SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934, for the quarter ended September 30, 1999
Commission File No. _____
FENWAY INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
NEVADA 84-1426038
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
308-409 Granville Street, Vancouver, British Columbia, Canada V6C 1T2
(Address of registrant's principal executive offices) (Zip Code)
604.844.2265
(Registrant's Telephone Number, Including Area Code)
Check whether the registrant (1) has filed all reports required by Section 13 or
15(d) of the Securities Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the issuer's only class of Common Stock,
$.001 par value, was approximately 19,885,955 on September 30, 1999.
Transitional Small Business Disclosure format (check one):
Yes [ ] No [X]
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<PAGE>
FENWAY INTERNATIONAL INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
<PAGE>
TABLE OF CONTENTS
Page No.
ACCOUNTANTS' REPORT .................................................... 1
FINANCIAL STATEMENTS
Balance Sheet.................................................... 2
Statements of Operations......................................... 3
Statement of Changes in Stockholders' Equity..................... 4 - 5
Statements of Cash Flows......................................... 6 - 7
Notes to Financial Statements.................................... 8 - 24
<PAGE>
ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders
Fenway International Inc.
Newport Beach, California
We have reviewed the accompanying balance sheet of Fenway International Inc. (A
Development Stage Company) as of September 30, 1999, and the related statements
of operations, changes in stockholders' equity and cash flows for the nine
months then ended and for the period May 7, 1984 (Date of inception) to
September 30, 1999, in accordance with Statements on Standards for Accounting
and Review Services issued by the American Institute of Certified Public
Accountants. All information included in these financial statements is the
representation of the management of Fenway International Inc.
A review consists principally of inquiries of Company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
Moffitt & Company, P.C.
Scottsdale, Arizona
November 15. 1999
<PAGE>
FENWAY INTERNATIONAL INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
SEPTEMBER 30, 1999
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
Cash $ 19,234
Accounts receivable 6,785
Accounts receivable, related party 6,977
Advance royalty payments 160,813
Prepaid expenses 3,633
Investment in Palcan Mining and Cement Corporations 10,707
Investments in projects in The Republic of the Philippines 2,685,687
Loan receivable 89,411
G.S.T. refund 1,711
Property and equipment 5,193
-----------
TOTAL ASSETS $ 2,990,151
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable
Trade $ 45,534
Related parties 64,667
Accrued liabilities 16,041
Short term notes payable 135,135
-----------
TOTAL LIABILITIES $ 261,377
STOCKHOLDERS' EQUITY
Common stock, par value $0.001 per share
Authorized 100,000,000 shares
Issued and outstanding - 19,885,955 shares 19,959
Paid in capital in excess of par value of stock 3,514,702
Deficit accumulated during development stage (805,887)
-----------
TOTAL STOCKHOLDERS' EQUITY 2,728,774
-----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 2,990,151
===========
</TABLE>
See Accompanying Notes and Accountants' Review Report.
2
<PAGE>
FENWAY INTERNATIONAL INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
FOR THE PERIOD FROM MAY 7, 1984 (DATE OF INCEPTION) TO
SEPTEMBER 30, 1999
Nine May 7, 1984
Months (Date of
Ended Inception)
September to September
30, 1999 30, 1999
---------- ------------
REVENUE $ 0 $ 0
DEVELOPMENT COSTS 398,503 805,887
---------- -----------
NET (LOSS) $ (398,503) $ (805,887)
========== ===========
NET (LOSS) PER COMMON SHARE
Basic and diluted $ ( 0.02) --
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic and diluted 19,901,729 --
See Accompanying Notes and Accountants' Review Report.
3
<PAGE>
FENWAY INTERNATIONAL INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM MAY 7, 1984 (DATE OF INCEPTION) TO
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Paid In
Capital in
Common Stock Excess of
------------ Par Value
Shares Amount of Stock
------ ------ --------
<S> <C> <C> <C>
BALANCE, MAY 7, 1984
(DATE OF INCEPTION) 0 $ 0 $ 0
Issuance of common stock for
mineral lease (unknown value)
and expenses at $.005 -
May 7, 1984 600,000 600 2,400
Issuance of common stock for
cash at $.267 - May 7, 1984 8,610 9 2,287
Net loss for the period ended
December 31, 1984 0 0 0
Issuance of common stock for
services at $.267 -
February 3, 1985 9,000 9 2,391
Issuance of common stock for
cash at $.267 - February 3, 1985 96,480 96 25,632
Net loss for the year ended
December 31, 1985 0 0 0
------- ------- -------
BALANCE, DECEMBER 31, 1985 714,090 714 32,710
------- ------- -------
BALANCE, DECEMBER 31, 1996 714,090 714 32,710
Contribution to capital -
expenses - 1997 0 0 3,600
Net loss for the year ended
December 31, 1997 0 0 0
------- ------- -------
BALANCE, DECEMBER 31, 1997 714,090 $ 714 $36,310
</TABLE>
<PAGE>
Deficit
Accumulated
Advances During the
On Stock Development
Subscriptions Stage
------------- -----------
$ 0 $ 0
0 0
0 0
0 (5,296)
0 0
0 0
0 (28,128)
------------- -----------
0 (33,424)
------------- -----------
0 (33,424)
0 0
0 (3,600)
------------- -----------
$ 0 $ (37,024)
See Accompanying Notes and Accountants' Review Report
4
<PAGE>
FENWAY INTERNATIONAL INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY( CONTINUED)
FOR THE PERIOD FROM MAY 7, 1984 (DATE OF INCEPTION) TO
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Paid In
Capital in
Common Stock Excess of
------------ Par Value
Shares Amount of Stock
------ ------ ----------
<S> <C> <C> <C>
Contribution to capital -
expenses - 1998 0 $ 0 $ 1,300
Issuance of common stock
for cash
$.01 - May 29, 1998 2,000,000 2,000 18,000
$.01 - June 9, 1998 9,000,000 9,000 81,000
Issuance of common stock for
net assets of Fenway
Resources Ltd - $.387 -
August 31, 1998 7,644,067 7,644 2,950,988
Issuance of common stock
for cash
$3.00 - October 29, 1998 2,128 2 6,450
$3.00 - October 29, 1998 670 1 2,031
Net loss for the year
ended December 31, 1998 0 0 0
---------- ---------- ----------
BALANCE, DECEMBER 31, 1998 19,360,955 19,361 3,096,079
Issuance of common stock for cash
$ .25 - February 4, 1999 500,000 500 124,500
$ 3.00 - February 24, 1999 2,000 2 5,998
$ 3.00 - March 16, 1999 5,000 5 14,995
$ 3.00 - March 17, 1999 4,000 4 11,996
$ 3.00 - March 30, 1999 9,000 9 26,991
$ 3.00 - April 12, 1999 5,000 5 14,995
Advances on stock subscriptions 0 0 0
$3.00 - July 2, 1999 65,000 65 194,935
$3.00 - September 9, 1999 8,074 8 24,213
(Transferred from advances on
stock subscriptions)
Net loss for the nine months
ended September 30, 1999 0 0 0
---------- ---------- ----------
BALANCE, SEPTEMBER 30, 1999 19,959,029 $ 19,959 $3,514,702
========== ========== ==========
</TABLE>
<PAGE>
Deficit
Accumulated
Advances During the
on Stock Development
Subscriptions Stage
------------- -----------
$ 0 $ 0
0 0
0 0
0 0
0 0
0 0
0 (370,360)
------------- -----------
0 (407,384)
0 0
0 0
0 0
0 0
0 0
0 0
24,221 0
0 0
(24,221) 0
0 (398,503)
------------- -----------
$ 0 $ (805,887)
============= ===========
See Accompanying Notes and Accountants' Review Report.
5
<PAGE>
FENWAY INTERNATIONAL INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
FOR THE PERIOD FROM MAY 7, 1984 (DATE OF INCEPTION) TO
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
May 7, 1984
Nine Months (Date of
Ended Inception) to
September September
30, 1999 30, 1999
----------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (398,503) $ (805,887)
Adjustments to reconcile net (loss)
to net cash (used) by operating activities
Depreciation 1,206 1,793
Contributions to capital and stock issued for
expenses and services 0 9,000
Increases (decreases) in:
Cash-held in lawyer's trust account 0 118,578
Interest receivable (4,200) (6,067)
Accounts receivable and prepaid expenses 3,738 6,182
Accounts receivable, related party (6,977) (6,977)
Accounts payable (12,438) 51,547
Accrued liabilities 9,326 16,041
----------- -------------
NET CASH (USED) BY OPERATING
ACTIVITIES (407,848) (615,790)
----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Palcan Mining and Cement Corporations 12,851 (10,707)
----------- -------------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES 12,851 (10,707)
----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 395,000 606,146
Proceeds from issuance of short term notes 7,327 39,585
Advances on stock subscriptions 321 0
----------- -------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 402,648 645,731
----------- -------------
NET INCREASE (DECREASE) IN CASH 7,651 19,234
CASH AT BEGINNING OF PERIOD 11,583 0
----------- -------------
CASH AT END OF PERIOD $ 19,234 $ 19,234
=========== =============
</TABLE>
See Accompanying Notes and Accountants' Review Report.
6
<PAGE>
FENWAY INTERNATIONAL INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
FOR THE PERIOD FROM MAY 7, 1984 (DATE OF INCEPTION) TO
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
May 7, 1984
Nine Months (Date of
Ended Inception) to
September September
30, 1999 30, 1999
------------ -------------
<S> <C> <C>
SCHEDULE OF NON CASH INVESTING AND
FINANCING ACTIVITIES
Issuance of 400,000 shares of common stock for mineral
lease (unknown value) and expenses - 1984 $ 3,000
-------------
Issuance of 9,000 shares of common stock for
services - 1985 $ 2,400
-------------
Contribution to capital - expenses - 1997 $ 3,600
-------------
Contribution to capital - expenses - 1998 $ 1,300
-------------
Issuance of 7,644,067 shares of stock - August 31, 1998 $ 2,918,215
-------------
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Interest paid $ 0 $ 0
============= =============
Taxes paid $ 0 $ 0
============= =============
</TABLE>
See Accompanying Notes and Accountants' Review Report.
7
<PAGE>
FENWAY INTERNATIONAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Organization and Nature of Business
The Company was incorporated under the laws of the State of Nevada on May
7, 1984 for the primary purpose of developing mineral properties. During
1985, the Company abandoned its remaining assets and settled its
liabilities and was inactive until 1998. In 1998, the Company became
active again by acquiring mineral properties in the Republic of the
Philippines.
Name Change
On September 2, 1998, the Company changed its name from Nevada-Utah Gold,
Inc. to Fenway International Inc.
Authorized Common Stock
On May 7, 1984, the Company was incorporated with authorized common stock
of 25,000 shares with a par value of $1.00. On July 10, 1997, the
authorized common stock was increased to 100,000,000 shares with a change
in par value to $0.001.
On July 26, 1997, the Company completed a forward stock split of its
outstanding common stock of one share for thirty shares. The financial
statements have been prepared showing after stock split shares with a par
value of $0.001 from its inception.
Accounting Estimates
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could vary from the
estimates that were used.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of six months or
less to be cash equivalents.
Income Taxes
Provisions for income taxes are based on taxes payable or refundable for
the current year and deferred taxes on temporary differences between the
amount of taxable income and pretax financial income and between the tax
bases of assets and liabilities and their reported amounts
See Accompanying Notes and Accountants' Review Report.
8
<PAGE>
FENWAY INTERNATIONAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
Income Taxes (Continued)
in the financial statements. Deferred tax assets and liabilities are
included in the financial statements at currently enacted income tax
rates applicable to the period in which the deferred tax assets and
liabilities are expected to be realized or settled as prescribed in FASB
Statement No. 109, Accounting for Income Taxes. As changes in tax laws or
rate are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
Compensated Absences
Employees of the corporation are entitled to paid vacations, sick days
and other time off depending on job classification, length of service and
other factors. It is impractical to estimate the amount of compensation
for future absences, and accordingly, no liability has been recorded in
the accompanying financial statements. The corporation's policy is to
recognize the costs of compensated absences when paid to employees.
Net Loss Per Share
The Company adopted Statement of Financial Accounting Standards No. 128
that requires the reporting of both basic and diluted earnings per share.
Basic earnings per share is computed by dividing net income available to
common shareowners by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock.
Disclosure About Fair Value of Financial Instruments
The Company has financial instruments, none of which are held for trading
purposes. The Company estimates that the fair value of all financial
instruments at September 30, 1999 as defined in FASB 107, does not differ
materially from the aggregate carrying values of its financial
instruments recorded in the accompanying balance sheet. The estimated
fair value amounts have been determined by the Company using available
market information and appropriate valuation methodologies. Considerable
judgement is required in interpreting market data to develop the
estimates of fair value, and accordingly, the estimates are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange.
International Currency Translation
For translation of its international currencies, the Company has
determined that the local currencies of its international subsidiaries
are the functional currencies.
See Accompanying Notes and Accountants' Review Report.
9
<PAGE>
FENWAY INTERNATIONAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 2 DEVELOPMENT STAGE OPERATIONS
As of September 30, 1999, the Company was in the development stage of
operations. According to the Financial Accounting Standards Board of the
Financial Accounting Foundation, a development stage Company is defined
as a company that devotes most of its activities to establishing a new
business activity. In addition, planned principle activities have not
commenced, or have commenced and have not yet produced significant
revenue.
FAS-7 requires that all development costs be expensed during the
development period. The Company expensed $398,503 of development costs
for the nine months ended September 30, 1999 and $805,887 from May 7,
1984 (date of inception) to September 30, 1999.
NOTE 3 INVESTMENT IN PALCAN MINING AND CEMENT CORPORATIONS
Palcan Mining Corporation
A. Incorporation
Palcan Mining Corporation was incorporated in the Republic of the
Philippines on August 13, 1998 under Republic of the Philippines
Sec Reg No. A199811014. The term for which the corporation is to
exist is fifty years from and after the date of issuance of the
certificate of incorporation.
B. Incorporators and directors
Names and nationalities of the incorporators and directors are as
follows:
Name Nationality
--------------------------- -----------------
Rene E. Cristobal Filipino
Carlos A. Fernandez Filipino
Dativa C. Dimaano-Sangalang Filipino
Arthur Leonard Taylor Canadian
Herbert John Wilson Canadian
C. Authorized capital
The authorized capital stock of the corporation is one million
pesos in lawful money of the Republic of the Philippines, divided
into one thousand shares with the par value of one thousand pesos
per share.
See Accompanying Notes and Accountants' Review Report.
10
<PAGE>
FENWAY INTERNATIONAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 3 INVESTMENT IN PALCAN MINING AND CEMENT CORPORATIONS (CONTINUED)
D. Subscribers and issued capital
25% of the authorized capital stock has been subscribed and at
least 25% of the total subscription has been paid as follows:
<TABLE>
<CAPTION>
Number of
Shares Amount Amount
Name Subscribed Subscribed Paid
--------------------- ---------- ----------- ----------
<S> <C> <C> <C>
Rene E. Cristobal 200 p 200,000 p 50,000
Carlos A. Fernandez 150 150,000 37,500
Dativa C. Dimaano-
Sangalang 250 250,000 62,500
Arthur Leonard Taylor 1 1,000 1,000
Herbert John Wilson 1 1,000 1,000
Fenway Resources Ltd. 398 398,000 398,000
---------- ----------- ----------
1,000 p 1,000,000 p 550,000
========== =========== ==========
</TABLE>
E. The primary purpose of this corporation is to hold the mineral
claims of Central Palawan Mining and Ind. Corp. ("CPMIC"), Palawan
Star Mining Ventures, Inc. ("PSMVI") and Pyramid Hill Mining &
Ind. Corp. ("PHMIC"), their respective MPSA's, ECC's and quarry
shale and limestone and any other commercial minerals found on the
property and to buy, sell, on whole basis only, exchange or
otherwise produce and deal in all kinds of minerals and in their
products and by-products of every kind and description and by
whatsoever process; to purchase, lease, option, locate or
otherwise acquire, own, exchange, sell, assign or contract out the
property and the operation of the property, or otherwise dispose
of, pledge, mortgage, deed in trust, hypothecate and deal in
mining claims, land related to production from the mining claims,
timber lands, water, and water rights and other property, both
real and personal.
Palcan Cement Corporation
A. Palcan Cement Corporation was incorporated in the Republic of the
Philippines on August 12, 1998 under Philippines Sec Reg No.
A199811013. The Company has a fiscal year end of December 31.
See Accompanying Notes and Accountants' Review Report.
11
<PAGE>
FENWAY INTERNATIONAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 3 INVESTMENT IN PALCAN MINING AND CEMENT CORPORATIONS (CONTINUED)
B. Incorporators and directors
Names and nationalities of the incorporators and directors are as
follows:
Name Nationality
--------------------------- -----------------
Rene E. Cristobal Filipino
Carlos A. Fernandez Filipino
Dativa C. Dimaano-Sangalang Filipino
Arthur Leonard Taylor Canadian
Herbert John Wilson Canadian
C. Authorized capital
The authorized capital stock of the corporation is five million
pesos in lawful money of the Republic of the Philippines, divided
into five thousand shares with the par value of one thousand pesos
per share.
D. Subscribers and issued capital
The subscribers to the capital stock and the amounts paid-in to
their subscriptions are as follows:
<TABLE>
<CAPTION>
Number of
Shares Amount Amount
Name Subscribed Subscribed Paid
---------------------- ---------- ----------- ----------
<S> <C> <C> <C>
Rene E. Cristobal 170 p 170,000 p 42,500
Carlos A. Fernandez 150 150,000 37,500
Dativa C. Dimaano-
Sangalang 180 180,000 45,000
Laurie G. Maranda 1 1,000 1,000
Robert George Muscroft 1 1,000 1,000
Arthur Leonard Taylor 1 1,000 1,000
Herbert John Wilson 1 1,000 1,000
Fenway Resources Ltd. 4,496 4,496,000 4,496,000
---------- ----------- -----------
5,000 p 5,000,000 p 4,625,000
========== =========== ===========
</TABLE>
E. Foreign Investments Act of 1991
The Company has applied to do business under the Foreign
Investments Act of 1991, as amended by RA8179, with 90% foreign
equity, with the intention to operate an export enterprise with
the primary purpose of cement manufacturing.
See Accompanying Notes and Accountants' Review Report.
12
<PAGE>
FENWAY INTERNATIONAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 4 INVESTMENT IN THE REPUBLIC OF PHILIPPINES - CONSORTIUM AGREEMENT
Consortium Agreement
By letter amendment agreement dated April 30, 1997, all prior agreements
between Fenway and Central Palawan Mining and Industrial Corporation
("CPMIC"), Palawan Star Mining Ventures Inc. ("Palawan Star") and Pyramid
Hill Mining and Industrial Corp. ("Pyramid Hill"), were amended in
accordance with the terms and amendments below:
A. Reference and Interpretation
CPMIC, Palawan Star and Pyramid Hill shall be collectively
referred to as the "Consortium".
B. Joint Venture Mining Company ("JVMC")
I. A Joint Venture Mining Company shall be established.
II. Neither the Consortium nor each member of the Consortium
shall have any equity interest in the JVMC and each member
assigns and waives all right to own and subscribe to the
shares of the JVMC.
III. 10% of net profits of the JVMC shall be paid to the
Consortium as consideration for the transfer of their
respective interests in each of the properties, including
the mining claims, the MPSA and the ECC.
IV. Royalty payments applicable to raw material quarried or
mined from property belonging individually to CPMIC,
Palawan Star and Pyramid Hill will be waived and
surrendered by each member of the Consortium in favor of
the Consortium.
V. The properties, consisting of mining claims, the MPSA, and
the ECC and all rights, title and interest thereto shall be
transferred by each member of the Consortium to the JVMC.
See Accompanying Notes and Accountants' Review Report.
13
<PAGE>
FENWAY INTERNATIONAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 4 INVESTMENT IN THE REPUBLIC OF PHILIPPINES - CONSORTIUM AGREEMENT
(CONTINUED)
C. Advances in Relation to the Joint Venture Mining Company
I. In consideration of the amendments in the letter amendment
agreement, Fenway shall, upon signing, pay the Consortium
US$100,000 as an advance maintenance payment which shall be
deducted from the royalties payable to the Consortium.
II. JVMC is to advance US$100,000 to each member of the
Consortium per year payable prorata in quarterly payments
as advance royalty payments to be deducted from the
royalties of $0.35 per ton of raw material used in the
manufacture of cement from the properties. Advance royalty
payments shall cease upon commencement of commercial
production of any one of the properties of the Consortium.
D. Joint Venture Cement Manufacturing Company ("JVCC")
A joint venture cement manufacturing company will be formed for
the development of the Palawan Cement Project for the
manufacturing of cement and related cement products.
E. Interest in Net Profit of JVCC
10% interest in the net profit of the JVCC are to go to the
Consortium out of the interest of Fenway in the JVCC.
F. Conditions Precedent to this Agreement
Receipt of an Environmental Compliance Certificate ("ECC") and a
Mineral Production Sharing Agreement ("MPSA") shall be conditions
precedent to the establishment of JVMC and JVCC, and accordingly
the production funding deadline of June 30, 1997 will be extended
and the right to purchase 10% of Fenway's interest is waived.
See Accompanying Notes and Accountants' Review Report.
14
<PAGE>
FENWAY INTERNATIONAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 4 INVESTMENT IN THE REPUBLIC OF PHILIPPINES - CONSORTIUM AGREEMENT
(CONTINUED)
G. Share Options and Warrants
I. The Consortium members will have options to purchase Fenway
shares, subject to regulatory approvals, as follows:
CPMIC PALAWAN STAR PYRAMID HILL
---------------------------- ------------ ----------------
Nine hundred Thousand Shares 1 million shares 4 million shares
@ CDN $2.00/sh @ CDN $4.00/sh @ CDN $2.00/sh
With 1:1 warrant 1million shares
@ CDN $3.00/sh @ CDN $5.00/sh
exercisable at any time exercisable at any time
II. The common conditions governing both Stock Options and
Warrants in G(I), above, are as follows:
a. The timing of the release of the shares is subject
to the release of the senior financing or funding.
b. They are exercisable only upon receipt of the
Production Funds.
c. The terms and payment are to be determined in a
separate agreement to be entered into between and
among Fenway and the individual members of the
Consortium.
III. Subject to the approval by the relevant Securities
Regulatory Authorities, it is expressly understood that the
stock options and warrants referred to above may not be
exercised by the Consortium until such time as Fenway has
received the Acceptable Funding Commitment, provided
however, that Fenway may issue at any time all or a portion
of the warrants and Consortium may exercise at any time the
warrants in the event the issued and outstanding share
capital of Fenway is increased in order to facilitate
and/or meet the financing requirements to undertake the
Palawan Cement Project.
See Accompanying Notes and Accountants' Review Report.
15
<PAGE>
FENWAY INTERNATIONAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 5 INVESTMENT IN THE REPUBLIC OF PHILIPPINES - OPTION AGREEMENT - NEGOR RR
CEMENT PROJECT
On July 16, 1998, the Company entered into an option agreement with Negor
RR Cement Corporation, a Philippine corporation, for the purpose of
forming and operating a mining and cement manufacturing company.
The following are the details of the option agreement:
A. For a period of four (4) years following the date of acceptance by
the Company of a commercial feasibility study and report for the
project, which study and report are sufficient to enable the
Company to obtain any and all funds necessary or appropriate to
finance the development and operation of the project, that number
of shares of the Company's $.001 par value common stock equal to
the lesser of (a) two million (2,000,000) such shares, or (b)
equal to ten percent (10%) of the then issued and outstanding
shares of that common stock, at a purchase price of Five United
States Dollars ($5.00) per share.
B. The manufacturing company shall prepare, sign and deliver to Negor
any and all documents and other instruments necessary or
appropriate to vest in Negor a free, carried ownership interest in
the manufacturing company equal to ten percent (10%). As a result
of such ownership interest, Negor shall be entitled to have
allocated to it ten percent (10%) of the net profits, losses and
credits of the manufacturing company.
C. The manufacturing company shall prepare, sign and deliver, to the
Company any and all documents and other instruments necessary or
appropriate to vest in the Company an ownership interest in the
manufacturing company equal to ninety percent (90%). As a result
of such ownership interest, the Company shall be entitled to have
allocated to it ninety percent (90%) of the net profits, losses
and credits of the manufacturing company.
D. The mining company shall prepare, sign and deliver to Negor any
and all documents and other instruments necessary or appropriate
to vest in Negor an ownership interest in the mining company equal
to forty percent (40%). As a result of such ownership interest,
Negor shall be entitled to have allocated to it forty percent
(40%) of the net profits, losses and credits of the mining
company.
E. The mining company shall prepare, sign and deliver to the Company
any and all documents and other instruments necessary or
appropriate to vest in the Company an ownership interest in the
mining company equal to forty percent (40%). As a result
See Accompanying Notes and Accountants' Review Report.
16
<PAGE>
FENWAY INTERNATIONAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 5 INVESTMENT IN THE REPUBLIC OF PHILIPPINES - OPTION AGREEMENT - NEGOR RR
CEMENT PROJECT (CONTINUED)
of such ownership interest, the Company shall be entitled to have
allocated to it forty percent (40%) of the net profits, losses and
credits of the mining company.
F. The mining company shall prepare, sign and deliver to one or more
third party investors any and all documents and other instruments
necessary or appropriate to vest collectively in those third party
investors an ownership interest in the mining company equal to
twenty percent (20%). As a result of such ownership interest,
those third party investors shall be entitled to have allocated to
it twenty percent (20%) of the net profits, losses and credits of
the mining company.
G. Payment obligations $50,000 at date of signing of the agreement
$50,000 no later than September 30, 1998 (Both payments were made)
At such time as all feasibility studies and similar studies and
reports are completed which are necessary or appropriate for the
construction and operation of the manufacturing facilities and
which will be required prior to the receipt of the funds required
to finance construction of the manufacturing facilities, which
funds may be contributions to capital and proceeds from one or
more borrowing transactions, or either of them, the manufacturing
company shall pay to Negor One Million United States Dollars
($1,000,000.00). In connection with any and all such borrowing
transactions, the acquired claims may be utilized as collateral or
otherwise be pledged to enhance the credit of the borrower.
NOTE 6 LOAN RECEIVABLE
The Company loaned $80,000 to Central Palawan Mining & Industrial Corp.,
Palawan Star Mining Ventures Inc. and Pyramid Hill Mining & Industrial
Corp. on September 6, 1995. This loan bears interest at 7% per annum from
date of signing until repaid in full.
NOTE 7 PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major renewals and
improvements are charged to the asset accounts while replacements,
maintenance and repairs, which do not improve or extend the lives of
respective assets, are expensed. At the time property and equipment are
See Accompanying Notes and Accountants' Review Report.
17
<PAGE>
FENWAY INTERNATIONAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 7 PROPERTY AND EQUIPMENT (CONTINUED)
retired or otherwise disposed of, the assets and related depreciation
accounts are relieved of the applicable amounts. Gains or losses from
retirements or sales are credited or charged to income.
The Company depreciates its property and equipment for financial
reporting purposes using the accelerated methods based upon an estimated
useful life of five years.
The components of the property and equipment are as follows:
Office equipment $ 6,189
Computers 5,360
------------
Total cost 11,549
Less accumulated depreciation 6,356
------------
Total property and equipment $ 5,193
============
Depreciation expense for the nine months ended September 30, 1999
amounted to $1,206.
NOTE 8 DEFERRED TAX ASSETS
Deferred tax assets arise from the net operating loss carryforwards.
Total deferred tax asset $ 205,000
Less valuation allowance 205,000
------------
Net deferred tax asset $ 0
============
NOTE 9 NET OPERATING LOSS CARRYFORWARD
The Company has the following net operating loss carryforwards:
Tax Year Amount Expiration date
----------------- -------- ---------------
December 31, 1984 $ 5,296 December 31, 1999
December 31, 1985 28,128 December 31, 2000
December 31, 1987 3,600 December 31, 2001
December 31, 1998 370,360 December 31, 2018
--------
$407,384
========
See Accompanying Notes and Accountants' Review Report.
18
<PAGE>
FENWAY INTERNATIONAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 10 SHORT TERM NOTES PAYABLE
The Company has two short term loans as follows:
<TABLE>
<CAPTION>
<S> <C>
A. Unsecured, 12% note dated June 3, 1998 for $150,000
Canadian dollars. There is no due date on the note. $ 101,351
B. Unsecured, no interest note dated September 28, 1998 for
$50,000 Canadian dollars. There is no due date on the
note. 33,784
---------
$ 135,135
=========
</TABLE>
NOTE 11 STOCK OPTIONS
A. The Company has stock options outstanding at September 30, 1999
as follows:
<TABLE>
<CAPTION>
Number of Exercise Expiration
Name of Optionee Shares Price Date
--------------------- --------- --------- ------------
<S> <C> <C> <C>
Milton M. Schlesinger 200,000 US $3.00 July 4, 2004
Steven Sobolewski 250,000 US $3.00 July 4, 2004
H. John Wilson 495,963 US $3.00 July 4, 2004
A. Leonard Taylor 495,963 US $3.00 July 4, 2004
Laurie G. Maranda 300,000 US $3.00 July 4, 2004
R. George Muscroft 300,000 US $3.00 July 4, 2004
Willi Magill 200,000 US $3.00 July 4, 2004
Detty Sangalang 200,000 US $3.00 July 4, 2004
Rene E. Cristobal 200,000 US $3.00 July 4, 2004
Carlos Fernandez 200,000 US $3.00 July 4, 2004
Robert Shoofey 180,000 US $3.00 July 4, 2004
Daniel Maarsman 195,000 US $3.00 July 4, 2004
Edward Cardozo 200,000 US $3.00 July 4, 2004
Friedhelm Menzel 200,000 US $3.00 July 31, 2004
William Anderson 200,000 US $3.00 July 31, 2004
3,816,926
=========
</TABLE>
See Accompanying Notes and Accountants' Review Report.
19
<PAGE>
FENWAY INTERNATIONAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 11 STOCK OPTIONS (CONTINUED)
At September 30, 1999 the Company had a stock-based compensation plan
under which options were granted to employees and outside directors. The
Company measures the compensation cost for these plans using the
intrinsic value method of accounting prescribed by APB Opinion No. 25
(Accounting for Stock Issued to Employees). Given the terms of the
Company's plans, no compensation cost has been recognized for its stock
option plan.
The Company's reported net income and earnings per share would have been
reduced had compensation cost for the Company's stock-based compensation
plan been determined using the fair value method of accounting as set
forth in SFAS No. 123 (Accounting for Stock-Based Compensation). For
purposes of estimating the fair value disclosures below, the fair value
of each stock option has been estimated on the grant date using the
Black-Scholes option-pricing model with the following assumptions:
dividend yield of 0%; expected volatility of 30%; risk-free interest
rate 5.8%; and expected lives of five years.
Had compensation costs for the Company's plan been determined based on
the fair value at the grant date consistent with the method of FASB
Statement 123, the Company's net income and earnings per share would
have been as indicated below:
<TABLE>
<CAPTION>
As Reported Pro Forma
----------- ---------
<S> <C> <C>
Net (loss) $ ( 398,503) $ ( 398,503)
Primary (loss) per share $ ( 0.02) $ ( 0.02)
A summary of the all options is as follows:
Balance at January 1, 1999 3,450,000
Options issued 700,000
Options exercised ( 33,074)
Options canceled 300,000)
------------
Balance at September 30, 1999 3,816,926
============
</TABLE>
See Accompanying Notes and Accountants' Review Report.
20
<PAGE>
FENWAY INTERNATIONAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 11 STOCK OPTIONS (CONTINUED)
Information regarding employee stock options outstanding as of September
30, 1999 is as follows:
Options Outstanding
--------------------------------------------------
Weighted
Weighted Average
Average Remaining
Price Exercise Contractual
Range Shares Price Life
----------- --------- ---------- -----------------
$ 3.00 3,816,926 $ 3.00 4 years, 9months
Options Exercisable
-------------------------
Weighted
Average
Price Exercise
Range Shares Price
----------- --------- ---------
$ 3.00 0 N/A
NOTE 12 STOCK WARRANTS
The following warrants are outstanding and applicable to investment in
projects in Palawan, Philippine.
B. Warrants outstanding as of September 30, 1999.
45,750 Shares at a price of Canadian $5.50 per share if
exercised on or before December 5, 2000
25,250 Shares at a price of Canadian $5.50 per share if
exercised on or before February 25, 2001
28,901 Shares at a price of Canadian $5.50 per share if
exercised on or before May 29, 2001
25,000 Shares at a price of Canadian $5.50 per share if
exercised on or before June 2, 2001
27,000 Shares at a price of Canadian $5.50 per share if
exercised on or before June 6, 2001
2,128 Shares at a price of United States $4.00 per share if
exercised on or before October 29, 2000
670 Shares at a price of United States $4.00 per share if
exercised on orbefore October 29, 2000
65,000 Shares at a price of United States $4.00 per share if
exercised on or before June 10, 2001
------
219,699
=======
See Accompanying Notes and Accountants' Review Report.
21
<PAGE>
FENWAY INTERNATIONAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 13 CONSULTING AGREEMENT WITH RELATED PARTIES
The Company assumed a consulting agreement with a former director of
Fenway Resources Ltd. which requires quarterly payments of $5,000
(Canadian dollars).
NOTE 14 INTEREST EXPENSE
The Company incurred $9,329 of interest expense for the nine months
ended September 30, 1999.
NOTE 15 OPERATING LEASES
The Company is leasing office facilities in Vancouver, British Columbia,
Canada and Manila, Philippines as follows:
Vancouver
5 year lease expiring February 28, 2001
Monthly rental of $308 plus occupancy costs
Manila
5 year lease expiring April 30, 2002
Monthly rental of $1,754 plus occupancy costs
Future minimum lease payments are as follows:
September 30, 2000 $ 24,744
September 30, 2001 24,744
September 30, 2002 13,962
------------
$ 63,450
============
Rent expense for the nine months ended September 30, 1999 was $25,620.
NOTE 16 INVESTMENT BANKER AGREEMENT
The corporation signed a non financial agency agreement for the future
capitalization of the Company. The banker shall be entitled to receive a
fee equal to a cumulative percentage of the funds raised on behalf of the
corporation, plus stock warrants as authorized below, which shall be
payable upon funding.
The warrants will have a term of two years from the date of closing the
transaction and are exercisable at the specified price for the first year
and at one hundred and ten percent (110%) of the specified price for the
second year. The warrants shall have ultimate piggy back registration
rights and one time demand registration rights. The fee and the warrants
are cumulative and will be calculated as follows:
See Accompanying Notes and Accountants' Review Report.
22
<PAGE>
FENWAY INTERNATIONAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 16 INVESTMENT BANKER AGREEMENT (CONTINUED)
Funds Raised Fee Warrants
---------------- --------- -------------
0 - 10,000,000 7.0 % 200,000
10 - 20,000,000 2.0 150,000
20 - 40,000,000 1.5 100,000
40 - 80,000,000 1.2 75,000
80 - 100,000,000 0.95 50,000
The price for the warrants will be the price per share as specified by
the price per share in the transaction between the Corporation and the
Funder.
NOTE 17 EMPLOYMENT CONTRACTS
The Company assumed employment contracts from Fenway Resources Ltd. The
details of the contracts are as follows:
<TABLE>
<CAPTION> Annual Expiration
Title Date Salary Date Renewable
---------------- ----------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
President and
Chief Executive
Officer September 1, 1995 $ 400,000 (CND) August 31, 2000 5 year periods
Secretary and
Chief Financial
Officer September 1, 1995 $ 300,000 (CND) August 31, 2000
5 year periods
Project Manager February 1, 1996 $ 200,000 (CND) August 31, 2000 5 year periods
Project Manager February 1, 1996 $ 200,000 (CND) August 31, 2000 5 year periods
</TABLE>
Each of the officers have only received between $2,600 - $3,250 (CND)
per month and have agreed to forgive all other compensation payable to
them until the Board of Directors deem it appropriate to pay the
officers.
NOTE 18 SUBSEQUENT EVENT
Private Placement
In November 1999, the Company received $96,000 from a private placement
of 32,000 units of common stock at $3.00 per share. Each unit is
comprised of one common share of stock
See Accompanying Notes and Accountants' Review Report.
23
<PAGE>
FENWAY INTERNATIONAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 18 SUBSEQUENT EVENT (CONTINUED)
plus one warrant entitling the purchaser to purchase one additional
share of common stock at a price of United States $4.00 per share if
exercised by November 8, 2001.
Financial Consulting Agreement
On November 4, 1999, the Company entered into a financial consulting
agreement for the period from October 7, 1999 until April 30, 2000. The
Company is obligated to pay a monthly retainer of $10,000 from November
1, 1999 through April 1, 2000.
See Accompanying Notes and Accountants' Review Report.
24
<PAGE>
Item 2. Plan of Operation
THIS REPORT SPECIFIES FORWARD-LOOKING STATEMENTS OF MANAGEMENT OF THE COMPANY
("FORWARD-LOOKING STATEMENTS") INCLUDING, WITHOUT LIMITATION, FORWARD-LOOKING
STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, BELIEFS, INTENTIONS AND FUTURE
STRATEGIES. FORWARD-LOOKING STATEMENTS ARE STATEMENTS THAT ESTIMATE THE
HAPPENING OF FUTURE EVENTS AND ARE NOT BASED ON HISTORICAL FACTS.
FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY, SUCH AS "COULD", "MAY", "WILL", "EXPECT", "SHALL", "ESTIMATE",
"ANTICIPATE", "PROBABLE", "POSSIBLE", "SHOULD", "CONTINUE", "INTEND" OR SIMILAR
TERMS, VARIATIONS OF THOSE TERMS OR THE NEGATIVE OF THOSE TERMS. THE
FORWARD-LOOKING STATEMENTS SPECIFIED IN THIS REPORT HAVE BEEN COMPILED BY
MANAGEMENT OF THE COMPANY ON THE BASIS OF ASSUMPTIONS MADE BY MANAGEMENT AND
CONSIDERED BY MANAGEMENT TO BE REASONABLE. FUTURE OPERATING RESULTS OF THE
COMPANY, HOWEVER, ARE IMPOSSIBLE TO PREDICT AND NO REPRESENTATION, GUARANTY, OR
WARRANTY IS TO BE INFERRED FROM THOSE FORWARD-LOOKING STATEMENTS.
THE ASSUMPTIONS USED FOR PURPOSES OF THE FORWARD-LOOKING STATEMENTS SPECIFIED IN
THIS REPORT REPRESENT ESTIMATES OF FUTURE EVENTS AND ARE SUBJECT TO UNCERTAINTY
AS TO POSSIBLE CHANGES IN ECONOMIC, LEGISLATIVE, INDUSTRY, AND OTHER
CIRCUMSTANCES. AS A RESULT, THE IDENTIFICATION AND INTERPRETATION OF DATA AND
OTHER INFORMATION AND THEIR USE IN DEVELOPING AND SELECTING ASSUMPTIONS FROM AND
AMONG REASONABLE ALTERNATIVES REQUIRE THE EXERCISE OF JUDGMENT. TO THE EXTENT
THAT THE ASSUMED EVENTS DO NOT OCCUR, THE OUTCOME MAY VARY SUBSTANTIALLY FROM
ANTICIPATED OR PROJECTED RESULTS, AND, ACCORDINGLY, NO OPINION IS EXPRESSED ON
THE ACHIEVABILITY OF THOSE FORWARD-LOOKING STATEMENTS. IN ADDITION, THOSE
FORWARD-LOOKING STATEMENTS HAVE BEEN COMPILED AS OF THE DATE OF THIS REPORT AND
SHOULD BE EVALUATED WITH CONSIDERATION OF ANY CHANGES OCCURRING AFTER THE DATE
OF THIS REPORT. NO ASSURANCE CAN BE GIVEN THAT ANY OF THE ASSUMPTIONS RELATING
TO THE FORWARD-LOOKING STATEMENTS SPECIFIED IN THIS REPORT ARE ACCURATE, AND THE
COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS.
Overview. The Company has not had revenues from operations in the last fiscal
year and through the third quarter of 1999. As of September 30, 1999, the
Company was in the development stage of operations, in that the Company was
devoting most of its activities to establishing a new business activity,
specifically, two cement processing facilities in the Philippines. The Company
had invested $2,685,687 in projects in the Republic of the Philippines as of
September 30, 1999 and had expensed $398,503 of development costs for the nine
months ended September 30, 1999, in accordance with Financial Accounting
Standard No. 7 promulgated by the Financial Accounting Foundation. The Company
had expensed a total of $805,887 from May 4, 1984 (date of inception) to
September 30, 1999.
The Company's total assets as specified on its Balance Sheet as of September 30,
1999 consisted of cash in the amount of $19,234, an increase from cash resources
of $11,583 at the end of the Company's prior fiscal year ended December 31,
1998. At September 30, 1999, the Company had accounts receivable in the amount
of $6,785, a decrease from the $12,234 in accounts receivable at December 31,
1998. The loan receivable specified on the Company's financial statements at
December 31, 1998 of $85,211 has continued to accrue interest during the nine
month period ended September 30, 1999 and that loan receivable was in the amount
of $89,411 at
2
<PAGE>
September 30, 1999. At September 30, 1999, the Company further recorded advance
royalty payments of $160,813; prepaid expenses of $3,633; and office equipment
and computers valued by the auditor at $5,193. The Company's balance sheet
specified liabilities at September 30, 1999 totaling $261,377, which consisted
of accounts payable in the amount of $45,534 to third parties and $64,667 to
related parties; accrued liabilities of $16,041; and short term notes payable of
$135,135.
The cash and equivalents constitute the Company's present internal sources of
liquidity. Because the Company is not generating any revenues at this time from
its operations, the Company's only external source of liquidity is the sale of
its capital stock. However, the Company is seeking external financing to
continue to fund its operations.
On August 3, 1999, the Company announced the signing of a Financial Agency
Agreement with First Access Financial Group, Inc., international investment
bankers ("First Access"). First Access has represented to the Company that it
has clients interested in providing funding to the Company's Philippine cement
projects. The Financial Agency Agreement between the Company and First Access is
not exclusive and the Company is currently negotiating with other parties to
finance the Company's proposed commercial grade cement production facilities in
the Philippines.
On August 5, 1999, the Company announced the appointment of Friedhelm Menzel as
resident general manager for the Company's Philippine cement projects. Mr.
Menzel was educated in Germany, specializing in the study of export marketing
and linguistics. Mr. Menzel was export marketing manager for a leading German
garment manufacturer from 1962 to 1967, at which time he joined the German-based
multinational corporation Krupp-Polysius AG, Germany, as Far East Sales Manager.
From 1968 to 1994, Mr. Menzel was employed by Krupp-Polysius in various
capacities relating to the manufacture and supply of heavy industrial equipment
to clients in India, the middle east and the far east by Krupp-Polysius from its
various plants. From 1995 to July 1999, Mr. Menzel was General Manager of
Krupp-Polysius's Philippine agent, Marsson Industrial Inc., which specialized in
the development and manufacture of cement producing equipment and other heavy
industrial equipment and applications.
Company's Plan of Operation for Next 12 Months. The following information
specifies forward-looking statements of management of the Company.
Forward-looking statements are statements that estimate the happening of future
events and are not based on historical fact. Forward-looking statements may be
identified by the use of forward-looking terminology such as "may", "will",
"could", "expect", "estimate", "anticipate", "probable", "possible", "should",
"continue", or similar terms, variations of those terms or the negative of those
terms. Actual results may differ materially from those contemplated by the
forward-looking statements.
The Company has not yet realized any revenue from operations and will not do so
within the next 12 months, as revenues are dependent upon the completion of
cement processing facilities which are currently under development. The
Company's predecessor-in-interest, Fenway Resources, Ltd., spent more than five
years obtaining the necessary licensing, permits and environmental approvals
necessary to support construction of such facilities on the island of Negros
Oriental (the "Negros Project") and the Company is continuing its efforts to
obtain the necessary licensing, permits and environmental approvals for a
proposed facility on the island of Palawan (the "Palawan Project"). The Company
has solicited and received bids for an exploratory drilling program, pursuant to
which the Company hopes to confirm the extent of limestone reserves on Negor
Corporation's Negros Oriental Province mineral claims in the central islands of
the Philippines. The Company has signed a contract with Roctest Machinery and
Drilling Corporation to core drill 2,000 meters for test
3
<PAGE>
sampling of the limestone deposits at the Negros Project. The core drilling will
commence as soon as the Company obtains the necessary regional work licenses and
permits.
Discussions are currently in progress with several design-build groups to
construct and equip the Palawan plant. The Company is negotiating with
Krupps-Polysius to provide the cement plant equipment and with Bilfinger &
Berger to engineer and construct the Palawan Project. These negotiations have
not been concluded and there can be no assurance that either Krupps-Polysius or
Bilfinger & Berger will provide equipment or services to the Company.
The capital costs of the plants, including the construction of all facilities
such as power and ports, are estimated by the Company's engineering consultants
to be approximately $260 million for the Negros Project and approximately $380
million for the Palawan Project. To conform to investment guidelines promulgated
by the Philippine government, 70% of those capital costs must be financed by
loans, including export credits, and 30% must be financed by equity investments.
The approximately $450 million required in loans may be provided by a consortium
of German banks. Krupp-Polysius, one of the world's largest corporations,
anticipates supplying the cement plant equipment to both the Negros Project and
the Palawan Project and has offered to assist the Company in its loan
negotiations with these German banks. The Company anticipates that approximately
$190 million may be received from a registered offering of the Company's common
or preferred stock, probably through brokerage firms located in New York.
The Company is required to participate with local corporations in the
Philippines in order to commercially exploit Philippine mineral claims and,
therefore, the Company has acquired significant ownership interest in various
Philippine corporations. Commercial law in effect on Palawan Island requires the
participation of local entities to exploit the island's mineral resources. Two
local corporations have been created and formally registered in compliance with
local commercial law and securities regulation. The Company owns approximately
40% of Palcan Mining Company ("PMC") which will be responsible for the quarry
properties and the production of crushed stone, both graded and blended, for
cement plant processing operations. PMC will also be responsible for payments of
royalties and fees based on the volumes of quarried stone extracted for cement
production. PMC was incorporated in the Republic of the Philippines on August
13, 1998, and has several common directors with the Company. Specifically,
Herbert John Wilson, President of the Company, is an incorporator and director
of PMC. Arthur Leonard Taylor, Chief Financial Officer, Secretary and a director
of the Company, is an incorporator and director of PMC. Rene E. Cristobel and
Carlos A. Fernandez, directors of the Company, are also incorporators and
directors of PMC. Rene E. Cristobel and Carlos Fernandez each hold 10% or more
of the issued and outstanding capital stock of PMC. The Company owns
approximately 90% of a second Philippine corporation, Palcan Cement Company
("PCC"), which will own and operate the Palawan cement plant and will be
responsible for the marketing and distribution of the Company's products.
The Company has also continued to assess the market acceptance for products of
the proposed Palawan plant within the Philippines and in export markets. The
ability to produce cement of high quality and reliable uniformity from local
materials is essential to the Company's success and this ability is currently
unproven.
Products. The Company is not currently producing any products or supplying any
services to any third parties. When, and if, the Company develops and constructs
its cement manufacturing facilities, the Company anticipates producing
commercial quantities of Portland cement. Portland cement is a finely ground
processed material that, when mixed with sand, gravel, water and other minerals,
forms concrete. The raw materials, limestone and shale, are mined, crushed, and
burned in high-temperature rotary kilns, producing a substance commonly referred
to as "clinker". The resulting clinker is then finely ground with small amounts
of gypsum to produce Portland
4
<PAGE>
cement. From the Palawan Project, the Company anticipates producing 2.5 million
metric tonnes of Portland cement per year.
The products of the Company may be subject to numerous foreign government
standards and regulations that are continually being amended. Although the
Company will endeavor to satisfy foreign technical and regulatory standards,
there can be no assurance that the products of the Company will comply with
foreign government standards and regulations, or changes thereto, or that it
will be cost effective for the Company to redesign its products to comply with
such standards or regulations. The inability of the Company to design or
redesign products to comply with foreign standards could have a material adverse
effect on the Company's business, financial condition and results of operations.
Marketing and Sales. The Company anticipates that all revenues from the sale of
the Company's products will be derived from customers located outside the United
States. To support its overseas customers, the Company anticipates operating
offices outside the continental United States. There can be no assurance that
the Company will be able to manage these operations effectively or that the
Company will be able to compete successfully in international markets or satisfy
the service and support requirements of its customers. In addition, a
significant portion of the Company's sales and operations are subject to
significant risks, including tariffs and other trade barriers, difficulties in
staffing and managing foreign subsidiary and branch operations, currency
exchange risks and exchange controls, potentially adverse tax consequences, and
the possibility of difficulty in accounts receivable collection. There can be no
assurance that any of these factors will not have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company anticipates that initially the Portland cement produced by the
Negros and Palawan Projects will be marketed exclusively in the Philippines,
with expanded capacity providing cement to foreign markets, such as Japan, South
Korea, Thailand, Malaysia, Singapore, Taiwan, Vietnam and Indonesia
(collectively, the "Target Countries"). Nearby Asian export markets for cement
products have a current volume exceeding 90 million tonnes per year moving in
trade. Entities that have previously taken most Philippine cement exports have
been countries bordering the South China Sea, those close to the Malacca Straits
and other countries in the South Asia Sub-Continent.
The strategy of the Company for growth is substantially dependent upon its
ability to market and distribute products successfully. Other companies,
including those with substantially greater financial, marketing and sales
resources, compete with the Company, and have the advantage of marketing
existing products with existing production and distribution facilities. There
can be no assurance that the Company will be able to market and distribute
products on acceptable terms, or at all. Failure of the Company to market its
products successfully could have a material adverse effect on the Company's
business, financial conditions or results of operations.
The Company anticipates that the construction industries in the Target Countries
will experience positive growth, ranging from modest growth expected for Japan,
to more significant growth anticipated in the lesser developed countries, such
as Vietnam, Thailand, the Philippines and Indonesia. The location of the Palawan
and the Negros Projects provides easy access to the Target Countries.
Raw Materials. For the Palawan Project, the Company has acquired mineral rights
to 13,496 hectares in three contiguous claims on the west central portion of the
Palawan Island near Scott Point. The claims are underlain by significant
reserves of limestone and shale, the two main ingredients for the manufacture of
Type I Portland cement. Chemical analysis by the Philippine Bureau of Mines and
Geosciences, Technical Services Division, indicates that the site of the Palawan
Project contains commercial quantities of these raw materials.
5
<PAGE>
The Negor Corporation (in which the Company holds a 90% equity interest) has
mineral claims on the island of Negros Oriental in the Philippines, which
include significant reserves of limestone and shale suitable for the manufacture
of Portland cement. Limestone mineral claims lie near the coastal towns of
Guihulngan and La Libertad on the island of Negros Oriental. Geological studies
suggest that the raw resources on those claims could sustain significant cement
manufacturing operations. The Company has received an Environmental Compliance
Certificate and has entered into the Mineral Production Sharing Agreement
required by the Philippine government for all mining projects in the Philippines
before mining operations can proceed.
Distribution and Transportation of the Company's Products. Distribution in the
cement industry is typically conducted using agency contracts. The agent accepts
product in bulk or bagged from the plant at a specified price. The agent then
takes responsibility for marketing within the region(s) served; for transport
and delivery to customers; and for selling to large-volume customers, retailers
or intermediate wholesalers. The agent marks up the price to cover all costs of
distribution. The final price to consumers at retail accommodates markups as
appropriate in the distribution process. An allowance is included in the markup
applied at each step as profit for product handling and sale.
The Palawan plant will adopt the customary methods typically used in the
Philippines for distribution of cement products, with the following variations:
1. As the Palawan plant will ship to markets in different countries, not
one but several distribution agencies probably will be utilized.
2. Shipments of bagged or bulk product by truck will be for the emerging
market on Palawan.
3. Most products will be shipped from the Palawan plant in bulk by sea to
reach the Target Countries.
4. Transfer of Palawan product from vessels, bulk storage, bagging (as
needed)and distribution by truck will occur within regional markets in
the Target Countries.
5. Intra-regional transportation to customers will be minimized by the
locations of regional facilities for the receipt and handling of
Palawan plant products.
Costs of the first water crossing from Palawan to Philippine markets will be
less than typical costs associated with the transport of equivalent tonnage in
bulk by truck from competing plants. Overall, the Company believes that the
costs of product distribution to Philippine regional markets from the new plant
in Palawan pursuant to agency contracts will be equivalent to similar costs for
competing plants serving the same markets. If necessary to assure entry to
Philippine regional markets, all or part of the costs of the initial water
crossing can be absorbed at the Palawan plant by adjusting the price for product
placed to agents for distribution. Given the cost advantages of marine
transport, this will not be necessary as a general condition, but can be done
where and as needed in special situations.
The Palawan plant is ideally located for export of cement products to regional
markets in the Target Countries. Export sales will be developed and sustained
from the Palawan plant, as a means of broadening market presence, preserving
high utilization of plant assets and pursuing the best combination of available
customer relationships and opportunities for product sales and profits. Direct
relationships with large-volume customers and distribution relationships with
importers will be established in receptive countries, to assure that export
options remain available for the Palawan plant at all times.
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The Company believes that it can provide its products to markets in the Target
Countries, subject to import barriers. Overt barriers have not been present in
the countries where Philippine cement has been accepted in the past, and import
duties in these and other locations continue to decline. Additional
liberalization of trade in East and South Asia may expand opportunities for
general acceptance of products from the Palawan plant. If necessary in
particular situations, entry may be eased by adjusting prices to absorb some of
the costs of marine transport and import costs. Although not necessary as a
general condition, some absorption of transport costs has been assumed to apply,
for purposes of project valuation, to all products shipped from Palawan.
Employees. The Company currently has seven full-time employees, three of whom
are salaried. Management of the Company anticipates using consultants for
business, accounting, engineering, and legal services on an as-needed basis.
Management has senior company experience in mine management, mineral processing,
engineering, construction, administration, and marketing. All members of
management have held senior positions in international companies or
organizations.
Employment Agreement. Employment agreements with H. John Wilson and A. Leonard
Taylor obligate the Company to pay those parties significant monthly payments
far in excess of the Company's present ability to pay. Mr. Wilson's employment
agreement requires the payment of $400,000 annually by the Company to Mr.
Wilson. Because this is far in excess of the Company's present ability to pay,
Mr. Wilson has agreed to accept payments of $3,250 per month until such time as
the Company's Board of Directors deems it appropriate to pay Mr. Wilson the full
amount of the compensation and benefits required pursuant to that employment
agreement. A true and correct copy of Mr. Wilson's employment agreement has been
previously filed as Exhibit 10.3 to Amendment No. 1 to the Company's
Registration Statement on Form 10-SB.
Mr. Taylor's employment agreement requires the payment of $300,000 annually by
the Company to Mr. Taylor. Because this is far in excess of the Company's
present ability to pay, Mr. Taylor has agreed to accept payments of $2,600 per
month until such time as the Company's Board of Directors deems it appropriate
to pay Mr. Taylor the full amount of the compensation and benefits required
pursuant to that employment agreement. A full and correct copy of Mr. Taylor's
employment agreement has been previously filed as Exhibit 10.4 to Amendment No.
1 to the Company's Registration Statement on Form 10-SB.
Employment agreements with R. George Muscroft and Laurie Maranda obligate the
Company to payment of $200,000 annually to each individual. As in the case of
Mr. Wilson and Mr. Taylor, Mr. Muscroft has agreed to accept payments of $3,250
each month and Mr. Maranda has agreed to accept payments of $3,250 each month
until such time as the Company's Board of Directors deems it appropriate to pay
Mr. Muscroft and Mr. Maranda the full amount of the compensation and benefits
required pursuant to those employment agreements. A true and correct copy of Mr.
Muscroft's employment agreement has been previously filed as Exhibit 10.5 to
Amendment No. 1 to the Company's Registration Statement on Form 10-SB. A true
and correct copy of Mr. Maranda's employment agreement has been previously filed
as Exhibit 10.6 to Amendment No. 1 to the Company's Registration Statement on
Form 10-SB.
Competition. As a result of the lack of product differentiation and the
commodity nature of cement, the cement industry is quite competitive.
Competition is based generally on price and, to a lesser extent, quality and
service. The Company may compete with national, international and regional
cement producers in its target markets. Many of the Company's competitors are
larger and have significantly greater resources than the Company. The prices
that the Company charges its customers probably won't be materially different
from the prices charged by other cement producers in the same markets.
Accordingly, profitability in the cement industry is generally dependent on the
level of cement demand and on a cement producer's ability to contain operating
costs. Prices are subject to material changes in response to relatively minor
fluctuations in supply and demand, general economic conditions and other market
conditions beyond the Company's control. There can be no assurance that
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prices will not decline in the future or that such declines will not have a
material adverse effect on the Company's financial condition or results of
operations.
The Company's anticipated cost per tonne of production will be directly related
to the number of tonnes of cement manufactured; and decreases in production will
increase the Company's fixed cost per tonne. Equipment utilization percentages
can vary from year to year based upon demand for the Company's products or as a
result of equipment failure. Much of the Company's anticipated manufacturing
equipment requires significant time to replace and is very costly to replace or
repair. Although the Company will attempt to maintain sufficient spare parts to
avoid long periods of shutdown in the event of equipment failure, there can be
no assurance such shutdowns can be avoided.
Compliance with Environmental Laws. The proposed site for the Palawan Project is
near the ancestral lands of a Filipino indigenous people. These lands may
contain a portion of the Company's mineral claims. The risk of accidental
contamination or injury to indigenous peoples from hazardous materials cannot be
completely eliminated. In the event of such an accident, the Company, or any
successor-in-interest, could be held liable for any damages that result and any
such liability could exceed the financial resources of the Company. In addition,
there can be no assurance that in the future the Company will not be required to
incur significant costs to comply with environmental laws and regulations
relating to hazardous materials. There can be no assurance that the Company will
not be required to incur significant costs to comply with current or future
environmental laws and regulations nor that the operations, business or assets
of the Company will not be materially or adversely affected by current or future
environmental laws or regulations; provided, however, that the Company has
retained SNC Lavalin, a Canadian firm, and GAIA, Inc., a Philippine firm, to
prepare and file the requisite environmental impact statements necessary for the
Company to receive its Environmental Compliance Certificate for the Palawan
Project (an Environmental Compliance Certificate has already been issued for the
Negros Project).
The Company's management believes that both the Palawan Project and the Negros
Project can operate cleanly and without significant pollution in an
environmentally safe manner. However, certain environmental consequences
associated with mining are unavoidable. The primary environmental damage from
the mineral industry occurs during the extraction of raw materials, which
requires large amounts of water and energy. The Company believes that with the
utilization of modern technology and careful planning it can significantly
reduce the environmental impact of the manufacturing of cement. As the Company
is not presently manufacturing any products, management of the Company believes
the Company will not have any significant material expenditures in the next
fiscal year related to the cost of compliance with applicable environmental
laws, rules and regulations. However, at some time in the future, the Company's
operations may involve the controlled use of hazardous materials. As a result,
the Company may be subject to various laws and regulations governing the use,
manufacture, storage, handling, and disposal of such materials and certain waste
products. The Company cannot presently estimate the potential costs of complying
with the applicable foreign environmental laws.
Cash Resources For Next 12 Months. As specified above, the Company believes its
current cash resources are not sufficient to complete the Company's planned
development and construction over the next 12 months and, therefore, the Company
will be required to raise significant additional funds, or arrange for
additional financing, over the next 12 months to adhere to its construction and
development schedule, which contemplates total expenditures of approximately
$710 million in the next three years. Such additional cash may be received from
additional public or private financings, as well as borrowings and other
resources. The Company's only known sources of capital are proceeds from the
offering of its securities, as the Company does not anticipate receiving cash
from revenues during the next 12 months. If adequate additional cash is not
available, the Company may be required to curtail operations significantly or to
obtain funds by entering into arrangements with collaborative partners or others
that may require the Company to relinquish mineral or other claims that the
Company would not otherwise relinquish. No assurance can be given, however, that
the Company will have access to additional
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cash in the future, or that funds will be available on acceptable terms to
satisfy the cash requirements of the Company to implement its business
strategies. The inability of the Company to access cash or obtain acceptable
financing would have a significant material adverse effect on the results of
operations and financial condition of the Company.
In November, 1999, the Company received $96,000 from a private placement of
32,000 units of ownership interest in the Company. Each such unit was comprised
of one share of common stock and one warrant entitling the purchaser to purchase
one additional share of common stock at an exercise price of $4.00 USD per
share, if exercised by November 8, 2001.
On November 4, 1999, the Company entered into a financial consulting agreement
for the period from October 7, 1999 through April 30, 2000. The Company
anticipates that its financial consultant will assist the Company in obtaining
external financing on terms and conditions advantageous to the Company;
provided, however, that there can be no assurance that the Company's financial
consultant will assist the Company in acquiring such external financing.
Year 2000 Compliance. The Year 2000 (commonly referred to as "Y2K") issue
results from the fact that many computer programs were written using two, rather
than four, digits to identify the applicable year. As a result, computer
programs with time-sensitive software may recognize a two digit code for any
year in the next century as related to this century. For example, "00", entered
in a date-field for the year 2000, may be interpreted as the year 1900,
resulting in system failures or miscalculations and disruptions of operations,
including, among other things, a temporary inability to process transactions or
engage in other normal business activities.
To improve operating performance, the Company has undertaken a number of
significant systems initiatives, including a comprehensive review of the
hardware, software and communication systems owned by or supplied to the
Company. These have been analyzed by reviewing all relevant product and service
manuals, contacting vendors, and on-line research of relevant vendor websites.
The Company believes that all of its computer systems are Year 2000 compliant.
The Company (i) has completed an assessment of each of its operations and their
Year 2000 readiness, (ii) has determined that appropriate actions have been and
are being taken, and (iii) believes that it has completed its overall Year 2000
remediation prior to any anticipated impact on its operations. The Company has
determined that the Year 2000 issue will not cause significant operational
problems for its computer systems, and the costs of required modifications to
its computer systems will not be material to the Company's financial position,
cash flows or results of operations. However, although the Company believes its
computer systems are compliant, the Company has been unable to determine the
extent to which the Company's computer systems are vulnerable to the failure of
third parties to remediate their own Year 2000 issues. There is no guarantee
that the computer systems of other companies on which the Company's computer
system relies or interfaces will be converted and will not have an adverse
effect on the Company's computer system.
In a worst case situation, the Company's business operations could be adversely
affected by the non-compliance of banks, communications providers, utilities,
common carriers, the Company's customers, potential customers, suppliers, and
other sources known and unknown to the Company. Widespread breakdowns in the
telecommunications, banking, and computer industries would have an adverse
effect on business operations globally, including the Company's operations. The
ultimate impact of the Y2K issue cannot be reasonably estimated as of the date
of this Registration Statement. Many Y2K problems might not be readily apparent
when they first occur, but instead could imperceptibly degrade technology
systems and corrupt information stored in computerized databases, in some cases
before January 1, 2000.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no legal actions pending against the Company nor are any such legal
actions contemplated.
Item 2. Changes in Securities
As specified above, in November, 1999, the Company received $96,000 from a
private placement of 32,000 units of ownership interest in the Company. Each
such unit was comprised of one share of common stock and one warrant entitling
the purchaser to purchase one additional share of common stock at an exercise
price of $4.00 USD per share, if exercised by November 8, 2001. The shares were
issued in reliance upon an exemption from the registration requirements of the
Securities Act of 1933. The offering price for the shares was arbitrarily set by
the Company and had no relationship to assets, book value, revenues or other
established criteria of value. There were no commissions paid on the sale of
shares.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
On August 3, 1999, the Company announced the signing of a Financial Agency
Agreement with First Access Financial Group, Inc., international investment
bankers ("First Access"). First Access has represented to the Company that it
has clients interested in providing funding to the Company's Philippine cement
projects. The Financial Agency Agreement between the Company and First Access is
not exclusive and the Company is currently negotiating with other parties to
finance the Company's proposed commercial grade cement production facilities in
the Philippines.
On August 5, 1999, the Company announced the appointment of Friedhelm Menzel as
resident general manager for the Company's Philippine cement projects. Mr.
Menzel was educated in Germany, specializing in the study of export marketing
and linguistics. Mr. Menzel was export marketing manager for a leading German
garment manufacturer from 1962 to 1967, at which time he joined the German-based
multinational corporation Krupp-Polysius AG, Germany, as Far East Sales Manager.
From 1968 to 1994, Mr. Menzel was employed by Krupp-Polysius in various
capacities relating to the manufacture and supply of heavy industrial equipment
to clients in India, the middle east and the far east by Krupp-Polysius from its
various plants. From 1995 to July 1999, Mr. Menzel was General Manager of
Krupp-Polysius's Philippine agent, Marsson Industrial Inc., which specialized in
the development and manufacture of cement producing equipment and other heavy
industrial equipment and applications.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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10.1 Option Agreement Regarding Negor RR Cement Corporation Project*
10.2 Agreement of Purchase and Sale of Assets between Fenway Resources Ltd.
and Nevada/Utah Gold, Inc. dated August 10, 1998*
10.3 Employment Agreement (H. John Wilson)*
10.4 Employment Agreement (A. Leonard Taylor)*
10.5 Employment Agreement (R. George Muscroft)*
10.6 Employment Agreement (Laurie Maranda)*
10.7 Memorandum of Agreement (Dated August 29, 1996 by and between Central
Palawan Mining & Industrial Corporation and Fenway Resources Ltd.)*
10.8 Memorandum of Agreement (Dated November 11, 1996 by and between Palawan
Star Mining Ventures, Inc. and Fenway Resources Ltd.)*
10.9 Memorandum of Agreement (Dated November 11, 1996 by and between Pyramid
Hill Mining & Industrial Corporation and Fenway Resources Ltd.)*
10.10 Amendment to MOA and other Agreements dated March 21, 1997*
21 Corporate Chart*
*Previously filed as Exhibits to Amendment No. 1 to Registration Statement on
Form 10-SB on August 11, 1999.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the nine month
period ended September 30, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Vancouver, British Columbia, Canada, on November 19,
1999.
Fenway International Inc.,
a Nevada corporation
By: /s/ L. Taylor
----------------------
Vice-President
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