Traffic device could reverse Nestor’s fortunes<br><i>Turnaround possible for floundering firm</i>

After years of floundering, Nestor, Inc., may be poised to turn around what its chief executive officer has called its “mediocre” financial performance, by finally capitalizing on the intelligent traffic safety and financial fraud detection systems it has created.


A big test for the Providence company comes by year’s end, when its CrossingGuard video-based monitoring system is installed at three intersections in Vienna, Virginia — population 15,000. Vienna needs help because thousands of vehicles travel through the community daily on Route 123, heading for Washington, D.C. 15 miles away, according to Vienna’s public information officer, Marie Kisner.

Started in 1983 by two Brown University physics professors — Leon Cooper, a 1972 Nobel laureate, and Charles Elbaum — Nestor has had trouble attracting investors, figuring out which products to market, and explaining exactly what it does, according to David Fox, president and chief executive officer.

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That trouble is reflected in its financial reports. The company’s second quarter report for 1998 showed a net loss after taxes of $1.9 million. Though it did raise $5 million through the sale of common stock to Transaction Systems Architects, Inc., in the spring.

“The common denominator (when investing) is to look at the financial performance. Let’s face it, the financial performance has been mediocre,” Fox said.

As a result company executives decided to more clearly distinguish between the three technologies Nestor has developed, and created two subsidiaries in 1997. PRISM, the financial fraud detection technology, was kept at the parent company level, while spin-offs were created for TrafficVision and Internet technologies.

“We want to have highly focused companies,” Fox said. “It’s exciting, because I feel we’ve really gotten ourselves now with some really useful products. I wish it hadn’t taken so long.”

A hopeful sign is the fact officials from other communities already have expressed interest in the results once CrossingGuard is in Vienna, Fox said. When Nestor completes the Vienna installation, it will be the first time it has installed the device for commercial purposes. Until now it has only been used at a Rhode Island test site.

Nestor’s intelligent software program lets the camera monitor traffic speed and patterns, and predict when a motorist isn’t going to be able to stop in time for a red light. If a car can’t stop, the system communicates with lights affecting cross traffic and delays them from turning green. It also takes a picture to be included in a ticket sent to violators.

“You can protect the innocent,” said Fox, adding this element could make people reconsider their suspicions of traffic cameras. “My dream is it’s going to save some lives, and it’s going to get on 20/20.”

‘I think there’s a lot of good potential there. What they’re doing there is moving into a sort of different model where they potentially get money from another product,” said Dave Kelly, an industry analyst who follows Nestor. Kelly is vice president of application strategies with the Hurwitz Group, Inc., in Framingham, Mass.

“They’re sort of unusual in that they’ve been around for 13 years, 14 years at this point,” Kelly said. “They had to wait for the market and the technology to catch up with them, because the benefit of their solution just wasn’t practical eight years ago. At this point I believe they’ve got a mature, productive technology base. They need better marketing and they have to develop the right partnerships.”

As for the TrafficVision line, there’s potential, but Kelly added there are other considerations. For instance, there are only about 11 states that now allow photo citations, and the question remains will others jump on the bandwagon?

Photo citation laws are necessary for its success, because in most, if not all states, police are required to witness a moving violation before a ticket can be issued.

When asked about a potential timetable for its TrafficVision line to take off, Fox said: “I wish I could predict the time frame, that’s what shareholders want to know.”

“Sometimes it’s hard to convince the world you’ve got a great idea, he said.

“It usually takes one brave soul. In this case it was the chief of police and the head of the Board Of Supervisors,” Fox said.

“”I think it’s been a difficult year for Nestor. I think clearly certain IT issues, such as the Year 2000 problem, have slowed their sales process and we’ve seen that with other companies as well,” Kelly said.brbr

Potential clients, he explained, “tend to be devoting 20 to 40 percent of their resources and time to solving the Year 2000 problem that’s money and time that can’t be devoted to developing new technologies.

“I would say it does have very good potential, but it’s not a sure thing. Looks like the technology is appropriate; now they need to be able to get the customers, get the reference base and develop the right partnerships to make this happen on a large scale,” he added.

And until now Nestor’s PRISM CardAlert system has been its sole money maker.

The folks at Nestor call PRISM a neural-network fraud risk management system. What it does, in plain English, is look at thousands of credit card purchases at a time and determine whether individual purchases may be fraudulent.

Mellon Bank Corp. has used the system since 1992, according to Nestor.

Fox said shortly after the bank began using PRISM the program identified a series of suspicious $1 purchases in Southern California. It turned out to be a group of criminals in that area testing a batch of newly minted and totally phony credit cards, he added.

Kelly said the Mellon Bank deal is “a good partnership, a good reference account. At this point they should have 15 of those.

They’re still a small company doing a number of different things and it’s going to take a lot of hard work to make it succeed,” he said.

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