content: SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549
  
                                      FORM 8-K
  
  
                                   CURRENT REPORT
                       PURSUANT TO SECTION 13 OR 15(d) OF THE
                           SECURITIES EXCHANGE ACT OF 1934
  
  
                                 SEPTEMBER 30, 2002
  --------------------------------------------------------------------------------
                  Date of Report (Date of Earliest Event Reported)
  
  
                                    NESTOR, INC.
  --------------------------------------------------------------------------------
               (Exact Name of Registrant as Specified in its Charter)
  
  
                                      DELAWARE
  --------------------------------------------------------------------------------
                   (State or Other Jurisdiction of Incorporation)
  
  
                 0-12965                                   13-3163744
  -----------------------------------          -----------------------------------
       (Commission File Number)                 (IRS Employer Identification No.)
  
  
  
                          400 MASSASSOIT AVENUE, SUITE 200
                           PROVIDENCE, RHODE ISLAND 02914
  --------------------------------------------------------------------------------
                 (Address of Principal Executive Offices, Zip Code)
  
  
                                   (401) 434-5522
  --------------------------------------------------------------------------------
                (Registrant's telephone number, including area code)
  
  
  
                                         1
  <PAGE>
  
  Item 2.  Disposition of Assets.
  -------------------------------
  
       On July 15, 2002,  Nestor,  Inc. (the "Company" or "Nestor") entered into a
  Memorandum of  Understanding  (the "MOU") with  Churchill Lane  Associates,  LLC
  ("CLA").  Pursuant  to the MOU the  Company  agreed to enter into an  assignment
  agreement  with CLA (upon the  satisfaction  or  waiver of  certain  conditions)
  providing for the irrevocable assignment (the "Assignment") to CLA of all of the
  Company's rights to royalty income (from July 1, 2002 and in perpetuity) under a
  license  agreement  (the  "License")  between the Company and ACI Worldwide Inc.
  ("ACI") for the Company's  PRISM(R)  fraud  detection  technology.  The MOU also
  provided a schedule  for advances to the Company by CLA of up to $1.3 million to
  provide interim financing to the Company during the period prior to the closing,
  which advances were used by the Company to pay its operating  expenses and other
  short-term obligations.
  
       On September  30, 2002,  the Company and CLA entered into an  Assignment of
  Royalty  Stream (the  "Assignment  Agreement")  effecting the Assignment and CLA
  paid the Company $3.1 million in cash in consideration  for the Assignment (less
  advances made by CLA pursuant to the MOU).  Royalty  payments by ACI pursuant to
  the License will be made directly to CLA on a monthly  basis.  No obligations or
  other rights of the Company were  transferred or assigned to CLA. The Assignment
  Agreement  does not provide for any minimum  license sale  requirements  (on the
  part of the Company or ACI) or guaranteed  minimum royalty  payments to CLA. The
  Company  intends to use the  proceeds  of the  Assignment  to pay its  operating
  expenses and other short-term obligations.
  
       CLA is a limited  liability company that is owned and controlled by Alan M.
  Wiener,  Alvin J. Siteman and Robert M.  Carroll.  Messrs.  Wiener,  Siteman and
  Carroll are directors of the Company who collectively are the beneficial  owners
  of 8,320,971  shares of Common Stock,  representing  approximately  16.4% of the
  Company's  outstanding  capital  stock.  Mr.  Wiener  is  also  Chairman  of the
  Company's  Board of  Directors  (the  "Board").  Except  for their  interest  as
  principals of CLA, Messrs. Wiener, Siteman and Carroll do not have any direct or
  indirect interest in the Assignment.
  
       The  Company and ACI  entered  into the  License on  February 1, 2001.  The
  License provides ACI with a non-exclusive  right to integrate and distribute all
  of  the  Company's  PRISM(R)  and  fraud  detection  products  throughout  ACI's
  worldwide sales and support  network.  PRISM(R) fraud  detection  solutions help
  financial  institutions detect and prevent fraudulent payments,  manage merchant
  risks and identify  illicit  account usage (money  laundering).  PRISM(R)  fraud
  detection   products  are  used  by  many  of  the  world's  largest   financial
  institutions and represented  approximately  87% of the Company's 2001 revenues.
  The February 1, 2001 agreement  replaced an existing license  agreement with ACI
  dated April 28, 1998. The License is perpetual, non-revocable,  non-transferable
  and non-exclusive.  On May 18, 2001, the Company granted an exclusive license to
  Retail Decisions,  Inc. for the use of PRISM(R) (subject to the License), having
  the effect of creating co-exclusive rights for ACI and Retail Decisions, Inc. to
  use the PRISM(R) technology.
  
       ACI paid $1.1 million (a one-time  initial license fee) to the Company over
  the four months following  February 1, 2001. The License requires the payment of
  a 15% royalty  (effective  since  February 1, 2002),  but no guaranteed  minimum
  royalty  payments are  required.  Although  ACI was required to make  guaranteed
  minimum  royalty  payments  during the first year in an amount of  approximately
  $500,000,  the Company reported  (exclusive of the initial license fee) $590,000
  in royalties  from ACI during the period from February 1, 2001 through  December
  31, 2001 and $635,000 in royalties  during the six-month  period from January 1,
  2002 through June 30, 2002.
  
                                         2
  <PAGE>
  
       The Board prepared and considered  projections for future royalty  payments
  under the License.  The present valuation of the royalties under the License was
  calculated  by  applying a 35%  pre-tax  discount  rate to the value of 15% (the
  royalty  rate  payable to the Company  under the License) of the sum of: (A) the
  number of  existing  licenses  multiplied  by the  average of the sum of monthly
  license fees and other fees currently being collected per existing license;  and
  (B) the projected  number of new licenses  that will be sold,  multiplied by the
  average of the sum of initial license fees,  monthly license fees and other fees
  currently being collected per existing license.
  
       The present valuation of the royalty rights under the License assumes that:
  
       o    Royalties  would be collected for five years  following the assignment
            of royalty rights under the License.  This assumption was based on the
            fact  that  the  license  has  been  in  effect  since  1996  and  the
            effectiveness of the product and/or technology may diminish over time.
  
       o    One new  PRISM(R)license  would be sold each  quarter  during the five
            year period  following the  assignment of the royalty rights under the
            License.  This  assumption  was based on  historical  performance - an
            average of  approximately  1.5  licenses per quarter from 1997 through
            2001 have  been  sold  under the  License,  so the Board  assumed  one
            license per quarter on the  assumption  that licenses will become more
            difficult  to  sell  in the  future  due in  part  to  initial  market
            penetration,  new  competitors and related market factors and the fact
            that Retail Decisions,  Inc. was granted  co-exclusive  rights to sell
            PRISM(R)licenses.  The effect of more than one  PRISM(R)license  being
            sold per quarter would increase the present value of the royalties and
            the effect of less than one  PRISM(R)license  being  sold per  quarter
            would reduce the present value of the royalties.  The Company projects
            that the  probability  of selling more than one license per quarter is
            equal to the probability of selling less than one license per quarter.
  
       o    Existing licenses will not be renewed or extended at a rate of 10% per
            year,  resulting in monthly license fee cash flows declining at a rate
            of 10% per year,  except in 2004.  In 2004 cash flows decline 30% from
            2003  based  on  expectations  of  fewer  customer  renewals  of their
            PRISM(R)  licenses.  The present valuation includes this assumption of
            declining cash flows because current customers who generate  royalties
            will  be lost  due to  sublicense  expiration  and  non-renewals,  and
            possibly,  mergers and  acquisitions  within the banking industry that
            eliminate  the need for  PRISM(R).  The  Company  believes  that  this
            assumption  is  reasonable  based on the  nature of  software  and the
            nature of the licensees of the PRISM(R) software.
  
       o    A 35% pre-tax  discount  rate over five years of cash flows.  Based on
            the  inherent  risk  present  in a  company  the size of  Nestor,  the
            variability  of the  assumptions  used, and the fact that no financing
            options were  available,  the Board  concluded  that a cost of capital
            rate of 35% was acceptable.
  
       The foregoing description of the Assignment is qualified in its entirety by
  reference to the MOU and the Assignment Agreement,  copies of which are included
  as  Exhibits  2.1 and 2.2 to this  Form  8-K,  and to the  Company's  Definitive
  Information  Statement on Schedule 14C,  filed with the  Securities and Exchange
  Commission on September 3, 2002 and incorporated  herein by reference as Exhibit
  20.1.
  
                                         3
  <PAGE>
  
  Item 7.    Financial Statements and Exhibits.
  ---------------------------------------------
  
       (b) Pro Forma Financial  Information is incorporated  into this Form 8-K by
  reference to the pro forma  financial  information  contained  in the  Company's
  Definitive  Information Statement on Schedule 14C, filed with the Securities and
  Exchange Commission on September 3, 2002.
  
  
       (c)  Exhibits.  The  following  documents are being filed by the Company as
  exhibits to this report.
  
  
  Exhibits
  --------
  
    2.1     Memorandum  of  Understanding,  dated  as of July  15,  2002,  between
            Nestor, Inc. and Churchill Lane Associates, Inc.
  
    2.2     Assignment of Royalty  Stream,  dated as of September 30, 2002, by and
            between Nestor, Inc. and Churchill Lane Associates, LLC.
  
   20.1*    Definitive Information Statement of the Company on Schedule 14C, filed
            with the Securities and Exchange Commission on September 3, 2002.
  
  
  * Incorporated by reference.
  
  
                                         4
  <PAGE>
  
                                     SIGNATURES
                                     ----------
  
       Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
  Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
  undersigned hereunto duly authorized.
  
  
  
                                                   NESTOR, INC.
                                 -------------------------------------------------
                                                   (Registrant)
  
  
  
                                 By: /s/ Nigel P. Hebborn
                                 -------------------------------------------------
                                    Nigel P. Hebborn
                                    President and Chief Executive Officer
  
  
  Dated:  October 10, 2002
  
  
                                         5
  <PAGE>
  
  
  
  
                                    EXHIBIT INDEX
                                    -------------
  
  Exhibit No.         Document
  -----------         --------
  
       2.1            Memorandum  of  Understanding,  dated as of July  15,  2002,
                      between Nestor, Inc. and Churchill Lane Associates, Inc.
  
       2.2            Assignment  of Royalty  Stream,  dated as of  September  30,
                      2002,  by  and  between  Nestor,  Inc.  and  Churchill  Lane
                      Associates, LLC.
  
  
                                         6
  <PAGE>
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metadata_filer: {"company-data": {"conformed-name": "NESTOR INC", "cik": "0000720851", "assigned-sic": "7372", "irs-number": "133163744", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "000-12965", "film-number": "02786010"}, "business-address": {"street1": "400 MASSASOIT AVE", "street2": "STE 200", "city": "PROVIDENCE", "state": "RI", "zip": "02914", "phone": "4014345522"}, "mail-address": {"street1": "400 MASSASOIT AVE", "street2": "STE 200", "city": "PROVIDENCE", "state": "RI", "zip": "02914"}}
text: SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549
  
                                      FORM 8-K
  
                                   CURRENT REPORT
                       PURSUANT TO SECTION 13 OR 15(d) OF THE
                           SECURITIES EXCHANGE ACT OF 1934
  
                                 SEPTEMBER 30, 2002
  --------------------------------------------------------------------------------
                  Date of Report (Date of Earliest Event Reported)
  
                                    NESTOR, INC.
  --------------------------------------------------------------------------------
               (Exact Name of Registrant as Specified in its Charter)
  
                                      DELAWARE
  --------------------------------------------------------------------------------
                   (State or Other Jurisdiction of Incorporation)
  
                 0-12965                                   13-3163744
  -----------------------------------          -----------------------------------
       (Commission File Number)                 (IRS Employer Identification No.)
  
                          400 MASSASSOIT AVENUE, SUITE 200
                           PROVIDENCE, RHODE ISLAND 02914
  --------------------------------------------------------------------------------
                 (Address of Principal Executive Offices, Zip Code)
  
                                   (401) 434-5522
  --------------------------------------------------------------------------------
                (Registrant's telephone number, including area code)
  
                                         1
  Item 2.  Disposition of Assets.
  -------------------------------
  
       On July 15, 2002,  Nestor,  Inc. (the "Company" or "Nestor") entered into a
  Memorandum of  Understanding  (the "MOU") with  Churchill Lane  Associates,  LLC
  ("CLA").  Pursuant  to the MOU the  Company  agreed to enter into an  assignment
  agreement  with CLA (upon the  satisfaction  or  waiver of  certain  conditions)
  providing for the irrevocable assignment (the "Assignment") to CLA of all of the
  Company's rights to royalty income (from July 1, 2002 and in perpetuity) under a
  license  agreement  (the  "License")  between the Company and ACI Worldwide Inc.
  ("ACI") for the Company's  PRISM(R)  fraud  detection  technology.  The MOU also
  provided a schedule  for advances to the Company by CLA of up to $1.3 million to
  provide interim financing to the Company during the period prior to the closing,
  which advances were used by the Company to pay its operating  expenses and other
  short-term obligations.
  
       On September  30, 2002,  the Company and CLA entered into an  Assignment of
  Royalty  Stream (the  "Assignment  Agreement")  effecting the Assignment and CLA
  paid the Company $3.1 million in cash in consideration  for the Assignment (less
  advances made by CLA pursuant to the MOU).  Royalty  payments by ACI pursuant to
  the License will be made directly to CLA on a monthly  basis.  No obligations or
  other rights of the Company were  transferred or assigned to CLA. The Assignment
  Agreement  does not provide for any minimum  license sale  requirements  (on the
  part of the Company or ACI) or guaranteed  minimum royalty  payments to CLA. The
  Company  intends to use the  proceeds  of the  Assignment  to pay its  operating
  expenses and other short-term obligations.
  
       CLA is a limited  liability company that is owned and controlled by Alan M.
  Wiener,  Alvin J. Siteman and Robert M.  Carroll.  Messrs.  Wiener,  Siteman and
  Carroll are directors of the Company who collectively are the beneficial  owners
  of 8,320,971  shares of Common Stock,  representing  approximately  16.4% of the
  Company's  outstanding  capital  stock.  Mr.  Wiener  is  also  Chairman  of the
  Company's  Board of  Directors  (the  "Board").  Except  for their  interest  as
  principals of CLA, Messrs. Wiener, Siteman and Carroll do not have any direct or
  indirect interest in the Assignment.
  
       The  Company and ACI  entered  into the  License on  February 1, 2001.  The
  License provides ACI with a non-exclusive  right to integrate and distribute all
  of  the  Company's  PRISM(R)  and  fraud  detection  products  throughout  ACI's
  worldwide sales and support  network.  PRISM(R) fraud  detection  solutions help
  financial  institutions detect and prevent fraudulent payments,  manage merchant
  risks and identify  illicit  account usage (money  laundering).  PRISM(R)  fraud
  detection   products  are  used  by  many  of  the  world's  largest   financial
  institutions and represented  approximately  87% of the Company's 2001 revenues.
  The February 1, 2001 agreement  replaced an existing license  agreement with ACI
  dated April 28, 1998. The License is perpetual, non-revocable,  non-transferable
  and non-exclusive.  On May 18, 2001, the Company granted an exclusive license to
  Retail Decisions,  Inc. for the use of PRISM(R) (subject to the License), having
  the effect of creating co-exclusive rights for ACI and Retail Decisions, Inc. to
  use the PRISM(R) technology.
  
       ACI paid $1.1 million (a one-time  initial license fee) to the Company over
  the four months following  February 1, 2001. The License requires the payment of
  a 15% royalty  (effective  since  February 1, 2002),  but no guaranteed  minimum
  royalty  payments are  required.  Although  ACI was required to make  guaranteed
  minimum  royalty  payments  during the first year in an amount of  approximately
  $500,000,  the Company reported  (exclusive of the initial license fee) $590,000
  in royalties  from ACI during the period from February 1, 2001 through  December
  31, 2001 and $635,000 in royalties  during the six-month  period from January 1,
  2002 through June 30, 2002.
  
                                         2
  The Board prepared and considered  projections for future royalty  payments
  under the License.  The present valuation of the royalties under the License was
  calculated  by  applying a 35%  pre-tax  discount  rate to the value of 15% (the
  royalty  rate  payable to the Company  under the License) of the sum of: (A) the
  number of  existing  licenses  multiplied  by the  average of the sum of monthly
  license fees and other fees currently being collected per existing license;  and
  (B) the projected  number of new licenses  that will be sold,  multiplied by the
  average of the sum of initial license fees,  monthly license fees and other fees
  currently being collected per existing license.
  
       The present valuation of the royalty rights under the License assumes that:
  
       o    Royalties  would be collected for five years  following the assignment
            of royalty rights under the License.  This assumption was based on the
            fact  that  the  license  has  been  in  effect  since  1996  and  the
            effectiveness of the product and/or technology may diminish over time.
  
       o    One new  PRISM(R)license  would be sold each  quarter  during the five
            year period  following the  assignment of the royalty rights under the
            License.  This  assumption  was based on  historical  performance - an
            average of  approximately  1.5  licenses per quarter from 1997 through
            2001 have  been  sold  under the  License,  so the Board  assumed  one
            license per quarter on the  assumption  that licenses will become more
            difficult  to  sell  in the  future  due in  part  to  initial  market
            penetration,  new  competitors and related market factors and the fact
            that Retail Decisions,  Inc. was granted  co-exclusive  rights to sell
            PRISM(R)licenses.  The effect of more than one  PRISM(R)license  being
            sold per quarter would increase the present value of the royalties and
            the effect of less than one  PRISM(R)license  being  sold per  quarter
            would reduce the present value of the royalties.  The Company projects
            that the  probability  of selling more than one license per quarter is
            equal to the probability of selling less than one license per quarter.
  
       o    Existing licenses will not be renewed or extended at a rate of 10% per
            year,  resulting in monthly license fee cash flows declining at a rate
            of 10% per year,  except in 2004.  In 2004 cash flows decline 30% from
            2003  based  on  expectations  of  fewer  customer  renewals  of their
            PRISM(R)  licenses.  The present valuation includes this assumption of
            declining cash flows because current customers who generate  royalties
            will  be lost  due to  sublicense  expiration  and  non-renewals,  and
            possibly,  mergers and  acquisitions  within the banking industry that
            eliminate  the need for  PRISM(R).  The  Company  believes  that  this
            assumption  is  reasonable  based on the  nature of  software  and the
            nature of the licensees of the PRISM(R) software.
  
       o    A 35% pre-tax  discount  rate over five years of cash flows.  Based on
            the  inherent  risk  present  in a  company  the size of  Nestor,  the
            variability  of the  assumptions  used, and the fact that no financing
            options were  available,  the Board  concluded  that a cost of capital
            rate of 35% was acceptable.
  
       The foregoing description of the Assignment is qualified in its entirety by
  reference to the MOU and the Assignment Agreement,  copies of which are included
  as  Exhibits  2.1 and 2.2 to this  Form  8-K,  and to the  Company's  Definitive
  Information  Statement on Schedule 14C,  filed with the  Securities and Exchange
  Commission on September 3, 2002 and incorporated  herein by reference as Exhibit
  20.1.
  
                                         3
  Item 7.    Financial Statements and Exhibits.
  ---------------------------------------------
  
       (b) Pro Forma Financial  Information is incorporated  into this Form 8-K by
  reference to the pro forma  financial  information  contained  in the  Company's
  Definitive  Information Statement on Schedule 14C, filed with the Securities and
  Exchange Commission on September 3, 2002.
  
       (c)  Exhibits.  The  following  documents are being filed by the Company as
  exhibits to this report.
  
  Exhibits
  --------
  
    2.1     Memorandum  of  Understanding,  dated  as of July  15,  2002,  between
            Nestor, Inc. and Churchill Lane Associates, Inc.
  
    2.2     Assignment of Royalty  Stream,  dated as of September 30, 2002, by and
            between Nestor, Inc. and Churchill Lane Associates, LLC.
  
   20.1*    Definitive Information Statement of the Company on Schedule 14C, filed
            with the Securities and Exchange Commission on September 3, 2002.
  
  * Incorporated by reference.
  
                                         4
  SIGNATURES
                                     ----------
  
       Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
  Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
  undersigned hereunto duly authorized.
  
                                                   NESTOR, INC.
                                 -------------------------------------------------
                                                   (Registrant)
  
                                 By: /s/ Nigel P. Hebborn
                                 -------------------------------------------------
                                    Nigel P. Hebborn
                                    President and Chief Executive Officer
  
  Dated:  October 10, 2002
  
                                         5
  EXHIBIT INDEX
                                    -------------
  
  Exhibit No.         Document
  -----------         --------
  
       2.1            Memorandum  of  Understanding,  dated as of July  15,  2002,
                      between Nestor, Inc. and Churchill Lane Associates, Inc.
  
       2.2            Assignment  of Royalty  Stream,  dated as of  September  30,
                      2002,  by  and  between  Nestor,  Inc.  and  Churchill  Lane
                      Associates, LLC.
  
                                         6