SOURCE: Nestor, Inc.

May 13, 2008 18:49 ET

Nestor, Inc. Reports 2008 First Quarter Financial Results

Report Shows Revenues Are up 22% From First Quarter of 2007

PROVIDENCE, RI--(Marketwire - May 13, 2008) - Nestor, Inc. (OTCBB: NEST), a leading provider of advanced automated traffic enforcement solutions and services, is pleased to release financial results for the first quarter of 2008. Total revenues for the three-month period ending March 31, 2008 increased 22% to $2,898,000 from $2,381,000 in 2007. This growth reflects the continued increase in installed systems, with 309 installed CrossingGuard units and 8 installed Poliscan units generating revenues at March 31, 2008 as compared to 217 installed CrossingGuard units and 11 installed Poliscan units at March 31, 2007. This increase in revenues is partially offset by the deferral of revenues for one significant customer, pending finalization of an amended contract. Our quarterly report on Form 10-Q filed with the SEC on May 13, 2008 marks Nestor's first public filing after its inclusion on the OTC Bulletin Board.

Modified EBITDA for the quarter ended March 31, 2008 was a loss of $153,000 compared to a loss of $437,000 in the comparable 2007 period. The improvement in Modified EBITDA for the first quarter reflects the growth in recurring revenues.

Clarence A. Davis, Chief Executive Officer of Nestor, Inc., stated, "The results reported for the first quarter of 2008 represent continued improvement realized by the Company. We are pleased to note that we added eight new approaches with two new customers in Diboll, Texas and San Juan Capistrano, California during the quarter and will add 18 to 22 approaches in Grand Prairie, Canada in the second quarter. Finally, the expansion of our sales organization and pursuit of strategic relationships to take advantage of the expanding market for automated enforcement services and other security applications is going well.

"Although we are disappointed that we were unable to maintain the continued listing requirements from the NASDAQ Capital Market, we are pleased that our stock continues to be traded on a real-time basis over the Bulletin Board. Investors should see no meaningful difference in their ability to trade or track our common stock. Moreover, this change has no effect on our customers or our ability to serve them. We anticipate that our improved performance, coupled with improving financial performance, will allow us to reapply for inclusion on the NASDAQ or other national or regional stock market or exchange, if deemed in our best interest."

The Company reported a Loss from Operations for the quarter ended March 31, 2008 of $1,328,000 compared to a Loss from Operations of $1,282,000 in the first quarter of 2007. The Loss from Operations included the effect of adopting the provisions of Statement of Financial Accounting Standards No. 123(R), "Share-Based Payment," which established accounting for equity instruments exchanged for employee services. The Company incurred a non-cash charge of $180,000 for share-based compensation in the first quarter of 2008 compared to $140,000 in the first quarter of 2007. In addition to the increase in share-based compensation expense, the increase in Loss from Operations is a result of increased selling and marketing expenses as the Company expands its presence to aggressively pursue new automated traffic enforcement opportunities, offset by increases in gross profit achieved through recurring revenue growth.

The Company reported a U.S. GAAP net loss for the quarter ended March 31, 2008 of $2,505,000, compared to a net loss of $1,509,000 in the first quarter of 2007. In the first quarter of 2008, non-cash derivative instrument income was $550,000 as compared to income of $1,329,000 in the first quarter of 2007. Also, amortization of debt discount expense was $1,008,000 for the quarter ended March 31, 2008 and March 31, 2007.

We had cash and cash equivalents of approximately $1.2 million at March 31, 2008, compared to $3.1 million at December 31, 2007. We had working capital of approximately $1.6 million at March 31, 2008 and $3.0 million at March 31, 2007. More details regarding our results for the first quarter of 2008 may be found in our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 13, 2008.

Nestor Traffic Systems provides automated traffic enforcement solutions to state and municipal governments. Our CrossingGuard® red light enforcement system uses patented multiple, time-synchronized videos to capture comprehensive evidence of red light violations. In addition, CrossingGuard® offers customers a unique Collision Avoidance™ safety feature that can help prevent intersection collisions. We also offer a video-based ViDAR™ speed detection and imaging system which uses non-detectable, passive video detection and enforces multiple, simultaneous violations bi-directionally. Nestor Traffic Systems is a distributor for the Vitronic PoliScanSpeed™ scanning LiDAR, capable of tracking multiple vehicles in multiple lanes simultaneously. CrossingGuard® and ViDAR™ are registered trademarks of Nestor Traffic Systems, Inc. PoliScanSpeed™ is a trademark of Vitronic. For more information, call (401) 274-5658 or visit

Statements in this press release about future expectations, plans and prospects for Nestor, including statements containing the words "expects," "will," and similar expressions, constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. We may not achieve the plans, intentions or expectations disclosed in our forward-looking statements and investors should not place undue reliance on our forward-looking statements. Actual results may differ materially from those indicated by such forward-looking statements as a result of various factors, including: market acceptance of our products, competition, further approvals of contracted approaches, legal and legislative challenges to automated traffic enforcement, patent protection of our technology, and other factors discussed in Risk Factors in our most recent Annual Report on Form 10-K filed with the SEC. Investors are advised to read our Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K filed after our most recent annual or quarterly report. The forward-looking statements included in this press release represent our current views, and we specifically disclaim any obligation to update these forward-looking statements in the future.

The table below is a reconciliation of U.S. GAAP net loss to modified EBITDA for the three month periods ended March 31:

                                                   Three Months Ended
                                                        March 31,
                                                    2008          2007
                                                ------------  ------------
GAAP net loss                                   $ (2,505,000) $ (1,509,000)

Interest expense, net of interest income             719,000       548,000
Income tax expense                                       ---           ---

Depreciation and amortization                        995,000       705,000
                                                ------------  ------------
EBITDA                                          $   (791,000) $   (256,000)

Derivative instrument income                        (550,000)   (1,329,000)
Debt discount expense                              1,008,000     1,008,000

Stock-based compensation expense                     180,000       140,000
                                                ------------  ------------
Modified EBITDA                                 $   (153,000) $   (437,000)
                                                ============  ============

We calculate Modified EBITDA by first calculating EBITDA, which we define as net income before interest expense, debt restructuring or debt extinguishment costs (if any during the relevant measurement period), provision for income taxes, and depreciation and amortization. Then we exclude derivative instrument income or expense, debt discount expense, share-based compensation expense, and asset impairment charges. These measures eliminate the effect of financing transactions that we enter into on an irregular basis based on capital needs and market opportunities, and these measures provide us with a means to track internally generated cash from which we can fund our interest expense and our growth. In comparing modified EBITDA from period to period, we also ignore the effect of what we consider non-recurring events not related to our core business operations to arrive at what we define as modified EBITDA. Because modified EBITDA is a non-GAAP financial measure, we include in a table in this press release reconciliations of modified EBITDA to the most directly comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the United States. We present modified EBITDA because we believe it provides useful information regarding our ability to meet our future debt payment requirements, capital expenditures and working capital requirements, and that it provides an overall evaluation of our financial condition. In addition, modified EBITDA is defined in certain financial covenants under our Senior Secured Convertible Notes and was used to adjust the interest rate on those notes at July 1, 2007, and will be used at January 1, 2009 to determine whether the holders of those notes have a redemption right at May 25, 2009.

Modified EBITDA has certain limitations as an analytical tool and should not be used as a substitute for net income, cash flows or other consolidated income or cash flow data prepared in accordance with accounting principles generally accepted in the United States or as a measure of our profitability or our liquidity.

                            NESTOR, INC.
                Condensed Consolidated Balance Sheets

                                                  March 31,   December 31,
                                                    2008          2007
                                                ------------  ------------
Current assets
  Cash and cash equivalents                     $      1,239  $      3,135
  Accounts receivable, net                             3,292         2,806
  Inventory, net                                         924           922
  Other current assets                                   355           255
                                                ------------  ------------
    Total current assets                               5,810         7,118
Noncurrent assets
  Capitalized system costs, net                        9,706         9,867
  Property and equipment, net                            485           487
  Goodwill                                             5,581         5,581
  Patent development costs, net                          133           128
  Other long term assets                               1,726         1,865
                                                ------------  ------------
Total Assets                                    $     23,441  $     25,046
                                                ============  ============

Liabilities and Stockholders' Equity
Current liabilities
  Accounts payable                              $      1,081  $        826
  Accrued liabilities                                  1,295         1,335
  Accrued employee compensation                          478           366
  Deferred revenue                                     1,055         1,220
  Asset retirement obligation                            330           330
                                                ------------  ------------
    Total current liabilities                          4,239         4,077
Noncurrent liabilities
  Long term convertible notes payable                  1,918         1,719
  Long term notes payable                             14,103        13,295
  Derivative financial instruments - debt and
   warrants                                            1,532         2,081
  Long term asset retirement obligation                1,035           934
                                                ------------  ------------
    Total liabilities                                 22,827        22,106
                                                ------------  ------------

Commitments and contingencies                            ---           ---

Stockholders' Equity
  Preferred stock, $1.00 par value, authorized
   10,000,000 shares; issued and outstanding:
   Series B - 180,000 shares at March 31, 2008
   and December 31, 2007                                 180           180
  Common stock, $0.01 par value, authorized
   50,000,000 shares issued and outstanding:
   28,954,219 shares at March 31, 2008 and
   December 31, 2007                                     290           290
  Additional paid-in capital                          79,151        78,972
  Accumulated deficit                                (79,007)      (76,502)
                                                ------------  ------------
    Total stockholders' equity                           614         2,940
                                                ------------  ------------
Total Liabilities and Stockholders' Equity      $     23,441  $     25,046
                                                ============  ============

                                NESTOR, INC.
                 Condensed Consolidated Statements of Operations

                                                  Quarter Ended March 31,
                                                    2008          2007
                                                ------------  ------------
  Lease and service fees                        $      2,876  $      2,381
  Product royalties                                       22           ---
                                                ------------  ------------
    Total revenue                                      2,898         2,381
                                                ------------  ------------

Cost of sales:
  Lease and service fees                               1,828         1,465
  Product royalties                                      ---           ---
                                                ------------  ------------
    Total cost of sales                                1,828         1,465
                                                ------------  ------------

Gross profit:
  Lease and service fees                               1,048           916
  Product royalties                                       22           ---
                                                ------------  ------------
    Total gross profit                                 1,070           916
                                                ------------  ------------

Operating expenses:
  Engineering and operations                           1,016         1,089
  Research and development                                89           137
  Selling and marketing                                  383           196
  General and administrative                             910           776
                                                ------------  ------------
    Total operating expenses                           2,398         2,198
                                                ------------  ------------

Loss from operations                                  (1,328)       (1,282)

Derivative instrument income                             550         1,329
Debt discount expense                                 (1,008)       (1,008)
Other expense, net                                      (719)         (548)
                                                ------------  ------------

Net loss                                        $     (2,505) $     (1,509)
                                                ============  ============

Loss per share, basic and diluted               $      (0.09) $      (0.07)
                                                ============  ============

Shares used in computing loss per share:
  Basic and diluted                               28,954,219    20,410,150
                                                ============  ============