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, 1997
[ ] 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.)
13705 First Avenue North, Plymouth, MN 55441
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 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 12, 1997, 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, 1997
INDEX
-----
Page
----
PART I. FINANCIAL INFORMATION 3
ITEM 1. Condensed Consolidated Financial Statements
a) Condensed Consolidated Balance Sheets --
September 30, 1997, and December 31, 1996 3
b) Condensed Consolidated Statements of
Operations -- Three months and nine months
ended September 30, 1997, and 1996 5
c) Condensed Consolidated Statements of
Cash Flows -- Nine months ended
September 30, 1997, and 1996 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 12
ITEM 1. LEGAL PROCEEDINGS 12
Signatures 13
<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,
1997 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................ $ 784,168 $ 150,232
Accounts and notes receivable ........................ 481,919 611,479
Receivable from New Horizon Enterprises, Inc. ........ -- 7,557
Prepaid expenses and other current assets ............ 212,681 164,530
Current portion of notes receivable .................. 341,378 470,947
----------- -----------
Total current assets ............................... 1,820,146 1,404,745
----------- -----------
PROPERTY AND EQUIPMENT:
Furniture, fixtures, equipment and leaseholds ........ 6,359,231 4,768,307
Less--Accumulated depreciation and amortization ...... (1,394,554) (647,514)
----------- -----------
Total property and equipment ....................... 4,964,677 4,120,793
OTHER ASSETS:
Goodwill (net of accumulated amortization
of $142,917 and $81,027, respectively) ............ 1,094,861 1,156,751
Notes receivable, net of current portion ............. 1,107,156 751,930
Noncompete agreements (net of accumulated amortization
of $8,996 and $5,579, respectively) ................ 15,163 18,580
Other ................................................ 176,299 133,347
----------- -----------
$ 9,178,302 $ 7,586,146
=========== ===========
</TABLE>
See accompanying notes which are an integral part of balance sheets.
<PAGE>
NEW HORIZON KIDS QUEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt ................ $ 650,324 $ 677,319
Accounts payable .................................... 297,591 280,875
Accrued expenses .................................... 599,994 481,641
Payable to New Horizon Enterprises, Inc. ............ 1,435 --
Deferred rent ....................................... 25,666 28,667
----------- -----------
Total current liabilities ......................... 1,575,010 1,468,502
LONG-TERM DEBT, less current maturities ................ 2,642,741 1,184,628
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 7,171,197
Accumulated deficit ................................. (2,268,579) (2,271,114)
----------- -----------
Total shareholders' equity ........................ 4,960,551 4,933,016
----------- -----------
$ 9,178,302 $ 7,586,146
=========== ===========
</TABLE>
See accompanying notes which are an integral part of balance sheets.
<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
--------------------------------- ---------------------------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUE.................................... $ 4,001,377 $ 2,716,752 $ 10,493,113 $ 7,247,028
COSTS AND EXPENSES:
Direct Expenses......................... 3,375,680 2,059,378 8,377,623 5,631,462
Depreciation and Amortization........... 286,923 158,902 732,139 395,690
Pre-Opening Expenses.................... 42,471 111,559 213,531 197,838
-------------- -------------- -------------- --------------
Total Costs and Expenses.............. 3,705,074 2,329,839 9,323,293 6,224,990
-------------- -------------- -------------- --------------
CENTER OPERATING INCOME.................... 296,303 386,913 1,169,820 1,022,038
Selling, General and Administrative..... 366,990 332,184 1,005,866 1,063,825
Goodwill Amortization................... 28,543 34,889 77,829 92,158
-------------- -------------- -------------- --------------
OPERATING INCOME (LOSS).................... (99,230) 19,840 86,125 (133,945)
Interest Expense........................ (84,429) (29,846) (202,071) (80,971)
Interest Income......................... 34,080 44,047 118,481 146,921
-------------- -------------- -------------- --------------
NET INCOME (LOSS).......................... $ (149,579) $ 34,041 $ 2,535 $ (67,995)
============== ============== ============== ==============
Earnings (Loss) Per Share............... $ (.05) $ .01 $ .00 $ (.02)
============== ============== ============== ==============
Weighted Average Shares Outstanding..... 3,293,300 3,409,648 3,303,177 3,288,009
============== ============== ============== ==============
</TABLE>
See accompanying notes which are an integral part of statements.
<PAGE>
NEW HORIZON KIDS QUEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
--------------------------------
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) .............................................. $ 2,535 $ (67,995)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities--
Depreciation and amortization .............................. 809,968 490,833
Deferred Rent .............................................. (3,001) (3,000)
Change in operating assets and liabilities:
Accounts receivable ...................................... 129,560 (204,697)
Prepaid expenses and other ............................... (48,151) (46,541)
Accounts payable ......................................... 16,716 32,679
Payable to (receivable from) New Horizon Enterprises, Inc. 8,992 49,453
Other assets ............................................. (40,573) (64,663)
Accrued expenses ......................................... 143,353 207,825
----------- -----------
Net cash provided by operating activities .............. 1,019,399 393,894
----------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment ............................ (1,590,924) (2,272,601)
Purchases of child care centers, net of notes payable .......... -- (472,886)
Issuance of note receivable .................................... (945,600) (276,224)
Payments received on note receivable ........................... 719,943 25,780
----------- -----------
Net cash used in investing activities .......................... (1,816,581) (2,995,931)
----------- -----------
FINANCING ACTIVITIES:
Payments on long-term obligations .............................. (922,546) (74,031)
Additional borrowings of long-term debt ........................ 2,353,664 4,000
----------- -----------
Net cash provided by (used in) financing activities .......... 1,431,118 (70,031)
----------- -----------
Net increase (decrease) in cash and cash equivalents ......... 633,936 (2,672,068)
CASH AND CASH EQUIVALENTS, beginning of period .................... 150,232 3,865,018
----------- -----------
CASH AND CASH EQUIVALENTS, end of period .......................... $ 784,168 $ 1,192,950
=========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for--
Interest ..................................................... $ 192,698 $ 70,717
=========== ===========
Taxes ........................................................ $ -- $ --
=========== ===========
NON-CASH ITEMS:
Purchase of child care centers with notes payable .............. -- 719,895
=========== ===========
Non-cash payments on notes receivable .......................... 95,398 --
=========== ===========
</TABLE>
See accompanying notes which are an integral part of statements.
<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 may not be
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, 1997,
and the results of its operations for the nine months ended September 30, 1997
and 1996, 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 condensed
consolidated financial statements be read in conjunction with the financial
statements for the years ended December 31, 1996 and 1995, 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.
Earnings Per Share -- Weighted average shares include the dilutive effects
of options.
2. Acquisitions:
During February and March 1996, New Horizon Child Care - Idaho, Inc.
acquired six licensed child care centers in Boise, Idaho. The total purchase
price was $1,192,781 (including costs associated with the acquisition). The
purchase price for these six centers consisted of cash payments of $472,886 and
notes payable to three of the sellers in the amounts of $335,000, $370,000 and
$14,895. All of the transactions have been accounted for using the purchase
method of accounting. The following unaudited pro-forma financial information
for the nine months ended September 30, 1996, give effect to the acquisitions as
if they had occurred effective January 1, 1996.
Nine Months
Ended
September 30,
1996
--------------
Revenue $ 7,536,286
Loss from operations (93,646)
Net loss (37,230)
Loss per share (.01)
Weighted average shares outstanding 3,288,009
This financial information does not purport to represent results which
would actually have been obtained if the acquisitions had been in effect during
the period covered or any future results which may in fact be realized.
<PAGE>
3. Limited Liability Company:
During June 1996, a newly established entity owned 51% by the Company and
49% by Ameristar Casino Council Bluffs, Inc. ("Ameristar") (Kids Quest of
Council Bluffs, LLC ("Kids Quest LLC")) began operating a Kids Quest facility in
Council Bluffs, Iowa. The operating agreement governing Kids Quest LLC provides
for the owners to share in profits and losses of Kids Quest LLC.
4. Reclassifications
Certain 1996 amounts in the accompanying consolidated financial statements
have been reclassified to conform to the 1997 presentation. Such
reclassification had no effect on previously reported net loss or shareholders'
equity.
5. New Accounting Pronouncements
During March 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per
Share", which requires the disclosure of basic earnings per share and diluted
earnings per share. The Company expects to adopt SFAS 128 at the end of fiscal
1997 and anticipates that it will not have a material impact on previously
reported earnings per share.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company currently operates sixteen Kids Quest centers providing hourly
child care and thirteen New Horizon Child Care centers providing traditional
child care services. The first Kids Quest center opened in May 1992 in Grand
Casino Hinckley. Since that time, the Company has opened six additional Kids
Quests at Grand Casino locations in Minnesota, Mississippi and Louisiana. Kids
Quest opened its shopping mall location in the Eden Prairie Center in Eden
Prairie, Minnesota, in March 1994. In addition, since the beginning of 1995, the
Company has opened Kids Quest centers at the following locations:
<TABLE>
<S> <C> <C>
Grand Casino Coushatta Kinder, LA January 1995
Boulder Station Hotel & Casino Las Vegas, NV November 1995
Ameristar Casino Council Bluffs Council Bluffs, IA June 1996
Grand Casino Tunica Robinsonville, MS August 1996
Mohegan Sun Casino Uncasville, CT October 1996
Soaring Eagle Casino and Hotel Mt. Pleasant, MI December 1996
Station Casino Kansas City Kansas City, MO January 1997
Sunset Station Las Vegas, NV June 1997
Treasure Island Resort and Casino
(dba New Horizon Hourly Care) Red Wing, MN June 1997
Bullwhackers Casino/Silver Hawk Casino Black Hawk, CO June 1997
</TABLE>
During 1995 and 1996, the Company acquired an aggregate of twelve existing
child care centers in Boise, Idaho, which the Company now operates as New
Horizon Child Care centers. The Company opened its thirteenth New Horizon
location in August 1996 in a newly constructed facility.
The Company expanded its product line by opening a supervised video
entertainment center in conjunction with its Kids Quest location at the Mohegan
Sun Casino. The Company has since added supervised video entertainment centers
at its Bullwhackers, Soaring Eagle and Treasure Island locations. With the
opening of the Tunica, Mississippi, Kids Quest location, the Company introduced
a retail area which features developmentally-appropriate educational products
and Kids Quest logo merchandise. The Company has since added similar retail
areas at its Eden Prairie and Kansas City locations. In August 1997, the Company
opened an employee child care center in connection with its hourly child care
location at Treasure Island Resort and Casino. The Company plans to continue to
seek opportunities for additional employee child care, retail and supervised
video entertainment center locations.
The Company has experienced growth through acquisition and expansion. 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. Therefore, results of operations described below may not be indicative
of results to be achieved in any future period.
Results of Operations
Revenue for the three months ended September 30, 1997, increased
$1,284,625, or 47%, to $4,001,377, from $2,716,752 for the same period in 1996.
The increase in revenue was due primarily to the seven Kids Quest locations that
have opened since the second quarter of 1996, which accounted for $1,478,674 of
additional revenues. Also, the addition of a new Idaho New Horizon Child Care
center accounted for $94,741 of additional revenues. Revenues for the nine
existing Kids Quest locations open during both periods decreased $225,386, or
12%. Of this decrease, $90,937 relates to decrease in revenue at the Company's
Boulder Station location as a result of Kids Quest opening at Sunset Station
located within five miles. However, Sunset Station generated $267,063 of
revenues for the period. Therefore, the combined revenue of Boulder Station and
Sunset Station for the period represents a 46% increase over the revenue
generated at the Boulder Station location alone in 1996. The remaining decrease
is attributable to a combination of a decrease in marketing by its host
properties between periods and new competition for the Company's Mississippi and
Louisiana operations. Revenue for the twelve existing Idaho New Horizon Child
Care centers, which were open during both periods, was down $63,405, or 8%. The
Company attributes this decrease to initial decreases in enrollment due to the
Company's restructuring and repricing at the six centers acquired in 1996, as
well as a larger than expected drop in summer enrollment.
<PAGE>
Revenue for the nine month period ended September 30, 1997, increased
$3,246,085, or 45%, to $10,493,113 in 1997 compared to $7,247,028 for the same
period in 1996. This increase is due primarily to the addition of eight new Kids
Quest locations since the beginning of 1996, which accounted for $3,376,981 of
additional revenues. Revenue from the seven New Horizon Child Care centers which
were acquired or built in 1996 accounted for an additional $414,564 of
additional revenues. Existing Kids Quest center revenues decreased $498,980, or
10%, between periods primarily at Grand Casino locations. Revenue for the six
existing Idaho New Horizon Child Care centers decreased $46,478, or 4%, between
periods.
Costs and expenses for the three months ended September 30, 1997, increased
$1,375,235, or 59%, to $3,705,074 in 1997 from $2,329,839 for the same period in
1996. The Company attributes the increase to the increase in the number of Kids
Quest and New Horizon Child Care centers operating between the two periods. As a
percentage of revenue, costs and expenses increased to 93% in 1997 from 86% in
1996. Costs and expenses before pre-opening costs and depreciation and
amortization increased to 84% in 1997 from 76% for the same period in 1996. The
Company attributes the increases in costs and expenses in relation to revenue in
part to the decreases in revenues at existing centers, as well as costs and
expenses at new locations which traditionally have higher expenses relative to
revenue in their startup periods.
Costs and expenses for the nine months ended September 30, 1997, increased
$3,098,303, or 50%, to $9,323,293 in 1997 versus $6,224,990 for the same period
in 1996. As a percentage of revenue, costs and expenses increased to 89% in 1997
from 86% in 1996. Costs and expenses before pre-opening costs and depreciation
and amortization increased to 80% in 1997 from 78% for the same period in 1996.
Selling, general and administrative expenses (SG&A) increased $34,806, or
10%, to $366,990 for the three month period ended September 30, 1997, from
$332,184 for the same period in 1996. As a percent of revenue, SG&A expenses
decreased to 9% of revenue for the three month period in 1997 versus 12% for the
same period in 1996. Administrative salaries remained flat at $149,495 for the
current quarter down from $149,967 for the same period in 1996. Management
expects SG&A expenses to increase with the addition of and negotiation for new
locations, but such expenses will continue to decrease as a percentage of
revenue with the continued expansion of the Company's business.
SG&A expenses decreased $57,959 for the nine month period ended September
30, 1997, to $1,005,866 from $1,063,825 for the same period in 1996.
Administrative salaries decreased $34,146, or 8%, for the nine month period
ended September 30, 1997, to $387,121 from $421,267 for the same period in 1996.
Although the Company showed a decrease in SG&A expenses and administrative
salaries for the nine month period, the Company expects SG&A to increase with
the addition of and negotiation for new locations, but such expenses will
continue to decrease as a percentage of revenue with the continued expansion of
the Company's business.
Pursuant to the terms of many of its contracts with casino operators, the
Company receives certain child care rate subsidies. The Company received
$318,732 for the three month period ended September 30, 1997, versus $357,913
for the same period in 1996, which amounts are reflected in total revenue. For
the nine month period ended September 30, 1997, the Company received $875,347
versus $1,113,754 for the same period in 1996. The majority of theses subsidies
were from Grand Casinos, Inc. Due to a price increase to the public at the Grand
Casino locations, such subsidies were reduced beginning in the third quarter of
1996. There can be no assurance that such subsidies will not be additionally
modified or discontinued, or that the Company will obtain such subsidies in
future Kids Quest arrangements with Grand Casinos or other casinos. The Company
has executed agreements to develop Kids Quest centers that do not provide any
subsidy payment from the related casinos.
Interest expense for the three month period ended September 30, 1997,
increased $54,583, or 183%, to $84,429 from $29,846 for the same period in 1996.
Of the $84,429 of interest expense incurred in the current quarter, $26,380
relates to acquisition indebtedness for Idaho New Horizon Child Care centers.
The remainder relates to debt incurred for the expansion of Kids Quest centers.
Interest expense for the nine month period ended September 30, 1997,
increased $121,100 to $202,071 from $80,971 for the same period in 1996. $82,881
of the 1997 interest was acquisition indebtedness for the Idaho New Horizon
Child Care centers with the remainder incurred for the expansion of Kids Quest
centers.
<PAGE>
Net loss for the three month period ended September 30, 1997, was $149,579
compared to net income $34,041 for the same period in 1996. Net income for the
nine month period ended September 30, 1997, was $2,535, compared to a loss of
$67,995 for the same period in 1996. The Company attributes the loss for the
quarter to a larger than anticipated decline in summer enrollment at New Horizon
Child Care centers in Idaho, which resulted in a loss of $166,772. In addition,
the initial results from its combination Kids Quest and supervised video
entertainment facility located in Black Hawk, Colorado, and its Treasure Island
Resort and Casino combination hourly care, supervised video entertainment and
traditional child care facility, have been below expectations with losses
including pre-opening expenses totaling $121,776.
Liquidity and Capital Resources
During the nine months ended September 30, 1997, the Company generated
$1,019,399 from operations, invested $1,590,924 in property and equipment,
issued a notes receivable to Station Casinos, Inc. for $491,650 and $453,950
relating to the Kansas City and Sunset Station Kids Quest location,
respectively, as well as received payments on notes receivable of $719,943. The
Company borrowed $2,353,664 to fund expansion, as well as to pay off its bank
line of credit of $514,509 and other principal payments of $408,037. During the
same period in 1996, the Company generated $393,894 from operations and used
$2,745,487 for the purchase of property and equipment and assets of six existing
child care centers in Boise, Idaho. In addition, the Company loaned $276,224 to
a third party to finance the purchase of a building in Idaho which is being
leased back to the Company.
Based upon current commitments, the Company believes that its current cash,
funds from operations and the availability of credit facilities will be adequate
to fund the Company's capital needs through the end of 1997. If, however, the
Company secures additional Kids Quest contracts or otherwise commits to acquire
or develop additional child care centers, the Company will require additional
financing. The Company currently has no commitments for such financing.
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,
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, as well as all other risks and
uncertainties described in the Company's filings.
<PAGE>
PART II. - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
During 1996 and early 1997, Atrox Systems, Inc. d/b/a Tenderfun Soft
Playgrounds ("Tenderfun") supplied five large indoor play structures to Kids
Quest for five new Kids Quest facilities opened during 1996 and 1997, as well as
one outdoor play structure for a New Horizon Child Care facility opened in
Boise, Idaho, in 1996. Kids Quest experienced problems with each of the play
structures provided by Tenderfun, including installation delays and defects. In
connection with a $40,000 loan from Kids Quest to Tenderfun in June 1996, F.
William Boedeker and Laura M. Boedeker entered into separate personal guaranties
unconditionally guaranteeing not only the $40,000 loan, but also any and all
indebtedness, obligations and liabilities arising out of the contracts and
commitments between Tenderfun and Kids Quest. William M. Boedeker was an officer
and principal shareholder of Tenderfun, and Laura M. Boedeker is his wife.
In December 1996, Tenderfun filed for reorganization protection under
Chapter 11 of the U.S. Bankruptcy Code in the State of Texas, and the case was
subsequently converted to a Chapter 7 liquidation. The assets of Tenderfun are
now in the process of being liquidated. With respect to its $40,000 loan, Kids
Quest has a priority, secured position, and it is likely that the loan and
associated costs, disbursements and attorney fees will be paid from the
bankruptcy estate. Due to the unanticipated problems with the various play
structures provided by Tenderfun, on March 24, 1997, the Company commenced an
action against F. William Boedeker and Laura M. Boedeker in Hennepin County
District Court, State of Minnesota, based upon the personal guaranties and
seeking damages in excess of $50,000. On September 15, 1997, the Company
obtained a default judgment against the Boedekers for in excess of $918,000, of
which approximately $852,000 represents rescission damages based upon the amount
paid by the Company for the play structures. The Company is in the process of
locating assets and attempting to collect on its judgment. While the Company has
incurred minor remedial costs to date, additional costs will be incurred. The
Company has also filed a proof of claim seeking in excess of $50,000 against
Tenderfun's estate.
<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/ Kevin M. Greer
---------------------------
Kevin M. Greer
Chief Financial Officer
Date: November 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 784,168
<SECURITIES> 1,414
<RECEIVABLES> 519,100
<ALLOWANCES> 37,181
<INVENTORY> 95,707
<CURRENT-ASSETS> 1,820,146
<PP&E> 6,359,231
<DEPRECIATION> 1,394,554
<TOTAL-ASSETS> 9,178,302
<CURRENT-LIABILITIES> 1,575,010
<BONDS> 0
0
0
<COMMON> 32,933
<OTHER-SE> 4,927,618
<TOTAL-LIABILITY-AND-EQUITY> 9,178,302
<SALES> 589,414
<TOTAL-REVENUES> 10,493,113
<CGS> 549,470
<TOTAL-COSTS> 549,470
<OTHER-EXPENSES> 9,857,518
<LOSS-PROVISION> 6,648
<INTEREST-EXPENSE> 202,071
<INCOME-PRETAX> 2,535
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,535
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,505
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
