Article from: www.thenewspaper.com/news/27/2719.asp

3/17/2009

California: Red Light Camera Company Nestor Inc. Stiffs Subcontractor
Nestor Traffic Systems says it cannot afford to pay electrical subcontractor while offering big bonuses to executives.

When a motorist cannot afford to pay a $450 red light camera citation, photo enforcement companies are quick to use heavy-handed collection techniques to recover payment in full -- with late penalties. In Fullerton, California, however, it is a red light camera vendor, Nestor Traffic Systems, that is refusing to make the payment due. Last month, Moore Electrical Contracting, Inc. notified city council members that it had not been paid for the work done as a subcontractor to install a red light camera at the intersection of Gilbert Street and Malvern Avenue in September.

"We actually had slated to turn that system on today but have decline to do so," Moore Electrical Contracting Vice President Wes Lobo wrote to the city on February 2. "We have submitted requests for payment to Nestor for work performed but have not received any of those owed funds. Nothing."

Nestor has a long history of financial trouble. Last May, the company was delisted from the Nasdaq Capital Market stock exchange and now trades over the counter at just 2.9 cents per share. Former Nestor CEO William B. Danzell blasted Nestor's current CEO, Mike James, for lining the pockets of management with camera cash.

"In the past twenty months you and the board have removed Nestor from the industry as a competitor, broken crucial strategic partnerships, ran the company out of money, lost customers, defaulted on its debt, but somehow, managed to increase senior management compensation during this time frame," Danzell wrote in a letter released by the Securities and Exchange Commission earlier this month. "Our restated EBITDA [earnings before taxes], based on Nestor being run as a business rather than for senior management team and its lawyers, shows a nicely positive EBITDA. Unfortunately, the Board and management team adopted the policy of an industry high SG&A [salaries and travel expenses] while running the company out of cash."

Lack of cash was the reason Nestor's Chief Financial Officer at the time, Ted Klowan, told Lobo that he would be happy to pay one-half of the amount due.

"Mr. Klowan made us an offer of 50 percent of what is owed us as a full and final compensation for the work we have performed, indicating it might be our only opportunity to receive anything from them for this project," Lobo told Fullerton officials. "Mr. Klowan explains in detail how Nestor is working to restructure their debt so that they might be able to survive by way of acquisition by another entity, or by some other means. He also mentions bankruptcy is looming as a potential option for them."

Officials with Moore Electrical Contracting were initially reluctant to speak about the situation, stating they just wanted to be paid for the work performed. The company did suggest that Fullerton should have protected taxpayers by following the bonding requirements under public works rules which would have prevented this situation. They also confirmed that they are holding back until payment for the work done is made.

"The installation is virtually complete, but we will not perform the final connections that would allow the city and Nestor to begin revenue generation with it," Lobo told TheNewspaper.

Keeping the camera unplugged may suit Fullerton and Nestor just fine, as neither is able to generate revenue with any camera. The city was forced to shut down ticketing operations after an appellate judge ruled in November that Fullerton's "cost neutral" ticketing contract with Nestor violated state law (view ruling).

Nestor has taken action since Lobo contacted the Fullerton City Council about the situation. On February 6, Nestor fired Ted Klowan. On February 12, Nestor announced that Mike James' base salary as CEO will be $250,000. The new Chief Legal Officer will receive a $50,000 bonus and a base salary of $165,000 while the Chief Technology Officer will receive the same bonus and a base salary of $175,000.