Nexus Group International Inc - Street Wire
Nexus tries a facelift on its faltering promotion
Nexus Group International Inc NXS
Shares issued 237,438,125 Nov 16 close $0.195
Fri 16 Nov 2001 Street Wire
LOSING FACEby Lee M. Webb
Nexus Group International Inc. issued back-to-back announcements on Nov. 15
and 16, rejuvenating its faltering facial recognition promotion. The latest
fluffy news releases come just days ahead of the expected filing of the
company's audited financial statements for the year ended June 30, 2001.
On Nov. 15 the company announced that AcSys Biometrics Corp., a joint
venture between Nexus and AND Corp., "has officially released two products
to manufacturing and launched them for commercial use." According to the
news release, one of the products officially released to manufacturing and
launched for commercial use provides facial recognition capabilities for
facility access control and the other uses face recognition for log-on
security for personal computers. "We are very proud of our team and the
effort they put forth getting these products to market," said Jerry Janik,
chairman of Nexus and president and chief executive officer of AcSys.
Investors, including the company's cultish band of followers dominating an
Internet chat site operated by StockHouse Media Corp., barely had time to
tease out the possible implications of the Nov. 15 announcement for their
biometric technofantasy before they were treated to another airy news
release. On Nov. 16, Nexus announced that AcSys and DynCorp International
LLC of Fort Worth, Tex., had "signed a Memorandum of Agreement to pursue
international development applications including those that have been
brought to the fore by certain ICAO inititiatives." The International Civil
Aviation Organization (ICAO) is a specialized agency of the United Nations
responsible for developing international rules governing all areas of civil
aviation, including security.
"AcSys is privileged to be working with such a prestigious organization as
DynCorp and is proud to be the provider of choice for their future face
recognition biometric needs," Mr. Janik said. "We view this strategic
alliance as a strong foundation for mutual growth and look forward to
pursuing future opportunities with them." Whether this latest "strategic
alliance" or the official release of two products to manufacturing and
commercial use will generate any appreciable revenue remains to be seen, of
course. It also remains to be seen whether Mr. Janik's most recent
promotional efforts will allay concerns or mitigate the reaction to Nexus's
soon to be released financial statements. For the moment, however, the
back-to-back announcements seem to have halted the slide in the company's
stock price.
Like most public companies laying claim to biometric security technology,
Nexus experienced something of a rally following the Sept. 11 attacks on
the World Trade Center and the Pentagon. When the Toronto Stock Exchange
closed on Sept. 11, Nexus was trading at 12 cents; a week later, shares
were changing hands at 25 cents. Some of the company's established
competitors with actual biometric security sales to their credit fared much
better. Nasdaq-listed Viisage Technology Inc., for example, closed at $1.94
(U.S.) on Sept. 10, then ran up to as high as $16.80 (U.S.) within a month.
Visionics Corp., also with a Nasdaq listing, rallied from $4.27 (U.S.) on
Sept. 10 to a 52-week high of $17.50 (U.S.) by Nov. 2. Imagis Technologies
Inc., thinly traded on the Canadian Venture Exchange prior to Sept 11, rose
from 63 cents to a 52-week high of $2.95 on significantly increased volume.
All of these biometric stocks have since given up some of their gains, but
Nexus, with the smallest increase, has come closest to revisiting its
pre-Sept. 11 price in recent trading sessions.
The general decline in the share price of biometric companies reflects the
impact of a number of factors, not the least of which is that the market
for biometric security stocks became overheated in the wake of the Sept. 11
terrorist attacks. Two months, later some of the enthusiasm has waned and
investors have been taking profits. Beyond that, however, a number of
analysts, biometric experts and critics of the technology have been taking
a closer look at its effectiveness and how it might play out in real-world
applications. Not everyone is as enamoured with the technology as many of
the shareholders of the biometric companies, and those dissenting opinions
have been garnering some media attention.
In an Oct. 18 Reuters article by Noah Barkin, for example, two industry
experts suggested that the effectiveness of face recognition technology for
spotting criminals attempting to board commercial airliners was overblown.
Dr. Jim Wayman of the San Jose State University Centre for Biometric
Testing cast some doubt on the use of facial recognition technology as a
general airport security application. "You could have passengers pose in
front of a camera, look straight into it, and the system would be about as
accurate as a metal scanner because it would be going off all the time," he
said. In the same article, Samir Nanavati of International Biometric Group
(IBG) also commented on the limitation of the technology. "You could expect
a surveillance system using biometrics to capture a very, very small
percentage of known criminals in a given database," Mr. Nanavati said. IBG
has conducted a study of a number of facial recognition systems, including
AcSys's offering.
More recently, the American Civil Liberties Union (ACLU) has entered the
fray, issuing a news release on Oct. 29 criticizing the decision of the
Rhode Island Airport Corp. (RIAC) to install facial recognition technology
at T.F. Green Airport. In a letter to RIAC, Steven Brown, executive
director of the ACLU, claimed that "there is simply no objective basis to
believe" that installing facial recognition technology would enhance the
security of the flying public in any meaningful way. Citing facial
recognition studies by the Department of Defense (DOD) and the National
Institute of Standards and Technology, Mr. Brown suggested that the
systems, "even when tested in far more ideal conditions than exist at a
bustling airport," would flag huge numbers of innocent people and miss a
high proportion of suspects. He also challenged claims that the systems are
at least 85-per-cent accurate. "Figures like this come only from the
hucksterism of companies seeking to profit from the sale of these systems,
not from the technology's real-life use," Mr. Brown wrote.
Proponents of the technology, including many Nexus shareholders, dismiss
such claims as the whimperings of bleeding-heart liberals. Studies such as
those conducted by the DOD last year are also dismissed with claims of
being dated and, in the case of Nexus, not even taking into account AcSys's
facial recognition technology. Nonetheless, Nexus's share price has been
dropping; and the decline has been occurring in the face of some rather
vigorous promotion, perhaps even "hucksterism," and some timely television
exposure.
Nexus's latest promotional efforts come on the heels of some apparently
unexpected media coverage, leading off with a bogus news release last
month. On Oct. 15, a fraudulent release claiming that MAXIMUS Inc. had
signed a two-year $175-million (U.S.) contract involving the use of AcSys's
facial recognition system was circulated on a number of Internet chat
sites. The bogus news sparked a frenzy of buying as approximately 16.3
million shares changed hands and Nexus's stock price climbed briefly to
27.5 cents, notwithstanding the fact that Nexus quickly issued a muted
disclaimer regarding the fraudulent news.
On Oct. 18, The Globe and Mail published an article based on a report
issued by the International Centre for Human Rights and Democratic
Development that linked Nexus and Nortel Networks Corp., once again sending
Nexus supporters into a tizzy. Canada Stockwatch contacted Greg Walton, the
author of the report, on Oct. 18 and again on Oct. 22 requesting an
interview to determine exactly what documentary support he had for his
claims of collaboration between Nortel and Nexus. Mr. Walton declined a
telephone interview but said that he would be willing to respond to
questions by E-mail. On Nov. 14, Mr. Walton did reply to an E-mail, but he
did not address any of the specific questions; nor did he provide any
documentary support for his claims of a relationship between Nexus and
Nortel. Meanwhile, Nortel had already denied Mr. Walton's substantive
claims and Nexus claimed ignorance. As reported by Stockwatch, Mr. Walton's
claims regarding the alleged collaboration between Nortel and Nexus seem to
have been shakily based on a fluffy news release issued by Nexus on March
12 of this year.
On Oct. 22, excitable Nexus fans were thrown into yet another tizzy, this
time over the inadvertent leak of an apparent deal between Nexus and
Sensormatic Electronics Corp. According to the leak, Sensormatic would be
using AcSys's facial recognition technology as part of its Winter Olympics
security services. On Oct. 23, Nexus issued a response to the leak,
claiming that AcSys was "in talks" with Sensormatic. "Negotiations are
continuing and when finalized will be communicated through the usual public
channels," the release stated. To this point, there has been no further
word on the negotiations that might see AcSys's facial recognition system
installed in the vault area housing the Olympic medals.
With a break in the unexpected media coverage, Nexus began to ramp up the
official promotion. On Oct. 25, the company announced that Northrop
Grumman's Information Technology (IT) would introduce AcSys's face
recognition system to the National Computer Security Institute Conference
in Washington, D.C. Stockwatch contacted Northrop Grumman Information
Technology on Oct. 27 to inquire about the nature of the relationship, if
any, with Nexus. Gustav Gulmert, manager of corporate communications,
replied that he would have to do some digging and respond early the
following week. Mr. Gulmert did not subsequently respond to Stockwatch, but
someone else met with more success two weeks later. "I am not aware of any
formal alliance or partnership between Logicon or Northrop Grumman and
Nexus Group International," Mr. Gulmert replied to an E-mail query on Nov.11.
On Oct. 26, Mr. Janik was "interviewed" on CEOcast.com, an Internet tout
service that claims to charge anywhere from $2,750 (U.S.) to $100,000
(U.S.) for its programs, "depending up distribution." Perhaps as a fitting
example of the hucksterism decried by the ACLU, Mr. Janik was introduced as
the chairman of a company "at the forefront of the battle against
terrorism." Mr. Janik characterized Nexus, which draws the bulk of its
paltry revenue from food-related operations, as "a high-tech company" with
"the best, most accurate facial recognition system that exists."
After touching on the vaunted Holographic/Quantum Neural Technology, HNeT,
and tossing out terms like "memory engram," Mr. Janik went on to sketch
Nexus's strategy for obtaining a share of the biometric market. "Our
strategy is quite simple," Mr. Janik said. "We're software people, we're
very good at it, we have some of the best people going; but we know that to
get into the market and become ubiquitous we're going to need the help of
some of our bigger partners. So, what we do is we market it to them and
they take us, bundle us into their existing product line or take us into
their customers as a finished product." Among those so-called partners, Mr.
Janik included DynCorp, MAXIMUS and, notwithstanding Mr. Gulmert's claim,
Northrop Grumman.
Mr. Janik also referred to a relationship with Guardall North America, a
division of Chubb Security. "In this case here, it's simply being added to
their existing product line and marketed through their sister company,
which is Chubb, which is one of the biggest in the world in access control
and security," Mr. Janik said. That relationship, however, may also be
something less than what has been touted by Nexus, according to a copy of
an E-mail forwarded to Stockwatch. In a reply to a query, David
Baldwin-Evans, head of market development for Chubb, downplayed the
relationship. "It appears that Guardall North America had discussed the
commercialization of the AcSys Facial Recognition Product and took the
position that our contribution would be limited to the integration,
marketing and support of their product once it was shown to be commercially
viable," Mr. Baldwin-Evans wrote. "Biometrics and facial recognition are
hot items these days, so there may be a good future for the AcSys system,
but at this time the jury is still out," he added.
Mr. Janik explained Nexus's revenue model during the CEOcast.com interview.
"Well, our revenue model is quite simple," Mr. Janik said. "We basically
through every installation we earn royalties and we also earn fees in
consulting and in training; but by far royalties are the biggest, as you
can tell, and, you know, literally every time there is a camera that is put
out there we make money." So far, there is little to suggest that any
significant revenue has been generated by Nexus's biometric venture.
Niggling concerns about revenue seemed to be swept aside by Nexus stalwarts
a few days later when AcSys received some television coverage, first on CBC
and then on CNN. On Oct. 31, a segment of CBC's Marketplace was given over
to a report on biometric technology, including AcSys's facial recognition
system. The following weekend, an hour-long CNN report on airport security
that was aired several times also discussed biometric technology and AcSys
once again received some coverage. Neither report, however, had any
noticeable impact on the stock price, much to the chagrin of some of
Nexus's excitable supporters who were expecting investors to start piling
into the stock.
The absence of any significant revenue or solid contract announcements has
been wearing on some of Nexus's shareholders and providing fodder for the
company's critics. There are also concerns about the number of outstanding
shares, which stood in excess of 300 million shares at last report. Some,
however, take comfort from Mr. Janik's reported holdings and his insider
trading reports, which indicate that he has not sold a single share since
June 30, 1999. As of July 13, 2001, Mr. Janik beneficially owned a whopping
58.9 million shares, according to the company's information circular.
Mr. Janik's patience in holding close to 59 million shares of Nexus is
indeed remarkable, not least because he is being compensated in shares.
Other shareholders have not been so patient and there has been a very
active market in the stock. Over the past 12 months, Yorkton Securities
Inc. has accounted for a large number of Nexus transactions and has been a
net seller of more than 28 million shares. Curiously, Yorkton was a net
seller for the 12 months prior to that, too, which may leave some investors
wondering about the origin of all those millions of shares being dumped
through Yorkton.
The source of the Yorkton selling aside, Nexus shareholders may now have
some more immediate concerns; specifically, what surprises, if any, the
audited financial statements expected to be filed on Nov. 19 might hold. If
the financial statements do not show some increase in revenue from Nexus's
biometric venture, the company may lose even more face among investors.
With the recent promotional facelift only pushing the stock price back up
to 19.5 cents at the end of the week, with 7.4 million shares changing
hands in the final session, there may be little room or tolerance for
unpleasant surprises. Mr. Janik could not be reached for comment regarding
this article.
Comments regarding this article may be sent to lwebb@stockwatch.com.
(More information regarding Nexus is available in Canada Stockwatch
articles published on Oct. 16, 19 and 24, 2001.)
(c) Copyright 2001 Canjex Publishing Ltd. stockwatch..com |
