U.
S. SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549




AMENDMENT
NO. 1 TO


FORM
10-K


(Mark
One)




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




For the
fiscal year ended December 31, 2008




 ̈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 000-32131




QUEST
MINERALS & MINING CORP.


(Name of
small business issuer as specified in its charter)




Utah
              87-0429950(State
      or other jurisdiction of
                incorporation
      or organization)
              (I.R.S.
      Employer
                Identification
      No.)





18B
East 5th
Street


Paterson,
NJ  07524


(Address
of principal executive offices, including zip code)




Registrant’s
telephone number, including area code:  (973) 684-0075


Securities
registered pursuant to Section 12(b) of the Act: None


Securities
registered pursuant to Section 12(g) of the Act:  Common Stock, $.001 par
value





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  ̈Yes Nox




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act:  ̈Yes Nox




Indicate
by check mark whether the registrant(1) has filed all reports required by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 day. xYes ̈No




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulations S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy ir information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  ̈




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 if the Exchange Act.




Large
      accelerated filter  ̈
              Accelerated
      filter  ̈Non-accelerated
      filter    ̈(Do not check
      if a smaller reporting company)
              Smaller
      reporting company x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.  Yes  x  No   ̈




As of
March 31, 2009, 863,364,471 shares of our common stock were issued and
outstanding.





Documents
Incorporated by
Reference:      None.





EXPLANATORY
NOTE





This
Amendment No. 1 to Annual Report on Form 10-K is being filed to provide the
financial statements required by Article 8 of Regulation S-X; management’s
discussion and analysis required by Item 303 of Regulation S-K; disclosure
controls and procedures required by Item 307 of Regulation S-K; internal control
over financial reporting required by Item 308 of Regulation S-K; executive
compensation required by Item 402 of Regulation S-K and paragraph (e)(4) and
(e)(5) of Item 407 of Regulation S-K, principal accounting fees and services
required by Item 9(e) of Schedule 14A and certifications required under Rule
13a-14 of the Securities Exchange Act of 1934, as amended, and Section 1350 of
the Sarbanes-Oxley Act of 2002, which items were not available for filing with
the Annual Report on Form 10-K filed by us on April 15, 2009.


PART
I




Quest
Minerals & Mining Corp., including all its subsidiaries, are collectively
referred to herein as “Quest Minerals,” “Quest,” “the Company,” “us,” or
“we.”





Item
1.   DESCRIPTION OF BUSINESS




General





Quest
Minerals & Mining Corp. acquires and operates energy and mineral related
properties in the southeastern part of the United States.  Quest
focuses its efforts on properties that produce quality compliance blend
coal.





Quest is
a holding company for Quest Minerals & Mining, Ltd., a Nevada corporation,
or Quest (Nevada), which in turn is a holding company for Quest Energy, Ltd., a
Kentucky corporation, or Quest Energy, and of Gwenco, Inc., a Kentucky
corporation, or Gwenco.





Gwenco
leases over 700 acres of coal mines, with approximately 12,999,000 tons of coal
in place in six seams.  In 2004, Gwenco had reopened Gwenco’s two
former drift mines at Pond Creek and Lower Cedar Grove, and had begun production
at the Pond Creek seam.  This seam of high quality compliance coal is
located at Slater’s Branch, South Williamson, Kentucky.





Fiscal
2008 and First Quarter 2009 Developments





Logan & Kanawha Purchase
Order.  In April 2008, our wholly owned subsidiary, Gwenco,
Inc., received a purchase order for up to $8 million of coal through December
2008 from Logan & Kanawha Co., LLC, a West Virginia company.  We
recognized approximately $746,000 in gross revenues for delivery of coal under
this purchase order in fiscal 2008.  However, due to economic
conditions, this purchase order was not renewed in 2009.  Quest has since
signed a new contract for the sale of coal with a different
customer.





Rehabilitation and Reopening of Pond
Creek Mine.  In January 2007, Gwenco received a permit from the
Kentucky Department of Natural Resources to conduct coal mining at its Pond
Creed mine.  In February 2007, Gwenco’s engineering firm, Alchemy
Engineering of Prestonburg, Kentucky, completed one and five year mine plan and
maps required by the Kentucky Department of Mines and Minerals in connection
with the permit to conduct coal mining at Pond Creek.  Gwenco had
retained General Mining, LLC of Wallins, Kentucky to rehabilitate the Pond Creek
mine in February 2007 and further retained General Mining to conduct mining
operations at Pond Creek in March 2007.  The company completed its
initial rehabilitation of the Pond Creek mine, recommenced mining operations,
and began shipping commercial coal for sale in May 2007.  The company
completed all rehabilitation the week of July 30, 2007.  In January
2008, we retained White Star Mining to conduct all mining and rehabilitation
operations at Pond Creek.  White Star retained all necessary permits
to begin mining operations in February 2008 and completed all necessary
additional rehabilitation thereafter.  We resumed mining operations in
July 2008.





March 2008
Financing.  On March 11, 2008, we signed a 15% per annum
promissory note with a third party lender for $75,000 due on March 10,
2009.  The note is convertible at the option of the holder at a
conversion price of 50% of the average of the three lowest per share market
values during the ten (10) trading days immediately preceding a conversion
date.  The holder may not convert any outstanding principal amount of
this note or accrued and unpaid interest thereon to the extent such conversion
would result in the holder beneficially owning in excess of 4.999% of the then
issued and outstanding common shares of the Company.





Gwenco, Inc. Chapter 11
Reorganization.On March 2, 2007,
Quest’s wholly owned subsidiary, Gwenco, Inc., filed a voluntary petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code with the United
States Bankruptcy Court for the Eastern District of
Kentucky.  Management felt this was a necessary step to further the
company’s financial restructuring initiative and to protect Gwenco’s assets from
claims, debts, judgments, foreclosures, and forfeitures of those creditors and
stakeholders with whom both Quest and Gwenco were unable to negotiate
restructured agreements.  The company is currently overseeing Gwenco’s
operations as a debtor in possession, subject to court approval of matters
outside the ordinary course of business.  On August 3, 2007, the
Bankruptcy Court approved Gwenco's request for debtor-in-possession financing in
an amount of up to $2,000,000 from holders of Gwenco’s existing debt obligations
in order to fund operating expenses.  The company intends to continue
its mining operations at Pond Creek mine at Slater’s Branch while this matter is
completed.  Under Chapter 11, claims against Gwenco in existence prior
to the filing of the petitions for reorganization relief under the federal
bankruptcy laws are stayed while Gwenco is in bankruptcy.Gwenco has
submitted a preliminary plan of reorganization to the court and the creditors
for approval, and the court had set August 19, 2008 for the hearing on
confirmation of the plan of reorganization. At the company's request, the court
has continued the confirmation hearing to June 2009 to allow the company to
continue negotiating the terms of the plan of reorganization with the creditors.
Although there can be no assurance that an amended plan of reorganization will
be confirmed, the company believes it will successfully negotiate a plan of
reorganization with its creditors and that the plan of reorganization will be
confirmed at the December hearing. If the bankruptcy court rejects Gwenco's
petition for bankruptcy under Chapter 11, we would be materially impacted and
could lose all of its working assets and have only unpaid liabilities.
Accordingly, the court could convert Gwenco's petition to Chapter 7 and
liquidate all of Gwenco's assets. In addition, we might be forced to file for
protection under Chapter 11 as we are the primary guarantor on a number of
Gwenco's contracts.





August 2008 Financing. On
August 14, 2008, the Company entered into a Securities Purchase and Royalty
Agreement with an unrelated third party pursuant to which the Company issued an
8% $400,000 convertible promissory note and a three year royalty on future coal
sales. The note is due on July 23, 2010 and is convertible into shares of our
common stock at a conversion price of sixty percent (60%) of the average of the
five (5) lowest per share market value during the ten (10) trading days
immediately preceding a conversion date. The proceeds will be used for working
capital and general corporate purposes. The holder may not convert any
outstanding principal amount of this note or accrued and unpaid interest thereon
to the extent such conversion would result in the holder beneficially owning in
excess of 4.999% of the then issued and outstanding common shares of the
Company. The royalty is based on sliding scale coal sale prices received by the
Company, not to exceed $0.75 per ton.





Industry
Overview




Coal is
the second most widely used form of energy in the United States, accounting for
nearly one-fourth of the nation’s total energy consumption, according to the BP
Statistical Review of World Energy (“BP”), June 2007.  In 2006, coal
was the fuel source of 50% of the electricity generated nationwide, as reported
by the Energy Information Administration (“EIA”), a statistical agency of the
United States Department of Energy.




The
United States is the second largest coal producer in the world, exceeded only by
China.  Other leading coal producers include India, Australia, South
Africa, Russia and Indonesia.  The United States has the largest coal
reserves in the world, with proved reserves totaling 247 billion
tons.  Russia ranks second in proven coal reserves with 157 billion
tons, followed by China with 115 billion tons, according to BP.





United
States coal reserves are more plentiful than oil or natural gas with 234 years
of supply at current consumption rates.  Proven United States reserves
of oil amount to 12 years of supply at current production rates and proved
United States reserves of natural gas amount to 11 years of supply at current
levels of consumption, as reported by the BP study.




United
States coal production has more than doubled over the last 40
years.  In 2006, total United States coal production, as estimated by
the EIA, was 1.2 billion tons.


3




Coal is
used in the United States by utilities to generate electricity, by steel
companies to make steel products, and by a variety of industrial users to
produce heat and to power foundries, cement plants, paper mills, chemical plants
and other manufacturing and processing facilities.  Significant
quantities of coal are also exported from both East and Gulf Coast
terminals.  The breakdown of 2006 United States coal consumption, as
estimated by the EIA, is as follows:




End Use
                
                % of TotalElectrical
      Power
                
                
                93
                %Other
      Industrial
                
                
                5
                %Coke
                
                
                2
                %Residential
      and Commercial
                
                <1
                %Total
                
                
                100
                %




Coal has
long been favored as an electricity generating fuel because of its basic
economic advantage.  The largest cost component in electricity
generation is fuel.  This fuel cost is typically lower for coal than
competing fuels such as oil and natural gas on a Btu-comparable
basis.  Platts, which provides global commodity news and information,
estimated the average total production costs of electricity, using coal and
competing generation alternatives in 2006 as follows:




Electricity Generation
    Source
                
                Cost per million
                  Kilowatt HoursOil
                
                $
                14.69Natural
      Gal
                
                $
                7.97Coal
                
                $
                2.19Nuclear
                
                $
                1.84




There are
factors other than fuel cost that influence each utility’s choice of electricity
generation mode, including facility construction cost, access to fuel
transportation infrastructure, environmental restrictions, and other
factors.  The breakdown of United States electricity generation by
fuel source in 2006, as estimated by EIA, is as follows:




Electricity Generation
    Source
                
                % of Total
                  Electricity GenerationCoal
                
                
                50
                %Nuclear
                
                
                20
                %Natural
      Gas
                
                
                19
                %Hydroelectric
                
                
                7
                %Oil
      and other (solar, wind, etc.)
                
                
                4
                %Total
                
                
                100
                %




Demand
for electricity has historically been driven by United States economic growth,
but it can fluctuate from year to year depending on weather
patterns.  In 2006, electricity consumption in the United States
increased 0.2%, but the average growth rate in the past decade was approximately
1.5% per year, according to EIA estimates.  Because coal-fired
generation is used in most cases to meet base load requirements, coal
consumption has generally grown at the pace of electricity demand
growth.


4




According
to the World Coal Institute (“WCI”), in 2006, the United States ranked seventh
among worldwide exporters of coal.  Australia was the largest
exporter, with other major exporters including Indonesia, China, South Africa,
Russia, Columbia and Canada.  According to EVA, United States exports
increased by 19% from 2006 to 2007.  The usage breakdown for 2007
was that United States exports of 59 million tons were 45% for electricity
generation and 55% for steel production.  In 2007, the United States
coal exports were shipped to more than 30 countries.  The largest
purchaser of United States exported utility coal in 2007 continued to be Canada,
which took 14.6 million tons, or 55%, of total utility coal
exports.  This was down 4% compared to the 15.2 million tons exported
to Canada in 2006.  Overall steam coal exports increased 22% in 2007
compared to 2006.  The largest purchasers of United States exported
metallurgical coal were Brazil, which imported approximately 6.5 million tons,
or 20%, and Canada, which imported 3.7 million tons, or 12%.  In
total, metallurgical coal exports increased 16% in 2007 compared to
2006.




Depending
on the relative strength of the United States dollar versus currencies in other
coal producing
regions of the world, United States producers may export more or less coal into
foreign countries as they compete on price with other foreign coal producing
sources.  Likewise, the domestic coal market may be impacted due to
the relative strength of the United States dollar to other currencies, as
foreign sources could be cost-advantaged based on a coal producing region’s
relative currency position.  During 2007, the United States dollar
weakened, making imported coal less competitive with United States produced
coal, and positively impacting the competitiveness of United States exports in
some overseas markets.




From 2003
to February 2008, the global marketplace for coal experienced swings in the
demand/supply balance.  In periods of supply shortfall, as occurred
from 2003 to early 2006 and again in late 2007 through February 2008, the prices
for coal reached record highs in the United States.  Increased
worldwide demand has been primarily driven by higher prices for oil and natural
gas and economic expansion, particularly in China, India, and elsewhere in
Asia.  At the same time, infrastructure and regulatory limitations in
China contributed to a tightening of worldwide coal supply, affecting global
prices of coal.  The growth in China and India caused an increase in
worldwide demand for raw materials and a disruption of expected coal exports
from China to Japan, Korea, and other countries.




Metallurgical
grade coal is distinguished by special quality characteristics that include high
carbon content, volatile matter, low expansion pressure, low sulfur content, and
various other chemical attributes.  High vol met coal is also high in
heat content (as measured in Btus), and therefore is desirable to utilities as
fuel for electricity generation.  Consequently, high vol met coal
producers have the ongoing opportunity to select the market that provides
maximum revenue and profitability.  The premium price offered by steel
makers for the metallurgical quality attributes is typically higher than the
price offered by utility coal buyers that value only the heat
content.  The primary concentration of United States metallurgical
coal reserves is located in the Central Appalachian region.  EVA
estimates that the Central Appalachian region supplied 89% of domestic
metallurgical coal and 73% of United States exported metallurgical coal during
2006.





For
utility coal buyers, the primary goal is to maximize heat content, with other
specifications like ash content, sulfur content, and size varying considerably
among different customers.  Low sulfur coals, such as those produced
in the western United States and in Central Appalachia, generally demand a
higher price due to restrictions on sulfur emissions imposed by the Clean Air
Act of 1963 (“Clean Air Act”) and the volatility in SO2 allowance
prices that occurred in recent years when the demand for all specifications of
coal increased.  SO2 allowances
permit utilities to emit a higher level of SO2 than
otherwise required under the Clean Air Act regulations.  The demand
and premium price for low sulfur coal is expected to diminish as more utilities
install scrubbers at their coal-fired plants.  Coal shipped for North
American consumption is typically sold at the mine loading facility with
transportation costs being borne by the purchaser.  Offshore export
shipments are normally sold at the ship-loading terminal, with the purchaser
paying the ocean freight.  According to the National Mining
Association (“NMA”), approximately two-thirds of United States coal production
in recent years was shipped via railroads.  Final delivery to
consumers often involves more than one transportation mode.  A
significant portion of United States production is delivered to customers via
barges on the inland waterway system and ships loaded at Great Lakes
ports.


5


Market
Opportunity





In the past, coal price declines lead
to widespread mine shutdowns.  Beginning in the fourth quarter of
2003, coal prices began a steady increase.  Traditionally, coal price
increases have been caused by harsh North American weather or labor
stoppages.  Current upward pricing trends have no specific driver
outside of general price increases in all energy sources, which appear to be
driven by geo-political concerns and the current non-renewable characteristics
of fossil fuels.  Equivalent current natural gas prices imply that
coal should currently be trading at U.S. $175 per ton.  Nymex July
2004 coal deliveries were trading just above $80 per ton as of the beginning of
March 2004.  As coal prices strengthen, Quest believes that it could
become highly lucrative to re-open the best of these recently closed
mines.





Gwenco
Mines





Gwenco
holds approximately 30 coal leases, covering an estimated 700 acres, with a
projected 12,999,000 tons of coal in place in six seams with possible additional
reserves on adjacent leases.  From 1997 to 2001, Gwenco operated two
deep mines in the Lower Cedar Grove and Pond Creek seams — until a downturn in
coal prices made continued operations unfeasible, and the mines were shut
down.  As discussed above, Gwenco has recently re-opened the Pond
Creek mine and has started to mine the Pond Creek seam.





The
primary reserves are in the Pond Creek, Lower Cedar Grove, and Taylor
seams. Both the Pond Creek and Lowers Cedars Grove seams are permitted and
bonded and have been mined to a limited extent.  The coal in the Pond
Creek seam is low-sulfur, compliance coal, running at an average of 12,000 to
12,500 BTUs when mined clean.  The coal in the Lower Cedar Grove seam
has a shale parting and must be washed to be commercial.  When cleaned
it is a high BTU coal with certain metallurgical coal qualities.





Mining
Techniques





There are
several basis techniques for mining drift or adit mines.  Quest has
used, and intends to use, a continuous miner on the Pond Creek seam at its
Gwenco facility.   Quest has used, and intends to use, a Joy
14-10AA continuous miner at the Gwenco mines.  In this technique, the
miner has a cutting head that tears the coal from it natural deposit and
transfers the coal to a gather head and then to shuttle cars that can carry from
3 to 10 tons depending on the size.  This method can create higher
volume mining than the conventional method, but may mine the coal with a higher
content of ash.





Expansion
Strategy





Quest
seeks to acquire new mines and contracting to produce and market additional coal
in its geographic focus area.  Quest intends to acquire and operate
high quality coal properties with established field personnel, primarily in the
eastern Kentucky coalfields, with additional properties in southwestern West
Virginia and western Virginia.  This region has an excellent
infrastructure of workers, truckers, rail sidings on the CSX and N&W rail
lines and low cost access to the Big Sandy barge docks near Ashland, Kentucky,
for effective coal distribution.  Quest intends to use its local
knowledge to pursue high returns on investment from re-opening profitable
properties in this region.  It intends to grow by additional accretive
acquisitions, contract mining, and internal development of owned
properties.





Quest is
also seeking to diversify its operations into other sectors of the energy
industry, including the oil and gas sector.  Quest’s coal miners
collectively have over 50 years of mining experience.  Quest may also
engage key industry experts to assist in the analysis and funding of these
properties.  Quest management believes that a successful
diversification into the oil and gas field would provide Quest with an
opportunity to improve its results of operations while hedging on coal
production and prices.





Customers





Quest has
had one customer, which has delivered a purchase order purchase order for up to
$8 million of coal through December 2008.  This customer did not renew
the purchase order in 2009.  Quest has since signed a new contract for the
sail of coal with a different customer.  To the extent that Quest produces
coal in excess of this order, it intends to sell its remaining coal to other
purchasers or on the spot market to coal brokers.  Quest may seek to
enter into long-term contracts (exceeding one year in duration) with customers
if economic circumstances indicate that such arrangements would maximize
profitability.  These arrangements would allow customers to secure a
supply for their future needs and provide Quest with greater predictability of
sales volume and sales prices.


6


Competition





The coal
industry in the United States is highly competitive.  Quest competes
with many large producers and other small coal producers.  Quest also
competes with other producers primarily on the basis of price, coal quality,
transportation cost and reliability of supply.  Continued demand for
coal is also dependent on factors outside of Quest’s control, including demand
for electricity, environmental and governmental regulations, weather,
technological developments, and the availability and cost of alternative fuel
sources.





The price
at which Quest’s production can be sold is dependent upon a variety of factors,
many of which are beyond Quest’s control.  Quest sells coal on the
spot-market and seeks to sell coal under long-term
contracts.  Generally, the relative competitiveness of coal vis-a-vis
other fuels or other coals is evaluated on a delivered cost per heating value
unit basis.  In addition to competition from other fuels, coal
quality, the marginal cost of producing coal in various regions of the country
and transportation costs are major determinants of the price for which Quest’s
production can be sold.  Factors that directly influence production
cost include geological characteristics (including seam thickness), overburden
ratios, depth of underground reserves, transportation costs and labor
availability and cost.  Underground mining has higher labor (including
reserves for future costs associated with labor benefits and health care) and
capital (including modern mining equipment and construction of extensive
ventilation systems) costs than those of surface mining.  In recent
years, increased development of large surface mining operations, particularly in
the western United States, and more efficient mining equipment and techniques,
have contributed to excess coal production capacity in the United
States.  Competition resulting from excess capacity has encouraged
producers to reduce prices and to pass productivity gains through to
customers.  Demand for Quest’s low sulfur coal and the prices that
Quest will be able to obtain for it will also be affected by the price and
availability of high sulfur coal, which can be marketed in tandem with emissions
allowances.





Transportation
costs are another fundamental factor affecting coal industry
competition.  Coordination of the many eastern loadouts, the large
number of small shipments, terrain and labor issues all combine to make
shipments originating in the eastern United States inherently more expensive on
a per-mile basis than shipments originating in the western United
States.  Historically, coal transportation rates from the western coal
producing areas into Central Appalachian markets limited the use of western coal
in those markets.  More recently, however, lower rail rates from the
western coal producing areas to markets served by eastern producers have created
major competitive challenges for eastern producers.  Barge
transportation is the lowest cost method of transporting coal long distances in
the eastern United States, and the large numbers of eastern producers with river
access keep coal prices competitive.  Quest believes that many
utilities with plants located on the Ohio River system are well positioned for
deregulation as competition for river shipments should remain high for Central
Appalachian coal.  Quest also believes that with close proximity to
competitively-priced Central Appalachian coal, utilities with plants located on
the Ohio River system will become price setters in a deregulated
environment.





Although
undergoing significant consolidation, the coal industry in the United States
remains highly fragmented.  It is possible that Quest’s costs will not
permit it to compete effectively with other producers seeking to provide coal to
a customer; however, it is Quest’s goal to maintain low production costs, offer
a variety of products, and develop access to multiple transportation systems
that will enable it to compete effectively with other producers.





Environmental,
Safety and Health Laws and Regulations




The coal
mining industry is subject to regulation by federal, state and local authorities
on matters such as the discharge of materials into the environment, employee
health and safety, permitting and other licensing requirements, reclamation and
restoration of mining properties after mining is completed, management of
materials generated by mining operations, surface subsidence from underground
mining, water pollution, water appropriation and legislatively mandated benefits
for current and retired coal miners, air quality standards, protection of
wetlands, endangered plant and wildlife protection, limitations on land use, and
storage of petroleum products and substances that are regarded as hazardous
under applicable laws.  The possibility exists that new legislation or
regulations may be adopted that could have a significant impact on our mining
operations or on our customers’ ability to use coal.


7


Numerous
governmental permits and approvals are required for mining
operations.  Regulations provide that a mining permit or modification
can be delayed, refused, or revoked if an officer, director, or a stockholder
with a 10% or greater interest in the entity is affiliated with or is in a
position to control another entity that has outstanding permit
violations.  Thus, past or ongoing violations of federal and state
mining laws by individuals or companies no longer affiliated with us could
provide a basis to revoke existing permits and to deny the issuance of addition
permits.  We are required to prepare and present to federal, state, or
local authorities data and/or analysis pertaining to the effect or impact that
any proposed exploration for or production of coal may have upon the
environment, public and employee health and safety.  All requirements
imposed by such authorities may be costly and time-consuming and may delay
commencement or continuation of exploration or production
operations.  Accordingly, the permits we need for our mining and gas
operations may not be issued, or, if issued, may not be issued in a timely
fashion.  Permits we need may involve requirements that may be changed
or interpreted in a manner that restricts our ability to conduct our mining
operations or to do so profitably.  Future legislation and
administrative regulations may increasingly emphasize the protection of the
environment, health and safety and, as a consequence, our activities may be more
closely regulated.  Such legislation and regulations, as well as
future interpretations of existing laws, may require substantial increases in
equipment and operating costs, delays, interruptions or a termination of
operations, the extent of which cannot be predicted.




While it
is not possible to quantify the expenditures we incur to maintain compliance
with all applicable federal and state laws, those costs have been and are
expected to continue to be significant.  We post surety performance
bonds or letters of credit pursuant to federal and state mining laws and
regulations for the estimated costs of reclamation and mine closing, often
including the cost of treating mine water discharge when
necessary.  Compliance with these laws has substantially increased the
cost of coal mining for all domestic coal producers.  We endeavor to
conduct our mining operations in compliance with all applicable federal, state,
and local laws and regulations.  However, even with our substantial
efforts to comply with extensive and comprehensive regulatory requirements,
violations during mining operations could occur from time to time.





Mine
Safety and Health




Stringent
health and safety standards have been in effect since Congress enacted the
Federal Coal Mine Health and Safety Act of 1969.  The Federal Coal
Mine Safety and Health Act of 1977 significantly expanded the enforcement of
safety and health standards and imposed safety and health standards on all
aspects of mining operations.  A further expansion occurred in June
2006 with the enactment of the Mine Improvement and New Emergency Response Act
of 2006 (“MINER Act”).





The MINER
Act and related Mine Safety and Health Administration (“MSHA”) regulatory action
require, among other things, improved emergency response capability, increased
availability of emergency breathable air, enhanced communication and tracking
systems, more available mine rescue teams, increased mine seal strength and
monitoring of sealed areas in underground mines, as well as larger penalties by
MSHA for noncompliance by mine operators.  Coal producing states,
including West Virginia and Kentucky, passed similar legislation.  The
bituminous coal mining industry was actively engaged throughout 2007 in
activities to achieve compliance with these new requirements.  These
compliance efforts will continue into 2008.





On
February 8, 2008, MSHA published a final rule that revises existing standards
for mine rescue teams for underground coal mines.  This final rule
implements Section 4 of the MINER Act to improve overall mine rescue capability,
mine emergency response time, and mine rescue team effectiveness.  It
also calls for increased quantity and quality of mine rescue team
training.  Additional substantive legislation is also possible in 2008
with the passage by the United States House of Representatives in January 2008
of the Supplementary Mine Improvement and New Emergency Response Act, (“S-MINER
Act”).  The House legislation augments portions of the MINER Act and
proposes changes to retreat mining practices, study of substance abuse issues,
and the use of coal dust monitors to reduce miner respirable dust
exposure.





Kentucky,
the state in which we currently operate, has state programs for mine safety and
health regulation and enforcement.  Collectively, federal and state
safety and health regulation in the coal mining industry is perhaps the most
comprehensive and pervasive system for protection of employee health and safety
affecting any segment of industry in the United States.  While
regulation has a significant effect on our operating costs, our United States
competitors are subject to the same degree of regulation.


8


Our goal
is sustainable excellence in our safety and health performance.  We
are committed to doing our best, and then learning to do even
better.  We recognize each employee’s and consultant’s contributions
to our collective safety and health efforts and reward outstanding
performance.  We measure our success in this area primarily through
the use of occupational injury and illness frequency rates.  We
believe that a superior safety and health regime is inherently tied to achieving
productivity and financial goals, with overarching benefits for our
shareholders, the community, and the environment.




Black Lung.  Under
federal black lung benefits legislation, each coal mine operator is required to
make payments of black lung benefits or contributions to: (i) current and former
coal miners totally disabled from black lung disease; and (ii) certain survivors
of a miner who dies from black lung disease.  The Black Lung
Disability Trust Fund, to which we must make certain tax payments based on
tonnage sold, provides for the payment of medical expenses to claimants whose
last mine employment was before January 1, 1970 and to claimants employed after
such date, where no responsible coal mine operator has been identified for
claims or where the responsible coal mine operator has defaulted on the payment
of such benefits.  In addition to federal acts, we are also liable
under various state statutes for black lung claims.  Federal benefits
are offset by any state benefits paid.




Environmental
Laws





Surface Mining Control and
Reclamation Act.  The Surface Mining Control and Reclamation
Act, (“SMCRA”), which is administered by the Office of Surface Mining
Reclamation and Enforcement (“OSM”), establishes mining, environmental
protection and reclamation standards for all aspects of surface mining as well
as many aspects of deep mining.  The SMCRA and similar state statutes
require, among other things, the restoration of mined property in accordance
with specified standards and an approved reclamation plan.  In
addition, the Abandoned Mine Land Fund, which is part of the SMCRA, imposes a
fee on all current mining operations, the proceeds of which are used to restore
mines closed before 1977.  The maximum tax is $0.315 per ton on
surface-mined coal and $0.135 per ton on deep-mined coal.  A mine
operator must submit a bond or otherwise secure the performance of its
reclamation obligations.  Mine operators must receive permits and
permit renewals for surface mining operations from the OSM or, where state
regulatory agencies have adopted federally approved state programs under the
act, the appropriate state regulatory authority.  We accrue for
reclamation and mine-closing liabilities in accordance with Statement of
Financial Accounting Standard (“SFAS”) No. 143, “Accounting for Asset Retirement
Obligations” (“SFAS 143”).




Clean Water
Act.  Section 301 of the Clean Water Act prohibits the
discharge of a pollutant from a point source into navigable waters of the United
States except in accordance with a permit issued under either Section 402 or
Section 404 of the Clean Water Act.  Navigable waters are broadly
defined to include streams, even those that are not navigable in fact, and may
include wetlands.  All mining operations in Appalachia generate excess
material, which must be placed in fills in adjacent valleys and
hollows.  Likewise, coal refuse disposal areas and coal processing
slurry impoundments are located in valleys and hollows.  Almost all of
these areas contain intermittent or perennial streams, which are considered
navigable waters under the Clean Water Act.  An operator must secure a
Clean Water Act permit before filling such streams.  For approximately
the past twenty-five years, operators have secured Section 404 fill permits that
authorize the filling of navigable waters with material from various forms of
coal mining.  Operators have also obtained permits under Section 404
for the construction of slurry impoundments although the use of these
impoundments, including discharges from them, requires permits under Section
402.  Section 402 discharge permits are generally not suitable for
authorizing the construction of fills in navigable waters.




Clean Air
Act.  Coal contains impurities, including sulfur, mercury,
chlorine, nitrogen oxide, and other elements or compounds, many of which are
released into the air when coal is burned.  The Clean Air Act and
corresponding state laws extensively regulate emissions into the air of
particulate matter and other substances, including sulfur dioxide, nitrogen
oxide and mercury.  Although these regulations apply directly to
impose certain requirements for the permitting and operation of our mining
facilities, by far their greatest impact on us and the coal industry generally
is the effect of emission limitations on utilities and other
customers.  Owners of coal-fired power plants and industrial boilers
have been required to expend considerable resources in an effort to comply with
these air pollution standards.  The United States Environmental
Protection Agency (“EPA”) has imposed or attempted to impose tighter emission
restrictions in a number of areas, some of which are currently subject to
litigation.  The general effect of such tighter restrictions could be
to reduce demand for coal.  This in turn may result in decreased
production and a corresponding decrease in revenue and profits.


9


National Ambient Air Quality
Standards.  In 1997, EPA adopted a new National Ambient Air
Quality Standard (“NAAQS”) for very fine particulate matter and a more stringent
NAAQS for ozone.  Ozone is produced by a combination of two precursor
pollutants: volatile organic compounds and nitrogen oxide, a by-product of coal
combustion.  States were required to submit to EPA revisions to their
State Implementation Plans (“SIPs”) that demonstrate the manner in which the
states will attain the fine particulate NAAQS by December 18,
2007.  The ozone NAAQS has been the subject of litigation and, during
the course of this litigation, EPA has proposed revisions to the
ozone NAAQS that are more stringent than the standards being
litigated.  EPA intends to begin the promulgation process for the new, more
stringent ozone NAAQS in the spring of 2008.  Revised SIPs could
require electric power generators to further reduce nitrogen oxide and sulfur
dioxide emissions.  In addition to the SIP process, the Clean Air Act
permits states to assert claims against sources in other “upwind” states
alleging that emission sources including coal fired power plants in the upwind
states are preventing the “downwind” states from attaining a NAAQS.  All
these actions could result in additional controls being required on coal fired
power plants and we are unable to predict the effect on coal
production.




Acid Rain Control
Provisions.  The acid rain control provisions promulgated as
part of the Clean Air Act Amendments of 1990 in Title IV of the Clean Air Act
(“Acid Rain program”) required reductions of sulfur dioxide emissions from power
plants.  The Acid Rain program is now a mature program and we believe
that any market impacts of the required controls have likely been factored into
the price of coal in the national coal market.




Regional Haze
Program.  EPA promulgated a regional haze program designed to
protect and to improve visibility at and around so-called Class I Areas, which
are generally National Parks, National Wilderness Areas, and International
Parks.  This program may restrict the construction of new coal-fired
power plants whose operation may impair visibility at and around the Class I
Areas.  Moreover, the program requires certain existing coal-fired
power plants to install additional control measures designed to limit
haze-causing emissions, such as sulfur dioxide, nitrogen oxide and particulate
matter. States were required to submit Regional Haze SIPs to EPA by December 17,
2007.  Many states did not meet the December 17, 2007, deadline, and
we are unable to predict the impact on the coal market of the failure to submit
Regional Haze SIPs by the deadline.




New Source Review
Program.  Under the Clean Air Act, new and modified sources of
air pollution must meet certain new source standards (“New Source Review
Program”).  In the late 1990s, the EPA filed lawsuits against many
coal-fired plants in the eastern United States alleging that the owners
performed non-routine maintenance, causing increased emissions that should have
triggered the application of these new source standards.  Some of
these lawsuits have been settled, with the owners agreeing to install additional
pollution control devices in their coal-fired plants.  The remaining
litigation and the uncertainty around the New Source Review Program rules could
adversely impact utilities’ demand for coal in general or coal with certain
specifications, including the coal produced by us.




Multi-Pollutant
Strategies.  In March 2005, EPA issued two closely related
rules designed to significantly reduce levels of sulfur dioxide, nitrogen oxide
and mercury: the Clean Air Interstate Rule and the Clean Air Mercury
Rule.  The Clean Air Interstate Rule sets a cap-and-trade program in
28 states and the District of Columbia to establish emissions limits for sulfur
dioxide and nitrogen oxide, by allowing utilities to buy and sell credits to
assist in achieving compliance with the NAAQS for 8-hour ozone and fine
particulates.  The Clean Air Mercury Rule as promulgated will cut
mercury emissions nearly 70% by 2018 through a cap-and-trade
program.  Both rules were challenged in numerous
lawsuits.  Portions of each of these rules are still in litigation,
and on February 8, 2008, the United States Court of Appeals for the District of
Columbia Circuit vacated the entire mercury rule and remanded it to EPA for
reconsideration.  Immediately following the decision, EPA announced
that it has not decided how to respond.  Regardless of the outcome of
litigation on either rule, a form of each of the rules will likely be
promulgated and ultimately directly affect coal producers, suppliers, and
utilities in the eastern and western regions of the United States, by requiring
revisions to the SIPs in many eastern states.  Any such controls may
have an impact on the demand for our coal and possibly give the users of western
sub-bituminous coal a significant competitive advantage over eastern bituminous
coal users.


10


Comprehensive Environmental
Response, Compensation and Liability Act.  The Comprehensive
Environmental Response, Compensation and Liability Act (“CERCLA”), and similar
state laws affect coal mining operations by, among other things, imposing
cleanup requirements for threatened or actual releases of hazardous substances
that may endanger public health or welfare or the environment.  Under
CERCLA and similar state laws, joint and several liability may be imposed on
waste generators, site owners, and lessees and others regardless of fault or the
legality of the original disposal activity.  Although the EPA excludes
most wastes generated by coal mining and processing operations from the
hazardous waste laws, such wastes can, in certain circumstances, constitute
hazardous substances for the purposes of CERCLA.  In addition, the
disposal, release, or spilling of some products used by coal companies in
operations, such as chemicals, could implicate the liability provisions of the
statute.  Under the EPA’s Toxic Release Inventory process, companies
are required annually to report the use, manufacture, or processing of listed
toxic materials that exceed defined thresholds, including chemicals used in
equipment maintenance, reclamation, water treatment, and ash received for mine
placement from power generation customers.  Our current and former
coal mining operations may incur expenditures associated with the investigation
and remediation of facilities and environmental conditions under
CERCLA.





Operations - Permitting;
Compliance.  Quest has obtained all the permits required for
its current operations under the SMCRA, the Clean Water Act, the Clean Air Act,
and corresponding state laws.  Quest currently is, and intends
to remain in compliance in all material respects with such permits and
intends to routinely correct in a timely fashion violations of which it receives
notice in the normal course of operations.  The expiration dates of
the permits are largely immaterial as the law provides for a right of successive
renewal.  The cost of obtaining surface mining, clean water, and air
permits can vary widely depending on the scientific and technical demonstrations
that must be made to obtain the permits.  However, the cost of
obtaining a permit is rarely more than $500,000 and of obtaining a renewal is
rarely more than $5,000.  It is impossible to predict the full impact
of future judicial, legislative, or regulatory developments on Quest’s
operations because the standards to be met, as well as the technology and length
of time available to meet those standards, continue to develop and
change.





The
imposition of more stringent requirements under environmental laws or
regulations, new developments or changes regarding site cleanup costs or the
allocation of such costs among potentially responsible parties, or a
determination that Quest is potentially responsible for the release of hazardous
substances at sites other than those currently identified, could result in
additional expenditures or the provision of additional accruals in expectation
of such expenditures.





Coal
Reserves





Quest
estimates that, as of December 31, 2008, it has total recoverable reserves of
approximately twelve million tons consisting of both proven and probable
reserves.  “Reserves” are defined by Securities and Exchange
Commission Industry Guide 7 as that part of a mineral deposit, which could be
economically and legally extracted or produced at the time of the reserve
determination.  “Recoverable” reserves mean coal that is economically
recoverable using existing equipment and methods under federal and state laws
currently in effect.  Approximately three million tons of Quest’s
reserves are classified as proven reserves.  “Proven (Measured)
Reserves” are defined by Securities and Exchange Commission Industry Guide 7 as
reserves for which (a) quantity is computed from dimensions revealed in
outcrops, trenches, workings or drill holes; grade and/or quality are computed
from the results of detailed sampling and (b) the sites for inspection, sampling
and measurement are spaced so closely and the geologic character is so well
defined that size, shape, depth and mineral content of reserves are
well-established.  None of Quest’s reserves are classified as probable
reserves.  “Probable reserves” are defined by Securities and Exchange
Commission Industry Guide 7 as reserves for which quantity and grade and/or
quality are computed from information similar to that used for proven (measured)
reserves, but the sites for inspection, sampling, and measurement are farther
apart or are otherwise less adequately spaced.  The degree of
assurance, although lower than that for proven (measured) reserves, is high
enough to assume continuity between points of observation.





Information
about Quest’s reserves consists of estimates based on engineering, economic, and
geological data assembled and analyzed by its contracted engineers, geologists,
and finance associates.  Reserve estimates are updated as deemed
necessary by management using geologic data taken from drill holes, adjacent
mine workings, outcrop prospect openings and other sources.  Coal
tonnages are categorized according to coal quality, seam thickness, mineability,
and location relative to existing mines and infrastructure.  In
accordance with applicable industry standards, proven reserves are those for
which reliable data points are spaced no more than 2,700 feet
apart.  Probable reserves are those for which reliable data points are
spaced 2,700 feet to 7,900 feet apart.  Further scrutiny is applied
using geological criteria and other factors related to profitable extraction of
the coal.  These criteria include seam height, roof and floor
conditions, yield and marketability.


11


As with
most coal-producing companies in Central Appalachia, all of Quest’s coal
reserves are controlled pursuant to leases from third party
landowners.  These leases convey mining rights to the coal producer in
exchange for a per ton or percentage of gross sales price royalty payment to the
lessor.  The royalties for coal reserves from Quest’s producing
properties was approximately $55,000 for the year ended December 31, 2007 and
$55,000 for the year ended December 31, 2006.





Employees





Quest
currently employs one person, our President, Eugene Chiaramonte,
Jr.  All other personnel who provide services for Quest, whether in
administration or in mining operations, either work on an independent contractor
basis or work for White Star Mining under a contract mining
arrangement.  None of Quest’s employees are represented by a labor
union, and Quest has not entered into a collective bargaining agreement with any
union.  Quest has not experienced any work stoppages and believes that
it has good relations with its employees.


12


Item
1A.  RISK FACTORS AND CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION





An
investment in Quest common stock involves a high degree of risk.  You
should carefully consider the following risk factors and the other information
in this report before investing in Quest common stock.  Quest’s
business and results of operations could be seriously harmed by any of the
following risks.  The trading price of Quest’s common stock could
decline due to any of these risks, and you may lose part or all of your
investment.





We may become subject to an SEC
enforcement action.On October 31, 2008, we received a Wells
notice (the "Notice") from the staff of the Salt Lake Regional Office of the
Securities and Exchange Commission (the "Commission") stating that they are
recommending an enforcement action be filed against us based on our financial
statements and other information contained in reports filed by us with the
Commission by us for our 2004 year and thereafter. The Notice states that the
Commission anticipates alleging that we have violated Sections
10(b),  3(a) and 13(b)(2) of the Securities Exchange Act of 1934, as
amended and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder. We contend that we
have not committed any wrongdoing or the violations referred to in the
Notice.  We cannot predict whether the Commission will follow the
recommendations of the staff and file suit against us.  If any
enforcement proceeding is instituted by the Commission, we will defend the
action.  We cannot predict the outcome or timing of this
matter.





Our wholly owned subsidiary, Gwenco,
Inc., has filed for bankruptcy protection. On March 2, 2007,
our wholly owned subsidiary, Gwenco, Inc., filed a voluntary petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code with the United
States Bankruptcy Court for the Eastern District of Kentucky.  We are
currently overseeing Gwenco’s operations as a debtor in possession, subject to
court approval of matters outside the ordinary course of business.  We
are currently seeking court approval for debtor in possession financing from
holders of Gwenco’s existing debt obligations in order to fund operating
expenses.  We intend to continue our mining operations at Pond Creek
Mine at Slater’s Branch while this matter is completed.  Under Chapter
11, claims against us in existence prior to the filing of the petitions for
reorganization relief under the federal bankruptcy laws are stayed while we are
in bankruptcy.  On August 3, 2007, the Bankruptcy Court approved
Gwenco's request for debtor-in-possession financing in an amount of up to
$2,000,000.  In February 2008, Gwenco submitted a preliminary plan of
reorganization to the court for approval.  The court currently has set
a June 2009 date for a hearing on confirmation on the plan or
reorganization.  If we are unable to procure sufficient debtor in
possession financing and/or if we are unable to negotiate an acceptable plan of
reorganization with Gwenco’s creditors, we may be forced to file for protection
under Chapter 7 of the U.S Bankruptcy Code and liquidate all or Gwenco’s assets,
in which case, Quest would cease to have an operating business.





We have only recently recommenced
mining operations, and it is possible that we may need to stop mining again if
we have insufficient working capital.Due to lack of working
capital, Quest was forced to cease mining operations at the Pond Creek mine at
Slater’s Branch, Kentucky in June 2005.  In January 2007, Gwenco
received a permit from the Kentucky Department of Natural Resources to conduct
coal mining at its Pond Creed mine.  In February 2007, Gwenco’s
engineering firm, Alchemy Engineering of Prestonburg, Kentucky, completed a one
and five year mine plan and maps required by the Kentucky Department of Mines
and Minerals in connection with the permit to conduct coal mining at Pond
Creek.  Gwenco had retained General Mining, LLC of Wallins, Kentucky
to rehabilitate the Pond Creek mine in February 2007 and further retained
General Mining to conduct mining operations at Pond Creek in March
2007.  The company completed its initial rehabilitation of the Pond
Creek mine, recommenced mining operations, and began shipping commercial coal
for sale in May 2007.  In January 2008, Quest retained White Star
Mining to conduct all mining operations at Pond Creek.  White Star
retained all necessary permits to being mining operations in February 2008, and
Quest resumed mining operations in July 2008.  However, it is possible
that Quest may not be able to maintain sufficient working capital to continue
mining operations and that we may need to cease operations again in the
future.





Pending and threatened litigation
could result in Quest losing its primary operating
assets.  Currently, Quest is a party to various pending
lawsuits and judgments, including judgments in favor of Interstellar Holdings
and Duke Energy Merchants.  The judgment creditors have sought to foreclose on our
assets, including our leasehold interests in the mines.  These
foreclosure actions were stayed by the bankruptcy proceedings.  While
one judgment creditor has agreed to forbear on further collections, enforcement,
and foreclosure with respect to this indebtedness, such investor may withdraw
such forbearance if we do not comply with our covenants with the
creditor.It is possible that, in connection with a
foreclosure action, the leasehold interests or other assets of Quest could be
sold to one or more of the judgment or other creditors or to a third
party.  In the event that the leasehold interests or the other assets
are put up for sale, Quest intends to bid on them, but it is possible that it
may not be able to purchase the leasehold interests or the other assets, either
because it does not have the assets with which to make a competitive bid or
because it is simply outbid by one of its creditors or a third
party.  In the event that either the bank or a third party purchases
the leasehold interests or the other assets, Quest would no longer have any
operating business.


13


We have issued a substantial number
of securities convertible into shares of our common stock which will result in
substantial dilution to the ownership interests of our existing
stockholders. As of
December 31, 2008, approximately 2,874,051,620 shares of our common stock were
required for issuance upon exercise or conversion of the following securities:
(i) 2,827,473,620 shares representing shares of common stock issuable upon
conversion in full of our outstanding convertible promissory notes (without
regard to any limitations on conversion);
(ii) 46,578,000 shares of common stock issuable upon conversion of our Series A
Preferred. The exercise or conversion of these securities will result in a
significant increase in the number of outstanding shares and substantially
dilute the ownership interests of our existing shareholders. In addition, any
decrease in our stock price will result in additional shares of common stock
required for issuance upon exercise or conversion of the securities set forth
above.





The issuance of shares upon
conversion of our convertible securities may cause immediate and substantial
dilution to our existing stockholders.The
issuance of shares upon conversion of our outstanding convertible notes or
Series A Preferred Stock may result in substantial dilution to the interests of
other stockholders since the selling stockholders may ultimately convert and
sell the full amount issuable on conversion.  Although the selling
stockholders may not convert their convertible notes if such conversion would
cause them to own more than 4.99% of our outstanding common stock, this
restriction does not prevent the selling stockholders from converting some of
their holdings and then converting the rest of their holdings. In this way, the
selling stockholders could sell more than this limit while never holding more
than this limit. There only upper limit on the number of shares that may be
issued is the number of shares of common stock authorized for issuance under our
articles of incorporation. The issuance of shares upon conversion of the
convertible notes will have the effect of further diluting the proportionate
equity interest and voting power of holders of our common stock.





The issuance of shares of common
stock to consultants may substantial dilution to our existing
stockholders.We have established, and my establish in the
future additional, stock incentive plans under which we may issue various types
of awards, including common stock awards.  We currently pay certain
consultants and may continue to pay consultants in the future with stock awards
under these plans.  The issuance of stock awards to consultants will
have the effect of notes will have the effect of further diluting the
proportionate equity interest and voting power of holders of our common
stock





Quest’s former President and Chief
Executive Officer has been convicted by a federal jury, which may negatively
effect the public’s perception of Quest and its
operations.In May, 2006, a federal grand jury indicted
Mr. Runyon, Ms. Holbrook, James Daniel Stollings, and Quest’s former President
and Chief Executive Officer, William R. Wheeler on charges of bank
fraud.  Mr. Wheeler resigned as an officer or director of Quest on May
31, 2006.  In connection with the indictments, Mr. Runyon and Ms.
Holbrook each pled guilty.  In December 2006, a federal jury convicted
Mr. Stollings and Mr. Wheeler of bank fraud.  Mr. Wheeler has appealed
the conviction.  Quest denies any wrongdoing in connection with these
matters. Although Quest does not believe that this conviction will affect
the business plans of Quest, it is possible that Mr. Wheeler, Quest, or one or
more of Quest’s subsidiaries may be the subject of civil or administrative
actions based on the allegations set forth in the indictment.  As a
result, Quest may incur civil or administrative liability based on these
allegations.  Further, it is possible that the public perception of
Quest may be negatively affected by these allegations, which in turn may cause a
drop in the market price of Quest’s common stock.





Quest will need to continue to
finance its operations through additional bank borrowings or other capital
financings, and if it is unable to obtain additional capital, it may not be able
to continue as a going concern.Quest had a working capital
deficit as of December 31, 2008.  As of the date of this annual
report, Quest does not believe that it will be able to fund its operations,
working capital requirements, and debt service requirements over the fiscal year
2008 through cash flows generated from operations.  Quest will need to
continue to finance its operations through additional borrowings or other
capital financings.  Quest’s collateral may not be sufficient to
borrow additional amounts at such time.  Quest may also seek equity
financing in the form of a private placement or a public
offering.  Such additional financing may not be available to Quest,
when and if needed, on acceptable terms or at all.  If Quest is unable
to obtain additional financing in sufficient amounts or on acceptable terms, its
operating results and prospects could be further adversely
affected.


14


Quest has substantial indebtedness
outstanding, and its operations are significantly
leveraged.   In order to finance its operations, Quest has
incurred substantial indebtedness.  Quest is not in compliance with
its debt covenants under its loan agreements, and it has defaulted on
substantially all of its loan obligations, which has resulted in lawsuits,
judgments, and foreclosure proceedings against Quest and its
assets.  Quest has no cash flows from operations, and without
additional financing or cash flows from operations, it cannot service its debt
obligations.  Quest’s subsidiary, Gwenco, Inc., has already filed for
protection under Chapter 11 of the U.S. Bankruptcy Code.  Quest is
currently negotiating with its creditors to reorganize and restructure its debt
obligations, both within the Chapter 11 reorganization at the Gwenco level and
outside the Chapter reorganization at other corporate levels, but if it is
unable to do so, there is a significant chance that Quest or its other
subsidiaries may be forced to seek protection under the U.S. Bankruptcy code, or
that its creditors could foreclose on its remaining assets, in which case it
would cease to continue as a going concern.





Quest may be unable to continue as a
going concern, in which case its securities will have little or no
value.  Quest’s independent auditor has noted in its report
concerning Quest’s financial statements as of December 31, 2008 that it has
incurred recurring losses from operations and has a working capital deficiency,
which raises substantial doubt about its ability to continue as a going
concern.  As shown in the consolidated financial statements included
in this report, Quest has incurred recurring losses from operations in 2008 and
2007, and has an accumulated deficit and a working capital deficit as of
December 31, 2008. These conditions raise substantial doubt as to Quest’s
ability to continue as a going concern.  It is possible that Quest
will not achieve operating profits in the future.





The level of Quest’s indebtedness
could adversely affect its ability to grow and compete and prevent it from
fulfilling its obligations under its contracts and agreements.Quest has
significant debt, lease, and royalty obligations.  Its ability to
satisfy debt service, lease, and royalty obligations and to effect any
refinancing of its indebtedness will depend upon future operating performance,
which will be affected by prevailing economic conditions in the markets that it
serves as well as financial, business and other factors, many of which are
beyond its control.  Quest may be unable to generate sufficient cash
flow from operations and future borrowings, or other financings may be
unavailable in an amount sufficient to enable it to fund its debt service,
lease, and royalty payment obligations or its other liquidity
needs.




Quest’s
relative amount of debt could have material consequences to its business,
including, but not limited to, the following: (i) making it more difficult to
satisfy debt covenants and debt service, lease payment, and other obligations;
(ii) increasing its vulnerability to general adverse economic and industry
conditions; (iii) limiting its ability to obtain additional financing to fund
future acquisitions, working capital, capital expenditures, or other general
corporate requirements; (iv) reducing the availability of cash flows from
operations to fund acquisitions, working capital, capital expenditures, or other
general corporate purposes; (v) limiting its flexibility in planning for, or
reacting to, changes in its business and the industry in which it competes; or
(vi) placing it at a competitive disadvantage when compared to competitors with
less relative amounts of debt.





If transportation for Quest’s coal
becomes unavailable or uneconomic for its customers, Quest’s ability to sell
coal could suffer.Transportation costs represent a
significant portion of the total cost of coal and, as a result, the cost of
transportation is a critical factor in a customer’s purchasing
decision.  Increases in transportation costs could make coal a less
competitive source of energy or could make some of Quest’s operations less
competitive than other sources of coal.  Coal producers depend upon
rail, barge, trucking, overland conveyor, and other systems to deliver coal to
markets.  While U.S. coal customers typically arrange and pay for
transportation of coal from the mine to the point of use, disruption of these
transportation services because of weather-related problems, strikes, lock-outs
or other events could temporarily impair Quest’s ability to supply coal to its
customers and thus could adversely affect Quest’s results of
operations.  For example, the high volume of coal shipped from one
region of mines could create temporary congestion on the rail systems servicing
that region.


15


Risks inherent to mining could
increase the cost of operating Quest’s business.Quest’s
mining operations are subject to conditions beyond its control that can delay
coal deliveries or increase the cost of mining at particular mines for varying
lengths of time.  These conditions include weather and natural
disasters, unexpected maintenance problems, key equipment failures, variations
in coal seam thickness, variations in the amount of rock and soil overlying the
coal deposit, variations in rock, and other natural materials and variations in
geologic conditions.  In addition, the United States and over 160
other nations are signatories to the 1992 Framework Convention on Climate
Change, which is intended to limit emissions of greenhouse gases, such as carbon
dioxide.  In December 1997, in Kyoto, Japan, the signatories to the
convention established a binding set of emission targets for developed
nations.  Although the specific emission targets vary from country to
country, the United States would be required to reduce emissions to 93% of 1990
levels over a five-year budget period from 2008 through
2012.  Although the United States has not ratified the emission
targets and no comprehensive regulations focusing on U.S. greenhouse gas
emissions are in place, these restrictions, whether through ratification of the
emission targets or other efforts to stabilize or reduce greenhouse gas
emissions, could adversely impact the price of and demand for
coal.  According to the Energy Information Administration’s Emissions
of Greenhouse Gases in the United States 2002, coal accounts for 30% of
greenhouse gas emissions in the United States, and efforts to control greenhouse
gas emissions could result in reduced use of coal if electricity generators
switch to sources of fuel with lower carbon dioxide
emissions.  Further developments in connection with regulations or
other limits on carbon dioxide emissions could have a material adverse effect on
Quest’s financial condition or results of operations.





Quest’s future success depends upon
its ability to continue acquiring and developing coal reserves that are
economically recoverable.Quest’s recoverable reserves decline
as it produces coal.  Quest has not yet applied for the permits
required or developed the mines necessary to use all of its
reserves.  Furthermore, Quest may not be able to mine all of its
reserves as profitably as it does at its current operations.  Quest’s
future success depends upon its conducting successful exploration and
development activities or acquiring properties containing economically
recoverable reserves.  Quest’s planned mine development projects and
acquisition activities may not result in significant additional reserves, and it
may not have continuing success developing additional mines.  Most of
Quest’s mining operations are conducted on properties owned or leased by
Quest.  Because title to most of its leased properties and mineral
rights are not thoroughly verified until a permit to mine the property is
obtained, Quest’s right to mine some of its reserves may be materially adversely
affected if defects in title or boundaries exist.  In addition, in
order to develop its reserves, Quest must receive various governmental
permits.  Quest cannot predict whether it will continue to receive the
permits necessary for it to operate profitably in the future.  Quest
may not be able to negotiate new leases from the government or from private
parties or obtain mining contracts for properties containing additional reserves
or maintain its leasehold interest in properties on which mining operations are
not commenced during the term of the lease.  From time to time, Quest
has experienced litigation with lessors of our coal properties and with royalty
holders.





If the coal industry experiences
overcapacity in the future, our profitability could be impaired.During
the mid-1970s and early 1980s, a growing coal market and increased demand for
coal attracted new investors to the coal industry, spurred the development of
new mines, and resulted in added production capacity throughout the industry,
all of which led to increased competition and lower coal
prices.  Similarly, an increase in future coal prices could encourage
the development of expanded capacity by new or existing coal
producers.  Any overcapacity could reduce coal prices in the
future.





Quest’s ability to operate
effectively could be impaired if it loses key personnel.Quest
manages its business with a number of key personnel, the loss of a number of
whom could have a material adverse effect on Quest.  In addition, as
its business develops and expands, Quest believes that its future success will
depend greatly on its continued ability to attract and retain highly skilled and
qualified personnel.  It is possible that key personnel will not
continue to be employed by Quest and that we will be not able to attract and
retain qualified personnel in the future. Quest does not have “key person” life
insurance to cover its executive officers. Failure to retain or attract key
personnel could have a material adverse effect on Quest.





Coal markets are highly competitive
and affected by factors beyond Quest’s control.Quest
competes with coal producers in various regions of the U.S. for domestic sales
and with both domestic and overseas producers for sales to international
markets.  Continued domestic demand for Quest’s coal and the prices
that it will be able to obtain primarily will depend upon coal consumption
patterns of the domestic electric utility industry and the domestic steel
industry.  Consumption by the domestic utility industry is affected by
the demand for electricity, environmental and other governmental regulations,
technological developments and the price of competing coal and alternative fuel
supplies including nuclear, natural gas, oil and renewable energy sources,
including hydroelectric power.  Consumption by the domestic steel
industry is primarily affected by the demand for U.S. steel.  Quest’s
sales of metallurgical coal are dependent on the continued financial viability
of domestic steel companies and their ability to compete with steel producers
abroad.  The cost of ocean transportation and the valuation of the
U.S. dollar in relation to foreign currencies significantly impact the relative
attractiveness of Quest’s coal as it competes on price with other foreign coal
producing sources.


16


Coal prices are affected by a number
of factors and may vary dramatically by region.  The two
principal components of the price of coal are the price of coal at the mine,
which is influenced by mine operating costs and coal quality, and the cost of
transporting coal from the mine to the point of use.  The cost of
mining the coal is influenced by geologic characteristics such as seam
thickness, overburden ratios and depth of underground reserves. Underground
mining is generally more expensive than surface mining as a result of high
capital costs, including costs for modern mining equipment and construction of
extensive ventilation systems and higher labor costs due to lower
productivity.  Quest currently engages in three principal coal mining
techniques: underground room and pillar mining, underground longwall mining and
highwall mining.  Because underground longwall mining, surface mining,
and highwall mining are high-productivity, low-cost mining methods, Quest seeks
to increase production from its use of these methods to the extent permissible
and cost effective.





Quest depends on continued demand
from its customers.Reduced demand from Quest’s largest
customers could have an adverse impact on its ability to achieve its projected
revenue.  When Quest’s contracts with its current customers reach
expiration, it is possible that that the customers will not extend or enter into
new long-term contracts or, in the absence of long-term contracts, that they
will not continue to purchase the same amount of coal as they have in the past
or on terms, including pricing terms, as favorable as under existing
agreements.




Quest faces numerous uncertainties in
estimating its economically recoverable coal reserves, and inaccuracies in its
estimates could result in lower than expected revenues, higher than expected
costs and decreased profitability.There are numerous
uncertainties inherent in estimating quantities and values of economically
recoverable coal reserves, including many factors beyond Quest’s
control.  As a result, estimates of economically recoverable coal
reserves are by their nature uncertain.  Information about Quest’s
reserves consists of estimates based on engineering, economic, and geological
data assembled and analyzed by Quest’s staff.  Some of the factors and
assumptions that impact economically recoverable reserve estimates include the
following:





·
            geological
      conditions;





·
            historical
      production from the area compared with production from other producing
      areas;





·
            the
      assumed effects on regulations and taxes by governmental
      agencies;





·
            assumptions
      governing future prices; and





·
            future
      operating costs.





Each of these factors may in fact vary
considerably from the assumptions used in estimating reserves.  For
these reasons, estimates of the economically recoverable quantities of coal
attributable to a particular group of properties may vary
substantially.  As a result, Quest’s estimates may not accurately
reflect its actual reserves. Actual production, revenues, and expenditures with
respect to its reserves will likely vary from estimates, and these variances may
be material.




Union represented labor creates an
increased risk of work stoppages and higher labor costs.As of
December 31, 2008, none of Quest’s workforce was represented by a
union.  However, in the event that Quest is required to hire union
labor, there may be an increased risk of strikes and other related work actions,
in addition to higher labor costs associated with union labor.  Quest
has experienced some union organizing campaigns at some of its open shop
facilities within the past five years.  If some or all of Quest’s
current open shop operations were to become union represented, Quest could be
subject to additional risk of work stoppages and higher labor
costs.  Increased labor costs or work stoppages could adversely affect
the stability of production and reduce its net income.


17


Severe weather may affect Quest’s
ability to mine and deliver coal.Severe weather,
including flooding and excessive ice or snowfall, when it occurs, can adversely
affect Quest’s ability to produce, load, and transport coal.




Shortages of skilled labor in the
Central Appalachian coal industry may pose a risk to achieving high labor
productivity and competitive costs.Coal mining continues to
be a labor intensive industry.  In 2001, the coal industry experienced
a shortage of trained coal miners in the Central Appalachian region causing many
companies to hire mine workers with less experience. While Quest did not
experience a comparable labor shortage in 2003, if another such shortage of
skilled labor were to arise, Quest’s productivity could decrease and our costs
could increase.  Such a lack of skilled miners could have an adverse
impact on Quest’s labor productivity and costs and its ability to expand
production in the event there is an increase in the demand for
coal.




If the coal industry experiences
overcapacity in the future, Quest’s profitability could be
impaired.Historically, a growing coal market and increased
demand for coal attract new investors to the coal industry, spur the development
of new mines and result in added production capacity throughout the industry,
all of which can lead to increased competition and lower coal
prices.  Similarly, an increase in future coal prices could encourage
the development of expanded capacity by new or existing coal
producers.  Any overcapacity could reduce coal prices and therefore
reduce Quest’s revenues.




Terrorist attacks and threats,
escalation of military activity in response to such attacks, or acts of war may
negatively affect Quest’s cash flows, results of operations, or financial
condition.Terrorist attacks and
threats, escalation of military activity in response to such attacks or acts of
war may negatively affect Quest’s cash flows, results of operations, or
financial condition.  Quest’s business is affected by general economic
conditions, fluctuations in consumer confidence and spending, and market
liquidity, which can decline as a result of numerous factors outside of its
control, such as terrorist attacks and acts of war.  Future terrorist
attacks against U.S. targets, rumors or threats of war, actual conflicts
involving the U.S. or its allies, or military or trade disruptions affecting
Quest’s customers may materially adversely affect its operations.  As
a result, there could be delays or losses in transportation and deliveries of
coal to Quest’s customers, decreased sales of its coal, and extension of time
for payment of accounts receivable from its customers.  Strategic
targets such as energy-related assets may be at greater risk of future terrorist
attacks than other targets in the U.S.  In addition, disruption or
significant increases in energy prices could result in government-imposed price
controls.  It is possible that any, or a combination, of these
occurrences could have a material impact on Quest’s cash flows, results of
operations, or financial condition.




Quest may not be able to identify
quality strategic acquisition candidates, and if it does make strategic
acquisitions, it may not be able to successfully integrate their
operations.  Quest intends to acquire companies in the coal
mining industry that offer complementary products and services to its current
business operations.  For each acquisition, Quest will be required to
assimilate the operations, products, and personnel of the acquired business and
train, retain, and motivate its key personnel.  Quest may be unable to
maintain uniform standards, controls, procedures, and policies if it fails in
these efforts.  Similarly, acquisitions may subject Quest to
liabilities and risks that are not known or identifiable at the time of the
acquisition or may cause disruptions in its operations and divert management’s
attention from day-to-day operations, which could impair Quest’s relationships
with its current employees, customers, and strategic partners.  Quest
may have to incur debt or issue equity securities to pay for any future
acquisitions.  The issuance of equity securities could be
substantially dilutive to Quest’s stockholders.  In addition, Quest’s
profitability may suffer because of acquisition related costs.  Quest
currently has no agreements or commitments concerning any such additional
acquisitions, and it may not be able to identify any companies that satisfy its
acquisition criteria.


18


The government extensively regulates
Quest’s mining operations, which imposes significant costs on Quest, and future
regulations could increase those costs or limit Quest’s ability to produce
coal.Federal, state, and local authorities regulate the coal
mining industry with respect to matters such as employee health and safety,
permitting and licensing requirements, air quality standards, water pollution,
plant and wildlife protection, reclamation and restoration of mining properties
after mining is completed, the discharge of materials into the environment,
surface subsidence from underground mining, and the effects that mining has on
groundwater quality and availability.  In addition, significant
legislation mandating specified benefits for retired coal miners affects Quest’s
industry.  Numerous governmental permits and approvals are required
for mining operations.  Quest is required to prepare and present to
federal, state, or local authorities data pertaining to the effect or impact
that any proposed exploration for or production of coal may have upon the
environment.  The costs, liabilities, and requirements associated with
these regulations may be costly and time-consuming and may delay commencement or
continuation of exploration or production.  The possibility exists
that new legislation and/or regulations and orders may be adopted that may
materially adversely affect Quest’s mining operations, its cost structure,
and/or its customers’ ability to use coal.  New legislation or
administrative regulations (or judicial interpretations of existing laws and
regulations), including proposals related to the protection of the environment
that would further regulate and tax the coal industry, may also require Quest or
its customers to change operations significantly or incur increased
costs.  The majority of Quest’s coal supply agreements contain
provisions that allow a purchaser to terminate its contract if legislation is
passed that either restricts the use or type of coal permissible at the
purchaser’s plant or results in specified increases in the cost of coal or its
use.  These factors and legislation, if enacted, could have a material
adverse effect on Quest’s financial condition and results of
operations.





There is a limited active trading
market for Quest shares.  Quest common stock is traded on the
OTC Bulletin Board under the symbol “QMLM.OB.”  Trading activity in
Quest common stock has fluctuated widely and at times has been
limited.  Quest considers its common stock to be “thinly traded” and
any last reported sale prices may not be a true market-based valuation of the
common stock.  A consistently active trading market for Quest’s stock
may not develop at any time in the future.  Stockholders may
experience difficulty selling their shares if they choose to do so because of
the illiquid market and limited public float for Quest stock.





Quest’s common stock is considered to
be a “penny stock” and, as such, the market for Quest common stock may be
further limited by certain SEC rules applicable to penny
stocks.As long as the price of Quest’s common stock
remains below $5.00 per share or Quest has net tangible assets of $2,000,000 or
less, Quest’s common shares are likely to be subject to certain “penny stock”
rules promulgated by the SEC.  Those rules impose certain sales
practice requirements on brokers who sell penny stock to persons other than
established customers and accredited investors (generally institutions with
assets in excess of $5,000,000 or individuals with net worth in excess of
$1,000,000).  For transactions covered by the penny stock rules, the
broker must make a special suitability determination for the purchaser and
receive the purchaser’s written consent to the transaction prior to the
sale.  Furthermore, the penny stock rules generally require, among
other things, that brokers engaged in secondary trading of penny stocks provide
customers with written disclosure documents, monthly statements of the market
value of penny stocks, disclosure of the bid and asked prices and disclosure of
the compensation to the brokerage firm and disclosure of the sales person
working for the brokerage firm.  These rules and regulations make it
more difficult for brokers to sell Quest common shares and limit the liquidity
of Quest’s securities.





Quest has no immediate plans to pay
dividends.Quest has not paid any cash dividends to date and
does not expect to pay dividends for the foreseeable future.





Our sole officer and directorcontrolsour voting rights, and as long as he
does,hewillbe able to control the outcome of
stockholder voting.Quest’s sole
officer and director is the owner of all of the outstanding shares of Quest’s
Series C Preferred Stock, pursuant to which he holds approximately 67% of the
outstanding voting rights for Quest’s capital stock.  As long as he
controls our voting rights, our other stockholders will generally be unable to
affect or change the management or the direction of our company without the
support of our officers and directors.  As a result, some investors
may be unwilling to purchase our common stock.  If the demand for our
common stock is reduced because our officers and directors have significant
influence over our company, the price of our common stock could be materially
depressed.  Our sole officer and director will be able to exert
significant influence over the outcome of all corporate actions requiring
stockholder approval, including the election of directors, amendments to our
certificate of incorporation and approval of significant corporate
transactions.





Quest’s articles of incorporation
authorizes Quest’s board of directors to designate and issue preferred stock
with rights, preferences and privileges that may be adverse to the rights of the
holders of Quest’s common stock.Quest’sboard of directors has
the authority to issue up to an additional 21,140,000 shares of preferred stock
and to determine the price, rights, preferences, and privileges of those shares
without any further vote or action by Quest’s stockholders.  To date,
Quest has issued 2,000,000 shares of Series A preferred stock, 1,600,000 shares
of Series B preferred stock and 260,000 shares of Series C preferred
stock.  Any preferred stock issued by Quest’s board of directors may,
and in certain cases, do contain rights and preferences adverse to the voting
power and other rights of the holders of common stock.


19


Cautionary
Statement Concerning


Forward-Looking
Information





This
annual report and the documents to which Quest refers you and incorporate into
this annual report by reference contain forward-looking
statements.  In addition, from time to time, Quest, or its
representatives, may make forward-looking statements orally or in
writing.  These are statements that relate to future periods and
include statements regarding Quest’s future strategic, operational and financial
plans, potential acquisitions, anticipated or projected revenues, expenses and
operational growth, markets and potential customers for Quest’s products and
services, plans related to sales strategies and efforts, the anticipated
benefits of Quest’s relationships with strategic partners, growth of its
competition, its ability to compete, the adequacy of its current facilities and
its ability to obtain additional space, use of future earnings, and the feature,
benefits and performance of its current and future products and
services.





You can identify forward-looking
statements by those that are not historical in nature, particularly those that
use terminology such as “may,” “will,” “should,” “expects,” “anticipates,”
“contemplates,” “estimates,” “believes,” “plans,” “projected,” “predicts,”
“potential,” “seek” or “continue” or the negative of these or similar
terms.  In evaluating these forward-looking statements, you should
consider various factors.  These factors may cause Quest’s actual
results to differ materially from any forward-looking
statement.  Quest cautions you not to place undue reliance on these
forward-looking statements.





Quest
bases these forward-looking statements on its expectations and projections about
future events, which it derives from the information currently available to
it.  Such forward-looking statements relate to future events or future
performance.  Forward-looking statements are only
predictions.  The forward-looking events discussed in this annual
report, the documents to which Quest refers you and other statements made from
time to time by Quest or its representatives, may not occur, and actual events
and results may differ materially and are subject to risks, uncertainties and
assumptions about Quest.  For these statements, Quest claims the
protection of the “bespeaks caution” doctrine.  The forward-looking
statements speak only as of the date hereof, and Quest expressly disclaims any
obligation to publicly release the results of any revisions to these
forward-looking statements to reflect events or circumstances after the date of
this filing.




Item
1B.   UNRESOLVED STAFF COMMENTS




We are a
smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are
not required to provide the information required under this item.




20


Item
2.  PROPERTIES




PROPERTIES




Quest’s
executive offices are located in Paterson, New Jersey and consist of
approximately 1,000 square feet of leased space.  Quest leases this
space at the rate of $500 per month from a related party
corporation.





Gwenco
leases over 700 acres of coal mines in Pike County, Kentucky, with approximately
12,999,000 tons of coal in place in six seams.  Gwenco is required to
make annual minimum lease payments of approximately $55,000 per
year.





All of
Quest’s current facilities are adequate for its current
operations.  Quest anticipates that additional facilities will be
leased or purchased as needed and that sufficient facilities for its needs are
readily available.





Item
3. LEGAL PROCEEDINGS





Litigation





Potential SEC
Action.On October 31, 2008, we received a Wells notice (the
"Notice") from the staff of the Salt Lake Regional Office of the Securities and
Exchange Commission (the "Commission") stating that they are recommending an
enforcement action be filed against us based on our financial statements and
other information contained in reports filed by us with the Commission by us for
our 2004 year and thereafter. The Notice states that the Commission anticipates
alleging that we have violated Sections 10(b),  13(a) and 13(b)(2) of
the Securities Exchange Act of 1934, as amended and Rules 10b-5, 12b-20, 13a-1
and 13a-13 thereunder. We contend that we have not committed any wrongdoing or
the violations referred to in the Notice.  We cannot predict whether
the Commission will follow the recommendations of the staff and file suit
against us.  If any enforcement proceeding is instituted by the
Commission, we will defend the action.  We cannot predict the outcome
or timing of this matter.





Gwenco, Inc. Chapter 11
Reorganization.On March 2, 2007, our
wholly owned subsidiary, Gwenco, Inc., filed a voluntary petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code with the United
States Bankruptcy Court for the Eastern District of
Kentucky.  Management felt this was a necessary step to further our
financial restructuring initiative and to protect Gwenco’s assets from claims,
debts, judgments, foreclosures, and forfeitures of those creditors and
stakeholders with whom both Quest and Gwenco were unable to negotiate
restructured agreements.  We are currently overseeing Gwenco’s
operations as a debtor in possession, subject to court approval of matters
outside the ordinary course of business.  We are currently seeking
court approval for debtor in possession financing from holders of Gwenco’s
existing debt obligations in order to fund operating expenses.  We
intend to continue our mining operations at Pond Creek Mine at Slater’s Branch
while this matter is completed. Under Chapter 11, claims against Gwenco in
existence prior to the filing of the petitions for reorganization relief under
the federal bankruptcy laws are stayed while Gwenco is in
bankruptcy.  On August 3, 2007, the Bankruptcy Court approved Gwenco’s
request for debtor-in-possession financing in an amount of up to
$2,000,000.  Gwenco has submitted a preliminary plan of reorganization
to the court and the creditors for approval, and the court had set August 19,
2008 for the hearing on confirmation of the plan of reorganization. At the
company's request, the court has continued the confirmation hearing to June 2009
to allow the company to continue negotiating the terms of the plan of
reorganization with the creditors. Although there can be no assurance that an
amended plan of reorganization will be confirmed, the company believes it will
successfully negotiate a plan of reorganization with its creditors and that the
plan of reorganization will be confirmed at the December hearing. If the
bankruptcy court rejects Gwenco's petition for bankruptcy under Chapter 11, we
would be have a material impact as would lose all of its working assets and have
only unpaid liabilities. Accordingly, the court could convert Gwenco's petition
to Chapter 7 and liquidate all of Gwenco's assets. In addition, we might be
forced to file for protection under Chapter 11 as we are the primary guarantor
on a number of Gwenco's contracts.





In or
about May, 2004, National City Bank of Kentucky commenced an action in Boyd
County Court, Kentucky against Quest’s indirect wholly-owned subsidiary, Gwenco,
Inc., and Albert Anderson for breach of various promissory notes issued by
Gwenco.  Duke Energy Merchants and First Sentry Bank were joined in
the action.  National City Bank and Duke Energy are collectively
seeking approximately $1,100,000 in principal as well as interests, fees, and
costs.  National City Bank and Duke Energy have been granted summary
judgment in this action and both obtained judgment.


21





In March,
2006, National City Bank commenced an action commenced an action in Pike County
Court, Kentucky against Quest, Gwenco, and Quest Energy, seeking to be adjudged
a lien on certain real and personal property of Gwenco pursuant to the
aforementioned judgment and that said real and personal property be sold to
satisfy the aforesaid lien, and that the liens of National City Bank attach to
the proceeds of the sale.  In July, 2006, National City Bank of
Kentucky sold its right, title, and interest in and to the various judgments,
judgment liens, security interests, and lines of credit to a third party
investor.  The third party investor has agreed to forbear on further
collection, enforcement, and foreclosure with respect to this indebtedness, in exchange for which
Gwenco agreed to grant the investor a royalty on gross profits of
Gwenco.  This foreclosure action was stayed against Gwenco as a result
of Gwenco’s Chapter 11 filing.





On or
about August 25, 2004, Valley Personnel Services, Inc. commenced an action in
the Circuit Court of Mingo County, West Virginia against Quest’s indirect
wholly-owned subsidiaries, D&D Contracting, Inc. and Quest Energy, Ltd. for
damages in the amount of approximately $150,000, plus pre and post judgment
interest as provided by law, costs, and fees.  This action was stayed
against Gwenco as a result of Gwenco’s Chapter 11 filing.





The
Federal Insurance Company, the insurer for Community Trust Bank, commenced an
action in Pike County Court, Kentucky against Quest Energy for subrogation of
monies it has paid to the bank and repayment of deductibles by Community Trust
as a part of an alleged criminal scheme and conspiracy by Mr. Runyon, Ms.
Holbrook, Mr. Stollings, and Mr. Wheeler.  The insurer alleged that
former employees or associates of Quest Energy, including Mr. Runyon and Mr.
Wheeler, were primarily involved in the alleged scheme, that Quest Energy is
accordingly responsible for the actions of these former employees and
associates, and that Quest Energy obtained a substantial material benefit as a
result of this alleged scheme.  Quest Energy has denied these
allegations, that it had any involvement with or responsibility for any of the
actions alleged by the insurer, and it further denies that it has benefited from
any such alleged scheme.  Further, Quest Energy filed a counterclaim
against the Federal Insurance Company and Community Trust contending that the
negligent actions and inactions by Community Trust caused severe damage and loss
to Quest Energy and Quest.  The court granted Community Trust’s motion
to dismiss the counterclaim.





Mountain
Edge Personnel has commenced an action in the Circuit Court of Mingo County,
West Virginia against Quest’s now-dissolved indirect wholly-owned subsidiary, J.
Taylor Mining, for damages in the amount of approximately
$115,000, plus pre and post judgment interest as provided by law, costs, and
fees.   This matter was settled in January 2009 for payment
of approximately $25,000.





An action
has been commenced in the Circuit Court of Pike County, Kentucky against Quest
and its indirect, wholly-owned subsidiaries, Gwenco, Inc., Quest Energy, Ltd.,
and J. Taylor Mining, for unspecified damages resulting from personal injuries
suffered while working for Mountain Edge Personnel, an employee leasing agency
who leased employees to Quest’s subsidiaries.  Quest Energy is actively defending the
action.  This action was originally stayed against Gwenco as a result
of Gwenco’s Chapter 11 filing.However, in March, 2008,
the plaintiff obtained relief from stay and as a result the lawsuit has reopened
against Gwenco.





BHP, Inc. commenced an
action in the Circuit Court of Pike County, Kentucky against Quest’s indirect,
wholly-owned subsidiary, Quest Energy, Ltd., for damages resulting an alleged
failure to pay for certain equipment leases in theamount of
approximately $225,000, plus pre and post judgment interest as provided by law,
costs, and fees.  July 10, 2006, Quest Energy entered into a
settlement arrangement with BHP for the bill of sale on two pieces of equipment,
of which Quest Energy had retained possession while in default of prior lease
payments.  On October 10, 2006, the Pike County Circuit Court entered
an order enforcing this settlement agreement, and on December 19, 2006, BHP was
awarded summary judgment in the amount of $35,000 plus 8% accrued interest from
August 9, 2006.  BHP, Inc. has since repossessed the
equipment.





Christopher
Younger and Sharon Preece commenced an action in the Circuit Court of Pike
County against Quest’s indirect, wholly-owned subsidiary, Gwenco, Inc., for
damages resulting from an alleged failure to pay past royalties and other
amounts allegedly due.  The plaintiffs have obtained a default
judgment in this action in the amount of approximately $600,000, from which
Gwenco has taken appeal.  The plaintiffs then amended their complaint,
seeking to be adjudged a lien on certain real and personal property of Gwenco
pursuant to the aforementioned judgment and that said real and personal property
be sold to satisfy the aforesaid lien, and that the liens of the plaintiffs
attach to the proceeds of the sale.  This foreclosure action
was stayed against Gwenco as a result of Gwenco’s Chapter 11
filing.  In 2007, Gwenco settled the claim Sharon Preece for
$150,000.  The settlement was approved by the bankruptcy
court.


22


Item
4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.





None.




PART
II




Item
5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS




Quest’s
common stock is traded on the OTC Bulletin Board under the symbol
“QMLM.”  The following table shows the high and low bid prices for
Quest’s common stock for each quarter since January 1, 2006 as reported by the
OTC Bulletin Board.  All share prices have been adjusted to provide
for the 1-4 reverse split effected in August 2007, the 1-10 reverse split
effected in December 2007, and the 1-10 reverse stock split effected on
November 4, 2008.  Quest considers its stock to be “thinly traded” and
any reported sale prices may not be a true market-based valuation of its
stock.  Some of the bid quotations from the OTC Bulletin Board set
forth below may reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not represent actual transactions.





2008 (OTC Bulletin Board)
                  
                  High Bid
                  
                  
                  Low BidFirst
      quarter
                  
                  $
                  0.11
                  
                  
                  $
                  0.039Second
      quarter
                  
                  
                  0.75
                  
                  
                  
                  0.008Third
      quarter
                  
                  
                  0.48
                  
                  
                  
                  0.015Fourth
      quarter
                  
                  
                  0.057
                  
                  
                  
                  0.008





2007 (OTC Bulletin Board)
                      
                      High Bid
                      
                      
                      Low BidFirst
      quarter
                      
                      $
                      96.00
                      
                      
                      $
                      11.20Second
      quarter
                      
                      
                      29.6
                      
                      
                      
                      18.80Third
      quarter
                      
                      
                      20.80
                      
                      
                      
                      5.10Fourth
      quarter
                      
                      
                      45.00
                      
                      
                      
                      0.10





As of
March 31, 2009, there were approximately 520 record holders of Quest’s common
stock.





Quest has
not paid any cash dividends since its inception and does not contemplate paying
dividends in the foreseeable future.  It is anticipated that earnings,
if any, will be retained for the operation of its business.





Shares
eligible for future sale could depress the price of Quest’s common stock, thus
lowering the value of your investment.  Sales of substantial amounts
of Quest’s common stock, or the perception that such sales could occur, could
adversely affect prevailing market prices for shares of Quest’s common
stock.





Quest’s
revenues and operating results may fluctuate significantly from quarter to
quarter, which can lead to significant volatility in the price and volume of its
stock.  In addition, stock markets have experienced extreme price and
volume volatility in recent years.  This volatility has had a
substantial effect on the market prices of securities of many smaller public
companies for reasons unrelated or disproportionate to the operating performance
of the specific companies.  These broad market fluctuations may
adversely affect the market price of Quest’s common stock.





Recent
Sales of Unregistered Securities





None.


23


Item
6.  SELECTED FINANCIAL DATA




We are a
smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are
not required to provide the information required under this
item.


24


Item
7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS





The
following discussion and analysis should be read in conjunction with Quest’s
financial statements and related notes included in this report.  This
report contains “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995.  The statements contained in
this report that are not historic in nature, particularly those that utilize
terminology such as “may,” “will,” “should,” “expects,” “anticipates,”
“estimates,” “believes,” or “plans” or comparable terminology are
forward-looking statements based on current expectations and
assumptions.  Various risks and uncertainties could cause actual
results to differ materially from those expressed in forward-looking
statements.  Please refer to the Risk Factors section of this report
on page 4 for a description of these risks and uncertainties.





All
forward-looking statements in this document are based on information currently
available to Quest as of the date of this report, and Quest assumes no
obligation to update any forward-looking statements.  Forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results to differ materially from any future results,
performance or achievements expressed or implied by such forward-looking
statements.





General





Quest
Minerals & Mining Corp. acquires and operates energy and mineral related
properties in the southeastern part of the United States.  Quest
focuses its efforts on properties that produce quality compliance blend
coal.





Quest is
a holding company for Quest Minerals & Mining, Ltd., a Nevada corporation,
or Quest (Nevada), which in turn is a holding company for Quest Energy, Ltd., a
Kentucky corporation, or Quest Energy, and of Gwenco, Inc., a Kentucky
corporation, or Gwenco.  Quest Energy is the parent corporation of E-Z
Mining Co., Inc, a Kentucky corporation, or E-Z Mining, and of Quest Marine
Terminal, Ltd., a Kentucky corporation, or Quest Marine.





Gwenco
leases over 700 acres of coal mines, with approximately 12,999,000 tons of coal
in place in six seams.  In 2004, Gwenco had reopened Gwenco’s two
former drift mines at Pond Creek and Lower Cedar Grove, and had begun production
at the Pond Creek seam.  This seam of high quality compliance coal is
located at Slater’s Branch, South Williamson, Kentucky.





Fiscal
2008 and First Quarter 2009 Developments





Logan & Kanawha Purchase
Order.  In April 2008, our wholly owned subsidiary, Gwenco,
Inc., received a purchase order for up to $8 million of coal through December
2008 from Logan & Kanawha Co., LLC, a West Virginia company.  We
recognized approximately $746,000 in gross revenues for delivery of coal under
this purchase order in fiscal 2008.  However, due to economic
conditions, this purchase order was not renewed in 2009.  Quest has since
signed a new contract for the sale of coal with a different
customer.





Rehabilitation and Reopening of Pond
Creek Mine.  In January 2007, Gwenco received a permit from the
Kentucky Department of Natural Resources to conduct coal mining at its Pond
Creed mine.  In February 2007, Gwenco’s engineering firm, Alchemy
Engineering of Prestonburg, Kentucky, completed one and five year mine plan and
maps required by the Kentucky Department of Mines and Minerals in connection
with the permit to conduct coal mining at Pond Creek.  Gwenco had
retained General Mining, LLC of Wallins, Kentucky to rehabilitate the Pond Creek
mine in February 2007 and further retained General Mining to conduct mining
operations at Pond Creek in March 2007.  The company completed its
initial rehabilitation of the Pond Creek mine, recommenced mining operations,
and began shipping commercial coal for sale in May 2007.  The company
completed all rehabilitation the week of July 30, 2007.  In January
2008, we retained White Star Mining to conduct all mining and rehabilitation
operations at Pond Creek.  White Star retained all necessary permits
to being mining operations in February 2008 and completed all necessary
additional rehabilitation thereafter.  We resumed mining operations in
July 2008.


25


March 2008
Financing.  On March 11, 2008, we signed a 15% per annum
promissory note with a third party lender for $75,000 due on March 10,
2009.  The note is convertible at the option of the holder at a
conversion price of 50% of the average of the three lowest per share market
values during the ten (10) trading days immediately preceding a conversion
date.  The holder may not convert any outstanding principal amount of
this note or accrued and unpaid interest thereon to the extent such conversion
would result in the holder beneficially owning in excess of 4.999% of the then
issued and outstanding common shares of the Company.





Gwenco, Inc. Chapter 11
Reorganization.On March 2, 2007,
Quest’s wholly owned subsidiary, Gwenco, Inc., filed a voluntary petition for
reorganization under Chapter 11 of .the U.S. Bankruptcy Code with the United
States Bankruptcy Court for the Eastern District of
Kentucky.  Management felt this was a necessary step to further the
company’s financial restructuring initiative and to protect Gwenco’s assets from
claims, debts, judgments, foreclosures, and forfeitures of those creditors and
stakeholders with whom both Quest and Gwenco were unable to negotiate
restructured agreements.  The company is currently overseeing Gwenco’s
operations as a debtor in possession, subject to court approval of matters
outside the ordinary course of business.  Gwenco is currently seeking
court approval for debtor in possession financing from holders of Gwenco’s
existing debt obligations in order to fund operating expenses.  The
company intends to continue its mining operations at Pond Creek mine at Slater’s
Branch while this matter is completed.  Under Chapter 11, claims
against Gwenco in existence prior to the filing of the petitions for
reorganization relief under the federal bankruptcy laws are stayed while Gwenco
is in bankruptcy.On


August 3,
2007, the Bankruptcy Court approved Gwenco's request for debtor-in-possession
financing in an amount of up to $2,000,000.  Gwenco has submitted a
preliminary plan of reorganization to the court and the creditors for approval,
and the court had set August 19, 2008 for the hearing on confirmation of the
plan of reorganization. At the company's request, the court has continued the
confirmation hearing to June 2009 to allow the company to continue negotiating
the terms of the plan of reorganization with the creditors. Although there can
be no assurance that an amended plan of reorganization will be confirmed, the
company believes it will successfully negotiate a plan of reorganization with
its creditors and that the plan of reorganization will be confirmed at the
December hearing. If the bankruptcy court rejects Gwenco's petition for
bankruptcy under Chapter 11, we would be have a material impact as would lose
all of its working assets and have only unpaid liabilities. Accordingly, the
court could convert Gwenco's petition to Chapter 7 and liquidate all of Gwenco's
assets. In addition, we might be forced to file for protection under Chapter 11
as we are the primary guarantor on a number of Gwenco's contracts.





August 2008 Financing. On
August 14, 2008, the Company entered into a Securities Purchase and Royalty
Agreement with an unrelated third party pursuant to which the Company issued an
8% $400,000 convertible promissory note and a three year royalty on future coal
sales. The note is due on July 23, 2010 and is convertible into shares of our
common stock at a conversion price of sixty percent (60%) of the average of the
five (5) lowest per share market value during the ten (10) trading days
immediately preceding a conversion date. The proceeds will be used for working
capital and general corporate purposes. The holder may not convert any
outstanding principal amount of this note or accrued and unpaid interest thereon
to the extent such conversion would result in the holder beneficially owning in
excess of 4.999% of the then issued and outstanding common shares of the
Company. The royalty is based on sliding scale coal sale prices received by the
Company, not to exceed $0.75 per ton.





Business
Development of Quest





Quest
Minerals (Nevada), was organized on November 19, 2003 to acquire and operate
privately held coal mining companies in the southeast United
States.  On January 1, 2004, Quest Minerals (Nevada) acquired E-Z
Mining Co., Inc.  On February 9, 2004, Quest Minerals (Nevada)
completed a “reverse merger” with Tillman International, Inc., or Tillman, a
publicly-traded shell corporation and a fully reporting company registered under
the Securities Exchange Act of 1934.  On April 8, 2004, Tillman
changed its name to “Quest Minerals & Mining Corp.”





E-Z Mining
Acquisition.On January 1, 2004, Quest Minerals (Nevada)
acquired E-Z Mining pursuant to a stock purchase agreement whereby Quest Energy
acquired 100% of the outstanding shares of capital stock of E-Z
Mining.  Under the stock purchase agreement, Quest Minerals (Nevada)
issued 2,000,000 shares of its Series A convertible preferred stock and 23,000
shares of its common stock to the stockholders of E-Z Mining in exchange for all
of the outstanding shares of capital stock of E-Z Mining.


26


Each
share of Quest Minerals (Nevada) Series A preferred stock is now convertible
into a maximum of five (5) shares of Quest common stock, or such lesser shares
as determined by dividing $3.00 by the average closing bid price of one share of
Quest common stock during the ten trading days preceding actual receipt of a
notice of conversion, subject to proportional adjustment for stock-splits, stock
dividends, recapitalizations, and subsequent dilutive issuances of common
stock.  The Series A preferred stock is convertible at the option of
the holder.  The holders of the Series A preferred stock shall be
entitled to receive cumulative dividends at the rate of $0.0001 per share per
annum in preference to the holders of common stock.  The holders of
the Series A preferred stock shall also be entitled to receive, upon
liquidation, an amount equal to $3.00 per share for the Series A preferred stock
plus all declared and unpaid dividends, in preference to the holders of the
common stock.  After March 31, 2004, Quest has the option of redeeming
the Series A preferred stock at a price equal to $3.00 per share for the Series
A preferred stock plus all declared and unpaid dividends.  The Series
A Preferred Stock has no voting rights.  As of June 9, 2005, 1,546,667
shares of the Series A preferred stock had been converted into an aggregate of
2,004,689 shares of Quest common stock.





On
November 27, 2007 Quest Minerals (Nevada) made effective; and on December 19,
2007 filed a Certificate of Amendment to provide for a reduced conversion price
set forth as such that (1) Each share of Series A Preferred Stock shall be
convertible at any time into that number of shares of Quest common stock as
determined by multiplying each share of Series A Preferred Stock by a fraction:
the numerator of which is $3.00 and the denominator is equal to the greater of
(i) 0.001 or (ii) 40% of closing price per share of common stock.  A
holder of Series A Preferred Stock may not convert his shares to the extent that
such conversion would result in the Holder, together with any affiliate thereof,
beneficially owning, pursuant to Section 13(d) of the Securities Exchange of
1934, in excess of 4.999% of the then issued and outstanding common stock of the
company.  The provisions of this section may be waived by a holder
upon not less than 61 days prior notice to Quest.  As of the twelve
months ended December 31, 2007, 5,467 shares have been converted into 3,400,000
shares.





Reverse
Merger.Quest was incorporated on November 21, 1985 in the
State of Utah under the name “Sabre, Inc.”  It subsequently changed
its name to Tillman International, Inc., or Tillman.  On February 9,
2004, Tillman acquired 100% of the outstanding common stock of Quest Minerals
(Nevada) pursuant to a securities purchase agreement and plan of
reorganization.  Under the plan of reorganization, Tillman issued
20,700,000 shares of its common stock to the stockholders of Quest Minerals
(Nevada) in exchange for all of the outstanding shares of common stock of Quest
Minerals (Nevada).  In addition, Tillman agreed to issue to the
stockholders of Quest Minerals (Nevada) an additional 1,800,000 shares of its
common stock upon completion of an amendment to its articles of incorporation to
increase the authorized common stock of Tillman to 250,000,000
shares.  Pursuant to the plan of reorganization, 22,464,358 shares of
Tillman common stock held by Silvestre Hutchinson, the former President of
Tillman and one of its former directors, were cancelled.  Upon the
completion of the reorganization, William R. Wheeler and Eugene Chiaramonte,
Jr., the former directors of Quest Minerals (Nevada), were appointed as
directors of Tillman.  On April 8, 2004, Tillman amended its articles
of incorporation to change its name to “Quest Minerals & Mining
Corp.”  The additional 1,800,000 shares of Quest common stock were
issued in May 2004.





Gwenco
Acquisition.  EffectiveApril 28, 2004, Quest
Minerals (Nevada) acquired 100% of the outstanding capital stock of Gwenco in
exchange for 1,600,000 shares of Series B preferred stock of Quest Minerals
(Nevada) and the assumption of up to $1,700,000 in debt.  Each share
of Series B preferred stock carries a liquidation preference of $2.50 per
share.  In addition, each share of Series B Preferred Stock is
convertible into one share of Quest common stock.  After the
acquisition, the parties agreed to a post-closing adjustment to the purchase
price to adjust for the liabilities of Gwenco exceeding
$1,700,000.  As a result of this adjustment, the number of shares of
Series B preferred stock issued to the former stockholders of Gwenco was reduced
to 1,386,275.  On November 1, 2004, 1,000,000 shares of the Series B
preferred stock were converted into 1,000,000 shares of Quest common
stock.  In connection with this acquisition, Quest appointed Albert
Anderson, the former principal stockholder of Gwenco, to Quest’s board of
directors.





On March
24, 2005, the board of directors asked Albert Anderson to resign as a director
of Quest, and on April 4, 2005, Mr. Anderson submitted his
resignation.  In connection with his resignation, Mr. Anderson alleged
that Quest has defaulted under the stock purchase agreement by and between
Quest, Gwenco, Inc., and the former stockholders of Gwenco, which includes Mr.
Anderson.  Quest has denied Mr. Anderson’s allegations, believes that
the allegations are baseless and without merit, and further believes that it has
several claims against Mr. Anderson which it could assert.


27


In or
about May, 2004, National City Bank of Kentucky commenced an action in Boyd
County Court, Kentucky against Gwenco, Inc. and Albert Anderson for breach of
various promissory notes issued by Gwenco.  Duke Energy Merchants and
First Sentry Bank were joined in the action.  National City Bank and
Duke Energy are collectively seeking approximately $1,100,000 in principal as
well as interests, fees, and costs.  National City Bank and Duke
Energy have been granted summary judgment in this action.  National City Bank has
obtained judgment in that action in the amount of approximately
$340,000.





In that action, Anderson
has filed a third-party complaint against Quest (Nevada) and Taylor Mining, two
of Quest’s subsidiaries, for breach of contract, fraud in the inducement, breach
of the covenant of good faith and fair dealing, unjust enrichment, conversion,
and breach of fiduciary duties.On July 27, 2006, Quest
settled the third party complaint with Anderson.  As part of the
settlement, Gwenco received mining permit renewal and transfer documentation
which Gwenco is required to obtain in order to recommence mining operations at
its Pond Creek mine at Slater’s Branch, Kentucky.  Further, Anderson
agreed to provide all reasonable cooperation in recommencing mining operations
at the Slater’s Branch mine.  The parties also agreed to terminate all
remaining rights, duties, and obligations under the original stock purchase
agreement entered into in connection with the acquisition of Gwenco by
Quest.  Quest made a one-time cash payment of $75,000 and issued
3,500,000 shares of common stock, subject to a lock-up/leak out agreement, to
Anderson, upon conversion of his Series B Preferred Stock, the terms of which
were amended under the settlement agreement.  Quest also granted
Anderson a sliding scale royalty on coal sales.  The parties mutually
dismissed their respective counter-claims against each other in the civil action
pending in Boyd County Court, Kentucky.





Critical
Accounting Policies





The
discussion and analysis of Quest’s financial conditions and results of
operations is based upon Quest’s consolidated financial statements, which have
been prepared in accordance with generally accepted accounting principles in the
United States.  The preparation of financial statements requires
managers to make estimates and disclosures on the date of the financial
statements.  On an on-going basis, Quest evaluates its estimates,
including, but not limited to, those related to revenue
recognition.  It uses authoritative pronouncements, historical
experience, and other assumptions as the basis for making
judgments.  Actual results could differ from those
estimates.  Quest believes the following critical accounting policies
affect its more significant judgments and estimates in the preparation of our
consolidated financial statements.





Mineral
Interests





The
purchase acquisition costs of mineral properties are deferred until the
properties are placed into production, sold or abandoned.  These
deferred costs will be amortized on the unit-of-production basis over the
estimated useful life of the properties following the commencement of production
or written-off if the properties are sold, allowed to lapse or
abandoned.





Mineral
property acquisition costs include any cash consideration and the fair market
value of common shares and preferred shares, based on the trading price of the
shares, or, if no trading price exists, on other indicia of fair market value,
issued for mineral property interests, pursuant to the terms of the agreement or
based upon an independent appraisal.





Administrative
expenditures are expensed in the year incurred.





Coal
Acquisition Costs





The costs
to obtain coal lease rights are capitalized and amortized primarily by the
units-of-production method over the estimated recoverable
reserves.  Amortization occurs either as Quest mines on the property
or as others mine on the property through subleasing transactions.





Rights to
leased coal lands are often acquired through royalty payments.  As
mining occurs on these leases, the accrued royalty is charged to cost of coal
sales.


Mining
Acquisition Costs





The costs
to obtain any interest in third-party mining operations are expensed unless
significantly proven reserves can be established for the entity.  At
that point, capitalization would occur.




28




Mining
Equipment





Mining
equipment is recorded at cost.  Expenditures that extend the useful
lives of existing plant and equipment or increase the productivity of the asset
are capitalized.  Mining equipment is depreciated principally on the
straight-line method over the estimated useful lives of the assets, which range
from three to 15 years.





Deferred
Mine Equipment





Costs of
developing new mines or significantly expanding the capacity of existing mines
are capitalized and amortized using the units-of-production method over the
estimated recoverable reserves that are associated with the property being
benefited.





Asset
Impairment





If facts
and circumstances suggest that a long-lived asset may be impaired, the carrying
value is reviewed.  If the review indicates that the value of the
asset will not be recoverable, as determined based on projected undiscounted
cash flows related to the asset over its remaining life, then the carrying value
of the asset is reduced to its estimated fair value.





Revenue
Recognition





Coal
sales revenues are sales to customers of coal produced at Quest’s
operations.  Quest recognizes revenue from coal sales at the time
title passes to the customer.





Income
Taxes





Quest
provides for the tax effects of transactions reported in the financial
statements.  The provision, if any, consists of taxes currently due
plus deferred taxes related primarily to differences between the basis of assets
and liabilities for financial and income tax reporting.  The deferred
tax assets and liabilities, if any, represent the future tax return consequences
of those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled.  As of the year ended
December 31, 2008, Quest had no material current tax liability, deferred tax
assets, or liabilities to impact on its financial position because the deferred
tax asset related to Quest’s net operating loss carry forward was fully offset
by a valuation allowance.  However, Quest has not filed its corporate
income tax returns since 2002.





Fair
Value





Quest’s
financial instruments, as defined by SFAS No. 107, “Disclosure about Fair Value
of Financial Instruments”, include cash, advances to affiliate, trade accounts
receivable, investment in securities available-for-sale, restricted cash,
accounts payable and accrued expenses and short-term borrowings.  All
instruments other than the investment in securities available-for-sale are
accounted for on a historical cost basis, which, due to the short maturity of
these financial instruments, approximates fair value as at December 31,
2006.





Earnings
loss per share





Quest
adopted SFAS No. 128, which provides for the calculation of “basic” and
“diluted” earnings per share.  Basic earnings per share includes no
dilution and is computed by dividing net income available to common stockholders
by the weighted average common shares outstanding for the
period.  Diluted earnings per share reflect the potential dilution of
securities that could share in the earnings similar to fully diluted earnings
per share.





Stock
Split





All
references to common stock and per share data have been retroactively restated
to account for the 1 for 4 reverse stock split effectuated in August, 2007,
the 1 for 10 reverse stock split effectuated in December 2007, and the 1 for 10
reverse stock split effectuated in November 2008.


29




Other
Recent Accounting Pronouncements





Quest
does not expect that the adoption of other recent pronouncements from the Public
Company Oversight Board to have any impact on its financial
statements.





Results
of Operations





Basis
of Presentation





The
following table sets forth, for the periods indicated, certain audited selected
financial data:





Year
      EndedDecember 31,2008
                    
                    
                    2007(restated)Revenues
                    
                    $
                    746,767
                    
                    
                    $
                    153,213Production
      costs
                    
                    
                    1,333,778
                    
                    
                    
                    577,094Selling,
      general and administrative
                    
                    
                    2,567,082
                    
                    
                    
                    1,143,017Depreciation
      and amortization
                    
                    
                    229,744
                    
                    
                    
                    95,690Operating
      income (loss)
                    
                    
                    (3,383,837
                    )
                    
                    
                    (1,662,558
                    )





Comparison
of the year ended December 31, 2008 and 2007





Net sales. Revenues for Quest
were $746,767 for the year ended December 31, 2008, as compared to $153,213 for
the year ended December 31, 2007.  In January 2008, we retained White
Star Mining to conduct all mining operations at Pond Creek. As a result of this
change in mine operators, we had to cease mining operations to obtain new
permitting and to conduct further rehabilitation of the mine. White Star
retained all necessary permits to being mining operations in February 2008, and
we resumed mining operations in July 2008. We generated revenues of $746,767
after reopening the mine in July 2008. In the second quarter of 2007, we resumed
mining operations at our Pond Creek Mine at Slater's Branch and generated
revenues of $153,213 after resuming mining operations at in 2007.





Production
costs.  Production costs were $1,333,778 for the year ended
December 31, 2008 as compared to $577,094 for the year ended December 31,
2007.  Our increase in production costs is due to our increased level
of mining operations in 2008 versus 2007.





Selling, general, and
administrative.  Selling, general and administrative expenses
increased to $2,567,082 for the year ended December 31, 2008, from $1,143,017
for the year ended December 31, 2007.   The selling, general, and
administrative expenses result primarily the issuance of stock options valued
$582,500 pursuant to FAS 123(R) during the year ended December 31, 2008, as
opposed to stock options being issued in 2007.  In addition, the
increase in selling, general, and administrative expenses resulted from an
increase of compensation expense from the issuance of shares of common stock for
services of $1,093,253 for the year ended December 31, 2008 from $741,506 for
the year ended December 31, 2007.


30


Depreciation and
amortization.  Depreciation expense increased to $229,744 for
the year ended December 31, 2008, from $95,690 for the year ended December 31,
2007.  Quest’s depreciation expense increased due to an adjustment to
equipment due to a re-appraisal of the equipment.  In addition, Quest
has revised its estimate of the useful life of this equipment fifteen years to
five years, which accelerates the depreciation costs. Quest has also put
additional equipment into service in the 2008 fiscal year.





Operating
loss.  Quest incurred an operating loss of $3,383,837for the year
ended December 31, 2008, compared to an operating loss of $1,662,558 for the
year ended December 31, 2007.   It had higher operating losses in
2008 as compared to 2007 primarily from increase in production costs associated
with the reopening of the mines, increases in selling, general, and
administrative expenses due to increased non-cash expenses from the issuance of
stock and stock options as compensation, and increased depreciation and
amortization.





Interest.Interest
expense decreased to $637,320 for the year
ended December 31, 2008, from $2,811,221 for the year ended December 31,
2007.  Quest’s interest expense results from various outstanding debt
obligations, including obligations that Quest assumed in connection with the
acquisition of Gwenco and various notes issued in various financings since
October 2004.  In addition, it includes expense associated with the
issuance of securities with beneficial conversion features.  The
decrease results primarily from a decrease in beneficial conversion expense to
$244,850 in 2008 from $2,409,973 in 2007.





Loss on sale of
assets.  In 2008, Quest incurred a loss of $73,205 from the
sale of certain assets.





Loan settlement & extinguishment
costs.  Quest recorded a gain of $49,743 on loss settlement
& extinguishment costs in the year ended December 31, 2008, as opposed to a
gain of $178,261 in the year ended December 31, 2007.  These gains
result from negotiated resolution of outstanding convertible debt
securities.





Loss on
derivatives.  In the year ended December 31, 2007, Quest
recognized a loss of $5,246,188 from derivatives.  During its year
ended December 31, 2006, Quest had recognized derivative liability upon issuance
of certain outstanding convertible notes and warrants in accordance with SFAS
133 and EITF 00-19.  In particular, with respect to each note and
warrant, Quest compared (a) the number of then authorized but unissued shares,
less the maximum number of shares that could be required to be delivered during
the contract period under existing commitments (i.e. the other convertible notes
and warrants) with (b) the maximum number of shares that could be required to be
delivered under share settlement (either net-share or physical) of the contract
at issue.  Since the amount in (b) exceeded the amount in (a), and because
Quest was required to obtain shareholder approval to increase its authorized
common shares or otherwise effect a recapitalization in order to net-share or
physically settle all contracts, Quest determined that share settlement was not
within its control, and accordingly, derivative liability classification was
required.




On
February 9, 2007, Quest amended its articles of incorporation to increase its
authorized common stock to 975,000,000 shares, and to authorize its board of
directors to effectuate a stock split or reverse stock split without stockholder
approval.  As a result of this amendment, Quest was no longer required
to obtain shareholder approval to effect a recapitalization in order to
net-share or physically settle any of its convertible notes or warrants, and
accordingly, obtained full control of share settlement of these convertible
notes and warrants.  As a result, Quest reclassified the conversion
options on the convertible notes and warrants as permanent equity.  In
connection with that reclassification, Quest recorded a loss of $5,246,188 as a
result of the change in value of the derivative liability which occurred between
December 31, 2006 and February 9, 2007.





Liquidity
and Capital Resources





Quest has
financed its operations, acquisitions, debt service, and capital requirements
through cash flows generated from operations and through issuance of debt and
equity securities.  Its working capital deficit at December 31, 2008
was $8,226,110.  It
had cash of $13,439 as of December 31, 2008.





Quest
used $1,051,475 of net cash in operating activities for the year ended December
31, 2008, compared to using $794,218in the year
ended December 31, 2007.  Cash used in operating activities for the
year ended December 31, 2008 was mainly due to Quest’s net loss of
$4,044,619.  This was offset by non-cash expenses of $229,744 in
depreciation and amortization, $73,205 on a loss on asset write-off, $66,212 of
stock issued for interest, $1,093,253 of stock issued for services, $582,500 of
stock options issued to employees, $244,850 of amortized discount on convertible
notes, $35,578 of decrease in prepaid expenses, and an increase of accounts
payable and accrued expenses of $781,828.


31


Net cash
flows used in investing activities was $528,272for the
year ended December 31, 2008, as compared to $85,149 of net cash flows used in
investing activities for the comparable period in 2007.  The net cash
flows used in investing activities in 2008 resulted from $339,611 in mine
development costs, $175,633 in equipment purchases, $11,229 in restricted cash,
and $1,799 in security deposits.





Net cash
flows provided by financing activities were $1,588,722 for the year ended
December 31, 2008, compared to net cash flows provided by financing activities
of $883,779 for the year ended December 31, 2007.  This increase in
net cash provided by financing activities is due to Quest’s borrowings of
$1,636,430, offset by repayment of $47,708 of debt.





Financings
and Debt Restructurings





From December 2005 through January
2006, Quest issued 1,500,000 shares of its common stock in an offshore private
placement at $0.20 per share. In addition, Quest also issued a convertible
secured promissory note in the principal amount of $335,000. The note was due on
December 8, 2006, bore interest at a rate of eight percent (8%), and was
convertible into Quest common shares at an initial conversion price of $0.20 per
share, subject to adjustment.  In January, 2007, Quest and these
investors entered into an exchange agreement, pursuant to which the shares and
the note were exchanged for new notes in the aggregate principal amount of
$635,000. The notes are due on April 1, 2008, with an annual interest rate of
eight percent (8%). The notes are convertible into the Company's common shares
at an initial conversion price equal to the greater of (a) $0.02 per share, and
(b) 50% of the average market price during the three trading days immediately
preceding any conversion date.





On April 5, 2006, Quest issued an
aggregate of 1.25 units at a price of $100,000 per unit. Each unit consists of a
convertible promissory note in the principal amount of $100,000 and warrants to
purchase shares of Quest common stock at an exercise price of $0.84 per share.
The unit notes are due on July 5, 2007. The notes bear interest at a rate of six
percent (6%) and are convertible into Quest common shares at an initial
conversion price of $0.42 per share. On July 27, 2007, an investor holding a
unit note in the amount of $25,000 exchanged the note for 836,925 shares of our
common stock.





On May 16, 2005, Quest entered into a
credit agreement with a third party lender in which $245,000 was issued as a 10%
note due August 19, 2005. Additionally, the lender was issued 2,565,007
warrants. The loans subject to the credit agreement are secured by certain
assets of Quest. The warrants have an exercise price of $0.10 per share, subject
to adjustment, and expire on May 31, 2007. On February 14, 2006, in connection
with a settlement agreement with the lender, Quest made a payment of $264,000
and issued an amended and restated 10% note in the amount of $100,000. The note
covered accrued interest and additional legal fees. The amended and restated
note is convertible into Quest's common stock at a rate of $0.40 per share and
was due February 22, 2007. Quest amended and
restated the warrant issuance to reflect a $0.20 per share exercise price. Quest
also issued 1,250,000 new warrants exercisable at $0.40 per share as part of a
settlement agreement with one of its lenders. They are due to expire in 2009. In
June, 2007, Quest entered into an exchange agreement with the third party
lender, under which the holder exchanged the $100,000 note and the remaining
warrants held by such lender for a new convertible promissory note in the
aggregate principal amount of $100,000. The new note is due on June 6, 2008,
with an annual interest rate of seven percent (7%), and is convertible into
Quest's common shares at a conversion price of 70% of the average of the 5
closing bid prices of the common stock immediately preceding such conversion
date.





A third-party lender advances
operational funding to Quest. Since there has been no formal agreement regarding
the balance owed, Quest accrues a 5% annual interest on the principal with the
intent that a mutual arrangement will be resolved between both
parties.





On August 15, 2007, the U.S. Bankruptcy
Court approved a DIP Financing Motion authorizing the Company's wholly owned
subsidiary, Gwenco, Inc., which is currently in Chapter 11 reorganization
proceedings, to borrow up to $2,000,000 in post-petition debt from a
pre-petition creditor pursuant to a Debtor-In -Possession loan agreement and
promissory note between Gwenco and the lender dated June 29, 2007. Additionally,
the Court approved prior budgeted advances from July of up to $350,000, which,
in turn, adjusted the total facility to $1,700,000. The loan advances will carry
a 17% interest rate per annum and mature on July 31, 2008.


32


On March
11, 2008, the Company signed a 15% per annum promissory note with a third party
lender for $75,000 due on March 10, 2009. The note is convertible at the option
of the holder at a conversion price of 50% of the average of the three lowest
per share market values during the ten (10) trading days immediately preceding a
conversion date. The holder may not convert any outstanding principal amount of
this note or accrued and unpaid interest thereon to the extent such conversion
would result in the holder beneficially owning in excess of 4.999% of the then
issued and outstanding common shares of the Company.





On
August 14, 2008, the Company issued an 8% $400,000 convertible promissory note
to a single accredited investor. The note is due on July 23, 2010 and is
convertible into shares of our common stock at a conversion price of sixty
percent (60%) of the average of the five (5) lowest per share market value
during the ten (10) trading days immediately preceding a conversion date. The
proceeds will be used for working capital and general corporate purposes. The
holder may not convert any outstanding principal amount of this note or accrued
and unpaid interest thereon to the extent such conversion would result in the
holder beneficially owning in excess of 4.999% of the then issued and
outstanding common shares of the Company.





Capital
Requirements





The report of Quest's independent
accountants for the fiscal year ended December 31, 2008 states that Quest
has incurred operating losses since inception and requires additional capital to
continue operations, and that these conditions raise substantial doubt about its
ability to continue as a going concern. Quest believes that, as of the date of
this report, in order to fund its plan of operations over the next 12 months, it
will need to fund its operations out of cash flows generated from operations, to
the extent such operations are resumed, and from the sale of additional
securities.





Quest is continuing to seek to fund its
capital requirements over the next 12 months from the additional sale of its
debt and equity securities. It is possible that Quest will be unable to obtain
sufficient additional capital through the sale of its securities as needed.
Quest has also obtained debtor-in-possession financing through the Gwenco
bankruptcy proceedings to fund the capital requirements of Gwenco,
Inc.





Part of Quest's growth strategy is to
acquire additional coal mining operations. Where appropriate, Quest will seek to
acquire operations located in markets where it currently operates to increase
utilization at existing facilities, thereby improving operating efficiencies and
more effectively using capital without a proportionate increase in
administrative costs. Quest does not currently have binding agreements or
understandings to acquire any other companies.





Quest intends to retain any future
earnings to pay its debts, finance the expansion of its business and any
necessary capital expenditures, and for general corporate
purposes.


33


Item
8.  FINANCIAL STATEMENTS


Quest
Minerals & Mining Corp.
 
 CONTENTS
 
 PageReports
      of Independent Registered Public Accounting Firms
                    F-2Consolidated
      Balance Sheets as of December 31, 2008 and 2007
                    F-4Consolidated
      Statements of Operations for the Two Years Ended December 31,
      2008
                    F-5Consolidated
      Statement of Statement of Changes of Deficiency in Stockholders’ Equity
      for the Two Years Ended December 31, 2008
                    F-6Consolidated
      Statements of Cash Flows for the Two Years Ended December 31,
      2008
                    F-7Notes
      to Consolidated Financial Statements
                    F-8
 F-1
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
 
 To the Board of Directors and Shareholders
 Quest
Minerals & Mining Corp.
 Paterson,
New Jersey
 
 We have
audited the consolidated balance sheet of Quest Minerals & Mining Corp.
(the “Company”) and subsidiaries, as of December 31, 2008 and the
related consolidated statements of operations, changes in deficiency in
stockholders' equity and cash flows for the year ended December 31, 2008.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Quest Minerals
& Mining Corp. and subsidiaries as of December 31, 2008 and the results of
its consolidated operations and its cash flows for the year ended December 31,
2008 in conformity with accounting principles generally accepted in the United
States of America.
 
 As
discussed in Note 1 to the financial statements, the Company’s only operating
subsidiary, Gwenco, Inc. (“Gwenco”) filed on March 2, 2007, a voluntary petition
for reorganization under Chapter 11 of the U.S. Bankruptcy Code with the United
States Bankruptcy Court for the Eastern District of
Kentucky.  Management felt this was a necessary step to further the
Company’s financial restructuring initiative and to protect Gwenco’s assets from
claims, debts, judgments, foreclosures, and forfeitures of those creditors and
stakeholders with whom both the Company and Gwenco were unable to negotiate
restructured agreements.  Gwenco is currently overseeing its
operations as a debtor in possession, subject to court approval of matters
outside the ordinary course of business.  If the bankruptcy court
rejects Gwenco’s petition for bankruptcy under Chapter 11, the Company
would be materially impacted. Accordingly, the court could convert the petition
to Chapter 7 and liquidate all of Gwenco’s assets.  In addition, the
Company might be forced to file for protection under Chapter 11, as it is the
primary guarantor on a number of Gwenco’scontracts.
 
 Additionally,
the accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Notes 1 and 3
to the consolidated financial statements, the Company has suffered recurring
losses from operations and the company’s primary operating subsidiary has filed
for reorganization under Chapter 11 of U.S. Bankruptcy Code, this raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Notes 1 and 3. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
 
 /s/
      RBSM, LLPRBSM
      LLPCertified
      Public Accountants
 
 New York,
New York
 June 15,
2009
  F-2
 KEMPISTY
& COMPANY
  CERTIFIED
PUBLIC ACCOUNTANTS, P.C.
 
 15
MAIDEN LANE - SUITE 1003 - NEW YORK, NY 10038 - TEL (212) 406-7272 - FAX (212)
513-1930
 
 REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Board of
Directors
 Quest
Minerals & Mining Corp.
 
 We have
audited the accompanying consolidated balance sheet of Quest Minerals &
Mining Corp. as of December 31, 2007 and the related statements of operations,
changes in stockholders' equity (deficit) and cash flows for the year then
ended.  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on
these financial statements based on our audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required at this time, to have, nor were we engaged to perform,
an audit of its internal control over financial reporting.  Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting.  Accordingly, we
express no such opinion.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
that our audit provides a reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Quest Minerals & Mining Corp.
at December 31, 2007 and the results of its operations and cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
 
 As
discussed in Note 18, the financial statements have been restated.
 
 As
discussed in Note 16 to the consolidated financial statements, the Company is a
defendant in several lawsuits, and one of the Company's significant subsidiaries
is in bankruptcy.  An adverse ruling could result in the loss of the
Company's operating assets.  It is not possible at this time to
predict the outcome of these legal proceedings.
 
 The
accompanying financial statements have been prepared assuming that Quest
Minerals & Mining Corp. will continue as a going concern.  As more
fully described in Note 3, the Company has incurred operating losses since
inception and requires additional capital to continue
operations.  Additionally, the Company could lose all of its operating
assets through current and/or pending litigation.  These conditions
raise substantial doubt about the Company's ability to continue as a going
concern.  Management's plans regarding these matters are described in
Note 3.  The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
 
 /s/
Kempisty & Company CPAs, P.C.
 
 Kempisty
& Company
 Certified
Public Accountants PC
 New York,
New York
 April 18,
2008 (As to Note 18, June 15, 2009)
  F-3
  QUEST
MINERALS & MINING CORP.
 
 CONSOLIDATED
BALANCE SHEETS
 
 RESTATEDDecember 31,
                              
                              
                              December 31,2008
                              
                              
                              2007ASSETSCurrent
      Assets:Cash
                              
                              $
                              13,439
                              
                              
                              $
                              4,464Receivables
                              
                              
                              -
                              
                              
                              
                              -Prepaid
      Expenses
                              
                              
                              1,993
                              
                              
                              
                              37,571Total
      current assets
                              
                              
                              15,432
                              
                              
                              
                              42,035Other
      Assets:Leased
      Mineral Reserves, net (Note 2 & 5)
                              
                              
                              5,203,414
                              
                              
                              
                              5,208,524Mine
      Development, net
                              
                              
                              226,406
                              
                              
                              
                              -Equipment,
      net (Note 6)
                              
                              
                              157,271
                              
                              
                              
                              166,273Deposits
                              
                              
                              42,442
                              
                              
                              
                              40,643Deferred
      debt issue cost, net
                              
                              
                              226
                              
                              
                              
                              -Other
      receivables, net (Note 7)
                              
                              
                              -
                              
                              
                              
                              -DIP
      Cash, Restricted (Note 16)
                              
                              
                              12,395
                              
                              
                              
                              1,166DIP
      Receivables, Restricted (Note 16)
                              
                              
                              1,230
                              
                              
                              
                              -TOTAL
      ASSETS
                              
                              $
                              5,658,816
                              
                              
                              $
                              5,458,641LIABILITIES
      AND DEFICIENCY IN STOCKHOLDERS' EQUITYCurrent
      Liabilities:Accounts
      payable and accrued expenses (Note 8)
                              
                              $
                              3,478,435
                              
                              
                              $
                              2,759,434Loans
      payable-current portion, net (Note 9)
                              
                              
                              2,197,958
                              
                              
                              
                              2,880,734Bank
      loans (Note 9)
                              
                              
                              1,017,525
                              
                              
                              
                              1,017,525Related
      party loans (Note 9)
                              
                              
                              624,581
                              
                              
                              
                              672,289DIP
      Financing (Note 8)
                              
                              
                              923,043
                              
                              
                              
                              335,764TOTAL
      CURRENT LIABILITIES
                              
                              
                              8,241,542
                              
                              
                              
                              7,665,746Long-Term
      Liabilities:Loans
      payable-long term portion, net (Note 9)
                              
                              
                              751,342
                              
                              
                              
                              -TOTAL
      LIABILITIES
                              
                              
                              8,992,884
                              
                              
                              
                              7,665,746Commitments
      and Contingencies (Note 16)
                              
                              
                              -
                              
                              
                              
                              -Deficiency
      in Stockholders' equityPreferred
      stock, par value $0.001, 25,000,000 shares authorized (Note
      11)SERIES
      A - issued and outstanding 25,526 shares
                              
                              
                              26
                              
                              
                              
                              448SERIES
      B - issued and outstanding 48,284 shares
                              
                              
                              48
                              
                              
                              
                              48SERIES
      C - issued and outstanding 260,000 shares
                              
                              
                              260
                              
                              
                              
                              260Common
      stock, par value $0.001, 2,500,000,000 shares authorized (Note
      12)issued
      and outstanding 253,188,549 shares
                              
                              
                              253,189
                              
                              
                              
                              4,680Common
      stock to be issued
                              
                              
                              5,648
                              
                              
                              
                              5,648Equity
      Allowance (Note 12)
                              
                              
                              (587,500
                              )
                              
                              
                              (616,826
                              )Paid-in
      capital
                              
                              
                              63,468,868
                              
                              
                              
                              60,828,625Accumulated
      Deficit
                              
                              
                              (66,474,607
                              )
                              
                              
                              (62,429,988
                              )Total
      Deficiency in Stockholders' Equity
                              
                              
                              (3,334,068
                              )
                              
                              
                              (2,207,105
                              )TOTAL
      LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
                              
                              $
                              5,658,816
                              
                              
                              $
                              5,458,641
 
 See
Notes to Financial Statements.
  F-4
  QUEST
MINERALS & MINING CORP.
 
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 
 For
the years ended December 31, 2008 and 2007
 
 RESTATED2008
                                
                                
                                2007Coal
      revenues
                                
                                $
                                746,767
                                
                                
                                $
                                153,213Production
      costs
                                
                                
                                (1,333,778
                                )
                                
                                
                                (577,094
                                )Gross
      Profit
                                
                                
                                (587,011
                                )
                                
                                
                                (423,881
                                )Operating
      expenses:Selling,
      general and administrative
                                
                                
                                2,567,082
                                
                                
                                
                                1,143,017Depreciation
      and amortization
                                
                                
                                229,744
                                
                                
                                
                                95,690Total
      Operating Expenses
                                
                                
                                2,796,826
                                
                                
                                
                                1,238,707Net
      Loss from Operations
                                
                                
                                (3,383,837
                                )
                                
                                
                                (1,662,588
                                )Other
      Income (Expense):Loss
      on sale of assets
                                
                                
                                (73,205
                                )
                                
                                
                                -Loan
      settlement & extinguishment costs
                                
                                
                                49,743
                                
                                
                                
                                178,261Loss
      on derivatives
                                
                                
                                -
                                
                                
                                
                                (5,246,188
                                )Interest,
      net
                                
                                
                                (637,320
                                )
                                
                                
                                (2,811,221
                                )Loss
      before income taxes
                                
                                
                                (4,044,619
                                )
                                
                                
                                (9,541,736
                                )Provision
      for Income taxes
                                
                                
                                -
                                
                                
                                
                                -Net
      Loss
                                
                                $
                                (4,044,619
                                )
                                
                                $
                                (9,541,736
                                )Basic and
      diluted (loss) per common share
                                
                                $
                                (0.0557
                                )
                                
                                $
                                (4.9097
                                )Weighted
      average common shares outstanding
                                
                                
                                72,678,095
                                
                                
                                
                                1,943,437
 
 See
Notes to Financial Statements.
  F-5
  QUEST
MINERALS & MINING CORP.
 
 CONSOLIDATED
STATEMENT OF CHANGES OF DEFICIENCY IN STOCKHOLDERS’ EQUITY
 For
the years ended December 31, 2008 and 2007 (Restated)
 
 Common
      Stock
                                                                  
                                                                  
                                                                  Preferred
      Stock
                                                                  
                                                                  
                                                                  Additional
                                                                  
                                                                  
                                                                  Escrow
      /Paid-in
                                                                  
                                                                  
                                                                  AdjustmentsShares
                                                                  
                                                                  
                                                                  Amount
                                                                  
                                                                  
                                                                  Shares
                                                                  
                                                                  
                                                                  Amount
                                                                  
                                                                  
                                                                  Capital
                                                                  
                                                                  
                                                                  Common
      Stock
                                                                  
                                                                  
                                                                  Deficit
                                                                  
                                                                  
                                                                  TotalsBalances
      at January 1, 2007
                                                                  
                                                                  
                                                                  532,772
                                                                  
                                                                  
                                                                  $
                                                                  533
                                                                  
                                                                  
                                                                  
                                                                  501,617
                                                                  
                                                                  
                                                                  $
                                                                  501
                                                                  
                                                                  
                                                                  
                                                                  48,578,147
                                                                  
                                                                  
                                                                  $
                                                                  (579,717
                                                                  )
                                                                  
                                                                  $
                                                                  (52,888,252
                                                                  )
                                                                  
                                                                  $
                                                                  (4,888,788
                                                                  )Common
      Stock issued:For
      conversions of notes payable and interest expense
                                                                  
                                                                  
                                                                  2,505,444
                                                                  
                                                                  
                                                                  
                                                                  2,505
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  1,105,437
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  1,107,942For
      warrant exercises
                                                                  
                                                                  
                                                                  167
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  2,135
                                                                  
                                                                  
                                                                  
                                                                  (2,135
                                                                  )
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  -Common
      Stock issued as compensation:For
      consulting services
                                                                  
                                                                  
                                                                  427,500
                                                                  
                                                                  
                                                                  
                                                                  428
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  290,678
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  291,106For
      other services
                                                                  
                                                                  
                                                                  554,500
                                                                  
                                                                  
                                                                  
                                                                  555
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  345,846
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  346,401For
      employee benefits
                                                                  
                                                                  
                                                                  125,000
                                                                  
                                                                  
                                                                  
                                                                  125
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  103,875
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  104,000Returned
      Stock
                                                                  
                                                                  
                                                                  (15,000
                                                                  )
                                                                  
                                                                  
                                                                  (15
                                                                  )
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  6,000
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  5,985Series
      A Preferred Conversion
                                                                  
                                                                  
                                                                  340,000
                                                                  
                                                                  
                                                                  
                                                                  340
                                                                  
                                                                  
                                                                  
                                                                  (5,467
                                                                  )
                                                                  
                                                                  
                                                                  (5
                                                                  )
                                                                  
                                                                  
                                                                  (335
                                                                  )
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  -Series
      C Preferred Issued to related party
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  260,000
                                                                  
                                                                  
                                                                  
                                                                  260
                                                                  
                                                                  
                                                                  
                                                                  517,347
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  517,607Equity
      Allowance from Issuance Error - December 14, 2007
                                                                  
                                                                  
                                                                  209,471
                                                                  
                                                                  
                                                                  
                                                                  209
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  29,117
                                                                  
                                                                  
                                                                  
                                                                  (29,326
                                                                  )
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  -Reclassification of
      fair value of derivatives
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  8,487,880
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  8,487,880Beneficial
      Conversion (BCF) accruals
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  1,362,498
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  1,362,498Net
      Loss for year ended December 31, 2007
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  (9,541,736
                                                                  )
                                                                  
                                                                  
                                                                  (9,541,736
                                                                  )Balances
      at January 1, 2008
                                                                  
                                                                  
                                                                  4,679,854
                                                                  
                                                                  
                                                                  $
                                                                  4,680
                                                                  
                                                                  
                                                                  
                                                                  756,150
                                                                  
                                                                  
                                                                  $
                                                                  756
                                                                  
                                                                  
                                                                  
                                                                  60,828,625
                                                                  
                                                                  
                                                                  $
                                                                  (611,178
                                                                  )
                                                                  
                                                                  $
                                                                  (62,429,988
                                                                  )
                                                                  
                                                                  $
                                                                  (2,207,105
                                                                  )Common
      Stock issued:For
      consulting services
                                                                  
                                                                  
                                                                  300,000
                                                                  
                                                                  
                                                                  
                                                                  300
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  6,300
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  6,600For
      notes payable and interest expense
                                                                  
                                                                  
                                                                  123,472,382
                                                                  
                                                                  
                                                                  
                                                                  123,472
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  619,703
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  743,175Common
      Stock issued as compensation:For
      consulting services
                                                                  
                                                                  
                                                                  38,769,130
                                                                  
                                                                  
                                                                  
                                                                  38,769
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  758,283
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  797,052For
      other services
                                                                  
                                                                  
                                                                  16,280,000
                                                                  
                                                                  
                                                                  
                                                                  16,280
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  273,319
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  289,599Employee
      stock options compensation
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  582,500
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  582,500Series
      A Preferred Conversion
                                                                  
                                                                  
                                                                  69,896,654
                                                                  
                                                                  
                                                                  
                                                                  69,897
                                                                  
                                                                  
                                                                  
                                                                  (422,341
                                                                  )
                                                                  
                                                                  
                                                                  (422
                                                                  )
                                                                  
                                                                  
                                                                  (69,475
                                                                  )
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  -Returned
      Stock from Issuance Error - December 14, 2007
                                                                  
                                                                  
                                                                  (209,471
                                                                  )
                                                                  
                                                                  
                                                                  (209
                                                                  )
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  (29,117
                                                                  )
                                                                  
                                                                  
                                                                  29,326
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  -Convertible
      Note Discount Accruals
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  370,026
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  370,026Exchange
      conversion adjustments
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  128,704
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  128,704Net
      Loss for year ended December 31, 2008
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  (4,044,619
                                                                  )
                                                                  
                                                                  
                                                                  (4,044,619
                                                                  )Balances
      at December 31, 2008
                                                                  
                                                                  
                                                                  253,188,549
                                                                  
                                                                  
                                                                  $
                                                                  253,189
                                                                  
                                                                  
                                                                  
                                                                  333,809
                                                                  
                                                                  
                                                                  $
                                                                  334
                                                                  
                                                                  
                                                                  
                                                                  63,468,868
                                                                  
                                                                  
                                                                  $
                                                                  (581,852
                                                                  )
                                                                  
                                                                  $
                                                                  (66,474,607
                                                                  )
                                                                  
                                                                  $
                                                                  (3,334,068
                                                                  )
 
 The
accompanying notes are an integral part of these financial
statements.
  F-6




QUEST
MINERALS & MINING CORP.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 For the
years ended December 31, 2008 and 2007
  
 RESTATED2008
                                  
                                  
                                  2007Operating ActivitiesNet
      loss
                                  
                                  $
                                  (4,044,619
                                  )
                                  
                                  $
                                  (9,541,736
                                  )Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
                                  
                                  
                                  229,744
                                  
                                  
                                  
                                  95,690Loss
      on asset write off
                                  
                                  
                                  73,205Stock
      issued for interest
                                  
                                  
                                  66,212
                                  
                                  
                                  
                                  112,876Stock
      issued for services
                                  
                                  
                                  1,093,253
                                  
                                  
                                  
                                  741,506Fair
      value of vested options issued to employees
                                  
                                  
                                  582,500
                                  
                                  
                                  
                                  -Gain
      on debt extinguishments
                                  
                                  
                                  (49,743
                                  )
                                  
                                  
                                  (57,259
                                  )Change
      in fair value of derivative instruments
                                  
                                  
                                  -
                                  
                                  
                                  
                                  5,246,188Amortization
      of discount on convertible notes
                                  
                                  
                                  244,850
                                  
                                  
                                  
                                  2,409,973Amortization
      of deferred issuance costs
                                  
                                  
                                  (226
                                  )
                                  
                                  
                                  19,900Changes
      in operating assets and liabilities:Increase
      in receivables
                                  
                                  
                                  (1,230
                                  )
                                  
                                  
                                  -Decrease
      in prepaid expenses
                                  
                                  
                                  35,578
                                  
                                  
                                  
                                  33,429Increase
      in accounts payable and accrued expenses
                                  
                                  
                                  781,828
                                  
                                  
                                  
                                  145,215Decrease
      in liquidated damages payable
                                  
                                  
                                  (62,827
                                  )Net
      cash used in operating activities
                                  
                                  
                                  (1,051,475
                                  )
                                  
                                  
                                  (794,218
                                  )Investing ActivitiesMine
      development
                                  
                                  
                                  (339,611
                                  )
                                  
                                  
                                  1,991Equipment
      purchased
                                  
                                  
                                  (175,633
                                  )
                                  
                                  
                                  (83,632
                                  )Restricted
      cash
                                  
                                  
                                  (11,229
                                  )
                                  
                                  
                                  (1,166
                                  )Security
      deposits
                                  
                                  
                                  (1,799
                                  )
                                  
                                  
                                  (2,342
                                  )Net
      cash used in investing activities
                                  
                                  
                                  (528,272
                                  )
                                  
                                  
                                  (85,149
                                  )Financing  ActivitiesRepayment
      of borrowings
                                  
                                  
                                  (47,708
                                  )
                                  
                                  
                                  (411,985
                                  )Proceeds
      from DIP Financing
                                  
                                  
                                  587,280
                                  
                                  
                                  
                                  335,764Proceeds
      from borrowing
                                  
                                  
                                  1,049,150
                                  
                                  
                                  
                                  960,000Net
      cash provided by financing activities
                                  
                                  
                                  1,588,722
                                  
                                  
                                  
                                  883,779Increase
      in cash
                                  
                                  
                                  8,975
                                  
                                  
                                  
                                  4,412Cash
      at beginning of year
                                  
                                  
                                  4,464
                                  
                                  
                                  
                                  52Cash
      at end of year
                                  
                                  $
                                  13,439
                                  
                                  
                                  $
                                  4,464Supplemental Disclosures of Cash Flow
      InformationCash
      paid during the year:Interest
                                  
                                  $
                                  6,517
                                  
                                  
                                  $
                                  5,774Income
      taxes
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -Stock
      issued during the year for:Services
                                  
                                  $
                                  1,093,253
                                  
                                  
                                  $
                                  741,506Conversions
                                  
                                  $
                                  743,175
                                  
                                  
                                  $
                                  1,107,943
  F-7
 
 QUEST
MINERALS AND MINING CORP.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE 1 –
              ORGANIZATION
      & OPERATIONS
 
 Quest
Minerals & Mining Corp. (“Quest,” the “Registrant,” or the “Company”) was
incorporated in Utah on November 21, 1985.  The Company has leasehold
interests in certain properties in Eastern Kentucky, is seeking to re-commence
full coal mining operations on these properties, and is looking to acquire
additional coal properties.
 
 Quest’s
subsidiary, Gwenco, Inc. (“Gwenco”), leases over 700 acres of coal mines, with
approximately 12,999,000 tons of coal in place in six seams.  In 2004,
Gwenco had reopened Gwenco’s two former drift mines at Pond Creek and Lower
Cedar Grove, and had begun production at the Pond Creek seam.  This
seam of high quality compliance coal is located at Slater’s Branch, South
Williamson, Kentucky.
 
 On March
2, 2007, Gwenco filed a voluntary petition for reorganization under Chapter 11
of the U.S. Bankruptcy Code with the United States Bankruptcy Court for the
Eastern District of Kentucky.  Management felt this was a necessary
step to further the Company’s financial restructuring initiative and to protect
Gwenco’s assets from claims, debts, judgments, foreclosures, and forfeitures of
those creditors and stakeholders with whom both Quest and Gwenco were unable to
negotiate restructured agreements.  Gwenco is currently overseeing its
operations as a debtor in possession, subject to court approval of matters
outside the ordinary course of business.  On August 3, 2007, the
Bankruptcy Court approved Gwenco's request for debtor-in-possession financing in
an amount of up to $2,000,000 from holders of Gwenco’s existing debt obligations
in order to fund operating expenses.  Gwenco intends to continue its
mining operations at Pond Creek mine at Slater’s Branch while this matter is
completed.  Under Chapter 11, claims against Gwenco in existence prior
to the filing of the petitions for reorganization relief under the federal
bankruptcy laws are stayed while Gwenco is in bankruptcy.  Gwenco has
submitted a preliminary plan of reorganization to the court and the creditors
for approval, and the court has set June 2009 for the hearing on confirmation of
the plan of reorganization.  If the bankruptcy court rejects Gwenco's
petition for bankruptcy under Chapter 11, the Company would be material impacted
and could lose all of its working assets and have only unpaid liabilities.
Accordingly, the court could convert Gwenco's petition to Chapter 7 and
liquidate all of Gwenco's assets.  In addition, the Company might be
forced to file for protection under Chapter 11 as it is the primary guarantor on
a number of Gwenco's contracts.
 
 NOTE 2 -
              SIGNIFICANT
      ACCOUNTING POLICIES
 
 Principles
of Consolidation
 
 The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries, Quest Mineral & Mining, Ltd., Quest Energy, Ltd.,
and Gwenco, Inc. (collectively, the “Company”).  All significant
intercompany transactions and balances have been eliminated in
consolidation.
 
 Management
Estimates
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make 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.  Actual results could differ from those estimates.
Critical
estimates include amortization of intangible assets, depreciation, and the fair
value of options and warrants included in the determination of debt discounts
and share based compensation.
  Major
Customers and Suppliers
 
 The
Company had one customer who accounted for 100% of revenues in 2008 and
2007.
 
 Costs of
the Company’s two major vendors, who provided contract mining services and
trucking services, accounted for 80% and 11% , respectively, of the Company’s
production costs for the year ended December 31, 2008.
 
 Dependency
on key management
 
 The
future success or failure of the Company is dependent primarily upon the efforts
of the Company’s President, sole director, and controlling
stockholder.  The Company does not have insurance covering such
officer’s liability and term life insurance.  The Company entered into
a five-year employment contract with the President in
2005.
  F-8
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 Mineral
Interests
 
 The
purchase acquisition costs of mineral properties are deferred until the
properties are placed into production, sold or abandoned.  These
deferred costs will be amortized on the unit-of-production basis over the
estimated useful life of the properties following the commencement of production
or written-off if the properties are sold, allowed to lapse, or
abandoned.
 
 Mineral
property acquisition costs include any cash consideration and the fair market
value of common shares and preferred shares, based on the trading price of the
shares, or, if no trading price exists, on other indicia of fair market value,
issued for mineral property interests, pursuant to the terms of the agreement or
based upon an independent appraisal.
 
 Administrative
expenditures are expensed in the year incurred.
 
 Since the
Company’s continuation as a going concern is dependent upon its ability to
obtain adequate financing (see Note 3),
the carrying value of the mineral rights does not necessarily represent
liquidation value if the Company were force to sell the mineral rights in
liquidation in a liquidation proceeding under Chapter 7 of the Bankruptcy
Code.
 
 Coal
Acquisition Costs
 
 The costs
to obtain coal lease rights are capitalized and amortized primarily by the
units-of-production method over the estimated recoverable
reserves.  Amortization occurs either as the Company mines on the
property or as others mine on the property through subleasing
transactions.
 
 Rights to
leased coal lands are often acquired through royalty payments.  As
mining occurs on these leases, the accrued royalty is charged to cost of coal
sales.
 
 Mining
Acquisition Costs
 
 The costs
to obtain any interest in third-party mining operations are expensed unless
significantly proven reserves can be established for the entity.  At
that point, capitalization would occur.
 
 Mining
Equipment
 
 Mining
equipment is recorded at cost.  Expenditures that extend the useful
lives of existing plant and equipment or increase the productivity of the asset
are capitalized.  Mining equipment is depreciated principally on the
straight-line method over the estimated useful lives of the assets, which range
from 3 to 15 years.
 
 Deferred
Mine Expense
 
 Costs of
developing new mines or significantly expanding the capacity of existing mines
are capitalized and amortized using the units-of-production method over the
estimated recoverable reserves that are associated with the property being
benefited.
 
 Asset
Impairment
 
 If facts
and circumstances suggest that a long-lived asset may be impaired, the carrying
value is reviewed under the guidance of SFAS 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets,” and
pursuant to SEC Industry Guide 7.  If the review indicates that the
value of the asset will not be recoverable, as determined based on projected
undiscounted cash flows related to the asset over its remaining life, then the
carrying value of the asset is reduced to its estimated fair
value.
  F-9


QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 Revenue
Recognition
 
 Coal
sales revenues are sales to customers of coal produced at the Company’s
operations.  The Company recognizes revenue from coal sales at the
time title passes to the customer.
 
 Stock-Based
Compensation
 
 Effective
January 1, 2006, the Company began recording compensation expense associated
with stock options and other forms of equity compensation in accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 123R,Share-Based Payment, as
interpreted by SEC Staff Accounting Bulletin No. 107.  Prior to
January 1, 2006, the Company had accounted for stock options according
to the provisions of Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to
Employees, and related interpretations, and therefore no related
compensation expense was recorded for awards granted with no intrinsic
value.  The Company adopted the modified prospective transition method
provided for under SFAS No. 123R, and, consequently, has not retroactively
adjusted results from prior periods.
 
 There
were 5,000,000 options issued to the Company’s president during the year ended
December 31, 2008, and there were no options issued to employees or non-employee
directors during the year ended December 31, 2007.  As of December 31,
2008, there were 5,007,500 options issued and outstanding.  See Note
13 for details.
 
 Income
Taxes
 
 The
Company provides for the tax effects of transactions reported in the financial
statements.  The provision, if any, consists of taxes currently due
plus deferred taxes related primarily to differences between the basis of assets
and liabilities for financial and income tax reporting.  The deferred
tax assets and liabilities, if any, represent the future tax return consequences
of those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled.  As of December 31, 2008,
the Company had no material current tax liability, deferred tax assets, or
liabilities to impact on the Company’s financial position because the deferred
tax asset related to the Company’s net operating loss carry forward was fully
offset by a valuation allowance.
 
 Fair Value
  In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements.”  SFAS No. 157 defines fair value, establishes a
framework and gives guidance regarding the methods used for measuring fair
value, and expands disclosures about fair value measurements.  In
February 2008, the FASB issued FASB Staff Position 157-1, “Application of FASB Statement No.
157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address
Fair Value Measurements for Purposes of Lease Classification or Measurement
under Statement 13” (“FSP 157-1”) and FASB Staff Position 157-2, “Effective Date of FASB Statement No.
157” (“FSP 157-2”).  FSP 157-1 amends SFAS No. 157 to remove
certain leasing transactions from its scope.  FSP 157-2 delays the
effective date of SFAS No. 157 for all non-financial assets and non-financial
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually), until fiscal
years beginning after November 15, 2008.  SFAS No. 157 is effective
for financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years.  The Company
adopted SFAS No. 157 effective January 1, 2008 for all financial assets and
liabilities as required.
 
 SFAS 157
defines fair value as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. SFAS 157 requires that valuation
techniques maximize the use of observable inputs and minimize the use of
unobservable inputs. SFAS 157 also establishes a fair value hierarchy, which
prioritizes the valuation inputs into three broad levels.
 
 There are
three general valuation techniques that may be used to measure fair value, as
described below:
 
 ·
                Market
      approach – Uses prices and other relevant information generated by market
      transactions involving identical or comparable assets or
      liabilities.  Prices may be indicated by pricing guides, sale
      transactions, market trades, or other
sources;
 
 ·
                Cost
      approach – Based on the amount that currently would be required to replace
      the service capacity of an asset (replacement cost);
  and
 
 ·
                Income
      approach – Uses valuation techniques to convert future amounts to a single
      present amount based on current market expectations about the future
      amounts (includes present value techniques and option-pricing models). Net
      present value is an income approach where a stream of expected cash flows
      is discounted at an appropriate market interest
  rate.
 
 Financial
assets and liabilities are valued using either level 1 inputs based on
unadjusted quoted market prices within active markets or using level 2 inputs
based primarily on quoted prices for similar assets or liabilities in active or
inactive markets.  For certain debt, fair value is based on present
value techniques using inputs derived principally or corroborated from market
data.  Using level 3 inputs using management’s assumptions about the
assumptions market participants would utilize in pricing the asset or
liability.  In the Company’s case, this entailed assumptions used in
pricing models for note discounts.  Valuation techniques utilized to
determine fair value are consistently applied.
 
 The
Company’s notes payable are the only items that are subject to SFAS 157 as of
December 31, 2008 as follows:
 
 Notes
      Payable (level 1)
                      
                      $
                      4,726,488Convertible
      Notes Payable (level 1)
                      
                      
                      570,116Convertible
      Notes Payable (level 3)
                      
                      
                      217,842
 
 Earnings
loss per share
 
 The
Company adopted SFAS No. 128, which provides for the calculation of “basic” and
“diluted” earnings per share.  Basic earnings per share includes no
dilution and is computed by dividing net income available to common stockholders
by the weighted average common shares outstanding for the period; after
provisions for cumulative dividends on Series A preferred
stock.  Diluted earnings per share reflect the potential dilution of
securities that could share in the earnings similar to fully diluted earnings
per share.  The assumed exercise of outstanding stock options and
warrants and the conversion of convertible securities were not included in the
computation of diluted loss per share because the assumed exercises and
conversions would be anti-dilutive for the periods presented.
  F-10
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 Stock Split
 
 All
references to common stock and per share data have been retroactively restated
to the earliest period presented to account for the 1 for 4 reverse stock split
effectuated on August 17, 2007.  See Note 12 for details.
 
 All
references to common stock and per share data have been retroactively restated
once more the earliest period presented to account for the 1 for 10 reverse
stock split effectuated on December 14, 2007.  See Note 12 for
details.
 
 All
references to common stock and per share data have been retroactively restated
once more the earliest period presented to account for the 1 for 10 reverse
stock split effectuated on November 4, 2008.  See Note 12 for
details.
 
 Recently
Issued Accounting Standards
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
  In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities — Including an Amendment of FASB Statement No.
115,” which is effective for fiscal years beginning after November 15,
2007.  SFAS No. 159 is an elective standard, which permits an entity
to choose to measure many financial instruments and certain other items at fair
value at specified election dates.  Subsequent unrealized gains and
losses on items for which the fair value option has been elected will be
reported in earnings.  The Company has not elected the fair value
option for any assets or liabilities under SFAS No. 159.
 
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement
No. 133” (“SFAS No. 161”).  The new standard is intended
to improve financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity’s financial position, results of
operations and cash flows.  The new standard also improves
transparency about how and why a company uses derivative instruments and how
derivative instruments and related hedged items are accounted for under
Statement No. 133.  It is effective for financial statements
issued for fiscal years and interim periods beginning after November 15,
2008, with early application encouraged.  The Company adopted SFAS No.
161 effective January 1, 2009 and the adoption had no material impact on
the Company’s consolidated financial statements and disclosures.
 
 In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS
No. 160”).  In SFAS No. 160, the FASB established accounting and
reporting standards that require non-controlling interests to be reported as a
component of equity, changes in a parent’s ownership interest while the parent
retains its controlling interest to be accounted for as equity transactions, and
any retained non-controlling equity investment upon the deconsolidation of a
subsidiary to be initially measured at fair value.  SFAS No. 160 is
effective for annual periods beginning on or after December 15,
2008.  Retroactive application of SFAS No. 160 is
prohibited.  The Company adopted SFAS No. 160 effective
January 1, 2009 and the adoption had no material impact on the Company’s
consolidated financial statements and disclosures.
  F-11
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 In
December 2007, the FASB issued EITF No. 07-1, “Accounting for Collaborative
Arrangements” (“EITF No. 07-1”).  EITF No. 07-1 prescribes the
accounting for parties of a collaborative arrangement to present the results of
activities for the party acting as the principal on a gross basis and report any
payments received from (made to) other collaborators based on other applicable
GAAP or, in the absence of other applicable GAAP, based on analogy to
authoritative accounting literature or a reasonable, rational, and consistently
applied accounting policy election.  Further, EITF No. 07-1
clarified the determination of whether transactions within a collaborative
arrangement are part of a vendor-customer (or analogous) relationship subject to
Issue No. 01-9, “Accounting for Consideration Given by a Vendor to a
Customer.”  EITF No. 07-1 is effective for collaborative arrangements
that exist on January 1, 2009 and application is
retrospective.  The Company adopted EITF No. 07-1 effective
January 1, 2009 and the adoption had no material effect on the Company’s
financial position or results of operations.
 
 In June
2008, the FASB ratified EITF No. 07-5, “Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF No.
07-5”).  EITF No. 07-5 provides that an entity should use a two-step
approach to evaluate whether an equity-linked financial instrument (or embedded
feature) is indexed to its own stock, including evaluating the instrument’s
contingent exercise and settlement provisions.  It also clarifies the
impact of foreign currency denominated strike prices and market-based employee
stock option valuation instruments on the evaluation.  EITF No. 07-5
is effective for fiscal years beginning after December 15,
2008.  The Company adopted EITF No. 07-5 effective January 1,
2009, and the adoption had no material effect on the Company’s financial
position or results of operations.
 
 In April
2009, the Financial Accounting Standards Board (“FASB”) issued the following new
accounting standards:
 
 ·
              FASB
      Staff Position FAS No. 157-4, Determining Whether a Market
      Is Not Active and a Transaction Is Not Distressed, (“FSP FAS No.
      157-4”) provides guidelines for making fair value measurements more
      consistent with the principles presented in SFAS No. 157.  FSP
      FAS No. 157-4 provides additional authoritative guidance in determining
      whether a market is active or inactive and whether a transaction is
      distressed.  It is applicable to all assets and liabilities
      (i.e., financial and non-financial) and will require enhanced
      disclosures.
 
 ·
              FASB
      Staff Positions FAS No. 115-2, FAS 124-2, and EITF No. 99-20-2, Recognition and Presentation
      of Other-Than-Temporary Impairments , (“FSP FAS No. 115-2, FAS No.
      124-2, and EITF No. 99-20-2”) provides additional guidance to provide
      greater clarity about the credit and noncredit component of an
      other-than-temporary impairment event and to more effectively communicate
      when an other-than-temporary impairment event has
      occurred.  This FSP applies to debt
  securities.
 
 ·
              FASB
      Staff Position FAS No. 107-1 and APB No. 28-1, Interim Disclosures about Fair
      Value of Financial Instruments , (“FSP FAS No. 107-1 and APB No.
      28-1”) amends FASB Statement No. 107, Disclosures about Fair Value
      of Financial Instruments , to require disclosures about fair value
      of financial instruments in interim as well as in annual financial
      statements.  This FSP also amends APB Opinion No. 28, Interim Financial
      Reporting, to require those disclosures in all interim financial
      statements.
 
 These
standards are effective for periods ending after June 15, 2009.  The
Company is evaluating the impact that these standards will have on its
consolidated financial statements.
 
 Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not, or are not believed by
management to, have a material impact on the Company’s present or future
consolidated financial statements.
  F-12
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE 3 -
              GOING
      CONCERN
 
 The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business.  The Company incurred net operating
losses of $3,383,837 and $1,662,588 for the years ended December 31, 2008 and
2007, respectively and had a working capital deficit (current assets less
current liabilities) of $8,226,110 and $7,623,711 at December 31, 2008 and 2007,
respectively.  These factors indicate that the Company’s continuation
as a going concern is dependent upon its ability to obtain adequate
financing.
 
 The
Company will require substantial additional funds to finance its business
activities on an ongoing basis and will have a continuing long-term need to
obtain additional financing.  The Company’s future capital
requirements will depend on numerous factors including, but not limited to,
continued progress developing additional mines and increasing mine
production.  Currently, the Company is in the process of seeking
additional funding to achieve its operational goals.
 
 On March
2, 2007, Gwenco filed a voluntary petition for reorganization under Chapter 11
of the U.S. Bankruptcy Code with the United States Bankruptcy Court for the
Eastern District of Kentucky.  Management felt this was a necessary
step to further the Company’s financial restructuring initiative and to protect
Gwenco’s assets from claims, debts, judgments, foreclosures, and forfeitures of
those creditors and stakeholders with whom both Quest and Gwenco were unable to
negotiate restructured agreements.  Gwenco is currently overseeing its
operations as a debtor in possession, subject to court approval of matters
outside the ordinary course of business.  On August 3, 2007, the
Bankruptcy Court approved Gwenco's request for debtor-in-possession financing in
an amount of up to $2,000,000 from holders of Gwenco’s existing debt obligations
in order to fund operating expenses.  Gwenco intends to continue its
mining operations at Pond Creek mine at Slater’s Branch while this matter is
completed.  Under Chapter 11, claims against Gwenco in existence prior
to the filing of the petitions for reorganization relief under the federal
bankruptcy laws are stayed while Gwenco is in bankruptcy.  Gwenco has
submitted a preliminary plan of reorganization to the court and the creditors
for approval, and the court has set June 2009 for the hearing on confirmation of
the plan of reorganization.
 
 If the
bankruptcy court rejects Gwenco's petition for bankruptcy under Chapter 11, the
Company would be material impacted and could lose all of its working assets and
have only unpaid liabilities. Accordingly, the court could convert Gwenco's
petition to Chapter 7 and liquidate all of Gwenco's assets.  In
particular, the carrying value of the mineral rights (see Note 5)
does not necessarily represent liquidation value if the Company were force to
sell the mineral rights in liquidation in a liquidation proceeding under Chapter
7 of the Bankruptcy Code.  In addition, the Company might be forced to
file for protection under Chapter 11 as it is the primary guarantor on a number
of Gwenco's contracts.
 
 NOTE 4 -
              LEASEHOLD
      INTERESTS
 
 The
Company maintains a number of coal leases with minimum lease or royalty payments
that vary by lease as defined in the separate
agreements.    Several of the landowners have contended that
the Company is in default under certain of these leases and that said leases are
terminated.  The Company disputes these contentions.
  F-13
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 Certain
former owners of the Company’s indirect, wholly-owned subsidiary, Gwenco, Inc.
(“Gwenco”) commenced an action in the Circuit Court of Pike County against
Gwenco for damages resulting from an alleged failure to pay past royalties and
other amounts allegedly due.  On May 19, 2006, the former owners
obtained a default judgment in this action in the amount of $687,391, from which
Gwenco has taken appeal.  The plaintiffs then amended their complaint,
seeking to be adjudged a lien on certain real and personal property of Gwenco
pursuant to the aforementioned judgment and that said real and personal property
be sold to satisfy the aforesaid lien, and that the liens of the plaintiffs
attach to the proceeds of the sale.  Gwenco believes that it has
several meritorious defenses and counterclaims to this action and intends to
defend it vigorously.  This foreclosure action was stayed against
Gwenco as a result of Gwenco’s filing of a voluntary petition for reorganization
under Chapter 11 of the U.S. Bankruptcy Code.  (See Note
16.)  On June 20, 2007, Gwenco entered into a settlement agreement
with one of the former owners, pursuant to which the former owner agreed to
accept payment of $150,000 in exchange for a release of the judgment amount of
$458,260.  The Bankruptcy Court approved the settlement agreement on
July 17, 2007.  On August 3, 2007, the Court approved Gwenco’s
debtor-in-possession financing and the settlement agreement became
effective.  The escrowed funds were released on August 10, 2007 to
complete the settlement.
 
 As of
December 31, 2008, Gwenco owed approximately $347,931 in lease and/or royalty
payments in addition to the reduced judgment amount of $229,130.
 
 NOTE 5 -
              LEASED
      MINERAL RESERVES
 
 All of
the Company’s existing reserves remain in Gwenco, Inc., a wholly owned
subsidiary.  The total reserves are a combination of several coal
seams throughout the spectrum of leased properties.
 
 At
      December 31, 2008 the leased mineral reserves, valued at $5,203,414, net
      consisted of the following:
                          
                          Proven
      ReservesSeams
                          
                          TonsWinifrede
                          
                          
                          214,650Taylor
                          
                          
                          1,783,500Cedar
      Grove
                          
                          
                          3,702,600Pond
      Creek
                          
                          
                          4,084,885Total
      Reserves
                          
                          
                          9,785,635
 
 The
Company maintains a number of coal leases with minimum lease or royalty payments
that vary by lease as defined in the separate
agreements.   Several of the landowners have contended that the
Company is in default under certain of these leases and that said leases are
terminated.  The Company disputes these
contentions.  Pursuant to SFAS 144, management has reviewed the
recoverable value of the Company’s mineral reserves and has determined that no
impairment loss has occurred as of December 31, 2008.  As long as the
recoverable amount continues to exceed its carrying value, amortization will
occur based on a proportionate ratio of depleted reserves as a result of future
coal mining activity.
  F-14
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE 6 -
              EQUIPMENT
 
 Equipment
      consisted of the following:
                                
                                December
      31,
                                
                                
                                December
      31,2008
                                
                                
                                2007Mining
      equipment
                                
                                $
                                332,435
                                
                                
                                
                                510,533Less
      accumulated depreciation
                                
                                
                                (175,164
                                )
                                
                                
                                (344,260
                                )Equipment
      - net
                                
                                $
                                157,271
                                
                                
                                
                                166,273
 
 All of
the equipment currently in use by the Company is owned by the Company’s
wholly-owned subsidiary, Gwenco, Inc., which is currently in Chapter 11
bankruptcy proceedings.
 
 The
Company depreciates its mining equipment over a 5 year period, while the office
equipment is depreciated over a 7 year period.  In both cases, the
straight-line method is used.  Depending on the type of equipment
needed at any given point in production, the Company will sell existing
equipment and replace it with new or used machinery, which can reflect a
fluctuation in the asset valuation.
 
 NOTE 7 -
              OTHER
      RECEIVABLES
 
 Other
      Receivables consisted of the following:
                                      
                                      December
      31,
                                      
                                      
                                      December
      31,2008
                                      
                                      
                                      2007D&D
      Contracting, Inc.(a)
                                      
                                      $
                                      —
                                      
                                      
                                      
                                      678,349Braxton
      Coal (b)
                                      
                                      
                                      —
                                      
                                      
                                      
                                      57,109Less:
      allowance
                                      
                                      
                                      —
                                      
                                      
                                      
                                      (735,458
                                      )Other
      Receivables – net
                                      
                                      $
                                      —
                                      
                                      
                                      
                                      —
 
 (a)
              The
      receivable with D&D Contracting, Inc. exists as a result of the
      rescission agreement dated November 1, 2004.  The Company holds
      an equipment lease and a limited royalty agreement totaling
      $668,000.  Unearned revenues have been recorded as an
      allowance.  The remaining balance is the cash and account
      deposits that have not yet been reimbursed.  The Company has
      booked an allowance against this amount.  D&D has been in
      default of its obligations to the Company.  As of December 31,
      2008, the Company has determined that the amount owed is uncollectible and
      has written off the receivable.
 
 (b)
              During
      the twelve months ended December 31, 2006, the Company hired a contract
      miner to mine the coal from the Gwenco properties.  The
      receivables represent initial startup and maintenance expenses, which were
      to be paid back through a royalty arrangement once coal production
      began.   As of December 31, 2007, the agreement with this
      contract miner expired.  The Company has since retained a new
      contract miner.  As of December 31, 2008, the Company has
      determined that the amount owed is uncollectible and has written off the
      receivable.
 
  F-15
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE 8 -
              ACCOUNTS
      PAYABLE & ACCRUED EXPENSES
 
 Accounts
      payable and accrued expenses consist of the following:
                                                          
                                                          December
      31,
                                                          
                                                          
                                                          December
      31,2008
                                                          
                                                          
                                                          2007Accounts
      payable
                                                          
                                                          $
                                                          710,027
                                                          
                                                          
                                                          
                                                          357,431Accrued
      royalties payable-operating (a)
                                                          
                                                          
                                                          354,126
                                                          
                                                          
                                                          
                                                          235,925Accrued
      bank claim (b)
                                                          
                                                          
                                                          650,000
                                                          
                                                          
                                                          
                                                          650,000Accrued
      taxes
                                                          
                                                          
                                                          87,315
                                                          
                                                          
                                                          
                                                          87,315Accrued
      interest
                                                          
                                                          
                                                          816,944
                                                          
                                                          
                                                          
                                                          609,289Accrued
      expenses (c)
                                                          
                                                          
                                                          860,023
                                                          
                                                          
                                                          
                                                          819,4743,478,435
                                                          
                                                          
                                                          
                                                          2,759,434Derivative
      Liability (d)
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —Unearned
      Revenues (e)
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —$
                                                          3,478,435
                                                          
                                                          
                                                          
                                                          2,759,434
 
 (a)
              The
      Company maintains a number of coal leases with minimum lease or royalty
      payments that vary by lease as defined in the separate
      agreements.   Several of the landowners have contended that
      the Company is in default under certain of these leases and that said
      leases are terminated.  The Company disputes these
      contentions.  Certain former owners of Gwenco commenced an
      action in the Circuit Court of Pike County against Gwenco for damages
      resulting from an alleged failure to pay past royalties and other amounts
      allegedly due.  On May 19, 2006, the former owners obtained a
      default judgment in this action in the amount of $687,391, from which
      Gwenco has taken appeal.  Gwenco believes that it has several
      meritorious defenses and counterclaims to this action and intends to
      defend it vigorously.  Since the judgment was approximately
      $500,000 above what the Company believes to have owed, the Company
      reclassified the difference and recorded additional expense to account for
      the liability.  On June 20, 2007, Gwenco entered into a
      settlement agreement with one of the former owners, pursuant to which the
      former owner agreed to accept payment of $150,000 in exchange for a
      release of the judgment amount of $458,260.  The Bankruptcy
      Court approved the settlement agreement on July 17, 2007.  On
      August 3, 2007, the Court approved Gwenco’s debtor-in-possession financing
      and the settlement agreement became effective.  The escrowed
      funds were later released on August 10, 2007 to complete the
      settlement.  As a result of the settlement, the remaining
      judgment balance is $229,130 and is posted in the Notes Payable section of
      the company’s financial statements (SeeNOTE
      9).  As of
      December 31, 2008, Gwenco recorded approximately $347,931 in lease and/or
      royalty payments as accounts payable and accrued expenses in addition to
      the reduced judgment of $229,130 against Gwenco, which is accrued as a
      notes payable.  In addition, the Company accrued $25,544 as an
      estimated royalty payable in connection with an August 2008
      financing.  (SeeNOTE
      9).
 
 (b)
              During
      the period ended December 31, 2004, the Company’s bank initiated a
      claim    for an overdraft recovery.  Since
      it was later determined that there was a much larger malice perpetrated
      against the Company by existing bank employees, estimates for the
      resolution of a claim against a defunct subsidiary have been accrued until
      a resolution can be determined.
  F-16
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 (c)
              The
      Company recorded an accrued liability for indemnification obligations of
      $390,000 to its officers, which represents the fair value of shares of the
      Company’s common stock, which the officers pledged as collateral for
      personal guarantees of a loan to the Company.  The Company
      defaulted on the loan and the lender foreclosed on the officer’s pledged
      shares.  In January 2007, the Company satisfied $260,000 of this
      accrued liability by issuing 260,000 shares of Series C Preferred
      Stock.  See Note 11. The Company has accrued the remaining
      $130,000 due to its former officer.   In addition, during
      the period ended December 31, 2004, the Company had recorded accrued
      expenses of $468,585 from its subsidiaries, E-Z Mining Co. and Gwenco,
      Inc. as acquisition for mining expenses recorded on their books and
      records.  The Company continues to carry these balances until
      further validity can be determined.
 
 (d)
              During
      its year ended December 31, 2006, Quest had recognized derivative
      liability upon issuance of certain outstanding convertible notes and
      warrants in accordance with SFAS 133 and EITF 00-19.  In
      particular, with respect to each note and warrant, Quest compared (a) the
      number of then authorized but unissued shares, less the maximum number of
      shares that could be required to be delivered during the contract period
      under existing commitments (i.e. the other convertible notes and warrants)
      with (b) the maximum number of shares that could be required to be
      delivered under share settlement (either net-share or physical) of the
      contract at issue.  Since the amount in (b) exceeded the amount in
      (a), and because Quest was required to obtain shareholder approval to
      increase its authorized common shares or otherwise effect a
      recapitalization in order to net-share or physically settle all contracts,
      Quest determined that share settlement was not within its control, and
      accordingly, derivative liability classification was
    required.
 
 On
February 9, 2007, Quest amended its articles of incorporation to increase its
authorized common stock to 975,000,000 shares, and to authorize its board of
directors to effectuate a stock split or reverse stock split without stockholder
approval.  As a result of this amendment, Quest no was no longer
required to obtain shareholder approval to effect a recapitalization in order to
net-share or physically settle any of its convertible notes or warrants, and
accordingly, obtained full control of share settlement of these convertible
notes and warrants.  As a result, Quest reclassified the conversion
options on the convertible notes and warrants as permanent equity.
 
 (e)
              As
      part of the rescission agreement with D&D on November 1, 2004, the
      Company posted receivables based on a two-year lease agreement for
      equipment still owned as well as a limited 2,000,000 ton royalty payout of
      $0.25 per ton.  Management has initiated a liability allowance
      until the receivables are recognized.  D&D has been in
      default of its obligations to the Company.  As of December 31,
      2008, the Company has determined that the amount owed is uncollectible and
      has written off the receivable.
  F-17
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 NOTE 9 -
              NOTES
      PAYABLE
 
 Notes
      payable consist of the following:
                    
                    December
      31,
                    
                    
                    December
      31,2008
                    
                    
                    2007(restated)QUEST
      MINERALS & MINING CORP.0%
      Notes payable (a).
                    
                    $
                    202,864
                    
                    
                    
                    202,86412%
      Notes payable to Gross Foundation (b).
                    
                    
                    -
                    
                    
                    
                    32,39915%
      Notes payable to Gross Foundation (c).
                    
                    
                    -
                    
                    
                    
                    -7%
      Notes payable to GP, PTF, FM (d).
                    
                    
                    -
                    
                    
                    
                    -7%
      Notes payable to Investors (e).
                    
                    
                    25,000
                    
                    
                    
                    50,0007%
      Notes payable to Greenwood Partners (f).
                    
                    
                    -
                    
                    
                    
                    -7%
      Notes payable to First Mirage (f).
                    
                    
                    -
                    
                    
                    
                    50,0007%
      Notes payable to Professional Traders Fund (g).
                    
                    
                    1,616
                    
                    
                    
                    100,0008%
      Notes payable to Interstellar Holdings. (h).
                    
                    
                    -
                    
                    
                    
                    535,0005%
      Advances from Interstellar Holdings (i).
                    
                    
                    1,082,411
                    
                    
                    
                    1,010,0490%
      Notes payable (j).
                    
                    
                    611,937
                    
                    
                    
                    217,6867%
      Notes payable to Westor Capital Group (k).
                    
                    
                    -
                    
                    
                    
                    100,0008%
      Notes payable to Kaila (l).
                    
                    
                    -
                    
                    
                    
                    300,00010%
      Notes payable to IMR (m).
                    
                    
                    10,000
                    
                    
                    
                    10,0006%
      Notes payable to Interstellar Holdings. (n).
                    
                    
                    533,500
                    
                    
                    
                    -8%
      Notes payable to Prof. Offshore Opportunity Fund, Ltd.
(o).
                    
                    
                    400,000
                    
                    
                    
                    -QUEST
      ENERGY, LTD.8%
      Summary Judgment payable to BH&P (p).
                    
                    
                    35,000
                    
                    
                    
                    35,000GWENCO,
      INC.: (Bank Loans)12%
      Assigned Judgment to Interstellar Holdings (q).
                    
                    
                    726,964
                    
                    
                    
                    726,9649%
      Assigned Judgment to Interstellar Holdings (r).
                    
                    
                    -
                    
                    
                    
                    -12.75%
      Assigned Judgment to Interstellar Holdings (r).
                    
                    
                    -
                    
                    
                    
                    65,5889.5%
      Note payable to First Sentry Bank (s)
                    
                    
                    262,402
                    
                    
                    
                    262,4026%
      Note payable to United National Bank (s)
                    
                    
                    28,159
                    
                    
                    
                    28,1590%
      Default Judgment to Third-Party (t)
                    
                    
                    229,130
                    
                    
                    
                    229,13017%
      DIP Financing – Interstellar Holdings (u)
                    
                    
                    923,043
                    
                    
                    
                    335,764GWENCO,
      INC.: (Related-Party Loans)5.26%
      Notes payable to Scott Whitson (v).
                    
                    
                    624,581
                    
                    
                    
                    672,289Total
      Debt
                    
                    
                    5,696,607
                    
                    
                    
                    4,963,294Current Portion
                    
                    
                    4,763,107
                    
                    
                    
                    4,963,294Less:
      Unamortized debt discount on Current Portion
                    
                    
                    -
                    
                    
                    
                    (56,982
                    )Total
      Notes Payable – Current Portion, net
                    
                    
                    4,763,107
                    
                    
                    
                    4,906,312Long-Term
      Debt:
                    
                    $
                    933,500
                    
                    
                    
                    -Less:
      Unamortized debt discount on Long-Term Debt
                    
                    
                    (182,158
                    )
                    
                    
                    -Total
      Long-Term Net, net
                    
                    $
                    751,342
                    
                    
                    
                    -
  F-18
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 (a)
                    On
      December 31, 2005, the Company closed E-Z Mining Co.,
      Inc.  These current notes consist of various third parties
      related to the former CFO of the Company.  All notes are due on
      demand except $110,000, which is due from future royalties.  All
      notes are non-interest
bearing.
 
 (b)
                On
      December 17, 2004, the Company issued a 15% per annum promissory note with
      Gross Foundation for $300,000 due on June 17, 2005.  The note
      was secured by certain of the Company’s equipment.  In the event
      of default, the note became convertible into shares of the Company’s
      common stock at the option of the holder at a conversion price of $40.00
      per share.  As additional compensation to the lender, the
      Company issued 750 common stock warrants at $600.00.  The
      warrants have anti-dilution privileges and piggyback registration
      rights.  On December 20, 2005, the Company issued 5,000 shares
      of common stock at $40.00 per share to Gross Foundation as a partial
      conversion pursuant to their promissory note, which matured on June 17,
      2005.  The lender continues to make periodic partial conversion
      requests to pay down the principal and accrued interest.  On
      July 26, 2006, the note was amended and restated at 12%, due on April 18,
      2007, with a new balance of $258,091, which included the remaining
      principal and interest from the original note.  The note is
      convertible at the option of the holder at a conversion price of $30.00
      per share; provided, that if the market price of the Company’s common
      stock was less than $40.00 per share for ten consecutive trading days, the
      conversion price would reduced to $20.00 per share; provided, further,
      that if the market price of the Company’s common stock was less than
      $20.00 per share for ten consecutive trading days, the conversion price
      would become the lesser of (i) $20.00 per share or  (ii) 70% of
      the average of the 5 closing bid prices of the common stock immediately
      preceding such conversion date.  The lender has made periodic
      partial conversions of the principal and accruing interest.  On
      June 19, 2008, the lender made a final conversion to satisfy the remaining
      principal and interest on the
note.
 
 Quest had
recognized derivative liability of $392,787 upon restatement of this note in
accordance with SFAS 133 and EITF 00-19.  In particular, Quest
compared (a) the number of then authorized but unissued shares, less the maximum
number of shares that could be required to be delivered during the contract
period under existing commitments (i.e. the other convertible notes and
warrants) with (b) the maximum number of shares that could be required to be
delivered under share settlement (either net-share or physical) of this
note.  Since the amount in (b) exceeded the amount in (a), and because
Quest was required to obtain shareholder approval to increase its authorized
common shares or otherwise effect a recapitalization in order to net-share or
physically settle all contracts, Quest determined that share settlement was not
within its control, and accordingly, derivative liability classification was
required.
 
 On
February 9, 2007, Quest amended its articles of incorporation to increase its
authorized common stock to 975,000,000 shares, and to authorize its board of
directors to effectuate a stock split or reverse stock split without stockholder
approval.  As a result of this amendment, Quest no was no longer
required to obtain shareholder approval to effect a recapitalization in order to
net-share or physically settle any of its convertible notes or warrants, and
accordingly, obtained full control of share settlement of this
note.  As a result, Quest reclassified the conversion options on this
note, then valued at $177,069, as permanent equity.
 
 In
accordance with Emerging Issues Task Force Issue 98-5, Accounting for
Convertible Securities with a Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios (“EITF 98-5”), the Company also recognized an
imbedded beneficial conversion feature present in this note.  The
Company allocated a portion of the proceeds equal to the intrinsic value of that
feature to additional paid in capital.  The Company recognized and
measured $258,091 of the proceeds, which is equal to the intrinsic value of the
imbedded beneficial conversion feature, to additional paid in capital and a
discount against the note.  The debt discount attributed to the
beneficial conversion feature was amortized over the note’s maturity period as
interest expense.  During the year ended December 31, 2007,
amortization related to the beneficial conversion feature was $84,953, at which
point the discount was fully amortized.
  F-19
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 (c)
              On
      March 11, 2008, the Company issued a 15% per annum promissory note with a
      third party lender for $75,000 due on March 10, 2009.  The note
      is convertible at the option of the holder at a conversion price of 50% of
      the average of the three lowest per share market values during the ten
      (10) trading days immediately preceding a conversion date.  The
      holder may not convert any outstanding principal amount of this note or
      accrued and unpaid interest thereon to the extent such conversion would
      result in the holder beneficially owning in excess of 4.999% of the then
      issued and outstanding common shares of the
  Company.
 
 In
accordance with Emerging Issues Task Force Issue 98-5, Accounting for
Convertible Securities with a Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios (“EITF 98-5”), the Company recognized an imbedded
beneficial conversion feature present in this note.  The Company
allocated a portion of the proceeds equal to the intrinsic value of that feature
to additional paid in capital.  The Company recognized and measured
$75,000 of the proceeds, which is equal to the intrinsic value of the imbedded
beneficial conversion feature, to additional paid in capital and a discount
against the Notes issued during the year ended December 31, 2008.  The
debt discount attributed to the beneficial conversion feature is amortized over
the note’s maturity period as interest expense.  During the year ended
December 31, 2008, amortization related to the beneficial conversion feature was
$75,000, at which point the discount was fully amortized.
 
 Effective
September 12, 2008, the Company and the third-party lender resolved a dispute
relating to the lender’s prior partial conversions of the note, pursuant to
which the lender agreed to forgive the balance on the note of $42,223 and the
remaining accrued interest of $3,278.  The Company recognized $45,501
of debt forgiveness income in as a result of this settlement.
 
 (d)
              On
      February 22, 2005, the Company entered into unit purchase agreements with
      three individual third-party lenders for a total sale amount of
      $650,000.  Each unit was sold at $25,000 and consisted of a 7%
      senior secured convertible note due March 6, 2006 and 375 Series A
      Warrants.  The notes are secured by certain of the Company’s
      assets and were initially convertible into shares of the Company’s common
      stock at the rate of $200.00 per share, which conversion price was subject
      to adjustment.  Each Series A Warrant was exercisable into one
      (1) share of common stock at an exercise price of $200.00 and one (1)
      Series B Warrant.  Each Series B Warrant was exercisable into
      one (1) share of common stock at an exercise price of
      $400.00.  The Company categorized the convertible notes as a
      liability in the amount of $650,000.  A 10% commission was paid
      to the agent who arranged the transaction.  On February 14,
      2006, the Company amended and restated a 7% convertible note in the
      principal amount of $350,000, which became due February 22, 2007, to one
      of the third party lenders.  On June 5, 2006, the Company
      amended and restated the remaining 7% convertible notes in the principal
      amounts of $100,000 and $200,000, respectively, which also became due
      February 22, 2007.  The notes are convertible at the option of
      the holder at a conversion price of $30.00 per share; provided, that if
      the market price of the Company’s common stock was less than $40.00 per
      share for ten consecutive trading days, the conversion price would reduced
      to $20.00 per share; provided, further, that if the market price of the
      Company’s common stock was less than $20.00 per share for ten consecutive
      trading days, the conversion price would become the lesser of (i) $20.00
      per share or  (ii) 70% of the average of the 5 closing bid
      prices of the common stock immediately preceding such conversion
      date.  The lenders make periodic partial conversions to pay down
      the remaining principal on the notes.  As of December 31, 2008,
      only a partial amount of accrued interest
  remains.
  F-20
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 Quest had
recognized derivative liability of $881,673 upon restatement of these notes in
accordance with SFAS 133 and EITF 00-19.  In particular, Quest
compared (a) the number of then authorized but unissued shares, less the maximum
number of shares that could be required to be delivered during the contract
period under existing commitments (i.e. the other convertible notes and
warrants) with (b) the maximum number of shares that could be required to be
delivered under share settlement (either net-share or physical) of these
notes.  Since the amount in (b) exceeded the amount in (a), and because
Quest was required to obtain shareholder approval to increase its authorized
common shares or otherwise effect a recapitalization in order to net-share or
physically settle all contracts, Quest determined that share settlement was not
within its control, and accordingly, derivative liability classification was
required.
 
 On
February 9, 2007, Quest amended its articles of incorporation to increase its
authorized common stock to 975,000,000 shares, and to authorize its board of
directors to effectuate a stock split or reverse stock split without stockholder
approval.  As a result of this amendment, Quest no was no longer
required to obtain shareholder approval to effect a recapitalization in order to
net-share or physically settle any of its convertible notes or warrants, and
accordingly, obtained full control of share settlement of these
notes.  As a result, Quest reclassified the conversion options on
these notes, then valued at $184,927, as permanent equity.
 
 In
accordance with Emerging Issues Task Force Issue 98-5, Accounting for
Convertible Securities with a Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios (“EITF 98-5”), the Company also recognized an
imbedded beneficial conversion feature present in these notes.  The
Company allocated a portion of the proceeds equal to the intrinsic value of that
feature to additional paid in capital.  The Company recognized and
measured $611,747 of the proceeds, which is equal to the intrinsic value of the
imbedded beneficial conversion feature, to additional paid in capital and a
discount against the notes.  The debt discount attributed to the
beneficial conversion feature was amortized over the notes’ maturity period as
interest expense.  During the year ended December 31, 2007,
amortization related to the beneficial conversion feature was $94,607, at which
point the discount was fully amortized.
 
 (e)
              On
      March 4, 2005, the Company entered into unit purchase agreements with
      thirteen individual third-party lenders for a total sale amount of
      $375,000.  Each unit was sold at $25,000 and consisted of a 7%
      senior secured convertible note due March 6, 2006 and 375 Series A
      Warrants.  The notes are secured by certain of the Company’s
      assets and were initially convertible into shares of the Company’s common
      stock at the rate of $200.00 per share, which conversion price is subject
      to adjustment.  Each Series A Warrant was exercisable into one
      (1) share of common stock at an exercise price of $200.00 and one (1)
      Series B Warrant.  Each Series B Warrant was exercisable into
      one (1) share of common stock at an exercise price of
      $400.00.  The Company categorized the convertible notes as a
      liability in the amount of $375,000.  A 10% commission was paid
      to the agent who arranged in the transaction.  During the year
      ended December 31, 2006, the Company amended and restated 7% convertible
      notes in the aggregate principal amount of $325,000, which became due
      February 22, 2007.  The notes are convertible at the option of
      the holder at a conversion price of $30.00 per share; provided, that if
      the market price of the Company’s common stock was less than $40.00 per
      share for ten consecutive trading days, the conversion price would reduced
      to $20.00 per share; provided, further, that if the market price of the
      Company’s common stock was less than $20.00 per share for ten consecutive
      trading days, the conversion price would become the lesser of (i) $20.00
      per share or  (ii) 70% of the average of the 5 closing bid
      prices of the common stock immediately preceding such conversion
      date.  From the fourth quarter of 2006 through December 31,
      2008, several of the lenders made periodic partial conversions of the
      principal and accruing
interest.
  F-21
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 Quest had
recognized derivative liability of $447,263 upon restatement of these notes in
accordance with SFAS 133 and EITF 00-19.  In particular, Quest
compared (a) the number of then authorized but unissued shares, less the maximum
number of shares that could be required to be delivered during the contract
period under existing commitments (i.e. the other convertible notes and
warrants) with (b) the maximum number of shares that could be required to be
delivered under share settlement (either net-share or physical) of these
notes.  Since the amount in (b) exceeded the amount in (a), and because
Quest was required to obtain shareholder approval to increase its authorized
common shares or otherwise effect a recapitalization in order to net-share or
physically settle all contracts, Quest determined that share settlement was not
within its control, and accordingly, derivative liability classification was
required.
 
 On
February 9, 2007, Quest amended its articles of incorporation to increase its
authorized common stock to 975,000,000 shares, and to authorize its board of
directors to effectuate a stock split or reverse stock split without stockholder
approval.  As a result of this amendment, Quest no was no longer
required to obtain shareholder approval to effect a recapitalization in order to
net-share or physically settle any of its convertible notes or warrants, and
accordingly, obtained full control of share settlement of these
notes.  As a result, Quest reclassified the conversion options on
these notes, then valued at $35,361, as permanent equity.
 
 In
accordance with Emerging Issues Task Force Issue 98-5, Accounting for
Convertible Securities with a Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios (“EITF 98-5”), the Company also recognized an
imbedded beneficial conversion feature present in these notes.  The
Company allocated a portion of the proceeds equal to the intrinsic value of that
feature to additional paid in capital.  The Company recognized and
measured $319,753 of the proceeds, which is equal to the intrinsic value of the
imbedded beneficial conversion feature, to additional paid in capital and a
discount against the notes.  The debt discount attributed to the
beneficial conversion feature was amortized over the notes’ maturity period as
interest expense.  During the year ended December 31, 2007,
amortization related to the beneficial conversion feature was $9,122, at which
point the discount was fully amortized.
 
 On
September 3, 2008, Quest issued 500,000 shares of common stock to one of the
remaining two noteholders that did not participate in the 2006 exchange in
exchange of an original note of $25,000 and warrants for 375 shares of common
stock.  Quest credited the principal amount of $25,000 and accrued
interest of $6,217 to paid-in capital and also incurred $2,611 as an induced
conversion expense in connection with this exchange.
 
 As of
December 31, 2008, $25,000 in principal amount of the original $375,000 in notes
remains outstanding and in default.  In addition, partial amounts of
accrued interest on these notes remain.
  F-22
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 (f)
              On
      April 18, 2005, the Company entered into unit purchase agreements with two
      third-party lenders for a total sale amount of $400,000.  Each
      unit was sold at $25,000 and consisted of a 7% senior secured convertible
      note due March 6, 2006 and 375 Series A Warrants.  The notes are
      secured by certain of the Company’s assets and were initially convertible
      into shares of the Company’s common stock at the rate of $200.00 per
      share, which conversion price is subject to adjustment.  Each
      Series A Warrant was exercisable into one (1) share of common stock at an
      exercise price of $200.00 and one (1) Series B Warrant.  Each
      Series B Warrant was exercisable into one (1) share of common stock at an
      exercise price of $400.00.  The Company categorized the
      convertible notes as a liability in the amount of $400,000.  A
      $14,000 commission was paid to the agent who arranged in the
      transaction.  On June 5, 2006, the Company amended and restated
      the 7% convertible notes in the principal amounts of $100,000, $125,000,
      and $50,000, respectively, which became due April 18, 2007.  As
      part of the amendment and restatement, one of the noteholders forgave a 7%
      senior secured convertible note in the principal amount of
      $125,000.  The notes are convertible at the option of the holder
      at a conversion price of $30.00 per share; provided, that if the market
      price of the Company’s common stock was less than $40.00 per share for ten
      consecutive trading days, the conversion price would reduced to $20.00 per
      share; provided, further, that if the market price of the Company’s common
      stock was less than $20.00 per share for ten consecutive trading days, the
      conversion price would become the lesser of (i) $20.00 per share
      or  (ii) 70% of the average of the 5 closing bid prices of the
      common stock immediately preceding such conversion date.  The
      lenders make periodic partial conversions of the principal and accruing
      interest.  On June 24, 2008, one of the remaining lenders made a
      final conversion to satisfy their remaining principal and
      interest.  As of December 31, 2008, only a partial amount of
      accrued interest remains from the remaining
  lender.
 
 Quest had
recognized derivative liability of $251,639 upon restatement of these notes in
accordance with SFAS 133 and EITF 00-19.  In particular, Quest
compared (a) the number of then authorized but unissued shares, less the maximum
number of shares that could be required to be delivered during the contract
period under existing commitments (i.e. the other convertible notes and
warrants) with (b) the maximum number of shares that could be required to be
delivered under share settlement (either net-share or physical) of these
notes.  Since the amount in (b) exceeded the amount in (a), and because
Quest was required to obtain shareholder approval to increase its authorized
common shares or otherwise effect a recapitalization in order to net-share or
physically settle all contracts, Quest determined that share settlement was not
within its control, and accordingly, derivative liability classification was
required.
 
 On
February 9, 2007, Quest amended its articles of incorporation to increase its
authorized common stock to 975,000,000 shares, and to authorize its board of
directors to effectuate a stock split or reverse stock split without stockholder
approval.  As a result of this amendment, Quest no was no longer
required to obtain shareholder approval to effect a recapitalization in order to
net-share or physically settle any of its convertible notes or warrants, and
accordingly, obtained full control of share settlement of these
notes.  As a result, Quest reclassified the conversion options on
these notes, then valued at $102,675, as permanent equity.
 
 In
accordance with Emerging Issues Task Force Issue 98-5, Accounting for
Convertible Securities with a Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios (“EITF 98-5”), the Company also recognized an
imbedded beneficial conversion feature present in these notes.  The
Company allocated a portion of the proceeds equal to the intrinsic value of that
feature to additional paid in capital.  The Company recognized and
measured $251,639 of the proceeds, which is equal to the intrinsic value of the
imbedded beneficial conversion feature, to additional paid in capital and a
discount against the notes.  The debt discount attributed to the
beneficial conversion feature is amortized over the notes’ maturity period as
interest expense.  During the year ended December 31, 2007,
amortization related to the beneficial conversion feature was $72,024, at which
point the discount was fully amortized.
  F-23
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 (g)
              On
      May 16, 2005, the Company entered into a credit agreement with a third
      party lender in which $245,000 was issued as a 10% note due August 19,
      2005.  According to the credit agreement, the lender may, in its
      sole and absolute discretion, make additional loans to the Company of
      $255,000 for an aggregate total of $500,000.  Additionally, the
      lender was issued 25,650 warrants.  The loans subject to the
      credit agreement are secured by certain assets of the
      Company.  The warrants have an exercise price of $40.00 per
      share, subject to adjustment, and expire on May 31,
      2007.   As of December 31, 2005, the Company had made a
      payment of $5,500.  On February 14, 2006, in connection with a
      settlement agreement with the lender, the Company made a payment of
      $264,000 and issued an amended and restated 10% note in the amount of
      $100,000.  The note covered accrued interest and additional
      legal fees.  The amended and restated note is convertible into
      the Company’s common stock at a rate of $40.00 per share and was due
      February 22, 2007.  On June 6, 2007, the Company entered into an
      exchange agreement with the lender, under which the holder exchanged the
      $100,000 note and all remaining warrants held by such lender for a new
      convertible promissory note in the aggregate principal amount of
      $100,000.  The new note became due on June 6, 2008, with an
      annual interest rate of seven percent (7%), and is convertible into
      Quest’s common shares at a conversion price of 70% of the average of the 5
      closing bid prices of the common stock immediately preceding such
      conversion date.  As of December 31, 2008, Quest was in default
      on the remaining balance of this
obligation.
 
 In
accordance with Emerging Issues Task Force Issue 98-5, Accounting for
Convertible Securities with a Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios (“EITF 98-5”), the Company recognized an imbedded
beneficial conversion feature present in this note.  The Company
allocated a portion of the proceeds equal to the intrinsic value of that feature
to additional paid in capital.  The Company recognized and measured
$43,944 of the proceeds, which is equal to the intrinsic value of the imbedded
beneficial conversion feature, to additional paid in capital and a discount
against the note.  The debt discount attributed to the beneficial
conversion feature is amortized over the note’s maturity period as interest
expense.  During the years ended December 31, 2008 and December 31,
2007, amortization related to the beneficial conversion feature was $18,970 and
$24,974, respectively.  The discount was fully amortized during the
year ended December 31, 2008.
 
 (h)
              On
      December 8, 2005, the Company issued a convertible secured promissory note
      in the principal amount of $335,000.  The note was due on
      December 8, 2006, with an annual interest rate of eight percent (8%), and
      is convertible into the Company’s common shares at an initial conversion
      price of $20.00 per share, subject to adjustment.  As of
      December 31, 2006, the Company was in default.  In January,
      2007, the Company entered into an exchange agreement with the note holder
      and holders of 150,000 shares of the Company’s common stock, under which
      the holders exchanged the note and the 150,000 shares of the Company’s
      common stock for a series of new convertible promissory notes in the
      aggregate principal amount of $635,000.  The new notes were due
      on March 31, 2007, with an annual interest rate of eight percent (8%), and
      are convertible into the Company’s common shares at an initial conversion
      price of the greater of (i) $2.00 per share or (ii) 50% of the average of
      the 5 closing bid prices of the common stock immediately preceding such
      conversion date.  During the first quarter of 2007, the note
      holders made partial conversions of the principal and accruing
      interest.
  F-24
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 
 Quest had
recognized derivative liability of $306,284 upon exchange of these notes in
accordance with SFAS 133 and EITF 00-19.  In particular, Quest
compared (a) the number of then authorized but unissued shares, less the maximum
number of shares that could be required to be delivered during the contract
period under existing commitments (i.e. the other convertible notes and
warrants) with (b) the maximum number of shares that could be required to be
delivered under share settlement (either net-share or physical) of these
notes.  Since the amount in (b) exceeded the amount in (a), and because
Quest was required to obtain shareholder approval to increase its authorized
common shares or otherwise effect a recapitalization in order to net-share or
physically settle all contracts, Quest determined that share settlement was not
within its control, and accordingly, derivative liability classification was
required.
 
 On
February 9, 2007, Quest amended its articles of incorporation to increase its
authorized common stock to 975,000,000 shares, and to authorize its board of
directors to effectuate a stock split or reverse stock split without stockholder
approval.  As a result of this amendment, Quest no was no longer
required to obtain shareholder approval to effect a recapitalization in order to
net-share or physically settle any of its convertible notes or warrants, and
accordingly, obtained full control of share settlement of these
notes.  As a result, Quest reclassified the conversion options on
these notes, then valued at $768,069, as permanent equity.
 
 On June
6, 2008, the debt was satisfied through an exchange agreement between the
Company and another third party lender to whom the note had been
assigned.  See Note 9(n).
 
 (i)
              During
      January of 2006, the Company entered into a loan agreement to receive up
      to $300,000 in funds for operations in return for a 12% percent note due
      in May of 2006.  As additional collateral, the officers of the
      Company guaranteed the loan and pledged their own shares of common
      stock.  As of the three months ended March 31, 2006, the lender
      has made advances totaling $132,000.  On April 3, 2006, the
      lender declared a default under the terms of the loan
      agreement.  The Company failed to repay the lender as required
      under the loan agreement.  The lender then enforced guarantees
      made by the officers of the Company and foreclosed on shares of the
      officer’s common stock pledged to the lender to secure the
      guarantee.  Along with accrued interest, the Company recorded a
      capital contribution from its officers of $390,000.  The Company
      has indemnified one officer and is currently negotiating the terms of
      indemnification of the other officer as a result of this
      foreclosure.   Since 2006 through December 31, 2008, the
      lender, and its successor in interest, has continued to advance
      operational funding into the Company.  Since there has been no
      formal agreement regarding the balance owed, the Company accrues a 5%
      annual interest on the principal with the intent that a mutual arrangement
      will be resolved between both
parties.
 
 (j)
              Periodically,
      the Company receives cash advances from unrelated third party
      investors.  Since these advances are open accounts and have no
      fixed or determined dates for repayment, the amounts carry a 0% interest
      rate.
 
 (k)
              On
      April 5, 2006, the Company issued an aggregate of 1.25 units at a price of
      $100,000 per unit.  The aggregate gross proceeds from the sale
      of the units were $125,000.  Each unit consists of a convertible
      promissory note in the principal amount of $100,000 and warrants to
      purchase shares of the Company’s common stock at an exercise price of
      $84.00 per share.  The unit notes were due on July 5,
      2007.  The notes bear interest at a rate of six percent (6%) and
      are convertible into Quest common shares at an initial conversion price of
      $42.00 per share, subject to adjustment, including a “weighted-average”
      reduction of the conversion price in the event that the Company issued
      additional stock or stock equivalents at a price lower than the conversion
      price.  Commencing on the fifth month of the notes, the Company
      must make amortizing payments of the outstanding principal amount and
      interest on each note until the principal amount and interest have been
      paid in full, either in cash of 102% of the monthly amount due or by
      conversion of such amount into our common shares at a conversion rate of
      seventy-five percent of the volume weighted average price of our common
      shares for the five trading days prior to a conversion date, subject to
      certain limitations.
  F-25
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
  Quest had
recognized derivative liability of $323,537 upon restatement of these notes in
accordance with SFAS 133 and EITF 00-19.  In particular, Quest
compared (a) the number of then authorized but unissued shares, less the maximum
number of shares that could be required to be delivered during the contract
period under existing commitments (i.e. the other convertible notes and
warrants) with (b) the maximum number of shares that could be required to be
delivered under share settlement (either net-share or physical) of these
notes.  Since the amount in (b) exceeded the amount in (a), and because
Quest was required to obtain shareholder approval to increase its authorized
common shares or otherwise effect a recapitalization in order to net-share or
physically settle all contracts, Quest determined that share settlement was not
within its control, and accordingly, derivative liability classification was
required.
 
 On
February 9, 2007, Quest amended its articles of incorporation to increase its
authorized common stock to 975,000,000 shares, and to authorize its board of
directors to effectuate a stock split or reverse stock split without stockholder
approval.  As a result of this amendment, Quest no was no longer
required to obtain shareholder approval to effect a recapitalization in order to
net-share or physically settle any of its convertible notes or warrants, and
accordingly, obtained full control of share settlement of these
notes.  As a result, Quest reclassified the conversion options on
these notes, then valued at $3,641, as permanent equity.
 
 In
accordance with Emerging Issues Task Force Issue 98-5, Accounting for
Convertible Securities with a Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios (“EITF 98-5”), the Company also recognized an
imbedded beneficial conversion feature present in these notes.  The
Company allocated a portion of the proceeds equal to the intrinsic value of that
feature to additional paid in capital.  The Company recognized and
measured $125,000 of the proceeds, which is equal to the intrinsic value of the
imbedded beneficial conversion feature, to additional paid in capital and a
discount against the notes.  The debt discount attributed to the
beneficial conversion feature is amortized over the notes’ maturity period as
interest expense.  During the year ended December 31, 2007,
amortization related to the beneficial conversion feature was $52,083, at which
point the discount was fully amortized.
 
 On June
27, 2007, the Company entered into an agreement with one of the note holders to
exchange a note in the principal amount of $25,000 for 83,693 shares of common
stock.  Quest credited the principal amount of $25,000 and accrued
interest of $12,435 to paid-in capital and also incurred $2,631 as an induced
conversion expense in connection with this exchange.
 
 On April
1, 2008, the Company entered into an exchange agreement with the lender, under
which the holder exchanged the $100,000 note and all remaining warrants held by
such lender for a new convertible promissory note in the aggregate principal
amount of $100,000.  The new note carries an interest rate of seven
percent (7%) and expires on March 31, 2009.  The note is convertible
into Quest common shares at a conversion price of seventy percent (70%) of the
average per share market value during the three (3) trading days immediately
preceding a conversion date.
  F-26
 QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 In
accordance with Emerging Issues Task Force Issue 98-5, Accounting for
Convertible Securities with a Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios (“EITF 98-5”), the Company also recognized an
imbedded beneficial conversion feature present in this note.  The
Company allocated a portion of the proceeds equal to the intrinsic value of that
feature to additional paid in capital.  The Company recognized and
measured $70,026 of the proceeds, which is equal to the intrinsic value of the
imbedded beneficial conversion feature, to additional paid in capital and a
discount against the notes.  The debt discount attributed to the
beneficial conversion feature is amortized over the notes’ maturity period as
interest expense.  During the year ended December 31, 2008,
amortization related to the beneficial conversion feature was $70,026, at which
point the discount was fully amortized.
 
 On August
13, 2008, the Company entered into an agreement with the note holder to exchange
the note in the principal amount of $100,000 for 2,100,000 shares of common
stock.  Quest credited the principal amount of $100,000 and accrued
interest of $1,750 to paid-in capital and also incurred $121,525 as an induced
conversion expense in connection with this exchange.
 
 (l)
              On
      April 1, 2006, the Company entered into a settlement and release agreement
      with   a third party individual pursuant to which the
      Company issued a convertible secured promissory note in the principal
      amount of $300,000.  The note was due on April 1, 2008, with an
      annual interest rate of eight percent (8%).  The note is
      convertible into the Company’s common shares at an initial conversion
      price equal to the greater of (a) $2.00 per share, and (b) 50% of the
      average market price during the three trading days immediately preceding
      any conversion date.   The holder may not convert any
      outstanding principal amount of this note or accrued and unpaid interest
      thereon to the extent such conversion would result in the holder
      beneficially owning in excess of 4.999% of the then issued and outstanding
      common shares of the Company.
 
 Quest had
recognized derivative liability of $625,319 upon issuance of the note in
accordance with SFAS 133 and EITF 00-19.  In particular, Quest
compared (a) the number of then authorized but unissued shares, less the maximum
number of shares that could be required to be delivered during the contract
period under existing commitments (i.e. the other convertible notes and
warrants) with (b) the maximum number of shares that could be required to be
delivered under share settlement (either net-share or physical) of the
note.  Since the amount in (b) exceeded the amount in (a), and because
Quest was required to obtain shareholder approval to increase its authorized
common shares or otherwise effect a recapitalization in order to net-share or
physically settle all contracts, Quest determined that share settlement was not
within its control, and accordingly, derivative liability classification was
required.
 
 On
February 9, 2007, Quest amended its articles of incorporation to increase its
authorized common stock to 975,000,000 shares, and to authorize its board of
directors to effectuate a stock split or reverse stock split without stockholder
approval.  As a result of this amendment, Quest no was no longer
required to obtain shareholder approval to effect a recapitalization in order to
net-share or physically settle any of its convertible notes or warrants, and
accordingly, obtained full control of share settlement of these
notes.  As a result, Quest reclassified the conversion options on the
note, then valued at $593,709, as permanent equity.
 
 In
accordance with Emerging Issues Task Force Issue 98-5, Accounting for
Convertible Securities with a Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios (“EITF 98-5”), the Company also recognized an
imbedded beneficial conversion feature present in this note.  The
Company allocated a portion of the proceeds equal to the intrinsic value of that
feature to additional paid in capital.  The Company recognized and
measured $300,000 of the proceeds, which is equal to the intrinsic value of the
imbedded beneficial conversion feature, to additional paid in capital and a
discount against the note.  The debt discount attributed to the
beneficial conversion feature is amortized over the note’s maturity period as
interest expense.  During the years ended December 31, 2008 and
December 31, 2007, amortization related to the beneficial conversion feature was
$37,839 and $151,353, respectively.  The discount was fully amortized
during the year ended December 31, 2008.
  F-27
 QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 On June
6, 2008, the debt was satisfied through an exchange agreement between the
Company and another third party lender to whom the note had been
assigned.  See Note 9(n).
 
 (m)
              On
      May 1, 2007, the Company entered into a settlement and release agreement
      with   a third party pursuant to which the Company issued a
      convertible secured promissory note in the principal amount of
      $10,000.  The note was due on May 1, 2008, with an annual
      interest rate of ten percent (10%).  The note is convertible
      into the Company’s common shares at a fixed rate of $1.60 per
      share.   The holder may not convert any outstanding
      principal amount of this note or accrued and unpaid interest thereon to
      the extent such conversion would result in the holder beneficially owning
      in excess of 4.999% of the then issued and outstanding common shares of
      the Company.
 
 In
accordance with Emerging Issues Task Force Issue 98-5, Accounting for
Convertible Securities with a Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios (“EITF 98-5”), the Company also recognized an
imbedded beneficial conversion feature present in this note.  The
Company allocated a portion of the proceeds equal to the intrinsic value of that
feature to additional paid in capital.  The Company recognized and
measured $2,500 of the proceeds, which is equal to the intrinsic value of the
imbedded beneficial conversion feature, to additional paid in capital and a
discount against the note.  The debt discount attributed to the
beneficial conversion feature is amortized over the note’s maturity period as
interest expense.  During the years ended December 31, 2008 and
December 31, 2007, amortization related to the beneficial conversion feature was
$833 and $1,667, respectively.  The discount was fully amortized
during the year ended December 31, 2008.
 
 As of
December 31, 2008, the Company was in default of this obligation.
 
 (n)
              On
      June 6, 2008, the Company entered into an exchange agreement with the
      holder of the notes referenced in Notes 9(h) and 9(l) above, in the
      aggregate principal amount of $835,000, under which the holder exchanged
      the notes held by such holder for a new convertible promissory note in the
      aggregate principal amount of $835,000.  The new note is due on
      June 6, 2010, with an annual interest rate of six percent (6%), and is
      convertible into the Company’s common shares at a conversion price of
      $.001 per share.  During the year ended December 31, 2008, the
      holder has made partial conversions of principal due under this
      note.
 
 (o)
              On
      August 14, 2008, the Company entered into a purchase agreement with an
      unrelated third party where the Company issued a $400,000 convertible
      promissory note at 8%; as well as a three (3) year royalty on future coal
      sales.  The note is due on August 14, 2010 and is convertible
      into Quest common shares at a conversion price of sixty percent (60%) of
      the average of the five (5) lowest per share market value during the ten
      (10) trading days immediately preceding a conversion date.  The
      royalty is based on sliding scale ranging from $0.00 to $0.75 per ton,
      depending on actual sale prices of coal received by the
      company.
  F-28
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
  In
accordance with Emerging Issues Task Force Issue 98-5, Accounting for
Convertible Securities with a Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios (“EITF 98-5”), the Company also recognized an
imbedded beneficial conversion feature present in this note.  The
Company allocated a portion of the proceeds equal to the intrinsic value of that
feature to additional paid in capital.  The Company recognized and
measured $225,000 of the proceeds, which is equal to the intrinsic value of the
imbedded beneficial conversion feature, to additional paid in capital and a
discount against the note.  The debt discount attributed to the
beneficial conversion feature is amortized over the note’s maturity period as
interest expense.  During the year ended December 31, 2008,
amortization related to the beneficial conversion feature was $42,842, and as of
December 31, 2008, an unamortized discount of $182,158 remains.
 
 In
addition, the Company recognized and measured $25,544 of the proceeds, which is
equal to the Company’s estimate of the royalty payable under this agreement, to
accrued royalties and a discount against the note.  The debt discount
attributed to the accrued royalty is amortized over the note’s maturity period
as interest expense.
 
 (p)
              On
      July 10, 2006, the Company entered into a settlement arrangement with an
      existing equipment lessor for the bill of sale on two pieces of equipment,
      of which the Company had retained possession while in default of prior
      lease payments.  On October 10, 2006, the Pike County Circuit
      Court entered an order enforcing this settlement agreement, and on
      December 19, 2006, the lessor was awarded summary judgment in the amount
      of $35,000 plus 8% accrued interest from August 9, 2006.  As of
      December 31, 2008, the Company remains in
  default.
 
 (q)
              On
      April 28, 2004, in connection with the Company’s acquisition of Gwenco,
      Inc., the Company assumed a promissory note, which was in
      default.  The note was secured by certain assets of
      Gwenco.  The former stockholder of Gwenco has personally
      guaranteed most of the above loans.  On May 20, 2005, the
      lender, Duke Energy, was awarded a judgment of $670,964 plus legal fees of
      $56,000, which accrues interest at the rate of twelve
      percent.     Duke Energy has obtained a judgment
      lien against the Company and its assets.  (See Note
      16.)   As of December 31, 2008, the balance remains
      outstanding.  On or about August 20, 2008, Duke Energy sold its
      right, title, and interest in and to the various judgments, judgment
      liens, and security interests, all of which are based on the note issued
      to Duke Energy of Kentucky, also referenced in Note 16, to a third party
      investor.  As of December 31, 2008, the Company is currently
      negotiating resolution of this judgment in connection with Gwenco’s plan
      of reorganization in bankruptcy.
 
 (r)
              On
      April 28, 2004, in connection with the Company’s acquisition of Gwenco,
      Inc., the Company assumed a commercial installment note and a commercial
      time note, both of which were in default.  The notes were
      secured by certain assets of Gwenco.  The former stockholder of
      Gwenco has personally guaranteed most of the above loans.  In
      2005, the Company entered into an agreed judgment in with the lender,
      National City Bank of Kentucky, with respect to the defaulted
      notes.  National City Bank obtained a judgment lien against the
      Company and its assets.  On July 19, 2006, National City Bank
      sold its right, title, and interest in and to the various judgments,
      judgment liens, security interests, and lines of credit, all of which are
      based on the notes issued to National City Bank of Kentucky, also
      referenced in Note 16, to a third party investor.  The third
      party investor has agreed to forbear on further collection, enforcement,
      and foreclosure with respect to this indebtedness until further
      notice.  In connection therewith, the Company granted the
      investor a royalty on fifty percent of the Company’s gross profits
      generated from coal mining at the Company’s leased mine.  Also
      in connection therewith, the Company entered into a judgment conversion
      agreement where the investor shall have the right, but not the obligation,
      to convert all or any portion of the then aggregate outstanding amounts
      due under the judgments into the Company’s common shares at the rate of
      $0.001 per share.  The investor shall not be entitled to convert
      any portion of the judgment if such conversion would result in beneficial
      ownership by the investor of more than 4.99% of the outstanding common
      shares of the Company.
  F-29
 QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 Quest had
recognized derivative liability of $13,486,013 upon restatement of the judgment
in accordance with SFAS 133 and EITF 00-19.  In particular, Quest
compared (a) the number of then authorized but unissued shares, less the maximum
number of shares that could be required to be delivered during the contract
period under existing commitments (i.e. the other convertible notes and
warrants) with (b) the maximum number of shares that could be required to be
delivered under share settlement (either net-share or physical) of the
judgment.  Since the amount in (b) exceeded the amount in (a), and because
Quest was required to obtain shareholder approval to increase its authorized
common shares or otherwise effect a recapitalization in order to net-share or
physically settle all contracts, Quest determined that share settlement was not
within its control, and accordingly, derivative liability classification was
required.
 
 On
February 9, 2007, Quest amended its articles of incorporation to increase its
authorized common stock to 975,000,000 shares, and to authorize its board of
directors to effectuate a stock split or reverse stock split without stockholder
approval.  As a result of this amendment, Quest no was no longer
required to obtain shareholder approval to effect a recapitalization in order to
net-share or physically settle any of its convertible notes or warrants, and
accordingly, obtained full control of share settlement of these
notes.  As a result, Quest reclassified the conversion option on the
judgment, then valued at $5,858,479, as permanent equity.
 
 The
lender has made periodic partial conversions of the principal and accruing
interest.  On July 21, 2008, the lender made a final conversion to
satisfy the remaining principal and interest on the judgment.
 
 (s)
              On
      July 27, 2006, the Company assumed two promissory notes in connection with
      a settlement agreement with the former owner of Gwenco.  The
      notes are in default.  The Company is currently negotiating
      resolution of these notes in connection with Gwenco’s plan of
      reorganization in bankruptcy.
 
 (t)
              Certain
      former owners of Gwenco commenced an action in the Circuit Court of Pike
      County against Gwenco for damages resulting from an alleged failure to pay
      past royalties and other amounts allegedly due.  On May 19,
      2006, the former owners improperly obtained a default judgment in this
      action in the amount of $687,391, from which Gwenco has taken
      appeal.  The plaintiffs then amended their complaint, seeking to
      be adjudged a lien on certain real and personal property of Gwenco
      pursuant to the aforementioned judgment and that said real and personal
      property be sold to satisfy the aforesaid lien, and that the liens of the
      plaintiffs attach to the proceeds of the sale.  Gwenco believes
      that it has several meritorious defenses and counterclaims to this action
      and intends to defend it vigorously.  This foreclosure action
      was stayed against Gwenco as a result of Gwenco’s filing of a voluntary
      petition for reorganization under Chapter 11 of the U.S. Bankruptcy
      Code.  (See Notes 16 & 17.)  On June 20, 2007,
      Gwenco entered into a settlement agreement with one of the former owners,
      pursuant to which the former owner agreed to accept payment of $150,000 in
      exchange for a release of the judgment amount of $458,260.  On
      July 17, 2007, the Bankruptcy Court approved the settlement
      agreement.  On August 3, 2007, the Court approved Gwenco’s
      debtor-in-possession financing and the settlement agreement became
      effective.  On August 10, 2007, the escrowed funds were
      transferred to complete the settlement.  As of December, 2008,
      the Company continues to negotiate the remaining balance of the judgment
      in connection with Gwenco’s plan of reorganization in
      bankruptcy.
  F-30
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
  (u)
              On
      August 15, 2007, the U.S. Bankruptcy Court approved a DIP Financing Motion
      authorizing the Company’s wholly owned subsidiary, Gwenco, Inc., which is
      currently in Chapter 11 reorganization proceedings, to borrow up to
      $2,000,000 (“Total Facility”) in post-petition debt from a pre-petition
      creditor pursuant to a Debtor-In-Possession loan agreement and promissory
      note between Gwenco and the lender dated June 29,
      2007.  Additionally, the Court approved prior budgeted advances
      from July of up to $350,000, which, in turn, adjusted the Total Facility
      to $1,700,000.  The loan advances carry a 17% interest rate per
      annum and matured on July 31, 2008.  As of December 31, 2008,
      advances at maturity date totaled $923,043 and continue to accrue
      interest.
 
 (v)
              The
      Company has guaranteed payment on a note in the amount of $300,000 made to
      a former stockholder of Gwenco by another former stockholder of
      Gwenco.  This note is secured by 50% of the outstanding capital
      stock of Gwenco.  The debt required 4 annual payments of
      approximately $75,000 plus interest.  As of December 31, 2005,
      the Company was in default.  Additionally, a 3.7% annual rate
      note in the amount of $495,000 due in December 2007 was agreed upon in
      consideration for royalties to be paid out on a schedule based on the
      level of production from the mine.  Since the initial agreement
      was made effective in March of 2004, the Company has accrued two years of
      interest expense and has adjusted its paid in capital to reflect the
      future correction on the issuance of preferred stock associated with the
      original acquisition of Gwenco, Inc.  On August 24, 2006, the
      Company amended the original note of $300,000 to $180,884, which included
      the remaining principal and interest, has an interest rate of 5.21%, and
      is due on September 24, 2009.  The Company also amended the
      $495,000 note due on December 10, 2007 to $545,473, which included the
      accrued interest, has an interest rate of 5.26%, and is to be paid through
      monthly payments equal to the sum of $.50 per clean sellable ton of coal
      removed the property.
 
 NOTE
      10 -
              INCOME
      TAXES
 
 Due to
the Company’s net loss, there was no provision for income taxes.  The
Company has net operating loss carry forwards for income tax purposes of
approximately $38,500,000 at December 31, 2008, and $36,200,000 at December 31,
2007.  These carry forward losses are available to offset future
taxable income, if any, and expire starting in the year 2015.  The
Company’s utilization of this carry forward against future taxable income may
become subject to an annual limitation due to a cumulative change in ownership
of the Company of more than 50 percent.
 
 The
      components of the Company’s tax provision were as follows:2008
                                  
                                  
                                  2007Current
      income tax (benefit) expense
                                  
                                  $
                                  (2,310,000
                                  )
                                  
                                  $
                                  (2,172,000
                                  )Deferred
      income tax expense (benefit)
                                  
                                  
                                  2,310,000
                                  
                                  
                                  
                                  2,172,000$
                                  -
                                  
                                  
                                  $
                                  -
 
 The
reconciliation of the income tax computed at the U.S. Federal statutory rate to
income tax expense for the periods ended December 31, 2008 and
2007:
 
 2008
                      
                      
                      2007Tax
      expense (benefit) at Federal rate (34%)
                      
                      $
                      (1,963,000
                      )
                      
                      $
                      (1,846,000
                      )State
      and local income tax, net of Federal benefit
                      
                      
                      (347,000
                      )
                      
                      
                      (326,000
                      )Effect
      of timing difference
                      
                      
                      -
                      
                      
                      
                      -Change
      in valuation allowance
                      
                      
                      2,310,000
                      
                      
                      
                      2,172,000Net
      income tax (benefit) allowance
                      
                      $
                      -
                      
                      
                      $
                      -
  F-31
 QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 Deferred
income taxes reflect the net income tax effect of temporary differences between
the carrying amounts of the assets and liabilities for financial reporting
purposes and amounts used for income taxes.  The Company’s deferred
income tax assets and liabilities consist of the following:
 
 Deferred
      tax asset:
                                        
                                        December
      31,
                                        
                                        
                                        December
      31,2008
                                        
                                        
                                        2007Deferred
      tax asset from loss carry forward
                                        
                                        $
                                        15,400,000
                                        
                                        
                                        $
                                        13,286,000Valuation
      allowance
                                        
                                        
                                        (15,400,000
                                        )
                                        
                                        
                                        (14,480,000
                                        )Net
      deferred tax assets
                                        
                                        $
                                        0
                                        
                                        
                                        $
                                        0
 
 The
Company recognized no income tax benefit for the loss generated for the
periods    through December 31, 2008.
 
 SFAS No.
109 requires that a valuation allowance be provided if it is more likely than
not that some portion or all of a deferred tax asset will not be
realized.  The Company’s ability to realize the benefit of its
deferred tax asset will depend on the generation of future taxable
income.  Because the Company has yet to recognize significant revenue
from the sale of its products, it believes that the full valuation allowance
should be provided.
 
 The
Company has not filed corporate federal, state, or local income tax returns
since 2002, and believes that, due to its operating losses, it does not have a
material tax liability.
 
 NOTE
      11 -
              PREFERRED
      STOCK
 
 Series A
 
 Each
share of Quest Series A Preferred Stock is convertible into a maximum of five
(5) shares of the Company’s common stock, or such lesser shares as determined by
dividing $3.00 by the average closing bid price of one share of the Company’s
common stock during the ten trading days preceding actual receipt of a notice of
conversion, subject to proportional adjustment for stock-splits, stock
dividends, recapitalizations, and subsequent dilutive issuances of common
stock.  The Series A Preferred Stock is convertible at the option of
the holder.  The holders of the Series A Preferred Stock shall be
entitled to receive cumulative dividends at the rate of $0.0001 per share per
annum in preference to the holders of common stock.  The holders of
the Series A Preferred Stock shall also be entitled to receive, upon
liquidation, an amount equal to $3.00 per share for the Series A Preferred Stock
plus all declared and unpaid dividends, in preference to the holders of the
common stock.  After March 31, 2004, the Company has the option of
redeeming the Series A Preferred Stock at a price equal to $3.00 per share for
the Series A Preferred Stock plus all declared and unpaid
dividends.  The Series A Preferred Stock has no voting
rights.
  F-32
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
  On
December 19, 2007, the Company amended the terms of the Series A Preferred Stock
to provide for a reduced conversion price set forth as such that (1) Each share
of Series A Preferred Stock shall be convertible at any time into a shares of
common stock, par value, $.001 per share of the Company as determined by
multiplying each share of Series A Preferred Stock by a fraction, the numerator
of which is $3.00 and the denominator of which is equal to the greater of (i)
$0.001 or (ii) 40% of closing price per share of common stock.  A
holder of Series A Preferred Stock may not convert shares of the Series A
Preferred Stock to the extent that such conversion would result in the Holder,
together with any affiliate thereof, beneficially owning, pursuant to Section
13(d) of the Securities Exchange of 1934, in excess of 4.999% of the then issued
and outstanding common stock of the Company.  The provisions of this
section may be waived by a holder upon not less than 61 days prior notice to the
Company.
 
 In
accordance with Emerging Issues Task Force Issue 98-5, Accounting for
Convertible Securities with a Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios (“EITF 98-5”), the Company also recognized an
imbedded beneficial conversion feature present in the Series A Preferred
Stock.  The Company allocated a portion of the proceeds equal to the
intrinsic value of that feature to additional paid in capital.  The
Company recognized and measured $1,359,999 of the proceeds, which is equal to
the intrinsic value of the imbedded beneficial conversion feature, to additional
paid in capital and as interest expense.
 
 As of
December 31, 2008, 427,807 shares have been converted.
 
 Series
B
 
 Effective
July 2006, each share of the Company’s Series B Preferred Stock is convertible
into 10.355 shares of the Company’s common stock, subject to proportional
adjustment for stock-splits, stock dividends, and
recapitalizations.  The Series B Preferred Stock is convertible at the
option of the holder, but shall be automatically converted into the Company’s
common stock, at the then applicable conversion price, in the event that, during
any period of fifteen (15) consecutive trading days, the average closing price
per share of Quest’s common stock as reported on a national securities exchange,
the NASDAQ NMS or Small Cap Market, or the OTC Bulletin Board, equals or exceeds
$4.00 (subject to anti-dilution, recapitalization, and reorganization
adjustments).  The holders of the Series B Preferred Stock shall be
entitled to receive dividends on a pro-rata, as-if converted basis with the
Series A Preferred Stock.  The holders of the Series B Preferred Stock
shall also be entitled to receive, upon liquidation, an amount equal to $2.50
per share for the Series B Preferred Stock plus all declared and unpaid
dividends, in preference to the holders of the common stock.
 
 On July
27, 2006, the Company settled a third party complaint by the former owner of
Gwenco.  As part of the settlement, the Company issued 3,500,000
shares of common stock for the conversion of 337,991 shares of Series B
Preferred Stock issued pursuant to the purchase agreement with Gwenco,
Inc.
 
 On August
17, 2007, the Company effectuated a 4 to 1 reverse stock split.  As a
result of the reverse split, the conversion price was adjusted from $0.241422 to
$0.965688.
 
 On
December 14, 2007, the Company effectuated a 10 to 1 reverse stock
split.  As a result of the reverse split, the conversion price was
adjusted from $0.965688 to $9.65688.
 
 On
November 4, 2008, the Company effectuated a 10 to 1 reverse stock
split.  As a result of the reverse split, the conversion price was
adjusted from $9.65688 to $96.5688.
  F-33
 QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 Series
C
  On
January 17, 2007, the Company created a series of preferred stock known as
Series C Preferred Stock, par value $0.001 per share.  The conversion
price at which shares of common stock shall be deliverable upon conversion of
Series C Preferred Stock without the payment of any additional consideration by
the holder thereof is the lesser of (i) $0.008 per share or (ii) 100% of the
average of the 5 closing bid prices of the common stock immediately preceding
such conversion date.  Holders of the Series C Preferred Stock shall
be entitled to receive dividends or other distributions with the holders of our
common stock on an as converted basis when, as, and if declared by our board of
directors.  The holders of the Series C Preferred Stock shall also be
entitled to receive, upon liquidation, an amount equal to $1.00 per share of the
Series C Preferred Stock plus all declared but unpaid dividends with respect to
such shares.  The shares of Series C Preferred Stock are not
redeemable.
 
 On all
matters submitted to a vote of the holders of the common stock, including,
without limitation, the election of directors, a holder of shares of the Series
C Preferred Stock shall be entitled to the number of votes on such matters equal
to the product of (a) the number of shares of the Series C Preferred Stock held
by such holder, (b) the number of issued and outstanding shares of our common
stock, as of the record date for the vote, or, if no such record date is
established, as of the date such vote is taken or any written consent of
stockholders is solicited, and (c) 0.000008.
 
 On
January 12, 2007, the Company entered into an indemnity agreement with the
Company’s President, who is also the Company’s Secretary and sole
director.  Under the indemnity agreement, the Company issued 260,000
shares of its Series C Preferred Stock to the President to indemnify him for a
loss he incurred when he delivered a personal guarantee in connection with a
loan agreement.  Under the loan agreement, the President personally
guaranteed repayment of the loan and pledged 2,000,000 shares of common stock
held by him as collateral for the amounts loaned under the loan
agreement.  The Company eventually defaulted under the loan agreement,
and the lender foreclosed on the shares which the President had
pledged.  On the date of foreclosure, the President’s shares had a
market value of approximately $260,000.  The board of directors has
determined that the President delivered the guarantee and pledged the shares in
the course and scope of his employment, as an officer and director, and for
benefit of the Company.  The board of directors has further determined
that the President’s conduct was in good faith and that he reasonably believed
that his conduct was in, or not opposed to, the best interests of the
Company.
 
 In
accordance with Emerging Issues Task Force Issue 98-5, Accounting for
Convertible Securities with a Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios (“EITF 98-5”), the Company also recognized an
imbedded beneficial conversion feature present in the Series C Preferred
Stock.  The Company allocated a portion of the proceeds equal to the
intrinsic value of that feature to additional paid in capital.  The
Company recognized and measured $257,347 of the proceeds, which is equal to the
intrinsic value of the imbedded beneficial conversion feature, to additional
paid in capital and as interest expense.
 
 The
issuance of the Series C Preferred Stock to the President effectively
transferred control of the Company to the President.
 
 On August
17, 2007, the Company effectuated a 4 to 1 reverse common stock
split.  As a result of the reverse split, the conversion price was
adjusted from the lower of $0.008 or 100% of the 5-day average to the lower of
$0.032 or 100% of the 5-day average.
 
 On
December 14, 2007, the Company effectuated a 10 to 1 reverse common stock
split.  As a result of the reverse split, the conversion price was
adjusted from the lower of $0.032 or 100% of the 5-day average to the lower of
$0.32 or 100% of the 5-day average.
 
 On
November 4, 2008, the Company effectuated a 10 to 1 reverse common stock
split.  As a result of the reverse split, the conversion price was
adjusted from the lower of $0.32 or 100% of the 5-day average to the lower of
$3.20 or 100% of the 5-day average.
  F-34
 QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 NOTE
      12 -
              COMMON
      STOCK
 
 On
February 9, 2007, the Company amended its articles of incorporation to increase
the number of shares of common stock that were authorized to issue from
250,000,000 to 975,000,000.
 
 On August
17, 2007, the Company effectuated a 1 to 4 reverse stock split resulting in a
644,867,576 reduction of shares from 859,823,718 common shares outstanding to
214,956,142 common shares outstanding.  The reverse stock split did
not affect the amount of authorized shares of the
Company.  Additionally, the board approved the issuance of up to 500
shares of the Company’s common stock for rounding up of fractional shares in
connection with the reverse stock split, of which, 213 shares were
issued.  In conjunction with the reverse stock split, the Company’s
stock symbol on the OTC Bulletin Board Symbol was changed to QMMC.
 
 On
December 14, 2007, the Company effectuated a 1 to 10 reverse stock split
resulting in a 331,309,124 reduction of shares from 368,121,581 common shares
outstanding to 36,812,457 common shares outstanding.  The reverse
stock split did not affect the amount of authorized shares of the
Company.  Additionally, the board approved the issuance of up to 500
shares of the Company’s common stock for rounding up of fractional shares in
connection with the reverse stock split.  In conjunction with the
reverse stock split, the Company’s stock symbol on the OTC Bulletin Board Symbol
was changed to QMNM.
 
 On
September 9, 2008, the Company amended its articles of incorporation to increase
the number of shares of common stock that were authorized to issue from
975,000,000 to 2,500,000,000.
 
 On
November 4, 2008, the Company effectuated a 1 to 10 reverse stock split
resulting in a 961,576,530 reduction of shares from 1,068,418,367 common shares
outstanding to 106,841,367 common shares outstanding.  The reverse
stock split did not affect the amount of authorized shares of the
Company.  Additionally, the board approved the issuance of up to 500
shares of the Company’s common stock for rounding up of fractional shares in
connection with the reverse stock split.  In conjunction with the
reverse stock split, the Company’s stock symbol on the OTC Bulletin Board Symbol
was changed to QMLM.
 All
references in the financial statements and notes to financial statements,
numbers of shares, and share amounts have been retroactively restated to reflect
the reverse splits, unless explicitly stated otherwise.
 During
the year ended December 31, 2007, holders of Amended and Restated 7% Senior
Secured Promissory Notes effectuated a series of partial conversions and were
issued an aggregate of 518,670 shares of common stock at a conversion price
averaging approximately $1.70 per share.  In the aggregate, these
issuances reduced the debt by $671,598 in principal and $65,849 in accrued
interest.
 
 During
the year ended December 31, 2007, the Holder of an Amended and Restated 12%
Promissory Note effectuated a series of partial conversions and were issued an
aggregate of 215,873 shares of common stock at a conversion price averaging
approximately $1.28 per share.  In the aggregate, these issuances
reduced the debt by $180,692 in principal and $15,858 in accrued
interest.
 
 During
the year ended December 31, 2007, the Holder of various judgments, judgment
liens, security interests, and lines of credit, based on notes issued to
National City Bank of Kentucky, effectuated a series of partial conversions and
were issued an aggregate of 1,712,500 shares of common stock at a conversion
price averaging approximately $0.31 per share.  In the aggregate,
these issuances reduced the debt by $389,745 in principal and $34,255 in accrued
interest.
  F-35
 QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 During
the year ended December 31, 2007, holders of the Company’s Series A Preferred
Stock converted an aggregate of 5,467 shares into 340,000 shares of common
stock, at a conversion price averaging $0.048 per share.
 
 In the
year ended December 31, 2007, the Company issued an aggregate of 982,000 shares
of common stock to various consultants.  Expense of $609,355 was recorded
related to these shares, which was the market value of such shares issued at
prices varying from $0.11 to $4.80 per share.
 
 During
the year ended December 31, 2007, the Company issued 125,000 shares of common
stock as compensation towards back salaries owed to the Company’s President.
Expense of $110,000 was recorded related to these shares, which was the market
value of such shares issued, at prices varying from $0.60 to $1.70 per
share.
 
 In
January, 2007, the Company entered into an exchange agreement with a noteholder
and holders of 15,000 shares of the Company’s common stock, under which the
holders exchanged the note and the 15,000 shares of the Company’s common stock
for a series of new 8% Secured Convertible Promissory Notes in the aggregate
principal amount of $635,000.  See Note 9.  The shares were
returned to treasury.
 
 On
February 20, 2007, holders of these notes effectuated a series of conversions
and were issued 50,000 shares of common stock at a conversion price of $2.00 per
share.  These issuances reduced the debt by $100,000 in
principal.
 
 On March
5, 2007, the Company issued 167 shares of common stock at $0.40 per share upon
cashless exercise of 375 Series A and Series B Warrants.
 
 On June
27, 2007, the Company issued 8,369 shares of common stock in exchange for an
outstanding convertible promissory note in the principal amount of $25,000
pursuant to an exchange agreement.
 
 On
December 14, 2007, the Company issued 209,471 shares of common stock at $0.01
per share in error to Gross Foundation due to a communication oversight to the
transfer agent relating to the time in which the 1 to 10 reverse split was
effectuated.  The Company valued the issuance at market price and has
posted a capital allowance of $29,326 until the issuance can be
reconciled.
 
 During
the year ended December 31, 2008, holders of Amended and Restated 7% Senior
Secured Promissory Notes effectuated a series of partial conversions and were
issued an aggregate of 4,714,259 shares of common stock at a conversion price
averaging approximately $0.368 per share.  In the aggregate, these
issuances reduced the debt by $195,452 in principal and $30,295 in accrued
interest.
 
 During
the year ended December 31, 2008, holders of a restated 12% Promissory Note
effectuated a series of partial conversions and were issued an aggregate of
1,785,587 shares of common stock at a conversion price averaging approximately
$0.035 per share.  In the aggregate, these issuances reduced the debt
by $32,399 in principal and $8,042 in accrued interest.
 
 During
the year ended December 31, 2008, the holder of a 15% Promissory Note
effectuated a series of partial conversions and was issued an aggregate of
3,197,713 shares of common stock at a conversion price averaging approximately
$0.013 per share.  In the aggregate, the issuances reduced the debt by
$32,777 in principal and $1,294 in accrued interest.
  F-36
 QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 During
the year ended December 31, 2008, holders of the Company’s Series A Preferred
Stock converted an aggregate of 422,341 shares into 69,896,654 shares of common
stock, at a conversion price averaging $0.0052 per share.
 
 During
the year ended December 31, 2008, the Company issued an aggregate of 55,049,130
shares of common stock to various consultants.  Expense of $1,086,652 was
recorded related to these shares, which was the market value of such shares
issued at prices varying from $0.02 to $0.029 per share.
 
 During
the year ended December 31, 2008, the Holder of various judgments, judgment
liens, security interests, and lines of credit, based on notes issued to
National City Bank of Kentucky, effectuated a series of partial conversions and
were issued an aggregate of 6,967,725 shares of common stock at a conversion
price of $0.01 per share.  In the aggregate, these issuances reduced
the debt by $65,589 in principal and $4,088 in accrued interest.
 
 During
the year ended December 31, 2008, the holders of a 6% convertible promissory
note effectuated a series of partial conversions and were issued an aggregate of
104,707,100 shares of common stock at a conversion price of $0.01 per
share.  In the aggregate, these issuances reduced the debt by $301,500
in principal and $1,207 in accrued interest.
 
 On March
20, 2008, Gross Foundation returned 209,471 shares of common stock that were
issued to them in error on December 14, 2007.  The Company had issued
209,471 shares of common stock in error to due to a communication oversight to
the transfer agent relating to a conversion notice during the time in which the
Company’s 1 to 10 reverse split was effectuated.  The issuance was
valued at market price and a capital allowance of $29,326 was posted until it
could be reconciled.  The shares were subsequently cancelled and the
allowance was credited.
 
 On August
13, 2008, the Company issued 2,100,000 shares of common stock a third party
lender at $.048 per share pursuant to an exchange agreement, which satisfied an
8% convertible note in the principal amount of $100,000 dated April 1, 2008 and
all accrued interest thereon.
 
 On
October 6, 2008, the Company issued 50,000 shares of common stock a third party
lender per share pursuant to an exchange agreement, which satisfied a 7%
convertible secured note in the principal amount of $25,000 dated March 4, 2005
and all accrued interest thereon.
  F-37
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
  NOTE
      13 -
              STOCK
      OPTION / WARRANTS
 
 Stock
      Option / Warrant Issuances Outstanding consist of the
      following:
                                              
                                              
                                              December
      31,
                                                2008Warrants
                                              
                                              
                                              Exercise
                                                Price
                                              
                                              
                                              ValuationDecember
      17, 2004 issuance of 1,500 warrants; expiration 2009 (a).
                                              
                                              
                                              1,500
                                              
                                              
                                              
                                              600.00
                                              
                                              
                                              
                                              -December
      21, 2004 issuance of 500 warrants; expiration 2009 (b).
                                              
                                              
                                              500
                                              
                                              
                                              
                                              600.00
                                              
                                              
                                              
                                              -March
      4, 2005 issuance of 1,125 series A warrants; expiration 2010
      (c).
                                              
                                              
                                              1,125
                                              
                                              
                                              
                                              200.00
                                              
                                              
                                              
                                              -March
      4, 2005 issuance of 1,125 series B warrants; expiration 2010
      (c).
                                              
                                              
                                              1,125
                                              
                                              
                                              
                                              400.00
                                              
                                              
                                              
                                              -April
      5, 2006 issuance of 2,968 warrants; expiration 2009 (d).
                                              
                                              
                                              0
                                              
                                              
                                              
                                              84.00
                                              
                                              
                                              
                                              -May
      18, 2006 issuance of 7,500 options; expiration 2011 (e).
                                              
                                              
                                              7,500
                                              
                                              
                                              
                                              20.00
                                              
                                              
                                              
                                              143,054July
      3, 2008 issuance of 2,500,000 options; expiration 2018
(f).
                                              
                                              
                                              2,500,000
                                              
                                              
                                              
                                              .24
                                              
                                              
                                              
                                              500,000September
      23, 2008 issuance of 2,500,000 options; expiration 20181
    (g).
                                              
                                              
                                              2,500,000
                                              
                                              
                                              
                                              .044
                                              
                                              
                                              
                                              82,500TOTALS:
                                              
                                              
                                              5,011,750
                                              
                                              
                                              
                                              
                                              
                                              
                                              $
                                              725,554
 
 Avg.Warrants
                                              
                                              
                                              Ex. Price ($)
                                              
                                              
                                              ValuationTotal
      Options / Warrants outstanding as of December 31, 2007
                                              
                                              
                                              16,218
                                              
                                              
                                              $
                                              168.00
                                              
                                              
                                              
                                              143,055Options
      / Warrants Issued
                                              
                                              
                                              5,000,000
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              582,500Options
      / Warrants Expired / Cancelled
                                              
                                              
                                              (4,468
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (365
                                              )Options
      / Warrants Exercised
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Derivative
      Valuation Adjustment
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              364Total
      Options / Warrants outstanding as of December 31, 2008
                                              
                                              
                                              5,011,750
                                              
                                              
                                              $
                                              0.55
                                              
                                              
                                              
                                              725,554
 
 On
November 4, 2008, the Company effectuated a 1 to 10 reverse stock split
resulting in a 961,576,530 reduction of shares from 1,068,418,367 common shares
outstanding to 106,841,367 common shares outstanding.  The reverse
stock split did not affect the amount of authorized shares of the
Company.  Additionally, the board approved the issuance of up to 500
shares of the Company’s common stock for rounding up of fractional shares in
connection with the reverse stock split.  In conjunction with the
reverse stock split, the Company’s stock symbol on the OTC Bulletin Board Symbol
changed to QMLM.  All references to the issuance of warrants have been
retroactively adjusted to account for this subsequent event.
 
 (a)
                On
      December 17, 2004, the Company signed a 15% per annum promissory note with
      two third parties, each for $300,000 due on June 17, 2005.  The
      notes are secured by certain of the Company’s equipment.  In the
      event of default, the notes become convertible into shares of the
      Company’s common stock at the option of the holder at a conversion price
      of $40.00 per share.  As additional compensation to these
      lenders, the Company agreed to issue them 1,500 common stock warrants at
      $600.00.  The warrants have anti-dilution privileges and
      piggyback registration
rights.
  F-38
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
  (b)
              On
      December 21, 2004, the Company issued 500 common stock warrants at $600.00
      as finder’s fee.  The warrants have anti-dilution privileges and
      piggyback registration rights.
 
 (c)
              On
      March 4, 2005, the Company signed a series of unit purchase agreements
      with thirteen individual third-party lenders for a total sale amount of
      $375,000.  Each unit was sold at $25,000 and consisted of a 7%
      senior secured convertible note due March 6, 2006 and 375 Series A
      Warrants.  The notes are secured by certain of the Company’s
      assets and were initially convertible into shares of the Company’s common
      stock at the rate of $200.00 per share, which conversion price is subject
      to adjustment.  Each Series A Warrant is exercisable into one
      (1) share of common stock at an exercise price of $200.00 and one (1)
      Series B Warrant.  Each Series B Warrant is exercisable into one
      (1) share of common stock at an exercise price of
      $400.00.  During the three months ended March 31, 2007, 375
      Series A and Series B warrants were exercised on a cashless basis pursuant
      to the agreements.  On September 3, 2008, in connection with an
      exchange agreement involving related convertible debt, 750 Series A and
      Series B warrants were cancelled.
 
 (d)
              On
      April 5, 2006, the Company issued an aggregate of 1.25 units at a price of
      $100,000 per unit.  The aggregate gross proceeds from the sale
      of the units were $125,000.  Each unit consists of a convertible
      promissory note in the principal amount of $100,000 and warrants to
      purchase shares of the Company’s common stock at an exercise price of
      $84.00 per share.  The unit notes are due on July 5,
      2007.  The notes bear interest at a rate of six percent (6%) and
      are convertible into Quest common shares at an initial conversion price of
      $42.00 per share, subject to adjustment, including a “weighted-average”
      reduction of the conversion price in the event that the Company issued
      additional stock or stock equivalents at a price lower than the conversion
      price.  Commencing on the fifth month of the notes, the Company
      must make amortizing payments of the outstanding principal amount and
      interest on each note until the principal amount and interest have been
      paid in full, either in cash of 102% of the monthly amount due or by
      conversion of such amount into our common shares at a conversion rate of
      seventy-five percent of the volume weighted average price of our common
      shares for the five trading days prior to a conversion date, subject to
      certain limitations.  Based on the calculation terms of the
      agreement, a total of 2,968 warrants were issued.  On April 1,
      2008, the company entered into an agreement with one of the remaining
      lenders where one unit consisting of a $100,000 promissory note and 2,374
      warrants was exchanged for a 7% convertible note due March 31,
      2009.  The existing warrants were subsequently cancelled upon
      issuance of this agreement.
 
 (e)
              On
      May 18, 2006, the Company granted non-qualified options to honor
      employment agreements previously entered into with each of its President
      and Vice President.  Each agreement called for the President and
      Vice President to receive options to purchase up to 12,500 shares of the
      Company’s common stock pursuant to a new stock compensation plan adopted
      by the Company.  The options would be exercisable at $20.00 per
      share, the fair market value at the time of grant, and would vest as
      follows:  (i) options to purchase up to 5,000 shares vesting
      immediately, (ii) options to purchase up to 5,000 shares vesting upon the
      Company’s receipt of an aggregate of $25,000 in cash or cash equivalents
      in its accounts, and (iii) options to purchase up to 2,500 shares vesting
      six months after the date of the option agreements.  The 12,500
      options were valued at $476,846 using the Black Scholes method, of which
      $286,108 was deferred against Paid-in capital.  Since 5,000 of
      these options would vest six months from issuance and 7,500 would vest
      upon a stipulated performance, the Company has accrued a deferred stock
      compensation allowance against the issued capitalization.  On
      May 31, 2006, the Company’s then-President resigned.  The
      Company and the former President then entered into a consulting agreement,
      under which it was agreed that 5,000 options initially awarded to him
      would remain vested and 2,500 options would be allowed to vest in six
      months.  5,000 options that vested upon the Company’s raising
      one million dollars were mutually voided.  The Company credited
      both the deferred stock compensation and the accrued paid-in capital by
      $95,369, which reversed the valued portion of the issuance.  On
      November 18, 2006, the 5,000 options vested pursuant to the
      agreements.  The Company adjusted the deferred stock
      compensation and expensed $95,369 for compensation.  On January
      2, 2007, the current President (former Vice President) and the Company
      mutually agreed to cancel his stock option
  agreement.
  F-39
 QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 (f)
              On
      July 3, 2008, the Company entered into an Incentive Stock Option
      Agreement, pursuant to the corporation’s 2006 Stock Incentive Plan, in
      which 2,500,000 stock options were granted to the President of the
      corporation.  It was noted that it was in the best interests of
      the corporation to compensate the President for his responsibilities
      regarding all of the day-to-day operations with these options as an
      incentive for his continued services as President.  The options
      have an exercise price of $.24 and carry a ten (10) year expiration
      period.  The Company expensed $500,000 against paid-in capital
      based on the Black Scholes method to accrue capitalization costs on future
      exercise of the options relative to the market valuation of the common
      stock at the time of the agreement.
 
 (g)
              On
      September 23, 2008, the Company entered into an Incentive Stock Option
      Agreement, pursuant to the corporation’s 2007 Stock Incentive Plan, in
      which 2,500,000 stock options were granted to the President of the
      corporation.  It was noted that it was in the best interests of
      the corporation to compensate the President for his responsibilities
      regarding all of the day-to-day operations with these options as an
      incentive for his continued services as President.  The options
      have an exercise price of $.0044 and carry a ten (10) year expiration
      period.  The Company expensed $82,500 against paid-in capital
      based on the Black Scholes method to accrue capitalization costs on future
      exercise of the options relative to the market valuation of the common
      stock at the time of the agreement.
 
 NOTE
      14 -
              STOCK
      COMPENSATION PLAN
 
 On May 8,
2006, the board of directors of the Company adopted its 2006 Stock Incentive
Plan, which allows for the issuance of up to 23,000,000 shares of the Company’s
Common Stock to officers, employees, directors, consultants, and
advisors.  The board of directors also authorized the filing of a Form
S-8 Registration Statement with the Securities and Exchange Commission for the
issuance of shares under the Plan.
 
 On
September 27, 2006, the board of directors of the Company adopted its 2006 Stock
Incentive Plan No. 2, which allows for the issuance of up to 30,000,000 shares
of the Company’s Common Stock to officers, employees, directors, consultants,
and advisors.  The board of directors also authorized the filing of a
Form S-8 Registration Statement with the Securities and Exchange Commission for
the issuance of shares under the Plan.
 
 On
February 21, 2007, the board of directors of the Company adopted its 2007 Stock
Incentive Plan, which allows for the issuance of up to 70,000,000 shares of the
Company’s Common Stock to officers, employees, directors, consultants, and
advisors.  The board of directors also authorized the filing of a Form
S-8 Registration Statement with the Securities and Exchange Commission for the
issuance of shares under the Plan.
  F-40
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
  On
November 19, 2007, the board of directors of the Company adopted its 2007 Stock
Incentive Plan No. 2, which allows for the issuance of up to 97,500,000 shares
of the Company’s Common Stock to officers, employees, directors, consultants,
and advisors.  The board of directors also authorized the filing of a
Form S-8 Registration Statement with the Securities and Exchange Commission for
the issuance of shares under the Plan.
 
 On August
17, 2007, the Company effectuated a 1 to 4 reverse stock split.
 On
December 14, 2007, the Company effectuated a 1 to 10 reverse stock
split.
 On
November 4, 2008, the Company effectuated a 1 to 10 reverse stock
split
 
 In
connection with each reverse stock split, pursuant to each plan, the Company’s
board of directors determined that the number of shares subject to previously
outstanding stock awards should be adjusted in proportion to the respective
reverse split.  As a result, after each reverse split, the number of
shares subject to stock awards was reduced in proportion to the reverse
split.  However, in accordance with each plan, the maximum number of shares
of common stock that may be issued and sold under any awards granted under each
plan was not reduced as a result of the reverse split and, accordingly, the
total number of shares available under the plan after each reverse split
remained the same as it was before such reverse split.  Pursuant the
terms of each plan, the board of directors has full authority to interpret the
plans, and that interpretation is binding upon all parties.
  All
references to available common stock issued or reserved per plan have been
retroactively adjusted to account for the reverse stock splits effectuated in
2007 and 2008.  As of December 31, 2008, the following schedule shows
the remaining shares available for issuance under each plan:
 
 Plan
                                
                                Authorized
                                
                                
                                Granted
      /
                                  Reserved
                                
                                
                                Balance
                                  Available2004
      Stock Compensation Plan
                                
                                
                                17,500,000
                                
                                
                                
                                43,750
                                
                                
                                
                                17,456,2502005
      Stock Incentive Plan
                                
                                
                                7,000,000
                                
                                
                                
                                17,438
                                
                                
                                
                                6,982,5632005
      Stock Incentive Plan No. 2
                                
                                
                                2,000,000
                                
                                
                                
                                5,000
                                
                                
                                
                                1,995,0002006
      Stock Incentive Plan
                                
                                
                                23,000,000
                                
                                
                                
                                1,554,110
                                
                                
                                
                                21,445,8902006
      Stock Incentive Plan No. 2
                                
                                
                                30,000,000
                                
                                
                                
                                2,573,400
                                
                                
                                
                                27,426,6002007
      Stock Incentive Plan
                                
                                
                                70,000,000
                                
                                
                                
                                6,936,750
                                
                                
                                
                                63,063,2502007
      Stock Incentive Plan No. 2
                                
                                
                                97,500,000
                                
                                
                                
                                44,093,630
                                
                                
                                
                                53,406,370
  F-41
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
  NOTE
      15 -
              RELATED
      PARTY TRANSACTIONS
 
 The
Company has guaranteed payment on a note in the amount of $300,000 made to a
former stockholder of Gwenco by another former stockholder of
Gwenco.  This note is secured by 50% of the outstanding capital stock
of Gwenco.  The debt required 4 annual payments of approximately
$75,000 plus interest.  As of December 31, 2005, the Company was in
default.  Additionally, a 3.7% annual rate note in the amount of
$495,000 due in December 2007 was agreed upon in consideration for royalties to
be paid out on a schedule based on the level of production from the
mine.  Since the initial agreement was made effective in March of
2004, the Company has accrued two years of interest expense and has adjusted its
paid in capital to reflect the future correction on the issuance of preferred
stock associated with the original acquisition of Gwenco.  On August
24, 2006, the Company amended the original note of $300,000 to $180,884, which
included the remaining principal and interest, which has an interest rate of
5.21% and is due on September 24, 2009.  The Company also amended the
$495,000 note due on December 10, 2007 to $545,473, which also included the
accrued interest; having an interest rate of 5.26% to be paid through monthly
payments equal to the sum of $.50 per clean sellable ton of coal removed the
property.
 
 During
January of 2006, the Company entered into a loan agreement to receive up to
$300,000 in funds for operations in return for a 12% percent note due in May of
2006.  As additional collateral, the officers of the Company
guaranteed the loan and pledged their own shares of common stock.  As
of the three months ended March 31, 2006, the lender had made advances totaling
$132,000.  On April 3, 2006, the lender declared a default under the
terms of the loan agreement.  The Company failed to repay the lender
as required under the loan agreement.  The lender then enforced
guarantees made by the officers of the Company and foreclosed on shares of the
officer’s common stock pledged to the lender to secure the
guarantee.  Along with accrued interest, the Company recorded an
accrued liability for indemnification obligations to the officers of $390,000,
the fair value of the pledged shares lost in the foreclosure.
 
 On
January 12, 2007, the Company entered into an indemnity agreement with the
Company’s President, who is also the Company’s Secretary and sole
director.  Under the indemnity agreement, the Company issued 260,000
shares of its Series C Preferred Stock to the President to indemnify him for the
loss he incurred as a result of the foreclosure by the lender on the shares,
which the President had pledged.  On the date of foreclosure, the
President’s shares had a market value of approximately $260,000.  The
board of directors has determined that the President delivered the guarantee and
pledged the shares in the course and scope of his employment, as an officer and
director, and for benefit of the Company.  The board of directors has
further determined that the President’s conduct was in good faith and that he
reasonably believed that his conduct was in, or not opposed to, the best
interests of the Company.  The Company recorded a beneficial
conversion expense of $292,500 as a result of the issuance of the Series C
Preferred Stock.  The issuance of the Series C Preferred Stock to the
President effectively transferred control of the company to the
President.  The Company is currently negotiating the terms of
indemnification of with the other former officer as a result of this
foreclosure.
 
 On
January 6, 2008, the Company amended a two-year agreement acquiring
administrative services from a third party consulting company owned by the son
of its president originally dated June 6, 2006.  The agreement
consisted of 2,500 shares of common stock as an initial grant under a Stock
Incentive Plan, along with a monthly payment of $6,500.  The initial
shares were valued at $35,000 and are being amortized over the term of the
agreement.  The amendment consisted of an additional issuance of
200,000 shares of common stock, and an increase of the monthly payment to $9,900
due to providing additional services with regards to the reorganization of the
Company’s wholly owned subsidiary, Gwenco, Inc., which is currently under
Chapter 11.
  F-42
 QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 NOTE
      16 -
              COMMITMENTS
      AND CONTINGENCIES
  On
December 8, 2005, the Company entered into an employment agreement with the
Company's President.  The agreement is for five years and provides for
an annual base salary during the term of the agreement as follows: (i) an annual
base salary of $120,000 for the first year of the agreement; (ii) an annual base
salary of $180,000 for the second year of the agreement; (iii) an annual base
salary of $240,000 for the third year of the agreement; (ii) an annual base
salary of $300,000 for the fourth year of the agreement; (ii) an annual base
salary of $360,000 for the fifth year of the agreement.  In addition,
the President received options to purchase up to 12,500 shares of Quest's common
stock at an exercise price of $20.00 per share.  The President and the
Company mutually agreed to cancel this option in 2007.  The agreement
also contains the following material provisions:  (i) participation in
the Company's executive bonus plan on the same basis as other senior executive
officers of the Company; (ii) reimbursement for all reasonable travel and other
out-of-pocket expenses incurred in connection with his employment; (iii) four
(4) weeks paid vacation leave, which shall accumulate in the event that the
President elects not to take such vacation leave in any fiscal year; (iv)
medical and dental benefits as those provided to other senior executive officers
of the Company; (v) a severance payment of six (6) month's salary at the
then-applicable base salary rate in the event that the Company terminates the
President's employment without cause; (vi)  a severance payment of all
base salary due under the remaining term of the employment agreement in the
event that the President's employment is terminated due to death or disability;
(vii) a payment of 5,000,000 shares of the Company's common stock in the event
of a change in control of the Company as such term is defined in the employment
agreement; (viii) a severance payment, at the President's election, in the event
that (a) the President is required to relocate as a condition of employment, (b)
there is a substantial change in the President's responsibilities at the
direction of the Company's board of directors, or (c) a change in control of the
Company.
  The
Company is subject to certain asserted and unasserted claims encountered in a
fraud action committed by former employees of the Company against a local
bank.  It is the Company’s belief that the resolution of these matters
will not have a material adverse effect on the financial position or results of
operations, however, the Company cannot provide assurance that damages that
result in a material adverse effect on its financial position or results of
operations will not be imposed in these matters.
 
 On or
about December 21, 2004, the Company terminated its Chief Financial Officer for
cause, as it had reason to believe he had participated in a bank fraud
scheme.  The Chief Financial Officer’s replacement has not been
appointed at this time.
 
 During
the period ended December 31, 2004, the Company’s bank initiated a claim for an
overdraft recovery.  Since it was later determined that there was a
much larger malice perpetrated against the Company by existing bank employees,
allowances have been accrued until a resolution can be
determined.  The bank’s insurer commenced an action in Pike County
Court, Kentucky against Quest Energy, the Company’s subsidiary, for subrogation
of monies it has paid to the bank and repayment of deductibles by the bank as a
part of an alleged criminal scheme and conspiracy by former employees of the
bank and other individuals.  The insurer alleged that former employees
or associates of Quest Energy, including the Company’s former CEO and CFO, were
primarily involved in the alleged scheme, that Quest Energy is accordingly
responsible for the actions of these former employees and associates, and that
Quest Energy obtained a substantial material benefit as a result of this alleged
scheme.  Quest Energy has denied these allegations, that it had any
involvement with or responsibility for any of the actions alleged by the
insurer, and it further denies that it has benefited from any such alleged
scheme.  Further, Quest Energy filed a counterclaim against the bank
and the insurer contending that the negligent actions and inactions by the bank
caused severe damage and loss to Quest Energy and the Company.
 
 Since
management has determined that the existing liabilities and debt from the
Company were all related to the issues involving these claims, the assets have
been written down in consideration for the allowance already accrued by the
Company.  The Company has accrued the existing liabilities until
validity can be determined.  As of December 31, 2008, no outcome has
been determined.
 
 In light
of these occurrences and due in part to the apparent participation of its former
Chief Financial Officer in this scheme, the Company determined that the design
and operation of its disclosure controls and procedures, as defined in Exchange
Act Rule 13a-15(f) have not been effective to ensure that information required
to be disclosed in its Exchange Act reports is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms, and that such information is accumulated and
communicated to them to allow timely decisions regarding required
disclosure.  The Company is currently reviewing and revising its
controls and procedures to increase the effectiveness of its disclosure controls
and procedures.
 
 In or
about May 2004, National City Bank of Kentucky commenced an action in Boyd
County Court, Kentucky against the Company’s indirect wholly owned subsidiary,
Gwenco, Inc., and a former director of the Company for breach of various
promissory notes issued by Gwenco.  Duke Energy Merchants and First
Sentry Bank were joined in the action.  National City Bank and Duke
Energy are collectively seeking approximately $1,100,000 in principal as well as
interests, fees, and costs.  National City Bank has obtained judgment
in that action in the amount of approximately $340,000, and Duke Energy has
obtained judgment in the amount of approximately $670,000 as
well.
  F-43
 QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 In March,
2006, National City Bank commenced an action commenced an action in Pike County
Court, Kentucky against the Company, Gwenco, Inc., and Quest Energy, Ltd.
seeking to be adjudged a lien on certain real and personal property of Gwenco
pursuant to the aforementioned judgment and that said real and personal property
be sold to satisfy the aforesaid lien, and that the liens of National City Bank
attach to the proceeds of the sale.   The Company intends to
defend this action while continuing negotiations with National City
Bank.  On July 19, 2006, National City Bank of Kentucky sold its
right, title, and interest in and to various judgments, judgment liens, security
interests, and lines of credit, all of which are based on the Gwenco notes
issued to National City Bank of Kentucky, to a third party
investor.  The third party investor has agreed to forbear on further
collection, enforcement, and foreclosure with respect to this indebtedness until
further notice.
 
 On May
11, 2005, the former director of the Company, who is also the former stockholder
of Gwenco, filed a third party complaint in this action against the Company and
its subsidiary, Taylor Mining, seeking control of the mines leased by Gwenco
and/or damages for fraud in the inducement of the Gwenco purchase
agreement.  On July 27, 2006, the Company settled the third party
complaint by the former owner of Gwenco.  As part of the settlement,
Gwenco received mining permit renewal and transfer documentation, which Gwenco
is required to obtain in order to recommence mining operations at its Pond Creek
mine at Slater’s Branch, Kentucky.  Further, the former Gwenco owner
agreed to provide all reasonable cooperation in recommencing mining operations
at the Slater’s Branch mine.  The parties also agreed to terminate all
remaining rights, duties, and obligations under the original stock purchase
agreement entered into in connection with the acquisition of Gwenco by the
Company.  The Company made a one-time cash payment of $75,000 and
issued 350,000 shares of the Company’s common stock, subject to a lock-up/leak
out agreement, to the former owner of Gwenco, upon conversion of his Series B
Preferred Stock, the terms of which were amended under the settlement
agreement.  The Company also granted the former owner of Gwenco a
sliding scale royalty on coal sales.  The Company also assumed two
promissory notes made by the former owner of Gwenco in the aggregate principal
amount of $290,561.  The notes are in default.  The parties
mutually dismissed their respective counter-claims against each other in the
civil action pending in Boyd County Court, Kentucky.
 
 The
Company has not filed corporate federal, and state and local income tax returns
since 2002, and believes that, due to its operating losses, it does not have a
material tax liability and the penalties owed are minimal.The
failure to file income tax returns may invoke penalties for failure to file from
the taxing authorities but these penalties are small in amounts and the company
had large losses in every one of the filing periods.
  On July
10, 2006, the Company entered into a settlement arrangement with an existing
equipment lessor for the bill of sale on two pieces of equipment, of which the
Company had retained possession while in default of prior lease
payments.  On October 10, 2006, the Pike County Circuit court entered
an order enforcing this settlement agreement, and on December 19, 2006, the
lessor was awarded summary judgment in the amount of $35,000 plus 8% accrued
interest from August 9, 2006.  As of December 31, 2008, the Company
remains in default.
  Certain
former owners of Gwenco commenced an action in the Circuit Court of Pike County
against Gwenco for damages resulting from an alleged failure to pay past
royalties and other amounts allegedly due.  On May 19, 2006, the
former owners obtained a default judgment in this action in the amount of
$687,391, from which Gwenco has taken appeal.  The plaintiffs then
amended their complaint, seeking to be adjudged a lien on certain real and
personal property of Gwenco pursuant to the aforementioned judgment and that
said real and personal property be sold to satisfy the aforesaid lien, and that
the liens of the plaintiffs attach to the proceeds of the
sale.  Gwenco believes that it has several meritorious defenses and
counterclaims to this action and intends to defend it
vigorously.   This foreclosure action was stayed against Gwenco
as a result of Gwenco’s filing of a voluntary petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code.
  F-44
 QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 On
February 28, 2007, one of the Company’s wholly-owned subsidiaries, Gwenco, Inc.,
filed a voluntary petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code.  Neither the Company nor any of its other
subsidiaries were included in the filing.  As a result, all pending
legal actions against Gwenco, including the pending foreclosure actions, were
automatically stayed.
 
 On June
20, 2007, Gwenco entered into a settlement agreement with one of the former
owners, pursuant to which the former owner agreed to accept payment of $150,000
in exchange for a release of the judgment amount of $458,260.  The
settlement agreement is subject to approval by the Bankruptcy
Court.  On July 17, 2007, the Bankruptcy Court approved the settlement
agreement, subject to Gwenco’s receipt of debtor-in-possession
financing.  On August 3, 2007, the Court approved Gwenco’s
debtor-in-possession financing and the settlement agreement became
effective.  On August 10, 2007, escrowed funds were transferred to
complete the settlement.
 
 On August
15, 2007, the U.S. Bankruptcy Court approved a DIP Financing Motion authorizing
the Company’s wholly owned subsidiary, Gwenco, Inc., which is currently in
Chapter 11 reorganization proceedings, to borrow up to $2,000,000 (“Total
Facility”) in post-petition debt from a pre-petition creditor pursuant to a
Debtor-In –Possession loan agreement and promissory note between Gwenco and the
lender dated June 29, 2007.  Additionally, the Court approved prior
budgeted advances from July of up to $350,000, which, in turn, adjusted the
Total Facility to $1,700,000.  The loan advances carry a 17% interest
rate per annum and matured on July 31, 2008.
 
 As of
December 31, 2008, Gwenco’s bankruptcy counsel had accrued an additional $12,292
in fees from their initial $20,000 retainer; and is waiting on approval from the
court to be paid.  Although, continuing legal costs are accruing, the
Company has made an advance payment of $3,500 towards the pending fees as of
December 31, 2008.
 
 As of
December 31, 2008, Gwenco had assets of $5,645,152, which included all of the
mineral rights of the Company valued at $5,203,414 and liabilities (other than
liabilities that have been guaranteed by the Company or another of its
wholly-owned subsidiaries) of $6,843,858.  Of these liabilities,
$3,417,463 was owed to Quest Minerals & Mining and Quest Energy,
Ltd.  These receivables are unsecured and Quest Minerals & Mining
and Quest Energy, Ltd have reserved 100% of the receivable as doubtful at
December 31, 2008.   Gwenco also currently holds all of the
company’s current receivables, which are restricted to specific limitations,
since the company now acts as a Debtor in possession (DIP) as per the Chapter 11
requirements.
  F-45
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 The
following is the consolidating balance sheet of the Company at December 31,
2008, which includes Gwenco, Inc. and the Company and its other
subsidiaries:
 QUEST
MINERALS & MINING CORP.
 
 CONSOLIDATING
BALANCE SHEET
 DECEMBER
31, 2008
  QUEST
      &SUB
                        
                        
                        GWENCO
                        
                        
                        ADJUSTMENTS
                        
                        
                        CONSOLIDATEDASSETSCurrent
      AssetsCash
                        
                        
                        13,439
                        
                        
                        
                        -
                        
                        
                        $
                        
                        
                        
                        $
                        13,439Total
      current assets
                        
                        
                        13,439
                        
                        
                        
                        -
                        
                        
                        
                        
                        
                        
                        
                        13,439Leased
      Mineral Reserves, net (Note 2 & 5)
                        
                        
                        -
                        
                        
                        
                        5,203,414
                        
                        
                        
                        
                        
                        
                        
                        5,203,414Mine
      Development, net
                        
                        
                        -
                        
                        
                        
                        226,406
                        
                        
                        
                        
                        
                        
                        
                        226,406Equipment,
      net (Note 6)
                        
                        
                        -
                        
                        
                        
                        157,271
                        
                        
                        
                        
                        
                        
                        
                        157,271Deposits
                        
                        
                        -
                        
                        
                        
                        42,442
                        
                        
                        
                        
                        
                        
                        
                        42,442Prepaid  Expense
                        
                        
                        -
                        
                        
                        
                        1,993
                        
                        
                        
                        
                        
                        
                        
                        1,993Intercompany,net
                        
                        
                        -Deferred
      Financing costs, net
                        
                        
                        226
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        226DIP
      Cash, restricted
                        
                        
                        
                        
                        
                        
                        12,395
                        
                        
                        
                        
                        
                        
                        
                        12,395DIP
      Receivable, restricted
                        
                        
                        -
                        
                        
                        
                        1,230
                        
                        
                        
                        -
                        
                        
                        
                        1,230TOTAL
      ASSETS
                        
                        $
                        13,665
                        
                        
                        $
                        5,645,151
                        
                        
                        $
                        -
                        
                        
                        $
                        5,658,816LIABILITIES
      AND DEFICIENCY IN STOCKHOLDERS' EQUITYCurrent
      LiabilitiesAccounts
      payable and accrued expenses (Note 8)
                        
                        $
                        2,221,738
                        
                        
                        $
                        1,256,697
                        
                        
                        $
                        
                        
                        
                        $
                        3,478,435Loans
      payable-current portion, net (Note 9)
                        
                        
                        1,968,828
                        
                        
                        
                        229,130
                        
                        
                        
                        
                        
                        
                        
                        2,197,958Bank
      loans (Note 9)
                        
                        
                        0
                        
                        
                        
                        1,017,525
                        
                        
                        
                        
                        
                        
                        
                        1,017,525Related
      party loans (Note 9)
                        
                        
                        624,581
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        624,581DIP
      Financeing (Note 9)
                        
                        
                        -
                        
                        
                        
                        923,043
                        
                        
                        
                        -
                        
                        
                        
                        923,043TOTAL
      CURRENT LIABILITIES
                        
                        
                        4,815,147
                        
                        
                        
                        3,426,395
                        
                        
                        
                        
                        
                        
                        
                        8,241,542Long-Term
      LiabilitiesIntercompany
                        
                        
                        -
                        
                        
                        
                        3,417,463
                        
                        
                        
                        (3,417,463
                        )
                        
                        
                        -Loans
      payable-Long term portion, net (Note 9)
                        
                        
                        751,342
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        751,342TOTAL
      LIABILITIES
                        
                        
                        5,566,489
                        
                        
                        
                        6,843,858
                        
                        
                        
                        (3,417,463
                        )
                        
                        
                        8,992,884Commitments
      and Contingencies (Note 16)Deficiency
      in Stockholders' equityPreferred
      stock, par value $0.001, 10,000,000 shares authorized;SERIES
      A - issued and outstanding 25,526 shares
                        
                        
                        26
                        
                        
                        
                        -
                        
                        
                        
                        
                        
                        
                        
                        26SERIES
      B - issued and outstanding 48,284 shares
                        
                        
                        -
                        
                        
                        
                        48
                        
                        
                        
                        
                        
                        
                        
                        48SERIES
      C - issued and outstanding 260,000 shares
                        
                        
                        260
                        
                        
                        
                        -
                        
                        
                        
                        
                        
                        
                        
                        260Common
      stock, par value $0.001, 2,500,000,000 shares authorized; issued and
      outstanding 253,188,549 shares
                        
                        
                        253,189
                        
                        
                        
                        4,500
                        
                        
                        
                        (4,500
                        )
                        
                        
                        253,189Equity
      held in escrow (Note 12)
                        
                        
                        (587,500
                        )
                        
                        
                        -
                        
                        
                        
                        
                        
                        
                        
                        (587,500
                        )Common
      stock to be issued
                        
                        
                        5,648
                        
                        
                        
                        -
                        
                        
                        
                        
                        
                        
                        
                        5,648Paid-in
      capital (Note 14)
                        
                        
                        60,911,820
                        
                        
                        
                        2,557,048
                        
                        
                        
                        
                        
                        
                        
                        63,468,868Accumulated
      Deficit
                        
                        
                        (66,136,267
                        )
                        
                        
                        (3,760,303
                        )
                        
                        
                        3,421,963
                        
                        
                        
                        (66,474,607
                        )Total
      Deficiency in Stockholders' Equity
                        
                        
                        (5,552,824
                        )
                        
                        
                        (1,198,707
                        )
                        
                        
                        3,417,463
                        
                        
                        
                        (3,334,068
                        )TOTAL
      LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
                        
                        $
                        13,665
                        
                        
                        $
                        5,645,151
                        
                        
                        $
                        -
                        
                        
                        $
                        5,658,816
 F-46
 QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 In the
fourth quarter of 2008, a former attorney for the Company commenced an action
alleging breach of contract for unpaid legal fees.  The Company has
denied the allegations and is actively defending the
matter.  Furthermore, the Company has filed a counterclaim against the
attorney alleging legal malpractice in connection with the attorney’s
representation of the Company in several matters.  The matter is
currently pending.
 In
October 2008, the Company received a Wells notice (the “Notice”) from the staff
of the Salt Lake Regional Office of the Securities and Exchange Commission (the
“Commission”) stating that they are recommending an enforcement action be filed
against the Company based on the Company’s financial statements and other
information contained in reports filed with the Commission for the period 2004
and thereafter.  The Notice states that the Commission anticipates alleging
that we have violated Sections 10(b), 13(a) and 13(b)(2) of the Securities
Exchange Act of 1934, as amended and Rules 10b-5, 12b-20, 13a-1 and 13a-13
thereunder.  The Company contends that the Company did not commit any
wrongdoings or the violations referred to in the Notice.  The Company
cannot predict whether the Commission will follow the recommendations of the
staff and file suit against the Company.  If any enforcement
proceeding is instituted by the Commission, and intends to vigorously defend
itself against the Commission’s claims.
 
 The
Company believes that it may incur significant costs and expenses in connection
with this investigation.  There can be no assurance that litigation
asserting such claims will not be initiated, or that the Company would prevail
in any such litigation.
 
 The
Company is unable to predict the extent of its ultimate liability with respect
to any and all future securities, bankruptcy, or other litigation matters. 
The costs and other effects of any future litigation, bankruptcy proceedings,
government investigations, legal and administrative cases and proceedings,
settlements, judgments and investigations, claims and changes in these matters
could have a material adverse effect on the Company’s financial condition and
operating results.
 
 The
Company is subject to other legal proceedings and claims, which arise in the
ordinary course of its business.  Although occasional adverse
decisions or settlements may occur, the Company believes that the final
disposition of such matters should not have a material adverse effect on its
financial position, results of operations, or liquidity.
 
 NOTE
      17 -
              SUBSEQUENT
      EVENTS
 
 In 2009,
Gwenco commenced an adversary proceeding against two of the former owners of
Gwenco relating to the former owners’ claims against Gwenco.  One of
the claims is based upon the $229,130 default judgment described in Note 9 and
Note 16, and both claims are derived from accrued royalties owed to the former
owners.  In the adversary proceeding, Gwenco contends that the amounts
of the claims that should be allowed are substantially lower than the claims
presented by the former owners.  In addition, Gwenco contends that the
default judgment was obtained without proper service of process and is
void.  The adversary proceedings are currently pending.
 
 NOTE
      18 -
              RESTATEMENT
      OF PREVIOUSLY ISSUED FINANCIAL
STATEMENTS
 
 The
Company’s previously issued financial statements have been restated as a result
of an internal review of its previously issued financial statements, which
review was prompted by the Company’s receipt of a Wells Notice from the United
States Securities and Exchange Commission.  After review of the
inquiry and investigation and further analysis, the Company determined that it
had made several errors in the application of generally accepted accounting
principles relating to its accounting treatment in connection with convertible
debt and warrant financing transactions.  These errors include the
following:
 
 ·
              The
      Company did not properly evaluate the fair value of the warrants and
      beneficial conversion features associated with these financing
      transactions;
 
 ·
              The
      Company did not properly account for the fair value of the warrants and
      beneficial conversion features associated with these financing
      transactions;
 
 ·
              In
      certain cases, the Company improperly recorded a derivative liability in
      connection with these transactions;
 
 ·
              In
      those cases where the Company did properly record a derivative liability
      in connection with a financing or a restructuring of a prior financing,
      the Company did not properly calculate the derivative liability associated
      therewith; and
 
 ·
              In
      certain cases, the Company did not properly account for the conversion of
      the convertible notes and convertible preferred stock and the exercise of
      the warrants.
 
 The
Company also believes such restatements reflect the correction of any errors and
omissions of material disclosures in the financial statements in accordance with
SFAS 154,Accounting Changes
and Error Corrections (as amended).
 
 The
following are explanations of the restatement adjustments and presentation of
affected accounts in the consolidated balance sheets and statements of
operations as previously reported and restated:
  F-47
 QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
 2007
Statement of Operations
 
 As a
result of the restatements, the following changes were made:
 
 Selling,
general, and administrative expenses decreased by $2,834,657 in 2007, from
$3,977,674 to $1,143,017, due to the reversal of loan settlement expenses that
the Company previously recorded in connection with conversion of convertible
notes and convertible preferred stock.
 
 Loss on
derivatives increased by $3,825,573 in 2007, from $1,420,615 to $5,246,188, due
to recalculation of derivative liability and due to the reclassification of
derivative liability to permanent equity.
 
 Interest
expense increased by $2,417,867 in 2007, from $393,354 to $2,811,221, due to the
recordation of amortization of beneficial conversion discounts not previously
recognized as well as reclassification of beneficial conversion expense as
interest expense.
 
 Beneficial
conversion expense of $279,300 was reclassified as interest
expense.
 
 As a
result of the foregoing, restated basic and diluted loss per common share
increased by $1.65 in 2007, from a loss of $3.26 per share to $4.91 per
share, due to the increase in net loss of the Company.
 
 December
31, 2007 Balance Sheet
 
 Prepaid
consulting expense increased by $10,571, from $27,000 to $37,571.  As
a result, total assets increased by the same amount from $5,448,070 to
$5,458,641.
 
 Accounts
payable and accrued expenses increased by $23,716, from $2,735,718 to
$2,759,434.
 
 The
current portion of notes payable, net of discount, decreased by $56,982, from
2,937,716 to $2,880,734, due to recognition of note discounts previously not
recognized.
 
 DIP
financing payable of $335,764 was reclassified from a long-term to a current
liability.
 
 As a
result of these adjustments, current liabilities increased by $302,498, from
$7,363,248 to $7,665,746.
 
 Derivative
liability of $2,841,203 was reclassified as paid-in capital as a result of
reclassification of the liability as permanent equity in accordance with SFAS
133 and EITF 00-19.
 
 As result
of all of these adjustments, total liabilities were decreased by $2,874,499,
from $10,540,215 to $7,665,746.
 
 Paid-in
capital increased by $8,847,372, from $51,981,253 to $60,828,625, to reflect
reclassification of derivative liability as permanent equity, the recordation of
note discounts, and prior year adjustments.
 
 Accumulated
deficit increased by $5,744,864, from $56,505,124 to $62,249,988, to reflect the
restatements to the statements of operations in 2007 and prior
years.
  F-48
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 AND 2007
  Adjustments
 
 The
consolidated financial statements as of December 31, 2007 and for the years then
ended, and the notes thereto, have been restated to include the items described
above.  The following financial statement line items were
impacted:
 
 Consolidated
Balance Sheet
 
 As
      Previously
                            Reported
                            December
      31,
                            2007
                          
                          
                          Restated
                            December
      31,
                            2007Prepaid
      consulting expense
                          
                          $
                          27,000
                          
                          
                          $
                          37,571Total
      assets
                          
                          
                          5,448,070
                          
                          
                          
                          5,458,647Accounts
      payable and accrued expenses
                          
                          
                          2,735,718
                          
                          
                          
                          2,759,434Loans
      payable
                          
                          
                          2,937,716
                          
                          
                          
                          2,880,734Derivative
      liability
                          
                          
                          2,841,203
                          
                          
                          
                          -Total
      liabilities
                          
                          
                          10,540,215
                          
                          
                          
                          7,665,746Paid-in
      capital
                          
                          
                          51,981,253
                          
                          
                          
                          60,828,625Accumulated
      deficit
                          
                          
                          (56,504,124
                          )
                          
                          
                          (62,429,988
                          )Total
      stockholders’ equity (deficit)
                          
                          
                          (5,092,145
                          )
                          
                          
                          (2,207,105
                          )
 
 Consolidated
Statements of Operations
 
 As
      Previously
                          Reported
      Year
                          Ended
                          December
      31,
                          2007
                        
                        
                        Restated
      Year
                          Ended
                          December
      31,
                          2007Selling,
      general, and administrative
                        
                        $
                        3,977,674
                        
                        
                        $
                        1,143,017Total
      operating expenses
                        
                        
                        5,323,112
                        
                        
                        
                        1,238,707Loss
      from operations
                        
                        
                        (5,169,899
                        )
                        
                        
                        (1,662,588
                        )Loss
      on derivatives
                        
                        
                        (1,420,615
                        )
                        
                        
                        (5,246,288
                        )Interest
                        
                        
                        393,354
                        
                        
                        
                        2,811,221Beneficial
      conversion expense
                        
                        
                        279,300
                        
                        
                        
                        —Net
      income (loss)
                        
                        
                        (6,412,253
                        )
                        
                        
                        (9,541,736
                        )Basic
      and diluted (loss) per common share
                        
                        
                        (3.26
                        )
                        
                        
                        (4.91
                        )
 
 F-49


Item
9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.





Previous
independent registered public accounting firm





On
February 13, 2009, we dismissed Kempisty & Company as our independent
accountants, and we have engaged RBSM, LLP as our independent registered public
accounting firm.





The
reports of Kempisty & Company on our financial statements for the fiscal
years ended December 31, 2006 and 2007 did not contain an adverse opinion or a
disclaimer of opinion, nor were such reports qualified or modified as to
uncertainty, audit scope or accounting principles, except that the accountant's
reports of Kempisty & Company on our financial statements as of and for the
fiscal years ended December 31, 2006 and 2007 stated that (a) we are a defendant
in several lawsuits, one of our significant subsidiaries is in bankruptcy, and
that an adverse ruling could result in the loss of our operating assets, and
(b)we have incurred operating losses since inception, require additional capital
to continue operations, we could lose all of our operating assets through
current and/or pending litigation, and that conditions raise substantial doubt
about our Company's ability to continue as a going concern.





The
decision to change accountants from Kempisty & Company to RBSM, LLP was
approved by our board of directors.





During
our fiscal years ended December 31, 2006 and 2007 and the subsequent interim
period through February 13, 2009, the date of the dismissal of Kempisty &
Company, we did not have any disagreement with Kempisty & Company on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure.





During
that time, there were no "reportable events" as set forth in Item 304(a)(1) of
Regulation S-K adopted by the Securities and Exchange Commission, except that
the accountant's reports of Kempisty & Company on our financial statements
as of and for the fiscal years ended December 31, 2006 and 2007 stated that (a)
we are a defendant in several lawsuits, one of our significant subsidiaries is
in bankruptcy, and that an adverse ruling could result in the loss of our
operating assets, and (b) we have incurred operating losses since inception,
require additional capital to continue operations, we could lose all of our
operating assets through current and/or pending litigation, and that conditions
raise substantial doubt about our Company's ability to continue as a going
concern.





New
independent registered public accounting firm





On
February 13, 2009 (the “Engagement Date”), the Company engaged RBSM LLP (“RBSM”)
as its independent registered public accounting firm for the Company's fiscal
year ended December 31, 2008. The decision to engage RBSM as the Company's
independent registered public accounting firm was approved by the Company's
Board of Directors.





During
the two most recent fiscal years and through the February 13, 2009, the Company
has not consulted with RBSM regarding either:





1.           the
application of accounting principles to any specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
the Company's financial statements, and neither a written report was provided to
the Company nor oral advice was provided that RBSM concluded was an important
factor considered by the Company in reaching a decision as to the accounting,
auditing or financial reporting issue; or





2.           
any matter that was either the subject of a disagreement (as defined in
paragraph (a)(1)(iv) of Item 304 of Regulation S-K and the related instructions
thereto) or a reportable event (as described in paragraph (a)(1)(v) of Item 304
of Regulation S-K).


34


Item
9A. CONTROLS AND PROCEDURES.




We maintain disclosure controls and
procedures that are designed to ensure that information required to be disclosed
in our reports that we file under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized, and reported within the time
periods specified in the Securities and Exchange Commission’s rules and forms,
and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure based on
the definition of “disclosure controls and procedures” in Rule
13a-15(e).  In designing and evaluating the disclosure controls and
procedures, our management recognized that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.





At the
end of the period covered by this Annual Report on Form 10-K, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures.  Based on the foregoing, our Chief Executive Officer and
our Chief Financial Officer concluded that our disclosure controls and
procedures were not effective to ensure that all material information required
to be disclosed in this Annual Report on Form 10-K has been made known to them
in a timely fashion.In addition, our Chief
Executive Officer and Chief Financial Officer have identified significant
deficiencies that existed in the design or operation of our internal control
over financial reporting that they consider to be “material
weaknesses.”  The Public Company Accounting Oversight Board has
defined a material weakness as a “significant deficiency or combination of
significant deficiencies that results in more than a remote likelihood that a
material misstatement of the annual or interim financial statements will not be
prevented or detected.”  In light of the material weaknesses described
below, we performed additional procedures to ensure that the consolidated
financial statements are prepared in accordance with generally accepted
accounting principles.  Accordingly, management believes that the
financial statements included in this Annual Report fairly present in all
material respects our financial condition, results of operations and cash flows
for the periods presented.





We did
not design and maintain effective entity-level controls as defined in the Internal Control—Integrated
Framework published by the Committee of Sponsoring Organizations of the Treadway
Commission(“COSO”).  Specifically:




1. We lacked the
technical expertise and did not maintain adequate procedures to ensure that the
accounting for derivative financial instruments under SFAS No. 133,
Accounting for Derivative
Instruments, and under Emerging Issues Task Force 00-19, was
appropriate.  Procedures relating to convertible debt and warrant
financing transactions did not operate effectively to (a) properly evaluate
embedded derivative liability and warrant liability accounting treatment,
(b) meet the documentation requirements of SFAS No. 133 and EITF
00-19, and (c) adequately assess and measure derivative liability values on
a quarterly basis.  This material weakness resulted in a restatement
of prior financial statements, as described in Note 18 to the Consolidated
Financial Statements and, if not remediated, has the potential to cause a
material misstatement in the future.




2. We did not
maintain a sufficient complement of personnel with an appropriate level of
technical accounting knowledge, experience, and training in the application of
generally accepted accounting principles commensurate with our financial
accounting and reporting requirements and low materiality thresholds.  This
material weakness contributed to the restatement of prior financial statements,
as described in Note 18 to the Consolidated Financial Statements and, if
not remediated, has the potential to cause a material misstatement in the
future.




3. Due to the
previously reported material weaknesses, as evidenced by the restatements
related to derivative liabilities, management has concluded that the controls
over the period-end financial reporting process were not operating effectively.
 Specifically, controls were not effective to ensure that significant
non-routine transactions, accounting estimates, and other adjustments were
appropriately reviewed, analyzed, and monitored on a timely basis. A material
weakness in the period-end financial reporting process has resulted inournot being able to meetourregulatory
filing deadlines and, if not remediated, has the potential to cause a material
misstatement or to miss a filing deadline in the
future.


35


These
conditions constitute deficiencies in both the design and operation of
entity-level controls.  As a result of these deficiencies, our
original Annual Report on Form 10-KSB did not contain all material information
which is required to be disclosed, and in particular, our financial statements
for the fiscal year ended December 31, 2006.  In addition, in 2007, we
restated our financial statements for the fiscal years ended December 31, 2005
and 2004 and the interim financial statements for the periods ending March 31,
2005, June 30, 2005, September 30, 2005, March 31, 2006, June 30, 2006, and
September 30, 2006.  Furthermore, we have restated our financial
statements for the fiscal year ended December 31, 2007.





These
significant deficiencies in the design and operation of our internal controls
include the needs to hire additional staffing and to provide training to
existing and new personnel in SEC reporting requirements and generally accepted
accounting principles.  Furthermore, the deficiencies include the need
for formal control systems for journal entries and closing procedures, the need
to form an independent audit committee as a form of internal checks and balances
and oversight of our management, to implement budget and reporting procedures,
and the need to provide internal review procedures for schedules, SEC reports,
and filings prior to submission to the auditors and/or filing with the
SEC.





These
deficiencies have been disclosed to our Board of
Directors.  Additional effort is needed to fully remedy these
deficiencies and we are seeking to improve and strengthen our control processes
and procedures.  We are in the process of improving our internal
control over financial reporting in an effort to remediate these deficiencies by
adding additional accounting personnel, improving supervision and increasing
training of our accounting staff with respect to generally accepted accounting
principles, providing additional training to our management regarding use of
estimates in accordance with generally accepted accounting principles,
increasing the use of contract accounting assistance, and increasing the
frequency of internal financial statement review.  We will continue to take
additional steps necessary to remediate the material weaknesses described
above.





Our Chief Executive Officer and Chief
Financial Officer have also evaluated whether any change in our internal
controls occurred during the last fiscal quarter and have concluded that there
were no changes in our internal controls or in other factors that occurred
during the last fiscal quarter that has materially affected, or is reasonably
likely to materially affect, these controls.





Item
9B. OTHER INFORMATION.





None.


36


PART
III








Item
10.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
CORPORATE GOVERNANCE AND COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT





Executive
Officer and Directors





Our
executive officers and directors, the positions held by them, and their ages are
as follows:





Name
                      
                      Age
                      
                      PositionEugene
      Chiaramonte, Jr.
                      
                      64
                      
                      President,
      Secretary, and sole
Director





Eugene Chiaramonte, Jr. is
Quest’s President and Secretary and Quest’s sole director.  Mr.
Chiaramonte was appointed as Secretary and Vice President in February, 2004 and
President in May, 2006.  Mr. Chiaramonte also serves as the President
and sole director of our wholly owned subsidiary Gwenco, Inc. and serves as the
President and director of our subsidiary Quest Minerals and Mining Corp., a
Nevada corporation.  From 1995 to 2003, Mr. Chiaramonte was a director
and was the president and chief executive officer of the Auxer
Group.  He assumed the position of secretary and treasurer of the
Auxer Group in 1998.  Mr. Chiaramonte was a founder and served as
director and secretary of the Auxer Group’s subsidiary, CT Industries from June
1994 through 2003.  Additionally, he has served as director and
secretary of the Harvey Westbury Corp. since October 1996 and a co-founder,
director and secretary of Hardyston Distributors since April
1999.  Mr. Chiaramonte has also been a director and secretary of Auxer
Telecom Inc. since August 2000.





Information
about our Board and its Committees.





Quest
does not have either an audit committee, compensation committee, or a nominating
committee.  It is the view of the board of directors that it is
appropriate to not have any of these committees since they are not required to
maintain its listing on the OTC Bulletin Board, since it only has one director
who would serve to act as the committee in any event, and due to the additional
and unnecessary costs associated with administering the committees.





We do not
have any defined policy or procedure requirements for stockholders to submit
recommendations or nominations for directors. Our board of directors believes
that, given the early stages of our development, a specific nominating policy
would be premature and of little assistance until our business operations
develop to a more advanced level. We do not currently have any specific or
minimum criteria for the election of nominees to our board of directors and we
do not have any specific process or procedure for evaluating such nominees. Our
board of directors assesses all candidates, whether submitted by management or
stockholders, and makes recommendations for election or
appointment.





A
stockholder who wishes to communicate with our board of directors may do so by
directing a written request to our Company addressed to our Chief Executive
Officer. We intend to hold annual meetings of stockholders during the summer
season, at which meetings our directors will be up for re-election. We currently
do not have a policy regarding the attendance of board members at the annual
meeting of stockholders.





Family
Relationships




There are
no family relationships between or among any of the current directors, executive
officers or persons nominated or charged by the Company to become directors or
executive officers.




Involvement
in Certain Legal Proceedings





Except as
describe below, none of our directors or executive officers has, during the past
five years:


37





·
            been
      convicted in a criminal proceeding or been subject to a pending criminal
      proceeding (excluding traffic violations and other minor
      offences);





·
            had
      any bankruptcy petition filed by or against any business of which he was a
      general partner or executive officer, either at the time of the bankruptcy
      or within two years prior to that time; except for Eugene Chiaramonte who
      was an officer and director of our wholly owned subsidiary Gwenco, Inc.
      which filed for Chapter 11 reorganization in March
  2007;





·
            been
      subject to any order, judgment, or decree, not subsequently reversed,
      suspended or vacated, of any court of competent jurisdiction, permanently
      or temporarily enjoining, barring, suspending or otherwise limiting his
      involvement in any type of business, securities, futures, commodities or
      banking activities; or





·
            been
      found by a court of competent jurisdiction (in a civil action), the
      Securities and Exchange Commission or the Commodity Futures Trading
      Commission to have violated a federal or state securities or commodities
      law, and the judgment has not been reversed, suspended, or
      vacated.





Director
Independence




Our board
of directors has determined that currently none of it members  qualify
as "independent" as the term is used in Item 407 of Regulation S-B as
promulgated by the SEC and in the listing standards of The Nasdaq Stock Market,
Inc. - Marketplace Rule 4200.





Section
16(a) Beneficial Ownership Reporting Compliance





Section 16(a)
of the Securities Exchange Act of 1934, as amended, requires our directors,
executive officers, and stockholders holding more than 10% of our outstanding
common stock, to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in beneficial ownership of our
common stock.  Executive officers, directors and greater-than-10%
stockholders are required by SEC regulations to furnish us with copies of all
Section 16(a) reports they file.  To our knowledge, based solely
on review of the copies of such reports furnished to us for the period ended
December 31, 2008, all Section 16(a) reports required to be filed by
our executive officers, directors, and greater-than-10% stockholders were filed
on a timely basis.





Code
of Ethics





We have
adopted a code of ethics that applies to the principal executive officer and
principal financial and accounting officer.  We will provide to any
person without charge, upon request, a copy of our code of
ethics.  Requests may be directed to our principal executive offices
at 18B East 5th Street,
Paterson, New Jersey 07524.





Item
11. EXECUTIVE COMPENSATION





The
following table sets forth the compensation paid to the Chief Executive Officer
and our other executive officers (“Named Executive Officers”) for services
rendered during the fiscal years ended December 31, 2008, 2007 and
2006.


38





Summary
      Compensation TableStock
                                        
                                        
                                        Option
                                        
                                        
                                        All
      OtherName and Position
                                        
                                        Year
                                        
                                        Salary
                                        
                                        
                                        Bonus
                                        
                                        
                                        Awards
      ($)
                                        
                                        
                                        Awards
      ($)
                                        
                                        
                                        Compensation
                                        
                                        
                                        Total
      ($)Eugene Chiaramonte
                                        
                                        2008
                                        
                                        $
                                        240,000
                                        (1)
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        $
                                        582,500
                                        (2)
                                        
                                        
                                        
                                        
                                        $
                                        822,500President and Secretary
                                        
                                        2007
                                        
                                        $
                                        180,000
                                        (3)
                                        
                                        
                                        
                                        
                                        
                                        $
                                        366,000
                                        (4)
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        440,0002006
                                        
                                        
                                        120,000
                                        (5)
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        $
                                        143,053
                                        (6)
                                        
                                        
                                        —
                                        
                                        
                                        $
                                        263,053William R. Wheeler
                                        
                                        2008
                                        
                                        
                                        N/A
                                        
                                        
                                        
                                        N/A
                                        
                                        
                                        
                                        N/A
                                        
                                        
                                        
                                        N/A
                                        
                                        
                                        
                                        N/A
                                        
                                        
                                        
                                        N/AFormer Chairman, President and
      Chief Executive Officer
                                        
                                        2007
                                        
                                        
                                        N/A
                                        
                                        
                                        
                                        N/A
                                        
                                        
                                        
                                        N/A
                                        
                                        
                                        
                                        N/A
                                        
                                        
                                        
                                        N/A
                                        
                                        
                                        
                                        N/A(Resigned May 31, 2006)
                                        
                                        2006
                                        
                                        $
                                        50,000
                                        (7)
                                        
                                        
                                        —
                                        
                                        
                                        $
                                        69,620
                                        (8)
                                        
                                        $
                                        143,053
                                        (6)
                                        
                                        $
                                        303,442
                                        (9)
                                        
                                        $
                                        566,115





(1)
              $207,000
      has been accrued but not
paid.


(2)
              On
      July 3, 2008 we granted Mr. Chiaramonte a stock option to purchase up to
      2,500,00 shares of our common stock at a price of $0.24 per share with a
      value of $500,000 at the time of grant.  In addition, on
      September 3, 2008, we granted Mr. Chiaramonte a stock option to purchase
      up to 2,500,00 shares of our common stock at a price of $0.044 per share
      with a value of $82,500 at the time of grant.  The value
      represents the compensation costs of stock options for financial reporting
      purposes for the year under
FAS 123R.


(3)
              $27,000
      has been accrued but not
paid.


(4)
              $106,000
      was paid as a stock award for accrued salary.  In addition, Mr.
      Chiaramonte received 260,000 shares of Series C Preferred Stock to
      indemnify him from a loss suffered in respect of a personal guarantee on a
      loan agreement.


(5)
            $44,000
      has been accrued but not paid.


(6)
            On
      May 18, 2006, we granted each of Mr. Chiaramonte and Mr. Wheeler a stock
      option to purchase up to 12,500 shares of our common stock at a price of
      $20.00 per share pursuant to their employment agreements.  The
      value represents the compensation costs of stock options for financial
      reporting purposes for the year under FAS 123R. Mr. Chiaramonte and
      the Company mutually agreed to cancel Mr. Chiaramonte’s option in
      2007.


(7)
            $10,650
      has been accrued but not paid.


(8)
            Mr.
      Wheeler provided consulting services to us in 2006, for which we paid him
      a total of 3,881,818  shares of our common stock valued at
      $69,620 at the time of grant, which value represents the compensation
      costs of the stock awards for financial reporting purposes for the year
      under FAS 123R.


(9)
            This
      amount represents amounts accrued and common stock issued for payment of
      legal fees incurred by Mr. Wheeler which Quest had paid under its
      indemnification arrangements with Mr.
  Wheeler


39




Grants of Plan-Based Awards




The
following table sets forth information concerning the number of shares of common
stock underlying restricted stock awards and stock options granted to the Named
Executive Officers in Fiscal 2008.




Name
                                                      
                                                      Grant
                                                        Date
                                                      
                                                      Approval
                                                        Date
                                                      
                                                      Estimated
                                                        Future
                                                        Payouts
                                                        Under Non-
                                                        Equity
                                                        Incentive
                                                        Plan Awards
                                                      
                                                      Estimated
                                                        Future
                                                        Payouts
                                                        Under
                                                        Equity
                                                        Incentive
                                                        Plan Awards
                                                      
                                                      All Other
                                                        Stock
                                                        Awards:
                                                      
                                                      All Other
                                                        Option
                                                        Awards:
                                                      
                                                      
                                                      Exercise or
                                                        Base Price
                                                        of Option
                                                        Awards
                                                        ($/Sh)(1)
                                                      
                                                      
                                                      Grant Date
                                                        Fair Value
                                                        of Stock and
                                                        Option
                                                        AwardsNumber of
                                                        Shares of
                                                        Stock or
                                                        Units (#)
                                                      
                                                      Number of
                                                        Securities
                                                        Underlying
                                                        Options (#)(1)Eugene
      Chiaramonte
                                                      
                                                      7/3/2008
                                                      
                                                      7/3/2008
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      2,500,000
                                                      
                                                      
                                                      $
                                                      0.24
                                                      
                                                      
                                                      $
                                                      500,0009/24/08
                                                      
                                                      9/24/08
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      2,500,000
                                                      
                                                      
                                                      $
                                                      0.044
                                                      
                                                      
                                                      $
                                                      82,500





(1)  Reflects
1-10 reverse split effectuated on November 4, 2008.


Outstanding
Equity Awards at Fiscal Year-End




The
following table sets forth all outstanding equity awards made to each of the
Named Executive Officers that are outstanding at the end of Fiscal
2008.




Option Awards (1)
                                            
                                            Stock AwardsName
                                            
                                            Number of
                                              Securities
                                              Underlying
                                              Unexercised
                                              Options (#)
                                              Exercisable
                                            
                                            Number of
                                              Securities
                                              Underlying
                                              Unexercised
                                              Options (#)
                                              Unexercisable
                                            
                                            Option Exercise
                                              Price ($)
                                            
                                            Option
                                              Expiration Date
                                            
                                            Number of
                                              Shares
                                              or Units
                                              of Stock That
                                              Have Not
                                              Vested (#)
                                            
                                            
                                            Market Value
                                              of Shares or
                                              Units of Stock
                                              That Have Not
                                              VestedEugene
      Chiarmonte
                                            
                                            2,500,000
                                            
                                            —
                                            
                                            $0.24
                                            
                                            7/3/2018
                                            
                                            —
                                            
                                            
                                            —2,500,000
                                            
                                            —
                                            
                                            $0.044
                                            
                                            9/24/2018
                                            
                                            —
                                            
                                            
                                            —





Option
Exercises and Stock Vested





The stock
options granted to Mr. Chiaramonte listed above were 100% vested at the time of
grant in 2008.  However, no options were exercised by any Named
Executive Officers in Fiscal 2008





Employment
Agreements





On
December 8, 2005, Quest entered into an employment agreement with Eugene
Chiaramonte, Jr. pursuant to which Quest employs Mr. Chiaramonte as its Vice
President.  The agreement is for five years and provides for an annual
base salary during the term of the agreement as follows: (i) an annual base
salary of $120,000 for the first year of the agreement; (ii) an annual base
salary of $180,000 for the second year of the agreement; (iii) an annual base
salary of $240,000 for the third year of the agreement; (ii) an annual base
salary of $300,000 for the fourth year of the agreement; (ii) an annual base
salary of $360,000 for the fifth year of the agreement.  In addition,
Mr. Chiaramonte received options to purchase up to 12,500 shares of Quest’s
common stock at an exercise price of $20.00 per share.  The options
were to vest as follows:  (i) options to purchase up to 5,000 shares
vested immediately, (ii) options to purchase up to 5,000 shares were to
vest upon Quest’s receipt of an aggregate of $1,000,000 in cash or cash
equivalents in its accounts, and (iii) options to purchase up to 2,500 shares
were to vest six months after the date of the employment agreement. Mr.
Chiaramonte and the Company mutually agreed to cancel Mr. Chiaramonte’s
option in 2007.


40





The
agreement also contains the following material provisions:  (i)
participation in Quest’s executive bonus plan on the same basis as other senior
executive officers of Quest; (ii) reimbursement for all reasonable travel and
other out-of-pocket expenses incurred in connection with his employment; (iii)
four (4) weeks paid vacation leave, which shall accumulate in the event that Mr.
Chiaramonte elects not to take such vacation leave in any fiscal year; (iv)
medical and dental benefits as those provided to other senior executive officers
of Quest; (v) a severance payment of six (6) month’s salary at the
then-applicable base salary rate in the event that Quest terminates Mr.
Chiaramonte’s employment without cause; (vi)  a severance payment of
all base salary due under the remaining term of the employment agreement in the
event that Mr. Chiaramonte’s employment is terminated due to death or
disability; (vii) a payment of 5,000,000 shares of Quest’s common stock in the
event of a change in control of Quest as such term is defined in the employment
agreement; (viii) a severance payment, at Mr. Chiaramonte’s election, in the
event that (a) Mr. Chiaramonte is required to relocate as a condition of
employment, (b) there is a substantial change in Mr. Chiaramonte’s
responsibilities at the direction of Quest’s board of directors, or (c) a change
in control of Quest.





Potential
Payments upon Termination




Eugene
Chiaramonte has entered into an employment agreement. Under the terms of his
Employment Agreement, Mr. Chiaramonte is entitled to a severance payment of (i)
six (6) month’s salary at the then-applicable base salary rate in the event that
Quest terminates Mr. Chiaramonte’s employment without cause; or (ii) all base
salary due under the remaining term of the employment agreement in the event
that Mr. Chiaramonte’s employment is terminated due to death or
disability.





The
following table sets forth quantitative information with respect to potential
payments to be made to Mr. Chiaramonte upon termination in various
circumstances. The potential payments are based on each of the Mr. Chiaramonte’s
Employment Agreement discussed above. For a more detailed description of the
Employment Agreement, see the “Employment Agreements” section
above.




Name
                  
                  Termination
                    without
                    cause(1)
                  
                  
                  Termination due to death or
                    diasability(2)Eugene
      Chiaramonte
                  
                  
                  $120,000-$180,000
                  
                  
                  
                  $240,000-$900,000





(1)
            Employee
      entitled to six months severance at the then applicable base salary
      rate.  Mr. Chiaramonte’s base salary in the remaining 3 years
      under his contract are $240,000, $300,000 and
  $360,000.








(2)
            Employee
      is entitled to all base salary due under the remaining term of the
      employment agreement Mr. Chiaramonte’s base salary in the remaining 3
      years under his contract are $240,000, $300,000 and
    $360,000.





Consulting
Agreement





On May 31, 2006, Quest entered into a
consulting agreement with William R. Wheeler, Quest’s former Chief Executive
Officer.  The agreement is for one year and is renewal for successive
periods of two (2) years.  The agreement provides for a monthly
consulting fee, payable in cash or as a stock award under a stock incentive
plan.  In addition, Quest shall pay Mr. Wheeler a one percent royalty
on gross sales on all mine products that originate from mines and/or wells
introduced to Quest by Mr. Wheeler.  With respect to the options to
purchase up to 12,500 shares of Quest’s common stock granted to Mr. Wheeler,
options to purchase up to 5,000 shares were deemed vested, options to purchase
up to 2,500 shares were to vest six months after the date of the consulting
agreement, and the balance of the options were voided.


41





Compensation
of Directors





All
directors receive reimbursement for reasonable out-of-pocket expenses in
attending board of directors meetings and for promoting Quest’s
business.  From time to time, Quest may engage certain members of the
board of directors to perform services on Quest’s behalf.  In such
cases, Quest compensates the members for their services at rates no more
favorable than could be obtained from unaffiliated parties.





From time
to time we may engage certain members of the Board of Directors to perform
services on our behalf.  In such cases, we compensate the members for
their services at rates no more favorable than could be obtained from
unaffiliated parties.  Other than as set forth above, we did not
engage any members of the Board of Directors to perform services our behalf in
2006.





Securities Authorized for Issuance
Under Equity Compensation Plans.The following provides
information concerning compensation plans under which Quest’s equity securities
have been authorized for issuance as of December 31, 2008:





(a)
                      
                      
                      (b)
                      
                      
                      (c)PlanCategory
                      
                      Numberof
                        securitiestobe
                        issuedupon
                        exerciseof
                        outstanding
                        options,warrants
                        andrights
                      
                      
                      Weighted-average
                        exercisepriceof
                        outstanding
                        options,warrants
                        andrights
                      
                      
                      Numberofsecurities
                        remainingavailable
                        forfutureissuance
                        underequity
                        compensationplans
                        (excludingsecurities
                        reflectedincolumn
                        (a))Equity
      compensation plans approved by security holders
                      
                      
                      —
                      
                      
                      $
                      —
                      
                      
                      
                      —Equity
      compensation plans not approved by security holders
      (1)(2)(3)(4)(5)(6)(7)
                      
                      
                      5,075,000
                      
                      
                      $
                      0.142
                      
                      
                      
                      188,175,923Total
                      
                      
                      5,075,000
                      
                      
                      $
                      2.00
                      
                      
                      
                      166,312,405





(1)
            2004 Stock Option Plan.The purpose of our 2004 Stock Option Plan is to advance the best
      interests of the company by providing those persons who have a substantial
      responsibility for our management and growth with additional incentive and
      by increasing their proprietary interest in the success of the company,
      thereby encouraging them to maintain their relationships with
      us.  Further, the availability and offering of stock options and
      common stock under the plan supports and increases our ability to attract
      and retain individuals of exceptional talent upon whom, in large measure,
      the sustained progress, growth and profitability which we
      depend.  The total number of shares available for the grant of
      either stock options or compensation stock under the plan is 17,500,000
      million shares, subject to adjustment, and as of December 31, 2008, we
      have issued 43,750 shares and have reserved no shares for option
      grants.





Our
compensation committee which is appointed by our board of directors administers
our plan and has full power to grant stock options and common stock, construe
and interpret the plan, establish rules and regulations and perform all other
acts, including the delegation of administrative responsibilities, it believes
reasonable an proper.  Any decision made, or action taken, by the
compensation committee or our board of directors arising out of or in connection
with the interpretation and administration of the plan is final and
conclusive.





The
compensation committee or our board of directors, in its absolute discretion,
may award common stock to employees of, consultants to, and directors of the
company, and such other persons as the board of directors or compensation
committee may select, and permit holders of common stock options to exercise
such options prior to full vesting therein and hold the common stock issued upon
exercise of the option as common stock.  Stock options may also be
granted by our board of directors or compensation committee to non-employee
directors of the company or other persons who are performing or who have been
engaged to perform services of special importance to the management, operation
or development of the company.


42





In the
event that our outstanding common stock is changed into or exchanged for a
different number or kind of shares or other securities of the company by reason
of merger, consolidation, other reorganization, recapitalization, combination of
shares, stock split-up or stock dividend, prompt, proportionate, equitable,
lawful and adequate adjustment shall be made of the aggregate number and kind of
shares subject to stock options which may be granted under the
plan.





Our board
of directors may at any time, and from time to time, suspend or terminate the
plan in whole or in part or amend it from time to time in such respects as our
board of directors may deem appropriate and in our best interest.





(1)
            2005 Stock Incentive Plan.The purpose of our 2005 Stock Incentive Plan is to advance the best
      interests of the company by providing those persons who have a substantial
      responsibility for our management and growth with additional incentive and
      by increasing their proprietary interest in the success of the company,
      thereby encouraging them to maintain their relationships with
      us.  Further, the availability and offering of stock options and
      common stock under the plan supports and increases our ability to attract
      and retain individuals of exceptional talent upon whom, in large measure,
      the sustained progress, growth and profitability which we
      depend.  The total number of shares available for the grant of
      either stock options or compensation stock under the plan is 7 million
      shares, subject to adjustment, and as of December 31, 2008, we have issued
      17,438 shares and have reserved no shares for option
    grants.





Our
compensation committee which is appointed by our board of directors administers
our plan and has full power to grant stock options and common stock, construe
and interpret the plan, establish rules and regulations and perform all other
acts, including the delegation of administrative responsibilities, it believes
reasonable an proper.  Any decision made, or action taken, by the
compensation committee or our board of directors arising out of or in connection
with the interpretation and administration of the plan is final and
conclusive.





The
compensation committee or our board of directors, in its absolute discretion,
may award common stock to employees of, consultants to, and directors of the
company, and such other persons as the board of directors or compensation
committee may select, and permit holders of common stock options to exercise
such options prior to full vesting therein and hold the common stock issued upon
exercise of the option as common stock.  Stock options may also be
granted by our board of directors or compensation committee to non-employee
directors of the company or other persons who are performing or who have been
engaged to perform services of special importance to the management, operation
or development of the company.





In the
event that our outstanding common stock is changed into or exchanged for a
different number or kind of shares or other securities of the company by reason
of merger, consolidation, other reorganization, recapitalization, combination of
shares, stock split-up or stock dividend, prompt, proportionate, equitable,
lawful and adequate adjustment shall be made of the aggregate number and kind of
shares subject to stock options which may be granted under the
plan.





Our board
of directors may at any time, and from time to time, suspend or terminate the
plan in whole or in part or amend it from time to time in such respects as our
board of directors may deem appropriate and in our best interest.





(1)
            2005 Amended and Restated Stock
      Incentive Plan No. 2.The purpose of our 2005 Amended and Restated
      Stock Incentive Plan No. 2 is to advance the best interests of the company
      by providing those persons who have a substantial responsibility for our
      management and growth with additional incentive and by increasing their
      proprietary interest in the success of the company, thereby encouraging
      them to maintain their relationships with us.  Further, the
      availability and offering of stock options and common stock under the plan
      supports and increases our ability to attract and retain individuals of
      exceptional talent upon whom, in large measure, the sustained progress,
      growth and profitability which we depend.  The total number of
      shares available for the grant of either stock options or compensation
      stock under the plan is 2 million shares, subject to adjustment, and to
      date, we have issued 5,000 shares and have reserved no shares for option
      grants.


43





Our
compensation committee which is appointed by our board of directors administers
our plan and has full power to grant stock options and common stock, construe
and interpret the plan, establish rules and regulations and perform all other
acts, including the delegation of administrative responsibilities, it believes
reasonable an proper.  Any decision made, or action taken, by the
compensation committee or our board of directors arising out of or in connection
with the interpretation and administration of the plan is final and
conclusive.





The
compensation committee or our board of directors, in its absolute discretion,
may award common stock to employees of, consultants to, and directors of the
company, and such other persons as the board of directors or compensation
committee may select, and permit holders of common stock options to exercise
such options prior to full vesting therein and hold the common stock issued upon
exercise of the option as common stock.  Stock options may also be
granted by our board of directors or compensation committee to non-employee
directors of the company or other persons who are performing or who have been
engaged to perform services of special importance to the management, operation
or development of the company.





In the
event that our outstanding common stock is changed into or exchanged for a
different number or kind of shares or other securities of the company by reason
of merger, consolidation, other reorganization, recapitalization, combination of
shares, stock split-up or stock dividend, prompt, proportionate, equitable,
lawful and adequate adjustment shall be made of the aggregate number and kind of
shares subject to stock options which may be granted under the
plan.





Our board
of directors may at any time, and from time to time, suspend or terminate the
plan in whole or in part or amend it from time to time in such respects as our
board of directors may deem appropriate and in our best interest.





(1)
            2006 Stock Incentive Plan.The purpose of our 2006 Stock Incentive Plan is to advance the best
      interests of the company by providing those persons who have a substantial
      responsibility for our management and growth with additional incentive and
      by increasing their proprietary interest in the success of the company,
      thereby encouraging them to maintain their relationships with
      us.  Further, the availability and offering of stock options and
      common stock under the plan supports and increases our ability to attract
      and retain individuals of exceptional talent upon whom, in large measure,
      the sustained progress, growth and profitability which we
      depend.  The total number of shares available for the grant of
      either stock options or compensation stock under the plan is 23 million
      shares, subject to adjustment, and as of December 31, 2008, we have issued
      1,554,110 shares and have reserved 75,000 shares for option
      grants.





Our
compensation committee which is appointed by our board of directors administers
our plan and has full power to grant stock options and common stock, construe
and interpret the plan, establish rules and regulations and perform all other
acts, including the delegation of administrative responsibilities, it believes
reasonable an proper.  Any decision made, or action taken, by the
compensation committee or our board of directors arising out of or in connection
with the interpretation and administration of the plan is final and
conclusive.





The
compensation committee or our board of directors, in its absolute discretion,
may award common stock to employees of, consultants to, and directors of the
company, and such other persons as the board of directors or compensation
committee may select, and permit holders of common stock options to exercise
such options prior to full vesting therein and hold the common stock issued upon
exercise of the option as common stock.  Stock options may also be
granted by our board of directors or compensation committee to non-employee
directors of the company or other persons who are performing or who have been
engaged to perform services of special importance to the management, operation
or development of the company.


44





In the
event that our outstanding common stock is changed into or exchanged for a
different number or kind of shares or other securities of the company by reason
of merger, consolidation, other reorganization, recapitalization, combination of
shares, stock split-up or stock dividend, prompt, proportionate, equitable,
lawful and adequate adjustment shall be made of the aggregate number and kind of
shares subject to stock options which may be granted under the
plan.





Our board
of directors may at any time, and from time to time, suspend or terminate the
plan in whole or in part or amend it from time to time in such respects as our
board of directors may deem appropriate and in our best interest.





(2)
            2006 Stock Incentive Plan No.
      2.The purpose of our 2006 Stock Incentive Plan No. 2 is to advance
      the best interests of the company by providing those persons who have a
      substantial responsibility for our management and growth with additional
      incentive and by increasing their proprietary interest in the success of
      the company, thereby encouraging them to maintain their relationships with
      us.  Further, the availability and offering of stock options and
      common stock under the plan supports and increases our ability to attract
      and retain individuals of exceptional talent upon whom, in large measure,
      the sustained progress, growth and profitability which we
      depend.  The total number of shares available for the grant of
      either stock options or compensation stock under the plan is 30 million
      shares, subject to adjustment, and as of December 31, 2008, we have issued
      2,573,400 shares and have reserved no shares for option
      grants.





Our
compensation committee which is appointed by our board of directors administers
our plan and has full power to grant stock options and common stock, construe
and interpret the plan, establish rules and regulations and perform all other
acts, including the delegation of administrative responsibilities, it believes
reasonable an proper.  Any decision made, or action taken, by the
compensation committee or our board of directors arising out of or in connection
with the interpretation and administration of the plan is final and
conclusive.





The
compensation committee or our board of directors, in its absolute discretion,
may award common stock to employees of, consultants to, and directors of the
company, and such other persons as the board of directors or compensation
committee may select, and permit holders of common stock options to exercise
such options prior to full vesting therein and hold the common stock issued upon
exercise of the option as common stock.  Stock options may also be
granted by our board of directors or compensation committee to non-employee
directors of the company or other persons who are performing or who have been
engaged to perform services of special importance to the management, operation
or development of the company.





In the
event that our outstanding common stock is changed into or exchanged for a
different number or kind of shares or other securities of the company by reason
of merger, consolidation, other reorganization, recapitalization, combination of
shares, stock split-up or stock dividend, prompt, proportionate, equitable,
lawful and adequate adjustment shall be made of the aggregate number and kind of
shares subject to stock options which may be granted under the
plan.





Our board
of directors may at any time, and from time to time, suspend or terminate the
plan in whole or in part or amend it from time to time in such respects as our
board of directors may deem appropriate and in our best interest.





(3)
            2007 Stock Incentive Plan.The purpose of our 2007 Stock Incentive Plan is to advance the best
      interests of the company by providing those persons who have a substantial
      responsibility for our management and growth with additional incentive and
      by increasing their proprietary interest in the success of the company,
      thereby encouraging them to maintain their relationships with
      us.  Further, the availability and offering of stock options and
      common stock under the plan supports and increases our ability to attract
      and retain individuals of exceptional talent upon whom, in large measure,
      the sustained progress, growth and profitability which we
      depend.  The total number of shares available for the grant of
      either stock options or compensation stock under the plan is 70 million
      shares, subject to adjustment, and as of December 31, 2008, we have issued
      4,436,750 shares.


45





Our
compensation committee which is appointed by our board of directors administers
our plan and has full power to grant stock options and common stock, construe
and interpret the plan, establish rules and regulations and perform all other
acts, including the delegation of administrative responsibilities, it believes
reasonable an proper.  Any decision made, or action taken, by the
compensation committee or our board of directors arising out of or in connection
with the interpretation and administration of the plan is final and
conclusive.





The
compensation committee or our board of directors, in its absolute discretion,
may award common stock to employees of, consultants to, and directors of the
company, and such other persons as the board of directors or compensation
committee may select, and permit holders of common stock options to exercise
such options prior to full vesting therein and hold the common stock issued upon
exercise of the option as common stock.  Stock options may also be
granted by our board of directors or compensation committee to non-employee
directors of the company or other persons who are performing or who have been
engaged to perform services of special importance to the management, operation
or development of the company.





In the
event that our outstanding common stock is changed into or exchanged for a
different number or kind of shares or other securities of the company by reason
of merger, consolidation, other reorganization, recapitalization, combination of
shares, stock split-up or stock dividend, prompt, proportionate, equitable,
lawful and adequate adjustment shall be made of the aggregate number and kind of
shares subject to stock options which may be granted under the
plan.





Our board
of directors may at any time, and from time to time, suspend or terminate the
plan in whole or in part or amend it from time to time in such respects as our
board of directors may deem appropriate and in our best interest.





(4)
            2007 Stock Incentive Plan No.
      2.The purpose of our 2007 Stock Incentive Plan No. 2 is to advance
      the best interests of the company by providing those persons who have a
      substantial responsibility for our management and growth with additional
      incentive and by increasing their proprietary interest in the success of
      the company, thereby encouraging them to maintain their relationships with
      us.  Further, the availability and offering of stock options and
      common stock under the plan supports and increases our ability to attract
      and retain individuals of exceptional talent upon whom, in large measure,
      the sustained progress, growth and profitability which we
      depend.  The total number of shares available for the grant of
      either stock options or compensation stock under the plan is 97.5 million
      shares, subject to adjustment, and as of December 31, 2008, we have issued
      50,193,630 shares and 5,000,000
options.





Our
compensation committee which is appointed by our board of directors administers
our plan and has full power to grant stock options and common stock, construe
and interpret the plan, establish rules and regulations and perform all other
acts, including the delegation of administrative responsibilities, it believes
reasonable an proper.  Any decision made, or action taken, by the
compensation committee or our board of directors arising out of or in connection
with the interpretation and administration of the plan is final and
conclusive.





The
compensation committee or our board of directors, in its absolute discretion,
may award common stock to employees of, consultants to, and directors of the
company, and such other persons as the board of directors or compensation
committee may select, and permit holders of common stock options to exercise
such options prior to full vesting therein and hold the common stock issued upon
exercise of the option as common stock.  Stock options may also be
granted by our board of directors or compensation committee to non-employee
directors of the company or other persons who are performing or who have been
engaged to perform services of special importance to the management, operation
or development of the company.





In the
event that our outstanding common stock is changed into or exchanged for a
different number or kind of shares or other securities of the company by reason
of merger, consolidation, other reorganization, recapitalization, combination of
shares, stock split-up or stock dividend, prompt, proportionate, equitable,
lawful and adequate adjustment shall be made of the aggregate number and kind of
shares subject to stock options which may be granted under the
plan.


46





Our board
of directors may at any time, and from time to time, suspend or terminate the
plan in whole or in part or amend it from time to time in such respects as our
board of directors may deem appropriate and in our best interest.





Item
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT





The
following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 31, 2009 by the following
persons:




·
            each
      person who is known to be the beneficial owner of more than five percent
      (5%) of our issued and outstanding shares of common
  stock;




·
            each
      of our directors and executive officers;
and




·
            all
      of our directors and executive officers as a
  group.




Beneficial
ownership is determined in accordance with the rules and regulations of the
SEC.  The number of shares and the percentage beneficially owned by
each individual listed above include shares that are subject to options held by
that individual that are immediately exercisable or exercisable within 60 days
from March 31, 2009, and the number of shares and the percentage beneficially
owned by all officers and directors as a group includes shares subject to
options held by all officers and directors as a group that are immediately
exercisable or exercisable within 60 days from March 31, 2009.





Name And Address (1)
                    
                    Number Of Common
                      Shares Beneficially
                      Owned
                    
                    
                    Percentage Owned (2)
                    
                    
                    Percentage of Total Voting
                      Power (3)Eugene
      Chiaramonte, Jr.
                    
                    
                    265,000,000
                    (4)
                    
                    
                    23.5
                    
                    
                    
                    89.2
                    %All
      directors and
                      officers
      as a group (1 person)
                    
                    
                    265,000,000
                    (4)
                    
                    
                    23.5
                    
                    
                    
                    89.2
                    %





(1)
            Unless
      otherwise noted, the address is 18B East 5th
      Street, Paterson, NJ 07524.


(2)
            Based
      on 863,368,471 common shares, 15,526 shares of series A preferred stock,
      48,234 shares of series B preferred stock and 260,000 shares of series C
      preferred stock issued and
outstanding.


(3)
            Holders
      of our common stock are entitled to one vote per share, for a total of
      863,368,471 votes.  Holders of our Series A preferred stock are
      not entitled to vote.  Holders of our series B preferred stock
      are entitled to the number of votes equal to the number of whole shares of
      common stock into which the shares of series B preferred stock held by
      such holder are convertible for a total 12,500 votes.  Holders
      of our Series C preferred stock are entitled to the number of votes on
      such matters equal to the product of (a) the number of shares of the
      series C preferred stock held by such holder, (b) the number of issued and
      outstanding shares of the Company’s common stock, on a fully-diluted
      basis, as of the record date for the vote, or, if no such record date is
      established, as of the date such vote is taken or any written consent of
      stockholders is solicited, and (c) 0.000008, for a total of 7,474,865,182
      votes.


(4)
            Includes
      (A) options to purchase 5,000,000 shares of our common stock and (B)
      shares issuable upon conversion of 260,000 shares of series C preferred
      Stock.  Each share of series C preferred stock is convertible
      into that number of shares of common stock determined by dividing each
      share of series C preferred stock by 100% of the 5 day average closing
      price of our common stock for the day immediately preceding
      conversion.


47





Item
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE





On
January 12, 2007, we entered into an indemnity agreement with Eugene
Chiaramonte, Jr., our President, Secretary, and sole director.  Under
the indemnity agreement, we issued 260,000 shares of our Series C Preferred
Stock to Mr. Chiaramonte to indemnify him for a loss he incurred when he
delivered a personal guarantee in connection with a loan
agreement.  Under the loan agreement, Mr. Chiaramonte personally
guaranteed repayment of the loan and pledged 2,000,000 shares of our common
stock held by him as collateral for the amounts loaned under the loan
agreement.  We eventually defaulted under the loan agreement, and the
lender foreclosed on the shares which Mr. Chiaramonte had pledged.  On
the date of foreclosure, Mr. Chiaramonte’s shares had a market value of
approximately $260,000.  The board of directors has determined that
Mr. Chiaramonte delivered the guarantee and pledged the shares in the course and
scope of his employment with us, as our director, and for our
benefit.  The board of directors has further determined that Mr.
Chiaramonte’s conduct was in good faith and that he reasonably believed that his
conduct was in, or not opposed to, our best interests.





Our board of directors authorized the
creation of a series of preferred stock of the company to be known as Series C
Preferred Stock, par value $0.001 per share.  The conversion price at
which shares of common stock shall be deliverable upon conversion of Series C
Preferred Stock without the payment of any additional consideration by the
holder thereof is the lesser of (i) $0.32 per share or (ii) 100% of the average
of the 5 closing bid prices of the common stock immediately preceding such
conversion date.  Holders of the Series C Preferred Stock shall be
entitled to receive dividends or other distributions with the holders of our
common stock on an as converted basis when, as, and if declared by our board of
directors.  The holders of the Series C Preferred Stock shall also be
entitled to receive, upon liquidation, an amount equal to $1.00 per share of the
Series C Preferred Stock plus all declared but unpaid dividends with respect to
such shares.  The shares of Series C Preferred Stock are not
redeemable.





Pursuant
to the articles of amendment to articles of incorporation establishing the Class
C Preferred Stock, on all matters submitted to a vote of the holders of the
common stock, including, without limitation, the election of directors, a holder
of shares of the Series C Preferred Stock shall be entitled to the number of
votes on such matters equal to the product of (a) the number of shares of the
Series C Preferred Stock held by such holder, (b) the number of issued and
outstanding shares of our common stock, as of the record date for the vote, or,
if no such record date is established, as of the date such vote is taken or any
written consent of stockholders is solicited, and (c) 0.000008.





The
issuance of the Series C Preferred Stock to Mr. Chiaramonte effectively
transferred control of the company to Mr. Chiaramonte.





On June
6, 2006, Quest entered into a two-year agreement to acquire administrative
services from a third party consulting company owned by Gene Chiaramonte III,
the son of Eugene Chiaramonte, Jr., Quest’s President and
Secretary.  The agreement consisted of an initial 1,000,000 shares
common stock issued under a Stock Incentive Plan, along with a monthly payment
of $6,500.  On January 6, 2008, Quest amended this two-year agreement
acquiring administrative services from a third party consulting company owned by
the son of its acting president originally dated June 6, 2006.  The
agreement consisted of an initial 1,000,000 shares common stock issued under a
Stock Incentive Plan, along with a monthly payment of $6,500.  The
initial shares were valued at $35,000 and are being amortized over the term of
the agreement.  The amendment consisted of an increase of the monthly
payment to $9,900 due to providing additional services with regards to the
reorganization of the company’s wholly owned subsidiary, Gwenco, Inc., which is
currently under Chapter 11.





On May
31, 2006, Quest entered into a consulting agreement with William R. Wheeler,
Quest’s former Chief Executive Officer.  The agreement is for one year
and is renewal for successive periods of two (2) years.  The agreement
provides for a monthly consulting fee, payable in cash or as a stock award under
a stock incentive plan.  In addition, Quest shall pay Mr. Wheeler a
one percent royalty on gross sales on all mine products that originate from
mines and/or wells introduced to Quest by Mr. Wheeler.  With respect
to the options to purchase up to 5,000,000 shares of Quest’s common stock
granted to Mr. Wheeler, options to purchase up to 2,000,000 shares were deemed
vested, options to purchase up to 1,000,000 shares will vest six months after
the date of the consulting agreement, and the balance of the options were
voided.


48





We
believe that the foregoing transactions were in our best
interests.  Consistent with the Utah Business Corporation Act, it is
our current policy that all transactions between us and our officers, directors
and their affiliates will be entered into only if such transactions are approved
by a majority of the disinterested directors, are approved by vote of the
stockholders, or are fair to us as a corporation as of the time it is us at is
authorized, approved or ratified by the board.  We will conduct an
appropriate review of all related party transactions on an ongoing basis, and,
where appropriate, we will utilize our audit committee for the review of
potential conflicts of interest.





Director
Independence




For our
description of director independence, see “Director Independence” under the
section entitled “Directors, Executive Officers, Promoters, Control Persons and
Corporate Governance; Compliance with Section 16(a) of the Exchange Act”
above.





Item
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.





Appointment of
Auditors





Our Board
of Directors has not yet selected independent accountants to audit our
financial statements for the year ending December 31, 2009.  RBSM
LLP audited our consolidated financial statements for the fiscal year ended
December 31, 2008.  Kempisty & Company previously audited our
consolidated financial statements for the fiscal year ended December 31,
2007.





Audit
Fees





RBSM LLP
billed $50,000 in fees from our 2008 annual audit.  Kempisty &
Company billed us $12,000 in fees for the review our quarterly financial
statements in 2008, $35,000 in fees for our 2007 annual audit, and $16,000 in
fees for the review of our quarterly financial statements in 2007.





Audit-Related
Fees





We did
not pay any fees to RBSM LLP or Kempisty & Company for assurance and related
services that are not reported under Audit Fees above in 2008 or
2007.





Tax
Fees





We did
not pay any fees to RSBM LLP or Kempisty & Company for tax compliance, tax
advice or tax planning in 2008 or 2007.





All Other
Fees





In 2008,
Kempisty & Company did not bill us for any other services. In 2007,
Kempisty & Company billed us $4,000 for work in connection with our
registration statements on Form S-8, and $0 for all
other fees.


49


Pre-Approval
Policies and Procedures





We have
implemented pre-approval policies and procedures related to the provision of
audit and non-audit services.  Under these procedures, our board of
directors pre-approves all services to be provided by Kempisty & Company and
the estimated fees related to these services.





All
audit, audit related, and tax services were pre-approved by the audit committee,
which concluded that the provision of such services by Kempisty & Company
was compatible with the maintenance of that firm’s independence in the conduct
of its auditing functions.  Our pre-approval policies and procedures
provide for the board of directors’ pre-approval of specifically described
audit, audit-related, and tax services on an annual basis, but individual
engagements anticipated to exceed pre-established thresholds must be separately
approved.  The policies and procedures also require specific approval
by the audit committee if total fees for audit-related and tax services would
exceed total fees for audit services in any fiscal year.  The policies
and procedures authorize the audit committee to delegate to one or more of its
members pre-approval authority with respect to permitted services.




Item
15. EXHIBITS




Exhibit No.
              
              Description3.1
              
              Restated
      Articles of Incorporation of Sabre, Inc. (now known as Quest Minerals
      & Mining Corp.), incorporated by reference to Quest’s Registration
      Statement on Form 10-SB filed on December 18, 2000.3.2
              
              Articles
      of Amendment to Articles of Incorporation of Tillman International, Inc.
      (now known as Quest Minerals & Mining Corp.), incorporated by
      reference to Quest’s Definitive Information Statement on Schedule 14C
      filed on March 16, 2004.3.3
              
              Articles
      of Amendment to Articles of Incorporation of Quest Minerals & Mining
      Corp., incorporated by reference to our Annual Report on Form 10 KSB/A for
      the year ended December 31, 2006, filed on July 19,
  2007.3.4
              
              Articles
      of Amendment to Articles of Incorporation of Quest Minerals & Mining
      Corp., incorporated by reference to our Annual Report on Form 10 KSB/A for
      the year ended December 31, 2006, filed on July 19,
  2007.3.5
              
              Articles
      of Amendment to Articles of Incorporation of Quest Minerals & Mining
      Corp., incorporated by reference to Quest’s Current Report on Form 8-K
      filed on January 30, 2007.3.6
              
              Articles
      of Amendment to Articles of Incorporation of Quest Minerals & Mining
      Corp., incorporated by reference to Quest’s Definitive Information
      Statement on Schedule 14C filed on January 29, 2007.3.7
              
              Bylaws
      of Tillman International, Inc. (now known as Quest Minerals & Mining
      Corp), incorporated by reference to Quest’s Registration Statement on Form
      10-SB filed on December 18, 2000.3.8
              
              Certificate
      of Amendment to Certificate of Designation of Class A Preferred Stock of
      Quest Minerals & Mining Ltd. filed with the Nevada Secretary of State
      of December 19, 2007, incorporated by reference to Quest’s Current Report
      no Form 8-K filed on December 21, 2007.3.9
              
              Articles
      of Amendment to Articles of Incorporation of Quest Minerals & Mining
      Corp., incorporation by reference to Appendix A of Quest’s Definitive
      Information Statement on Form 14C filed on August 15,
  2008.


50




4.1
              
              Specimen
      Certificate of Quest Mineral & Mining Corp.’s common stock,
      incorporated by reference to our Annual Report on Form 10 KSB/A for the
      year ended December 31, 2006, filed on July 19, 2007.4.2
              
              Amended
      and restated convertible promissory note, incorporated by reference to our
      Annual Report on Form 10 KSB/A for the year ended December 31, 2006, filed
      on July 19, 2007.4.3
              
              Form
      of amended and restated convertible promissory note, incorporated by
      reference to Quest’s Current Report on Form 8-K filed on June 17,
      2006.4.4
              
              Convertible
      promissory note, incorporated by reference to our Annual Report on Form 10
      KSB/A for the year ended December 31, 2006, filed on July 19,
      2007.4.5
              
              Secured
      promissory note, incorporated by reference to our Annual Report on Form 10
      KSB/A for the year ended December 31, 2006, filed on July 19,
      2007.4.6
              
              Form
      of convertible promissory note, incorporated by reference to our Annual
      Report on Form 10 KSB/A for the year ended December 31, 2006, filed on
      July 19, 2007.4.7
              
              Convertible
      promissory note, incorporated by reference to our Annual Report on Form 10
      KSB/A for the year ended December 31, 2006, filed on July 19,
      2007.4.8
              
              Promissory
      Note dated February 21, 2000, as amended, incorporated by reference to our
      Annual Report on Form 10 KSB/A for the year ended December 31, 2006, filed
      on July 19, 2007.4.9
              
              Commercial
      Installment Note dated January 20, 1997, incorporated by reference to our
      Annual Report on Form 10 KSB/A for the year ended December 31, 2006, filed
      on July 19, 20074.10
              
              Commercial
      Time Note dated February 21, 2000, incorporated by reference to our Annual
      Report on Form 10 KSB/A for the year ended December 31, 2006, filed on
      July 19, 20074.11
              
              Amended
      Promissory Note dated August 24, 2006, incorporated by reference to our
      Annual Report on Form 10 KSB/A for the year ended December 31, 2006, filed
      on July 19, 2007.4.12
              
              Amended
      Promissory Note dated August 24, 2006, incorporated by reference to our
      Annual Report on Form 10 KSB/A for the year ended December 31, 2006, filed
      on July 19, 2007.4.13
              
              Warrant,
      incorporated by reference to Quest’s Current Report on Form 8-K filed on
      October 25, 2005.4.14
              
              Form
      of Warrant, incorporated by reference to our Annual Report on Form 10
      KSB/A for the year ended December 31, 2006, filed on July 19,
      2007.4.15
              
              Form
      of Series A Warrant, incorporated by reference to our Annual Report on
      Form 10 KSB/A for the year ended December 31, 2006, filed on July 19,
      2007.4.16
              
              Form
      of Series B Warrant, incorporated by reference to our Annual Report on
      Form 10 KSB/A for the year ended December 31, 2006, filed on July 19,
      20074.17
              
              Warrant,
      incorporated by reference to Quest’s Current Report on Form 8-K filed on
      February 21, 2006.4.18
              
              Amended
      and Restated Warrant, incorporated by reference to Quest’s Current Report
      on Form 8-K filed on February 21, 2006.4.19
              
              Form
      of Warrant, incorporated by reference to our Annual Report on Form 10
      KSB/A for the year ended December 31, 2006, filed on July 19,
      2007.


51





4.20
              
              Convertible
      Promissory Note dated  March 11, 2008, incorporated by reference
      to Quest’s Current Report on Form 8-K, filed on March 17,
      2008.10.1
              
              Securities
      Purchase Agreement and Plan of Reorganization dated February 9, 2004,
      incorporated by reference to Quest’s Current Report on Form 8-K filed on
      February 24, 2004.10.2
              
              Securities
      Purchase Agreement and Plan of Reorganization by and among Tillman
      International, Inc., Quest Minerals & Mining, Ltd., Gwenco, Inc., and
      the stockholders of Gwenco, Inc., dated as of April 28, 2004, incorporated
      by reference to Quest’s Current Report on Form 8-K filed on May 6,
      2004.10.3
              
              William
      R. Wheeler Employment Agreement, incorporated by reference to Quest’s
      Quarterly Report on Form 10-QSB for the quarter ending September 30,
      2005.10.4
              
              Eugene
      Chiaramonte, Jr. Employment Agreement, incorporated by reference to
      Quest’s Quarterly Report on Form 10-QSB for the quarter ending September
      30, 2005.10.5
              
              William
      R. Wheeler Consulting Agreement, incorporated by reference to our Annual
      Report on Form 10 KSB/A for the year ended December 31, 2006, filed on
      July 19, 2007.10.6
              
              Eugene
      Chiaramonte, Jr. Indemnification Agreement, incorporated by reference to
      Quest’s Current Report on Form 8-K filed on January 30,
    2007.10.7
              
              2006
      Stock Incentive Plan, incorporated by reference to Quest’s Registration
      Statement on Form S-8, filed on May 9, 2006 (File No.
      333-133939).10.8
              
              2006
      Stock Incentive Plan No. 2, incorporated by reference to Quest’s
      Registration Statement on Form S-8, filed on September 28, 2006 (File No.
      333-137645).10.9
              
              Coal
      Mining Agreement dated February 23, 2007, incorporated by reference to our
      Annual Report on Form 10 KSB/A for the year ended December 31, 2006, filed
      on July 19, 2007.10.10
              
              Stock
      Purchase Agreement, incorporated by reference to our Annual Report on Form
      10 KSB/A for the year ended December 31, 2006, filed on July 19,
      2007.10.11
              
              Lease
      Agreement, incorporated by reference to our Annual Report on Form 10 KSB/A
      for the year ended December 31, 2006, filed on July 19,
    2007.10.12
              
              Lease
      Agreement, incorporated by reference to our Annual Report on Form 10 KSB/A
      for the year ended December 31, 2006, filed on July 19,
    2007.10.13
              
              Lease
      Agreement, incorporated by reference to our Annual Report on Form 10 KSB/A
      for the year ended December 31, 2006, filed on July 19,
    2007.10.14
              
              Lease
      Agreement, incorporated by reference to our Annual Report on Form 10 KSB/A
      for the year ended December 31, 2006, filed on July 19,
    2007.10.15
              
              Lease
      Agreement, incorporated by reference to our Annual Report on Form 10 KSB/A
      for the year ended December 31, 2006, filed on July 19,
    2007.10.16
              
              Lease
      Agreement, incorporated by reference to our Annual Report on Form 10 KSB/A
      for the year ended December 31, 2006, filed on July 19,
    2007.10.17
              
              Lease
      Agreement, incorporated by reference to our Annual Report on Form 10 KSB/A
      for the year ended December 31, 2006, filed on July 19,
    2007.


52




10.18
              
              Lease
      Agreement, incorporated by reference to our Annual Report on Form 10 KSB/A
      for the year ended December 31, 2006, filed on July 19,
    2007.10.19
              
              Lease
      Agreement, incorporated by reference to our Annual Report on Form 10 KSB/A
      for the year ended December 31, 2006, filed on July 19,
    2007.10.20
              
              Lease
      Agreement, incorporated by reference to our Annual Report on Form 10 KSB/A
      for the year ended December 31, 2006, filed on July 19,
    2007.10.21
              
              Lease
      Agreement, incorporated by reference to our Annual Report on Form 10 KSB/A
      for the year ended December 31, 2006, filed on July 19,
    2007.10.22
              
              Lease
      Agreement, incorporated by reference to our Annual Report on Form 10 KSB/A
      for the year ended December 31, 2006, filed on July 19,
    2007.10.23
              
              Lease
      Agreement, incorporated by reference to our Annual Report on Form 10 KSB/A
      for the year ended December 31, 2006, filed on July 19,
    2007.10.24
              
              Lease
      Agreement, incorporated by reference to our Annual Report on Form 10 KSB/A
      for the year ended December 31, 2006, filed on July 19,
    2007.10.25
              
              Lease
      Agreement, incorporated by reference to our Annual Report on Form 10 KSB/A
      for the year ended December 31, 2006, filed on July 19,
    2007.10.26
              
              Lease
      Agreement, incorporated by reference to our Annual Report on Form 10 KSB/A
      for the year ended December 31, 2006, filed on July 19,
    2007.10.27
              
              Lease
      Agreement, incorporated by reference to our Annual Report on Form 10 KSB/A
      for the year ended December 31, 2006, filed on July 19,
    2007.10.28
              
              Forbearance
      Agreement, incorporated by reference to our Annual Report on Form 10 KSB/A
      for the year ended December 31, 2006, filed on July 19,
    2007.10.29
              
              Conversion
      Agreement, incorporated by reference to our Annual Report on Form 10 KSB/A
      for the year ended December 31, 2006, filed on July 19,
    2007.10.30
              
              Royalty
      Agreement, incorporated by reference to our Annual Report on Form 10 KSB/A
      for the year ended December 31, 2006, filed on July 19,
    2007.10.31
              
              2007
      Stock Incentive Plan, incorporated by reference to Quest’s Registration
      Statement on Form S-8, filed on February 26, 2007 (File No.
      333-140872).10.32
              
              2007
      Stock Incentive Plan No. 2, incorporated by reference to Quest’s
      Registration Statement on Form S-8, filed on November 26, 2007 (File No.
      333-147612).10.33
              
              Convertible
      Note Purchase Agreement dated March 10, 2008, incorporated by reference to
      Quest’s Current Report on Form 8-K, filed on March 17,
    2008.21.1
              
              Subsidiaries
      of Quest Minerals and Mining Corp., incorporated by reference to our
      Annual Report on Form 10 KSB/A for the year ended December 31, 2006, filed
      on July 19, 200723.1
              
              Consent
      of Independent Public Accountants, RBSM, LLP, filed
    herewith23.2
              
              Consent
      of Independent Public Accountants, Kempisty & Company., filed
      herewith31.1
              
              Certification
      of Eugene Chiaramonte, Jr.  pursuant to Rule 13a-14(a), filed
      herewith32.1
              
              Certification
      of Eugene Chiaramonte, Jr. pursuant to 18 U.S.C Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed
      herewith.


53


SIGNATURES




In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.




QUEST
      MINERAL AND MINING CORP.By:
              /s/ Eugene Chiaramonte,
  Jr.Eugene
      Chiaramonte, Jr.President(Principal
      Executive Officer and Principal Accounting
  Officer)





Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated.





Signatures
                  
                  Title
                  
                  Date/s/ Eugene Chiaramonte, Jr.
                  
                  President
      and sole Director
                  
                  June
      16, 2009Eugene
      Chiaramonte, Jr.


54