Here's what Stock Patrol had to say about Far East Ventures.
Part 1 of 3
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FAR EAST VENTURES, INC. – HORSE SENSE OR HORSE FEATHERS?
May 23, 2000
Our readers have heard this warning before (and not just from Stock Patrol). There is no such thing as a sure bet – not in horse races and not in the stock market.
We were reminded of this once again last Saturday afternoon, when a Japanese-owned colt named Fusaichi Pegasus – the overwhelming favorite to win the Preakness – found himself staring at the tail of a horse called Red Bullet as he crossed the finish line.
Still, the success of Fusaichi Pegasus (after all, he won the Kentucky Derby) represented a unique combination between the Far East and North American horseracing. Or did it?
Perhaps not. We recently discovered an OTC Bulletin Board company called, of all things, Far East Ventures, Inc. That Company, which has been around since 1993, had no operations until this year. Now, it says it is off to the races – literally. After a recent merger the company announced plans to acquire a pair of horse racing tracks in western Canada. Not exactly the Far East, but then again, Fusaichi Pegasus did not start out in Japan either.
Despite its lack of operating history, Far East Ventures has recently attracted a group of devoted followers on the Internet, and some vocal advocates among online financial newsletters. What have they discovered about the secrets of the mysterious far east? We decided to explore for ourselves.
Since the beginning of this year, shares of Far East have ranged from lows of around 30 cents to a high of $17. Trading in the stock has been active, particularly in recent weeks.
But what do investors know about Far East Ventures? Depending upon how you look at it, the answer is either not a lot, or a great deal.
If investors read the Company’s financial statements they know that Far East Ventures has a long history of no business, no assets and no revenues. Now the Company says it plans to acquire a pair of racetracks. The specifics? The Company offers few details of the proposed transactions or the prospects for harness racing in western Canada.
Far more information seems to be coming from a group of paid Internet stock promoters. Can investors rely on those sources? If those reports are accurate, why hasn’t the Company provided these details directly to the public? And if they are not accurate, how can investors separate truth from fiction?
SEEKING A STABLE OPERATION
What’s in a name? In this case, not a great deal. Far East Ventures is headquartered in Las Vegas, Nevada and, according to its public disclosures, conducts no business in the far east. Actually, it has had no operations at all. The balance sheet tells a simple story – at the end of 1999 the Company had zero assets and no revenues. It did have a plan, however; to acquire a business.
So what direction did Far East Ventures elect to follow in its quest for a business? Two words. Reverse-merger.
In a reverse-merger a private business gains control of a public company. This means the private company is able to avoid the time and expense of a traditional public offering. At the same time, the private company does not have to go through the extensive disclosure process and regulatory review that is required in a public offering. As a result, investors may not be able to gather the kind of detailed information that ordinarily affords comfort – like the background and experience of management and the identity of shareholders.
Which is exactly what happened here. In November 1999, Far East Ventures agreed to acquire a company called Churchill Resources, Inc. in exchange for 4.5 million shares of Far East Ventures stock. Those shares represented approximately 51% of Far East Ventures, which means that Churchill Resources now controls the public company.
So who owns and controls Churchill Resources? What is the background of that company and its principals? Far East Ventures’ public disclosures does not provide that information. Instead, investors are left to wonder about the background and interest of the new majority shareholder.
What will become of those 4.5 million shares? The agreement between the two companies provided that Churchill Resources would liquidate its assets, including the Far East Venture shares. For now, at least, investors are left to wonder who will (or has) received those shares.
Why did Far East Ventures select Churchill Resources? The Company says it pursued the merger because Churchill had "positioned itself to enter the horse racing and gaming business with the proposed acquisition of Orangeville Raceway, Inc., owner of the Fraser Downs harness race facility outside Vancouver Canada."
Did Churchill Resources have any other assets? Apparently not. According to the Form 8-K filed by the Company on March 15, 2000, Churchill had a few things in common with Far East Ventures – like no assets and no revenues. Churchill also had a "going concern" opinion from its auditors, who expressed doubt about the Company’s ability to continue in business because it had "no established source of revenue."
Without any assets, how did Churchill propose to acquire the racetrack? Far East’s public filings do not indicate the terms of that acquisition – such as the price or payment structure – or even whether Fraser Downs is to be paid for in Canadian dollars (currently $1 Canadian is worth about 67 cents in U.S. currency). The Company does say that a firm called Crary, Onthank, O’Neil LLC. has agreed to initiate a private placement, on a "best efforts" basis to raise $6 million to be used for the acquisition.
But where does that financing stand today? In a "best efforts" offering an investment banking firm agrees to do its best to obtain financing – this differs from a "firm commitment" offering, where the investment banker has an obligation to come up with the funds. With a "best efforts" underwriting the Company, and its shareholders, have to hold their breath and hope for the "best."
Should investors expect to see $6 million in the coffers of Far East Ventures any time soon? In early April the Company said it expected the funding to occur around May 15th. It also indicated regulatory approval for the transfer of Fraser Downs would be completed at about the same time. As we write this article investors still await news from the Company on both of those fronts.
Meanwhile, the Company has indicated it does not plan to bet all its money (remembering, of course, that, it has not had any) on one horse. On March 2nd, the Company announced it had entered into an agreement to acquire Sandown Raceway on Vancouver Island in British Columbia, Canada, for $2.5 million in Canadian dollars (that is the equivalent of about $1.66 million U.S. dollars). Sandown it turns out, is owned by the same people who are selling Fraser Downs to Far East Ventures.
The Company says it is looking at Sandown as the focus of a destination resort; that with "gaming believed to be an imminent possibility in British Columbia, Canada, the location of Sandown is extremely conducive to the construction of a Hotel-Casino resort style facility in conjunction with the existing racetrack." Far East projects revenues for a destination gaming resort on Vancouver Island at "hundreds of millions annually."
How realistic are the Company’s plans? As we will see in Part II of our series on Far East Ventures, there are those in the British Columbia racing community who are far less sanguine about the prospects for gambling in that Canadian province.
WE’VE GOT A SECRET
With plans for at least two racetracks, a destination resort and a casino, Far East Ventures will be needing more than the $6 million the Company hopes to receive from the "best efforts" of Crary, Onthank, O’Neil. Why not some more "best efforts?"
On February 1st the Company issued a press release announcing it had entered into an investment banking relationship "to provide potentially up to $100 million in future acquisition financing." The identity of that investment banker? That, according to Far East Ventures, would remain a secret – "y mutual consent, and in order for [Far East Ventures] to maintain a competitive edge, the parties have agreed at this time it is to their distinct advantage not to identify their investment banking partner."
Investors may wonder how such secrecy might serve to enhance the Company’s "competitive edge." Who are those competitors anyway? Racetrack owners? Casino developers? Neither Far East Ventures nor Churchill has actually engaged in any operating business, so they have had no historic competition.
In any event, the Company’s press release lets those competitors in on part of the secret: it says the Company’s new investment banking partner "has privately placed over $5 Billion in debt and equity securities, completed over $30 Billion in financial restructuring, and completed over $15 Billion in merger and acquisition transactions for its clients."
Far East Ventures may not have wanted to disclose the secret identity of its investment banker, but it certainly has not been shy about publicizing the existence of that relationship. On March 21st the Company "re-announced today that it has entered into an investment banking relationship to provide potentially up to $100 Million in future acquisition financing." Again, the Company said it would not disclose the identity of its partner.
Apparently, this veil of secrecy has now been lifted. In its Form 10-K for the year ended December 31, 1999 (which was filed on April 13, 2000), Far East disclosed that it had engaged the firm of Chanin Capital Partners LLC to act as "exclusive financial advisor and/or agent to the Company in connection with the acquisitions." According to the Company, Chanin Capital Partners had agreed to initiate a private placement of up to $100 million on a "best efforts" basis. So much for the competitive edge.
How "exclusive" is that relationship? Remember, the Company is still awaiting the fruits of Crary, Onthink O’Neil’s "best efforts." And on April 3rd, Far East Ventures announced it had retained yet another investment advisor, Security Capital Trading, to help secure additional financing and spread word about the Company to the investment community.
The terms of the proposed private placement by Chanin Capital are not disclosed in the Form 10-K. When do the investment bankers anticipate that the offering might close? Can the Company rely on receiving any portion of the "up to" $100 million in sufficient time to complete the pending acquisitions? Until then, how will the Company pay its expenses?
According to the Form 10-K one of the Company’s shareholders has agreed to lend Far East Ventures up to $1 million to fund its expenses until the Orangeville Raceway acquisition is completed. That seems to be a good deal for the Company – and for that shareholder. In exchange for the loan, Far East agreed to issue 1.5 million shares to the lender. The lender may either keep those shares or swap them within two years for the principal and interest due on the loan.
Who is the shareholder that stands to receive an additional 1.5 million shares? The Form 10-K does not provide that information.
Far East Ventures may offer few details of its plans in its public filings and announcements, but that has not precluded a steady stream of "rumors." What is being said about the Company, and by whom? Are these sources objective and informed? We will look at these questions in Part II of this article on Far East Ventures.
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