UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-K
[ X
] ANNUAL REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
fiscal year ended December 31, 2008
[ ] TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from __________ to ______________
Commission
File
Number 000-17232
FACT
CORPORATION
(Exact
name of registrant as specified in its charter)
Colorado
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84-0888594
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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1530-9th
Avenue S.E., Calgary, Alberta
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T2G
0T7
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code (403)
204-0260
Securities
registered under Section 12(b) of the Exchange Act:
Title
of each class
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Name
of each exchange on which registered
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None
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None
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Securities
registered under Section 12(g) of the Exchange Act:
Class
A Common Shares
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(Title
of Class)
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act
Indicate
by check mark whether the registrant (1) has 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.
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Yes [X] No [ ]
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Yes [X] No [ ]
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Indicate
by check mark if disclosure of delinquent filers in response to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
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-K
or any amendment to this Form 10-K.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer,” and “smaller reporting company” in Rule 12-2 of the
Exchange Act.
Large
accelerated filer
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[ ]
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Accelerated
filer
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[ ]
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Non-accelerated
filer
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[ ]
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Smaller
reporting company
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[X]
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(Do
not check if a smaller reporting company)
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
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 the last
business day of the registrant’s most recently completed second fiscal
quarter.
As of
June 30, 2008 the aggregate market value of voting common stock held by
non-affiliates of the registrant is $3,316,440. Shares of
common stock held by each officer and director have been excluded in that such
persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
(ISSUERS
INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST 5 YEARS)
Check
whether the issuer has filed all documents and reports required to be filed by
Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a court.
(APPLICABLE
ONLY TO CORPORATE REGISTRANTS)
State the
number of shares outstanding of each of the registrant’s classes of common
equity, as of the latest practicable date.
As of
March 31, 2009, the Issuer had a total of 17,154,406 shares of
common stock issued and outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
If the following documents are
incorporated by reference, briefly describe them and identify the part of the
Form 10-K (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, 1980).
TABLE
OF CONTENTS
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Item
in Form 10-K
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Page
No.
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PART
I
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Item
1
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Business
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3
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Item
1A
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Risk
Factors
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9
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Item
1B
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Unresolved
Staff Comments
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10
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Item
2
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Properties
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10
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Item
3
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Legal
Proceedings
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10
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Item
4
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Submission
of Matters to a Vote of the Security Holders
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11
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PART
II
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Item
5
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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11
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Item
6
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Selected
Consolidated Financial Data
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12
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Item
7
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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13
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Item
7A
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Quantitative
and Qualitative Disclosures About Market Risk
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17
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Item
8
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Consolidated
Financial Statements and Supplementary Data
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17
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Item
9
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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18 |
Item
9A
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Controls
and Procedures
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18
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Item
9B
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Other
Information
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18
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PART
III
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Item
10
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Directors,
Executive Officers and Corporate Governance
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19
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Item
11
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Executive
Compensation
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21
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Item
12
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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22
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Item
13
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Certain
Relationships and Related Transactions, and Director
Independence
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25
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Item
14
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Principal
Accountant Fees and Services
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25
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PART
IV
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Item
15
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Exhibits,
Financial Statement Schedules
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26
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SIGNATURES
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28
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PART
I
ITEM 1. BUSINESS
The
statements contained in this Annual Report on Form 10-K for the fiscal year
ended December 31, 2008, that are not purely historical statements are
forward–looking statements within the meaning of Section 21E of the Securities
and Exchange Act of 1934, including statements regarding the Company’s
expectations, beliefs, hopes, intentions or strategies regarding the
future. These forward-looking statements involve risks and
uncertainties. Our actual results may differ from those indicated in
the forward-looking statements. Please see “Risk Factors
that May Affect Future Results,” “Special Note Regarding Forward-Looking
Statements” and the factors and risks discussed in other reports filed from time
to time with the Securities and Exchange Commission.
FACT
Corporation was incorporated under the laws of the State of Colorado on December
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 December
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, muffins and other products, and is presently investigating
new marketing opportunities for its line of retail size mixes.
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 stockholders of the Company whereby each stockholder 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
2008, however this did not occur. The Company intends to
review other business opportunities for Fact Products Inc. and to make a
determination prior to the end of the third quarter of fiscal 2009 whether
to proceed with the spin-off.
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 2008, however, this did not occur and is now planned for
completion in fiscal year 2009. 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 2008, however this divestiture
did not occur. The Company intends to complete this divestiture
during fiscal 2009.
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 wholesale bake mixes to commercial customers. The Company
continues to hold a diminutive 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 2009. As at the close of
fiscal 2008 the Company’s ownership in this public corporation was reduced to
8,042 shares of common stock with a market value of $88. 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 stockholders of FACT Group,
executed in November 2001, the Company issued a total of 2,000,000 shares of its
Class C common stock in consideration for all of the issued and outstanding
shares of FACT Group, a company intending on operating in the functional food
business. The acquisition included certain proprietary formulas for
functional dough and batter based products. The acquisition of FACT
Group required that the formulations be held in escrow contingent upon the
Company providing capitalization to FACT Group in the amount of $3 million and
the payment of $2 million in royalties to certain of the stockholders of FACT
Group. As a result of a settlement of a dispute with such certain
stockholders (the “Plaintiffs”), the formulas to the premixes and other
intellectual property were released to the Company in August 2003, 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:
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2013
- all remaining royalties become due and payable as one balloon
payment.
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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 expired in December 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 2009 to market new products in alternative channels
including major chain grocery, drug stores and club outlets. The
Company is presently investigating opportunities for Ready-to-Eat and other
shelf stable varieties of its bakery products. 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 2009 with respect to
the current and updated versions of its retail ready home-use bake mix
line. FACT Group will also continue to pursue additional premix
licensing agreements with large suppliers to the bakery industry during the
current fiscal year. To this end, subsequent to the close of the
fiscal year ended December 31, 2008, the Company hired a new full-time Vice
President of Sales. The individual hired will pursue both wholesale
and retail bake mix and finished product sales opportunities for
FACT.
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 2009 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 and/or industrial
ingredient supply segments.
Functional
foods can be described as foods designed to deliver specific health benefits to
the consumer, and whose inherent health benefits go beyond basic nutrition,
including the prevention of disease and the promotion of wellness through
nutrition. FACT Group’s vision is to be a competitive supplier of
nutrition solutions to commercial customers so they can create food products
with added health benefits, positioned as healthy alternative foods to serve as
part of the North American consumer's everyday diet. FACT Group
intends to become a leader in product development and a key ingredient/premix
supplier to the functional foods industry. Primary areas of focus are
consumers with the following concerns: diabetes, carbohydrate control, glucose
management, weight management, heart disease and digestive health (increased
fiber). The Company is currently investigating
opportunities to develop a new line of healthy baked goods products either to be
sold in retail size dry or ready-to-eat baked formats which will address
specific dietary health needs for consumer groups with dietary
restrictions. The Company expects to have more detailed information
on these plans during the course of fiscal 2009.
FACT
Group formulations are not patented, but are trade secrets, as is common in the
food industry, and will remain proprietary by way of stringent non-disclosure
and confidentiality agreements executed with the blending
facilities. Customers also execute confidentiality agreements and are
serviced under premix supply agreements which do not allow access to FACT
Group’s premix formulations in their entirety. FACT Group does not
require any governmental approval for its existing line of products, and is
currently in the process of trade-marking its master brand “Nutrition
First™”.
Sales
from the premixes and other complementary products in 2008 accounted for
ninety-seven (97%) of the Company’s total revenues. While the
Company’s gross revenues declined in fiscal 2008 by approximately 36% as
compared to 2007, net revenues reflect a decline of approximately 8% year over
year as a result of improved costs of goods sold, and increased profit margins
on wholesale bake mixes. The Company still reported losses at the
close of fiscal 2008, despite expectations that fiscal 2008 would be the first
profitable year of operations. The Company is looking to see its
first profitable year of operations by the close of fiscal
2009. Current year losses are predominantly the result of
amortization expenses relating to its intellectual property, interest expenses
relating to credit facilities and loans, legal costs relating to
certain ongoing ligation and a one-time expense related to stock-based
compensation. 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 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.
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. As FACT Group looks to move into the “restricted
dietary needs” segment of the market place by early 2010 with line extensions,
we hope to become a market innovator developing a new and currently
under-serviced segment of the industry. We will continue innovating
by relying heavily on the use of functional fibers, sweetening systems which
offer an alternative to traditional sweeteners such as sugar, and calorie
controlled product formats.
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 2009, 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 2007, 2008 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 (98%) of premix sales to the end of fiscal year 2008 and
2007. 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. FACT is also investigating opportunities to re-introduce an
updated series of its line of home-use retail mixes for fiscal
2010.
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. There were
no new products introduced in fiscal 2008. Amounts expended by FACT
Group in pursuit of such activities are borne exclusively by FACT
Group. FACT’s operating plans for fiscal year 2009 through 2011 call
for substantially increased expenditures on research and development related to
customized product lines for private label/store brand, offerings targeted at
nutritional alternatives for consumers with dietary restrictions and the high
fiber categories, and therefore, the Company would expect to raise additional
capital to fund these new product initiatives.
Distribution
Methods
The
Company distributes its products directly to customers from its contracted
warehouse space on the East and West coasts. The Company’s line of
premixes is also distributed to clients through a licensing agreement under
which a large North American bakery ingredient manufacturer has licensed FACT
Group’s formulations to blend and sell under their own brand.
Need for Government Approval
of Principal Products
FACT
Group uses only those raw ingredients which have already received government
approval for use in food products. All its premixes contain Generally
Regarded As Safe (“GRAS”) ingredients which have received Food and Drug
Administration (FDA) approval as required.
Other
Food Products
During
fiscal year 2003, FACT Group’s wholly-owned subsidiary, FACT Products, acquired
the exclusive world-wide license to a line of imported, shelf stable, non-dairy
whipped toppings which it markets under the brand name “Aunt Lydia’s Italian
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 directed to the operations of FACT
Group. The spin-off is expected to be completed prior to the close of
fiscal year 2009.
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
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
$26,031 prior to the end of the year with respect to the sale of 473,758 common
shares.
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. During fiscal 2008 the book
value of the remaining 8,042 shares was re-assessed as a result of decreasing
market value for the securities, and the Company recorded an unrealized loss on
marketable securities of $234. As at December 31, 2008 the Company
continued to hold 8,042 shares with a book value of $88. The Company
will liquidate these remaining securities as soon as possible.
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 did not have any direct employees as at the close
of fiscal 2008. All of the Company’s employees worked on a contract
basis during the most recently completed fiscal year. As of April 9,
2009, the Company and its subsidiaries had one (1) full-time contract employee,
three (3) part-time contract employees providing various administrative and
support services through consulting companies, one (1) contract employee
providing executive-level operational and managerial expertise to FACT Group and
FACT Corporation, and one (1) full-time employee hired in the role of
Vice-President of Sales for FACT Group. 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 from
time to time.
The
Company is a smaller reporting company and is not required to provide this
information.
ITEM
1B. UNRESOLVED
STAFF COMMENTS
The
Company is a smaller reporting company and is not required to provide this
information.
ITEM 2. PROPERTIES
The
Company’s subsidiary, Wall Street Real Estate Ltd., presently leases 3,840
square feet of office space at 1530-9th Ave S.E., Calgary, Alberta Canada, from
Barclay Street Real Estate Ltd. (formerly ″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 $10.86
(CAD$11.50) per square foot for a total of $3,474 (CAD$3,680) per month, plus
operating costs of approximately $8.50 (CAD$9.00) per square foot totaling
$2,568 (CAD$2,720), 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:
2009 -
$ 72,504
2010 - $ 42,294
$
114,798
Wall
Street has sublet the space as follows:
-
|
International
Securities Group Inc. has a sublease for 1,580 square feet on a month to
month basis at a rate of $3,304 (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 $1,301 (CAD$1,378) per month, inclusive of
operating costs, plus applicable
taxes.
|
-
|
Saw
Communications has a sublease for 1,492 square feet until July 31, 2010 at
a rate of $3,078 (CAD$3,259) per month, inclusive of operating costs, plus
applicable taxes.
|
There are
presently no formal lease agreements between Wall Street and its
subtenants.
Neither
the Company, nor its subsidiaries, owns 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) other further relief as the court may deem
proper. On or about December 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. During November 2008 the Company and Michael Baum reached
a settlement in state court (the “Consent Order”).
The terms
of the consent order entered into the record include a small cash payment from
Baum to the Company; a promissory note from Baum in the amount of
$75,000 which amount shall be forgiven over a 10 year period provided Baum
complies with the terms of the consent order; and an agreement that Baum shall
not in any capacity engage in the functional food business. As of the date of
this report the Company and Baum have not yet completed language for a mutual
release in respect of the Consent Order. The Company continued with
depositions under the bankruptcy court proceeding against Orr to the close of
fiscal 2008 and up to the date of this report. An extension on
discovery has been agreed by the parties, extending the original March 13, 2009
deadline for a period of 60 days. The Company continues to
pursue all available remedies. Trial is currently set for the fall of
2009. Settlement negotiations have been initiated by legal counsel for
Orr.
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.
No
matters were submitted to the Company’s security holders for a vote during the
fourth quarter of its fiscal year ending December 31, 2008.
PART
II
(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 2008
|
|
High
|
|
|
Low
|
|
4th
Quarter ended 12/31/08
|
|
$ |
0.37 |
|
|
$ |
0.16 |
|
3rd
Quarter ended 9/30/08
|
|
$ |
0.36 |
|
|
$ |
0.15 |
|
2nd
Quarter ended 6/30/08
|
|
$ |
0.35 |
|
|
$ |
0.22 |
|
1st
Quarter ended 3/31/08
|
|
$ |
0.35 |
|
|
$ |
0.20 |
|
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 |
|
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
March 31, 2009, there were 673 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.
Securities
Authorized for Issuance under Equity Compensation Plans
The
following table provides information as of the end of the Company’s most
recently completed fiscal year with respect to compensation plans (including
individual compensation arrangements) under which equity securities of the
registrant are authorized for issuance, aggregated as follows:
Plan
category
|
Number
of shares of
common
stock to be
issued
upon exercise
of
outstanding
options,
warrants and
rights
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
Number
of shares of common stock remaining available for future issuance under
equity compensation plans ( excluding securities reflected in column
(a))
|
|
(a)
|
(b)
|
(c)
|
Equity
compensation plans approved by security holders
|
1,500,000
|
$0.33
|
500,000
|
Equity
compensation plans not approved by security holders
|
-0-
|
-0-
|
-0-
|
Total
|
1,500,000
|
$0.33
|
500,000
|
Performance
Graph
The
Company is a smaller reporting company and is not required to provide this
information.
Recent
sales of unregistered securities; use of proceeds from registered
securities
There are
no unregistered securities to report which were sold or issued by the Company
without the registration of these securities under the Securities Act of 1933 in
reliance on exemptions from such registration requirements, within the period
covered by this report, which have not been previously included in a Quarterly
Report on Form 10-Q or a Current Report on Form 8-K.
A smaller
reporting company is not required to provide the information required by this
item.
ITEM
7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Liquidity
The
Company anticipates it may require approximately $1,000,000 over the next twelve
months to commence implementation of a newly developed 2009 strategic plan,
which includes significant product development and commercialization efforts,
marketing studies and category analysis, marketing plans and sales efforts, the
proposed clinical trials and independent studies, a consumer awareness and
public relations campaign, concepts for development, manufacturing and
distribution of a line of our own food products for specific restricted dietary
needs, 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 2009, 2010 and 2011 fiscal
years. The amount and timing of additional funds required cannot 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 current 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 cannot be
certain the Company will be successful in achieving revenues from those
operations. Furthermore the Company cannot be certain that we will be
able to raise any additional capital to fund our ongoing
operations.
Additionally
the Company is aggressively pursuing acquisition opportunities which may result
in additional financing requirements in order to successfully conclude a
transaction. At the date of this report, the Company cannot
definitively state the amount of capital which may be required or the type of
transaction which may be undertaken. Of primary importance to the
Company in any acquisition it may pursue are the following (a) presence of
positive cash flow; (2) strategic or synergistic acquisition
opportunities - a sharing of resources to obtain operating
efficiencies (3) new and innovative opportunities to enhance the existing FACT
Group product line.
Capital
Resources
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.
Results
of Operations
Comparison of 2008 and
2007
For the
years ended December 31, 2008, and 2007 the Company incurred operating losses of
$824,698 and $414,771 respectively. Fiscal 2008 operations include a
substantial decrease in gross revenues from $3,476,565 (2007) to $2,200,864
(2008). The decrease in revenues can be attributed directly to
decreased sales of bake mix products to one of its two key wholesale customers.
Factors impacting the decreased demand by the particular customer included: (i)
a reduction to carrying inventory levels of the end consumer goods produced from
our baked goods mixes; (ii) discontinuation of one or more flavor varieties
included in the product line manufactured from our baked goods mixes and (iii)
declining demand for the end products produced from our baked goods mixes at the
retail level. Associated costs of goods sold relating to functional premix sales
decreased in conjunction with reduced bake mix sales from $2,950,707 (2007) to
$1,717,563 (2008). The Company’s gross margin on the sale of
functional bake mixes improved over the respective periods as the Company was
able to secure improved pricing on certain raw materials for certain bake mixes.
Legal fees increased from $122,681 (2007) to $143,917 (2008) as a direct result
of the Company’s involvement in certain legal matters more particularly
described in Item 3 above. Consulting fees decreased slightly to
$168,744 (2008) from $179,605 (2007). Administrative expenses reflect
a substantial decrease over the respective fiscal years from $389,031 (2007) to
$317,228 as the Company incurred decreased costs related to investor relations
activities, freight charges and travel costs during the current
year. Depreciation and amortization expenses remained constant during
the comparative fiscal years at $249,340 (2008) 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 of
business.
During
fiscal 2008 the Company recorded an expense of $428,770 related to stock based
compensation with respect to the issuance of a total of 1,500,000 stock options
to officers and directors of the Company with no comparative entry in the prior
fiscal year.
During
fiscal 2008, the Company recorded an expense of $234 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. The Company recorded a gain of $7,081 during fiscal 2007
as it liquidated certain of these same securities with no comparative entry in
fiscal 2008 as the Company did not liquidate any securities during the current
year.
Interest
expenses increased over the comparative fiscal years totaling $90,564 (2007) and
$103,089 (2008) as the Company received additional loans during the current
fiscal year. During fiscal 2007 the Company’s subsidiary Wall Street
paid $1,201 in corporate income tax with no comparative entry in fiscal
2008.
Net
losses for the two completed fiscal years were $499,455 (2007) and $928,021
(2008) respectively.
Summary of Working Capital
and Stockholders' Equity
As of
December 31, 2008, the Company had negative working capital of $2,151,349 and
negative Stockholders' Equity of $2,675,599 compared with negative working
capital of $1,849,374 and negative Stockholders' Equity of $2,236,028 as of
December 31, 2007. 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.
Sources of Working
Capital
During
2008 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:
·
|
$163,100
in loan proceeds from arms length third
parties;
|
·
|
$26,659
in loan proceeds from a related
party.
|
The
Company is also aggressively pursuing the liquidation of its remaining passive
investments.
Off-balance
Sheet Arrangements
We have
no off-balance sheet arrangements.
Tabular
Disclosure of Contractual Obligations
|
|
Payments
Due by period
|
|
Contractual
Obligations
|
|
Total
|
|
|
Less
than 1 year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
|
More
than 5 years
|
|
Long-Term
Debt Obligations
|
|
$ |
1,653,884 |
|
|
$ |
129,953 |
|
|
$ |
388,558 |
|
|
$ |
1,135,373 |
|
|
$ |
-0- |
|
Capital
Lease Obligations
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
Operating
Lease Obligations
|
|
|
114,798 |
|
|
|
72,504 |
|
|
|
42,294 |
|
|
|
-0- |
|
|
|
-0- |
|
Purchase
Obligations
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
Other
Long-Term Liabilities Reflected on the Registrant's Balance Sheet under
GAAP
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
Total
|
|
$ |
1,768,682 |
|
|
$ |
202,457 |
|
|
$ |
430,852 |
|
|
$ |
1,135,373 |
|
|
$ |
-0- |
|
Critical
Accounting Policies
We have
identified certain accounting policies, described below, that are the most
important to the portrayal of our current financial condition and results of
operations.
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 collectability 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.
Estimates
and Assumptions
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
of revenues and expenses during the reporting period. Estimates are made when
accounting for revenue (as discussed above under “Revenue Recognition”),
depreciation, amortization, bad debt reserves, income taxes and certain other
contingencies.
We are
subject to risks and uncertainties that may cause actual results to vary from
estimates. We review all significant estimates affecting the financial
statements on a recurring basis and record the effects of any adjustments when
necessary.
Inventory
Inventory
is valued at lower of cost or market on a first-in, first-out
basis.
Stock
Compensation Assumptions
Effective
January 1, 2006, the Company adopted the fair value recognition provisions of
SFAS No. 123R "Share Based Payments" using the modified retrospective transition
method. SFAS 123R requires companies to estimate the fair value of
share-based payment awards on the date of grant using an option-pricing model.
The value of the portion of the award that is ultimately expected to vest is
recognized as expense ratably over the requisite service periods. The Company
has estimated the fair value of each award as of the date of grant or assumption
using the Black-Scholes option pricing model, which was developed for use in
estimating the value of traded options that have no vesting restrictions and
that are freely transferable. The Black-Scholes option pricing model considers,
among other factors, the expected life of the award and the expected volatility
of the Company's stock price. In March 2005 the SEC issued
SAB No. 107, Share-Based Payment ("SAB 107") which provides
guidance regarding the interaction of SFAS 123R and certain SEC rules and
regulations. The Company has applied the provisions of SAB 107 in its
adoption of SFAS 123R.
Recent
Accounting Pronouncements
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), BUSINESS
COMBINATIONS. This revision to SFAS No. 141 requires an acquirer to recognize
the assets acquired, the liabilities assumed, and any non-controlling interest
in the acquiree at the acquisition date, at their fair values as of the
acquisition date, with limited exceptions. This revision also requires that
acquisition-related costs be recognized separately from the assets acquired and
that expected restructuring costs be recognized as if they were a liability
assumed at the acquisition date and recognized separately from the business
combination. In addition, this revision requires that if a business combination
is achieved in stages, that the identifiable assets and liabilities, as well as
the non-controlling interest in the acquiree, be recognized at the full amounts
of their fair values.
In
December 2007, the FASB issued SFAS No. 160, NONCONTROLLING INTERESTS IN
CONSOLIDATED FINANCIAL STATEMENTS, an amendment of ARB No. 51.
The objective of this statement is to improve the relevance, comparability, and
transparency of the financial statements by establishing accounting and
reporting standards for the Noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. The Company believes that this statement will
not have any impact on its financial statements, unless it deconsolidates a
subsidiary.
In March
2008, the FASB issued SFAS No. 161, DISCLOSURES ABOUT
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (an amendment to SFAS No. 133).
This statement is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008 and requires enhanced
disclosures with respect to derivative and hedging activities. The Company will
comply with the disclosure requirements of this statement if it utilizes
derivative instruments or engages in hedging activities upon its
effectiveness.
In
April 2008, the FASB issued FASB Staff Position No. 142-3,
DETERMINATION OF THE USEFUL LIFE OF INTANGIBLE ASSETS (“FSP No. 142-3”) to
improve the consistency between the useful life of a recognized intangible asset
(under SFAS No. 142) and the period of expected cash flows used to measure
the fair value of the intangible asset (under SFAS No. 141(R)). FSP
No. 142-3 amends the factors to be considered when developing renewal or
extension assumptions that are used to estimate an intangible asset’s useful
life under SFAS No. 142. The guidance in the new staff position is to be
applied prospectively to intangible assets acquired after December 31,
2008. In addition, FSP No. 142-3 increases the disclosure requirements
related to renewal or extension assumptions. The Company does not believe
implementation of FSP No. 142-3 will have a material impact on its financial
statements.
In May
2008, the FASB issued SFAS No. 162, THE HIERARCHY OF GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES. This statement identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States (the GAAP hierarchy). This statement is effective
60 days following the SEC’s approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, “the Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.”
In May
2008, the FASB issued SFAS No. 163, ACCOUNTING FOR FINANCE
GUARANTEE INSURANCE CONTRACTS – AN INTERPRETATION OF FASB STATEMENT NO. 60. The premium revenue
recognition approach for a financial guarantee insurance contract links premium
revenue recognition to the amount of insurance protection and the period in
which it is provided. For purposes of this statement, the amount of insurance
protection provided is assumed to be a function of the insured principal amount
outstanding, since the premium received requires the insurance enterprise to
stand ready to protect holders of an insured financial obligation from loss due
to default over the period of the insured financial obligation. This
Statement is effective for financial statements issued for fiscal years
beginning after December 15, 2008.
In
June 2008, the FASB issued FASB Staff Position Emerging Issues Task
Force (EITF) No. 03-6-1, DETERMINING WHETHER INSTRUMENTS GRANTED IN
SHARE-BASED PAYMENT TRANSACTIONS ARE PARTICIPATING SECURITIES (“FSP EITF No.
03-6-1”). Under FSP EITF No. 03-6-1, unvested share-based payment
awards that contain rights to receive nonforfeitable dividends (whether paid or
unpaid) are participating securities, and should be included in the two-class
method of computing EPS. FSP EITF No. 03-6-1 is effective for fiscal years
beginning after December 15, 2008, and interim periods within those years,
and is not expected to have a significant impact on the Company’s financial
statements.
In
November 2008, the Emerging Issues Task Force (“EITF”) issued Issue
No. 08-7, ACCOUNTING FOR DEFENSIVE INTANGIBLE ASSETS (“EITF 08-7”). EITF
08-7 applies to all acquired intangible assets in which the acquirer does not
intend to actively use the asset but intends to hold (lock up) the asset to
prevent its competitors from obtaining access to the asset (a defensive asset),
assets that the acquirer will never actually use, as well as assets that will be
used by the acquirer during a transition period when the intention of the
acquirer is to discontinue the use of those assets. EITF 08-7 is effective as of
January 1, 2009. The Company does not expect the adoption of EITF 08-7 to
have a material impact on its financial statements.
On
January 12, 2009 the Financial Accounting Standards Board ("FASB") issued a
final Staff Position ("FSP") amending the impairment guidance in EITF Issue No.
99-20, Recognition of Interest Income and Impairment on Purchased Beneficial
Interests and Beneficial Interests That Continue to Be Held by a Transferor in
Securitized Financial Assets to achieve more consistent determination of whether
an other-than-temporary impairment has occurred. This FSP does not have an
impact on the Company at the present time.
On April
1, 2009 the FASB issued FSP FAS 141(R)-1 that amends and clarifies FASB No. 141
(revised 2007), Business Combinations, to address application issues on initial
recognition and measurement, subsequent measurement and accounting, and
disclosures of assets and liabilities arising from contingencies in a business
combination.
On April
9, 2009 the FASB issued three FSPs intended to provide additional application
guidance and enhance disclosures regarding fair value measurements and
impairments of securities. FSP FAS 157-4, Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly, provides guidelines for
making fair value measurements more consistent with the principles presented in
FASB Statement No. 157, Fair Value Measurements. FSP FAS 107-1 and APB 28-1,
Interim Disclosures about Fair Value of Financial Instruments, enhances
consistency in financial reporting by increasing the frequency of fair value
disclosures. FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments, provides additional guidance designed to
create greater clarity and consistency in accounting for and presenting
impairment losses on securities. These FSPs do not have an impact on the Company
at the present time.
None of
the above new pronouncements has current application to the Company, but may be
applicable to the Company's future financial reporting.
ITEM
7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The
Company is a smaller reporting company and is not required to provide this
information.
ITEM
8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The
financial statements and supplementary data required by this Item 8 are listed
in Item 15(a) (1) and begin at page F-1 of this Annual Report on Form
10-K.
FACT
CORPORATION
REPORT
AND CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2008
(Stated in US
Dollars)
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
|
|
|
Consolidated Statements of
Operations
|
F-5
|
|
|
Consolidated Statements of
Changes in Stockholders’ Deficiency
|
F-6
|
|
|
Consolidated Statements of Cash
Flows
|
F-7
|
|
|
Notes to Financial
Statements
|
F-8
to F-19
|
|
|
|
|
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, 2008 and 2007, and the related consolidated statements of
operations and comprehensive loss, changes in stockholders’ deficiency, and cash
flows for the years ended December 31, 2008 and 2007. 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 audits 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 audits 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
audits 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, 2008 and 2007, and the results of its operations and
its cash flows for the years ended December 31, 2008 and
2007, 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 11,
2009
FACT
CORPORATION
CONSOLIDATED
BALANCE SHEETS
ASSETS
|
|
December
31,
2008
|
|
|
December
31,
2007
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
|
|
$ |
230,341 |
|
|
$ |
105,053 |
|
Inventory
|
|
|
131,170 |
|
|
|
64,446 |
|
Accounts
receivable (Note 3)
|
|
|
107,702 |
|
|
|
211,380 |
|
Prepaid
expense
|
|
|
3,391 |
|
|
|
- |
|
Total
Current Assets
|
|
|
472,604 |
|
|
|
380,879 |
|
|
|
|
|
|
|
|
|
|
Investment
in Capital Reserve Canada Ltd.
|
|
|
88 |
|
|
|
322 |
|
|
|
|
|
|
|
|
|
|
Property
and Equipment
|
|
|
|
|
|
|
|
|
Intellectual
property (Note 2)
|
|
|
998,950 |
|
|
|
1,247,987 |
|
Real
property (net of accumulated depreciation of $988 and
$544)
|
|
|
643 |
|
|
|
1,087 |
|
Total
Property and Equipment
|
|
|
999,593 |
|
|
|
1,249,074 |
|
Total
Assets
|
|
$ |
1,472,285 |
|
|
$ |
1,630,275 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Deficiency
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$ |
561,911 |
|
|
$ |
369,764 |
|
Accounts
payable (related parties)
|
|
|
559,940 |
|
|
|
678,304 |
|
Loan
payable (related parties)
|
|
|
913,243 |
|
|
|
815,452 |
|
Loan
payable
|
|
|
458,906 |
|
|
|
266,769 |
|
Current
portion of long-term debt and acquisition cost (Note 2)
|
|
|
129,953 |
|
|
|
99,964 |
|
Total
current liabilities
|
|
|
2,623,953 |
|
|
|
2,230,253 |
|
|
|
|
|
|
|
|
|
|
Long
– Term Liabilities
|
|
|
|
|
|
|
|
|
Acquisition
cost payable (Note 2)
|
|
|
1,523,931 |
|
|
|
1,636,050 |
|
Total
Long – Term Liabilities
|
|
|
1,523,931 |
|
|
|
1,636,050 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
4,147,884 |
|
|
|
3,866,303 |
|
|
|
|
|
|
|
|
|
|
Stockholders'
Deficiency
|
|
|
|
|
|
|
|
|
Class
A Common Stock: authorized 100,000,000 shares of no par value; 17,154,406
issued and outstanding as at December 31, 2008 and December 31,
2007
|
|
|
23,103,924 |
|
|
|
23,103,924 |
|
Class
A Common Stock Warrants
|
|
|
- |
|
|
|
- |
|
Additional
paid in capital
|
|
|
428,770 |
|
|
|
- |
|
Accumulated
other comprehensive income
|
|
|
136,353 |
|
|
|
76,673 |
|
Accumulated
deficit
|
|
|
(26,344,646 |
) |
|
|
(25,416,625 |
) |
Total
Stockholders' Deficiency
|
|
|
(2,675,599 |
) |
|
|
(2,236,028 |
) |
Total
Liabilities and Stockholders' Deficiency
|
|
$ |
1,472,285 |
|
|
$ |
1,630,275 |
|
SEE
ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FACT
CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|
|
December
31,
2008
|
|
|
December
31,
2007
|
|
Revenues
|
|
|
|
|
|
|
Functional
food premix
|
|
$ |
2,139,945 |
|
|
$ |
3,410,219 |
|
Rental
income
|
|
|
60,919 |
|
|
|
66,346 |
|
|
|
|
2,200,864 |
|
|
|
3,476,565 |
|
|
|
|
|
|
|
|
|
|
Costs
of goods sold – Functional food premix
|
|
|
1,717,563 |
|
|
|
2,950,707 |
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
483,
301 |
|
|
|
525,858 |
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
Legal
|
|
|
143,917 |
|
|
|
122,681 |
|
Consulting
fees
|
|
|
168,744 |
|
|
|
179,605 |
|
Depreciation
and amortization
|
|
|
249,340 |
|
|
|
249,312 |
|
Stock
based compensation
|
|
|
428,770 |
|
|
|
- |
|
Other
administrative expenses
|
|
|
317,228 |
|
|
|
389,031 |
|
|
|
|
1,307,999 |
|
|
|
940,629 |
|
|
|
|
|
|
|
|
|
|
(Loss)
from operation
|
|
|
(824,698 |
) |
|
|
(414,771 |
) |
Other
income and expenses
|
|
|
|
|
|
|
|
|
Tax
paid
|
|
|
- |
|
|
|
(1,201 |
) |
Interest
expense
|
|
|
(103,089 |
) |
|
|
(90,564 |
) |
Unrealized
loss for marketable securities
|
|
|
(234 |
) |
|
|
7,081 |
|
|
|
|
(103,323 |
) |
|
|
(84,684 |
) |
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
- |
|
|
|
- |
|
Net
(Loss)
|
|
$ |
(928,021 |
) |
|
$ |
(499,455 |
) |
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$ |
(0.05 |
) |
|
$ |
(0.03 |
) |
|
|
|
|
|
|
|
|
|
Basic
and diluted weighted average number of shares
|
|
|
17,154,406 |
|
|
|
17,154,406 |
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(928,021 |
) |
|
|
(499,455 |
) |
Foreign
currency translation adjustment
|
|
|
59,680 |
|
|
|
(33,447 |
) |
Total
comprehensive loss
|
|
$ |
(868,341 |
) |
|
$ |
(532,902 |
) |
SEE
ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FACT
CORPORATION
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIENCY
|
|
Class
A Common Stock
|
|
|
Additional
paid in capital
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
Other Comprehensive Income (Loss)
|
|
|
Total
Shareholders’ Deficit
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
17,154,406 |
|
|
$ |
23,103,924 |
|
|
$ |
- |
|
|
$ |
(24,917,170 |
) |
|
$ |
110,120 |
|
|
$ |
(1,703,126 |
) |
Net
loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(499,455 |
) |
|
|
|
|
|
|
(499,455 |
) |
Foreign
currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,447 |
) |
|
|
(33,447 |
) |
Balance
at December 31, 2007
|
|
|
17,154,406 |
|
|
|
23,103,924 |
|
|
|
|
|
|
|
(25,416,625 |
) |
|
|
76,673 |
|
|
|
(2,236,028 |
) |
Stock
based compensation
|
|
|
|
|
|
|
|
|
|
|
428,770 |
|
|
|
|
|
|
|
|
|
|
|
428,770 |
|
Net
loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(928,021 |
) |
|
|
|
|
|
|
(928,021 |
) |
Foreign
currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,680 |
|
|
|
59,680 |
|
Balance
at December 31, 2008
|
|
|
17,154,406 |
|
|
$ |
23,103,924 |
|
|
$ |
428,770 |
|
|
$ |
(26,344,646 |
) |
|
$ |
136,353 |
|
|
$ |
(2,675,599 |
) |
SEE
ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FACT
CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
December
31,
2008
|
|
|
December
31,
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(928,021 |
) |
|
$ |
(499,455 |
) |
Adjustments
to reconcile net loss to cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation,
depletion and amortization
|
|
|
249,339 |
|
|
|
249,337 |
|
Accrued
interest
|
|
|
103,081 |
|
|
|
- |
|
Loss
(gain) on sale of securities
|
|
|
|
|
|
|
(7,081 |
) |
Unrealized
loss on securities
|
|
|
234 |
|
|
|
|
|
Stock-based
compensation
|
|
|
428,770 |
|
|
|
- |
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
57,935 |
|
|
|
274,680 |
|
Inventory
|
|
|
(66,723 |
) |
|
|
8,118 |
|
Prepaid
expense
|
|
|
40,873 |
|
|
|
- |
|
Accounts
payable and accrued expense
|
|
|
116,481 |
|
|
|
(225,616 |
) |
Net
cash provided by (used in) operating activities:
|
|
|
1,969 |
|
|
|
(200,017 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquisition
of property and equipment
|
|
|
- |
|
|
|
- |
|
Proceeds
from sale of securities
|
|
|
- |
|
|
|
26,031 |
|
Net
cash -provided by investing activities:
|
|
|
- |
|
|
|
26,031 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Loan
proceeds
|
|
|
163,100 |
|
|
|
21,000 |
|
Proceeds
(repayment) of related parties’ loan
|
|
|
26,659 |
|
|
|
155,957 |
|
Acquisition
cost payable
|
|
|
(82,130 |
) |
|
|
(76,845 |
) |
Net
cash provided by financing activities:
|
|
|
107,629 |
|
|
|
100,112 |
|
|
|
|
|
|
|
|
|
|
Effect
of foreign exchange on transactions
|
|
|
15,690 |
|
|
|
(33,644 |
) |
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
|
125,288 |
|
|
|
(107,518 |
) |
Cash
at beginning of period
|
|
|
105,053 |
|
|
|
212,571 |
|
Cash
and cash equivalents at end of period
|
|
$ |
230,341 |
|
|
$ |
105,053 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
41,982 |
|
|
$ |
66,990 |
|
Income
taxes paid (refund)
|
|
$ |
(302 |
) |
|
$ |
1,201 |
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of non-cash financing and investing activities:
|
|
|
|
|
|
Interest
accrued on notes
|
|
$ |
103,081 |
|
|
$ |
- |
|
Unrealized
loss on marketable securities
|
|
|
234 |
|
|
|
|
|
Stock
based compensation
|
|
|
428,770 |
|
|
|
- |
|
Total:
|
|
$ |
532,085 |
|
|
$ |
- |
|
SEE
ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FACT
Corporation
Notes to
Audited Financial Statements
Years
Ended December 31, 2008 and 2007
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 stockholders
of the Company.
On
November 7, 2001 the Company entered into a Share Exchange Agreement with the
stockholders 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, 2008, 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. Presently FACT Products Inc. has no operations.
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 3% of
revenues for the current fiscal year were derived from these ongoing operations
in the food industry.
The
Company continues to pursue further commercial supply and licensing contracts
for its existing line of functional food formulations, premixes and
products.
FACT
Corporation
Notes to
Financial Statements
Years
Ended December 31, 2008 and 2007
Note 1- Summary of
Significant Accounting Policies (Continued)
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 2008 and 2007 include the Company and its
wholly-owned subsidiaries FACT, WSRE and FACT Products Inc. All
significant inter-company accounts and transactions have been
eliminated.
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.
Fair
Value of Financial Instruments
The
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 cannot be determined due to a lack of
comparability of similar market instruments.
FACT
Corporation
Notes to
Audited Financial Statements
Years
Ended December 31, 2008 and 2007
Note 1- Summary of
Significant Accounting Policies (Continued)
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 collectability 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 2008
and 2007 were minimal.
The
Company paid no cash dividends in 2008 and 2007.
Basis
of Presentation – Going Concern
The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted 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.
FACT
Corporation
Notes to
Audited Financial Statements
Years
Ended December 31, 2008 and 2007
Note 2 - 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 2009, the
minimum amount of royalty payments to be paid is $129,953. For each
subsequent year, the minimum amount increases by 30%. Amounts for the
subsequent years are as follows:
|
|
Upon
reaching 2012, all remaining royalties become due and
payable.
|
|
c.
An additional royalty payment of $20,000 was made to the LLC in
2003.
|
FACT
Corporation
Notes to
Audited Financial Statements
Years
Ended December 31, 2008 and 2007
Note 2 – Acquisition of Food
and Culinary Technology Group Inc. (“FACT”), Intellectual Property, and Issuance
of Class C Common Stock – (Continued)
|
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 a ten year useful life, and the intangible
assets are being amortized over ten years.
Note 3 – Accounts
Receivable
The
Company’s accounts receivable consists solely of trade receivables totaling
$107,702 as at December 31, 2008 and $211,380 as of December 31,
2007.
Note 4 - 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.
FACT
Corporation
Notes to
Audited Financial Statements
Years
Ended December 31, 2008 and 2007
Note 4 - Distribution of
Capital Canada(Continued)
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. As at
December 31, 2007 the Company still held a total of 8,042 shares with a book
value of $322. At the close of fiscal 2008, the Company continued to
hold 8,042 shares with a book value at the fiscal year end of $0.01 per share or
$88. In respect of reduction to book value at the fiscal year end,
the Company has recorded an unrealized loss of $234.
Note 5
– Loans
Payable (related parties)
Loans
Payable from various related parties have the following terms at December
31:
Repayment
terms
|
|
Interest
rate
|
|
|
2008
|
|
|
2007
|
|
Demand
|
|
|
18 |
% |
|
$ |
66,205 |
|
|
$ |
66,205 |
|
Demand
|
|
|
10 |
% |
|
|
474,513 |
|
|
|
371,016 |
|
Demand
|
|
|
0 |
% |
|
|
143,353 |
|
|
|
143,353 |
|
Due
within 2 years
|
|
|
10 |
% |
|
|
229,172 |
|
|
|
234,878 |
|
|
|
|
|
|
|
$ |
913,243 |
|
|
$ |
815,452 |
|
Loans
payable of $66,205 and $229,172 above are due and payable to Ultimate Resort
Destinations Inc. a company controlled by Mr. Clifford L. Winsor, who is the
stepfather of the Company’s CEO, Ms. Jacqueline Danforth. The loan
totaling $229,172 is secured by liens on the Company's accounts receivable and
investments and bears interest at a rate of 10% p.a., maturing on December 31,
2009. Interest is accrued monthly until maturity, at which time
principal and all accrued and unpaid interest becomes due and
payable. During the year ended December 31, 2008 the
Company made interest payments on the above loans totaling $34,929, and
reductions to principal totaling $5,706. The loan totaling $143,353
relates to an 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 during fiscal 2007. The amount is non-interest
bearing and is due on demand. Ultimate Destinations Inc. is also a
company controlled by Mr. Clifford L. Winsor.
The above
noted loan totaling $474,513 is due and payable to International Securities
Group Inc., a company to which Ms. Danforth, the Company’s CEO, also provides
regular consulting services, and which was previously owned by one of the
Company’s former directors. The loan bears interest at 10% p.a. and
is payable on demand. During the year ended December 31, 2008, the
Company received a further loan of $67,295 under the terms of this loan
agreement, accrued interest totaling $39,115 over the 12 month period, and
recorded an unrealized foreign exchange loss to the loan account totaling $2,913
as a result of the impact of foreign exchange on that portion of the loan
proceeds which were provided to the Company in Canadian
dollars.
FACT
Corporation
Notes to
Audited Financial Statements
Years
Ended December 31, 2008 and 2007
Note
6 –
Loans
Payable
Repayment
terms
|
|
Interest
rate
|
|
|
2008
|
|
|
2007
|
|
Demand
|
|
|
10 |
% |
|
$ |
196,117 |
|
|
$ |
178,244 |
|
Demand
|
|
|
10 |
% |
|
|
75,042 |
|
|
|
55,525 |
|
Demand
|
|
|
10 |
% |
|
|
36,309 |
|
|
|
33,000 |
|
Demand
|
|
|
10 |
% |
|
|
151,438 |
|
|
|
- |
|
|
|
|
|
|
|
$ |
458,906 |
|
|
$ |
266,769 |
|
Each of
the above loans are with arms-length third parties and are payable on
demand.
Note 7 – Common
stock
There
were no transactions during the fiscal years ended December 31, 2008, 2007 or
2006.
Note 8 – Stock-Based
Compensation
Issuance
of stock options
The Board
of Directors approved a 2008 stock option and stock award plan on August 10,
2008 (the “Plan”), which plan received shareholder approval on September 25,
2008. Under the Plan, a maximum of 2,000,000 shares of the Common
Stock of the Company are authorized to be granted to directors, officers,
employees and consultants of the Company.
On
October 10, 2008, the Company granted a total of 1,500,000 stock options to
officers and directors of the Company, exercisable into shares of Class A common
stock at $0.33 per share, which price represents 110% of the closing price of
the Company’s common stock on that date. Concurrently, the
Board of Directors canceled all previously approved stock option
plans. No options remained available for exercise under any of the
Company’s previously approved stock option and award plans at the time of
cancelation.
The
following is a table of outstanding options and changes during the fiscal year
ending December 31, 2008. All options are immediately vested and have
a term of 10 years.
|
|
Employee
Options
|
|
|
Non-employee
Options
|
|
|
Weighted
Average Exercise Price
|
|
Options
outstanding, December 31, 2007
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Options
granted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employees
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Non-employees
|
|
|
- |
|
|
|
1,500,000 |
|
|
|
0.33 |
|
Options
exercised
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Options
canceled
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Options
expired
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Options
Outstanding, December 31, 2008
|
|
|
- |
|
|
|
1,500,000 |
|
|
|
0.33 |
|
FACT
Corporation
Notes to
Audited Financial Statements
Years
Ended December 31, 2008 and 2007
Note
8 –
Stock-Based
Compensation (Continued)
Options
granted consist of:
Year
and Exercise price relative to fair value of underlying
stock
|
|
Weighted
average fair value at grant date
|
|
|
Weighted
average exercise price
|
|
Year
ending December 31, 2008:
|
|
|
|
|
|
|
Exercise
price exceeds fair value:
|
|
$ |
0.30 |
|
|
$ |
0.33 |
|
If not
previously exercised or canceled, options outstanding at December 31, 2008 will
expire as follows:
|
|
Range
of Exercise Prices
|
|
|
Weighted
Average Exercise
|
|
|
|
High
|
|
|
Low
|
|
|
Shares
|
|
|
Price
|
|
Year
Ending December 31, 2018
|
|
$ |
0.33 |
|
|
$ |
0.33 |
|
|
|
1,500,000 |
|
|
$ |
0.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
fair value of each option granted was computed using the Black-Scholes method
using the following weighted-average assumptions:
|
|
Year
ended
December
31, 2008
|
|
Expected
Volatility:
|
|
|
128.18 |
|
Risk-free
interest rate:
|
|
|
3.89 |
% |
Expected
Dividends:
|
|
|
0 |
|
Expected
Term in Years:
|
|
|
10 |
|
The fair
value of 1,500,000 options granted during the year ended December 31, 2008
totals $428,770, which amount has been expensed and recorded in the
Company's Statement of Shareholder's Deficiency, as additional paid in
capital.
Note 9 –
Warrants
The
Company had no outstanding warrants as at December 31, 2006, 2007 or
2008.
Note 10 – 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., a company to which Ms. Danforth, the
Company’s CEO, provides regular consulting services, and which was previously
owned by one of the Company’s former directors. 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. During the
fiscal year ended December 31, 2008, International Securities Group advanced a
further $67,295 to the principal balance of the loan at a rate of 10%
p.a. Interest totaling $39,115 and a foreign exchange gain totaling
$2,913 were applied to the loan for a closing balance of $474,513 at December
31, 2008. International Securities Group Inc. continues to provide
the Company administrative services on a monthly basis.
FACT
Corporation
Notes to
Audited Financial Statements
Years
Ended December 31, 2008 and 2007
Note 11– Recent Accounting
Pronouncements
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), BUSINESS
COMBINATIONS. This revision to SFAS No. 141 requires an acquirer to recognize
the assets acquired, the liabilities assumed, and any non-controlling interest
in the acquiree at the acquisition date, at their fair values as of the
acquisition date, with limited exceptions. This revision also requires that
acquisition-related costs be recognized separately from the assets acquired and
that expected restructuring costs be recognized as if they were a liability
assumed at the acquisition date and recognized separately from the business
combination. In addition, this revision requires that if a business combination
is achieved in stages, that the identifiable assets and liabilities, as well as
the non-controlling interest in the acquiree, be recognized at the full amounts
of their fair values.
In
December 2007, the FASB issued SFAS No. 160, NONCONTROLLING INTERESTS IN
CONSOLIDATED FINANCIAL STATEMENTS, an amendment of ARB No. 51.
The objective of this statement is to improve the relevance, comparability, and
transparency of the financial statements by establishing accounting and
reporting standards for the Noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. The Company believes that this statement will
not have any impact on its financial statements, unless it deconsolidates a
subsidiary.
In March
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 161, DISCLOSURES ABOUT DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES (an amendment to SFAS No. 133). This
statement is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008 and requires enhanced
disclosures with respect to derivative and hedging activities. The Company will
comply with the disclosure requirements of this statement if it utilizes
derivative instruments or engages in hedging activities upon its
effectiveness.
In
April 2008, the FASB issued FASB Staff Position No. 142-3,
DETERMINATION OF THE USEFUL LIFE OF INTANGIBLE ASSETS (“FSP No. 142-3”) to
improve the consistency between the useful life of a recognized intangible asset
(under SFAS No. 142) and the period of expected cash flows used to measure
the fair value of the intangible asset (under SFAS No. 141(R)). FSP
No. 142-3 amends the factors to be considered when developing renewal or
extension assumptions that are used to estimate an intangible asset’s useful
life under SFAS No. 142. The guidance in the new staff position is to be
applied prospectively to intangible assets acquired after December 31,
2008. In addition, FSP No. 142-3 increases the disclosure requirements
related to renewal or extension assumptions. The Company does not believe
implementation of FSP No. 142-3 will have a material impact on its financial
statements.
In May
2008, the FASB issued Statement No. 162, THE HIERARCHY OF GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES. This statement identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States (the GAAP hierarchy). This statement is effective
60 days following the SEC’s approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, “the Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.”
In May
2008, the FASB issued Statement No. 163, ACCOUNTING FOR FINANCE
GUARANTEE INSURANCE CONTRACTS – AN INTERPRETATION OF FASB STATEMENT NO. 60. The premium revenue
recognition approach for a financial guarantee insurance contract links premium
revenue recognition to the amount of insurance protection and the period in
which it is provided. For purposes of this statement, the amount of insurance
protection provided is assumed to be a function of the insured principal amount
outstanding, since the premium received requires the insurance enterprise to
stand ready to protect holders of an insured financial obligation from loss due
to default over the period of the insured financial obligation. This
Statement is effective for financial statements issued for fiscal years
beginning after December 15, 2008.
FACT
Corporation
Notes to
Audited Financial Statements
Years
Ended December 31, 2008 and 2007
Note 11– Recent Accounting
Pronouncements (Continued)
In
June 2008, the FASB issued FASB Staff Position Emerging Issues Task
Force (EITF) No. 03-6-1, DETERMINING WHETHER INSTRUMENTS GRANTED IN
SHARE-BASED PAYMENT TRANSACTIONS ARE PARTICIPATING SECURITIES (“FSP EITF No.
03-6-1”). Under FSP EITF No. 03-6-1, unvested share-based payment
awards that contain rights to receive nonforfeitable dividends (whether paid or
unpaid) are participating securities, and should be included in the two-class
method of computing EPS. FSP EITF No. 03-6-1 is effective for fiscal years
beginning after December 15, 2008, and interim periods within those years,
and is not expected to have a significant impact on the Company’s financial
statements.
In
November 2008, the Emerging Issues Task Force (“EITF”) issued Issue
No. 08-7, ACCOUNTING FOR DEFENSIVE INTANGIBLE ASSETS (“EITF 08-7”). EITF
08-7 applies to all acquired intangible assets in which the acquirer does not
intend to actively use the asset but intends to hold (lock up) the asset to
prevent its competitors from obtaining access to the asset (a defensive asset),
assets that the acquirer will never actually use, as well as assets that will be
used by the acquirer during a transition period when the intention of the
acquirer is to discontinue the use of those assets. EITF 08-7 is effective as of
January 1, 2009. The Company does not expect the adoption of EITF 08-7 to
have a material impact on its financial statements.
On
January 12, 2009 the Financial Accounting Standards Board ("FASB") issued a
final Staff Position ("FSP") amending the impairment guidance in EITF Issue No.
99-20, Recognition of Interest Income and Impairment on Purchased Beneficial
Interests and Beneficial Interests That Continue to Be Held by a Transferor in
Securitized Financial Assets to achieve more consistent determination of whether
an other-than-temporary impairment has occurred. This FSP does not have an
impact on the Company at the present time.
On April
1, 2009 the FASB issued FSP FAS 141(R)-1 that amends and clarifies FASB No. 141
(revised 2007), Business Combinations, to address application issues on initial
recognition and measurement, subsequent measurement and accounting, and
disclosures of assets and liabilities arising from contingencies in a business
combination.
On April
9, 2009 the FASB issued three FSPs intended to provide additional application
guidance and enhance disclosures regarding fair value measurements and
impairments of securities. FSP FAS 157-4, Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly, provides guidelines for
making fair value measurements more consistent with the principles presented in
FASB Statement No. 157, Fair Value Measurements. FSP FAS 107-1 and APB 28-1,
Interim Disclosures about Fair Value of Financial Instruments, enhances
consistency in financial reporting by increasing the frequency of fair value
disclosures. FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments, provides additional guidance designed to
create greater clarity and consistency in accounting for and presenting
impairment losses on securities. These FSPs do not have an impact on the Company
at the present time.
None of
the above new pronouncements has current application to the Company, but may be
applicable to the Company's future financial reporting.
FACT
Corporation
Notes to
Audited Financial Statements
Years
Ended December 31, 2008 and 2007
Note 12 – Income
Taxes
As of
December 31, 2008 the Company had approximately $7,768,000 (2007 - $7,268,000)
of net operating loss carryover that expires between 2022 and
2028. The Company had deferred tax assets of approximately $3,107,000
(2007 - $2,941,000) 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:
|
|
2008
|
|
|
2007
|
|
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.
The
change in the valuation allowance was $166,000 for 2008.
The
Company adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, on January 1, 2007. As a result of the
implementation of Interpretation 48, the Company recognized approximately no
increase in the liability for unrecognized tax benefits.
The
Company has no tax positions at December 31, 2007 and 2008 for which the
ultimate deductibility is highly certain but for which there is uncertainty
about the timing of such deductibility.
The
Company recognizes interest accrued related to unrecognized tax benefits in
interest expense and penalties in operating expenses. During the
years ended December 31, 2007 and 2008, the Company recognized no interest and
penalties. The Company had no accruals for interest and penalties at
December 31, 2007 and 2008.
Note
13 – 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 Barclay Street Real
Estate Ltd. (formerly ″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 $10.86
(CAD$11.50) per square foot for a total of $3,474 (CAD$3,680) per month, plus
operating costs of approximately $8.50 (CAD$9.00) per square foot totaling
$2,568 (CAD$2,720), 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:
2009 -
$ 72,504
2010 - $ 42,294
$
114,798
FACT
Corporation
Notes to
Audited Financial Statements
Years
Ended December 31, 2008 and 2007
Note 13 – Commitments
(continued)
Wall
Street has sublet the space as follows:
-
|
International
Securities Group Inc. has a sublease for 1,580 square feet on a month to
month basis at a rate of $3,304 (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 $1,301 (CAD$1,378) per month, inclusive of
operating costs, plus applicable
taxes.
|
-
|
Saw
Communications has a sublease for 1,492 square feet until July 31, 2010 at
a rate of $3,078 (CAD$3,259) per month, inclusive of operating costs, plus
applicable taxes.
|
There are
presently no formal lease agreements between Wall Street and its
subtenants.
Note 14
– 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 did not accomplish a distribution in
fiscal 2008 and now expects to complete the distribution during fiscal
2009.
Subsequent
to the year-end the Company hired a Vice President of Sales. Under
the terms of the employment contract the Company agreed to issue the employee
110,000 incentive stock options with an exercise price of $0.35 per
share. The options vest ratably on a quarterly basis over the term of
the first year of employment.
ITEM
9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
There are
not currently and have not been any disagreements between us and our accountants
on any matter of accounting principles, practices or financial statement
disclosure.
ITEM
9A
(T). CONTROLS
AND PROCEDURES.
Evaluation
of Disclosure Controls and Procedures
Our
management, under supervision and with the participation of the Chief Executive
Officer and the Chief Financial Officer, evaluated the effectiveness of our
disclosure controls and procedures, as defined under Exchange Act Rule
13a-15(e). Based upon this evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that, as of December 31, 2008, the
disclosure controls and procedures were effective to ensure that information
required to be disclosed in the Company’s Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
Securities Exchange Commission’s rules and forms.
Changes
in Internal Control Over Financial Reporting
There
have been no changes in our internal controls over financial reporting that
occurred during our most recent fiscal quarter that have materially affected, or
are reasonably likely to materially affect, our internal controls over financial
reporting.
Management’s
Report On Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined under Exchange Act Rules 13a-15(f)
and 14d-14(f). Our internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
All
internal control systems, no matter how well designed, have inherent limitations
and may not prevent or detect misstatements. Therefore, even those
systems determined to be effective can only provide reasonable assurance with
respect to financial reporting reliability and financial statement preparation
and presentation. In addition, projections of any evaluation of
effectiveness to future periods are subject to risk that controls become
inadequate because of changes in conditions and that the degree of compliance
with the policies or procedures may deteriorate.
Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2008. In making the assessment,
management used the criteria issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) in Internal Control-Integrated
Framework. Based on its assessment, management concluded that,
as of December 31, 2008, the Company’s internal control over financial reporting
was effective to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles.
This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to the temporary rules of
the Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.
ITEM
9B. OTHER
INFORMATION
There are
no items requiring disclosure hereunder.
PART
III
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE.
|
The
following table sets forth the names and ages of all directors and executive
officers of FACT as of the date of this report, indicating all positions and
offices with FACT and its subsidiaries held by each such person:
NAME
|
|
AGE
|
|
POSITION
|
Jacqueline
Danforth
|
|
|
37 |
|
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 stockholders or when their successors are elected and
qualified. The annual meeting of stockholders 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
2008 Annual Meeting was held on September 25, 2008. 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
stockholders, 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
stockholder 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 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 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.
Compliance
with Section 16(A) of the Exchange Act
Based on
a review of Forms 3, 4, and 5 and amendments thereto furnished to the registrant
during its most recent fiscal year, the following represents each person who did
not file on a timely basis reports required by Section 16(a) of the Exchange Act
during the most recent fiscal year:
Name
|
Reporting
Person
|
Form
3/# of transactions
|
Form
4/# of transactions
|
Form
5/# of transactions
|
Jacqueline
Danforth
|
CEO,
CFO and Director
|
N/A
|
Late/1
|
N/A
|
Paul
Litwack
|
Director
|
N/A
|
Late/1
|
N/A
|
Brian
Raines
|
Director
|
N/A
|
Late/1
|
N/A
|
Code
of Ethics
As of the
date of this report, the Company has not adopted a code of ethics that applies
to its principal executive officer, principal financial officer, principal
accounting officer or controller or persons performing similar
functions. The Company intends to review and finalize the adoption of
a code of ethics at such time as it concludes a merger or acquisition and
commences business operations. 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 Company's board of directors.
The Board
of Directors presently does not have an audit committee. Since there is only one
independent member 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
11. EXECUTIVE
COMPENSATION.
The
following table sets forth information for the individuals who served as the
senior executive officers of the Company during any portion of the last two
fiscal years.
SUMMARY
COMPENSATION TABLE
Name
and Principal
Position
|
Fiscal
Year ended December 31
|
Salary
($)(1)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan Compensation
($)
|
Nonqualified
Deferred
Compensation
($)
|
All
Other Compensation
($)
|
Total
($)
|
Jacqueline
Danforth, President & Principal Executive Officer
|
2008
|
101,244
|
-0-
|
-0-
|
142,923
|
-0-
|
-0-
|
|
244,167
|
Jacqueline
Danforth, President & Chief Executive Offier
|
2007
|
101,244
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
|
101,244
|
(1) For
2007 Ms. Danforth received payments of $35,000 and the balance of $66,244 was
accrued. For 2008 Ms. Danforth received payments of $43,781 and the
balance of $57,463 was accrued.
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR END
|
|
Option
Awards
|
|
Stock
Awards
|
|
Name
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
|
Option
Exercise
Price
($)
|
|
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
|
|
|
500,000 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
0.33 |
|
October
10, 2018
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
Paul
Litwack
|
|
|
500,000 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
0.33 |
|
October
10, 2018
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
Brian
Raines
|
|
|
500,000 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
0.33 |
|
October
10, 2018
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
There
were a total of 1,500,000 stock options granted during the fiscal year ended
December 31, 2008 to officers and directors of the Company under the Company’s
2008 Stock Option and Award Plan (the “Plan”) which was approved by stockholders
during fiscal 2008. All of the options vested on grant date and have
a term of 10 years. There have been no stock awards 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- |
|
|
|
142,923 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
142,923 |
|
Paul
Litwack
|
|
|
-0- |
|
|
|
-0- |
|
|
|
142,923 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
142,923 |
|
Brian
Raines
|
|
|
-0- |
|
|
|
-0- |
|
|
|
142,923 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
142,923 |
|
The
Company has made no arrangements for the cash 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, other than the option awards granted
as disclosed in the table above.
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
Securities
Authorized for Issuance under Equity Compensation Plans
The
following table provides information as of the end of the Company’s most
recently completed fiscal year with respect to compensation plans (including
individual compensation arrangements) under which equity securities of the
registrant are authorized for issuance, aggregated as follows:
Equity
Compensation Plan Information
|
|
Plan
category
|
|
Number
of shares of
common
stock to be
issued
upon exercise
of
outstanding
options,
warrants and
rights
|
|
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
|
|
Number
of shares of common stock remaining available for future issuance under
equity compensation plans (excluding securities reflected in column
(a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Equity
compensation plans approved by security holders
|
|
|
1,500,000 |
|
|
$ |
0.33 |
|
|
|
500,000 |
|
Equity
compensation plans not approved by security holders
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
Total
|
|
|
1,500,000 |
|
|
$ |
0.33 |
|
|
|
500,000 |
|
The
Company has a Stock Option and Award plan for up to 2,000,000 options which was
approved during fiscal 2008 (the “Plan”). Concurrent with stockholder
approval for the 2008 Stock Option and Award Plan the Board of Directors
canceled all previously approved stock option plans. There were no
outstanding stock options at the time of cancelation of the prior
plans. There have been a total of 1,500,000 options granted to
officers and directors under the Plan as of the date of this report, and a
further 110,000 options are reserved for issuance pursuant to an employment
agreement between the Company and its newly appointed Vice President of Sales
which commenced April 6, 2009.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The
following table sets forth information, as of March 31, 2009, 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% stockholders 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
|
2,170,296
Class A common shares
|
12.65%
|
Class
A Common
|
International
Securities
Group
Inc.
1530
9th
Ave SE
Calgary,
Alberta T2G 0T7
|
6,287,456
Class A common shares held in the name of International Securities Group
Inc.(2)
|
36.31%
|
Class
A Common
|
Jacqueline
R. Danforth, President, Secretary, Treasurer and director of FACT
Corporation; President, director and Secretary of Food and Culinary
Technology Group, Inc., director of FACT Products Inc., President,
Secretary, Treasurer and director of Wall Street Real Estate Ltd. and
President and director of Wall Street Investment Corp (9)
c/o
1530-9th
Ave S.E. Calgary, Alberta, Canada T2G OT7
|
618,410
Class A common shares and directly(2)
and 300,369 shares are held indirectly in the name of Argonaut
Management Group Inc.
(3)
|
5.20%
|
Class
A Common
|
Dr.
Brian Raines, director of FACT Corporation (4)
|
1,460,000
Class A common shares held in the name of Food Information Services Inc.
(5)
|
8.27%
|
|
|
|
|
Common
|
|
7,477,752
Common shares
|
62.43%
|
(1) Beneficial
ownership is determined in accordance with SEC rules and includes voting or
investment power with respect to securities. All shares of
Class A Common Stock subject to options or warrants exercisable within 60 days
of March 31, 2009 are deemed to be outstanding and beneficially owned by the
persons holding those options or warrants for the purpose of computing the
number of shares beneficially owned and the percentage ownership of that
person. They are not, however, deemed to be outstanding beneficially
owned for the purpose of computing the percentage ownership of any other
person. Subject to the paragraph above, the percentage ownership of
outstanding shares is based on 17,154,406 shares of Class A common stock
outstanding as of March 31, 2009.
(2)
Ms. Danforth is the beneficial owner of Argonaut Management Group
Inc.
(3) Ms.
Danforth has been granted a total of 500,000 stock options included above, which
are fully vested and available or exercise at $0.33 per share for a period of 10
years from October 10, 2008.
(4)
Dr. Raines has been granted a total of 500,000 stock options which are fully
vested and available or exercise at $0.33 per share for a period of 10 years
from October 10, 2008.
(5) Food
Information Services Inc. is a Florida corporation owned by Dr.
Raines.
Security
Ownership of Management
The
following table sets forth information, as of April 9, 2009, with respect to the
beneficial ownership of the Company’s common stock by each of the Company's
officers and directors, and by the officers and directors of the Company as a
group. Information is also provided regarding beneficial ownership of
common stock if all outstanding options, warrants, rights and conversion
privileges (to which the applicable officers and directors have the right to
exercise in the next 60 days) are exercised and additional shares of common
stock are issued.
TITLE
OF CLASS
|
NAME
OF BENFICIAL OWNER
|
AMOUNT
AND NATURE OF BENEFICIAL OWNER
|
PERCENT
OF CLASS
(1)
|
|
|
|
|
Class
A Common
|
Jacqueline
R. Danforth, President, Secretary, Treasurer and director of FACT
Corporation; President, director and Secretary of Food and Culinary
Technology Group, Inc., director of FACT Products Inc., President,
Secretary, Treasurer and director of Wall Street Real Estate Ltd. and
President and director of Wall Street Investment Corp (9)
c/o
1530-9th
Ave S.E. Calgary, Alberta, Canada T2G OT7
|
618,410
Class A common shares are held directly(2)
and 300,369 shares are held indirectly in the name of Argonaut
Management Group Inc.
(3)
|
5.20%
|
Class
A Common
|
Dr.
Brian Raines, director of FACT Corporation (4)
|
1,460,000
Class A common shares held in the name of Food Information Services Inc.
(5)
|
8.27%
|
Class
A Common
|
Paul
Litwack, director of FACT Corporation and Food and Culinary Technology
Group Inc. (6)
|
860,000
Class A common shares
|
4.87%
|
Common
|
All
Officers and Directors as
a group
|
3,238,779
Class A Common shares
|
18.34%
|
(1) Beneficial
ownership is determined in accordance with SEC rules and includes voting or
investment power with respect to securities. All shares of
Class A Common Stock subject to options or warrants exercisable within 60 days
of March 31, 2009 are deemed to be outstanding and beneficially owned by the
persons holding those options or warrants for the purpose of computing the
number of shares beneficially owned and the percentage ownership of that
person. They are not, however, deemed to be outstanding beneficially
owned for the purpose of computing the percentage ownership of any other
person. Subject to the paragraph above, the percentage ownership of
outstanding shares is based on 17,154,406 shares of Class A common stock
outstanding as of March 31, 2009.
(2) Ms.
Danforth is the beneficial owner of Argonaut Management Group Inc.
(3) Ms.
Danforth has been granted a total of 500,000 stock options included above, which
are fully vested and available or exercise at $0.33 per share for a period of 10
years from October 10, 2008.
(4) Dr.
Raines has been granted a total of 500,000 stock options which are fully vested
and available or exercise at $0.33 per share for a period of 10 years from
October 10, 2008.
(5) Food
Information Services Inc. is a Florida corporation owned by Dr.
Raines.
(6) Mr.
Litwack has been granted a total of 500,000 stock options which are fully vested
and available or exercise at $0.33 per share for a period of 10 years from
October 10, 2008.
Changes
in Control
There are
no arrangements known to the Company which may result in a change of control of
the Company.
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
|
Transactions
with Related Persons
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., a company which holds shares of the
Company. 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, 2008, International Securities Group advanced
$67,295 to the principal balance of the loan at a rate of 10%
p.a. Interest totaling $39,115 and a foreign exchange loss totaling
$2,913 were applied to the loan for a closing balance of $474,513 at December
31, 2008.
Loans
payable of $66,205 and $229,172 included in Loans Payable – Related Parties on
the balance sheets of the Company included above are due and payable to Ultimate
Resort Destinations Inc., a company controlled by Mr. Clifford L. Winsor, who is
the stepfather of the Company’s CEO, Ms. Jacqueline Danforth. The
loan totaling $229,172 is secured by liens on the Company's accounts receivable
and investments and bears interest at a rate of 10% p.a., maturing on December
31, 2009. Interest is accrued monthly until maturity, at which time
principal and all accrued and unpaid interest becomes due and
payable. During the year ended December 31, 2008 the
Company made interest payments on the above loans totaling $34,929, and
reductions to principal totaling $5,706. The loan totaling $143,353
relates to an 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 during fiscal 2007. The amount is non-interest
bearing and is due on demand. Ultimate Destinations Inc. is also a
company controlled by Mr. Clifford L. Winsor.
Director
Independence
The
company currently has two independent directors:
Paul
Litwack
Dr. Brian
Raines
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, 2008 and December 31, 2007:
Services
|
|
2008
|
|
|
2007
|
|
Audit
fees
|
|
$ |
23,500 |
|
|
$ |
5,000 |
|
Audit
related fees
|
|
$ |
0 |
|
|
$ |
650 |
|
Tax
fees
|
|
$ |
0 |
|
|
$ |
18,100 |
|
Total
fees
|
|
$ |
23,500 |
|
|
$ |
23,800 |
|
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.
PART
IV
ITEM
15. EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
Financial
Statements
The
following consolidated financial statements of the Company are filed as part of
this Annual Report on Form 10-K as follows:
Index
to Consolidated Financial Statements
Report
of Independent Registered Public Accounting Firm
|
F-3
|
Consolidated
Balance Sheets
|
F-4
|
Consolidated
Statements of Operations and Comprehensive Loss
|
F-5
|
Consolidated
Statement of Changes in Stockholders’ Deficiency
|
F-6
|
Consolidated
Statements of Cash Flows
|
F-7
|
Notes
to the Consolidated Financial Statements
|
F-8
to F-19
|
Schedules
All other
schedules have been omitted because they are not applicable, not required under
the instructions, or the information requested is set forth in the consolidated
financial statements or related notes thereto.
Exhibits
EXHIBIT
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.
|
EXHIBIT
NUMBER
|
EXHIBIT
|
|
REFERENCE
|
10.7
|
Fourth
Amendment to the Share Exchange Agreement dated February 2,
2004.
|
|
Incorporated
by reference to the Exhibits previously filed with the Registrants Annual
Report on Form 10-KSB for the fiscal year ended December 31,
2003.
|
10.8
|
Amended
and Restated Shareholders Agreement dated February 2, 2004
|
|
Incorporated
by reference to the Exhibits previously filed with the Registrants Annual
Report on Form 10-KSB for the fiscal year ended December 31,
2003.
|
10.9
|
Mortgage
between FACT Corporation and 948783 Alberta Inc. dated March 17,
2004
|
|
Incorporated
by reference to the Exhibits previously filed with the Registrants Annual
Report on Form 10-KSB for the fiscal year ended December 31,
2003.
|
10.10
|
Offer
to Purchase between FACT Corporation and Calfrac Well Services Ltd. dated
December 21, 2004
|
|
Incorporated
by reference to the Exhibits previously filed with the 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
|
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 14, 2009
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 14, 2009
By:/s/ Dr. Brian
Raines
Name: Dr.
Brian Raines
Title:
Member of the Board of Directors
Date:
April 14, 2009
By:/s/ Paul
Litwack
Name: Paul
Litwack
Title:
Member of the Board of Directors
Date:
April 14, 2009