**U.
        S. SECURITIES AND EXCHANGE COMMISSION**
 **WASHINGTON,
        D.C. 20549**
 
 **FORM
        10-QSB**
 
 
 [**X**]
              QUARTERLY
                  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                  OF 1934
 
 **For
        the quarterly period ended June 30, 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 Norgal, 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
        August 15, 2006, 72,921,266 shares of our common stock were issued and
        outstanding.
 
 Transitional
        Small Business Disclosure Format: **No**
  
  
 **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. Petrostar Oil Services Inc.
        was
        created for the purpose of servicing the oil and gas properties in
        Texas.
 
 **Recent
        Developments**
 
 On
        or
        about March 20, 2006, our legal counsel, The Baum Law Firm, PC, in connection
        with our fiscal year end, discovered that there was not a legal and valid
        adoption by a majority of the directors of the company, of the resolution
        appointing Mr. William Huntington Stinson to our board of directors and as
        our
        President and Chief Executive Officer. Mr. Stinson’s nomination followed the
        resignation of Mr. Cameron King from all positions he held with the company.
        Following Mr. King’s resignation, there were four members of our board: Mr. Jim
        Irwin, Mr. Joseph F. Wallen, Mr. Douglas Brown and Mr. Doug Blackman.
 
 On
        March
        31, 2006, Mr. Blackman resigned from his position on our board of
        directors.
 
 On
        March
        31, 2006, pursuant to Section 4 of our Bylaws, Mr. Joseph Wallen nominated,
        and
        our board appointed, Mr. James B. Panther, II and Mr. Chris Philips as directors
        of the company. All of our directors approved the appointments of Messrs.
        Panther, II and Philips to our board.
 
 On
        March
        31, 2006, following the discovery that Mr. Stinson was not a validly appointed
        officer of the company, pursuant to Section 4 of our Bylaws, our board appointed
        Mr. James B. Panther, II as our interim President and Chief Executive
        Officer.
 
 On
        April
        2, 2006, a majority of the voting members of our board, Wallen, Irwin, Brown
        and
        Philips, voted to terminate Mr. William Huntington Stinson from his
        position as Chief Operating Officer of the company.
 
 On
        April
        4, 2006, we 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.
 
 On
        April
        10 th ,
        2006, a
        settlement was reached in the Petition lawsuit 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; (ii)
        that
        Mr. Stinson would assist in transferring control of company monies he had
        control of 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.
 
 On
        April
        18, 2006, we filed a non-suit in the Petition lawsuit, dismissing the case
        against all defendants. On April 19, 2006, Jim Irwin resigned from his position
        on our board of directors.
 
 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
        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 owned
        him compensation for his services. We do not believe that either Mr. Stinson
        or
        Mr. Neidell are legally entitled to the compensation they claim.
 
 On
        April
        24, 2006, we entered into, and our board of directors approved, an employment
        agreement with James B. Panther II, who for a term of 24 months, shall serve
        as
        our President and Chief Executive Officer.
 
 On
        April
        24, 2006, we entered into, and our board of directors approved, an employment
        agreement with Mark L. Baum, Esq. who, for a term of 24 months, shall serve
        as
        our General Counsel.
 
 On
        April
        24, 2006, we entered into, and our board of directors approved, a 12-month
        employment agreement with Joseph Wallen to serve as our Chief Financial
        Officer.
 
 On
        April
        24, 2006, we entered into, and our board of directors approved, a 24-month
        consulting agreement with Business Consulting Group Unlimited, Inc. Under
        the
        terms of the agreement, BCGU will provide the Company with a part-time
        Controller, bookkeeping, reception, clerical, filing, data management and
        staffing services.
 
 On
        April
        24, 2006, we entered into, and our board of directors approved, our 2006
        Directors Annual Compensation Program.
 
 On
        April
        24, 2006, we entered into, and our board of directors approved, a 3-year
        sublease agreement with Business Consulting Group Unlimited, Inc., allowing
        us
        to have access to the entire BCGU office space.
 
 On
        May
        24, 2006, we canceled the February 15 , 2006, Memorandum with L-TEXX Petroleum,
        LP, L-TEXX Management, LLC and Longleaf Production, LLC. The cancellation
        terminated our possible acquisition of the Longleaf entities and/or their
        assets.
 
 On
        May
        31, 2006, we entered into a new oil purchase agreement with Big Tex Crude,
        Inc.
        The contract is for 30 days and continues month to month
        thereafter.
 
 **Results
        of Operations**
 
 For
        the
        three months ended June 30, 2006, we had a net loss of $3,418,452 compared
        to a
        net loss of $411,006 for the previous period ended June 30, 2005. This increase
        in expenses is a result of the significant increase in operating expenses
        since
        we commenced oil and gas operations. Contributing factors for the increased
        loss
        are general and administrative expenses of $2,354,352 and depreciation,
        depletion and amortization of $713,071. In addition, we had limited oil and
        gas
        sales of $139,615.
 
 **Liquidity
        and Capital Resources**
 
 At
        June
        30, 2006, we had cash of $540,518 compared to $1,558,146 at March 31, 2006.
        As
        of July 31, 2006, we have cash of $308,300.
 
 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 securityholders 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 securityholders 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.
 
 As
        of
        March 31, 2006, we, including our wholly owned subsidiary, Quest Canada Corp,
        have approximately $1,558,146 cash on hand. From operations, we estimate
        that we
        will net approximately $20,000 per month depending on production levels of
        our
        operating wells.  Given our current commitments and working capital, we
        believe that we can support our operations for the next 12 months and expand
        our
        business at a modest rate. We have received approval to drill 7 wells in
        Texas.
        Assuming we are able to successfully drill and bring the additional wells
        into
        operation, our anticipated revenues from our combined operations will
        increase.
 
 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. 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 effective, we have been required
        to make the first three payments is cash. The first three payments under
        the
        terms of the notes were as follows: $505,000, $364,875 and $362,250. 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
        will not make the June 2006 principal and interest payments to our investors
        in
        cash will mean that we will be 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.
 
 **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.
 
 **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 seven 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 March 31, 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.
 
 As
        we
        reported on our Current Reports on Form 8-K:
 
 On
        or
        about March 20, 2006, our legal counsel, The Baum Law Firm, PC, in connection
        with our fiscal year end, discovered that there was not a legal and valid
        adoption by a majority of the directors of the company, of the resolution
        appointing Mr. William Huntington Stinson to our board of directors and as
        our
        President and Chief Executive Officer. Mr. Stinson’s nomination followed the
        resignation of Mr. Cameron King from all positions he held with the company.
        Following Mr. King’s resignation, there were four members of our board: Mr. Jim
        Irwin, Mr. Joseph F. Wallen, Mr. Douglas Brown and Mr. Doug Blackman.
 
 On
        March
        31, 2006, Mr. Blackman resigned from his position on our board of
        directors.
 
 On
        March
        31, 2006, pursuant to Section 4 of our Bylaws, Mr. Joseph Wallen nominated,
        and
        our board appointed, Mr. James B. Panther, II and Mr. Chris Philips as directors
        of the company. All of our directors approved the appointments of Messrs.
        Panther, II and Philips to our board.
 
 On
        March
        31, 2006, following the discovery that Mr. Stinson was not a validly appointed
        officer of the company, pursuant to Section 4 of our Bylaws, our board appointed
        Mr. James B. Panther, II as our interim President and Chief Executive
        Officer.
 
 On
        April
        2, 2006, a majority of the voting members of our board, Wallen, Irwin, Brown
        and
        Philips, voted to terminate Mr. William Huntington Stinson from his
        position as Chief Operating Officer of the company.
 
 On
        April
        24, 2006, we entered into, and our board of directors approved, an employment
        agreement with James B. Panther II, who for a term of 24 months, shall serve
        as
        our President and Chief Executive Officer.
 
 On
        April
        24, 2006, we entered into, and our board of directors approved, an employment
        agreement with Mark L. Baum, Esq. who, for a term of 24 months, shall serve
        as
        our General Counsel.
 
 On
        April
        24, 2006, we entered into, and our board of directors approved, a 12 month
        employment agreement with Joseph Wallen to serve as our Chief Financial
        Officer.
 
 On
        April
        24, 2006, we entered into, and our board of directors approved, a 24 month
        consulting agreement with Business Consulting Group Unlimited, Inc. Under
        the
        terms of the agreement, BCGU will provide the Company with a part-time
        Controller, bookkeeping, reception, clerical, filing, data management and
        staffing services.
 
 On
        April
        24, 2006, we entered into, and our board of directors approved, our 2006
        Directors Annual Compensation Program.
 
 On
        April
        24, 2006, we entered into, and our board of directors approved, a 3 year
        sublease agreement with Business Consulting Group Unlimited, Inc., allowing
        us
        to have access to the entire BCGU office space.
 
 On
        July
        14, 2006, Chris Phillips, resigned from his position on our board of directors.
        Currently, our board of directors consists of: James B. Panther, II, Douglas
        Brown and Joseph Wallen.
 
 We
        believe that the changes in management described above should have a beneficial
        impact upon our internal control over financial reporting.
 
 **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 th ,
        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.
 
 Currently,
        we are not a party to any pending legal proceedings.
 
 **ITEM
        2.**  **UNREGISTERED
        SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**
 
 Other
        than as reported on our Current Reports on Form 8-K filed with the SEC, we
        did
        not complete any sales of securities without registration under the Securities
        Act of 1933 during the quarter ended June 30, 2006.
 
 **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. 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 effective, we have made the
        first
        three required principal and interest payments in cash pursuant to the terms
        of
        the notes. 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 have not made the June, July and August 2006 principal and interest
        payments to our investors in cash means that we are in default under the
        terms
        of the notes. The delinquent principal and interest payments total approximately
        $1,057,500.
 
 **ITEM
        4.**   **SUBMISSION
        OF MATTERS TO A VOTE OF SECURITY HOLDERS**
 
 None.
 
 **ITEM
        5.**   **OTHER
        INFORMATION**
 
 None.
 
 **ITEM
        6.**   **EXHIBITS**
 
 
 Exhibit
                  No.
              
              Description3(i).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(i).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(ii)
              
              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).10.4
              
              April
                  24, 2006 Employment Agreement between Quest Oil Corporation and
                  James B.
                  Panther II (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).10.5
              
              April
                  24, 2006 Employment Agreement between Quest Oil Corporation and
                  Mark L.
                  Baum, Esq. (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).10.6
              
              April
                  24, 2006 Employment Agreement between Quest Oil Corporation and
                  Joseph
                  Wallen. (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).10.6
              
              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).10.7
              
              April
                  24, 2006 Consulting Agreement between Quest Oil Corporation and
                  Business
                  Consulting Group Unlimited, Inc. (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).10.8
              
              April
                  24, 2006 Office Space Sublease between Quest Oil Corporation and
                  Business
                  Consulting Group Unlimited, Inc. (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).10.9
              
              April
                  24, 2006 Settlement Agreement between Darren Hayes and Quest Oil
                  Corporation. (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).10.10
              
              April
                  24, 2006 Consulting Agreement between Luis Leung and Quest Oil
                  Corporation. (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).10.11
              
              April
                  24, 2006 Consulting Agreement between Jerry Pence and Quest Oil
                  Corporation. (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).10.12
              
              April
                  24, 2006 Consulting Agreement between Cameron King and Quest Oil
                  Corporation. (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).10.13
              
              February
                  6, 2006 Participation Agreement between Gaither Asset Management
                  and Quest
                  Oil Corporation (Attached as an exhibit to our Current Report on
                  Form 8-K
                  filed with the SEC on February 15, 2006 and incorporated herein
                  by
                  reference).10.14
              
              September
                  6, 2006 Promissory Note made by Quest Oil Corporation to Coach
                  Capital,
                  LLC (Attached as an exhibit to our Current Report on Form 8-K filed
                  with
                  the SEC on October 7, 2005 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).16.1
              
              July
                  10, 2006 letter from MacKay, LLP (Attached as an exhibit to our
                  Amended
                  Current Report on From 8-K filed with the SEC on July 11, 2006
                  and
                  incorporated herein by reference).31.1
              
              Certification
                  of James B. Panther, II pursuant to Rule 13a-14(a).31.2
              
              Certification
                  of Joseph F. Wallen 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 Joseph F. Wallen pursuant to 18 U.S.C. Section 1350, as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002.99.1
              
              Evaluation
                  of Gas Reserves Owned by Quest Canada Corp.. in the Arneson Area
                  in the
                  Province of Alberta Effective April 1, 2006. (Attached as an exhibit
                  to
                  our Annual Report on Form 10-KSB filed with the SEC on August 16,
                  2006 and
                  incorporated herein by reference).99.2
              
              Reserve
                  Estimation prepared for Quest Oil Corporation as of March 31, 2006
                  - Hawk
                  Eye & Midkiff Fields, Eastland County Texas & Nettie Gardner
                  Lease, McCullough County Texas. (Attached as an exhibit to our
                  Annual
                  Report on Form 10-KSB filed with the SEC on August 16, 2006 and
                  incorporated herein by reference).
  
 **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/
                  Joseph F. WallenBy:
                  Joseph F. WallenIts:
                  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
              
              August
                  21, 2006James
                  B. Panther, II/s/
                  Joseph Wallen
              
              Chief
                  Financial Officer, Director
              
              August
                  21, 2006Joseph
                  Wallen
 
  
  **------INDEX------**
 
  **Consolidated
        Balance Sheets**
 
 **Consolidated
        Statements of Operations**
 
 **Consolidated
        Statements of Cash Flows**
  **Notes
        to Consolidated Financial Statements**
  
  
 **QUEST
                  OIL CORPORATION****CONSOLIDATED
                  BALANCE SHEETS****AS
                  OF JUNE 30, 2006 AND MARCH 31, 2006****(Unaudited)**June
                  30,
              
              March
                  31,ASSETS
              
              2006
              
              2006Current
                  assetsCash
              $
              540,518
              $
              1,558,146Accounts
                  receivable
              
              11,433
              
              21,501Prepaids
                  and other current assets
              
              29,985
              
              53,293Total
                  current assets
              
              581,936
              
              1,632,940Oil
                  and gas properties, using successful efforts accountingProved
                  properties
              
              2,566,003
              
              2,468,449Unproved
                  properties
              
              936,373
              
              898,315Accumulated
                  depreciation, depletion, amortization and impairment
              
              (1,820,516)
              
              (1,683,654)Net
                  oil and gas properties
              
              1,681,860
              
              1,683,110Deferred
                  financing costs
              
              3,046,952
              
              3,459,713Property
                  and equipment, net of accumulated depreciation of $24,846
              
              191,300
              
              188,205Other
                  Assets
              
              52,779TOTAL
                  ASSETS
              $
              5,554,827
              $
              6,963,968LIABILITIES
                  AND STOCKHOLDERS' EQUITYCurrent
                  liabilitiesAccounts
                  payable
              $
              266,427
              $
              85,298Accrued
                  liabilities
              
              32,306
              
              452,504Total
                  current liabilities
              
              298,733
              
              537,802Notes
                  Payable
              
              417,378
              
              182,305Asset
                  retirement obligation
              
              21,000
              
              21,000TOTAL
                  LIABILITIES
              
              737,111
              
              741,107STOCKHOLDERS'
                  EQUITYPreferred
                  stock, 50,000,000 shares authorized, $0.001 par valuenone
                  issued and outstanding
              
              —
              
              —Common
                  stock, 450,000,000 shares authorized, $0.001 par value71,451,266
                  shares issued and outstanding
              
              71,451
              
              67,673Additional
                  paid-in capital
              
              19,832,162
              
              17,886,202Retained
                  deficit
              
              (11,668,361)
              
              (11,668,361)Other
                  comprehensive income
              
              916
              
              (62,653)Net
                  Income (Loss)
              
              (3,418,452)TOTAL
                  STOCKHOLDERS' EQUITY
              
              4,817,716
              
              6,222,861TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY
              $
              5,554,827
              $
              6,963,968See
                  notes to the financial statementsF-1
  
  
 **QUEST
                  OIL CORPORATION****CONSOLIDATED
                  STATEMENTS OF OPERATIONS****Three
                  Months Ended June 30, 2006 and 2005****(Unaudited)**June
                  30,
              
              June
                  30,2006
              
              2005RevenuesOil
                  and gas sales
              $
              139,615
              $
              —Total
                  revenues
              
              139,615
              
              —ExpensesProduction
              
              105,631
              
              —General
                  and administrative
              
              2,304,180
              
              352,971Consulting
              
              
              
              58,000Research
                  and development
              
              11,509
              
              —Depreciation,
                  depletion, and amortization
              
              713,071
              
              535Total
                  operating expenses
              
              3,134,391
              
              411,506Loss
                  from operations
              
              (2,994,776)
              
              (411,506)Other
                  income (expense)Interest
                  income
              
              1,330
              
              —Interest
                  expense
              
              (425,006)
              
              500Total
                  other income (expense)
              
              (423,676)
              
              500NET
                  LOSS
              $
              (3,418,452)
              $
              (411,006)Basic
                  and diluted loss per common share
              $
              (0.05)
              $
              (0.01)Weighted
                  average common shares outstanding
              
              69,874,686
              
              16,461,920See
                  notes to the financial statementsF-2
 
 
 
  **QUEST
                  OIL CORPORATION****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS****Three
                  Months Ended June 30, 2006 and 2005****(Unaudited)**June
                  30,
              
              June
                  30,2006
              
              2005CASH
                  FLOWS FROM OPERATING ACTIVITIESNet
                  Loss
              $
              (3,418,452)
              $
              (411,006)Adjustments
                  to reconcile net loss to netcash
                  used in operating activities:Stock
                  based compensation
              
              1,836,549
              
              57,553ImpairmentDepreciation,
                  depletion and amortization
              
              1,126,397
              
              535Change
                  in:Accounts
                  receivable
              
              10,068
              
              (500)Prepaid
                  assets and other
              
              (29,358)
              
              (32,500)Accounts
                  payable and accrued expenses
              
              102,878
              
              101,702Accrued
                  Interest
              
              —
              
              (10,000)NET
                  CASH USED IN OPERATING ACTIVITIES
              
              (371,945)
              
              (294,216)CASH
                  FLOWS FROM INVESTING ACTIVITIESPurchase
                  of equipment
              
              (7,970)
              
              —Capital
                  expenditures for oil and gas properties
              
              (10,800)
              
              (375,600)NET
                  CASH USED IN INVESTING ACTIVITIES
              
              (18,770)
              
              (375,600)CASH
                  FLOWS FROM FINANCING ACTIVITIESProceeds
                  from notes payable
              
              —
              
              800,580Payments
                  on notes payable
              
              (630,831)
              
              —Loans
                  advanced
              
              —
              
              6,887NET
                  CASH PROVIDED BY FINANCING ACTIVITIES
              
              (630,831)
              
              807,467CHANGE
                  DUE TO CURRENCY TRANSLATION
              
              3,918
              
              —NET
                  CHANGE IN CASH
              
              (1,017,628)
              
              137,651CASH
                  BALANCESBeginning
                  of period
              
              1,558,146
              
              3,197End
                  of period
              $
              540,518
              $
              140,848SUPPLEMENTAL
                  DISCLOSURE:Interest
                  paid
              $
              425,006
              $
              —Income
                  taxes paid
              
              —
              
              —NON-CASH
                  ACTIVITIES:Debt
                  converted to common stock
              $
              113,189
              $
              463,773Issued
                  stock for legal and consulting services
              
              —
              
              57,553See
                  notes to the financial statementsF-4
  
  **QUEST
        OIL CORPORATION**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 
 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 -
        EQUITY ISSUANCE
 
 During
        the period ended June 30, 2006, Quest issued common shares as
        follows:
 
 ·
            1,501,816
                common shares with a value of $309,229 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. 
 During
        the quarter ended June 30, 2006, Quest issued warrants as follows:
 
 ·
            400,000
                warrants to consultants for services valued at $76,733. The warrants
                vested immediately and are exercisable for five years at $0.22 per
                share. 
 ·
            8,000,000
                warrants to directors and officers for services valued at $1,534,668.
                At
                June 30, 2006, 4,133,333 warrants had vested and Quest recorded expense
                of
                $792,912 for the period. The remaining warrants vest evenly over
                the
                following 150 days. The warrants are exercisable for five years at
                $0.22
                per share. 
 ·
            2,000,000
                warrants to directors and officers for services valued at $383,667.
                At
                June 30, 2006, 333,333 warrants had vested and Quest recorded expense
                of
                $63,944 for the period. The remaining warrants vest evenly over the
                following 330 days. 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.