September 19, 2005
Ms. Jacqueline Danforth
President, Principal Executive, Financial and Accounting Officer
FACT Corporation
915 Timber Ridge Court
Neptune, NJ 07753
Re: FACT Corporation
Form 10-KSB for the Fiscal Year Ended December 31, 2004
Filed April 15, 2005
Response letter dated August 19, 2005
File No. 000-17232
Dear Ms. Danforth:
We have reviewed your response letter and filings and have
the
following comments. We have limited our review to those issues we
have addressed in our comments. Please provide a written response
to
our comments. Please be as detailed as necessary in your
explanation. In some of our comments, we may ask you to provide
us
with information so we may better understand your disclosure.
After
reviewing this information, we may raise additional comments.
General
1. You did not electronically file your response letter dated
August
19, 2005, as required by Subparts 232.100 and 232.101 of
Regulation
S-T. Please electronically file this response letter, as well as
all
future correspondence.
2. In your next response, please provide the representations
regarding the adequacy and accuracy of your disclosures requested
at
the end of this letter.
Form 10-KSB for the Fiscal Year Ended December 31, 2004
Note 2 - Acquisition of Food and Culinary Technologies Group Inc.
(FACT), Intellectual Property and Issuance of Class C Common
Stock,
page F-13
3. We have read your response to prior comment 2, indicating that
the
conversion rights extended to holders of your Class C common
shares
were not impacted by the four-for-one reverse stock split that
occurred during 2003. However, you have not addressed how the
economic and voting equivalency of the Class A and Class C common
shares were impacted, as we had requested. Please explain how
these
compared before and after your reverse stock split, and cite the
specific language in your agreement with the Class C stockholders
governing the conversion.
4. In response to prior comment 3, you explain that while FACT was
the co-creation of FACT Group LLC and International Securities
Group
Inc.(ISG), it was jointly owned by three of your four directors,
and
all three directors of FACT Group LLC prior to your acquisition.
Given the shared interests of the directors you have identified,
it
is not clear that fair value accounting is the appropriate
treatment
under GAAP. Explain to us which of these entities are under
common
control at the time of each transaction. As part of your
response,
provide us a matrix showing the equity ownership percentages of
all
owners of both entities prior and immediately after each
transaction.
5. On a related point, in responding to prior comment 4, you
explain
that provisions governing the conversion of Class C shares to
Class A
shares were eliminated when you realized that a sales contract
anticipated at the time of arranging the transfer of property from
FACT to you would no longer be secured. However, since you did
not
impose other performance conditions on the transferees, and no
economic benefits conveyed under the original transfer agreement
were
relinquished as a result of not being able to deliver the sales
contract, it appears the conversion provisions were not
substantive.
Along with your response to the comment above, describe changes in
the composition of your directors that occurred at the time of
acquiring FACT, and upon conversion of the Class C shares.
Identify
the individuals who have appointed the directors for each entity
prior to and after your acquisition and the conversion.
6. In response to prior comment 5, you explain that you believe
recording a $2,000,000 royalty payable prior to the settlement
agreement being reached is appropriate because you had the
exclusive
license for the use and exploitation of the intellectual property,
and because it was probable the royalty payments would be made.
Since the royalty payments were tied to future sales, establishing
a
liability in recording the transaction appears inconsistent with
the
guidance in paragraph 27 of SFAS 141. Further, if the provisions
are
profit sharing in nature, the guidance in EITF 95-8 would call for
recognition against earnings in the periods the sales occur.
Please
submit the analysis that you performed, addressing each class of
factors set forth in that guidance, which you believe supports
your
characterization of the amounts as additional purchase
consideration.
7. We note your response to prior comment 6, in which you propose
a
disclosure revision explaining that your intangible assets have an
indeterminate useful life, and that you will periodically analyze
the
assets for impairment. Since you previously disclosed that once
significant commercial operations commenced, an estimated useful
life
would be determined and amortization would begin, please explain
how
your view of the intangible assets has evolved to lead you to the
notion that estimation is no longer possible. Note that under the
guidance in paragraph B59 of SFAS 142, indefinite does not mean
indeterminable, and even if the precise useful life is not
determinable, the intangible asset should still be amortized over
the
best estimate of useful life. If you conclude the intangible
assets
have an indefinite useful life, please submit the impairment
analysis
that you performed, and disclose the information required under
paragraphs 44 through 47 of SFAS 142.
Note 16 - Distribution of Capital Canada, page F-23
8. We note your response to prior comment 9, explaining that you
are
awaiting final review of the accounting literature relied upon in
the
treatment of the distribution of Capital Canada shares by your
auditors, and will reply with the specific accounting literature
in a
separate letter. Please submit all correspondence that you
receive
from your auditor in the course of assembling your response to
prior
comment 9.
Please also ensure that you explain why Capital Canada was
considered
distributed for the fiscal year ended December 31, 2003, given
that
the spin-off was apparently subject to the approval of a 20-F
registration statement which was not considered effective until
May
2004. Clarify in your response and disclosure, the effective date
of
the spin-off and how the subsidiary was accounted for before and
after the spin-off.
9. We understand from your response to prior comment 10 that the
impairment charge related to the $650,559 receivable from Capital
Reserve Canada Limited was recorded as a direct reduction to your
common stock account. Tell us how you are able to support your
accounting under the guidance in paragraph 13 of SFAS 114, which
governs the treatment of loan impairment.
Closing Comments
Please respond to these comments within 10 business days or
tell us when you will provide us with a response. Please furnish
a
letter that keys your responses to our comments and provides any
requested information. Detailed letters greatly facilitate our
review. Please understand that we may have additional comments
after
reviewing your responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment decision. Since the
company and its management are in possession of all facts relating
to
a company`s disclosure, they are responsible for the accuracy and
adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Mark A. Wojciechowski at (202) 551-3759 if
you
have questions regarding comments on the financial statements and
related matters. Please contact me at (202) 551-3686 with any
other
questions.
Sincerely,
Karl Hiller
Branch Chief
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Ms. Jacqueline Danforth
FACT Corporation
September 19, 2005
Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-7010
DIVISION OF
CORPORATION FINANCE
MAIL STOP 7010