UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
R
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2007
£
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ______________
Commission File Number 000-17232
FACT CORPORATION
(Name of small business issuer in its charter)
COLORADO | 84-0888594 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1530-9th Ave S.E., Calgary, Alberta Canada | T2G0T7 |
(Address of principal executive offices) | (Zip Code) |
Issuer’s telephone number (403) 693-8000
Securities registered under Section 12(b) of the Exchange Act:
Title of each class | Name of each exchange on which registered | ||
None | None |
Securities registered under Section 12(g) of the Exchange Act:
Class A Common Shares |
(Title of Class) |
Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act £
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No £
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [x]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes £ No [x]
State issuer's net revenues for its most recent fiscal year:
$3,476,565
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act):
Aggregate market value of voting and non-voting common equity held by non-affiliates is $2,382,232 based on a price of $0.30 per share which is the last price at which common equity was sold on April 9, 2008.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes £ No £
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:
As of April 9, 2008, the Issuer had a total of 17,154,406 shares of Class A common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB (e.g. Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1990).
Transitional Small Business Disclosure Format (Check one): _________Yes
__________No
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ITEM 1.
DESCRIPTION OF BUSINESS.
(a)
FACT Corporation was incorporated under the laws of the State of Colorado on August 3, 1982 and is referred to herein as either "FACT", "the Company", "we", "us" or "our". FACT 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.
The Company predominantly operates in the functional food industry through its wholly owned subsidiary, Food and Culinary Technology Group Inc., (“FACT Group”) developing, licensing and supplying turnkey functional bake mixes to customers who manufacture, distribute, and market bakery and pasta products to consumers through a variety of conventional and alternative channels including retail, food service and specialty markets.
The Company’s primary revenue stream is generated by the sale of these functional bake mixes in a wholesale format. The Company has also developed a line of home-use retail baking mixes under its Nutrition First™ brand for cookies, brownies and other products. During fiscal year 2005, the Company commenced a test market for its home-use line of products via an online internet store at www.eatwellstaywell.net. Due to insufficient funds, the Company was unable to continue with marketing and advertising efforts as proposed, and the site was discontinued.
FACT Group has a wholly owned subsidiary, FACT Products Inc., which was incorporated in the State of Nevada on November 5, 2001, as FACT Bread Company, Inc. Presently FACT Products, Inc. has the rights to a line of non-dairy whipped toppings marketed as “Aunt Lydia’s Italian crèmes”, however, due to problems with the product, FACT Products has discontinued operations and the Company determined that it would spin-off this subsidiary by way of a dividend to the shareholders of the Company whereby each shareholder of the Company would receive one share of FACT Products Inc. for every five shares of the Company with a record date for the spin-off of the shares of January 10, 2007. The Company had intended to complete the spin-off during fiscal 2007, however this did not occur. The Company intends to complete the spin-off prior to the close of fiscal year 2008.
As of the date of this filing, the Company has three (3) wholly-owned subsidiaries, Wall Street Investment Corp. ("WSIC"), Wall Street Real Estate Ltd., (“Wall Street”), and FACT Group. WSIC currently has no business operations. The Company had intended to dissolve or divest WSIC during the fiscal year 2007, however, this did not occur and is now planned for completion in fiscal year 2008. Wall Street was incorporated in the Province of Alberta, Canada on July 23, 2002 for the purpose of holding commercial real estate assets. During fiscal year 2005 Wall Street disposed of all of its assets and the Company had intended to pursue a divestiture of this subsidiary during fiscal year 2007, however this divestiture did not occur. The Company intends to complete this divestiture during fiscal 2008.
As the Company is a U.S. corporation, all dollar amounts used herein refer to U.S. dollars unless otherwise stated.
(b)
Business of Issuer
Current Operations
The Company presently undertakes all of its business operations indirectly through its wholly-owned subsidiaries. These operations consist of the sale of bake mixes and other food products to commercial customers. The Company continues to hold a passive investment in a public corporation which is a former subsidiary of the Company. The Company continues to divest this investment as the market allows, and intends to have all divestitures complete by the close of fiscal year 2008. As at the close of fiscal 2007 the Company’s ownership in this public corporation was reduced to 8,042 shares of common stock with a market value of $322. The sole focus of the Company's business is presently its operations in the functional foods industry. A discussion of the Company's current business operations is provided below.
Functional Food Business
Through a share exchange agreement between the Company and the shareholders of FACT Group, executed in November 2001, the Company issued a total of 2,000,000 shares of its Class C common stock in consideration for all of the issued and outstanding shares of FACT Group, a company intending on operating in the functional food
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business. The acquisition included certain proprietary formulas for functional dough and batter based products. The acquisition of FACT Group required that the formulations be held in escrow contingent upon the Company providing capitalization to FACT Group in the amount of $3 million and the payment of $2 million in royalties to certain of the shareholders of FACT Group. As a result of a settlement of a dispute with such certain shareholders (the “Plaintiffs”), the formulas to the premixes and other intellectual property have been released to the Company, the requirement for funding of $3 million was discontinued, and the Plaintiffs returned all of their Class A common shares and their Class C common shares to the Company. Certain amounts due to the Plaintiffs for services rendered were forgiven. The purchase price for the intellectual property remains at $2 million, to be paid in the form of royalties based on pounds of product sold by FACT Group. FACT Group is obligated to pay the following minimum annual royalty payments:
2008 – $ 99,963
2009 – $129,953
2010 – $168,938
2011 – $219,620
2012 – $285,506
2013 - all remaining royalties become due and payable as one balloon payment.
As part of the settlement of the dispute noted above, FACT Group also agreed to pay a maximum of $233,333 in additional income to two (2) of the Plaintiffs calculated on a monthly basis from September 1, 2003 through December 31, 2006 and payable from November 1, 2003 to February 28, 2007. As at the end of the 2007 fiscal year, the total amount paid to the Plaintiffs totaled $177,686, with no further obligation. As additional terms of the settlement, the Plaintiffs were prohibited from competing with FACT Group for five (5) years, must keep all trade secrets confidential and were required to provide training for FACT Group's new technical support personnel. The non-compete will expire in August 2008.
FACT Group holds the rights to certain formulations for the production of dough and batter-based functional food products ranging from breads, bagels, pastas, and pizza shells, to sweet baked goods, snack bars and confectionery, as well as other foods derived from a dough, batter or mix. Commercial sales of premix commenced in November 2002. Presently, FACT Group sells its Nutrition First™ premixes and products to manufacturers, distributors and food service clients, who incorporate the premix into finished products to market and sell to the end consumer under their own retail brand/label, paying FACT Group a fee for each pound of premix purchased. FACT Group’s premixes enable customers to make claims on their end products pertaining to a variety of market positions including a reduction in refined carbohydrates, increased fiber, low or no sugar, organic and all-natural positioning, weight management benefits, and other tangible benefits. FACT Group also entered into a licensing agreement with a North American bakery ingredient distributor that sells products containing FACT Group’s premixes under its own brand name. FACT Group receives a royalty for each pound of premix sold by such distributor. FACT Group is currently in negotiations with a number of potential new customers for the supply of functional premixes across various other product channels including donuts, brownies, muffins, waffles and other sweet goods products. The Company also hopes to conclude agreements in fiscal year 2008 to market new products in alternative channels including major chain grocery, drug stores and club outlets. FACT Group is also pursuing other methods to increase sales and distribution of its line of premixes and finished products. In January 2005, FACT Group launched an online store at www.eatwellstaywell.net where the consumer could directly purchase home-use versions of some of the more popular commercial bake mixes, including brownies, cookies, an all-purpose bake mix and other products. This line of retail size mixes was also marketed under the Company’s Nutrition First™ brand. The Company discontinued its retail distribution and the online store during fiscal year 2005 due to insufficient funding to launch the proposed marketing campaign and to maintain the costs of the inventory and the online website. FACT Group will look to revisit private label or branded retail or internet sales opportunities in fiscal 2008. FACT Group will also continue to pursue additional premix licensing agreements with large suppliers to the bakery industry during the current fiscal year. FACT Group has secured arrangements with two independent blending facilities in New Jersey and New York for the preparation of premix for use in end consumer products. Fiscal year 2008 plans include expanding the Company’s commercial premix distribution base, seeking alternate channels to introduce the Company’s product lines, a review of internet and private label sales opportunities, and potential merger and acquisition opportunities with complementary organizations operating in the functional foods segment.
Functional foods can be described as foods designed to deliver specific health benefits to the consumer, and whose inherent health benefits go beyond basic nutrition, including the prevention of disease and the promotion of wellness through nutrition. FACT Group’s vision is to be a competitive supplier of nutrition solutions to commercial customers so they can create food products with added health benefits, positioned as healthy alternative foods to
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serve as part of the North American consumer's everyday diet. FACT Group intends to become a leader in product development and a key ingredient/premix supplier to the functional foods industry. Primary areas of focus are consumers with the following concerns: diabetes, carbohydrate control, glucose management, weight management, heart disease and digestive health (increased fiber).
FACT Group formulations are not patented, but are trade secrets, as is common in the food industry, and will remain proprietary by way of stringent non-disclosure and confidentiality agreements executed with the blending facilities. Customers also execute confidentiality agreements and are serviced under premix supply agreements which do not allow access to FACT Group’s premix formulations in their entirety. FACT Group does not require any governmental approval for its existing line of products, and is currently in the process of trademarking its master brand “Nutrition First™”.
Sales from the premixes and other complementary products in 2007 accounted for ninety-eight (98%) of the Company’s total revenues. While the Company’s revenues are increasing and it is nearing profitability, the Company still reported losses at the close of fiscal 2007. The Company believes 2008 will be its first profitable year of operations. Current year losses are predominantly the result of amortization expenses relating to its intellectual property, interest expenses relating to credit facilities and loans and legal costs relating to certain ongoing ligation. The Company no longer considers its investment in FACT Group an investment in a developing business. FACT Group has a proven track record of year over year revenue since the close of fiscal year 2002, and expects to continue to see increasing revenue growth. FACT Group’s ability to continue to execute its business plan and achieve profitable operations will be impacted by numerous factors including the following: maintenance of existing customers and acquisition of new customers through supply and licensing agreements; acceptance of the Company’s customers’ end products by the retail consumer; acceptance of the Company’s branded products by the retail consumer; access to sufficient amounts of key ingredients for uninterrupted supply of the Company’s premixes to customers; protection of the Company’s proprietary formulations and continuing development of new commercial formulations; the onset of competitive products in the retail marketplace and ongoing financing to meet operational overhead until such time as FACT Group can consistently achieve sufficient sales to meet ongoing expenses and growth initiatives.
Competitive Business Conditions and the Company’s Competitive Position in the Industry
FACT Group is presently operating in an emerging growth industry which experienced a rush of new competitors to the marketplace in fiscal years 2003 and 2004. During 2004 and early 2005, the competitive landscape was further impacted with the failure of several of these emerging enterprises which, having entered the marketplace quickly, over-saturated the market with numerous line extensions and new product offerings, only to suffer poor consumer acceptance levels, resulting in diminished sales and ultimately, product failure. This phenomenon also extended to several larger, well established food companies that, in an effort to secure profitable segments of the market with rapid product introductions, experienced poor consumer take-off at the retail grocery level, resulting in a withdrawal of newly launched items. Additionally, various larger and smaller food companies with sales dependent on traditional bakery goods were adversely impacted by the quick introduction and rapid expansion of functional bakery products, in particular the “low carb” segment of this functional market, resulting in more commercial product failures, dramatic sales declines and overall instability in the bakery segment of the food industry. Larger food conglomerates entered the functional arena in late fiscal year 2004 and early fiscal year 2005 marketing products to cater to the mainstream interests of the consumer including increased fiber and reduced sugar product offerings. This foray into the industry has been particularly successful and is continuing to see good consumer response and more diverse product offerings focused on high fiber, use of functional fibers and single-serve ready to eat product offerings. The Company believes this market has now progressed to a more stable operating environment, and that its unique collection of product offerings will have enhanced sales potential now that the market has settled and consumer demands and preferences have been assessed and successful niches of the market clearly identified.
While direct competitors with FACT Group are limited, the Company considers bakery ingredient suppliers offering high fiber, or low glycemic bakery premixes, as well as premixes designed to offer a reduction in refined carbohydrates which can be incorporated into end-products and marketed to manufacturers, food service and quick-serve restaurants, direct competitors. Now that FACT Group has also developed its own line of home-use baking mixes, competition will also exist from other branded and private label bakery mixes targeting the weight loss, glucose management and fiber enhancement segments of the market.
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However, the segment of the functional foods industry in which the Company is operating, breads, grains and baked goods, accounts for approximately forty percent (40%) of total sales in the Company’s segment of the food industry, allowing room for a vast competitive landscape. Total food product and other sales across the U.S. nutrition market totaled $69 billion in 2005, leaving FACT Group ample opportunity to secure a profitable segment of the market share. Presently the Company estimates there are between (10) and fifteen (15) like organizations (excluding large food conglomerates that provide products catering to the fringe of the functional market) providing the industry products which may be considered similar to those marketed by FACT Group. Many of these companies are much larger and better financed than FACT Group.
Sources and Availability of Raw Materials and the Names of Principal Suppliers
FACT Group relies on the supply of several key ingredients from large food grade ingredient manufacturers, such as ADM and Sensus America, in order to supply the Company’s customers with its line of premixes and products. While FACT Group has entered into supply agreements with certain of these suppliers, the Company does not have volume agreements in place with respect to all of its key ingredients. Should there be a shortage of raw ingredients or sizeable fluctuation in commodity pricing, FACT Group may not be able to adequately service its existing or future customers. FACT Group is constantly evaluating its formulations to ensure it has alternatives to these key ingredients in order to avoid any unexpected ingredient supply issues. Additionally, during fiscal year 2008, should sales volumes warrant expansion, FACT intends to investigate possible commodity hedging opportunities to further secure its profitability during times of unstable commodity prices for certain key components of its commercial formulations.
Dependence On One or a Few Major Customers
FACT Group’s revenues for fiscal years 2006, 2007 and to the date of this report rely heavily on sales made to two (2) key customers: Western Bagel Baking Corporation of Van Nuys, California and Prince Donuts Inc. of Linden, NY. Together these two (2) customers accounted for approximately ninety eight per cent (99%) of premix sales to the end of fiscal year 2007 and 2006. As at the date of this report, FACT Group is actively working to successfully close additional client accounts that should assist in better diversifying our revenue base. It is anticipated that until such time as FACT Group establishes a more diverse range of products in the marketplace, it will remain reliant on a small number of key customers to drive sales.
Amount of Time Spent During Each of the Last Two Fiscal Years on Research and Development Activities and if Applicable the Extent to which the Cost of Such Activities are Borne by Customers
During the past two (2) fiscal years, FACT Group has reduced the time and resources from that previously spent commercializing its premixes for commercial sales. While there were new product additions in fiscal years ended 2006 and 2007, much of this work was completed in collaboration with one of FACT Group’s key distributors in order to keep expenditures to a minimum and to draw from the experience of a diverse product development team. Amounts expended by FACT Group in pursuit of such activities are borne exclusively by FACT Group. FACT’s operating plans for fiscal year 2008 through 2010 call for increased expenditures on research and development related to customized product lines for private label, targeted gender and age segments and the weight loss industry, and therefore, the Company would expect to see some of these costs borne by customers.
Distribution Methods
The Company distributes its products directly to customers from its contracted warehouse space on the East and West coasts. The Company’s line of premixes is also distributed to clients through a licensing agreement under which a large North American bakery ingredient manufacturer has licensed FACT Group’s formulations to blend and sell under their own brand.
Need for Government Approval of Principal Products
FACT Group uses only those raw ingredients which have already received government approval for use in food products. All its premixes contain Generally Regarded As Safe (“GRAS”) ingredients which have received Food and Drug Administration (FDA) approval as required.
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Other Food Products
During fiscal year 2003, FACT Group’s wholly owned subsidiary, FACT Products, acquired the exclusive world-wide license to a line of imported, shelf stable, non-dairy whipped toppings which it markets under the brand name “Aunt Lydia’s Italian Crèmes”.
The toppings are available in four flavors including chocolate, strawberry, vanilla and mocha. The toppings are lower in fat, have no cholesterol and do not require refrigeration. The products were manufactured in Italy and exported to North America.
The distribution of these products by FACT Products, was unsuccessful due to technical product problems and insufficient funding to undertake the necessary research and development to correct the technical problems. As a result, FACT Products was forced to discontinue distribution of the products and was faced with certain liabilities for product returns, warehousing and disposal of the remaining products. At the close of fiscal 2005 there remained an amount outstanding in the approximate amount of $143,354 due to the manufacturer of the products. The manufacturer commenced legal proceedings in an effort to recover the alleged amount outstanding during the last quarter of fiscal year 2006. FACT Products disputed the amount and filed a counterclaim for defective product, for the loss of business related to the defective product and to recover any out-of-pocket costs relating to the defective product. The parties entered into negotiations pursuant to a request by the manufacturer to settle the dispute and during fiscal 2007 the parties agreed to a settlement of the outstanding litigation. The Company and manufacturer agreed to a settlement figure which was advanced to the manufacturer in full and final settlement of all outstanding claims by a related party to the Company in exchange for an assignment of the full value of the outstanding payable totaling $143,354. The amount payable bears no interest and is expected to be settled by the issuance of shares of FACT Products Inc. at a future date concurrent with plans to divest FACT Products. As of the date of this filing, a spin off of FACT Products announced during fiscal 2006 with a record date of January 10, 2007, has not yet been completed. The intent of the spin-off is to raise funds to undertake further product research, development and marketing with new management, the majority of which will be unrelated to the Company. The spin-off is expected to be completed prior to the close of fiscal year 2008.
Amount of Time Spent During Each of the Last Two Fiscal Years on Research and Development Activities and if Applicable the Extent to Which the Cost of Such Activities are Borne by Customers
The Company has not spent any time on research and development of the Aunt Lydia products, since fiscal 2004 when time was allocated to new packaging formats such as thirty six (36) unit shippers and three (3) unit multi-packs to expand the product formats available to retail supermarkets and club stores. There is no further research and development planned on this discontinued product line.
Investments in Marketable and Non-Marketable Securities
The Company acquired an interest in shares in a reporting corporation, Australian Oil & Gas, during 2003 by way of settlement of a claim in bankruptcy relating to a lease for space in one of the Company’s rental properties. These securities were divested in their entirety during fiscal year 2006. The Company received proceeds of $18,743 and recorded a loss of $3,027 relating to this transaction.
During fiscal year 2005, the Company acquired 500,000 shares of Capital Reserve Canada Limited, a public reporting issuer and formerly a wholly owned subsidiary of the Company, as part of an agreement with various third parties whereby the Company transferred all of its rights and interest in a convertible loan negotiated with Capital Reserve Canada Limited earlier in the year. Under the terms of the divestiture agreement, the Company received cash consideration totaling $400,000 and 500,000 free-trading shares of Capital Reserve Canada Limited. The fair value of the shares received and the value of the cash proceeds offset the total value of the convertible loan for financial reporting purposes resulting in a loss on the original investment of $266,944. The securities remained on the books of the Company with a market value of $250,000 at the close of fiscal year 2005. During fiscal year 2006, the Company commenced the sale of these securities realizing proceeds of $2,100 prior to the end of the 2006 fiscal year. At 2006 fiscal year end the Company still held a total of 481,800 shares of Capital Reserve Canada Limited with a market value of $19,272. Accordingly, the Company wrote-down the book value of the investment, recording a loss of $7,000 with respect to sales of securities completed during the year, and a permanent decline on the value of the securities of $221,628. During fiscal 2007 the Company continued to sell the remaining securities realizing proceeds of $26,031prior to the end of the year with respect to the sale of 473,758 common shares.
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The Company recorded a gain on the sale of these securities totaling $7,081. At the close of fiscal 2007 the Company still held a total of 8,042 shares with a book value of $322.
Investments in developing companies are highly speculative and the Company's ability to recover its investment will be impacted by numerous factors including the marketability and liquidity of the common shares of the companies, the companies' abilities to continue to operate their businesses and factors affecting the business environment in which the companies operate. Presently, the Company has no plans to make further investments of this nature.
Employees
The Company and its subsidiaries do not have any direct employees. All of the Company’s employees work on a contract basis. As of April 9, 2008, the Company and its subsidiaries had one (1) full-time contract employee and three (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, sales support, marketing and advertising support, investor relations activities and property management, as required.
2.
DESCRIPTION OF PROPERTY.
The Company’s subsidiary, Wall Street, presently leases 3,840 square feet of office space at 1530-9th Ave S.E., Calgary, Alberta Canada, from Sun Prairie Resources Ltd., from which location the Company and all its subsidiaires carry on operations. The lease is for a four year term ending on July 31, 2010. There is no provision in the lease for renewal.
Under the terms of the lease Wall Street pays monthly rent at a fixed rate of $11.72 (CAD$11.50) per square foot for a total of $3,750 (CAD$3,680) per month, plus operating costs of approximately $8.42 (CAD$8.26) per square foot totaling $2,693 (CAD$2,643), plus applicable taxes. Annual fluctuations in operating costs as a result of actual costs versus budgeted costs may result in adjustments to the operating costs for each ensuing year.
Minimum Annual lease payments (inclusive of estimated operating costs) are as follows:
2008 - $77,316
2009 - $77,316
2010 - $45,101
Wall Street has sublet the space as follows:
-
International Securities Group Inc. has a sublease for 2,125 square feet on a month to month basis at a rate of $3,567 (CAD$3,500) per month, inclusive of operating costs, plus applicable taxes;
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FACT Corporation has a sublease for 768 square feet on a month to month basis at a rate of $1,288 (CAD$1,264) per month, inclusive of operating costs, plus applicable taxes.
Wall Street will look to sublease any available square footage in early 2008 for the balance of the term of the lease. There are presently no formal lease agreements between Wall Street and its subtenants.
Neither the Company, nor its subsidiaries, own any properties or any real estate.
ITEM 3.
LEGAL PROCEEDINGS.
On May 26, 2006, FACT Group filed a complaint in the Superior Court of the State of New Jersey, Chancery Division, Monmouth County (the “Complaint”) against Ore Enterprises LLC, d.b.a. Smartblendz, Avigdor Orr and Michael Baum. In the Complaint, FACT Group alleges, among other things, that Baum, a former consultant to FACT Group, and Orr have misappropriated certain of FACT Group’s proprietary trade secrets in order to recreate FACT Group’s premixes and other baked-goods products to be sold in direct competition with FACT Group. The Complaint further alleges intentional interference with existing and prospective economic advantage, breach of contract, breach of duty of loyalty and breach of the covenant of good faith and fair dealing. FACT Group is seeking (1) to enjoin and restrain Baum, Orr and Smartblendz from using or disclosing the trade secrets of FACT; (2) to impose a constructive trust in regard to all profits obtained by the use of the trade secrets; (3) for other compensatory, consequential and punitive damages; (4) for reasonable attorneys fees and costs of the suit; and, (5)
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other further relief as the court may deem proper. On or about August 10, 2006, defendants Ore Enterprises, Orr and Smartblendz (“Defendants”) filed an Answer and Counterclaim denying FACT Group’s allegations. In the counterclaim, Defendants allege claims of intentional interference with contractual relationships, intentional interference with existing and prospective economic advantage and defamation/slander and libel. FACT Group has filed an answer to the counterclaim, in which it denied all allegations contained therein. Defendant Michael Baum declined to file an answer to FACT Group’s Complaint; rather, he filed a motion to compel arbitration of FACT Group’s claims against him pursuant to a former consulting agreement he had with FACT Group. Mr. Baum’s motion was denied subsequent to the year ended December 31, 2006, and he has been required to prepare and submit an answer. Prior to December 31, 2006, the Defendants agreed to a permanent injunction, the form and content of which has been drafted by the Company and submitted to opposing counsel for review. The Company has commenced discovery of Baum and Orr in an effort to provide additional detail for the proposed injunction. Defendant Orr has commenced Chapter 13 proceedings in the State of New Jersey. During fiscal 2007 the Company completed depositions of various individuals with information relevant to the above noted proceeding. The Company continues to pursue all available remedies, and is approaching the conclusion of discovery. Trial is currently set for June 2, 2008 against Michael Baum in the state court, and July 19, 2008 against Orr in the bankruptcy court. Settlement negotiations have not been initiated.
On November 20, 2006, FACT Group and FACT Products, Inc. were served with a complaint in the civil action in the Superior Court of the State of New Jersey, Chancery Division, Monmouth County (the ”CO.DA.P. Complaint”) by CO.DA.P Cola Dairy Products, SPA (“CO.DA.P.”), an Italian corporation. Under the CO.DA.P. Complaint, CO.DA.P seeks judgment against FACT Group and/or FACT Products for alleged outstanding accounts payable totaling $94,414, with interest. FACT Group and FACT Products have filed an answer and counterclaim to the CO.DA.P. Complaint. In its counterclaim, Fact Products (the party in interest) alleges defective product design and negligence and seeks damages for lost business, past and future. In its answer, FACT Group denies it is a proper party to the litigation. During fiscal 2007 FACT Group and CO.DA.P successfully reached a settlement of all claims, and the complaint and counterclaim have been withdrawn.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the Company’s security holders for a vote during the fourth quarter of its fiscal year ending December 31, 2007.
PART II
ITEM 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a)
The Company's common stock trades on the Over-the-Counter Bulletin Board (“OTC/BB”) under the symbol "FCTOA". Following is a report of high and low bid prices for the last two (2) fiscal years.
Year 2007 | High | Low |
4th Quarter ended 12/31/07 | 0.49 | 0.27 |
3rd Quarter ended 9/30/07 | 0.55 | 0.33 |
2nd Quarter ended 6/30/07 | 0.65 | 0.35 |
1st Quarter ended 3/31/07 | 1.05 | 0.61 |
Year 2006 | High | Low |
4th Quarter ended 12/31/06 | 0.93 | 0.33 |
3rd Quarter ended 9/30/06 | 0.56 | 0.30 |
2nd Quarter ended 6/30/06 | 0.77 | 0.26 |
1st Quarter ended 3/31/06 | 0.46 | 0.26 |
The information as provided above was provided by Pink Sheets. The quotations provided herein may reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
As of April 9, 2008, there were 684 record holders of the Company’s Class A common stock.
During the last two (2) fiscal years, no cash dividends have been declared on the Company's stock.
(b)
Recent Sales of Unregistered Securities; use of Proceeds from Registered Securities
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During the quarter ended December 31, 2007, the Company did not issue any unregistered securities.
(c)
Purchase of Equity Securities by the Small Business Issuer and Affiliated Purchaser
During fiscal year 2007, the Company did not purchase equity securities.
ITEM 6.
MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
a.
Plan of Operations
At present, based on current operations, the Company does not have sufficient cash and liquid assets to satisfy its cash requirements on a monthly basis. While the Company does generate income from sales of functional premixes on a monthly basis, these proceeds are not sufficient to meet the Company's current monthly overhead, which includes the on-going business of the Company, FACT Group and two dormant subsidiaries. The Company will require approximately $5,000,000 to cover its anticipated overhead and operational needs, inclusive of inventory, for the upcoming twelve-month period. Revenues generated from operations are expected to contribute $5,250,000 in gross revenues and are expected to be sufficient to meet all operational overhead for the coming twelve months. While the Company has projected gross revenues from its food operations of approximately $5,250,000 over the upcoming twelve months, such projections are subject to numerous factors that are beyond our control. Projected operational costs and overhead of $5,000,000 include approximately $4,250,000 for inventory and premix costs associated with the Company’s functional foods business and $750,000 in general operating expenses, exclusive of amortization and depreciation, relating to the Company and all of its existing subsidiaries,. The Company may be required to raise approximately $300,000 to meet its projected costs should it not be successful in achieving its projected gross revenues. The Company expects that it will be able to obtain additional equity and/or debt financing to meet this need.
The Company’s budget of $750,000 in general operating expenses includes the expenditure of approximately $150,000 over the next twelve months on ongoing product refinement, technical support, the development of second and third generation functional formulations, including amounts paid to employees and consultants retained for the purposes of providing research and development support.
Included in the cash requirements noted above of $5,000,000 over the next twelve months is an amount of approximately $500,000 with respect to the operations of FACT Group, exclusive of inventory requirements and forecasted costs of goods sold. From the date of acquisition November 2001 to December 31, 2007, the Company has funded a total of $941,409 (net of associated interest charges) to FACT Group in respect of its ongoing operational expenses.
Should it be required, and if the Company is able to negotiate favorable terms, the Company may look to raise funds in excess of the current cash requirement by way of debt or equity financing in order to accelerate its growth. The Company is currently assessing strategic mergers and/or joint ventures with complementary businesses in order to enhance and support its current operational objectives.
The Company anticipates that its subsidiary FACT Group will hire an additional one to three employees during the upcoming twelve months should the functional foods business meet projected operational and revenue targets. The Company will also look to retain one additional employee to assist in corporate development and financial operations.
b.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Important factors that might affect our business, our results of operation and our stock price
Although we believe that expectations that are expressed in these forward-looking statements are reasonable, we cannot promise that our expectations will turn out to be correct. Our actual results could be materially different from our expectations, due to a variety of factors, including the following:
Functional Foods Business
*
We may not be able to continue to profitably market formulations for our current functional premixes or commercialize products under development. Our branded line of home-use products
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available at our on-line store may not receive consumer acceptance. Existing supply agreements with customers and ongoing expressions of interest from potential customers may not result in new or continuing supply or licensing agreements or generation of revenues in the time frame we envision.
*
While we have to date been able to secure supply and licensing contracts with recognized food industry clients, our products may not gain the necessary market acceptance from the end-of-the-line retail consumer in order to substantiate repeat sales to existing and/or future clients.
*
We may not be successful in educating the mainstream community as to the benefits of our products, even in partnership with larger, more experienced client firms and the proper resources.
*
We may not be able to secure favorable long-term agreements with our ingredient suppliers, and as a result may not be able to provide our clients product in a timely fashion and at the right price point.
*
Larger, more capitalized and more resourceful corporations have begun to introduce products into the marketplace in direct competition to our client's products, and our premixes, and we may not be able to successfully maintain or increase market share.
*
Even if we secure multiple clients and our products gain the requisite market acceptance, we may not be able to successfully expand our business to meet our projected growth, or respond effectively to the industry's demand for new products.
*
While our formulations will be protected under stringent non-disclosure and confidentiality agreements, that may not provide the Company adequate protection and others may be able to develop similar formulations.
Investments in Marketable and Non-marketable Securities
The Company has received equity in a public reporting Alberta corporation, Capital Reserve Canada Ltd. in settlement of certain loans receivable. The ability of the Company to recover its initial investment, realize a gain or recover value for the non-cash settlement of a liability is subject to numerous external factors including: the marketability of the acquired securities, the liquidity of the market for the securities, the ability of the corporation in which the Company owns shares to continue to operate their businesses and achieve successful operations, and factors affecting the business environment of the corporation in which the Company owns shares.
General Operations
*
Despite the growth of the Company’s primary business over the past 36 months, the Company still has limited operating history and, therefore, little history on which to base any forecasts. Although the Company has divested many of its non-core assets and investments, we still have investments which require liquidation, each of which are subject to substantial external risk factors which may affect the Company's ability to recognize value.
*
We have incurred substantial operating losses and risk never becoming profitable.
*
Shareholders will face substantial dilution of their equity ownership percentage if we have to issue additional shares to raise capital or make new acquisitions. The extent of potential dilution depends significantly on the market price of our outstanding shares and may cause significant dilution in the value of your investment.
*
While the Company anticipates we will have sufficient revenues from operations to continue to operate, there is no guarantee this will occur. The Company may be unable to obtain further financing prior to achieving profitable results.
Forward-looking statements included in this report speak only as of the filing date of this report and we do not undertake any obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.
Overview
The Company’s primary operations are the food industry. We also have certain passive equity investments in marketable securities.
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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 Mintel, a firm of industry analysts, suggested the market for functional foods in the US was approx $1.4 billion, with a global market at that time of approx $47 billion. Today’s nutrition market which also encompasses the functional foods market, has sales of approximately $69 billion per annum (2005) with the functional segment of this market growing at a rate of 14% per year, a trend expected to continue to 2010. The trend indicates continuing growth and we see this as a particularly attractive niche – provided we can offer quality products as we grow and continue to secure market share.
We believe that the mainstream consumer is changing. We expect that as people learn more about the links between diet and health, and as the necessity for special needs diets is growing rapidly in North America, consumers will recognize the benefits offered by functional foods, and that they will continue to actively seek these products to include in their daily diets. We believe that the key is to offer consumers added health benefits in foods they already enjoy, and to make certain they taste good in order to establish repeat sales of functional products. Companies intending on competing in this sector must also be willing to make a commitment to provide the consumer with educational materials and information to help them make healthier choices.
FACT Group has developed a line of functional dough and batter based formulations in order to supply and license turnkey premixes providing health benefits to a variety of customers for the manufacture of finished products, including a variety of breads, bagels, pasta, pizza crust and sweet baked goods such as cookies, muffins, donuts and cakes. All our products have been specially formulated for manufacturers to complement their existing non-functional products and capture significant incremental revenue with no change to existing manufacturing processes. This product line was expanded in early 2005 with the introduction of a test market of our products at our online store at www.eatwellstaywell.net where we directly offered the consumer our line of home-use bake mixes under our Nutrition First™ brand. This site was discontinued during the year due to lack of financing. During 2006 the Company further expanded its product line to include organic and all natural product offerings.
Use of FACT Group’s proprietary premixes enable consumers and manufacturers to address numerous health conditions, including the following concerns:
- Weight Management/Control/Obesity
- Diabetes/Glucose Control
- Heart Disease
- Carbohydrate Management
- Digestive Health
- Dietary fiber enhancement
Industry statistics gathered by FACT Group estimate that:
•
Approximately 187 million Americans (63%) are overweight, with 100 million of those being classified as obese as a result of their Body Mass Index;
•
Over 35 million people are on a diet at any given time, and 300,000 deaths a year are related to obesity;
•
Cardiovascular disease is tied with cancer as the leading cause of disease-related death in the United States, accounting for two out of five deaths. More than 2,500 Americans die from Cardiovascular Disease each day;
•
Each year, 62 million people are diagnosed with digestive problems, which entails severe stomach and digestive problems. A diet including increased fiber is presently the only treatment that seems to help;
•
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•
There are over 20 million known cases of diabetes in the U.S. (that is over 7%), up 40% in the past 10 years. There are 54 million more Americans with pre-diabetes, a condition where the pancreas is not producing enough insulin to regulate blood levels, but not at serious enough levels to be diagnosed;
•
Close to half of all people in the United States have high cholesterol levels which are directly impacted by Diet, Weight and Physical Activity.
By eating products made with FACT Group’s functional premixes as a part of a regular daily diet, end consumers do not have to dramatically change their lifestyle in order to reap the benefits of reduced digestible carbohydrates, glucose management, increased fiber, reduced calories, low sodium, no added sugar and no cholesterol.
FACT Group’s products are developed keeping in mind that taste is important, and we believe that we must achieve good taste to ensure FACT Group’s success in the marketplace. Weight management, carbohydrate control and fiber enhancement solutions through healthy, functional foods is a large and growing segment of the overall food category and through sales of premix to manufacturers, who create a variety of food products, FACT Group hopes to be able to provide solutions to consumers in supermarkets, specialty health food stores, restaurants, foodservice distributors and convenience stores with minimal associated overhead.
The multiple benefits associated with the products created from FACT Group’s functional premixes should allow our commercial customers to position new functional products to suit their current market positioning, generate line extensions or create entirely new product lines with functional benefits.
In fiscal 2003, FACT Group entered into a licensing agreement with a major bakery ingredient distributor for the sale of premixes manufactured using our formulations, under the distributors own brand. Additionally, we have developed a line of snack bars using our functional premixes, which we hope to be able to bring to market along with a renewed campaign to market our home-use line of bake mixes. The bars and retail size bake mixes can also be customized and marketed to our commercial clients.
FACT Group has made application to trademark its own symbol for brand recognition, Nutrition First™. FACT Group presently uses this trademark not only for its line of premixes available to manufacturers, but also on its own line of “home-use” products for sale directly to the consumer. Ultimately FACT Group is hopeful its trademark will stand as a symbol of quality ingredients on customers’ end packaging in support of the health benefit positions they intend to market, adding value, similar to the NutraSweet® swirl.
Present Situation
FACT Group is currently marketing and selling its functional premixes for breads, bagels, pasta and sweet goods products to independent manufacturers and a major bakery ingredient distributor. FACT’s revenue stream is presently dependent on two key customers which account for approximately 99% of the Company’s total annual sales. The Company is in advanced negotiations with several potential clients for the provision of premixes and products across various new segments including snack bars, retail size mixes, sweet goods and new product formats.
The Company anticipates it will achieve gross sales of approximately $5,250,000 in fiscal 2008 from the sale of premix and products to the consumer, as well as existing and new customers across its various product categories.
In the event the Company is unable to achieve its targeted gross sales, the Company may seek to raise additional equity or debt capital of up to $300,000, which proceeds will be used to fund the operations of FACT Group including its 2008 marketing and advertising plans and the re-introduction of our online store, www.eatwellstaywell.net, and the marketing of new product offerings. The Company may also seek to raise a larger sum to implement an accelerated growth plan in fiscal 2008. As at the date of this report the Company does not have commitments to provide these funds. The Company expects to realize funds during the current fiscal year to assist with its ongoing operations through the sale of certain real estate assets and other marketable securities presently under agreement for sale or targeted for divestiture. Should FACT Group achieve its forecasted sales of $5,250,000 million in fiscal 2008, it should provide for profitability by the end of fiscal 2008.
Our products
Products currently being marketed by the Company include formulations for bread, bagels, fresh pasta and sweet baked goods, including ready-to-eat snack bars, which offer the consumer a combination of added health benefits including: no sugar, no cholesterol, less refined carbohydrates, low fat, high fiber and low sodium. The foundation or “core” of each of the end products is a dough or batter based system, the composition of which varies depending
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on the product type and flavor. The Company currently uses an independent blending facility located in New York state, to blend the dry ingredients forming our premix. Agreements with the blending facility allows FACT Group to maintain control over its proprietary formulations and ensure the formulations remain proprietary. The blend of dry ingredients for each product category, referred to as "premix", is then delivered to FACT Group’s customers for addition of the balance of ingredients, manufacturing of product and distribution. Products are distributed under the clients' brand or private label. Revenues are generated by way of a fixed cost per pound of premix sold to the customer. FACT Group also generates revenue through a licensing agreement with a major North American bakery ingredient distributor. This distributor pays FACT Group a royalty for each pound of premix sold under their own label. The distributor’s private label premix is manufactured using FACT Group’s proprietary formulations. Additionally, FACT Group intends to continue to work towards securing private labeling agreements during fiscal 2008 for its line of ready-to-eat snack bars and other line extensions.
Targeted industry segments
Bread
The U.S. bread market is divided into 2 product categories: packaged branded bread i.e. (Wonder bread) and fresh bakery bread. Bakery breads are produced on site by supermarket in-store bakeries or by other retailers, including independent bakeries. FACT Group will focus their efforts on this premium segment. The majority of the growth in the bread market, which is 5%-6% per annum, has been in the fresh, gourmet (artisan) and boutique segments.
Sales of in-store or independent bakery breads has grown at a rate of 7% annually since 1993 and translates into a $5 billion industry. Sales of these premium breads are coming at the expense of packaged breads. Boutique bakery breads sales are experiencing an annual growth rate of 25% and are now exceeding $300 million for this segment. Of late, industry reports indicate a decline in overall bread sales of between 15% and 20%. Various industry authorities attribute this decline to the segment of the consumer population seeking controlled carbohydrate offerings. Recently, the market focus on whole grains by large food conglomerates has rejuvenated the regular bread aisle and packaged breads with consumers displaying an elevated interest in bread products perceived as “healthier offerings” which provide 100% whole wheat or “multigrain” products offering increased fiber in order to help consumers meet minimum servings under the US Recommended Daily allowance (“RDA”). FACT Group’s premixes for bread and bread-based products offer an alternative solution for manufacturers in the bread industry. FACT Group’s line of bread products are reduced in digestible carbohydrates and naturally high in fiber, making them suitable for controlled carbohydrate diets, those seeking increased fiber as well as other diet conscious consumers.
Pasta
The U.S. market in dry pasta sales are approximately $2.5 billion. With the addition of the food service contribution to pasta sales, the category jumps to over $5 billion in annual sales. The pasta category has also experienced a decline in sales in 2003, 2004 and 2005, which is believed to be associated with the trend towards “reduced carb” product offerings and the consumer’s increased desire to consume carbohydrate products which are also high in fiber.
Pasta is similar to bread from a formulation perspective and FACT Group’s proprietary mixes work in a similar fashion as they do in bread.
For pasta products, FACT Group provides functional benefits by creating a unique high fiber, reduced digestible carbohydrate formulation. While there are high fiber pastas on the market today, achieved by the addition of whole grains, FACT Group has taken a different approach to the market by not only improving the taste of high fiber pasta, but concurrently reducing net digestible carbohydrates using state of the art fibers clinically proven to have numerous health benefits. FACT Group sees opportunities for customers across the pasta category including dry and fresh pasta. Initially, customers will include smaller branded, private label and specialty manufacturers. FACT developed a line of reduced carb, high fiber pastas for distribution under the Quick Quisine label by one of our commercial clients under license from Atkins Nutritional Inc. in fiscal 2005. Unfortunately with the unexpected financial problems experienced by Atkins Nutritionals during fiscal 2005, the distribution of the product line did not come to fruition. The Company hopes to see this product re-introduced at a later date and is working to introduce the product to other potential clients.
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Sweet Goods
The ready baked sweet goods category represents some $13.8 billion in annual US sales. The key market elements include cookies at $7.1 billion and sweet goods such as muffins, brownies, etc. that are largely sold in the baked goods aisle at $3.7 billion. Some $3.1 billion of total sweet goods are sold as refrigerated/frozen items available chiefly in supermarkets.
FACT Group’s formulations can offer a wide range of traditional product offerings that are better for you. This category is mature and ripe for innovation as consumers are looking for answers to living a healthier lifestyle without sacrificing taste or quality. FACT Group has a number of product options available in this category including cookies, muffins, brownies, cakes, scones, donuts, pancakes and waffles. During late fiscal 2005 the Company entered into an arrangement to provide a local New Jersey bakery with a line of healthy alternative mixes for muffins as a replacement to the bakery’s existing product line. These products are distributed by a major weight loss company across North America. FACT hopes to provide line extensions for this manufacturer during fiscal 2006.
Portion Controlled/ Individually Wrapped/Ready-to-eat Convenience
Consumers’ lifestyles and time demands have driven dramatic growth in individually wrapped, ready-to-eat snacking items. Individually wrapped cookies, brownies, muffins etc. are widely available from supermarkets, convenience stores and vending machines. These items are sold both individually packaged or in multi packs.
FACT Group is pursuing this rapidly growing format with potential customers in two market segments. One set of customers see the opportunity to build distribution of low calorie/high fiber individual products in the supermarket and club store channels. Another set of potential customers are focusing on the weight management aspect of portion controlled units that allow dieters to control calories and enjoy the benefits of reduced refined carbohydrate/high fiber benefits while still enjoying full flavored taste. In fiscal 2004 FACT Group developed an attractive line of reduced carbohydrate, high fiber snack bars fortified with 25% of the recommended daily allowance of 17 essential vitamins and minerals which it hopes to revise and market during fiscal 2008. FACT has also been actively working on revised formulations for individually wrapped brownies, blondies, cookies and other products during fiscal 2007.
The Direct to Consumer Opportunity
With the rapidly growing market trend towards reduced carbohydrate/ increased fiber products, and a desire by the consumer to return to the kitchen, at-home retail sized mixes in this category have seen substantial growth. Additionally, the health conscious consumer is motivated to actively seek out products to suit their dietary needs. Subsequent to the close of fiscal 2004 FACT launched a test market for an online store at www.eatwellstaywell.net to take advantage of this attractive opportunity. At the site the Company sold a variety of bake at home mixes, including brownies, cookies, an all-purpose bake mix and other fare under its Nutrition First brand from its internet store. The Company developed a complete marketing and advertising plan for implementation but was unable to continue with its plans due to lack of funding in fiscal 2005. The Company intends to revisit its online store and retail bake mix line in fiscal 2008.
Key customer segments
- Manufacturers
- Distributors
- Retailers and Food Service
- Specialty/Health/Diet
- Direct to Consumer
Other Food Products
During fiscal 2003 FACT Products Inc., a wholly owned subsidiary of FACT Group Inc., acquired a line of imported shelf stable, non-dairy whipped toppings known as Aunt Lydia’s Italian Crèmes. FACT Products has the exclusive worldwide rights to the Aunt Lydia’s brand crèmes and commenced marketing the product towards the end of fiscal 2004. The crèmes are unique in formulation and come in four flavors including vanilla, chocolate, strawberry and mocha, and do not require refrigeration to stay fresh. Though the Company executed multiple purchase orders from an East Coast retail supermarket chain during late fiscal 2004 and early fiscal 2005,
15
the Company was not able to successfully market the product due to product performance issues and a lack of marketing dollars. Presently the Company has ceased all distribution of the product. FACT Products has been named in a civil action filed by the manufacturer of the crème products which was settled prior to the close of fiscal 2007. See LEGAL PROCEEDINGS above for additional details.
Milestones
Near Term Goals (2008)
The Company’s near term goals include a continuing focus on the ongoing operation of our functional foods business. FACT Group intends to increase its presence in the marketplace by continuing to provide premix to customers who will launch functional food products and further develop our corporate infrastructure. The Company is hoping to see the continuance of improved sales of its premixes during fiscal 2008, with a focus on brining its products to a wider array of commercial clients, as well as increasing product diversification in the marketplace. Additionally, the Company will revisit its 2005 plans to direct resources towards an online store to market our own line of retail “at-home” mixes directly to the consumer. These marketing plans would call for promotional offers, and a focused internet and print advertising campaign to help establish recognition for our master brand, “Nutrition First™”. FACT also intends to expand its product offerings in the individually packaged serving size to appeal to a wider range of consumers, in a wider array of formats including organic and all-natural product offerings.
FACT Group is aggressively pursuing additional supply and licensing arrangements with corporations established in the food industry for the manufacture, marketing and distribution of our line of functional premixes. It is the intent of the Company that additional customers will launch products containing our functional premixes throughout the year so that revenues generated from the functional food business will assist the Company in finally achieving profitability during fiscal 2008.
Presently the Company is in negotiation with several additional clients for the supply and licensing of our functional premixes for a variety of sweet baked goods and private label opportunities. The Company is hopeful it will finalize these negotiations throughout fiscal 2008.
To further enhance our ability to increase revenues in fiscal 2008 the Company may also look to complete strategic mergers or acquisitions with complementary businesses. In this manner the Company may be able to access previously unavailable distribution channels in a more expedient manner.
Intermediate Term Goals (2009-2010)
Building on our near-term plan for development, the Company hopes to experience substantial growth over the intermediate term. Our objectives include the following:
*
Growth for our line of “at-home” products under our master brand, Nutrition First, for direct market to the end consumer via internet and other channels. Potential expansion of this line to include a unique off-shoot of products specially directed to the diabetic and glucose management markets.
*
Expand our client base to include supply and licensing partnerships with additional medium to large sized industry participants and certain major industry participants in the manufacturing, distribution, quick serve restaurant and food service channels. The Company will also pay special focus to the public school meal system in the hopes of locating a channel to provide healthier product offerings in local and national educational facilities;
*
Formation of an Asian and European division to market and launch products in international markets;
*
Ongoing successful education of retail consumers through public relations initiatives and mass media coverage;
*
Continue to develop and refine new lines of second and third generation functional products, perhaps to include a line of premixes for end products which would be marketed as supplements as opposed to food products;
These initiatives will require additional capitalization of an amount that is as yet undetermined, however, the Company believes it can achieve these goals provided funds can be made available through profits from ongoing premix and product sales, additional debt and/or equity financing, or conventional credit arrangements with major banking institutions.
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LONG TERM GOALS (2010 AND BEYOND)
The Company intends to achieve successful market penetration in numerous segments of the functional foods industry, generating escalating positive cash flows on an annual basis so that the Company becomes a competitive leading participant in the industry. Management will look to have its first, second and third generation of functional premixes and other products widely distributed across Europe, Asia and North America with a view to expanding to other international markets, while continuing to supply premixes to various food manufacturers, distributors and major retailers under private label and other conventional arrangements.
Financial Outlook
The Company successfully divested its commercial and residential real estate holdings in fiscal 2005 and therefore did not generate revenues from those real estate operations during this current fiscal year. The Company also disposed of various passive investments during the year in order to streamline our day to day operations. Our 2008 mandate calls for the divestiture of all remaining passive investments, as well as certain dormant subsidiaries as soon as practicable, which will provide the Company additional funds for ongoing working capital and the settlement of outstanding debts. To that end the Company has already announced the spin-off of its dormant subsidiary FACT Products during fiscal 2007. The Company expects to focus on increasing the revenue stream generated by the supply and licensing of its commercial functional food premixes during fiscal 2008.
The Company may seek to raise approximately $300,000 dollars in the form of debt and/or equity financing in the near term to assist with growth objectives, and may seek to raise a larger sum to implement an accelerated growth plan. As noted above, we will continue to look to divest those remaining passive assets not directly related to our core business of functional food products. This should provide the Company adequate resources to continue operations and establish increased cash flows to cover operational expenses and achieve profitability by the close of fiscal 2008. There is no assurance that the Company will be successful in raising this amount of capital or meeting its anticipated operational goals.
Results of Operations
Comparison of 2007 and 2006
For the years ended December 31, 2007, and 2006 the Company incurred operating losses of $414,771 and $743,312 respectively. The Company’s results for fiscal 2006 includes the impact of the restatement of certain figures from prior fiscal periods. Please refer to Note 2 of the Company’s audited financial statements contained herein for a complete description of the impact of these adjustments. Fiscal 2007 operations include a substantial increase in revenues from $1,803,579 (2006) to $3,476,565 (2007). This increase in revenues can be attributed directly to increased sales of bake mix products from the Company’s primary operations in the food industry during 2007. Associated costs of goods sold relating to functional premix sales increased from $1,524,556 (2006) to $2,950,707 (2007). The Company’s gross margin on the sale of functional bake mixes declined over the respective periods as the Company was required to provide more competitive pricing as sales volumes increased. The costs associated with the disposal of certain whipped topping products which were discontinued in 2005 totaled $11,276 during fiscal 2006 with no comparative entry in fiscal 2007. Legal fees increased substantially from $79,652 (2006) to $122,681 (2007) as a direct result of the Company’s involvement in certain legal matters more particularly described in Item 3 above. Consulting fees decreased from $230,479 (2006) to $179,605 (2007) as a direct result of the cessation of certain monthly fees required to be paid from September 2003 to the close of fiscal 2006 to the original developers of the Company’s proprietary formulations. Administrative expenses increased however over the respective fiscal years from $226,860 (2006) to $389,031 (2007) as the Company incurred increased costs related to audit, investor relations, advertising and travel and promotion as it worked to increase top line revenues. Depreciation and amortization expenses remained relatively constant during the comparative fiscal years at $252,440 (2006) and $249,312 (2007) as the Company recorded recurring expenses related to the amortization of its intellectual property and fixed assets in the normal course.
During fiscal 2006, the Company recorded an expense of $221,628 as a permanent decline in the value of certain marketable securities based on an assessment of the liquidity of the market for the securities and the average market price of the shares at fiscal year end. There was no comparative entry in fiscal 2007.
During fiscal 2006, the Company continued to liquidate its marketable securities and recorded a loss of $10,026 with respect to the sale of certain of these securities. The Company recorded a gain of $7,081 during fiscal 2007 as it continued to liquidate certain of these same securities.
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Interest expenses remained relatively constant over the comparative fiscal years totaling $87,195 (2006) and $90,564 (2007). During fiscal 2007 the Company’s subsidiary Wall Street paid $1,201 in corporate income tax with no comparative entry in fiscal 2006.
Net losses for the two completed fiscal years were $840,533 (2006) and $499,455 (2007) respectively,
Liquidity and Capital Resources
Summary of Working Capital and Stockholders' Equity
As of December 31, 2007, the Company had negative working capital of $1,849,374 and negative Stockholders' Equity of $2,236,028 compared with negative working capital of $1,146,387 and negative Stockholders' Equity of $1,703,126 as of December 31, 2006. The Company’s negative working capital has increased as a result of the reduction to accounts receivable and the increase to current loans payable over the current fiscal year.
Liquidity
The Company anticipates it may require approximately $300,000 over the next twelve months to fully implement its existing business plan, which includes significant marketing efforts, the continued development and refinement of functional food formulations and products, a consumer awareness and public relations campaign, concepts for development, manufacturing and distribution of a line of our own master brand food products via the internet, expanded management resources and support staff, and other day to day operational activities. The Company may require additional funds over the next three years to assist in realizing its goals should it not achieve anticipated bench marks over the 2008, 2009 and 2010 fiscal years. The amount and timing of additional funds required can not be definitively stated as at the date of this report and will be dependent on a variety of factors. As of the filing of this report, the Company has been successful in raising funds required to meet our existing revenue shortfall for the funding of our operations. Funds have been raised through private loans, equity financing and conventional bank debt, as well as through the sale of certain active and passive investments. The Company anticipates revenues generated from its functional food business will greatly reduce the requirement for additional funding; however, we can not be certain the Company will be successful in achieving revenues from those operations. Furthermore the Company cannot be certain that we will be able to raise any additional capital to fund our ongoing operations.
Sources of Working Capital
During 2007 the Company's primary sources of working capital have come from revenues generated from our functional foods business, monthly rental income and the net proceeds from:
*
$29,492 in the collection of the remaining withholding taxes recoverable with respect to the sale of the Company’s real property in fiscal 2005, and,
*
$26,031 from sale of certain marketable securities; and,
*
$21,000 in loan proceeds from an arms length third party.
The Company is also aggressively pursuing the liquidation of its remaining passive investments.
Material Commitments for Capital Expenditures
Pursuant to a settlement agreement entered into between FACT LLC and Steven Schechter, Jennifer Flynn and Steven Capodicasa, FACT Group has an obligation to pay a total of $2,000,000 in royalty payments over 10 years.
c.
Off Balance Sheet Arrangements
The Company presently does not have any off-balance sheet arrangements.
ITEM 7. FINANCIAL STATEMENTS
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FACT CORPORATION
AUDITED FINANCIAL STATEMENTS
AS AT THE FISCAL YEARS ENDED DECEMBER 31, 2007 and 2006 (Restated)
F-1
INDEX TO FINANCIAL STATEMENTS
FACT CORPORATION
AUDITED FINANCIAL STATEMENTS
Page | |
Audited Financial Statements: | |
Report of Independent Registered Public Accounting Firm | F-3 |
Consolidated Balance Sheets | F-4 to F-5 |
Consolidated Statements of Operations | F-6 |
Consolidated Statements of Stockholders’ Deficit | F-7 |
Consolidated Statement of Cash Flows | F-8 |
Notes to Financial Statements | F-9 to F-30 |
F-2
Child, Van Wagoner &
Bradshaw, PLLC
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Officers and Directors
Fact Corporation
We have audited the accompanying consolidated balance sheets of Fact Corporation as of December 31, 2007 and 2006, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years ended December 31, 2007 and 2006. These consolidated 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 the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Fact Corporation as of December 31, 2007 and 2006, and the results of its operations, changes in stockholders’ deficit and its cash flows for the years ended December 31, 2007 and 2006, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has cash flow constraints, an accumulated deficit, and has suffered recurring losses from operations. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Child, Van Wagoner & Bradshaw, PLLC
Child, Van Wagoner & Bradshaw, PLLC
Certified Public Accountants
Salt Lake City, Utah
April 14, 2008
F-3
FACT CORPORATION Consolidated Balance Sheets AUDITED | ||||||
December 31, | ||||||
2007 | 2006 (Restated) | |||||
Current Assets | ||||||
Cash | 105,053 | 212,571 | ||||
Inventory | 64,446 | 72,564 | ||||
Accounts receivable (Note 4) | 211,380 | 486,060 | ||||
Total Current Assets | 380,879 | 771,195 | ||||
Investment in Capital Reserve Canada Ltd. (Note 6) | 322 | 19,272 | ||||
Property and Equipment | ||||||
Intellectual property (Note 3) | 1,247,987 | 1,497,024 | ||||
Real Property (net of accumulated depreciation of $544 ($188 in 2006)) | 1,087 | 1,190 | ||||
Total Property and Equipment | 1,249,074 | 1,498,214 | ||||
Total Assets | 1,630,275 | 2,288,681 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
Current Liabilities | ||||||
Accounts payable and accrued expenses | 369,764 | 770,947 | ||||
Accounts payable (related parties) | 678,304 | 510,262 | ||||
Loans payable (related parties) (Note 7) | 993,696 | 499,478 | ||||
Loan payable (Note 8) | 88,525 | 60,000 | ||||
Current portion of long-term debt and acquisition cost | 99,964 | 76,895 | ||||
Total Current Liabilities | 2,230,253 | 1,917,582 | ||||
Long Term Liabilities | ||||||
Loan payable (related party) (Note 7) | - | 338,261 | ||||
Acquisition cost payable (Note 3) | 1,636,050 | 1,735,964 | ||||
Total Long-Term Liabilities | 1,636,050 | 2,074,225 | ||||
Total Liabilities | 3,866,303 | 3,991,807 | ||||
Commitments and contingencies | ||||||
See Accompanying Notes to Audited Financial Statements
F-4
FACT CORPORATION Consolidated Balance Sheets Audited | |||||
December 31, | |||||
2007 | 2006 (Restated) | ||||
Stockholders' Equity | |||||
Class A Common Stock - authorized 100,000,000 shares of no par value; 17,274,406 issued and outstanding as at December 31, 2007 and December 31, 2006 (Note 9) | 23,103,924 | 23,103,924 | |||
Class A Common stock warrants | - | - | |||
Accumulated deficit | (25,416,625) | (24,917,170) | |||
Accumulated other comprehensive (loss) | 76,673 | 110,120 | |||
Total Stockholders' Equity | (2,236,028) | (1,703,126) | |||
Total Liabilities and Stockholders' Equity | 1,630,275 | 2,288,681 | |||
See Accompanying Notes to Audited Financial Statements
F-5
FACT CORPORATION Consolidated Statements of Operations Audited | ||||||
December 31, | ||||||
2007 | 2006 (Restated) | |||||
Revenues | ||||||
Functional food premix | 3,410,219 | 1,783,554 | ||||
Rental income | 66,346 | 20,025 | ||||
3,476,565 | 1,803,579 | |||||
Costs and Expenses | ||||||
Functional food premix | 2,950,707 | 1,524,556 | ||||
Italian Crème costs | - | 11,276 | ||||
Legal | 122,681 | 79,652 | ||||
Consulting fees | 179,605 | 230,479 | ||||
Depreciation and amortization | 249,312 | 252,440 | ||||
Other Administrative expenses | 389,031 | 226,860 | ||||
Write down investment in Capital Reserve Canada Limited | - | 221,628 | ||||
3,891,336 | 2,546,891 | |||||
(Loss) from operations | (414,771) | (743,312) | ||||
Other income and expenses | ||||||
Tax Paid | (1,201) | - | ||||
Interest expense | (90,564) | (87,195) | ||||
Loss on disposal of marketable securities | 7,081 | (10,026) | ||||
(84,684) | (97,221) | |||||
Provision for income taxes | - | - | ||||
Net (Loss) | (499,455) | (840,533) | ||||
Net (Loss) per Common Share, basic and diluted | (0.03) | (0.05) | ||||
Weighted Average Number of Common Shares Used in Calculation | ||||||
Other comprehensive income | ||||||
Net loss | (499,455) | (840,533) | ||||
Foreign currency translation adjustment | (33,447) | (2,023) | ||||
Total other comprehensive income | (532,902) | (842,556) | ||||
See Accompanying Notes to Audited Financial Statements
F-6
FACT CORPORATION Consolidated Statements of Stockholders’ Deficit Audited (Restated) | |||||||||||||
Class A Common Stock | Warrants | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Shareholders’ Deficit | |||||||||
Shares | Amount | Shares | Amount | ||||||||||
Balance at December 31, 2005 | 17,274,406 | 23,083,469 | 165,186 | 20,455 | (24,076,637) | 112,143 | (860,570) | ||||||
Cancellation/expiry of warrants | ¾ | 20,455 | (165,186) | (20,455) | ¾ | ¾ | ¾ | ||||||
Net loss for the period ended December 31, 2006 | ¾ | ¾ | ¾ | ¾ | (840,533) | ¾ | (840,533) | ||||||
Foreign currency translation adjustment | ¾ | ¾ | ¾ | ¾ | ¾ | (2,023) | (2,023) | ||||||
Balance at December 31, 2006 | 17,274,406 | 23,103,924 | ¾ | ¾ | (24,917,170) | 110,120 | (1,703,126) | ||||||
Net loss for the period ended December 31, 2007 | ¾ | ¾ | ¾ | ¾ | (499,455) | ¾ | (499,455) | ||||||
Foreign currency translation adjustment | ¾ | ¾ | ¾ | ¾ | ¾ | (33,447) | (33,447) | ||||||
Balance at December 31, 2007 | 17,274,406 | 23,103,924 | ¾ | ¾ | (25,416,625) | 76,673 | (2,236,028) | ||||||
See Accompanying Notes to Audited Financial Statements
F-7
FACT CORPORATION Consolidated Statements of Cash Flows Audited | |||||
December 31, | |||||
2007 | 2006 (Restated) | ||||
Cash From Operating Activities: | |||||
Net (loss) | $ | (499,455) | (840,533) | ||
Reconciling adjustments | |||||
Depreciation, depletion and amortization | 249,337 | 252,434 | |||
Write down investment in Capital Reserve Canada | - | 221,628 | |||
Loss (Gain) on sale of securities | (7,081) | 10,027 | |||
Changes in operating assets and liabilities | |||||
Accounts receivable | 274,680 | 281,276 | |||
Inventory | 8,118 | (22,376) | |||
Accounts payable and accrued expenses | (225,616) | 378,988 | |||
Net Cash Flows From Operating Activities | $ | (200,017) | 281,444 | ||
Cash From Investing Activities: | |||||
Acquisition of property and equipment | $ | - | (1,373) | ||
Proceeds from sale of securities | 26,031 | 20,843 | |||
Net Cash Flows From Investing Activities | $ | 26,031 | 19,470 | ||
Cash From Financing Activities: | |||||
Loan proceeds | $ | 21,000 | 60,000 | ||
Proceeds (Repayment) of related party loans | 155,957 | (247,009) | |||
Acquisition cost payable | (76,845) | (59,150) | |||
Net Cash Flows From Financing Activities | $ | 100,112 | (246,159) | ||
Foreign currency translation adjustment | $ | (33,644) | (2,023) | ||
Net change in cash and cash equivalents | $ | (107,518) | 52,732 | ||
Cash at beginning of period | $ | 212,571 | 159,839 | ||
Cash at end of period | $ | 105,053 | 212,571 | ||
Supplemental disclosure of cash flow information: | |||||
Interest paid | $ | 66,990 | 34,636 | ||
Income taxes paid | $ | 1,201 | - | ||
See Accompanying Notes to Audited Financial Statements
F-8
FACT Corporation
Notes to Audited Financial Statements
Years Ended December 31, 2007 and 2006
Note 1- Summary of Significant Accounting Policies
This summary of significant accounting policies of FACT Corporation (the “Company”) is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management who are responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles in the United States of America and have been consistently applied in the preparation of the financial statements, which are stated in U.S. Dollars.
Organization
The Company was incorporated under the laws of the State of Colorado on August 3, 1982 as Capital Reserve Corporation for the purpose of operating as a financial services holding company. The Company commenced operations soliciting various life, accident and health insurance policies in three states in the U.S. until October 1994 when it could no longer meet certain requirements to continue operations. The Company carried out various other operations between 1995 and the close of fiscal 1998, all of which operations had ceased by early 1999.
In 1999, the Company's principal place of business moved to Canada. In December 1999, the Company formed a wholly owned subsidiary, Capital Reserve Canada Limited, an Alberta corporation ("Capital Canada"), to locate and acquire producing oil and gas assets in Canada. This subsidiary was divested in fiscal 2004 by way of a distribution of shares to the shareholders of the Company.
On November 7, 2001 the Company entered into a Share Exchange Agreement with the shareholders of Food and Culinary Technology Group Inc. (“FACT”), a Nevada corporation, whereby all of the issued and outstanding shares of FACT were exchanged for 2,000,000 shares of the Company’s Class C common stock. (Note 2)
On February 8, 2002, the Company changed its name to FACT Corporation.
On July 23, 2002 the Company formed a wholly owned subsidiary, Wall Street Real Estate Limited (“WSRE”), an Alberta corporation. WSRE purchased from the Company, certain commercial real estate located at 1528-1530 9th Avenue S.E., Calgary, Alberta, Canada. This commercial property was divested during fiscal 2005.
As of December 31, 2007, the Company has three wholly owned subsidiaries, Wall Street Investments Corporation (WSIC) (dormant Colorado corporation), FACT and WSRE. FACT Products Inc. (formerly FACT Bread Company Inc.), a Nevada corporation, was incorporated in November 2001 and is a wholly owned subsidiary of FACT.
Operations
Functional Food Business
The Company entered the functional food industry in November 2001 with the acquisition of FACT. During the year ended December 31, 2002 the Company commenced sales of its functional food formulations. All but 1% of revenues for the current fiscal year were derived from these ongoing operations in the food industry.
F-9
FACT Corporation
Notes to Financial Statements
Years Ended December 31, 2007 and 2006
The Company continues to pursue further commercial supply and licensing contracts for its existing line of functional food formulations, premixes and products.
Use of Estimates in the preparation of the financial statements
The preparation of the Company's financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates.
Basis of Consolidation
The consolidated financial statements for 2007 and 2006 include the Company and its wholly owned subsidiaries FACT, WSRE and FACT Products Inc. All significant inter-company accounts and transactions have been eliminated. The consolidated financial statements for the fiscal year ended December 31, 2006 have been restated to reflect an adjustment to the original value recorded upon conversion of certain Class C shares, refer to Note 2 below.
Depreciation and Amortization
Depreciation has been provided in amounts sufficient to relate the costs of depreciable assets to operations over their estimated useful lives principally on the straight-line method from two to five years for office equipment and computers and over 25 years for buildings.
The Company’s intellectual property is amortized on a 10 year straight line basis.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents.
Currency
The functional currency of the Company's Canadian subsidiary is the Canadian dollar. The functional currency of FACT and FACT Products Inc. is the United States Dollar. The Company translates amounts into United States dollars using the current rate method. Under this method, assets and liabilities are translated to United States dollars at current exchange rates and income statement accounts are translated at the average rates prevailing during the period. Related translation adjustments are reported as other comprehensive income, a component of stockholders’ equity.
(Loss) Per Share
(Loss) per share of common stock is computed by dividing the net loss by the weighted average number of common shares outstanding during the year. Fully diluted earnings per share are not presented because they are anti-dilutive.
Inventory
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.
F-10
FACT Corporation
Notes to Audited Financial Statements
Years Ended December 31, 2007 and 2006
Fair Value of Financial Instruments
Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 107 (“SFAS 107”), Disclosure About Fair Value of Financial Instruments. SFAS 107 requires disclosure of fair value information about financial instruments when it is practicable to estimate that value. The carrying amount of the Company’s accounts receivable, prepaid expenses and other current expenses, and the current portions of notes payable approximate their estimated fair values due to their short-term maturities. The fair market value of long term debt can not be determined due to a lack of comparability of similar market instruments.
Valuation of Long-Lived Assets
The Company periodically analyzes its long-lived assets for potential impairment, assessing the appropriateness of lives and recoverability of unamortized balances through measurement of undiscounted operating cash flows on a basis consistent with accounting principles generally accepted in the United States of America.
Income taxes
The Company records deferred taxes in accordance with Statement of Financial Accounting Standards (SFAS) 109, "Accounting for Income Taxes." The statement requires recognition of deferred tax assets and liabilities for temporary differences between the tax bases of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.
Revenue recognition
Revenues are recognized in accordance with SEC Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." Under SAB 101, product revenues (or service revenues) are recognized when persuasive evidence of an arrangement exists, delivery has occurred (or service has been performed), the sales price is fixed and determinable and collectibility is reasonably assured. Revenue for food products is recognized when the Company has concluded arrangements with customers and the product is shipped. The Company has not experienced any material expense in satisfying warranties and returns.
Other
The Company has selected December 31 as its year-end.
The Company consists of one (1) operating segment.
The Company expenses advertising costs as incurred and the total amounts for 2007 and 2006 were minimal.
The Company paid no cash dividends in 2007 or 2006.
Reclassifications
Certain reclassifications have been made to previously reported statements to conform to the Company’s current financial statement format.
Basis of Presentation – Going Concern
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which contemplates continuation of the Company as a going concern. However, the Company has insufficient working capital and is sustaining losses, and therefore may be forced to discontinue operations. This fact raises substantial doubt about the Company’s ability to continue as a going concern. Management plans to raise additional capital to complete its business plan.
F-11
FACT Corporation
Notes to Audited Financial Statements
Years Ended December 31, 2007 and 2006
Note 2 – Restatement of Financial Statements
As at the fiscal year ended December 31, 2006 the Company restated certain figures included in prior fiscal periods as detailed below. A tabular representation of the impact of these adjustments to the Balance Sheets, Statements of Operations, Statements of Stockholders’ Equity and Statements of Cash Flows for the fiscal years ended December 31, 2004, 2005 and 2006 is included at the end of this Note, followed by additional tabular disclosure detailing the impact of adjustments and the restatements on the respective fiscal quarters of 2004, 2005 and 2006 as well as the impact of certain discontinued operations on each quarterly period for fiscal 2005 and 2004 :
Valuation of 2,000,000 Class C shares issued as part of the acquisition of FACT Group (Note 3)
The Company has revalued the dollar amount originally attributed to the issuance of the Class C shares with respect to the acquisition of FACT Group in fiscal 2001. An amount of $540,000 originally recorded for the Class C shares has been reduced by $49,626 in order to reflect the revised valuation of the shares. The Company conducted a detailed analysis of the projected future cash flows of FACT Group, discounted to present day and risked based on the probability of successfully achieving projected revenues. As a result the dollar value attributed to the issuance of the Class C shares has been historically restated as $490,374.
Award benefit received by holders of 2,000,000 Class C shares (Note 3)
The Company has restated its financial statements to include $14,400,000 as a stock award benefit expensed in the fiscal year ended December 31, 2004. The benefit arose as a result of the conversion of 2,000,000 shares of Class C common stock to 12,000,000 shares of Class A common stock on February 2, 2004, and was calculated by conducting an analysis of the value of the Company’s Class C common stock converted on the basis of 6 shares of Class A common stock for each 1 share of Class C common stock, immediately before and after conversion based on the quoted price of the Company’s common stock as of that date. At the time of the conversation, the Board of Directors of the Company amended the conversion provisions in order to maintain the originally contemplated number of Class A common shares (12,000,000) to be received by the Class C holders. As a result, the effect of a reverse split on a 4 for 1 basis effective August 31, 2003 applied to the Company’s Class A common stock, did not impact holders of the Company’s Class C common stock. The Board of directors determined to amend the conversion provisions of the Class C shares at the time of conversion pursuant to the settlement of certain ongoing litigation, the forgiveness of certain liabilities and obligations of the Company in respect to the aforementioned settlement agreed to by the Class C shareholders, and in order to allow the Class C shareholders to continue to maintain effective control in consideration for their agreement to the terms of settlement.
Restatement of value of Intellectual Property
The Company has restated its financial statements to reflect an adjustment to the original carrying value of the intellectual property (“IP”) acquired as part of the acquisition of FACT in fiscal 2001 (Note 3). The value of the intellectual property was formerly comprised of three components: (1) the value of the royalty obligation to acquire the IP, the value of the Class C shares issued as part of the transaction and (3) certain additional payments to the original owners of the IP which arose during fiscal 2003. As a result of the Company’s review the value of the IP has been retroactively adjusted. Adjustments include a reduction to the originally recorded value of the Class C shares by $49,626, and the reallocation of the additional compensation payments required during fiscal 2004, 2005 and 2006, totaling an accumulated $177,686, to retained earnings over each of the respective fiscal years.
Amortization of Intellectual Property
The Company has restated its financial statements to include the amortization of the Company’s intellectual property commencing the close of fiscal 2003. The restated book value of the Company’s intellectual property totaling $2,490,374 has been retroactively amortized on a 10 year straight line basis.
Adjustment to Cash Flow Statement for fiscal year 2005
The Company has restated its 2005 Consolidated Statements of Cash Flow to correct the presentation of certain marketable securities received as consideration with respect to a note payable formerly recorded under Investing Activities, as a non-cash transaction.
F-12
FACT Corporation
Notes to Audited Financial Statements
Years Ended December 31, 2007 and 2006
Note 2 – Restatement of Financial Statements (cont’d)
Consolidated Balance Sheets December 31, 2004, 2005 and 2006
F-13
FACT Corporation
Notes to Audited Financial Statements
Years Ended December 31, 2007 and 2006
Note 2 – Restatement of Financial Statements (cont’d)
Consolidated Balance Sheets December 31, 2004, 2005 and 2006
Restated December 31, 2006 (Audited) | Original December 31, 2006 (1) (Audited) | Restated December 31, 2005 (Unaudited) | Original December 31, 2005 (2) (Audited) | Restated December 31, 2004 (Unaudited) | Original December 31, 2004 (Audited) | ||||||||||||
Stockholders’ Equity | |||||||||||||||||
Class A Common Stock – authorized 100,000,000 shares of no par value: 17,274,406 at December 31,2006 and 2005 and 16,836,367 at December 31,2004 | 23,103,924 | 8,991,924 | 23,083,469 | 8,733,095 | 22,470,004 | 8,119,630 | |||||||||||
Class A Common stock warrants | - | - | 20,455 | 20,455 | 47,985 | 47,985 | |||||||||||
Accumulated deficit | (24,917,170) | (10,805,170) | (24,076,637) | (8,797,135) | (23,152,642) | (8,170,739) | |||||||||||
Accumulated other comprehensive (loss) | 110,120 | 110,120 | 112,143 | 112,143 | 43,266 | 43,266 | |||||||||||
Total Stockholders’ Equity | (1,703,126) | (1,703,126) | (860,570) | 68,558 | (591,387) | 40,142 | |||||||||||
Total Liabilities and Stockholders’’ Equity | $ | 2,288,681 | $ | 2,288,681 | $ | 2,998,407 | $ | 4,023,024 | $ | 5,643,785 | $ | 6,419,364 |
Notes:
(1)
The figures provided above as the original December 31, 2006 figures correspond to the Consolidated Balance Sheet figures filed in our Form 10-KSB as at April 16, 2007 and include certain restatements and adjustments from prior periods disclosed in the filing as at that date under Note 2. The schedules set out below under the heading Consolidated Statements of Stockholders’ Equity (Deficit) - December 2004, 2005 and 2006 under the column heading “Accumulated Deficit – Original” and “Class A common stock – Original Amount” will not confirm to the balance sheet figures presented above as they do not incorporate any of the restatements or adjustments impacted in our April 16, 2007 filing.
(2)
The figures provided as the original December 31, 2005 figures correspond to the figures filed in our Form 10-KSB filing as at April17, 2006 and do not include any of the restatements or adjustments presented at a later date. At the time of the Company’s filing of its fiscal 2006 Form 10-KSB an amended and restated set of financial statements for the period ended December 31, 2005 was filed which will include certain, but not all, of the adjustments provided in this report.
F-14
FACT Corporation
Notes to Audited Financial Statements
Years Ended December 31, 2007 and 2006
Note 2 – Restatement of Financial Statements (cont’d)
Consolidated Statements of Operations
December 31, 2004, 2005 and 2006
Restated December 31, 2006 (Audited) | Original December 31, 2006 (Audited) | Restated December 31, 2005 (Unaudited) | Original December 31, 2005 (Audited) | Restated December 31, 2004 (Unaudited) | Original December 31, 2004 (Audited) | ||||||||||||
Revenues | |||||||||||||||||
Functional food premix | $ | 1,783,554 | $ | 1,783,554 | $ | 708,947 | $ | 708,947 | $ | 918,690 | $ | 918,690 | |||||
Italian Crème sales | - | - | 4,326 | 4,326 | 274,206 | 274,206 | |||||||||||
Consulting income | - | - | 382 | 382 | 11,700 | 11,700 | |||||||||||
Rental income | 20,025 | 20,025 | - | 86,673 | 213,011 | 213,011 | |||||||||||
1,803,579 | 1,803,579 | 713,655 | 800,329 | 1,417,607 | 1,417,607 | ||||||||||||
Costs and Expenses | |||||||||||||||||
Functional food premix | 1,524,556 | 1,524,556 | 635,732 | 635,732 | 507,132 | 507,132 | |||||||||||
Italian Crème costs | 11,276 | 11,276 | 154,170 | 154,170 | 224,854 | 224,854 | |||||||||||
Impairment of inventory | - | - | - | - | 134,176 | 134,176 | |||||||||||
Legal | 79,652 | 79,652 | - | 10,138 | 70,888 | 70,888 | |||||||||||
Consulting fees | 230,479 | 230,479 | 160,163 | 145,823 | 292,134 | 228,684 | |||||||||||
Consulting fees/services settled by the issue of shares | - | - | 241,200 | 241,200 | 56,400 | 56,400 | |||||||||||
Depreciation and amortization | 252,440 | 252,440 | 256,933 | 15,476 | 342,719 | 93,682 | |||||||||||
Other Administrative expenses | 226,860 | 226,860 | 309,094 | 399,977 | 315,052 | 315,052 | |||||||||||
Stock benefit | - | - | - | - | 14,400,000 | ||||||||||||
Write down accounts receivable | - | - | 34,948 | 34,948 | - | - | |||||||||||
Write down investment in Capital Reserve Canada Limited | - | - | 266,944 | 266,944 | - | - | |||||||||||
Write down of bad debt | - | - | - | - | 9,082 | 3,500 | |||||||||||
Equity in loss of Texas T Petroleum Ltd. | - | - | 112,510 | 112,510 | 48,562 | 48,562 | |||||||||||
2,546,891 | 2,546,891 | 2,171,694 | 2,016,917 | 16,400,999 | 1,682,930 | ||||||||||||
(Loss) from Operations | $ | (743,312) | $ | (743,312) | $ | (1,458,039) | $ | (1,216,588) | $ | (14,983,392) | $ | (265,323) | |||||
F-15
FACT Corporation
Notes to Audited Financial Statements
Years Ended December 31, 2007 and 2006
Note 2 – Restatement of Financial Statements (cont’d)
Consolidated Statements of Operations
December 31, 2004, 2005 and 2006
Restated December 31, 2006 (Audited) | Original December 31, 2006 (Audited) | Restated December 31, 2005 (Unaudited) | Original December 31, 2005 (Audited) | Restated December 31, 2004 (Unaudited) | Original December 31, 2004 (Audited) | ||||||||||||
Other income and expenses | |||||||||||||||||
Other income | - | - | - | - | 35 | 35 | |||||||||||
Interest income | - | - | 264,300 | 264,300 | 65,269 | 65,269 | |||||||||||
Interest expense | (87,195) | (87,195) | (163,191) | (239,635) | (395,631) | (395,631) | |||||||||||
Loss on disposal of marketable securities | (10,026) | (10,027) | (7,417) | (7,417) | - | - | |||||||||||
Gain on disposal of assets | - | - | - | 572,944 | 347 | 347 | |||||||||||
(97,221) | (97,221) | 93,692 | 590,192 | (329,980) | (329,980) | ||||||||||||
Provision for income taxes | - | - | - | - | |||||||||||||
Loss before discontinued operations | (840,533) | (840,533) | (1,364,347) | (626,397) | (15,313,372) | (595,303) | |||||||||||
Discontinued operations | - | - | 440,350 | - | 5,582 | - | |||||||||||
Net (Loss) | $ | (840,533) | $ | (840,533) | $ | (923,995) | $ | (626,397) | $ | (15,307,790) | $ | (595,303) | |||||
Net (Loss) per Common Share, basic and diluted | |||||||||||||||||
Continuing operations | (0.05) | (0.05) | (0.08) | (0.04) | (1.04) | (0.04) | |||||||||||
Discontinued operations | - | - | 0.03 | - | 0.00 | - | |||||||||||
Net (Loss) | (0.05) | (0.05) | (0.05) | (0.04) | (1.04) | (0.04) | |||||||||||
Weighted Average Number of Common Shares Used in Calculation | 17,170,545 | 17,170,545 | 17,039,444 | 17,039,444 | 2,735,542 | 2,735,542 | |||||||||||
Net loss | (840,533) | (840,533) | (923,995) | (626,397) | (15,307,790) | (595,303) | |||||||||||
Foreign currency translation adjustment | (2,023) | 2,023 | 60,618 | (76,615) | 86,568 | 86,568 | |||||||||||
Unrealized profit (loss) on marketable securities | - | - | 8,258 | 8,258 | (15,096) | (15,096) | |||||||||||
Total other comprehensive income | $ | (842,556) | $ | (838,510) | $ | (855,119) | $ | (694,754) | $ | (15,236,318) | $ | (523,831) |
F-16
FACT Corporation
Notes to Audited Financial Statements
Years Ended December 31, 2007 and 2006
Note 2 – Restatement of Financial Statements (cont’d)
Consolidated Statements of Stockholders’ Equity (Deficit)
December 31, 2004, 2005 and 2006
Class A Common Stock | Class C Common Stock | Warrants | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Shareholders’ Equity | |||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||
Restated | Original | Restated | Original | Restated | Original | Restated | Original | Restated | Original | Restated | Original | Restated | Original | Restated | Original | Restated | Original | |
Balance at December 31,2003 | 4,652,337 | 4,652,337 | 7,807,855 | 7,807,855 | 2,000,000 | 2,000,000 | 540,000 | 540,000 | 381,976 | 381,976 | 54,638 | 54,638 | (8,464,722) | (8,195,307) | (60,396) | (60,396) | (122,625) | 146,790 |
Stock issuances related to private placements | 72,593 | 72,593 | 10,393 | 10,393 | 72,593 | 9,209 | 19,602 | 19,602 | ||||||||||
Capital Contribution by Officer | 6,916 | 6,916 | 6,916 | 6,916 | ||||||||||||||
Elimination of shares of FACT Corporation held by Texas T Petroleum Ltd. | 7,205 | 7,205 | 7,205 | 7,205 | ||||||||||||||
Foreign currency translation adjustment | 86,568 | 86,568 | 86,568 | 86,568 | ||||||||||||||
Unrealized loss on marketable securities | (15,096) | (15,096) | (15,096) | (15,096) | ||||||||||||||
Cancellation/expiry of warrants | 15,861 | 15,861 | (13,758) | (13,758) | (15,861) | (15,861) | - | - | ||||||||||
Conversion of Class C shares to Class A common shares at ration of 6 for 1 | 12,000,000 | 12,000,000 | 14,890,374 | 540,000 | (2,000,000) | (2,000,000) | (540,000) | (540,000) | 14,350,374 | - | ||||||||
Stock issuances related to services | 91,250 | 91,250 | 56,400 | 56,400 | 56,400 | 56,400 | ||||||||||||
Distribution of CCRL to shareholder (less impairment of recoverability) | (325,000) | (325,000) | 619,870 | 619,870 | 32,191 | 32,191 | 327,061 | 327,061 | ||||||||||
Net loss for the period ended December 31,2004 | (15,307,790) | (595,303) | (15,307,790) | (595,303) | ||||||||||||||
Balance at December 31,2004 | 16,816,180 | 16,816,180 | 22,470,004 | 8,119,630 | - | - | - | - | 440,811 | 440,811 | 47,985 | 47,985 | (23,152,642) | (8,170,739) | 43,267 | 43,267 | (591,387) | 40,143 |
Stock issuances related to services | 480,000 | 480,000 | 241,200 | 241,200 | 241,200 | 241,200 | ||||||||||||
Capital Contribution by Officer | 22,368 | 22,368 | 22,368 | 22,368 | ||||||||||||||
F-17
FACT Corporation
Notes to Audited Financial Statements
Years Ended December 31, 2007 and 2006
Note 2 – Restatement of Financial Statements (cont’d)
Consolidated Statements of Stockholders’ Equity (Deficit)
December 31, 2004, 2005 and 2006
Class A Common Stock | Class C Common Stock | Warrants | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Shareholders’ Equity | |||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||
Restated | Original | Restated | Original | Restated | Original | Restated | Original | Restated | Original | Restated | Original | Restated | Original | Restated | Original | Restated | Original | |
Re-addition of shares of FACT Corporation held by Texas T Petroleum Ltd. Upon divestiture of interest in Texas T Petroleum Ltd. | 20,187 | 20,187 | 8,278 | 8,278 | 8,278 | 8,278 | ||||||||||||
Reverse impairment due to distribution of CRCL shares | 325,000 | 325,000 | 325,000 | 325,000 | ||||||||||||||
Foreign currency translation adjustment | 60,618 | 60,618 | 60,618 | 60,618 | ||||||||||||||
Unrealized gain on marketable securities | 8,258 | 8,258 | 8,258 | 8,258 | ||||||||||||||
Return of shares for cancellation | (41,961) | (41,961) | (10,910) | (10,910) | (10,910) | (10,910) | ||||||||||||
Cancellation/expiry of warrants | 27,530 | 27,530 | (275,625) | (275,625) | (27,530) | (27,530) | - | |||||||||||
Net loss for the period ended December 31,2005 | (923,995) | (626,397) | (923,995) | (626,397) | ||||||||||||||
Balance at December 31,2005 | 17,274,406 | 17,274,406 | 23,083,469 | 8,733,095 | 165,186 | 165,186 | 20,455 | 20,455 | (24,076,637) | (8,797,135) | 112,143 | 112,143 | (860,570) | 68,558 | ||||
Cancellation/expiry of warrants | - | - | 20,455 | 20,455 | (165,186) | (165,816) | (20,455) | (20,455) | - | - | ||||||||
Net loss for the period ended December 31,2006 | (840,533) | (840,533) | (840,533) | (840,533) | ||||||||||||||
Foreign currency translation adjustment | (2,023) | (2,023) | (2,023) | (2,023) | ||||||||||||||
Balance at December 31,2006 | 17,274,406 | 17,274,406 | 23,103,924 | 8,753,550 | (24,917,170) | (9,637,668) | 110,120 | 110,120 | (1,703,126) | (773,998) | ||||||||
F-18
FACT Corporation
Notes to Audited Financial Statements
Years Ended December 31, 2007 and 2006
Note 2 – Restatement of Financial Statements (cont’d)
Consolidated Statements of Cash Flows - December 31, 2004, 2005 and 2006
Restated December 31, 2006 (Audited) | Original December 31, 2006 (Audited) | Restated December 31, 2005 (Unaudited) | Original December 31, 2005 (Audited) | Restated December 31, 2004 (Unaudited) | Original December 31, 2004 (Audited) | |||||||
Cash flows from operating activities: | ||||||||||||
Net (loss) | $ | (840,533) | $ | (840,533) | $ | (1,364,347) | $ | (626,397) | $ | (15,307,790) | $ | (595,305) |
Adjustments to reconcile net loss to net cash | ||||||||||||
Provided by (used in) operating activities: | ||||||||||||
Depreciation, depletion and amortization | 252,434 | 252,434 | 264,514 | 15,476 | 342,719 | 93,682 | ||||||
Stock benefits | 14,400,000 | |||||||||||
Gain (loss) disposal of assets | (583,854) | - | - | |||||||||
Equity in Texas T Petroleum Ltd. | (50,648) | (50,648) | 371 | 371 | ||||||||
Adjustment to cash at beginning of period from disposition of Capital Reserve Canada Limited | - | - | - | - | 3,920 | 3,920 | ||||||
Issuance of shares for settlement of services | 241,200 | 241,200 | 56,400 | 56,400 | ||||||||
Write down investment in Capital Reserve Canada limited. | 221,628 | 221,628 | 266,944 | 266,944 | - | - | ||||||
Write down uncollectible account | - | - | 34,948 | 34,948 | 9,082 | 3,500 | ||||||
Write down investment in Texas T Petroleum Ltd. | - | - | 112,510 | 112,510 | ||||||||
Loss on sale of securities | 10,027 | 10,027 | 7,417 | 7,417 | (339) | (339) | ||||||
Changes in operating assets and liabilities | ||||||||||||
(Increase) Decrease in accounts receivable | 281,276 | 281,276 | (589,367) | (339,435) | 36,575 | 36,575 | ||||||
(Increase) Decrease in prepaid expenses and deposits | - | - | 39,082 | 39,082 | (12,570) | (12,570) | ||||||
(Increase) Decrease in inventory | (22,376) | (22,376) | 264,269 | 264,269 | (256,169) | (256,169) | ||||||
Increase (Decrease) in accounts payable and accrued expenses | 378,988 | 378,988 | 18,111 | 37,710 | 269,056 | 269,056 | ||||||
Total cash flows provided by (used in) operating activities | 281,444 | 281,444 | (755,365) | (580,779) | (458,745) | (400,877) | ||||||
Cash flows from investing activities: | ||||||||||||
Acquisition of property and equipment | (1,373) | (1,373) | (4,749) | (4,749) | (16,400) | (16,400) | ||||||
Proceeds from disposal of real property | - | - | 3,327,820 | - | - | |||||||
Acquisition of shares in Capital Reserve Canada Ltd. | - | - | (249,932) | - | (68) | |||||||
Disposition oil and gas assets net accretion | - | - | - | - | 6,959 | |||||||
Proceeds from sale of securities | 20,843 | 20,843 | 11,069 | 11,069 | 9,714 | 9,714 | ||||||
Total cash flows provided by (used in) investing activities | 19,470 | 19,470 | 6,320 | 3,084,207 | (6,686) | 205 | ||||||
F-19
FACT Corporation
Notes to Audited Financial Statements
Years Ended December 31, 2007 and 2006
Note 2 – Restatement of Financial Statements (cont’d)
Consolidated Statements of Cash Flows - December 31, 2004, 2005 and 2006
Restated December 31, 2006 (Audited) | Original December 31, 2006 (Audited) | Restated December 31, 2005 (Unaudited) | Original December 31, 2005 (Audited) | Restated December 31, 2004 (Unaudited) | Original December 31, 2004 (Audited) | |||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from Loan | 60,000 | 60,000 | - | - | 427,599 | 427,599 | ||||||
Repayment of long-term debt | - | - | - | - | (48,709) | (48,709) | ||||||
Reduction to loan payable | - | - | - | (2,296,250) | (433,627) | (433,627) | ||||||
Proceeds (Repayment) of related party loans | (247,009) | (247,009) | (55,103) | (55,103) | 479,730 | 479,730 | ||||||
Acquisition cost payable | (59,150) | (59,150) | (42,954) | (111,114) | (31,676) | (95,127) | ||||||
Capital contribution by an officer | - | - | 22,368 | 22,368 | 6,916 | 6,916 | ||||||
Proceeds from sale of common stock (net of offering costs) | - | - | - | - | 19,600 | 19,600 | ||||||
Total cash flows provided by (used in) financing activities | (246,159) | (246,159) | (75,689) | (2,440,099) | 419,833 | 356,382 | ||||||
Cash flows from discontinued operations: | ||||||||||||
Proceeds from sale of property | $ | - | $ | - | $ | 1,031,570 | $ | - | $ | - | $ | - |
Cash flows from operations | - | - | (132,594) | - | 1,309 | - | ||||||
Total cash flows provided by (used in) discontinued operations | - | - | 898,976 | - | 1,309 | - | ||||||
Foreign currency translation adjustment | (2,023) | (2,023) | 40,693 | 51,606 | 39,840 | 39,840 | ||||||
Net change in cash | 52,732 | 52,732 | 114,935 | 114,935 | (4,449) | (4,449) | ||||||
Cash balance at beginning of period | 159,839 | 159,839 | 44,904 | 44,904 | 49,353 | 49,353 | ||||||
Cash balance at end of period | 212,571 | 212,571 | 159,839 | 159,839 | 44,904 | 44,904 | ||||||
Supplemental disclosure of cash flow information: | ||||||||||||
Interest paid | 34,636 | 34,636 | 239,635 | 239,635 | 395,631 | 395,631 | ||||||
Income taxes paid | ||||||||||||
Non-cash investing and financing transactions: | ||||||||||||
Acquisition of shares of Capital Reserve Canada Limited | - | - | (250,000) | - | - | - | ||||||
Recovery on disposition of Capital Canada (net of impairment of $325,000 (2004)) | - | - | 325,000 | 325,000 | 325,559 | 325,559 | ||||||
Recovery of value of shares of FACT Corporation previously eliminated due to cross ownership by Texas T Petroleum Ltd. | - | - | 8,278 | 8,278 | - | - | ||||||
Return to treasury of common shares | - | - | (10,910) | (10,910) | - | - |
F-20
FACT Corporation
Notes to Audited Financial Statements
Years Ended December 31, 2007 and 2006
Note 2 – Restatement of Financial Statements (cont’d)
Quarterly results for the years ended December 31, 2004, 2005 and 2006
All information presented below with respect to quarterly results is unaudited.
Fiscal year ended December 31, 2004 | ||||||||||||||||||||||||
First quarter | Second quarter | Third quarter | Fourth quarter | |||||||||||||||||||||
As Previously reported | Adjustment | As restated | As Previously reported | Adjustment | As restated | As Previously reported | Adjustment | As restated | As Previously reported | Adjustment | As restated | |||||||||||||
Depreciation and amortization: | $ | 22,752 | $ | 62,259 | $ | 85,011 | $ | 44,987 | $ | 124,519 | $ | 169,506 | $ | 115,586 | $ | 186,778 | $ | 302,364 | $ | 93,682 | $ | 249,037 | $ | 342,719 |
Consulting fees | 66,703 | 15,326 | 682,029 | 118,876 | 28,616 | 147,492 | 170,404 | 44,470 | 214,874 | 228,684 | 63,450 | 292,134 | ||||||||||||
Stock benefit | 14,400,000 | 14,400,000 | - | 14,400,000 | 14,400,400 | - | 14,400,000 | 14,400,400 | - | 14,400,000 | 14,400,000 | |||||||||||||
Total Adjustment | 14,477,585 | 14,553,135 | 14,631,248 | 14,712,487 | ||||||||||||||||||||
Fiscal year ended December 31, 2005 | ||||||||||||||||||||||||
First quarter | Second quarter | Third quarter | Fourth quarter | |||||||||||||||||||||
As Previously reported | Adjustment | As restated | As Previously reported | Adjustment | As restated | As Previously reported | Adjustment | As restated | As Previously reported | Adjustment | As restated | |||||||||||||
Depreciation and amortization: | $ | 24,629 | $ | 62,259 | $ | 86,888 | $ | 38,234 | $ | 124,519 | $ | 162,753 | $ | 11,861 | $ | 186,778 | $ | 198,639 | $ | 15,476 | $ | 241,457 | $ | 256,933 |
Consulting fees | 46,836 | 7,525 | 54,361 | 77,716 | 17,338 | 95,054 | 100,134 | 31,920 | 132,054 | 145,823 | 14,340 | 160,163 | ||||||||||||
Total Adjustment | 69,784 | 141,857 | 218,698 | 297,598 | ||||||||||||||||||||
Fiscal year ended December 31, 2006 | ||||||||||||||||||||||||
First quarter | Second quarter | Third quarter | Fourth quarter | |||||||||||||||||||||
As Previously reported | Adjustment | As restated | As Previously reported | Adjustment | As restated | As Previously reported | Adjustment | As restated | As Previously reported | Adjustment | As restated | |||||||||||||
Depreciation and amortization: | $ | 1,604 | $ | 62,259 | $ | 63,863 | $ | 1,502 | $ | 124,519 | $ | 126,021 | $ | 21,810 | $ | 186,778 | $ | 208,588 | $ | 252,440 | $ | - | $ | 252,440 |
Consulting fees | 35,622 | 7,547 | 43,169 | 45,059 | 15,094 | 60,153 | 81,933 | 27,909 | 109,842 | 230,479 | - | 230,479 | ||||||||||||
Total Adjustment | 69,716 | 139,613 | 214,687 | - | ||||||||||||||||||||
F-21
FACT Corporation
Notes to Audited Financial Statements
Years Ended December 31, 2007 and 2006
Note 2 – Restatement of Financial Statements (cont’d)
Disposition of subsidiaries fiscal 2005 and 2005
Quarterly information presented below with respect to discontinued operations is unaudited.
Quarterly impact of discontinued operations in fiscal year ended December 31, 2004:
First quarter | Second quarter | Third quarter | Fourth quarter | |||||
Petroleum and nature gas revenue (net of royalties) | $ | 12,808 | $ | 23,718 | $ | 34,050 | $ | 43,245 |
Cost and administrative expense | (8,238) | (14,943) | (26,916) | (37,662) | ||||
Profit (loss) | 4,570 | 8,775 | 7,134 | 5,583 | ||||
Earnings (loss) from discontinued operations | $ | 4,570 | $ | 8,775 | $ | 7,134 | $ | 5,583 |
Quarterly impact of discontinued operations in fiscal year ended December 31, 2005:
First quarter | Second quarter | Third quarter | Fourth quarter | |||||
Rental and interest income net of operating cost | $ | 69,094 | $ | 109,613 | $ | 85,645 | $ | 86,571 |
Cost and administrative expense | 35,410 | 170,342 | 196,053 | (219,162) | ||||
Profit (loss) | 33,684 | (60,729) | (110,406) | (132,591) | ||||
Gain on disposal | - | 723,866 | 546,156 | 552,049 | ||||
Earnings (loss) from discontinued operations | $ | 33,684 | $ | 663,137 | $ | 435,750 | $ | 419,458 |
F-22
FACT Corporation
Notes to Audited Financial Statements
Years Ended December 31, 2007 and 2006
Note 3 - Acquisition of Food and Culinary Technology Group Inc. (“FACT”), Intellectual Property, and Issuance of Class C Common Stock
On November 20, 2001, the Company acquired all of the issued and outstanding shares of FACT in exchange for 2,000,000 shares of the Company’s Class C common stock. The acquisition is treated as an asset acquisition and the Class C shares issued upon the acquisition have been valued based on an analysis of FACT’s future cash flows, discounted at a rate of 20% to present day and impaired at a rate of 50% to account for the high risk factor associated with the nature of the start up of operations in a relatively unknown category of the food market, functional foods. The assets acquired consist principally of certain intellectual property, formulas, patent rights and other intangible assets. The value attributed to the Class C common shares is $490,374, which amount has been amortized annually since on a straight line basis over a period of 10 years commencing December 2003, following the successful completion of two years of revenue generating operations.
The 2,000,000 shares of the Company’s Class C common stock that were issued on November 20, 2001, were convertible into a total of 12,000,000 shares of the Company’s Class A common stock. On August 6, 2003, the Company completed a 4 for 1 reverse split which impacted its Class A common stock. The consolidation did not impact the Class C holders, and as a result an amount of $288,000, which represents the award benefit to the holders of the Class C common stock at the date of the reverse split, discounted at a rate of 80% due to the illiquidity in the market for the Company’s Class A common shares, has been expensed in the fiscal year ended December 31, 2003. As of February 11, 2004, all of the holders of the Company’s Class C common stock elected to convert all of their shares into shares of Class A common stock. During the second quarter of fiscal 2004, the Class C common stock was canceled and a total of 12,000,000 shares of Class A common stock were issued.
Prior to the acquisition, FACT had entered into an agreement to acquire certain intellectual property, formulas, patent rights and other intangible assets (the “Intellectual Property”) owned by F.A.C.T. Group LLC, a New Jersey limited liability company (the “LLC”), for $2,000,000 to be paid in cash pursuant to terms described herein and by the issuance of shares of FACT’s common stock.
In August 2003, the Company and the member owners of LLC entered into a Settlement Agreement to resolve certain disputes and claims that had arisen between the parties. As a result, the parties agreed that the following consideration would be paid in connection with the acquisition of the Intellectual Property:
a. Royalty payments shall be paid to the LLC calculated on the sale of bakery and pasta products at a rate of $0.05 per pound of premix sold until a total of $2,000,000 has been paid.
b.
FACT is obligated to make minimum royalty payments each year. In year 2008, the minimum amount of royalty payments to be paid is $99,963. For each subsequent year, the minimum amount increases by 30%. Amounts for the next 5 years are as follows:
2008 – $ 99,963
2009 – $129,953
2010 – $168,938
2011 – $219,620
2012 – $285,506
Upon reaching 2012, all remaining royalties become due and payable.
F-23
FACT Corporation
Notes to Audited Financial Statements
Years Ended December 31, 2007 and 2006
Note 3 – Acquisition of Food and Culinary Technology Group Inc. (“FACT”), Intellectual Property, and Issuance of Class C Common Stock – Cont’d.
c. An additional royalty payment of $20,000 was made to the LLC in 2003.
d. Additional consideration of up to $233,333 to be paid to two (2) of the LLC’s member owners in monthly payments over the period of time commencing on September 1, 2003 through December 2006. Such amount will be decreased in the event that such member owners personally earn more than a certain amount in any of the stated years or if the amount of royalty payments is in excess of $150,000 in any year. The amounts paid to the LLC owners with respect to this provision are expensed annually as consulting fees. At the close of fiscal 2006 the Company fulfilled the requirements under this provision and a total of $177,686 had been paid as additional consideration.
Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” addresses financial accounting and reporting: (1) at the date of acquisition of goodwill and intangible assets apart from goodwill acquired other than in a business combination and (2) all goodwill and intangible assets apart from goodwill subsequent to their acquisition. A principal requirement of this statement is to determine the useful lives of intangible assets and amortize or not amortize the intangible assets accordingly. Intangible assets apart from goodwill with finite lives are to be amortized over their useful lives to their residual value, if any, whereas goodwill and intangible assets apart from goodwill with indefinite lives are not to be amortized. Another principal requirement of this statement relates to impairment of intangible assets. This statement, in its entirety, became effective for the Company on January 1, 2002. Certain provisions of the statement were effective July 1, 2001 since the intangible assets were acquired after that date. Management believes that currently the intangible assets have an indefinite useful life, but expects that once significant commercial operations commence using the intangible assets, an estimated useful life will be determinable and the intangible assets will be amortized.
Note 4 – Accounts Receivable
The following schedule provides an analysis of the Company’s accounts receivable:
2007 | 2006 | |||
Withholding tax recoverable on sale of real property (a) | $ | - | $ | 29,492 |
Trade receivables | 211,380 | 456,568 | ||
$ | 211,380 | $ | 486,060 |
(a)
During the year the Company successfully concluded the sale of its two commercial properties located in Calgary, Alberta, Canada (Note 4). The balance due to the Company after retirement of all underlying mortgages and loans secured by the two properties was reduced by a recoverable tax hold-back of CDN$310,000 (US$276,291). The Company is taking the appropriate actions to secure the release of this amount, which is presently withheld for tax purposes by the Canadian tax authorities. During fiscal 2006 the Company was successful in recovering $246,799 from the Canadian tax authorities as a result of certain filings. Management realized the remaining balance of these proceeds during fiscal 2007.
F-24
FACT Corporation
Notes toAudited Financial Statements
Years Ended December 31, 2007 and 2006
Note 5 – Investment in Australian Oil and Gas Corporation
Australian Oil and Gas Corporation, (formerly Synergy Technologies Corporation) a former leaseholder at one of the Company’s commercial properties, filed for protection under Chapter 11 of the US Bankruptcy Courts in fiscal 2002 and completed a re-organization plan in fiscal 2003. At the time of filing for bankruptcy, Australian Oil and Gas was indebted to the Company in the amount of $222,627, which amount included past due lease payments, lease rejection costs as allowable under the US Bankruptcy Act and associated legal fees. As part of the reorganization, during fiscal 2003 the Company received cash proceeds in the amount of $5,489 and common stock in the amount of 0.862999 of one share of Australian Oil and Gas for every dollar amount of the Company’s claim, amounting to 174,988 shares of the common stock of Australian Oil and Gas with a fair market value of $1,801 at the time of receipt. As of December 31, 2005, the Company owns 174,988 shares of Australian Oil and Gas which has been recorded at $21,770 based on the quoted market price of the stock at that date. During the year ended December 31, 2006 the Company sold all of its shares of Australian Oil and Gas for proceeds totaling $18,743. The Company recorded a loss of $3,027 with respect to the divestiture.
Note 6 - Distribution of Capital Canada
By the end of fiscal 2002, initial sales had commenced in FACT Group, and the Company determined there was enough merit to commence the divestiture of certain of the Company’s non-core assets. As a result the Company decided to spin-off its operating oil and gas subsidiary, Capital Canada, to its shareholders, subject to the filing and approval of a 20-F registration statement with the SEC, which was first filed by Capital Canada on July 11, 2003. During the final quarter of fiscal 2004, the spin-off became effective and the Company ceased to consolidate the financial records for Capital Canada for purposes of financial reporting. The Company’s board of directors continues to share a director in common with Capital Reserve Canada Limited.
On July 1, 2005, the Company agreed to enter into a convertible loan with Capital Reserve Canada Limited. in the principal amount of $662,059 convertible for a period of two years from July 1, 2005 at $0.05 per share. The Company agreed to accrue interest on the loan back to the initial date of the loan which was March 1, 2000 at the rate of Bank of America prime plus 1% compounded annually. Accrued interest as at the date of this report is reflected on the Company’s income statement. During the fiscal year ended December 31, 2004, the gross amount of the loan was reduced by $325,000 to reflect management’s assessment of amounts recoverable. If not converted the note plus accrued interest will be due on June 30, 2007.
During November 2005, the Company reached an agreement with various third parties whereby it transferred all of its rights and interest in the above-noted convertible loan. Under the terms of the agreement, the Company will receive cash consideration totaling $400,000 and 500,000 free-trading shares of Capital Reserve Canada Limited. The cash proceeds are to be received over 120 days in five installments, including two $50,000 payments and three payments of $100,000 each. Prior to the end of the year the Company received the initial $50,000 payment and the free trading shares. As a result the Company recorded the total value of the convertible loan including all interest applicable under the agreement on its balance sheet. The fair value of the shares received and the value of the cash proceeds offset the total value of the loan resulting in a loss on the original investment of $266,944. The securities remained on the books of the Company with a market value of $250,000 at the close of fiscal 2005.
During fiscal 2006 the Company commenced the sale of these securities realizing proceeds of $2,100 prior to the end of the year. At year end the Company still held a total of 481,800 shares of Capital Reserve Canada Ltd. with a market value of $19,272. Accordingly the Company wrote down the book value of the investment, recording a loss of $7,000 with respect to sales of securities completed during the year, and a permanent decline on the value of the securities of $221,628. During fiscal 2007 the Company continued to sell the remaining securities realizing proceeds of $26,031 prior to the end of the year with respect to the sale of 473,758 shares. The Company recorded a gain on the sale of these securities totaling $7,081. At year end the Company still held a total of 8,042 shares with a book value of $322.
F-25
FACT Corporation
Notes to Audited Financial Statements
Years Ended December 31, 2007 and 2006
Note 7 – Loans Payable (related parties)
Loans Payable from various related parties have the following terms at December 31:
Repayment terms | Interest rate | 2007 | 2006 | |||
Demand | 10% | $ | 178,245 | $ | 162,658 | |
Demand | 18% | 66,205 | - | |||
Demand | 10% | 371,015 | 336,820 | |||
Demand | 0% | 143,353 | - | |||
Due within 2 years | 10% | 234,878 | 338,261 | |||
$ | 993,696 | $ | 837,739 |
The loan payable of $378,231includes $234,878 which is secured by liens on the Company's accounts receivable and investments and bears interest at a rate of 10% p.a., maturing on June 20, 2008. Interest is accrued monthly until maturity, at which time principal and all accrued and unpaid interest becomes due and payable. The remaining balance of the loan totaling $143,353 relates to the amount owing by FACT Products, a wholly owned subsidiary of FACT Group. This amount was previously payable to a supplier of FACT Products but was assumed by Ultimate Destinations Inc. by way of a settlement payment made to the supplier to settle certain litigation between FACT Products and the supplier. The amount is non-interest bearing and is due on demand.
Note 8 – Loans Payable
During the fiscal year ended December 31, 2006, the Company received loans from two arms length third parties totaling $60,000. The loans are repayable on demand and bear interest at a rate of 10% per annum. During fiscal 2007 the Company received a further loan of $21,000 and accrued interest totaling $7,525 with respect to the above noted loans payable.
Note 9 – Common stock
There were no transactions during the fiscal years ended December 31, 2007 and 2006.
During the year ended December 31, 2005, the Company had the following transactions:
A total of 360,000 common shares were issued as payment for services rendered by unrelated third parties. A further 120,000 common share were reserved for issuance for services rendered prior to year end, but not yet issued as of the date of this report. A total of 480,000 common shares were valued at $241,200 for a weighted price per share of $0.5025 based on the market price of the shares at the time of issue.
A total of 41,961 shares were returned to the Company for cancellation by an officer and director of the Company as part of the terms of an agreement entered into in 2000. The canceled shares were valued at $10,910 based on the market price of the stock at the time of the transaction.
Note 10 – Stock-Based Compensation
Issuance of stock options
During the year ended December 31, 2001, the Company adopted a stock option and stock award plan effective April 1, 2001. The plan allows the Board of Directors, or its appointed administrator, to grant stock awards or stock options to employees, directors, and consultants, in a quantity not to exceed 1,000,000 shares and subject to other provisions of the plan. Characteristics of the options, including vesting, execution price, and expiration, are determined by the Board of Directors. During 2001, the Company granted non-qualified stock options to directors, employees and consultants for 650,000 shares of Class A common stock. No options were issued during 2002. During 2003, the Company canceled a total of 600,000 of the options previously granted to officers, directors, employees and consultants and obtained
F-26
FACT Corporation
Notes to Audited Financial Statements
Years Ended December 31, 2007 and 2006
Note 10 – Stock-Based Compensation (continued)
shareholder approval for a 2003 Stock Option and Award Plan (the “Plan”). Under the 2003 Plan 1,000,000 shares may be issued to employees, officers, directors and/or consultants. On August 26, 2003 the Board of Directors set the exercise price for stock options granted under the 2003 Plan at $0.41 per share, which price represents 110% of the closing price of the Company’s shares on that date. There were no options granted during the years ended December 31, 2007 and 2006.
The following is a table of outstanding options and changes during 2007 and 2006:
Employee Options | Non-employee Options | Weighted Average Exercise Price | |||||
Options Outstanding, December 31, 2005 and 2004 | 12,500 | 56,250 | 4.00 | ||||
Options expired | (12,500) | (56,250) | — | ||||
Options Outstanding, December 31, 2006 and 2007 | — | — | — | ||||
Note 11 – Warrants
The Company had outstanding warrants to purchase 165,186 shares of its Class A common stock at December 31, 2005 at $0.34 per share.
The following schedule shows the warrants outstanding and changes made during the years ending December 31, 2007, 2006 and 2005:
Number | Weighted Average Exercise Price | ||
Warrants outstanding December 31, 2005 | 165,186 | $ | 0.34 |
Changes during the year 2006: | |||
Issued | - | - | |
Expired | (165,186) | $ | - |
Warrants outstanding December 31, 2006 and 2007 | - | $ | - |
Where appropriate an allocation has been made in the consolidated statements of stockholders’ equity between common stock and common stock warrants to give effect to the estimated fair value of the common stock warrants.
Note 12 – Related Party Transactions
During the year ended December 31, 2005, the Company entered into a loan agreement in the total amount of $250,000 with respect to amounts previously advanced from International Securities Group Inc., which is owned by a former member of the Company’s Board of Directors, W. Scott Lawler. As at the year ended December 31, 2005 a total of $293,405 was due to International Securities Group Inc., including interest accrued during the most recently completed fiscal year totaling $27,545 calculated at 10% per annum. During fiscal 2006, a further $12,429 was added to the principal balance of the loan and accrued interest totaled $30,986 for a balance of $336,820 as at December 31, 2006. During fiscal 2007 interest totaling $31,859 and a foreign exchange loss of $2,336 were applied to the principal balance of the loan for a closing balance of $371,015 at the year ended December 31, 2007. During the fiscal year ended December 31, 2007 Mr. W. Scott Lawler resigned from the Company’s board of directors. International Securities Group Inc. continues to provide the Company administrative services on a monthly basis.
F-27
FACT Corporation
Notes to Audited Financial Statements
Years Ended December 31, 2007 and 2006
Note 13– Recent Accounting Pronouncements
In February 2006, FASB issued Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements No. 133 and 140.” This Statement amends FASB Statements No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” The Company does not expect SFAS 155 to have a material effect on the Company’s financial statements.
In March 2006, FASB issued Financial Accounting Standards No. 156, “Accounting for Servicing of Financial Assets – an amendment of FASB Statement No. 140.” This Statement amends FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” with respect to the accounting for separately recognized servicing assets and servicing liabilities. The Company does not expect SFAS 156 to have a material effect on the Company’s financial statements.
In September 2006, FASB issued Financial Accounting Standards No. 157, “Fair Value Measurements.” This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice. The Company does not expect SFAS 157 to have a material effect on the Company’s financial statements.
In September 2006, FASB issued Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R).” This Statement improves financial reporting by requiring an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This Statement also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. The Company does not expect SFAS 158 to have a material effect on the Company’s financial statements.
In December 2006, the FASB issued SFAS No. 157 “Fair Value Measurements” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosure about fair value measurements. The statement clarifies that the exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability in the market in which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous market for the asset or liability. It also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and that market participant assumptions include assumptions about risk and effect of a restriction on the sale or use of an asset. The provisions are effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of the statement.
In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment to FASB Statement No. 115”. This statement permits companies to choose to measure many financial instruments and other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement of accounting for financial instruments. This statement applies to all entities, including not for profit. The fair value option established by this statement permits all entities to measure eligible items at fair value at specified election dates. This statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company is currently assessing the impact adoption of SFAS No. 159 will have on its consolidated financial statements.
F-28
FACT Corporation
Notes to Audited Financial Statements
Years Ended December 31, 2007 and 2006
Note 13– Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (“FASB”) issued FASB Statements No.141 (revised 2007), “Business Combinations” (“FAS 141(R)”) and No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“FAS 160”). These standards aim to improve, simplify, and converge internationally the accounting for business combinations and the reporting of noncontrolling interests in consolidated financial statements. The provisions of FAS 141 (R) and FAS 160 are effective for the fiscal year beginning January 1, 2009. We are currently evaluating the provisions of FAS 141(R) and FAS 160.
Note 14 – Income Taxes
As of December 31, 2007 the Company had approximately $7,268,000 (2006 - $6,773,303) of net operating loss carryover that expires between 2022 and 2027. The Company had deferred tax assets of approximately $2,941,000 (2006 - $2,740,789) relating to the net operating loss carryover. A valuation allowance has been provided for the total amount since the amounts, if any, of future revenues necessary to be able to utilize the carryover, are uncertain. A reconciliation of income taxes computed using the statutory federal income tax compared to the effective tax rate is as follows:
2007 | 2006 | |||
Federal tax computed at the expected statutory rate | (35.0) | % | (35.0) | % |
State income tax, net of federal tax benefit | (3.0) | (3.0) | ||
Estimated foreign income taxes | (3.6) | (3.6) | ||
Net change in valuation allowance | 41.6 | 41.6 | ||
Income tax expense - effective rate | 00.0 | % | 00.0 | % |
Because of the 50% change in ownership rules of the Internal Revenue Code, certain prior net operating loss carryforwards are no longer available from periods before 2001. Carryover of net operating losses available may also be restricted due to future changes in ownership.
Note 15 – Commitments
The Company’s subsidiary, Wall Street, presently leases 3,840 square feet of office space at 1530-9th Ave S.E., Calgary, Alberta Canada, from Sun Prairie Resources Ltd., from which location the Company and all its subsidiaires carry on operations. The lease is for a four year term ending on July 31, 2010. There is no provision in the lease for renewal.
Under the terms of the lease Wall Street pays monthly rent at a fixed rate of $11.72 (CAD$11.50) per square foot for a total of $3,750 (CAD$3,680) per month, plus operating costs of approximately $8.42 (CAD$8.26) per square foot totaling $2,693 (CAD$2,643), plus applicable taxes. Annual fluctuations in operating costs as a result of actual costs versus budgeted costs may result in adjustments to the operating costs for each ensuing year.
Minimum Annual lease payments (inclusive of estimated operating costs) are as follows:
2008 - $77,316
2009 - $77,316
2010 - $45,101
$199,733
F-29
FACT Corporation
Notes to Audited Financial Statements
Years Ended December 31, 2007 and 2006
Note 15 – Commitments – Cont’d
Wall Street has sublet the space as follows:
-
International Securities Group Inc. has a sublease for 2,125 square feet on a month to month basis at a rate of $3,567 (CAD$3,500) per month, inclusive of operating costs, plus applicable taxes;
-
FACT Corporation has a sublease for 768 square feet on a month to month basis at a rate of $1,288 (CAD$1,264) per month, inclusive of operating costs, plus applicable taxes.
Wall Street will look to sublease any available square footage in early 2008 for the balance of the term of the lease. There are presently no formal lease agreements between Wall Street and its subtenants.
Note 16 – Other Events
Shareholders of FACT Corporation as of January 10, 2007, will receive dividend shares of FACT Products Inc. on the basis of 1 share for every 5 shares of FACT Corporation. The Company expects to complete the distribution during fiscal 2008.
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ITEM 8.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable
ITEM 8A.
CONTROLS AND PROCEDURES.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the United States Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14 as of the end of the period covered by this report. Based upon the foregoing, our President and our acting Chief Financial Officer concluded that our disclosure controls and procedures are effective and adequate for the purposes set forth in the definition in the Exchange Act rules.
There were no changes in our internal control over financial reporting identified in connection with the evaluation referred to in the immediately preceding paragraph that occurred during our last fiscal quarter that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) as set forth in Internal Control - Integrated Framework. Based on our evaluation under the framework in Internal Control - Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2007.
This annual report does not include an audit or attestation report of our registered public accounting firm regarding our internal control over financial reporting. Our management’s report was not subject to audit or attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report.
ITEM 8B.
OTHER INFORMATION
Not Applicable
PART III
ITEM 9.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORTE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The following table sets forth the names and ages of all directors and executive officers of FACT as of the date of this report, indicating all positions and offices with FACT and its subsidiaries held by each such person:
19
NAME | AGE | POSITION |
Jacqueline Danforth | 36 | President, Secretary/Treasurer and Director of FACT Corporation, President, Secretary and Director of Food and Culinary Technology Group Inc., President, Secretary-Treasurer and Director of FACT Products Inc., President and Director of Wall Street Investment Corp., President, Secretary, Treasurer and a Director of Wall Street Real Estate Ltd. |
Paul Litwack | 53 | Director of FACT Corporation, Director of Food and Culinary Technology Group, Inc. |
Dr. Brian Raines | 70 | Director of FACT Corporation |
The Company’s directors are elected by the holders of FACT's common stock. Cumulative voting for directors is not permitted. The term of office of directors of FACT ends at the next annual meeting of FACT's shareholders or when their successors are elected and qualified. The annual meeting of shareholders is specified in FACT's bylaws to be held within six months from the Company's fiscal year end or within 15 months from the date of the last annual meeting. The Company’s 2007 Annual Meeting was held on July 31, 2007. The term of office of each officer of FACT ends at the next annual meeting of our Board of Directors, expected to take place immediately after the next annual meeting of shareholders, or when his successor is elected and qualifies. Except as otherwise indicated below, no organization by which any officer or director previously has been employed is an affiliate, parent, or subsidiary of FACT.
JACQUELINE R. DANFORTH, Ms. Danforth has been a member of the Board of Directors and the President of FACT Corporation since August 7, 2001. Ms. Danforth has been a director and Secretary of Food and Culinary Technology Group Inc. since its acquisition by the Company, November 7, 2001, and President since July 22, 2002. Ms. Danforth was also named President, Secretary-Treasurer and appointed to the Board of Directors of FACT Products Inc. on November 5, 2001, and has been President and a director of Wall Street Investment Corp since its re-instatement November 15, 2001. Ms. Danforth became the President, Secretary and Treasurer, as well as a director of Wall Street Real Estate Ltd. upon its incorporation on July 23, 2002. Over the past ten years, Ms. Danforth has worked for both private and publicly traded companies, providing management and direction. She has extensive experience in start up operations, and her range of experience with publicly traded corporations listed on both Canadian and US exchanges includes all aspects of public reporting, corporate finance and shareholder communications. She has worked in a broad range of industry sectors including natural resources and technology. Ms. Danforth continues to provide consulting services to other private and public corporations on a limited basis, and sits as a director on several private and public boards. She is Canadian-born and educated, well traveled and currently resides in the United States. She is the President and sole director of Argonaut Management Group, Inc., her private consulting company.
DR. BRIAN RAINES, Dr. Raines was appointed to the Board of directors of FACT in January 2003. Dr. Raines is also the Director of Science for FACT Group and has spent 40 years in various scientific and technical positions in the food industry. From 1998 to present, Dr. Raines has served as a consultant, providing basic scientific research adaptation in the specific area of nutraceuticals and functional foods. From 1990 to 1998 (retirement), Dr. Raines served as Vice President of Technical Services for Unilever Canada/Lipton. From 1980 to 1990, Dr. Raines served as Director of Research and Quality Control for Unilever/Lawry’s Foods, Los Angeles. Prior to this he served in various technical management positions for Mars Inc., Berthelet and Leger. Dr. Raines is an active member of the Canadian Institute of Food Science and Technology and is currently serving as International Liasion. He is a past National President and Chair of the Toronto section. He is also a member of the Scientific Advisory Board of The National Institute of Nutrition. Dr. Raines has chaired various committees of the Institute of Food Technologies/USA and was awarded the distinguished service award for the Q.A. Division in 1992. Dr. Raines has a B.Sc. from Concordia Montreal and a Ph.D. from North Carolina State University. He is also a Fellow of the Canadian and American Institutes of Food Technology.
PAUL LITWACK, Mr. Litwack was appointed to the Board of Directors of FACT Corporation and FACT Group Inc. in January 2003. Mr. Litwack joined DA-TECH CORPORATION, an electronic manuFACTuring services company in 1999 and currently serves as Chairman and Chief Executive Officer. During the five years prior to joining DA-TECH, Mr. Litwack was Chief Executive Officer of Frankford Chocolate & Candy Company. From 1990 to 1993, Mr. Litwack was with Northfield Foods Inc. as vice President – Marketing/Sales and General Manager of their Ashe County Division. Prior to that, Mr. Litwack served as the Director of New Products and then the Director of Frozen Desserts for Kraft General Foods’ Dairy Products Division. Mr. Litwack earned a BS in
20
Engineering from Brown University in 1976 and an MBA from the Wharton School of Finance and Commerce in 1978.
None of our executive officers or directors have been involved in any bankruptcy proceedings within the last five years, been convicted in or has pending any criminal proceeding, been subject to any order, judgment or decree enjoining, barring, suspending or otherwise limiting involvement in any type of business, securities or banking activity or been found to have violated any federal, state or provincial securities or commodities laws.
Section 16(a) Beneficial Ownership Reporting Compliance
There were no officers, directors or beneficial owners of more than 10% of our securities who did not file on a timely basis reports required by Section 16(a) of the Securities Exchange Act of 1934 during the most recent fiscal year.
Code of Ethics
As of the date of this report, the Company has not adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. The Company is presently reviewing a code of ethics which has been presented for adoption. Upon adoption, the Company will file a copy of its code of ethics with the Securities and Exchange Commission as an exhibit to its annual report for the period during which the code of ethics is adopted.
Corporate Governance
There have been no material changes to the procedures by which security holders may recommend nominees to the small business issuer’s board of directors.
The Board of Directors presently does not have an audit committee. Since there are only two independent members of the Board it is not feasible at this time to have an audit committee. The Board of Directors performs the same functions as an audit committee. The Board of Directors in performing its functions as an audit committee has determined that it does not have an audit committee financial expert.
ITEM 10.
EXECUTIVE COMPENSATION.
The following table sets forth information for the individuals who served as the senior executive officer of the Company during any portion of the last 3 fiscal years. No disclosure need be provided for any executive officer, other than the PEO, whose total annual salary and bonus for the last completed fiscal year did not exceed $100,000. Accordingly, no other executive officers of the Company are included in the table.
SUMMARY COMPENSATION TABLE
Name and Principal Position | Year | Salary ($)(1) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Nonquali-fied Deferred Compen-sation ($) | All Other Compen-sation ($) | Total ($) |
Jacqueline Danforth, President & CEO | 2007 | $101,244 | -0- | -0- | -0- | -0- | -0- | $101,244 | $101,244 |
2006 | $60,933 | -0- | -0- | -0- | -0- | -0- | $60,933 | $60,933 | |
2005 | $82,500 | -0- | -0- | -0- | -0- | -0- | -0- | $82,500 |
(1) For 2007 Ms. Danforth received payment of $35,000 and the balance of $66,244 was accrued.
For 2006 Ms. Danforth received payments of $40,311and the balance of $20,622 was accrued. Ms. Danforth was on maternity leave from March 17, 2007 to November 1, 2007;
For 2005 Ms. Danforth received payments of $42,000 and the balance of $40,500 was accrued;
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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
Option Awards | Stock Awards | ||||||||
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) |
Jacqueline Danforth | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- |
Paul Litwack | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- |
Brian Raines | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- | -0- |
There were no stock options granted during the fiscal year ended December 31, 2007. The Company’s Board of Directors and shareholders approved a Stock Option and Award plan for up to 1,000,000 options during fiscal 2003 (the “Plan”).There have been no awards or options granted under the Plan as of the date of this report.
DIRECTOR COMPENSATION
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) |
Jacqueline Danforth | -0- | -0- | -0- | -0- | -0- | -0- | -0- |
Paul Litwack | -0- | -0- | -0- | -0- | -0- | -0- | -0- |
Brian Raines | -0- | -0- | -0- | -0- | -0- | -0- | -0- |
The Company has made no arrangements for the remuneration of its directors, except that they will be entitled to receive reimbursement for actual, demonstrable out-of-pocket expenses, including travel expenses, if any, made on the Company’s behalf. No remuneration has been paid to the Company’s officers or directors for services to date.
ITEM 11.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Securities Authorized for Issuance Under Equity Compensation Plans.
The following table sets forth information as of the fiscal year ended December 31, 2007, in regard to any securities authorized for issuance under equity compensation plans.
22
Equity Compensation Plan Information | |||
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |
Equity compensation plans approved by security holders | 1,000,000 | N/A | 1,000,000 |
Equity compensation plans not approved by security holders | _ | _ | _ |
The Company has a Stock Option and Award plan for up to 1,000,000 options which was approved during fiscal 2003 (the “Plan”).There have been no awards or options granted under the Plan as of the date of this report.
Security ownership of certain beneficial owners.
The following table sets forth information, as of April 9, 2008, with respect to the beneficial ownership of the Company’s common stock by each person known by the Company to be the beneficial owner of more than 5% of the outstanding common stock. Information is also provided regarding beneficial ownership of common stock if all outstanding options, warrants, rights and conversion privileges (to which the applicable 5% shareholders have the right to exercise in the next 60 days) are exercised and additional shares of common stock are issued.
TITLE OF CLASS | NAME AND ADDRESS OF BENFICIAL OWNER | AMOUNT AND NATURE OF BENEFICIAL OWNER | PERCENT OF CLASS (1) |
Class A Common | Caribbean Overseas Investments Ltd. COR 12 Baymen Ave and Calle Al Mar Belize City, Belize | 1,170,296 Class A common shares | 6.82% |
Class A Common | International Securities Group Inc. 1530 9th Ave SE Calgary, Alberta T2G 0T7 | 6,307,456 Class A common shares held in the name of International Securities Group Inc.(2) | 36.78% |
Common | 7,477,752 Common shares | 43.60% |
(1) Based on 17,154,406 shares of common stock issued and outstanding.
(2)
Mr. Lawler, a former director and officer, is the beneficial owner of International Securities Group Inc.
Security Ownership of Management
The following table sets forth information, as of April 9, 2008, with respect to the beneficial ownership of the Company’s common stock by each of the Company's officers and directors, and by the officers and directors of the Company as a group. Information is also provided regarding beneficial ownership of common stock if all outstanding options, warrants, rights and conversion privileges (to which the applicable officers and directors have the right to exercise in the next 60 days) are exercised and additional shares of common stock are issued.
23
TITLE OF CLASS | NAME OF BENFICIAL OWNER | AMOUNT AND NATURE OF BENEFICIAL OWNER | PERCENT OF CLASS |
Class A Common | Jacqueline R. Danforth, President, Secretary, Treasurer and director of FACT Corporation; President, director and Secretary of Food and Culinary Technology Group, Inc., director of FACT Products Inc., President, Secretary, Treasurer and director of Wall Street Real Estate Ltd. and President and director of Wall Street Investment Corp (9) | 118,410 Class A common shares directly and 300,369 shares are held indirectly in the name of Argonaut Management Group Inc. (2) | 2.44% |
Class A Common | Dr. Brian Raines, director of FACT Corporation (3) | 960,000 Class A common shares held in the name of Food Information Services Inc. (4) | 5.58% |
Class A Common | Paul Litwack, director of FACT Corporation and Food and Culinary Technology Group Inc. (5) | 360,000 Class A common shares | 2.09% |
Common | All Officers and Directors as a group | 1,738,779 Common shares | 10.11% |
(1)
Based on 17,154,406 shares of Class A common stock outstanding.
(2)
Ms. Danforth is the beneficial owner of Argonaut Management Group Inc.
(3)
Dr. Raines will receive incentive stock options for 100,000 shares under the Company’s 2003 Stock Option and Stock Award Plan. The stock options have not yet been issued.
(4)
Food Information Services Inc. is a Florida corporation owned by Dr. Raines.
(5)
Mr. Litwack will receive incentive stock options for 100,000 shares under the Company’s 2003 Stock Option and Stock Award Plan. The stock options have not yet been issued.
Changes in Control
There are no arrangements known to the Company which may result in a change of control of the Company.
ITEM 12.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Ultimate Resort Destinations Inc., a Nevada corporation, holds a Secured Convertible Debenture issued to it by the Company in the total amount of $650,000 dated December 31, 2002 and originally maturing on December 31, 2004. During the month of December 2004, the Company renegotiated the terms of the Debenture with the lender to extend the note for a period up to an additional 12 months, or December 31, 2005. Interest will continue to accrue at a rate of 18% per annum, and shall accrue until maturity, at which time the principal and all accrued and unpaid interest shall become due and payable. During fiscal year ended December 31, 2005, the Company paid an amount of $200,905 which was applied first to interest and then to principal. At December 31, 2005, the debenture was renegotiated to extend the term for a further 30 months to June 30, 2008. Subsequent to the fiscal year ended December 31, 2005, the Company paid down an amount of $27,476 against interest and $181,785 against principal on the debenture and the debenture holder agreed to a reduction in the interest rate to 10% per annum. During fiscal 2006, the Company reduced the loan by a further payment of $65,717 as to principal. During fiscal 2007 the Company further reduced the loan by payment of $8,315 as to principal and $63,990 to accrued interest. As at the date of this report, the sole director and officer of Ultimate Resort Destinations Inc. is Mr. Clifford Larry Winsor who is Ms. Danforth’s stepfather. The outstanding balance of the loan including interest as at December 31, 2007 totaled $234,878. During fiscal 2007 Ultimate Resort Destinations Inc. assumed an amount payable to a supplier of
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FACT Products totaling $143,353 by way of a settlement payment made to the supplier to settle certain litigation between FACT Products and the supplier. The amount is non-interest bearing and is due on demand.
During the fiscal year ended December, 31 2005, the Company entered into a loan agreement in the total amount of $250,000 with respect to amounts previously advanced, with International Securities Group Inc., which is owned by a former member of the Company’s Board of Directors, W. Scott Lawler. The loan is at an interest rate of 10% per annum and has so specific terms of repayment. During fiscal 2006 the principal amount of the loan was increased by $12,429, and accrued interest totaling $30,986 for a balance of $336,820 as at December 31, 2006. During fiscal 2007 accrued interest totaled $31,859 resulting in a year end balance payable of $371,015.
ITEM 13.
EXHIBITS.
Exhibits:
REGULATION S-B NUMBER | EXHIBIT | REFERENCE | ||
3.1 | Articles of Incorporation, as amended | Incorporated by reference to the Exhibits previously filed with Capital Reserve Corporation’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 1990 | ||
3.2 | Amended Bylaws | Incorporated by reference to the Exhibits previously filed with Capital Reserve Corporation’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 1994 | ||
3.3 | Articles of Amendment to Articles of Incorporation, filed with the State of Colorado Secretary of State on November 26, 2001 | Incorporated by reference to the Exhibits previously filed with FACT Corporation’s Annual Report for Form 10-KSB for the fiscal year ended December 31, 2002 herewith | ||
3.4 | Articles of Amendment to Articles of Incorporation, filed with the State of Colorado Secretary of State on February 8, 2002 | Incorporated by reference to the Exhibits previously filed with FACT Corporation’s Annual Report for Form 10-KSB for the fiscal year ended December 31, 2002 herewith | ||
10.5 | Share Exchange Agreement dated November 20, 2001 by and between Capital Reserve Corporation, Food and Culinary Technology Group, Inc. and Shareholders of Food and Culinary Technology Group, Inc. | Incorporated by reference to the Exhibits previously filed with the Registrants Annual Report on Form 10-KSB for the fiscal year ended December 31, 2001. | ||
10.7 | Fourth Amendment to the Share Exchange Agreement dated February 2, 2004. | Incorporated by reference to the Exhibits previously filed with the Registrants Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003. | ||
10.8 | Amended and Restated Shareholders Agreement dated February 2, 2004 | Incorporated by reference to the Exhibits previously filed with the Registrants Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003. | ||
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10.9 | Mortgage between FACT Corporation and 948783 Alberta Inc. dated March 17, 2004 | Incorporated by reference to the Exhibits previously filed with the Registrants Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003. | |
10.10 | Offer to Purchase between FACT Corporation and Calfrac Well Services Ltd. dated December 21, 2004 | Incorporated by reference to the Exhibits previously filed with the Registrant’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004. | |
10.11 | Removal of Conditions and Amending Agreement dated February 25, 2005 between FACT Corporation and Calfrac Well Services Ltd. | Incorporated by reference to the Exhibits previously filed with the Registrant’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004. | |
31 | Section 302 Certification- Chief Executive Officer | Filed herewith | |
32 | Certification Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Filed herewith |
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the fees billed to the Company for professional services rendered by the Company's principal accountant, for the year ended December 31, 2007 and December 31, 2006:
Services | 2007 | 2006 |
Audit fees | $5,000 | $6,000 |
Audit related fees | $650 | $3.750 |
Tax fees | $18,100 | - |
Total fees | $23,800 | $9,750 |
Audit fees consist of fees for the audit of the Company's annual financial statements or the financial statements of the Company’s subsidiaries or services that are normally provided in connection with the statutory and regulatory filings of the annual financial statements.
Audit-related services include the review of the Company's financial statements and quarterly reports that are not reported as Audit fees.
Tax fees included tax planning and various taxation matters.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FACT CORPORATION
By:/s/ Jacqueline R. Danforth
Name: Jacqueline R. Danforth
Title: President, Principal Executive, Financial and Accounting Officer
Date: April 15, 2008
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated, who constitute the entire board of directors:
By:/s/ Jacqueline R. Danforth
Name: Jacqueline R. Danforth
Title: President and Member of the Board of Directors
Date: April 15, 2008
By:/s/ Dr. Brian Raines
Name: Dr. Brian Raines
Title: Member of the Board of Directors
Date: April 15, 2008
By:/s/ Paul Litwack
Name: Paul Litwack
Title: Member of the Board of Directors
Date: April 15, 2008
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