**U.
      S. SECURITIES AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-QSB/A**








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





**For
      the quarterly period ended December 31, 2006**





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





**For
      the transition period from ___________ to _____________**








**Commission
      File Number: 33-90355**


**QUEST
      OIL CORPORATION**




**Nevada**
            
            **000-26619**
            
            **90-0281227**(State
                or other jurisdiction
            
            (Commission
                File Number)
            
            (IRS
                Employerof
                Incorporation)
            
            
            
            Identification
                Number)**2038
                Corte Del Nogal, Suite 110****Carlsbad,
                CA 92011**(Address
                of principal executive offices)**(760)
                804-8844**(Issuer’s
                Telephone Number)





Check
      whether the issuer (1) filed all reports required to be filed by
      Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months
      (or for such shorter period that the registrant was required to file such
      reports), and (2) has been subject to such filing requirements for the past
      90 days.         Yes   **X**   No





Indicate
      by check mark whether the registrant is a shell company (as defined by Rule
      12b-2 or the Exchange Act


Yes   No   **X**





**APPLICABLE
      ONLY TO ISSUERS INVOLVED IN BANKRUPTCY**


**PROCEEDINGS
      DURING THE PRECEDING FIVE YEARS**





Check
      whether the registrant filed all documents and reports required to be filed
      by
      Section 12, 13, or 15(d) of the Exchange Act of 1934 after the distribution
      of
      securities under a plan confirmed by a court. Yes ___ No ____





**APPLICABLE
      ONLY TO CORPORATE ISSUERS**





State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date:





As
      of
      February 19, 2006, 77,738,340 shares of our common stock were issued and
      outstanding.





Transitional
      Small Business Disclosure Format: **No**




**Introduction:
        This Form 10-QSB/A for the quarterly period ended December 31, 2006 is being
        filed in order to amend incorrect financial statements in the original filing
        on
        Form 10-QSB for the quarterly period ended December 31,
        2006.**


















**EXPLANATORY
      NOTE**









This
      amended form 10-QSB/A is being filed to include additional non-cash disclosures
      on the Consolidated Statement of Cash Flows, to correct the restatement table
      to
      Footnote 2 and to improve the presentation of the tables from the original
      filing on February 20, 2006.




















**PART
      I**





**ITEM
      1.**  **FINANCIAL
      STATEMENTS**





Our
      financial statements and related explanatory notes can be found on the “F” Pages
      at the end of this Report.




**ITEM
      2.**  **MANAGEMENT’S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS**





The
      following discussion and analysis should be read in conjunction with our audited
      consolidated financial statements and related notes included in this report.
      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. Factors that could cause actual
      results to differ from expectations include, but are not limited to, those
      set
      forth under the section “Risk Factors” set forth in this report.





The
      forward-looking events discussed in this prospectus, the documents to which
      we
      refer you and other statements made from time to time by us or our
      representatives, may not occur, and actual events and results may differ
      materially and are subject to risks, uncertainties and assumptions about us.
      For
      these statements, we claim the protection of the “bespeaks caution” doctrine.
      All forward-looking statements in this document are based on information
      currently available to us as of the date of this report, and we assume 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**





We
      are an
      independent exploration stage oil and natural gas company that explores for,
      acquires and develops oil and natural gas properties. Currently, our operations
      are currently focused in the United States and on the Canadian oil and gas
      fields of Alberta. We are also exploring other various global
      opportunities.




**Corporate
      History**





We
      were
      originally incorporated in the State of Nevada on January 19, 1999 under the
      name of Luna Technologies, Inc. We have changed our name several times as
      follows: Luna Medical Technologies, Inc. (May 31, 1999), Lanwerx Entertainment,
      Inc. (May 19, 2003), GameState Entertainment, Inc. (September 24, 2003) and
      Quest Oil Corporation (September 7, 2004). In 2004, we formed Quest Canada
      Corp., a wholly owned Canadian subsidiary, which was created to serve as a
      holding company for our anticipated oil and gas projects in Alberta.  In
      August 2005, we acquired Wallstin Petroleum LLC. In 2005, Petrostar Oil Services
      Inc. was created for the purpose of servicing the oil and gas properties in
      Texas.





**Recent
      Developments**





On June 30, 2006, our board of directors approved the dismissal of the
      firm of MacKay LLP as our certifying accountant. The dismissal was not due
      to
      any disagreements between ourselves and MacKay LLP. The reports on our financial
      statements for either of the past two years provided by MacKay LLP did not
      contain an adverse opinion or disclaimer of opinion, and were not modified
      as to
      uncertainty, audit scope, or accounting principles.





On June 30, 2006, we formally retained the firm of Malone & Bailey, PC
      to audit our financial statements for the year ended March 31, 2006. At no
      time
      prior to our retention of Malone & Bailey, PC, did we, or anyone on our
      behalf, consult with Malone & Bailey, PC regarding the application of
      accounting principles to a specific completed or contemplated transaction,
      or
      the type of audit opinion that might be rendered on our financial
      statements.





On July 14, 2006, Mr. Chris Phillips resigned from his position on our
      board of directors.





On July 15, 2006, we engaged The Baum Law Firm, P.C. as special securities
      counsel.





On September 12, 2006, we entered into an Assignment of Oil and Gas Lease
      with Mr. W.A. Walker. The Assignment provides us with a 100% working interest
      and an 87.5% net royalty interest in the oil, gas and mineral rights in the
      Kansas Shinkle property, which consists of five oil and gas zones located in
      the
      Kansas Cherokee Basin. In connection with the Assignment, we entered into a
      Purchase and Sale Agreement and a Consulting Agreement with Mr. W.A. Walker.
      Under the Consulting Agreement, we retained the services of Mr. W.A. Walker
      who
      will assist Quest with operations for the next 12 months.





On September 13, 2006, Mr. Joseph F. Wallen resigned from his positions as
      our Chief Financial Officer and Director. Mr. Wallen’s resignation was not
      because of any disagreements with the Corporation on matters relating to its
      operations, policies or practices. Mr. Wallen will continue to focus on the
      Company's operations and assume the post of Operations Director.





On September 14, 2006, our board of directors appointed Mr. Phil Scott,
      CFA to act as our Chief Financial Officer.





On
      December 1, 2006 Quest Oil Corporation (“Quest”) entered into a binding Letter
      of Intent (the “LOI”) with Endeavor Energy Corporation (“Endeavor”). Pursuant to
      the terms of the LOI, Endeavor will acquire from Quest a non-exclusive license
      of the seismic data obtained from the Acadia North 3D Seismic Data Acquisition
      Project covering 10 square miles over our main Canadian project Acadia North
      (the “Acadia Project”). The licensing fee is Two Hundred and Fifty Thousand
      Dollars ($250,000 US). Endeavor will pay all costs associated with interpreting
      the data which will be for internal use only. Quest will retain ownership of
      all
      results of the interpretation and internal documents that pertain to the seismic
      area surveyed.





In
      addition to the non-exclusive licensing fee, Endeavor will acquire the right
      to
      drill and explore the lands associated with the Acadia Project. All Canadian
      properties currently owned by Quest will remain in Quests name, Endeavor will
      become operator and abide by the CAPL operators guidelines, subject to
      amendments or modifications that are acceptable to both Quest and Endeavor.
      Endeavor will be responsible for bearing the costs associated with these
      properties.





Quest
      will receive the right to participate in future operations derived from the
      existing lands owned and or controlled by Quest and any lands acquired, farmed
      out and/or joint ventured or where Endeavor’s officers, directors, or affiliates
      receive an economic benefit from the properties covered within the 3D seismic
      area and 1 mile outside of the surveyed area.





On
      February 13, 2007 we received a demand letter for the amount of $6,048,000
      plus
      accrued interest and costs from Howard Gorman at Macleod Dixon indicating that
      a
      group of Secured Lenders pursuant to the September 30, 2005 Debenture and
      Guarantee and Indemnity agreements had appointed the Double U Fund to act as
      an
      agent on behalf of the Secured Lenders, and that Macleod Dixon are the
      solicitors of the Double U Fund. The
      creditors also alleged that preferential transfers and other fraud took place
      between Quest and its employees and other insiders. We
      believe that these allegations have no merit.  Quest
      is
      in the process of responding to the demand, which we
      believe is
      incorrect in the amount of the indebtedness. The
      outstanding balance at December 31, 2006 was $4,799,999 plus accrued
      interest.




**Results
      of Operations**




For
      the nine months ended
      December 31, 2006, we had a net loss of $ 1,948,341 1,619,618 compared
      to a net loss of $10, 644,392 692,130 for the
      previous period ended December 31, 2005. This decrease in loss is primarily
      a
      result of the significant decrease in the expenses associated with the
      derivative expense, both derivative interest and change in value of derivatives.
      In addition, our operating loss increased slightly from $2,586,797 to
      $ 3,055,899 2,714,228 .
      In
      addition, we had limited revenues of $485,675.





For
      the
      three months ended December 31, 2006, we had a net loss of $ 825,940 570,040 compared
      to a net profit of $2, 029,121 043,797 for the
      previous period ended December 31, 2005. This decrease in profitability is
      a
      direct result of derivative expense income and a significant decrease in
      operating and general and administrative expenses. In addition, we had limited
      oil and gas sales of $269,768.





**Liquidity
      and Capital Resources**





At
      December 31, 2006, we had cash of $335,787 compared to $1,558,146 at March
      31,
      2006.





On
      October 6, 2005, we entered into a convertible note financing transaction with
      25 accredited investors pursuant to which the investors agreed to loan us an
      aggregate principal amount of $8 million. The notes are released in two tranches
      of which $6 million was received at closing and the balance of $2 million will
      be released to us upon the successful effectiveness of a Registration Statement.
      At their election, the investors are also entitled to invest up to an additional
      $2 million. Each investor received a Zero Coupon Note equal to 5% of total
      amount invested by each investor. We issued to the investors, senior secured
      convertible notes, zero coupon convertible notes and common stock purchase
      warrants.





The
      senior secured convertible notes issued at the initial closing are due October
      6, 2007, and bear interest, in arrears, at a rate per annum equal to ten percent
      (10%), payable annually on October 1 of each year commencing October 1, 2006
      at
      our option in (A) cash, (B) additional senior secured convertible promissory
      notes, or (C) in registered shares of our common stock. Interest is computed
      on
      the basis of a 360-day year of twelve (12) 30-day months.





Commencing
      on the fifth (5 th )
      month
      following the issuance of the senior secured convertible notes and continuing
      thereafter on the first (1 st )
      business day of each month we are required to pay an amount to each note holder
      equal to 1/20 th of the
      original principal amount of the senior secured convertible notes plus any
      accrued but unpaid interest. Payment may be made at our option in cash or
      registered shares of our common stock. If we elect to make payments in
      registered shares of our common stock, the number of shares issued to the note
      holder shall be discounted to 87.5% of the average of the closing bid price
      of
      our common stock for the ten (10) trading days immediately preceding the payment
      date. Payment may be made in registered shares of our common stock only if:
      (A)
      the Registration Statement providing for the resale of the shares of common
      stock issuable upon conversion of the senior convertible notes is effective
      and
      has been effective, without lapse or suspension of any kind, for a period of
      twenty (20) consecutive calendar days, (B) trading in our common stock has
      not
      been suspended by the Securities and Exchange Commission or the OTC Bulletin
      Board (or other exchange or market on which our common stock is trading), (C)
      we
      are in material compliance with the terms and conditions of the senior secured
      convertible notes and other financing documents, and (D) the issuance of shares
      of common stock to each note holder does not violate the note holder’s 4.9% or
      9.9% ownership cap restrictions.





The
      senior secured convertible notes are convertible at any time, at the option
      of
      the note holders, into such number of fully paid and non-assessable shares
      of
      our common stock as is determined by dividing (x) that portion of the
      outstanding principal balance plus any accrued but unpaid interest under the
      notes at the date that the note holder elects to convert by (y) the conversion
      price of $0.40 which is subject to adjustment.





We
      may
      cause the conversion of the senior secured convertible notes if, at any time
      following the effective date of the Registration Statement which registers
      the
      shares underlying the notes, the closing bid price exceeds $0.80 for a period
      of
      10 consecutive trading days and the average daily trading volume for such 10
      consecutive trading day period exceeds 250,000 shares of common stock subject
      to
      certain conditions. Upon mandatory conversion, the principal amount of the
      senior secured convertible notes plus all accrued and unpaid interest shall
      convert into a number of fully paid and nonassessable shares of common stock
      equal to the quotient of (i) the principal amount of the notes plus all accrued
      and unpaid interest outstanding on the mandatory conversion date divided by
      (ii)
      the conversion price in effect on the mandatory conversion date.





So
      long
      as the Registration Statement is effective, in the event that the closing bid
      price of the common stock is greater than $0.40 and less than $1.25, the maximum
      number of shares of common stock that may be issued upon conversion of the
      notes
      shall not exceed the greater of (1) 25% of the aggregate trading volume for
      the
      prior 15 days or (2) 20% of the original principal amount of the
      notes.





Prepayment
      of the senior secured convertible notes may be required at the option of the
      note holder subject to certain conditions. In addition, so long as ten (10%)
      of
      the original principal amount of the notes are outstanding, we can require
      prepayment of the notes by paying in cash, all or portion of the outstanding
      principal amount of the notes together with all accrued and unpaid interest
      thereon with 30 days prior written notice to the note holder at a price equal
      to
      125% of the aggregate principal amount of the notes plus any accrued but unpaid
      interest.





The
      senior secured convertible notes are secured by a security agreement that we
      and
      our subsidiaries entered into with the investors. The security agreement grants
      the investors a secured interest in all of the collateral, as defined in the
      agreement, of the company and its subsidiaries until such time as our
      obligations under the senior secured convertible notes have been meet. In
      addition to the security agreement, Quest Canada Corp., our wholly owned
      Canadian subsidiary has entered into a guarantee and indemnity agreement with
      the investors, whereby Quest Canada has guaranteed payment of the notes and
      agreed to indemnify the investors against losses arising from our failure to
      meet the obligations of the notes. Quest Canada has also entered into a pledge
      and debenture agreement with the investors whereby Quest Canada has pledged
      $15
      million in favor of the investors as a continuing collateral security for the
      payment and fulfillment of the notes. We and our wholly owned subsidiary,
      Wallstin Petroleum, LLC have entered into a deed of trust, security agreement,
      financing statement and assignment of rents and leases with the investors
      whereby some of our Texas properties, rents, royalties and proceeds have been
      conveyed to the trustee as collateral security for the notes.





The
      zero
      coupon convertible notes are also due on October 6, 2007 and have terms which
      are substantially similar to the senior secured convertible notes. However,
      the
      zero coupon convertible notes do not bear interest.





Also
      in
      connection with the transactions, we issued to each of the note holders, and
      to
      the Placement Agent, four types of warrants to acquire shares of our common
      stock, which are classified as “Series A,” “Series B,” “Series C” and “Placement
      Agent Series A,” “Placement Agent Series B,” “Placement Agent Series C,” and
“Placement Agent Series D” Warrants. As discussed below, all warrants have
      substantially similar terms and conditions except for the exercise prices,
      the
      expiration dates and the absence of a call provision.





We
      issued
      to each of the note holders and to the Placement Agent, “Series A” warrants
      entitling the investors and the Placement Agent to acquire an aggregate of
      27,500,000 shares of our common stock at an exercise price of $0.80 per share.
      The warrants issued to the investors have a “cashless exercise” provision which
      may be utilized by the holder only if one year has elapsed since the date of
      issuance of the warrant and a Registration Statement registering the common
      stock underlying the warrant is not in effect as required. The warrants issued
      to the Placement Agent have a “cashless exercise” provision which may be
      utilized by the holder without restriction. Subject to certain conditions,
      including the effectiveness of a Registration Statement providing for the resale
      of the common stock underlying the warrants, we may call the Series A warrants
      at any time so long as the value of our common stock is greater than $1.60
      for a
      period of 10 consecutive days immediately prior to the call notice and the
      average daily trading volume during the 10 day call notice period exceeds
      250,000 shares of common stock. The Series A warrants issued to the note holders
      are exercisable for a period of three years. The Placement Agent Series A
      warrants are exercisable for a period of five years.





We
      issued
      to each of the note holders and to the Placement Agent, “Series B” warrants
      entitling the investors and the Placement Agent to acquire an aggregate of
      13,750,000 shares of our common stock at an exercise price of $0.46 per share.
      The warrants issued to the investors have a “cashless exercise” provision which
      may be utilized by the holder only if one year has elapsed since the date of
      issuance of the warrant and a Registration Statement registering the common
      stock underlying the warrant is not in effect as required. The warrants issued
      to the Placement Agent have a “cashless exercise” provision which may be
      utilized by the holder without restriction. Subject to certain conditions,
      including the effectiveness of a Registration Statement providing for the resale
      of the common stock underlying the warrants, we may call the Series B warrants
      at any time so long as the value of our common stock is greater than $0.56
      for a
      period of 10 consecutive days immediately prior to the call notice and the
      average daily trading volume during the 10 day call notice period exceeds
      250,000 shares of common stock. The Series B warrants issued to the note holders
      are exercisable for a period of two (2) years following the effective date
      of
      the Registration Statement providing for the resale of the shares of common
      stock underlying the warrants and the shares of common stock issuable upon
      conversion of the notes. The Placement Agent Series B warrants are exercisable
      for a period of five years.





We
      issued
      to each of the note holders and to the Placement Agent, “Series C” warrants
      which entitle the investors and the Placement Agent to acquire an aggregate
      of
      13,750,000 shares of our common stock at an exercise price of $0.56 per share.
      The warrants issued to the investors have a “cashless exercise” provision which
      may be utilized by the holder only if one year has elapsed since the date of
      issuance of the warrant and a Registration Statement registering the common
      stock underlying the warrant is not in effect as required. The warrants issued
      to the Placement Agent have a “cashless exercise” provision which may be
      utilized by the holder without restriction. The Series C warrants issued to
      the
      note holders are exercisable for a period of seven years. There is no call
      provision in the Series C warrants. However, the Series C warrants are only
      exercisable for the number of shares of common stock that has been issued to
      the
      warrant holder pursuant to the warrant holder’s exercise of its Series B
      Warrant. The Placement Agent Series C warrants are exercisable for a period
      of
      seven years.





We
      issued
      to the Placement Agent, Placement Agent “Series D” warrants which entitle the
      Placement Agent to acquire an aggregate of 2,500,000 shares of our common stock
      at an exercise price of $0.40 per share with a “cashless exercise” provision
      which may be utilized by the holder without restriction. The Placement Agent
      Series D warrants are exercisable for a period of five years.





Assuming
      the total principal amount of each senior secured note and each zero coupon
      note
      held by each of the selling security holders is converted into common stock
      at a
      conversion price of $0.40 and all the converted shares are sold in this
      offering, the outstanding shares will be increased by 20,400,000. Assuming
      all
      warrants held by the selling security holders are exercised and all shares
      underlying the warrants are sold in this offering, the outstanding shares will
      be increased by an additional 57,500,000.





Our
      expectations are based on certain assumptions concerning the anticipated costs
      associated with any new projects.  These assumptions concern future events
      and circumstances that our officers believe to be significant to our operations
      and upon which our working capital requirements will depend.  Some
      assumptions will invariably not materialize and some unanticipated events and
      circumstances occurring subsequent to the date of this prospectus.





Although we believe that we are able to operate without additional financing,
      in
      order to expand operations, we may continue to seek additional capital over
      the
      next 12 months from the additional sale of our securities. The amount and timing
      of our future capital requirements will depend upon many factors, including
      the
      level of funding received by us, anticipated private placements of our common
      stock, the level of funding obtained through other financing sources, and the
      timing of such funding. In the event we are unable to raise additional capital,
      we will be unable to expand operations as desired.





We
      intend
      to retain any future earnings to retire any existing debt, finance the expansion
      of our business and any necessary capital expenditures, and for general
      corporate purposes.





We
      are
      required to make monthly principal and interest payments under the terms of
      our
      Senior Secured Convertible Promissory Notes. Because a Registration Statement
      registering the shares underlying the notes is not effective, we are required
      to
      make the monthly payments in cash instead of registered shares of our common
      stock. Because
      a
      Registration Statement was not effective, we have been required to make the
      payments in cash. However,
      due to our current cash position, we do not intend to make any additional
      principal and interest payments in cash to the investors. Making the payments
      in
      cash would impair our ability to operate on a day-to-day basis. Should a
      Registration Statement become effective, we will be able to make any delinquent
      and future principal and interest payments under the terms of the notes to
      the
      investors in the form of registered shares of our common stock.





The
      fact
      that we did not make the June through December 2006 principal and interest
      payments in cash to our investors means that we are currently in default under
      the terms of the Notes. Such a default may provide the basis for the investors
      to force the liquidation of our assets. In the case of the liquidation of our
      assets, our common shareholders will likely lose all of their investment in
      our
      common stock.




**Equipment**





Equipment
      is recorded at historical cost.  The straight line method with a half-year
      convention is used for depreciation. Asset life in years is a
      follows:





Computer
                equipment
            
            5
                yearsFurniture
                and equipment
            
            7
                yearsWell
                service equipment
            
            7
                yearsVehicles
            
            5
                years





**Foreign
      Currency Transactions**





Monetary
      assets and liabilities are translated at balance sheet date exchange rates;
      other assets and liabilities have been translated at the rates prevailing at
      the
      date of the transaction.  Revenue and expense items, except for
      amortization, are translated at the average rate of exchange for the year.
       Amortization is converted using rates prevailing at dates of acquisition.
 Gains and losses from foreign currency translation are included in the
      statement of operations.  All figures presented are in US
      dollars.





**Critical
      Accounting Policies**





**Oil
      and Gas Activities**





We
      follow
      the full cost method of accounting for our oil and gas activities; accordingly,
      all costs associated with the acquisition, exploration, and development of
      oil
      and gas properties are capitalized within the appropriate cost center.  Any
      internal costs that are capitalized are limited to those costs that can be
      directly identified with acquisition, exploration, and development activities
      undertaken by us for our own account, and do not include any costs related
      to
      production, general corporate overhead, or similar activities.





All
      capitalized costs within a cost center are depleted on the units-of-production
      method based on estimated proved reserves attributable to the oil and gas
      properties we own.




For
      each
      cost center, capitalized costs less accumulated depletion and related deferred
      income taxes, may not exceed the cost center ceiling. The cost center ceiling
      is
      equal to the sum of:  (a) the present value of estimated future net
      revenues from proved oil and gas reserves, less estimated future expenditures
      to
      be incurred in developing the proved reserves computed using a 10 percent
      discount factor; (b) the cost of properties not being amortized; (c) the lower
      of cost or fair market value of unproven properties included in the costs being
      amortized; and (d) income tax effects related to the differences between the
      book and tax basis of the properties.  Any excess is charged to expense
      during the period in which the excess occurs.




Sales
      of
      oil and gas properties, whether or not being amortized currently, are accounted
      for as adjustments of capitalized costs, with no gain or loss recognized, unless
      such adjustments would significantly alter the relationship between capitalized
      costs and proved reserves of oil and gas attributable to a cost center.
      Abandonments of oil and gas properties are accounted for as adjustments of
      capitalized costs, and are amortized and subject to the cost center ceiling
      limitation.





Future
      site restoration and abandonment costs of our petroleum and natural gas
      properties are provided for when a reasonable estimate can be made.  The
      estimated provision is reduced by expected equipment salvage values at the
      time
      of the abandonment. The resulting net estimated provision, if any, is charged
      against earnings over the remaining life our proved reserves on a unit-of
      production basis.  Actual expenditures are applied against the accumulated
      provision account.





On
      April
      24, 2006, our board of directors authorized our President and Chief Executive
      Officer, James B. Panther, II, in connection with our March 31, 2006, Annual
      Report on Form 10-KSB, to engage firms to provide us with new independent
      reserve report for all of our properties. To date, we have obtained Reserve
      Reports for our Canadian properties in the Arneson Area of Alberta and for
      our
      properties in Kansas. We are currently seeking candidate firms to provide
      Reserve Reports for our remaining Canadian and Texas properties.




**Derivative
      Financial Instruments**





The
      Company does not use derivative instruments to hedge exposures to cash flow,
      market, or foreign currency risks.




We
      review
      the terms of convertible debt and equity instruments issued to determine whether
      there are embedded derivative instruments, including embedded conversion options
      that are required to be bifurcated and accounted for separately as a derivative
      financial instrument. In circumstances where the convertible instrument contains
      more than one embedded derivative instrument, including the conversion option,
      that is required to be bifurcated, the bifurcated derivative instruments are
      accounted for as a single, compound derivative instrument. Also, in connection
      with the sale of convertible debt and equity instruments, the Company may issue
      freestanding options or warrants that may, depending on their terms, be
      accounted for as derivative instrument liabilities, rather than as equity.
      The
      Company may also issue options or warrants to non-employees in connection with
      consulting or other services they provide.




Certain
      instruments, including convertible debt and equity instruments and the
      freestanding options and warrants issued in connection with those convertible
      instruments, may be subject to registration rights agreements, which impose
      penalties for failure to register the underlying common stock by a defined
      date.
      These potential cash penalties may require the Company to account for the debt
      or equity instruments or the freestanding options and warrants as derivative
      financial instrument liabilities, rather than as equity. In addition, when
      the
      ability to physical or net-share settle the conversion option or the exercise
      of
      the freestanding options or warrants is deemed to be not within the control
      of
      the company, the embedded conversion option or freestanding options or warrants
      may be required to be accounted for as a derivative financial instrument
      liability.




Derivative
      financial instruments are initially measured at their fair value. For derivative
      financial instruments that are accounted for as liabilities, the derivative
      instrument is initially recorded at its fair value and is then re-valued at
      each
      reporting date, with changes in the fair value reported as charges or credits
      to
      income. For option-based derivative financial instruments, the Company uses
      the
      lattice pricing model to value the derivative instruments. To the extent that
      the initial fair values of the freestanding and/or bifurcated derivative
      instrument liabilities exceed the total proceeds received, an immediate charge
      to income is recognized, in order to initially record the derivative instrument
      liabilities at their fair value.




The
      discount from the face value of the convertible debt or equity instruments
      resulting from allocating some or all of the proceeds to the derivative
      instruments, together with the stated interest on the instrument, is amortized
      over the life of the instrument through periodic charges to income, usually
      using the effective interest method. When the instrument is convertible
      preferred stock, the dividends payable are recognized as they accrue and,
      together with the periodic amortization of the discount, are charged directly
      to
      retained earnings.




The
      classification of derivative instruments, including whether such instruments
      should be recorded as liabilities or as equity, is re-assessed periodically,
      including at the end of each reporting period. If re-classification is required,
      the fair value of the derivative instrument, as of the determination date,
      is
      re-classified. Any previous charges or credits to income for changes in the
      fair
      value of the derivative instrument are not reversed. Derivative instrument
      liabilities are classified in the balance sheet as current or non-current based
      on whether or not net-cash settlement of the derivative instrument could be
      required within 12 months of the balance sheet date.




**Additional
      Accounting Disclosures**





On
      April
      24, 2006, our board of directors authorized our President and Chief Executive
      Officer, James B. Panther, II, in connection with our March 31, 2006, Annual
      Report on Form 10-KSB, to engage an independent forensic accounting firm to
      provide us with a forensic accounting of all of the company’s cash flows for the
      12 months preceding March 31, 2006. As of the date of this Report, we have
      no
      information that would lead us to believe that there was a misappropriation
      of
      any company monies. The board of directors order of the forensic accounting
      is
      precautionary given the recent changes in management and to our board of
      directors.





On
      July
      17, 2006, our board of directors determined that the previously-issued interim
      financial statements for the three months ended June 30, 2005, September 30,
      2005 and December 31, 2005 should not be relied upon because the financial
      statements do not properly reflect non-cash transactions. These transactions
      include derivatives related to convertible debt. We have reported the amended
      the September 2005 financials results within the 10-QSB filed for the period
      ended September 30, 2006 and have reported amended December 2005 financial
      results within this 10-QSB. We intend to file amended Quarterly Reports on
      Form 10-QSB for the periods ended June 30, 2005, March 31, 2006 and June 30,
      2006 to restate the affected financial statements previously filed with the
      Securities and Exchange Commission. This filing includes all cumulative
      transactions from the derivatives and details of the restatement are included
      in
      notes to the financial statements.




Our
      management team has recently changed.  We are changing our internal
      controls to require that all non-cash transactions are reviewed quarterly.
      We
      will determine whether additional disclosure relating to the non-cash
      transactions is required at the end of each fiscal quarter.





**Stock
      Based Compensation**





The
      Company has elected to value stock based compensation granted at the fair value
      as determined using the Black-Scholes option valuation model.





**Employees**





We
      currently have three employees among the parent and all subsidiary companies.
      We
      intend to hire additional personnel and our employees will be entitled to paid
      vacation, paid sick days, and personal days off depending on job classification,
      length of service, and other factors.  Our policy will be to recognize the
      cost of compensated absences when actually paid to employees.





We
      have
      not entered into a collective bargaining agreement with any union.  We have
      not experienced any work stoppages and consider the relations with the
      individuals working for us to be good.


**ITEM
      3.**  **CONTROLS
      AND PROCEDURES**





As
      required by Rule 13a-15 under the Securities Exchange Act of 1934 (“Exchange
      Act”) we carried out an evaluation of the effectiveness of the design and
      operation of our disclosure controls and procedures as of September 30, 2006,
      being the date of our most recently completed fiscal quarter. This evaluation
      was carried out under the supervision and with the participation of our Chief
      Executive Officer and Chief Financial Officer. Based upon that evaluation,
      they
      concluded that our disclosure controls and procedures were not effective to
      ensure that information required to be disclosed in our 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 disclosure controls and procedures were
      not
      effective due to late filing and significant adjustments proposed by our
      auditors that were recorded related to non-cash debt and equity transactions.
      We
      are in the process of implementing procedures to properly account for and
      disclose the non-cash transactions.




























**PART
      II**





**ITEM
      1.**  **LEGAL
      PROCEEDINGS**





On April 4, 2006, our board authorized the retention of the law firm of
      Zimmerman, Axelrad, Meyer, Stern & Wise, P.C. of Houston, Texas to represent
      the company as litigation counsel. Zimmerman, on behalf of the company, filed
      a
      Petition and Application For Temporary Restraining Order, Temporary Injunction
      and Permanent Injunction, and Request for Order for Deposition to Investigate
      Claims against our former Chief Operating Officer, William Huntington Stinson,
      Nana Asomani-Arko and Norman S. Neidell in the 11 th Judicial
      District in the District Court of Harris County, Texas. The litigation arose
      from a dispute with our former Chief Operations Officer, William Huntington
      Stinson, concerning his alleged appointment as a Director, President, and Chief
      Executive Officer of the company.





On
      Thursday, April 6, 2006, our request for a Temporary Restraining Order was
      heard
      and denied by the Court. At the time that the denial for a Temporary Restraining
      Order was issued, the Presiding Judge set the hearing for our Temporary
      Injunction request for Monday, April 10, 2006. On the morning of April 10,
      2006,
      after denying a Motion and Request for Continuance filed by Mr. Stinson, Judge
      Mark Davidson commenced the Temporary Injunction hearing. During the middle
      of
      Mr. Stinson’s examination, Mr. Stinson’s counsel initiated settlement
      discussions.





On
      the
      afternoon of April 10, 2006, a settlement was reached and read into the court
      record. As a condition for our dismissing the lawsuit, Mr. Stinson agreed,
      in
      part, as follows: (i) that Mr. Stinson did not dispute the authority of our
      board of directors that was appointed in our March 31, 2006 board resolution
      (which was reported in Section 5.02 of our Current Report on Form 8-K filed
      on
      April 7, 2006); (ii) that Mr. Stinson would assist in transferring control
      of
      company monies he had control of (and which were “frozen”) into a company
      account that he was not a signatory; and (iii) that as of the date of the
      settlement, Mr. Stinson did not claim to be a member of our board of directors
      or an officer of the company.





As
      a part
      of the settlement, we agreed to: (i) hold a meeting, attended by two members
      of
      our board of directors to discuss a proposal made by Mr. Stinson regarding
      the
      possibility of him continuing to provide services to the company; (ii) subject
      to our financial claims against Messrs. Stinson and Neidell, pay Messrs. Stinson
      and Neidell or their assigns, certain monies they claimed they were owed in
      connection to their service as our Chief Operating Officer and outside
      consultant, respectively.





On
      April
      21, 2006, pursuant to the terms of the settlement agreement with Mr. Stinson,
      we
      appeared at 9:00 a.m. at our Houston, Texas office for the scheduled meeting
      with Mr. Stinson which had been confirmed by Mr. Stinson’s former counsel. Mr.
      Stinson failed to appear for the meeting. On April 24, 2006, our board of
      directors resolved that because: (i) we had in good faith attempted to comply
      with the terms of the settlement agreement with Mr. Stinson; (ii) Mr. Stinson
      failed to attend the meeting; (iii) there were significant costs associated
      with
      making additional attempts to meet with Mr. Stinson; and (iv) the members of
      the
      Board of Directors were disinterested in doing any business with Mr. Stinson,
      we
      would not make any further attempts to deal directly with Mr. Stinson relative
      to complying with this term of the settlement agreement.





On
      April
      18, 2006, the Company filed a non-suit in the above lawsuit, dismissing the
      case
      against all defendants.





On
      April
      24, 2006, we received a compensation demand from Mr. Stinson claiming wages
      owed
      from August 2005 through April 2006. On April 12, 2006, we receive a
      compensation demand from N.S. Neidell & Associates claiming that we owed him
      compensation for his services. We do not believe that either Mr. Stinson or
      Mr.
      Neidell are legally entitled to the compensation they claim.





In
      October, 2006, Sed-Strat GeoScience Consultant, Inc. filed a petition against
      Quest Oil Corporation in the County Court at Law No.3, Fort Bend County, Texas.
      The dispute arose from an alleged unpaid invoice in the amount of $12,131.76
      due
      March 27, 2006 for geological consulting services provided by Sed-Strat. On
      October 23, 2006, we filed an answer denying liability. We are currently
      investigating the validity of this claim.




On
      January 22, 2007, Cisco Pump, Inc. filed a petition against Quest Oil
      Corporation in the 91 st District
      Court of Eastland County, Texas. The dispute arose from an alleged unpaid
      invoice in the amount of $21,715.19 due September 29, 2006 for services provided
      by Cisco Pump, Inc. As of the date of this filing, we are not required to,
      and
      have not filed an answer. We are currently investigating the validity of this
      claim.




**ITEM
      2.**  **UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**





On
      July
      3, 2006, we issued 370,000 shares registered on Form S-8 to various outside
      consultants pursuant to various consulting agreement.





On
      August
      1, 2006, we issued 100,000 shares registered on Form S-8 pursuant to a
      settlement agreement in connection with a previous consulting
      agreement.





On
      August
      29, 2006, we issued 250,000 shares registered on Form S-8 to an outside
      consultant pursuant to a consulting agreement.





On
      August
      29, 2006, we issued 83,333 shares registered on Form S-8 to an employee pursuant
      to an employment agreement.





On
      August
      31, 2006, we issued 50,000 shares registered on Form S-8 to an outside
      consultant pursuant to a consulting agreement.





On
      September 5, 2006, we issued 180,000 shares registered on Form S-8 to an outside
      consultant pursuant to a consulting agreement.





On
      September 6, 2006, we issued 50,000 shares registered on Form S-8 to an outside
      consultant pursuant to a consulting agreement.





On
      September 7, 2006, we issued 136,362 restricted shares to our directors pursuant
      to the 2006 Directors Annual Compensation Program.





On
      September 18, 2006, we issued 500,000 restricted shares pursuant to a purchase
      and sale agreement to the seller and 200,000 shares registered on Form S-8
      pursuant to a consulting agreement to an outside consultant.





On
      September 18, 2006, we issued 30,769 shares registered on Form S-8 to an outside
      consultant pursuant to a consulting agreement.





On
      September 29, 2006, we issued 64,286 shares registered on Form S-8 to an outside
      consultant pursuant to a consulting agreement.





On
      October 3, 2006, we issued 264,705 shares registered on Form S-8 to an outside
      consultant pursuant to a consulting agreement.





On
      October 5, 2006, we issued 500,000 shares registered on Form S-8 to an outside
      consultant pursuant to a consulting agreement.





On
      October 6, 2006, we issued 840,960 shares registered on Form S-8 to an outside
      consultant pursuant to a consulting agreement.





On
      October 9, 2006, we issued 192,307 shares registered on Form S-8 to an employee
      pursuant to an employment agreement.





On
      October 13, 2006, we issued 1,285,714 shares registered on Form S-8 to an
      outside consultant pursuant to a consulting agreement.





On
      October 17, 2006, we issued 238,638 restricted shares to our directors pursuant
      to the 2006 Directors Annual Compensation Program.





**ITEM
      3.**  **DEFAULT
      UPON SENIOR SECURITIES**





We
      are
      required to make monthly principal and interest payments under the terms of
      our
      Senior Secured Convertible Promissory Notes beginning February 7, 2006. If
      a
      Registration Statement registering the shares underlying the Notes is not
      effective, we are required to make the monthly payments in cash instead of
      registered shares of our common stock. Because a Registration Statement is
      not
      yet effective, we made the first four payments for the months of February,
      March, April and May, 2006 in cash.





However,
      due to our current cash position, as of June 7, 2006 we have not made any
      further payments and are currently in default under the terms of these Notes.
      Making the payments in cash would impair our ability to operate on a day-to-day
      basis. Should a Registration Statement become effective, we will be able to
      make
      any delinquent and future principal and interest payments under the terms of
      these Notes to the investors in the form of registered shares of our common
      stock. The fact that we have not made the June through December, 2006 principal
      and interest payments to our investors in cash means that we are in default
      under the terms of these Notes. Such a default may provide the basis for the
      investors to force the liquidation of our assets. In the case of the liquidation
      of our assets, our common shareholders will likely lose all of their investment
      in our common stock.





Pursuant
      to the Senior Secured Convertible Promissory Notes, our Registration Statement
      was required to be effective as of April 7, 2006. In the event the Registration
      Statement is not effective as of the above date, we are in default under the
      Notes and the interest rate on these Notes increases from 10% to 15%. Although
      we have filed our Registration Statement with the Securities and Exchange
      Commission, as of the date of this report it has not been declared effective.
      Accordingly, as of April 7, 2006 we are in default under the Senior Secured
      Convertible Promissory Notes and the interest rate on these Notes has increased
      from 10% to 15%. When our Registration Statement is declared effective, this
      event of default will be cured and the interest rate will decrease to
      10%.





On
      February 13, 2007 we received a demand letter for the amount of $6,048,000
      plus
      accrued interest and costs from Howard Gorman at Macleod Dixon indicating that
      a
      group of Secured Lenders pursuant to the September 30, 2005 Debenture and
      Guarantee and Indemnity agreements had appointed the Double U Fund to act as
      an
      agent on behalf of the Secured Lenders, and that Macleod Dixon are the
      solicitors of the Double U Fund. The
      creditors also alleged that preferential transfers and other fraud took place
      between Quest and its employees and other insiders. We believe that these
      allegations have no merit. Quest
      is
      in the process of responding to the demand, which we
      believe is
      incorrect in the amount of the indebtedness. The
      outstanding balance at December 31, 2006 was $4,799,999 plus accrued
      interest.





**ITEM
      4.**  **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS**




None.





**ITEM
      5.**  **OTHER
      INFORMATION**




None.





**ITEM
      6.**  **EXHIBITS**





Exhibit
                No.
            
            Description3.1.1
            
            Articles
                of Incorporation. (Attached as an exhibit to our General Form For
                Registration of Securities on Form 10-SB filed with the SEC on July
                7,
                1999 and incorporated herein by reference).3.1.2
            
            Certificate
                of Amendment to the Articles of Incorporation (Attached as an exhibit
                to
                our Current Report on Form 8-K filed with the SEC on October 29,
                2004 and
                incorporated herein by reference).3.2
            
            Bylaws.
                (Attached as an exhibit to our General Form For Registration of Securities
                on Form 10-SB filed with the SEC on July 7, 1999 and incorporated
                herein
                by reference.).4.1
            
            2004
                Stock Incentive Plan (Attached as an exhibit to our Registration
                Statement
                on Form S-8 filed on August 5, 2004 and incorporated herein by
                reference).10.1
            
            September
                12, 2006 Assignment of Oil and Gas Lease between Quest Oil Corporation
                and
                W.A. Walker. (Attached as an exhibit to our Current Report on Form
                8-K
                filed with the SEC on October 17, 2006 and incorporated herein by
                reference).10.2
            
            September
                12, 2006 Consulting Agreement between Quest Oil Corporation and W.A.
                Walker. (Attached as an exhibit to our Current Report on Form 8-K
                filed
                with the SEC on October 17, 2006 and incorporated herein by
                reference).10.3
            
            2006
                Directors Annual Compensation Program. (Attached as an exhibit to
                our
                Current Report on Form 8-K filed with the SEC on May 4, 2006 and
                incorporated herein by reference).14.1
            
            Code
                of Business Conduct and Ethics. (Attached as an exhibit to our Current
                Report on Form 8-K filed with the SEC on May 4, 2006 and incorporated
                herein by reference).31.1
            
            Certification
                of James B. Panther, II pursuant to Rule 13a-14(a).31.2
            
            Certification
                of Phillip C. Scott pursuant to Rule 13a-14(a).32.1
            
            Certification
                of James B. Panther, II 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 Phillip C. Scott pursuant to 18 U.S.C. Section 1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.




























**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
                OIL CORPORATION**/s/
                Phillip C. ScottBy:
                Phillip C. ScottIts:
                Chief Financial OfficerPursuant
                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/
                James B. Panther, II
            
            President,
                Chief Executive Officer, Director
            
            February
                26, 2006James
                B. Panther, II/s/
                Phillip C. Scott
            
            Chief
                Financial Officer
            
            February
                26, 2006Phillip
                C. Scott


































**------INDEX------**










**Consolidated
      Balance Sheets**





**Consolidated
      Statements of Operations**





**Consolidated
      Statements of Cash Flows**








**Notes
      to Consolidated Financial Statements**














**Quest
                Oil Corporation****CONSOLIDATED
                BALANCE SHEETS**(Unaudited)December
                31,
            March
                31,2006
            2006**ASSETS****Current
                Assets:**Cash
                and cash equivalents
            $
                335,787
            $
                1,558,146Accounts
                receivable, net
            21,276
            21,501Prepaid
                expenses
            82,810
            53,293**Total
                Current Assets**
            439,873
            1,632,940Oil
                and Gas Properties, using the fullcost
                method of accountingProved
                properties
            2,565,095
            2,468,449Unproved
                properties
            899,782
            898,315Less:
                Accumulated depletion
            (1,807,822)
            (1,683,654)**Total
                Oil and Gas Properties**
            1,657,055
            1,683,110**Property
                and Equipment:**Operating
                equipment
            215,640
            204,498Less:
                Accumulated depreciation
            (41,408)
            (16,293)**Total
                Property and Equipment**
            174,232
            188,205Deferred
                financing costs
            2,855,946
            3,459,713**Total
                Assets**
            $
                5,127,106
            $
                6,963,968**LIABILITIES
                AND SHAREHOLDERS' EQUITY****Current
                Liabilities:**Accounts
                payable
            $
                282,917
            $
                85,298Accrued
                expenses
            689,729
            478,379Derivative
                liabilities
            60,630
            3,028,767Notes
                payable
            318,589
            182,305**Total
                Current Liabilities**
            1,351,865
            3,774,749Asset
                retirement obligation
            21,000
            21,000**Total
                Liabilities**
            1,372,865
            3,795,749Shareholders'
                Equity:Preferred
                stock - $.001 par value,50,000,000
                shares authorized, none issuedand
                outstandingCommon
                stock - $.001 par value,450,000,000
                shares authorized, 77,738,340and
                68,773,099 shares issued andoutstanding,
                respectively
            77,738
            68,773Additional
                paid-in capital
            24,429,561
            21,918,215Accumulated
                deficit
            (20,704,457)
            (18,756,116)Accumulated
                other comprehensive income(loss)
            (48,601)
            (62,653)**Total
                Shareholders' Equity**
            3,754,241
            3,168,219**Total
                Liabilities and Shareholders' Equity**
            $
                5,127,106
            $
                6,963,968See
                accompanying notes to consolidated financial
                statements.





F-1








**Quest
                Oil Corporation****CONSOLIDATED
                STATEMENTS OF OPERATIONS AND COMPREHENSIVE
                INCOME**(Unaudited)For
                the Three Months ended
            For
                the Nine Months endedDecember
                31,
            December
                31,2006
            2005
            2006
            2005(restated)
            
            (restated)**Revenues
                - oil and gas**
            269,768
            1,126,859
            485,675
            1,126,859**Operating
                Expenses:**Lease
                Operating
            29,080
            735,131
            319,217
            735,131General
                and administrative
            213,036
            915,132
            2,738,670
            2,966,426Research
                and development
            -
            -
            18,609
            -Depreciation,
                depletionand
                amortization
            37,861
            11,029
            150,407
            12,099**Total
                Operating Expenses**
            279,977
            1,661,292
            3,226,903
            3,713,656**Gain(Loss)
                from Operations**
            (10,209)
            (534,433)
            (2,741,228)
            (2,586,797)**Other
                Income/(Expense)**Interest
                income
            690
            45
            2,031
            45Interest
                expense
            (542,256)
            (618,965)
            (1,902,164)
            (4,564,768)Net
                change in the fairvalue
                of derivatives
            40,506
            3,182,474
            2,968,137
            (3,557,768)Other
                Income (expense)
            -
            
            39,554
            -Gain
                (Loss) on forgivenessof
                debt
            -
            -
            -
            17,158**Total
                Other Income****(Expense)**
            (501,061)
            2,563,554
            1,107,557
            (8,105,333)**Net
                Profit (Loss)**
            (511,269)
            2,029,121
            (1,633,670)
            (10,692,130)Other
                comprehensive income(loss)
                - foreign exchangetranslation
            (58,771)
            14,676
            14,052
            47,738**Total
                comprehensive profit (loss)**
            (570,040)
            2,043,797
            (1,619,618)
            (10,644,392)**Net
                Loss per Common Share:**Basic
            (0.01)
            0.03
            (0.02)
            (0.22)Diluted
            (0.01)
            0.03
            (0.02)
            (0.22)Weighted
                average commonshares
                outstanding:Basic
            77,278,133
            63,780,152
            74,146,524
            47,760,944Diluted
            77,278,133
            65,086,410
            74,146,524
            47,760,944See
                accompanying notes to consolidated financial
                statements.


`





F-2














**Quest
                Oil Corporation****CONSOLIDATED
                STATEMENTS OF CASH FLOWS**(Unaudited)For
                the nine months endedDecember
                31,2006
            2005(restated)**Cash
                Flows From Operating Activities**Net
                Loss
            $
                (1,633,670)
            $
                (10,692,130)Adjustments
                To Reconcile Net Loss toNet
                CashUsed
                By Operating Activities:Debt
                forgiveness
            -
            (17,158)Gain/(Loss)
                on sale of Assets
            12,909
            -Interest-non
                cash
            362,133Amortization
                of debt discount
            1,538,604
            4,932,088Depletion,
                depreciation andAmortization
            150,407
            9,099Net
                change in the fair value ofderivatives
            (2,968,137)
            3,557,769Allowance
                for Doubtful Accounts
            -
            5,000Stock
                based compensation and stockoption
                expense
            1,339,756
            -Stock
                Issued for Services Rendered
            602,645
            1,855,250Change
                in assets and liabilities:(Increase)/Decrease
                in AccountsReceivable
            225
            (442,162)(Increase)/Decrease
                in PrepaidExpenses
            (29,431)
            (9,588)Increase/(Decrease)
                in AccountsPayable
            57,155
            629,389**Net
                Cash Used by Operating Activities**
            (567,404)
            (172,443)**Cash
                Flows From Investing Activities:**Purchase
                of Property and Equipment
            (11,000)
            (159,074)Payment
                for purchase of Wallstin, netof
                cash acquired
            -
            4,581Purchase
                of oil and gas interest
            (10,799)
            (2,288,686)Net
                Cash Used by Investing Activities
            (21,799)
            (2,443,179)**Cash
                Flows From Financing Activities:**Proceeds
                from financing agreements,net
            -
            6,430,085Principal
                payments on notes payable
            (631,512)Proceeds
                from sale of stock
            -
            1,185,650Net
                Cash Provided By FinancingActivities
            (631,512)
            7,615,735**Effect
                of exchange rates on cash**
            (1,688)
            -**Net
                Increase/(Decrease) in Cash**
            (1,222,404)
            5,000,113Cash
                At The Beginning of Period
            1,558,146
            3,197Cash
                At the End Of Period
            335,742
            5,003,310Supplemental
                Disclosure of Cash FlowInformation:Net
                Cash Paid During the Year forInterest
            -
            -Income
                Taxes
            -
            -Non-cash
                transactions:Common
                shares issued for assets acquired
            $
                -
            $
                75,000Common
                shares issued for oil and gas properties
            $
                82,500
            $
                -Common
                shares issued for conversion of debt
            $
                113,189
            $
                463,773Common
                shares issued for accounts payable
            $
                53,967
            $
                -




See
        accompanying notes to consolidated financial
        statements.





F-3













**QUEST
      OIL CORPORATION**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


(Unaudited)





NOTE
      1 -
      BASIS OF PRESENTATION





The
      accompanying unaudited interim financial statements of
      Quest Oil Corporation (“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 (“SEC”), and should be read in
      conjunction with the audited financial statements and notes thereto contained
      in
      Quest’s latest annual report filed with the SEC on Form 10-KSB. 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 would substantially duplicate the disclosure contained in the audited
      financial statements for fiscal year 2005, as reported in the 10-KSB, have
      been
      omitted.





NOTE
      2 -
      RESTATEMENT





Quest is restat ed ing its
      quarterly financial statements from amounts previously reported from June 30,
      2005 through June 30, 2006. Quest has determined that the May, 2005 financing
      contained derivative financial instruments and were not accounted for properly.
      In addition, several equity issuances from July, 2005 through June 30, 2006
      were
      not accounted for properly, as well as adjustments made during the year-end
      audit that affected expenses during the interim periods. This
      n N ote 2 was
      added to disclose s the
      effect s of the
      derivative financial instruments and equity issuances and provide s information on subsequent changes.





The
      effect of the ( non-cash ) changes
      related to accounting for these derivative financial instruments, equity
      issuances, and Wallstin purchase corrections on the statement of operations
      for
      the three and nine months ended December 31, 2006 was an increase in the
      Company's net profit (loss) attributable to common shareholders of
      $3,424,960  and
      ($7,360,204), respectively. Basic earnings (loss) attributable to common
      shareholders per share for the three and nine month period ended December 31,
      2006 changed by $0.05
      and
      ($0.15) per share, respectively.




Following
      is a summary of the restatement adjustments:





**SUMMARY
                STATEMENT OF OPERATIONS**For
                the Three Months ended December 31, 2005
            
            For
                the Nine Months ended December 31, 2005Original
            Adjustment
            
            Restated
            
            Original
            Adjustment
            
            RestatedTotal
                OperatingExpenses
            1,665,008
            (3,716)
            (a)
            1,661,292
            
            3,007,447
            706,209
            (a)
            3,713,656OtherIncome/(Expense)Interest
                expense
            (857,735)
            238,770
            (b)
            (618,965)
            
            (1,451,383)
            (3,113,385)
            (b)
            (4,564,768)Net
                change in fairvalue
                of derivatives -
            -
            3,182,474
            (b)
            3,182,474
            
            -
            (3,557,768)
            (b)
            (3,557,768)Gain
                on forgivenessof
                debt
            -
            -
            
            -
            
            -
            17,158
            (c)
            17,158Total
                Other Income(Expense)
            (857,735)
            3,421,244
            
            2,563,509
            
            (1,451,383)
            (6,653,995)
            
            (8,105,378)Net
                Profit (Loss)
            (1,381,163)
            3,424,960
            
            2,043,797
            
            (3,284,188)
            (7,360,204)
            
            (10,644,392)Net
                Loss per CommonShare:Basic
            (0.02)
            
            
            0.03
            
            (0.07)
            
            
            (0.22)Diluted
            (0.02)
            
            
            0.03
            
            (0.07)
            
            
            (0.22)





(a)
            To
                record increases in stock-based compensation associated with the
                Wallstin
                purchase and share issuances previously recorded
                incorrectly.(b)
            To
                record the net change in fair value of derivatives associated with
                the
                May, 2005 financing and the change in the estimated fair value of
                the
                warrants and embedded derivatives.(c)
            Adjustments
                based on the purchase of Wallstin.





NOTE
      3 -
      EQUITY ISSUANCES





During
      the nine months ended December 31, 2006, Quest issued common shares as
      follows:





·
            3,482,873
                common shares with a value of $535,825 as payment for
                services.





·
            2,276,351
                common shares with a value of $455,270 for the conversion of outstanding
                debt totaling $113,189 and additional expenses of
                $342,081.





·
            500,000
                common shares with a value of $82,500 for
                property.





·
            75,000
                common shares for stock issuance payable with a value of
                $25,875.





During
      the nine months ended December 31, 2006, Quest issued warrants as
      follows:





·
            150,000
                warrants to consultants for services valued at $28,775. The warrants
                vested immediately and are exercisable for five years at $0.22 per
                share.





·
            9,000,000
                options to officers for services valued at $1,525,775. AtSeptember
                30December
                31,
                2006, 6,111,110warrants had vested and Quest recorded expense of $1,036,020for
                the period. The remaining 2,888,890options
                vest evenly over the following 208days. The options are exercisable for five years at $0.22 per
                share.





·
            4,000,000
                warrants to directors and officers for services valued at $767,334.
                AtDecember
                31September
                30,
                2006, 1,433,333warrants had vested and Quest recorded expense of $274,961for the period and 1,411,111warrants valued at $270,698 were forfeited. The remaining 1,155,556warrants
                vest evenly over the following 208days. The warrants are exercisable for five years at $0.22 per
                share.





The
      warrants were valued using the Black-Scholes valuation model. Variables used
      in
      the Black-Scholes option-pricing model include (1) discount rates of 4.9%,
      (2)
      expected option life is the actual remaining life of the options as of each
      period end, (3) expected volatility of 180% and (4) zero expected
      dividends.





NOTE
      4 -
      CONVERTIBLE DEBENTURES AND DERIVIATIVE LIABILITY





On
      May
      23, 2005, Quest closed a $750,000 financing for net proceeds of $647,423 by
      issuing twelve-month convertible notes with a face value of $787,500, bearing
      simple interest at 10% annually, payable upon conversion of the notes, quarterly
      commencing July 1, 2005,and on the maturity date of May 23, 2006.  The note
      holders had the right to convert the principal plus accrued interest into our
      common stock at a price equal to the lesser of $0.30 or seventy percent of
      the
      average of the three lowest closing bid prices for the 30 days preceding a
      conversion.  The conversion price is subject to adjustment in the event
      shares are issued for consideration less than the exercise price, or certain
      other corporate events.  The notes can be redeemed by Quest, subject to
      certain conditions, by payment of 150% of the principal and accrued interest.
       The investors and the placement agent received four separate classes of
      warrants in connection with the convertible notes:





-
      Class A
      warrants allow the holders and placement agent to purchase up to 6,629,295
      common shares at a price of $0.25 per share with a  “cashless exercise”
provision. The Class A warrants issued to the note holders are exercisable
      for a
      period of fifteen months and the Class A warrants issued to the placement agent
      are exercisable for a period of two years





-
      Class B
      warrants allow the holders and placement agent to purchase up to 6,629,295
      common shares at a price of $0.1503 per share with a “cashless exercise”
provision.  The Class B warrants issued to the note holders are exercisable
      for a period of five years and the Class B warrants issued to the placement
      agent are exercisable for a period of two years





-
      Class C
      warrants allow the holders and placement agent to purchase up to 6,629,295
      common shares at a price of $0.6533 per share with a “cashless exercise”
provision. The Class C warrants issued to the note holders are exercisable
      for a
      period of five years and the Class C warrants issued to the placement agent
      are
      exercisable for a period of two years





-
      Placement agent warrants allow the placement agent to purchase up to 602,663
      common shares at a price of $0.30 per share with a “cashless exercise” provision
      for a period of twelve months.





The
      notes
      were converted into 7,353,756 common shares from July 5, through September
      2,
      2005. In addition, during the period August 17 through October 25, 2005 the
      holders of the warrants exercised all but 4,016,572 Class A warrants, 806,380
      Class B warrants, and 6,025,449 Class C warrants.





As
      a
      result, we have determined that the conversion feature of the senior secured
      convertible notes and the warrants issued with the senior secured convertible
      notes are embedded derivative instruments pursuant to SFAS No. 133, Accounting
      for Derivative Instruments and Hedging Activities, as amended. Under the
      provisions of EITF Issue No. 00−19, Accounting for Derivative Financial
      Instruments Indexed to, and Potentially Settled in, a Company's Own Stock,
      the
      accounting treatment of these derivative financial instruments requires that
      Quest record the derivatives at their fair values as of the inception date
      of
      the note agreements and at fair value as of each subsequent balance sheet date
      as a liability. Any change in fair value is recorded as non−operating, non−cash
      income or expense at each balance sheet date. Quest estimates fair value using
      a
      lattice valuation model. The lattice model values the computed embedded
      derivative based on a probability weighted discounted cash flow model. The
      primary determinants of the economic value of the derivative under the lattice
      model are (1) the price of Quest’s stock, (2) the volatility of Quest’s common
      stock price, (3) the likelihood that Quest will be required to pay registration
      delay payments, (4) the likelihood that an event of default or a change in
      control will occur and (5) the likelihood that Quest common stock will be listed
      on an exchange. These estimates directly affect the reported amounts of the
      derivative instrument liabilities. At March 31, 2006, Quest estimated the fair
      value of the derivative liability at $3,028,767. At December 31, 2006, Quest
      estimated fair value of the derivative liability at $60,630.





For
      the
      nine month s  period ended
      December 31, 2006 and 2005, Quest recognized the net change in the fair value
      of
      derivatives as other income  (expense)
      of $2,968,137 and  (3,557,768),
      respectively.





A
      summary
      of the notes payable is as follows:


December
                31, 2006
            
            March
                31, 2006Gross
                proceeds from notes
            $
                6,000,000
            
            $
                6,000,000Less:
                Discount
            (6,000,000)
            
            (6,000,000)Less:
                Principle payments
            (1,200,000)
            
            (600,000)Wallstin
                notes payable
            21,723
            
            21,723Add:
                Amortization of discounts
            1,496,866
            
            760,582Carrying
                value of notes on December 31, 2006
            $
                318,589
            
            $
                182,305





NOTE
      5 -
      DEFAULT ON SENIOR SECURITIES AND GOING CONCERN





We
      are
      required to make monthly principal and interest payments under the terms of
      our
      Senior Secured Convertible Promissory Notes beginning February 7, 2006. If
      a
      Registration Statement registering the shares underlying the Notes is not
      effective, we are required to make the monthly payments in cash instead of
      registered shares of our common stock. Because a Registration Statement is
      not
      yet effective, we made the first four payments for the months of February,
      March, April and May, 2006.





However,
      due to our current cash position, as
      of
      June 7, 2006 we
      have
      not made any further payments and are currently in default under the terms
      of
      these Notes. Making the payments in cash would impair our ability to operate
      on
      a day-to-day basis. Should a Registration Statement become effective, we will
      be
      able to make any delinquent and future principal and interest payments under
      the
      terms of these Notes to the investors in the form of registered shares of our
      common stock. The fact that we have not made the June through December, 2006
      principal and interest payments to our investors in cash means that we are
      in
      default under the terms of these Notes. Such a default may provide the basis
      for
      the investors to force the liquidation of our assets. In the case of the
      liquidation of our assets, our common shareholders will likely lose all of
      their
      investment in our common stock.





Pursuant
      to the Senior Secured Convertible Promissory Notes, our Registration Statement
      was required to be effective as of April 7, 2006. Because In
      the
      event the
      Registration Statement is not effective as of
      the above date ,
      we are
      in default under the Notes and the interest rate on these Notes increases from
      10% to 15%. Although we have filed our Registration Statement with the
      Securities and Exchange Commission, as of the date of this report it has not
      been declared effective. Accordingly, as of April 7, 2006 we are in default
      under the Senior Secured Convertible Promissory Notes and the interest rate
      on
      these Notes has increased from 10% to 15%. When our Registration Statement
      is
      declared effective, this event of default will be cured and the interest rate
      will decrease to 10%.





We
      have
      no other commitments from officers, directors or affiliates to provide funding.
      If we are unable to obtain debt and/or equity financing upon terms that we
      deem
      sufficiently favorable, or at all, it would have a materially adverse impact
      upon our ability to pursue our business strategy and maintain our current
      operations. As a result, it may require us to delay, curtail or scale back
      some
      or all of our operations.





On
      February 13, 2007 we received a demand letter for the amount of $6,048,000
      plus
      accrued interest and costs from Howard Gorman at Macleod Dixon indicating that
      a
      group of Secured Lenders pursuant to the September 30, 2005 Debenture and
      Guarantee and Indemnity agreements had appointed the Double U Fund to act as
      an
      agent on behalf of the Secured Lenders, and that Macleod Dixon are the
      solicitors of the Double U Fund. The creditors also alleged that preferential
      transfers and other fraud took place between Quest and its employees and other
      insiders. We believe that these allegations have no merit. Quest is in the
      process of responding to the demand, which we believe is incorrect in the amount
      of the indebtedness. The outstanding balance at December 31, 2006 was $4,799,999
      plus accrued interest.