In our first article on Spectrum Oil Corporation we looked at the Company’s decision to sacrifice its listing on the OTC Bulletin Board rather than file public reports with the SEC. The absence of public filings, however, doesn’t mean that Spectrum has been silent – not by a long shot.
We will look at some of Spectrum’s statements concerning plans for its laser-based desalinization process. But first, we pause for a brief glimpse at some of Spectrum’s previous ventures.
Oil Before Water
Like the folks at Disney say, it’s a small, small world. Earlier this year, we published a report on a company called eCom.com, Inc. (STOCK OR SCHLOCK – DIALING FOR DOLLARS – ECOM.COM, INC). At that time, eCom.com was promoting a plan to market two "900" telephone numbers (1-900 DEMOCRAT and 1-900 REPUBLICAN) to political candidates for fund raising purposes. No candidates had signed on to the program – which didn’t deter eCom.com from issuing press releases promoting its plan and projecting potential profits.So why, you may wonder, are we now talking about eCom.com? Because in 1996, both eCom.com and Spectrum were in the oil business – together. In April 1996, eCom.com says in its Form 10-K filings, it acquired majority control of Spectrum Oil Corporation through a stock swap and agreed to provide $18 million in financing for Spectrum’s hydrocarbon concessions in the Republic of Paraguay. According to eCom.com, the 15 million acres covered by the Spectrum leases might produce "tens of millions of barrels of oil."
eCom.com did not have $18 million, but says it had arranged to raise the necessary funds, subject to verifying the agreements under which Spectrum claimed its rights. Things soon went awry. eCom.com maintains that, by July 1996, Spectrum had defaulted on its agreements with the owners of the Paraguayan concessions, causing eCom.com to terminate the relationship and surrender control of Spectrum by returning the Spectrum shares and canceling the deal.
ECom.com maintains that it is continuing to try to develop those Paraguayan concessions on its own – although eCom.com has no revenues and, at last report, had zero cash in the bank.
It seems that Spectrum’s CEO Sam Higgins may have had some notable experiences of his own. An individual named Sam Higgins was a director of a public company called Grand Development Corporation (GDM) that traded on the Vancouver Stock Exchange in the early 1990s. In 1994 the Vancouver Stock Exchange suspended trading in shares of GDM apparently based, at least in part, upon concerns relating to disclosures by that Company. Was this the same Sam Higgins? If so, exactly what was his role at GDM and in the problems that led to the trading suspension? This is precisely the sort of information that would be available to the public if Spectrum filed public reports.
The eCom.com connection may be the most intriguing of Spectrum’s pre-PIMA endeavors, but it was not the only one. On February 24, 1999, Spectrum announced it had signed an agreement to acquire twenty percent of Renaissance Communications.com, and had obtained an option to acquire another twenty percent. According to the Company’s release, Renaissance was the developer of "unique internet businesses," including one called "TravelPlanet.net." One more thing. Brian Kent, the CEO of Renaissance, was also associated with GDM according to one letter we have obtained.
What did Spectrum pay for its interest in Renaissance? The press release did not say. What has been the fate of Renaissance or the Spectrum-Renaissance connection? We found no subsequent references to that project either in Spectrum’s press releases or on the Company’s web site.
Spectrum of Arabia?
Then there is the PIMA process. What do investors really know about Spectrum’s "flagship" product, PIMA? For the most part, the public must rely upon the Company’s web site and its press releases. As we discovered, however, investors seeking detailed information about the status of the desalinization process may have better luck seeking water (salt or otherwise) with a divining rod.For the last year, Spectrum has trumpeted efforts to introduce PIMA to the arid desert lands of the Middle East. On October 28, 1999, Spectrum (then called Spectrum-Arabieh) announced it had received "a letter from the Kingdom of Saudi Arabia approving the technology review, and importation of the PIMA desalinization technology into the Kingdom of Saudi Arabia."
According to Spectrum CEO Sam Higgins the letter, from the Chairman of Saudi Arabia’s Desalinization Research Institute, allowed Spectrum "to import our pilot plant when complete, and now move forward with negotiations on optioning some of our first commercial production and possible joint scale up of this breakthrough technology." In that same press release, Higgins also confirmed that Spectrum "had received numerous inquiries from officials of other countries and institutional investors around the world and is preparing non-disclosure agreements for their review."
Since the press release did not include the text of the letter from Saudi Arabian officials, investors are left to speculate over its actual content and true meaning. Did the letter actually "approve" or "validate" any aspect of the PIMA project, or did it merely allow Spectrum to import equipment into Saudi Arabia? As we shall see later, that ambiguity was only further enhanced by bolder statements in subsequent Spectrum press releases.
The October 28th press release raises other questions. Who would build the "pilot plant" and where would it be constructed? How much would that construction cost, and how would that expense be financed? That leads back to a lingering question - does Spectrum have any money, and if so, how much? If Spectrum filed regular reports with the SEC the public would have many of those details.
Spectrum’s Middle Eastern strategy has not been limited to Saudi Arabia. The Company says it has its eyes on Israel as well. On December 6, 1999 Spectrum issued a press release announcing that "trade experts" Tokito Ltd. of Tel Aviv would act as the Company’s sales agent in Israel. According to Spectrum "[e]ntry into Israel is rapidly occurring. Meetings have been held in London, and negotiations are underway with multibillion dollar concerns within Israel."
How would Tokito be compensated? The Company did not address that issue directly. Instead, it said that "anticipating significant upward movement of Spectrum’s stock price," Tokito had "secured" options to purchase shares of Spectrum stock at 46.8 cents per share.
How prescient Tokito now seems. Spectrum shares, which traded around 12 cents in late December 1999, hit prices of $3.68 on January 27, 2000.
Just how many shares could Tokito buy with its option? The press release is silent on that matter. Did Tokito exercise those options and sell the shares after they increased in value more than sevenfold? Investors are left guessing.
Have Tokito’s efforts resulted in any business for Spectrum? As best we can determine, the Company issued no further statements detailing the results of that relationship.
Spectrum did have at least one more announcement regarding plans for Israel. Calling "pure water" a "bridge to peace" in this region, Spectrum announced in a January 4th press release that it had "joined forces with Nitron Water Purification Systems of Ramat Gan, Israel creating a joint venture company specifically structured to solve the clean water problems of the State of Israel."
The press release went on to say that Nitron had signed a "120 day ‘exclusive right of first refusal.’" According to Spectrum, both companies would "focus on constructing large-scale PIMA desalinization plants capable of meeting Israel’s clean water needs." Why would PIMA be preferable to existing technologies? Spectrum maintained that PIMA works "to desalinate seawater with fifty percent lower costs…over sixty percent less energy [and] uses no heat, high pressure or toxic chemicals."
How had Spectrum calculated those cost savings? Do studies - independent or otherwise – support those conclusions? If such studies exist, when will they be made available to the public?
The 120 day right of refusal expired in early May and Spectrum has made no further announcement concerning its relationship with Nitron or plans for pilot plants in Israel. Did Nitron exercise its right of refusal or decline to join forces with Spectrum? What does this mean for the "bridge to peace" in the Middle East? Investors are left to wonder, and to await future press releases.
Oh That Letter
The January 4th press release also raises another important question. In the release, Spectrum states "[l]eading Saudi Arabian scientists have approved the technology’s feasibility." But have they? The original October 28th press release said only that a letter to Spectrum from the Chairman of the Saudi Arabian Desalinization Research Institute approved "the technology review, and importation of the PIMA technology into the Kingdom of Saudi Arabia." Where does this suggest that these scientists approved PIMA’s "feasibility?" What’s the distinction? Without reading that letter, seeing to whom it was addressed, and learning why it was written, investors cannot possibly know the scope of the Saudi statements.Spectrum had also referred to the Saudi letter in the December 1st press release disclosing its receipt of the $500,000 "bridge loan." On that occasion the Company stated that "[a]pproval from scientists at the Saudi Arabia Desalinization Research Institute verifies the effectiveness of Spectrum’s water treatment technology, and it allows the company to import desalinization production plants into Saudi Arabia." Had the Saudis in fact either verified the "effectiveness" of PIMA or, as the Company was later to say, approved "its feasibility"?
Spectrum was to refer to its Saudi Arabian connection yet again in a January 19th press release announcing that the Company had been invited to participate in the "22nd Annual Florida Money Show." According to Spectrum, that invitation was based "in part on an Oct. 28, 1999 Business Wire news release announcing the approval of PIMA technology by the Nation of Saudi Arabia."
That statement appeared to be quite a leap from earlier references to the "letter" from the Chairman of Saudi Arabia’s Desalinization Research Institute. This time, the Company was stating that the PIMA technology had gained "approval" from the "Nation of Saudi Arabia." But was that really the case? Again, only the letter will tell that tale.
Investors apparently were not deterred by the lack of detail or vague references to the Saudi letter in the Spectrum press releases. The Company’s shares more than doubled in value soon after the January 19th release was issued.
On the other hand, there is some evidence that one Saudi Arabian organization was none too pleased. As we searched for information about Spectrum we discovered that a letter dated May 14, 2000 had been posted on the Internet (http://www.geocities.com/tomsang/spectrum1.jpg) on official looking stationery bearing the title "Kingdom of Saudi Arabia, Saline Water Conversion Corporation, Research & Development." That letter, signed by one Abdullah A Al-Azzaz is addressed to Sam J. Higgins at Spectrum Arabieh. Its contents bear noting.
Referring to Spectrum’s September 16, 1999 presentation of PIMA to SWCC (apparently signifying the Saline Water Conversion Corporation), Mr. Al-Azzaz states "I was surprised to see on the internet on spectrum-arabieh page a couple of false statements published by spectrum-arabieh regarding the above presentation."
Mr. Al-Azzaz goes on to say "[a]s you are aware, SWCC has never sent you directly any letter. As a matter of fact, an Arabic letter was sent to your agent in Saudi Arabia…based on your agent in Saudi Arabia desire, where he suggested to import a unit to evaluate its effectiveness, efficiency and [fea]sibility by our research center staff in Al-Jubail. SWCC informed him that there is no objection if he wants to import that unit in order to test it and evaluate it without any obligation to SWCC…"
The letter continues by stating, "[i]n short, SWCC has never verified PIMA’s effectiveness, and your company must correct the statements published on the Internet to avoid any misunderstandings and keep the good relations."
Is this letter a legitimate statement from a Saudi Arabian agency? We are seeking further confirmation. In the meantime it provides a somber counterpoint to the optimistic, but vague, tone of the Spectrum representations.
Water Games
Spectrum may hope to sell PIMA in the Middle East, but the Company’s ambitions apparently do not end there. On February 24th, Spectrum disclosed it was negotiating a strategic alliance partnership with the "international technology conglomerate" Alfa Laval AB to bring the PIMA technology to a global market.Spectrum provided no details of the potential relationship, stating instead that the parties had signed confidentiality agreements and that negotiations "for joint funding of further technology development, building demonstration units and constructing PIMA plants are underway." According to Spectrum, a major investment in Spectrum by Alfa Laval was also being discussed.
But questions abound. They begin with the most obvious – whatever happened to the "partnership" or Alfa Laval’s "major investment" in Spectrum? We were unable to find any subsequent press release reflecting the state – if any – of that relationship.
Despite the uncertain status of these relationships, Spectrum seemed determined to solidify its control of the PIMA process. On March 5th the Company issued a press release announcing that it had acquired exclusive rights to market and promote the PIMA technologies in 189 countries from Mark Benza’s company, Bencor Technologies, Inc. (Bencor retained PIMA rights for the United States, Russia, China, Australia, Japan and Mexico – but not Canada where Bencor maintains its offices).
The press release reasserted Spectrum’s plan to market PIMA in the Middle East where "they have already achieved significant recognition and penetration." In exchange for these worldwide rights, Spectrum would pay $1 million to Bencor, which Bencor would use to "accelerate the construction of a PIMA desalinization pilot plant."
Bencor would also receive "50% of all rights sales generated from each country." That could amount to a considerable sum since Spectrum said it had set "a benchmark price" of at least $1 million for each country. Did that mean that Spectrum intended to license the technology in each of the 189 countries for sums in excess of $1 million? The press release did not specify.
Has Spectrum paid Belcor the $1 million fee, and if so, where did it get the money?
How valuable is PIMA? Spectrum has indicated its desire to guard against "theft" of the technology. So, has the process been patented? We checked the records of the U.S. Patent and Trademark Office and found no patents filed or listed under the names Mark Benza, Belcor Technologies or Spectrum Technologies.
Spectrum maintains that its eggs are not all in the PIMA basket. In fact, on July 31st the Company said it was changing its name to Spectrum Technology in order to reflect its involvement with various technologies. The Company has yet to provide details on those other ventures, with one exception. Spectrum says it has acquired control of VAPAIRE, a company that plans to produce purified drinking water from moisture in the air.
According to an April 13th press release, the VAPAIRE device can produce 5 gallons of water every 24 hours from moisture in the air. But can it produce that volume of water everywhere, including in arid desert regions? Or does the amount of water produced, and the time it takes, depend upon the level of moisture in the air? In other words, will the device work efficiently where it is most needed? After all, even five gallons a day will hardly fill a bathtub.
Who will buy the VAPAIRE machines? The Company says it plans to sell the device for about $995, and expects pre-tax profits of $395 per machine. Since Spectrum anticipates initial production levels of 10,000 units per month, it projects the possibility of almost $4 million in monthly profits. But does Spectrum have any basis for concluding that customers who inhabit water-challenged regions either will, or can afford to, pay almost $1000 for a machine? Or that they will do so at the rate of 120,000 units a year?
One more thought. Spectrum projects it will cost approximately $350 to produce each unit at the Company’s planned Dubai facility. How much is it likely to cost to construct that production plant, and where is that money coming from? Financial statements for Spectrum might answer some of these essential questions.
How did Spectrum wind up with 51% of VAPAIRE? It acquired that interest from Arches Group, a business that is owned by Sam Higgins and his family. How much did the Company pay? The press release (and the Spectrum web site) does not say.
(PLEASE SEE EDITOR'S NOTE BELOW)
Shh
Spectrum’s activities have often appeared to be cloaked in secrecy – subject to confidentiality agreements and concern that the PIMA technology could be compromised or stolen. Take for example the Company’s April 26th press release. On that occasion Spectrum announced it was considering "on a confidential basis…offers of merger and a possible sale of technology." Spectrum vowed to release further information after an agreement was reached on a deal that was fair to shareholders. At the same time, it stated that the Company’s directors had told management to prepare to File Form 10 SB to qualify for OTCBB listing if none of the offers panned out.Who would be assisting management with the mandated preparation of those SEC filings? Back in February, Spectrum announced, with a flourish, that it had retained the law firm of Miller Nash. In fact, as we noted earlier, Spectrum characterized its retention of Miller Nash as "the first in a series of eight major events that will dramatically enhance the company and its share value." Today, Miller Nash indicates it has no current relationship with Spectrum.
As for the "sale of technology," what was Spectrum planning? Was the Company the buyer or the seller? If Spectrum was the seller, exactly what did it have to offer, to whom and for how much?
Once again, Spectrum was holding out hope for that oft-delayed SEC filing. But how could investors make intelligent, informed investment decisions based upon these vague statements?
As it turned out, details did not much matter. On June 4th the Company announced that merger talks had been abandoned because Spectrum shareholders had not been offered fair value. Who are those shareholders, at least the major ones? The Company still has not provided that information, but the June 4th release promised investors that "the filing of the necessary forms to have the stock trade on the OTCBB is proceeding."
It’s August 28th and we’re still waiting.
EDITORS NOTE:
On February 27, 2001 we were contacted by Stephen Thomsen, Vice President of a company called Assist International Marketing (AIM). Mr. Thomsen informed us that Vapaire is wholly-owned by AIM and asked us to provide the following clarification concerning Spectrum and Vapaire:Prior posted information on the Stock Patrol web site has indicated the existence of a relationship between Spectrum Technologies and Vapaire concerning an equity position in our company. This is not the case.
Negotiations between the Arches Group, a company owned by Sam Higgins, CEO of Spectrum Technologies, and Vapaire began in March 2000.
The Arches Group was to acquire 56% ownership in Vapaire, however, the terms of the contract were not satisfied, and negotiations ceased in May 2000.
Neither the Arches Group nor Spectrum Technologies acquired any ownership of Vapaire, and has no rights or options to the company, or company owned technology. Vapaire is a privately held company, wholly owned by the founders.
There is no current relationship between [AIM and/or Vapaire] and Spectrum-Arabieh, Spectrum Technologies, the Arches Group, or any entity owned or associated with Mr. Sam Higgins.
Thank you for the opportunity to clarify this misconception.
Stephen Thomsen
Vice President
Vapaire
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