<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                  FORM 10-Q/A

                                   (Mark One)

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

                For the quarterly period ended September 30, 2001

                                       OR

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

                        For the transition period from to

                        Commission File number 000-27817

                               EDISON SCHOOLS INC.
             (Exact name of registrant as specified in its charter)

                 Delaware                                    13-3915075
(State or other jurisdiction of incorporation             (I.R.S. Employer
              or organization)                           Identification No.)

    521 Fifth Avenue, 11th Floor, New York, NY                    10175
     (Address of principal executive offices)                  (Zip Code)

        Registrant's telephone number, including area code (212) 419-1600

Former name, former address and former fiscal year, if changed since last report

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
  the preceding 12 months (or for such shorter period that the registrant was
    required to file such reports), and (2) has been subject to such filing
                       requirements for the past 90 days.

                 (1) Yes |X| No |_|       (2) Yes |X| No |_|

 The number of shares outstanding of each of the Registrant's classes of common
                                     stock:

                                   51,367,676

 (Number of shares of Class A Common Stock Outstanding as of October 31, 2001)

                                    2,180,972

 (Number of shares of Class B Common Stock Outstanding as of October 31, 2001)


                                       1
<PAGE>
                                EXPLANATORY NOTE


         The purpose of this Amendment No. 1 to the Quarterly Report on Form
10-Q of Edison Schools Inc. (the "Company") for the quarter ended September 30,
2001 is to restate the Company's fiscal quarter and to modify related
disclosures for restatements to correspond with those that have been filed in
the Company's Amended Annual Reports on Form 10-K/A for the fiscal years ended
June 30, 2001 and 2002; SEE NOTE 3.

         The Company has amended and restated in its entirety each item of the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001
that has been affected by the restatements. This Amendment No. 1 on Form 10-Q/A
does not reflect events occurring after the filing of the original Form 10-Q, or
modify or update those disclosures (including disclosures relating to risks,
uncertainties and other factors that may affect the Company's future
performance) in any way, except as required to reflect the effects of the
restatements.

         For current information regarding risks, uncertainties and other
factors that may affect the Company's future performance, please see "Additional
Risk Factors That May Affect Future Results " included in Item 7 of Part II of
the Company's Annual Report on Form 10-K/A for the year ended June 30, 2002.
Please also see the Company's Annual Report on Form 10-K/A for the year ended
June 30, 2002 for changes to the Company's revenue recognition policy made as a
result of recent accounting guidance.


                               EDISON SCHOOLS INC.
                    INDEX TO QUARTERLY REPORT ON FORM 10-Q/A
                    FOR THE QUARTER ENDED SEPTEMBER 30, 2001

<TABLE>
<CAPTION>
                                                                                            Page
                                                                                            ----
<S>                                                                                         <C>
PART I. FINANCIAL INFORMATION
        ITEM 1. FINANCIAL STATEMENTS
        Condensed Consolidated Balance Sheets as of September 30, 2001 (unaudited) and
          June 30, 2001 ..................................................................      3
        Condensed Consolidated Statements of Operations for the Three Months Ended
          September 30, 2001 and 2000 (unaudited) ........................................      4
        Condensed Consolidated Statements of Cash Flows for the Three Months Ended
          September 30, 2001 and 2000 (unaudited) ........................................      5
        Notes to Condensed Consolidated Financial Statements (unaudited) .................   6-10
        ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS ..............................................  10-24
        ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ...............     24
PART II. OTHER INFORMATION
              ITEM 1. LEGAL PROCEEDINGS ..................................................     25
              ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ..........................     25
              ITEM 3. DEFAULTS UPON SENIOR SECURITIES ....................................     25
              ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ................     25
              ITEM 5. OTHER INFORMATION ..................................................     25
              ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ...................................     25
                      SIGNATURES .........................................................     26
</TABLE>


                                       2
<PAGE>

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

                               EDISON SCHOOLS INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                   September 30,
                                                                                        2001
                                                                                    (Unaudited)      June 30,
                                                                                    (Restated)         2001
                                                                                   -------------    ---------
<S>                                                                                  <C>            <C>
ASSETS:
Current assets:
   Cash and cash equivalents ...................................................     $  50,454      $  96,195
   Accounts receivable .........................................................        65,084         62,926
   Notes receivable ............................................................        16,535          7,762
   Other  receivables ..........................................................         5,026          8,751
   Other current assets ........................................................         5,554          3,068
                                                                                     ---------      ---------
      Total current assets .....................................................       142,653        178,702

Property and equipment, net ....................................................       123,966        119,231
Restricted cash ................................................................         9,635          8,524
Notes receivable, less current portion .........................................        61,696         53,812
Other  receivables, less current portion .......................................         4,198          4,456
Stockholder notes receivable ...................................................         2,967          2,936
Investment .....................................................................         8,025          7,768
Other assets ...................................................................        23,405         19,069
Goodwill .......................................................................        33,494             --
                                                                                     ---------      ---------

      Total assets .............................................................     $ 410,039      $ 394,498
                                                                                     =========      =========

LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
   Current portion of long term debt ...........................................     $  17,246      $  17,669
   Accounts payable ............................................................        25,292         19,498
   Accrued expenses ............................................................        31,221         29,803
                                                                                     ---------      ---------
      Total current liabilities ................................................        73,759         66,970

Long term debt, less current portion ...........................................        18,002         21,244
Stockholders' notes payable ....................................................         6,611          6,611
Other liabilities ..............................................................           889            826
                                                                                     ---------      ---------
      Total liabilities ........................................................        99,261         95,651
                                                                                     ---------      ---------

Minority interest in subsidiary ................................................           473            480
                                                                                     ---------      ---------

Common stock:
   Class A common, par value $.01; 150,000,000 shares authorized; 51,160,440
       and 49,249,005 shares issued and outstanding at September 30, 2001 and
       June 30, 2001, respectively .............................................           511            492
   Class B common, par value $.01; 5,000,000 shares authorized; 2,180,972
       and 2,433,126 shares issued and outstanding at September 30, 2001
       and June 30, 2001, respectively .........................................            22             24
Additional paid-in capital .....................................................       494,643        470,807
Unearned stock-based compensation ..............................................        (1,629)        (2,386)
Accumulated deficit ............................................................      (183,242)      (170,570)
                                                                                     ---------      ---------
      Total stockholders' equity ...............................................       310,305        298,367
                                                                                     ---------      ---------

      Total liabilities and stockholders' equity ...............................     $ 410,039      $ 394,498
                                                                                     =========      =========
</TABLE>

  The accompanying notes are an integral part of these condensed consolidated
                              financial statements


                                       3
<PAGE>

                               EDISON SCHOOLS INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
             FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
                    (In thousands except per share amounts)

<TABLE>
<CAPTION>
                                                                                   (Unaudited)
                                                                                2001          2000
                                                                             (Restated)    (Restated)
                                                                             ---------      --------
<S>                                                                          <C>            <C>
Net revenue ............................................................     $  97,267      $ 64,791

Education and operating expenses:
   Direct site expenses ................................................        87,704        61,417
   Administration, curriculum and development ..........................        11,127        18,323
   Preopening expenses .................................................         3,735         5,235
   Depreciation and amortization .......................................         8,045         6,831
                                                                             ---------      --------
      Total education and operating expenses ...........................       110,611        91,806
                                                                             ---------      --------

      Loss from operations .............................................       (13,344)      (27,015)

Other income (expense):
   Interest income .....................................................         2,252         2,333
   Interest expense ....................................................        (1,411)       (1,193)
   Other ...............................................................             6            19
                                                                             ---------      --------
      Total other ......................................................           847         1,159
                                                                             ---------      --------

      Loss from operations before provision for state and local taxes ..       (12,497)      (25,856)

Provision for state and local taxes ....................................          (175)         (639)
                                                                             ---------      --------

      Net loss .........................................................     $ (12,672)     $(26,495)
                                                                             =========      ========

Per common share data:
   Basic and diluted net loss per share ................................     $   (0.24)     $  (0.58)
                                                                             =========      ========
   Weighted average shares of common stock outstanding used
      in computing basic and diluted net loss per share ................        53,120        45,404
                                                                             =========      ========
</TABLE>

  The accompanying notes are an integral part of these condensed consolidated
                              financial statements


                                       4
<PAGE>

                               EDISON SCHOOLS INC.
                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
             FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                            (Unaudited)
                                                                                        2001          2000
                                                                                     (Restated)    (Restated)
                                                                                      --------      --------
<S>                                                                                   <C>           <C>
Cash flows from operating activities:
   Net loss .....................................................................     $(12,672)     $(26,495)
   Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization of property and equipment ....................        7,710         6,012
     Amortization of other costs ................................................          310           205
     Stock-based compensation ...................................................       (5,338)        6,568
     Loss on disposal of property and equipment .................................           --            24
     Interest on notes receivable ...............................................       (1,258)         (231)
     Changes in working capital accounts, exclusive of effects of acquisitions ..       (8,139)       (3,534)
     Other ......................................................................           (6)          (42)
                                                                                      --------      --------
          Cash used in operating activities .....................................      (19,393)      (17,493)
                                                                                      --------      --------

Cash flows from investing activities:
   Additions to property and equipment ..........................................       (4,447)      (21,764)
   Proceeds from disposition of property and equipment, net .....................           --         1,074
   Proceeds from notes receivable and advances due from charter schools .........        2,134           379
   Notes receivable and advances due from charter schools .......................      (17,362)      (15,003)
   Investment in unconsolidated entity ..........................................           --           (35)
   Business acquisitions, net ...................................................          149            --
   Other assets .................................................................       (1,965)          852
                                                                                      --------      --------
          Cash used in investing activities .....................................      (21,491)      (34,497)
                                                                                      --------      --------

Cash flows from financing activities:
   Proceeds from issuance of stock and warrants .................................          526        78,858
   Costs in connection with equity financing ....................................           --        (1,282)
   Cash from minority investee ..................................................           --           550
   Proceeds from notes payable ..................................................           --         2,625
   Payments on notes payable and capital leases .................................       (4,745)       (3,261)
   Restricted cash ..............................................................         (638)       (2,130)
                                                                                      --------      --------
          Cash (used) provided by financing activities ..........................       (4,857)       75,360
                                                                                      --------      --------

Increase (decrease) in cash and cash equivalents ................................      (45,741)       23,370

Cash and cash equivalents at beginning of period ................................       96,195        52,644
                                                                                      --------      --------

Cash and cash equivalents at end of period ......................................     $ 50,454      $ 76,014
                                                                                      ========      ========

Supplemental disclosure of cash flow information:
          Cash paid during the period for:
          Interest ..............................................................     $  1,308      $  1,214
          Taxes .................................................................     $     23

Supplemental disclosure of non-cash investing and financing activities:
   Obligations assumed in connection with new contracts .........................     $  9,700      $  2,694
   Property and equipment acquired under capitalized lease obligations ..........     $  1,080
   Additions to property and equipment included in accounts payable .............     $  6,744      $ 21,433
</TABLE>

  The accompanying notes are an integral part of these condensed consolidated
                              financial statements


                                       5
<PAGE>

                               EDISON SCHOOLS INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Basis of Presentation

      The unaudited condensed consolidated financial statements have been
prepared by Edison Schools Inc. (the "Company") in accordance with generally
accepted accounting principles ("GAAP") for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the
opinion of management, all adjustments, consisting of normal recurring items
necessary to present fairly the financial position and results of operations
have been included. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such SEC rules
and regulations. These financial statements should be read in conjunction with
the financial statements and related notes included in the Company's Annual
Report on Form 10-K/A for the year ended June 30, 2001.

      The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant estimates include, among other
things, revenues, certain school expenses, useful lives, recoverability of
equipment, notes and other financing receivable, deferred income tax valuation
allowance, certain accrued expenses and expenses in connection with stock
options and warrants; actual results could differ from these estimates.

      Because new schools are opened in the first fiscal quarter of each year,
trends in the Company's business, whether favorable or unfavorable, will tend
not to be reflected in the Company's quarterly financial results, but will be
evident primarily in year-to-year comparisons. The first quarter of our fiscal
year has historically reflected less revenue and lower expenses than the other
three quarters. We generally have a lower gross site margin in the first fiscal
quarter than in the remaining fiscal quarters. We also recognize pre-opening
costs primarily in the first and fourth quarters. Summer school revenues and
expenses are also recognized in the first and fourth quarters.

2. Description of Business

      The Company manages elementary and secondary public schools under
contracts with school districts and charter school boards located in 22 states
and Washington, D.C. The Company opened its first four schools in the fall of
1995, and, as of September 30, 2001, is operating 136 schools with approximately
75,000 students.

      The Company provides the education program, recruits and manages
personnel, and maintains and operates the facilities at each school it manages.
The Company also assists charter school boards in obtaining facilities and the
related financing. As compensation for its services, the Company receives
revenues which approximate, on a per pupil basis, the average per pupil spending
of the school district in which the school is located.

3.  Restatement

      On May 14, 2002, Edison Schools concluded and resolved a confidential
informal inquiry of its accounting practices and policies undertaken by the
staff of the Securities and Exchange Commission ("SEC"). The SEC order agreed to
by the Company in connection with the resolution of the informal inquiry does
not result in the restatement of any revenue or operating results ("loss from
operations and net loss") previously reported in the Company's audited financial
statements included in the Company's Annual Report on Form 10-K for the year
ended June 30, 2001. Additionally, in connection with the SEC inquiry, the
Company undertook a comprehensive review of its accounting and determined the
need to restate the operating results for the first and third quarters of fiscal
2001 and to restate certain items of its balance sheet, to properly reflect
certain liabilities and equity and to record compensation earned in fiscal years
ended on or prior to June 30, 1998. Such matters have previously been discussed
in detail in the Company's June 30, 2001 Annual Report on Form 10K/A. The
Company additionally has made other reclassifications for fiscal 2001 to record
certain previously unrecorded adjustments; these reclassifications are to
reclassify expenses recorded within certain captions on the consolidated
statements of operations to more appropriate captions on the consolidated
statements of operations and have no impact to the net loss in any period.

      As a result of the review of the Company's historical financial statements
by the Company, which concluded in May 2002, the Company determined the need to
restate the balance sheets for certain transactions first entered into in
periods prior to June 30, 1998. The restatement is the result of changes to the
accounting treatment for a severance arrangement with Benno C. Schmidt, Jr.,
Chairman of the Board of Directors, and a warrant agreement with the D2F2
Foundation, a philanthropic organization as follows:

      In 1992, the Company entered into an initial severance arrangement with
Benno C. Schmidt, Jr. that required the Company to make a severance payment in
the event he terminated his employment with the Company for any reason other
than death. The Company has disclosed the material terms of the severance
arrangement, including the amount of the severance payment, in its prior filings
with the SEC. In the past, the Company accounted for this arrangement as a
contingent liability and disclosed the amount in the footnotes to the Company's
financial statements. The Company now believes that the full amount of the
severance should have been accrued upon execution of the agreement. Accordingly,
the net impact on the September 30, 2001 balance sheet to reflect this liability
and decrease shareholders' equity was $3.2 million. The Company has not paid any
amounts pursuant to this severance agreement and Mr. Schmidt remains employed by
the Company.

      In 1998, the Company sold to the D2F2 Foundation, in exchange for
aggregate cash proceeds of $2.5 million, a warrant to purchase approximately 1.9
million shares of Edison's common stock. The warrant proceeds were required to
be used by Edison to provide services to selected schools, as approved from time
to time by the D2F2 Foundation during the five years following the agreement's
execution. The proceeds were properly recorded as restricted cash in the
Company's financial statements. Under the terms of the warrant, if the full
amount of the cash proceeds were not spent by Edison during the five-year
period, Edison would be required to return unexpended amounts, and a pro rata
portion of the warrant (or shares already issued under the warrant, if
applicable) could be canceled or redeemed at Edison's option at their issuance
price. The warrant was described in the Company's prior SEC filings. The Company
now believes that the warrant proceeds should have been accounted for as a
liability, rather than equity, on the Company's balance sheet in prior periods
until the purchase price was no longer subject to return. As of September 30,
2001 Edison's restated balance sheet reflects this liability of $597,000. If the
remaining restricted cash is used to provide approved services as
expected, the remaining liability will be reclassified to equity.

      As previously discussed in the Company's June 30, 2002 Annual Report on
Form 10-K/A, the Company determined the need to restate certain items of its
balance sheet and statements of operations as of September 30, 2001 and for the
three months ended September 30, 2000 and 2001, to properly reflect certain
changes to shareholder notes receivable, stockholders' equity, interest income
and compensation expense.

      In November 1999, the Company's CEO exercised options to purchase 725,000
shares of common stock at $3.00 per share through the issuance of a promissory
note for $2,175,000. In addition, the Company loaned $4,445,700 in November 1999
and $1,248,500 in April 2000 to the CEO to pay estimated income taxes resulting
from the transaction. These notes mature five years from their date of issuance.
In the past, the Company accounted for the transaction as an option exercise and
carried the loans as notes receivable on its balance sheets and recognized
periodic interest income. As the notes were issued with recourse solely to the
shares exercised and contain a floating rate of interest, the Company has
determined that it is more appropriate to treat the options as not having been
exercised and account for them as a variable stock award pursuant to the
provisions of Emerging Issues Task Force Issue 95-16, "Accounting for Stock
Compensation Arrangements with Employer Loan Features under APB Opinion 25."
Accordingly, the Company has restated its financial statements to reflect as
compensation in the form of a charge or credit to operations and an equal
adjustment to additional paid-in capital for periodic changes in the market
value of the 725,000 common shares subject to exercise, until such notes are
paid. In addition, the loans related to estimated income taxes have been
restated to be expensed when issued. Interest income previously recognized under
the notes has been reversed. Interest received under the notes will be credited
to additional paid-in capital.

      In fiscal 2001, the market value of the Company's common stock increased
from $23.19 per share at the beginning of year to $31.75 per share at September
30, 2000. As a result, the Company recognized a compensation charge of
$6,206,000 and a reduction in interest income previously provided of $180,990
for the three months ended September 30, 2000. In fiscal 2002, the market price
of the Company's common stock declined from $22.84 per share at the beginning of
the year to $15.10 per share at September 30, 2001. Accordingly, the Company
recognized a compensation credit of $5,611,500 and a reduction in interest
income previously provided of $134,104 for the three months ended September 30,
2001.

      The table below details the effect of the restatements and
reclassifications on the condensed consolidated financial statements as of
September 30, 2001 and for the three months ended September 30, 2000 and 2001
(dollars in thousands). The June 30, 2001 balance sheet was previously restated
in the Company's June 30, 2001 and 2002 Annual Reports on Form 10-K/A.

<TABLE>
<CAPTION>
                                                          September 30, 2001
                                                     ------------------------------
                                                     As Reported        As Restated
                                                     --------------  --------------
<S>                                               <C>                 <C>
Balance sheets:
Other current assets............................   $     5,766         $     5,554
Property and equipment, net.....................       123,951             123,966
Shareholder notes receivable:
   Asset .......................................         9,580               2,967
   Equity ......................................         2,526                  --
Accrued expenses................................        28,321              31,221
Additional paid-in capital .....................       495,385             494,643
Accumulated deficit ............................       171,748             183,242
Stockholders' equity ...........................       320,015             310,305
</TABLE>


<TABLE>
<CAPTION>
                                                                        For the three months ended
                                                         September 30, 2000               September 30, 2001
                                                    ----------------------------     ---------------------------
                                                    As Reported      As Restated     As Reported     As Restated
                                                    -----------      -----------     -----------     -----------
<S>                                                 <C>             <C>             <C>              <C>
Statements of operations:
Direct site expenses                                $   60,531      $   61,417      $   87,704        $  87,704
Administration, curriculum and
   Development expenses ...................             12,117          18,323      $   16,738        $  11,127
Depreciation and amortization                            7,044           6,831           8,045            8,045
Interest income ..............................           2,514           2,333           2,386            2,252
Provision for state and local  taxes                       743             639             175              175
Net loss .....................................          19,539          26,495          18,149           12,672
</TABLE>

4. Recently Issued Accounting Standards

      In July 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards ("SFAS") 141, "Business Combinations" and SFAS
142, "Goodwill and Other Intangible Assets." SFAS 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001, establishes specific criteria for the recognition of intangible assets
separately from goodwill, and requires that unallocated negative goodwill be
written off immediately as an extraordinary gain instead of being deferred and
amortized. The Company adopted SFAS 141 as of July 1, 2001.

      SFAS 142 supersedes Accounting Principles Board Opinion No. 17,
"Intangible Assets," and addresses accounting for goodwill and intangible assets
subsequent to their acquisition. In accordance with SFAS142, goodwill and
indefinite-lived intangibles need to be reviewed for impairment at least
annually. In addition, the amortization period of intangible assets with finite
lives will no longer be limited to forty years. The Company adopted SFAS 142 as
of July 1, 2001.


                                       6
<PAGE>

5. Net Loss Per Share

      In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings per Share", basic earnings per share is computed using the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share is computed using the weighted-average number of common and
common stock equivalent shares outstanding during the period. Common stock
equivalent shares, such as convertible preferred stock, stock options, and
warrants, have been excluded from the computation, as their effect is
antidilutive for all periods presented.

The calculations of basic and fully diluted net loss per share for the three
month period ended September 30, 2001 and 2000 are as follows:

<TABLE>
<CAPTION>
                                                             (In thousands except per share amounts)

                                                                         Three Months Ended
                                                                      September     September
                                                                         2001          2000
                                                                      (Restated)    (Restated)
                                                                         ----          ----
<S>                                                                   <C>           <C>
Net Loss ...........................................                  $(12,672)     $(26,495)
                                                                      ========      ========

Class A Common Stock outstanding at beginning
   of period .......................................                    49,249        39,559
Class B Common Stock outstanding at beginning
   of period .......................................                     2,433         3,448

Add:

Issuance of Class A Common Stock
   (on a weighted average basis) ...................                     1,690         2,497
Conversion of Class B Common Stock
   (on a weighted average basis) ...................                      (252)         (100)
                                                                      --------      --------

Weighted average shares of common stock outstanding
   used in computing basic net loss per share ......                    53,120        45,404
                                                                      ========      ========
Basic and fully diluted net loss per share .........                  $  (0.24)    $  (0.58)
                                                                      --------      --------
</TABLE>

6. Creation of Edison Receivables Company LLC

      On October 3, 2001, the Company formed Edison Receivables Company LLC
("Edison Receivables") by contributing $10,000 for sole interest in the entity.
Edison Receivables was established for the purpose of purchasing and financing
certain receivables from Edison Schools Inc.

      In November 2001, Edison Receivables entered into a $35 million revolving
credit agreement with Merrill Lynch Mortgage Capital Inc. which will be
collateralized by eligible receivables purchased. The line of credit has a term
of one year. Interest may be determined on a Eurodollar or prime rate basis at
the Company's option and is subject to financial covenants and restrictions. The
Company has agreed to pay a commitment fee of 1% per annum on the unused portion
of the commitment. The Company has not yet drawn on the facility.

7. Creation of Alva Inc.

      On October 9, 2001, the Company formed Alva Inc. ("Alva") by contributing
$1,200,000 for sole ownership of the entity. Alva was established to facilitate
the purchase of certain intellectual property.


                                       7
<PAGE>

8. Business Combinations

      Effective July 1, 2001, the Company acquired the remaining 65% outstanding
equity interest of Ksixteen, LLC not already owned by it for approximately
$130,000 in cash, giving it 100% ownership and enhanced operational
efficiencies. The acquisition was accounted for under the purchase method. The
purchase price exceeded the fair value of net assets acquired by approximately
$806,000, which was recorded as goodwill.

      Effective July 3, 2001, the Company acquired 100% of the outstanding
shares of LearnNow, Inc. as a means to enhance its growth prospects. LearnNow
was a privately-held school management company that operated seven charter
schools serving approximately 2000 students.  The acquisition was accounted for
under the purchase method and included a cash payment of $3.0 million in fiscal
2001 and approximately $31.3 million in Company class A common stock
(approximately 1.3 million shares). In connection with the acquisition, the
Company assumed liabilities of $3.6 million (primarily accounts payable, accrued
personnel costs and other accrued expenses); acquired tangible assets of $1.7
million (primarily restricted cash, accounts receivable, notes receivable, fixed
assets and other assets). The allocation of the purchase price resulted in
recorded intangibles of approximately $36.2 million. Of this amount, LearnNow
contracts of approximately $4.5 million were classified as an intangible asset
separate from goodwill to be amortized over 15 years on a straight-line basis.
The remaining balance was classified as goodwill.

      At September 30, 2001, the carrying amount of the intangible asset was
$4,412,500, net of accumulated amortization of $62,500.

      As the Company's quarter ended September 30, 2000 financial statements do
not include operations of the recently acquired entities, the following selected
pro forma information is being provided to present a summary of the combined
results of the Company giving effect to the purchase accounting adjustments as
if the acquisitions had occurred as of July 1, 2000. The unaudited pro forma
information is for informational purposes only and may not necessarily reflect
the results of operations of Edison Schools had the acquired businesses operated
as a part of the Company for the quarter ended September 30, 2000.

<TABLE>
<CAPTION>
Pro forma Information
(in thousands, except per share data)  Edison Schools  Acquired Entities   Consolidated
=====================================  ==============  =================   ============
<S>                                    <C>             <C>                 <C>
Net revenue .....................      $ 64,791        $ 3,910             $ 68,701
Net loss ........................       (26,495)          (781)             (27,276)
Loss per common share
       Basic and diluted ........                                             (0.60)
</TABLE>

9. Stock-Based Compensation

      For financial reporting purposes, the Company accounts for stock-based
compensation in accordance with the intrinsic value method of accounting
prescribed by APB No. 25 "Accounting for Stock Issued to Employees." In
accordance with this method, no compensation expense is recognized in the
accompanying financial statements in connection with the awarding of stock
option grants to employees provided that, as of the grant date, all terms
associated with the award are fixed and the fair value of the company's stock,
as of the grant date, is not greater than the amount an employee must pay to
acquire the stock as defined. To the extent that stock options are granted to
employees with variable terms or if the fair value of the Company's stock as of
the measurement date is greater than the amount an employee must pay to acquire
the stock, then the Company will recognize compensation expense.

10. Notes Receivable

      The Company provides financing in the form of interest and non-interest
bearing loans and advances to charter school boards to assist in the purchase or
renovation of charter school facilities. Certain of the loans are evidenced by
notes and other advances which are made in concert with a management contract or
without fixed repayment terms.


                                       8
<PAGE>

      Of the approximately $78.2 million of notes and other financing at
September 30, 2001, approximately $63.3 million was collateralized and the $14.9
million balance was uncollateralized and in some cases subordinated to other
senior debt. Of the approximately $61.6 million in notes and other financing,
net at June 30, 2001, approximately $41.8 million was collateralized and the
$19.8 million balance was uncollateralized and in some cases subordinated to
other senior debt. Should the Company be required to foreclose on the collateral
securing these loans, it may not be able to liquidate the collateral for
proceeds sufficient to cover the loans.

      In order for the loans to be repaid, the Company generally assists charter
school boards in obtaining third party lender financing. Often third party
financing requires the Company to guarantee loans on behalf of these charter
schools. A default by any charter school under a credit facility that is
guaranteed by the Company may result in a claim against the Company for the full
amount of the borrowings.

      Notes receivable consist of the following:

<TABLE>
<CAPTION>
                                               September 30, 2001  June 30, 2001
                                               ------------------  -------------
                                                 (in thousands)
<S>                                                  <C>              <C>
Notes receivable due from charter schools ....       $78,231          $48,617
Other financing due from charter schools .....            --           12,957
                                                     -------          -------
                                                      78,231           61,574
Less, current portion ........................        16,535            7,762
                                                     -------          -------
   Total notes receivable ....................       $61,696          $53,812
                                                     =======          =======
</TABLE>

11. Commitments and Contingencies

Long term lease obligations

      The Company has entered into various non-cancelable operating leases for
office space and currently leases school sites. These leases expire at various
dates through the year 2020. In the event that the management agreements for the
schools operating in these facilities are not renewed or are terminated, the
Company would be obligated to continue paying rent on the facilities as follows:

<TABLE>
<CAPTION>
Fiscal Year         Lease Obligations
-----------         -----------------
                    (in thousands)
<S>                 <C>
2002                $ 2,378
2003                  3,110
2004                  3,011
2005                  2,821
2006                  3,028
Thereafter           37,400
                    =======
                    $51,748
                    =======
</TABLE>

      In the event of non-renewal or termination, the Company retains the right
to sub-lease the property to another tenant.

Fundraising Agreement

      Effective June 23, 2000, the Company entered into an agreement (the
"Fundraising Agreement") with Alliance Community Schools ("ACS"), an entity that
holds charters for the two schools managed by the Company in Ohio, pursuant to
which the Company agreed to work together with ACS to raise $4.0 million in
capital donations on behalf of ACS. Under the Fundraising Agreement, as amended,
the Company is required to transfer its interest in Alliance-Edison, $3.5
million included in other assets at June 30, 2000, to ACS for $1 if (i) ACS
raises $2.0 million by June 30, 2002 and (ii) if (a) the Company fails either to
raise or contribute $405,000 from sources outside of the Dayton, Ohio area by
December 31, 2001, or (b) the Company fails to raise or contribute a total of
$2.0 million by June 30, 2002.


                                       9
<PAGE>

Litigation

      The Company is subject to occasional lawsuits, investigations and claims
arising out of the normal conduct of its business. Management does not believe
the outcome of any pending claims will have a material adverse impact on the
Company's financial position or results of operations.

Employment Agreements

      The Company has entered into employment agreements with certain of its
executives. Such agreements may be terminated by either the executive or the
Company at any time and provide, among other things, certain termination
benefits. As of September 30, 2001, the aggregate termination benefits of the
executives and certain other employees approximated $5.8 million.

Guarantees

      The Company has guaranteed certain debt obligations of charter school
boards with which it has management agreements. As of September 30, 2001, the
Company had provided guarantees totaling approximately $14.0 million. The debt
obligations mature from November 2001 to November 2005.

      As of September 30, 2001, the debt obligations of the charter school
boards are current. Under the guarantor agreements, the Company is also required
to maintain minimum cash balances that may increase under certain circumstances,
as well as to satisfy certain financial reporting covenants. All covenants as
guarantor have been met.

      The Company has guaranteed a certain debt obligation of a charter board,
with which it has a management agreement, for $2.4 million which matures in May
2004. The charter board was in default as of June 30, 2001, due to
non-compliance with a covenant that requires the charter board to maintain all
bank accounts with the lender's bank. This instance of non-compliance was cured
on September 28, 2001, and all debt obligations of the charter school board are
current.

The Company has an agreement to indemnify a charter board lender from any
liability or obligations related to the presence of any hazardous substance at a
charter school site. The Company does not expect that any sums it may have to
pay in connection with this liability would have a materially adverse effect on
its consolidated financial position, or results of operation for fiscal 2002.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

      Certain of the matters and subject areas discussed in this Quarterly
Report on Form 10-Q/A contain "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. All statements other than
statements of historical information provided herein are forward-looking
statements and may contain information about financial results, economic
conditions, trends and known uncertainties based on our current expectations,
assumptions, estimates and projections about our business and our industry.
These forward-looking statements involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of several factors, as more fully described under the
caption "Additional Risk Factors that May Affect Future Results" and elsewhere
in this Quarterly Report. Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect management's analysis, judgment,
belief or expectation only as of the date hereof. The forward-looking statements
made in this Quarterly Report on Form 10-Q/A relate only to events as of the
date on which the statements are made. We undertake no obligation to publicly
update any forward-looking statements for any reason, even if new information
becomes available or other events occur in the future.

Overview

      We are the nation's largest private operator of public schools serving
students from kindergarten through 12th grade. We contract with local school
districts and public charter school boards to assume educational and operational
responsibility for individual schools in return for per-pupil funding that is
generally comparable to that spent on other public schools in the area.


                                       10
<PAGE>

We opened our first four schools in August 1995 and have grown rapidly in every
subsequent year, currently serving approximately 75,000 students in 136 schools
located in 22 states across the country and the District of Columbia.

      From our formation in 1992 until opening our first schools in fiscal 1996,
we were a development stage company focused on research, development and
marketing of the Edison school design and curriculum and raising capital to
support our business plan. From 1992 until 1995, Edison's team of leading
educators and scholars developed an innovative, research-backed curriculum and
school design. We operated as a partnership prior to November 1996, when we
converted to a corporation. As of September 30, 2001, our accumulated deficit
since November 1996 was approximately $183.2 million. In addition, prior to
November 1996, we incurred losses of approximately $61.8 million, which are
reflected in our additional paid-in capital. Because of our rapid growth, and in
view of the evolving nature of our business and our limited operating history,
we believe that period-to-period comparisons of our operating results may not be
meaningful.

      Edison's curriculum expenses include the ongoing costs to maintain and
support Edison's educational design. These expenses include the salaries and
wages of trained educators in our central office curriculum department, the
costs of providing professional training to our staff and teachers, including
materials, and the ongoing costs of maintaining and updating the teaching
methods and educational content of our program.

We make a significant investment in each school we open. The investment
generally includes:

      -     Initial staff training and professional development;

      -     Technology, including laptop computers for teachers;

      -     Books and other materials to support the Edison curriculum and
            school design, and

      -     Upgrades in facilities.

Revenue

      Our revenue is principally derived from contractual relationships to
manage and operate contract and charter schools. We receive per-pupil revenue
from local, state and federal sources, including Title I and special education
funding, in return for providing comprehensive education to our students. The
per-pupil revenue is generally comparable to the funding spent on other public
schools in the area. We recognize revenue for each school pro rata over the 11
months from August through June. Because the amount of revenue we receive for
operating each school depends on the number of students enrolled, achieving
site-specific enrollment objectives is necessary for satisfactory financial
performance at the school. Both the amount of per-pupil revenue and the initial
enrollment at each school become known at the beginning of the school year and
generally tend not to vary significantly throughout the year. For these reasons,
our revenue for each school year is largely predictable at the beginning of the
school year. In addition, for the quarter ended September 30, 2001, revenues
representing 3.0%, 3.1%, and 3.4% of total revenues were generated through
educational consulting contracts, summer school programs, and after-school
program fees and food service costs, respectively.

Direct Expenses

      Direct site expenses include most of the expenses incurred on-site at our
schools. The largest component of this expense is salaries and wages, primarily
for principals and teachers. The remaining direct site expenses include on-site
administration, facility maintenance and, in some cases, transportation and food
services. Once staffing levels for the school year are determined, most of these
expenses are fixed and, accordingly, variations in enrollment will generally not
change the overall cost structure of a school for that year. Direct site
expenses do not include teacher training and other pre-opening expenses
associated with new schools, financing costs or depreciation and amortization
related to technology, including computers for teachers and students, curriculum
materials and capital improvements to school buildings.

Gross Site Contribution and Gross Site Margin

      We define gross site contribution as revenue from educational services
less direct site expenses. Gross site margin is gross site contribution
expressed as a percentage of revenue from educational services. Gross site
contribution is a measurement


                                       11
<PAGE>

of ongoing site-level operating performance of our schools. We believe it serves
as a useful operating measurement when evaluating our schools' financial
performance. Gross site contribution does not reflect all site-related costs,
including depreciation and amortization or interest expense and principal
repayment related to site-level investments, or on-site pre-opening expenses,
and accordingly gross site contribution does not represent site-level
profitability.

Administration, Curriculum and Development Expenses

      Support from our central office is important for the successful delivery
of our curriculum and school design. Administration, curriculum and development
expenses include those amounts related to the creation and enhancement of our
curriculum, and our general, administrative and sales and marketing functions.
These costs include costs for curriculum, assessment and training professionals,
sales and marketing personnel, financial reporting and legal and technological
support and travel expenses and other development activities.

Pre-opening Expenses

      Pre-opening expenses consist principally of various administrative and
personnel costs incurred prior to the opening of a new school or the expansion
of an existing school, particularly the costs for the initial training and
orientation of professional staff, recruitment and travel expenses and expenses
for temporary offices and staff. In connection with the establishment of a new
school, we seek to hire the school's principal several months in advance of the
school's opening. This allows the principal to hire staff, most of whom receive
substantial professional training in the Edison education design prior to the
first day of school. Pre-opening expenses generally are first incurred in the
fourth quarter of the fiscal year prior to the school's opening or expansion and
continue into the first quarter of the fiscal year in which the school opens.
These costs are expensed as incurred.

Depreciation and Amortization

      Depreciation and amortization relates primarily to the investments we make
in each school for books and other educational materials, including enrollment
fees for the Success for All program, computers and other technology, and
facility improvements. These investments support the Edison curriculum and
school design and relate directly to our provision of educational services. The
depreciation and amortization of investments in our central office is also
included.

Enrollment

      Our annual budgeting process establishes site-specific revenue and expense
objectives, which include assumptions about enrollment and anticipated
per-student funding. While our budgets include desired enrollment levels, we do
not attempt to maximize enrollment based upon the physical capacity of our
facilities. Our budgets are designed to achieve both financial and academic
goals, both of which we believe are critical to the ongoing success of our
business. Therefore, our budgets are designed to achieve the proper balance
between financial performance and academic standards.

Results of Operations

Fiscal Quarter Ended September 30, 2001 Compared to Fiscal Quarter Ended
September 30, 2000

      Net Revenue . Our net revenue increased to $97.3 million for the three
months ended September 30, 2001 from $64.8 million for the same period of the
prior year, an increase of 50.2%. The increase was primarily due to a 31.6%
increase in student enrollment from 57,000 in the 2000-2001 school year to
75,000 in the 2001-2002 school year, reflecting both the opening of new schools
and the expansion of existing schools. Additionally, a $3.3 and $2.7 million
increase resulted from revenue recognized from our summer school program and a
consulting engagement, respectively.

      Direct Site Expenses. Our direct site expenses increased to $87.7 million
for the three months ended September 30, 2001 from $61.4 million for the same
period of the prior year, an increase of 42.8%. Similar to the increase in
revenue from educational services, the increase in direct site expenses was
primarily due to the 31.6% increase in student enrollment. The largest element
of direct site expenses is personnel costs. Personnel costs included in direct
site expenses increased to $68.2 million for the three months ended September
30, 2001 from $49.3 million for the same period of the prior year.


                                       12
<PAGE>

      Gross Site Contribution and Margin. Our gross site contribution was $9.6
million for the three month period ended September 30, 2001 compared to $3.4
million for the same period of the prior year. The corresponding gross site
margin increased to 9.8% for the three months ended September 30, 2001 from 5.3%
for the same period of the prior year. The gross site contribution and margin
were favorably impacted by $2.7 million of contribution from a consulting
engagement. Excluding this consulting revenue, gross site margin would have
increased to 7.1%.

      Administration, Curriculum and Development Expenses. Excluding stock
compensation adjustments, related to the restatement as explained in Note 3 to
the condensed consolidated financial statements, our administration, curriculum
and development expenses increased to $16.7 million for the three months ended
September 30, 2001 from $12.1 million for the same period of the prior year, an
increase of 38.0%. The increase was substantially due to greater personnel costs
resulting from an increase of approximately 146 headquarters employees, which
reflects a substantial increase in staff in our school operations and curriculum
and education divisions and an increase in our central office administrative
staff to enhance legal, contracting, and financial reporting functions. In
addition, we incurred expenses relating to our consulting engagement.

      Pre-opening Expenses. Our pre-opening expenses decreased to $3.7 million
for the three months ended September 30, 2001 from $5.2 million for the same
period of the prior year, a decrease of 28.9%. This decrease was associated
primarily with opening new schools for the 2001-2002 school year, with
approximately 18,000 new students enrolled, of which approximately 2,000
students were from existing LearnNow schools, compared to approximately 19,500
new students enrolled in the prior school year.

      Excluding non-cash stock-based compensation credit of $5.3 million,
administration, curriculum and development and pre-opening expenses as a
percentage of revenues decreased to 20.8% for three months ended September 30,
2001 from 26.2% for the prior year.

      Depreciation and Amortization. Our depreciation and amortization increased
to $8.0 million for the three months ended September 30, 2001 from $6.8 million
for the same period of the prior year, an increase of 17.7%. The increased
depreciation and amortization resulted from additional capital expenditures for
our curriculum materials, computers and related technology, and facility
improvements related to our enrollment and central office growth.

      Education and Operating Expenses. Our total education and operating
expenses as a percentage of total revenue decreased to 113.7% for three months
ended September 30, 2001 from 141.7% for the same period of the prior year. This
decrease primarily resulted from continued revenue growth and increased
operating leverage and a decrease in administration, curriculum and development
expenses as a percentage of total revenue.

      EBITDA, Net of Other Charges. EBITDA, net of other charges, means the net
loss we would have shown if we did not take into consideration our interest
expense, income tax expense, depreciation and amortization, and stock-based
compensation charges. These costs are discussed above. This amount for the three
months ended September 30, 2001 was a negative $10.6 million compared to a
negative $13.6 million for the same period of the prior year. The improved
EBITDA resulted primarily from increased gross site margin and decreased
administration, curriculum and development, and pre-opening expenses as a
percentage of revenues. On a per-student basis, negative EBITDA improved to $142
in three months ended September 30, 2001 compared to $239 for the same period of
the prior year.

      Other Income and Expense. Other income, net was $847,000 for the three
months ended September 30, 2001 compared to $1.2 million in the same period of
the prior year. The decrease was due to less interest income resulting from
lower invested cash balances and increase interest expense from expanded
borrowings.

      Net Loss. Our net loss decreased to $12.7 million for the three months
ended September 30, 2001 from $26.5 million for the same period of the prior
year.

Liquidity and Capital Resources

      We have historically operated in a negative cash flow position. To date we
have financed our cash needs through a combination of equity and debt financing.
We intend to enter into debt financing arrangements to finance a substantial
portion of our expenditures during fiscal 2002. Although we have successfully
obtained necessary financing in the past, there can be no assurance that we will
be able to do so, or on favorable terms, in the future.


                                       13
<PAGE>

      In November 2001, we obtained a $35 million revolving credit facility with
Merrill Lynch. The financing provides for certain receivables to be sold or
contributed to a wholly-owned special purpose company, Edison Receivables
Company LLC, which can draw on the credit line to fund the purchases. The line
of credit has a term of one year. Interest may be determined on a Eurodollar or
prime rate basis at our option and is subject to financial covenants and
restrictions. We have agreed to pay a commitment fee of 1% per annum on the
unused portion of the commitment. We have not yet drawn on the facility.

      For the three months ended September 30, 2001, we used approximately $19.4
million for operating activities. This use primarily resulted from $12.7 million
of net loss, a $8.1 million net decrease in working capital accounts, $1.3
million increase in accrued interest on notes receivable and stock-based
compensation income of $5.3 million partially offset by depreciation and
amortization totaling $8.0 million.

      For the three months ended September 30, 2001, we used approximately $21.5
million in investing activities. During this period, we invested approximately
$4.4 million in our schools and central office. This amount includes the
investments we made in technology and curriculum in each of the schools we open.
We have also advanced funds to our charter board clients or their affiliates to
help obtain, renovate and complete school facilities. The amounts advanced for
the three months ended September 30, 2001 were approximately $17.4 million.
During this same period, we also received approximately $2.1 million in
repayments on advances previously made. Also, the Company invested approximately
$2.0 million in other assets.

      For the three months ended September 30, 2001, we dispersed approximately
$4.9 million for our financing activities. This use resulted primarily from the
repayment of notes payable and capital lease obligations.

      We expect our cash on hand, borrowings under our revolving credit
facility, and borrowings under financing arrangements to finance technology and
facilities-related expenditures together with expected reimbursements of
advances we have made to charter boards, will be sufficient to meet our working
capital needs to operate our existing schools through fiscal 2002. The Company's
near term capital needs are generally growth related and are dependent upon the
Company's rate of growth and its mix of charter schools and contract schools, as
charter schools usually require us to advance funds to help charter boards
obtain, renovate and complete school facilities. Our current growth plans for
2002-2003 school year will require us to obtain additional funding.

      Our longer term requirements are for capital to fund operating losses,
capital expenditures related to growth and for anticipated working capital needs
and general corporate purposes. We expect to fund such expenditures and other
longer term liquidity needs with cash generated from operations, the proceeds
from offerings of debt or equity securities and expanded financing arrangements.
Depending on the terms of any financing arrangements, such funding may be
dilutive to existing shareholders, and we cannot be certain that we will be able
to obtain additional financing on favorable terms, if at all.

      In general, our ability to achieve positive cash flow will be dependent on
the volume of schools with positive gross site contribution to offset central
office and overhead expenses. Because gross site contribution is the difference
between site revenues and site expenditures, positive gross site contribution
can be achieved at a range of enrollment levels. While higher enrollment tends
to have a positive effect on gross site contribution, our growth and cash flow
do not depend on 100% enrollment.

      Capital expenditures for fiscal 2002 are currently expected to be
approximately $55.0 million, which includes approximately $27.0 million for
computers and other technology at our schools, approximately $16.0 million for
curriculum materials, approximately $5.0 million for the purchase and
improvement of property at our schools, and $7.0 million for technology,
leasehold improvements, and other capital items at our headquarters.
Additionally, we expect to make additional advances or loans approximating $45.0
million to new charter board clients to help secure and renovate school
properties during the 2001-2002 school year, a portion of which we expect will
be refinanced through third parties. In addition, we expect to make charitable
donations of approximately $6.0 million to benefit two of our clients.

Additional Risk Factors That May Affect Future Results

      Our business, operating results or financial condition could be materially
adversely affected by any of the following factors. You should also refer to the
information set forth in this report, including our financial statements and the
related


                                       14
<PAGE>

notes.

We are a young company, having opened our first schools in fiscal 1996; this
makes it difficult to evaluate our business

      We opened our first schools and recorded our first revenue in fiscal 1996.
As a result, we have only a limited operating history on which you can base your
evaluation of our business and prospects. Our business and prospects must be
considered in light of the risks and uncertainties frequently encountered by
companies in the early stages of development, particularly companies like us who
operate in new and rapidly evolving markets. Our failure to address these risks
and uncertainties could cause our operating results to suffer and result in the
loss of all or part of your investment.

We have a history of losses and expect losses in the future

      We have incurred substantial net losses in every fiscal period since we
began operations. For the quarter ended September 30, 2001, our net loss was
$18.1 million. As of September 30, 2001, our accumulated deficit since November
1996, when we converted from a partnership to a corporation, was approximately
$171.7 million. In addition, prior to November 1996, we incurred losses of
approximately $61.8 million, which are reflected in our additional paid-in
capital. We have not yet demonstrated that public schools can be profitably
managed by private companies and we are not certain when we will become
profitable, if at all. Our ability to become profitable will depend upon our
ability to generate and sustain higher levels of both gross site contribution
and total revenue to allow us to reduce central expenses as a percentage of
total revenue. Even if we do achieve profitability, we may not sustain or
increase profitability on a quarterly or annual basis. Failure to become and
remain profitable may adversely affect the market price of our class A common
stock and our ability to raise capital and continue operations.

The private, for-profit management of public schools is a relatively new and
uncertain industry, and it may not become publicly accepted

      Our future is highly dependent upon the development, acceptance and
expansion of the market for private, for-profit management of public schools.
This market has only recently developed, and we are among the first companies to
provide these services on a for-profit basis. We believe the first meaningful
example of a school district contracting with a private company to provide core
instructional services was in 1992, and we opened our first schools in August
1995. The development of this market has been accompanied by significant press
coverage and public debate concerning for-profit management of public schools.
If this business model fails to gain acceptance among the general public,
educators, politicians and school boards, we may be unable to grow our business
and the market price of our class A common stock would be adversely affected.

The success of our business depends on our ability to improve the academic
achievement of the students enrolled in our schools, and we may face
difficulties in doing so in the future

      We believe that our growth will be dependent upon our ability to
demonstrate general improvements in academic performance at our schools. Some of
our management agreements contain performance requirements related to test
scores. As average student performance at our schools increases, whether due to
improvements in achievement over time by individual students in our schools or
changes in the average performance levels of new students entering our schools,
aggregate absolute improvements in student performance will be more difficult to
achieve. If academic performance at our schools declines, is perceived to
decline, or simply fails to improve, we could lose business and our reputation
could be seriously damaged, which would impair our ability to gain new business
or renew existing school management agreements.

We could incur losses at our schools if we are unable to enroll enough students

      Because the amount of revenue we receive for operating each school
primarily depends on the number of students enrolled, and because many facility
and on-site administrative costs are fixed, achieving site-specific enrollment
objectives is an important factor in our ability to achieve satisfactory
financial performance at a school. We may be unable to recruit enough students
to attend all grades in our new schools or maintain enrollment at all grades in
our existing schools. We sometimes do not have enough students to fill some
grades in some schools, particularly the higher grades. It is sometimes more
difficult to enroll students in the higher grades because older students and
their parents are reluctant to change schools. To the extent we are unable to
meet or maintain enrollment objectives at a school, the school will be less
financially successful and our financial performance will be adversely affected.


                                       15
<PAGE>

We are experiencing rapid growth, which may strain our resources and may not be
sustainable

      We have grown rapidly since we opened our first four schools in August
1995. We operated 113 schools during the 2000-2001 school year and are operating
136 schools for the 2001-2002 school year. This rapid growth has sometimes
strained our managerial, operational and other resources, and we expect that
continued growth would strain these resources in the future. If we are to manage
our rapid growth successfully, we will need to continue to hire and retain
management personnel and other employees. We must also improve our operational
systems, procedures and controls on a timely basis. If we fail to successfully
manage our growth, we could experience client dissatisfaction, cost
inefficiencies and lost growth opportunities, which could harm our operating
results. We cannot guarantee that we will continue to grow at our historical
rate.

We may experience difficulty in integrating LearnNow into our operations; if we
undertake additional acquisitions, they may be expensive and disruptive to our
business and could have an adverse effect on our business and future operations

      In July 2001, we acquired LearnNow, Inc. We could have difficulty in
integrating LearnNow's personnel and operations with our business, and the key
personnel of LearnNow may decide not to continue to work for us. We may have to
devote a significant amount of time and management and financial resources in
connection with the integration.

      In addition, we may in the future acquire other complementary companies or
businesses. We could face similar difficulties in integrating these companies,
and the acquisitions may not generate the desired revenue, earnings or business
synergies. We could face opposition from the charter boards, school districts
and teachers unions that work with an acquired company. These difficulties could
disrupt our ongoing business, distract our management and employees and increase
our expenses. In addition, acquisitions could involve significant accounting
charges that would adversely affect our reported financial results. If we issue
additional equity securities in connection with an acquisition, our stockholders
could experience dilution and the market price of our class A common stock may
decline.

We may not be able to attract and retain highly skilled principals and teachers
in the numbers required to grow our business

      Our success depends to a very high degree on our ability to attract and
retain highly skilled school principals and teachers. We hired 31 new principals
and approximately 1,700 new teachers to meet the needs of our new and existing
schools for the 2001-2002 school year. Currently, there is a well-publicized
nationwide shortage of teachers and other educators in the United States. In
addition, we may find it difficult to attract and retain principals and teachers
for a variety of reasons, including the following:

      o     we generally require our teachers to work a longer day and a longer
            year than most public schools;

      o     we tend to have a larger proportion of our schools in challenging
            locations, such as low-income urban areas, which may make attracting
            principals and teachers more difficult; and

      o     we believe we generally impose more accountability on principals and
            teachers than do public schools as a whole.

      These factors may increase the challenge we face in an already difficult
market for attracting principals and teachers. We have also experienced higher
levels of turnover among teachers than is generally found in public schools
nationally, which we attribute in part to these factors. If we fail to attract
and retain highly skilled principals and teachers in sufficient numbers, we
could experience client dissatisfaction and lost growth opportunities, which
would adversely affect our business.

We are currently implementing new information systems, which could cause
disruptions to our business

      We are currently in the process of implementing a new student information
system, as well as a new accounting, financial reporting and management
information system. We may face difficulties in integrating these systems with
our existing information and other systems. If we fail to successfully implement
and integrate these new systems, we may not have access on a timely basis to the
information we need to effectively manage our schools, our business and our
growth.


                                       16
<PAGE>

We are dependent upon IBM to a large degree to manage our technology
infrastructure

      We have selected IBM to provide the computers and related software for use
in our schools and classrooms, as well as the networking hardware and network
management software necessary to connect our schools nationwide. IBM has
performed most of the installation, implementation and integration services
necessary for the deployment of this technology for the new schools we opened
for the 2000-2001 and 2001-2002 school years. Implementation and integration
will continue over time for older schools, with the result that we will operate
some schools using the new IBM platform at the same time we operate schools on
our existing platform, which is based largely on Apple and other non-IBM
technologies. We may face significant difficulties and delays in this complex
implementation, as well as difficulties in the transition from our existing
system to the new IBM system. Additionally, we may face unforeseen
implementation costs. We have also engaged the services of IBM to manage
significant portions of our technology function, and any unsatisfactory
performance on the part of IBM could seriously impair the operations of our
schools. If we experience implementation or transition difficulties or delays,
or unexpected costs, our financial performance could be harmed and our
reputation could be compromised.

We must open a large number of new schools in a short period of time at the
beginning of each school year and, if we encounter difficulties in this process,
our business and reputation could suffer

      It is the nature of our business that virtually all of the new schools we
open in any year must be opened within a few weeks of each other at the
beginning of the school year. Each new school must be substantially functional
when students arrive on the first day of school. This is a difficult logistical
and management challenge, and the period of concentrated activity preceding the
opening of the school year places a significant strain on our management and
operational functions. We expect this strain will increase if we are successful
in securing larger numbers of school management agreements in the future. If we
fail to successfully open schools by the required date, we could lose school
management agreements, incur financial losses and our reputation would be
damaged. This could seriously compromise our ability to pursue our growth
strategy.

Our business could suffer if we lose the services of key executives

      Our future success depends upon the continued services of a number of our
key executive personnel, particularly Benno C. Schmidt, Jr., our Chairman of the
Board of Directors, and H. Christopher Whittle, our President and Chief
Executive Officer. Mr. Schmidt and Mr. Whittle have been instrumental in
determining our strategic direction and focus and in publicly promoting the
concept of private management of public schools. If we lose the services of
either Mr. Schmidt or Mr. Whittle, or any of our other executive officers or key
employees, our ability to grow our business would be seriously compromised and
the market price of our class A common stock may be adversely affected. Also, we
do not maintain any key man insurance on any of our executives.

We depend upon cooperative relationships with teachers' unions, both at the
local and national levels

      Union cooperation at the local level is often critical to us in obtaining
new management agreements and maintaining existing management agreements. In
those school districts where applicable, provisions of collective bargaining
agreements must typically be modified in areas such as length of school day,
length of school year, negotiated compensation policies and prescribed methods
of evaluation in order to implement the Edison design at a contract school. We
regularly encounter resistance from local teachers' unions during school board
debates over whether to enter into a management agreement with us. In addition,
local teachers' unions have occasionally initiated litigation challenging our
management agreements. If we fail to achieve and maintain cooperative
relationships with local teachers' unions, we could lose business and our
ability to grow could suffer, which could adversely affect the market price of
our class A common stock. In addition, at the national level, the American
Federation of Teachers and the National Education Association have substantial
financial and other resources that could be used to influence legislation, local
teachers' unions and public opinion in a way that would hurt our business.

We could be liable for events that occur at our schools

      We could become liable for the actions of principals, teachers and other
personnel in our schools. In the event of on-site accidents, injuries or other
harm to students, we could face claims alleging that we were negligent, provided
inadequate supervision or were otherwise liable for the injury. We could also
face allegations that teachers or other personnel committed child abuse, sexual
abuse or other criminal acts. In addition, if our students commit acts of
violence, we could face allegations that we failed to provide adequate security
or were otherwise responsible for their actions, particularly in light of recent
highly


                                       17
<PAGE>

publicized incidents of school violence. Although we maintain liability
insurance, this insurance coverage may not be adequate to fully protect us from
these kinds of claims. In addition, we may not be able to maintain our liability
insurance in the future at reasonable prices or at all. A successful liability
claim could injure our reputation and hurt our financial results. Even if
unsuccessful, such a claim could cause unfavorable publicity, entail substantial
expense and divert the time and attention of key management personnel, which
could cause our financial result to suffer.

Our management agreements with school districts and charter boards are
terminable under specified circumstances and generally expire after a term of
five years

      Our management agreements generally have a term of five years. When we
expand by adding an additional school under an existing management agreement,
the term with respect to that school generally expires at the end of the initial
five-year period. We have limited experience in renewing management agreements,
and we cannot be assured that any management agreements will be renewed at the
end of their term. A management agreement covering two schools expired after the
end of the 1999-2000 school year and was not renewed, and a management agreement
covering two schools expired after the end of the 2000-2001 school year and was
not renewed. A management agreement covering two schools and due to expire at
the end of the 2004-2005 school year was terminated early, at the end of the
2000-2001 school year. Management agreements representing 13 schools, accounting
for 11.0% of our total revenue for fiscal 2001, will expire at the end of the
2001-2002 school year, and agreements representing 29 schools, accounting for
21.1% of our total revenue for fiscal 2001, will expire at the end of the
2002-2003 school year. In addition, management agreements representing 17
schools, accounting for 13.6% of our total revenue for fiscal 2001, are
terminable by the school district or charter board at will, with or without good
reason, and all of our management agreements may be terminated for cause,
including in some cases a failure to meet specified educational standards, such
as academic performance based on standardized test scores. In addition, as a
result of payment disputes or changes within a school district, such as changes
in the political climate, we do from time to time face pressure to permit a
school district or charter board to terminate our management agreement even if
they do not have a legal right to do so. We may also seek the early termination
of, or not seek to renew, a limited number of management agreements in any year.
It is likely that each year some management agreements will expire unrenewed or
be terminated prior to expiration. If we do not renew a significant number of
management agreements at the end of their term, or if management agreements were
terminated prior to their expiration, our reputation and financial results would
be adversely affected.

Our management agreements involve financial risk

      Under all of our management agreements, we agree to operate a school in
return for per-pupil funding that generally does not vary with our actual costs.
To the extent our actual costs under a management agreement exceed our budgeted
costs, or our actual revenue is less than planned because we are unable to
enroll as many students as we anticipated or for any other reason, we could lose
money at that school. In addition, from time to time, we have disagreements with
our clients as to the actual amount of, or the method of calculating, the
revenue owed to us under the terms of the management agreements, resulting in
lower revenue than planned. We are generally obligated by our management
agreements to continue operating a school for the duration of the contract even
if it becomes unprofitable to do so.

We have limited experience operating four-year high schools

      An element of our strategy is to increase our business with existing
customers by opening new schools in school districts with whom we have an
existing relationship. An important aspect of this strategy is to open Edison
high schools in districts in which we operate elementary and middle schools.
Because we have limited experience operating high schools, our complete high
school curriculum, school design and operating plan are not fully tested. In
addition, school districts typically spend more per pupil on high school
education than on elementary education. By contrast, some of our management
agreements provide that we receive for each student, regardless of grade level,
the average per-pupil funding spent by the school district for all grade levels.
For this reason, in these schools we receive less per high school student than
is spent by the school district for each of its high school students. In these
situations, our success depends upon our ability to deliver our high school
design for the same per-pupil spending as in our elementary schools. If we are
unable to successfully and profitably operate high schools, our ability to
pursue our growth strategy will be impaired, which could adversely affect the
market price of our class A common stock.


                                       18
<PAGE>

Our lengthy sales cycle and uncertainties inherent in the process through which
we develop new business could delay new business and affect our rate of growth

      The time between initial contact with a potential contract or charter
client and the ultimate opening of a school, and related recognition of revenue,
typically ranges between 10 and 20 months. Our sales cycle for contract schools
is generally lengthy due to the approval process at the local school board
level, the political sensitivity of converting a public school to private
management and the need, in some circumstances, for cooperation from local
unions. We also have a lengthy sales cycle for charter schools for similar
reasons, as well as the need to arrange for facilities to house the school. In
addition, we are increasingly presented with potential opportunities to take
over the management of several schools in a single district or area at the same
time, which likewise have a lengthy sales cycle. The outcome of these
opportunities can have a meaningful effect on our rate of growth. As a result of
our lengthy sales cycle, we have only a limited ability to forecast the timing
of new management agreements. Any delay in completing, or failure to complete,
management agreements could hurt our financial performance. Press speculation
concerning the outcome of these processes may adversely affect our stock price.

We could lose money if we underestimate the real estate costs associated with
acquiring or renovating a charter school

      If we incur unexpected real estate cost overruns in acquiring or
renovating a charter school, we could lose money in operating the school. Our
decision to enter into a management agreement for a charter school, and our
estimate of the financial performance of the charter school, is based, in part,
on the estimated facility financing cost associated with renovating an existing
facility or building a new facility to house the charter school. This cost
varies widely from minimal amounts for minor upgrades to larger amounts for a
new construction. Each charter school absorbs a portion of its facility
financing costs each year through its leasing and similar expenses. If these
expenses exceed our estimates for the charter school, the charter school could
lose money and our financial results would be adversely affected.

We have advanced and loaned money to charter school boards that may not be
repaid

      As of September 30, 2001, we have outstanding loans or advances to charter
boards of $78.2 million to finance the purchase or renovation of school
facilities we manage. Approximately $14.9 million of these loans, representing
13 schools, are uncollateralized or subordinated to a senior lender. In
addition, with respect to the loans that are collateralized, if we were required
to foreclose on the collateral securing those loans, we might not be able to
liquidate the collateral for proceeds sufficient to cover the loan amount. If
any of these advances or loans are not repaid when due, our financial results
could be adversely affected.

      Several of our charter schools recently obtained tax-exempt financing to
repay these loans and advances, but there can be no assurance that our other
charter schools will be able to obtain such tax-exempt financing. While we are
currently exploring a variety of other financing structures to assist charter
schools in repaying these loans and advances, there can be no assurance that we
will be able to implement any of these financing structures.

We could become liable for financial obligations of charter boards

      We could have facility financing obligations for charter schools we no
longer operate, because the terms of our facility financing obligations for some
of our charter schools exceeds the term of the management agreement for those
schools. For nine of our charter schools, we have entered into a long-term lease
for the school facility that exceeds the current term of the management
agreement by as much as 15 years. If our management agreements were to be
terminated, or not renewed in these charter schools, our obligations to make
lease payments would continue, which could adversely affect our financial
results. As of September 30, 2001, our aggregate future lease obligations
totaled $51.7 million, with varying maturities over the next 20 years. In nine
of our charter schools, we have provided some type of permanent credit support
for the school building, typically in the form of loan guarantees or cash
advances. Although the term of these arrangements is coterminous with the term
of the corresponding management agreement, our guarantee does not expire until
the loan is repaid in full. The lenders under these facilities are not committed
to release us from our obligations unless replacement credit support is
provided. The default by any charter school under a credit facility that we have
guaranteed could result in a claim against us for the full amount of the
borrowings. Furthermore, in the event any charter board becomes insolvent or has
its charter revoked, our loans and advances to the charter board may not be
recoverable, which could adversely affect our financial results. As of September
30, 2001 the amount of loans we had guaranteed totaled $14.0 million. In
addition, we have generally indemnified our charter school and contract school
partners from any liability or damages occurring or allegedly occurring or
arising out of any environmental


                                       19
<PAGE>

conditions at the school site, if such conditions were caused or created by
substances brought on the site by Edison. In connection with the acquisition of
LearnNow, the Company assumed an executed environmental indemnification
agreement with a lender pursuant to which LearnNow had agreed to indemnify the
lender from any liability or obligations related to the presence of any
hazardous substance at the charter school site.

Our financial results are subject to seasonal patterns and other fluctuations
from quarter to quarter

      We expect our results of operations to experience seasonal patterns and
other fluctuations from quarter to quarter. The factors that could contribute to
fluctuations, which could have the effect of masking or exaggerating trends in
our business and which could hurt the market price of our class A common stock,
include:

      o     Because new schools are opened in the first fiscal quarter of each
            year, increases in student enrollment and related revenue and
            expenses will first be reflected in that quarter. Subsequent to the
            first quarter, student enrollment is expected to remain relatively
            stable throughout a school year, and, accordingly, trends in our
            business, whether favorable or unfavorable, will tend not to be
            reflected in our quarterly financial results, but will be evident
            primarily in year-to-year comparisons.

      o     We recognize revenue for each school pro rata over the 11 months
            from August through June, and, except for revenue related to our
            summer school programs, we recognize no school revenue in July. Most
            of our site costs are recognized over the 11 months from August
            through June. For this reason, the first quarter of our fiscal year
            has historically reflected less revenue and lower expenses than the
            other three quarters, and we expect this pattern to continue.

      o     Our recognition of site-related expenses in the first fiscal quarter
            is proportionally greater than the revenue recognition because some
            site expenses are incurred in July and no revenue is recorded in
            July, with the exception of revenue related to our summer school
            programs. This results in lower gross site margin in the first
            fiscal quarter than in the remaining fiscal quarters. We also
            recognize pre-opening costs primarily in the first and fourth
            quarters.

      o     We recognize revenue from our summer school programs during the
            first and fourth fiscal quarters. To the extent our summer school
            program becomes a more significant part of our business, this could
            significantly alter seasonal patterns.

      Our financial results can vary among the quarters within any fiscal year
for other reasons, including unexpected enrollment changes, greater than
expected costs of opening schools or delays in opening new schools.

We expect our market to become more competitive

      We expect the market for providing private, for-profit management of
public schools will become increasingly competitive. Currently, we compete with
a relatively small number of companies which provide these services, and they
have to date primarily focused on the operation of charter schools. Some of
these companies have begun to compete with us for contract schools. In addition,
a variety of other types of companies and entities could enter the market,
including colleges and universities, private companies that operate higher
education or professional education schools and others. Our existing competitors
and these new market entrants could have financial, marketing and other
resources significantly greater than ours. We also compete for public school
funding with existing public schools, who may elect not to enter into management
agreements with private managers or who may pursue alternative reform
initiatives, such as magnet schools and inter-district choice programs. In
addition, in jurisdictions where voucher programs have been authorized, we will
begin to compete with existing private schools for public tuition funds. Voucher
programs provide for the issuance by local or other governmental bodies of
tuition vouchers to parents worth a certain amount of money that they can redeem
at any approved school of their choice, including private schools. If we are
unable to compete successfully against any of these existing or potential
competitors, our revenues could be reduced, resulting in increased losses.


                                       20
<PAGE>

Failure to raise necessary additional capital could restrict our growth and
hinder our ability to compete

      We have had negative cash flow in every fiscal period since we began
operations and are not certain when we will have positive cash flow, if at all.
We have regularly needed to raise funds in order to operate our business and
fund our growth, including the construction and renovation of charter school
facilities, and may need to raise additional funds in the future. We cannot be
certain that we will be able to obtain additional financing on favorable terms,
if at all, or that our charter clients will be able to repay our loans and
advances to them. If we issue additional equity or convertible debt securities,
stockholders may experience dilution or the new equity or convertible debt
securities may have rights, preferences or privileges senior to those of
existing holders of class A common stock. If we cannot raise funds on acceptable
terms, if and when needed, or if our charter clients are unable to repay our
loans and advances to them, or if we are required to repay any loans that we
have guaranteed, we may not be able to take advantage of future opportunities,
grow our business or respond to competitive pressures or unanticipated
requirements, which could seriously harm our business.

We may incur substantial costs if we are unable to complete our Edison corporate
headquarters project

      We have purchased property in New York, New York for the purchase price of
$10 million, and have entered into an agreement with the Museum of African Art
to develop the property for a mixed use project consisting of our new corporate
headquarters, a charter school and a facility to house the Museum. We have not
yet received the necessary zoning approvals for this project, nor do we have an
agreement with any party to operate a charter school on that site. If we are
unable to obtain the necessary zoning approvals, and, as a result, must
terminate our agreement with the Museum, we may choose to sell the property,
potentially at a loss.

We rely on government funds for specific education programs, and our business
could suffer if we fail to comply with rules concerning the receipt and use of
the funds

      We benefit from funds from federal and state programs to be used for
specific educational purposes. Funding from the federal government under Title I
of the Elementary and Secondary Education Act, which provides federal funds for
children from low-income families, accounted for approximately 4% of our total
revenue for the fiscal year ended June 30, 2001. During the same period, we
estimate that funding from other federal and state programs accounted for an
additional 10% of our total revenue. A number of factors relating to these
government programs could lead to adverse effects on our business:

      o     These programs have strict requirements as to eligible students and
            allowable activities. If we or our school district and charter board
            clients fail to comply with the regulations governing the programs,
            we or our clients could be required to repay the funds or be
            determined ineligible to receive these funds, which would harm our
            business.

      o     If the income demographics of a district's population were to change
            over the life of our management agreement for a school in the
            district, resulting in a decrease in Title I funding for the school,
            we would receive less revenue for operating the school and our
            financial results could suffer.

      o     Funding from federal and state education programs is allocated
            through formulas. If federal or state legislatures or, in some case,
            agencies were to change the formulas, we could receive less funding
            and the growth and financial performance of our business would
            suffer.

      o     Federal, state and local education programs are subject to annual
            appropriations of funds. Federal or state legislatures or local
            officials could drastically reduce the funding amount of
            appropriation for any program, which would hurt our business and our
            ability to grow.

      o     The authorization for the Elementary and Secondary Education Act,
            including Title I, has expired and this act is being funded by
            Congress on an interim appropriation basis. If Congress does not
            reauthorize or continue to provide interim appropriation for the
            Elementary and Secondary Education Act, we would receive less
            funding and our growth and financial results would suffer.

      o     Most federal education funds are administered through state and
            local education agencies, which allot funds to school boards and
            charter boards. These state and local education agencies are subject
            to extensive government


                                       21
<PAGE>

            regulation concerning their eligibility for federal funds. If these
            agencies were declared ineligible to receive federal education
            funds, the receipt of federal education funds by our school board or
            charter board clients could be delayed, which could in turn delay
            our payment from our school board and charter board clients.

      o     We could become ineligible to receive these funds if any of our
            high-ranking employees commit serious crimes.

We are subject to extensive government regulation because we benefit from
federal funds, and our failure to comply with government regulations could
result in the reduction or loss of federal education funds

      Because we benefit from federal funds, we must also comply with a variety
of federal laws and regulations not directly related to any federal education
program, such as federal civil rights laws and laws relating to lobbying. Our
failure to comply with these federal laws and regulations could result in the
reduction or loss of federal education funds which would cause our business to
suffer. In addition, our management agreements are potentially covered by
federal procurement rules and regulations because our school district and
charter board clients pay us, in part, with funds received from federal
programs. Federal procurement rules and regulations generally require
competitive bidding, awarding contracts based on lowest cost and similar
requirements. If a court or federal agency determined that a management
agreement was covered by federal procurement rules and regulations and was
awarded without compliance with those rules and regulations, then the management
agreement could be voided and we could be required to repay any federal funds we
received under the management agreement, which would hurt our business.

Failure of our charter board clients to obtain federal tax-exempt status could
jeopardize the school's charter and restrict our ability to finance the school

      Many of our charter school clients apply for federal tax-exempt status.
One state in which we currently operate seven charter schools and hope to open
additional charter schools in the future, and one other state, requires charter
schools to secure federal tax-exempt status. Any failure to receive or delay in
receiving federal tax-exempt status by a charter school in this state could
jeopardize the school's charter and its ability to repay amounts owed to us. The
failure to receive federal tax-exempt status by a charter school in any state
could, among other things, inhibit that charter school's ability to solicit
charitable contributions or participate in tax-exempt financing.

We receive all of our revenue from public sources and any reduction in general
funding levels for education could hurt our business

      All of our revenue is derived from public sources. If general levels of
funding for public education were to decline, the field of school districts in
which we could profitably operate schools would likewise diminish, and our
ability to grow by adding new schools would suffer. In addition, our management
agreements generally provide that we bear the risk of lower levels of per-pupil
funding, which would be directly reflected in lower revenue to us, even if our
costs do not decline accordingly.

Restrictions on government funding of for-profit school management companies
could hurt our business

      Any restriction on the use of federal or state government educational
funds by for-profit companies could hurt our business and our ability to grow.
From time to time, a variety of proposals have been introduced in state
legislatures to restrict or prohibit the management of public schools by
private, for-profit entities like us. For example, a bill filed in Minnesota
that would have prohibited for-profit entities from managing charter schools in
that state was defeated in both 1997 and 1998. A similar bill in Massachusetts
also failed, and legislation was recently introduced in Tennessee. Additionally,
Idaho's charter school law may, subject to interpretation, restrict our ability
to manage schools in that state. If states or the federal government were to
adopt legislation prohibiting for-profit entities from operating public schools,
the market for our services would decline and our business results could suffer.

The operation of our charter schools depends on the maintenance of the
underlying charter grant

      Our charter schools operate under a charter that is typically granted by a
state authority to a third-party charter holder, such as a community group or
established non-profit organization. Our management agreement in turn is with
the charter holder. If the state charter authority were to revoke the charter,
which could occur based on actions of the charter holder outside of our


                                       22
<PAGE>

control, we would lose the right to operate that school. In addition, many state
charter school statutes require periodic reauthorization. Charter schools
accounted for 34.3% of our total revenue in fiscal 2001, or $129.0 million. If
state charter school legislation were not reauthorized or were substantially
altered in a meaningful number of states, our business and growth strategy would
suffer and we could incur additional losses.

Our officers and directors will exercise significant control over our affairs,
which could result in their taking actions of which other stockholders do not
approve

      Based upon their holdings at September 30, 2001, our officers and
directors and entities affiliated with them together beneficially own 7,544,399
shares of class A common stock and 1,601,197 shares of class B common stock.
These shares represent approximately 16.3% of the voting power of the class A
common stock, including the ability to elect one of the seven class A directors;
approximately 63.5% of the voting power of the class B common stock, including
the ability to elect three of the four class B directors; and approximately
29.6% of the combined voting power of the class A and class B common stock. Of
the shares beneficially owned by our officers and directors and others
affiliated with them, 3,401,845 shares of class A common stock and 356,255
shares of class B common stock are subject to options exercisable within 60 days
of September 30, 2001. These stockholders, if they act together, will be able to
exercise significant influence over all matters requiring approval by our
stockholders, including the approval of significant corporate transactions. This
concentration of ownership may also have the effect of delaying or preventing a
change in control of our company and could prevent stockholders from receiving a
premium over the market price if a change of control is proposed.

      In addition, based upon his holdings as of September 30, 2001, H.
Christopher Whittle, our President and Chief Executive Officer and a director,
beneficially owns 3,697,697 shares of class A common stock and 1,237,539 shares
of class B common stock. These shares represent approximately 9.1% of the voting
power of the class A common stock; approximately 52.0% of the voting power of
the class B common stock, including the ability to elect two of the four class B
directors; and approximately 20.9% of the combined voting power of the class A
and class B common stock. Of the shares beneficially owned by Mr. Whittle and
his affiliates, 1,836,079 shares of class A common stock and 200,862 shares of
class B common stock are subject to options exercisable within 60 days of
September 30, 2001. Mr. Whittle and his affiliates also own options not
exercisable within 60 days of September 30, 2001 covering 2,606,737 shares of
class A common stock and 281,675 shares of class B common stock. To the extent
Mr. Whittle exercises these options, his voting power will be increased. In
addition, if the other holders of class B common stock sell a significant
portion of their class B common stock, the voting power of Mr. Whittle's class B
common stock will further concentrate. Also, if the other holders of class B
common stock reduce their common stock holdings below a specified threshold,
then their class B common stock will automatically convert into class A common
stock, further increasing Mr. Whittle's voting power. The class B common stock
generally converts into class A common stock upon its transfer. However, shares
of class B common stock transferred to Mr. Whittle do not automatically convert
into class A common stock. Consequently, Mr. Whittle can also increase his
voting power by acquiring shares of class B common stock from other
stockholders.

Pledges of shares of our common stock by Mr. Whittle could result in voting
power shifting to the hands of his lenders

      Based upon their holdings as of September 30, 2001, Mr. Whittle and WSI
Inc., a corporation controlled by Mr. Whittle, directly or indirectly own
2,659,321 shares of class A common stock and 1,122,163 shares of class B common
stock, including an aggregate of 761,625 shares of class A common stock and
84,625 shares of class B common stock which represents WSI's interest in a
limited partnership and a limited liability company that hold Edison stock.
These figures include shares issuable upon the exercise of options within 60
days of September 30, 2001. Mr. Whittle and WSI have pledged to Morgan Guaranty
Trust Company of New York all of their direct and indirect interests in Edison
to secure personal obligations. These obligations become due in February 2003
and interest on these obligations is payable monthly. In addition, Mr. Whittle
may not vote his class A common stock and class B common stock on any matter
other than the election or removal of directors without Morgan's prior written
consent. Of these shares, Morgan allowed WSI to pledge up to 400,000 shares to
other lenders. Upon satisfaction of WSI's obligations to the other lenders,
these shares would revert back to being pledged to Morgan. If Mr. Whittle and
WSI were to default on their obligations to Morgan and Morgan were to foreclose
on its pledge, the class B common stock transferred directly or indirectly to
Morgan would be converted into class A common stock. Thereafter, based on
holdings as of September 30, 2001, and assuming the shares pledged to the other
lenders revert to the Morgan pledge, Morgan, together with its affiliates who
are currently stockholders of Edison, would beneficially own 4,987,004 shares of
class A common stock, including shares subject to options exercisable within 60
days of September 30, 2001. The holdings of Morgan and its affiliates would then


                                       23
<PAGE>

represent 9.2% of the voting power of the class A common stock and 7.7% of the
combined voting power. This would enable Morgan to exercise greater influence
over corporate matters.

Our stock price may be volatile

      The market price of the class A common stock may fluctuate significantly
in response to the risks discussed above, as well as other factors, some of
which are beyond our control. These other factors include:

      o     variations in our quarterly operating results;

      o     changes in securities analysts' estimates of our financial
            performance;

      o     changes in the public perception of our schools' academic
            performance;

      o     termination or non-renewal of existing management agreements;

      o     changes in market valuations of similar companies;

      o     future sales of our class A common stock or other securities; and

      o     general stock market volatility.

      Since our class A common stock has been publicly traded, its market price
has fluctuated over a wide range and we expect it to continue to do so in the
future. In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources.

Anti-takeover provisions of Delaware law and our charter and bylaws could
prevent or delay a change in control

      Provisions of Delaware law, our charter and our bylaws could make it more
difficult for a third party to acquire us, even if doing so would be beneficial
to our stockholders. These provisions could limit the price that certain
investors might be willing to pay in the future for shares of class A common
stock, and could have the effect of delaying, deferring or preventing a change
in control of Edison. These provisions include:

      o     the high-vote nature of the class B common stock;

      o     restrictions on removal of directors, which may only be effected for
            cause and only by a vote of the holders of 80% of the class of
            common stock that elected the director;

      o     Section 203 of the General Corporation Law of Delaware which could
            have the effect of delaying transactions with interested
            stockholders;

      o     a prohibition of stockholder action by written consent; and

      o     procedural and notice requirements for calling and bringing action
            before stockholder meetings.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   We currently have market risk sensitive instruments related to interest
rates. We had outstanding long-term notes payable of $18.0 million at September
30, 2001. Interest rates on the notes are fixed and range from 9.5% to 20.4% per
annum and have terms of 36 to 48 months.

   We do not believe that we have significant exposure to changing interest
rates on long-term debt because interest rates for our debt is fixed. We have
not undertaken any additional actions to cover interest rate market risk and are
not a party to any


                                       24
<PAGE>

other interest rate market risk management activities.

   Additionally, we do not have significant exposure to changing interest
rates on invested cash, which was approximately $50.5 million at September 30,
2001. We invest cash mainly in money market accounts and other investment-grade
securities. We do not purchase or hold derivative financial instruments for
trading purposes.

PART II -- OTHER INFORMATION

Item 1. Legal Proceedings

      The Company is involved in various legal proceedings from time to time
incidental to the conduct of its business. The Company currently believes that
any ultimate liability arising out of such proceedings will not have a material
adverse effect on its financial condition or results of operations.

Item 2. Changes in Securities and Use of Proceeds

      None

Item 3. Defaults upon Senior Securities

      None

Item 4. Submission of Matters to a Vote of Securities Holders

      None

Item 5. Other information

      None

Item 6. Exhibits and Reports on Form 8-K.

      Exhibits:

      10.01 Purchase and Contribution Agreement, dated October 31, 2001, between
            the Company and Edison Receivables Company LLC.
      10.02 Credit and Security Agreement, dated October 31, 2001, between
            Edison Receivables Company LLC and Merrill Lynch Mortgage Capital
            Inc.

      99.1  Certification by Chief Executive Officer Pursuant to 18 U.S.C.
            Section 1350, as adopted Pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002

      99.2  Certification by Chief Financial Officer Pursuant to 18 U.S.C.
            Section 1350, as adopted Pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002

Reports on Form 8-K:

      On July 17, 2001, the Company filed a report on Form 8-K announcing that
   on July 5, 2001, the Company issued a press release regarding its completion
   of the acquisition of LearnNow, Inc.


                                       25
<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 thereunto duly authorized.

                                            EDISON SCHOOLS INC.


Date: November 14, 2002                 /s/ H. Christopher Whittle
                                            ------------------------------------
                                            H. Christopher Whittle
                                            Chief Executive Officer
                                            and Director


Date: November 14, 2002                 /s/ Christopher J. Scarlata
                                            ------------------------------------
                                            Christopher J. Scarlata
                                            Executive Vice President and Chief
                                            Financial Officer (Principal
                                            Accounting Officer)

I, H. Christopher Whittle, certify that:

1. I have reviewed this quarterly report on Form 10-Q/A of Edison Schools Inc.

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results on operations and cash flows of the
registrant as for, the periods presented in this quarterly report;

Date: November 14, 2002                 /s/ H. Christopher Whittle
                                            ------------------------------------
                                            H. Christopher Whittle
                                            Chief Executive Officer
                                            and Director

I, H. Christopher J. Scarlata, certify that:

1. I have reviewed this quarterly report on Form 10-Q/A of Edison Schools Inc.

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results on operations and cash flows of the
registrant as for, the periods presented in this quarterly report;



Date: November 14, 2002                 /s/ Christopher J. Scarlata
                                            ------------------------------------
                                            Christopher J. Scarlata
                                            Executive Vice President and Chief
                                            Financial Officer (Principal
                                            Accounting Officer)


                                       26

<PAGE>

                                  Exhibit Index

10.01 Purchase and Contribution Agreement, dated October 31, 2001, between the
      Company and Edison Receivables Company LLC.

10.02 Credit and Security Agreement, dated October 31, 2001, between Edison
      Receivables Company LLC and Merrill Lynch Mortgage Capital Inc.

99.1  Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section
      1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.2  Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section
      1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



                                       27