U.
S. SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549





FORM
10-K


(Mark
One)




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




For the
fiscal year ended December 31, 2009




 ̈
            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, $.0001 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   ̈  No  x




State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter. Solely for purposes of the foregoing calculation, all of the
registrant’s directors and officers are deemed to be
affiliates:  $804,331.




As of
April 6, 2010, 1,280,130,661 shares of our common stock were issued and
outstanding.





Documents
Incorporated by
Reference:      None.





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
2009 and First Quarter 2010 Developments





Coal
Production.  Due to economic conditions in the first quarter of
2009, domestic steel production dropped significantly, thereby reducing demand
for Quest’s coal.  In order to conserve costs, Quest temporarily
suspended operations in the second quarter of 2009.  Quest procured a
new contract for the sale of coal to a new customer in the second quarter of
2009.  In addition, it received new coal orders from another coal
distribution company and we re-started coal production in July
2009.  In July and August 2009, Quest encountered temporary delays and
stoppages that are normally associated with resuming dormant mine
operations.  In September, Quest was able to operate without any
significant delays or stoppages, which allowed it to increase coal
production.  As a result, from September 2009 through the end of the
year, Quest generated approximately $1.17 million of its $1.61 million 2009
annual revenues.  Furthermore, as Quest has advanced further in the
mine, it has been encountering thicker coal seams, which resulted in improved
rates of recovery.





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.  Prior to October 12, 2009, Gwenco oversaw
its operations as a debtor in possession, subject to court approval of matters
outside the ordinary course of business.  In 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.  Under Chapter 11, all claims against
Gwenco in existence prior to the filing of the petitions for reorganization
relief under the federal bankruptcy laws were stayed while Gwenco was in
bankruptcy.





On
September 30, 2009, the Bankruptcy Court confirmed Gwenco’s Plan of
Reorganization (the “Plan”).  Secured and non-priority unsecured
classes of creditors voted to approve the Plan, with over 80% of the unsecured
claims in dollar amount voting for the plan, and over 90% of responding lessors
supporting it.   The Plan became effective on October 12,
2009.





There
were 5 classes of Claims under the Plan:  (i)  Class 1—The
Interstellar Duke claim, in the aggregate amount of $1,093,771; (ii) Class
2—Priority Claims, in aggregate amount of $391,558; (iii) Class 3—General
Unsecured Claims, in the aggregate amount of $1,417,786; (iv) Class
4-Subordinated Claims, consisting of claims of affiliates of the debtor totaling
$3,453,996; and (v) Class 5—Equity Holder Interest in the amount of
$199,213.





The Class
1 Claim was satisfied by the issuance to Interstellar Holdings, LLC of a 5 year
secured convertible promissory note, which note is convertible into common stock
of the Company at a rate of the lower of (i) $0.001 per share and (ii) 40% of
the average of the three lowest per shares market values of the Company’s common
stock during the 10 trading days before a conversion; provided that the holder
is prohibited from converting if such conversion would result in it holding more
than 4.99% of the Company’s outstanding common stock.  The company and
Interstellar formally closed this transaction on March 8, 2010.





The Class
2 Claims were due and payable as of the effective date of the Plan.





The Class
3 Claims will be satisfied by cash payments equal to the value of their claim on
the earlier of (i) the 60th month
after the effective date of the Plan or (ii) the date on which, in Gwenco’s sole
discretion, proceeds from the exit facility are sufficient to satisfy the
claims.  Further, Class 3 Claimholders shall receive their pro-rata
share of royalty payments to reduce their claims beginning in the month
following the Effective Date.  Notwithstanding the foregoing, certain
creditors in this Class negotiated settlements as more specifically set forth in
the Plan.





The Class
4 Claims will be paid after holders of all allowed claims in other classes have
been paid in full.  The Class 5 Claims were deemed
unimpaired.





Gwenco,
as a reorganized debtor, operates its coal mining business and will use current
and future income from operations to meet current and future expenses and to
make payments called for under the Plan.  In addition, the Court
approved an exit facility under which Interstellar Holdings, LLC will provide up
to $2 million in financing to Gwenco.  The exit facility consists of a
5 year secured convertible line of credit note, which note is convertible into
common stock of the Company at a rate of the lower of (i) $0.001 per share and
(ii) 40% of the average of the three lowest per shares market values of the
Company’s common stock during the 10 trading days before a conversion; provided
that the holder is prohibited from converting if such conversion would result in
it holding more than 4.99% of the Company’s outstanding common
stock.  On March 8, 2010, Gwenco and Interstellar formally closed this
transaction by, among other things, entering into a Loan and Security Agreement
and related transaction documents.  The obligations under the exit
facility are secured and guaranteed by the Company and Quest
(Nevada).





Even
though the Bankruptcy Court has confirmed the Plan, it is still possible that
the Bankruptcy Court could convert Gwenco’s case to Chapter 7 and liquidate all
of Gwenco’s assets if the Court determines that Gwenco is unable to perform
under the Plan.  In the case of a Chapter 7 conversion, the Company
would be materially impacted and could lose all of its working assets and have
only unpaid liabilities.  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.





This
description of the Plan does not purport to be complete and is qualified in its
entirety by reference to such Plan, a copy of which was filed as an exhibit to
Quest’s Current Report on Form 8-K dated October 2, 2009.




West Virginia
Explosion.On April 5, 2010, an explosion occurred at the
Upper Big Branch mine in Montcoal, West Virginia, operated by Performance Coal
Company, a subsidiary of Massey Energy.  According to news reports,
the explosion resulted in 25 fatalities as of the date of this
report.  Quest is deeply saddened by the loss of these members of the
industry.  Following an event of this
nature there is always a period of uncertainty.  Quest is unable to
ascertain or estimate at this time what effect the explosion will have on its
current or future operations, or whether its operations will become subject to
additional regulation.





Industry
Overview




Coal
accounted for 24% of the energy consumed (excluding certain alternative fuels
including wind, geothermal and solar power generators) by the United States and
29% of energy consumed globally in 2007, according to the BP Statistical Review
of World Energy (“BP”).  In 2007, coal was the fuel source of 49% of
the electricity generated nationwide, as reported by the Energy Information
Administration (“EIA”), a statistical agency of the United States Department of
Energy.


3


According
to BP, in 2007, the United States was the second largest coal producer in the
world, exceeded only by China. Other leading coal producers include Australia,
India, South Africa, the Russian Federation and Indonesia. According to BP, the
United States has the largest coal reserves in the world, with proved reserves
totaling 243 billion tons. The Russian Federation ranks second in proved 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 production rates.  Proved 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 BP.





United
States coal production has more than doubled over the last 40
years.  In 2008, total United States coal production, as estimated by
the EIA, was 1.2 billion tons.





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 United States coal consumption for the
first ten months of 2008 as estimated by the EIA, is as follows:





End
      Use
                  
                  % of TotalElectric
      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.  The EIA estimates the average cost of various fossil fuels for
generating electricity in the first 11 months of 2008 was as
follows:





Electricity
      Generation Source
                  
                  Average
      Cost per
                    million
      BTUPetroleum
      Liquids
                  
                  $
                  16.56Natural
      Gas
                  
                  $
                  9.34Coal
                  
                  $
                  2.06Petroleum
      Coke
                  
                  $
                  1.85





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 2007, as estimated by EIA, is as follows:





Electricity
      Generation Source
                  
                  %
      of Total
                    Electricity GenerationCoal
                  
                  
                  49
                  %Natural
      Gas
                  
                  
                  21
                  %Nuclear
                  
                  
                  19
                  %Hydroelectric
                  
                  
                  6
                  %Oil
      and other (solar, wind, etc.)
                  
                  
                  5
                  %Total
                  
                  
                  100
                  %




4


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 2008, electricity consumption in the United States
decreased 0.4% from 2007, but the average growth rate in the past decade was
approximately 1.3% 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.




According
to the World Coal Institute (“WCI”), in 2007 the United States ranked seventh
among worldwide exporters of coal.  Australia was the largest
exporter, with other major exporters including Indonesia, the Russian
Federation, Columbia, South Africa and China.  According to EVA,
United States exports increased by 37% from 2007 to 2008.  The usage
breakdown for 2008 United States coal exports of 80 million tons was 47% for
electricity generation and 53% for steel production.  In 2008, United
States coal exports were shipped to more than 30 countries.  The
largest purchaser of United States exported utility coal in 2008 continued to be
Canada, which took 19.1 million tons or 50% of total utility coal
exports.  This was up 31% compared to the 14.6 million tons exported
to Canada in 2007.  Overall steam coal exports increased 43% in 2008
compared to 2007.  The largest purchasers of United States exported
metallurgical coal were Brazil, which imported approximately 5.9 million tons,
or 14%, and Canada, which imported 3.7 million tons, or 9%.  In total,
metallurgical coal exports increased 31% in 2008 compared to 2007.





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.




Since
2003, the global marketplace for coal has 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 late 2008, the prices for
coal reached record highs in the United States.  The increased
worldwide demand was 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.  Since mid-2008, the
United States and world economies have been in an economic recession and
financial credit crisis, significantly reducing the demand for
coal.




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 76% of United States exported metallurgical coal during
2007.





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 Federal
Clean Air Act, as amended, and implementing regulations (“Clean Air Act”) and
the volatility in sulfur dioxide (“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 shipments in recent years
were transported 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


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.  The primary reserves are in the Pond
Creek, Lower Cedar Grove, and Taylor seams. Both the Pond Creek and Lower
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 14-9
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, KY, 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
currently has two primary customers, which routinely purchase all the coal Quest
can produce at spot market rates.  To the extent that Quest is able to
produce coal beyond the demands of these two customers, 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.





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.  Many of Quest’s
competitors are more viable, are better capitalized, and have greater financial
resources than Quest.  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.


6


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 have 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.





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.


7


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 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 2008 and 2009 in
activities to achieve compliance with these new requirements.  These
compliance efforts will continue into 2010.





In 2008,
MSHA published final rules implementing Section 4 of the MINER Act that
addressed mine rescue, sealing of abandoned areas, refuge alternatives, fire
prevention and detection, use of air from the belt entry and civil penalty
assessments.  MSHA also provided guidance on wireless communication
and electronic tracking systems and new requirements for the plugging of coal
bed methane wells with horizontal branches in coal seams.  Two
additional regulations were also published related to measures to achieve
alcohol and drug free mines and the use of coal mine dust personal
monitors.  In February 2009, the United States Court of Appeals for
the District of Columbia Circuit held that the 2008 rules were not sufficient to
satisfy the requirements of the Miner Act in certain respects, and remanded
those portions of the rules to MSHA for reconsideration.  New rules
issued by the MSHA will likely contain more stringent provisions regarding
training of rescue teams.





Kentucky,
the state in which we 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 regulation.





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.


8


Coal Industry Retiree Health Benefit
Act of 1992 and Tax Relief and Retiree Health Care Act of
2006.  The Coal Industry Retiree Health Benefit Act of 1992
(“Coal Act”) provides for the funding of health benefits for certain UMWA
retirees.  The Coal Act established the Combined Benefit Fund (“CBF”)
into which “signatory operators” and “related persons” are obligated to pay
annual premiums for covered beneficiaries.  The Coal Act also created
a second benefit fund, the 1992 Benefit Plan, for miners who retired between
July 21, 1992 and September 30, 1994 and whose former employers are no longer in
business.  On December 20, 2006, President Bush signed the Tax Relief
and Retiree Health Care Act of 2006.  This legislation includes
important changes to the Coal Act that impacts all companies required to
contribute to the CBF.  Effective October 1, 2007, the SSA revoked all
beneficiary assignments made to companies that did not sign a 1988 UMWA contract
(“reachback companies”), but phased-in their premium
relief.  Effective October 1, 2007, reachback companies will pay only
55% of their plan year 2008 assessed premiums, 40% of their plan year 2009
assessed premiums, and 15% of their plan year 2010 assessed
premiums.  General United States Treasury money will be transferred to
the CBF to make up the difference.  After 2010, reachback companies
will have no further obligations to the CBF, and transfers from the United
States Treasury will cover all of the health care costs for retirees and
dependents previously assigned to reachback companies.





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 Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 410-20,
“Asset Retirement and Environmental Obligations” (“ASC 410-20”).




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 are typically placed in fills in adjacent valleys and
hollows.  Likewise, coal refuse disposal areas and coal processing
slurry impoundments are located in valleys and hollows.  These areas
frequently 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.  Discharges from these
structures require permits under Section 402 of the Clean Water Act. 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 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.  Ozone is produced by a combination of two precursor
pollutants: volatile organic compounds and nitrogen oxide, a by-product of coal
combustion.  Particulate matter is emitted by sources burning coal as
fuel, including coal fired power plants.  States are required to
submit to EPA revisions to their State Implementation Plans (“SIPs”) that
demonstrate the manner in which the states will attain National Ambient Air
Quality Standards (“NAAQS”) every time a NAAQS is revised by EPA.  In
2006, EPA adopted a new NAAQS for fine particulate matter, which a number of
states and environmental advocacy groups challenged as not sufficiently
stringent to satisfy Clean Air Act requirements.  In February 2009,
the United States Court of Appeals for the District of Columbia Circuit agreed
that EPA had inadequately explained its decision regarding several aspects of
the NAAQS and remanded those to EPA for reconsideration, a process that could
lead to more stringent NAAQS for fine particulate matter.  EPA also adopted
a more stringent ozone NAAQS on March 27, 2008.  Revised SIPs for both
ozone and fine particulates could require electric power generators to further
reduce particulate, 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.  The new NAAQS for ozone and fine
particulates, as well as claims by affected states, could result in additional
controls being required of coal fired power plants and we are unable to predict
the effect on markets for our coal.





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 or of any subsequent
submissions deadlines.




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, 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 we produce.




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 (“CAIR”) and the Clean Air Mercury
Rule (“CAMR”).  CAIR 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.  CAMR as promulgated will cut mercury emissions nearly
70% by 2018 through a “cap-and-trade” program.  Both rules were
challenged in numerous lawsuits and the United States Court of Appeals for the
District of Columbia Circuit vacated CAMR and remanded it to EPA for
reconsideration on February 8, 2008.  In February 2009, EPA announced
its intention to develop a technology-based standard under Section 112 of the
Clean Air Act to address mercury emissions rather than pursue the
“cap-and-trade” approach of CAMR.  The same court vacated the CAIR on
July 11, 2008, but subsequently revised its remedy to a remand to EPA for
reconsideration on December 23, 2008.  EPA is preparing its response
to the remand, but the court did not impose a response
date.  Regardless of the outcome of litigation on either rule,
stricter controls on emissions of SO2,NOXand
mercuryare
likely in some form.  Any such controls may have an impact on the
demand for our coal.


10


Global
Climate Change




The
United States has not implemented the 1992 Framework Convention on Global
Climate Change (“Kyoto Protocol”), which became effective for many countries on
February 16, 2005.  The Kyoto Protocol was intended to limit or reduce
emissions of greenhouse gases, such as carbon dioxide.  The United
States has not ratified the emission targets of the Kyoto Protocol or any other
greenhouse gas agreement among parties.





Nevertheless,
global climate change continues to attract considerable public and scientific
attention and a considerable amount of legislative attention in the United
States is being paid to global climate change and the reduction of greenhouse
gas emissions, particularly from coal combustion by power
plants.  Enactment of laws and passage of regulations regarding
greenhouse gas emissions by the United States or some of its states, or other
actions to limit carbon dioxide emissions, could result in electric generators
switching from coal to other fuel sources.




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 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 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 incur, and
will continue to incur, expenditures associated with the investigation and
remediation of facilities and environmental conditions under
CERCLA.





Endangered
Species Act




The
federal Endangered Species Act and counterpart state legislation protect species
threatened with possible extinction.  Protection of endangered species
may have the effect of prohibiting or delaying us from obtaining mining permits
and may include restrictions on timber harvesting, road building, and other
mining or agricultural activities in areas containing the affected
species.  Based on the species that have been identified on our
properties to date and the current application of applicable laws and
regulations, we do not believe there are any species protected under the
Endangered Species Act that would materially and adversely affect our ability to
mine coal from our properties in accordance with current mining
plans.





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.


11


Coal
Reserves





Quest
estimates that, as of December 31, 2009, it has total reserves of approximately
11.2 million tons, of which approximately 8.5 million tons constitute
proven/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.  “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.  “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.





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 royalty payment to the lessor based on either a fixed amount per
ton of coal mined or a percentage of gross sales price of coal
mined.  The royalties for coal reserves to landowners from Quest’s
producing properties was approximately $110,000 for the year ended December 31,
2009 and $90,000 for the year ended December 31, 2008.





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.





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.





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, Quest Minerals (Nevada)
completed a “reverse merger” with Tillman.  On April 8, 2004, Tillman
changed its name to “Quest Minerals & Mining Corp.”





Gwenco
Acquisition.  EffectiveApril 28, 2004, Quest
Minerals (Nevada) acquired 100% of the outstanding capital stock of Gwenco in
exchange for 1,386,275 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
and is convertible into shares of Quest’s common stock.


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),
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.





Our wholly owned subsidiary, Gwenco,
Inc., is emerging from bankruptcy protection; however, it is still possible that
its assets may be liquidated in the future. 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.  Prior
to October 12, 2009, Gwenco oversaw its operations as a debtor in possession,
subject to court approval of matters outside the ordinary course of
business.  In 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.  Under Chapter 11, all claims against Gwenco in existence
prior to the filing of the petitions for reorganization relief under the federal
bankruptcy laws were stayed while Gwenco was in bankruptcy.  On
September 30, 2009, the Bankruptcy Court confirmed Gwenco’s Plan of
Reorganization (the “Plan”).  Secured and non-priority unsecured
classes of creditors voted to approve the Plan, with over 80% of the unsecured
claims in dollar amount voting for the plan, and over 90% of responding lessors
supporting it.   The Plan became effective on October 12,
2009.





Even
though the Bankruptcy Court has confirmed the Plan, it is still possible that
the Bankruptcy Court could convert Gwenco’s case to Chapter 7 and liquidate all
of Gwenco’s assets if the Court determines that Gwenco is unable to perform
under the Plan.  The Court could make such a determination upon motion
of any creditor, other party to the action, or on its own motion.  In
the case of a Chapter 7 conversion, the Company would be materially impacted and
could lose all of its working assets and have only unpaid
liabilities.  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.





Equipment breakdowns and a shortage
of supplies have caused significant work stoppages.  Unless we receive
significant additional working capital, it is likely that these breakdowns and
shortages will continue.During the past two fiscal years,
Quest has been forced to suspend its mining operations for approximately two out
of five days, on average, due to either breakdowns in equipment or a lack of
necessary supplies.  Quest requires significant additional working
capital to maintain, repair, or replace its equipment and to maintain adequate
inventories of supplies in order to significantly reduce these work
stoppages.  It is possible that Quest may not be able to obtain such
additional working capital in the amounts necessary to reduce these work
stoppages.  If Quest is unable to obtain such working capital,
significant work stoppages are to likely to continue.





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, 2009, approximately 8,860,000,000 shares of our common stock were
required for issuance upon exercise or conversion of the following securities
(without regard to any limitations on conversion): (i) 8,800,000,000 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) 60,000,000 shares of common stock issuable upon conversion of
our Series A Preferred (without regard to any limitations on
conversion).  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.  Furthermore, the
conversion prices set in many of Quest’s convertible securities do not adjust in
the event of a stock split or reverse stock split.


13


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.  Furthermore, the conversion prices set in many of Quest’s
convertible securities do not adjust in the event of a stock split or reverse
stock split.





The issuance of shares of common
stock to consultants may cause immediate and 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 are likely to 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 further diluting the proportionate equity
interest and voting power of holders of our common stock.





Quest may need to continue to finance
its operations through additional 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, 2009.  While Quest and Gwenco submitted financial
projections to the Bankruptcy Court that forecast that Gwenco will generate
positive cash flow, to date, Gwenco has unable to meet those projections and has
not generated negative cash flow.  While management believes that it
will be able to perform according to the projections, it cannot currently
estimate when that may occur, if at all.  As such, Quest is unable to
forecast whether it will be able to fund its operations, working capital
requirements, and debt service requirements over the fiscal year 2010 through
cash flows generated from operations.  So long as Gwenco is not
generating positive cash flow, 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.





Quest has substantial indebtedness
outstanding, and its operations are significantly
leveraged.   In order to finance its operations, Quest has
incurred substantial indebtedness.  Quest’s subsidiary, Gwenco, Inc.,
has already filed for protection under Chapter 11 of the U.S. Bankruptcy
Code.  On September 30, 2009, the Bankruptcy Court confirmed Gwenco’s
Plan of Reorganization (the “Plan”).  Secured and non-priority
unsecured classes of creditors voted to approve the plan, with over 80% of the
unsecured claims in dollar amount voting for the plan, and over 90% of
responding lessors supporting it.   The Plan became effective on
October 12, 2009.  Even though the Bankruptcy Court has confirmed the
Plan, it is still possible that the Bankruptcy Court could convert Gwenco’s case
to Chapter 7 and liquidate all of Gwenco’s assets if the Court determines that
Gwenco is unable to perform under the Plan.  Gwenco is not currently
generating positive cash flows from operations, and as such, it relies on
additional financing in order to supplement its current cash flows from
operations in order service its debt and other obligations under the
Plan.  In the case of a Chapter 7 conversion, the Company would be
materially impacted and could lose all of its working assets and have only
unpaid liabilities.  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.


14


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, 2009 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 2009 and
2008, and has an accumulated deficit and a working capital deficit as of
December 31, 2009.  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.





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.


15


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, Quest’s 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.




Quest is subject to being adversely
affected by the potential inability to renew or obtain surety bonds.
   Federal and state laws require bonds to secure our obligations
to reclaim lands used for mining, to pay federal and state workers’ compensation
and to satisfy other miscellaneous obligations. These bonds are typically
renewable annually. Surety bond issuers and holders may not continue to renew
the bonds or may demand additional collateral upon those renewals. We are also
subject to increases in the amount of surety bonds required by federal and state
laws as these laws change or the interpretation of these laws changes. Our
failure to maintain, or inability to acquire, surety bonds that are required by
state and federal law would have a material adverse impact on us, possibly by
prohibiting us from developing properties that we desire to develop. That
failure could result from a variety of factors including the following:
(i) lack of availability, higher expense or unfavorable market terms of new
bonds; (ii) restrictions on availability of collateral for current and
future third-party surety bond issuers under the terms of our senior notes or
revolving credit facilities; (iii) our inability to meet certain financial
tests with respect to a portion of the post-mining reclamation bonds; and
(iv) the exercise by third-party surety bond issuers of their right to
refuse to renew or issue new bonds.


16


Defects in title or loss of any
leasehold interests in Quest’s properties could limit its ability to mine its
properties or result in significant unanticipated
costs.  Substantially all of our mining operations occur on
properties that we lease.  Title defects or the loss of leases could
adversely affect our ability to mine the reserves covered by those
leases.  Our right to mine some of our reserves may be adversely
affected if defects in title or boundaries exist.  In order to obtain
leases to conduct our mining operations on property where these defects exist,
we may have to incur unanticipated costs.  In addition, we may not be
able to successfully negotiate new leases for properties containing additional
reserves, or maintain our leasehold interests in properties where we have not
commenced mining operations during the term of the lease.





Concerns about the environmental
impacts of coal combustion, including perceived impacts on global climate
change, are resulting in increased regulation of coal combustion in many
jurisdictions, and interest in further regulation, which could significantly
affect demand for our products.  The Clean Air Act and similar
state and local laws extensively regulate the amount of sulfur dioxide,
particulate matter, nitrogen oxides and other compounds emitted into the air
from electric power plants, which are the largest end-users of our coal. Such
regulation may require significant emissions control expenditures for many
coal-fired power plants. As a result, the generators may switch to other fuels
that generate less of these emissions or install more effective pollution
control equipment, possibly reducing future demand for coal and the construction
of coal-fired power plants. The majority of our 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.





Global
climate change continues to attract considerable public and scientific
attention. Widely publicized scientific reports, such as the Fourth Assessment
Report of the Intergovernmental Panel on Climate Change released in 2007, have
also engendered widespread concern about the impacts of human activity,
especially fossil fuel combustion, on global climate change. A considerable and
increasing amount of attention in the United States is being paid to global
climate change and to reducing greenhouse gas emissions, particularly from coal
combustion by power plants. According to the EIA report, “Emissions of
Greenhouse Gases in the United States 2007,” coal combustion accounts for 30% of
man-made greenhouse gas emissions in the United States. Legislation was
introduced in Congress in the past several years to reduce greenhouse gas
emissions in the United States and, although no bills to reduce such emissions
have yet passed either house of Congress, bills to reduce such emissions remain
pending and others are likely to be introduced. President Obama campaigned in
favor of a “cap-and-trade” program to require mandatory greenhouse gas emissions
reductions and since his election has continued to express support for such
legislation, contrary to the previous administration. The United
States Supreme Court’s 2007 decision in Massachusetts v. Environmental
Protection Agency ruled that EPA improperly declined to address carbon
dioxide impacts on climate change in a rulemaking related to new motor vehicles.
The reasoning of the court decision could affect other federal regulatory
programs, including those that directly relate to coal use. In July 2008, EPA
published an Advanced Notice of Proposed Rulemaking (ANPR) seeking comments
regarding the regulation of greenhouse gas emissions; and, in February 2009, the
newly appointed administrator of EPA granted a petition by environmental
advocacy groups to reconsider an interpretive memorandum by her predecessor in
December 2008 that concluded the Clean Air Act’s Prevention of Significant
Deterioration program does not extend to carbon dioxide emissions, a decision
that could lead to carbon dioxide emissions from coal-fired power plants being a
consideration in permitting decisions. In addition, a growing number of states
in the United States are taking steps to require greenhouse gas emissions
reductions from coal-fired power plants. Enactment of laws and promulgation
of regulations regarding greenhouse gas emissions by the United States or some
of its states, or other actions to limit carbon dioxide emissions, could result
in electric generators switching from coal to other fuel sources.





As part
of the United Nations Framework Convention on Climate Change, representatives
from 187 nations met in Bali, Indonesia in December 2007 to discuss a program to
limit greenhouse gas emissions after 2012. The United States participated in the
conference. The convention adopted what is called the “Bali Action Plan.” The
Bali Action Plan contains no binding commitments, but concludes that “deep cuts
in global emissions will be required” and provides a timetable for two years of
talks to shape the first formal addendum to the 1992 United Nations Framework
Convention on Climate Change treaty since the Kyoto Protocol. The ultimate
outcome of the Bali Action Plan, and any treaty or other arrangement ultimately
adopted by the United States may have a material adverse impact on the global
supply and demand for coal. This is particularly true if cost effective
technology for the capture and sequestration of carbon dioxide is not
sufficiently developed. Technologies that may significantly reduce emissions
into the atmosphere of greenhouse gases from coal combustion, such as carbon
capture and sequestration (which captures carbon dioxide at major sources such
as power plants and subsequently stores it in nonatmospheric reservoirs such as
depleted oil and gas reservoirs, unmineable coal seams, deep saline formations,
or the deep ocean) have attracted and continue to attract the attention of
policy makers, industry participants, and the public. For example, in July 2008
EPA proposed rules that would establish, for the first time, requirements
specifically for wells used to inject carbon dioxide into geologic formations.
Considerable uncertainty remains, not only regarding rules that may become
applicable to carbon dioxide injection wells but also concerning liability for
potential impacts of injection, such as groundwater contamination or seismic
activity. In addition, technical, environmental, economic, or other factors may
delay, limit, or preclude large-scale commercial deployment of such
technologies, which could ultimately provide little or no significant reduction
of greenhouse gas emissions from coal combustion.


17


Further
developments in connection with legislation, regulations or other limits on
greenhouse gas emissions and other environmental impacts from coal combustion,
both in the United States could have a material adverse effect on our cash
flows, results of operations or financial condition.





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.  It is possible that Quest’s customers 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 purchase terms.  If
Quest enters into long-term contracts with future customers, when those
contracts reach expiration, it is possible that that the customers will not
extend or enter into new long-term contracts.




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.


18


Union represented labor creates an
increased risk of work stoppages and higher labor costs.As of
December 31, 2009, 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.




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, and can also result
in power outages that create an inability to operate the mines.  Quest
has suffered work stoppages as a result of severe weather conditions,
particularly during winter months.




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.


19


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.  Further, in light of the recent mine explosion in West Virginia,
it is also possible that new legislation and/or regulations and orders may be
adopted relating to miners’ health and safety that may material 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 mine workers’ safety that would further regulate and tax
the coal industry may also require Quest or its customers to change operations
significantly or incur increased costs.  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
“Pink Sheets” under the symbol “QMIN.PK.”  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 controls our voting
rights, and as long as he does, he will be able to control the outcome of
stockholder voting.Quest’s sole officer, who is also one of
two directors, 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 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.


20


Quest’s articles of incorporation
authorize Quest’s board of directors to effectuate forward and reverse stock
splits without stockholder approval.Quest’s board of
directors has the authority to effectuate both forward and reverse stock splits
of Quest’s common stock without any further vote or action by Quest’s
stockholders.  Although a forward or reverse stock split does not, in
and of itself, result in dilution to existing stockholders, forward or reverse
stock split may be negatively perceived and may have a negative effect on the
market capitalization and relative price per share of Quest’s common
stock.  Furthermore, the conversion prices set in many of Quest’s
convertible securities do not adjust in the event of a stock split or reverse
stock split.  As a result, some investors may be unwilling to purchase
our common stock.





Quest’s articles of incorporation
authorize 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.  As a result,
some investors may be unwilling to purchase our common stock.





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.


21




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.





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 $1,500 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, 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.  Prior to October 12, 2009, Gwenco oversaw
its operations as a debtor in possession, subject to court approval of matters
outside the ordinary course of business.  In 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.  Under Chapter 11, all claims against
Gwenco in existence prior to the filing of the petitions for reorganization
relief under the federal bankruptcy laws were stayed while Gwenco was in
bankruptcy.





On
September 30, 2009, the Bankruptcy Court confirmed Gwenco’s Plan of
Reorganization (the “Plan”).  Secured and non-priority unsecured
classes of creditors voted to approve the Plan, with over 80% of the unsecured
claims in dollar amount voting for the plan, and over 90% of responding lessors
supporting it.   The Plan became effective on October 12,
2009.





There
were 5 classes of Claims under the Plan:  (i)  Class 1—The
Interstellar Duke claim, in the aggregate amount of $1,093,771; (ii) Class
2—Priority Claims, in aggregate amount of $391,558; (iii) Class 3—General
Unsecured Claims, in the aggregate amount of $1,417,786; (iv) Class
4-Subordinated Claims, consisting of claims of affiliates of the debtor totaling
$3,453,996; and (v) Class 5—Equity Holder Interest in the amount of
$199,213.


22


The Class
1 Claim was satisfied by the issuance to Interstellar Holdings, LLC of a 5 year
secured convertible promissory note, which note is convertible into common stock
of the Company at a rate of the lower of (i) $0.001 per share and (ii) 40% of
the average of the three lowest per shares market values of the Company’s common
stock during the 10 trading days before a conversion; provided that the holder
is prohibited from converting if such conversion would result in it holding more
than 4.99% of the Company’s outstanding common stock.  The company and
Interstellar formally closed this transaction on March 8, 2010.





The Class
2 Claims were due and payable as of the effective date of the Plan.





The Class
3 Claims will be satisfied by cash payments equal to the value of their claim on
the earlier of (i) the 60th month
after the effective date of the Plan or (ii) the date on which, in Gwenco’s sole
discretion, proceeds from the exit facility are sufficient to satisfy the
claims.  Further, Class 3 Claimholders shall receive their pro-rata
share of royalty payments to reduce their claims beginning in the month
following the Effective Date.  Notwithstanding the foregoing, certain
creditors in this Class negotiated settlements as more specifically set forth in
the Plan.





The Class
4 Claims will be paid after holders of all allowed claims in other classes have
been paid in full.  The Class 5 Claims were deemed
unimpaired.





Gwenco,
as a reorganized debtor, operates its coal mining business and will use current
and future income from operations to meet current and future expenses and to
make payments called for under the Plan.  In addition, the Court
approved an exit facility under which Interstellar Holdings, LLC will provide up
to $2 million in financing to Gwenco.  The exit facility consists of a
5 year secured convertible line of credit note, which note is convertible into
common stock of the Company at a rate of the lower of (i) $0.001 per share and
(ii) 40% of the average of the three lowest per shares market values of the
Company’s common stock during the 10 trading days before a conversion; provided
that the holder is prohibited from converting if such conversion would result in
it holding more than 4.99% of the Company’s outstanding common
stock.  On March 8, 2010, Gwenco and Interstellar formally closed this
transaction by, among other things, entering into a Loan and Security Agreement
and related transaction documents.  The obligations under the exit
facility are secured and guaranteed by the company and Quest
(Nevada).





Even
though the Bankruptcy Court has confirmed the Plan, it is still possible that
the Bankruptcy Court could convert Gwenco’s case to Chapter 7 and liquidate all
of Gwenco’s assets if the Court determines that Gwenco is unable to perform
under the Plan.  In the case of a Chapter 7 conversion, the Company
would be materially impacted and could lose all of its working assets and have
only unpaid liabilities.  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.





This
description of the Plan does not purport to be complete and is qualified in its
entirety by reference to such Plan, a copy of which was filed as an exhibit to
Quest’s Current Report on Form 8-K dated October 2, 2009.





Valley Personnel
Services.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.





Federal Insurance
Company.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.


23


Mountain Edge
Personnel.Mountain Edge Personnel 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.





Personal
Injury.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.





Fidler.  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.





Item
4.   (REMOVED AND RESERVED).


24


PART
II




Item
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS




Quest’s common stock is traded on the
Pink Sheets OTC Electronic Market under the symbol “QMIN.”  The
following table shows the high and low bid prices for Quest’s common stock for
each quarter since January 1, 2008 as reported by the either the OTC Bulletin
Board or the Pink Sheets OTC Electronic Market.  All share prices have
been adjusted to provide for 1 for 10 reverse stock split effected on November
4, 2008 and the 1 for 100 reverse stock split effected on August 5,
2009.  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
                    
                    $
                    11.00
                    
                    
                    $
                    3.90Second
      quarter
                    
                    
                    75.00
                    
                    
                    
                    0.80Third
      quarter
                    
                    
                    48.00
                    
                    
                    
                    1.50Fourth
      quarter
                    
                    
                    5.70
                    
                    
                    
                    0.802009 (OTC Bulletin Board)
                    
                    High Bid
                    
                    
                    Low BidFirst
      quarter
                    
                    $
                    0.280
                    
                    
                    $
                    0.040Second
      quarter
                    
                    
                    0.180
                    
                    
                    
                    0.040Third
      quarter
                    
                    
                    0.080
                    
                    
                    
                    0.040Fourth
      quarter
                    
                    
                    0.031
                    
                    
                    
                    0.001





As of
April 6, 2010, there were approximately 522 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





During
the quarter ended December 31, 2009, Quest issued an aggregate of 195,677,720
shares of common stock upon conversions of various convertible notes. The
aggregate principal and interest amount of these notes that were converted was
$295,222.  The issuances were exempt pursuant to Section 3(a)(9) of
the Securities Act as well as Section 4(2) of the Securities Act.





During
the quarter ended December 31, 2009, Quest issued an aggregate of 8,337,702
shares of common stock pursuant to Gwenco’s Plan of Reorganization in partial
satisfaction of certain claims against Gwenco in the Gwenco Bankruptcy
proceedings.  The aggregate amount of claims satisfied pursuant to
these issuances was $30,000.  The issuances were exempt pursuant to
Section 1145 of the Bankruptcy Code.





During
the quarter ended December 31, 2009, Quest issued 12,000,000 shares of common
stock upon conversion of 4,800 shares of its series A preferred
stock.  The issuance was exempt pursuant to Section 3(a)(9) of the
Securities Act as well as Section 4(2) of the Securities Act.


25


On
October 14, 2009, Quest entered into an exchange agreement with a third party
investor, pursuant to which the investor exchanged approximately $125,000 of
evidences of indebtedness for a $125,000 5% convertible promissory note due
October 14, 2014.  The evidences of indebtedness were comprised of
investments made into Quest in 2008 which Quest agreed to repay upon
demand.    The note is convertible into shares of Quest’s
common stock at a conversion price of $0.001 per share, subject to
adjustment.  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 Quest.  The issuance was
exempt pursuant to Section 3(a)(9) of the Securities Act as well as Section 4(2)
of the Securities Act.





On
October 23, 2009, Quest borrowed $50,000 from an investor, and in connection
therewith, issued a $50,000 8% convertible promissory note due October 23,
2011.  The note is convertible into shares of the Company’s common
stock at a conversion price of forty five percent (45%) of the average of the
five (5) lowest per share market values during the ten (10) trading days
immediately preceding a conversion date.  The issuance was exempt
pursuant to Section 4(2) of the Securities Act.





On
December 14, 2009, Quest entered into an exchange agreement with a third party
investor, pursuant to which the investor exchanged approximately $30,000 of
evidence of indebtedness for a $30,000 4% convertible promissory note due
December 14, 2011.  The evidence of indebtedness was comprised of an
investment made into Quest in 2008 which Quest agreed to repay upon
demand.    The note is convertible into shares of Quest’s
common stock at a conversion price of fifty percent (50%) of the average of the
three (3) per share market values 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 Quest.  The issuance was exempt pursuant
to Section 3(a)(9) of the Securities Act as well as Section 4(2) of the
Securities Act.




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.


26


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
2009 and First Quarter 2010 Developments





Coal
Production.  Due to economic conditions in the first quarter of
2009, domestic steel production dropped significantly, thereby reducing demand
for Quest’s coal.  In order to conserve costs, Quest temporarily
suspended operations in the second quarter of 2009.  Quest procured a
new contract for the sale of coal to a new customer in the second quarter of
2009.  In addition, it received new coal orders from another coal
distribution company and we re-started coal production in July
2009.  In July and August 2009, Quest encountered temporary delays and
stoppages that are normally associated with resuming dormant mine
operations.  In September, Quest was able to operate without any
significant delays or stoppages, which allowed it to increase coal
production.  As a result, from September 2009 through the end of the
year, Quest generated approximately $1.17 million of its $1.61 million 2009
annual revenues.  Furthermore, as Quest has advanced further in the
mine, it has been encountering thicker coal seams, which resulted in improved
rates of recovery.





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.  Prior to October 12, 2009, Gwenco oversaw
its operations as a debtor in possession, subject to court approval of matters
outside the ordinary course of business.  In 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.  Under Chapter 11, all claims against
Gwenco in existence prior to the filing of the petitions for reorganization
relief under the federal bankruptcy laws were stayed while Gwenco was in
bankruptcy.


27


On
September 30, 2009, the Bankruptcy Court confirmed Gwenco’s Plan of
Reorganization (the “Plan”).  Secured and non-priority unsecured
classes of creditors voted to approve the Plan, with over 80% of the unsecured
claims in dollar amount voting for the plan, and over 90% of responding lessors
supporting it.   The Plan became effective on October 12,
2009.





There
were 5 classes of Claims under the Plan:  (i)  Class 1—The
Interstellar Duke claim, in the aggregate amount of $1,093,771; (ii) Class
2—Priority Claims, in aggregate amount of $391,558; (iii) Class 3—General
Unsecured Claims, in the aggregate amount of $1,417,786; (iv) Class
4-Subordinated Claims, consisting of claims of affiliates of the debtor totaling
$3,453,996; and (v) Class 5—Equity Holder Interest in the amount of
$199,213.





The Class
1 Claim was satisfied by the issuance to Interstellar Holdings, LLC of a 5 year
secured convertible promissory note, which note is convertible into common stock
of the Company at a rate of the lower of (i) $0.001 per share and (ii) 40% of
the average of the three lowest per shares market values of the Company’s common
stock during the 10 trading days before a conversion; provided that the holder
is prohibited from converting if such conversion would result in it holding more
than 4.99% of the Company’s outstanding common stock.  The company and
Interstellar formally closed this transaction on March 8, 2010.





The Class
2 Claims were due and payable as of the effective date of the Plan.





The Class
3 Claims will be satisfied by cash payments equal to the value of their claim on
the earlier of (i) the 60th month
after the effective date of the Plan or (ii) the date on which, in Gwenco’s sole
discretion, proceeds from the exit facility are sufficient to satisfy the
claims.  Further, Class 3 Claimholders shall receive their pro-rata
share of royalty payments to reduce their claims beginning in the month
following the Effective Date.  Notwithstanding the foregoing, certain
creditors in this Class negotiated settlements as more specifically set forth in
the Plan.





The Class
4 Claims will be paid after holders of all allowed claims in other classes have
been paid in full.  The Class 5 Claims were deemed
unimpaired.





Gwenco,
as a reorganized debtor, operates its coal mining business and will use current
and future income from operations to meet current and future expenses and to
make payments called for under the Plan.  In addition, the Court
approved an exit facility under which Interstellar Holdings, LLC will provide up
to $2 million in financing to Gwenco.  The exit facility consists of a
5 year secured convertible line of credit note, which note is convertible into
common stock of the Company at a rate of the lower of (i) $0.001 per share and
(ii) 40% of the average of the three lowest per shares market values of the
Company’s common stock during the 10 trading days before a conversion; provided
that the holder is prohibited from converting if such conversion would result in
it holding more than 4.99% of the Company’s outstanding common
stock.  On March 8, 2010, Gwenco and Interstellar formally closed this
transaction by, among other things, entering into a Loan and Security Agreement
and related transaction documents.  The obligations under the exit
facility are secured and guaranteed by the company and Quest
(Nevada).





Even
though the Bankruptcy Court has confirmed the Plan, it is still possible that
the Bankruptcy Court could convert Gwenco’s case to Chapter 7 and liquidate all
of Gwenco’s assets if the Court determines that Gwenco is unable to perform
under the Plan.  In the case of a Chapter 7 conversion, the Company
would be materially impacted and could lose all of its working assets and have
only unpaid liabilities.  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.





This
description of the Plan does not purport to be complete and is qualified in its
entirety by reference to such Plan, a copy of which was filed as an exhibit to
Quest’s Current Report on Form 8-K dated October 2, 2009.





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.


28


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.





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.  Under the typical terms of sale, title
and risk of loss transfer to the customer at the mine (or dock, or port) where
coal is loaded to the truck (or rail, barge, ocean-going vessel, or other
transportation source) that serves Quest’s mines.


29


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 years ended
December 31, 2009 and 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 FASB ASC Topic 825-10-50, “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, 2009.





Earnings
loss per share





Quest
adopted FASB ASC Topic 260, “Earnings per Share”, 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; however, the potential dilution becomes
anti-dilutive in the case of a loss and, therefore, basic and fully diluged loss
per share are the same.





Stock
Split





All
references to common stock and per share date have been retroactively restated
to account for the 1 for 10 reverse stock split effectuated on November 4,
2008.





All
references to common stock and per share date have been retroactively restated
to account for the 1 for 100 reverse stock split effectuated on August 4,
2009.





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 consolidated financial
statements.


30


Results
of Operations





Basis
of Presentation





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





Year
      EndedDecember 31,2009
                      
                      
                      2008Coal
      Revenues
                      
                      $
                      1,612,357
                      
                      
                      $
                      746,767Production
      costs
                      
                      
                      (2,441,756
                      )
                      
                      
                      (1,333,778
                      )Selling,
      general and administrative
                      
                      
                      (1,717,373
                      )
                      
                      
                      (2,567,082
                      )Depreciation
      and Amortization
                      
                      
                      (165,384
                      )
                      
                      
                      (229,744
                      )Operating
      (loss)
                      
                      
                      (2,712,156
                      )
                      
                      
                      (3,383,837
                      )





Comparison
of the year ended December 31, 2009 and 2008





Coal Revenues. Revenues for Quest
were $1,612,357 for the year ended December 31, 2009, as compared to $746,767
for the year ended December 31, 2008, an increase of approximately
116%.  Our increase in revenues was due to our increased level of
mining operations in 2009 versus 2008.  This increase resulted from
our ability to mine on a more consistent basis, particularly during the latter
half of the year.  We added and upgraded equipment which allowed us to
be in production more consistently.  In addition, as we advanced
further into the mine, the coal seam thickened, which resulted in improved rates
of recovery and a higher percentage of coal per gross ton
extracted.  Finally, the completion of the Gwenco bankruptcy allowed
us to access additional working capital that allowed us to obtain necessary
labor and supplies for production.





Production
costs.  Production costs were $2,441,756 for the year ended
December 31, 2009 as compared to $1,333,778 for the year ended December 31,
2008, an increase of approximately 83%.  As a percentage of sales, our
production costs decreased from 178% to 151%.  In order to increase
our mining production, we needed to contract for additional labor, purchase
additional supplies, and conduct additional repairs, all of which led to an
increase in production costs.  Furthermore, we incurred increased
shipping charges, as the shipping distance to our new customers was further than
our prior customers.  In addition, we incurred increased royalty
expense as we increased mining production and sales.  As a percentage
of net sales, our production costs decreased, as our additional cost
expenditures resulted in more efficient and productive mining
operations.





Selling, general, and
administrative.  Selling, general and administrative expenses
decreased to $1,717,373 for the year ended December 31, 2009, from $2,567,082
for the year ended December 31, 2008.   The primary reason for
the decrease was the absence in the year ended December 31, 2009 of the selling,
general, and administrative expenses result primarily the issuance of stock
options valued at $582,500 pursuant to FASB ASC Topic 718, “Compensation – Stock
Compensation” which occurred during the year ended December 31,
2008.  In addition, the decrease in selling, general, and
administrative expenses resulted from a decrease of compensation expense from
the issuance of shares of common stock for services of $913,089 for the year
ended December 31, 2009 from $1,093,253 for the year ended December 31,
2008.





Depreciation and
amortization.  Depreciation expense decreased to $165,384 for
the year ended December 31, 2009, from $229,744 for the year ended December 31,
2008.  Quest fully depreciated a large asset portion of its equipment
in 2008, and there was no comparable depreciation expense in 2009, resulting in
higher depreciation in 2008.   This difference was partially
offset by increased depreciation in 2009 on other equipment that resulted from
Quest putting additional equipment into service in 2009.


31


Operating
loss.  Quest incurred an operating loss of $2,712,156for the year
ended December 31, 2009, compared to an operating loss of $3,383,837 for the
year ended December 31, 2008.   It had lower operating losses in
2009 as compared to 2008 primarily from increase in coal revenues as well as a
decrease in selling, general, and administrative expenses.





Interest.Interest
expense increased to $2,710,455 for the year ended December 31, 2009 from
$637,320 for
the year ended December 31, 2008.  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 increase results primarily from interest computed in
accruing present values of the principal amounts and future interest
requirements of Quest’s restructured debt obligations pursuant to Gwenco’s plan
of reorganization.  It also results from additional borrowings which
occurred in 2009.





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





Gain on loan settlements pursuant to
plan of reorganization.  As a result of the confirmation of
Gwenco’s Plan of Reorganization, Quest recorded a gain of $2,450,059 on loan
settlements pursuant to the plan of reorganization in the year ended December
31, 2009.  Although the plan of reorganization is a 100% pay out plan,
the revised terms of repayment result in a reduction of the present value of
certain debt obligations, which in turn resulted in our recognition of a gain on
loan settlements.





Loss on restructuring prior to plan
of reorganization.  Quest recognized a loss of $1,201,226 on
restructurings prior to the confirmation of Gwenco’s plan of
reorganization.  This loss primarily
results from negotiated resolution of outstanding contested matter with Quest’s
largest creditor.





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, 2009
was $3,929,293.  It
had cash of $7,254 as of December 31, 2009.





Quest
used $1,019,781 of net cash in operating activities for the year ended December
31, 2009, compared to using $1,051,475in the
year ended December 31, 2008.  Cash used in operating activities for
the year ended December 31, 2009 was due to Quest’s net loss of $4,173,778, a
gain on debt extinguishments of $1,248,833, an increase in accounts receivable
of $111,052, an increase in prepaid expenses of $6,234, and a decrease in
accounts payable and accrued expenses of $418,374.  This was offset by
non-cash expenses of $165,384 in depreciation and amortization, $36,226 of stock
issued for interest, $913,089 of stock issued for services, $292,532 of
amortized discount on convertible notes, $16,702 of amortized royalty costs,
$226 of amortized deferred issuance costs, a $12,395 decrease in restricted
cash, and an increase of debt transfers and credits from accrued interest of
$3,501,936.





Net cash
flows used in investing activities was $18,544for the year
ended December 31, 2009, as compared to $528,272 of net cash flows used in
investing activities for the comparable period in 2008.  The net cash
flows used in investing activities in 2009 resulted from $12,000 in equipment
purchases and $6,544 in security deposits.





Net cash
flows provided by financing activities were $1,032,140 for the year ended
December 31, 2009, compared to net cash flows provided by financing activities
of $1,588,722 for the year ended December 31, 2008.  This decrease in
net cash provided by financing activities is due to Quest’s borrowings of
$1,901,188 under its DIP and Exit Facilities in the Gwenco reorganization and
$231,827 in other borrowings, offset by repayment of $1,100,875 of
debt.





Financings
and Debt Restructurings





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.  Prior to October 12, 2009, Gwenco
oversaw its operations as a debtor in possession, subject to court approval of
matters outside the ordinary course of business.  In 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.  Under Chapter 11, all claims
against Gwenco in existence prior to the filing of the petitions for
reorganization relief under the federal bankruptcy laws were stayed while Gwenco
was in bankruptcy.


32


Upon
Gwenco’s recommencement of mining operations in the third quarter of 2009, the
debtor-in-possession lender required Gwenco to assign all of its accounts
receivable to the lender and have all payments on the receivables paid into an
escrow account.  The lender had been making advances under the
facility to Gwenco against the accounts receivable, and the advances are being
repaid as payments are made to the escrow account.  In connection
therewith, the Company issued a convertible promissory note to a third party
investor for facilitation of the escrow arrangement.  The note is due
September 16, 2011 and bears interest at an annual interest rate of eight
percent (8%).  The note is convertible into shares of the Company’s
common stock at a conversion price of forty five percent (45%) of the average of
the five (5) lowest per share market value during the ten (10) trading days
immediately preceding a conversion date.  In addition, the third-party
investors who facilitated the escrow arrangement received a commission of 2.5%
of each advance made.





On
September 30, 2009, the Bankruptcy Court confirmed Gwenco’s Plan of
Reorganization (the “Plan”).  The Plan became effective on October 12,
2009.  Under Gwenco’s Plan of Reorganization, the Court approved an
exit facility under which Interstellar Holdings LLC will provide up to $2
million in financing to Gwenco.  Gwenco paid off the
debtor-in-possession financing with borrowings from the exit
facility.  The exit facility consists of a 5 year secured convertible
line of credit note, which note is convertible into common stock of the Company
at a rate of the lower of (i) $0.001 per share and (ii) 40% of the average of
the three lowest per shares market values of the Company’s common stock during
the 10 trading days before a conversion; provided that the holder is prohibited
from converting if such conversion would result in it holding more than 4.99% of
the Company’s outstanding common stock.





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 June 26, 2009, Quest entered
into an exchange agreement with the third party investor, pursuant to which the
investor exchanged approximately $1,082,411 of the evidences of indebtedness,
along with $ 124,195 of accrued interest thereon, for a new convertible
promissory note in the aggregate principal amount of $1,200,000.  The new
note is due June 26, 2011 and bears interest at an annual rate of five percent
(5%).  The new note is convertible into shares of Quest’s common stock at a
conversion price of $0.001 per share, subject to adjustment.  As of
December 31, 2009, there continues to be no formal agreement regarding the
remaining evidences of indebtedness of $130,857, and Quest continues to accrue
5% annual interest on the principal with the intent that a mutual arrangement
will be resolved between both parties.





On August
14, 2008, Quest 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
Quest.  On August 28, 2009, the Company amended the conversion price
to be forty five percent (45%) of the average of the five (5) lowest per share
market value during the ten (10) trading days immediately preceding a conversion
date in connection with the Company’s common stock being removed from quotation
from the OTC Bulletin Board.





On August
28, 2009, Quest borrowed $12,500 from an investor, and in connection therewith,
issued a promissory note that is due on demand and bears interest at an annual
interest rate of twelve percent (12%).





On
October 23, 2009, Quest borrowed $50,000 from an investor, and in connection
therewith, issued a $50,000 8% convertible promissory note due October 23,
2011.  The note is convertible into shares of the Company’s common
stock at a conversion price of forty five percent (45%) of the average of the
five (5) lowest per share market values during the ten (10) trading days
immediately preceding a conversion date.


33


Capital
Requirements





The report of Quest’s independent
accountants for the fiscal year ended December 31, 2009 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 exit facility 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.


34


Item
8.  FINANCIAL STATEMENTS
  RBSM
      LLP
                  Accountants
      and Advisors
                  5
      West 37th
      Street
                  9th
      Floor
                  New
      York, NY 10018
                  212.868.3669
                  212.868.3498/Fax
 
 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, 2009 and 2008 and the related
consolidated statements of operations, changes in deficiency in stockholders'
equity and cash flows for each of the years then ended. 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, 2009 and 2008 and the
results of its consolidated operations and its cash flows for the year ended
December 31, 2009 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. On
September 30, 2009, the Bankruptcy Court confirmed Gwenco’s Plan of
Reorganization (the “Plan”) and the plan became effective on October 12, 2009.
Gwenco is currently overseeing its operations as a debtor in possession, subject
to court approval of matters outside the ordinary course of business. Even
though the Bankruptcy Court has confirmed the Plan, it is still possible that
the Bankruptcy Court could convert Gwenco’s case to Chapter 7 and liquidate all
of Gwenco’s assets if the court determines that Gwenco is unable to perform
under the Plan. In the case of a Chapter 7 conversion, the Company would be
materially impacted and could lose all of its working assets and have only
unpaid liabilities. 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.
  Washington,
D.C.    New York, NY   Mumbai,
India
 www.rbsmllp.com
 Member of
Russell Bedford International with affiliated offices
worldwide
  35
 
 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, LLP
 
 New York,
New York
 April 14,
2010
  Washington,
D.C.    New York, NY   Mumbai,
India
 www.rbsmllp.com
 Member of
Russell Bedford International with affiliated offices worldwide


36
 
  QUEST
MINERALS & MINING CORP.


CONSOLIDATED
BALANCE SHEETS
 
 December
      31,
                    
                    
                    December 31,2009
                    
                    
                    2008ASSETSCurrent
      AssetsCash
                    
                    $
                    7,254
                    
                    
                    $
                    13,439Receivables
                    
                    
                    112,282
                    
                    
                    
                    -Prepaid
      expenses
                    
                    
                    8,227
                    
                    
                    
                    1,993Total
      current assets
                    
                    
                    127,763
                    
                    
                    
                    15,432Other
      Assets:Leased
      Mineral Reserves, net (Notes 2 & 5)
                    
                    
                    5,187,317
                    
                    
                    
                    5,203,414Mine
      development, net
                    
                    
                    113,207
                    
                    
                    
                    226,407Equipment,
      net (Note 6)
                    
                    
                    133,184
                    
                    
                    
                    157,271Deposits
                    
                    
                    48,986
                    
                    
                    
                    42,442Deferred
      debt issue cost, net
                    
                    
                    -
                    
                    
                    
                    226DIP
      Cash, Restricted (Note 14)
                    
                    
                    -
                    
                    
                    
                    12,395DIP
      Receivables, Restricted (Note 14)
                    
                    
                    -
                    
                    
                    
                    1,230TOTAL
      ASSETS
                    
                    $
                    5,610,457
                    
                    
                    $
                    5,658,816LIABILITIES
      AND DEFICIENCY IN STOCKHOLDERS' EQUITYCurrent
      LiabilitiesAccounts
      payable and accrued expenses (Note 7)
                    
                    $
                    3,060,061
                    
                    
                    $
                    3,478,435Loans
      payable-current portion, net (Note 8)
                    
                    
                    996,995
                    
                    
                    
                    2,197,958Bank
      loans (Note 8)
                    
                    
                    -
                    
                    
                    
                    1,017,525Related
      party loans (Note 8)
                    
                    
                    -
                    
                    
                    
                    624,581DIP
      Financing (Note 8)
                    
                    
                    -
                    
                    
                    
                    923,043TOTAL
      CURRENT LIABILITIES
                    
                    
                    4,057,056
                    
                    
                    
                    8,241,542Long-Term
      Liabilities:Loans
      payable-long term portion, net (Note 8)
                    
                    
                    2,075,927
                    
                    
                    
                    751,342Restructured
      debt - long term portion, net  (Note 8)
                    
                    
                    558,833
                    
                    
                    
                    -Related
      party loans, net (Note 8)
                    
                    
                    300,468
                    
                    
                    
                    -TOTAL
      LONG-TERM LIABILITIES
                    
                    
                    2,935,228
                    
                    
                    
                    751,342TOTAL
      LIABILITIES
                    
                    
                    6,992,284
                    
                    
                    
                    8,992,884Commitments
      and Contingencies (Note 15)
                    
                    
                    -
                    
                    
                    
                    -Deficiency
      in Stockholders' EquityPreferred
      stock, par value $0.001, 25,000,000 shares authorized (Note
      10)SERIES
      A - issued and outstanding 20,726 shares
                    
                    
                    21
                    
                    
                    
                    26SERIES
      B - issued and outstanding 48,284 shares
                    
                    
                    48
                    
                    
                    
                    48SERIES
      C - issued and outstanding 260,000 shares
                    
                    
                    260
                    
                    
                    
                    260Common
      stock, par value $0.0001, 2,500,000,000 shares authorized (Note 11) issued
      and outstanding 349,144,782 and 2,531,885 shares as of December 31, 2009
      and December 31, 2008, respectively
                    
                    
                    34,914
                    
                    
                    
                    253Common
      stock to be issued
                    
                    
                    5,648
                    
                    
                    
                    5,648Equity
      allowance (Note 11)
                    
                    
                    (587,500
                    )
                    
                    
                    (587,500
                    )Paid-in
      capital (Note 11)
                    
                    
                    69,813,168
                    
                    
                    
                    63,721,804Accumulated
      Deficit
                    
                    
                    (70,648,386
                    )
                    
                    
                    (66,474,607
                    )Total
      Deficiency in Stockholders' Equity
                    
                    
                    (1,381,827
                    )
                    
                    
                    (3,334,068
                    )TOTAL
      LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
                    
                    $
                    5,610,457
                    
                    
                    $
                    5,658,816
 
 The
accompanying notes are an integral part of these financial
statements
  37
 
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 For
the years ended December 31, 2009 and 2008
 
 2009
                    
                    
                    2008Coal
      revenues
                    
                    $
                    1,612,357
                    
                    
                    $
                    746,767Production
      costs
                    
                    
                    (2,441,756
                    )
                    
                    
                    (1,333,778
                    )Gross
      profit (loss)
                    
                    $
                    (829,399
                    )
                    
                    
                    (587,011
                    )Operating
      expenses:Selling,
      general and administrative
                    
                    
                    1,717,373
                    
                    
                    
                    2,567,082Depreciation
      and amortization
                    
                    
                    165,384
                    
                    
                    
                    229,744Total
      Operating Expenses
                    
                    
                    1,882,757
                    
                    
                    
                    2,796,826Net
      Loss from Operations
                    
                    
                    (2,712,156
                    )
                    
                    
                    (3,383,837
                    )Other
      income (expense):Loss
      on sale of assets
                    
                    
                    -
                    
                    
                    
                    (73,205
                    )Gain
      on loan settlements pursuant to plan of reorganization
                    
                    
                    2,450,059
                    
                    
                    
                    -Loss
      on restructuring prior to plan of reorganization
                    
                    
                    (1,201,226
                    )
                    
                    
                    49,743Interest,
      net
                    
                    
                    (2,710,455
                    )
                    
                    
                    (637,320
                    )Net
      loss before income taxes
                    
                    
                    (4,173,778
                    )
                    
                    
                    (4,044,619
                    )Provision
      for Income taxes
                    
                    
                    -
                    
                    
                    
                    -Net
      Loss
                    
                    $
                    (4,173,778
                    )
                    
                    $
                    (4,044,619
                    )Basic
      diluted (loss) per common share
                    
                    $
                    (0.0657
                    )
                    
                    $
                    (5.5651
                    )Weighted
      average common shares outstanding
                    
                    
                    63,550,123
                    
                    
                    
                    726,781
 
 The
accompanying notes are an integral part of these financial
statements
  38
 
 QUEST
MINERALS & MINING CORP.
 
 CONSOLIDATED
STATEMENT OF CHANGES OF DEFICIENCY IN STOCKHOLDER'S EQUITY
 For
the years ended December 31, 2009 and 2008
 
 Common
      Stock
                  
                  
                  Preferred
      Stock
                  
                  
                  Additional
                  
                  
                  Escrow
      /Paid-in
                  
                  
                  AdjustmentsShares
                  
                  
                  Amount
                  
                  
                  Shares
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  Common Stock
                  
                  
                  Deficit
                  
                  
                  TotalsBalances
      at January 1, 2008
                  
                  
                  46,799
                  
                  
                  $
                  5
                  
                  
                  
                  756,150
                  
                  
                  $
                  756
                  
                  
                  
                  60,833,302
                  
                  
                  $
                  (611,178
                  )
                  
                  $
                  (62,429,988
                  )
                  
                  $
                  (2,207,105
                  )Common
      Stock issued:For
      consulting services
                  
                  
                  3,000
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  6,600
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  6,600For
      notes payable and interest expense
                  
                  
                  1,234,724
                  
                  
                  
                  123
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  743,052
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  743,175Common
      Stock issued as compensation:For
      consulting services
                  
                  
                  387,691
                  
                  
                  
                  39
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  797,013
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  797,052For
      other services
                  
                  
                  162,800
                  
                  
                  
                  16
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  289,583
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  289,599Employee
      Stock Options
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  582,500
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  582,500Series
      A Preferred Conversion
                  
                  
                  698,967
                  
                  
                  
                  70
                  
                  
                  
                  (422,341
                  )
                  
                  
                  (422
                  )
                  
                  
                  352
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  -Returned
      Stock from Issuance Error - December 14, 2007
                  
                  
                  (2,095
                  )
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (29,326
                  )
                  
                  
                  29,326
                  
                  
                  
                  
                  
                  
                  
                  -Convertible
      Note Discount Accruals
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  370,026
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  370,026Exchange
      conversion adjustments
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  128,704
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  128,704Net
      Loss for the year ended December 31, 2008
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (4,044,619
                  )
                  
                  
                  (4,044,619
                  )Balances
      at January 1, 2009
                  
                  
                  2,531,886
                  
                  
                  $
                  253
                  
                  
                  
                  333,809
                  
                  
                  $
                  334
                  
                  
                  
                  63,721,806
                  
                  
                  $
                  (581,852
                  )
                  
                  $
                  (66,474,608
                  )
                  
                  $
                  (3,334,068
                  )Common
      Stock issued:For
      notes payable and interest expense
                  
                  
                  246,829,966
                  
                  
                  
                  24,683
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,022,265
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,046,948Common
      Stock issued as compensation:For
      consulting services
                  
                  
                  25,535,000
                  
                  
                  
                  2,554
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  320,147
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  322,701For
      legal and accounting services
                  
                  
                  62,247,930
                  
                  
                  
                  6,225
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  584,164
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  590,389Series
      A Preferred Conversion
                  
                  
                  12,000,000
                  
                  
                  
                  1,200
                  
                  
                  
                  (4,800
                  )
                  
                  
                  (5
                  )
                  
                  
                  (1,195
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  -Debt
      discount - Beneficial conversion feature on convertible
    notes
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  4,165,981
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  4,165,981Net
      Loss for the year ended December 31, 2009
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (4,173,778
                  )
                  
                  
                  (4,173,778
                  )Balances
      at December 31, 2009
                  
                  
                  349,144,782
                  
                  
                  $
                  34,915
                  
                  
                  
                  329,009
                  
                  
                  $
                  329
                  
                  
                  
                  69,813,168
                  
                  
                  $
                  (581,852
                  )
                  
                  $
                  (70,648,386
                  )
                  
                  $
                  (1,381,827
                  )
 
 The
accompanying notes are an integral part of these financial
statements.
  39
 
 QUEST
MINERALS & MINING CORP.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 FOR THE
YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 
 2009
                                        
                                        
                                        2008Operating ActivitiesNet
      loss
                                        
                                        $
                                        (4,173,778
                                        )
                                        
                                        $
                                        (4,044,619
                                        )Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
                                        
                                        
                                        165,384
                                        
                                        
                                        
                                        229,744Loss
      on sale of assets
                                        
                                        
                                        -
                                        
                                        
                                        
                                        73,205Stock
      issued for interest
                                        
                                        
                                        36,226
                                        
                                        
                                        
                                        66,212Stock
      issued for services
                                        
                                        
                                        913,089
                                        
                                        
                                        
                                        1,093,253Fair
      value of vested Options issued to employees
                                        
                                        
                                        -
                                        
                                        
                                        
                                        582,500Gain
      on debt extinguishments
                                        
                                        
                                        (1,248,833
                                        )
                                        
                                        
                                        (49,743
                                        )Amortization
      of discount on convertible notes
                                        
                                        
                                        292,532
                                        
                                        
                                        
                                        244,850Amortization
      of royalty costs
                                        
                                        
                                        16,702
                                        
                                        
                                        
                                        -Amortization
      of deferred issuance costs
                                        
                                        
                                        226
                                        
                                        
                                        
                                        (226
                                        )Changes
      in operating assets and liabilities:(Increase)
      decrease in receivables
                                        
                                        
                                        (111,052
                                        )
                                        
                                        
                                        (1,230
                                        )(Increase)
      decrease in prepaid expenses
                                        
                                        
                                        (6,234
                                        )
                                        
                                        
                                        35,578(Increase)
      decrease in restricted cash
                                        
                                        
                                        12,395
                                        
                                        
                                        
                                        -Increase
      (decrease) in accounts payable and accrued expenses
                                        
                                        
                                        (418,374
                                        )
                                        
                                        
                                        781,828Increase
      (decrease) in debt transfers and credits from accrued
    interest
                                        
                                        
                                        3,501,936
                                        
                                        
                                        
                                        -Increase
      (decrease) in liquidated damages payable
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (62,827
                                        )Net
      cash used in operating activities
                                        
                                        
                                        (1,019,781
                                        )
                                        
                                        
                                        (1,051,475
                                        )Investing ActivitiesMine
      development
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (339,611
                                        )Equipment
      purchased
                                        
                                        
                                        (12,000
                                        )
                                        
                                        
                                        (175,633
                                        )Restricted
      cash
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (11,229
                                        )Security
      deposits
                                        
                                        
                                        (6,544
                                        )
                                        
                                        
                                        (1,799
                                        )Net
      cash used in investing activities
                                        
                                        
                                        (18,544
                                        )
                                        
                                        
                                        (528,272
                                        )Financing  ActivitiesRepayment
      of borrowings
                                        
                                        
                                        (1,100,875
                                        )
                                        
                                        
                                        (47,708
                                        )Proceeds
      from DIP/Exit Financing
                                        
                                        
                                        1,901,188
                                        
                                        
                                        
                                        587,280Borrowings
                                        
                                        
                                        231,827
                                        
                                        
                                        
                                        1,049,150Net
      cash provided by financing activities
                                        
                                        
                                        1,032,140
                                        
                                        
                                        
                                        1,588,722Increase
      (decrease) in cash
                                        
                                        
                                        (6,185
                                        )
                                        
                                        
                                        8,975Cash
      at beginning of year
                                        
                                        
                                        13,439
                                        
                                        
                                        
                                        4,464Cash
      at end of year
                                        
                                        $
                                        7,254
                                        
                                        
                                        $
                                        13,439Supplemental Disclosures of Cash Flow
      InformationCash
      paid during the year:Interest
                                        
                                        $
                                        22,477
                                        
                                        
                                        $
                                        6,517Income
      taxes
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -Non-cash
      financing activities:Conversions
      of note principal and interest
                                        
                                        $
                                        1,046,948
                                        
                                        
                                        $
                                        743,175
 
 The
accompanying notes are an integral part of these financial
statements.
  40




QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 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. Prior to October 12, 2009, Gwenco oversaw its
operations as a debtor in possession, subject to court approval of matters
outside the ordinary course of business. In 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. Under Chapter 11, all claims against Gwenco in existence
prior to the filing of the petitions for reorganization relief under the federal
bankruptcy laws were stayed while Gwenco was in bankruptcy.
 
 On
September 30, 2009, the Bankruptcy Court confirmed Gwenco’s Plan of
Reorganization (the “Plan”). Secured and non-priority unsecured classes of
creditors voted to approve the Plan, with over 80% of the unsecured claims in
dollar amount voting for the plan, and over 90% of responding lessors supporting
it. The Plan became effective on October 12, 2009.
 
 Even
though the Bankruptcy Court has confirmed the Plan, it is still possible that
the Bankruptcy Court could convert Gwenco’s case to Chapter 7 and liquidate all
of Gwenco’s assets if the Court determines that Gwenco is unable to perform
under the Plan. In the case of a Chapter 7 conversion, the Company would be
materially impacted and could lose all of its working assets and have only
unpaid liabilities. 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
audited 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.
  41
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 Major
Customers and Suppliers
 
 The
Company had three customers who accounted for 53%, 20%, and 27%, respectively of
total revenues in 2009 and one customer who accounted for 100% of revenues in
2008.
 
 Costs of
the Company’s one major vendor, who provided contract mining services, accounted
for 71% of the Company’s production costs for the year ended December 31, 2009
and costs of the Company’s two major vendors, who provided contract mining and
trucking services, accounted for 73% and 14%, 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.
 
 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.
  42
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 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 ASC 360-10, “Accounting for the
Impairment or Disposal of Long-Lived Assets.” 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 the Company’s
operations. The Company recognizes revenue from coal sales at the time title
passes to the customer. Under the typical terms of sale, title and risk of loss
transfer to the customer at the mine (or dock, or port) where coal is loaded to
the truck (or rail, barge, ocean-going vessel, or other transportation source)
that serves the Company’s mines.
 
 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
FASB ASC 718 “Stock Compensation”. Prior to January 1, 2006, the Company had
accounted for stock options according to the provisions of ASC 718, 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 ASC 718-10, and, consequently, has
not retroactively adjusted results from prior periods.
 
 There
were 50,000 options issued to the Company’s President during the year ended
December 31, 2008. In 2009, the 50,000 options were exchanged and cancelled for
a new option grant of equal value, which grant shall be consummated upon the
Company’s adoption of a new stock incentive plan. As of December 31, 2009, the
exchange had not been completed. See Note 12 for details.
  43
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 Income
Taxes
 
 The
Company provides for the tax effects of transactions reported in the
consolidated 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,
2009 and 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
 
 The FASB
issued ASC 820-10, “Fair Value Measurements,” which defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. ASC 820-10 applies to other accounting pronouncements
that require or permit fair value measurements, but does not require any new
fair value measurements. ASC 820-10 is effective for financial statements issued
for fiscal years beginning after November 15, 2007 and interim periods within
those fiscal years, with the exception of all non-financial assets and
liabilities, which will be effective for years beginning after November 15,
2008. The Company adopted the required provisions of ASC 820-10 that became
effective in its first quarter of 2008. The adoption of these provisions did not
have a material impact on the Company’s consolidated financial statements. In
February 2008, the FASB issued ASC 820-10-15, “Effective Date of FASB ASC
820-10.” ASC 820-10-15 delays the effective date of ASC 820-10 for nonfinancial
assets and nonfinancial liabilities, except for certain items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). In October 2008, the FASB issued ASC 820-10-35,
“Determining the Fair Value of a Financial Asset When the Market for That Asset
Is Not Active.” ASC 820-10-35 applies to financial assets within the scope of
accounting pronouncements that require or permit fair value measurements in
accordance with ASC 820-10. This ASC clarifies the application of ASC 820-10 in
determining the fair values of assets or liabilities in a market that is not
active. In April 2009, the FASB issued ASC 820-10-65, “Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly.” ASC
820-10-65 does not change the definition of fair value as detailed in ASC
820-10, but provides additional guidance for estimating fair value in accordance
with ASC 820-10 when the volume and level of activity for the asset or liability
have significantly decreased. The provisions of ASC 820-10-65 are effective for
interim and annual reporting periods ending after June 15, 2009, with early
adoption permitted for periods ending after March 15, 2009. If early adoption is
elected for either ASC 320-10 or ASC 825-10 and ASC 270-10, ASC 820-10-65 must
also be adopted early.
 
 ASC
820-10defines 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. ASC 820-10requires that valuation
techniques maximize the use of observable inputs and minimize the use of
unobservable inputs. ASC 820-10 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:
  44
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 ·
              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.
 
 As of
December 31, 2009, the Company does not carry on a recurring basis any assets or
liabilities at fair value.
 
 Earnings
(loss) per share
 
 The
Company adopted ASC 260, 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.
 
 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 10 reverse stock split
effectuated on November 4, 2008. See Note 11 for details.
 
 All
references to common stock and per share data have been retroactively restated
once more to the earliest period presented to account for the 1 for 100 reverse
stock split effectuated on August 4, 2009. See Note 11 for details.
 
 Articles of Incorporation
Amendment
 
 All
references to common stock and per share par value data have been retroactively
restated to the earliest period presented to account for the amended par value
from $.001 to $.0001 effectuated on November 23, 2009. See Note 11 for
details.
  45
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 Recently
Adopted Accounting Principles
 
 In August
2009, FASB Accounting Standards Update 2009-05 included amendments to Subtopic
820-10, Fair Value Measurements and Disclosures—Overall, for the fair value
measurement of liabilities and provides clarification that in circumstances in
which a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using one or
more of the techniques provided for in this update. This update also clarifies
that when estimating the fair value of a liability, a reporting entity is not
required to include a separate input or adjustment to other inputs relating to
the existence of a restriction that prevents the transfer of a liability and
that both a quoted price in an active market for the identical liability at the
measurement date and the quoted price for the identical liability when traded as
an asset in an active market when no adjustments to the quoted price of the
asset are required are Level 1 fair value measurements. The adoption of this
update did not have a material impact on the Company’s consolidated financial
statements.
  In July
2009, the FASB issued ASC 105-10, “Generally Accepted Accounting Principles.”
ASC 105-10 established the FASB Accounting Standards Codification as the single
source of authoritative U.S. generally accepted accounting principles (“U.S.
GAAP”) recognized by the FASB to be applied by nongovernmental entities. ASC
105-10 will supersede all existing non-SEC accounting and reporting standards.
All other nongrandfathered non-SEC accounting literature not included in ASC
105-10 will become nonauthoritative. Following ASC 105-10, the FASB will not
issue new standards in the form of Statements, FASB Staff Positions, or Emerging
Issues Task Force Abstracts. Instead, the FASB will issue Accounting Standards
Updates, which will serve only to: (a) update the Codification; (b) provide
background information about the guidance; and (c) provide the bases for
conclusions on the change(s) in the Codification.  ASC 105-10 and the
Codification are effective for financial statements issued for interim and
annual periods ending after September 15, 2009.  The adoption of ASC
105-10 did not have a material impact on the Company’s consolidated financial
statements.
  The FASB
has issued ASC 855-10, “Subsequent Events.”  ASC 855-10 established
general standards of accounting for and disclosures of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued.  Specifically, ASC 855-10 provides (a) the
period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements; (b) the circumstances
under which an entity should recognize events or transactions occurring after
the balance sheet date in its financial statements; and (c) the disclosures that
an entity should make about events or transactions that occurred after the
balance sheet date.  ASC 855-10 is effective for interim or annual
financial periods ending after June 15, 2009, and shall be applied
prospectively.  The adoption of this ASC did not have a material
impact on the Company’s consolidated financial statements.
  The FASB
has issued ASC 825-10-65, “Interim Disclosures about Fair Value of Financial
Instruments.” ASC 825-10-65 amends ASC 825-10-50, Disclosures About Fair Value
of Financial Instrument, to require disclosures about fair value of financial
instruments for interim reporting periods of publicly traded companies as well
as in annual financial statements. ASC 825-10-65 also amends ASC 270-10, Interim
Financial Reporting, to require those disclosures in summarized financial
information at interim reporting periods. ASC 825-10-65 is effective for interim
reporting periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009. ASC 825-10-65 does not require disclosures
for earlier periods presented for comparative purposes at initial adoption. In
periods after initial adoption, ASC 825-10-65 requires comparative disclosures
only for periods ending after initial adoption. The adoption of this ASC did not
have a material impact on the Company’s consolidated financial
statements.
  46
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
  The FASB
has issued ASC 805-10, “Accounting for Assets Acquired and Liabilities assumed
in a Business Combination That Arise from Contingencies —an amendment of FASB
Statement No. 141 (Revised December 2007), Business Combinations.” ASC 805-10
addresses application issues raised by preparers, auditors, and members of the
legal profession on initial recognition and measurement, subsequent measurement
and accounting, and disclosure of assets and liabilities arising from
contingencies in a business combination. ASC 805-10 is effective for assets or
liabilities arising from contingencies in business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. ASC 805-10 will have an impact
on the Company’s accounting for any future acquisitions and its consolidated
financial statements.
 
 The FASB
has issued ASC 350-10, “Determination of the Useful Life of Intangible Assets.”
ASC 350-10 amends the factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a recognized
intangible asset under ASC 350-10, “Goodwill and Other Intangible Assets.” ASC
No. 350-10 is effective for fiscal years beginning after December 15, 2008. The
adoption of this ASC did not have a material impact on the Company’s
consolidated financial statements.
 
 The
FASB has issued ASC 815-10, “Disclosures about Derivative Instruments and
Hedging Activities — an amendment of FASB Statement No. 133.” ASC 815-10
requires enhanced disclosures regarding derivatives and hedging activities,
including: (a) the manner in which an entity uses derivative instruments; (b)
the manner in which derivative instruments and related hedged items are
accounted for under Accounting Standards Codification 815-10, “Accounting for
Derivative Instruments and Hedging Activities;” and (c) the effect of derivative
instruments and related hedged items on an entity’s financial position,
financial performance, and cash flows. ASC 815-10 is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008. The Company adopted ASC 815-10 effective January 1, 2009 and the
adoption had no material impact on the Company’s consolidated financial
statements and disclosures.
 
 The FASB
has issued ASC 810-10-65-1, “Non-controlling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS No.
160”). In ASC 810-10-65-1, 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. ASC 810-10-65-1 is effective
for annual periods beginning on or after December 15, 2008. Retroactive
application of ASC810-10-65-1 is prohibited. The Company adopted ASC 810-10-65-1
effective January 1, 2009 and the adoption had no material impact on the
Company’s consolidated financial statements and disclosures.
 
 The FASB
has issued ASC 808-10, “Accounting for Collaborative
Arrangements.” ASC 808-10 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, ASC 808-10 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.” ASC 808-10 is effective for
collaborative arrangements that exist on January 1, 2009 and application is
retrospective. The Company adopted ASC 808-10 effective January 1, 2009 and the
adoption had no material effect on the Company’s financial position or results
of operations.
  47
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 The FASB
issued ASC 815-40-15, “Determining Whether an Instrument (or Embedded Feature)
Is Indexed to an Entity’s Own Stock.” ASC 815-40-15 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. ASC
815-40-15 is effective for fiscal years beginning after December 15, 2008. The
Company adopted ASC 815-40-15 effective January 1, 2009, and the adoption had no
material effect on the Company’s financial position or results of
operations.
 
 NOTE
      3 -
              GOING
      CONCERN
 
 The
accompanying condensed consolidated 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 and does not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or liabilities that might be
necessary should the Company be unable to continue as a going concern. . The
Company incurred net losses from operations of $2,712,156 and $3,383,837 for the
years ended December 31, 2009 and 2008 and had a working capital deficit
(current assets less current liabilities) of $3,929,293 and $8,226,110 at
December 31, 2009 and December 31, 2008, 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. Prior to October 12, 2009, Gwenco oversaw its
operations as a debtor in possession, subject to court approval of matters
outside the ordinary course of business. In 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. Under Chapter 11, all claims against Gwenco in existence
prior to the filing of the petitions for reorganization relief under the federal
bankruptcy laws were stayed while Gwenco was in bankruptcy.
 
 On
September 30, 2009, the Bankruptcy Court confirmed Gwenco’s Plan of
Reorganization (the “Plan”). Secured and non-priority unsecured classes of
creditors voted to approve the Plan, with over 80% of the unsecured claims in
dollar amount voting for the plan, and over 90% of responding lessors supporting
it. The Plan became effective on October 12, 2009.
  48
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 Even
though the Bankruptcy Court has confirmed the Plan, it is still possible that
the Bankruptcy Court could convert Gwenco’s case to Chapter 7 and liquidate all
of Gwenco’s assets if the Court determines that Gwenco is unable to perform
under the Plan. In the case of a Chapter 7 conversion, the Company would be
materially impacted and could lose all of its working assets and have only
unpaid liabilities. 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 contended that the Company was in default under certain of these
leases and that said leases were terminated. The Company disputed these
contentions.
 
 On
September 30, 2009, the Bankruptcy Court confirmed Gwenco’s Plan, which became
effective on October 12, 2009. As a result of the confirmation of Gwenco’s Plan,
Gwenco has assumed all coal leases and is obligated to pay cure claims due under
each lease. Pursuant to the Plan, most of the existing royalties, which accrued
up until the effective date, were re-categorized as Cure Claims totaling
$199,213. These claim amounts are now due on or before October 12, 2012. See
Note 16 for the terms and effects of the Plan.
 
 As of
December 31, 2009, Gwenco owed approximately $102,996 in current lease and/or
royalty payments.
 
 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, 2009, the leased mineral reserves, valued at $5,187,317, net
      consisted of the following:
                          
                          Proven ReservesSeams
                          
                          TonsWinifrede
                          
                          
                          214,650Taylor
                          
                          
                          1,512,900Cedar
      Grove
                          
                          
                          3,564,560Pond
      Creek
                          
                          
                          4,665,000Total
      Reserves
                          
                          
                          9,957,110
 
 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 contended that the
Company was in default under certain of these leases and that said leases were
terminated.  The Company disputed these
contentions.     As a result of the confirmation of
Gwenco’s Plan, Gwenco has assumed all coal leases and is obligated to pay cure
claims due under each lease.  Unless otherwise provided in the Plan,
the cure claims are due on or before October 12, 2012.
 
 Pursuant
to ASC 360-10, 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, 2009 and 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.
  49
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE 6 -
              EQUIPMENT
 
 Equipment
      consisted of the following:
                            
                            December 31,
                            
                            
                            December 31,2009
                            
                            
                            2008Mining
      equipment
                            
                            $
                            344,435
                            
                            
                            
                            332,435Less
      accumulated depreciation
                            
                            
                            (211,251
                            )
                            
                            
                            (175,164
                            )Equipment
      - net
                            
                            $
                            133,184
                            
                            
                            
                            157,271
 
 All of
the equipment currently in use by the Company is owned or leased by the
Company’s wholly-owned subsidiary, Gwenco, Inc.
 
 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.  Depreciation charged for the
years ended December 31, 2009 and 2008 were $36,087 and $85,800
respectively.
 
 NOTE 7 -
              ACCOUNTS
      PAYABLE & ACCRUED EXPENSES
  Accounts
      payable and accrued expenses consist of the following:
              
              December 31,
              
              
              December 31,2009
              
              
              2008Accounts
      payable
              
              $
              1,074,035
              
              
              
              710,027Accrued
      royalties payable-operating (a)
              
              
              125,894
              
              
              
              354,126Accrued
      bank claim (b)
              
              
              650,000
              
              
              
              650,000Accrued
      taxes
              
              
              87,315
              
              
              
              87,315Accrued
      interest (c)
              
              
              220,095
              
              
              
              816,944Accrued
      expenses (d)
              
              
              902,722
              
              
              
              860,023$
              3,060,061
              
              
              $
              3,478,435
 (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.  As a result of the confirmation of Gwenco’s Plan,
      Gwenco has assumed all coal leases and is obligated to pay cure claims due
      under each lease.  Unless otherwise provided in the Plan, these
      accrued amounts are due on or before October 12, 2012.   As
      a result, most of the existing royalties, which accrued up until the
      effective date, were re-categorized as Cure Claims totaling
      $199,213.  As of December 31, 2009, the Company owed
      approximately $125,894 in current lease and/or royalty
      payments.
  50
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 On May
19, 2006, the former owners obtained a default judgment in this action in the
amount of $687,391.  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 (and the holder of the $458,260 judgment), 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.  (See Notes 15 and 16.)
 
 On July
1, 2009, Gwenco entered into a settlement agreement with another former owner
(and the holder of the $229,130 judgment), pursuant to which the parties agreed
that the former owner would have an allowed unsecured claim of $92,238, plus
interest in the amount of $25,000, for a total of $117,238, to be paid along
with the other allowed unsecured claims under Gwenco’s Plan.  The
former owner has the right to convert up to $40,000 of the claim into the
Company’s common stock at a conversion price of eighty five percent (85%) of the
average of the five (5) per share market values immediately preceding a
conversion date, with a minimum conversion price of the par value of the
Company’s common stock.  On July 21, 2009, the Bankruptcy Court
approved the settlement agreement.  (See Notes 8, 15, and
16.)
 
 On June
30, 2009, Gwenco entered into a settlement agreement with last former owner of
Gwenco, pursuant to which the parties agreed that the former owner would have an
allowed unsecured claim of $161,824, plus interest in the amount of $40,000, for
a total of $201,824, to be paid along with the other allowed unsecured claims
under Gwenco’s Plan.  The former owner has the right to convert up to
$40,000 of the claim into the Company’s common stock at a conversion price of
eighty five percent (85%) of the average of the five (5) per share market values
immediately preceding a conversion date, with a minimum conversion price of the
par value of the Company’s common stock.  On July 21, 2009, the
Bankruptcy Court approved the settlement agreement.  As a result, the
Company reclassified $166,542 of its accrued royalties to Notes Payable and
expensed the additional $40,000 of interest pursuant to the
agreement.  (See Notes 8, 15, and 16).
 
 In
addition, the Company accrued $25,544 as an estimated royalty payable in
connection with an August 2008 financing.  This amount is currently
being amortized over the life of the underlying note involved in the
financing.  (See Notes 8, 15, and 16).
 
 (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.
 
 (c)
              As
      a result of the confirmation of Gwenco’s Plan, most of the existing debts,
      which included the accrued interest up until the effective date, were
      prioritized under various long-term debt classifications and no longer
      accrue interest.  The Company made an $864,175 adjustment to
      re-categorize the existing interest as long-term debt.  Most of
      these claim amounts are now due on or before October 12,
      2014.  See Note 16 for the terms and effects of the
      Plan.
  51
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 (d)
              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.
 
 52
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE 8 -
              NOTES
      PAYABLE
  Notes
      payable consist of the following:
                      
                      December 31,
                      
                      
                      December 31,2009
                      
                      
                      2008QUEST
      MINERALS & MINING CORP.0%
      Notes Due on Demand (a).
                      
                      $
                      202,864
                      
                      
                      
                      202,8647%
      Senior Secured Convertible Notes Due 2007 (b).
                      
                      
                      25,000
                      
                      
                      
                      25,0007%
      Convertible Notes Due 2008 (c).
                      
                      
                      -
                      
                      
                      
                      1,6165%
      Unsecured Advances Due on Demand (d).
                      
                      
                      130,857
                      
                      
                      
                      1,082,4116%
      Convertible Notes Due 2011 (d).
                      
                      
                      1,044,580
                      
                      
                      
                      -6%
      Convertible Notes Due 2011 (e).
                      
                      
                      1,000,000
                      
                      
                      
                      -6%
      Convertible Notes Due 2011 (f).
                      
                      
                      200,000
                      
                      
                      
                      -0%
      Notes Due on Demand (g).
                      
                      
                      480,434
                      
                      
                      
                      611,93710%
      Convertible Notes due 2008 (h).
                      
                      
                      10,000
                      
                      
                      
                      10,0006%
      Convertible Notes due 2010 (i).
                      
                      
                      27,304
                      
                      
                      
                      533,5008%
      Convertible Notes due 2010 (j).
                      
                      
                      117,010
                      
                      
                      
                      400,0008%
      Convertible Notes due 2011 (k).
                      
                      
                      25,000
                      
                      
                      
                      -6%
      Convertible Notes due 2014 (l).
                      
                      
                      90,500
                      
                      
                      
                      -4%
      Convertible Notes due 2011 (m).
                      
                      
                      30,000
                      
                      
                      
                      -8%
      Convertible Notes due 2011 (n).
                      
                      
                      50,000
                      
                      
                      
                      -12%
      Notes Due on Demand (o).
                      
                      
                      12,500
                      
                      
                      
                      -6%
      Notes Due on Demand (p).
                      
                      
                      10,000
                      
                      
                      
                      -QUEST
      ENERGY, LTD.8%
      Summary Judgment (q).
                      
                      
                      35,000
                      
                      
                      
                      35,000GWENCO,
      INC.: (Restructured Debt)CLASS
      1 – Secured Claim with conversion option (r).
                      
                      
                      1,753,377
                      
                      
                      
                      726,964CLASS
      1 – Secured claim with conversion option (s)
                      
                      
                      3,207,376
                      
                      
                      
                      923,043CLASS
      3 – Unsecured Claims (t)
                      
                      
                      413,741
                      
                      
                      
                      290,561CLASS
      3 - Unsecured Claims with conversion option (u)
                      
                      
                      319,062
                      
                      
                      
                      229,130CLASS
      5 – Cured Claims (v)
                      
                      
                      199,213
                      
                      
                      
                      -GWENCO,
      INC.: (Related-Party Loans)CLASS
      3 - Unsecured Claim with conversion option (w).
                      
                      
                      651,967
                      
                      
                      
                      624,581Total
      Debt
                      
                      
                      10,035,785
                      
                      
                      
                      5,696,607Current Portion
                      
                      
                      1,050,969
                      
                      
                      
                      4,763,107Less:
      Unamortized debt discount on Current Portion
                      
                      
                      (53,974
                      )
                      
                      
                      -Total
      Notes Payable – Current Portion, net
                      
                      
                      996,995
                      
                      
                      
                      4,763,107Long-Term
      Debt:
                      
                      $
                      8,984,816
                      
                      
                      
                      933,500Less:
      Unamortized present value and debt discount on
                        Long-Term
      Debt
                      
                      
                      (6,049,588
                      )
                      
                      
                      (182,158
                      )Total
      Long-Term Debt, net
                      
                      $
                      2,935,228
                      
                      
                      $
                      751,342
  53
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 (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
      unsecured and due on demand except $110,000, which is due from future
      royalties.  All notes are non-interest
  bearing.
 
 (b)
              From
      February 22, 2005 through April 18, 2005, the Company entered into unit
      purchase agreements with sixteen third-party investors for a total sale
      amount of $1,425,000.  Each unit was sold at $25,000 and
      consisted of a 7% senior secured convertible note due March 6, 2006 and
      3.75 Series A Warrants.  The notes were secured by certain of
      the Company’s assets and were initially convertible into shares of the
      Company’s common stock at the rate of $20,000.00 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 $40,000.00.  The Company categorized the convertible
      notes as a liability in the amount of $1,425,000.  During the
      year ended December 31, 2006, the Company amended and restated the 7%
      convertible notes in the aggregate principal amount of $1,250,000, which
      became due on dates ranging from February 22, 2007 to April 18,
      2007.  As part of the amendments and restatements, one of the
      note holders forgave a 7% senior secured convertible note in the principal
      amount of $125,000.  The amended and restated notes are
      convertible at the option of the holder at a conversion price of $3,000.00
      per share; provided, that if the market price of the Company’s common
      stock was less than $4,000.00 per share for ten consecutive trading days,
      the conversion price would reduced to $2,000.00 per share; provided,
      further, that if the market price of the Company’s common stock was less
      than $2,000.00 per share for ten consecutive trading days, the conversion
      price would become the lesser of (i) $2,000.00 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 have made periodic partial conversions to pay down the remaining
      principal on the notes.
 
 Quest had
recognized derivative liability of $1,580,575 upon restatement of these notes in
accordance with ASC 815-10 and ASC 815-40.  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 $322,963, as permanent equity.
 
 In
accordance with ASC 470-20, Debt with Conversions and Other Options, 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 $1,183,139 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.
  54
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 On
September 3, 2008, Quest issued 5,000 shares of common stock to a noteholder
that did not participate in the 2006 exchange in exchange of an original note of
$25,000 and warrants for 3.75 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, 2009, $25,000 in principal amount of the original $1,425,000 in
notes remains outstanding and in default.
 
 (c)
              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 257 warrants.  The loans subject to the credit
      agreement are secured by certain assets of the Company.  The
      warrants had an exercise price of $4,000.00 per share, subject to
      adjustment, and expired 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.  During the year ended December
      31, 2009, the holder made a final conversion to satisfy the remaining
      principal and interest on the note.
 
 In
accordance with ASC 470-20, 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.  The balance of the discount was fully amortized during the
year ended December 31, 2008.
 
 (d)
              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 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 June 30, 2009, the
      lender, and its successor in interest, has continued to advance
      operational funding into the Company.  Since there had 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.
  55
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 On June
26, 2009, the Company entered into an exchange agreement with the third party
investor, pursuant to which the investor exchanged approximately $1,082,411 of
the evidences of indebtedness, along with $124,195 of accrued interest thereon,
for a new convertible promissory note in the aggregate principal amount of
$1,200,000.  The new note is due June 26, 2011, is unsecured, and
bears interest at an annual rate of six percent (6%).  The new note
was initially convertible into shares of the Company’s common stock at a
conversion price of $0.001 per share.  The conversion price has since
adjusted to $0.0001 pursuant to rate adjustment terms set forth in the
note.  During the year ended December 31, 2009, the holders have made
various conversions to the principal and interest outstanding.
 
 As of
December 31, 2009, there continues to be no formal agreement regarding the
remaining evidences of indebtedness of $130,857, and the Company continues to
accrue 5% annual interest on the principal with the intent that a mutual
arrangement will be resolved between both parties.
 
 (e)
              On
      July 11, 2009, the Company and Gwenco entered into a settlement and
      release agreement with the Company’s largest lender to resolve various
      disputes that had arisen between the Company and the
      lender.  Pursuant to the settlement agreement, the lender waived
      certain defaults under various debt obligations.  In addition,
      Gwenco and the lender under the Debtor-in-Possession Total Facility
      extended the maturity date on the Total Facility to the earliest of (i)
      December 31, 2010, (ii) the date of confirmation of a plan of
      reorganization or liquidation in the Bankruptcy Case; (iii) the date of
      closing of a sale of all or substantially all of Gwenco’s assets pursuant
      to the Bankruptcy Code; or (iv) the approval of a disclosure statement in
      respect of a plan of reorganization or liquidation not supported by the
      lender.  In exchange for this consideration, Quest issued the
      lender a new convertible promissory note in the aggregate principal amount
      of $1,000,000.  The note is due July 11, 2011, is unsecured, and
      bears interest at an annual interest rate of six percent
      (6%).  The new note was initially convertible into shares of the
      Company’s common stock at a conversion price of $0.001 per
      share.  The conversion price has since adjusted to $0.0001
      pursuant to rate adjustment terms set forth in the
  note.
 
 (f)
              On
      July 13, 2009, the Company issued a consulting bonus in the form of a
      convertible promissory note in the aggregate principal amount of $200,000
      to a third party consulting company owned by a stockholder of the
      Company.  The note is due July 13, 2011, is
      unsecured,  and bears interest at an annual interest rate of six
      percent (6%).  The new note was initially convertible into
      shares of the Company’s common stock at a conversion price of $0.001 per
      share.  The conversion price has since adjusted to $0.0001
      pursuant to rate adjustment terms set forth in the note.  The
      Company recorded consulting expense for $200,000 and continues to accrue
      interest in relation to the convertible promissory
  note.
 
 (g)
              Periodically,
      the Company receives cash advances from unrelated third party
      investors.  Since these advances are open accounts, are
      unsecured, and have no fixed or determined dates for repayment, the
      amounts carry a 0% interest rate.  During the year ended
      December 31, 2009, the Company entered into several exchange agreements
      involving the issuance of convertible debt to satisfy some of the
      unsecured cash advances.
  56
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 (h)
              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, is unsecured, and
      bears interest at the annual rate of ten percent (10%).  The
      note is convertible into the Company’s common shares at a fixed rate of
      $160 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 ASC 470-20, 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.  The discount was fully amortized during the year ended
December 31, 2008.
 
 As of
December 31, 2009, the Company was in default of this
obligation.  This default should not have any material impact on the
Company.
 
 (i)
              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.
 
 Quest had
recognized derivative liability of $306,284 upon exchange of these notes in
accordance with ASC 815-10 and ASC 815-40.  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.
  57
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 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 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 ASC 815-10 and ASC 815-40.  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 ASC 470-20, 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.  The balance of the discount was fully amortized during the
year ended December 31, 2008.
 
 On June
6, 2008, the Company entered into an exchange agreement with the subsequent
holder of these notes, in the aggregate principal amount of $835,000, under
which the subsequent 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 June 6, 2010, is unsecured, and bears
interest at an annual interest rate of six percent (6%).  The new note
is convertible into shares of the Company’s common stock at a conversion price
of $0.001 per share.  During the year ended December 31, 2008 and the
year ended December 31, 2009, the holders have made partial conversions of
principal and interest due under these notes.
  58
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 (j)
              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 and granted a three (3) year royalty on future coal
      sales.  The note is due July 23, 2010, is unsecured, and bears
      interest at an annual interest rate of eight percent (8%).  The
      note is convertible into shares of the Company’s 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 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.  On August 28, 2009, the
      Company amended the conversion price to be forty five percent (45%) of the
      average of the five (5) lowest per share market value during the ten (10)
      trading days immediately preceding a conversion
  date.
 
 In
accordance with ASC 470-20, 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.  On August 28, 2009, pursuant to the amended conversion
feature agreement, the Company deemed the existing debt extinguished and
reissued it according to the new terms.   The discounted
amortization was revised to $219,218.  As of December 31, 2009,
unamortized discount of $53,974 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.
 
 (k)
              On
      September 16, 2009, the Company issued a convertible promissory note to a
      third party investor for facilitation of Gwenco’s Debtor-In-Possession
      financing.  The note is due September 16, 2011, is unsecured,
      and bears interest at an annual interest rate of eight percent
      (8%).  The note is convertible into shares of the Company’s
      common stock at a conversion price of forty five percent (45%) of the
      average of the five (5) lowest per share market value during the ten (10)
      trading days immediately preceding a conversion
  date.
 
 In
accordance with ASC 470-20, 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
$25,000 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.  As of December 31, 2009, an unamortized discount of $21,382
remains.
 
 (l)
              On
      October 14, 2009, the Company entered into an exchange agreement with a
      third party investor, pursuant to which the investor exchanged
      approximately $125,000 of evidences of indebtedness (see Note 9(g)), for a
      new convertible promissory note in the aggregate principal amount of
      $125,000.  The new note is due October 14, 2014, is unsecured,
      and bears interest at an annual rate of six percent (6%).  The
      new note was initially convertible into shares of the Company’s common
      stock at a conversion price of $0.001 per share.  The conversion
      price has since adjusted to $0.0001 pursuant to rate adjustment terms set
      forth in the note.  During the year ended December 31, 2009, the
      holders have made various conversions to the principal and interest
      outstanding.  Subsequent to December 31, 2009, the note was
      amended to reduce the interest rate to 5% and to amend certain adjustment
      terms in the conversion price effective as of December 31,
      2009.
  59
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 In
accordance with ASC 470-20, 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
$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 note.  The debt discount attributed to the beneficial
conversion feature is amortized over the note’s maturity period as interest
expense.  As of December 31, 2009, the unamortized discount of $86,679
still remains.
 
 (m)
              On
      December 14, 2009, the Company entered into an exchange agreement with a
      third party investor, pursuant to which the investor exchanged
      approximately $30,000 of the evidences of indebtedness through unsecured
      cash advances, for a new convertible promissory note in the aggregate
      principal amount of $30,000.  The new note is due December 14,
      2011, is unsecured, and bears interest at an annual rate of four percent
      (4%).  The new note is convertible into shares of the Company’s
      common stock at a conversion price of 50% of the average of the per share
      market values during the three (3) trading days immediately preceding a
      conversion date, subject to
adjustments.
 
 In
accordance with ASC 470-20, 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
$28,554 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.  As of December 31, 2009, the unamortized discount of $27,920
still remains.
 
 (n)
              On
      October 23, 2009, the Company issued a convertible note to a third party
      investor in the amount of 50,000.  The note is due October 23,
      2011, is unsecured, and bears interest at an annual rate of six percent
      (8%).  The note is convertible into shares of the Company’s
      common stock at a conversion price of 45% of the average of the five (5)
      lowest per share market values during the ten (10) trading days
      immediately preceding a conversion
date.
 
 In
accordance with ASC 470-20, 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
$31,064 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.  As of December 31, 2009, the unamortized discount of $28,173
still remains.
 
 (o)
              On
      August 28, 2009, the Company borrowed $12,500 from an unrelated third
      party, and in connection therewith, issued a promissory note that is due
      on demand, is unsecured, and bears interest at an annual interest rate of
      twelve percent (12%).
 
 (p)
              On
      January 16, 2009, the Company borrowed $10,000 from an unrelated third
      party, and in connection therewith, issued a promissory note that is due
      on demand, is unsecured, and bears interest at an annual interest rate of
      six percent (6%).
  60
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 (q)
              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, 2009, the Company remains in default.  The lessor
      has since repossessed the
equipment.
 
 (r)
              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 obtained a judgment lien against the
      Company and its assets.  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 15,
      to a third party investor.  Under the Plan, this obligation was
      classified as a Class 1 Claim and was satisfied by the issuance to the
      claimholder of a 5 year secured convertible promissory note, which note is
      convertible into common stock of the Company at a rate of the lower of (i)
      $0.001 per share and (ii) 40% of the average of the three lowest per
      shares market values of the Company’s common stock during the 10 trading
      days before a conversion; provided that the holder is prohibited from
      converting if such conversion would result in it holding more than 4.99%
      of the Company’s outstanding common stock.  (See Note
      16).
 
 (s)
              On
      August 15, 2007, the U.S. Bankruptcy Court approved a DIP Financing Motion
      authorizing Gwenco 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 carried a 17% interest rate per annum and matured on July 31,
      2008.
 
 On July
11, 2009, Gwenco and the lender under the Total Facility extended the maturity
date on the Total Facility to the earliest of (i) December 31, 2010, (ii) the
date of confirmation of a plan of reorganization or liquidation in the
Bankruptcy Case; (iii) the date of closing of a sale of all or substantially all
of Gwenco’s assets pursuant to the Bankruptcy Code; or (iv) the approval of a
disclosure statement in respect of a plan of reorganization or liquidation not
supported by the lender.
 
 Under the
Plan, the Court approved an exit facility under which Interstellar Holdings, LLC
will provide up to $2 million in financing to Gwenco, which Gwenco used to pay
off the Total Facility.  The exit facility consists of a 5 year
secured convertible line of credit note, which note is convertible into common
stock of the Company at a rate of the lower of (i) $0.001 per share and (ii) 40%
of the average of the three lowest per shares market values of the Company’s
common stock during the 10 trading days before a conversion; provided that the
holder is prohibited from converting if such conversion would result in it
holding more than 4.99% of the Company’s outstanding common
stock.  (See Note 16).
 
 (t)
              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 classified as unsecured Class 3 Claims in Gwenco’s Plan of
      Reorganization and will be satisfied pursuant to the terms of the
      Plan.  (See Note 16).
  61
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 (u)
              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.  Foreclosure on the judgment
      was stayed against Gwenco as a result of Gwenco’s filing of a voluntary
      petition for reorganization under the Bankruptcy Code.  (See
      Note 16.)  On June 20, 2007, Gwenco entered into a settlement
      agreement with one of the former owners (and the holder of the $458,260
      judgment), 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
1, 2009, Gwenco entered into a settlement agreement with another former owner
(and the holder of the $229,130 judgment), pursuant to which the parties agreed
that the former owner would have an allowed unsecured claim of $92,238, plus
interest in the amount of $25,000, for a total of $117,238, to be paid along
with the other allowed unsecured claims under Gwenco’s Plan.  The
former owner has the right to convert up to $40,000 of the claim into the
Company’s common stock at a conversion price of eighty five percent (85%) of the
average of the five (5) per share market values immediately preceding a
conversion date, with a minimum conversion price of the par value of the
Company’s common stock.  On July 21, 2009, the Bankruptcy Court
approved the settlement agreement.  (See Note 16.)
 
 On June
30, 2009, Gwenco entered into a settlement agreement with last former owner of
Gwenco, pursuant to which the parties agreed that the former owner would have an
allowed unsecured claim of $161,824, plus interest in the amount of $40,000, for
a total of $201,824, to be paid along with the other allowed unsecured claims
under Gwenco’s Chapter 11 Plan.  The former owner has the right to
convert up to $40,000 of the claim into the Company’s common stock at a
conversion price of eighty five percent (85%) of the average of the five (5) per
share market values immediately preceding a conversion date, with a minimum
conversion price of the par value of the Company’s common stock.  On
July 21, 2009, the Court approved the settlement agreement.  As a
result, the Company reclassified $166,542 of its accrued royalties to Notes
Payable and expensed the additional $40,000 of interest pursuant to the
agreement.
 
 As of
December 31, 2009, both debts have been since classified as unsecured Class 3
Claims in Gwenco’s Plan of Reorganization and will be satisfied pursuant to the
terms of the Plan.  (See Note 16).
 
 (v)
              Pursuant
      to the Plan, most of the existing royalties, which accrued up until the
      effective date, were re-categorized as unsecured Cure Claims totaling
      $199,213.  These claim amounts are now due on or before October
      12, 2012.  (See Note 16.)
 
 (w)
              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 from the property.
  62
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 These
claims are classified as unsecured Class 3 Claims in Gwenco’s Plan of
Reorganization and will be satisfied pursuant to the terms of the
Plan.  (See Note 16).  The claims are also guaranteed by the
Company and Quest-NV and are secured by 50% of Quest-NV’s ownership of
Gwenco.  The former stockholder also has the has the right to convert
up to $15,000 of the claim each month into the Company’s common stock at a
conversion price of eighty five percent (85%) of the average of the five (5) per
share market values immediately preceding a conversion date, with a minimum
conversion price of the par value of the Company’s common stock.**
 
 NOTE 9 -
              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 $40,300,000 at December 31, 2009, and $38,500,000 at December 31,
2008.  These carry forward losses are available to offset future
taxable income, if any, and expire starting in the year 2016.  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:
 
 2009
                          
                          
                          2008Current
      income tax (benefit) expense
                          
                          $
                          (2,418,000
                          )
                          
                          $
                          (2,310,000
                          )Deferred
      income tax expense (benefit)
                          
                          
                          2,418,000
                          
                          
                          
                          2,310,000$
                          -
                          
                          
                          $
                          -
 
 The
reconciliation of the income tax computed at the U.S. Federal statutory rate to
income tax expense for the years ended December 31, 2009 and 2008:
 
 2009
                    
                    
                    2008Tax
      expense (benefit) at Federal rate (34%)
                    
                    $
                    (2,055,000
                    )
                    
                    $
                    (1,963,000
                    )State
      and local income tax, net of Federal benefit
                    
                    
                    (363,000
                    )
                    
                    
                    (347,000
                    )Effect
      of timing difference
                    
                    
                    -
                    
                    
                    
                    -Change
      in valuation allowance
                    
                    
                    2,418,000
                    
                    
                    
                    2,310,000Net
      income tax (benefit) allowance
                    
                    $
                    -
                    
                    
                    $
                    -
 
 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:
  63
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 Deferred tax asset:
                          
                          December 31,
                          
                          
                          December 31,2009
                          
                          
                          2008Deferred
      tax asset from loss carry forward
                          
                          $
                          16,120,000
                          
                          
                          $
                          15,400,000Valuation
      allowance
                          
                          
                          (16,120,000
                          )
                          
                          
                          (15,400,000
                          )Net
      deferred tax assets
                          
                          $
                          0
                          
                          
                          $
                          0
 
 The
Company recognized no income tax benefit for the loss generated for the periods
through December 31, 2009.
 
 ASC
740-10 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 10 -
              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. 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.
 
 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 each share of
Series A Preferred Stock shall be convertible at any time into shares of Company
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 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 ASC 470-20, 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.
  64
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 As of
December 31, 2009, 432,607 shares have been converted.
 
 Series
B
 
 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
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.
 
 On August
4, 2009, the Company effectuated a 100 to 1 reverse stock split. As a result of
the reverse split, the conversion price was adjusted from $96.5688 to
$9,656.88.
 
 Series
C
 
 Each
share of the Company’s Series C Preferred Stock is convertible into shares of
the Company’s common stock. 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) $320 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.
  65
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 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 ASC 470-20, 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.
 
 NOTE
      11 -
              COMMON
      STOCK
 
 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.
 
 On August
4, 2009, the Company effectuated a 1 to 100 reverse stock split resulting in a
1,111,715,818 reduction of shares from 1,122,945,271 common shares outstanding
to 11,229,453 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 was changed to
QMIN.PK.
 
 All
references in the consolidated financial statements and notes to consolidated
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, 2008, holders of Amended and Restated 7% Senior
Secured Promissory Notes effectuated a series of partial conversions and were
issued an aggregate of 47,143 shares of common stock at a conversion price
averaging approximately $36.80 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
17,856 shares of common stock at a conversion price averaging approximately
$3.50 per share. In the aggregate, these issuances reduced the debt by $32,399
in principal and $8,042 in accrued interest.
  66
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 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
31,977 shares of common stock at a conversion price averaging approximately
$1.30 per share. In the aggregate, the issuances reduced the debt by $32,777 in
principal and $1,294 in accrued interest.
 
 During
the year ended December 31, 2008, holders of the Company’s Series A Preferred
Stock converted an aggregate of 422,341 shares into 698,967 shares of common
stock, at a conversion price averaging $0.52 per share.
 
 During
the year ended December 31, 2008, the Company issued an aggregate of 550,491
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 $2.00 to $2.90 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 69,677 shares of common stock at a conversion price
of $1.00 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
1,047,071 shares of common stock at a conversion price of $1.00 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 2,094 shares of common stock that were
issued to them in error on December 14, 2007. The Company had issued 2,094
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 21,000 shares of common stock a third party lender
at $4.80 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 500 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.
 
 During
the year ended December 31, 2009, holders of the Company’s Series A Preferred
Stock converted an aggregate of 4,800 shares into 12,000,000 shares of common
stock, at a conversion price averaging $0.0012 per share.
 
 During
the year ended December 31, 2009, the Company issued an aggregate of 87,782,930
shares of common stock for consulting and legal services. Expense of $913,090
was recorded related to these shares, which was the market value of such shares
issued at an aggregate price $.0476 per share.
  67
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 During
the year ended December 31, 2009, the holder of 7% convertible promissory notes
effectuated a partial conversion and was issued an aggregate of 100,000 shares
of common stock at a conversion price of $0.10 per share. The issuances reduced
the debt by $1,616 in principal and $6,891 in accrued interest on one note and
$1,493 in accrued interest on the other.
 
 During
the year ended December 31, 2009, the holder of an 8% convertible promissory
note due August 14, 2010 effectuated a partial conversion and was issued an
aggregate of 45,074,294 shares of common stock at an average conversion price of
$.0072 per share. The issuances reduced the debt by $282,990 in
principal.
 
 During
the year ended December 31, 2009, the holders of 6% convertible promissory notes
due October 14, 2014 effectuated a series of partial conversions and were issued
an aggregate of 34,500,000 shares of common stock at a conversion price of $.001
per share. The issuances reduced the debt by $34,500 in principal.
 
 During
the year ended December 31, 2009, the holders of 6% convertible promissory notes
due June 6, 2010 effectuated a series of partial conversions and were issued an
aggregate of 41,881,340 shares of common stock at a conversion price of $0.001
per share. In the aggregate, these issuances reduced the debt by $506,196 in
principal and $26,725 in accrued interest.
 
 During
the year ended December 31, 2009, the holders of 6% convertible promissory notes
due June 26, 2011, effectuated a series of partial conversions and were issued
an aggregate of 116,936,380 shares of common stock at a conversion price of
$0.001 per share. In the aggregate, these issuances reduced the debt by $155,420
in principal and $1,116 in accrued interest.
 
 During
the year ended December 31, 2009, the holders of a Class 3 Claim under the
Gwenco Plan of Reorganization, due October 12, 2014, exercised its conversion
option pursuant to the Plan to effectuate a series of partial conversions and
were issued an aggregate of 8,337,702 shares of common stock at an average
conversion price of $0.0037 per share. In the aggregate, these issuances reduced
the debt by $30,000 in principal.
  68
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
      12 -
              STOCK
      OPTION / WARRANTS
 
 Stock Option / Warrant Issuances Outstanding consist of the following:
                                      
                                      
                                      December
                                        31,
                                        2009Options/
                                        Warrants
                                      
                                      
                                      Exercise
                                        Price
                                      
                                      
                                      ValuationDecember
      17, 2004 issuance of 15 warrants; expiration 2009 (a).
                                      
                                      
                                      15
                                      
                                      
                                      $
                                      60,000
                                      
                                      
                                      
                                      -December
      21, 2004 issuance of 5 warrants; expiration 2009 (b).
                                      
                                      
                                      5
                                      
                                      
                                      $
                                      60,000
                                      
                                      
                                      
                                      -March
      4, 2005 issuance of 11 series A warrants; expiration 2010
    (c).
                                      
                                      
                                      11
                                      
                                      
                                      $
                                      20,000
                                      
                                      
                                      
                                      -March
      4, 2005 issuance of 11 series B warrants; expiration 2010
    (c).
                                      
                                      
                                      11
                                      
                                      
                                      $
                                      40,000
                                      
                                      
                                      
                                      -April
      5, 2006 issuance of 29 warrants; expiration 2009 (d).
                                      
                                      
                                      0
                                      
                                      
                                      $
                                      8,400
                                      
                                      
                                      
                                      -May
      18, 2006 issuance of 75 options; expiration 2011 (e).
                                      
                                      
                                      75
                                      
                                      
                                      $
                                      2,000
                                      
                                      
                                      
                                      143,054July
      3, 2008 issuance of 25,000 options; expiration 2018 (f).
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      500,000September
      23, 2008 issuance of 25,000 options; expiration 2018 (f).
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      82,500TOTALS:
                                      
                                      
                                      117
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      725,554
 
 Avg.Warrants
                            
                            
                            Ex. Price ($)
                            
                            
                            ValuationTotal Options / Warrants outstanding as of
      December 31, 2008
                            
                            
                            50,117
                            
                            
                            $
                            55.00
                            
                            
                            
                            725,554Options
      / Warrants Issued (f)
                            
                            
                            
                            
                            
                            
                            -
                            
                            
                            
                            582,500Options
      / Warrants Expired / Cancelled (f)
                            
                            
                            (50,000
                            )
                            
                            $
                            14.20
                            
                            
                            
                            (582,500
                            )Options / Warrants
Exercised
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Total
      Options / Warrants outstanding as of December 31, 2009
    (f)(g)
                            
                            
                            117
                            
                            
                            $
                            1,723
                            
                            
                            
                            725,554
 
 All
references to the issuance of warrants have been retroactively adjusted to
account for reverse stock splits.
 
 (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 $4,000.00 per share.  As additional compensation to these
      lenders, the Company agreed to issue them 15 common stock warrants at
      $60,000.00.  The warrants have anti-dilution privileges and
      piggyback registration
rights.
  69
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 (b)
              On
      December 21, 2004, the Company issued 5 common stock warrants at
      $60,000.00 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 3.75 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
      $20,000.00 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 $20,000.00 and one (1) Series B Warrant. Each Series
      B Warrant is exercisable into one (1) share of common stock at an exercise
      price of $40,000.00. During the six months ended June 30, 2007, 3.75
      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, 7.5 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 $8,400 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 $4,200 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 23 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 12.5 shares of the
      Company’s common stock pursuant to a new stock compensation plan adopted
      by the Company. The options would be exercisable at $2,000.00 per share,
      the fair market value at the time of grant, and would vest as follows: (i)
      options to purchase up to 50 shares vesting immediately, (ii) options to
      purchase up to 50 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 25 shares vesting six months after the
      date of the option agreements. The 12.5 options were valued at $476,846
      using the Black Scholes method, of which $286,108 was deferred against
      Paid-in capital. Since 50 of these options would vest six months from
      issuance and 75 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 50 options initially awarded to
      him would remain vested and 2,500 options would be allowed to vest in six
      months. 50 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 50 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.
  70
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 (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 25,000 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
      $24.00 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.
      During the year ended December 31, 2009, these options were exchanged and
      cancelled for a new option grant of equal value, which grant shall be
      consummated upon the Company’s adoption of a new stock incentive plan. As
      of December 31, 2009, the exchange had not been
  completed.
 
 On
September 23, 2008, the Company entered into an Incentive Stock Option
Agreement, pursuant to the corporation’s 2007 Stock Incentive Plan, in which
25,000 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 $4.40 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.  During the year ended December 31, 2009, these options
were exchanged and cancelled for a new option grant of equal value, which grant
shall be consummated upon the Company’s adoption of a new stock incentive plan.
As of December 31, 2009, the exchange had not been completed.
 
 NOTE 13 -
              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.
  71
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 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 June
18, 2009, the board of directors of the Company adopted its 2009 Stock Incentive
Plan, which allows for the issuance of up to 259,000,000 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 June
18, 2009, the board of directors of the Company adopted its 2009 California
Stock Incentive Plan, which allows for the issuance of up to 259,000,000 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
November 4, 2008, the Company effectuated a 1 to 10 reverse stock
split.
 
 On August
4, 2009, the Company effectuated a 1 to 100 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
2008 and 2009. As of December 31, 2009, 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
                    
                    
                    
                    175,000
                    
                    
                    
                    17,325,0002005
      Stock Incentive Plan
                    
                    
                    7,000,000
                    
                    
                    
                    70,000
                    
                    
                    
                    6,930,0002005
      Stock Incentive Plan No. 2
                    
                    
                    2,000,000
                    
                    
                    
                    20,000
                    
                    
                    
                    1,980,0002006
      Stock Incentive Plan
                    
                    
                    23,000,000
                    
                    
                    
                    230,000
                    
                    
                    
                    22,770,0002006
      Stock Incentive Plan No. 2
                    
                    
                    30,000,000
                    
                    
                    
                    275,000
                    
                    
                    
                    29,725,0002007
      Stock Incentive Plan
                    
                    
                    70,000,000
                    
                    
                    
                    700,000
                    
                    
                    
                    69,300,0002007
      Stock Incentive Plan No. 2
                    
                    
                    97,500,000
                    
                    
                    
                    975,000
                    
                    
                    
                    96,525,0002009
      Stock Incentive Plan
                    
                    
                    259,000,000
                    
                    
                    
                    24,530,000
                    
                    
                    
                    234,470,0002009
      California Stock Incentive Plan
                    
                    
                    259,000,000
                    
                    
                    
                    61,320,809
                    
                    
                    
                    197,679,191
  72
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE 14 -
              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 from the property. The interest
expense for the two notes amounted to $7,545 and $21,918, respectively, for the
nine months ended September 30, 2009. These claims are classified as Class 3
Claims in Gwenco’s Plan of Reorganization and will be satisfied pursuant to the
terms of the Plan. (See Note 8(t)). The former stockholder also has the has the
right to convert up to $15,000 of the claim each month into the Company’s common
stock at a conversion price of eighty five percent (85%) of the average of the
five (5) per share market values immediately preceding a conversion date, with a
minimum conversion price of the par value of the Company’s common
stock.
 
 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 a 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.
  73
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 On
January 6, 2008, the Company amended a two-year agreement acquiring
administrative services from a third party consulting company owned by a
stockholder of the Company originally dated June 6, 2006. The agreement
consisted of 25 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 2,000 shares of common stock,
and an increase of the monthly payment to $9,900 due to providing additional
services with regards to the Gwenco Chapter 11 reorganization.
 
 On July
13, 2009, the Company issued a consulting bonus in the form of a convertible
promissory note in the aggregate principal amount of $200,000 to a third party
consulting company owned by a stockholder of the Company. The note is due July
13, 2011 and bears interest at an annual interest rate of six percent (6%). The
new note is convertible into shares of the Company’s common stock at a
conversion price of $0.0001 per share, due to variable rate adjustments. The
Company recorded consulting expense of $200,000 and accrues interest in relation
to the convertible promissory note.
 
 The
Company leases office space under an operating lease in Paterson, New Jersey for
its corporate use from an entity where its President is a major stockholder.
There is no formal lease agreement or arrangement that exists. The rent payments
are generally month to month.
 
 NOTE
      15 -
              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.
  74
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 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, 2009, 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.
 
 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, 2009, the Company remains in default. The lessor has
since repossessed the equipment.
  On or
about August 25, 2004, Valley Personnel Services, Inc. commenced an action in
the Circuit Court of Mingo County, West Virginia against the Company’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.
  75
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 An action
has been commenced in the Circuit Court of Pike County, Kentucky against the
Company and its subsidiaries for unspecified damages resulting from personal
injuries suffered while working for Mountain Edge Personnel, an employee leasing
agency who leased employees to the subsidiaries. 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. The matter is currently pending.
 
 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
      16 -
              PLAN
      OF REORGANIZATION
 
 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. On September 30, 2009, the Bankruptcy Court
confirmed Gwenco’s Plan of Reorganization (the “Plan”). The Plan became
effective on October 12, 2009.
  76
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 Under
Gwenco’s Plan of Reorganization, the Court approved an exit facility under which
Interstellar Holdings LLC will provide up to $2 million in financing to Gwenco.
Gwenco intends to pay off the Total Facility with borrowings from the exit
facility. The exit facility consists of a 5 year secured convertible line of
credit note, which note is convertible into common stock of the Company at a
rate of the lower of (i) $0.001 per share and (ii) 40% of the average of the
three lowest per shares market values of the Company’s common stock during the
10 trading days before a conversion; provided that the holder shall be
prohibited from converting if such conversion would result in it holding more
than 4.99% of the Company’s outstanding common stock.
 
 There
were 5 classes of Claims under the Plan: (i) Class 1—The Interstellar Duke
claim, and the Debtor in possession claim in the aggregate amount of $3,062,051;
(ii) Class 2—Priority Claims, in aggregate amount of $391,558; (iii) Class
3—General Unsecured Claims, in the aggregate amount of $1,417,786; (iv) Class
4-Subordinated Claims, consisting of claims of affiliates of the debtor totaling
$3,453,996; and (v) Class 5—Equity Holder Interest in the amount of
$199,213.
 
 The Class
1 Claim will be satisfied by the issuance to Interstellar Holdings, LLC of a 5
year secured convertible promissory note, which note is convertible into common
stock of the Company at a rate of the lower of (i) $0.001 per share and (ii) 40%
of the average of the three lowest per shares market values of the Company’s
common stock during the 10 trading days before a conversion; provided that the
holder shall be prohibited from converting if such conversion would result in it
holding more than 4.99% of the Company’s outstanding common stock.
 
 The Class
2 Claims were due and payable as of the effective date of the Plan.
 
 The Class
3 Claims will be satisfied by cash payments equal to the value of their claim on
the earlier of (i) the 60th month
after the effective date of the Plan or (ii) the date on which, in Gwenco’s sole
discretion, proceeds from the exit facility are sufficient to satisfy the
claims. Further, Class 3 Claimholders shall receive their pro-rata share of
royalty payments to reduce their claims beginning in the month following the
Effective Date. Notwithstanding the foregoing, certain creditors in this Class
negotiated settlements as more specifically set forth in the Plan.
 
 The Class
4 Claims will be paid after holders of all allowed claims in other classes have
been paid in full. The Class 5 Claims were deemed unimpaired.
 
 Gwenco,
as a reorganized debtor, will operate its coal mining business and will use
current and future income from operations to meet current and future expenses
and to make payments called for under the Plan. In addition, the Court approved
an exit facility under which Interstellar Holdings LLC will provide up to $2
million in financing to Gwenco. The exit facility consists of a 5 year secured
convertible line of credit note, which note is convertible into common stock of
the Company at a rate of the lower of (i) $0.001 per share and (ii) 40% of the
average of the three lowest per shares market values of the Company’s common
stock during the 10 trading days before a conversion; provided that the holder
shall be prohibited from converting if such conversion would result in it
holding more than 4.99% of the Company’s outstanding common stock.
 
 As of
December 31, 2009, Gwenco had assets of $5,606,383, which included all of the
mineral rights of the Company valued at $5,187,317 and liabilities (other than
liabilities that have been guaranteed by the Company or another of its
wholly-owned subsidiaries) of $5,659,557, net of present value and beneficial
conversion feature discounts in excess of $4.2 million. Of these liabilities,
$3,480,546 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, 2009. Gwenco
also currently holds all of the Company’s current receivables, which are
restricted to specific limitations under the exit facility.
  77
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 The
Company accounted for the reorganization in accordance with ASC 852
“Reorganization,” formerly American Institute of Certified Public Accountants’
Statement of Position 90-7, Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code (“SOP 90-7”). In accordance with ASC 852, entities
whose plans have been confirmed by the court and have thereby emerged from
Chapter 11 should apply the reporting principles required by the standard as of
the confirmation date or as of a later date when all material conditions
precedent to the plan’s becoming binding are resolved. The Company recognized
the effect of the reorganization as of December 31, 2009 since the confirmation
date of the Plan was October 12, 2009.
  78
  QUEST
MINERALS AND MINING CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
      17 -
              SUBSEQUENT
      EVENTS
 
 In
accordance with FASB ASC 855, “Subsequent Events,” the Company has evaluated
subsequent events through April 14, 2010.
 
 On
February 4, 2010, the Company entered into a purchase agreement with an
unrelated third party where the Company issued a $95,000 convertible promissory
note. The note is due February 4, 2012 and bears interest at an annual interest
rate of five percent (5%). The note is convertible into shares of the Company’s
common stock at a conversion price of $0.0001 per share due to variable rate
adjustments.
 
 On
February 26, 2010, the Company entered into a purchase agreement with an
unrelated third party where the Company issued a $55,000 convertible promissory
note. The note is due February 26, 2012 and bears interest at an annual interest
rate of eight percent (8%). The note is convertible into shares of the Company’s
common stock at a conversion price of forty five percent (45%) of the average of
the five (5) lowest per share market value during the five (5) trading days
immediately preceding a conversion date.
 
 On March
22, 2010, the Company entered into a purchase agreement with an unrelated third
party where the Company issued a $50,000 convertible promissory note. The note
is due March 22, 2011 and bears interest at an annual interest rate of eight
percent (8%). The note is convertible into shares of the Company’s common stock
at a conversion price of forty five percent (40%) of the average of the three
(3) lowest per share market value during the ten (10) trading days immediately
preceding a conversion date.
 
 From the
period of January 1, 2010 to March 31, 2010, the Company issued an aggregate of
149,300,000 shares of common stock as stock awards for consulting and legal
services. The shares were valued at the market price of the common stock on the
date of the stock award.
  79




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





See our
Current Report on Form 8-K filed on February 20, 2009 and the amendment thereto
filed on February 24, 2009 with respect to changes in accountants.





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 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 in the past and, if not remediated, has the potential to
cause a material misstatement in the future.




2.          Due
to the previously reported material weaknesses, as evidenced by previous
restatements, as well as lack of formal documentation of systems and procedures,
and lack of consistent application of record keeping procedures, 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.  These conditions
constitute deficiencies in both the design and operation of entity-level
controls.A material weakness in the period-end financial
reporting process could result in our not being
able to meetourregulatory filing
deadlines and, if not remediated, has the potential to cause a material
misstatement or to miss afiling deadline in the
future.


80


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, recording of transactions,
closing procedures, the preparation of financial statements, 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.  We have appointed an independent director as a form of
internal checks and balances and to provide oversight over
management.  In addition, we are also seeking to improve our internal
control over financial reporting 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.


81


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





The
information under the captions “Election of Directors” and “Management—Executive
Officers and Directors” in the information statement for our 2010 action by
written consent is incorporated herein by reference.





The
information under the caption “Section 16(a) Beneficial Ownership Reporting
Compliance” in the information statement for our 2010 action by written consent
is incorporated herein by reference.





Item
11. EXECUTIVE COMPENSATION





The
information under the caption “Executive Compensation” in the information
statement for our 2010 action by written consent is incorporated herein by
reference.





Item
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT





The
information under the caption “Security Ownership of Certain Beneficial Owners
and Management” in the information statement for our 2010 action by written
consent is incorporated herein by reference.





Item
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE





The
information under the caption “Certain Relationships and Related Transactions”
in the information statement for our 2010 action by written consent is
incorporated herein by reference.





Item
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.





The
information under the caption “Accountants Fees and Services” in the information
statement for our 2010 action by written consent is incorporated herein by
reference.


82


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
      on Form 8-K filed on December 21, 2007.3.9
              
              Articles
      of Amendment to Articles of Incorporation of Quest Minerals & Mining
      Corp., incorporated by reference to Appendix A of Quest’s Definitive
      Information Statement on Form 14C filed on
      August 15, 2008.3.10
              
              Articles
      of Amendment to Articles of Incorporation of Quest Minerals & Mining
      Corp., incorporated by reference to Appendix A of Quest’s Definitive
      Information Statement on Schedule 14C filed on September 22,
      2009.4.1
              
              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.




83




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,
      2007.4.20
              
              Convertible
      Promissory Note dated  March 11, 2008, incorporated by reference
      to Quest’s Current Report on Form 8-K, filed on March 17,
      2008.4.21
              
              Convertible
      Promissory Note dated August 14, 2008, filed herewith.4.22
              
              Convertible
      Note, incorporated by reference to Quest’s Quarterly Report on Form 10-Q
      for the period ended June 30, 2009, filed on August 14,
    2009.4.23
              
              Settlement
      Note, incorporated by reference to Quest’s Quarterly Report on Form 10-Q
      for the period ended September 30, 2009, filed on November 23,
      2009.


84





4.24
              
              Consulting
      Bonus Note, incorporated by reference to Quest’s Quarterly Report on Form
      10-Q for the period ended September 30, 2009, filed on November 23,
      2009.4.25
              
              Amendment
      to Convertible Note, incorporated by reference to Quest’s Quarterly Report
      on Form 10-Q for the period ended September 30, 2009, filed on November
      23, 2009.4.26
              
              Fee
      Escrow Note, incorporated by reference to Quest’s Quarterly Report on Form
      10-Q for the period ended September 30, 2009, filed on November 23,
      2009.4.27
              
              Demand
      Note, incorporated by reference to Quest’s Quarterly Report on Form 10-Q
      for the period ended September 30, 2009, filed on November 23,
      2009.4.28
              
              6%
      Convertible Promissory Note, filed herewith.4.29
              
              8%
      Convertible Promissory Note, filed herewith.4.30
              
              4%
      Convertible Promissory Note, filed herewith.4.31
              
              Amendment
      to Convertible Promissory Note, filed herewith.4.32
              
              5%
      Convertible Promissory Note, filed herewith.4.33
              
              8%
      Convertible Promissory Note, filed herewith.4.34
              
              12%
      Convertible Promissory Note, filed herewith.4.35
              
              12%
      Convertible Promissory Note, filed herewith.4.36
              
              8%
      Convertible Promissory Note, filed herewith.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).


85





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,
    2007.10.18
              
              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.


86





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,
    2008.10.34
              
              2009
      Stock Incentive Plan, incorporated by reference to Quest’s Registration
      Statement on Form S-8, filed on June 19, 2010 (File No.
      333-160107).10.35
              
              2009
      Stock Incentive Plan, incorporated by reference to Quest’s Registration
      Statement on Form S-8, filed on June 19, 2010 (File No.
      333-160108).10.36
              
              Exchange
      Agreement, incorporated by reference to Quest’s Quarterly Report on Form
      10-Q for the period ended June 30, 2009, filed on August 14,
      2009.10.37
              
              Slater
      Settlement Agreement, incorporated by reference to Quest’s Quarterly
      Report on Form 10-Q for the period ended June 30, 2009, filed on August
      14, 2009.10.38
              
              Younger
      Settlement Agreement, incorporated by reference to Quest’s Quarterly
      Report on Form 10-Q for the period ended June 30, 2009, filed on August
      14, 2009.10.39
              
              Third
      Amended Plan of Reorganization of Gwenco, Inc., incorporated by reference
      to Quest’s Current Report on Form 8-K, filed on October 2,
      2009.10.40
              
              Settlement
      Agreement, incorporated by reference to Quest’s Quarterly Report on Form
      10-Q for the period ended September 30, 2009, filed on November 23,
      2009.10.41
              
              Bonus
      Agreement, incorporated by reference to Quest’s Quarterly Report on Form
      10-Q for the period ended September 30, 2009, filed on November 23,
      2009.10.42
              
              Exchange
      Agreement, filed herewith.10.43
              
              Exchange
      Agreement, filed herewith.10.44
              
              Loan
      and Security Agreement, filed herewith.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, 2007.23.1
              
              Consent
      of Independent Public Accountants, RBSM, LLP, 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.


87


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 Director
              
              April
      15, 2010Eugene
      Chiaramonte, Jr./s/ James Duncan
              
              Director
              
              April
      15, 2010James
      Duncan


88