SOURCE: Nestor, Inc.

May 11, 2007 17:58 ET

Nestor, Inc. Reports First Quarter 2007 Financial Results

Report Shows Revenues up 36% and Modified EBITDA Improved 76% From 2006

PROVIDENCE, RI -- (MARKET WIRE) -- May 11, 2007 -- Nestor, Inc. (NASDAQ: NEST), a leading provider of video-based traffic safety solutions and services, is pleased to release results for the first quarter of 2007. Nestor reported an increase in first quarter revenues and substantial reduction in operating losses over the same period in 2006. For the quarter ended March 31, 2007, total revenues increased 36% to $2,381,000, compared to $1,752,000 from the first quarter of 2006. This growth results from increases in the number of revenue generating systems. At March 31, 2007, we had 217 installed CrossingGuard units and 11 installed PoliScan units compared to 175 installed CrossingGuard units and 6 installed PoliScan units at March 31, 2006.

Modified EBITDA improved by 76% for the quarter ended March 31, 2007. Our Modified EBITDA improved from a loss of $1,811,000 in the first quarter of 2006 compared to a loss of $437,000 during the first quarter of this year. The improvement in Modified EBITDA for the first quarter is the result of recurring revenue growth and a substantial total operating expense reduction in the first quarter of 2007 over the comparable period in 2006. The reduction of operating expense is the result of cost reduction efforts taken by the Company during December 2006 and January 2007.

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 year to year, we also ignore the effect of what we consider non-recurring events unrelated 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 the table at the end of 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 7% Senior Secured Convertible Notes and may be used to adjust the interest rate on those notes at July 1, 2007 and January 1, 2009 and 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 generally accepted accounting principles in the United States or as a measure of our profitability or our liquidity.

The Company reported a GAAP net loss for the quarter ended March 31, 2007 of $1,509,000, compared to a net loss of $3,492,000 in the first quarter of 2006. We reported cash and cash equivalents and marketable securities of approximately $1,700,000 at March 31, 2007, versus $3,000,000 at year-end 2006. We had working capital of approximately $1,600,000 at March 31, 2007, versus working capital of $3,400,000 at year-end 2006. In the three months ended March 31, 2007, Nestor invested cash flow of approximately $1,100,000 in red light and speed capitalized systems. Excluding the $435,000 interest payment on the Senior Notes, net cash generated by operations was $244,000 in the first quarter of 2007. Nestor generates revenues over the life of its customer contracts after investment of the capitalized system. The recent investment in capital systems is expected to contribute to revenue growth in 2007. More details regarding our results for the first quarter of 2007 may be found in our Form 10-Q filed with the Securities and Exchange Commission on May 11, 2007.

William Danzell, Chief Executive Officer of Nestor, Inc., said, "As our results indicate, we are approaching Modified EBITDA breakeven. Completion of the Los Angeles installation and continued emphasis on cost containment should enable the Company to achieve its financial goals in the near term. We expect current trends to continue and to achieve positive Modified EBITDA beginning in the third quarter of 2007."

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 and speed violations. In addition, CrossingGuard® offers customers a unique Collision Avoidance™ safety feature that can help prevent intersection collisions. Nestor Traffic Systems is the North American distributor for the Vitronic PoliScanSpeed™ scanning LiDAR, capable of tracking multiple vehicles in multiple lanes simultaneously. An industry first, the scanning LiDAR mobile speed enforcement system is an innovative solution for digital speed detection and image recording. The scanning capability of the PoliScanSpeed™ system minimizes the ambiguity and measuring errors associated with conventional photo speed enforcement systems. CrossingGuard® is a registered trademark 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, are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. We may not meet the expectations disclosed in our forward-looking statements and investors should not place undue reliance on those 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, legal and legislative challenges to automated traffic enforcement, and other factors discussed in Risk Factors in our most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q filed with the SEC. Investors are advised to read Nestor's Annual Report, 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 in this letter represent our current views and we disclaim any obligation to update these forward-looking statements.

The table below is a reconciliation of modified EBITDA to net income for the three-month period ended March 31:

                                                  Three Months Ended
                                                       March 31,
                                                 2007           2006
                                             -------------  -------------
GAAP net income (loss)                       $  (1,509,000) $  (3,492,000)
Interest expense, net of interest income           548,000        323,000
Income tax expense                                     ---            ---
Depreciation and amortization                      705,000        686,000
                                             -------------  -------------
EBITDA                                       $    (256,000) $  (2,483,000)
Derivative instrument (income) expense          (1,329,000)      (552,000)
Debt discount expense                            1,008,000        484,000
Stock-based compensation expense                   140,000        740,000
                                             -------------  -------------
Modified EBITDA                              $    (437,000) $  (1,811,000)
                                             =============  =============