<PAGE>   1

                                  United States
                       Securities and Exchange Commission
                              Washington, DC 20549

                                    FORM 10-Q

(MARK ONE)
[x]      Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934 For the Period Ended December 31, 1998
                                       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       000-21567
                       ---------------------

                           Quest Education Corporation
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                              <C>
                Delaware                                             65-0038445
     ------------------------------                              -------------------
     (State or other jurisdiction of                                (IRS Employer
     incorporation or organization)                              Identification No.)

      1400 Hembree Road, Suite 100
               Roswell, GA                                              30076
----------------------------------------                             ----------
(Address of principal executive offices)                             (Zip Code)
</TABLE>

                                 (770) 510-2000
              ----------------------------------------------------           
              (Registrant's telephone number, including area code)

            1327 Northmeadow Pkwy., Suite 132, Roswell, Georgia 30076
            ---------------------------------------------------------
              (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 periods 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
                                      --    --

                Applicable Only to Issuers Involved in Bankruptcy
                   Proceedings During the Preceding Five Years

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. Yes __ No __


                      Applicable Only to Corporate Issuers

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date. 
Common Stock, $.01 Par Value, 8,188,640 shares as of February 11, 1999

                                                                               1
<PAGE>   2




                           QUEST EDUCATION CORPORATION

                                      INDEX



Part I.  Financial Information

         Item 1.  Condensed Consolidated Financial Statements

                  Condensed consolidated balance sheets-December 31, 1998
                   (unaudited) - and March 31, 1998 (audited)

                  Condensed consolidated statements of income (unaudited)-
                   Three months ended December 31, 1998 and 1997; nine months
                   ended December 31, 1998 and 1997

                  Condensed consolidated statements of cash flows (unaudited)-
                   Nine months ended December 31, 1998 and 1997

                  Notes to condensed consolidated financial statements
                   (unaudited)-December 31, 1998

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

         Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Part II. Other Information

         Item 1.  Legal Proceedings

         Item 2.  Changes in Securities

         Item 3.  Defaults upon Senior Securities

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

         Item 5.  Other Information

         Item 6.  Exhibits and Reports on Form 8-K



                                                                               2
<PAGE>   3


                           QUEST EDUCATION CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                               December 31,   March 31,
                                                                   1998         1998
                                                               -----------    ---------
                                                               (Unaudited)
<S>                                                           <C>              <C>
ASSETS
Current assets:
  Cash and cash equivalents                                       $ 5,861      $21,446
  Restricted cash                                                      --          384
  Trade accounts receivable, less allowance for doubtful
     accounts of $3,104 and $1,968, respectively                   11,786        6,490
  Notes receivable                                                  1,562          623
  Prepaid expenses and other current assets                         1,743        2,822
  Deferred income tax assets                                          703          703
                                                                  -------      -------
               Total current assets                                21,655       32,468

Notes receivable, less allowance for doubtful accounts of
   $326 and $326, respectively                                        382          737
Property and equipment, net                                        15,381       13,644
Deferred debt issuance costs, net of accumulated
  amortization of $205 and $112, respectively                         213          275
Covenants not to compete, net of accumulated amortization of
   $1,593 and 1,481, respectively                                   1,083          945
Goodwill and other intangible assets, net of accumulated
   amortization of $9,119 and $7,949, respectively                 34,266       31,274
Deferred income tax assets                                          1,778        1,778
Other assets                                                          177          177
                                                                  -------      -------
               Total assets                                       $74,935      $81,298
                                                                  =======      =======
</TABLE>





                                                                               3
<PAGE>   4


                           QUEST EDUCATION CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (CONTINUED)
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                December 31,   March 31,
                                                                                   1998          1998
                                                                                -----------    ---------
                                                                                (Unaudited)
<S>                                                                             <C>            <C>
LIABILITIES AND STOCKHOLDERS' EQUITY 
   Current liabilities:
   Accounts payable                                                                $   772      $   682
   Other amounts due to sellers                                                         --        3,518
   Accrued compensation                                                              1,163        1,241
   Accrued expenses                                                                  3,229        2,140
   Deferred tuition income                                                           4,510        5,096
   Current portion of long-term debt                                                 7,932       14,837
                                                                                   -------      -------
      Total current liabilities                                                     17,606       27,514
Long-term debt, less current portion                                                15,853       17,110
Other liabilities                                                                      386        1,002
                                                                                   -------      -------
      Total liabilities                                                             33,845       45,626

Stockholders' equity:
   Preferred stock, authorized 5,000,000 shares, none issued and outstanding            --           --
   Common stock, $.01 par value - authorized 15,000,000 shares, 8,187,140 and
      7,729,529 shares issued and outstanding at December 31, and March 31, 
      1998, respectively                                                                82           77
   Additional paid-in capital on common stock                                       36,153       33,739
   Retained earnings                                                                 4,855        1,856
                                                                                   -------      -------
      Total stockholders' equity                                                    41,090       35,672
                                                                                   -------      -------
      Total liabilities and stockholders' equity                                   $74,935      $81,298
                                                                                   =======      =======
</TABLE>

            See notes to condensed consolidated financial statements.



                                                                               4
<PAGE>   5



                           QUEST EDUCATION CORPORATION
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                  (Dollars in thousands except per share data)


<TABLE>
<CAPTION>
                                                    Three months          Three months          Nine months          Nine months
                                                        ended                 ended                ended                ended
                                                    December 31,          December 31,          December 31,         December 31,
                                                        1998                  1997                  1998                 1997
                                                    ------------          ------------          ------------         ------------
                                                     (Unaudited)           (Unaudited)          (Unaudited)          (Unaudited)
<S>                                                   <C>                 <C>                   <C>                 <C>
Net revenues                                          $   24,878          $    14,820           $   64,008          $    41,469

School operating costs:
  Cost of education and facilities                        10,303                6,345               29,654               19,349
  Selling and promotional                                  3,038                2,234                9,018                6,272
  General and administrative expenses                      6,435                3,836               17,811               11,657
  Amortization of goodwill and intangibles                   481                  313                1,374                  938
                                                      ----------          -----------           ----------          -----------
Income from operations                                     4,621                2,092                6,151                3,253
Interest expense (income), net                               325                  (89)                 980                 (256)
                                                      ----------          -----------           ----------          -----------
Income before income taxes                                 4,296                2,181                5,171                3,509
Provision for income taxes                                 1,804                  873                2,172                1,404
                                                      ----------          -----------           ----------          -----------
Net income                                            $    2,492          $     1,308           $    2,999          $     2,105
                                                      ==========          ===========           ==========          ===========

Basic:
   Net income per share                               $     0.31          $      0.18           $     0.38          $      0.29
   Weighted average number of shares outstanding       8,177,374            7,363,260            7,996,229            7,349,612

Diluted:
   Net income per share                               $     0.30          $      0.17           $     0.37          $      0.28
   Weighted average number of shares                   8,334,588            7,585,365            8,186,548            7,582,962
</TABLE>


           See notes to condensed consolidated financial statements.



                                                                               5
<PAGE>   6


                           QUEST EDUCATION CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                      Nine months            Nine months
                                                                         ended                  ended
                                                                     December 31,           December 31,
                                                                         1998                   1997
                                                                     ------------           ------------
                                                                      (Unaudited)            (Unaudited)
<S>                                                                  <C>                    <C>
OPERATING ACTIVITIES:
Net income                                                             $  2,999               $  2,105
Adjustments to reconcile net income to net cash provided by
   operating activities:
     Depreciation                                                         1,682                  1,162
     Amortization of intangible assets                                    1,374                    938
     Provision for losses on accounts receivable                          2,028                    803
     Changes in operating assets and liabilities, net of
       assets acquired and liabilities assumed                           (7,519)                (4,326)
                                                                       --------               --------
Net cash provided by operating activities                                   564                    682

INVESTING ACTIVITIES:
Purchases of businesses, net of cash acquired                              (425)                    --
Purchases of property and equipment, net                                 (3,366)                (1,563)
                                                                       --------               --------
Net cash used in investing activities                                    (3,791)                (1,563)

FINANCING ACTIVITIES:
Issuance of common stock, net of offering expenses                        2,927                     98
Proceeds from short-term debt                                             4,000                     --
Principal payments on long-term debt                                    (15,737)                (3,923)
Increase in deferred debt issue costs                                       (30)                   (39)
Payments of amounts due to sellers                                       (3,518)                    --
                                                                       --------               --------
Net cash used in financing activities                                   (12,358)                (3,864)
                                                                       --------               --------

Decrease in cash and cash equivalents                                   (15,585)                (4,745)
Cash and cash equivalents at beginning of period                         21,446                 14,048
                                                                       --------               --------
Cash and cash equivalents at end of period                             $  5,861               $  9,303
                                                                       ========               ========
</TABLE>


            See notes to condensed consolidated financial statements.



                                                                               6
<PAGE>   7



                           QUEST EDUCATION CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                                DECEMBER 31, 1998

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month period ended December 31,
1998 are not necessarily indicative of the results that may be expected for the
year ending March 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1998 filed with the
Securities and Exchange Commission.

The balance sheet at March 31, 1998 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.

2. PUBLIC OFFERING

On July 2, 1998, the Company completed a Public Offering ("the Offering") of
common stock. A total of 2,000,000 shares were sold at $8.75 per share which
included 126,001 shares sold by the Company and 1,873,999 shares sold by certain
selling stockholders. On July 31, 1998, the Underwriters exercised their option
to purchase 300,000 additional shares of common stock from the Company. The net
proceeds to the Company were approximately $3.5 million before deducting
expenses of the Offering. These proceeds are being used for general corporate
purposes.



                                                                               7
<PAGE>   8



                           QUEST EDUCATION CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                                   (CONTINUED)

3. EARNINGS PER SHARE (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

Earnings per share are calculated using Statement of Financial Accounting
Standards No. 128, Earnings per Share, ("SFAS 128") and Securities and Exchange
Commission Staff Accounting Bulletin No. 98 ("SAB 98"). Basic earnings per share
includes weighted average common shares outstanding. Diluted earnings per share
includes weighted average common shares outstanding plus the dilutive effect of
stock options and stock purchase warrants.

The table below presents the computations and required disclosures under SFAS
128 and SAB 98 for the computation of basic and diluted earnings per share for
the three and nine month periods ended December 31, 1998 and 1997.

<TABLE>
<CAPTION>
                                                      Three Months    Three Months    Nine Months     Nine Months
                                                          ended          ended           ended           ended
                                                      December 31,    December 31,   December 31,     December 31,
                                                          1998            1997           1998             1997
                                                      ------------    ------------   ------------     ------------
                                                       (Unaudited)    (Unaudited)     (Unaudited)     (Unaudited)
<S>                                                   <C>             <C>             <C>             <C>
Numerator:
     Net income                                       $    2,492      $    1,308      $    2,999      $    2,105

Denominator:
    Denominator for basic earnings per share-
       weighted average shares outstanding             8,177,374       7,363,260       7,996,229       7,349,612
    Effect of dilutive securities:
       Options                                           143,313         207,254         174,340         218,123
       Warrants                                           13,901          14,851          15,979          15,227
                                                      ----------      ----------      ----------      ----------
    Denominator for diluted earnings per
       share-weighted average shares outstanding       8,334,588       7,585,365       8,186,548       7,582,962


Basic net income per share                            $     0.31      $     0.18      $     0.38      $     0.29

Diluted net income per share                          $     0.30      $     0.17      $     0.37      $     0.28
</TABLE>

Options to purchase 745,500, 665,167, 520,000 and 520,000 shares of common stock
for the three and nine month periods ended December 31, 1998 and 1997,
respectively, were outstanding. Those options were not included in the
computation of diluted earnings per share because the option's exercise price
was greater than the average market price of the common shares and, therefore,
the effect would be antidilutive.



                                                                               8
<PAGE>   9



                           QUEST EDUCATION CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                                   (CONTINUED)

4. ACQUISITIONS

The Company has made the following acquisitions since April 1, 1997:


<TABLE>
<CAPTION>
          SCHOOL (1)                      DATE ACQUIRED                     CURRICULUM
-------------------------------    ----------------------------     ----------------------------
<S>                                       <C>                               <C>
CHI Institute                                 2/98                          IT/Business
Southhampton, PA                                                            Healthcare
                                                                            Electronic
                                                                            Engineering

CHI Institute                                 2/98                          IT/Business
Broomall, PA                                                                Healthcare
                                                                            Electronic
                                                                            Engineering

Hesser College                                3/98                           Business
Manchester, NH                                                              Healthcare
                                                                            IT/Criminal
                                                                              Justice

Hesser College                                3/98                           Business
Salem, NH                                                                   Healthcare
                                                                            IT/Criminal
                                                                              Justice

Hesser College                                3/98                           Business
Nashua, NH                                                                  Healthcare
                                                                            IT/Criminal
                                                                              Justice

Hesser College                                3/98                           Business
Portsmouth, NH                                                              Healthcare
                                                                            IT/Criminal
                                                                              Justice

American Institute                            11/98                         IT/Business
 of Commerce (2)
Cedar Falls, IA

American Institute                            11/98                         IT/Business
 of Commerce (2)
Davenport, IA

Hamilton College (2)                          11/98                         IT/Business
Cedar Rapids, IA

Hamilton College (2)                          11/98                         IT/Business
Des Moines, IA

Hamilton College (2)                          11/98                         IT/Business
Mason City, IA
</TABLE>

(1) All of the acquisitions were accounted for under the purchase method of
accounting. Under the purchase method of accounting, the results of operations
of the acquired companies are included in the consolidated statement of income
as of the acquisition date. The assets and liabilities of the acquired companies
are included in the Company's consolidated balance sheet based on a preliminary
allocation of their estimated fair values on the date of acquisition. The excess
of cost over acquired net assets of businesses acquired has been recorded as an
intangible asset and is being amortized on a straight-line basis.

(2) On November 30, 1998, the Company purchased all of the school related 
assets and assumed certain liabilities of five post-secondary schools located 
in Iowa for $4.5 million. 

The Company financed the purchase of the Iowa schools as follows: $1 million
paid on November 30, 1998, $1.5 million to be paid within 30 calendar days
following approval by the U.S. Department of Education, and $2 million is
payable in the form of a five-year promissory note bearing interest at 7% per
annum due in equal quarterly principal payments.



                                                                               9
<PAGE>   10




                           QUEST EDUCATION CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                                   (CONTINUED)

5. NEW ACCOUNTING PRONOUNCEMENTS

In 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"), which is effective for financial statements for periods after December
15, 1997. SFAS 131 requires the reporting of segment profit or loss, certain
specific revenue and expense items, segment assets, and a reconciliation of
these disclosed items in total to the consolidated financial statements. SFAS
131 also requires the restatement of comparative information for earlier years
in the initial year of application. The Company has not yet adopted SFAS 131,
but does not believe that its adoption will have a significant impact on its
financial statements.



                                                                              10
<PAGE>   11



ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS (DOLLARS IN THOUSANDS)

This Quarterly Report on Form 10-Q contains forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects" and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the Company's actual results to
differ materially from those indicated by such forward-looking statements. These
factors include, without limitation, risks and uncertainties with respect to
program implementation and expansion, performance of existing schools and
schools acquired during the quarter, and those relating to factors identified in
Quest Education Corporation's Form 10-K for the year ended March 31, 1998 filed
with the Commission.

RESULTS OF OPERATIONS


<TABLE>
<CAPTION>
                                             Three months          Three months           Nine months           Nine months
                                                ended                 ended                  ended                 ended
                                             December 31,          December 31            December 31,          December 31,
                                                 1998                  1997                  1998                  1997
                                             ------------          -----------            ------------          ------------
                                             (Unaudited)           (Unaudited)            (Unaudited)            (Unaudited)
<S>                                          <C>                   <C>                    <C>                   <C>
Net revenues                                    100.0%                100.0%                  100.0%                100.0%
  School operating costs:
  Cost of education and facilities               41.4                  42.8                    46.3                  46.6
  Selling and promotional expenses               12.2                  15.1                    14.1                  15.1
  General and administrative expenses            25.9                  25.9                    27.8                  28.1
  Amortization of goodwill and
       intangibles                                1.9                   2.1                     2.1                   2.3
                                             --------               -------                --------               -------
Income from operations                           18.6                  14.1                     9.7                   7.9
Interest expense, (income) net                    1.3                  (0.6)                    1.5                  (0.6)
                                             --------               -------                --------               -------
Income before income taxes                       17.3                  14.7                     8.2                   8.5
Provision for income taxes                        7.3                   5.9                     3.4                   3.4
                                             --------               -------                --------               -------
Net income                                       10.0%                  8.8%                    4.8%                  5.1%
                                             ========               =======                ========               =======

OTHER OPERATING DATA:
Number of schools at end of period                 29                    18                      29                    18
Number of students at end of period            11,214                 5,978                  11,214                 5,978
Number of new student starts during the
  period                                        1,768                 1,345                   8,528                 5,598
</TABLE>


Three Months Ended December 31, 1998 Compared With Three Months Ended December
31, 1997

Net Revenues. Net revenues increased by $10,058 or 67.9%, to $24,878 for the
three months ended December 31,1998 from $14,820 for the three months ended
December 31, 1997. Revenue growth was primarily a result of the operations of
the two CHI Institute and four Hesser College schools which were acquired in
February 1998 and March 1998, respectively. Revenue from the operations of
schools included in the Company's results for the entire third quarters ended
December 31, 1998 and 1997 increased 8.0% in the current period. The number of
students attending the Company's schools at the end of the current quarter
increased 87.6% to 11,214 from 5,978 at the end of the corresponding quarter in
1997 principally as a result of the addition of the CHI Institute, Hesser
College, American Institute of Commerce, and Hamilton College schools which
together accounted for 5,073 students. The two American Institute of Commerce
and three Hamilton College schools were acquired in November 1998. The number of
new student starts at the Company's schools during the three months ended
December 31, 1998 increased to 1,768 from 1,345 for the corresponding three
months of the



                                                                              11
<PAGE>   12


prior year, a 31.4% increase. This increase was primarily due to the addition of
the CHI Institute and Hesser College schools which added a total of 363 new
student starts. Student withdrawal rates decreased to 3.4% compared to a 3.6%
withdrawal rate experienced by the Company during the corresponding three months
of the prior year. This decrease is due to the significantly lower withdrawal
rate of 1.5% at the Hesser College schools and the Company's "Retention Program"
in each of its schools. This program includes commitment counseling prior to
acceptance and follow-up counseling for active students, as well as counseling
in the event a decision to withdraw is made by the student.

Cost of Education and Facilities. Cost of education and facilities increased by
$3,958, or 62.4%, to $10,303 for the three months ended December 31, 1998 from
$6,345 for the three months ended December 31, 1997, principally as a result of
the addition of the CHI Institute and Hesser College schools in fiscal 1998,
costs related to increased enrollments in those schools, and the seasonality of
the traditional semester basis of operations at the Hesser College schools. The
cost of education and facilities as a percentage of net revenue decreased to
41.4% in 1998 compared with 42.8% in 1997.

Selling and Promotional. Selling and promotional expenses increased by $804, or
36.0%, to $3,038 for the three months ended December 31, 1998 from $2,234 for
the three months ended December 31, 1997 principally as a result of the addition
of the CHI Institute and Hesser College schools. Selling and promotional
expenses as a percentage of net revenue decreased to 12.2% in 1998 compared with
15.1% in 1997.

General and Administrative. General and administrative expenses increased by
$2,599, or 67.8%, to $6,435 for the three months ended December 31, 1998 from
$3,836 for the three months ended December 31, 1997 primarily as a result of the
addition of the CHI Institute and Hesser College schools. Administrative expense
as a percentage of net revenue was 25.9% in both 1998 and 1997.

Amortization of Goodwill and Intangibles. Amortization of goodwill and
intangibles increased $168 or 53.7%, to $481 for the three months ended December
31, 1998 from $313 for the three months ended December 31, 1997. The increase
was primarily a result of the amortization of goodwill arising from the
acquisitions of the CHI Institute and Hesser College schools.

Interest Expense, Net. Net interest expense increased $414 to $325 for the three
months ended December 31, 1998 from net interest income of $89 for the three
months ended December 31, 1997. The change was principally a result of higher
debt levels resulting in increased interest expense during the three months
ended December 31, 1998 due to borrowings under the Company's bank credit
facilities in order to effect its fiscal 1998 acquisitions and for general
corporate purposes.

Income Taxes. Income taxes increased by $932 to $1,804 for the three months
ended September 30, 1998 from $872 for the three months ended December 31, 1997
due to the increase in income before income taxes. The Company's effective tax 
rate was 42.0% and 40.0% in 1998 and 1997, respectively.

Net Income. Net income increased to $2,492 for the three months ended December
31, 1998 from net income of $1,309 for the three months ended December 31, 1997.
The increase was a result of the 31.9% increase in income from operations due
primarily to the CHI Institute and Hesser College schools partially offset by
increased interest expense.



                                                                              12
<PAGE>   13


Nine Months Ended December 31, 1998 Compared With nine Months Ended December 31,
1997

Net Revenues. Net revenues increased by $22,539 or 54.4%, to $64,008 for the
nine months ended December 31, 1998 from $41,469 for the nine months ended
December 31, 1997. Revenue growth was primarily a result of the operations of
the two CHI Institute and four Hesser College schools which were acquired in
February 1998 and March 1998, respectively. Revenue from the operations of
schools included in the Company's results for the entire nine months ended
December 31, 1998 and 1997 increased 8.0% in the current period. The number of
students attending the Company's schools at the end of the current quarter
increased 87.6% to 11,214 from 5,978 at the end of the corresponding quarter in
1997 principally as a result of the addition of the CHI Institute, Hesser
College, American Institute of Commerce, and Hamilton College schools which
together accounted for 5,073 students. The number of new student starts at the
Company's schools during the nine months ended December 31, 1998 increased to
8,528 from 5,598 for the corresponding nine months of the prior year, a 52.3%
increase. This increase was primarily due to the addition of the CHI Institute
and Hesser College schools which added a total of 2,790 new student starts.
Student withdrawal rates decreased to 3.2% compared to a 3.8% withdrawal rate
experienced by the Company during the corresponding nine months of the prior
year. This decrease is due to the significantly lower withdrawal rate of 1.4% at
the Hesser College schools and the Company's "Retention Program" in each of its
schools. This program includes commitment counseling prior to acceptance and
follow-up counseling for active students, as well as counseling in the event a
decision to withdraw is made by the student.

Cost of Education and Facilities. Cost of education and facilities increased by
$10,305, or 53.3%, to $29,654 for the nine months ended December 31, 1998 from
$19,349 for the nine months ended December 31, 1997, principally as a result of
the addition of the CHI Institute and Hesser College schools in fiscal 1998,
costs related to increased enrollments in those schools, and the seasonality of
the traditional semester basis of operations at the Hesser College schools. The
cost of education and facilities as a percentage of net revenue decreased to
46.3% in 1998 compared with 46.6% in 1997.

Selling and Promotional. Selling and promotional expenses increased by $2,746,
or 43.8%, to $9,018 for the nine months ended December 31, 1998 from $6,272 for
the nine months ended December 31, 1997 principally as a result of the addition
of the CHI Institute and Hesser College schools. Selling and promotional
expenses as a percentage of net revenue decreased to 14.1% in 1998 compared with
15.1% in 1997.

General and Administrative. General and Administrative expenses increased by
$6,154, or 52.8%, to $17,811 for the nine months ended December 31, 1998 from
$11,657 for the nine months ended December 31, 1997 primarily due to the
addition of the CHI Institute and Hesser College schools. Administrative expense
as a percentage of net revenue decreased to 27.8% in 1998 compared with 28.1% in
1997.


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<PAGE>   14


Amortization of Goodwill and Intangibles. Amortization of goodwill and
intangibles increased $436 or 46.5%, to $1,374 for the nine months ended
December 31, 1998 from $938 for the nine months ended December 31, 1997. The
increase was primarily a result of the amortization of goodwill arising from the
acquisitions of the CHI Institute and Hesser College schools.

Interest Expense, Net. Net interest expense increased $1,236 to $980 for the
nine months ended December 31, 1998 from net interest income of $256 for the
nine months ended December 31, 1997. The change was principally a result of
higher debt levels resulting in increased interest expense during the nine
months ended December 31, 1998 due to borrowings under the Company's bank credit
facilities in order to effect its fiscal 1998 acquisitions and for general
corporate purposes.

Income Taxes. Income taxes increased by $768 to $2,172 for the nine months ended
December 31, 1998 from $1,404 for the nine months ended December 31, 1997 due to
the significant increase in net revenues and percentage decrease in operating
expenses which resulted in increased income before income taxes. The Company's
effective tax rate was 42.0% and 40.0% for 1998 and 1997, respectively.

Net Income. Net income increased to $2,999 for the nine months ended December
31, 1998 from net income of $2,105 for the nine months ended December 31, 1997.
The increase was a result of the 22.8% increase in income from operations due
primarily to the CHI Institute and Hesser College schools, net of increased
interest expense.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities for the nine months ended December 31,
1998 was $564 compared to cash provided by operating activities of $682 for the
nine months ended December 31, 1997. The Company's principal source of funds at
December 31, 1998 were cash and cash equivalents of $5,861 and net accounts
receivable of $11,786. The $5,296 increase in net trade accounts receivable
experienced for the nine months ended December 31, 1998 was primarily a result
of accounts receivable purchased, the recognition of revenue for the CHI
Institute and Hesser College operations during the change of ownership period
when federal funding was suspended, and increased enrollments at CHI Institute
and Hesser College in the fall semester. The Company's federal funding for CHI
Institute and Hesser College which was suspended during the change of ownership
period was approved in June and July 1998.

Historically, the Company's investment activity consisted of capital asset
purchases and the purchase of schools. Capital expenditures, excluding capital
leases, totaled $3,366 and $1,563 for the nine months ended December 31, 1998
and 1997, respectively, consisting primarily of purchases of additional
equipment, upgrades and replacement of existing equipment such as computers and
medical equipment for school programs, and expanded facilities. Capital
expenditures were primarily at the CHI Institute and Hesser College schools in
the current nine month period, and the Nebraska schools in the corresponding
nine month period of the prior year.

The Company's capital assets consist primarily of classroom and laboratory
equipment (such as computers and medical devices), classroom and office
furniture, and leasehold improvements.




                                                                              14
<PAGE>   15

All building facilities are leased, with the exception of the land and building
owned by the Company in Dayton, Ohio; Lincoln and Omaha, Nebraska; and
Manchester, New Hampshire. The Company plans to continue to expand current
facilities, upgrade and replace equipment, and acquire new schools. The Company
expects that its fiscal 1999 operations and planned capital expenditures will be
funded through cash generated from existing operations.

The use of cash in financing activities experienced for the nine month period
ended December 31, 1998 was primarily a result of payments on long-term debt and
amounts due to sellers in connection with the CHI Institute and Hesser College
acquisitions, and cash payments to effect the American Institute of Commerce and
Hamilton College acquisitions, partially offset by short-term borrowings and
proceeds from the sale of common stock.

Cash flow from operations on a long-term basis is highly dependent on the
receipt of funds from Title IV Programs, and presently a majority of the
Company's net revenue is derived from Title IV Programs. Disbursement of Title
IV Program funds is governed by federal regulations. For students enrolled in
"non-term" programs, (i.e., not divided into quarters or semesters), payments
are generally made in two equal installments, one in the first 30 days following
the student's first day of class and the second when the student reaches the
midpoint of the program. For students enrolled in term programs (i.e., quarters
or semesters) payments are made at the beginning of each term, with the
exception of the initial disbursement which is made 30 days following the
student's first day of class.

In the routine course of acquiring other schools, the Company must obtain
certain regulatory approvals, typically from state agencies and the Department
of Education. After change of control, the Department of Education suspends
payments of the school's Title IV funding until the Department completes a
recertification. This recertification process including obtaining prerequisite
approvals from state regulatory and appropriate accrediting agencies typically
takes from four to seven months. Recertification for the two American Institute
of Commerce and three Hamilton College schools that were acquired in November
1998 was approved in February 1999.

In November 1998, the Company amended its loan agreement with NationsBank, N.A.
(the successor to Bank of America, FSB), as agent, increasing its loan
facilities to the Company up to $40,000 (the "Facility"). The Facility provides
a revolving line of credit which matures on March 13, 2001 and may be used to
finance permitted acquisitions, support stand-by letters of credit, or for
general corporate purposes. The borrowing base is calculated as the lower of
$40,000 or a formula based on the Company's adjusted earnings before interest,
taxes, depreciation and amortization (EBITDA); stepping down by $5,000 in
November 1999. As of December 31, 1998, the borrowing base was $40,000, less the
outstanding amounts described below. Interest on the outstanding amount of the
Facility is the London Inter-Bank Offering Rate (LIBOR) plus 1.50% to 2.375%,
based on certain conditions relating principally to certain financial ratios.
The Facility provides for commitment fees to be paid on its unused portion. The
Facility contains restrictions on the payment of dividends, the incurrence of
additional debt, and various other financial covenants. At December 31, 1998,
$13,000 was outstanding on the Facility and $2,400 had been utilized to support
a Letter of Credit in connection with the November 1998 acquisition of the
American Institute of Commerce and Hamilton College Schools.

OTHER MATTERS

Letter of Credit

In connection with the Company's purchase of five schools in Iowa, the Company
posted an irrevocable letter of credit (the "Letter of Credit") with the
Department of Education in the amount of $2.4 million to guaranty any financial
obligations the schools may incur to the Department of Education, such as the
obligation to pay any refunds coming due to current or former students of the
institution. The Letter of Credit which expires October 30, 1999 was required
because the corporation from which the Company acquired three of the schools had
failed to meet certain of the Department of Education's regulations applicable
to its financial condition.

Year 2000 Compliance

Computer-based systems that utilize two digits rather than four digits to define
the applicable year may fail to properly recognize date sensitive information
when the year changes to 2000. Because the Company has purchased or upgraded
substantially all of its computer hardware and



                                                                              15
<PAGE>   16
software systems within the last few years, for reasons unrelated to Year 2000
compliance issues, the Company does not expect to be affected by Year 2000
issues arising from the use of older "legacy" computer-based systems. The
Company is currently conducting a comprehensive review of its computer-based
systems (both hardware and software) to determine if those systems will be
affected by resulting Year 2000 compliance issues. So far, the Company's review
of its computer-based systems indicates that approximately 70% of all such
systems are Year 2000 compliant. Systems crucial to the Company's financial
operations such as accounting and FEEDS (the Company's federal financial aid
system software) are Year 2000 compliant. Management has determined that
replacement or upgrade of the non-compliant systems will not require incurring
costs in excess of $250, and that the replacements and upgrades can be completed
with a minimal allocation of manpower. The Company anticipates that all of its
internal systems will be Year 2000 by September 30, 1999. The Company is seeking
confirmation from outside vendors, financial institutions and others that they
are Year 2000 compliant or that they are developing and implementing plans to
become Year 2000 compliant and has received written confirmation of compliance
from approximately two-thirds of such outside vendors, financial institutions
and others. The Company has been advised by the Department of Education that
modifications of the systems involved in the administration of the Department's
Federal Direct Student Loan Program which represents a majority of the Company's
funding will be completed by June 1999. However, there can be no assurance that
these outside vendors, financial institutions and others will timely resolve
their own Year 2000 compliance issues or that any such failure would not have an
adverse effect on the Company's results of operations and financial condition.
The Company is in the process of formulating contingency plans to assure the
continuation of its operations if these outside vendors, financial institutions
or others fail to timely resolve their own Year 2000 compliance issues.
Management believes it is devoting the necessary resources to timely address all
Year 2000 compliance issues over which it has control.

Change in 85/15 Rule

A proprietary institution, such as each Quest institution, becomes ineligible to
participate in Title IV Programs if, on a cash accounting basis, the institution
derives more than 85% of its applicable revenues for a fiscal year from Title IV
Programs. The 1998 HEA Amendments increased from 85% to 90% the percentage of
applicable fiscal year revenues that a proprietary institution can derive from
Title IV Programs and still remain eligible to participate in Title IV Programs.
The Department of Education ("DOE") has not yet issued regulations or guidance
regarding the institution's fiscal year to which this amendment first applies.
The 5% increase in the percentage of applicable fiscal year revenues that the
Company can derive from Title IV Programs and still remain eligible to
participate therein will increase the aggregate amount of Title IV Program funds
that students can use to pay their education costs of attending Quest
institutes. This change should have a positive impact on the Company's results
of operations and cash flows when effective because payments of Title IV Program
funds are generally paid sooner and are more collectible than certain other
receivables.

The DOE, the Accrediting Commissions and most of the state agencies have laws,
regulations and/or standards (collectively "Regulations") pertaining to the
change in ownership and/or control (collectively "change in control") of
educational institutions, but these Regulations do not uniformly define what
constitutes a change in control. Upon the occurrence of a change in control
under the DOE's Regulations, an institution immediately becomes ineligible to
participate in Title IV Programs and can only receive and disburse certain Title
IV Program funds that were previously committed to its students, until it has
applied for certification and is reinstated by the DOE to continue Title IV
Program participation under such institution's new ownership and control. The
time required for the DOE to act on such an application can vary substantially
and may take several months. The DOE's Regulations also require that all of the
Quest institutes in a particular campus group have their state authorizations
and accreditations reaffirmed or reestablished before any institute in that
campus group can regain its eligibility from the DOE to continue participation
in Title IV Programs. The 1998 HEA Amendments provide that the DOE may
provisionally certify an institution undergoing a change in control. This
provisional certification would allow the institution temporarily to maintain
its eligibility to participate in Title IV Programs following a change in
control while the DOE considers the institution's application for reinstatement.



                                                                              16

<PAGE>   17
Item 3.   Quantitative and Qualitative Disclosures about Market Risk

The Company has considered the provision of Financial Reporting Release No. 48,
"Disclosure of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative
Information about Market Risk Inherent in Derivative Financial Instruments,
Other Financial Instruments and Derivative Commodity Instruments". 

The Company had no holdings of derivative financial or commodity instruments at
December 31, 1998, and the Company does not invest or intend to invest in
derivative financial instruments or derivative commodity instruments.

Substantially all of the Company's indebtedness was incurred in connection with
the acquisitions of it schools, is payable to the sellers of those schools, and
bears a fixed interest rate.  However, the Company is exposed to interest rate
change market risk with respect to its $40,000 credit facility with a financial
institution which is priced based on the London Inter-Bank Offering Rate (LIBOR)
plus a spread of 1.500% - 2.375% based on certain conditions. At December 31,
1998, $13,000 was outstanding under its credit facility and the Company had
utilized a portion of the credit line to support a Letter of credit in the
amount of $2,400 issued in connection with the acquisition of the Iowa schools.
Changes in LIBOR during the next twelve months will have a positive or negative
effect on the Company's interest expense. Based on amounts currently outstanding
under the credit facility, including the Letter of credit, each 1% fluctuation
in the LIBOR rate will increase or decrease interest expense for the Company by
approximately $130 annually.

The Company's sales and financial instruments are currently all denominated in
U.S. dollars, except with respect to the LIBOR interest rate applicable to its
credit facility.

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

The Company is a party to routine litigation incidental to its business,
including ordinary course employment litigation. Management does not believe
that the resolution of any or all of such routine litigation is likely to have a
material adverse effect on the Company's financial condition or results of
operations.



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<PAGE>   18
Item 2.  Changes in Securities.

    None

Item 3.  Defaults upon Senior Securities.

    None

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

    None

Item 5.  Other Information.

    None

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

     Exhibits:

     3.1 Ninth Amendment to the Company's Amended and Restated Certificate of 
         Incorporation (incorporated by reference from Exhibit 99.1 to the 
         Company's Form 8-K filed on October 5, 1998).

     27. Financial Data Schedule December 31, 1998 (for SEC use only)

     Reports on Form 8-K

     (i) Form 8-K filed October 5, 1998 regarding the Company's Annual
         Meetings of Shareholders held on September 22, 1998.

    (ii) Form 8-K filed December 15, 1998 regarding the Company's
         acquisition of two American Institute of Commerce and three
         Hamilton College schools located in Iowa.


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<PAGE>   19


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.

                                       Quest Education Corporation


Date: February 12, 1999                /s/ Vince Pisano
                                       ---------------------------
                                                 (Signature)
                                                Vince Pisano
                                          Chief Financial Officer
                                         Principal Financial Officer
                                                     and
                                        Principal Accounting Officer

                                                                              19