<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    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 June 30, 2002

                           ---------------------------

                                       or

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

                           ---------------------------

                        Commission file number: 333-42530

                           ---------------------------

                                  eSylvan, Inc.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

             Maryland                                   52-2257470
-------------------------------              -----------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

       506 South Central Avenue, Baltimore, Maryland             21202
       ---------------------------------------------          ----------
         (Address of principal executive offices)             (ZIP Code)

                                 (410) 843-2622
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

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

<PAGE>

                                  eSYLVAN, INC.

                                      INDEX

<TABLE>
<CAPTION>
PART I.                                                                        PAGE
<S>                                                                            <C>
ITEM 1.     Financial Statements (Unaudited)

            Balance Sheets - June 30, 2002 and December 31,

               2001 ..........................................................   2

            Statements of Operations - Three Months Ended June 30, 2002

               and 2001 ......................................................   4

            Statements of Operations - Six Months Ended June 30, 2002

               and 2001 ......................................................   5

            Statements of Cash Flows - Six Months Ended June 30, 2002

               and  2001 .....................................................   6

            Notes to Financial Statements - June 30, 2002 ....................   7

ITEM 2.     Management's Discussion and Analysis of Financial Condition

               and Results of Operations .....................................  11

ITEM 3.     Quantitative and Qualitative Disclosure of Market Risk ...........  15

PART II.

ITEM 2.     Changes in Securities and Use of Proceeds ........................  16

ITEM 5.     Other Information ................................................  16

ITEM 6.     Exhibits and Reports on Form 8-K .................................  16

            SIGNATURES
</TABLE>

<PAGE>

ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)

                                  eSylvan, Inc.
                     (a Subsidiary of Sylvan Ventures, LLC)

                                 Balance Sheets

<TABLE>
<CAPTION>
                                                              June 30,     December 31,
                                                                2002           2001
                                                          -------------------------------
                                                            (Unaudited)
<S>                                                         <C>            <C>
Assets
Current assets:
   Cash                                                     $   349,430    $   250,880
   Accounts receivable, net of allowance of $48,745 and
     $32,713 at June 30, 2002 and December 31, 2001,
     respectively                                               284,979         85,475
   Prepaid expenses                                             140,217        127,456
   Prepaid royalties to Sylvan                                  639,153        839,153
                                                            -----------    -----------
Total current assets                                          1,413,779      1,302,964

Property and equipment:
   Furniture and equipment                                    1,599,743      1,532,672
   Software                                                   2,487,992      2,430,969
   Educational content                                          969,427        969,427
   Leasehold improvements                                         4,374          4,374
                                                            -----------    -----------
                                                              5,061,536      4,937,442
   Accumulated depreciation and amortization                 (3,453,827)    (2,414,992)
                                                            -----------    -----------
                                                              1,607,709      2,522,450

Intangible assets:
   Participation agreements, net of accumulated
     amortization of $447,067 and $268,240 at June 30,
     2002 and December 31, 2001, respectively                 1,698,856      1,877,683
                                                            -----------    -----------
Total assets                                                $ 4,720,344    $ 5,703,097
                                                            ===========    ===========
</TABLE>

                                       2

<PAGE>

                                  eSylvan, Inc.
                     (a Subsidiary of Sylvan Ventures, LLC)

                           Balance Sheets (continued)

<TABLE>
<CAPTION>
                                                                         June 30,       December 31,
                                                                           2002             2001
                                                                      ------------------------------
                                                                       (Unaudited)
<S>                                                                    <C>             <C>
Liabilities and stockholders' equity (deficit)
Current liabilities:
   Accounts payable and accrued expenses                               $  1,330,400    $   9 79,788
   Fees payable to Sylvan                                                   186,350         201,740
   Borrowings under line of credit with Sylvan Ventures                     169,060       4,469,673
   Deferred revenue                                                         412,241         387,122
                                                                      ------------------------------
Total current liabilities                                                 2,098,051       6,038,323

Commitments and contingent liabilities                                            -               -

Stockholders' equity (deficit):
   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
        June 30, 2002 and December 31, 2001, respectively                    15,474          10,526
   Class 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
        June 30, 2002 and December 31, 2001, respectively                     2,512           2,452
   Common stock, par value $.001 per share - authorized
        70,000,000 shares, 14,000,000 shares issued and
        outstanding as of June 30, 2002 and
        December 31, 2001                                                    14,000          14,000
   Additional paid-in capital                                            33,472,424      24,019,228
   Accumulated deficit                                                  (30,882,117)    (24,381,432)
                                                                      ------------------------------
Total stockholders' equity (deficit)                                      2,622,293        (335,226)
                                                                      ------------------------------
Total liabilities and stockholders' equity (deficit)                   $  4,720,344    $  5,703,097
                                                                      ==============================
</TABLE>

See accompanying notes.

                                       3

<PAGE>

                                  eSylvan, Inc.
                     (a Subsidiary of Sylvan Ventures, LLC)

                      Statements of Operations (Unaudited)

                                                  Three months ended June 30,
                                                  ---------------------------
                                                      2002           2001
                                                  ---------------------------

Revenues                                          $   729,789    $    32,721

Costs and expenses
Direct costs of services provided                     667,135        204,093
Sales and marketing                                   934,425        755,488
General and administrative                          1,621,566      1,913,156
Research and development                              418,703        532,155
Management services and facilities usage
 charges from Sylvan                                  337,635        238,727
                                                  ---------------------------
Total operating costs and expenses                  3,979,464      3,643,619
                                                  ---------------------------

Loss from operations                               (3,249,675)    (3,610,898)
Interest expense                                            -        108,000
                                                  ---------------------------
Net loss                                          $(3,249,675)   $(3,718,898)
                                                  ===========================

Basic and diluted loss per common share           $     (0.20)   $     (0.23)
                                                  ===========================


See accompanying notes.

                                       4

<PAGE>

                                  eSylvan, Inc.
                     (a Subsidiary of Sylvan Ventures, LLC)

                      Statements of Operations (Unaudited)

                                                   Six months ended June 30,
                                                 ----------------------------
                                                      2002           2001
                                                 ----------------------------

Revenues                                          $ 1,245,973    $    62,854

Costs and expenses
Direct costs of services provided                   1,165,771        391,016
Sales and marketing                                 1,735,947      1,174,026
General and administrative                          3,269,238      3,578,271
Research and development                              855,087      1,491,368
Management services and facilities usage
 charges from Sylvan                                  720,615        524,987
                                                 ----------------------------
Total operating costs and expenses                  7,746,658      7,159,668
                                                 ----------------------------

Loss from operations                               (6,500,685)    (7,096,814)
Interest expense                                            -        229,005
                                                 ----------------------------
Net loss                                          $(6,500,685)   $(7,325,819)
                                                 ============================

Basic and diluted loss per common share           $     (0.39)   $     (0.47)
                                                 ============================


See accompanying notes.

                                       5

<PAGE>

                                  eSylvan, Inc.
                     (a Subsidiary of Sylvan Ventures, LLC)

                      Statements of Cash Flows (Unaudited)

<TABLE>
<CAPTION>
                                                           Six months ended June 30,
                                                         ------------------------------
                                                               2002           2001
                                                         ------------------------------
<S>                                                        <C>            <C>
 Operating activities
 Net loss                                                  $(6,500,685)   $(7,325,819)
 Adjustments to reconcile net loss to net cash
    used in operating activities:
     Depreciation and amortization                           1,217,662      1,013,826
     Non-cash compensation expense                              58,204              -
     Changes in operating assets and liabilities:
       Accounts receivable, net                               (199,504)       (61,306)
       Prepaid expenses                                        (12,761)       (17,988)
       Prepaid royalties to Sylvan                             200,000       (858,385)
       Other assets                                                  -          7,246
       Accounts payable and accrued expenses                   350,612       (780,304)
       Fees payable to Sylvan                                  (15,390)       767,156
       Deferred revenue                                         25,119         63,282
                                                         ------------------------------
 Net cash used in operating activities                      (4,876,743)    (7,192,292)
                                                         ------------------------------

 Investing activities

 Purchase of property and equipment                           (165,592)      (810,698)
 Proceeds from sale of property and
     equipment                                                  41,498        111,335
 Due from employee                                                   -       (175,000)
                                                         ------------------------------
 Net cash used in investing activities                        (124,094)      (874,363)
                                                         ------------------------------

 Financing activities
 Payment 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                                     1,905,055      8,285,686
 Payments on line of credit with Sylvan
    Ventures                                                (6,205,668)    (6,666,667)
 Sale of Series A Convertible Preferred Stock to
    Sylvan Ventures                                          9,400,000      6,666,667
                                                         ------------------------------
 Net cash provided by financing activities                   5,099,387      8,112,450
                                                         ------------------------------

 Net change in cash                                             98,550         45,795
 Cash at beginning of period                                   250,880              -
                                                         ------------------------------
 Cash at end of period                                     $   349,430    $    45,795
                                                          =============================
</TABLE>

See accompanying notes.

                                       6

<PAGE>

                                  eSylvan, Inc.
                     (a Subsidiary of Sylvan Ventures, LLC)


                    Notes to Financial Statements (Unaudited)

                                  June 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 six month periods ended
June 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.

                                       7

<PAGE>

                                  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 six month periods ended June 30, 2002 and June 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 June 30, 2002 and
December 31, 2001, accumulated amortization totaled $447,067 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 June
30, 2002 and 2001, the Company recognized royalty expense of $100,000 and
$1,375, respectively. For the six months ended June 30, 2002 and 2001, the
Company recognized royalty expense of $200,000 and $2,253, respectively.

                                       8

<PAGE>

                                  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") during the period from September 2000
through December 2001 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. During the six months
ended June 30, 2001, 3,508,772 additional shares were issued for aggregate
consideration of $6,666,667.

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:

<TABLE>
<CAPTION>
                                                Three months ended June 30,             Six months ended June 30,
                                           ---------------------------------------------------------------------------
                                                 2002               2001                2002                 2001
                                                 ----               ----                ----                 ----
<S>                                        <C>                <C>                  <C>                  <C>
Net loss                                   $   (3,249,675)    $   (3,718,898)      $   (6,500,685)      $  (7,325,819)
                                           ==================================     ====================================

Weighted-average common and Class A
   common shares outstanding during the
   period                                      16,512,484         16,452,484           16,492,926          15,639,506
                                           ----------------------------------     ------------------------------------
Shares used in computations                    16,512,484         16,452,484           16,492,926          15,639,506
                                           ==================================     ====================================

Basic and diluted loss per
common share                               $        (0.20)   $         (0.23)     $         (0.39)      $       (0.47)
                                           ==================================     ====================================
</TABLE>

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.

                                       9

<PAGE>

                                  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 June 30, 2002 and
December 31, 2001, the Company had $169,060 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. This Preferred
Stock will be issued with the same terms and price as the existing Preferred
Stock.

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.

                                       10

<PAGE>


ITEM 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 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 June 30, 2002 to results for
the three months ended June 30, 2001

         The Company incurred net losses of $3.2 million and $3.7 million for
the three months ended June 30, 2002 and 2001, respectively.

         Revenues for the three months ended June 30, 2002 and June 30, 2001
were $0.7 million and $33,000, respectively. The increase in revenues is due to
increased enrollments resulting from improved effectiveness of media spending
combined with an increase in the amount of media spending.

         During the three months ended June 30, 2002 and 2001, the Company
incurred $4.0 million and $3.6 million, respectively, in operating costs and
other expenses in implementing its business plan.

                                       11

<PAGE>

         Direct costs of services provided for the three months ended June 30,
2002 and June 30, 2001 were $0.7 million and $0.2 million, respectively, which
primarily consisted of labor for instructional, technical and operations support
and installation. The increase of $0.5 million was a direct result of the
increase in new enrollments and corresponding tutoring sessions delivered.

         Sales and marketing expenses increased by $0.2 million, or 24%, to $0.9
million for the three months ended June 30, 2002, compared to $0.8 million for
the three months ended June 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, which include costs to produce
materials.

         General and administrative expenses decreased by $0.3 million, or 15%,
to $1.6 million for the three months ended June 30, 2002, compared to $1.9
million for the three months ended June 30, 2001. General and administrative
expenses consist of personnel costs, professional fees, maintenance expenses,
depreciation and other expenses. The decrease in general and administrative
expenses reflects a reduction in personnel and consulting costs of $0.2 million
and 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.

         Research and development expenses decreased by $0.1 million, or 21%, to
$0.4 million for the three months ended June 30, 2002, compared to $0.5 million
for the three months ended June 30, 2001. The decrease in research and
development expenses was due to the Company's on-line tutoring technical
infrastructure reaching a more mature stage in its development.

         Management services and facilities usage charges from Sylvan increased
by $0.1 million, or 41%, to $0.3 million for the three months ended June 30,
2002, compared to $0.2 million for the three months ended June 30, 2001. Under a
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. The Company and Sylvan identified certain
information systems functions which could be performed more economically by
Sylvan. Accordingly, during 2002, certain information systems functions were
performed by Sylvan, resulting in an increase of $0.1 million in these charges.

         Interest and other expenses decreased by $0.1 million to no charge for
the three months ended June 30, 2002, compared to $0.1 million for the three
months ended June 30, 2001. Effective December 31, 2001, Sylvan Ventures agreed
to forgive all past and future interest on the line of credit.

Comparison of results for the six months ended June 30, 2002 to results for the
six months ended June 30, 2001

                                       12

<PAGE>

         The Company incurred net losses of $6.5 million and $7.3 million for
the six months ended June 30, 2002 and 2001, respectively.

         Revenues for the six months ended June 30, 2002 and June 30, 2001 were
$1.2 million and $0.1 million, respectively. The increase in revenues is due to
increased enrollments resulting from improved effectiveness of media spending
combined with an increase in the amount of media spending.

         During the six months ended June 30, 2002 and 2001, the Company
incurred $7.7 million and $7.2 million, respectively, in operating costs and
other expenses in implementing its business plan.

         Direct costs of services provided for the six months ended June 30,
2002 and June 30, 2001 were $1.2 million and $0.4 million, respectively, which
primarily consisted of labor for instructional, technical and operations support
and installation. The increase of $0.8 million was a direct result of the
significant increase in enrollments and corresponding tutoring sessions
delivered.

         Sales and marketing expenses increased by $0.6 million, or 48%, to $1.7
million for the six months ended June 30, 2002, compared to $1.2 million for the
six months ended June 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, which include costs to produce materials.

         General and administrative expenses decreased by $0.3 million, or 9%,
to $3.3 million for the six months ended June 30, 2002, compared to $3.6 million
for the six months ended June 30, 2001. General and administrative expenses
consist of personnel costs, professional fees, maintenance expenses,
depreciation and other expenses. The decrease in general and administrative
expenses reflects a reduction in personnel and consulting costs of $0.2 million
and the outsourcing of approximately $0.2 million of additional functions to
Sylvan, which led to an increase in management services and facilities usage
charges from Sylvan.

         Research and development expenses decreased by $0.6 million, or 43%, to
$0.9 million for the six months ended June 30, 2002, compared to $1.5 million
for the six months ended June 30, 2001. The decrease in research and development
expenses was due to the Company's on-line tutoring technical infrastructure
reaching a more mature stage in its development.

         Management services and facilities usage charges from Sylvan increased
by $0.2 million, or 37%, to $0.7 million for the six months ended June 30, 2002,
compared to $0.5 million for the six months ended June 30, 2001. Under a
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. The Company and Sylvan identified certain
information systems functions which could be performed more economically by
Sylvan.

                                       13

<PAGE>

Accordingly, during 2002, certain information systems functions were performed
by Sylvan resulting in an increase of $0.2 million in these charges.

Interest and other expenses decreased by $0.2 million to no charge for the six
months ended June 30, 2002, compared to $0.2 million for the six months ended
June 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

         Net cash used in operating activities was $4.9 million for the six
months ended June 30, 2002, compared to $7.2 million for the six months ended
June 30, 2001. The decrease in cash used in operating activities for the six
months ended June 30, 2002 compared to the six months ended June 30, 2001
resulted primarily from a $1.0 million reduction in the Company's net loss
before depreciation and amortization, a decrease in the cash used to fund
prepaid royalties to Sylvan and a reduction in capital expenditures. Capital
expenditures for the six months ended June 30, 2002 were $0.2 million,
consisting primarily of expenditures for software. Capital expenditures for the
six months ended June 30, 2001 were $0.8 million, consisting primarily of
computer and related equipment, educational content and 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
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 June 30, 2002, $169,060 was outstanding 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 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 the Preferred Stock for a total purchase price of $3,800,000. This
Preferred Stock will be issued with the same terms and price as the existing
Preferred Stock.

         The Company expects to incur significant negative cash flow from
operations for the foreseeable future. Although the Company believes that its
line of credit with Sylvan Ventures and the $3.8 million from Sylvan Ventures'
additional funding commitment will satisfy its cash requirements through October
2002, the Company does not expect that the current resources will be sufficient
to support its growth and operations until the Company is profitable. The
Company cannot guarantee that it will be able to raise additional funds, 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

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<PAGE>

due to Sylvan Venture's voting control over it. The Company is unable to predict
the amount of additional financing it will need because such amount is
substantially dependent upon the success of the business plan, marketing and
advertising efforts and 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 raise the funds
necessary to establish and grow the business would 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, equity-related or
debt securities, these securities will likely have rights, preferences or
privileges senior to those of the rights of our existing common stock, and our
current common stockholders may experience dilution.

         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 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 and the adoption of the new standard did not have a material impact 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK

         Market risk is the risk of loss to future earnings, to fair values or
to future cash flows that may result from changes in the price of financial
instruments. The Company is exposed to market risks primarily through changes in
interest rates. The Company does not utilize derivatives and therefore exposure
to market risks is managed through its regular operating and financing
activities.

         The Company's revolving credit facility with Sylvan Ventures does not
bear interest. Accordingly, a change in market interest rates would not impact
the Company's results of operations.

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<PAGE>

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. OTHER INFORMATION

       The Registrant has filed with the Securities and Exhcange Commission the
       Certifications of its Chief Executive Officer and Chief Financial Officer
       required by Section 906 of the Sarbanes-Oxley Act of 2002.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

   (a) Exhibits

       None

   (b) Reports on Form 8-K

       The Company did not file any reports on Form 8-K during the three months
       ended June 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: August 13, 2002                   /s/ David S. Graves
                                        ---------------------------
                                        David S. Graves
                                        President and Chief Operating Officer


Date: August 13, 2002                   /s/ Barry C. Offutt
                                        ---------------------------
                                        Barry C. Offutt
                                        Chief Financial Officer

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