ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This quarterly report contains forward-looking statements relating to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "intends", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential", or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors which may cause our or our industry's actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements.

Such factors include, among others, the following: international, national and local general economic and market conditions: demographic changes; the ability of the Company to sustain, manage or forecast its growth; the ability of the Company to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other factors referenced in this and previous filings.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Given these uncertainties, readers of this Form 10-Q and investors are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

All dollar amounts stated herein are in US dollars unless otherwise indicated.

The management's discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements for the years ended December 31, 2007, and 2006, together with notes thereto. As used in this quarterly report, the terms "we", "us", "our", and the "Company" mean FACT Corporation, unless the context clearly requires otherwise.

General Overview

FACT Corporation predominantly operates in the functional food industry through its wholly owned subsidiary, Food and Culinary Technology Group Inc., ("FACT Group") developing, licensing and supplying turnkey functional bake mixes to customers who manufacture, distribute, and market bakery and pasta products to consumers through a variety of conventional and alternative channels including retail, food service and specialty markets. Presently the Company's primary revenue stream is generated by the sale of these functional bake mixes in a wholesale format.

The Company also has minimal operations through its wholly owned subsidiary, Wall Street Real Estate Investments Ltd. which generates revenues through the rental and sub-lease of office space in Calgary, Alberta.

The Company further has one dormant subsidiary, FACT Products, Inc., which holds the proprietary rights to an Italian crème product, not currently in production.

---

Executive Summary

· Net revenues in the nine months ended September 30, 2008 increased by 9% over the comparative periods despite a substantial reduction to gross revenues;

· Operating expenses for the nine months ended September 30, 2008 decreased by 6.4% over the comparative periods predominantly as the result of a decrease to travel and promotional expenses related to attendance at trade shows and investment conferences in fiscal 2007 with no similar expenditure in fiscal 2008;

· The Company's net loss for the nine months ended September 30, 2008 decreased by 15% over the comparative periods predominantly as a result of decreased operating expenses and increased net revenues.

Discussion and Analysis

Commodity Trends

FACT Corporation and our contracted blending facilities are purchasers of wheat, corn, soybean, sugar, alternative sweeteners and certain other commodities which are used in the manufacture of our functional bake mixes. We also contract with trucking companies for the transportation of our wholesale goods, as well as warehouses for storage of our products, both of which use gas and/or natural gas. FACT and its contracted suppliers monitor worldwide supply and cost trends of commonly used commodities in an attempt to secure favorable pricing and mitigate the impact of fluctuating prices of high usage commodities.

During the nine months ended September 30, 2008, aggregate commodity costs continued to increase as a result of higher dairy, cocoa, wheat and sugar costs. Transportation costs remained high as a result of increasing gas prices and transportation surcharges levied by our contracted logistics companies. Accordingly the cost of the Company's wholesale blended products experienced further increases, and a percentage of the increase in costs was passed along to our customers to mitigate the dramatic increases to ingredient prices and transportation costs.

We expect the higher cost environment to continue, particularly for dairy, grains and energy. We will endeavor to pass those costs along to our customers by way of increased pricing, however, we cannot be assured that we will be able to pass along all of the increased costs and maintain our current business. Therefore, if we cannot pass along the costs the increase in the price of commodities may impact on our bottom line profits.

Dependence On One or a Few Major Customers

The Company's revenues for fiscal years ended December 31, 2006 and 2007 and to the date of this report rely heavily on sales made to two (2) key customers:
Western Bagel Baking Corporation of Van Nuys, California and Prince Donuts Inc. of Linden, NY. Together these two (2) customers account for approximately ninety nine per cent (99%) of premix sales. During the nine months ended September 30, 2008 sales to key customer Prince Donuts were reduced by 63% as compared to sales over the same period in the prior fiscal year, while sales to customer Western Bagel Baking corporation rose by 26% over the comparative period. During March 2008, FACT customer Prince Donuts advised the Company of a hold on future purchases while extraordinarily high inventory levels required reduction for certain of their customer base. The Company was advised this hold on purchases would remain in effect until mid May 2008, at which point high inventory levels should have normalized and regular order volumes should continue. In fact, customer Prince Donuts did not order any products from FACT Group during the second quarter of this current fiscal year as a result of this hold on purchases. Subsequent to June 30, 2008 Prince Donuts resumed orders, though during the three month period ended September 30, 2008, order volumes were approximately 50% as compared to the three months ended September 30, 2007. FACT Group is actively working to successfully close additional client accounts that should assist in better diversifying our revenue base and address the negative impact of such heavy reliance on a few major customers. It is anticipated that until such time as FACT establishes a more diverse range of products in the marketplace, it will remain reliant on a small number of key customers to drive sales. A loss of any one of these customers without identifying new customers could seriously impact on our business.

---

Liquidity and Capital Resources

Summary of Working Capital and Stockholders' Equity

As of September 30, 2008, the Company had negative working capital of $2,044,327 and negative Stockholders' Equity of $2,543,385 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 and accounts payable over the current fiscal year.

Liquidity

The Company believes that cash from operations and existing credit facilities currently provide sufficient liquidity to meet our present working capital needs, including debt servicing obligations. In order to implement our 2008 through 2010 plans for growth, our debt retirement plans and other expansion plans, the Company anticipates it may require between $1,000,000 and $5,000,000 over the next three years to fully implement its business plan, which includes significant marketing efforts, the continued development and refinement of functional food formulations and products, a consumer awareness and public relations campaign, concepts for development, manufacturing and distribution of master brand food products, expanded management resources and support staff, and other day to day operational activities. Depending on the success of each segment of the staggered implementation of our growth initiatives the Company will require varying amounts of funds over the next three years in order to realize its goals. Should the Company fail to achieve anticipated bench marks over the 2008, 2009 and 2010 fiscal years, the amount of capital required will be reduced accordingly. The amount and timing of additional funds required can not be definitively stated as at the date of this report and will be dependent on a variety of factors. As of the filing of this report, the Company has been successful in raising funds required to meet any revenue shortfalls with respect to the funding of our operations. Funds have been raised through private loans, equity financing and conventional bank debt, as well as through the sale of certain active and passive investments. The Company anticipates revenues generated from its functional food business will greatly reduce the requirement for additional funding as we implement our growth initiatives; however, we can not be certain the Company will be successful in achieving revenues from those operations. Furthermore the Company can not be certain that we will be able to raise any additional capital to fund our ongoing operations, if and when required.

Sources of Working Capital

During the nine months ended September 30, 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:

· $64,324 in loan proceeds from arms length third parties.

Material Commitments for Capital Expenditures

Pursuant to a settlement agreement entered into between FACT LLC and Steven Schechter, Jennifer Flynn and Steven Capodicasa, FACT Group has an obligation to pay a total of $2,000,000 in royalty payments over 10 years. As at September 30, 2008 the remaining balance due with respect to this obligation totaled $1,676,257. The obligation has been paid from the Company's revenues and the Company anticipates it will continue to be able to pay this obligation from revenues.

Results of Operations

Comparison of nine month periods ended September 30, 2008 and 2007

For the nine month periods ended September 30, 2008 and 2007, the Company incurred operating losses of $261,027 and $332,278 respectively. Legal fees decreased slightly from $96,956 (2007) to $91,423 (2008) and consulting fees also decreased from $132,126 (2007) to $128,433 (2008) as certain public relations consulting services which had been in place during the prior comparative fiscal period were not required during the current fiscal period ended September 30, 2008. Administrative expenses decreased over the respective periods from $237,988 (2007) to $191,628 (2008) as the Company did not undertake trade shows and investor presentations, greatly reducing associated travel and attendance costs during the current period. Fiscal 2008 operations reflect a decrease in gross revenues from $2,438,754 (2007) to $1,591,320 (2008). This decrease in revenues can be attributed directly to a shortfall in orders from one of the Company's key customers as a result of high inventory

---

levels which negated the need for further product purchases during the second quarter of fiscal 2008. Associated costs of goods sold relating to functional premix sales decreased accordingly from $2,116,966 (2007) to $1,240,307
(2008). The Company's gross margin on the sale of functional bake mixes increased over the respective periods as the Company's sales to customers with higher gross margins made up an increased portion of overall sales during the period.

During the nine months ended September 30, 2008 the Company recorded a loss on foreign exchange totaling $13,542 with no similar entry for the nine months ended September 30, 2007. Depreciation and amortization expenses remained constant during the comparative three month periods totaling $186,996 (2007) and $187,014 (2008) as the Company recorded recurring expenses related to the amortization of its intellectual property and fixed assets in the normal course of business.

During the nine months ended September 30, 2007, the Company liquidated certain of its marketable securities and recorded a gain of $7,127 with respect to the sale of certain of these securities with no comparative entry during the current fiscal period.

Interest expense increased over the comparative nine months ended September 30, 2008 totaling $67,499 (2007) and $74,211 (2008). During the nine months ended September 30, 2007 the Company's subsidiary Wall Street paid income taxes of $717 with no comparative entry for fiscal 2008.

Net losses for the two completed nine month periods were $393,360 (2007) and $335,238 (2008) respectively.

Off- Balance Sheet Arrangements

The Company presently does not have any off-balance sheet arrangements.