Quest Oil 10QSB 2006 Q2 Quarterly report (small business)

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 September 30, 2005

[ ]

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

98-0207745

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

Suite 900 – 11200 Westheimer Avenue

Houston, Texas 77042

_____________________________________________________________________

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code:

713-243-8778

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

Securities registered pursuant to Section 12(g) of the Act: $.001 par value common stock

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

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:

65,785,432 common shares outstanding, $0.001 par value, at November 18, 2005

Transitional Small Business Disclosure Format: No

PART I

ITEM 1.

FINANCIAL STATEMENTS

Our unaudited interim consolidated financial statements for the six months ended September 30,2005, as set forth below, are included with this Quarterly Report on Form 10-QSB:

Auditor’s Review Letter

Interim Consolidated Balance Sheet as at September 30, 2005 and March 31, 2005

Interim Consolidated Statement of Operations for the period ended September 30, 2005

Interim Consolidated Statement of Stockholders’ Deficit at September 30, 2005

Interim Consolidated Cash Flow Statement for the period ended September 30, 2005

Notes to Interim Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

We have reviewed the accompanying consolidated balance sheet of Quest Oil Corporation (formerly GameState Entertainment, Inc.) (an exploration stage company) as of September 30, 2005 and the related consolidated statement of operations for the three and six-month periods ended September 30, 2005 and the consolidated statement of cash flows for the three and six- month periods ended September 30, 2005. These financial statements are the responsibility of the Company's management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the generally accepted auditing standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Quest Oil Corporation (formerly GameState Entertainment, Inc.) (an exploration stage company) as of March 31, 2005 and the related consolidated statements of operations, cash flows, and stockholders' equity/(deficit) for the year then ended (not presented herein); and in our report dated June 22, 2005 we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying balance sheet as of March 31, 2005, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.

Note 2 of the Company's audited consolidated financial statements as of March 31, 2005, and for the year then ended discloses that the Company has suffered recurring losses from operations and has no established source of revenue at March 31, 2005. Our auditors' report on those financial statements includes an explanatory paragraph referring to the matters in Note 2 of those financial statements and indicating that these matters raised substantial doubt about the Company's ability to continue as a going concern. As indicated in Note 2 of the Company's unaudited interim financial statements as of September 30, 2005, and for the six months then ended, the Company has continued to suffer recurring losses from operations and still has no established source of revenue at September 30, 2005. The accompanying interim consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Respectfully Submitted,

/s/ MacKay LLP, Chartered Accountants

Vancouver, British Columbia, Canada

November 21, 2005

QUEST OIL CORPORATION

(FORMERLY GAMESTATE ENTERTAINMENT, INC.)

(An Exploration Stage Company)

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS AT SEPTEMBER 30, 2005

(Unaudited)

QUEST OIL CORPORATION

(FORMERLY GAMESTATE ENTERTAINMENT, INC.)

(An Exploration Stage Company)

INTERIM CONSOLIDATED BALANCE SHEET

AS AT SEPTEMBER 30, 2005 WITH AUDITED FIGURES AT MARCH 31, 2005

(Unaudited – Prepared by Management)

(Stated in US Dollars)

	(Unaudited) 30Sep05	(Audited) 31Mar05

ASSETS
CURRENT ASSETS
Cash	$ 226,198	$ 3,197
Accounts receivable	19,119	5,000
Prepaid expenses and deposits	30,484	1,400

	275,801	9,597

OIL AND GAS PROPERTIES (Notes 4(ii), 6 and 9)	1,190,950	23,271

EQUIPMENT (Notes 4(iii) and 7)
Computer equipment	10,000	10,000
Service rig	65,000	-
Less: accumulated amortization	4,070	3,000

	70,930	7,000

Total Assets	$ 1,537,681	$ 39,868

LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable	$ 406,073	$ 222,087
Accrued expenses	46,500	56,500
Convertible notes payable (Notes 8, 12, and 19)	64,050	55,479
Loans payable (Note 9)	744,956	511,181

	1,261,579	845,247
LONG TERM
Loan payable	-	105,542

Total liabilities	1,261,579	950,789

STOCKHOLDERS’ DEFICIT
Preferred shares, 50,000,000 shares authorized, $0.001 par value; no shares issued and outstanding (Note 10)
Common shares, 450,000,000 shares authorized, $0.001 par value; 54,587,562 and 27,855,760 shares issued and outstanding respectively (Note 11)	54,587	27,855
Additional paid-in capital	4,534,729	1,471,413
Accumulated Deficit	(4,313,214)	(2,410,189)

Total Stockholders’ Deficit	276,102	(910,921)

Total Liabilities and Stockholders’ Deficit	$ 1,537,681	$ 39,868


Going concern (Note 2)
Commitments (Note 18)
Subsequent events (Note 19)

Approved by the Directors:

“Cameron King”

______________________________

Cameron King, Director

“Joseph Wallen”

______________________________

Joseph Wallen, Director

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

QUEST OIL CORPORATION

(FORMERLY GAMESTATE ENTERTAINMENT, INC.)

(An Exploration Stage Company)

INTERIM CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE PERIOD ENDED SEPTEMBER 30, 2005 AND 2004

(Unaudited – Prepared by Management)

(Stated in US Dollars)

	(Unaudited) Cumulative from inception of oil and gas operations 01Oct04 – 30Sep05	(Unaudited) Three Months Ended 30Sep05	(Unaudited) Three Months Ended 30Sep04	(Unaudited) Six Months Ended 30Sep05	(Unaudited) Six Months Ended 30Sep04

EXPENSES
Advertising and promotion	$ 15,780	$ 15,780	$ -	$ 15,780	$ -
Amortization	2,570	535	750	1,070	1,500
Auditing and accounting	27,101	9,891	1,089	12,089	2,674
Bad debt	5,000	5,000	-	5,000	-
Bank charges and interest	49,031	20,096	9,742	41,296	22,475
Consulting	1,130,469	922,175	182,220	980,175	234,442
Due diligence	19,392	-	-	-	-
Financing fees	593,648	453,690	-	593,648	-
Investor relations activities	54,363	7,627	984	48,641	984
Legal	30,547	13,850	52,997	26,918	54,129
Management fees	426,609	22,500	109,966	69,075	109,966
Meals and entertainment	10,592	39	-	7,778	-
Office supplies and stationary	39,049	29,972	4,197	38,608	5,075
Parking	1,907	-	1,486	-	1,486
Regulatory fees	11,019	4,029	1,545	4,029	1,545
Rent	42,003	6,400	2,054	21,400	2,054
Salaries and benefits	4,636	4,636	-	4,636	-
Shareholder services	25,735	13,490	870	21,340	930
Telephone	4,330	26	-	26	-
Travel	64,676	826	303	44,578	303

	2,558,457	1,530,562	368,203	1,936,087	437,563

OTHER REVENUES
Gain on foreign exchange	28,402	39,043	-	33,062	-
Forgiveness of debt	64,659	-	1,377	-	1,377
Interest	941	(500)	-	-	-

	94,002	38,543	1,377	33,062	1,377

NET LOSS FOR THE PERIOD	$ (2,464,455)	$ (1,492,019)	$ (366,826)	$ (1,903,025)	$ (436,186)

NET LOSS PER COMMON SHARE (Note 4(iv)		$ (0.03)	$ (0.02)	$ (0.05)	$ (0.02)

WEIGHTED AVERAGE NUMBER OF BASIC AND DILUTED COMMON SHARES OUTSTANDING		46,529,875	19,118,587	40,267,901	17,790,253

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

QUEST OIL CORPORATION

(FORMERLY GAMESTATE ENTERTAINMENT, INC.)

(An Exploration Stage Company)

INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

AS AT SEPTEMBER 30, 2005

(Unaudited – Prepared by Management)

(Stated in US Dollars)

	Common Number of Shares	Shares Amount	Additional Paid-In Capital	Accumulated Deficit	(Unaudited) Total Stockholders’ Equity/(Deficit)

Balance, March 31, 2001	161,920	$ 162	$ 442,393	$ (759,459)	$ (316,904)

Net loss for the year ended
March 31, 2002	-	-	-	(71,389)	(71,389)

Balance, March 31, 2002	161,920	162	442,393	(830,848)	(388,293)

Issuance of common shares in exchange for debt at $0.005 per share	500,000	500	124,500	-	125,000

Net loss for the year ended
March 31, 2003	-	-	-	(156,170)	(156,170)

Balance, March 31, 2003	661,920	662	566,893	(987,018)	(419,463)

Issuance of common shares in exchange for debt at $0.005 per share	15,000,000	15,000	60,000	-	75,000

Issuance of common shares in exchange for assets $0.25 per share	800,000	800	199,200	-	200,000

Net loss for the year ended
March 31, 2004	-	-	-	(425,555)	(425,555)

Balance, March 31, 2004	16,461,920	16,462	826,093	(1,412,573)	(570,018)

Issuance of common shares in exchange for debt at $0.25 per share	40,000	40	9,960	-	10,000

Issuance of common shares in exchange for legal, management, and consulting fees	11,161,540	11,161	585,552	-	596,713

Issuance of common shares for cash	192,300	192	49,808	-	50,000

Net loss for the year ended
March 31, 2005	-	-	-	(997,616)	(997,616)

Balance, March 31, 2005	27,855,760	27,855	1,471,413	(2,410,189)	(910,921)

Issuance of common shares in exchange for debt at $0.05 per share	9,225,252	9,225	454,548	-	463,773

Issuance of common shares in exchange for legal and consulting fees	2,476,057	2,476	873,577	-	876,053

Issuance of common shares on conversion of convertible notes with interest	7,447,187	7,447	797,342	-	804,789

Issuance of common shares for acquisition of Wallstin Petroleum LLC at $0.05 per share	1,500,000	1,500	73,500	-	75,000

Issuance of common shares in exchange for finder’s fee on acquisition of Wallstin Petroleum LLC at $0.05 per share	100,000	100	4,900	-	5,000

Issuance of common shares in exchange for placement agent warrants exercised	1,274,430	1,275	287,222	-	288,497

Issuance of common shares in exchange for warrants exercised	2,708,876	2,709	474,227	-	476,936

Issuance of common shares in exchange for providing loan facility at $0.05 per share	2,000,000	2,000	98,000	-	100,000

Net loss for the period ended September 30, 2005	-	-	-	(1,903,025)	(1,903,025)

Balance, September 30, 2005	54,587,562	$ 54,587	$ 4,534,729	$ (4,313,214)	$ (276,102)

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

QUEST OIL CORPORATION

(FORMERLY GAMESTATE ENTERTAINMENT, INC.)

(An Exploration Stage Company)

INTERIM CONSOLIDATED CASH FLOW STATEMENT

FOR THE PERIOD ENDED SEPTEMBER 30, 2005 AND 2004

(Unaudited – Prepared by Management)

(Stated in US Dollars)

	(Unaudited) Cumulative from inception of oil and gas operations 01Oct04 – 30Sep05	(Unaudited) Three Months Ended 30Sep05	(Unaudited) Three Months Ended 30Sep04	(Unaudited) Six Months Ended 30Sep05	(Unaudited) Six Months Ended 30Sep04

OPERATING ACTIVITIES
Net loss for the period	$ (2,464,455)	$ (1,492,019)	$ (366,826)	$ (1,903,025)	$ (436,186)
Add/(deduct) non-cash items
Amortization	2,570	535	750	1,070	1,500
Bad debt	5,000	5,000	-	5,000	-
Financing fees paid with shares	393,497	393,497	-	393,497	-
Forgiveness of debt	(64,659)	-	(1,377)	-	(1,377)
Legal and consulting fees paid with shares	1,238,517	818,500	234,250	876,053	234,250

	(889,530)	(274,487)	(133,203)	(627,405)	(201,813)
Changes in non-cash working capital items
Accounts receivable	(19,119)	(19,119)	-	(14,119)	-
Prepaid expenses and deposits	(30,484)	3,416	-	(29,084)	-
Accounts payable	304,686	82,284	52,713	183,986	70,910

Cash provided/(used) b operating activities	(634,447)	(207,906)	(80,490)	(486,622)	(130,903)

FINANCING ACTIVITIES
Convertible notes payable issued	1,253,800	-	-	787,500	-
Accrued interest on convertible notes	6,590	3,690	3,852	8,571	11,457
Loans advanced	176,706	593,215	-	593,215	19,794
Accrued interest on loans payable	9,181	1,494	2,073	11,080	3,585
Advances from shareholders	-	-	75,454	-	101,491
Accrued expenses	45,150	-	(5,150)	(10,000)	(5,150)
Shares issued for warrants exercised	476,936	476,936	-	476,936	-
Shares issued for cash	50,000	-	-	-	-

Cash provided/(used) by financing activities	2,018,363	1,075,335	76,229	1,867,302	131,177

INVESTING ACTIVITIES
Oil and gas property	(1,092,679)	(717,079)	-	(1,092,679)	-
Equipment acquired	(65,000)	(65,000)	-	(65,000)	-

Cash provided/(used) by investing activities	(1,157,679)	(782,079)	-	(1,157,679)	-

CASH INCREASE	226,237	85,350	(4,261)	223,001	274

CASH, BEGINNING OF PERIOD	(39)	140,848	4,222	3,197	(313)

CASH END OF PERIOD	$ 226,198	$ 226,198	$ (39)	$ 226,198	$ (39)


SUPPLEMENTAL DISCLOSURE:
Interest paid	$ -	$ -	$ -	$ -	$ -
Income taxes paid	$ -	$ -	$ -	$ -	$ -

NON-CASH ACTIVITIES:
Issued stock for reduction in debt	$ 463,773	$ -	$ -	$ 463,773	$ -
Issued stock for assets acquired	$ 75,000	$ 75,000	$ -	$ 75,000	$ -
Issued stock for legal and consulting fees	$ 1,238,517	$ 818,500	$ 234,250	$ 876,053	$ 234,250
Issued stock for finders’ fees	$ 393,497	$ 393,497	$ -	$ 393,497	$ -

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

QUEST OIL CORPORATION

(FORMERLY GAMESTATE ENTERTAINMENT, INC.)

(An Exploration Stage Company)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED SEPTEMBER 30, 2005

(Unaudited - Prepared by Management)

ORGANIZATION AND DESCRIPTION OF THE BUSINESS

Quest Oil Corporation (“QOIL” or the “Company”) is in the business of acquiring and participating in development stage oil and gas properties around the globe. The Company was incorporated on January 19, 1999 under the laws of the State of Nevada, and its principal executive offices are presently headquartered in Houston, Texas.

These interim consolidated financial statements include all activity of the Company and its wholly owned subsidiaries: Quest Canada Corporation; Wallstin Petroleum LLC; and Petrostar Oil Services Inc. Quest Canada Corporation was created for the purpose of holding Alberta oil and gas property acquisitions. Wallstin Petroleum LLC was acquired for their management expertise and contacts in Texas. Petrostar Oil Services Inc. was created for the purpose of servicing the oil and gas properties in Texas.

As a result of the change in business, cumulative from inception figures for the oil and gas operations have presented for the period of October 1, 2004 to date.

The Company has elected a fiscal year-end of March 31.

GOING CONCERN

The accompanying interim consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying interim consolidated financial statements, the Company incurred a net loss of $1,903,025 for the period ended September 30, 2005, and has negative working capital. These interim consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

Management intends to finance anticipated ongoing expenses and capital requirements with funds generated from cash provided by operating activities; available cash and cash investments; and capital raised through debt and equity offerings.

BASIS OF PRESENTATION

These interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim consolidated financial information and with the instructions to Form 10-KSB and Item 310(b) of Regulation S-B. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the period ended September 30, 2005 and 2004 are not necessarily indicative of the results that may be expected for any interim period or the entire year. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended March 31, 2005. The Company applies the same accounting policies and methods in these interim consolidated financial statements as those in the audited annual consolidated financial statements .

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies which affect the Company are summarized below:

(i)

Accounting Method

The Company’s interim consolidated financial statements are prepared using the accrual method of accounting.

(ii)

Oil and Gas Activities

The Company follows the full cost method of accounting for its 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 the Company for its 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 owned by the Company.

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.

(iii)

Equipment

Equipment is recorded at historical cost. The declining-balance method is used for the assets at the following annual rates:

Computer equipment

30%

Service rig

20%

(iv)

Loss Per Share

Basic loss per share was computed by dividing the net loss by the weighted average number of shares outstanding during the period. The weighted average number of shares was calculated by taking the number of shares outstanding and weighting them by the amount of time that they were outstanding. Diluted loss per share is the same as basic loss per share, as the inclusion of common stock equivalents would be anti-dilutive.

(v)

Provision for Taxes

Income taxes are provided for using the liability method of accounting in accordance with Statement of Accounting Standards No. 109, “Accounting for Income Taxes”. A deferred tax assets or liability is recorded for all temporary differences between financial and tax reporting. Deferred tax expense/(benefit) results from the net change during the year of deferred tax assets and liabilities.

(vi)

Use of Estimates

The process of preparing interim consolidated financial statements requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the interim consolidated financial statements; accordingly, upon settlement, actual results may differ from estimated amounts.

(vii)

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturity of three months or less at the date of acquisition to be cash equivalents.

(viii)

Derivative Instruments

At September 30, 2005, the Company had not engaged in any transactions that would be considered derivative instruments or hedging activities.

(ix)

Compensated Absences

The Company has nine employees among the parent and all subsidiary companies. As the Company hires personnel, its employees will be entitled to paid vacation, paid sick days, and personal days off depending on job classification, length of service, and other factors. The Company’s policy will be to recognize the cost of compensated absences when actually paid to employees.

(x)

Foreign Currency Transactions

Monetary assets and liabilities are translated at year-end 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.

(xi)

Financial Instruments

All significant financial assets, financial liabilities, and equity instruments of the Company are either recognized or disclosed in these interim consolidated financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk, and credit risk. Where practicable, the fair value of financial assets and financial liabilities have been determined and disclosed; otherwise, only available information pertinent to the fair value has been disclosed.

(xii)

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.

BUSINESS COMBINATION

On August 5, 2005, the Company entered into a Membership Interest Exchange Agreement with all the members of Wallstin Petroleum LLC, a Texas limited liability company. Pursuant to the terms of the agreement, the members agreed to exchange 100% of their membership interest in Wallstin Petroleum LLC for a total of 1,500,000 restricted shares of common stock. The shares were issued under Rule 144.

The Interim Consolidated Statement of Operations includes the results of operations of Wallstin Petroleum LLC for the period from August 5, 2005 to September 30, 2005.

The net assets acquired at fair value are summarized as follows:

Assets		$ -
Liabilities		-

Net assets acquired		$ -

OIL AND GAS RESERVES AND RELATED FINANCIAL INFORMATION

(i)

Oil and gas properties

(a)

Acadia North Property, Alberta, Canada

On February 15, 2005, the Company announced that it completed the acquisition to acquire a 100% working interest in the two-section Acadia North prospect located approximately 160 miles due east of Calgary, Alberta, Canada. Under the terms of the farm-in agreement with Moraine Resources Ltd., the Company must reprocess 8 kilometres of trade seismic line with the option to drill a new well into the proved reservoir Viking sand, and a second well can be drilled on the second section after evaluating the first well. The 100% working interest is earned on the sections when the test wells are drilled.

On July 20, 2005 well 15-34 was drilled to depth and cased and subsequently, on August 10, 2005 well 10-22 was drilled and cased waiting for flow testing and production economics. Well 10-22 was classified as a producer and was brought into production on October 15, 2005.

Exploration expenditures to September 30, 2005 on the Acadia North project have totalled $788,519.

Under the terms of a loan agreement dated September 6, 2005, the Company awarded a 5% carried interest in the Acadia North Property to an arm’s length third party (see Note 9).

(b)

Empress Property, Alberta, Canada

On August 12, 2005 the Company entered into an agreement with Vega Resources Inc., an Alberta company, for a 100% working interest with a variable Gross Over-Riding Royalty based on production on four sections of Crown PNG property.

On August 25, 2005 the Company announced the spudding of Empress well 12-15 with target depth of 3300 feet for the purpose of entering five known pay zones. Operator of the Empress project was Transaction Oil and Gas Ventures Inc. estimated a budget AFE of $780,000 for drilling, completion and abandonment. As of September 30, 2005 the Company’s capital expenditures totaled $215,017.

Under the terms of a loan agreement dated September 6, 2005, the Company awarded a 5% carried interest in the Empress Property to an arm’s length third party (see Note 9).

(c)

Hawkeye Lease Property, Eastland County, Texas

On August 5, 2005, the Company concluded the purchase of the Hawkeye Lease for a sum of $90,000 for 100% working interest and a Gross Over-Riding Royalty of 35%. Exploration expenditures for restoring the 97 oil wells and testing the deeper Barnett Shale play are budgeted for $808,000.

Under the terms of a loan agreement dated September 6, 2005, the Company awarded a 5% carried interest in the Hawkeye Lease Property to an arm’s length third party (see Note 9).

(d)

Nettie Gardner Lease Property, McCulloch County, Texas

On June 29, 2005, the Company purchased the Nettie Gardner Lease for $17,500 for a 100% working interest and a Gross Over-Riding Royalty of 30%. The lease will require a exploration expenditures of approximately $323,000 for work over and drilling two test wells.

(ii)

Costs incurred in oil and gas property acquisition and exploration

The costs incurred in oil and gas property acquisition and exploration activities at September 30, 2005 are summarized as follows:

	Acadia North	Empress	Hawkeye	Nettie Gardner	Total

Balance, March 31, 2005	$ 23,271	$ -	$ -	$ -	$ 23,271
Additions during the period:
Acquisition costs	-	-	165,000	17,500	182,500
Exploration costs	765,248	215,017	2,457	2,457	985,179
Balance, September 30, 2005	$ 788,519	$ 215,017	$ 167,457	$ 19,957	$ 1,190,950

(iii)

Proved oil and gas reserve quantities (unaudited)

Proved reserves are the estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions and current regulatory practices. Reserves are considered proved when commercial production has been established by actual production or well tests. The portion of the reservoir considered proved is the area delineated by drilling and reasonable interpretation of available data after considering fluid contacts, if any.

Proved reserves may be developed or undeveloped. Proved undeveloped oil and gas reserves are reserves that are expected to be recovered from new wells or undrilled acreage, or from existing wells where a relatively major expenditure is required for completion. Reserves on undrilled acreage are limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other undrilled units are claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation.

(a)

Acadia North Property, Alberta, Canada

At September 30, 2005, the estimated oil and gas reserves presented for the Acadia North Property were derived from a report dated September 1, 2005 prepared by Chapman Petroleum Engineering Ltd., an independent engineering firm located in Calgary, Alberta. The Company cautions that there are many inherent uncertainties in estimating proved reserve quantities and in projecting future production rates and the timing of development expenditures; accordingly, these estimates are likely to change as future information becomes available, and these changes could be material.

Estimated quantities of proved reserves (all of which are classified as proved undeveloped) are as follows:

	Crude Oil (Gross MTSB)	Natural Gas (Gross MMscf)

Proved undeveloped reserves, March 31, 2005	-	-
95% working interest in reserves	-	1,766
Production	-	-

Proved undeveloped reserves, September 30, 2005	-	1,766

(b)

Hawkeye Lease Property, Eastland County, Texas

At September 30, 2005, the estimated oil and gas reserves presented for the Hawkeye Lease Property were derived from a report dated September 1, 2005 prepared by Gleason Engineering, an independent engineering firm located in Arlington, Texas. The Company cautions that there are many inherent uncertainties in estimating proved reserve quantities and in projecting future production rates and the timing of development expenditures; accordingly, these estimates are likely to change as future information becomes available, and these changes could be material.

Estimated quantities of proved reserves (all of which are classified as proved undeveloped) are as follows:

	Crude Oil (Gross BBL)	Natural Gas (Gross MMscf)

Proved undeveloped reserves, March 31, 2005	-	-
95% working interest in reserves	272,262	-
Production	-	-

Proved undeveloped reserves, September 30, 2005	272,262	-

(c)

Nettie Gardner Lease Property, McCulloch County, Texas

At September 30, 2005, the estimated oil and gas reserves presented for the Nettie Gardner Lease Property were derived from a report dated September 1, 2005 prepared by Gleason Engineering, an independent engineering firm located in Arlington, Texas. The Company cautions that there are many inherent uncertainties in estimating proved reserve quantities and in projecting future production rates and the timing of development expenditures; accordingly, these estimates are likely to change as future information becomes available, and these changes could be material.

Estimated quantities of proved reserves (all of which are classified as proved undeveloped) are as follows:

	Crude Oil (Gross BBL)	Natural Gas (Gross mcf)

Proved undeveloped reserves, March 31, 2005	-	-
100% working interest in reserves	15,392	26,646
Production	-	-

Proved undeveloped reserves, September 30, 2005	15,392	26,646

(iv)

Standardized measure of discounted future net cash flows relating to proved oil and gas reserve quantities (unaudited)

(a)

Acadia North Property, Alberta, Canada

The table below sets out a standardized measure of the estimated discounted future net cash flows attributable to the Company’s interest in proved undeveloped oil and gas reserves. Estimated future cash inflows were computed by using forecasted prices and costs to the estimated future production of proved gas reserves at September 30, 2005 discounted by 10%. The future production and development costs represent the estimated future expenditures to be incurred in developing and producing the proved reserves, assuming continuation of existing economic conditions.

Future cash inflows	$ 10,900,000

Future cash outflows:
Development costs	185,833
Production costs	5,283,334

Future net cash flows	5,430,833

Adjustment to discount future annual cash flows at 10%	920,833

Standardized measure of discounted future cash flows, before tax	$ 4,510,000

(b)

Hawkeye Lease Property, Eastland County, Texas

Future cash inflows	$ 8,228,660

Future cash outflows:
Development costs	579,621
Production costs	2,741,598

Future net cash flows	$ 4,907,441

Adjustment to discount future annual cash flows at 10%	1,880,183

Standardized measure of discounted future cash flows, before tax	$ 3,027,258

(iv)

Standardized measure of discounted future net cash flows relating to proved oil and gas reserve quantities (unaudited)

(c)

Nettie Gardner Lease Property, McCulloch County, Texas

Future cash inflows	$ 2,175,084

Future cash outflows:
Development costs	160,258
Production costs	600,900

Future net cash flows	1,413,926

Adjustment to discount future annual cash flows at 10%	472,141

Standardized measure of discounted future cash flows, before tax	$ 941,785

EQUIPMENT

			30Sep05	31Mar05
		Accumulated	Net Book	Net Book
	Cost	Amortization	Value	Value

Computer equipment	$ 10,000	$ 4,070	$ 5,930	$ 7,000
Service rig	65,000	-	65,000	-

	$ 75,000	$ 4,070	$ 70,930	$ 7,000

CONVERTIBLE NOTES PAYABLE

There are three convertible notes payable at September 30, 2005 that are dated June 1, 2002 totalling $30,000 with interest at 2% per month compounded semi-annually which were due and payable on May 31, 2003. The principal and interest is convertible into common shares at a conversion price of $0.01 per share, at the option of the lender, with the conversion price of $0.01. Interest of $34,050 has been accrued to date. The lenders have exercised their conversion right on these notes and received 6,276,800 common shares of the Company on October 4, 2005 (see Note 19).

On May 23, 2005, the Company 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 have the right to convert the principal plus accrued interest into the Company’s 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 the Company, 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:

Series A warrants allow the holders to purchase up to 6,026,630 common shares for a period of 15 months at a price of $0.25 per share, and in the case of the placement agent a “cashless exercise” provision to purchase up to 602,663 Series A warrants for a period of two years at $0.25.

Series B warrants allow the holders to purchase up to 6,026,630 common shares for a period of 60 months at a price of $0.1503 per share, and in the case of the placement agent a “cashless exercise” provision to purchase up to 602,663 Series B warrants for a period of two years at $0.1503.

Series C warrants allow the holders to purchase up to 6,026,630 common shares for a period of 60 months at a price of $0.6533 per share, and in the case of the placement agent a “cashless exercise” provision to purchase up to 602,663 Series C warrants for a period of two years at $0.6533

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.

In addition to the convertible notes and warrants, the Company also executed a guaranty agreement and two security agreements.

At September 30, 2005, the holders of the convertible notes issued on May 23, 2005 converted the notes plus the accrued interest into 7,447,187 common shares of the Company (see Notes 12 and 19).

LOANS PAYABLE

There is a loan payable for $53,397 (March 31, 2005 - $51,392) including interest. The amount is unsecured with interest at 8% per annum and was due on May 24, 2005.

There is a loan payable for $80,630 (March 31, 2005 - $Nil) including interest. The amount is unsecured with interest at 10% per annum due on October 28, 2005.

A loan facility has been provided to the Company totalling $965,500. At September 30, 2005, $498,333 had been drawn down with a total of $501,553 (March 31, 2005 - $Nil) owing including interest. The amount is unsecured with interest at 10% per annum and due on October 31, 2005. As further consideration for providing this loan facility, the lender also received 2,000,000 restricted common shares of the Company, plus a 5% carried interest in the Acadia North property, a 5% carried interest in the Empress property, and a 5% carried interest in the Hawkeye property.

A loan facility of $100,000 has been provided with $95,590 (March 31, 2005 - $95,590) advanced to the Company as at September 30, 2005 with a total of $109,376 (March 31, 2005 - $105,542) owing including interest. The loan is due in three years from the date of the first advance being September 11, 2006 with interest only payable quarterly at 8% per annum, simple interest. To date no interest has been paid on the loan. The principal and interest is convertible into common shares of the Company at $0.05 per share at the option of the lender.

10.

PREFERRED SHARES

The Company is authorized to issue up to 50,000,000 preferred shares with a par value of $0.001 per share. The preferred shares do not carry any pre-emptive or preferential rights to subscribe to any unissued stock or any other securities which the Company may be authorized to issue and does not carry voting rights. No preferred shares were issued as of September 30, 2005.

11.

COMMON SHARES

The Company is authorized to issue up to 450,000,000 common shares with a par value of $0.001 per share.

The voting rights of the common shares are non-cumulative.

Upon incorporation, 7,310,660 common shares were sold, 7,170,000 at $0.001 per share and 140,660 at $0.50 per share.

During the year ended March 31, 2000, the Company issued 630,000 common shares for cash at $0.50 per share. The Company also issued 100,000 common shares in settlement of outstanding debt at $0.50 per share.

During the year ended March 31, 2001, the Company issued 55,000 shares at $0.001 per share for a subscription receivable that was subsequently paid.

During the year ended March 31, 2003, the Company issued 25,000,000 sharesat $0.005 per share for a total of $125,000, for a reduction of debt; the Company’s shares were consolidated on the basis of 1 new share for 50 old shares; the Company issued 15,000,000 common shares at $0.005 per share for a total of $75,000 for a reduction of debt to related parties; and the Company issued 800,000 common shares to the sellers of the Netopia Internet Café in exchange for all the assets, goodwill, trademarks, and intellectual property of the business.

On July 16, 2004, the holders of the two convertible promissory notes totalling $10,000 converted the notes and accrued interest into 40,000 common shares of the Company.

On December 1, 2004, the Company issued 5,000,000 shares to the President and the Chief Financial Officer under their employment agreements, for which $250,000 has been recorded as stock based compensation. Pursuant to these agreements, an additional 500,000 shares were to have been issued in February 2005, and the cost of $12,500 is included in accrued liabilities at September 30, 2005.

On March 1, 2005, the Company issued 192,300 shares for cash proceeds of $50,000.

During the year ended March 31, 2005, the Company issued a total of 6,161,540 shares to consultants for services totalling $346,714. The Company has committed to the issuance of an additional 150,000 shares to consultants, and the cost of $7,500 is included in accrued liabilities at September 30, 2005.

On April 21, 2005, the Company issued 9,225,252 restricted common shares in consideration of the retirement of $463,773 in debt.

On August 5, 2005, the Company issued 1,500,000 common shares for the acquisition of Wallstin Petroluem LLC

On August 5, 2005, the Company issued 100,000 common shares to an arm’s length party in lieu of a fees.

On August 15, 2005, the Company issued a total of 1,274,430 common shares upon the exercise of placement agents warrants issued in conjunction with the convertible notes issued on May 23, 2005 (see Notes 8 and 12)

On September 6, 2005, the Company issued 2,000,000 common shares to a lender for providing a loan facility to the Company (see Note 9).

During the period ended September 30, 2005, the Company issued 7,447,187 common shares upon the conversion of the convertible notes plus accrued interest issued on May 23, 2005 (see Note 8).

During the period ended September 30, 2005, the Company issued 2,708,877 common shares upon the exercise of warrants attached to the convertible notes issued on May 23, 2005 (see Notes 8 and 12).

During the period ended September 30, 2005, the Company issued a total of 2,476,057 common shares to consultants for services totalling $876,053.

12.

WARRANTS AND OPTIONS

No options were issued and outstanding at September 30, 2005.

The following warrants were issued and outstanding at September 30, 2005 in connection with the convertible notes issued on May 23, 2005:

	Placement Agent Warrants	Class A Warrants	Class B Warrants	Class C Warrants

Issued	602,663	6,629,293	6,629,293	6,629,293
Exercised	(602,663)	(2,611,540)	(3,609,544)	-

Outstanding	-	4,017,753	3,019,749	6,629,293

Class A warrants allow the holders to purchase up to 6,026,630 common shares for a period of 15 months at a price of $0.25 per share and in the case of the placement agent Class A warrants to purchase up to 602,663 common shares for a period of 2 years at $0.25 with a “cashless exercise” provision. At September 30, 2005, all the Class A placement agent warrants were exercised (see Notes 8 and 19).

Class B warrants allow the holders to purchase up to 6,026,630 common shares for a period of 60 months at a price of $0.1503 per share and in the case of the placement agent Class B warrants to purchase up to 602,663 common shares for a period of 2 years at $0.1503 with a “cashless exercise” provision. At September 30, 2005, all the Class B placement agent warrants were exercised (see Notes 8 and 19).

Class C warrants allow the holders to purchase up to 6,026,630 common shares for a period of 60 months at a price of $0.6533 per share and in the case of the placement agent Class C warrants to purchase up to 602,663 common shares for a period of 2 years at $0.6533 with a “cashless exercise” provision (see Note 8).

Placement agent warrants allow the placement agent to purchase up to 602,663 common shares for a period of 12 months at price of $0.30 per share with a “cashless exercise” provision. At September 30, 2005, all the placement agent warrants were exercised (see Notes 8 and 19)

13.

RELATED PARTY TRANSACTIONS

During the period ended September 30, 2005, the Company entered into the following transactions with related parties:

(i)

paid or accrued management fees of $69,075 (September 30, 2004 - $109,966) to companies related to the former Chief Executive Officer and the current Chief Executive Officer;

(ii)

paid or accrued rent of $21,400 (September 30, 2004 - $Nil) to a company related to the Chief Executive Officer; and

(ii)

at September 30, 2005; $224,814 (March 31, 2005 - $144,742) included in accounts payable was owed to companies controlled by the former Chief Executive Officer and the current Chief Executive Officer.

These transactions have been in the normal course of operations and, in management’s opinion, undertaken with the same terms and conditions as transactions with unrelated parties.

14.

FOREIGN OPERATIONS

The accompanying balance sheet includes the Company’s assets in Canada. Although Canada is considered politically and economically stable, it is always possible that unanticipated events in foreign countries could disrupt the Company’s operations.

15.

FINANCIAL INSTRUMENTS

Currency risk is the risk to the Company’s earnings that arise from fluctuations of foreign exchange rates and the degree of volatility of these rates. The Company does not use derivative instruments to reduce its exposure to foreign currency risk.

At September 30, 2005, the Company has the following financial assets and liabilities in Canadian dollars:

Accounts payable

$ 131,552

Loan payable

$ 100,000

At September 30, 2005, the Canadian dollar amounts were converted at a rate of $0.80 US dollars to $1.00 Canadian dollar.

16.

SEGMENTED INFORMATION

During the period ended September 30, 2005, the Company’s operating activity was performed in the United States and Canada. Geographical segments are presented as follows:

	U.S.	Canada	Total
Revenue	$ -	$ -	$ -
Administrative expenses	725,943	1,220,692	1,946,635
Income/(loss) for the period	$ (725,943)	$ (1,220,692)	$ (1,946,635)
Identifiable assets	$ 274,201	$ 1,218,777	$ 1,492,978

17.

INCOME TAXES

At September 30, 2005, the Company had cumulative net operating losses of approximately $4,300,000 that may be offset against operating income in future years. No provision for taxes or tax benefits has been reported in these interim consolidated financial statements as there is not a measurable means of assessing future profits or losses.

18.

COMMITMENTS

The Company has signed compensation agreements with companies related to the former Chief Executive Officer and the current Chief Executive Officer. The compensation agreement with a company related to the former Chief Executive Officer was terminated on June 30, 2005 upon the resignation as the Chief Executive Officer.

Under these agreements which are renewable annually on February 1, the Company is obligated to:

(i)

annual fees of $180,000 to be accrued and paid in cash;

(ii)

issuance of 7,000,000 restricted shares in 6 month intervals of which 5,000,000 have been issued and 500,000 have been accrued; and

(iii)

issuance of 250,000 free trading shares which were issued during the year ended March 31, 2005.

The Company has also signed consulting agreements with a number of parties. Under these agreements the Company is obligated to issue 700,000 restricted common shares of which none were issued as at September 30, 2005. The consultants had earned 150,000 shares and the cost of these shares were accrued at March 31, 2005.

19.

SUBSEQUENT EVENTS

On October 3, 2005, the Company closed an $8,000,000 private placement of Series B convertible debentures that mature 24 months from the date of issuance, pay 10% interest on an annual basis, and are convertible, at the option of the holder, into common stock at $0.40 per share.

On October 3, 2005, the Company issued 608,877 common shares upon the exercise of 608,877 Class A warrants for total proceeds of $152,219 (see Notes 8 and 12).

On October 4, 2005, the Company issued 6,276,800 common shares for the convertible note issued June 1, 2002 (see Note 8).

On October 5, 2005, the Company issued 1,205,326 common shares upon the exercise of 1,205,326 Class B warrants for total proceeds of $181,160 (see Notes 8 and 12).

On October 10, 2005, the Company issued 998,004 common shares upon the exercise of 998,004 Class B warrants for total proceeds of $150,000 (see Notes 8 and 12).

On October 11, 2005, the Company issued 700,000 common shares upon the exercise of 700,000 Class A warrants for total proceeds of $175,000 (see Notes 8 and 12).

On October 13, 2005, the Company issued 400,000 common shares for legal services.

On October 25, 2005, the Company issued 1,006,863 common shares upon the exercise of 1,006,863 Class B warrants for total proceeds of $151,332 (see Notes 8 and 12).

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERTIONS

FORWARD-LOOKING STATEMENTS

The information in this Quarterly Report on Form 10-QSB contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties, including statements regarding our capital needs, business plans, and expectations. These risks and uncertainties could cause actual results to differ materially from those expressed in forward-looking statements. We base these forward-looking statements on our expectations and projections about future events, which we derive from the information currently available to us. Such forward-looking statements relate to future events or our future performance. Forward-looking statements are only predictions. The forward-looking events discussed in this Quarterly Report, 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. The forward-looking statements speak only as of the date hereof, and we expressly disclaim any obligation to publicly release the results of any revisions to these forward-looking statements to reflect events or circumstances after the date of this filing.

OVERVIEW AND PLAN OF OPERATIONS

We currently hold interests in four oil and gas properties: the Acadia North and Empress properties in Alberta, Canada; and the Hawkeye and Nettie Gardner lease properties in Texas.

For the quarter ending September 30, 2005, we embarked on a program whereby we more than tripled our acreage position through acquisitions and purchases of additional leases and crown land sales.

Mergers, acquisitions, and farm-ins have added approximately 10 billion cubic feet of gas in proved, probable, and possible gas reserves now totaling over 20 BCF for the Acadia Project alone. In addition, approximately three hundred and fifty thousand barrels of oil reserves have been added to our reserve portfolio based on third party engineering reports. We have successfully brought Acadia North well “10-22” on-line effective October 15, 2005, producing an average of 1.89 MMCFD for a total of 56.7 MMCF of gas in our first 30 days of production. With gas prices hovering at near record levels we project well “10-22” alone will be able to contribute an approximate $1.25 million net cash-flow for the Company’s third quarter and more than double that by the forth quarter of fiscal 2005.

The oil reserves are held with our Hawkeye and Nettie Gardner leases located in Eastland and McCulloch counties respectively, in Central Texas. These properties were acquired not for their existing production in the Shallow Adams Branch Limestone but their upside potential in the deeper reservoirs, including the Caddo Limestone, Marble Falls Limestone, Ellenberger, and the Barnett Shale. All surrounding leased lands are productive in the immediate area. A discovery in deeper zones in either of these reservoirs could increase our reserve base by over twenty-fold. Both the Hawkeye and Nettie Gardner leases are mature and have established infrastructure consisting of over 100 well heads with oil and gas behind pipe. These properties provide a substantial cash flow opportunity. Gleason Engineering reports Hawkeye cashflow from half of the 97 wells to be over $2.8 million and Nettie Gardner to contribute an e arly cash flow of nearly $0.94 million.

Our philosophy in regards to acquisition of any properties, joint-venture deals or farm-ins is to operate the properties ourselves. We believe that by operating, we can effectively implement our business model and control the direction we want to take the company. As part of that philosophy, we do not believe inturning orflipping our properties. Any thing we acquire we intend to develop and make it an essential element in our growth strategy. We mainly concentrate on properties that are undervalued based on inadequate technical evaluations by previous operators and less on properties that have reached their full production potential and are on steep decline.

In our second fiscal quarter of 2005 we were actively drilling both of our Canadian projects Acadia North and Empress and incurred capital expenditures of $1,001,017 in the development of these leases. The Texas properties acquired in July and August were assessed for drilling targets and a planned work over strategy and have incurred capital expenditures of $187,414. Today, revenues are being realized on both the Acadia North and Hawkeye fields.

Our financial results depend on a number of factors with the biggest factor being commodity prices. Commodity prices are largely out of our control and are anticipated to remain volatile for the foreseeable future. Natural gas prices in particular have been particularly volatile the past four years and are anticipated to be so during the next four or five years. Other factors such as pipeline availability, changes in market demand, weather, capacity constraints, and inventory storage levels can affect deliverability.

This instability of prices has led us to formulate plans to periodically enter into price-risk-management scenarios. These scenarios will include futures, options, swaps and collars on some portion of our production; we believe these scenarios will help us, in the near future, reduce our exposure to price fluctuations.

We will continue to invest a substantial portion of our operating cash flows into acquiring producing/infill drilling opportunities and the acquisition of 3D seismic data to thoroughly evaluate these opportunities.

EXPLORATION ACTIVITIES DURING THE SECOND QUARTER

Acadia North Project, Alberta

Prior to January, 2005, Vega Resources, Ltd. obtained a 100% working interest in what we refer to as our Acadia North Project. On January 28, 2005, our wholly owned subsidiary, Quest Canada Corp, entered into an agreement with Vega Resources, Ltd. whereby we acquired the 100% working interest in the Acadia North Project from Vega Resources, Ltd. Vega Resources, Ltd. retained a 3% Gross over-riding royalty on the project.

The Acadia North properties consist of Crown oil and gas rights in Eastern Alberta approximately 160 miles east of Calgary. These lands were acquired as a result of a farm-in agreement. Two wells were drilled in the second quarter. The objective reservoir was the Viking sandstone. Both wells encountered gas in the Viking zone, with 10-22 deemed immediately commercially viable and was brought on line October 15, 2005. Gas well 12-34 is presently shut-in and waiting for service rig availability to complete

The project consists of a “farm-in” on two sections, North and South, of oil and gas rights. The land is underlain by a Viking sandstone reservoir that contains approximately 10 billion cubic feet of natural gas, or “BCF.” Past production to date has been just over 1 BCF and an independent reserve and economic evaluation report prepared by Chapman Petroleum Engineering Ltd., for Vega Resources Ltd. dated September 1, 2005, estimates over 3 BCF of proved and probable gas underling the two sections using a 40% recovery factor. included in that amount is 1.1 BCF of probable reserves which are reserves that can be estimated with a high degree of certainty to be recoverable.

The project anticipates drilling a new well in the North Section into the proven reservoir sand. A second well can be drilled on the South Section after evaluating the first well. There are operating gas lines nearby to tie in the new wells and capacity is available in the associated facilities.

Within the study area of the Chapman report, seven wells have been previously drilled into the Viking sandstone reservoir starting in 1978. Four wells have produced gas from the Upper Viking reservoir. Over 1 BCF of natural gas has been produced from the area but the wells were produced at too high a rate and started to produce water before the zone was depleted. Of the seven wells studied, two wells produced the majority of the gas. The report indicates that the wells that appear to be watered out can be re-started after the water cone subsides. However, the re-started wells will likely produce water more quickly the second time but could operate at low rates and not produce as much water.

The Chapman report estimates that there is a total gross remaining proved undeveloped marketable gas reserve of 827 million standard cubic feet per day or, “MMscf,” for the Viking zone assuming a 20 percent ultimate recovery factor. Additional probable marketable gas reserves of 1,038 MMscf are estimated assuming a 30 percent ultimate recovery factor and a possible marketable gas reserve of 1,010 MMscf are estimated assuming a 40 percent ultimate recovery. The Chapman report should be consulted to understand the methodology and the engineering behind these estimated reserves.

A gas line owned by AltaGas Ltd. runs through both sections of the project and connects to its processing plant. AltaGas Ltd. is a commercial gas carrier and processor. Acadia North gas well 11-22 pup-line of approximately 150 metres was commissioned to tie-in to an AltaGas Ltd. collection line and was completed and tested, and production flow started October 15, 2005.

Based upon our discussions with AltaGas Ltd., we estimate that the cost to gather, process and deliver to market is approximately 50 cents per mcf.

The Lower Viking is composed of a lower 25 to 30 meter thick section of silty sandstone that is consistent and continuous throughout the area of the Project. The Lower Viking is immediately overlain by a cleaner sand, the “Upper Viking.” The Upper Viking, which is the gas reservoir sand, reaches a maximum thickness of 5 meters but a water leg at the bottom reduces the thickness to 3.5 meters. The Report indicates that the water is not actively providing pressure support and therefore only cones into wells when they are produced at high rates.

On September 7, 2005 we submitted a successful closed bid in to the Province of Alberta land sale for Section 23, Twp 25 Rge 2 W4M.

On November 16, 2005 the Company was successful in our bid for Section 11, Twp 26 Rge 2 W4M and Section 12, Twp 26 Rge 2 W4M. The Acadia North project now consists of five sections for a total 3,200 acres.

This increase in activity in the Canadian sector reflects our continuing commitment to expand our base of operations in Canada. We are aggressively pursuing other Canadian opportunities.

Empress Prospect, Alberta

Our Empress leases consist of approximately four sections of Crown P&NG rights in Eastern Alberta approximately 160 miles due east of Calgary. This prospect is a combination oil and gas play with prospective reservoirs at several levels. Gas wells in the area have produced at rates up to three million cubic feet a day at the Viking sandstone level. One well was drilled at the end of the third quarter. Testing of three oil and gas bearing zones has been completed and results are currently being processed to determine commercial viability and production levels. Results are expected in the third quarter.

Hawkeye Property, Eastland County, Texas

During the second quarter, Wallstin Petroleum, LLC (“Wallstin”) was formally acquired by Quest, effective August 8, 2005. Wallstin brought with it a high quality management team with extensive industry experience in junior development plays and recognizing undervalued opportunities. Wallstin’s relationships with leaseholders was instrumental in Quest acquiring leases located in Eastland County, Texas and McCulloch County, Texas.

The Eastland County, Texas leases (“Hawkeye”) consist of 4 oil leases totaling 483 acres, more or less, with 95 existing wells. We own 100% of the working interest with an average 70% net revenue interest in the leases. Production on the Hawkeye occurs from the shallow Adams Branch Limestone in the Canyon Group at a depth of approximately 1,100 feet. Further analysis of the Hawkeye revealed of the 95 existing wells there are approximately 73 are open, to be able to place on production. After the initial flush production, the estimated daily production per well on average is 8 barrels of oil per day. The low initial capital expenditure for the work to be done on each well to place into production make the leases a very attractive investment for us. We plan to have most of the wells in production in the third quarter of 2005.

On November 16, 2005 we announced the signing of a Memorandum of Understanding with Stellex, a sole proprietorship owned and operated by Hadley Scott, to purchase an additional 1,070 acres consisting of 7 leases, 91 wells of which 69 are known producers, 16 injection wells, and 8 water supply wells for $280,000. At the time of the MOU, Stellex had 8 producing wells averaging 5 barrels of oil per day per well.

Nettie Gardner Property, McCulloch County, Texas

The McCulloch County, Texas lease (“Gardner”) consists of 116 acres, more or less, with 2 existing wells—one gas and one oil. We have a 100% working interest and a 70% net revenue interest in the Gardner leases. Production on the Gardner occurs from the Jennings gas sand and the Gardner oil sand at a total depth of 1,050 feet. We have been in discussions with drilling contractors to enter into a drilling contract for the Gardner drilling. Five new wells are proposed on the Gardner lease, consisting of two gas wells and three oil wells. A work over project is planned for the existing gas well, the Gardner No. 1 well. The neutron-density log for that well indicates that the Gardner sand just below the Jennings sand contains gas and has not been perforated. After the drilling and completion of the gas wells are completed we will place a dehydrator on the lease an d establish gas production to the main gas line.

OTHER ACTIVITIES DURING THE SECOND QUARTER

In September 2005, we formed a drilling services company, Petrostar Oil Services, Inc. (“Petrostar”) a wholly owned subsidiary of Quest. In September 2005, Petrostar purchased a service rig. This newly formed company will be our oil and gas service division to conduct the workover operations on the Hawkeye and Gardner leases. The service rig is on the Hawkeye location ready to conduct workover operations. In addition, Petrostar will generate revenues by conducting workover operations for third party companies when not operating on our leases.

BASIS OF PRESENTATION OF FINANCIAL STATEMENTS

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 for their management expertise and contacts in Texas. Petrostar Oil Services Inc. was created for the purpose of servicing the oil and gas properties in Texas.

RESULTS OF OPERATIONS

For the six months ended September 30, 2005, we had a net loss of $1,903,025 compared to a net loss of $436,186 for the six months ended September 30, 2004. This increase in expenses is a result of the increase in business activities since we commenced oil and gas operations in October of 2004. Cumulative from October 1, 2004 to September 30, 2005, we had a net loss of $2,464,455.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2005 we had cash of $226,198 compared to $3,197 at March 31, 2005. We had a working capital deficiency of $985,778 as at September 30, 2005 compared to a working capital deficiency of $835,650 at March 31, 2005.

On October 4, 2005 we announced the closing of an $8 million private placement Series “B” convertible debenture bearing a 10% per annum interest rate and convertible into Quest Oil Corporation common stock at $0.40 per common share. The debenture is released in two traunches of which $6 million was received at closing and the balance of $2 million will be released to the Company upon the successful effectiveness of a registration statement.

The Debentures contain an amortization schedule such that Quest will be required to make payments on the Debentures, equal to 1/20th of the face value of the Debenture, plus accrued interest, beginning on the fifth (5th) month after the date of issuance. As mentioned above, interest and principal payments may be paid in cash or registered common stock. If Quest elects to make a payment in registered common stock, the payment amount will be made in common stock based on a price equal to 90% of the average of the closing prices for Quest's common stock for the ten (10) days before a payment is due (the ``Market Price''). If Quest provides notice that it intends to make an interest and principal payment in cash, the Debenture holders will be forced to accept cash and surrender the redeemed portion of the respective Debenture or convert that portion of the Debenture (including interest) into commo n stock at the Market Price.

The Debenture holders shall be issued three (3) separate warrants. The Series A Warrants give the holder the right to purchase, for two years, 100% of Quest common shares underlying the Debenture at $0.80 per share. The Series B Warrants give the holder the right to purchase, for two years from the effective date of a registration statement, a number of Quest common shares equal to 50% of the number of common shares underlying the debenture, at $0.46 per share. The Series C Warrants have a 7-year term and an exercise price of $0.56 per share, but may only be exercised by a Debenture holder who has exercised an equal number of Series B Warrants.

Quest has the right to force the Series A warrant holders to exercise their warrants if Quest's stock price exceeds $1.60 per share. Quest has the right to force the Series B warrant holders to exercise their warrants if Quest's stock price exceeds $.56 per share. The Debenture holders also are restricted or gated in terms of the number of shares underlying the Debenture that they may convert.

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 quarterly report. We will continue to seek to fund our capital requirements over the next 12 months from the additional sale of our securities, however, it is possible that we will be unable to obtain sufficient additional capital through the sale of our securities as needed.

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 and the level of funding obtained through other financing sources, and the timing of such funding.

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.

GOING CONCERN

OFF-BALANCE SHEET FINANCINGS

The Company has no off-balance sheet financing arrangements.

CRITICAL ACCOUNTING POLICIES

Oil and Gas 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 owned by the Company.

Equipment

Equipment is recorded at historical cost. The declining-balance method is used for the assets at the following annual rates:

Computer equipment

30%

Service rig

20%

Foreign Currency Transactions

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 current have nine employees among the parent and all subsidiary companies. As the Company hires personnel, its employees will be entitled to paid vacation, paid sick days, and personal days off depending on job classification, length of service, and other factors. The Company’s 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, 2005, 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 are 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.

During our most recently completed fiscal quarter ended September 30, 2005, there were no changes in our internal control over financial reporting that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

ITEM 1.

LEGAL PROCEEDINGS

We currently are not party to any legal proceedings and to our knowledge, no such proceedings are threatened or contemplated.

ITEM 2.

CHANGES IN SECURITIES AND USE OF PROCEEDS

We did not complete any sales of securities without registration under the Securities Act of 1933 during our second quarter ended September 30, 2005.

ITEM 3.

DEFAULT UPON SENIOR SECURITIES

None

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to our security holders for a vote during our second quarter ended September 30, 2005.

ITEM 5.

OTHER INFORMATION

Executive Officer and Directors

At November 18, 2005, our executive officers and directors, the positions held by them, and their ages are as follows:

Name

Age

Position

Cameron King

Director, President, and Chief Executive Officer

Joseph F. Wallen

Director and Chief Financial Officer

William Huntington Stinson

Chief Operating Officer

Douglas Blackman

Director and Secretary

Douglas Brown

Director

Dr. Jim Irwin

Director

Cameron King, MBA

Director, President, and CEO

Mr. King is our President and CEO and one of our Directors. Mr. King obtained his MBA from the University of Michigan and is a graduate of McMaster University, located in Hamilton, Ontario. He has over 20 years of senior management experience developing expertise in capital markets, sales, marketing and public relations. Mr. King has served as member of the Corporate Banking team with the Bank of Nova Scotia in Toronto, Canada. Since 1995, Mr. King has operated a successful private venture focusing on incubating, structuring, and listing companies.

Joseph F. Wallen

Director and Chief Financial Officer

Mr. Wallen is our Vice President of Operations. Mr. Wallen is a Graduate of the University of Texas at San Antonio Business School and has spent the last 26 years performing operations and administrative functions for numerous mid-tier oil and gas companies. Although his main focus has been in the Texas oil and gas industry, Mr. Wallen has worked in the prolific Altamont-Bluebell Field in the Uinta Basin of Utah. He handled the administrative and field operations for Roadrunner Oil Inc, an independent operator. His duties included the monthly government filings, maintaining daily communications with field personnel, internal accounting and lease operation. Mr. Wallen is well placed to understand the intricacies of oil and gas field accounting and operation.

William Huntington Stinson

Chief Operating Officer

Mr. Stinson is our Chief Operating Officer. Mr. Stinson has 28 years in the oil and gas business at both the technical and management levels. He has been a chief geophysicist and an exploration manager for major oil companies and spent five years with the Reserves and Unitization section of the U.S. Geological Survey. Mr. Stinson has worked for ARCO International in a variety of positions and served in overseas posts in London, Indonesia, and West Africa. Mr. Stinson’s geological expertise extends throughout the world. He spent several months in Washington D.C. as a technical specialist to the House and Senate on the first major rewrite of the Outer Continental Shelf regulations. Mr. Stinson has published several technical papers in journals such as Geophysics, the technical publication of the Society of Exploration Geophysicists. His paper on the Main Formation at the 1988 I ndonesian Petroleum Association annual meeting is still considered the definitive work on that formation.

Douglas Blackman

Director and Secretary

Douglas Blackman, BA, LLB graduated from Trent University, Peterborough, Ontario in 1972 and from law school, the University of Ottawa in 1975. He went to Calgary in 1975 and began his career in the oil and gas industry and in 1977 working for BP Exploration Canada and Suncor Inc. for a twelve year tenure specializing in the land sales and contracts in their legal departments.

Douglas Brown

Director

Mr. Brown is a graduate of the University of Edinburgh. He currently sits on the board of directors of Inyx Inc., a successful pharmaceutical company, and also has a board seat with LIM Asia Arbitrage Fund, which has been noted as one of the oldest and largest hedge funds in Asia. Mr.Brown is a principal of Grasmere Limited, a privately held investment advisory company which specializes in the distribution of hedge funds and corporate finance.

Dr. Jim Irwin

Director

Dr. Jim Irwin is one of our directors and brings over 25 years of instructional, research and field experience to our team. Dr. Irwin obtained his B.Sc. in geology from McGill University, Montreal, in 1980 and Ph.D. in geology from the University of California, Berkeley, in 1986. Between 1986 and 1992 he was a Research Fellow in the Department of Physics at Berkeley developing techniques for the study of fluid inclusions in minerals associated with ore deposits and other geologic settings. From 1992 to 1994 Dr. Irwin was a Project Scientist at Scripps Institution of Oceanography in San Diego. Dr. Irwin has since been active as a consultant and director of various companies involved in mineral and resource exploration globally.

ITEM 6.

EXHIBITS

Exhibit No.

Description

3(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 of Form 8-K filed with the SEC on October 29, 2004 and incorporated herein by reference).

3(i).3

Certificate of Amendment to the Articles of Incorporation (Attached as an exhibit to Information Statement on Schedule 14C filed with the SEC on September 6, 2005 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).

10.1

Participation Agreement dated January 28, 2005, by and between Quest Canada Corp. and Vega Resources, Ltd. (Attached as an exhibit to our Annual Report on Form 10-KSB for the year ended March 31, 2005).

10.2

Chief Financial Officer Compensation Agreement dated February 1, 2004, by and between the company, Cameron Scott King and King Capital Corporation (Attached as an exhibit to our Annual Report on Form 10-KSB for the year ended March 31, 2005).

10.3

Chairman, President and CEO Compensation Agreement dated February 1, 2004, by and between the company, Roderick C. Bartlett and BPYA 966 Holdings, Ltd. (Attached as an exhibit to our Annual Report on Form 10-KSB for the year ended March 31, 2005).

10.4

August 5, 2005, Membership Interest Exchange Agreement with Wallstin Petroleum, LLC. (Attached as an Exhibit to our Current Report of Form 8-K filed on August 15, 2005).

10.5

Operator Agreement dated August 12, 2005 by and between Quest Canada Corp. and TransAction Oil & Gas Ventures, Inc. (Attached as an Exhibit to our Current Report of Form 8-K filed on August 25, 2005).

10.6

Farmout and Option Agreement dated January 21, 2005 by and between Vega Resources, Ltd., Hanna Oil and Gas Company - Canada, Inc., Firefly Resources, Ltd. and Moraine Resources, Ltd. (Attached as an Exhibit to our Current Report of Form 8-K filed on August 25, 2005).

10.7

Participation Agreement dated August 13, 2005 by and between Quest Canada Corp. and Vega Resources, Ltd. (Attached as an Exhibit to our Current Report of Form 8-K filed on August 25, 2005).

14.1

Code of Business Conduct and Ethics (Attached as an exhibit to our Annual Report on Form 10-KSB for the year ended March 31, 2005).

31.1

Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 302 the Sarbanes-Oxley Act of 2002.

31.2

Certification of Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 302 the Sarbanes-Oxley Act of 2002.

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Signatures

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

By: “Cameron King

Cameron King

President and Chief Executive Officer

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

“Cameron King”

__________________________________

Cameron King

President, Chief Executive Officer, Director

November 18, 2005

“Joseph Wallen”

__________________________________

Joseph Wallen

Chief Financial Officer, Director

November 18, 2005

Quest Oil (QOIL) 10QSB2006 Q2 Quarterly report (small business)