UNITED STATES
               SECURITIES AND EXCHANGE COMMISSION

                     Washington, D.C.  20549

                            FORM 10-K

     [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
          OF THE SECURITIES EXCHANGE ACT OF 1934

For the period ended          December 31, 1999

                               OR

     [  ] 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, Rhode Island      02906
(Address of principal executive offices)        (Zip Code)

                         (401) 331-9640
      (Registrant's Telephone Number, Including Area Code)

   Securities registered pursuant to Section 12(b) of the Act:
                              NONE

   Securities registered pursuant to Section 12(g) of the Act:
                  Common Stock, $.01 Par Value
                        (Title of Class)

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

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.          X

                                         Exhibit Index is on
Page:

The  aggregate  market value of the 8,319,519  shares  of  voting
stock  held  by non-affiliates of the registrant,  based  on  the
average  bid and asked prices of such stock on February 29,  2000
was  $24,126,605.   The  number  of  shares  outstanding  of  the
Registrant's Common Stock at February 29, 2000 was 17,524,327.

DOCUMENTS INCORPORATED BY REFERENCE.

Information  to be included in registrant's definitive  proxy  or
information statement to be filed with the Commission  not  later
than  120 days following the end of registrant's fiscal  year  is
incorporated by reference in Part III of the Form 10-K.





ITEM 1.    Business

General

Nestor,  Inc.  ("Nestor"  or  the "Company")  designs,  develops,
markets, installs and supports intelligent software solutions for
decision  and data-mining applications in real-time environments.
Nestor  products  employ  proprietary neural  network  predictive
models  to  convert existing data and business  experiences  into
meaningful   recommendations  and  actions.   The   Company   has
leveraged its neural-network software architecture across a  wide
range  of  markets,  including  e-Commerce  Profitability,   Risk
Management,   Customer   Relationship  Management   and   Traffic
Management.

     e-Commerce Profitability Solutions - Products in this market
represent  the  Company's  newest  solutions,  and  comprise  the
PRISM(R)   eFraud(TM)and  eCLIPSE(TM)e-business  decision-support
solutions.  Targeted  at  on-line retailers,  financial  services
companies,  commerce  service providers and  application  service
providers,  PRISM eFraud detects fraudulent on-line  transactions
in  real-time,  and enables organizations to take  immediate  and
informed  loss prevention actions. The eCLIPSE CRM product,  also
targeted  at this core set of e-businesses, enables companies  to
dynamically  personalize  websites  and  off-line  communications
using each organization's unique customer information.

      Risk  Management  - Products in this market  represent  the
Company's   largest  product  line  and  its   most   established
applications.   These  applications include PRISM  Credit,  PRISM
Debit,   PRISM  Money-Laundering  and  PRISM  Merchant  products.
Financial institutions, third-party processors and retailers  use
these  products to identify and manage transactions that  may  be
fraudulent,  represent  illicit  funds  (money  laundering),   or
otherwise undesirable to accept.  Products in the Risk Management
group represent approximately 94.7% of the Company's fiscal  1999
revenue.

       Customer  Relationship  Management  -  The  Company's  CRM
product, eCLIPSE, provides a comprehensive solution for effective
enterprise-wide  customer  marketing.   The  product  accumulates
customer  data  from  all  customer  contact  points  within   an
organization,    allows   the   development   of   comprehensive,
personalized  marketing  campaigns  on  segments  or  all  of   a
population,    including    champion-challenger    and     budget
considerations,  and  deploys  the  developed  campaigns  to  the
appropriate channel, including the Internet.  The product  allows
for consistent personalization across all communication channels.
Campaigns  can  be  further  enhanced  by  the  use  of  Nestor's
proprietary  models  in  areas such  as  customer  profitability,
retention,  and  cross  selling.   Products  in  the  CRM   group
represent approximately 5% of the Company's fiscal 1999 revenues.

       Traffic   Management  -  Through  an  exclusive  licensing
agreement with Nestor Traffic Systems, Inc. ("NTS"), a 42%  owned
affiliate  of  the Company (formerly a wholly-owned  subsidiary),
Nestor  applies  its image-understanding technologies  and  other
patent-pending technologies to the field of intelligent  traffic-
management  systems.   NTS products include  CrossingGuard,  Rail
CrossingGuard,   and   TrafficVision.    Using   standard   video
equipment,  NTS  software  is capable  of  understanding  traffic
patterns  in  real-time  allowing for red-light  enforcement  and
safety  features  at intersections and rail crossings,  and  also
data  collection,  analysis, and real-time exception  alarms  for
open  roads.   As the affiliate is now accounted  for  under  the
equity method of accounting, it did not contribute to revenues in
1999.   In fiscal 1998, this group represented approximately  10%
of revenues.

       Intelligent  Character  Recognition  Systems  -  Currently
marketed  through National Computer Systems, Inc.,  this  product
line   includes  packages  of  software  applications   such   as
OmniTools,  NestorReader, and N'Route which increase productivity
in   document   processing  and  fax  distribution  environments.
Royalties from this group represent less than 1% of the Company's
fiscal 1999 revenues.

Background

The  Company  was  incorporated under the laws of  the  State  of
Delaware  on  March  21, 1983, in order to exploit,  develop  and
succeed  to  certain patent rights and know-how relating  to  the
Nestor Learning System(TM)("NLS"), which the Company acquired  in
1983   from   its  predecessor  Nestor  Associates,   a   limited
partnership.   NLS  is  an  adaptive or self-organizing  software
system,  commonly referred to as a neural network that is capable
of  extracting  the  salient features of input  patterns  without
being  told  what  features  to  look  for  and  of  subsequently
recognizing similar patterns identified by such features.   Thus,
NLS can be said to learn from its experience.

On   January  1,  1997,  Nestor,  Inc.  formed  two  wholly-owned
subsidiaries:   Nestor   Traffic   Systems,   Inc.   and   Nestor
Interactive, Inc. ("Interactive").  Nestor Traffic Systems,  Inc.
develops  and markets the TrafficVision, CrossingGuard,  and  the
Rail  CrossingGuard product lines. Nestor now owns a 42% interest
in  NTS and uses equity accounting to account for the investment.
Interactive  developed  InterSite,  an  Internet  personalization
solution,  but  this subsidiary has been inactive since  November
1998.

Nestor   offers  complete  application-software  solutions   that
include  adaptive  decision  models,  implementation,  education,
training,   consulting,   processing  and   engineering   support
services.   Current  Nestor  software  products  detect  bankcard
(credit/debit)  and  private-label (retail)  card,  merchant  and
other  forms  of fraud (PRISM), provide intelligent,  enterprise-
wide   marketing  campaign  management  and  real-time   targeted
information  to  Internet  Web site visitors  (eCLIPSE),  provide
traffic  management  and safety (through its  affiliate  NTS)  of
freeways  (TrafficVision), rail crossings  (Rail  CrossingGuard),
and  intersections  (CrossingGuard),  and  provide  much  greater
efficiencies   in   document  processing  and  fax   distribution
environments (NestorReader, OmniTools and N'Route which  products
were  licensed  to  National  Computer  Systems  in  June  1996).
Nestor's   software  solutions  are  designed  for  client-server
implementation and flexible integration with customers'  existing
computing  infrastructures.  Installation time  periods  for  the
Company's  software solutions depend upon the particular  product
involved, and can take as little as three days or as long as nine
months.  The Company believes that PRISM customer payback periods
for license, installation, and first year user fees are typically
less than one year.

The  Company  designs and develops high-value  software  products
that  can  bring additional value to customers by  utilizing  its
proprietary  software and information-management knowledge,  and,
to  a  lesser degree, designed hardware components that  enhanced
the performance of its software products.  The Company's products
comprise the following categories: Risk Management Systems  - are
designed   to   effectively   detect   and   control   fraudulent
transactions for financial institutions and retailers that  issue
or  process  credit,  debit, or other  financial  use  cards  and
retailers  that accept card payments over the phone  or  Internet
and are exposed to charge-back losses from fraud or liability for
other  schemes  such as money-laundering.  Customer  Relationship
Management Systems - are designed to synthesize information  from
multiple   data  sources  within  an  organization  and   provide
personalized content to individual customers, including Web  site
visitors,   based  on  the  current  state  of   the   customer's
information.  In 2000, the Company unveiled its eCLIPSE  product,
which  is a combination of two product initiatives in intelligent
personalization  (CampaignOne  and  InterSite)  into  a   product
capable   of  providing  intelligent  and  consistent   marketing
campaigns   across   all   channels   within   an   organization.
CampaignOne  was  introduced in 1998 to  the  financial  services
customers of the Company as a back-office marketing solution that
can manage programs ranging from risk evaluation (bankruptcy)  to
marketing   strategies.  InterSite's  purpose   is   to   provide
measurements  of  site visitors, which are useful  in  predicting
their  preferences  and  purchasing  behavior.   The  Company  is
evaluating  the  expansion  of these  product  technologies  into
additional  applications  such  as  health-care  payments,  long-
distance telephone fraud and mobile phone service theft.  Traffic
Management  Systems  - are a combination of internally  developed
software   and  internally  and  externally  developed   hardware
components that perform as a traffic management system  for  open
road and intersection applications.  The products enable dual use
of  video  networks  to  support both  traffic/roadway  data  and
surveillance.   Intelligent  Character  Recognition  Systems    -
include  packages  of software applications such  as   OmniTools,
NestorReader,   and  N'Route,  which  increase  productivity   in
document processing and fax distribution environments.

Fraud Detection and Risk-Assessment Systems

The  Company's  fraud  detection and  risk  assessment  solutions
include  the Proactive Risk Management (PRISM) system  which  has
been  licensed  to  more  than 50 financial-services  and  retail
clients  as  of  December  31, 1999.  These  systems  can  detect
bankcard  or  credit-card fraud, and can be  readily  updated  by
clients to adapt to changing patterns of fraudulent transactions.
By   monitoring   each   cardholder's  historical   and   current
transactions, PRISM is capable of detecting unusual  patterns  of
card  use  and  of rapidly detecting a significant proportion  of
fraudulent  transactions  with  an  extremely  low  error   rate.
Customers  have reported a reduction of more than  50%  in  their
credit-card fraud loss experience.

In  1993,  the Company completed the installation of  the  Nestor
Fraud  Detection  System  (FDS), the  predecessor  of  the  PRISM
products,  at  Mellon Bank.   The success of the FDS installation
at  Mellon  has been instrumental in obtaining additional  orders
for  PRISM.  Like many other credit-card issuers, Mellon Bank had
been  using a rule-based system for fraud detection.  Mellon  has
reported to the Company that FDS found 20 times as many instances
of  fraud as their rule-based system, while requiring reviews  of
only one-third as many accounts.

In   December   1994,  the  Company  installed  a  merchant-fraud
detection  system at Europay International S.A.,  a  Master  Card
affiliated  association  of 700 banks that  settle  international
bankcard  transactions involving currency exchange.  In  February
1995,  the  Company announced PRISM.  PRISM enhances  the  fraud-
detection capabilities of FDS to include workflow management  and
other PC-based productivity tools that are designed to enable the
fraud manager and fraud-control team to efficiently identify  and
track  frauds  detected by the system.  The initial PRISM  system
was  an  upgrade  to  FDS  installed  at  G.E.  Capital  Consumer
Financial Services; the upgrade incorporated PRISM in 1995.

During 1997, the Company expanded its PRISM product line with the
introduction   of   PRISM   Debit   (Debit),   PRISM   Bankruptcy
(Bankruptcy), and PRISM Credit (Credit).  Debit is an intelligent
risk  management system that detects, monitors, responds  to  and
prevents  off-line debit card fraud.  Bankruptcy is a  bankruptcy
decision-support system that provides transaction-level  analysis
of  each  account and enables card issuers to better manage  risk
while  increasing portfolio profitability.  Credit  is  a  multi-
faceted  fraud detection system that dramatically reduces  losses
associated with credit and retail card application fraud.

In 1999, the Company released version 5.0 of PRISM. This enhanced
version features an open software framework that allows users  to
customize PRISM's graphical user interface to meet their specific
processing and customer service requirements. Additionally, PRISM
5.0  facilitates  the  user's  ability  to  interface  the  PRISM
software with their card processing authorization system, charge-
back  recovery systems and other external applications to enhance
the organization's overall risk management operations.

Also  in  1999,  PRISM  was expanded to include  e-commerce  risk
management  (PRISM eFraud) and money laundering detection  (PRISM
Money Laundering Detection). These solutions detect fraudulent on-
line transactions and money laundering activities, respectively.

The  following  are  the primary attributes  of  the  PRISM  Risk
Management Systems:

Comprehensive  Graphical  User  Interface  and  Case   Management
System.  PRISM provides an analysis environment consisting of:  a
user-friendly, MS Windows-compatible graphical user interface, an
"open-systems" architecture that is easily adapted to a  client's
working  environment,  fully  integrated  work  flow  tools   for
enhanced productivity, customizable reporting tools, and in-depth
fraud analysis and system maintenance tools.

Flexible  neural-network decision engine.  The Company's software
implements  a  powerful, patented neural-network  technology  for
adaptive  fraud detection that is accurate, fast, field-trainable
and operates in real-time.  The neural-network and rule-bases are
provided  through software that allows the Company's products  to
be  customized  to  fit the clients' needs and  profiles  without
extensive  custom programming.  Unlike competitive  systems,  the
Company's  products  learn from the experience  of  the  specific
customer  accounts instead of applying "industry"  experience  to
the  customer's  environment.   The  Company's  software  can  be
rapidly trained to look for customer-specific fraud potential  by
requiring  as  few as three training passes through a  customer's
data.    The  system  automatically  adapts  itself  for  problem
complexity  and  maximizes the detection of  actual  fraud  while
minimizing false positive indications.

Automatic  and ongoing learning ability.  The Company's  software
is   trained  to  detect  fraudulent  patterns  based  upon   the
customer's own historical data.  Subsequent to installation,  the
software continues to update its records for current patterns and
automatically modifies its predictive model to respond  to  fraud
pattern  changes  in  the customer's user base  and  environment.
Other  competitive systems may require extensive updating of  the
software to reflect current industry or customer experience.  The
Company's  software allows the client to operate  with  the  most
current  and  customer-specific database  possible,  with  simple
updates entirely under client control.

Quick return on initial investment to customers.  Due in part  to
customizing  the  PRISM software to react based upon  a  client's
specific fraud experience, the product has resulted in fraud loss
savings  of  greater than 50% at G.E. Capital Consumer  Financial
Services  and  over  50%  in  counterfeit  detection  at  Europay
International  S.A.  Performance at this level  would  provide  a
customer experiencing average industry fraud losses a payback  on
their first year installation and use fees of approximately  four
to six months.

On-line,  transaction-based capability.   Nestor's  software  can
provide   an  immediate,  situation-specific  response  to   each
customer   transaction.   For  example,  the  PRISM  system   can
immediately  detect  and report fraudulent  activity  within  the
first one or two transactions, rather than within one or two days
of transactions.

Flexible   client-server  and  operating   solutions.    Nestor's
solutions   can   be   integrated  into  a  customer's   existing
environment  or architecture.  The Company's products  are  based
upon  a  distributed  client-server  architecture  consisting  of
components  that  operate on a wide range of  industry  standard,
client-server  platforms, including the IBM,  MVS/CICS,  Compaq's
proprietary,  fault  tolerant Non Stop  Kernel  (NSK),  UNIX  and
Windows NT operating platforms.

Nestor's Fraud Detection and Risk Assessment Strategy

The  Company's  objectives are: to deliver high quality  products
and  services including proprietary neural-network technology  to
the banking, retail, Internet, telecommunications and health-care
management  industries, and to accrete a growing  revenue  stream
from  ongoing  product  usage fees.  The Company's  strategy  for
achieving these objectives includes the following key elements:

Expand current distribution network.  The Company plans to expand
its worldwide direct sales, distribution and service forces.  The
Company  intends  to continue developing domestic  markets  while
augmenting  its  international growth.  On April  18,  1997,  the
Company expanded its non-exclusive license agreement with Applied
Communications,  Inc. (ACI), a subsidiary of Transaction  Systems
Architects,  Inc.,  by  allowing  ACI  to  distribute  the  newly
developed  PRISM  products  and other  products  of  the  Company
throughout  its  worldwide  sales  and  support  network.    (See
"Licensing,  Joint Venture and Development Agreements".)   Nestor
executed  a  non-exclusive  PRISM  reseller  agreement  with  CSK
Corporation  in Japan during 1996 (See "Licensing, Joint  Venture
and  Development  Agreements).   The  Company  also  intends   to
increase  direct sales efforts in North America through expansion
of   direct  sales  staff  and  through  marketing  and   service
agreements with established providers of products and services to
its target markets.

Earn  recurring revenues through on-going fees based upon product
usage.   The  Company's  products provide immediate  and  ongoing
savings  to  the client through a reduction in the occurrence  of
undetected  fraud losses.  The Company has priced its product  to
include  upfront  fees  for licensing and  installation,  thereby
providing  an  attractive  payback  of  the  customer's   initial
investment as discussed above, and including an ongoing usage fee
based  upon the number of customer transactions or accounts being
reviewed  by  the  software.   This  ongoing  revenue  stream  is
expected  to  grow as new customers install the product.   Future
growth  may also result from the customer's  internal  growth  in
the  number  of  transactions or accounts being reviewed  by  the
software.

Apply  PRISM  products to other markets.   The  Company  believes
that  many markets exist which are experiencing fraud type losses
and   posses  data  characteristics  similar  to  the   financial
institution industry.  The Company plans to extend the  successes
of  the PRISM product in card fraud detection to other areas with
a high level of  transactions and a history of similar fraud-type
loss  experience.  Some of these market opportunities may include
health-care claim payments and long-distance telephone fraud.

Customer Relationship Management Systems

During  2000,  the  Company introduced eCLIPSE,  a  comprehensive
customer  relationship and marketing campaign management solution
designed to maximize the effectiveness and efficiency of  on-line
and  off-line  marketing campaigns for all aspects  of  financial
opportunity  from:  customer acquisition, retention,  cultivation
and   overall   customer  profitability.   eCLIPSE  can   utilize
customers'  internal  models along with the Company's  customized
neural-network models.  eCLIPSE combines and improves on previous
products developed by Nestor: CampaignOne and InterSite.

During 1996, the Company began development of an Internet product
incorporating   the  neural-network  technology   called   Nestor
InterSite.  Nestor InterSite is server-side software that enables
the  Web  host  to  understand individual on-line  customers  and
dynamically present personalized content.

To  date, the Internet has largely been used as a medium for  the
broadcast  of  static  information.   Its  potential  for   truly
interactive dialogues is just beginning to be realized.  However,
the  Internet,  or  more  specifically the  World  Wide  Web,  is
undergoing  a revolution.  New technologies are being  introduced
which  are  causing  Internet web sites  to  become  dynamic  and
personalized.

Nestor   eCLIPSE  will  allow vendors to learn  about  their  web
visitor community, permitting the web host to tailor its products
and  services accordingly.  Vendors should retain more customers,
sell more products to those customers and identify customers  who
are interested in premium products and services.

During  1998,  the  Company introduced  CampaignOne,  a  complete
customer  relationship and marketing campaign management solution
for  traditional marketing channels.  The solution combines  data
on  customers  from  all  channels of an  enterprise  and  allows
organizations  to develop comprehensive and consistent  marketing
campaigns,  including  champion-challenger  programs  and  result
analysis.


Traffic Management Systems

Developed and marketed by the Company's 42% owned affiliate  NTS,
TrafficVision  and CrossingGuard products are  a  combination  of
Company-developed software and modular hardware  components  that
provide  monitoring  for  traffic  data  collection,  control  of
traffic  flows,  and  emergency  response.   These  products  are
flexible  and  can  be  configured  to  a  wide  range  of   road
configurations, including open roads and intersections.  Features
include    remote    video    monitoring,    real-time    vehicle
classification,   individual   vehicle   tracking,   simultaneous
communication   of  video  and  traffic  data   over   a   single
communication  network,  detection and enforcement  of  red-light
violators  and generation and logging to a database of a  variety
of traffic-information measurements.

Historically,  traffic sensing and control has  been  handled  by
wire  induction loops buried beneath the road surface.  The  loop
system  provides  basic information such as  vehicle  counts  and
speed  (with  multiple loop configurations), in  support  of  the
function  of  controlling traffic light signals when  traffic  is
present.  Such loops experience nearly a 100% failure rate within
the first 10 years of operation.  Replacement/repair is often not
performed  or performed long after loop failure due to  the  high
cost of digging up the roadway.

TrafficVision provides all the benefits currently offered by loop
systems  and  substantial additional options  that  increase  the
traffic    controller's   effectiveness   in   managing   traffic
congestion,   infractions,   and  accidents.    The   fact   that
TrafficVision operates completely above ground aids in  effective
maintenance. CrossingGuard applies the TrafficVision technologies
to  make  intersections  safer and to enforce  red-light  running
statutes.  Using video, the system predicts if a vehicle will  or
will not stop at an intersection before a yellow light turns red.
If the system determines that a vehicle will not stop, the system
records a video sequence of the violation for ticket issuance and
sends  a signal to the traffic light controller unit recommending
a  delay  in the change of the light to green for cross  traffic.
Such  delay  may help prevent cross-traffic broadside  collisions
caused by red-light violators.

The   following  are  the  primary  attributes  of  NTS   Traffic
Management Systems:

Accurate, real-time interpretation of traffic video images.   NTS
has  leveraged  the  Company's patented  neural-network  decision
engine  discussed above in Fraud Detection to the application  of
real-time  processing and learning in the context of video  image
interpretation   for  traffic  management  and  control.    Prior
industry  attempts  to provide video-based detection  of  traffic
have  not  proven  effective due to the difficulty  of  designing
robust  detection  algorithms under a  variety  of  illumination,
visibility  and  traffic  conditions, as  well  as  the  need  to
implement  such algorithms on cost-effective computing  platforms
that   provide   real-time  operation.   The   Company's   image-
understanding  technology  is  able  to  interpret  video  images
accurately and respond in a real-time environment.

Rapid  deployment  and  increased services  for  customers.   NTS
software  solutions  are  designed for rapid  deployment  and  to
provide additional information to customers beyond that delivered
by current loop systems.  TrafficVision and CrossingGuard systems
are  designed to be installed entirely above ground  and  to  tie
into  existing customer hardware where appropriate.   Maintenance
becomes more efficient than with underground loop systems.  These
systems  allow  the customer to obtain the same  information  and
accuracy  as  is available through loop technology (e.g.  vehicle
count,  speed,  and  vehicle detection), and additional  benefits
such  as  remote  real-time video monitoring  for  traffic  flow,
vehicle tracking, automated alarms for incident response,  video-
based red-light enforcement and intersection safety.

Multiple  use  of  customer investment in  video  infrastructure.
Traffic  departments  are  deploying roadside  video  cameras  to
provide  images of road and traffic conditions to  better  manage
traffic  flows  and  incident response.  NTS  traffic  monitoring
systems  are  designed  to support "dual  use"  of  pan-tilt-zoom
equipped  cameras  for  surveillance and  traffic  detection  and
monitoring, thus leveraging the customer's investment in existing
video    equipment.    Additionally,   NTS   solution    supports
simultaneous  video and data communication over  a  single  video
communication  network,  thus further leveraging  the  customer's
video infrastructure investment.

Compatibility  with  industry standard  platforms.   NTS  traffic
monitoring  solutions are architected around  dominant  industry-
standard  platforms: namely, the Windows 95/NT operating  system,
tools  and communication components and general "WinTel" hardware
specifications.  This facilitates integration into  a  customer's
existing computing environment, leverages PC economics to offer a
compelling   price/performance  advantage  and   lowers   product
engineering   development  costs.   Additionally,   the   traffic
monitoring  systems  are designed to support the  emerging  NTCIP
communications standards being mandated in the traffic  industry.
Further,  roadside  detector stations  will  be  compatible  with
existing  and  new  traffic  controller  hardware,  such  as  the
CALTRANS 2070 controller standard.

Nestor's Traffic Management System Strategy

The   Company  has  granted  an  exclusive  license  to  NTS  for
application of its technology in the field of traffic  management
applications.  The Company will receive a license royalty  of  5%
of  gross  profit  (revenues  less third-party  costs  of  sales)
realized  from  products using the technology in  2000,  and  10%
thereafter.  Minimum annual royalties to retain exclusive  rights
commence  in  2002 and grow to $1,000,000 per year  by  2005  and
beyond.

Ni1000  Chip,  PCI  4000 Recognition Accelerator  Board  and  IBM
ZISC(TM)Chip

Neural  networks are inherently parallel systems whose operation,
until recently, has only been simulated on serial computers.  The
relative slowness of serial simulation has prohibited the use  of
neural networks in many high-value applications that require high-
speed   learning   and   recognition.   The  Ni1000   Recognition
Accelerator  chip  is  an embodiment of the Company's  technology
that increases typical processing speeds by hundreds of times and
is  expected to open these previously untapped markets to neural-
network solutions.  Manufactured by Intel and introduced  by  the
Company in June 1994,  the Ni1000 chip was developed with funding
by  the  Defense  Advanced  Projects Research  Agency  ("DARPA").
Commercial  delivery  of  Ni1000  chips  and  Ni1000  Development
Systems began in June 1994.  In April 1994, the Company and Intel
Corporation  signed an agreement that provided the  Company  with
exclusive marketing rights to the Ni1000 Recognition Accelerator,
subject  to  certain minimum purchases of the Ni1000  Recognition
Accelerator  by  the  Company, which  has  since  expired.   (See
"Licensing, Joint Venture and Development Agreements.")

In  connection  with  the development of the  Ni1000  Recognition
Accelerator, the Company and Intel were jointly named  as  winner
of  the 1994 Discover Awards for Technological Innovation in  the
category   of  Computer  Hardware  &  Electronics.   The   Ni1000
Recognition Accelerator was selected by the editors of Electronic
Design News as a finalist in their 1994 "Innovation of The  Year"
contest.

Continued   development  work  in  neural-network  hardware   was
centered  on  the  development of a PC-compatible  circuit  board
incorporating  multiple  Ni1000  Recognition  Accelerators,   and
associated development-environment software.  Development of  the
circuit  board and software were funded, in part, by  a  contract
dated  August 26, 1993, between the Company and Office  of  Naval
Research  and  administered  by  the  Defense  Advanced  Projects
Research Agency of the Department of Defense ("DARPA").

PCI 4000 Recognition Accelerator Board

An  outgrowth of the Company's DARPA-funded development  work  is
the   PCI  4000  Recognition  Accelerator,  which  was  developed
cooperatively with Alta Technology Corporation.  The PCI 4000  is
a   circuit  board  containing  up  to  four  Ni1000  Recognition
Accelerators  and a Pentium controller, which is compatible  with
any  PC  or  workstation that provides PCI (Peripheral  Component
Interconnect) support.

IBM ZISC Chip

On  January  31, 1996, the Company signed a technology  licensing
agreement   with   IBM  to  use  Nestor's  pattern    recognition
technology  in  an  IBM  developed  neural-network  semiconductor
device  called  the  ZISC  (see  "Licensing,  Joint  Venture  and
Development Agreements").


Intelligent Character Recognition Products

On  June  11,  1996,  the Company licensed  the  development  and
marketing rights in its Intelligent Character-Recognition ("ICR")
products  (NestorReader,  OmniTools,  and  N'Route)  to  National
Computer  Systems,  Inc. ("NCS"), and is no  longer  involved  in
developing,   packaging  and  marketing   these   products   (see
"Licensing,  Joint  Venture  and Development  Agreements").   The
Company  receives royalties from the sales of these products  and
any  enhanced  versions of these products by the  licensee.   The
following  are the principal ICR products developed and  marketed
by  the Company through June 11, 1996, and marketed by NCS  since
then:

NestorReader(TM)

NestorReader  is a software product that is designed  to  perform
character  recognition from images of hand-printed  and  machine-
printed  characters in intelligent character recognition systems.
A  principal application of NestorReader has been to replace  the
human  process of reading data from forms and entering  the  data
into  computers by means of a keyboard.  NestorReader is licensed
to  original  equipment manufacturers, value-added resellers  and
systems   integrators   for  integration  into   image-processing
systems.   NestorReader extends the range  of  optical  character
recognition  to  include hand print and  faxed  characters  at  a
price/performance ratio that the Company believes is unequaled by
competitive  technologies.   In  optical  character  recognition,
existing  techniques  have successfully  solved  the  problem  of
reading    conventional,   clean,   machine-printed   characters.
Management  believes that hand printed characters -   with  their
high  degree  of variability - and faxed characters,  with  their
high  noise  level,  can  only  be read  satisfactorily  by  more
powerful technologies like NestorReader.

OmniTools(R)

OmniTools   is   a   software  product  that  enables   corporate
applications   developers   to  access   the   functionality   of
NestorReader  from within Windows applications without  the  need
for  C  programming. Developers need only use such familiar tools
as  Visual Basic or applications macro languages including Visual
Basic  for  Applications.  ICR  solutions can thus  be  developed
from  Access, Excel, FoxPro, Lotus 123, Paradox and other Windows
applications.  The Company began marketing OmniTools   in  fiscal
1994.


N'Route(R)

N'Route  is  a  Windows end-user application  that  automatically
routes  incoming  faxes  and scanned  images  directly  to  their
intended  recipients.  N'Route does this by recognizing the  name
or  other  identifier written on a document and then routing  the
document to its destination "mailbox" on Lotus Notes, cc:Mail  or
Windows  for  Workgroups users with Microsoft Mail.  Installation
and maintenance by a network administrator is by dialog boxes and
menus   and  requires  no  programming  or  character-recognition
expertise.   In  February 1995, N'Route was awarded  the  Imaging
Magazine "Product of The Year" award for 1994.

Sales, Marketing and Methods of Distribution

The  Company sells and markets its software and services in North
America  through a direct sales organization and  through  third-
party  licensing  agreements.   Outside  of  North  America,  the
Company  negotiates  marketing agreements with  various  industry
service providers.

The  Company's  and  its affiliates product  lines  are  targeted
toward  large  commercial users (e.g., banks for  the  PRISM  and
eCLIPSE   products),  or  federal,  state  and  local  government
agencies   (e.g.,   Departments   of   Transportation   for   the
CrossingGuard and TrafficVision products).  The products  require
technical   assistance   through  the  sales   and   installation
processes.  Accordingly, the Company maintains an in-house  staff
of  engineers  to support the sales, installation, and  customer-
service functions.

The Company's PRISM and eCLIPSE products are licensed directly by
the  Company  and  through  select  distributors,  primarily   to
financial institutions. The Traffic Management products are being
marketed directly by NTS and through distributors to governmental
traffic management departments or their chosen integrators.   The
Company's Intelligent Character Recognition products are marketed
by  NCS.   The  Company  obtains product inquiries  from  product
mailings,  attendance at trade shows, media  advertising,  trade-
press coverage and its Internet site.

In financial services, the Company has in the past created custom
applications  including  risk  assessment  for  bank-card   fraud
detection,  mortgage origination and insurance,  consumer  credit
and  securities trading.  Nestor's FDS and PRISM products are  an
outgrowth of such development projects.  In the United States and
Canada  the Company markets PRISM and eCLIPSE directly.   ACI  is
the Company's largest reseller, with offices and employees around
the  world.   ACI  has reseller rights to all  of  the  Company's
products   on  a  stand-alone  basis  or  packaged   with   their
proprietary  products.  The Company has a worldwide license  with
Total  System  Services,  Inc. ("Total")  to  provide  its  PRISM
product  to  customers  for which Total provides  card-processing
services  (provided  in North and Central  America).   In  Japan,
custom  financial applications are marketed through its licensee,
CSK  Corporation.   Management of the Company believes  that  the
success  of the PRISM and eCLIPSE products will create a valuable
franchise  in  each  institution, leading to  extensions  of  the
Company's  technology  to  other  risk-assessment  and  marketing
applications.

During  1999,  ACI  and CSK accounted for 61%,  and  14%  of  the
Company's revenues, respectively.  During 1998, ACI, GE  Consumer
Credit Financial Services and Mellon Bank accounted for 28%,  20%
and  14%  of the Company's revenues, respectively.  During  1997,
ACI  and  Europay  accounted for 39% and  16%  of  the  Company's
revenues,   respectively.   During  1999,  GE   Consumer   Credit
Financial  Services  and Mellon Bank accounts  were  acquired  by
other  banks  and the annual use fees being realized  from  PRISM
ceased.   The  loss of these accounts in 1999 was offset  by  new
clients  producing monthly usage fees.  The loss of any of  these
customers for any reason could have a material adverse effect  on
the  Company's  business,  financial  condition  and  results  of
operations.

The  Company  is not required to maintain significant inventories
in order to deliver its products.  The Company does not generally
grant  payment terms to customers in excess of 90  days.   As  of
December  31,  1999  the Company had a backlog  of  approximately
$1,208,000  in undelivered license, development and  installation
contracts.   At December 31, 1998, the Company had a  backlog  of
approximately    $578,000   in   undelivered   development    and
installation contracts, in addition to $914,000 in Nestor Traffic
Systems,  Inc. backlog at December 31, 1998; such NTS backlog  is
not included in the Company's 1999 figures.

Neural-network Technology

The  Company's  technology  deals with  the  problem  of  pattern
recognition within complex data.  When presented with  a  pattern
of  information,  it  can be valuable to identify  that  pattern,
whether  it is a pattern of fraudulent credit card use,  customer
buying  behavior, handwritten characters, vehicles in  a  traffic
flow, or others.  Several methods currently exist to address  the
problem of processing information in order to recognize a pattern
in the information.  Included among these are "expert" systems of
rules,  statistical analysis, and neural networks.  The Company's
products  may  combine all of these methods to  optimize  pattern
recognition capabilities.

Neural-networks  simulate  a virtual  network  of  interconnected
units,  processing data in parallel, and communicating with  each
other  at  high speeds.  A trained neural-network receives  input
and then outputs a response: either "unrecognized", "recognized",
or   "not   sure".   Exceeding  the  capability  of  if-then-else
conditional rules, the power of the neural-networks is  in  their
ability to accurately recognize patterns in multi-dimensional non-
linear  input, such as attempting to recognize characters from  a
scanned  handwritten  sample, which is ill-defined,  affected  by
"noise",  or  blatantly unusual (i.e. overly large or  small,  or
containing  skewed  characters).   Nestor,  as  the   result   of
extensive  research,  has  created a  proprietary  neural-network
technology   referred  to  as  the  Restricted   Coulomb   Energy
Model(TM)(RCE) which has been granted five patents.

The  RCE  model has many unique features.  It has rapid  learning
from  sparse  data  and  fast processing  speeds.   It  has  been
demonstrated that the RCE will learn to recognize patterns orders
of  magnitude  faster than a typical public domain neural-network
such  as  Back Propagation (BP).  RCE has the ability to add  new
features  or  classes without the need to retrain and re-engineer
the  complete  system.  For example, using BP, experts  must  re-
engineer and completely retrain the entire system if new features
or   classes   are  added.   Re-engineering  and  retraining   is
impractical for many real-world applications.  RCE is  a  dynamic
configuration  of the network so that it can scale and  configure
itself  to accommodate the complexity of a problem and  make  the
most  efficient  use of available hardware.  With  BP,  one  must
precisely  engineer the number of neurons in  order  to  use  the
technology, and a stable solution is not guaranteed.

Nestor  has  also  been granted a sixth patent for  a  multi-unit
system  referred  to  as  the Nestor Learning  System(TM)("NLS"),
which  is  ideally suited for many real-world pattern recognition
applications.  The NLS has a patented hierarchical, multi-network
system  for  better  control  and  accuracy.   This  approach  is
analogous  to  the way the human neural-network  is  believed  to
function.   The Company believes that the rapid model development
and operational flexibility afforded by its technology provides a
competitive  advantage in the development of intelligent-decision
software solutions.

Research and Development Activities of the Company

The Company continues to develop and improve its technologies and
products  and  to  develop  new technologies  and  products.  The
Company  intends  to  pursue  new and enhanced  technologies  and
products.   The Company attempts to locate external resources  to
assist  in  funding the costs of developing new  technologies  or
products, but may bear all of such costs internally.

The  Company's  research  is  almost  entirely  applied  research
intended  to  develop  solutions to specific  pattern-recognition
problems.   This  research has resulted in  various  patents  and
patents  pending relating to improvements to the Company's  basic
technology  (see  "Patents").  The Company has  six  applications
pending as of December 31, 1999, primarily in the area of traffic
management.   These  improvements  are  incorporated   into   the
Company's products.

The market for the Company's products may be impacted by changing
technologies.  The Company's success will depend upon its ability
to  maintain  and  enhance its current products and  develop  new
products  in  a  timely  and  cost-effective  manner  that  meets
changing  market conditions.  There can be no assurance that  the
Company will be able to develop and market on a timely basis,  if
at  all,  product  enhancements or new products that  respond  to
changing market conditions or that will be accepted by customers.
Any failure by the Company to anticipate or to respond adequately
to  changing  market  conditions, or any  significant  delays  in
product development or introduction could have a material adverse
effect on the Company's business, financial condition and results
of operations.

The  Company expended in the years ended December 31, 1999,  1998
and  1997, respectively, $921,000, $2,112,000 and $1,498,000,  in
support of the various aspects of Company-sponsored research  and
development.   Expenses  in 1998 and 1997  include  $860,000  and
$586,000,  respectively,  from  NTS  operations  which  are   not
consolidated in 1999.

Patents

The Company has continually sought and obtained patent protection
for its proprietary neural networks and systems, which have as  a
principal  feature rapid learning from a relatively small  number
of  examples.   The Company's RCE neural network  exhibits  rapid
learning  and minimizes the internal connections needed  for  its
functioning.   The Company believes that these capabilities  make
the  Company's  technology uniquely suited to  applications  that
require field trainability or self-modification to adapt  to  new
or  changing  patterns in the data.  The Company's  patents  also
cover  multiple-neural-network systems, which enable the  company
to   develop  products  that  combine  high  accuracy  with  high
processing speeds.

The  Company  owns  six United States patents  and  four  foreign
patents issued in three countries and Europe.  In addition, there
are  six  applications  pending in the United  States,  and  four
foreign  applications  pending, as of  December  31,  1999.   The
foreign patents and patent applications correspond to one or more
of the United States patents.

The  Company believes that six of its United States patents,  and
four  corresponding foreign patents, are material to its and  its
affiliates  business.   These United  States  patents  expire  at
various  times  from  2005  to 2014.  The  corresponding  foreign
patents  expire  at  various times through 2007.   The  following
table lists the Company's material United States patents:

<TABLE>

<CAPTION>                                                         Yr. Of
Patent No.    Title                           Date of Issue       Expiration
<S>           <C>                             <C>                 <C>
4,760,604     Parallel, Multi-unit,
              Adaptive, Nonlinear Pattern
              Class Separator and Identifier  July 26, 1988       2005

4,897,811     N-Dimensional Coulomb Neural
              Network Which Provides for
              Cumulative Learning of
              Internal Representations        January 30, 1990    2007

4,958,375     Parallel, Multi-unit, Adaptive
              Pattern Classification System
              Using Inter-unit Correlations
              And An Intra-class Separator
              Methodology                     September 18, 1990  2007

5,054,093     Parallel, Multi-unit,
              Adaptive, Nonlinear Pattern
              Class Separator and Identifier  October 1, 1991     2008

5,479,574     Method and Apparatus for
              Adaptive Classification         December 26, 1995   2012

5,701,398     Adaptive Classifier Having
              Multiple Sub Networks           December 23, 1997   2014

</TABLE>


Competition

In  the field of fraud-detection and risk-assessment systems, the
Company   encounters  competition  from  a  number  of   sources,
including  (a) other software companies, (b) companies'  internal
MIS  departments,  (c)  network and service  providers,  and  (d)
neural-network  tool  suppliers.  In the fraud-detection  market,
the  Company has experienced competition from Fair, Isaac &  Co.,
HNC Software, Inc., IBM, MasterCard Corporation, NeuralTech Inc.,
Neuralware,  Inc., Visa International and others.  The  Company's
fraud  detection product also competes against other  methods  of
preventing  credit-card fraud, such as card-activation  programs,
credit  cards  that  contain the cardholder's  photograph,  smart
cards  and other card authorization techniques.  The introduction
of  these  and  other new technologies will result  in  increased
competition for the Company and its products.

In  the  field  of customer relationship management systems,  the
Company  faces  competition from a number of  sources,  including
commodity-software providers, traditional database  vendors,  and
vertical  solution providers.  The first two groups include  such
companies  as  Microsoft, Netscape, IBM  and  Oracle.   Companies
providing  vertical  solutions include Acxiom,  Experian,  Harte-
Hanks,  BroadVision,  Cyber Dialogue,  Engage  Technologies,  Net
Perceptions, Vignette, and HNC Software.  The market for Internet-
oriented  personalization products is intensely competitive  with
new competitors emerging frequently.

In the field of traffic management systems, the NTS TrafficVision
and  CrossingGuard  products (see "Recent Product  Developments")
face  competition primarily from standard providers  of  existing
loop  system  products.  Other technologies  exist  from  various
sources  that  provide  some  of  the  basic  traffic  management
functions  provided  by  the  loop  system,  such  as  Microwave,
Ultrasonic,  Infrared, Laser, and Acoustic.  NTS   believes  that
these  technologies have limitations and do not provide the  full
range  of options available through TrafficVision.  Such  systems
are  also  available through other companies such  as  Econolite,
EDS,  Lockheed Martin, Peek Traffic, Odetics, Red Flex, Traficon,
Siemens  and Rockwell International.  However, NTS believes  that
the  platforms on which these products operate do not provide the
image   processing   capabilities  possessed  by   TrafficVision,
CrossingGuard and Rail CrossingGuard.

Most  of  the  Company's and NTS'scompetitors have  significantly
greater  financial,  marketing  and  other  resources  than   the
Company.   As a result, they may be able to respond more  quickly
to new or emerging technologies or to devote greater resources to
the  development, promotion and sale of their products  than  the
Company.    Competitive  pressures  faced  by  the  Company   may
materially adversely affect its business, financial condition and
results of operations.


Employees

As  of  December  31,  1999,  the  Company  had  forty  full-time
employees,  including  twenty-two  in  software  engineering  and
product  development, seven in sales and marketing and eleven  in
finance   and  administration.   One  of  the  Company's  current
directors (and a founder of Nestor Associates) received the Nobel
Prize in Physics in 1972.  All of these employees are located  in
the   United  States.   None  of  the  Company's  employees   are
represented  by  a labor union.  The Company has  experienced  no
work  stoppages  and  believes  its  employee  relationships  are
generally good.

The  Company's success depends to a significant degree  upon  the
continued    employment   of   the   Company's   key   personnel.
Accordingly, the loss of any of the Company's key personnel could
have  a  materially  adverse effect on  the  Company's  business,
financial  condition  and  results of  operations.   No  employee
currently  has an employment contract in place with the  Company.
The  Company  believes its future success will  depend  upon  its
ability   to  attract  and  retain  industry-skilled  managerial,
engineering, software development and sales personnel,  for  whom
the  competition  is  intense.  In  the  past,  the  Company  has
experienced  difficulty  in recruiting  a  sufficient  number  of
qualified sales people.  In addition, competitors may attempt  to
recruit  the Company's key employees.  There can be no  assurance
that  the  Company will be successful in attracting, assimilating
and  retaining  such  qualified personnel,  and  the  failure  to
attract,  assimilate  and  retain  key  personnel  could  have  a
materially  adverse  effect on the Company's business,  financial
condition and results of operations.


Licensing, Joint Venture and Development Agreements

The  Company seeks to enter into license agreements and  research
and  development  contracts in order  to  obtain  greater  market
penetration  and  additional funding of the  development  of  its
technology in specific fields of use.

Applied Communications, Inc. (ACI)

On April 18, 1997, the Company expanded its non-exclusive license
agreement with ACI.  The expanded license grants to ACI the right
throughout the world to integrate and distribute all of the PRISM
products.   ACI  provides authorization, transaction  processing,
and  other  software to more than 2,300 customers in 79 countries
throughout  the world.  The Company receives royalties  based  on
PRISM  and  other product licensing, engineering and ongoing  use
fees received by ACI from ACI sublicenses.

In   April  1998,  ACI's  parent  company,  Transaction   Systems
Architects,  Inc. (TSAI) entered into a Stock Purchase  Agreement
with  the  Company.  TSAI purchased 2.5 million shares of  common
stock  for  $5,000,000  and obtained a  warrant  to  purchase  an
additional  2,500,000 common shares for $7,500,000.  The  warrant
expires  on  March  1,  2002.    Additionally,  TSAI  provides  a
$1,000,000  Line of Credit at the prime interest  rate  plus  1%.
There have been no advances against the line.

Total System Services, Inc.

During 1996, the Company designed and installed a fraud detection
system  for  Total  System  Services,  Inc.  ("Total"),  a  major
provider  of card processing services for financial institutions.
Total  provides PRISM fraud detection services to  its  customers
along  with  the  other  transaction  processing  services.   The
Company receives fees based upon the number of transactions  that
are scored for Total's customers by PRISM.

CSK Corporation

On  June  13,  1996,  the Company executed a  nonexclusive  PRISM
Reseller  Agreement  with  CSK Corporation  to  market,  install,
maintain,  train  and support the PRISM product  in  Japan.   The
agreement  was  for  an initial term of two years  and  is  being
renewed annually.

National Computer Systems, Inc. (NCS)

On June 11, 1996, the Company entered into an exclusive Licensing
Agreement  and an Asset Purchase Agreement with NCS  transferring
the   development,  production,  and  marketing  rights  of   the
Company's  Intelligent Character Recognition  (ICR)  products  to
NCS.  In June 1998, NCS did not meet its minimum royalty for  the
license  year  and forfeited exclusive rights.  NCS continues  to
market the ICR products on a non-exclusive basis.

IBM ZISC

On  January  31, 1996, the Company signed a technology  licensing
agreement with IBM to use Nestor's pattern recognition technology
in an IBM developed neural network semiconductor device.  IBM has
the right to use the technology in the IBM ZISC (zero instruction
set  computing)  digital integrated Neural Network  chip  and  in
future  versions  of  the chip and related product  enhancements.
The  Company receives royalties from the sales by IBM of the chip
and related products.

Intel Corporation

On  October  15, 1993, the Company and Intel Corporation  entered
into a license agreement, pursuant to which Intel acquired a non-
exclusive  right  to develop and sell products incorporating  the
Company's  technology.  On April 7, 1994, the  license  agreement
was amended to grant to the Company exclusive marketing rights to
the   Ni1000  Recognition  Accelerator  Chip,  which  Intel  will
manufacture  and  sell to the Company.  In  accordance  with  the
license agreement, Intel notified the Company of its intention to
phase out manufacturing of chips based on the .8-micron geometry.

The Company placed a purchase order in 1997 and took delivery  of
an  order  for  1,000 units in early 1999.  Given the  number  of
chips  the  Company  has  in inventory  and  potential  alternate
development options, management does not believe there will be  a
material  adverse impact on its operations as  a  result  of  the
termination  of the manufacturing of the current version  of  the
Ni1000 chips.

ITEM 2.   Properties.

The   Company   leases  offices  and  research  and   development
facilities,  consisting  of  approximately  13,000  square  feet,
located  at One Richmond Square, Providence, Rhode Island  02906,
for  which  the  annual  base rental is  $195,000.   The  Company
believes these facilities will be adequate to serve its needs  in
the foreseeable future.

ITEM 3.  Legal Proceedings.

On  October  6,  1998, HNC Software Corp. ("HNC"), a  significant
competitor  of the Company's in the field of Financial  Services,
obtained  a  patent  entitled "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 a number of  claims  including;
violation of Sections 1 and 2 of the Sherman Act (antitrust), and
violation   of  the  Rhode  Island  Antitrust  Act,  and   patent
invalidity.   The  suit  seeks various  damages,  including  lost
profits  and treble damages.  On June 15, 1999, HNC answered  the
lawsuit denying the allegations, bringing a counterclaim alleging
infringement  of the above described patent by the  Company,  and
seeking a declaration of invalidity and unenforceability  of  one
of  the Company's patents.  On the same day, HNC brought suit  in
San  Diego, CA against Applied Communications, Inc. (ACI) and its
parent  TSAI  alleging various causes of action including  patent
infringement of the above described patent by the Company's PRISM
product  which ACI markets.  ACI has requested that  the  Company
provide  indemnification against some of the claims in  the  suit
pursuant to the licensing agreement between ACI and the Company.

Costs  associated with the suit are being expensed  as  incurred,
and  totaled approximately $356,000 in 1999.  No estimate of  the
outcome  of  this  suit, the counterclaim, or the  ACI  suit  can
currently be made.

ITEM 4. Submission of Matters to a Vote of Security Holders.

No  matters  were submitted to a vote of security holders  during
the fourth quarter of the year ended December 31, 1999.

ITEM 5. Market for Registrant's Common Stock and Related
Securityholder Matters

The  Company's  common stock was first offered to the  public  in
December,  1983.   The  principal market in which  the  Company's
common  stock  is  traded  is the over-the-counter  market.   The
quotations below reflect inter-dealers prices, and do not include
retail  markups, markdown or commissions and may not  necessarily
represent  actual transactions.  The shares of common  stock  are
traded in the over-the-counter market and bear the symbol "NEST".

                                  Low Bid        High Ask
Year Ended December 31, 1999
     1st  Quarter                    7/16         1-3/32
     2nd  Quarter                    3/4          1-1/16
     3rd  Quarter                  25/32          1
     4th  Quarter                   23/32         1-63/64

Year Ended December 31, 1998
     1st  Quarter                   1-3/4         2-35/64
     2nd  Quarter                 1-57/64         3-1/8
     3rd  Quarter                     7/8         2-33/64
     4th  Quarter                    5/16         1-7/16


As  at February 29, 2000, the number of holders of record of  the
issued and outstanding common stock of the Company was 417, which
includes   brokers  who  hold  shares  for  approximately   1,440
beneficial holders.

The  Company has not declared any cash dividends with respect  to
its common stock since its formation.
ITEM 6.   Selected Financial Data


The  following  data includes the accounts of  Nestor,  Inc.  and
Interactive  in  1999 and Nestor, Inc., NTS  and  Interactive  in
prior years.
<TABLE>

                                                                           Six-Months
<CAPTION>                                                                         Ended
                                 Years Ended December 31,                 December 31,
Years Ended June 30,
                                  1999            1998             1997            1996            1996             1995
<S>                           <C>            <C>             <C>             <C>             <C>              <C>
Operating revenue             $ 5,114,779    $  2,241,376    $  5,681,076    $   1,195,904   $   5,461,580    $   3,195,563
Operating income (loss)       $   742,451    $(5,236,975)    $  (295,985)    $   (919,117)   $    (27,260)    $(3,236,398)
Other income (expense)        $  (97,386)    $   (26,178)    $     31,321    $    (16,220)   $      39,950    $   (221,024)
Net income (loss)             $ (836,824)    $(5,263,153)    $  (294,664)    $   (935,337)   $      12,690    $ (3,457,422)
Earnings per share
Weighted
number of
outstanding shares -
    basic and diluted          17,844,327     15,249,932       9,243,508        8,689,031       7,847,510        7,411,502
  (Loss) per share            $     (0.05)   $     (0.36)   $      (0.08)    $      (0.13)   $       (0.03)   $       (0.48)

SELECTED BALANCE SHEET DATA:
Total assets                  $ 6,773,905    $  3,250,089    $  2,613,031    $   2,817,944   $   3,351,871    $   1,812,495
Working capital               $ 1,211,257    $    535,806    $    146,081    $     879,172   $   1,983,661    $  (1,882,875)
Long-term
Redeemable Preferred
    Stock                     $      ---     $       ---     $  5,792,787    $   5,398,908   $   5,207,538    $   1,600,328
  Capital leases              $       ---    $        ---    $     10,220    $       9,455   $       9,455    $         ---
Deferred income               $    1,965,532 $    440,400    $        ---    $    430,899    $     430,899    $     438,896

</TABLE>


ITEM 7:   Management's Discussion and Analysis

Prospective Statements

The   following   discussion  contains   prospective   statements
regarding  Nestor,  Inc., its business  outlook  and  results  of
operations,  all  of  which  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.

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 (see further discussion in Exhibit  99.1)
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 cash and short-term investments of approximately
$1,049,000  at  December 31, 1999 as compared with $1,175,000  at
December  31,  1998, as compared with $387,000  at  December  31,
1997.   At December 31, 1999, the company had working capital  of
$1,211,000, as compared with $536,000 at December 31,  1998,  the
Company  had  working  capital  of  $551,000,  as  compared  with
$146,000  at December 31, 1997.  The increase in working  capital
in 1999 reflects primarily the positive working capital generated
from operating results in the current year.

The  Company had a net worth of $2,304,000 at December 31,  1999,
as compared with a net worth of $984,000 at December 31, 1998, as
compared with a negative net worth of $4,519,000 at December  31,
1997.   The  increase  in net worth resulted from  net  operating
profits  realized by the Company of $742,000 in 1999 and the  net
effect  of  the  Company's  portion  of  equity  raised  by   its
subsidiary,  Nestor  Traffic  Systems,  Inc.  ("NTS"),   totaling
$2,050,000 in 1999 offset by the Company's portion of  NTS's  net
loss in 1999 of $1,482,000.

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
Services Division customers.  Principal payments, if any, are due
in  twelve equal installments beginning March 1, 2001.   Interest
on the loan is equal to the effective prime interest rate plus 1%
and payments, if any, are due quarterly in arrears beginning July
10,  1999.   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.  The Company had  not  used
this line of credit as of December 31, 1999.

On  March 25 and November 30, 1999, Nestor Traffic Systems,  Inc.
(NTS),  a  subsidiary of the Company, sold  a  37.5%  and  20.6%,
respectively, common-stock interest in it to a private  group  of
investors  for  $4,105,000  in  cash.   As  a  result  of   these
transactions,  the Company changed from consolidation  to  equity
accounting  for  its interest in NTS for the year-ended  December
31, 1999.  Prior periods reported continue to account for NTS  on
a  consolidated basis (See Part II, Item 8, Footnote  #12  for  a
further  discussion).  The investor group includes three officers
of   the  Company  and  the  subsidiary,  who  in  the  aggregate
contributed  $770,000 of the cash invested on the same  basis  as
third-party  investors.  The proceeds are being used  by  NTS  to
fund traffic-system product development and marketing efforts  in
1999  and  2000.   In addition, to the extent that  facility  and
administrative  services  of  the  Company  are  used   by   NTS,
reimbursement of allocated costs have been provided.  NTS 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 raised  by
NTS  is being used to fund expenses incurred by NTS after January
1, 1999, which were funded by the Company in previous years.  NTS
is  in  the development stage and is pursuing additional  capital
investments  to  implement its business plan.  There  can  be  no
assurance that additional funds will be raised.

Management  believes  that the Company's revenues  will  generate
sufficient liquidity, when combined with its liquid assets as  of
December  31,  1999,  to  meet  the  Company's  anticipated  cash
requirements from current operations for the foreseeable future.

Litigation

On  October  6,  1998, HNC Software Corp. ("HNC"), a  significant
competitor  of the Company's in the field of Financial  Services,
obtained  a  patent  entitled "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 a number of  claims  including;
violation of Sections 1 and 2 of the Sherman Act (antitrust), and
violation   of  the  Rhode  Island  Antitrust  Act,  and   patent
invalidity.   The  suit  seeks various  damages,  including  lost
profits  and treble damages.  On June 15, 1999, HNC answered  the
lawsuit denying the allegations, bringing a counterclaim alleging
infringement  of the above described patent by the  Company,  and
seeking a declaration of invalidity and unenforceability  of  one
of  the Company's patents.  On the same day, HNC brought suit  in
San  Diego, CA against Applied Communications, Inc. (ACI) and its
parent  TSAI  alleging various causes of action including  patent
infringement of the above described patent by the Company's PRISM
product  which ACI markets.  ACI has requested that  the  Company
provide  indemnification against some of the claims in  the  suit
pursuant to the licensing agreement between ACI and the Company.

Costs  associated with the suit are being expensed  as  incurred,
and  totaled approximately $356,000 in 1999.  No estimate of  the
outcome  of  this  suit, the counterclaim, or the  ACI  suit  can
currently be made.

Future Commitments

During  1999,  the  Company  acquired  additional  property   and
equipment (primarily computers and related equipment) at  a  cost
of  $61,000.  The Company valued its investments in property  and
equipment (net of depreciation) at $270,000 at December 31, 1999.
The  Company has no material commitments for capital expenditures
although  management  expects that the Company  may  make  future
commitments for the purchase of additional computers and  related
computing  equipment, for furniture and fixtures, for development
of  hardware,  for consulting and for promotional  and  marketing
expenses.   The  Company  maintains  a  lease  for  office  space
totaling  approximately 13,000 square feet.  The  lease  provides
for monthly rent, including utilities, except electricity, in the
amount  of  $16,250  per month and expires in  March  2003.   The
Company believes the facilities are adequate for its 2000 needs.

Year 2000

In   1998,  the  Company  initiated  a  company-wide  program  to
anticipate   and  correct  Year  2000  computer  problems.    The
Company's  remediation  efforts  with  respect  to  its  licensed
software have been successful.  With respect to the Company's own
systems,    remediation,   and/or   replacement   was   completed
satisfactorily.   The Company will continue to monitor  any  Year
2000 issues that may arise.

Costs incurred from the beginning of the project through December
1999  totaled approximately $250,000.  These costs consisted  of:
(i)  internal staff costs related to licensed product remediation
and  testing;  (ii)  internal staff  costs  related  to  internal
software and system compliance; (iii) hardware and software costs
for replacement of software; and (iv) costs related to compliance
involving  embedded  systems.  All costs, except  hardware,  were
expensed as incurred.


Inflation

Management  believes that the rate of inflation in  recent  years
has not had a material effect on the Company's operations.


Results of Operations

Analysis of the Years Ended December 31, 1999 and 1998

During   1999,  Nestor  Traffic  Systems,  Inc.  (a  wholly-owned
subsidiary of the Company on December 31, 1998) sold an aggregate
58%  common  stock equity interest to third parties  through  two
transactions.   This  resulted  in  the  Company  reporting   the
subsidiary in accordance with the equity method of accounting  in
1999.   The  operating results of the subsidiary  for  the  years
ended  December  31,  1998 and 1997 are  still  reported  on  the
consolidation  basis of accounting in the accompanying  financial
statements.   For the purpose of comparison, the following  table
compares the results of operations for fiscal years 1999 and 1998
as if the subsidiary was accounted for under the equity method of
accounting   in   both  periods  with  the  1998  results   being
reclassified accordingly.

<TABLE>

<CAPTION>
                                                 December 31,
                                            1999             1998
                                       (As Reported)   (Reclassified)

 <S>                                    <C>             <C>
 Software licensing revenues            $ 3,872,016     $  1,349,962
 Engineering services revenues            1,242,763          656,890
 Total revenues                           5,114,779        2,006,852

 Engineering services expense             1,023,046        1,799,629
 Research and development expense           920,918        1,252,726
 Selling and marketing expense            1,218,476        1,295,539
 General and administrative expense       1,209,888          962,001
 Total operating expenses                 4,372,328        5,309,895

 Income (loss) from operations              742,451      (3,303,043)
 Other expenses                            (97,386)         (26,178)
 Income (loss) before taxes and loss
   from investment in affiliate             645,065      (3,329,221)
 Loss from investment in affiliate      (1,481,889)      (1,933,932)

 Net Loss                               $ (836,824)     $(5,263,153)

</TABLE>

The MD&A discussion that follows for the years ended December 31,
1999  and 1998 addresses the variances noted in the above  table.
The  differences  in  the December 31, 1998  financial  statement
accounts  as  reported in the enclosed financial  statements  and
those above are solely due to reclassification of the results  of
NTS to a single line entry "Loss from investment in affiliate".

In  the  year  ended  December 31, 1999, the Company  realized  a
154.9% increase in revenues compared to the prior calendar  year.
Expenses increased 17.7% in 1999 resulting in an operating profit
of  $742,000  in  1999  as  compared  to  an  operating  loss  of
$3,303,000 in the prior year.

Revenues

The  Company's  revenues arise from licensing  of  the  Company's
products  and  technology and from contract engineering  services
and  are  discussed  separately below.   During  the  year  ended
December   31,  1999,  revenues  increased  to  $5,115,000   from
$2,007,000 in the prior calendar year (excluding $235,000 in  NTS
1998 revenues).

Software Licensing

Product-licensing  revenues  totaled  $3,872,000  in   1999,   as
compared with $1,350,000 in 1998.  The increase in these revenues
reflects  an  increase  in  license  fees  realized  from   PRISM
products.

PRISM  licensing  revenues amounted to  $3,837,000  in  1999,  an
increase  of $2,519,000 from year-earlier revenues of $1,318,000.
The  increase results from the increase in new licenses delivered
in 1999 versus 1998, fourteen versus three, respectively, and the
increase in use fee based revenues of $885,000 (101% versus 1998)
in  1999.   Included  in  the 1999 use fee revenues  is  $423,000
related to the sale of a PRISM license to Applied Communications,
Inc. in the fourth quarter of 1999.

Engineering Services

Engineering revenues totaled $1,243,000 in 1999, as compared with
$657,000 in 1998.  The increase relates to additional engineering
fees  related to new license installations, associated  customer-
specific   model   development,  and  custom   enhancement   work
contracted and delivered during 1999.

During 1998, the Company realized $44,000 of revenues related  to
engineering work on its InterSite product.  No such revenues were
realized in 1999.

Operating Expenses

Total  operating  expenses - consisting of engineering,  research
and   development,  selling  and  marketing,  and   general   and
administrative  expenses - amounted to  $4,372,000  in  the  year
ended  December  31,  1999, a decrease  of  $938,000  over  total
operating  costs  of  $5,310,000 in  the  prior  year  (excluding
$2,168,000 in NTS 1998 operating expenses).

Included  in  operating  expenses  in  1998  are  write-downs  of
deferred development costs and other intangibles of approximately
$400,000 in the financial services division and $295,000  in  the
InterSite product line.

Engineering Services

Costs related to engineering services totaled $1,023,000 in 1999,
as compared with $1,799,000 in 1998.  The decrease in these costs
reflects  the write-offs in 1998 totaling approximately  $695,000
discussed above.

Research and Development

Research  and development expenses totaled $921,000 in  the  year
ended  December 31, 1999 as compared with $1,253,000 in the prior
year.   The  decrease in such costs reflects the  termination  of
further  InterSite  development in November 1998.   Research  and
development  expenses related to the development of InterSite  in
1998  were approximately $630,000 and the reduction was partially
offset  by  additional salary expense relative to new  hiring  in
financial  services  and other financial  services  staff  salary
increases.

Selling and Marketing

Selling  and  marketing costs decreased $78,000 to $1,218,000  in
the  year  ended December 31, 1999, from $1,296,000 in the  prior
year.

Selling  costs  associated with InterSite, in which  the  Company
ceased   further  investment  effective  November  1998,  totaled
$192,000  in 1998, which was not incurred in 1999.  In  addition,
other  marketing  related expenses were reduced by  approximately
$70,000  resulting from more focused advertising and  trade  show
activities.   These decreases were partially offset by  increases
from  additional  commissions relative to the increased  revenues
($105,000) and foreign sales taxes ($61,000).

General and Administrative

General  and administrative expenses totaled $1,209,000 in  1999,
as  compared  with  $962,000 in the previous  year.  General  and
administrative  costs  for the year ended December  1999  reflect
primarily  the  increased legal expenses related to  the  lawsuit
initiated against a competitor in November 1998.

Other Income (Expense)

For  1999,  net  other expense was $97,000 as compared  with  net
other  expense of $26,000 in the year-earlier period.   In  1998,
other expense was comprised primarily of $106,000 of amortization
expense  related  to  the assigned value of warrants  outstanding
offset  by $73,000 of interest income.  During 1999, net interest
income recorded amounted to $9,000.

Loss from Investment in Affiliate

During  1999,  the  Company's subsidiary NTS  sold  common  stock
interests totaling 58% of its equity.  As a result, the Company's
interests  in  NTS are accounted for under the equity  method  of
accounting in 1999.  As a result of the Company's equity interest
in  NTS, the Company reported a loss from investment in affiliate
of  $1,482,000 in 1999, representing 49% of NTS's actual net loss
in  1999  of $2,455,000, reflecting varying ownership percentages
during  1999.   During 1998, NTS was included in the consolidated
financial  results  of the Company and reported  a  net  loss  of
$1,933,000.

Investment in Product Development and Marketing

With   the  exception  of  $80,000  related  to  a  custom  PRISM
installation   at  December  31,  1998,  the  Company   has   not
capitalized any expenses relating to the development or marketing
of  its  products.  The following information details the amounts
by  which the Company's expenses in connection with each  of  its
major product lines exceeded revenues for such product lines.

The Company began development in July 1996 of products for use in
Internet  and intranet environments.  Costs associated with  this
effort  totaled  $628,000 in 1997 and $1,383,000  in  1998.   The
Company  ceased further direct investment in development of  this
product  line  in  November 1998.  The  net  investment  in  this
subsidiary during 1998 was $1,383,000.  During 2000, the  Company
integrated this product into the eCLIPSE product.

The Company's PRISM product line was profitable during 1999.

Net Income

During  1999, the Company experienced a net loss of $837,000,  as
compared  with a net loss of $5,263,000 in the prior  year.   For
the  year  ended December 31, 1999, loss per share available  for
common  stock was $0.05 per share, as compared with  a  loss  per
share  of  $0.36 in the corresponding period of the prior  fiscal
year.    For  the  year  ended  December  31,  1999,  there   was
outstanding a weighted average of 17,844,327 shares, as  compared
with 15,249,932 in the year-earlier period.


Analysis of the Years Ended December 31, 1998 and 1997

In  the year ended December 31, 1998, the Company realized a  61%
decrease  in  revenues compared to the prior  calendar  year  and
expenses increased 25% in 1998 resulting in a 1,690% increase  in
the operating loss when compared with the prior year.

During  1998,  the  Company determined that  it  would  not  have
adequate  financial  resources to continue  the  development  and
marketing   efforts  required  to  commercialize   the   Internet
marketing  product  InterSite.  After  unsuccessful  attempts  to
obtain  independent financing for the product  line,  during  the
fourth  quarter  of 1998, the Company decided  to  eliminate  all
current costs associated with the product and transferred  it  to
the  Financial  Services division.  Intangible assets  associated
with  this  product  line totaling $295,000 were  written-off  in
1998.

The Company executed a license agreement on March 28, 1997 for  a
customized  copy  of its PRISM Fraud Detection  System,  and  had
capitalized $575,000 of costs associated with the installation of
the  system as of December 31, 1997.  Since the installation, the
Company  has  continued to modify and improve the software.   The
system  was deployed in December of 1998 to a limited  number  of
initial  customers,  and began generating  monthly  revenue.   In
consideration of the delays in implementation, estimated  ongoing
support  costs  in relation to current revenue  levels,  and  the
remaining term of the license, the Company recorded an adjustment
to  the carrying value of the system of approximately $400,000 in
the  fourth quarter of 1998, reducing capitalized deferred  costs
to  $80,000.  These costs are being amortized over the  remaining
life of the associated license.

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  year  ended  December  31,  1998,  revenues
decreased  $3,440,000 to $2,241,000 from $5,681,000 in the  prior
calendar year.  Non-recurring revenues in the year-earlier period
included  $2,000,000  of  revenues  associated  with  a   license
agreement  with  Applied Communications, Inc.  ("ACI")  in  April
1997,  and $480,000 recognized upon the termination of a  license
agreement with Sligos in June 1997.

Software Licensing

Product-licensing  revenues  totaled  $4,390,000  in   1997,   as
compared with $1,352,000 in 1998.  The decrease in these revenues
reflects a decrease in license fees realized from PRISM products.

PRISM  licensing  revenues  amounted to  $1,318,000  in  1998,  a
decrease  of $2,945,000 from year-earlier revenues of $4,263,000.
The  decrease  in PRISM-related licensing revenues reflects  non-
recurring  revenues in 1997 of $2,000,000 from ACI  and  $480,000
from Sligos. The remainder of the decrease reflects a decrease in
new initial licenses realized in 1998.

During  the  year  ended December 31, 1997, the Company  realized
$120,000 of royalty revenue from National Computer Systems,  Inc.
("NCS"),  as  compared with $32,000 in 1998.  In June  1998,  NCS
elected  not to meet its minimum royalty requirement to  maintain
an  exclusive  right  to  the marketing of  the  Company's  image
character  recognition products.  The license with NCS  continues
on a non-exclusive basis.

Engineering Services

Engineering  revenues totaled $746,000 in 1998, as compared  with
$1,055,000   in   1997.   Revenues  relating   to   new   license
installations and customer-funded modifications of Nestor's PRISM
product  totaled  $613,000 in 1998, a decrease of  $356,000  from
$969,000  of such revenues in 1997.  The decrease is  related  to
the  drop  in new PRISM licenses, and the associated installation
work, noted in "Software Licensing" above.

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  was  valued at approximately $597,000.   On  March  31,
1997,  the Company extended its contract with JPL to include  in-
field  evaluation  of  the prototype system developed  under  the
original  JPL  contract,  and  the  value  of  the  contract  was
increased to $730,000, of which approximately $726,000  had  been
earned  as of December 31, 1998,.  The terms of the JPL  contract
call  for delivery of prototype products, but do not specify  any
subsequent purchasing or licensing provisions.

During  the  year ended December 31, 1998, the Company recognized
revenues totaling $89,000 under its government contracts.  In the
year-earlier period such revenues totaled $86,000.

During 1998, the Company realized $44,000 of revenues related  to
engineering work on its InterSite product.  No such revenues were
realized in 1997.

Sales of Tangible Products

The  tangible  products currently sold by the Company  are  based
upon the Company's Ni1000 Recognition Accelerator Chip, which  is
incorporated into the Traffic Systems product line or is licensed
with development software that enables customers to develop their
own  high-speed  recognition  applications.   Revenues  from  the
Company's Ni1000 Development System totaled $70,000 in  the  year
ended December 1998, as compared with $111,000 in the prior year.

Revenues    from   the   Company's   traffic   systems   products
(CrossingGuard  and TrafficVision) totaled $73,000  in  the  year
ended December 1998, as compared with $130,000 in the prior year.

Operating Expenses

Total  operating  expenses - consisting of engineering,  research
and   development,  selling  and  marketing,  and   general   and
administrative  expenses - amounted to  $7,478,000  in  the  year
ended  December  31, 1998, an increase of $1,501,000  over  total
operating costs of $5,977,000 in the prior year.

Included  in  operating  expenses  in  1998  are  write-downs  of
deferred development costs and other intangibles of approximately
$400,000 in the financial services division and $295,000  in  the
InterSite product line.

Engineering Services

Costs related to engineering services totaled $2,067,000 in 1998,
as compared with $1,151,000 in 1997.  The increase in these costs
reflects the write-offs totaling approximately $695,000 discussed
above.   The remaining increase is due primarily to general  cost
increases incurred in 1998.

Research and Development

Research and development expenses totaled $2,112,000 in the  year
ended  December 31, 1998 as compared with $1,498,000 in the prior
year.   The  increase in such costs reflects the net of increased
investment in product development in all of the Company's product
lines  in the current year, including PRISM V3.0 shipped  in  the
fourth  quarter of 1998, development of CrossingGuard,  which  is
being  delivered to Vienna, VA in the first quarter of 1999,  and
development of InterSite through November of 1998.

Selling and Marketing

Selling  and marketing costs decreased $154,000 to $1,832,000  in
the  year  ended December 31, 1997, from $1,986,000 in the  prior
year.

The  decrease  in selling costs in the year reflects,  primarily,
reduced   commissions  incurred  in  conjunction   with   reduced
revenues.  Selling costs relating to the Company's PRISM  product
line  totaled  $1,103,000 in 1998, as compared to  $1,360,000  in
1997.   The  decrease is due to a $174,000 decrease in commission
expense  and  reduced Advertising and Meeting expenses  resulting
from  charging  an  attendance fee to  the  1998  Risk  Symposium
meeting.  Selling costs relating to the Company's Traffic Systems
product  and Ni1000 Development System totaled $536,000 in  1998,
as compared with $552,000 in 1997.  Selling costs associated with
InterSite,   in  which  the  Company  ceased  further  investment
effective  November 1998, totaled $192,000 in  1998,   which  was
unchanged from the prior year.

General and Administrative

General  and administrative expenses totaled $1,413,000 in  1998,
as  compared  with $1,207,000 in the previous year.  General  and
administrative  costs  for the year ended December  1998  reflect
increased legal expenses related to the lawsuit initiated against
a competitor in November 1998 and increased accounting fees.

Other Income (Expense)

For  1998,  net other expense was $26,000, as compared  with  net
other  income  of  $31,000 in the year-earlier period.   In  June
1997, the Company recorded other income of $100,000 as a discount
on  the  payment  relating  to  the termination  of  the  License
Agreement  with  Sligos.  In 1998, other  expense  was  comprised
primarily  of  $106,000 of amortization expense  related  to  the
assigned  value  of  warrants outstanding offset  by  $73,000  of
interest income.

Investment in Product Development and Marketing

With   the  exception  of  $80,000  related  to  a  custom  PRISM
installation   at  December  31,  1998,  the  Company   has   not
capitalized any expenses relating to the development or marketing
of  its  products.  The following information details the amounts
by  which the Company's expenses in connection with each  of  its
major product lines exceeded revenues for such product lines.

The largest net investment made by the Company was in its Traffic
Systems subsidiary, which is responsible for the development  and
marketing  of the TrafficVision and CrossingGuard products.   The
Company  delivered a few TrafficVision products during 1998,  but
concentrated  most  of  its efforts on  the  development  of  the
CrossingGuard  product  of  which  a   first  beta  version   was
delivered  in  the  first quarter of 1999.  For  the  year  ended
December  31, 1998, expenses of this subsidiary exceeded revenues
by $1,933,000.

The Company began development in July 1996 of products for use in
Internet  and intranet environments.  Costs associated with  this
effort  totaled  $628,000  in 1997.  The  Company  continued  its
investment  in this subsidiary in 1998 and initiated  efforts  to
locate independent third party financing.  These efforts were not
successful,   and  the  Company  ceased  further  investment   in
development  of  this  product line in November  1998.   The  net
investment in this subsidiary during 1998 was $1,383,000.

The  Company  made  a  net investment in its PRISM  product  line
during 1998 of $1,954,000.

Net Income

During  1998,  the Company experienced a loss of  $5,263,000,  as
compared with a loss of $295,000 in the prior year.  For the year
ended  December  31,  1998, loss per share available  for  common
stock  was $0.36 per share, as compared with a loss per share  of
$0.08 in the corresponding period of the prior fiscal year.   For
the  year  ended  December  31, 1998,  there  was  outstanding  a
weighted average of 15,249,932 shares, as compared with 9,243,508
in the year-earlier period.



ITEM 7(a).
Quantitative and Qualitative Disclosure about Market Risk.

Management assesses their exposure to these risks as immaterial.



                            SIGNATURE

     Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
the report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                              NESTOR, INC.
                              (Registrant)



                              /s/David Fox, President and CEO

Date:  March 30, 2000



     Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.

<TABLE>

<CAPTION>

Signatures                  Title                                          Date

<S>                      <C>                                             <C>
/s/Leon N Cooper         Co-Chairman of the Board and Director             March
30, 2000


/s/Charles Elbaum        Co-Chairman of the Board and Director             March
30, 2000


/s/David L. Fox          President, Chief Executive Officer and Director   March
30, 2000


/s/Herbert S. Meeker     Secretary and Director                            March
30, 2000


/s/Sam Albert            Director                                          March
30, 2000


/s/Gregory Duman         Director                                          March
30, 2000


/s/Jeffrey Harvey        Director                                          March
30, 2000


/s/Thomas F. Hill        Director                                          March
30, 2000


/s/Bruce Schnitzer       Director                                          March
30, 2000

</TABLE>




                CONSOLIDATED FINANCIAL STATEMENTS




                            FORM 10-K




                        December 31, 1999



                          NESTOR, INC.                    Part II
                                                           Item 8
                            CONTENTS




Independent Auditor's Report



                                                    Statement




Consolidated Balance Sheets -                                 1
 December 31, 1999 and 1998

Consolidated Statements of Operations -
 For the Years Ended December 31, 1999, 1998 and 1997         2

Consolidated Statements of Stockholders' Equity -
 For the Years Ended December 31, 1999, 1998 and 1997         3

Consolidated Statements of Cash Flows -
 For the Years Ended December 31, 1999, 1998 and 1997         4



Notes to Consolidated Financial Statements

                                                          Part II
                                                           Item 8


                 Report of Independent Auditors

The Board of Directors and Stockholders
   of Nestor, Inc.

We  have audited the accompanying consolidated balance sheets  of
Nestor,  Inc. as of December 31, 1999 and 1998, and  the  related
consolidated statements of operations, stockholders'  equity  and
cash  flows  for  each  of the three years in  the  period  ended
December  31,  1999.   Our  audits also  included  the  financial
statement  schedule  listed in the index at  Item  14(a).   These
financial statements and schedule are the responsibility  of  the
Company's  management.   Our  responsibility  is  to  express  an
opinion on these financial statements and schedule based  on  our
audits.

We  conducted  our  audits in accordance with auditing  standards
generally accepted in the United States.  Those standards require
that we plan and perform the audit to obtain reasonable assurance
about  whether  the  financial statements are  free  of  material
misstatement.   An  audit includes examining, on  a  test  basis,
evidence  supporting the amounts and disclosures in the financial
statements.   An  audit  also includes assessing  the  accounting
principles used and significant estimates made by management,  as
well  as evaluating the overall financial statement presentation.
We  believe  that our audits provide a reasonable basis  for  our
opinion.

In  our  opinion, the 1999 and 1998 financial statements referred
to   above   present  fairly,  in  all  material  respects,   the
consolidated  financial position of Nestor, Inc. at December  31,
1999 and 1998, and the consolidated results of its operations and
its  cash  flows for each of the three years in the period  ended
December  31,  1999  in  conformity  with  accounting  principles
generally accepted in the United States.   Also, in our  opinion,
the  related  financial  statement schedule  when  considered  in
relation  to  the basic financial statements taken  as  a  whole,
presents  fairly  in  all material respects the  information  set
forth therein.


                                                ERNST & YOUNG LLP

Providence, Rhode Island
February 18, 2000
<TABLE>

                                  NESTOR, INC.
                           Consolidated Balance Sheets

<CAPTION>                                                            December 31,
          ASSETS                                               1999               1998
<S>                                                      <C>               <C>
Current assets:
 Cash and cash equivalents                               $   1,048,802      $  1,175,183
 Accounts receivable, net of allowance
   for doubtful accounts                                       984,318           512,748
 Unbilled contract revenue                                   1,200,484           336,309
 Due from affiliate                                            320,459               ---
 Other current assets                                          161,809           336,924
   Total current assets                                      3,715,872         2,361,164

Long term unbilled contract revenue                          1,965,532           440,400
Investment in affiliate                                        710,690               ---
Property and equipment at cost -
  net of accumulated depreciation                              269,917           368,525
Deferred development costs                                      56,000            80,000
Patent development costs                                        55,894               ---

Total Assets                                             $   6,773,905      $  3,250,089


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
 Accounts payable                                        $     271,397      $    400,900
 Accrued employee compensation                                 314,202           279,929
 Accrued liabilities                                           547,799           492,393
 Deferred income                                             1,371,217           652,136
   Total current liabilities                                 2,504,615         1,825,358

Noncurrent liabilities:
 Long term deferred income                                   1,965,532           440,400
   Total liabilities                                         4,470,147         2,265,758

 Commitments and contingencies                                     ---               ---

Stockholders' Equity:
 Preferred stock, $1.00 par value,
   authorized 10,000,000 shares;
   issued and outstanding:
   Series B - 345,000 shares at
   December 31, 1999 and
    365,000 shares at December 31, 1998                        345,000           365,000
 Common stock, $.01 par value,
  authorized 30,000,000 shares;
   issued and outstanding:
   17,499,327 shares at December 31, 1999 and
   17,479,327 shares at December 31, 1998                      174,993           174,793
 Warrants and options                                          736,951           630,467
 Additional paid-in capital                                 26,574,123        24,504,556
 Retained deficit                                         (25,527,309)      (24,690,485)
   Total stockholders' equity                                2,303,758           984,331

Total Liabilities and Stockholders' Equity               $   6,773,905      $  3,250,089

  The Notes to the Financial Statements are an integral part of this statement.
</TABLE>


<TABLE>
                                  NESTOR, INC.
                      Consolidated Statements of Operations

<CAPTION>
                                                      Years Ended December 31,
                                               1999              1998            1997
<S>                                       <C>                <C>             <C>
Revenue:
 Software licensing                       $ 3,872,016       $  1,352,071     $ 4,390,479
 Engineering services                       1,242,763            746,007       1,055,459
 Tangible product sales                           ---            143,298         235,138

   Total revenue                            5,114,779          2,241,376       5,681,076

Operating Expenses:
 Engineering services                       1,023,046          2,066,558       1,151,147
 Tangible product costs                           ---             54,010         134,305
 Research and development                     920,918          2,112,746       1,498,181
 Selling and marketing                      1,218,476          1,831,697       1,986,340
 General and administrative                 1,209,888          1,413,340       1,207,088

   Total operating expenses                 4,372,328          7,478,351       5,977,061


Income (loss) from operations                 742,451        (5,236,975)       (295,985)

Other income (expense) - net                  (97,386)          (26,178)          31,321

Income (loss) before income taxes
 and investment loss                          645,065        (5,263,153)      (264,664)

Income taxes                                      ---                ---          30,000
Loss from investment in affiliate         (1,481,889)                ---             ---

Net Loss                                  $ (836,824)       $(5,263,153)     $(294,664)


Loss Per Share:
Net Loss                                  $ (836,824)       $(5,263,153)     $ (294,664)
Dividends accrued on preferred stock             ---            151,396         447,191

Net Loss Available for Common Stock       $ (836,824)       $(5,414,549)     $ (741,855)

Loss Per Share, basic and diluted         $    (0.05)       $     (0.36)               $  (0.08)

Shares Used in Computing Loss Per Share:
 Basic and diluted                        17,844,327         15,249,932       9,243,508


  The Notes to the Financial Statements are an integral part of this statement.

</TABLE>



<TABLE>
                                  Nestor, Inc.
                 Consolidated Statement of Stockholders' Equity

<CAPTION>
                            Common Stock          Preferred Stock        Additional        Retained      Stock
                           Shares    Amount     Shares       Amount   Paid-in Capital     (Deficit)     Warrants        Total
<S>                  <C>           <C>        <C>         <C>           <C>           <C>              <C>          <C>

Balance at 12/31/96     8,916,141  $ 89,161    2,266,735  $  2,366,294  $ 11,927,644  $ (19,132,668)   $  417,500   $(4,332,069)

Issuance of
 Common Stock             279,592     2,796          ---           ---       472,769             ---          ---        475,565
Conversion of
 Preferred Stock
 to Common Stock          198,800     1,988    (198,800)     (203,200)       201,212             ---          ---            ---
Dividends on
 Preferred Stock
 Series D paid in
 Common Stock and
 cash                       9,454        95          ---      (18,381)        18,222             ---          ---           (64)
Repurchase of
 Preferred Stock
 Series A                     ---       ---    (452,064)     (452,064)       352,063             ---          ---      (100,001)
Dividend accrued
 on Preferred Stock
 Series D                     ---       ---          ---        17,698      (17,698)             ---          ---            ---
Dividends accrued
 on Redeemable
 Convertible
 Preferred Stock              ---       ---          ---           ---     (429,492)             ---          ---      (429,492)
Issuance of
 non-qualified
 options                      ---       ---          ---           ---        55,200             ---          ---         55,200
Accretion of value
 of warrants                  ---       ---          ---           ---           ---             ---      106,484        106,484
Loss for the year
 ended 12/31/97               ---       ---          ---           ---           ---       (294,664)          ---      (294,664)

Balance at 12/31/97     9,403,987  $ 94,040    1,615,871  $  1,710,347  $ 12,579,920  $ (19,427,332)   $  523,984   $(4,519,041)

Issuance of
 Common Stock           2,557,104    25,571          ---           ---     5,060,282             ---          ---      5,085,853
Conversion of
 Preferred Stock
 to Common Stock        1,223,255    12,232   (1,223,255)  (1,294,882)     1,282,650             ---          ---            ---
Premium on Conversion
 of Preferred Stock
 Series B to
 Common Stock              19,200       192          ---           ---         (192)             ---          ---            ---
Dividends on
 Preferred Stock
 Series D paid in
 Common Stock
 and cash                   8,889        89          ---      (17,941)        17,827             ---          ---           (25)
Dividend accrued
 on Preferred
 Stock Series D               ---       ---          ---         8,900       (8,900)             ---          ---            ---
Repurchase of
 Preferred Stock
 Series D                     ---       ---     (27,616)      (41,424)           ---             ---          ---       (41,424)
Conversion of
 Redeemable
 Convertible
 Preferred Stock
 to Common Stock        4,266,892    42,669          ---           ---     5,823,568             ---          ---      5,866,237
Dividends accrued
 on Redeemable
 Convertible
 Preferred Stock              ---       ---          ---           ---     (142,496)             ---          ---      (142,496)
Costs incurred in
 connection with
 Redeemable Preferred
 conversion and
 TSAI Common Stock
 purchase                     ---       ---          ---           ---     (108,103)             ---          ---      (108,103)
Accretion of
 value of
 warrants                     ---       ---          ---           ---           ---             ---      106,483        106,483
Loss for the
year ended 12/31/98           ---       ---          ---           ---           ---     (5,263,153)          ---    (5,263,153)
Balance at 12/31/98    17,479,327  $174,793      365,000  $    365,000  $ 24,504,556  $ (24,690,485)   $  630,467   $    984,331

Conversion of
 Preferred Stock
 to Common Stock           20,000       200     (20,000)      (20,000)        19,800             ---          ---            ---
Issuance of
 equity by
 subsidiary                   ---       ---          ---           ---     2,049,767             ---          ---      2,049,767
Accretion value
 of warrants                  ---       ---          ---           ---           ---             ---      106,484        106,484
Loss for the
 year ended 12/31/99          ---       ---          ---           ---           ---       (836,824)          ---      (836,824)
Balance at 12/31/99    17,499,327  $174,993      345,000  $    345,000  $ 26,574,123  $ (25,527,309)   $  736,951   $  2,303,758






The Notes to the Financial Statements are an integral part of this statement.

</TABLE>



<TABLE>

                                  NESTOR, INC.
                      Consolidated Statements of Cash Flows

<CAPTION>                                                  Years Ended December 31,
                                                       1999          1998          1997
 <S>                                              <C>          <C>            <C>

Cash flows from operating activities:
 Net loss                                         $ (836,824)  $ (5,263,153)  $(294,664)
   Adjustments to reconcile net loss
     to net cash used by operating activities:
    Write-down for impairment loss                        ---        790,641         ---
         Depreciation and amortization                120,257        114,810      194,311
    Loss on disposal of fixed assets                      ---            ---       3,573
    Loss from investment in affiliate               1,481,889            ---         ---
    Expenses charged to operations relating to
   options, warrants and capital transactions        106,484        106,483     161,684
Discount on payment of vendor obligation                 ---            ---   (100,000)
    Changes in assets and liabilities:
(Increase) decrease  in
accounts receivable                                 (471,570)         44,464     451,937
(Increase) decrease in
unbilled contract revenue                         (2,397,648)       (477,906)   (171,858))
(Increase) in deferred
development costs                                         ---            ---   (210,347)
(Increase) decrease in other
assets                                              (168,053)       (98,649)      41,635
(Decrease) increase in accounts payable
 and accrued expenses                                279,101        199,750      (63,845)
(Decrease) increase in
deferred income                                     2,244,213        684,304   (361,071)

Net cash provided (used) by
operating activities                                  357,849     (3,899,256)  (348,645)

Cash flows from investing activities:
 Advances to affiliate - net                        (320,459)            ---         ---
 Purchase of property and equipment                  (61,337)      (132,209)    (88,622)
 Patent development costs                            (55,894)            ---         ---

    Net cash used by investing activities           (437,690)      (132,209)    (88,622)

Cash flows from financing activities:
 Repayment of obligations under capital leases       (46,540)       (47,246)   (11,913))
 Proceeds from notes payable                              ---        250,000         ---
 Repayment of notes payable                               ---      (250,000)         ---
 Redemption of Preferred Series D Stock                   ---       (41,424)         ---
 Proceeds from issuance of common stock - net             ---      4,977,749      96,975
 Payments of dividends on preferred stock                 ---       (69,070)    (35,613)

    Net cash provided (used) by financing
     activities                                       (46,540)    4,820,009      49,449

Net change in cash and cash equivalents             (126,381)        788,544   (387,818)
Cash and cash equivalents - beginning of year       1,175,183        386,639     774,457

Cash and cash equivalents - end of year           $ 1,048,802  $   1,175,183  $  386,639

Supplemental cash flows information:
 Interest paid                                    $    13,054  $      20,350  $    3,598

 Income taxes paid                                $       ---  $      37,500  $      ---

Significant non-cash transactions are described in Notes 5, 7, 8, 12 and 15
The Notes to the Financial Statements are an integral part of this statement.

</TABLE>



NESTOR, INC. - NOTES TO THE FINANCIAL STATEMENTS

Note 1 -  Summary of significant accounting policies:
          A.   Organization
             Nestor, Inc. (the "Company") was organized on  March
          21, 1983 in Delaware to exploit, develop and succeed to
          certain  patent rights and know-how which  the  Company
          acquired  from  its predecessor, Nestor  Associates,  a
          limited partnership.  The Company's principal office is
          located in Providence, RI.

             The  accompanying financial statements  include  the
          accounts  of  Nestor, Inc. in 1999  and  Nestor,  Inc.,
          Nestor   Traffic  Systems,  Inc.  ("NTS")  and   Nestor
          Interactive, Inc. ("Interactive") in prior years.   NTS
          and  Interactive  were organized effective  January  1,
          1997 as two wholly owned subsidiaries.  On March 25 and
          November  30, 1999, NTS sold in the aggregate  a  58.1%
          common-stock  interest to a private group of  investors
          (Note  12).   As  a  result of these transactions,  the
          Company changed from consolidation to equity accounting
          for its interest in NTS for the year ended December 31,
          1999.   Prior periods reported continue to account  for
          NTS  on  a  consolidated basis.  Effective November  7,
          1998,  the  Company  ceased further investment  in  the
          Interactive   subsidiary.   Any  future  marketing   or
          development   of   Interactive's   product   has   been
          transferred    to   Nestor,   Inc.   All   intercompany
          transactions and balances have been eliminated.


              The   following   unaudited  information   presents
          summarized  quarterly results for 1999 as  if  NTS  was
          accounted  for  under the equity  method  in  all  10-Q
          filings,  with  results being reclassified  accordingly
          (000's omitted).

<TABLE>

<CAPTION>
                                       Qtr. Ended 3/31/99          Qtr. Ended 6/30/
99                                     Qtr. Ended 9/30/99
                                As                       As                        As
                             Reported   Reclassified  Reported   Reclassified  Reported   Reclassified
  <S>              <C>        <C>          <C>         <C>          <C>        <C>
  Total revenues   1,441      1,374        1,306       1,272        1,172      1,141

  Income (loss)
  from
   operations      (148)        353        (341)         251        (618)         27

  Minority
  interest           187        ---          217         ---          238        ---

  Loss from
  investment
  in affiliate       ---      (312)          ---       (362)         ----      (396)

  Net income
  (loss)              17         17        (138)       (138)        (392)      (392)

</TABLE>

          B.   Cash equivalents
             For the purpose of the statement of cash flows,  the
          Company  considers all highly liquid  debt  instruments
          purchased with a maturity of 90 days or less to be cash
          equivalents.

          C.   Unbilled contract revenues
              Unbilled   contract  revenues  represent  primarily
          minimum  guaranteed monthly license fees (See F  and  G
          below)  where a customer pays a portion of the  license
          fees  over  the  software license  term  (usually  five
          years)  based on a contractually predetermined  minimum
          volume of transactions.

          D.   Depreciation and amortization
               Depreciable   assets   are   recorded   at   cost.
          Depreciation  is  provided on the straight-line  method
          over  the  estimated  useful lives  of  the  respective
          assets.

             Maintenance  and repairs are expensed  as  incurred.
          Major renewals and betterments are capitalized.

          E.   Product and patent development costs
             The  costs of development of the Company's  software
          which consist primarily of labor and outside consulting
          and  which  are  an  inherent  cost  of  the  Company's
          business   and  costs of research and  development  are
          expensed  until  technological  feasibility  has   been
          established for the product.  Thereafter, all  software
          production   costs  are  capitalized  and  subsequently
          reported  at  the  lower  of unamortized  cost  or  net
          realizable value.  Capitalized costs are amortized on a
          straight-line  basis over the estimated  economic  life
          (three to five years) of the product.

            Patent-development costs are expensed or capitalized,
          as  appropriate.  Amortization of capitalized costs  is
          on  a  straight-line  basis over  the  shorter  of  the
          estimated  economic  life, or statutory  life,  of  the
          patent.

       F.   Deferred Income
          Corresponding with unbilled contract revenues, deferred
          income  represents primarily minimum guaranteed monthly
          license fees (see C above and G below) where a customer
          pays  a  portion of the license fees over the  software
          license   term  (usually  five  years)   based   on   a
          contractually   predetermined   minimum    volume    of
          transactions.

          Additionally,  in certain instances, the Company  bills
          and/or  collects payment from customers  prior  to  the
          delivery  of  the  software product or  performance  of
          contracted   maintenance  or  services,  resulting   in
          deferred income.

          G.   Revenue recognition
             The  Company derives revenue from software  licenses
          (Initial  License  Fees), user  fees  (Monthly  License
          fees),  other postcontract customer support  (PCS)  and
          engineering  services.  Postcontract  customer  support
          includes  maintenance agreements.  Engineering services
          range from installation, training, and basic consulting
          to modeling, software modification and customization to
          meet specific customer needs.  In software arrangements
          that  include multiple elements, the Company  allocates
          the  total arrangement fee among each deliverable based
          on  the relative fair value of each of the deliverables
          determined based on vendor-specific objective evidence.

             As  of  January 1, 1998, the Company  adopted  AICPA
          Statement   of   Position  97-2  -   Software   Revenue
          Recognition  ("SOP  97-2"),  which  is  effective   for
          transactions  entered into in 1998.  Prior  years  have
          not  been restated.  The most significant impact of SOP
          97-2  on  the Company's revenue recognition  accounting
          policies  is that for contracts with multiple elements,
          revenue,  in  some  instances, may be recognized  later
          than under past practices.  Revenue has been recognized
          as follows:

            Since January 1, 1998:
             Software  Licenses  -  The  Company  recognizes  the
          revenue allocable to software licenses upon delivery of
          the software product to the end user, unless the fee is
          not  fixed  or  determinable or collectibility  is  not
          probable.  The Company considers all arrangements  with
          payment terms extending beyond twelve months and  other
          arrangements with payment terms longer than normal  not
          to  be  fixed or determinable.  If the fee is not fixed
          or  determinable,  revenue is  recognized  as  payments
          become due from the customer.  In most situations,  the
          Company  considers its acceptance terms as perfunctory.
          Arrangements that include acceptance terms that are not
          considered   perfunctory  are  not   recognized   until
          acceptance  has  occurred.  If  collectibility  is  not
          considered probable, revenue is recognized when the fee
          is  collected.  Revenue on arrangements with  customers
          who  are  not  the ultimate users (distributors,  other
          resellers,  etc.) is not recognized until the  software
          is delivered to an end user.

            Before January 1, 1998:
               Revenue from software licensing is recognized upon
          delivery provided that no significant vendor and  post-
          contract  support  obligations remain  outstanding  and
          collection  of  the  resulting  receivable  is   deemed
          probable.   Where there are insignificant post-contract
          support obligations and/or warranties remaining at  the
          time  of  delivery, the Company recognizes revenue  and
          accrues   the   estimated  cost  of   fulfilling   such
          obligations or warranties.

                Product  returns  or  exchanges  are  charged  to
          operations  as incurred.  Where the Company anticipates
          significant  returns  of  products  sold,  the  Company
          establishes  an  allowance for anticipated  returns  or
          exchanges  at the time of sale.  If customer acceptance
          is  uncertain, revenue is recognized upon  approval  by
          the customer.

               In all periods:
                Postcontract Customer Support - Revenue allocable
          to  PCS is recognized on a straight-line basis over the
          period the PCS is provided.

                Software  Services  - Arrangements  that  include
          software  services  are evaluated to determine  whether
          those  services  are essential to the functionality  of
          other  elements  of  the  arrangement.   When  software
          services  are considered essential, revenue  under  the
          arrangement  is  recognized using  contract  accounting
          (see  below).   When  the  software  services  are  not
          considered  essential,  the revenue  allocable  to  the
          software  services is recognized as  the  services  are
          performed.

                 Contract  Accounting  -  For  arrangements  that
          include  customization or modification of the software,
          or  where  software  services are otherwise  considered
          essential,   revenue  is  recognized   using   contract
          accounting.   Revenue from these software  arrangements
          is recognized on a percentage-of-completion method with
          progress-to-completion measured based upon labor  costs
          incurred.

               Training revenue is recognized upon the completion
          of training sessions with the customer.

          H.   Concentrations of credit risk
             The Company's financial instruments that are exposed
          to  concentrations of credit risk consist primarily  of
          cash   and   cash   equivalents  and   trade   accounts
          receivable.  The Company places its cash and  temporary
          cash investments with high credit quality institutions.
          At  times such investments may be in excess of the FDIC
          insurance  limit.  The Company routinely  assesses  the
          financial   strength  of  its  customers  and,   as   a
          consequence,   believes   that   its   trade   accounts
          receivable  credit  risk  exposure  is  limited.    The
          Company does not require collateral from its customers.
          Management believes the allowance carried for  doubtful
          accounts  receivable  is adequate  to  cover  potential
          losses    associated   with   uncollectible    accounts
          receivable.

          I.   Inventory
            Inventory, consisting primarily of finished goods, is
          valued  at the lower of cost or market on the first-in,
          first-out  basis.   Inventory, valued  at  $231,613  at
          December 31, 1998 is included as "Other current assets"
          on  the  Consolidated  Balance Sheets.   There  was  no
          inventory  at December 31, 1999, as inventory primarily
          related  to  NTS, which is no longer consolidated  with
          the Company.

          J.   Estimates
            The preparation of financial statements in conformity
          with  generally accepted accounting principles requires
          management  to  make  estimates  and  assumptions  that
          affect  the  reported amounts of assets and liabilities
          and disclosure of contingent assets and liabilities  at
          the  date  of the financial statements and the reported
          amounts  of revenues and expenses during the  reporting
          period.    Actual  results  could  differ  from   those
          estimates.

          K.   Change in presentation
              Certain   December  31,  1998  amounts  have   been
          reclassified  to  conform  to  the  December  31,  1999
          presentation.

          L.   Earnings (loss) per share
             The  Company reports its earnings (loss)  per  share
          ("EPS")  in  accordance  with  the  provisions  of  the
          Financial Accounting Standards Board Statement No. 128,
          Earnings Per Share ("FAS 128"). Basic EPS is calculated
          by dividing the income available to common stockholders
          by   the  weighted  average  number  of  common  shares
          outstanding  for the period, without consideration  for
          common  stock  equivalents.  Diluted  EPS  is  computed
          giving  effect  to common stock equivalents  and  other
          dilutive securities, unless the computation results  in
          anti-dilution.


Note 2 -     Accounts  receivable, net of allowance for  doubtful
       accounts:
<TABLE>
<CAPTION>                                      December 31,
                                              1999       1998

          <S>                             <C>          <C>
          Trade accounts receivable       $ 988,463    $ 543,048
          Allowance for doubtful accounts   (4,145)      (30,300)
          Accounts receivable,
            net of allowance
            for doubtful accounts         $ 984,318    $ 512,748

</TABLE>

Note 3 -                    Deferred development costs:
       The  Company  began,  in the quarter ended  September  30,
       1996,  a  project  to customize its PRISM fraud  detection
       system  for a customer.  During 1996 and 1997, the Company
       deferred $364,000 and $211,000, respectively, of costs  in
       connection  with  engineering  and  installation  of   the
       project.   Management believed that these costs  would  be
       fully recovered over the five year term of the contract.

       In  view  of  the  level  of  revenue  generated  by  this
       contract, at December 31, 1998, the Company evaluated  the
       carrying  value of the deferred contract costs,  utilizing
       estimated  future  contract revenues and ongoing  customer
       support  costs, appropriately discounted.   In  accordance
       with  FAS  121  - "Impairment of Long Lived  Assets,"  the
       Company  wrote-down deferred development costs to  $80,000
       with  an offsetting charge to engineering services.    The
       residual deferred costs are being amortized on a straight-
       line basis over the remaining term of the contract.

Note 4 -  Property and equipment at cost - net:

<TABLE>

<CAPTION>

                                                         Useful Life
                                                         in Years or
                                   December 31,          Lease Term
                                 1999          1998

       <S>                   <C>          <C>               <C>
       Office furniture
        and equipment        $  234,706   $    234,706      5 - 7
       Leased computer
        equipment under
        capital leases          113,893        113,893      5
       Computer equipment     1,268,855      1,344,244      3 - 5
                              1,617,454      1,692,843

       Less:
        Accumulated
        depreciation and
        amortization          1,347,537      1,324,318
                             $  269,917   $    368,525

</TABLE>

       Depreciation and amortization expense on the above  assets
       of  $96,257,  $114,810 and $95,682, was recorded  for  the
       years   ended   December   31,  1999,   1998   and   1997,
       respectively.   Accumulated depreciation and  amortization
       includes  $40,963 and $18,184 of amortization  related  to
       leased  equipment  under capital leases  at  December  31,
       1999 and 1998, respectively.


Note 5 -                    Intangible Asset:
       On  March  31,  1997, the Company purchased from  Cyberiad
       Software,  Inc. ("Cyberiad"), a Rhode Island  corporation,
       substantially  all of Cyberiad's assets  for  use  in  the
       Company's   Interactive  subsidiary  product.    In   this
       transaction,  the  Company issued 200,000  shares  of  its
       Common   stock   to   Cyberiad  and   agreed   to   assume
       approximately    $10,500   of   Cyberiad's    liabilities.
       Accordingly,  the Company recorded as an intangible  asset
       the excess of its acquisition cost over the fair value  of
       the  net  liabilities  assumed  ($394,517)  and  began  to
       amortize this asset over 36 months.  Amortization  expense
       recorded in the year ended December 31, 1997 was $98,629.

       Since  the  Company  ceased  further  investment  in   the
       Interactive   subsidiary   (see   Note   1)   and   future
       realization  of  the  asset was uncertain,  the  remaining
       value of this asset was written off in November 1998.

Note 6 -                    Line of credit:
       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  Services   Division
       customers.   Principal payments are due  in  twelve  equal
       installments  beginning March 1, 2001.   Interest  on  the
       loan  is  based  on the prime interest rate  plus  1%  and
       payments  are due quarterly in arrears beginning July  10,
       1999.  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.

Note 7 -  Common and  Preferred stock:
       On  April  29,  1998,  Nestor sold to Transaction  Systems
       Architects,  Inc.   ("TSAI") $5 million  of  newly  issued
       common  stock at a price of $2 per share and a warrant  to
       purchase an additional 2.5 million shares at $3 per  share
       expiring  March 1, 2002.  Proceeds from the sale consisted
       of  $4.5 million in cash and surrender of a $500,000  note
       owed  to  TSAI.   Concurrent with this  transaction,  Wand
       Partners   converted  its  $5.8  million   of   redeemable
       convertible  preferred  stock  into  common  stock.    The
       redeemable convertible preferred stock originally  accrued
       and  accumulated  dividends at  rates  of  seven  to  nine
       percent,  compounded  quarterly on the  stated  value  per
       share  and  such dividends not paid in cash increased  the
       stated  value.   The Company paid cash dividends  totaling
       $69,046  in  1998 on the redeemable convertible  preferred
       stock.

       Series  B Convertible Preferred Stock is convertible  into
       Common  Stock  of the Company at any time on a  share-for-
       share  basis.   Series B Convertible Preferred  Stock  has
       the  same  rights with respect to voting and dividends  as
       the  Common  Stock,  except that each share  of  Series  B
       Convertible  Preferred Stock has the right to  receive  in
       liquidation  $1.00  before any  distribution  is  made  to
       holders  of  the Common Stock.  The liquidation  value  of
       Series  B  Preferred was $345,000 and $365,000 at December
       31, 1999 and 1998, respectively.

       In  May 1998, the Company offered Series B stockholders  a
       2% conversion premium payable in common stock for a share-
       for-share  conversion of all shares held.  The  conversion
       offer,  which  expired on June 26,  1998,  resulted  in  a
       premium  of  19,200  common shares  as  960,000  Series  B
       shares  were  converted.   The  rights  and  benefits   of
       remaining  Series B stockholders are unchanged,  including
       ongoing standard conversion rights.

       Series  D  Convertible  Preferred  Stock  was  convertible
       after  January  1, 1996 at the option of the  holder  into
       one  fully  paid and non-assessable share of Common  Stock
       of  the  Company on a share-for-share basis.  The  Company
       issued  a  redemption  call in May 1998  for  all  of  the
       outstanding  Series  D  shares at a  redemption  price  of
       $1.50  plus unpaid dividends payable as of June 30,  1998.
       Stockholders  had  the  option of converting  into  common
       shares  under the Preferred Shares Agreement  and  143,155
       common  shares  were  issued.  After paying  dividends  of
       $17,941  on  June  30, 1998, the Company reclassified  the
       unconverted  Series  D  balance to  accounts  payable  and
       accrued  expenses where $36,199 remains unpaid at December
       31, 1999.

Note 8 -  Options and warrants:
       On  April 1, 1984, the Company adopted an Incentive  Stock
       Option  Plan  providing  for the granting  of  options  to
       purchase shares of the Company's common stock at  a  price
       equal  to  the market price of the stock at  the  date  of
       grant.   The  Company's Stock Option Plan  has  authorized
       the  grant  of  options to employees for up  to  2,450,000
       shares  of  the  Company's  common  stock.   Options   are
       exercisable for five years from the date of grant.

       On  May 6, 1997, the Company adopted the 1997 Stock Option
       Plan  providing  for the granting of options  to  purchase
       shares  of the Company's common stock at a price equal  to
       the  market price of the stock at the date of grant.   The
       1997  Stock  Option  Plan  has  authorized  the  grant  of
       options  to  employees for up to 1,000,000 shares  of  the
       Company's  common stock.  Options are exercisable  for  up
       to  ten years from the date of grant, although all options
       currently outstanding expire five years from the  date  of
       grant.

       The Company has adopted the disclosure-only provisions  of
       Financial  Accounting Standards Board Statement  No.  123,
       Accounting for Stock-Based Compensation ("FAS 123")  which
       is  first  applicable to the Company's fiscal  year  ended
       June  30, 1996.  The Company will continue to account  for
       its  stock  option plans in accordance with the provisions
       of  APB  25,  Accounting for Stock  Issued  to  Employees.
       Accordingly,  no compensation cost has been recognized  in
       the  financial  statements  for qualifying  grants  issued
       pursuant to the Company's Stock Option Plan.

       On  October  23,  1998, the Company's Board  of  Directors
       approved  a repricing of the Company's Stock Option  Plan.
       The  price  of  the  new options was $.6875,  the  closing
       price  on  October  23, 1998.  Options were  exchanged  at
       equal  value using the Black-Scholes model and  acceptance
       of  the  repricing offer was optional on the part  of  the
       employee.   Employees  surrendered  543,500  options   for
       repricing   and  the  Company  granted  254,085   repriced
       options  in  accordance with this offer.   The  effect  of
       this repricing is reflected in the tables below.

       The   following  table  presents  the  activity   of   the
       Company's  Stock Option Plan for the years ended  December
       31, 1999, 1998 and 1997:

<TABLE>

<CAPTION>
                                            Years Ended December 31,
                            1999                     1998                    1997

                                Weighted                 Weighted                Weighted
                                Av. Ex.                  Av. Ex.                 Av. Ex.
                      Shares     Price          Shares    Price        Shares     Price
<S>                  <C>           <C>        <C>            <C>     <C>            <C>
Outstanding
 beginning
 of year             1,579,124     $1.22       2,214,000    $1.58      1,781,500    $1.50
Granted                 62,500       .72         454,124      .99        484,000     1.81
Exercised                  ---       ---          31,250     1.09         46,875     1.00
Canceled                13,308      1.08       1,057,750     1.88          4,625     1.67
Outstanding end
 of year             1,628,316     $1.20       1,579,124    $1.22      2,214,000    $1.58

Options
 exercisable
 at year end         1,322,786     $1.24       1,102,846    $1.22      1,470,250    $1.39

Weighted
 average
 fair value of
 options
 granted during
 the year           $     0.42                $     0.71             $     1.44

</TABLE>


       The  following table presents weighted average price and life information
       about significant option groups outstanding at December 31, 1999.

<TABLE>
<CAPTION>
                                 Options Outstanding                Options Exercisable
                                          Weighted
                                          Average       Weighted                 Weighted
                            Number       Remaining      Average     Number       Averaged
       Range of          Outstanding    Contractual     Exercise Exercisable   Exercisable
   Exercise Prices       at 12/31/99    Life (Years)     Price   at 12/31/99      Price
   <S>                   <C>               <C>          <C>       <C>              <C>
   $  .31                    17,500         4.00        $0.31          4,375       $0.31
   $  .69  -  $1.00       1,123,066         1.89         0.90        912,786        0.94
   $ 1.50  -  $1.94         283,250         2.48         1.55        228,375        1.55
   $ 2.09  -  $2.32         143,000         2.03         2.26        124,000        2.27
   $ 2.52  -  $2.91          61,500         2.20         2.76         53,250        2.79
                          1,628,316         2.04        $1.20      1,322,786       $1.24

</TABLE>


       The  following are the pro forma net loss and net loss per
       share  for  the  years ended December 31, 1999,  1998  and
       1997, as if the compensation cost for the option plan  had
       been  determined based on the fair value at the grant date
       for   grants  in  those  periods  and  reflected  in   the
       financial statements:

<TABLE>
<CAPTION>

                             Years Ended December 31,
                          1999             1998         1997
<S>                   <C>            <C>             <C>
Net loss:
  As Reported         $  (836,824)   $ (5,263,153)   $(294,664)
  Pro Forma           $(1,022,488)   $ (4,710,218)   $(876,280)

Net loss per share:
  As Reported         $     (0.05)   $      (0.36)   $   (0.08)
  Pro Forma           $     (0.06)   $      (0.32)   $   (0.14)

</TABLE>

       The  effects  on the years ended December 31,  1999,  1998
       and  1997  pro  forma  loss per  share  of  expensing  the
       estimated  fair value of stock options are not necessarily
       representative of the effects on reporting the results  of
       operations  for  future years because  additional  options
       will  vest subsequent to December 31, 1999 and the Company
       expects to grant additional options in future years.

       The  fair  value of each option grant was estimated  using
       the  Black-Scholes model with risk-free interest rates  on
       the  date  of grant, which ranged from 4.3% to 6.8%.   The
       Company  has  never  declared nor paid  dividends  on  its
       common  stock  and does not expect to in  the  foreseeable
       future.   The  volatility factor of  the  expected  market
       price  of  the  Company's common stock used in  estimating
       the  fair  value of the grants was .875 and  the  expected
       life of the options was estimated as five years.

       The  Company, at the discretion of the Board of Directors,
       has  granted  warrants  from time to  time,  generally  in
       conjunction  with  the  sale of equities.   The  following
       table presents warrants outstanding:

<TABLE>
<CAPTION>
                                      December 31,
                           1999           1998          1997

<S>                      <C>          <C>             <C>
Eligible, End of Year
for Exercise
Currently                 5,000,580      5,000,580    2,709,089

Warrants issued                 ---      2,500,000          ---
Low exercise price     $        ---   $       3.00   $      ---
High exercise price    $        ---   $       3.00   $      ---

</TABLE>


       The  warrants  outstanding as of December  31,  1999,  are
       currently exercisable and expire at various dates  through
       October  5,  2005.  The outstanding warrants  entitle  the
       owner  to  purchase  one share of Common  Stock  for  each
       warrant, at prices ranging from $0.65 to $3.00 per share.

       During  the  year ended June 30, 1996, the exercise  price
       of  1,000,000  warrants  issued  in  the  prior  year  was
       reduced  from  $1.50  to  $.65.   The  maximum  cumulative
       expense  to  be recorded by the Company upon  exercise  of
       these  warrants will be $850,000.  During the period ended
       December  31,  1996,  the Company began  recording,  on  a
       prorated  basis,  the maximum expense over  the  remaining
       life   of   the   warrants.   Accordingly,   the   Company
       recognized  expenses totaling $106,000 annually  in  1999,
       1998 and 1997.


Note 9 -    Segment Information:
          A.   Description of reportable segments
             In  prior  years,  the Company had three  reportable
          segments.   During  1998, the Internet  segment  ceased
          operations,  and in 1999, 58.1% of the Traffic  Systems
          segment  was sold, leaving Financial Solutions  as  the
          sole  reportable segment at December 31, 1999.  Segment
          information  for  1999  has  been  omitted  since   all
          operations relate to a single segment.

             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  provided  remote traffic management  products,
          mainly   to   municipalities  and  universities.    The
          Company's   Internet  segment  was   engaged   in   the
          development of an internet commerce solution.

       B.   Measurement of segment profit or loss and segment assets
          The  Company evaluates performance based on  profit  or
          loss   from   operations  before  income  taxes.    The
          accounting policies of the reportable segments are  the
          same as those described in Note 1.

       C.   Segment profit or loss and segment assets
         All  revenues are from external customers.  There are no
          intercompany   sales.    The   "All   Other"   category
          represents  general  corporate activity.   "All  Other"
          revenues consist primarily of royalties (Note 16)  and,
          in  1997, includes $480,000 relating to the termination
          of a license agreement (Note 15).
<TABLE>

<CAPTION>
                          Financial     Traffic                     All
                          Solutions     Systems      Internet      Other       Totals
<S>                     <C>          <C>          <C>           <C>         <C>
Year Ended
Dec. 31, 1998:
Revenues                 $ 1,931,000  $   235,000  $    44,000   $   31,000  $ 2,241,000
Depreciation and
 amortization
 expense                     548,000       25,000      309,000       23,000      905,000
Segment profit
 (loss)                  (1,954,000)  (1,933,000)  (1,383,000)        7,000  (5,263,000)
Segment assets               788,000      318,000       46,000    1,440,000    2,592,000
Expenditures for
 long-lived assets            29,000       37,000        8,000       58,000      132,000

Year Ended
Dec. 31, 1997:
Revenues                 $ 4,752,000  $   328,000  $       ---   $  601,000  $ 5,681,000
Depreciation and
 amortization
 expense                      50,000       19,000      106,000       19,000      194,000
Segment profit
 (loss)                    1,300,000  (1,492,000)    (784,000)      711,000    (265,000)
Segment assets             1,520,000      225,000      355,000      513,000    2,613,000
Expenditures for
 long-lived assets            42,000       14,000       31,000        2,000       89,000

</TABLE>

       D.   Geographic Information
          Revenues  are  attributed to  countries  based  on  the
          location  of  customers.   All  long-lived  assets  are
          located in the United States.

<TABLE>

<CAPTION>
Years Ended December 31,
                           1999           1998           1997
<S>                   <C>            <C>            <C>
United States         $ 4,196,612    $ 1,918,951    $ 3,391,825
France                        ---            ---        480,899
Belgium                   151,200        212,097        903,662
Germany                       ---         17,460            ---
Japan                     685,850         55,333        531,590
Canada                     81,117         27,000        223,000
Singapore                     ---         10,535            ---
All other countries           ---            ---        150,100
                      $ 5,114,779    $ 2,241,376    $ 5,681,076

</TABLE>

       E.   Revenues from Major Customers
          All  revenues presented are derived from the  Company's
          Financial  Solutions  segment  with  the  exception  of
          Customer  E,  which  relates  to  the  Traffic  Systems
          segment.

<TABLE>
<CAPTION>
                                 Years Ended December 31,
                              1999          1998        1997

          <S>          <C>            <C>           <C>
          Customer A   $  3,106,631   $  620,732    $ 2,216,375
          Customer B            ---          ---        903,662
          Customer C        685,850          ---            ---
          Customer D            ---      445,115            ---
          Customer E            ---      302,979            ---
</TABLE>

Note 10 -Other income (expense) - net:
       Other  income  (expense) as reflected in the  consolidated
       statements of operations consists of the following:

<TABLE>

<CAPTION>
                                  Years Ended December 31,
                               1999         1998          1997

<S>                         <C>          <C>         <C>
Interest income (expense)   $   9,098    $(20,350)   $  (3,598)

Expense relating to
  financing operations      (106,484)    (106,483)    (106,484)

Other - net                       ---      100,655      141,403

Other Income
 (Expense) - Net            $(97,386)    $(26,178)   $   31,321

</TABLE>

Note 11 - Income taxes:
       The  Company accounts for income taxes using the  deferred
       liability  method  as  required  by  Financial  Accounting
       Standards  Board Statement No. 109, Accounting for  Income
       Taxes.    Under   FAS  109,  deferred   tax   assets   and
       liabilities  are  determined based on differences  between
       financial  reporting  and  the tax  basis  of  assets  and
       liabilities, and are measured using the enacted rates  and
       laws  that  will  be  in effect when the  differences  are
       expected to reverse.

       The components of the provision for income taxes are:

<TABLE>

<CAPTION>


                                         December 31,
                               1999         1998          1997

       <S>                    <C>         <C>          <C>
       Current - Federal      $   ---     $    ---     $30,000

       Deferred                   ---          ---         ---

        Total Income Taxes     $   ---     $    ---     $30,000

</TABLE>

       Significant  components  of  the  Company's  deferred  tax
       liabilities  and assets as of December 31, 1999  and  1998
       are as follows:

<TABLE>

<CAPTION>

                                           December 31,
                                         1999         1998
<S>                                <C>             <C>
Deferred tax liabilities:
Deferred development costs         $    22,000     $     32,000
Total deferred tax liabilities          22,000           32,000

Deferred tax assets:
Accounts receivable                      2,000           12,000
Accrued expenses                       308,000          246,000
Deferred income                         32,000           16,000
Tax credits                             17,000           17,000
Net operating loss
Nestor, Inc.                         5,988,000        6,414,000
Subsidiaries                               ---        2,205,000
Total deferred tax assets            6,347,000        8,910,000

Valuation allowance                 (6,325,000)      (8,878,000)
Net deferred tax assets                 22,000           32,000
Net deferred tax balance           $       ---     $        ---

</TABLE>


       The  December  31,  1998 deferred tax liabilities,  assets
       and  valuation allowance reflect the consolidated balances
       of   Nestor,  Inc.  and  its  subsidiaries,  whereas   the
       December  31,  1999  amounts represent Nestor,  Inc.  only
       (Note 1).

       In  accordance with FAS 109, a valuation allowance must be
       established  until it is more likely than not that  future
       benefits  arising  from net deferred tax  assets  will  be
       realized.   Realization  is  not  assured  in  future  tax
       projections.

         A  reconciliation of the provision for income  taxes  to
       the  amount computed using the Federal statutory tax rates
       consists of the following:

<TABLE>
<CAPTION>


                                         Years Ended December 31,
                                    1999          1998          1997
<S>                             <C>           <C>            <C>
Income (loss) before taxes
 and investment loss            $  645,000    $(5,263,000)   $(265,000)

Tax at statutory rate of 34%    $  219,000    $(1,789,000)   $(101,000)
State income tax (net of
 federal benefit)                   47,000       (313,000)     (19,000)
Effect of permanent differences     36,000         101,000     (36,000)
Valuation allowance               (302,000)      2,001,000     186,000

Income tax expense              $      ---    $        ---   $  30,000
</TABLE>

       The   Company   has  available  at  December   31,   1999,
       $16,703,000   and   $5,200,000  of  net   operating   loss
       carryforwards    for   federal   and    state    purposes,
       respectively.  These  loss carryforwards  may  be  applied
       against  future  taxable income and  begin  to  expire  in
       2000.

Note 12 -  Nestor Traffic Systems, Inc. Affiliate:
       On  March  25,  1999,  Nestor  Traffic  Systems,  Inc.,  a
       subsidiary  of  the  Company, sold a  37.5%  common  stock
       interest (540,000 shares at $4.35 per share) to a  private
       group  of  investors for $2,350,000 in cash and issued  an
       option  to  purchase  an additional 17.5%  of  its  common
       stock  for $1,750,000.  The option was scheduled to expire
       on  January 31, 2000.  On November 30, 1999, the  Company,
       NTS  and  the  investor  group agreed  to  accelerate  the
       exercise  of  the option and an additional 20.6%  interest
       (710,000   shares  at  $2.47  per  share)  was  sold   for
       $1,755,000.   The investor group includes  three  officers
       of  the  Company and the subsidiary, who in the aggregate,
       contributed  $600,000 of the initial cash and $170,059  in
       the  second  sale, invested on the same  basis  as  third-
       party investors.    Similar transactions may occur in  the
       future  since  NTS  is  in the development  stage  and  it
       continues to seek additional equity investors.

       As  a result of these transactions, the Company's interest
       in  NTS  decreased  to  42%,  prompting  the  change  from
       consolidation  to  equity accounting for  the  year  ended
       December  31,  1999.  The investment in affiliate  balance
       of  $710,690  at December 31, 1999 reflects the  Company's
       interest in NTS's equity.

       Presented  below  is summarized NTS financial  information
       at December 31, 1999 and for the year then ended:

               Current assets           $ 2,126,000
               Noncurrent assets            296,000
               Current liabilities          724,000
               Stockholders' equity       1,698,000

               Total revenues               167,000
               Operating expenses         2,656,000
               Net loss                   2,453,000

       During the period January 1, 1999 through March 31,  1999,
       the  Company  advanced NTS financing  to  cover  operating
       expenses  amounting to approximately  $550,000.   Of  this
       advance,  $275,000 was reimbursed in March 1999,  and  the
       balance  is  due on the earlier of NTS raising new  equity
       of   at   least   $3,000,000   or   December   31,   2000.
       Periodically, additional advances are made by the  Company
       to  NTS  primarily  as  a result of shared  accounts,  and
       these  amounts are due as invoiced.  The amount  due  from
       NTS at December 31, 1999 was $320,459.

       On  January 1, 1999, the Company entered into an exclusive
       license    with   NTS   to   apply   certain   proprietary
       technologies  in  the  fields of  using  video  and  other
       sensors  to  analyze, monitor and respond to  movement  of
       persons or objects in vehicular, rail, air or other  modes
       of   transportation  or  supporting  the  foregoing.   The
       license  expires  upon the expiration  of  the  underlying
       patents   protecting  the  technologies  used   in   NTS's
       products.   The  license provides  for  royalties  to  the
       Company  starting in 2000 equal to 5% of the gross  margin
       realized  from sales or licensing or products  subject  to
       the license, and increasing to 10% of the gross margin  in
       calendar  years  2001  and beyond.  The  license  requires
       minimum  annual royalties of $125,000 in 2001,  increasing
       to  $1,000,000  in 2005 and beyond, in order  to  maintain
       exclusive  rights.  No royalties were due  or  payable  in
       1999.

       NTS  uses  facility  and administrative  services  of  the
       Company,  including  use of office  space  and  executive,
       accounting  and  other support personnel.  NTS  reimburses
       the  Company  monthly  for these services  at  a  rate  of
       $39,913 for up to 15 NTS employees, and $47,267 for  above
       15  employees.   Such reimbursement will decrease  as  NTS
       obtains  its  own office space and develops an independent
       executive    and    support    staff.      Facility    and
       administrative  fees  charged  to  NTS  during  1999  were
       $479,000.


Note 13 - Related party transactions:
       Herbert  S.  Meeker,  a  director of  the  Company,  is  a
       partner in the law firm of Baer, Marks & Upham, which  the
       Company  uses  for legal services.  For  the  years  ended
       December 31, 1999, 1998 and 1997, the Company recorded  an
       expense  for  Baer, Marks & Upham of $15,600, $15,600  and
       $14,400, respectively.

       Bruce  W. Schnitzer, who became a director of the  Company
       in  August  1994,  is Chairman of Wand Partners,  Inc.,  a
       private   investment  firm  that  the  Company  uses   for
       management  consulting.  For the years ended December  31,
       1999,  1998 and 1997, the Company recorded an expense  for
       Wand  Partners,  Inc.  of  $41,497, $47,770  and  $49,479,
       respectively.   During  1997  the  Company   granted   Mr.
       Schnitzer,  as  a director of the Company, a non-qualified
       stock  option  for a total of 5,000 shares and  recognized
       an  expense  of  $6,900.  Additionally,  during  1998  and
       1997,  the  Company paid Wand Partners dividends  totaling
       $69,046  and  $35,613,  respectively,  on  the  redeemable
       preferred   stock  held  by  Wand.  Included  in   accrued
       liabilities at December 31, 1999 and 1998 are $99,167  and
       $63,738, respectively, due Wand Partners, Inc.

       Thomas  F.  Hill, who became a director of the Company  in
       August  1994,  is  President of Thomas F.  Hill,  Inc.,  a
       consulting  firm  that  the  Company  uses  for  marketing
       consulting.  During 1997 the Company granted Mr. Hill,  as
       a  director  of the Company, a non-qualified stock  option
       for  a total of 5,000 shares and recognized an expense  of
       $6,900.

       Thomas D. Halket, who became an officer of the Company  in
       January  1993,  is  a partner in the law  firm  of  Hughes
       Hubbard  &  Reed  LLP, which the Company uses  as  outside
       counsel.  For the years ended December 31, 1999, 1998  and
       1997,  the Company recorded an expense for Hughes  Hubbard
       &   Reed   LLP   of   $76,106,  $80,039,   and   $100,961,
       respectively.

       During  1997 the Company issued non-qualified  options  to
       Mr. Sam Albert, Dr. Leon Cooper,
       Dr.  Charles  Elbaum, and Mr. Jeffrey Harvey as  directors
       of  the Company.  Each option was for 5,000 shares and the
       Company recognized an expense of $27,600.

       During   1998,  TSAI,  the  parent  company   of   Applied
       Communications,   Inc.   (ACI),   became   a   significant
       shareholder of the Company (Note 7).  For the years  ended
       December  31, 1999 and 1998, the Company recorded revenues
       of  $3,106,631 and $620,730, respectively  from  ACI.   At
       December  31, 1999 and 1998, accounts receivable  included
       $489,494  and  $157,808  due from  ACI  and  unbilled  was
       $3,141,574  and $711,434.  Also at December 31,  1999  and
       1998,  deferred  income included $2,768,257  and  $896,000
       from  ACI.   Further related party transactions with  TSAI
       are discussed in Notes 6, 8 and 17.

       See Note 12 for transactions with affiliate.

Note 14 - Commitments and contingencies:
       The  Company  leases a facility in Rhode Island  under  an
       operating  lease  dated April 1, 1998, as  amended.   This
       lease  provides  for  annual rentals of  $195,000  through
       March  2001,  $201,500 through March  2002,  and  $208,000
       through March 2003.

       Rent  expense  of  $195,000,  $193,953  and  $188,936  was
       charged  to  operations for the years ended  December  31,
       1999, 1998 and 1997, respectively.

       On   August  1,  1994,  the  Company  signed  a  Financial
       Advisory Agreement with Wand Partners, Inc.  The terms  of
       the  Agreement  specify  that  Wand  Partners,  Inc.  will
       provide  consulting  services for a  fee  of  $40,000  per
       year,  plus out-of-pocket expenses.  The Agreement  is  in
       effect  so  long  as  Wand Partners, Inc.  owns  at  least
       500,000   shares  of  Nestor's  Common  Stock,  or   other
       equities which are convertible into that number of  shares
       of   Common   Stock   (See  Note  13   -   Related   party
       transactions).

       The  aggregate  minimum payments due  over  the  remaining
       term of the above agreements is as follows:

                    December 31, 2000      $    235,000
                    December 31, 2001           239,875
                    December 31, 2002           246,375
                    December 31, 2003            92,000
                    December 31, 2004            40,000
                    Thereafter                   40,000
                                           $    893,250

Note 15 -   Termination of license agreement:
       In  June  1997  the  Company and Sligos  terminated  their
       License    Agreement.    Pursuant   to   the   termination
       agreement, the Company paid Sligos in July 1997,  $225,000
       in  full settlement of its obligation to Sligos, which had
       been  classified as a current liability on  the  Company's
       balance  sheet,  and  of  the repurchase  from  Sligos  of
       452,000  shares  of  Company's Series A  Preferred  Stock.
       The  Company  allocated $125,000 of  the  payment  to  the
       settlement   of  its  current  liability  to  Sligos   and
       consequently   recorded  other  income  of   $100,000   as
       discount  on  the  obligation  to  Sligos.   The   Company
       allocated  the  remaining $100,000 of the payment  to  the
       repurchase   of   its  Series  A  Preferred   Stock   and,
       accordingly,  reclassified $352,000 to additional  paid-in
       capital.    The  Company  also  eliminated  the  long-term
       deferred income related to Sligos prepayments (which  were
       received  in October 1990) and recorded software licensing
       revenues of $480,000.

Note 16 - Significant transactions:
       On  June  11, 1996, the Company entered into an  exclusive
       Licensing  Agreement and an Asset Purchase Agreement  with
       National  Computer  Systems, Inc. (NCS)  transferring  the
       development,  production,  and  marketing  rights  of  the
       Company's   Intelligent   Character   Recognition    (ICR)
       products  to NCS.  The Company received $1,400,000  as  an
       initial  license fee pursuant to the Licensing  Agreement,
       and has the right to receive royalties on future sales  of
       the  products  by  NCS.   The minimum  annual  royalty  to
       maintain  exclusive rights was $160,000 and  $200,000  for
       the  years  ended  June 30, 1997 and  1998,  respectively.
       NCS  lost its exclusive rights under the contract on  June
       30,   1998,   upon   failure  to  meet   minimum   royalty
       obligations.   Royalties are computed as 10%  of  the  ICR
       product  sales.  The Company recognized  $34,000,  $32,000
       and  $120,000  of revenue under this license agreement  in
       calendar 1999, 1998 and 1997, respectively.


Note 17-                    Litigation:
       On  October  6,  1998,  HNC  Software  Corp.  ("HNC"),   a
       significant  competitor of the Company's 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   Nestor's   patents  (infringement  claims   withdrawn
       January  10,  2000).   The  suit  seeks  various  damages,
       including lost profits and treble damages.

       On  June  15,  1999, HNC answered the lawsuit denying  the
       allegations,    bringing    a    counterclaim     alleging
       infringement  of  the  above  described  patent   by   the
       Company,  and  seeking  a declaration  of  invalidity  and
       unenforceability of one of the Company's patents.  On  the
       same  day,  HNC brought suit in San Diego, CA against  ACI
       and   its   parent  alleging  various  causes  of   action
       including  patent  infringement  of  the  above  described
       patent  by the Company's PRISM product which ACI  markets.
       ACI    has    requested   that   the    Company    provide
       indemnification  against some of the claims  in  the  suit
       pursuant to an agreement between ACI and the Company.

       Costs  associated  with  the suit are  being  expensed  as
       incurred.   Although  the Company believes  that  it  will
       prevail,  there can be no assurance as to the  outcome  of
       this  suit,  the  counterclaim,  or  the  ACI  suit.   Any
       conclusion of this litigation in a manner adverse  to  the
       Company   may  have  an  adverse  effect  on  its   future
       financial condition and results of operations.

<TABLE>

                          NESTOR, INC.                   Part IV
                                                         Item 14
           CONSOLIDATED FINANCIAL STATEMENT SCHEDULE Schedule II
         VALUATION AND QUALIFYING ACCOUNTS AND RESERVES




<CAPTION>
                                                        Charged
                                Balance at   Charged       to     Deductions   Balance at
                               Beginning of     to       Other       from        end of
                                  Period     Expense    Accounts   Reserve       Period

<S>                             <C>         <C>        <C>        <C>           <C>
Allowances deducted
 from accounts receivable:

Year Ended December 31, 1997    $ 145,235   $  80,495  $  ---     $(71,176)     $154,554

Year Ended December 31, 1998    $ 154,554   $  40,081  $  ---     $(163,450)    $ 30,300

Year Ended December 31, 1999    $  30,300   $   5,000  $  ---     $(31,155)     $  4,145

</TABLE>





ITEM 8.   Financial Statement and Supplementary Data

          See annexed financial statements.


ITEM 9.   Changes   in   or  Disagreement  with  Accounting   and
          Financial disclosure

          Not Applicable.


ITEM 10.  Directors and Executive Officers of the Registrant.

                Incorporated  by  reference  from  the  Company's
          definitive proxy or information statement to  be  filed
          with  the  Commission not later than 120 days following
          the end of the Company's fiscal year.


ITEM 11.  Executive Compensation.

                Incorporated  by  reference  from  the  Company's
          definitive proxy or information statement to  be  filed
          with  the  Commission not later than 120 days following
          the end of the Company's fiscal year.


ITEM 12.  Security  Ownership  of Certain Beneficial  Owners  and
          Management.

          Incorporated by reference from the Company's definitive
          proxy  or  information statement to be filed  with  the
          Commission not later than 120 days following the end of
          the Company's fiscal year.


ITEM 13.  Certain Relationships and Related Transactions.

                Incorporated  by  reference  from  the  Company's
          definitive proxy or information statement to  be  filed
          with  the  Commission not later than 120 days following
          the end of the Company's fiscal year.

ITEM 14.  Exhibits, Financial Statement, Schedules and Reports on
          Form 8-K.
             (a)The  following  documents are filed  as  part  of
             this  report:

                    (1)   The financial statements of the Company
              and   accompanying  notes,  as  set  forth  in  the
              contents   to  the  financial  statements   annexed
              hereto, are included in Part II, Item 8.

              Schedule II:
              Valuation and Qualifying Accounts and Reserves

              All other schedules are omitted because such information
              is not applicable

                    (2)   Exhibits  numbered in  accordance  with Item 601
              of Regulation S-K.






(See Exhibit Index)


Exhibits filed herewith:

21.2 Nestor Traffic Systems, Inc. financial statements for the
     year ended December 31, 1999.

99.1 Safe Harbor for Forward-Looking Statements Under the Private
     Securities Litigation Reform Act of 1995.

     (b)  Reports on Form 8-K:

          On   May  7,  1998,  the  Corporation  filed  with  the
          Securities and Exchange Commission a current report  on
          Form 8-K dated April 28, 1998 is hereby incorporated by
          reference.

          On  December  3, 1998, the Corporation filed  with  the
          Securities and Exchange Commission a current report  on
          Form 8-K dated November 25, 1998 is hereby incorporated
          by reference.

          On  April  23,  1999, the Corporation  filed  with  the
          Securities and Exchange Commission a current report  on
          Form 8-K dated March 25, 1999 is hereby incorporated by
          reference.



INDEX OF EXHIBITS

          Exhibit No.    Description of Exhibit
          3.1        Certificate of Incorporation of the Company,
          filed  as  an  Exhibit  to  the Company's  Registration
          Statement on Form S18, Commission File No. 286182-B, is
          hereby incorporated herein by reference.
          3.2       Amendment to the Certificate of Incorporation
          of  the  Company, dated December 5, 1985, filed  as  an
          Exhibit  to the Company's Form 8 amending the Company's
          Form  10-K for the fiscal year ended June 30  1987 (the
          "1987  Form  8"),  is  hereby  incorporated  herein  by
          reference.
          3.3       Amendment to the Certificate of Incorporation
          of  the  Company, dated December 4, 1986, filed  as  an
          Exhibit  to  the  1987  Form 8, is hereby  incorporated
          herein by reference.
          3.4        Bylaws of the Company, as amended, filed  as
          Exhibit  to  the  1987  Form 8, is hereby  incorporated
          herein by reference.
          4          Nestor, Inc. Incentive Stock Option Plan, as
          amended,   filed  as  an  Exhibit  to   the   Company's
          Registration Statement on Form S-8, filed May 5,  1987,
          is hereby incorporated herein by reference.
          4.1        Nestor,  Inc.  1997 Incentive  Stock  Option
          Plan,  as amended, filed as an Exhibit to the Company's
          Registration Statement on Form S-8, filed May 16, 1997,
          is hereby incorporated by reference.
          4.2       Securities Purchase Agreement dated April 28,
          1998  with  Transaction  Systems  Architects,  Inc.  to
          purchase 2,500,000 common shares of the Company  and  a
          warrant for an additional 2,500,000 common shares.
          4.3         Nestor  Traffic  Systems,  Inc.,  Form   of
          Subscription Agreement dated March 25, 1999, to sell  a
          37.5%  equity position in its common stock and issue  a
          warrant for an additional 17.5% common stock interest.
          10.1       Non-Exclusive Field-of-Use License Agreement
          dated  June  21,  1988 between the Company  and  Morgan
          Stanley & Co. Incorporated, filed as an Exhibit to  the
          Company's Form 10-K for the fiscal year ended June  30,
          1988, is hereby incorporated herein by reference.
          10.2      Cooperative Marketing Agreement dated May 26,
          1988  between  the Company and Arthur D. Little,  Inc.,
          filed as an Exhibit to the Company's Form 10-K for  the
          fiscal year ended June 30, 1988, is hereby incorporated
          herein by reference.
          10.3       Lease  Rider dated February 6, 1985  between
          Richmond  Square  Technology Park  Associates  and  the
          Company, filed as an Exhibit to the Company's Report on
          Form  10-K for the fiscal year ended June 30, 1986,  is
          hereby incorporated herein by reference.
          10.4       Employment Agreement dated  August  4,  1986
          between the Company and Michael G. Buffa, filed as Item
          5  of  the Company's Report on Form 8-K dated September
          11, 1986, is hereby incorporated herein by reference.
          10.5       Joint Venture Agreement between the  Company
          and  Oliver, Wyman & Co., dated December 4, 1986, filed
          as  an  Exhibit  to  the  1987  Form  10-K,  is  hereby
          incorporated herein by reference.
          10.6      Employment Agreement dated as of July 1, 1989
          between  the Company and David Fox filed as an  Exhibit
          to  the  1989  Form  10-K  is  hereby  incorporated  by
          reference.
          10.7       Employment Agreement dated as  of  September
          15,  1988  between  the Company and Douglas  L.  Reilly
          filed  as  an Exhibit to the 1989 Form 10-K  is  hereby
          incorporated by reference.
          10.8       Memorandum dated January 1,  1989  regarding
          stock  bonus  plan for Douglas L. Reilly  filed  as  an
          Exhibit to the 1989 Form 10-K is hereby incorporated by
          reference.
          10.9       Amendment  to Joint Venture Agreement  dated
          May 8, 1990 between the Company and Oliver, Wyman & Co.
          filed  as an Exhibit to the 1992 Annual Report on  Form
          10-K is hereby incorporated by reference.
          10.10      License Agreement dated October 26, 1990  by
          and  between the Company and Sligos, S. A. filed as  an
          Exhibit to the Company's 1992 Annual Report on Form 10-
          K is hereby incorporated by reference.
          10.11        Supplemental   License   Agreement   dated
          September  9,  1991  by  and between  the  Company  and
          Sligos,  S.  A., filed as an Exhibit to  the  Company's
          1992 Annual Report on Form 10-K, is hereby incorporated
          by reference.
          10.12       NestorWriter(TM)License   and   Development
          Agreement dated September 11, 1991 between the  Company
          and Poqet Computer Corporation.
          10.13     License Agreement for Product Development and
          Marketing  dated October 30, 1990 between  the  Company
          and Lyonnaise des Eaux-Dumez.
          10.14      Software Development Agreement dated October
          30,  1990  between the Company and Lyonnaise des  Eaux-
          Dumez.
          10.15      License  Agreement dated November  27,  1990
          between the Company and Atari Corporation.
          10.16     License Agreement for Product Development and
          Marketing dated March 18, 1991 between the Company  and
          Dassault Electronique.
          10.17      Agreement of Purchase and Sale dated  August
          16,  1991  between the Company and Diversified Research
          Partners  filed  as Item 5 of the Company's  report  on
          Form  8-K  dated August 21, 1991 is hereby incorporated
          herein by reference.
          10.18      License  Agreement dated October  15,  1993,
          between the Company and Intel Corporation filed  as  an
          Exhibit to the Company's 1994 Annual Report on Form 10-
          K is hereby incorporated by reference.
          10.19     Exclusive Marketing Agreement dated April  7,
          1994,  between the Company and Intel Corporation  filed
          as an Exhibit to the Company's Current Report on Form 8-
          K  dated  April  7,  1994,  is hereby  incorporated  by
          reference.
          10.20     Securities Purchase Agreement dated August 1,
          1994,  between the Company and Wand/Nestor  Investments
          L.P.  ("Wand") filed as Item 5 of the Company's  report
          on   Form   8-K  dated  August  8,  1994,   is   hereby
          incorporated herein by reference.
          10.21      Standby  Financing  and  Purchase  Agreement
          dated  as  of  March 16, 1995 between the  Company  and
          Wand,  filed  as  an  Exhibit to the Company's  Current
          Report  on  Form  8-K dated March 16, 1995,  is  hereby
          incorporated by reference.
          10.22      First Amended and Restated Standby Financing
          and  Purchase Agreement dated June 30, 1995 between the
          Company  and Wand, filed as an Exhibit to the Company's
          Current  Report  on Form 8-K dated  July  7,  1995,  is
          hereby incorporated by reference.
          10.23      Amendment Agreement dated December 20,  1994
          between  the  Company and Sligos,  S.A.,  filed  as  an
          Exhibit to the Company's Registration Statement on Form
          S-2,   Commission   File  No.   33-93548,   is   hereby
          incorporated herein by reference.
          10.24       Technology  Development  Subcontract  dated
          December  20,  1994,  between  the  Company  and   Alta
          Technology  Corporation, filed as  an  Exhibit  to  the
          Company's   Registration   Statement   on   Form   S-2,
          Commission  File  No. 33-93548, is hereby  incorporated
          herein by reference.
          10.25      Agreements between the Company  and  Europay
          International S.A. ("Europay") consisting of: (i) Fraud
          Study  Agreement  dated August 3, 1993,  together  with
          appendices  and  exhibits thereto; (ii) Confidentiality
          Agreement  dated  August 3, 1993;  (iii)  Nestor  Fraud
          Detection System User License dated September 21, 1994;
          (iv)  Source  Code Addendum to Nestor  Fraud  Detection
          System User License, dated September 22, 1994; and  (v)
          Memorandum of Understanding dated May 5, 1995, filed as
          an  Exhibit to the Company's Registration Statement  on
          Form  S-2,  Commission  File No.  33-93548,  is  hereby
          incorporated herein by reference.
          10.26      Lease  of executive offices of the  Company,
          together  with the most recent rider thereto, filed  as
          an  Exhibit to the Company's Registration Statement  on
          Form  S-2,  Commission  File No.  33-93548,  is  hereby
          incorporated herein by reference.
          10.27      Non-Exclusive License Agreement between  the
          Company    and    International    Business    Machines
          Corporation,  filed  as  an Exhibit  to  the  Company's
          Current  Report on Form 8-K dated January 30, 1996,  is
          hereby incorporated by reference.
          10.28      Securities  Purchase and Exchange  Agreement
          between  the Company and Wand/Nestor Investments  L.P.,
          filed as an Exhibit to the Company's Current Report  on
          Form 8-K dated January 30, 1996, is hereby incorporated
          by reference.
          10.29      Securities  Purchase Agreement  between  the
          Company and Wand/Nestor Investments L.P., filed  as  an
          Exhibit  to  the Company's Current Report on  Form  8-K
          dated   March  7,  1996,  is  hereby  incorporated   by
          reference.
          10.30       Asset   Purchase  Agreement   and   License
          Agreement  between  the Company and  National  Computer
          Systems,  Inc.,  filed as an Exhibit to  the  Company's
          Current  Report  on Form 8-K dated June  11,  1996,  is
          hereby incorporated by reference.
          10.31     PRISM Non-Exclusive License Agreement between
          the Company and Applied Communications, Inc., filed  as
          an  Exhibit to the Company's Current Report on Form 8-K
          dated  September  19, 1996, is hereby  incorporated  by
          reference.   Portions of the Exhibit omitted,  pursuant
          to a grant of confidential treatment.
          10.32     License Agreement dated as of March 28, 1997,
          between  Nestor, Inc. and Total System  Services,  Inc.
          filed as an Exhibit to the Company's Current report  on
          Form 8-K dated April 8, 1997, is hereby incorporated by
          reference.   Portions of the Exhibit omitted,  pursuant
          to a grant of confidential treatment.
          10.33      Asset  Acquisition Purchase Agreement  dated
          March 31, 1997 among Nestor Interactive, Inc., Cyberiad
          Software,  Inc.,  Christopher L. Scofield  and  Jeffrey
          Pflum  filed  as  an  Exhibit to the Company's  Current
          Report  on  Form  8-K dated April 10, 1997,  is  hereby
          incorporated by reference.
          10.34      Nestor,  Inc.  1997 Incentive  Stock  Option
          Plan,  as amended, filed as an Exhibit to the Company's
          Current Report on Form 8-K dated May 6, 1997 is  hereby
          incorporated by reference.
          10.35      Amendment to the PRISM Non-Exclusive License
          Agreement  dated as of April 18, 1997, between  Nestor,
          Inc.  and  Applied  Communications, Inc.  filed  as  an
          Exhibit  to  the Company's Current Report on  Form  8-K
          dated   April  30,  1997  is  hereby  incorporated   by
          reference.  Portions of the Exhibit omitted pursuant to
          a grant of confidential treatment.
          10.36      Exclusive License Agreement between  Nestor,
          Inc. and Nestor Traffic Systems, Inc. dated January  1,
          1999  filed  as  an  Exhibit to the  Company's  Current
          Report on Form 8-K dated March 25, 1999.
          21        Nestor IS, Inc., a wholly owned subsidiary of
          Nestor,  Inc.  incorporated  January  1,  1997,   doing
          business as Nestor Intelligent Sensors.
          21.1       Nestor  Interactive,  Inc.  a  wholly  owned
          subsidiary  of  Nestor,  Inc. incorporated  January  1,
          1997.
          21.2        Nestor  Traffic  Systems,  Inc.   financial
          statements for year ended December 31, 1999.
          27         Financial data schedule for the  year  ended
          December 31, 1999.
          99.1       Safe  Harbor for Forward-Looking  Statements
          under  the Private Securities Litigation Reform Act  of
          1995.
          103        Copy of Complaint filed on November 25, 1998
          against  HNC  Software, Inc. alleging  anticompetitive,
          exclusionary  and predatory conduct in the Registrant's
          market.