<PAGE>
                     U.S. SECURITIES AND EXCHANGE COMMISSION

                              Washington D.C. 20549

                                   FORM 10-QSB

(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


            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
        ---
                         SECURITIES EXCHANGE ACT OF 1934
                       For the transition period from    to    .
                                                      ---   ---
                           Commission File No. 0-27780

                          NEW HORIZON KIDS QUEST, INC.
             (Exact name of registrant as specified in its charter)


         MINNESOTA                                     41-1719363
-------------------------------                --------------------------
(State or other jurisdiction of                    (I.R.S. Employer
incorporation or organization)                     Identification No.)


             16355 36th Avenue North, Suite 700, Plymouth, MN 55446
             ------------------------------------------------------
               (Address of principal executive offices) (Zip Code)


       Registrant's telephone number, including area code: (763) 557-1111


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

            YES (X)                                     NO (  )

As of November 13, 2001, the Registrant had outstanding 3,293,300 shares of its
Common Stock, $.01 par value.


<PAGE>


                          NEW HORIZON KIDS QUEST, INC.

                                   FORM 10-QSB

                    FOR THE QUARTER ENDED SEPTEMBER 30, 2001



                                      INDEX
<TABLE>
<CAPTION>

                                                                                             Page
                                                                                            ------
<S>              <C>                                                                           <C>
PART I.           FINANCIAL INFORMATION                                                         3

ITEM 1.           Condensed Consolidated Financial Statements

         a)       Condensed Consolidated Balance Sheets -
                  September 30, 2001 and December 31, 2000                                      3

         b)       Condensed Consolidated Statements of
                  Operations - Three and nine months ended
                  September 30, 2001 and 2000                                                   5

         c)       Condensed Consolidated Statements of
                  Cash Flows - Nine months ended
                  September 30, 2001 and 2000                                                   6

         d)       Notes to Condensed Consolidated Financial
                  Statements                                                                    7

ITEM 2.           Management's Discussion and Analysis
                  of Financial Condition and Results
                  of Operations                                                                 9

PART II. OTHER INFORMATION                                                                     13

ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K                                             13

Signatures                                                                                     14

</TABLE>


                                       2
<PAGE>


                         PART I. - FINANCIAL INFORMATION

ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                  NEW HORIZON KIDS QUEST, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                              September 30,          December 31,
                                                                                   2001                2000
                                                                             -----------------    ----------------
                                                                               (Unaudited)
<S>                                                                            <C>                  <C>
CURRENT ASSETS:
   Cash and cash equivalents.........................................          $  651,081           $  260,445
   Accounts receivable...............................................             892,459            1,066,758
   Accounts receivable - related party...............................             677,829                    -
   Current portion of notes receivable...............................             160,431              162,836
   Prepaid expenses and other current assets.........................             245,304              211,202
                                                                                ---------            ---------
     Total current assets............................................           2,627,104            1,701,241
                                                                                ---------            ---------
PROPERTY AND EQUIPMENT:
   Furniture, fixtures, equipment and leaseholds.....................           9,159,545           10,675,934
   Less - Accumulated depreciation and amortization..................          (5,748,734)          (6,497,054)
                                                                                ---------            ---------
     Total property and equipment....................................           3,410,811            4,178,880
OTHER ASSETS:
   Goodwill (net of accumulated amortization
      of $245,151 and $212,037, respectively)........................             417,134              450,248
   Notes receivable, net of current portion..........................             721,188              820,519
   Other.............................................................              96,341              100,947
                                                                                ---------            ---------
                                                                               $7,272,578           $7,251,835
                                                                                =========            =========
</TABLE>



   See accompanying notes which are an integral part of these balance sheets.


                                       3
<PAGE>


                  NEW HORIZON KIDS QUEST, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

                      LIABILITIES AND SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                              September 30,       December 31,
                                                                                   2001              2000
                                                                              -------------       ------------
                                                                               (Unaudited)
<S>                                                                           <C>                 <C>
CURRENT LIABILITIES:
   Current maturities of long-term debt..............................          $1,667,968          $  849,265
   Accounts payable..................................................             579,241             484,446
   Accrued expenses..................................................           1,063,590             899,010
                                                                               ----------          ----------
     Total current liabilities.......................................           3,310,799           2,232,721
LONG-TERM DEBT, less current maturities..............................             426,653             749,096
                                                                               ----------          ----------
     Total liabilities...............................................           3,737,452           2,981,817
                                                                               ----------          ----------
SHAREHOLDERS' EQUITY:
   Undesignated preferred stock, 3,500,000 shares
     authorized; no shares issued and outstanding....................                  --                  --
   Series A convertible preferred stock, $.01 par value,
     1,500,000 shares authorized; no shares issued and
     outstanding ....................................................                  --                  --
   Common stock, $.01 par value, 20,000,000 shares
     authorized; 3,293,300 shares issued and outstanding.............              32,933              32,933
   Additional paid-in capital........................................           7,196,197           7,196,197
   Treasury Stock Redeemable.........................................          (1,093,750)                 --
   Accumulated deficit...............................................          (2,600,254)         (2,959,112)
                                                                               ----------          ----------
     Total shareholders' equity......................................           3,535,126           4,270,018
                                                                               ----------          ----------
                                                                               $7,272,578          $7,251,835
                                                                               ==========          ==========
</TABLE>




   See accompanying notes which are an integral part of these balance sheets.


                                       4
<PAGE>


                  NEW HORIZON KIDS QUEST, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                       Three Months Ended               Nine Months Ended
                                                          September 30                     September 30
                                                       ------------------               -----------------
                                                       2001          2000               2001         2000
                                                       ------------------               -----------------
<S>                                              <C>               <C>                <C>               <C>
REVENUE....................................         $4,667,419    $4,845,574        $13,353,459    $13,429,902
COSTS AND EXPENSES:
   Direct Expenses.........................          3,582,052     3,779,419         10,273,542     10,450,692
   Depreciation and Amortization...........            514,488       435,637          1,465,742      1,403,315
   Pre-opening Expenses....................              2,504        10,801              2,504         25,954
                                                     ---------     ---------         ----------     ----------
     Total Costs and Expenses..............          4,099,044     4,225,857         11,741,788     11,879,961
                                                     ---------     ---------         ----------     ----------
CENTER OPERATING INCOME....................            568,375       619,717          1,611,671      1,549,941
   Selling, General, and Administrative....            325,729       377,621          1,069,502      1,048,601
   Depreciation and Amortization...........             21,654        16,804             56,917         57,881
OPERATING INCOME ..........................            220,992       225,292            485,252        443,459
   Interest Expense........................            (52,556)      (53,042)          (116,821)      (174,761)
   Interest Income.........................             37,790        25,778             90,812         78,409
   Minority Interest.......................            (14,499)       (7,648)           (35,672)       (29,189)
                                                     ---------      --------         ----------      ---------
NET INCOME BEFORE INCOME TAXES.............         $  191,727    $  190,380        $   423,571     $  317,918
PROVISION FOR INCOME TAXES.................             28,760        27,750             64,713         45,900
                                                     ---------     ---------         ----------      ---------

NET INCOME.................................            162,967       162,630            358,858        272,018
                                                     ---------     ---------         ----------      ---------
INCOME PER SHARE:
   Basic and Diluted.......................         $      .05    $      .05        $       .11     $      .08
                                                     =========     =========         ==========      =========
WEIGHTED AVERAGE SHARES OUTSTANDING:
   Basic...................................          3,293,300     3,293,300          3,293,300      3,293,300
                                                     ---------     ---------         ----------      ---------
   Diluted.................................          3,293,300     3,332,000          3,293,300      3,359,000
                                                     =========     =========         ==========      =========
</TABLE>


     See accompanying notes which are an integral part of these statements.


                                       5
<PAGE>



                  NEW HORIZON KIDS QUEST, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                     Nine Months Ended
                                                                                         September 30
                                                                                    -------------------
                                                                                    2001           2000
                                                                                    -------------------
<S>                                                                          <C>                  <C>
OPERATING ACTIVITIES:
   Net income........................................................           $  358,858      $  272,018
   Adjustments to reconcile net income to net cash provided
     by operating activities -
       Depreciation and amortization.................................            1,522,659       1,461,196
       Change in operating assets and liabilities:
         Accounts receivable.........................................              174,298        (135,262)
         Prepaid expenses and other..................................              (34,102)        (43,295)
         Accounts payable............................................               94,795        (404,679)
         Other assets................................................                3,924          96,095
         Accrued expenses............................................              164,580         295,517
                                                                                 ---------       ---------
           Net cash provided by operating activities.................            2,285,012       1,541,590
                                                                                 ---------       ---------
INVESTING ACTIVITIES:
   Purchases of property and equipment, net..........................             (720,793)       (533,966)
   Loans to related party............................................             (677,829)              -
   Payments received on notes receivable.............................              101,736          92,519
                                                                                 ---------       ---------
     Net cash used in investing activities...........................           (1,296,886)       (441,447)
                                                                                 ---------       ---------
FINANCING ACTIVITIES:
   Payments on line of credit, net...................................             (100,000)       (250,000)
   Payments on long-term obligations.................................             (497,490)       (947,912)
   Additional borrowings of long-term debt...........................                    -          73,008
                                                                                 ---------       ---------
     Net cash used in financing activities...........................             (597,490)     (1,124,904)
                                                                                 ---------       ---------
     Net increase/(decrease) in cash and cash equivalents............              390,636         (24,761)
CASH AND CASH EQUIVALENTS,
   beginning of period...............................................              260,445         155,987
                                                                                 ---------       ---------
CASH AND CASH EQUIVALENTS,
   end of period.....................................................          $   651,081      $  131,226
                                                                                ==========       =========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
   Cash paid during the period for -
     Interest........................................................          $    72,148      $   98,710
                                                                                ==========      ==========
     Taxes ..........................................................          $    93,992      $      936
                                                                                ==========      ==========
</TABLE>



     See accompanying notes which are an integral part of these statements.



                                       6
<PAGE>


                  NEW HORIZON KIDS QUEST, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     The condensed consolidated financial statements included herein have been
prepared by New Horizon Kids Quest, Inc. (the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
The Company's business is seasonal and, accordingly, interim results are not
indicative of results for a full year. In the opinion of the Company, all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company as of September 30, 2001,
and the results of its operations for the three months and nine months ended
September 30, 2001, and 2000, have been reflected in the accompanying financial
statements. Certain information in footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures provided herein
are adequate to make the information presented not misleading. It is suggested
that these consolidated financial statements be read in conjunction with the
financial statements for the years ended December 31, 2000 and 1999, and the
footnotes thereto, included in the Company's Form 10-KSB, filed with the
Securities and Exchange Commission.

1. Basis of Presentation:

     Principles of Consolidation - The consolidated financial statements include
the accounts of New Horizon Kids Quest, Inc. and its wholly owned subsidiaries
(together, the "Company"). All intercompany balances and transactions have been
eliminated in consolidation.

2. Earnings Per Share:

     Basic earnings per common share is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the year.
Diluted earnings per share is computed similarly to the computation of basic
earnings per share except that the denominator is increased by the assumed
exercise of dilutive options and warrants using the treasury stock method.
Options and warrants totaling 786,025 were excluded from the computation of
diluted earnings per share in 2001 because their effect is antidilutive. A
reconciliation of these amounts is as follows:

<TABLE>
<CAPTION>
                                                        Three Months Ended                         Nine Months Ended
                                                           September 30                              September 30
                                                  --------------------------------          --------------------------------
                                                     2001                2000                   2001               2000
                                                  ------------        ------------          -------------      -------------
<S>                                                 <C>                 <C>                   <C>                 <C>
Weighted average common shares outstanding:
     Basic...................................       3,293,300           3,293,300              3,293,300          3,293,300
     Dilutive effect of option plan..........              --              38,700                     --             65,700
                                                    ---------           ---------              ---------          ---------
     Diluted.................................       3,293,300           3,332,000              3,293,300          3,359,000
                                                    =========           =========              =========          =========
</TABLE>


3. Recently Issued Accounting Pronouncements:

     During June 2001, the Financial Accounting Standards Board released SFAS
No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years
beginning after December 15, 2001. SFAS No. 142 changes the accounting and
reporting for acquired goodwill. The Company will adopt SFAS No. 142 at the
beginning of 2002 and is currently analyzing the impact it will have on the
disclosures in its financial statements.

4. Use of Estimates:

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



                                       7
<PAGE>



5. Stock Option Plan:

     The Company granted 436,500 options in January of 2000 under a stock option
plan previously approved by the board of directors.

6. Segment Disclosures:

     The Company has two segments reportable under the guidelines of SFAS No.
131: Idaho Traditional Care and New Horizon Kids Quest, Inc.

<TABLE>
<CAPTION>
                                                                NEW HORIZON             IDAHO
    FOR THE THREE MONTH PERIOD                                  KIDS QUEST,          TRADITIONAL
    ENDED SEPTEMBER 30,                                             INC.                 CARE            CONSOLIDATED
    -----------------------------------------------------       -----------          -----------         -------------
<S>                                                            <C>                  <C>                 <C>
    2001
    Revenue.............................................        $3,784,296            $883,123           $4,667,419
    Depreciation and amortization.......................           490,331              45,811              536,142
    Interest income.....................................            37,790                  --               37,790
    Net income (loss)...................................           277,912            (114,945)             162,967
    Capital expenditures................................           287,931              11,157              299,088

    2000
    Revenue.............................................        $3,922,481            $923,093           $4,845,574
    Depreciation and amortization.......................           409,345              43,096              452,441
    Interest income.....................................            25,778                  --               25,778
    Net income (loss)...................................           289,735            (127,105)             162,630
    Capital expenditures................................           340,420              22,832              363,252
</TABLE>

<TABLE>
<CAPTION>
                                                                NEW HORIZON             IDAHO
    FOR THE NINE MONTH PERIOD                                   KIDS QUEST,          TRADITIONAL
    ENDED SEPTEMBER 30,                                             INC.                CARE             CONSOLIDATED
    -----------------------------------------------------       -----------        ----------------      ------------
<S>                                                            <C>                  <C>                 <C>
    2001
    Revenue.............................................        $10,473,878          $2,879,581         $13,353,459
    Depreciation and amortization.......................          1,385,077             137,582           1,522,659
    Interest income.....................................             90,812                  --              90,812
    Net income (loss)...................................            553,590            (194,732)            358,858
    Capital expenditures................................            681,846              38,947             720,793

    2000
    Revenue.............................................        $10,447,798          $2,982,104        $ 13,429,902
    Depreciation and amortization.......................          1,326,411             134,785           1,461,196
    Interest income.....................................             78,409                  --              78,409
    Net income (loss)...................................            420,409            (148,391)            272,018
    Capital expenditures................................            503,207              30,759             533,966
</TABLE>

There have been no material changes in segment assets since December 31, 2000.

7. Long-Term Debt:

     In May of 2001, the Company entered into an agreement with Lakes Gaming,
Inc. to redeem 875,000 shares of the Company's common stock. The terms of the
redemption are as follows: (1) the agreement gives the Company six (6) months to
obtain financing to redeem the stock at $1.25 per share; (2) during the
six-month period, the Company will pay Lakes Gaming interest at a rate of 10%
per annum on the unpaid principal balance; and (3) in the event the Company is
unable to obtain financing to redeem the stock within such six-month period, Mr.
Dunkley, the Company's Chairman and Chief Executive Officer, has agreed to
personally guarantee the obligations of the Company. In the event Mr. Dunkley's




                                       8
<PAGE>


obligations are triggered under the personal guarantee, Mr. Dunkley may retain
the shares, or the Company may seek to then redeem them from Mr. Dunkley. In
October 2001, the Company made a prepayment of $900,000 using its credit line
and working capital, all of which was applied towards principal on this
obligation. The Company believes that it will be able to pay the remaining
balance on or before the due date.

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


General

     The Company currently provides hourly child care at twenty-one locations in
ten states, including three with supervised non-violent video entertainment
centers. The Company also provides traditional child care at ten New Horizon
Child Care centers in Idaho; one location in Joliet, Illinois; one at its Mall
of America location in Bloomington, Minnesota; one at The Venetian
Resort~Hotel~Casino in Las Vegas, Nevada; one in Morton, Minnesota at Jackpot
Junction Casino Hotel in conjunction with its hourly care facility; and one in
Marksville, Louisiana, at Paragon Casino Resort also in conjunction with an
hourly care facility. The Company opened a Kids Quest hourly care center for the
Seven Clans Casino, Hotel, and Indoor Water Park in Thief River Falls,
Minnesota, on May 25, 2001, and has signed an agreement with the Palms Casino
Resort in Las Vegas, Nevada, to provide an hourly child care center at their new
facility which is expected to open in the fourth quarter of 2001. In September
2001, the Company opened an expanded hourly care and non-violent video
entertainment center at Mohegan Sun Hotel Casino in Uncasville, Connecticut.

     The terms of the Company's contracts vary by host property and by location.
Any description of a particular contract is site specific and should not imply
that such terms are present in all or most of the Company's contracts.

     Since its inception as a hourly children's entertainment and recreational
facility, Kids Quest has expanded its product line to include supervised
non-violent video entertainment centers, traditional child care, and employee
child care. The Company plans to continue to seek opportunities for additional
venues for all of its product lines.

     The Company's business is seasonal with revenues and operating income for
Kids Quest being the highest and New Horizon Child Care being the lowest in the
summer months. Consequently, results of operations for any interim period may
not be indicative of results to be achieved for a full fiscal year.

Results of Operations

     Revenues for the three-month period ended September 30, 2001, decreased
$178,155, or 4%, to $4,667,419 from $4,845,574 for the same period in 2000. The
addition of two new Kids Quest hourly care centers since the third quarter of
2000 contributed $72,544 of additional revenues. A Kids Quest center that was
closed in 2000 resulted in a decrease in revenue of $69,118 between 2001 and
2000.

     The Company's Kids Quest locations that were open for the entire
three-month period ended September 30, 2001, and 2000 experienced a decline in
revenue of $141,611. A portion of the decline is related to the temporary
relocation of the Company's Mohegan Sun center. In November of 1999, the
Company's hourly child care center and video entertainment center were relocated
to a significantly smaller space resulting in a decrease of revenue of $100,544
between 2001 and 2000. The move was necessary to allow for the construction of
Mohegan Sun's $800 million hotel addition and casino expansion. The casino
expansion, which includes a new 15,075 square-foot Kids Quest and non-violent
video entertainment center, opened September 25, 2001. All relocation costs were
paid by Mohegan Sun. Mohegan Sun is also obligated to reimburse the Company for
all lost profits during the relocation period. The calculation of lost profits
is based on prior results adjusted for CPI increases. In addition to the decline
at Mohegan Sun, the Company's hourly care center in Kansas City experienced a
decline in revenue for the quarter of $55,495, or 22%. Management attributes
this decline to the recent change in ownership of the casino property and new
licensing requirements at the center.

     The Company's ten New Horizon Child Care centers in Idaho which were open
for the entire three-month periods ended September 30, 2001, and 2000
experienced a decline in revenue of $39,970, or 4%.

     Revenues for the nine-month period ended September 30, 2001, decreased
$76,443, or less than 1%, to $13,353,459 from $13,429,902 for the same period in
2000. The addition of three new Kids Quest hourly care centers and one New



                                       9
<PAGE>

Horizon Child Care center since the beginning of 2000 contributed $560,654 of
additional revenues. A Kids Quest center that was closed in 2000 resulted in a
decrease of revenue of $211,172 between 2001 and 2000.

     The Company's Kids Quest locations that were open for the entire nine-month
periods ended September 30, 2001, and 2000 experienced a decline in revenues of
$323,403. The revenue decrease is due primarily to the relocation of the
Company's Mohegan Sun hourly care and video entertainment center which
experienced a decline in revenue of $168,474 between 2001 and 2000, and a
decline in revenues at the Company's hourly care center in Kansas City of
$157,959 for the nine months ended September 30, 2001, as compared to the same
period in 2000.

     The Company's New Horizon Child Care centers in Idaho experienced a decline
in revenue of $102,522, or 3%, for the nine-month period ended September 30,
2001. Management attributes this decline primarily to enrollment declines in
several of its centers due to increased competition.

     Costs and expenses for the three months ended September 30, 2001, decreased
$126,813, or less than 1%, to $4,099,044 from $4,225,857 in 2000. Kids Quest
locations opened since the third quarter 2000 added costs and expenses of
$56,178. These increases were offset by a decrease in costs and expenses for
existing Kids Quest locations of $77,709 and reductions of $64,610 relating to
the Kids Quest location closed during 2000. Costs and expenses for the Idaho New
Horizon Child Care centers decreased $40,672 in 2001 versus the same period in
2000.

     Costs and expenses for the nine months ended September 30, 2001, decreased
$138,173, or 1%, to $11,741,788 from $11,879,961 for the same period in 2000.
Kids Quest locations opened during 2000 added costs and expenses of $452,195.
These increases were offset by a decrease in costs and expenses for existing
Kids Quest locations of $348,222 and reductions of $207,379 relating to the Kids
Quest location closed during 2000. The decrease in costs and expenses for
existing Kids Quest centers was partially the result of the Mohegan Sun
relocation that resulted in a decrease of $178,872 in costs and expenses during
2001 as compared to the same period in 2000. The decreases were also the result
of improved operating efficiencies at several existing Kids Quest centers. Costs
and expenses for the Idaho New Horizon Child Care centers decreased $34,767 in
2001 versus the same period in 2000.

     Selling, general, and administrative expenses for the three-month period
ended September 30, 2001, decreased $53,892, to $325,729 in 2001 from $377,621
for the same period in 2000. For the nine months ended September 30, 2001,
selling, general, and administrative expenses increased $61,730, or 4%, to
$1,611,671 in 2001 from $1,549,941 for the same period in 2000. The increase is
due primarily to additional staffing in the areas of marketing, development,
administration, and training. Management expects selling, general, and
administrative expenses to increase with the addition of new locations. However,
such expenses are anticipated to decrease as a percentage of revenues as the
growth of the Company's revenues increase.

     Pursuant to the terms of some of the Company's contracts with casino
operators, casino operators are entitled to establish a discounted rate below
the fair market value for Kids Quest's services to be charged by Kids Quest to
the public in order to attract customers to Kids Quest and ultimately to their
casinos. The casino operator must reimburse the Company for the difference
between such amount charged and the fair market value. The Company received
$146,029 of reimbursements for rate discounts for the three-month period ended
September 30, 2001, versus $295,641 for the same period in 2000, a decrease of
$149,612, or 51%. For the nine-month period ended September 30, 2001, the
Company received $617,621 versus $849,654 for the same period in 2000, a
decrease of $232,033, or 27%. The majority of these rate discount reimbursements
were from three casinos owned by Park Place Entertainment Corporation and four
Indian casinos currently or previously managed by Lakes Gaming, Inc. (formerly
Grand Casinos, Inc.). In June 2001, the Company signed new agreements with Park
Place Entertainment for the Kids Quest centers in Biloxi, Gulfport, and Tunica.
These agreements provide for, among other things, the discontinuation of
subsidized rates to the public. As a result, effective June 1, 2001, the rates
to the public at these centers were increased 20-40%. Since the elimination of
subsidies at the properties, their revenues have decreased 6%. The Company is
unable to determine if the reductions are due to the rate increases or general
market conditions. The Company currently has locations that operate without any
rate discount and has found no evidence to conclude that higher non-discounted
hourly rates to customers have a significant impact on a location's patronage
and resulting revenue. There can be no assurance that the remaining
reimbursement agreements will not be modified or discontinued altogether or that
future agreements with other casinos will provide for a discounted hourly rate
to the public.

     Interest expense for the three-month period ended September 30, 2001,
decreased $486, or less than 1%, to $52,556 from $53,042 for the same period in
2000. Interest expense for the nine months ended September 30, 2001, decreased


                                       10
<PAGE>


$57,940, or 33% to $116,821 from $174,761 for the same period in 2000. The
decrease in interest expense is due primarily to the expiration of equipment
leases.

     The Company had a net profit of $162,967 for the three-month period ended
September 30, 2001, compared to net profit of $162,630 in 2000. The new Kids
Quest centers opened since the third quarter of 2000 accounted for an increase
in center operating income of $16,363. Center operating income for the Kids
Quest centers open during both periods decreased $63,899 as compared to the same
period in 2000. Center operating income for the Kids Quest center closed during
2000 resulted in a decrease in operating income of $4,508. Center operating loss
for the Company's Idaho operations for the three months ended September 30,
2001, was $52,294 as compared to center operating loss of $52,996 for the same
period in 2000, a decrease of $702.

     For the nine months ended September 30, 2001, the Company had a net profit
of $358,858 compared to a net profit of $272,018 for the same period in 2000.
The new Kids Quest centers opened in 2000 accounted for an increase in center
operating income of $108,462. Center operating income for the centers open
during both periods increased $24,816 as compared to the same period in 2000.
Center operating income for the Company's Idaho operations for the nine months
ended September 30, 2001, was $15,976 as compared to center operating income of
$83,733 for the same period in 2000, a decrease of $67,757. Center operating
income was negatively impacted by a loss of enrollment at several centers due to
increased competition.

Liquidity and Capital Resources

     During the nine-month period ended September 30, 2001, the Company
generated $2,285,012 from operations, invested $720,793 in property and
equipment, made loans to a related party of $677,829 at an interest rate of 10%
with required repayment prior to the end of the fiscal year, and received
payments on notes receivable of $101,736. Additionally, the Company made
payments on its line of credit of $100,000 and payments on long-term obligations
of $497,490. The Company ended the period with a cash balance of $651,081.
During the same period in 2000, the Company generated $1,541,590 from
operations, invested $533,966 in property and equipment, and received payments
on notes receivable of $92,519. Additionally, the Company made payments on its
line of credit of $250,000 and payments on long-term obligations of $947,912.
During the period, the Company borrowed an additional $73,008 for equipment
purchases. The Company ended the period with a cash balance of $131,226.

     The Company's capital needs depend upon the Company's expansion efforts.
The Company incurs pre-opening expenses in connection with each of its Kids
Quest centers as well as acquisition or development expenses to add traditional
child care centers. The Company is actively seeking additional Kids Quest
contracts and has engaged in site analysis for the construction of additional
New Horizon Child Care centers. The Company will require additional financing in
2001 if it adds Kids Quest or New Horizon Child Care locations or pursues
acquisitions during the year. In May 2001, the Company executed a stock
redemption agreement with Lake Gaming, Inc. to purchase 875,000 shares of the
Company's stock currently held by Lakes Gaming, Inc. The terms of the redemption
are as follows: (1) from the date of the agreement, the Company has six months
to obtain financing to redeem the stock at $1.25 per share; (2) during the
six-month period, the Company will pay Lakes Gaming interest at a rate of 10%
per annum on the unpaid principal balance; and (3) in the event the Company is
unable to obtain financing to redeem the stock within such six-month period, Mr.
Dunkley, the Company's Chairman and Chief Executive Officer, has agreed to
personally guarantee the obligations of the Company. In the event Mr. Dunkley's
obligations are triggered under the personal guarantee, Mr. Dunkley may retain
the shares, or the Company may seek to then redeem them from Mr. Dunkley. Any
shares redeemed by the Company will be canceled and returned to the Company's
authorized capital stock. In October 2001, the Company paid $900,000 of this
obligation using its credit line and working capital, all of which was applied
towards principal. The Company believes that it will be able to pay the
remaining balance on or before the due date. In addition, the Company is
currently obligated to loan Station Casinos, Inc. up to $250,000 for leasehold
improvements in connection with the Kids Quest location at Texas Station in Las
Vegas, Nevada, which opened in February of 1999. To date, Station Casinos has
not requested any leasehold improvement loans from Kids Quest. However, if
Station Casinos should make a request, the Company believes that it will be able
to arrange additional financing and will be able to fund additional expansion
with the additional financing and with cash flow from operations.

     On September 11, 2001, four airplanes were hijacked and destroyed in
terrorist attacks on the World Trade Center in New York City and the Pentagon in
Northern Virginia. As a result of those attacks, the Company experienced an
initial decline in revenue at some of its locations. Although the Company
believes that its revenues are returning to pre-September 11 levels, there is no
certainty that such levels will not decline in the future as a result of the
political and economic uncertainty related to the terrorist attacks.



                                       11
<PAGE>

Private Securities Litigation Reform Act

     The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-QSB (as well as information included in oral statements or other written
statements made or to be made by the Company) may contain statements that are
forward looking, such as statements relating to plans for future expansion and
other business development activities, as well as other capital spending,
financial sources, and the effects of regulation and competition. Such
forward-looking information involves important risks and uncertainties that
could significantly affect future results and, accordingly, such results may
differ from those expressed in any forward-looking statement made by or on
behalf of the Company. These risks and uncertainties include, but are not
limited to, those relating to development and construction activities, access to
sources for additional capital, dependence on existing management and third
party contracts, domestic or global economic conditions, changes in federal or
state laws or the administration or enforcement of such laws, litigation or
claims, year 2000 compliance, as well as all other risks and uncertainties
described in the Company's filings.



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<PAGE>


                          PART II. - OTHER INFORMATION

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.

         (a)  Exhibits List
              None.

         (b)  Reports on Form 8-K
              None.



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<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.

                                            NEW HORIZON KIDS QUEST, INC.



                                            By: /s/  William M. Dunkley
                                               ---------------------------------
                                                     William M. Dunkley
                                                     Chief Executive Officer

                                            By: /s/  Patrick R. Cruzen
                                               ---------------------------------
                                                     Patrick R. Cruzen
                                                     Chief Financial Officer

Date: November 13, 2001




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