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UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





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FORM 10-Q


(Mark One)


|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
|- |  | -------------------------------------------------------------------------------------------




For the quarter ended September 30, 2002





or





| ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ----------------------------------------------------------------------------------------




Commission file number: 333-42530





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eSylvan, Inc.


(Exact
name of registrant as specified in its charter)





Maryland (State or other
jurisdiction of incorporation or organization)

52-2257470 (I.R.S.
Employer Identification No.)





506 South Central Avenue, Baltimore, Maryland (Address of principal executive offices)

21202 (ZIP Code)





(410) 843-2622


(Registrants telephone number, including area code)





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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that 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  ̈





As of November 12 , 2002, the registrant had 16,512,484 outstanding shares of Common Stock.





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eSylvan, Inc.





INDEX





PAGEPART I.ITEM 1.

Financial Statements (Unaudited)Balance SheetsSeptember 30, 2002 and December 31, 2001

2Statements of OperationsThree Months Ended September 30, 2002 and 2001

4Statements of OperationsNine Months Ended September 30, 2002 and 2001

5Statements of Cash FlowsNine Months Ended September 30, 2002 and 2001

6Notes to Financial StatementsSeptember 30, 2002

7ITEM 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

11ITEM 4.

Controls and Procedures

15PART II.ITEM 2.

Changes in Securities and Use of Proceeds

17ITEM 5.

Other Information

17ITEM 6.

Exhibits and Reports on Form 8-K

17SIGNATURES

17CERTIFICATIONS




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ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)





eSylvan, Inc.


(a Subsidiary of Sylvan Ventures,
LLC)





BALANCE SHEETS





September 30, 2002


December 31, 2001(Unaudited)ASSETSCurrent assets:Cash

$
281,088


$
250,880Accounts receivable, net of allowance of $48,417and $32,713 at September 30, 2002 and December 31, 2001,
respectively


288,027



85,475Prepaid expenses


174,733



127,456Prepaid royalties to Sylvan


539,153



839,153Total current assets


1,283,001



1,302,964Property and equipment:Furniture and equipment


1,641,703



1,532,672Software


2,516,849



2,430,969Educational content


969,427



969,427Leasehold improvements


5,897



4,3745,133,876



4,937,442Accumulated depreciation and amortization


(3,854,212
)


(2,414,992
)1,279,664



2,522,450Intangible assets:Participation agreements, net of accumulated amortization of $536,480 and $268,240 at September 30, 2002 and December
31, 2001, respectively


1,609,443



1,877,683Total assets

$
4,172,108


$
5,703,097




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eSylvan, Inc.


(a Subsidiary of Sylvan Ventures, LLC)





BALANCE SHEETS (continued)





September 30, 2002


December 31, 2001(Unaudited)LIABILITIES AND DEFICIENCY OF ASSETSCurrent liabilities:Accounts payable and accrued expenses

$
1,168,228


$
979,788Fees payable to Sylvan


210,900



201,740Borrowings under line of credit with Sylvan Ventures


3,119,449



4,469,673Deferred revenue


264,243



387,122Total current liabilities


4,762,820



6,038,323Commitments and contingent liabilities






Deficiency of assets:Series A Convertible Preferred Stock, par value $.001 per share20,000,000 shares authorized, 15,473,684 and
10,526,316 shares issued and outstanding as of September 30, 2002 and December 31, 2001, respectively


15,474



10,526Class A Convertible Common Stock, par value $.001 per share10,000,000 shares authorized, 2,512,484 and 2,452,484
shares issued and outstanding as of September 30, 2002 and December 31, 2001, respectively


2,512



2,452Common stock, par value $.001 per shareauthorized 70,000,000 shares, 14,000,000 shares issued and outstanding as
of September 30, 2002 and December 31, 2001


14,000



14,000Additional paid-in capital


33,472,424



24,019,228Accumulated deficit


(34,095,122
)


(24,381,432
)Total deficiency of assets


(590,712
)


(335,226
)Total liabilities and deficiency of assets

$
4,172,108


$
5,703,097





See accompanying notes.




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eSylvan, Inc.


(a Subsidiary of
Sylvan Ventures, LLC)





STATEMENTS OF OPERATIONS (Unaudited)





Three months ended September 30,2002


2001Revenues

$
858,336


$
140,738Costs and expensesDirect costs of services provided


766,029



271,232Sales and marketing


1,007,632



341,435General and administrative


1,459,420



1,431,008Research and development


494,835



479,608Management services and facilities usage charges from Sylvan


343,425



323,620Total operating costs and expenses


4,071,341



2,846,903Loss from operations


(3,213,005
)


(2,706,165
)Interest expense






91,100Net loss

$
(3,213,005
)

$
(2,797,265
)Basic and diluted loss per common share

$
(0.19
)

$
(0.17
)








See accompanying notes.




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eSylvan, Inc.


(a Subsidiary of Sylvan Ventures, LLC)





STATEMENTS OF OPERATIONS (Unaudited)





Nine months ended September 30,2002


2001Revenues

$
2,104,309


$
203,592Costs and expensesDirect costs of services provided


1,931,800



662,248Sales and marketing


2,743,579



1,515,461General and administrative


4,717,910



5,009,278Research and development


1,349,922



1,970,976Management services and facilities usage charges from Sylvan


1,074,788



848,608Total operating costs and expenses


11,817,999



10,006,571Loss from operations


(9,713,690
)


(9,802,979
)Interest expense






320,105Net loss

$
(9,713,690
)

$
(10,123,084
)Basic and diluted loss per common share

$
(0.59
)

$
(0.64
)





See accompanying notes.




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eSylvan, Inc.


(a Subsidiary of Sylvan Ventures, LLC)





STATEMENTS OF CASH FLOWS (Unaudited)





Nine months ended September 30,2002


2001Operating activitiesNet loss

$
(9,713,690
)

$
(10,123,084
)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization


1,707,460



1,610,462Non-cash compensation expense


58,204



Changes in operating assets and liabilities:Accounts receivable, net


(202,552
)


(32,732
)Prepaid expenses


(47,277
)


(23,043
)Prepaid royalties to Sylvan


300,000



(858,385
)Other assets






7,246Accounts payable and accrued expenses


188,440



(963,837
)Fees payable to Sylvan


9,160



630,962Deferred revenue


(122,879
)


96,488Net cash used in operating activities


(7,823,134
)


(9,655,923
)Investing activitiesPurchase of property and equipment


(237,932
)


(818,735
)Proceeds from sale of property and equipment


41,498



111,335Net cash used in investing activities


(196,434
)


(707,400
)Financing activitiesPayment of direct costs incurred in connection with Class A Convertible Common Stock offering






(173,236
)Proceeds from borrowings under line of credit with Sylvan Ventures


4,855,444



10,847,040Payments on line of credit with Sylvan Ventures


(6,205,668
)


(10,000,000
)Sale of Series A Convertible Preferred Stock to Sylvan Ventures


9,400,000



10,000,000Net cash provided by financing activities


8,049,776



10,673,804Net change in cash


30,208



310,481Cash at beginning of period


250,880



Cash at end of period

$
281,088


$
310,481





See accompanying notes.




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eSylvan, Inc.


(a Subsidiary of Sylvan
Ventures, LLC)





Notes to Financial Statements (Unaudited)





September 30, 2002





1.  Basis of Presentation





The
accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have been included. Certain reclassifications have been made to historical financial statements in order to conform to current period presentation. Operating results for the
three-month and nine-month periods ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. The balance sheet at December 31, 2001 has been derived from the audited financial
statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. For further information, refer to the financial statements
and footnotes thereto included in the eSylvan, Inc. (the Company) annual report on Form 10-K for the year ended December 31, 2001.





Since inception through December 31, 2001, the Companys activities consisted primarily of organizational and research and development activities for its planned principal operations. Accordingly, prior to January 1, 2002, the
Company was considered a development stage company.





2.  New Accounting Pronouncements





In August 2001, the Financial Accounting Standards Board issued Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
Statement No. 144 supersedes Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and provides a single accounting model for long-lived assets to be disposed of. Effective January
1, 2002, the Company adopted the provisions of Statement No. 144 and the adoption of the new standard did not have a material impact on the Companys financial position or results of operations.




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eSylvan, Inc.


(a Subsidiary
of Sylvan Ventures, LLC





Notes to Financial Statements (Unaudited)







3.  Income Taxes





The Company is a majority owned subsidiary of Sylvan Ventures, LLC (Sylvan Ventures). Sylvan Ventures is organized as a limited liability company, and under applicable income tax
regulations, is unable to utilize or pass through losses to its members resulting from its investment in the Company. For the three month and nine month periods ended September 30, 2002 and September 30, 2001, the Company has not reported a tax
benefit from operating losses because of an increase in the valuation allowance for deferred tax assets that result from the inability to determine the realizability of the net operating loss carry forward.





4.  Issuance of Class A Convertible Common Stock





On March 30, 2001, the Company distributed 2,452,484 shares of Class A Common Stock (Class A) pursuant to the receipt of executed participation agreements from the Sylvan Learning Center franchisees that provide
for the franchisees support of the Companys Internet-based delivery of educational services. Upon issuance, $880,156 of direct costs incurred in connection with the stock issuance were removed from deferred stock issuance costs and
recorded as a reduction to additional paid-in-capital. The Company also recorded an intangible asset entitled participation agreements of $2,145,923, which is equal to the estimated fair value of the Class A on the date of issuance. The Company is
amortizing this asset over six years, the estimated average useful life of the participation agreements, using the straight-line method. At September 30, 2002 and December 31, 2001, accumulated amortization totaled $536,480 and $268,240,
respectively.





In connection with this offering, the Company was obligated to pay an amount in cash to each Class A shareholder equal to
$0.35 multiplied by the number of shares received. In April 2001, the Company paid an aggregate amount of $858,385 to the shareholders. These payments have been recorded as prepaid royalties to Sylvan as the license agreement with Sylvan provides
for the offset of this payment against any future royalties due Sylvan. For the three months ended September 30, 2002 and 2001, the Company recognized royalty expense of $100,000 and $2,982, respectively. For the nine months ended September 30, 2002
and 2001, the Company recognized royalty expense of $300,000 and $5,235 respectively.




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eSylvan, Inc.


(a Subsidiary
of Sylvan Ventures, LLC





Notes to Financial Statements (Unaudited)







5.  Preferred Stock





On June 30, 2000, the Company entered into a stock purchase agreement with Sylvan Ventures under which it sold 10,526,316 shares of Series A Convertible Preferred Stock (Preferred
Stock) for aggregate proceeds of $20,000,000. The subscription was paid in six separate closings that occurred at the end of each calendar quarter between September 30, 2000 and December 31, 2001.





In February 2002, the Company issued 4,947,368 additional shares of the Preferred Stock to Sylvan Ventures for a total aggregate purchase price of $9,400,000
(see Note 7).





6.  Loss Per Share





The following table sets forth the computation of basic and diluted loss per common share:





Three months ended September 30,


Nine months ended September 30,2002


2001


2002


2001Net loss

$
(3,213,005
)

$
(2,797,265
)

$
(9,713,690
)

$
(10,123,084
)Weighted-average common and Class A common shares outstanding during the period


16,512,484



16,452,484



16,499,517



15,913,477Shares used in computations


16,512,484



16,452,484



16,499,517



15,913,477Basic and diluted loss per common share

$
(0.19
)

$
(0.17
)

$
(0.59
)

$
(0.64
)





Basic and diluted loss per common share are equal because the assumed conversion of
preferred stock and exercise of outstanding stock options would result in the computation being antidilutive as a result of the net loss in each period presented.




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eSylvan, Inc.


(a Subsidiary
of Sylvan Ventures, LLC





Notes to Financial Statements (Unaudited)







7.  Liquidity and Capital Resources





The Company has a revolving credit facility with Sylvan Ventures under which it may borrow, through December 31, 2002, up to $10,000,000. At September 30, 2002
and December 31, 2001, the Company had $3,119,449 and $4,469,673 outstanding under the line of credit, respectively.





In February 2002,
the Company issued 4,947,368 additional shares of the Preferred Stock to Sylvan Ventures for a total purchase price of $9,400,000. The Preferred Stock was issued with the same terms as the existing Preferred Stock. The Company used $6,205,668 of the
proceeds to repay the line of credit with Sylvan Ventures and $3,194,332 to fund operations of the Company.





In July 2002, Sylvan
Ventures agreed to purchase 2,000,000 additional shares of the Preferred Stock for a total purchase price of $3,800,000. In November 2002, Sylvan Ventures agreed to purchase 1,578,947 additional shares of the Preferred Stock for a total purchase
price of $3,000,000. This Preferred Stock will be issued with the same terms and price as the previously issued Preferred Stock. As of September 30, 2002, the Company had not yet issued these securities. Proceeds will be utilized to repay amounts
due under the line of credit and fund operations of the Company.





The Companys operating losses, forecasted operating losses and
limited committed funding sources raise substantial doubt about the Companys ability to continue as a going concern. Management is actively pursuing the expansion of its online tutoring business and is also pursuing additional financing
through Sylvan Ventures. However, there can be no assurance that the Company will be able to generate sufficient cash flow from operations or additional financing to meet its development and operating needs, or that such financing would be available
on terms acceptable to the Company.




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I
TEM 2.    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





All statements contained herein that are not historical facts, including but not limited to the Companys future development plans and future capital requirements, are based on current
expectations. These statements are forward looking in nature and involve a number of risks and uncertainties. Actual results may differ materially. Factors that could cause actual results to differ materially include the following: the reliability
of our technology, our efforts to establish, maintain and strengthen the eSylvan brand, consumer acceptance of online tutoring, our ability to secure additional financing and other risk factors described in the Companys reports filed from time
to time with the Securities and Exchange Commission. The Company wishes to caution readers not to place undue reliance on any such forward looking statements, which statements are made pursuant to the Private Securities Litigation Reform Act of 1995
and, as such, speak only as of the date made.





The Company delivers supplemental education to families and
children through a variety of applications on the Internet. From October 1, 1999 (date of inception) through December 31, 2001, the Company was a development stage business. The Companys lack of an operating history makes it difficult to
evaluate its business and prospects. The Companys results of operations and future prospects should be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development,
particularly companies dependent upon the relatively new and rapidly evolving Internet environment.





Results of Operations





Comparison of results for the three months ended September 30, 2002 to results for the three months ended September 30, 2001





The Company incurred net losses of $3.2 million and $2.8 million for the three months ended September 30,
2002 and 2001, respectively.





Revenues for the three months ended September 30, 2002 and September 30, 2001 were
$0.9 million and $0.1 million, respectively. The increase in revenues was due to higher enrollments resulting from an increase in the amount of media spending combined with improved effectiveness of media spending.





During the three months ended September 30, 2002 and 2001, the Company incurred $4.1 million and $2.8 million, respectively, of total
operating costs and other expenses in implementing its business plan.




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Direct costs of services provided for the three months ended September 30, 2002
and September 30, 2001 were $0.8 million and $0.3 million, respectively, which consisted primarily of labor for instructional, technical and operations support. The $0.5 million increase was the direct result of higher enrollments and corresponding
tutoring sessions delivered.





Sales and marketing expenses increased by $0.7 million, or 195%, to $1.0 million for
the three months ended September 30, 2002, from $0.3 million for the three months ended September 30, 2001. The increase in sales and marketing expenses was due to the Companys increased efforts to enroll students. The Company incurs sales and
marketing costs for media and marketing campaigns and for establishing and growing the eSylvan brand.





General and administrative expenses increased 2.0%, to $1.5 million for the three months ended September 30, 2002, from $1.4 million for the three months ended September 30, 2001. General and administrative expenses consist of
personnel costs, professional fees, maintenance expenses, depreciation and other expenses. During 2002, the Company and Sylvan Learning Systems, Inc., the Companys majority stockholder (Sylvan), identified certain information
systems functions that could be performed more economically by Sylvan. Accordingly, general and administrative expenses reflect the outsourcing of approximately $0.1 million of additional functions to Sylvan, which led to an increase in management
services and facilities usage charges from Sylvan and a reduction in general and administrative expenses.





Research and development expenses increased 3.2%, to $0.5 million for the three months ended September 30, 2002, from $0.5 million for the three months ended September 30, 2001.





Management services and facilities usage charges from Sylvan increased 6.1%, to $0.3 million for the three months ended September 30, 2002, from $0.3 million for the
three months ended September 30, 2001. Under the Companys services agreement with Sylvan, Sylvan provides management services, information systems support services, corporate accounting services, database management services, human resources
and payroll services, general liability insurance and legal services to the Company. During 2002, certain information systems functions previously performed by the Company were transferred to Sylvan, resulting in an increase of $0.1 million in these
charges.





The Company incurred no interest expense for the three months ended September 30, 2002, compared to $0.1
million for the three months ended September 30, 2001. Effective December 31, 2001, Sylvan Ventures agreed to forgive all past and future interest on the line of credit between the Company and Sylvans affiliate, Sylvan Ventures.




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Comparison of results for the nine months ended September 30, 2002 to results for the nine months
ended September 30, 2001





The Company incurred net losses of $9.7 million and $10.1 million for the nine
months ended September 30, 2002 and 2001, respectively.





Revenues for the nine months ended September 30, 2002 and
September 30, 2001 were $2.1 million and $0.2 million, respectively. The increase in revenues was due to higher enrollments resulting from an increase in the amount of media spending combined with improved effectiveness of media spending.





During the nine months ended September 30, 2002 and 2001, the Company incurred $11.8 million and $10.0 million,
respectively, of total operating costs and other expenses in implementing its business plan.





Direct costs of
services provided for the nine months ended September 30, 2002 and September 30, 2001 were $1.9 million and $0.7 million, respectively, which consisted primarily of labor for instructional, technical and operations support. The $1.3 million increase
was the direct result of the significantly higher enrollments and corresponding tutoring sessions delivered.





Sales and marketing expenses increased by $1.2 million, or 81%, to $2.7 million for the nine months ended September 30, 2002, from $1.5 million for the nine months ended September 30, 2001. The increase in sales and marketing
expenses was due to the Companys increased efforts to enroll students. The Company incurs sales and marketing costs for media and marketing campaigns and for establishing and growing the eSylvan brand.





General and administrative expenses decreased by $0.3 million, or 5.8%, to $4.7 million for the nine months ended September 30, 2002, from
$5.0 million for the nine months ended September 30, 2001. General and administrative expenses consist of personnel costs, professional fees, maintenance expenses, depreciation and other expenses. This decrease in general and administrative expenses
resulted from the outsourcing of approximately $0.3 million of additional functions to Sylvan, which led to an increase in management services and facilities usage charges from Sylvan and a reduction in general and administrative expenses.





Research and development expenses decreased by $0.6 million, or 31.5%, to $1.3 million for the nine months ended
September 30, 2002, from $2.0 million for the nine months ended September 30, 2001. The decrease in research and development expenses was due to the fact that the Companys on-line tutoring technical infrastructure reached a more mature stage
in its development.





Management services and facilities usage charges from Sylvan increased by $0.2 million, or
26.7%, to $1.1 million for the nine months ended September 30, 2002, compared to $0.8 million for the nine months ended September 30, 2001. This increase




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resulted from the outsourcing to Sylvan, during 2002, of certain information systems functions previously performed by the Company.





The Company incurred no interest expense for the nine months ended September 30, 2002, compared to $0.3 million
for the nine months ended September 30, 2001. Effective December 31, 2001, Sylvan Ventures agreed to forgive all past and future interest on the line of credit.





Liquidity and Capital Resources





The company used net cash in its operating
activities for the nine months ended September 30, 2002 of $7.8 million, primarily to fund the Companys $7.9 million loss before depreciation and amortization and other non-cash charges. The Company used net cash in its operating activities
for the nine months ended September 30, 2001 of $9.7 million, primarily to fund the Companys loss before depreciation and amortization of $8.5 million and prepaid royalties to Sylvan of $0.9 million. Capital expenditures for the nine months
ended September 30, 2002 were $0.2 million, consisting primarily of expenditures for computer software. Capital expenditures for the nine months ended September 30, 2001 were $0.8 million, consisting primarily of educational content and computer
software.





The Company has a revolving credit facility with Sylvan Ventures that expires on December 31, 2002,
under which the Company may borrow up to $10.0 million. Through December 31, 2001, borrowings under the line of credit bore interest on the unpaid principal balance equal to the prime-lending rate. Effective December 31, 2001, Sylvan Ventures agreed
to forgive all past and future interest. As of September 30, 2002, $3.1 million was outstanding under the line of credit. Proceeds from the sale of Preferred Stock, as discussed below, will be utilized to repay amounts due under the line of credit.





In February 2002, the Company issued 4,947,368 shares of the Preferred Stock to Sylvan Ventures for an aggregate
purchase price of $9.4 million. The Company used $6.2 million of the proceeds to repay the then outstanding balance on the line of credit with Sylvan Ventures. The proceeds not used to repay the line of credit with Sylvan Ventures were used to fund
operations of the Company.





In July 2002, Sylvan Ventures agreed to purchase 2,000,000 additional shares of
Preferred Stock for a total purchase price of $3.8 million. In November 2002, Sylvan Ventures agreed to purchase 1,578,947 additional shares of the Preferred Stock for a total purchase price of $3.0 million. This Preferred Stock will be issued with
the same terms and price as the previously issued Preferred Stock. As of September 30, 2002, the Company had not issued these securities.





The Company expects to incur significant negative cash flow from operations for the foreseeable future. The Company believes that its line of credit with Sylvan Ventures and the $6.8 million committed by Sylvan Ventures will
satisfy its cash requirements through January 2003. However, the Company does not expect that its current resources will be sufficient to support its growth and operations until it becomes




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profitable. The Company cannot be certain that it will be able to raise additional funds as needed, or, if it can, that it will be able to do so
on terms that it deems acceptable. In particular, potential investors may be unwilling to invest in the Company due to Sylvan Ventures voting control over it. The Company is unable to predict the amount of additional financing it will need
because the amount is substantially dependent upon the Companys success in implementing its business plan, including its marketing and advertising efforts and a variety of factors outside the Companys control, such as unexpected
technical difficulties with the on-line tutoring infrastructure and other factors discussed herein. The Companys failure to obtain the funds necessary to establish and grow its business will have a material adverse effect on the business and
the Companys ability to generate and grow revenues. If the Company raises funds through the issuance of equity or equity-related securities, these securities will likely have rights, preferences or privileges senior to those of the rights of
the Companys Common Stock, and current holders of the Common Stock will experience dilution, which may be substantial.





The Companys current and projected operating losses and limited committed funding raise substantial doubt about its ability to continue as a going concern. The Companys financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and classification of assets or the amount and classification of liabilities that may result from the outcome of this uncertainty.





Impact of Recently Issued Accounting Standards





In August 2001, the Financial Accounting Standards Board issued Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Statement No. 144 supersedes Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and provides a single accounting model for long-lived assets to be disposed of. Effective January 1, 2002, the Company adopted the provisions of
Statement No. 144. The adoption of the new standard did not have a material effect on the Companys financial position or results of operation.





Effects of Inflation





Inflation has not had a material effect on the Companys revenues and expenses since inception on October 1, 1999. Inflation is not expected to have a material future effect for the foreseeable future.





ITEM 4.    
CONTROLS AND PROCEDURES





As of November 11, 2002 (the Evaluation Date), an
evaluation was performed under the supervision and with the participation of the Companys management, including the CEO and CFO, of the effectiveness of the design and operation of the




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Companys disclosure controls and procedures. Based on that evaluation, the Companys management, including its CEO and CFO, concluded
that the Companys disclosure controls and procedures were effective as of the Evaluation Date to ensure that information required to be disclosed in the reports that the Company files and submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported as and when required. There have been no significant changes in the Companys internal controls or in other factors that could significantly affect internal controls subsequent to the Evaluation Date
and no corrective actions with regard to significant deficiencies and material weaknesses.




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PART IIOTHER INFORMATION





ITEM 2.    
CHANGES IN SECURITIES AND USE OF PROCEEDS





See Note 7 to Notes to Financial Statements
(unaudited) filed with this Form 10-Q, which is incorporated herein by reference.





ITEM 5.





The Company has filed with the Securities
and Exchange Commission the certifications of its Chief Executive Officer and Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002 (the Act) as an exhibit to this Quarterly Report on Form 10-Q. The
Certifications required by Section 302 of the Act are included as part of this Quarterly Report on Form 10-Q.





ITEM
6.    
EXHIBITS AND REPORTS ON FORM 8-K





(a)  Exhibits





99.1  Certification of Chief Executive Officer under Section 906 of Sarbanes-Oxley Act
of 2002.


99.2  Certification of Chief Financial Officer under Section 906 of Sarbanes-Oxley Act of
2002.





(b)  Reports on Form 8-K





The Company did not file any reports on Form 8-K during the three months ended September 30, 2002.





SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on behalf by the undersigned thereunto duly authorized.





eSylvan, Inc.Date:  November 12, 2002

/s/    David S. GravesDavid S. Graves President and Chief Operating OfficerDate:  November 12, 2002

/s/    Barry C. OffuttBarry C. Offutt Chief Financial Officer




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