company's two commercial properties, and a fixed and floating charge over all of the other assets of the Company, other than the residential property, including accounts receivable and investments. The loan is convertible into the Company's common shares at the rate of $0.40 per share until maturity, December 31, 2004. Interest on the debenture is accrued and payable monthly on the last day of each month until maturity, at which time principal and all accrued, unpaid interest shall be due and payable, unless the debenture has been converted to equity.

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During January, 2003 the Company negotiated a second mortgage on both commercial buildings with Access Mortgage Corporation Limited. The mortgage is in the principal sum of $386,350 (CDN $500,000), bearing interest at 1.50% per month. The loan is due on February 1, 2004, with interest payments of $5,795 (CDN $7,500) due on a monthly basis commencing March 1, 2003. An amount equal to one year of interest payments was held back from the proceeds of the loan to cover all required monthly interest payments. The Company paid brokerage fees of 5.35% to Arres Capital Inc., and lender fees of 1.25%. The Borrowers are the Company and Wall Street Real Estate Ltd. Security for the mortgage is as follows:

See "FINANCIAL STATEMENTS" below.

Oil and Gas Properties

Until May 15, 2003 when the property was sold with an effective date of March 31, 2003 Capital Canada held a 5% interest in six wells and a gathering facility in a producing oil and gas field known as Chestermere located in the Chestermere/Crossfield areas of the Province of Alberta, Canada. Compton Petroleum Corporation, a company located in Calgary, Alberta, Canada operates the property.

During the previous fiscal year ending December 31, 2002 there were five producing wells located on these properties that had sales totaling 39,715 bbls of oil, 60,570 BOE of gas and 3,145 bbls of other products. The average sales price per barrel of oil produced was $22.55 (CDN$35.54) and the average sale price for gas produced was $2.56 (CDN$4.03) per MCF. The average lifting cost per equivalent barrel of oil (gas volumes were converted to oil volumes assuming 6 MCF of gas equals 1 barrel of oil) during 2002 was $7.62 (CDN$12.01).

The cost of the acquisition of this field was $612,788 (CDN $900,000), which was paid by way of $204,263 (CDN$300,000) in cash and in 204,263 shares of common stock of the Company, at a deemed price of $2.00 per share. The cash payment was made from the draw down of $204,263 (CDN$300,000) from a stand-by operating line of credit at an annual interest rate of the Bank of Canada of prime rate plus 1% provided to Capital Canada by the Alberta Treasury Branches. The line of credit was secured by a floating charge debenture over all of Capital Canada's assets. The line of credit was renegotiated in September 2001, and again in May 2002, to a term loan with payments of $7,727 (CDN$10,000) per month. The Alberta Treasury Branches is an Agent of the Crown in right of the Province of Alberta, Canada and operates under the Alberta Treasury Branches Act, Statutes of Alberta, 1997. Under that Act, Alberta Treasury Branches was established as a provincial corporation. The property was disposed of on May 15, 2003 and the loan was retired.

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The Company owns interests in a producing oil and gas property in Washington County, Colorado and oil and gas leases in Montana though its wholly owned subsidiary, Capital Canada. These interests were acquired in June of 2003. Capital Canada's average monthly gain from this interest for fiscal year 2003 was $63. The Company did not hold the property in 2002 so there is no comparable. During fiscal year 2003, Capital Canada spent $6,959 on drilling of an exploratory well on the Montana leases and associated costs.

As at December 31, 2003 the Company holds a number of marketable and non-marketable securities that were acquired in various transactions.

As of December 31, 2003 the Company owns 306,101 common shares (16.2%) of Texas T Petroleum Ltd., a private oil and gas company. These securities are non-marketable. The Company has determined that this investment has a net realizable value of $48,838 as at December 31, 2003.

As of December 31, 2003 the Company owns 1,347,748 shares (6.2%) of Texas T Minerals Inc. a public reporting company trading on the Canadian TSX Venture Exchange which has been recorded on the financial statements with a value of $31,242 based on the quoted market price of the stock at that date.

During fiscal 2003 the Company received 174,988 shares of the common stock of Australian Oil and Gas Corporation (formerly Synergy Technologies Corporation) a reporting company trading on the OTC: BB in settlement of a bankruptcy claim for breach of a lease agreement. The shares have been recorded on the financial statements with a value of $13,521 based on the quoted market price of the stock at December 31, 2003

The Company's total combined investment in marketable and non-marketable securities as at December 31, 2003 is $93,601, after the elimination of the Company's shares held by Petroleum valued at $15,482.

In May 2003, the Company and its subsidiary Food and Culinary Technology Group Inc. ("FACT Group") were served with a verified complaint filed in the Superior Court of New Jersey in Monmouth County (docket # MON C-164-03) by Steven Schechter, Jennifer Flynn, Steven Capidocasa and F.A.C.T. Group LLC, a New Jersey limited liability company owned by the individual plaintiffs. The complaint sought various remedies including the return of the formulas on which FACT Group has created its functional food premixes. On August 14, 2003, FACT Corp. reached a settlement with the Plaintiffs in the legal matter pending in the Superior Court of the State of New Jersey. As a result of this settlement, the formulas to the pre-mixes and other intellectual property were immediately released to FACT Corp. The Class A common shares and the Class C common shares were returned by the plaintiffs. 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 on a per pound of product sold by FACT Group. FACT Group will pay a maximum of $233,333 in additional income to two of the plaintiffs over the next 3 and 1/2 years, the payments commenced on November 2003. The Plaintiffs will be prohibited from competing with FACT Group for 5 years, must keep all trade secrets confidential and provide training for FACT Group's new technical support personnel.

The written version of the settlement agreement has not yet been executed as the parties cannot agree on the terms of a non-compete for FACT Corp and its directors and officers should the technology be returned to F.A.C.T. Group LLC. A hearing date is expected to be set for April 2004 in the Superior Court of the State of New Jersey, whereat it is anticipated that the judge will make a final determination on this matter. It is expected that the parties will agree with the judge's determination and will execute a final settlement agreement, however, should any on of the parties not agree then they would have the right to appeal.

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1. The Company's common stock trades on the OTC/BB under the symbol "FCTOA". Following is a report of high and low bid prices for the last two fiscal years.

*These prices reflect the reverse split of the Company's stock on a four for one basis that took effect on August 6, 2003.

reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

OTC/BB prior to the filing of this report was April 8, 2004 at $1.06.

The shares listed in the table above shown as having been sold under the "Regulation S" exemption were sold in compliance with the exemption from the registration requirements found in Rules 901 through 903 of Regulation S promulgated by the Securities and Exchange Commission under the Securities Act of 1933. These shares were issued in offshore transactions since the offerees were not in the United States and the purchasers were outside the United States at the time of the purchase. Moreover, there were no directed selling efforts of any kind made in the United States. All documents used in connection with the offers and sales of the securities offshore included statements to the effect that the securities have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States or to U.S. persons unless the securities are registered under the Act or an exemption therefrom is available and that no hedging transactions involving those securities may not be conducted unless in compliance with the Act. Each offshore subscriber certified that he or it is not a U.S. person and is not acquiring the securities for the account or benefit of any U.S. person and agreed to resell such securities only in accordance with the provisions of Regulation S, pursuant to registration under the Act or pursuant to an available exemption from registration. The shares sold are restricted securities and the certificates representing these shares have been affixed with a standard restrictive legend, which states that the securities cannot be sold without registration under the Securities Act of 1933 or an exemption therefrom and the Company is required to refuse to register any transfer that does not comply with such requirements.

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1. 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 premix, rental income and negligible 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. The Company will require approximately $3,085,000 to cover its anticipated overhead and operational needs for the upcoming twelve-month period (excluding oil and gas operations). Revenues generated from operations (excluding oil and gas operations and real estate operations) are expected to contribute $3,026,000 in gross revenues and offset operational overhead by approximately $904,800. The Company anticipates the sale of both of its commercial real estate properties during the first 9 months of fiscal 2004, and therefore has not included potential revenues generated from these properties to offset overhead expenditures in its forecast. However, operational overhead related to the real estate operations has been included in our calculation of forecasted expenditures. While the Company has projected gross revenues from its food operations of approximately $3,026,000 over the upcoming twelve months, such projections are subject to numerous factors that are beyond our control. Projected operational costs and overhead of $3,085,000 include $2,035,000 for inventory and premix costs associated with the Company's functional foods business, $85,000 associated with costs and inventory associated with the sale of our branded non-dairy whipped topping, $125,000 in start up costs for our "at-home" line of premixes and snack bars intended to be sold over the Internet and $840,000 in general operating expenses relating to the Company and all of its existing subsidiaries. The Company may be required to raise up $500,000 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, or that proceeds will be derived from the sale of its commercial real estate properties. The Company entered into a purchase agreement for one of its commercial properties prior to the end of fiscal 2003, with an anticipated closing date of May 31, 2004, however, completion of the sale of this property is conditional upon the building being fully leased at the time of the closing. Presently the commercial property has a 21% vacancy rate. The Company has also listed one of two condominium units comprising its second commercial property for sale at an asking price of $459,756. While there is no certainty the Company will conclude the sale of either property, funds contributed from either sale would substantially meet any shortfall in general operating expenses. The Company may alternatively be required to identify additional sources for financing, and also intends to contact investors that have previously provided funds to the Company.

The Company's budget of $840,000 in general operating expenses includes the expenditure of approximately $243,260 over the next twelve months on ongoing product refinement, technical support, the development of second and third generation functional formulations, advertising and marketing and the start-up of its "at-home" internet sales program, including amounts 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 2004.

Included in the cash requirements noted above of $3,085,000 over the next twelve months is an amount of $717,300 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, 2003, the Company has funded a total of $737,239 (net of associated interest charges) to FACT Group in respect of its ongoing operational expenses. An additional $23,500 has been funded to the filing date of this report.

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 Company is currently assessing strategic 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.

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

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:

The Company is currently in the process of completing the spin off of its operating oil and gas subsidiary, Capital Canada. Revenues currently generated from these operations are negligible and do not impact the Company's primary revenue stream in a significant manner. Therefore, an assessment of external factors have not been included in this discussion.

Until such time as the Company can successfully divest its real estate assets, a portion of our operations and revenue stream is derived from leasing activities which generate rental income. Such operations may be affected by a number of external factors including:

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The Company has made equity investments in a public reporting Alberta corporation and its private subsidiary, and has received securities in a second public reporting corporation as a settlement from one of its former creditors. 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 corporations in which the Company has invested to continue to operate their businesses and achieve successful operations, and factors affecting the business environment of the corporations in which the Company is invested.

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.

The Company is a development stage company with its primary operations in the food industry, however, we continue to operate our commercial real estate properties, and also have negligible operations in the oil and gas industry. The Company also holds certain equity investments in two public reporting corporations and one private corporation. With the acquisition of FACT Group as a wholly owned subsidiary in November 2001, FACT determined to re-focus its operations on one industry sector, the functional foods arena, and determined to divest the balance of these assets in favor of developing its functional foods business. The Company intends to proceed with the divestiture of each of these assets immediately upon reaching satisfactory agreements for sale, the intent being a recovery of or a gain on the initial investment.

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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, the U.S. functional foods market was estimated at $17.6 billion, with a 10% annual growth rate.

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 actively seek to include these products in their daily diets. We believe that the key is to offer consumers these 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 and cakes.

These 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. Use of FACT Group's proprietary premixes enables manufacturers to address numerous health conditions, which face the North American consumer, including the following concerns:

FACT Group estimates that a large number, perhaps as many as 60 million Americans, actively follow a specific dietary regimen at any time; that over 40 million Americans who suffer from some form of chronic digestive disorder; that 2 of every 5 Americans have high cholesterol; and that over 16 million Americans are diagnosed diabetics. Recent studies have indicated that obesity rivals heart disease as the number one cause of death in the United States. 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, 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 customers to position new functional products to suit their current market positioning, generate line extensions or create entirely new product lines with functional benefits.

FACT Group has also 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, FACT Group has developed a variety of snack bars using its functional premixes, as well as a line of "at-home" retail sized bakery mixes to be sold directly to the consumer via alternative channels such as the internet.

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FACT Group has made application to trademark its own symbol for brand recognition, Healthy Lifestyle™. FACT Group intends to use this trademark not only for its line of premixes available to manufacturers, but also on its own line of "at-home" products for sales directly to the consumer. Ultimately FACT Group intends its trademark to 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.

FACT Group is currently marketing and selling its functional premixes for breads, pizza crust, bagels, pasta and sweet goods products to various manufactures and a major bakery ingredient distributor. FACT's revenue stream is presently dependent on one key customer which accounts for approximately 85% of the Company's total annual 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, microwaveable formulations and new product formats.

The Company anticipates it will achieve gross sales of approximately $2.9 million in fiscal 2004 from the sale of premix to existing and new customers across its various product categories.

Presently the Company is seeking to raise additional equity or debt capital of up to $500,000, proceeds from which will be used to fund the operations of FACT Group including its plans to launch a line of its own retail snack bars and "at-home" bakery mixes via the internet. As at the date of this report the Company does not have commitments to provide these funds. The Company may realize funds during the current fiscal year to assist with its ongoing operations through the sale of certain real estate assets and marketable securities targeted for divestiture. Should FACT Group achieve its forecasted sales of $2.9 million in fiscal 2004, it may not require additional funding for its operations. Additionally, successfully achieving our sales targets should provide for profitability by the end of fiscal 2004. 

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, reduced 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 two independent blending facilities located in New York state, to blend the dry ingredients forming our premix. Agreements with the blending facilities allow 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 enter into private labeling agreements during fiscal 2004 for its line of ready-to-eat snack bars.

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 increasing interest in controlled carbohydrate offerings. FACT Group's premixes for bread and bread-based products offer a solution for manufacturers in the bread industry. FACT Group's line of bread products are reduced in digestible carbohydrates and high in fiber, making them suitable for controlled carbohydrate diets, as well as other diet conscious consumers.

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The U.S. market in dry pasta sales are approximately $2.25 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 of late which is believed to be associated with the growing trend towards "reduced carb" product offerings.

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.

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, pancakes and waffles.

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 lower carbohydrate/high fiber individual products in the convenience store and vending channels. Another set of potential customers are focusing on the weight management aspect of portion controlled units that allow dieters to control calories and reduced carbohydrate/high fiber benefits while still enjoying full flavored taste. FACT has 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 will be its first product offering in this segment.

With the rapidly growing market trend towards reduced carbohydrate products, and a desire by the consumer to return to the kitchen, at-home retail sized mixes in this category are seeing substantial growth. Additionally, the health conscious consumer is motivated to actively seek out products to suit their dietary needs. FACT intends to take advantage of this attractive opportunity in fiscal 2004 by launching its own line of "at-home" retail mixes under its Healthy Lifestyle™ brand name. Product offerings are expected to include brownies, dough mix for bread, pizza and roll applications, cookies, cakes and muffins.

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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 are available in four flavors including vanilla, chocolate, strawberry and mocha, and do not require refrigeration to stay fresh. The Company has received its first purchase orders from an East Coast retail supermarket chain and will commence distributing this product line in mid-2004. The product will be sold in cases and in multi-pack shippers. The Company hopes this product line will provide an additional revenue stream to offset current operational shortfalls.

The Company's near term goals include a focus on the ongoing operation of our functional foods business. FACT Group intends to establish a 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 improved sales of its premixes during fiscal 2004, as well as increased product diversification in the marketplace. Additionally, the Company intends the launch of its own line of retail "at-home" mixes and snack bars to help establish recognition for our master brand, "Healthy Lifestyle™". We are already in the process of establishing an e-commerce website to market and distribute these products on-line.

The Company also intends to conclude the divestiture of its other assets in order to focus entirely on the operations of its foods businesses. The Company established a test kitchen in Freehold, New Jersey in fiscal 2003 for the purpose of ongoing development of new functional formulations and products, which we will continue to use as our primary operational location. 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 achieving profitability during fiscal 2004.

Presently the Company is in negotiation with several additional clients for the supply and licensing of our functional premixes for breads, bagels, pasta and a variety of sweet baked goods, as well as our line of snack bars and private label opportunities for our direct to consumer retail mixes. The Company intends to finalize these negotiations throughout fiscal 2004.

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

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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 sales, additional debt and/or equity financing, or conventional credit arrangements with major banking institutions.

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.

The Company expects it will complete the spin off of its operational oil and gas subsidiary during the first half of fiscal 2004. We are currently awaiting final SEC approval for the finalization of this transaction. Additionally, the Company does not intend it will generate substantial revenues from its real estate operations during this current fiscal year. Our mandate calls for the divestiture of these properties as soon as is practicable, which will allow the Company to greatly streamline its operations, will provide additional funds for ongoing working capital and the settlement of certain outstanding debts. The Company expects to focus on increasing the revenue stream generated by the supply and licensing of its functional food premixes and products to various clients.

The Company will seek to raise approximately $500,000 dollars in the form of debt and/or equity financing in the near term to assist with growth objectives should the purchase agreement currently in place with respect to one of its commercial properties not close as anticipated at the end of May, 2004. We will continue to look to divest those 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 2004. There is no assurance that the Company will be successful in raising this amount of capital or meeting its anticipated operational goals.

24

due to the litigation. Associated administrative expenses remained relatively constant over the comparative periods, from $472,340 (2002) (cash expenses and expenses settled by the issuance of shares) to $441,304 (2003).

In fiscal 2003 there was a non-recurring, non-operating expense totaling $48,191 compared to $287,490 for fiscal 2002 reflecting a decline in the value of assets held by a private corporation in which the Company holds an interest.

Other income and expenses reflect a substantial increase in interest expenses from $192,952 (2002) to $369,778 (2003). Interest expenses and fees increased in 2003 as the Company obtained funds to meet the shortfall from its operations through conventional mortgages and loans from private investors. Fiscal 2002 expenses also include a loan fee incurred of $39,093. There was no similar expense incurred during fiscal 2003. Other income increased substantially during the comparative periods due to receipt of a non-refundable deposit of $35,815 with respect to a purchase agreement for the sale of one of the Company's commercial properties, which did not close during fiscal 2003. With respect to the disposal of substantially all of the Company's operating oil and gas assets in fiscal 2003, the Company recorded a gain of $27,803 in fiscal 2003, as compared to a loss of $4,650 in fiscal 2002.

Net losses for the two completed fiscal years were $1,004,274 (2003) and $1,632,272 (2002) respectively,

As of December 31, 2003, the Company had negative working capital of $1,259,137 and Stockholders' Equity of $146,790 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 accumulation to current liabilities of additional short term loans. Stockholders' Equity declined predominantly as a result of the operating losses for the year. 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.

The Company anticipates it will require approximately $500,000 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 2004, 2005 and 2006 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 2003 the Company's primary sources of working capital have come from revenues generated from our functional foods business, the sale of our certain of our oil and gas properties, revenues generated by our commercial rental properties and the net proceeds from:

As noted above, 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.

25

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 December 31, 2003 Capital Canada is in debt to the Company in the amount of $664,288, 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 anticipated this transaction would close during fiscal 2003, however as at the date of this report the transaction still remains subject to SEC approval of the 20-F registration statement. Should the registration statement not be deemed effect by May 30, 2004, the Company has determined to divest itself of Capital Canada to its shareholders and 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.

Pursuant to a settlement agreement entered into between FACT LLC and Steven Schechter, Jennifer Flynn and Steven Capidocasa, FACT Group has an obligation to pay a total of $2,000,000 in royalty payments over 10 years and the amount of up to $233,333 in salary compensation to Flynn and Schechter.

26

INDEX TO FINANCIAL STATEMENTS

FACT CORPORATION

FINANCIAL STATEMENTS

with

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

F-1 

Fact Corporation

We have audited the accompanying consolidated balance sheets of Fact Corporation as of December 31, 2003 and December 31, 2002, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years ended December 31, 2003 and December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentations. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Fact Corporation as of December 31, 2003 and December 31, 2002 and the consolidated results of its operations, stockholders' equity, and its cash flows for the years ended December 31, 2003 and December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 1, the Company has limited working capital and continued operating losses, which raise substantial doubts about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Miller and McCollom

MILLER AND MCCOLLOM
Certified Public Accountants
4350 Wadsworth Boulevard, Suite 300
Wheat Ridge, Colorado 80033 

April 12, 2004

F-2

The accompanying notes are an integral part of these audited financial statements.

F-3

The accompanying notes are an integral part of these audited financial statements.

F-4

The accompanying notes are an integral part of these audited financial statements.

F-5

The accompanying notes are an integral part of these audited financial statements.

F-6 to F-7

The accompanying notes are an integral part of these audited financial statements.

F-9

FACT Corporation
Notes to Financial Statements
Years Ended December 31, 2003 and 2002

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.

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.

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 9^th Avenue S.E., Calgary, Alberta, Canada.

As of December 31, 2003, the Company has four wholly owned subsidiaries, Capital Canada, 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.

Oil and Gas Activities During the year, the Company disposed of its oil and gas assets located in Alberta, Canada. The Company currently owns interests in development leases located in Colorado and Montana, United States.

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. The majority of revenues for the current fiscal year were derived from these ongoing operations in the food industry. The Company continues to pursue further commercial supply and licensing contracts for its existing line of functional food formulations, premixes and products.

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.

F-10

The consolidated financial statements for 2003 and 2002 include the Company and its wholly owned subsidiaries, Capital Canada, WSIC, FACT, WSRE and FACT Products Inc. All significant inter-company accounts and transactions have been eliminated.

Substantially all of the Company's exploration and development activities related to oil and gas are conducted jointly with others and accordingly the consolidated financial statements reflect only the Company's proportionate ownership interest in such activities.

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

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 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.

The company's inventory consists of functional premix food products and is valued at the lesser of cost or net realizable value using the average cost method.

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.

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.

F-11

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.

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. Rental income from real estate properties is recognized on a monthly basis in accordance with lease provisions unless the Company determines that collection is unlikely. The Company recognizes oil and gas sales upon delivery to the purchaser using the sales method.  

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

The Company expenses advertising costs as incurred and the total amounts for 2003 and 2002 were minimal.

The Company paid no dividends in 2003 or 2002.

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

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.

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 a purchase that is valued at $0.65 per share or $1,350,000, consisting principally of certain intellectual property, formulas, patent rights and other intangible assets. The excess of the amounts paid, over the fair value of the net assets acquired (which were nominal), is allocated to the intangible assets of $1,350,000. Since 60% of the FACT common stock acquired was from a related party, who had no verifiable historical cost for their shares, the portion of the intangible assets acquired attributable to the related party of $810,000 has not been included in the accompanying balance sheet. The remaining portion, $540,000 is attributable to parties who were not related parties. Management believes that the amount allocated to intangible assets represents fair value of the assets acquired. The per share value attributed to the Class C common shares is $0.65 per share, which is the same as the market price of the Class A shares on the date of acquisition.

F-12

The 2,000,000 shares of the Company's Class C common stock that it issued on November 20, 2001, to acquire all of the shares of FACT, are convertible into a total of 12,000,000 shares of the Company's Class A common stock. 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. As of March 31, 2004, such shares have not physically been issued by the Company's transfer agent but it is anticipated that such issuances will be completed prior to April 30, 2004.

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:

1. FACT is obligated to make minimum royalty payments each year. In year 2004, the minimum amount of royalty payments to be paid is $35,000. For each subsequent year, the minimum amount increases by 30% Amounts for the next 10 years are as follows:

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.

F-13

The following schedule provides an analysis of the Company's investment in real property as of December 31:

The following is a schedule by years of minimum future rentals on non-cancelable operating leases as of December 31, 2003. The leases also contain provisions that allow the Company to reclaim operating costs.

Costs expected to be recoverable from future rental operations, including building improvements, are capitalized. Costs that can be attributable to the term of a lease are amortized over the term of the lease using the straight-line method. All other capitalized costs are amortized over their expected useful life using the straight-line method.

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".

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.

F-14

As of December 31, 2003, the Company owns 1,347,748 shares of Resources, which has been recorded at $31,242 based on the quoted market price of the stock at that date.

As of December 31, 2003, the Company owns 306,101 common shares of Petroleum valued at $48,838, after elimination of the Company's shares held by Petroleum. As an investment in a nonmarketable security, the Company accounts for this investment using the equity method.

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, 2003, the Company owns 174,988 shares of Australian Oil and Gas which has been recorded at $13,521 based on the quoted market price of the stock at that date.

Sale of producing lease in Alberta, Canada:

During the year 2000, the Company and its subsidiary, Capital Canada, acquired a 5% interest in a producing oil and gas field in the Crossfield Area of Alberta, Canada that included four wells and a gathering facility. The recorded book value for this asset as at the fiscal year ended December 31, 2002 was $76,919.. On May 16, 2003, the Company's subsidiary, Capital Reserve Canada Limited, entered into an agreement with Hornet Energy Ltd., the operator, for the disposal of these producing oil and gas leases. Consideration received totaled $152,099 CDN (US$111,923), plus the forgiveness of certain outstanding operating expenses. Because the sale included all of the oil and gas properties owned by the Company, all capitalized costs (full-cost pool) were reduced to zero and the Company recorded a gain of $27,804 in respect of the sale of this asset.

Acquisition of exploration leases in Montana and a producing property in Colorado:

During fiscal 2002 the Company agreed to divest certain development leases located in Rosebud and Garfield counties, Montana to Terra Nostra Resources Ltd, a publicly traded corporation, in consideration of 40,000 shares of Terra Nostra and a commitment to drill a well on the leases during the summer of 2003. In the event Terra Nostra determined not to drill the well as agreed, then the leases would revert back to the Company and the shares of Terra Nostra would be returned. On June 10, 2003, the Company, Terra Nostra and Capital Reserve Canada Limited entered into an agreement whereby Capital Reserve Canada Limited acquired the Montana leases, and certain small producing leases in Colorado in consideration of the amount of $10,000, which Capital Canada agreed to pay to the Company. The acquisition price of $10,000 has been eliminated as an inter-company transaction.

During the year Capital Canada expended a total of $6,959 for the drilling of an exploration well and associated costs with respect to the Montana leases discussed above, which amount is capitalized on the balance sheet. The well was a dry hole, however, the information gathered from well drilled was not adequate for Capital Canada to conclude their assessment of the Montana property and the property is classified as unevaluated. Capital Canada still holds an interest in certain of the Montana leases, as well as the producing Colorado lease and will be reviewing other potential drilling opportunities on these leases. The Company has also recorded a future site allowance with respect to the Colorado leases in the amount of $3,067, in accordance with SFAS 143.

F-15

The Company has elected to follow the full cost method of accounting for its oil & gas activities. Accordingly, all costs associated with the acquisition, exploration, and development of oil and gas reserves, including directly related overhead costs, are capitalized.

All capitalized costs of oil and gas properties, including estimated future costs to develop proved reserves, are depleted on the unit of production method using estimates of proved reserves. Investments in unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment of unproved properties indicate that they are impaired, the amount of the impairment is added to the capitalized costs to be amortized.

In addition, the capitalized costs are subject to a "ceiling test", which basically limits such costs to the aggregate of the "estimated present value" discounted at a 10 percent interest rate of future net revenues from proved reserves based on current economic and operating conditions, plus the lower of cost or fair market value of unproved properties

Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in income. Abandonment of properties are accounted for as adjustments of capitalized costs with no loss recognized.

Capitalized leasehold costs by geographic areas are as follows:

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

The above loan is unsecured with no specific terms of repayment.

Loans payable to related parties included in Long Term Liabilities includes an amount due of $653,971 which is secured by 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 $1.60 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 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 $4.00 for a ten (10) day 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.

During the year, the Company issued 1,386,781shares of its Class A common stock at an average price of $0.27 per share in settlement of loans from related parties totaling $374,431.

F-16

Note 7 - Loans Payable

The Company's subsidiary, Wall Street Real Estate Ltd., has a loan of $356,987 (CDN$462,000), payable on demand with the ATB. The loan is secured by a mortgage on real estate located at 1528-1530, 9^th Avenue S.E., Calgary, Alberta, Canada and bears interest at the Prime Lending rate of the ATB (4.5% as of December 31, 2003) plus 2%, payable on the last day of each month. Monthly payments total $3,014 (CDN$3,900). The loan had a balance outstanding of $339,773 as at December 31, 2003.

The Company has a loan of $386,350 (CDN$500,000) with Access Mortgage Corporation Limited which becomes due and payable on February 1, 2004. The loan is secured by a second mortgage on the real estate located at 1528-1530, 9^th Avenue S.E., Calgary, Alberta, Canada and bears 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. Presently an amount totaling $5,795 is included on the Company's balance sheet as a prepaid deposit. Subsequent to year end 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 $397,940 (CAD$515,000). Proceeds from the new loan were used to retire the original loan in full.

During the year, the Company issued 120,000 shares of its Class A common stock at an average price of $0.27 per share in settlement of loans from unrelated parties totaling $32,400.

Note 8 - Long-Term Debt

The Company has a real estate mortgage on the commercial property located at 335 25^th 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. Monthly payments of principal and interest are $12,138 (CDN$15,709). As of December 31, 2003 the mortgage balance was $1,082,872 (CDN$1,401,414).

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. On May 1, 2005, the mortgage can either be repaid or renewed with the interest rate converted to the then prevailing rate. Monthly payments of principal and interest are $3,020 (CDN$3,908). Refer to Note 16 - Consulting Agreement (Related party). As of December 31, 2003 the mortgage balance was $390,514 (CDN$505,389).

Maturities for long-term debt after December 31, 20032 are as follows:

During the year ended December 31, 2003, the Company issued the following shares in settlement of certain debts to unrelated third parties:

F-17

During the year ended December 31, 2003 the Company issued shares to various related parties to settle outstanding debts for services rendered and outstanding accounts payable as follows:

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.

The following is a table of outstanding options and changes during 2003 and 2002:

All options are immediately vested. There were no options granted under the 2003 Plan as of the date of this report.

F-18 

Options granted consist of: