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FAR EAST VENTURES, INC., PART II — BLACK AND WHITE AND LOTS OF GRAY

Investigative Reports

May 25 2000

As we saw in Part I of this series, Far East Ventures is betting its future on horseracing. The Company issued 4.5 million shares to Churchill Resources in order to acquire a company whose sole significant asset consisted of the right to buy a horse racing track in Vancouver, Canada. Who are the people behind Churchill Resources? The Company has not said.

The Company has now filed its Form 10-Q financial report for the quarter ended March 31, 2000. Now, Far East Ventures, which had no assets at the end of 1999, says it has assets valued at $6.8 million. Does that mean the Company has received a sudden influx of cash? Not exactly - the assets consist almost entirely of something called "Prepaid consulting fees."

It seems the Company entered into agreements with four different consultants since the beginning of this year. This past January, the Company issued 300,000 shares of its common stock (valued at about $1.275 million) to a company identified only as R.R.P. L.L.C. In exchange for those shares, the Company says R.R.P. will be providing "consulting services."

The Company says R.R.P. is an unrelated third party, but it does not identify the people who own or control the "consultant."

What business is R.R.P. in, and what is the nature of the consulting services it plans to provide? Far East Ventures has not provided any of those details.

In January, the Company entered into a second consulting agreement. This time it issued 500,000 shares valued at over $2 million to a consultant who will provide investor and public relations services for twelve months – which works out to a fee of just over $160,000 a month. The Company identifies this consultant as "the owner…of a company, which is a stockholder of the Company."

In March, however, Far East Ventures retained two more consultants - an individual identified only as Alan Burkun, and a company called J.B. Marc & Associates – both described by the Company as unrelated third parties. According to the Form 10-Q, Mr. Burkin and J.B. Marc & Associates each received 900,000 shares of Far East Ventures stock in accordance with their consulting agreements. Also according to the Form 10-Q, the shares issued to Mr. Burkin were valued by the Company at about $3 million, while those issued to J.B. Marc were valued at approximately $1.2 million.

Far East Ventures does not provide any biographical information on these consultants or details of any services they may have provided to the Company.

The total value of the shares issued to consultants? About $7.5 million according to the Company. At the same time, the latest Form 10-Q indicates that Far East Ventures still has no revenues (aside from $470,000 loaned by a shareholder). It did, however, have liabilities exceeding $2.6 million, including expenses of more than $1 million for the first three months of this year.

Investors are left to ask a fundamental question – who are all these masked men and/or women? Since late last year, the Company has issued 4.5 million shares to Churchill Resources, 2.6 million shares to various consultants who are only vaguely identified, and 1.5 million shares to an unnamed shareholder who agreed to extend a loan to the Company.

Shares of Far East Ventures have been finding their way into other hands as well. While the Company has kept announcements to a minimum, that has not stopped online newsletters from issuing "reports" – often in exchange for shares of Far East Ventures stock.


THE HORSE WHISPERERS

An online newsletter called "Black and White Stocks," recently reported "VERY strong rumors" of "great news" about Far East Ventures. Black and White is a strong booster of the Company, and with good reason. It received 115,000 free-trading shares of Far East Ventures stock from "a third party" for disseminating the "great news."

A few questions come immediately to mind. Who is that "third-party," and why would they want to give Black and White shares (valued at about $100,000 on May 12th, the day Black and White issued its report)? How did the "third party" obtain the free-trading shares? Perhaps most important, how did the "third party" and Black and White obtain "information" about the Company’s plans that Far East Ventures has never announced publicly?

What "information" does Black and White offer? The newsletter says it will cost the Company $6 million in U.S. dollars to acquire the Fraser Downs raceway. It also states that the track "has been profitable for the past twenty plus years" and "is one of five facilities located in British Columbia province that has been pre-approved for 350 slot machines." According to Black and White, Fraser Downs generated $105 million Canadian dollars (roughly $69.6 million in U.S. currency) in gaming receipts in 1999; projects $128 million in Canadian dollars (approximately $85 million U.S.) in 2000; and paid dividends of $13 million Canadian dollars (about $8.6 million U.S.) to its owners in dividends from 1991 through 1999.

How accurate are these "facts?" The Company has been relatively silent on such matters. And with good reason. In a Form 8-K filed with the SEC on February 8th,
Far East Ventures stated that "the acquisition [of Fraser Downs] is conditioned upon the securing of regulatory approval. Further, the agreement to acquire…contains the requirement of non-disclosure of Fraser Downs Raceway information pending securing of regulatory approval."

Even if Black and White’s report on Fraser Downs is accurate, does it tell the whole story? Why, for example, have the owners of Fraser Downs been attempting to sell the facility for years? What are the prospects for standardbred racing (also known as harness racing) in British Columbia, Canada? We decided to look further.


TRACK RECORD

According to Bruce Barbour, President of the British Columbia Standardbred Association, there is a good deal to be concerned about. In the November 1999 issue of Trot Magazine, the official publication of Standardbred Canada, Mr. Barbour lamented that British Columbia was the only Canadian province that "employed a seven percent takeout of the bet." And while the provincial government announced earlier this month that it would make changes to its Horse Racing Tax Act in order to inject an additional $3.3 million annually into the racing industry, other problems persist.

For one thing, according to Mr. Barbour, the prospects for gambling are dim. In his Trot Magazine interview, he offered little hope for any company looking to hit the jackpot with slot machines. "[A]s far as the prospect of slot machines at the tracks," Barbour stated, "there is absolutely no indication we have any possibility of seeing that happen." In view of casino-related scandals that led to the resignation of the provincial Premier in the summer of 1999, Barbour believes that the British Columbia government is making an effort to distance itself from anything related to gaming.

The bad news does not stop there. Barbour noted that many stables were being lured away from British Columbia to other Canadian provinces. The bottom line? In Barbour’s words: "I suppose to sum things up out here in B.C. one would have to say that racing is in tough shape."

Management of Fraser Downs appears to share some of these concerns. In April, the track’s General Manager acknowledged that Fraser Downs had been forced to cancel races in March and April, and revenues from live racing had decreased, as a result of the declining racehorse population in British Columbia.

Is Far East Ventures aware of these problems? Apparently so. In a March 13th press release from Fraser Downs, Fred Bilawey, an officer and director of the Company since late 1999, is quoted as saying "[w]e are fully aware of the situation in B.C. (that horse racing is in somewhat of a turmoil)."

How will that "turmoil" affect the prospects for the Company’s venture? How will concerns about the prospects for gambling in British Columbia affect Far East’s plans for a destination-resort Casino? The Company’s public statements have not addressed these matters.

The Form 10-Q filed this week by Far East Ventures disclosed that, in April 2000, the Company had entered into a letter of intent to purchase a majority interest in Retama Park in Selma, Texas. We have not found any prior public disclosure by the Company of that proposed acquisition. That did not prevent Black and White from offering a few tidbits about this transaction back on May 12th. In its report on Far East Ventures, Black and White claimed that the Company had entered into an agreement to acquire a horseracing facility named Retama Park in San Antonio, Texas. Black and White said the Company signed a letter of intent to acquire control of the track, and 80% of the facility’s management company, for a total of $25 million.

No details of the Retama Park acquisition are included in the Form 10-Q, leaving investors to wonder about the status of the "letter of intent." Have the parties prepared a contract? Will it cost $25 million to close the deal as Black and White suggests? How will it be funded? Is it contingent on the success of the "best efforts" offering by Chanin Capital Partners? (For more on that financing see Far East Ventures, Inc. Horse Sense or Horse Feathers?, Part I)

Other online newsletters appear to have struck a similar theme. Internet Message Boards report that investors have received e-mail messages promoting Far East Ventures from at least two other financial newsletters, which go by the names "Lion’s Shares" and "Polar Bear." According to those Message Boards, "Lion’s Share" received 115,000 shares of Far East Ventures stock from a "third party" for its efforts on behalf of the Company. Another message suggested that newsletters promoting the Company (which were not identified by the message writer) received 115,000 and 32,000 shares of Far East Ventures stock, respectively, from "third parties."

Investors seeking information about Far East Ventures on the Company’s web site may be disappointed. With the exception of some press releases, a report promoting the prospects for Far East Ventures stock and a link to a paid promoter called OTCBBStockwatch.com, the Company’s site is "under construction."

We decided to follow the path to OTCBBStockwatch.com and found yet another online investment information service. This one acknowledges that "certain companies" pay a fee to be listed on the web site. In such cases, according to the disclaimer, "the website is an advertisement on behalf of the Company(s)." The publication concedes that it does not independently verify any information contained in those advertisements.

OTCBBStockwatch.com does not say whether it has been paid anything directly by Far East Ventures, but it acknowledges ownership of 5,000 shares of the Company’s stock.

OTCBBStockwatch.com also discloses that it is owned by a company called Equitilink LLC. Followers of Far East Ventures may recall that Equitilink has been listed as a "contact" on the Company’s press releases.

So what does OTCBBStockwatch.com have to say about Far East Ventures? No surprise there - the "newsletter" extols the Company’s prospects, declaring "[w]ith $100 million in their pocket, experienced management, and a commitment to only acquiring profitable entities, FEVI (Far East Ventures) is favorably positioned, well-capitalized and well managed."

Where, investors may wonder, did that $100 million come from? Is the advertisement referring to the "best efforts" underwriting by the secret investment banking firm? If so, how and when did those funds find their way into the Company’s "pocket?"

What is the experience of the Company’s management? On March 13th, Far East Ventures announced it had hired Harry Mentonis as Chief Executive Officer, after completing an "extensive nationwide search." Mr. Mentonis, the Company noted, has extensive experience in the gaming industry, principally as an executive at a number of Atlantic City casinos. Does Mr. Mentonis possess any background in the horseracing industry? The Company does not say.

As for the Company’s "commitment to only acquiring profitable entities," investors cannot possibly assess the Company’s record on that score until they are provided with financial statements for Fraser Downs, Sandown and any other proposed acquisitions.


PLACE YOUR BETS

How have investors responded to these reports? Share prices reached about $17 in mid-January, around the time Far East Ventures announced it had signed a letter of intent to acquire Renown Air, Inc. for $16.5 million of Far East Ventures stock. The Company described Renown Air as a casino airline, and projected revenues of $530 million from the airline, with operating profits of $81 million for the five years ending December 2004.

Those share prices quickly descended a short time later when the Company revealed that the letter of intent had been cancelled.

Since March the price of Far East Ventures stock has ranged from around 30 cents to $3.50. Volume is often over one hundred thousand shares per day – occasionally several hundred thousand shares are traded. Prices reached 90 cents on May 12th (on volume of 831,000 shares) the day the "Black and White" report was distributed. One day later, Far East Venture stock hit a high of $1. On May 11th shares had closed at 59 cents.

How many shares of Far East Ventures are outstanding? Although the Company indicates that 10.9 million shares were outstanding at the end of March, it would appear that the Company has now issued (or is committed to issuing) at least 12.9 million shares, including all of those consultants’ shares and the stock to be issued to the lending shareholder.

Of course, somewhere in that mix are the Far East Venture shares that one or more "third parties" have given to online promoters to advertise developments at the Company. What motivated such generous "gifts?" Investors are left to wonder.

The Company says it is "presently seeking to acquire additional horse racing and gaming venues." What can investors expect next? Will the Company be funded by the "best efforts" private placements? If so, in what amount? If not, how does Far East Ventures propose to pay for those "venues?"

Investors may also want to know more about the "track record" of the properties being acquired. How have these racetracks performed in the past and what is their potential for the future? After all, Far East Ventures is new to the horseracing game. Can it go the distance? In other words, will shareholders end up in the winner’s circle, or will they be left at the starting gate?

For more on Far East Ventures look for Part III of this series on Tuesday May 30, 2000



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