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, 2008, and 2007, 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.

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Executive Summary

· Net revenues in the three months ended March 31, 2009 decreased by 28% over the comparative three month period with a 30% reduction to gross revenues;

· Operating expenses for the three months ended March 31, 2009 decreased by 3% over the comparative three month period. The overall decrease to operating expenses reported was minor due to the fact that while the Company experienced substantial decreases in certain operating accounts, these were offset by substantial increases to other operating accounts, resulting in an overall shift of cost centers with a fairly insignificant net change in overall costs. The Company reported a decrease of 30% to legal expenses and a decrease of 41% to general administrative expenses, with an increase to consulting fees of 75% period over period, as a result of recruitment fees paid with respect to a new hire during the period, and the retention of a consultant to assist in the Company's three year forward-planning and acquisition strategies;

· The Company's net loss for the three months ended March 31, 2009 increased by 32% over the comparative period predominantly as a result of decreased net revenue, an increase to interest expenses and a minor reduction to overall operating expenses.

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 three months ended March 31, 2009, aggregate commodity costs remained relatively constant across the Company's product lines, allowing FACT to offer more favorable pricing to its customers with respect to certain products. Transportation costs decreased substantially as a result of decreasing gas prices, and transportation surcharges previously levied by our contracted logistics companies were withdrawn. Accordingly the cost of the Company's wholesale blended products decreased, and a percentage of the decrease in costs was passed along to our customers where possible, to reflect stabilized ingredient prices and reduced transportation costs.

We expect fluctuations and uncertainty in the commodity and other raw material costs to continue, particularly for dairy, grains and energy. We will endeavor to pass increased costs and/or savings along to our customers where possible to allow the Company to maintain our current business margins. However, if we are to realize increased costs which cannot be passed along, or should we fail to price our products competitively where savings could be secured for our customers, cost increases and/or loss of sales as a result of non-competitive pricing could result in a reduction to our bottom line profits and our top line sales.

Dependence On One or a Few Major Customers

The Company's revenues for fiscal years ended December 31, 2008 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 three months ended March 31, 2009, sales to key customer Prince Donuts were reduced by 14% as compared to sales over the same period in the prior fiscal year, meanwhile sales to customer Western Bagel Baking corporation were reduced by 47% over the comparative period. The Company believes decline in sales reflects the uncertain economic condition in the United States and the impact of this uncertainty on sales to the end consumer. While we believe sales to Western Bagel will continue at a constant level during the current fiscal year, we anticipate sales to this customer over the year will reflect a reduction from prior year sales as a result of a more competitive marketplace and less consumer dollars available to spend overall. 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. However, customer Prince Donuts did not order any products from FACT Group during the second quarter of fiscal 2008 as a result of this hold on purchases.

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Subsequent to June 30, 2008 Prince Donuts resumed orders, though during the three month period ended September 30, 2008, and to the end of the fiscal year ended December 31, 2008 sales volumes were substantially reduced compared to the same period in the prior year. During the three month period to March 31, 2009, FACT has continued to experience a decrease in sales to customer Prince Donuts. At the date of this report, the Company believes that it does not have complete information from customer Prince Donuts as to the status of sales of finished products to its customer, and therefore, we anticipate that this key account may be , or already has been lost. We have not recorded any sales from Customer Prince Donuts since the close of the three month period ended March 31, 2009. While FACT Group has hired a new full time sales professional, and is actively working to successfully close additional client accounts to assist in better diversifying our revenue base and address the negative impact of such heavy reliance on a few major customers, it is unknown if we will be successful in this endeavor in the immediate future. 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, and specifically Prince Donuts, without identifying and securing new customers could seriously impact on our business.

Liquidity and Capital Resources

Summary of Working Capital and Stockholders' Equity

As of March 31, 2009, the Company had negative working capital of $2,264,491 and negative Stockholders' Equity of $2,817,971 compared with negative working capital of $2,151,349 and negative Stockholders' Equity of $2,675,599 as of December 31, 2008. The Company's negative working capital has increased as a result of the reduction to accounts receivable and use of cash to settle certain accounts payable.

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 benchmarks 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 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, if and when required.

Sources of Working Capital

During the three months ended March 31, 2009 the Company's primary sources of working capital have come from revenues generated from our functional foods business and monthly rental income.

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 March 31, 2009 the remaining balance due with respect to this obligation totaled $1,630,505. 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. The current minimum portion due and payable over the next twelve months totals $139,700.

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Results of Operations

Comparison of three month periods ended March 31, 2009 and 2008

For the three month periods ended March 31, 2009 and 2008, the Company incurred operating losses of $114,870 and $85,786, respectively. Legal fees decreased from $26,721 (2008) to $18,735 (2009) and administrative expenses decreased over the respective periods from $78,036 (2008) to $46,056 (2009), predominantly as a result of a decrease to freight charges and warehousing fees in the current period. Consulting fees increased substantially from $44,374 (2008) to $77,811
(2009) as a result of fees paid to a recruitment firm in respect of a new hire, and monthly consulting fees paid as a result of a contract entered into in February 2009. Fiscal 2009 operations reflect a decrease in gross revenues from $676,189 (2008) to $479,276 (2009). This decrease in revenues can be attributed directly to a shortfall in orders from both of the Company's key customers. While the Company believes that this shortfall is partially a reflection of the current economic environment in the United States and decreasing inventory levels on hand at the retail level, we also believe that sales will continue to decrease to one of our key customer accounts based on a lack of forecasts or future-dated orders from this customer. As a result of this decrease in sales volumes, the Company has reduced its inventory levels accordingly from $131,170 (December 31, 2008) to $61,314 (March 31, 2009). Associated costs of goods sold relating to functional premix sales has also decreased from $550,505 (2008) to $389,220 (2009). The Company's gross margin on the sale of functional bake mixes was reduced over the respective periods as we offered more competitive pricing to our customers in an attempt to boost gross sales volumes.

Depreciation and amortization expenses remained constant during the comparative three month periods totaling $62,324 (2009) and $62,339 (2008) as the Company recorded recurring expenses related to the amortization of its intellectual property and fixed assets in the normal course of business.

Interest expense increased over the comparative three months ended March 31, 2009 totaling $24,302 (2008) and $31,313 (2009) as the Company was unable to allocate proceeds to retire debt.

Net losses for the two completed three month periods were $110,397 (2008) and $146,215 (2009) respectively.

Off- Balance Sheet Arrangements

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