---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period endedSeptember 30,
2008

[   ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT OF 1934

For the transition period from _______________ to
_______________

Commission file number 000-28305

ENERGY QUEST INC.(Exact name of small business issuer as specified in its charter)

|Nevada                                           | 91-1880015                          
|------------------------------------------------ | ------------------------------------
|(State or other jurisdiction of incorporation or | (I.R.S. Employer Identification No.)
|organization)                                    |                                     
|                                                 |                                     
|850 South Boulder Hwy., Suite 169                |                                     
|Henderson, Nevada                                | 89015 - 7564                        
|(Address of principal executive offices)         | (Zip Code)                          

(702) 568 4131
  (Issuer's telephone number)

_______________(Former name, former
address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act
during the past 12 months (or for such shorter period that the registrant was
require to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X]No
[   ]

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-acceleratedfiler. See
definition of accelerated filer and large accelerated filer in Rule 12b-2 of
the Exchange Act. (Check one):

Large accelerated filer [   ]   
 Accelerated filer [   ]    Non-accelerated filer
[   ]   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]

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of November 14, 2008, the registrants outstanding common
stock consisted of 4,923,249shares.

---



Table of Contents

|**PART I - FINANCIAL INFORMATION** | 2                                                                                             
|---------------------------------- | ----------------------------------------------------------------------------------------------
|                                   |                                                                                               
|ITEM 1.                            | FINANCIAL STATEMENTS.                                                                         
|                                   |                                                                                               
|ITEM 2.                            | MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      **AND RESULTS OF OPERATIONS.**
|                                   |                                                                                               
|ITEM 3.                            | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
      **RISKS.**                         
|                                   |                                                                                               
|ITEM 4.                            | CONTROL AND PROCEDURES                                                                        
|                                   |                                                                                               
|ITEM 4T.                           | **CONTROL AND PROCEDURES.**                                                                   
|                                   |                                                                                               
|**PART II  OTHER INFORMATION8**   |                                                                                               
|                                   |                                                                                               
|ITEM 1.                            | LEGAL PROCEEDINGS.                                                                            
|                                   |                                                                                               
|ITEM 2.                            | UNREGISTERED SALES OF EQUITY SECURITIES.                                                      
|                                   |                                                                                               
|ITEM 3.                            | DEFAULTS UPON SENIOR SECURITIES.                                                              
|                                   |                                                                                               
|ITEM 4.                            | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.                                          
|                                   |                                                                                               
|ITEM 5.                            | OTHER INFORMATION.                                                                            
|                                   |                                                                                               
|ITEM 6.                            | EXHIBITS.                                                                                     

1

---

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements.

Our unaudited interim consolidated financial statements are
stated in US dollars and are prepared in accordance with United States Generally
Accepted Accounting Principles. All dollar amounts in this report refer to US
dollars unless otherwise indicated. When we refer to Energy Quest, we, our or
us, we are referring to Energy Quest Inc.





Energy Quest Inc. 
  (A Development Stage Company)

September 30, 2008



|                                                                                     | Index
|------------------------------------------------------------------------------------ | -----
|                                                                                     |      
|Consolidated
      Balance Sheets (unaudited)                                        | F-1  
|                                                                                     |      
|Consolidated
      Statements of Operations and Other Comprehensive Loss (unaudited) | F-2  
|                                                                                     |      
|Consolidated
      Statements of Cash Flows (unaudited)                              | F-3  
|                                                                                     |      
|Notes
      to the Consolidated Financial Statements                                 | F-4  

2

---

Energy Quest Inc. (A Development Stage Company)
Consolidated Balance Sheets (unaudited)

|                                                                        |  | September 30, |   |  | December 31, |  
|----------------------------------------------------------------------- |  | ------------- | - |  | ------------ | -
|                                                                        |  | 2008          |   |  | 2007         |  
|                                                                        |  | $             |   |  | $            |  
|Assets                                                                  |  |               |   |  |              |  
|Current Assets                                                          |  |               |   |  |              |  
|Cash and cash equivalents                                               |  | 1,300         |   |  | 1,733        |  
|Restricted cash                                                         |  |              |   |  | 80,000       |  
|Prepaid expenses                                                        |  | 181,579       |   |  | 454          |  
|Other
      current assets                                              |  |              |   |  | 2,064        |  
|Total Current Assets                                                    |  | 182,879       |   |  | 84,251       |  
|Intangible Asset                                                        |  | 3,029,621     |   |  | 31,336       |  
|Total Assets                                                            |  | 3,212,500     |   |  | 115,587      |  
|                                                                        |  |               |   |  |              |  
|Liabilities and Stockholders' Equity
      (Deficit)                    |  |               |   |  |              |  
|Current Liabilities                                                     |  |               |   |  |              |  
|Accounts payable and accrued
      liabilities                          |  | 43,986        |   |  | 61,603       |  
|Accounts payable - related parties                                      |  | 532,816       |   |  | 249,505      |  
|Stock payable                                                           |  |              |   |  | 161,583      |  
|Note payable                                                            |  | 22,140        |   |  | 21,197       |  
|Shareholder advances                                                    |  | 289,315       |   |  | 289,934      |  
|Total Liabilities                                                       |  | 888,257       |   |  | 783,822      |  
|Stockholders' Equity (Deficit)                                          |  |               |   |  |              |  
|Preferred Stock                                                         |  |               |   |  |              |  
|Authorized: 1,000,000 shares,
      with a $0.01 par value; none issued |  |              |   |  |             |  
|Common Stock                                                            |  |               |   |  |              |  
|Authorized: 200,000,000
      shares, with a $0.001 par value;          |  |               |   |  |              |  
|Issued: 4,923,249 shares (December 31, 2007 -
      2,565,549 shares)   |  | 4,923         |   |  | 2,566        |  
|Additional Paid-in Capital                                              |  | 7,509,364     |   |  | 3,976,922    |  
|Accumulated Other Comprehensive Loss                                    |  | (43           | ) |  | (105         | )
|Stock Subscriptions Receivable                                          |  |              |   |  | (60,500      | )
|Deficit
      Accumulated During the Development Stage                  |  | (5,190,001    | ) |  | (4,587,118   | )
|Total Stockholders Equity (Deficit)                                    |  | 2,324,243     |   |  | (668,235     | )
|Total Liabilities
      and Stockholders Equity (Deficit)              |  | 3,212,500     |   |  | 115,587      |  

The accompanying notes are an integral part of these
consolidated financial statements.

F-1

---

Energy Quest Inc. (A Development Stage
Company)Consolidated Statements of Operations and Other Comprehensive Loss
(unaudited)

Period fromFor the Three
      
      
      For the Three
      
      
      For the Nine
      
      
      For the Nine
      
      
      December 14, 2004Months Ended
      
      
      Months Ended
      
      
      Months Ended
      
      
      Months Ended
      
      
      (Date of Inception)September 30,
      
      
      September 30,
      
      
      September 30,
      
      
      September 30,
      
      
      to September 30,2008
      
      
      2007
      
      
      2008
      
      
      2007
      
      
      2008$
      
      
      $
      
      
      $
      
      
      $
      
      
      $Revenue
      
      
      
      
      
      
      
      
      
      
      
      
      
      5,164ExpensesConsulting and management fees
      
      137,501
      
      
      191,863
      
      
      326,832
      
      
      330,722
      
      
      4,110,368General and administrative
      
      10,848
      
      
      15,002
      
      
      38,674
      
      
      40,148
      
      
      317,895Professional fees
      
      28,908
      
      
      8,795
      
      
      103,725
      
      
      122,214
      
      
      369,558Research and development
      
      36,189
      
      
      
      
      
      46,111
      
      
      
      
      
      46,111213,446
      
      
      215,660
      
      
      515,342
      
      
      493,084
      
      
      4,843,932Loss before the following:
      
      (213,446
      )
      
      (215,660
      )
      
      (515,342
      )
      
      (493,084
      )
      
      (4,838,768
      )Interest income
      
      (1,508
      )
      
      762
      
      
      
      
      
      1,322
      
      
      2,085Interest expense
      
      (782
      )
      
      
      
      
      (7,541
      )
      
      
      
      
      (8,284
      )Gain on write-off of debt
      
      
      
      
      
      
      
      
      
      
      
      
      
      5,826Loss on restricted cash
      
      
      
      
      
      
      
      (80,000
      )
      
      
      
      
      (80,000
      )Loss on write-off of receivable
      
      
      
      
      
      
      
      
      
      
      
      
      
      (193,922
      )Net loss
      
      (215,736
      )
      
      (214,898
      )
      
      (602,883
      )
      
      (491,762
      )
      
      (5,113,063
      )Other comprehensive lossForeign currency translation adjustment
      
      29
      
      
      (2,033
      )
      
      62
      
      
      (4,780
      )
      
      (43
      )Total Comprehensive Loss
      
      (215,707
      )
      
      (216,931
      )
      
      (602,821
      )
      
      (496,542
      )
      
      (5,113,106
      )Net Loss Per Share  Basic and Diluted
      
      (0.04
      )
      
      (0.10
      )
      
      (0.16
      )
      
      (0.24
      )Weighted Average Shares Outstanding Basic and Diluted
      
      4,858,000
      
      
      2,165,000
      
      
      3,797,000
      
      
      2,092,000


The accompanying notes are an integral part of these
consolidated financial statements.

F-2

---

Energy Quest Inc. (A Development Stage Company)
Consolidated Statements of Cash Flows (unaudited)

|                                                         |  |               |   |  |               |   |  | Accumulated from       |  
|-------------------------------------------------------- |  | ------------- | - |  | ------------- | - |  | ---------------------- | -
|                                                         |  | For the Nine  |   |  | For the Nine  |   |  | December 14, 2004      |  
|                                                         |  | Months Ended  |   |  | Months Ended  |   |  | (Date of Inception) to |  
|                                                         |  | September 30, |   |  | September 30, |   |  | September 30,          |  
|                                                         |  | 2008          |   |  | 2007          |   |  | 2008                   |  
|                                                         |  | $             |   |  | $             |   |  | $                      |  
|                                                         |  |               |   |  |               |   |  |                        |  
|Cash Flows Used In Operating Activities                  |  |               |   |  |               |   |  |                        |  
|Net loss                                                 |  | (602,883      | ) |  | (491,762      | ) |  | (5,113,063             | )
|                                                         |  |               |   |  |               |   |  |                        |  
|Adjustments to reconcile net loss to net cash
      used |  |               |   |  |               |   |  |                        |  
|in operating
      activities:                           |  |               |   |  |               |   |  |                        |  
|Stock-based compensation                                 |  |              |   |  | 180,658       |   |  | 2,165,113              |  
|Shares issued
      for expenses                         |  | 127,625       |   |  |              |   |  | 1,535,630              |  
|Gain on write-off of debt                                |  |              |   |  |              |   |  | (5,826                 | )
|Write-off on
      restricted cash                       |  | 80,000        |   |  |              |   |  | 80,000                 |  
|Loss on write-off of loan
      receivable               |  |              |   |  |              |   |  | 193,922                |  
|                                                         |  |               |   |  |               |   |  |                        |  
|Changes in operating assets and liabilities:             |  |               |   |  |               |   |  |                        |  
|Prepaid expenses
      and other current assets          |  | 2,064         |   |  |              |   |  | (454                   | )
|Accrued interest                                         |  |              |   |  | (1,301        | ) |  |                       |  
|Accounts payable
      and accrued liabilities           |  | (16,706       | ) |  | 117,897       |   |  | 15,300                 |  
|Due to related parties                                   |  | 284,470       |   |  | 123,468       |   |  | 533,975                |  
|                                                         |  |               |   |  |               |   |  |                        |  
|Net Cash Used in
      Operating Activities              |  | (125,430      | ) |  | (71,040       | ) |  | (595,403               | )
|                                                         |  |               |   |  |               |   |  |                        |  
|Investing Activities                                     |  |               |   |  |               |   |  |                        |  
|Loan receivable                                          |  |              |   |  |              |   |  | (193,922               | )
|Net cash acquired on business
      acquisition          |  |              |   |  |              |   |  | 565                    |  
|Change in
      restricted cash                          |  |              |   |  |              |   |  | (80,000                | )
|Purchase of intangible assets                            |  |              |   |  |              |   |  | (25,000                | )
|                                                         |  |               |   |  |               |   |  |                        |  
|Net Cash Used In
      Investing Activities              |  |              |   |  |              |   |  | (298,357               | )
|                                                         |  |               |   |  |               |   |  |                        |  
|Financing Activities                                     |  |               |   |  |               |   |  |                        |  
|Proceeds from
      issuance of common stock             |  | 125,000       |   |  | 30,000        |   |  | 454,144                |  
|Loans payable                                            |  |              |   |  | 120,915       |   |  | 441,024                |  
|                                                         |  |               |   |  |               |   |  |                        |  
|Net Cash Provided
      By Financing Activities          |  | 125,000       |   |  | 150,915       |   |  | 895,168                |  
|                                                         |  |               |   |  |               |   |  |                        |  
|Effect of Exchange
      Rate Changes on Cash            |  | (3            | ) |  | 219           |   |  | (108                   | )
|                                                         |  |               |   |  |               |   |  |                        |  
|Increase (decrease) in Cash and Cash Equivalents         |  | (433          | ) |  | 80,094        |   |  | 1,300                  |  
|                                                         |  |               |   |  |               |   |  |                        |  
|Cash and Cash
      Equivalents, beginning               |  | 1,733         |   |  | 4,694         |   |  |                       |  
|                                                         |  |               |   |  |               |   |  |                        |  
|Cash and Cash
      Equivalents, end                     |  | 1,300         |   |  | 84,788        |   |  | 1,300                  |  
|                                                         |  |               |   |  |               |   |  |                        |  
|                                                         |  |               |   |  |               |   |  |                        |  
|Supplemental Disclosures                                 |  |               |   |  |               |   |  |                        |  
|                                                         |  |               |   |  |               |   |  |                        |  
|Cash paid for taxes                                      |  |              |   |  |              |   |  |                       |  
|Cash
      paid for interest                             |  |              |   |  |              |   |  |                       |  
|                                                         |  |               |   |  |               |   |  |                        |  
|Non-Cash Financing and Investing Activities              |  |               |   |  |               |   |  |                        |  
|                                                         |  |               |   |  |               |   |  |                        |  
|Common stock issued for intangible asset                 |  | 3,000,000     |   |  |              |   |  | 3,000,204              |  
|Stock subscription receivable                            |  | (60,500       | ) |  | 60,500        |   |  |                       |  
|Common stock issued for stock payable                    |  | 161,550       |   |  |              |   |  |                       |  

The accompanying notes are an integral part of these
consolidated financial statements.

F-3

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Energy Quest Inc. (A Development Stage company) Notes
to the Consolidated Financial Statement

|1. | Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The accompanying unaudited interim financial statements
      of Energy Quest, Inc. (Energy Quest), have been prepared in accordance
      with accounting principles generally accepted in the United States of
      America and the rules of the Securities and Exchange Commission, and
      should be read in conjunction with the audited financial statements and
      notes thereto contained in Energy Quests Annual Report filed with the SEC
      on Form 10-K. In the opinion of management, all adjustments, consisting of
      normal recurring adjustments, necessary for a fair presentation of
      financial position and the results of operations for the interim periods
      presented have been reflected herein. The results of operations for
      interim periods are not necessarily indicative of the results to be
      expected for the full year. Notes to the financial statements which
      substantially duplicate the disclosure contained in the audited financial
      statements for fiscal 2007 as reported in the Form 10-K have been
      omitted.                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|2. | Going Concern                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | These financial statements have been prepared on the
      assumption that the company is a going concern, meaning it will continue
      in operation for the foreseeable future and will be able to realize assets
      and discharge liabilities in the ordinary course of operations. Different
      bases of measurement may be appropriate when a company is not expected to
      continue operations for the foreseeable future. The companys continuation
      as a going concern is dependent upon its ability to attain profitable
      operations and generate funds there-from, and/or raises equity capital or
      borrowings sufficient to meet current and future obligations. Management
      plans to raise equity financings over the next twelve months to finance
      operations. There is no guarantee that the company will be able to
      complete any of these objectives. The company has incurred losses from
      operations since inception and at September 30, 2008, has a working
      capital deficiency and an accumulated deficit that creates substantial
      doubt about the companys ability to continue as a going
concern.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|3. | Related Party Transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | a.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | b.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | c.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | d.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | e.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4. | Shareholder Advances                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | As at September 30, 2008, $289,315 (December 31, 2007 
      $289,934) is owed to shareholders. This amount is unsecured, non-interest
      bearing and due on demand.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|5. | Stock Compensation Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | On January 22, 2008, the company adopted the 2008 Stock
      Compensation Plan (the Stock Plan) under which the company is authorized
      to issue up to 1,000,000 shares of common stock of the company to
      employees, executives and consultants. No options were issued under this
      plan for the nine months ended September 30, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | On January 22, 2008, the company adopted the 2008
      Non-Qualified Stock Option Plan (the Option Plan) under which the
      company is authorized to issue up to 1,000,000 options to employees,
      executives and consultants to purchase shares of common stock of the
      company. No options were issued under this plan for the nine months ended
      September 30, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

F-4

---

Energy Quest Inc. (A Development Stage company) Notes
to the Consolidated Financial Statement

|6. | Commitments 
|-- | ------------
|   |             
|   | a.          
|   |             
|   | b.          
|   |             
|7. | Common Stock
|   |             
|   | a.          
|   |             
|   | b.          
|   |             
|   | c.          
|   |             
|   | d.          
|   |             
|   | e.          
|   |             
|   | f.          
|   |             
|   | g.          

F-5

---

Energy Quest Inc. (A Development Stage company) Notes
to the Consolidated Financial Statement

|8. | Warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The company issued 107,700 warrants during the nine month
      period ended September 30, 2008. The fair value of the warrants issued was
      estimated at the date of issue using the Black-Scholes option pricing
      model and the weighted average fair value of the warrants issued during
      the period ended September 30, 2008 was $0.88 (2007 - $Nil). The company
      recorded the fair value of $94,597 (2007 - $Nil) as additional paid-in
      capital.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The weighted average assumptions used are as
    follows:                                                                                                                                                                                                                                                                                                                                                                                                                      

| |                                 | September 30, 2008 | September 30, 2007
| | ------------------------------- | ------------------ | ------------------
| |                                 |                    |                   
| | Expected dividend yield         | 0%                 | N/A               
| | Risk-free interest rate         | 2.10%              | N/A               
| | Expected volatility             | 227%               | N/A               
| | Expected option life (in years) | 1.00               | N/A               

Option pricing models require the input
of highly subjective assumptions including the expected price volatility. The
subjective input assumptions can materially affect the fair value estimate.

A summary of the changes in the
companys share purchase warrants is presented below:

| |                            |  | September
      30, 2008 |  |   | December
      31, 2007 | 
| | -------------------------- |  | ------------------------ |  | - | ----------------------- | 
| |                            |  |                          |  |   | Weighted                | 
| |                            |  |                          |  |   | Average                 | 
| |                            |  |                          |  |   | Exercise                | 
| |                            |  | Number                   |  |   | Price                   | 
| |                            |  |                          |  |   |                         | 
| | Balance, beginning of year |  |                         |  |   |                        | 
| | Issued                     |  | 107,700                  |  | $ | 2.00                    | 
| | Exercised                  |  |                         |  |   |                        | 
| | Forfeited / Expired        |  |                         |  |   |                        | 
| |                            |  |                          |  |   |                         | 
| | Balance, end of period     |  | 107,700                  |  | $ | 2.00                    | 

The following share purchase warrants
are outstanding:

| |                | Exercise | September 30,
| | -------------- | -------- | -------------
| | Expiry Date    | Price    | 2008         
| | April 28, 2009 | $ 2.00   | 107,700      
| |                |          | 107,700      

|9. | Subsequent Event                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | On October 15, 2008, the company entered into an
      agreement with CO.F.A.M.M. (COFAMM) for the provision of assistance and
      advice to the company on acquiring contracts in Italy, Romani, Greece,
      Morocco, Middle East and Hungary. The agreement is for a period of three
      years and can be renewed annually thereafter, unless terminated by either
      party by written notice. Pursuant to the agreement, the company will pay
      the cost of marketing or any other costs incurred by COFAMM with prior
      approval of the company.

F-6

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

Safe Harbor Statement

This report on Form 10-Q contains certain forward-looking
statements. All statements other than statements of historical fact are
forward-looking statements for purposes of these provisions, including any
projections of earnings, revenues, or other financial items; any statements of
the plans, strategies, and objectives of management for future operation; any
statements concerning proposed new products, services, or developments; any
statements regarding future economic conditions or performance; statements of
belief; and any statement of assumptions underlying any of the foregoing. Such
forward-looking statements are subject to inherent risks and uncertainties, and
actual results could differ materially from those anticipated by the
forward-looking statements.

These forward-looking statements involve significant risks and
uncertainties, including, but not limited to, the following: competition,
promotional costs, and risk of declining revenues. Our actual results could
differ materially from those anticipated in such forward-looking statements as a
result of a number of factors. These forward-looking statements are made as of
the date of this filing, and we assume no obligation to update such
forward-looking statements. The following discusses our financial condition and
results of operations based upon our consolidated financial statements which
have been prepared in conformity with accounting principles generally accepted
in the United States. It should be read in conjunction with our financial
statements and the notes thereto included elsewhere herein.

The following discussion should be read in conjunction with our
consolidated financial statements, including the notes thereto, appearing
elsewhere in this Form 10-Q. The discussions of results, causes and trends
should not be construed to imply any conclusion that these results or trends
will necessarily continue into the future.

Overview

We are engaged in the development and production of
hydrogen-enriched alternative fuels. We plan to employ gasification technologies
and catalytic conversion processes to produce clean fuels. We design, build,
lease and in some cases operate the gasification technologies with broad
potential application within the energy field. Our various technologies allow
for the use of steam for reformation of coal and other carbonaceous feedstocks,
conversion of waste solid fuel sources into gaseous form and allow for
incineration of waste in an environmentally friendly manner.

We have one wholly-owned subsidiary, Syngas Energy Corp., and
its principal business involves an integrated gasification production system
technology that combines modern gasification with turbine technologies to
produce synthetic gas, hydrogen or electricity.

2

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Liquidity and Capital Resources

As of September 30, 2008, we had cash of $1,300 and a working
capital deficiency of $705,378. As at September 30, 2008 our accumulated deficit
was $5,190,001. For the three months ended September 30, 2008 our net loss was
$215,736 compared to $214,898 during the same period in 2007. This decrease was
due mostly to lower consulting and management fees. For the nine months ended
September 30, 2008 our net loss was $602,883 compared to $491,762 for the same
period in 2007. The increase in net loss between these periods was mostly due to
an increase in research and development and a loss on restricted cash.

Our loss was funded by proceeds from shareholder loans and
sales of our securities. During the nine months ended September 30, 2008, we
raised $286,550 through financing activities and our cash position decreased by
$433.

We used net cash of $125,430 in operating activities for the
nine months ended September 30, 2008 compared to net cash of $71,040 in
operating activities for the same period in 2007. We did not use any money in
investing activities for the nine months ended September 30, 2008 nor did we use
any money for investing activities during the same period in 2007. The effect of
exchange rates on cash was a decrease in cash of $3 for the nine months ended
September 30, 2008 compared to an increase of $219 during nine months ended
September 30, 2007.

During the nine months ended September 30, 2008 our monthly
cash requirement was approximately $13,967, compared to approximately $7,893 for
the same period in 2007. We expect to require a total of approximately
$3,780,000 to fully carry out our business plan over the next twelve months
beginning October 2008 as set out in this table:

Description
    Estimated ExpenseMarketing our
      gasification technologies
    $200,000Continued improvement of our PyStR and other technologies
    $1,200,000Further commercializing our gasification technologies
    $400,000Manufacturing of
      Modular Bio-energy units
    $400,000Payment of accounts payable and accrued liabilities
    $580,000General and
      administrative expenses
    $500,000Professional fees
    $100,000Consulting fees
    $200,000Investor relations
      expenses
    $100,000Patent application
      costs (including legal fees)
    $100,000Total
    $3,780,000


3

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We intend to meet our cash requirements for the next 12 months
through external sources: a combination of debt financing and equity financing
through private placements. We are currently not in good short-term financial
standing. We anticipate that we may not generate any revenues in the near future
and we will not have enough positive internal operating cash flow until we can
generate substantial revenues, which may take the next few years to fully
realize. There is no assurance we will achieve profitable operations. We have
historically financed our operations primarily by cash flows generated from the
sale of our equity securities and through cash infusions from officers and
outside investors in exchange for debt and/or common stock.

On September 4, 2007, we entered into a 0% convertible
debenture due September 4, 2012 with Jain Vasant whereby Mr. Vasant agreed to
loan us $120,000,000. At any time after September 4, 2012 and until September 4,
2017 Mr. Vasant has the right to convert all, or a portion of, the principal
amount of the convertible debenture into our common shares at a conversion price
of $50.00 per share. Pursuant to the convertible debenture the funds will be
transferred to us within 10 business days after the convertible debenture
documents are successfully posted on Euroclear. On October 27, 2008 we received
a letter from Mr. Vasant providing us with an update as to the disbursement of
funds. Mr. Vasant has informed us that we will receive the first tranche of the
debenture funds, $40 million, between December 12 to 20th, 2008. We
will receive the second tranche, $40 million on January 15, 2009 and the final
tranche of $40 million on February 15, 2009. As of November 14, 2008, the
transaction has not yet closed and we have not yet received any funds.

Once the $120,000,000 debenture transaction is closed, we will
  have enough capital to meet our cash requirements over the next twelve months.
  However, we cannot guarantee that the agreement will be successfully closed
  on a timely basis. If the agreement fails to close, we intend to raise the balance
  of our cash requirements (approximately $3,780,000) from private placements,
  loans, or possibly a registered public offering (either self-underwritten or
  through a broker-dealer) within the next few months. At this time we do not
  have any commitments from any broker-dealer to provide us with financing. There
  is no guarantee that we will be successful in raising any capital. There is
  no assurance that we will be able to obtain such additional funds on favorable
  terms, if at all. If we fail in raising capital, our business may fail and we
  may curtail or cease our operations.

Results of Operations for the three months ended September
30, 2008 compared to the three months ended September 30, 2007 and from
inception to September 30, 2008.

4

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Limited Revenues

Since our inception on December 14, 2004 to September 30, 2008,
we have earned limited revenue of $5,164. As of September 30, 2008, we have an
accumulated deficit of $5,190,001 and we did not earn any revenues during the
three months ending on September 30, 2008. At this time, our ability to generate
any significant revenues continues to be uncertain. Our financial statements
contain an additional explanatory paragraph in Note 2, which identifies issues
that raise substantial doubt about our ability to continue as a going concern.
Our financial statements do not include any adjustment that might result from
the outcome of this uncertainty.

Net Loss

We incurred a net loss of $215,736 for the three months ended
September 30, 2008, compared to a net loss of $214,898 for the same period in
2007. This decrease in net loss is mostly due to lower consulting and management
fees. From inception on December 14, 2004 to September 30, 2008, we have
incurred a net loss of $5,113,063. Our basic and diluted loss per share was
$0.04 for the three months ended September 30, 2008, and $0.10 for the same
period in 2007.

Expenses

Our total operating expenses decreased from $215,660 to
$213,446 for the three months ended September 30, 2008 compared to the same
period in 2007. This decrease in expenses is mostly due to lower consulting and
management fees. Since our inception on December 14, 2004 to September 30, 2008,
we have incurred total operating expenses of $4,843,932.

Our consulting and management fees decreased $54,362 from
$191,863 to $137,501 for the three months ended September 30, 2008 compared to
the same period in 2007. This decrease was largely due to lower payments made to
our management. Since our inception on December 14, 2004 until September 30,
2008 we have spent $4,110,368 on consulting and management fees.

Our general and administrative expenses consist of bank
charges, travel, meals and entertainment, office maintenance, communication
expenses (internet, fax, and telephone), courier, postage costs, office
supplies. Our general and administrative expenses decreased $4,154 from $15,002
to $10,848 for the three months ended September 30, 2008 compared to the same
period in 2007. Since our inception on December 14, 2004 until September 30,
2008 we have spent $317,895 on general and administrative expenses.

We incurred $36,189 in research and development expenses for
the three months ended September 30, 2008 and we did not spend any money on
research and development during the three months ended September 30, 2007. Since
our inception on December 14, 2004 until September 30, 2008 we have spent
$46,111 on research and development. Going forward, we anticipate that we will
spend approximately $1,600,000 on research and development during the next 12
months.

5

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Our professional fees, consisting primarily of legal,
accounting and auditing fees, increased by $20,113 to $28,908 for the three
months ended September 30, 2008 from $8,795 for the same period in 2007, mainly
due to increased legal and auditing services provided in the three month periods
ended September 30, 2008.

Results of Operations for the nine months ended September
30, 2008 compared to the nine months ended September 30, 2007.

No Revenues

We did not earn any revenues during the nine months ending on
September 30, 2008 or during the same period in 2007. At this time, our ability
to generate any significant revenues continues to be uncertain.

Net Loss

We incurred a net loss of $602,883 for the nine months ended
September 30, 2008, compared to a net loss of $491,762 for the same period in
2007. This increase in net loss is mostly due to an increase in research and
development as well as a loss on restricted cash. Our basic and diluted loss per
share was $0.16 for the nine months ended September 30, 2008, and $0.24 for the
same period in 2007.

Expenses

Our total operating expenses increased to $515,342 from
$493,084 for the nine months ended September 30, 2008 compared to the same
period in 2007. This increase in expenses is mostly due to higher research and
development expenses.

Our consulting and management fees decreased $3,890 from
$330,722 to $326,832 for the nine months ended September 30, 2008 compared to
the same period in 2007. This increase was largely due to lower payments made to
our management.

Our general and administrative expenses consist of bank
charges, travel, meals and entertainment, office maintenance, communication
expenses (internet, fax, and telephone), courier, postage costs, office
supplies. Our general and administrative expenses decreased $1,474 from $40,148
to $38,674 for the nine months ended September 30, 2008 compared to the same
period in 2007.

We incurred $46,111 in research and development expenses for
the nine months ended September 30, 2008 and we did not spend any money on
research and development during the nine months ended September 30, 2007.

Our professional fees, consisting primarily of legal,
accounting and auditing fees, decreased by $18,489 to $103,725 for the nine
months ended September 30, 2008 from $122,214 for the same period in 2007,
mainly due to less legal and auditing services provided in the nine month period
ended September 30, 2008.

6

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Inflation

The amounts presented in the financial statements do not
provide for the effect of inflation on our operations or financial position. The
net operating losses shown would be greater than reported if the effects of
inflation were reflected either by charging operations with amounts that
represent replacement costs or by using other inflation adjustments.

Off-Balance Sheet Arrangements

As of September 30, 2008, we had no off-balance sheet transactions
  that have or are reasonably likely to have a current or future effect on our
  financial condition, changes in our financial condition, revenues or expenses,
  results of operations, liquidity, capital expenditures or capital resources.

ITEM 3. Quantitative and Qualitative Disclosure About Market
Risks.

Not applicable.

ITEM 4. Control and Procedures

Not applicable

ITEM 4T. Control and Procedures.

(a) Evaluation of Disclosure Controls and Procedures. Under the
supervision and with the participation of our management, including our Chief
Executive Officer (CEO) and our Chief Financial Officer (CFO),
we carried out an evaluation of the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act)
as of the end of the period covered by this quarterly report (the Evaluation
Date). Based upon that evaluation, the CEO and CFO has concluded that as of
the Evaluation Date, our disclosure controls and procedures were effective in
timely alerting them to the material information relating to us (or our
consolidated subsidiaries) required to be included in our periodic filings with
the SEC, subject to the various limitations on effectiveness set forth below
under the heading, Limitations On The Effectiveness Of Internal Controls, such
that the information relating to us, required to be disclosed in Securities and
Exchange Commission (SEC) reports (i) is recorded, processed,
summarized and reported within the time periods specified in SEC rules and
forms, and (ii) is accumulated and communicated to our management, including our
CEO and CFO, as appropriate to allow timely decisions regarding required
disclosure.

(b) Changes in internal control over financial reporting. There
were no changes in our internal control over financial reporting during the
fiscal quarter ended September 30, 2008 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.

7

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Limitations On The Effectiveness Of Internal Controls

Our management, including the CEO and CFO, does not expect that
our disclosure controls and procedures or our internal control over financial
reporting will necessarily prevent all fraud and material error. An internal
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of the control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the internal control. The design of any system of controls also is
based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions. Over time, control may
become inadequate because of changes in conditions, and/or the degree of
compliance with the policies or procedures may deteriorate.

PART II  OTHER INFORMATION

ITEM 1. Legal Proceedings.

As of November 14, 2008 there are no any material pending legal
proceedings, other than ordinary routine litigation incidental to our business,
to which we or any of our subsidiaries are a party or of which any of our
properties is the subject. Also, our management is not aware of any legal
proceedings contemplated by any governmental authority against us.

ITEM 2. Unregistered Sales of Equity Securities.

For the period ended September 30, 2008, we have issued the
following securities pursuant to exemptions from registration requirements:

- On August 29, 2008, we issued 100,000 shares of common stock at the fair
  market value of $0.36 per share. The shares were issued as payment for our
  first annual bill, pursuant to an agreement with I-Coda Group for the
  manufacture of units using our gasification technology. These shares were
  issued in reliance upon Regulation S of the Securities Act of 1933.

Our reliance upon the exemption under of Regulation S of the
Securities Act was based on the fact that the sale of the securities was
completed in an "offshore transaction", as defined in Rule 902(h) of Regulation
S. We did not engage in any directed selling efforts, as defined in Regulation
S, in the US in connection with the sale of the securities.

8

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Each investor was not a US person, as defined in Regulation S,
and was not acquiring the securities for the account or benefit of a US person.

Additionally, the investors were given adequate access to
sufficient information about us to make an informed investment decision. None of
the securities were sold through an underwriter and accordingly, there were no
underwriting discounts or commissions involved.

ITEM 3. Defaults Upon Senior Securities.

None.

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

None.

ITEM 5. Other Information.

None.

9

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ITEM 6. Exhibits.

|Number | Description                                                                                                                                                      
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                  
|31.1   | Certification
        of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002                                               
|       |                                                                                                                                                                  
|31.2   | Certification
        of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002                                               
|       |                                                                                                                                                                  
|32.1   | Certification
        of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
        pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|       |                                                                                                                                                                  
|32.2   | Certification
        of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
        pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on our behalf by
the undersigned thereunto duly authorized.

|                        | ENERGY QUEST INC.                        
|----------------------- | -----------------------------------------
|                        | (REGISTRANT)                             
|                        |                                          
|Date: November 14, 2008 | /s/
      Wilf Ouellette                 
|                        | Wilf Ouellette                           
|                        | President, Chief
      Executive Officer,
|                        | Director                                 
|                        | (Authorized Officer
      for Registrant)
|                        |                                          
|Date: November 14, 2008 | /s/
      Vasant K, Jain                 
|                        | Vasant K, Jain                           
|                        | Chief Financial
      Officer, Director, 
|                        | Principal Accounting
      Officer       

10

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