SOURCE: Nestor, Inc.
August 14, 2008 18:24 ET
Nestor, Inc. Reports 2008 Second Quarter Financial Results and Tentative New Capital Structure
Report Shows Revenues Are Up 19% and Cash Flow 347% From Second Quarter of 2007 and Board Approves Term Sheet to Secure Strong Balance Sheet and Long Term Future for the Company
PROVIDENCE, RI--(Marketwire - August 14, 2008) - Nestor, Inc. (OTCBB: NEST), a leading
provider of advanced automated traffic enforcement solutions and services,
is pleased to release financial results for the second quarter of 2008.
Total revenues for the three-month period ending June 30, 2008 increased
19% to $3,632,000 from $3,061,000 in the second quarter of 2007, and
increased 20% to $6,530,000 from $5,442,000 for the six months ended June
30, 2008 and 2007, respectively. This growth reflects the continued
increase in installed systems, with 330 installed CrossingGuard® units
and 4 installed PoliScanSpeed™ units generating revenues at June 30,
2008 as compared to 247 installed CrossingGuard® units and 4 installed
PoliScanSpeed™ units at June 30, 2007. Revenues also reflect a one-time
royalty payment of $500,000 in the second quarter of 2008 to transfer our
remaining rights to our former fraud detection software product line. This
increase in revenues is partially offset by the deferral of revenues for
one significant customer, pending finalization of an amended contract.
Modified EBITDA for the quarter ended June 30, 2008 was $523,000 compared
to $117,000 in the comparable 2007 period. For the six months ended June
30, 2008, modified EBITDA improved to $370,000 compared to a loss of
$321,000 for the comparable six month period in 2007. The improvement in
Modified EBITDA for the second quarter and the six month period reflects
the growth in recurring revenues, the one-time royalty payment, and the
realization of our cost containment efforts that were finalized in the
first quarter of 2007.
On August 8, 2008, the Company's Board of Directors approved a term sheet
for a series of transactions that would convert more than half of the
Company's debt into equity, eliminate the convertible features of the
remaining debt, waive or cure all existing defaults on the Company's debt
and provide a minimum of $4 million of new capital to the Company, all of
which would result in significant dilution of existing stockholders. The
transactions are subject to a number of closing conditions, including
negotiation and execution of definitive documents and approval by the
existing note holders and stockholders.
Clarence A. Davis, Chief Executive Officer of Nestor, Inc., stated, "The
results reported for the second quarter of 2008 continue to represent
improvement realized by the Company. We are pleased to note that in the
second quarter, we added 21 approaches in enforcement, primarily in Grande
Prairie, Canada and signed extensions and expansions of programs in San
Bernardino and Costa Mesa California resulting in 28 new approaches under
contract. Over the past month, we signed an extension and expansion with
the Delaware Department of Transportation resulting in 20 new approaches
under contract. We also signed our first contract in a new state market for
Nestor resulting in up to 12 new approaches in Sweetwater, Florida. With
the company generating positive cash flow in the second quarter, these new
approaches further demonstrate the company's ability to grow a successful
and profitable business.
"At the same time, the Company has agreed to a term sheet with its note
holders to restructure our balance sheet. More specifically, we expect the
Company to soon have significantly less debt, more cash, and more equity.
This deal will be dilutive to existing shareholders on a percentage
ownership basis. When completed, this restructuring of our balance sheet
will demonstrate to our prospects and customers that Nestor is here to stay
and committed to our long term success in our industry."
The Company reported a Loss from Operations for the quarter ended June 30,
2008 of $486,000 compared to a Loss from Operations of $892,000 in the
second quarter of 2007. Loss from Operations for the six month period
ended June 30, 2008 was $1,814,000 compared to a Loss from Operations of
$2,174,000 for the comparable 2007 period. The Company incurred a non-cash
charge of $3,000 for share-based compensation in the second quarter of 2008
compared to $170,000 in the second quarter of 2007, and $183,000 for the
six month period ended June 30, 2008 compared to $309,000 for the
comparable 2007 period. The improvement in Loss from Operations for the
quarter and six month period ended June 30, 2008 is a result of the
increase in gross profit achieved through revenue growth and decreased
share-based compensation expense, partially offset by increased selling and
marketing expenses as the Company expanded its presence to aggressively
pursue new automated traffic enforcement opportunities.
The Company reported a U.S. GAAP net loss for the quarter ended June 30,
2008 of $1,745,000, compared to a net loss of $1,959,000 in the second
quarter of 2007. Net loss for the six month period ended June 30, 2008 was
$4,250,000 compared to $3,469,000 for the comparable 2007 period. In the
second quarter of 2008, non-cash derivative instrument income was $659,000
compared to $537,000 in the second quarter of 2007. For the six months
ended June 30, non-cash derivative investment income was $1,209,000 in 2008
and $1,866,000 in 2007. Also, amortization of debt discount expense was
$1,008,000 for the quarter ended June 30, 2008 and 2007 and $2,016,000 for
the six months ended June 30, 2008 and 2007.
We had cash and cash equivalents of approximately $1.0 million at June 30,
2008, compared to $3.1 million at December 31, 2007. More details regarding
our results for the second quarter of 2008 may be found in our Quarterly
Report on Form 10-Q filed with the Securities and Exchange Commission on
August 14, 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 www.nestor.com.
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 quarter and six month periods ended June 30:
Three Months Ended June 30, Six Months Ended June 30,
------------------------ ------------------------
2008 2007 2008 2007
----------- ----------- ----------- -----------
GAAP net income (loss) $(1,745,000) $(1,959,000) $(4,250,000) $(3,469,000)
Interest expense, net of
interest income 910,000 596,000 1,629,000 1,145,000
Income tax expense --- --- --- ---
Depreciation and
amortization 1,006,000 839,000 2,001,000 1,544,000
----------- ----------- ----------- -----------
EBITDA $ 171,000 $ (524,000) $ (620,000) $ (780,000)
Derivative instrument
income (659,000) (537,000) (1,209,000) (1,866,000)
Debt discount expense 1,008,000 1,008,000 2,016,000 2,016,000
Stock-based compensation
expense 3,000 170,000 183,000 309,000
----------- ----------- ----------- -----------
Modified EBITDA $ 523,000 $ 117,000 $ 370,000 $ (321,000)
=========== =========== =========== ===========
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
In Thousands, Except Share Information
June 30, December 31,
2008 2007
----------- -----------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 1,064 $ 3,135
Accounts receivable, net 2,713 2,806
Inventory, net 909 922
Other current assets 389 255
----------- -----------
Total current assets 5,075 7,118
Noncurrent assets
Capitalized system costs, net 9,602 9,867
Property and equipment, net 471 487
Goodwill 5,581 5,581
Patent development costs, net 131 128
Other long term assets 1,584 1,865
----------- -----------
Total Assets $ 22,444 $ 25,046
=========== ===========
Liabilities and Stockholders' Equity (DEFICIT)
Current liabilities
Current portion of notes payable, net of
discounts $ 17,030 $ ---
Current portion of derivative instruments 838 ---
Accounts payable 1,330 826
Accrued liabilities 1,450 1,335
Accrued employee compensation 366 366
Deferred revenue 1,080 1,220
Asset retirement obligation 815 330
----------- -----------
Total current liabilities 22,909 4,077
Noncurrent liabilities
Long term convertible notes payable --- 1,719
Long term notes payable --- 13,295
Derivative financial instruments - debt and
warrants 34 2,081
Long term asset retirement obligation 627 934
----------- -----------
Total liabilities 23,570 22,106
----------- -----------
Stockholders' Equity (Deficit)
Preferred stock, $1.00 par value, authorized
10,000,000 shares; issued and outstanding:
Series B - 180,000 shares at June 30, 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 June 30, 2008 and
December 31, 2007 290 290
Additional paid-in capital 79,156 78,972
Accumulated deficit (80,752) (76,502)
----------- -----------
Total stockholders' equity (deficit) (1,126) 2,940
----------- -----------
Total Liabilities and Stockholders' Equity
(deficit) $ 22,444 $ 25,046
=========== ===========
NESTOR, INC.
Condensed Consolidated Statements of Operations
In Thousands, Except Share And Per Share Information
(Unaudited)
Quarter Ended June 30, Six Months Ended June 30,
---------------------- ----------------------
2008 2007 2008 2007
---------- ---------- ---------- ----------
Revenues:
Lease and service fees $ 3,131 $ 3,061 $ 6,007 $ 5,442
Product royalties 501 --- 523 ---
---------- ---------- ---------- ----------
Total revenue 3,632 3,061 6,530 5,442
---------- ---------- ---------- ----------
Cost of sales:
Lease and service fees 1,862 1,756 3,690 3,221
Product royalties --- --- --- ---
---------- ---------- ---------- ----------
Total cost of sales 1,862 1,756 3,690 3,221
---------- ---------- ---------- ----------
Gross profit:
Lease and service fees 1,269 1,305 2,317 2,221
Product royalties 501 --- 523 ---
---------- ---------- ---------- ----------
Total gross profit 1,770 1,305 2,840 2,221
---------- ---------- ---------- ----------
Operating expenses:
Engineering and operations 1,062 1,004 2,078 2,093
Research and development 116 82 205 219
Selling and marketing 381 175 764 371
General and administrative 697 936 1,607 1,712
---------- ---------- ---------- ----------
Total operating
expenses 2,256 2,197 4,654 4,395
---------- ---------- ---------- ----------
Loss from operations (486) (892) (1,814) (2,174)
Derivative instrument
income 659 537 1,209 1,866
Debt discount expense (1,008) (1,008) (2,016) (2,016)
Interest and other expense,
net (910) (596) (1,629) (1,145)
---------- ---------- ---------- ----------
Net loss $ (1,745) $ (1,959) $ (4,250) $ (3,469)
========== ========== ========== ==========
Loss per share, basic and
diluted $ (0.06) $ (0.10) $ (0.15) $ (0.17)
========== ========== ========== ==========
Shares used in computing
loss per share:
Basic and diluted 28,954,219 20,421,816 28,954,219 20,415,983
========== ========== ========== ==========