PROVIDENCE – Traffic-enforcement systems and services provider Nestor Inc. (OTCBB: NEST) posted a third-quarter loss of $3 million, a 52.67-percent increase from the year-ago loss of $1.97 million, on revenue that rose 14.28 percent to $3.83 million. A planned capital infusion and debt-to-equity conversion are expected to close “in the coming months,” the company said.

Nestor’s third-quarter revenue growth “reflects the continued increase in installed [traffic-enforcement] systems, with 338 installed CrossingGuard units and seven installed PoliScanSpeed units generating revenue … as compared to 280 installed CrossingGuard units and seven installed PoliScanSpeed units” a year earlier, the company said.

Meanwhile, Nestor’s loss per diluted share widened to 10 cents from the 2007 third quarter’s 7 cents. (READ MORE) The company – the parent of Nestor Traffic Systems Inc. – attributed the decline to its “investments in its sales organization.”

Results for the three months ended Sept. 30 also included non-cash charges that dipped $8,000, or 0.7 percent, to $1.13 million – $1.01 million for debt-discount expenses, unchanged from a year ago, and $122,000 for share-based compensation, down 6.15 percent – more than offsetting a decline in non-cash derivative investment income, which fell $7,600, or 24.84 percent, to $230,000.

“The results reported for the third quarter of 2008 continue to show improved operating performance, despite making important investments in our sales organization for future growth,” Nestor CEO Clarence A. Davis said in a statement last night. “In fact, we have now reported positive operating cash flow in four of our last six quarters.”

The company posted a third-quarter gross profit (before operating expenses) of $1.55 million, compared with the year-ago $1.41 million. Current assets declined to $4.59 million on Sept. 30 from $7.12 million at year’s end, while cash and cash equivalents fell to $327,000 from $3.1 million on Dec. 31, Nestor reported.

Davis added, however, that “with the addition of new business in Sweetwater, Fla.,and Manteca, Calif. – as well as the expansion of our Delaware Department of Transportation program announced this quarter (READ MORE), we expect to continue to demonstrate the company’s ability to grow a successful and profitable business.”

“The company remains actively engaged in its efforts to effect a restructuring and financing, consistent with the general terms and conditions originally disclosed in its second-quarter press release,” the CEO said.

In that Aug. 14 report, the company said its board of directors had “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.”

As a result, Davis said at the time, “we expect the company to soon have significantly less debt, more cash, and more equity” – although, he acknowledged, “this deal will be dilutive to existing shareholders on a percentage-ownership basis.”

Going forward, he said last night, “I remain optimistic that this process, once completed, will provide Nestor with the balance sheet and capital base necessary to execute on its growth plans and provide our existing customers and prospects alike with the assurance that the company is committed to our long-term success.”

Nestor’s closing early last month on $500,000 in bridge financing (READ MORE) – “the majority of which was sourced from our existing debt-holders – provided the company with needed short-term capital and represented a critical step in the context of the larger transaction, which I anticipate will close in the coming months,” Davis said.

Nestor Inc. (OTCBB: NEST) is the parent of Nestor Traffic Systems Inc., a provider of video-, photo- and LiDAR-based traffic-enforcement systems and services to state and municipal governments. For more information, visit www.nestor.com.