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 March 31, 1999
[ ] 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: 17,499,327 shares
outstanding as of March 31, 1999
NESTOR, INC.
FORM 10 Q
March 31, 1999
INDEX
PART 1 FINANCIAL INFORMATION
Item 1 Financial Statements:
Consolidated Balance Sheets
March 31, 1999 (Unaudited) and December 31, 1998
Consolidated Statements of Operations (Unaudited)
Three Months Ended March 31, 1999 and 1998
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 1999 and 1998
Notes to Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3 Quantitative and Qualitative Disclosure of Market Risk
PART 2 OTHER INFORMATION
Nestor, Inc.
Consolidated Balance Sheets
March 31, 1999 Dec. 31, 1998
(Unaudited)
Current assets:
Cash and cash equivalents $ 2,587,752 $ 1,175,183
Accounts receivable, net of
allowance for doubtful accounts 772,241 512,748
Unbilled contract revenue 325,246 118,209
Inventory 461,526 231,613
Other current assets 134,893 98,348
Total current assets 4,281,658 2,136,101
Noncurrent assets:
Property and equipment at cost -
net of accumulated depreciation 342,651 368,525
Deferred development costs 74,000 80,000
Other assets 5,783 6,963
Total Assets $ 4,704,092 $ 2,591,589
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and
other current liabilities $ 1,264,073 $ 1,150,604
Deferred income 235,123 434,036
Total current liabilities 1,499,196 1,584,640
Noncurrent liabilities:
Long term obligations
under capital leases 15,034 22,618
Total liabilities 1,514,230 1,607,258
Minority interest 710,512 ---
Stockholders' equity:
Preferred Stock Series B, $1.00
par value, authorized
10,000,000 shares; Issued and
outstanding 345,000 shares
at March 31, 1999 and 365,000
shares at December 31, 1998
(liquidation value $1.00
per share) 345,000 365,000
Common Stock, $.01 par value,
authorized 30,000,000 shares;
Issued and outstanding 17,499,327
shares at March 31, 1999 and
17,479,327 shares at December 31,
1998 174,993 174,793
Warrants and options 657,088 630,467
Additional paid-in capital 25,976,114 24,504,556
Retained deficit (24,673,845) (24,690,485)
Total stockholders' equity 2,479,350 984,331
Total Liabilities and
Stockholders' Equity $ 4,704,092 $ 2,591,589
The Notes to the Financial Statements are an integral part of
this statement.
Nestor, Inc.
Consolidated Statements of Operations
(Unaudited)
Quarter Ending
March 31, 1999 March 31, 1998
Revenues:
Software licensing $ 1,198,526 $ 543,841
Engineering services 205,952 308,308
Tangible product sales 36,690 79,666
Total revenues 1,441,168 931,815
Operating Expenses:
Engineering services 315,215 439,194
Tangible product sales 10,753 34,306
Research and development 498,719 444,108
Selling and marketing expenses 443,625 420,085
General and administrative
expenses 320,891 295,772
Total operating expenses 1,589,203 1,633,465
Loss from operations (148,035) (701,650)
Other expense (23,056) (29,683)
Loss for the period before
income taxes and minority interest (171,091) (731,333)
Income taxes --- 7,500
Minority interest in loss
of subsidiary 187,731 ---
Net Income (Loss) for the period $ 16,640 $ (738,833)
Income (Loss) Per Share:
Net Income (Loss) for
the Period $ 16,640 $ (738,833)
Dividends accrued on
preferred stock --- 113,801
Income (Loss) Applicable
to Common Stock $ 16,640 $ (852,634)
Income (Loss) Per Share:
Basic and diluted $ 0.00 $ (0.09)
Shares Used in Computing Income
(Loss) Per Share:
Basic and diluted 17,844,327 9,438,987
The Notes to the Financial Statements are an integral part of
this statement.
Nestor, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Quarter Ending
3/31/99 3/31/98
Cash flows from operating activities:
Net income (loss) $ 16,640 $ (738,833)
Adjustments to reconcile
net income (loss) to net cash
used by operating activities:
Depreciation and amortization 42,688 60,489
Expenses charged to operations
relating to options, warrants
and capital transactions 26,621 26,621
Minority interest in
loss of subsidiary (187,731) ---
Changes in assets and liabilities:
(Increase) decrease
in accounts receivable (259,493) 161,983
(Increase) in unbilled
contract revenue (207,037) (365,305)
(Increase) decrease in inventory (229,913) 5,083
(Increase) in other assets (35,365) (42,327)
Increase in accounts payable
and other current liabilities 118,683 337,722
Increase (decrease) in
deferred income (198,913) 104,853
Net cash used by
operating activities (913,820) (449,714)
Cash flows from investing activities:
Purchase of property and equipment (10,814) (10,000)
Net cash used by
investing activities (10,814) (10,000)
Cash flows from financing activities:
Repayment of obligations
under capital leases (12,797) (13,352)
Proceeds from line of credit --- 250,000
Proceeds from issuance of
common stock --- 4,395
Proceeds from issuance of
common stock by subsidiary 2,350,000 ---
Payment of dividends on
preferred stock --- (35,865)
Net cash provided by
financing activities 2,337,203 205,178
Net change in cash and
cash equivalents 1,412,569 (254,536)
Cash and cash equivalents -
beginning of period 1,175,183 386,639
Cash and cash equivalents -
end of period $ 2,587,752 $ 132,103
Supplemental cash flows information
Interest paid $ 4,636 $ 4,969
Income taxes paid $ --- $ 30,000
The Notes to the Financial Statements are an integral part of
this statement.
Nestor, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 1999
Note 1 - Basis of Presentation:
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance
with generally accepted accounting principles for interim
financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes
required by generally accepted accounting principles for
complete financial statements. In the opinion of
management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair
presentation have been included. Operating results for
the three month period ended March 31, 1999 are not
necessarily indicative of the results that may be
expected for the year ended December 31, 1999.
The balance sheet at December 31, 1998 has been derived
from the audited financial statements at that date but
does not include all of the information and footnotes
required by generally accepted accounting principles for
complete financial statements.
For further information, refer to the consolidated
financial statements and footnotes thereto included in
the Registrant Company and Subsidiaries' annual report on
Form 10-K for the year ended December 31, 1998.
The accompanying financial statements include the
accounts of Nestor, Inc., Nestor Traffic Systems, Inc.
("NTS"), and Nestor Interactive, Inc. ("Interactive").
NTS and Interactive were organized effective January 1,
1997 as two wholly owned subsidiaries of Nestor, Inc. On
March 25, 1999, NTS sold a 37.5% common stock interest to
a group of private investors (see Note 2). The
subsidiaries are consolidated in the accompanying
financial statements. All intercompany transactions and
balances have been eliminated.
Note 2 - Significant Events:
On March 24, 1999, the Company entered into a $1,000,000
Line of Credit agreement with Transaction Systems
Architect, Inc. ("TSAI"). The loan is secured by the
royalty stream and other fees produced by the Company's
license agreements with Financial Solutions Division
customers. Principal payments are due in twelve equal
monthly installments beginning March 1, 2001. Interest
on the loan is equal to the effective prime interest rate
plus 1%. The line may be reduced to $500,000 if the
Company's equity becomes negative or increased up to
$4,000,000 if certain financial requirements are
attained. At March 31, 1999 there were no borrowings
against this line of credit.
On March 25, 1999, Nestor Traffic Systems, Inc., a
subsidiary of the Company, sold a 37.5% common-stock
interest to a private group of investors for $2,350,000
in cash and issued an option for an additional 17.5% of
its common stock for $1,750,000. The investor group
includes three officers of the Company and the
subsidiary, who in the aggregate contributed $600,000 of
the initial cash invested, on the same basis as third-
party investors. The option expires on January 31, 2000.
The proceeds will be used by the subsidiary to fund
traffic-system product development and marketing efforts
in 1999. In addition, to the extent that facility and
administrative services of the Company are used by the
subsidiary, reimbursement of allocated costs will be
provided. The subsidiary has an exclusive license from
the Company to apply the Company's proprietary
technologies in the area of traffic-management systems.
The license provides for royalties to the Company of 5%
of related revenues, net of direct cost of third party
goods sold, in 2000 and 10% in 2001 and beyond. The
capital invested in the subsidiary will be used to fund
the expenses of Traffic Systems incurred after January 1,
1999, which were funded by the Company in previous years.
The transaction increased the Stockholder Equity of the
Company by $1,469,000 at March 31, 1999, representing the
Company's 62.5% equity ownership of the new $2,350,000 of
NTS' equity.
Note 3 - Segment Information:
Description of reportable segments. Nestor, Inc. has
three reportable segments: Financial Solutions, Traffic
Systems and Internet products. While the Company always
differentiated these segments internally, on January 1,
1997 the latter two were separated from Nestor, Inc. into
distinct subsidiaries (see Note 1), leaving Financial
Solutions within the parent company. The reportable
segments are each managed separately because they design,
develop, market and support different products. The
Financial Solutions Division produces and sells credit
and debit card fraud detection products and database
marketing products to financial institutions and
processors of financial data. The Traffic Systems
segment provides remote traffic management products,
mainly to municipalities and government transportation
agencies. The Company's Internet segment was engaged in
the development of an internet commerce solution through
November 1998 when further investment was suspended.
<TABLE>
<CAPTION>
(Note 2)
Financial Traffic All
Solutions Systems Internet Other Totals
(In Thousands)
<S> <C> <C> <C> <C> <C>
Quarter Ended
March 31, 1999:
Revenues $ 1,358 $ 67 $ --- $ 16 $ 1,441
Segment profit (loss) 336 (500) --- (7) (171)
Minority interest --- 188 --- --- 188
Segment net profit (loss) 336 (312) --- (7) 17
Segment assets 1,724 2,438 --- 542 4,704
Quarter Ended
March 31, 1998:
Revenues $ 770 $ 144 $ --- $ 18 $ 932
Segment profit (loss) 13 (301) (432) (11) (731)
</TABLE>
Note 4 - Inventories:
March 31, 1999 December 31, 1998
(In Thousands)
Work in Progress $ 154 $ 118
Finished Goods 308 114
$ 462 $ 232
ITEM 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations
Prospective Statements
The following discussion contains prospective statements
regarding Nestor, Inc. and its subsidiaries, its business outlook
and results of operations that are subject to certain risks and
uncertainties and to events that could cause the Company's actual
business, prospects and results of operations to differ
materially from those that may be anticipated by, or inferred
from, such prospective statements. Factors that may affect the
Company's prospects include, without limitation: the Company's
ability to successfully develop new contracts for technology
development; the impact of competition on the Company's revenues
or market share; delays in the Company's introduction of new
products; and failure by the Company to keep pace with emerging
technologies.
The Company's quarterly revenues and operating results have
varied significantly in the past and may do so in the future. A
significant portion of the Company's business has been derived
from individually substantial licenses, and the timing of such
licenses has caused material fluctuations in the Company's
operating results. In addition, because the Company provides
certain of its products to customers under licenses with no
significant continuing obligations, it recognizes the majority of
its revenue upon the delivery of the software and acceptance by
the customer. Thus, revenues derived by the Company may be more
likely to be recognized in irregular patterns that may result in
quarterly variations in the Company's revenues.
The Company's expense levels are based in part on its product
development efforts and its expectations regarding future
revenues and in the short term are generally fixed. Therefore,
the Company may be unable to adjust its spending in a timely
manner to compensate for any unexpected revenue shortfall. As a
result, if anticipated revenues in any quarter do not occur or
are delayed, the Company's operating results for the quarter
would be disproportionately affected. Operating results also may
fluctuate due to factors such as the demand for the Company's
products, product life cycles, the development, introduction and
acceptance of new products and product enhancements by the
Company or its competitors, changes in the mix of distribution
channels through which the Company's products are offered,
changes in the level of operating expenses, customer order
deferrals in anticipation of new products, competitive conditions
in the industry and economic conditions generally or in various
industry segments.
The Company expects quarterly fluctuations to continue for the
foreseeable future. Accordingly, the Company believes that
period-to-period comparisons of its financial results should not
be relied upon as an indication of the Company's future
performance. No assurance can be given that the Company will be
able to achieve or maintain profitability on a quarterly or
annual basis in the future.
Readers are cautioned not to place undue reliance on these
prospective statements, which speak only as of the date of this
report. The Company undertakes no obligation to revise any
forward-looking statements in order to reflect events or
circumstances that may subsequently arise. Readers are urged to
carefully review and consider the various disclosures made by the
Company in this report and in the Company's reports filed with
the Securities and Exchange Commission.
Liquidity and Capital Resources
Cash Position and Working Capital
The Company had consolidated cash and cash equivalents of
approximately $2,588,000 at March 31, 1999, as compared with
$1,175,000 at December 31, 1998. At March 31, 1999, the Company
had working capital of $2,782,000 as compared with working
capital of $551,000 at December 31, 1998. Cash and cash
equivalents of $2,075,000 and working capital of $2,103,000 were
provided by the Company's 62.5% owned subsidiary, Nestor Traffic
Systems, Inc. (NTS).
The Company's net worth at March 31, 1999, was $2,479,000, as
compared with a net worth of $984,000 at December 31, 1998. The
increase in net worth results primarily from the sale of newly
issued common stock in a subsidiary of the Company, as more fully
described below. The investment contributed $1,469,000 to the
Company's net worth, net of the minority interest, at March 31,
1999.
On March 25, 1999, Nestor Traffic Systems, Inc., a subsidiary of
the Company, sold a 37.5% common-stock interest to a private
group of investors for $2,350,000 in cash and issued an option
for an additional 17.5% of its common stock for $1,750,000. The
investor group includes three officers of the Company and the
subsidiary, who in the aggregate contributed $600,000 of the
initial cash invested on the same basis as third-party investors.
The option expires on January 31, 2000. The proceeds will be
used by the subsidiary to fund traffic-system product development
and marketing efforts in 1999. In addition, to the extent that
facility and administrative services of the Company are used by
the subsidiary, reimbursement of allocated costs will be
provided. The subsidiary has an exclusive license from the
Company to apply the Company's proprietary technologies in the
area of traffic-management systems. The license provides for
royalties to the Company of 5% of related revenues, net of direct
cost of third party goods and services sold, in 2000 and 10% in
2001 and beyond. The capital invested in the subsidiary will be
used to fund the expenses of Traffic Systems incurred after
January 1, 1999, which were funded by the Company in previous
years.
On March 24, 1999, the Company entered into a $1,000,000 Line of
Credit agreement with Transaction Systems Architects, Inc.
("TSAI"). The loan is secured by the royalty stream and other
fees produced by the Company's license agreements with Financial
Solutions Division customers. Principal payments are due in
twelve equal monthly installments beginning March 1, 2001.
Interest on the loan is equal to the effective prime interest
rate plus 1%. The line may be reduced to $500,000 if the
Company's equity becomes negative or increased up to $4,000,000
if certain financial requirements are attained. At March 31,
1999, there were no borrowings against this line of credit.
Management believes that the Company's liquid assets, backlog and
available line of credit at March 31, 1999, are sufficient to
meet the Company's anticipated cash requirements through the year
ending December 31, 1999.
Backlog
As of March 31, 1999, December 31, 1998 and March 31, 1998, the
Company had revenue backlogs of $3,517,000, $2,578,000, and
$1,272,000, respectively, in software license, engineering,
monthly license, and other service fees. The increase in 1999 is
due primarily to new PRISM licenses contracted in the quarter by
our reseller Applied Communications, Inc. (ACI) coupled with
increasing monthly license fees from installed PRISM licenses.
The Company includes in its revenue backlog all fees specified in
contracts which have been executed by the Company to the extent
that the Company contemplates recognition of the related revenue
within one year. There can be no assurance that the contracts
included in revenue backlog will actually generate the specified
revenues or that the actual revenues will be generated within the
one year period.
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 revenue 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
$235,000 at March 31, 1999, as compared with $434,000 at December
31, 1998.
Future commitments
During the quarter ended March 31, 1999, the Company acquired
additional property and equipment (primarily computing and
related equipment) at a cost of $11,000. 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
consulting and for promotional and marketing expenses.
Year 2000
The year 2000 issue is the result of computer programs being
written using two digits rather than four to define the
applicable year. Any of the Company's computer programs that
have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar
normal business activities.
Management has initiated a Company-wide program to assess the
Company's internal-use computer systems and applications, as well
as the Company's product offerings for the year 2000 readiness.
The Company expects to incur internal staff costs as well as
other expenses related to system enhancements and product
modifications for the year 2000. As the Company's internal-use
computer systems and products have been principally designed and
developed within the past ten years, the Company expects that
they are currently year 2000 compliant. However, the Company has
not yet completed its testing and analysis. The total cost to be
incurred by the Company for all year 2000 related projects is not
expected to have a material impact on the future results of
operations. Because the Company's business is based on the
licensing of application software, the Company's business would
be adversely impacted if its products or its internal systems
experience problems associated with the century change. This
issue also potentially affects the software programs and systems
used by the Company in its operations. See the Company's Annual
Report on Form 10-K for a further discussion of the Company's
Year 2000 efforts.
Results of Operations
For the quarter ended March 31, 1999, the Company realized
revenues totaling $1,441,000 and expenses of $1,589,000, which
resulted in an operating loss for the quarter of $148,000 before
taxes and minority interests. The Company reported a net profit
of $17,000 for the current quarter after allowance for minority
interests in the net loss of the Nestor Traffic Systems, Inc.
(NTS) subsidiary of $188,000. In the corresponding period of the
prior year, revenues totaled $932,000 and expenses totaled
$1,633,000, producing a loss from operations of $702,000.
Revenues
The Company's revenues arise from licensing of the Company's
products and technology, from contract engineering services, and
from the sale of tangible products and are discussed separately
below. During the quarter ended March 31, 1999, revenues
increased 55% to $1,441,000 from $932,000 in the quarter ended
March 31, 1998.
Software Licensing
Total product-licensing revenues were $1,199,000 in the quarter
ended March 31, 1999, a 120% increase over $544,000 reported in
the same quarter of the prior year. Software licensing revenues
from the Company's Prism product line totaled $1,182,000 in the
first quarter of 1999, as compared with $526,000 in the
corresponding quarter of the prior year.
The increase in revenues from the prior-year is attributable to
four new PRISM licenses delivered in the quarter, two through
Applied Communications, Inc. and two through CSK, our reseller in
Japan, as compared with one new PRISM license in the comparable
1998 quarter.
Engineering Services
During the quarter ended March 31, 1999, revenues from
engineering contracts decreased $102,000 to $206,000 from
$308,000 in the corresponding quarter of the prior fiscal year.
Revenues in the first quarter of 1999 relating to customer-funded
modifications and installations of the Company's PRISM Fraud
Detection System totaled $175,000, as compared with year-earlier
revenues of $245,000, reflecting a reduction in custom
engineering and installation support required in the period.
The Company has contracts with several government customers to
perform various engineering and development services. The
contracts, signed at various times, call for delivery of
prototype products, but do not specify any subsequent purchasing
or licensing provisions. During the quarter ended March 31,
1999, revenues from the Company's government contracts totaled
$30,000, as compared to revenues of $63,000 in the year earlier
period.
Sales of Tangible Products
The tangible products currently sold by the Company are based
upon the Company's Ni1000 Recognition Accelerator Chip, which is
marketed along with development software that enables customers
to develop high-speed recognition applications. Revenues from
the Company's Ni1000 Development System totaled $23,000 in the
quarter ended March 31, 1999, as compared with $32,000 in the
corresponding quarter of the prior fiscal year.
The Company is continuing its development of the TrafficVision
and CrossingGuard products, which incorporate the Ni1000
Recognition Accelerator Chip (see "Net Investment in Product
Development and Marketing by Product Line," below). During the
quarters ended March 31, 1999 and 1998, traffic system revenues
totaled $14,000 and $48,000, respectively.
Operating Expenses
Total operating expenses - consisting of engineering, research
and development, selling and marketing, and general and
administrative expenses - amounted to $1,589,000 in the quarter
ended March 31, 1999, a decrease of $44,000 from total operating
costs of $1,633,000 in the corresponding quarter of the prior
fiscal year.
Labor costs continue to be the Company's single greatest expense
category. In the quarter ended March 31, 1999, the Company paid
$868,000 for wages and consulting fees, a decrease of $106,000
from total wages and consulting fees of $974,000 paid in the
corresponding quarter of the prior fiscal year. The decrease in
labor costs reflects the decrease in staffing due primarily to
reduction in InterSite staff. Full-time employees, including
consultants, totaled 47 at March 31, 1999, as compared with 48 at
March 31, 1998.
Engineering Services
Costs related to engineering services totaled $315,000 in the
quarter ended March 31, 1999, as compared to $439,000 in the
corresponding quarter of the prior fiscal year and reflects the
associated decrease in revenues in the respective periods. As a
percentage of engineering revenues, these costs increased
slightly from 143% last year to 153% this year.
Research and Development
Research and development expenses totaled $499,000 in the quarter
ended March 31, 1999, as compared with $444,000 in the year-
earlier period.
Effective November 7, 1998, the Company had ceased further
research and development investment in the InterSite product and
terminated all employees and consultants related to that effort.
Marketing or development of the InterSite product has been
transferred to the Company's Financial Solutions Division.
Research and development expenses totalled $266,000 for InterSite
efforts in the first quarter of 1998, and there was no such
expense in 1999.
Selling and Marketing
Selling and marketing costs totaled $444,000 in the quarter ended
March 31, 1999, as compared with $420,000 of such costs in the
corresponding quarter of the prior fiscal year. The increase
reflects $94,000 of Financial Solutions Division expense
reflecting additional staffing to service and support the growing
PRISM customer base and a $15,000 increase in expenses of Nestor
Traffic Systems for an additional sales representative. These
increases were offset by a reduction of $85,000 relating to 1998
InterSite sales expenses which were discontinued.
General and Administrative
General and administrative expenses totaled $321,000 in the
quarter ended March 31, 1999, as compared with $296,000 in the
corresponding quarter of the prior fiscal year. Current quarter
expenses include approximately $40,000 of charges associated with
legal fees related to the ongoing antitrust and patent-
infringement suit against HNC Software Inc. (see Litigation).
Net Investment in Product Development and Marketing by Product
Group
Direct revenues relating to the Company's PRISM and Fraud
Detection System exceeded expenses by $336,000 in the three
months ended March 31, 1999. Although still subject to material
variations in quarterly revenues due to individually large
license fees and long lead times to closings, this trend is
expected to continue. Total division expenses of $1,021,000
include $247,000 of expenses relating to development and
marketing.
Direct expenses of the Company's Nestor Traffic Systems
subsidiary, which is responsible for the development and
marketing of the TrafficVision and CrossingGuard products,
exceeded revenues in the three months ended March 31, 1999 by
$501,000, before minority interest in the loss of $187,000.
Effective November 7, 1998, the Company ceased further research-
and-development investment in its Nestor Interactive, Inc.
subsidiary which developed the InterSite product and laid-off all
employees and consultants related to that effort. Marketing or
development of the InterSite product has been transferred to the
Company's Financial Solutions Division. The Company realized
immaterial revenue and expense associated with support of the
InterSite product during the first quarter of 1999. The net
investment in the InterSite product in the quarter ended March
31, 1998 was $432,000.
Net Income Per Share
During the quarter ended March 31, 1999, the Company realized a
net profit of $17,000 as compared with a net loss of $739,000 in
the corresponding period of the prior fiscal year. The net
profit applicable to common stock was $17,000, or $.00 per share
in the quarter ended March 31, 1999. In the year-earlier period,
after allowance for preferred stock dividends of $114,000, the
Company generated a net loss available for common stock of
$853,000, or ($.09) per share.
During the quarter ended March 31, 1999, there were outstanding
basic and diluted 17,844,327 shares of common stock as compared
with 9,438,987 shares during the corresponding quarter of the
previous year.
ITEM 3: Quantitative and Qualitative Disclosure of Market Risk
The Company has no material exposure to market rate risk.
Part 2: Other Information
NESTOR, INC.
FORM 10 Q
March 31, 1998
Item 1: Legal Proceedings.
On October 6, 1998, HNC Software Corp. ("HNC"), a
significant competitor of the Company in the field of
Financial Services, obtained a patent titled "Fraud
Detection Using Predictive Modeling" and began advising
prospective customers of the Company of the patent.
Upon review of the patent and consideration of prior
actions taken by HNC, the Company initiated a lawsuit
against HNC in the United States District Court in
Providence, RI on November 25, 1998 alleging violation
of Sections 1 and 2 of the Sherman Act (antitrust),
violation of the Rhode Island Antitrust Act, patent
invalidity, and infringement of one of Nestor's patents.
The suit seeks various damages, including lost profits
and treble damages. Costs associated with the suit are
being expensed as incurred. No estimate of the outcome
of this suit, or a potential countersuit, if any, can
currently be made.
Item 2: Changes in Securities
Item 3: Defaults on Senior Securities
Item 4: Submission of Matters to a Vote of Security Holders
Item 5: Other Information
Item 6: Exhibits and reports on Form 8-K
(a)Exhibits - None
(b)The Company did not file any reports on Form 8-K
during the three months ended March 31, 1999.
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: May 12, 1999 By: /s/Nigel P. Hebborn
Chief Financial Officer
(Principal Accounting Officer)
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