UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1995
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file Number 0-12965
NESTOR, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3163744
(State of incorporation) (I.R.S. Employer
Identification No.)
One Richmond Square, Providence, RI 02906
(Address of principal executive offices)(Zip Code)
401-331-9640
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period than the Registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No _________
Common stock, par value .01 per share: 7,774,908 shares
outstanding as of December 31, 1995
NESTOR, INC.
FORM 10Q - December 31, 1995
INDEX
PART 1 FINANCIAL INFORMATION
Item 1 Financial Statements:
Consolidated Statements of Operations (Unaudited)
Six Months Ended December 31, 1995 and 1994
Consolidated Balance Sheet (Unaudited)
December 31, 1995 and June 30, 1995
Statement of Consolidated Cash Flows (Unaudited)
Six Months Ended December 31, 1995 and 1994
Notes to Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART 2 OTHER INFORMATION
<TABLE>
Nestor, Inc.
Consolidated Statements of Operations
<CAPTION>
For the Quarter For the Six Months
Ended December 31 Ended December 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues:
Licensing fees $ 431,069 $ 542,209 $ 901,921 $ 820,176
Revenues from services 642,992 262,603 1,076,177 531,846
Net sales of tangible
products 62,526 108,849 170,990 242,519
Total Revenue 1,136,587 913,661 2,149,088 1,594,541
Cost of Services and Products Sold
Licensing fees 159,310 509,856 397,054 825,883
Revenues from services 487,370 159,237 796,591 365,000
Net sales of tangible
products 18,769 4,901 107,567 12,109
Total Cost of Services
and Products Sold 665,449 673,994 1,301,212 1,202,992
Gross Profit from
Operations 471,138 239,667 847,876 391,549
Selling and marketing
expenses: 391,032 559,232 897,489 1,047,076
General and administra-
tive expenses 335,365 147,539 538,746 304,252
Related party consulting
fee 42,326 26,218 85,526 114,144
Total costs and expenses 768,723 732,989 1,521,761 1,465,472
(Loss) from operations (297,585) (493,322) (673,885) (1,073,923)
Other income (expense) (133) 8,609 (49,342) 17,248
(Loss) for the period
before income taxes $(297,718) $(484,713) $(723,227) $(1,056,675)
Income taxes 0 0 0 0
Net (Loss) for the
period $ (297,718)$ (484,713)$ (723,227)$
(1,056,675)
(Loss) Per Share $ (0.04) $ (0.07) $ (0.09) $ (0.14)
Weighted Average Number
of Shares Outstanding 7,772,358 7,262,978 7,719,371 7,295,469
</TABLE>
<PAGE>
<TABLE>
Nestor, Inc.
Consolidated Balance Sheets
<CAPTION>
Assets December 31, 1995 June 30, 1995
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 68,780 $ 452,588
Accounts receivable, net of
allowance for doubtful
accounts 727,857 661,734
Unbilled contract revenue 403,584 208,352
Due from employees, officers
and directors 10,442 11,323
Other current assets 113,665 119,840
Total current assets 1,324,328 1,453,837
Property and equipment at cost -
net of depreciation 311,790 347,325
Other assets 10,483 11,333
Total Assets $ 1,646,601 $ 1,812,495
Liabilities and Stockholders' Deficit
Current liabilities:
Notes payable $ 0 $ 1,700,000
Accounts payable and
accrued expenses 1,281,972 1,381,457
Due to Sligos, S.A. 275,000 175,000
Deferred income 64,220 77,311
Other current liabilities 9,999 2,944
Total current liabilities 1,631,191 3,336,712
Noncurrent liabilities
Long terms obligations under
capital leases 12,003 0
Due to Sligos, S.A. 0 100,000
Total liabilities 1,643,194 3,436,712
Long term portion of
deferred income 430,899 438,896
Redeemable preferred stock:
Series C Convertible
Preferred Stock 3,689,635 1,600,328
Stockholders' deficit:
Preferred stock, $1.00 par value,
authorized 10,000,000 shares
issued and outstanding:
Series A - 452,064 shares at
June 30, 1995 452,064
(liquidation value $904,128
$2.00 per share)
and 452,064 at Dec. 31, 1995 452,064
(liquidation value $904,128
$2.00 per share)
Series B - 2,540,000 shares at
June 30, 1995 2,540,000
(liquidation value $2,540,000
$1.00 per share)
and 2,450,000 shares at
Dec. 31, 1995 2,450,000
(liquidation value $2,450,000
$1.00 per share)
Series D - None at June 30, 1995
and June 30, 1994 0
(liquidation value $1.50 per
share plus accrued dividends)
and 210,549 shares at
Dec. 31, 1995 320,803
(liquidation value $320,803
$1.50 per share)
Common stock, $.01 par value
authorized 20,000 shares
issued and outstanding:
7,606,710 shares at June 30, 1995
and 7,774,908 shares at
Dec. 31, 1995 77,749 76,067
Warrants and options 375,000 375,000
Additional paid-in capital 11,140,508 11,103,449
Retained (deficit) (18,933,251) (18,210,021)
Total stockholders'
equity (deficiency) (4,117,127) (3,663,441)
Total Liabilities and
Stockholders' Deficit $ 1,646,601 $ 1,812,495
</TABLE>
<PAGE>
<TABLE>
Nestor, Inc.
Consolidated Statements of Cash Flows
<CAPTION>
Six Months Ended December 31,
1995 1996
<S> <C> <C>
Cash Flows from operating activities:
Net (loss) $ (723,227) $(1,056,675)
Adjustments to reconcile net (loss)
to net cash provided by operating
activities:
Depreciation and amortization 49,049 49,485
Expenses recognized relating to
options, warrants and capital
transactions 209,448 1,125
Change in assets and liabilities:
(Increase) in accounts receivable (66,123) (312,410)
(Increase) in unbilled contract
revenue (195,232) (81,337)
(Increase) decrease in due from
employees, officers and directors
and other current assets 7,056 (65,332)
Increase (decrease) in accounts
payable and accrued expenses (85,821) 131,182
Increase (decrease) in deferred
income (21,088) 15,880
Net cash (used) by operating
activities (825,938) (1,318,082)
Cash flows from investing activities:
Purchase of property and equipment (4,278) (96,886)
Net cash (used) by investing
activities (4,278) (96,886)
Cash flows from financing activities:
Repayment of obligations under
capital leases $ (2,994) (5,467)
Proceeds of note payable 300,000 0
Rights offering expense (136,421) 0
Proceeds from issuance of
common stock 0 71,062
Proceeds from issuance of
preferred stock 285,823 1,470,000
Net cash provided by financing
activities 446,408 1,535,595
Net change in cash and cash
equivalents (383,808) 120,627
Cash and cash equivalents -
beginning of period 452,588 416,210
Cash and cash equivalents
end of period $ 68,780 $ 536,837
Supplemental cash flows information:
Interest paid $ 4,262 $ 699
Income taxes paid $ 0 $ 0
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Note 1 - Financial Statements:
In the opinion of management, all adjustments,
consisting only of normal recurring adjustments
necessary for a fair presentation of (a) the
consolidated results of operations for the three months
and six months ended December 31, 1995 and 1994; (b)
the consolidated statement of cash flows for the six
months ended December 31, 1995 and 1994; and (c)
consolidated financial position at December 31, 1995
have been made.
Note 2- Research and Development Expenses:
Research and development expenses charged to operating
expenses are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Customer Funded $635,598 $285,103 $1,076,177 $ 554,346
Company Funded $ 0 316,339 185,029 576,097
$635,598 $601,442 $1,261,206 $1,130,443
</TABLE>
For the three months ended December 31, 1995, the
Company earned $642,992 of revenue and incurred costs
of $479,838 under contracts to perform research and
development for others. For the six months then ended
the Company earned $1,076,177 of revenue and incurred
costs of $789,059 for such research and development.
At December 31, 1995, no customer had committed itself
to provide additional funding, nor were any significant
royalty arrangements, purchase provisions or license
agreements in effect with customers for whom the
Company had performed research and development
services.
Note 3- Selling and Marketing Expenses:
Selling and marketing expenses charged to operating
expenses are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
$391,032 $559,232 $897,489 $1,047,076
</TABLE>
Note 4 - Rights Offering and Note Payable:
On August 16, 1995, a registration statement of the
Company relating primarily to rights granted to the
Company's shareholders became effective. Each right
enabled the holder to purchase a Unit consisting of one
share of series D Convertible Preferred Stock,
convertible into one share of Common Stock after
January 1, 1996 and one warrant to purchase one-half
share of Common Stock for three years after the
effective date of registration statement at a price of
$2 per share.
Gross proceeds of the rights offering, which closed on
September 29, 1995, totaled $285,823. In early October
the Company received the proceeds of the offering and
issued the stock. Costs of the offering, which were
charged to additional paid-in capital, totaled
approximately $136,000.
Pursuant to a Standby Financing and Purchase Agreement
dated March 16, 1995, as amended on June 30,1995, Wand
Partners loaned to the Company the sum of $1,700,000
evidenced by promissory notes, which bore interest at
the rate of 10% annum payable in shares of Common Stock
of the Company. On September 12, 1995, Wand Partners
made an additional loan to the Company in the amount of
$300,000, bringing the principal amount of all of the
Company's promissory notes to $2,000,000. In early
October, Wand Partners exchanged these notes for 20,000
unregistered Units and 1,970 shares of Series C
Preferred Stock. The terms and conditions of such
Series C Convertible Preferred Stock are the same as
the 1,500 shares of series C Convertible Preferred
Stock previously purchased by Wand Partners.
Upon completion of the offering and the conversion of
the notes described above, the Company issued to Wand
Partners 700,000 ten-year warrants to purchase shares
of the Common Stock of the Company at $1.00 per share.
The Company recorded in the second quarter a charge of
$131,250 representing the difference between the market
value of the underlying Common Stock of the Company and
the aggregate exercise price of such warrants.
Note 5 - Subsequent Event:
On January 31, 1996, the Company sold to Wand Partners
$599,000 of Redeemable Preferred Stock and warrants to
purchase 173,710 shares of Common stock. The Preferred
stock is convertible into 479,200 shares of Common
stock, and the warrants are exercisable at $1.25,
subject to adjustment.
<PAGE>
ITEM 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
Cash Position and Working Capital
The Company had cash and short-term investments of approximately
$68,000 at December 31, 1995, as compared with $276,000 at
September 30, 1995, and $452,000 at June 30, 1995. At December
31, 1995, the Company had a working-capital deficiency of
$307,000, as compared with a working-capital deficiency of
$2,416,000 at September 30, 1995. Current liabilities used to
calculate working capital at September 30, 1995, included notes
payable in the amount of $2,000,000, which early in October were
converted into redeemable preferred stock (see below, Rights
Offering And Transactions Between The Company And Wand Partners).
The Company had a negative net worth of $4,117,000 at December
31, 1995, as compared with negative net worth of $4,229,000 at
September 30, 1995, and negative net worth of $3,663,000 at June
30, 1995.
Rights Offering And Transactions Between The Company And Wand
Partners
On August 16, 1995, a registration statement of the Company
relating primarily to rights granted to the Company's
shareholders became effective. Each right enabled the holder to
purchase a Unit consisting of one share of series D Convertible
Preferred Stock, convertible into one share of Common Stock after
January 1, 1996 and one warrant to purchase one-half share of
Common Stock for three years after the effective date of the
registration statement at a price of $2 per share.
Gross proceeds of the rights offering, which closed on September
29, 1995, totaled $286,000. In early October the Company
received the proceeds of the offering and issued the stock.
Costs of the offering, which were charged to additional paid-in
capital, totaled $136,000.
Pursuant to a Standby Financing and Purchase Agreement dated
March 16, 1995, as amended on June 30, 1995, Wand Partners loaned
to the Company the sum of $1,700,000 evidenced by promissory
notes, which bore interest at the rate of 10% per annum payable
in shares of Common Stock of the Company. On September 12, 1995,
Wand Partners made an additional loan to the Company in the
amount of $300,000, bringing the principal amount of all of the
Company's promissory notes to $2,000,000. Upon conclusion of the
offering, Wand Partners exchanged these notes for 20,000
unregistered Units and 1,970 shares of Series C Preferred Stock.
The terms and conditions of such Series C Convertible Preferred
Stock are the same as the 1,500 shares of Series C Convertible
Preferred Stock previously purchased by Wand Partners.
Upon completion of the offering and the conversion of the notes
described above, the Company issued to Wand Partners 700,000 ten-
year warrants to purchase shares of the Common Stock of the
Company at $1.00 per share. The Company recorded in the second
quarter a charge of $131,250 representing the difference between
the market value of the underlying Common Stock of the Company
and the aggregate exercise price of such warrants.
Sale of Additional Redeemable Preferred Stock
On January 31, 1996, the Company sold to Wand Partners $599,000
of Series F Convertible Preferred Stock and warrants to purchase
173,710 shares of Common Stock. Each share of Series F Preferred
stock is convertible, after June 30, 1996, into Common Stock at
the rate of $1.25 per share of Common Stock, subject to
adjustment. The warrants are exercisable at $1.25, subject to
adjustment. The Series F Convertible Preferred Stock has the
right to receive dividends at the rate of 9% per annum of their
stated value.
Substantial additional capital may be required to enable the
Company to carry out marketing campaigns for its products, for
continued upgrading of its present products, and for customer
support. The Company is exploring options for the infusion of
additional funds through strategic partnerships and investments.
Although the Company has been engaged in discussions with
potential sources of funding, the Company has not to date
obtained a commitment for such additional funds except for a
contingent commitment from Wand Partners relating to the purchase
of $401,000 of additional redeemable preferred stock. Management
of the Company is not in a position to predict the outcome of
discussions with potential strategic partners, and there can be
no assurance that such additional financing will be available to
the Company. If additional financing is not available, there is
substantial doubt as to the Company's ability to continue as a
going concern.
Deferred income
Operations of the Company have been partly funded by prepayments
under engineering contracts and licenses of the Company's
technology. Such prepayments are recognized as revenues under
the percentage-of-completion method as engineering is completed
or delivery obligations are fulfilled. The Company bases its
estimate of the percentage of completion on the amount of labor
applied to a given project, compared with the estimated total
amount of labor required. The remainder of such prepaid revenue
is reflected on the Company's balance sheet as deferred income,
and is treated as a liability. Total deferred income was
$495,000 at December 31, 1995, as compared with $516,000 at June
30, 1995.
Future commitments
During the quarter ended December 31, 1995, the Company acquired
property and equipment (primarily computing and related
equipment) at a cost of $27,000. The Company has no material
commitments for capital expenditures although management expects
that the Company may make future commitments for the purchase of
additional computing and related equipment, for development of
hardware, for consulting and for promotional and marketing
expenses.
The Company has no material commitments other than a commitment
to purchase from Intel Corporation a supply of Ni1000
Recognition Accelerator chips for an aggregate purchase price of
$97,500. The Company placed a purchase order in this amount with
Intel Corporation in June 1995 and expects to take delivery of
this order in the Company's fiscal third quarter which begins
January 1, 1996.
Results of Operations
Revenues in the quarter ended December 31, 1995 increased 24%
over the corresponding quarter of the prior year while expenses
increased 3%, resulting in a 39% decrease in the loss for the
quarter. For the six-month period ending December 31, 1995,
revenues increased 35% over the prior year. Expenses in the six
months ending December 31, 1995 increased 8% over the prior year,
resulting in a 32% decrease in the loss for the period.
Revenues
The Company's revenues arise from licensing of the Company's
products and technology, from the sale of tangible products, and
from contract engineering services, and are discussed separately
below. During the quarter ended December 31, 1995, total
revenues increased $223,000 to $1,137,000 from $914,000 in the
corresponding quarter of the prior fiscal year. The increase in
revenues from 1994 to 1995 reflects the net of an increase in
service revenues and a decrease in revenues from licensing and
sales of tangible products.
For the six months ended December 31, 1995, revenues totaled
$2,149,000, an increase of $554,000 from revenues of $1,595,000
in the six months ended December 31, 1994. The increase in six-
month revenues from 1994 to 1995 reflects the net of an increase
in license fees and services and a decrease in sales of tangible
products.
Licensing Fees
Product-licensing revenues totaled $431,000 in the quarter ended
December 31, 1995, as compared with $515,000 in the year-earlier
period. The Company's NestorReader group of intelligent-
character-recognition products accounted for approximately 83%
and 85% of revenues in the quarters ended December 31, 1995 and
1994, respectively. Revenues from this product line totaled
$356,000 in the quarter ended December 31, 1995, a decrease of
$81,000 from $437,000 of similar revenues in the year-earlier
period. The decrease in year-to-year product-licensing revenues
reflects the net of an increase in royalty revenues from the
Company's OEMs and a decrease in revenues from shipments of
NestorReader products to individual customers.
For the six months ended December 31, 1995, product-licensing
revenues increased $108,000 to $902,000 from $793,000 in the
corresponding period of the prior fiscal year. Revenues relating
to NestorReader products increased $39,000 to $731,000 from
$692,000 in the corresponding period of the prior fiscal year,
again reflecting an increase in royalty revenues from the
Company's OEMs and a decrease in revenues from shipments of
NestorReader products.
Licensing fees from the Company's Fraud Detection System doubled
from $75,000 in the six months ended December 31, 1994, to
$150,000 in the period ending December 31, 1995.
Services
Revenues from engineering contracts increased $354,000 to
$639,000 in the quarter ended December 31, 1995, from $285,000 in
the year-earlier period. During the six months ended December
31, 1995, revenues from engineering contracts totaled $1,072,000,
an increase of $518,000 from revenues of $554,000 in the
corresponding period of the prior fiscal year.
Revenues relating to the customization of Nestor's Fraud
Detection system totaled $387,000 in the second quarter of the
current fiscal year compared to $183,000 for similar work in the
prior year. During the six months ended December 31, 1995, such
revenues totaled $743,000, as compared with $366,000 in the
corresponding period of the prior fiscal year.
Revenues from engineering contracts with industrial customers
totaled $135,000 in the quarter ended December 31, 1995, as
compared with $8,000 in the corresponding quarter of the prior
fiscal year. For the six months ended December 1995, such
revenues totaled $182,000, an increase of $115,000 from revenues
of $67,000 in the year-earlier period.
The Company's contracts with the Advanced Research Projects
Agency (ARPA), formerly called the Defense Advanced Research
Projects Agency, require engineering services rendered by the
Company to develop a generic commercial application of the
Company's technology to high-speed pattern recognition through
the creation of an integrated circuit, associated circuit boards,
and supporting development software. The Company has two
contracts with ARPA. The first contract, which was signed in
April 1990, is valued at $1,630,000; as of December 31, 1995
$1,623,000 had been earned. The second contract, signed August
26, 1993, is valued at $776,000; as of December 31, 1995,
$773,000 had been earned.
On September 1, 1995, the Company signed a contract with the Jet
Propulsion Laboratory (JPL) to develop a prototype sensor system
designed for vehicular traffic surveillance and detection. The
contract, valued at $597,000, is expected to run for 11 months
from September 1995. The terms of the ARPA and JPL contracts
call for delivery of prototype products, but do not specify any
subsequent purchasing or licensing provisions.
During the quarter ended December 31, 1995, the Company
recognized revenues totaling $90,000 under its ARPA and JPL
contracts, as compared with $94,000 in the corresponding quarter
of the prior fiscal year. During the six months ended December
31, 1995, revenues from the Company's ARPA and JPL contracts
totaled $97,000, as compared with revenues of $122,000 in the
year-earlier period.
Sales of tangible products
The tangible products currently sold by the Company are circuit
boards incorporating the Company's Ni1000 Recognition Accelerator
Chips, which are marketed along with development software that
enables customers to develop high-speed recognition applications.
Revenues from the Company's Ni1000 Development System totaled
$66,000 in the quarter ended December 31, 1995, as compared with
$113,000 in the corresponding quarter of the prior year. For the
six months ended December 31, 1995, Ni1000 Development System
revenues totaled $175,000, a decrease of $72,000 from revenues of
$247,000 in the year-earlier period. Approximately $79,000 of
total revenues in the year-earlier period derived from a Beta
program which concluded in the period ending December 31, 1994.
Expenses
Total expenses - consisting of operations, selling and marketing,
and general and administrative expenses - amounted to $1,434,000
in the quarter ended December 31, 1995, as compared with
$1,389,000 in the preceding quarter and $1,407,000 in the
corresponding quarter of the prior fiscal year. Expenses in the
quarter ended December 31, 1995 include $131,000 of non-cash
charges relating to the issuance of warrants at below-market
value (see Note 4 to Consolidated Financial Statements). In the
six months ended December 31, 1995, expenses totaled $2,823,000,
including the $131,000 non-cash charge mentioned above, an
increase of $155,000 over total expenses in the year-earlier
period of $2,668,000.
Labor costs continue to be the Company's single greatest expense
category. In the quarter ended December 31, 1995, the Company
paid $762,000 for wages and consulting fees, an increase of
$3,000 from total wages and consulting fees of 759,000 paid in
the corresponding quarter of the prior fiscal year. For the six
months ending December 31, 1995, wages and consulting fees
totaled $1,567,000, an increase of $141,000 from labor costs of
$1,426,000 paid in the year-earlier period.
The decrease in costs from the preceding quarter to the current
quarter, after adjusting for the non-cash charge, reflects a
continuation of a broad effort to reduce costs which began in the
fourth quarter of the prior fiscal year. Expenses decreased in
all areas - operations, sales and marketing, and general and
administrative. Staffing decreased from 53 full-time employees
in June 1995 to 43 at the end of December 1995. This reduction
in staffing reflects the layoff of employees and attrition
without replacement throughout the period for June 1995 to
November 1995. Further, the Company had reduced its promotional
expenditures since the fourth quarter of the prior fiscal year.
Cost of services and product sold
The cost of services and products sold, which is primarily labor
cost related to product development and engineering, totaled
$665,000 or 59% of related revenues during the quarter ended
December 31, 1995, as compared with $636,000 or 63% of related
revenues in the preceding quarter and $674,000 or 74% of related
revenues in the year-earlier period. During the six months
ending December 31, 1995, the cost of services and products sold
totaled $1,301,000 or 61% of related revenues, as compared with
$1,203,000 or 75% of related revenues in the year-earlier period.
Operating costs and expenses related to the production of
revenues from product-licensing fees decreased $351,000 to
$159,000 (37% of related revenues) in the quarter ended December
31, 1995, from $510,000 (94% of related revenues) in the
corresponding quarter of the prior fiscal year. For the six
months ending December 31, 1995, such costs decreased $429,000 to
$397,000 (44% of related revenues) from $826,000 (101% of related
revenues) in the year-earlier period. The decrease reflects a
shift in the allocation of engineering resources away from
internally funded product-development efforts to customer-funded
engineering projects.
Costs related to engineering services totaled $487,000 (76% of
related revenues) in the quarter ended December 31, 1995, an
increase of $328,000 over costs of $159,000 (61% of related
revenues) in the corresponding quarter of the prior fiscal year.
For the six months ending December 31, 1995, costs related to
engineering services totaled $797,000 or 74% of related revenues,
an increase of $432,000 over costs of $365,000 or 69% of related
revenues for similar work in the year-earlier period.
The Company's expenditures for research and development were
$636,000 in the quarter ended December 1995, as compared with
$601,000 in the corresponding quarter of the prior fiscal year.
For the six months ending December 31, 1995, research and
development costs totaled $1,251,000, as compared with $1,130,000
in the year-earlier period.
Selling and marketing
Selling and marketing expenses totaled $391,000 or 34% of
revenues in the quarter ended December 31, 1995, as compared with
$506,000 or 50% of revenues in the preceding quarter and $559,000
or 61% of revenues in the corresponding quarter of the prior
year. For the six months ending December 31, 1995, selling and
marketing costs totaled $897,000 (42% of revenues) as compared
with $1,047,000 (66% of revenues) in the same period of last
fiscal year. The quarter-to-quarter and year-to-year decreases
reflect the results of the broad effort to reduce costs noted
earlier.
Sales compensation, consisting of salaries, fringe benefits, and
commissions totaled $248,000 in the quarter ended December 31,
1995, as compared with $337,000 in the preceding quarter and
$241,564 in the quarter ended December 31, 1994. For the six
months ended December 1995, such costs totaled $585,000, as
compared with $419,000 in the corresponding period of the prior
fiscal year.
Promotional expenses - comprising advertising, promotion,
conventions and meetings - totaled $55,000 in the quarter ended
December 31, 1995, as compared with $53,000 in the preceding
quarter and $104,000 in the corresponding quarter of the prior
fiscal year. During the six months ended December 31, 1995, such
costs totaled $108,000, as compared with $248,000 in the year-
earlier period.
General and administrative expenses
General and administrative expenses totaled $335,000 in the
quarter ended December 31, 1995, including a non-cash expense of
$131,000 relating to the issuance of warrants at below-market
value. General and administrative expenses totaled $203,000 in
the quarter ended September 30, 1995 and $148,000 in the quarter
ended December 31, 1995. During the six months ended December
31, 1995, general and administrative expenses totaled $539,000,
including the $131,000 non-cash expense, as compared with
$304,000 of general and administrative expenses in the
corresponding period of the prior year.
Other expense
Other expenses, consisting of the net of interest income and
interest expense, totaled $133 of net interest expense in the
quarter ending December 31, 1995, as compared with net interest
income of $8,609 in the year-earlier quarter. During the six
months ending December 31, 1995, net interest expense totaled
$49,000, as compared with net interest income of $17,000 in the
corresponding period of the prior fiscal year. Approximately
$48,000 in net interest expense in the six months ended December
31, 1995, relates to interest on notes payable from Wand Partners
which were converted into Convertible Preferred Stock in early
October. The accumulated interest was paid to Wand Partners in
Common Stock.
Investment in product development and marketing
The Company has continued to invest in product development and in
marketing of its products and technology, and such expenses are
not capitalized.
Revenues relating to the Company's Fraud Detection System
exceeded expenses by approximately $130,000 in the quarter ended
December 31, 1995. For the six-month period then ended, revenues
exceeded expenses by $212,000.
The largest investment made by the Company has been in its
NestorReader character-recognition product. During the quarter
ended December 31, 1995, revenues exceeded expenses by $11,000.
During the six months ended December 1995, expenses exceeded
revenues by $142,000. Most of the reduction in staffing and in
promotional expenditures has come from this group.
Expenses of the Company's generic products (the Ni1000
Recognition Accelerator and the Company's proprietary software-
development tools) exceeded revenues by $54,000 during the
quarter ended December 31, 1995 Such expenses exceeded revenues
for the six months then ended by $111,000.
Net Income Per Share
During the quarter ended December 31, 1995, the Company
experienced a loss of approximately $298,000 or $.04 per share,
as compared with a loss of $426,000 or $.06 per share for the
preceding quarter and a loss of $485,000 or $.07 per share for
the quarter ending December 31, 1994.
During the quarter ended December 31, 1995, there were
outstanding a weighted average of 7,772,358 shares of Common
Stock, as compared with 7,262,978 shares during the corresponding
quarter of the previous year.
Part 2: Other Information
Nestor, Inc.
Form 10-Q -- December 31, 1995
Item 6: Exhibits and reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
FORM 10-Q
NESTOR, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
NESTOR, INC.
(REGISTRANT)
Date: February 14, 1996 BY: /s/ Simon Heifetz
Vice Chairman and
Principal Financial Officer
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