##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended October 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to .
 COMMISSION FILE NUMBER: 001-32994
 OILSANDS QUEST INC.
  Colorado
    
    98-0461154(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 205, 707  7th Avenue SW, Calgary, Alberta, Canada T2P 3H6
 (Issuers telephone number)
  (Former name, former address and former fiscal year, if changed since last report)
 þ o
 o o þ
 o þ




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##### 



OILSANDS QUEST INC.
FORM 10Q FOR THE QUARTER ENDED
OCTOBER 31, 2007
 ItemPart I. Financial Information1. Financial StatementsUnaudited Consolidated Balance Sheets as of October 31, 2007 and April 30, 2007
    
    
    3Unaudited Consolidated Statements of Operations for the Three and Six Months Ended October 31, 2007 and 2006
    
    
    4Unaudited Consolidated Statements of Stockholders Equity and Comprehensive Income for the Six Months Ended October 31, 2007 and 2006
    
    
    5Unaudited Consolidated Statements of Cash Flows for the Six Months Ended October 31, 2007
    
    
    6Unaudited Notes to Consolidated Financial Statements
    
    
    72. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    144. Controls and Procedures
    
    
    21Part II Other Information1A. Risk Factors
    
    
    212. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    224. Submission of Matters to a Vote of Security Holders
    
    
    246. Exhibits
    
    
    24Signatures
    
    
    25Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
  Cautionary Statement about Forward-Looking Statements
  
    
    the amount and nature of future capital, exploration and development expenditures;
    
    the timing of exploration and development activities;
    
    business strategies and development of our business plan and exploration programs; and
    
    potential estimates as to the volume and nature of petroleum deposits that are expected to
be found present when lands are developed in a project.




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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Consolidated Balance Sheets
(Unaudited)
 October 31,
    
    
    April 30,2007
    
    
    2007ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    47,389,859
    
    
    $
    32,393,871Accounts receivable
    
    
    2,487,044
    
    
    
    1,283,415Short-term investment (note 2)
    
    
    2,000,000
    
    
    
    2,000,000Prepaid expenses
    
    
    563,211
    
    
    
    152,481Available for sale securities
    
    
    254,237
    
    
    
    284,630Total Current Assets
    
    
    52,694,351
    
    
    
    36,114,397Property and Equipment(note 3)
    
    
    618,631,964
    
    
    
    520,301,141Total Assets
    
    $
    671,326,315
    
    
    $
    556,415,538LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    11,964,063
    
    
    $
    5,170,063Loan payable (note 4)
    
    
    
    
    
    
    22,589,681Flow-through share premium liability (note 7)
    
    
    3,862,157
    
    
    
    2,535,187Total Current Liabilities
    
    
    15,826,220
    
    
    
    30,294,931Deferred Taxes
    
    
    157,881,095
    
    
    
    139,287,062173,707,315
    
    
    
    169,581,993STOCKHOLDERS EQUITYCapital StockPreferred stock, par value of $0.001 each, 10,000,000 shares authorized
1 Series B Preferred share outstanding (note 6)
    
    
    1
    
    
    
    1Common stock, par value of $0.001 each, 500,000,000 shares authorized
190,795,706 and 164,624,278 shares outstanding at October 31, 2007
and April 30, 2007 respectively
    
    
    190,796
    
    
    
    164,624Additional Paid-in Capital
    
    
    585,790,994
    
    
    
    519,265,628Deficit Accumulated During Exploration Stage
    
    
    (158,064,764
    )
    
    
    (131,435,609
    )Other Comprehensive Income (Loss)
    
    
    69,701,973
    
    
    
    (1,161,099
    )Total Stockholders Equity
    
    
    497,619,000
    
    
    
    386,833,545Total Liabilities and Stockholders Equity
    
    $
    671,326,315
    
    
    $
    556,415,538
   3




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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Consolidated Statements of Operations
(Unaudited)
 FromThree Months Ended
    
    
    Six Months Ended
    
    
    Inception onOctober 31,
    
    
    October 31,
    
    
    April 3, 1998 to2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    October 31, 2007ExpendituresExploration costs
    
    $
    17,509,171
    
    
    $
    1,948,198
    
    
    $
    22,550,689
    
    
    $
    2,597,470
    
    
    $
    60,400,935Stock-based compensation expense
    
    
    7,549,020
    
    
    
    11,202,425
    
    
    
    8,733,227
    
    
    
    33,211,022
    
    
    
    50,114,940Corporate salaries
    
    
    541,555
    
    
    
    688,821
    
    
    
    1,301,443
    
    
    
    972,788
    
    
    
    3,770,103Professional fees
    
    
    433,246
    
    
    
    431,978
    
    
    
    898,109
    
    
    
    1,005,316
    
    
    
    4,660,934Depreciation
    
    
    265,843
    
    
    
    
    
    
    
    502,073
    
    
    
    
    
    
    
    869,900Office
    
    
    197,939
    
    
    
    169,287
    
    
    
    423,074
    
    
    
    486,132
    
    
    
    1,907,891Corporate communication
    
    
    186,651
    
    
    
    100,254
    
    
    
    277,282
    
    
    
    180,839
    
    
    
    4,000,618Foreign exchange (gain) loss
    
    
    (88,632
    )
    
    
    81,486
    
    
    
    (187,193
    )
    
    
    81,486
    
    
    
    13,829Board fees and expenses
    
    
    82,267
    
    
    
    85,617
    
    
    
    156,323
    
    
    
    85,617
    
    
    
    403,347Travel
    
    
    69,813
    
    
    
    80,795
    
    
    
    243,430
    
    
    
    109,147
    
    
    
    709,059Transfer agent fee
    
    
    47,241
    
    
    
    175,112
    
    
    
    73,458
    
    
    
    186,502
    
    
    
    678,901Interest and bank charges
    
    
    463
    
    
    
    1,776
    
    
    
    1,054
    
    
    
    24,781
    
    
    
    1,020,052Consulting
    
    
    
    
    
    
    1,999,499
    
    
    
    
    
    
    
    3,607,783
    
    
    
    14,203,844Non-cash financing expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,472,143Management fee
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    414,60226,794,577
    
    
    
    16,965,248
    
    
    
    34,972,969
    
    
    
    42,548,883
    
    
    
    179,641,098Other ItemsInterest income
    
    
    (541,906
    )
    
    
    (450,956
    )
    
    
    (1,109,870
    )
    
    
    (741,542
    )
    
    
    (2,913,894
    )Gain on extinguishment of certain
liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (936,469
    )Net loss before income tax recovery and
non-controlling shareholder interest
    
    
    26,252,671
    
    
    
    16,514,292
    
    
    
    33,863,099
    
    
    
    41,807,341
    
    
    
    175,790,735Income tax recovery
    
    
    (5,814,000
    )
    
    
    (899,733
    )
    
    
    (7,233,944
    )
    
    
    (1,096,174
    )
    
    
    (9,602,717
    )Net loss before non-controlling shareholder
interest
    
    
    20,438,671
    
    
    
    15,614,559
    
    
    
    26,629,155
    
    
    
    40,711,167
    
    
    
    166,188,018Non-controlling shareholder interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,151,083
    )
    
    
    (8,123,254
    )Net loss
    
    $
    20,438,671
    
    
    $
    15,614,559
    
    
    $
    26,629,155
    
    
    $
    35,560,084
    
    
    $
    158,064,764Net Loss Per Share
    
    $
    (0.11
    )
    
    $
    (0.12
    )
    
    $
    (0.14
    )
    
    $
    (0.29
    )Weighted Average Number of Common Shares
Outstanding
    
    
    187,430,122
    
    
    
    130,054,507
    
    
    
    184,927,498
    
    
    
    123,888,304
   4




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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Consolidated Statements of Stockholders Equity
(Unaudited)
 DeficitAccumulatedAdditional
    
    
    Other
    
    
    During the
    
    
    TotalCommon Stock
    
    
    Preferred Stock
    
    
    paid-in
    
    
    Comprehensive
    
    
    Exploration
    
    
    Stockholders'Shares
    
    
    Par Value
    
    
    Shares
    
    
    Par Value
    
    
    Capital
    
    
    Income (Loss)
    
    
    Stage
    
    
    EquityBalance, April 30, 2007
    
    
    164,624,278
    
    
    $
    164,624
    
    
    
    1
    
    
    $
    1
    
    
    $
    519,265,628
    
    
    $
    (1,161,099
    )
    
    $
    (131,435,609
    )
    
    $
    386,833,545Common stock issued for:Cash
    
    
    20,638,349
    
    
    
    20,639
    
    
    
    
    
    
    
    
    
    
    
    58,365,787
    
    
    
    
    
    
    
    
    
    
    
    58,386,426Premium on flow-through shares
allocated to liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,493,275
    )
    
    
    
    
    
    
    
    
    
    
    (1,493,275
    )Acquisition of royalty and Triple 7
joint venture interest
    
    
    750,000
    
    
    
    750
    
    
    
    
    
    
    
    
    
    
    
    3,291,750
    
    
    
    
    
    
    
    
    
    
    
    3,292,500Employee compensation
    
    
    44,000
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    116,387
    
    
    
    
    
    
    
    
    
    
    
    116,431Exchange of Exchangeable Shares
    
    
    4,739,079
    
    
    
    4,739
    
    
    
    
    
    
    
    
    
    
    
    (4,739
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,733,227
    
    
    
    
    
    
    
    
    
    
    
    8,733,227Share issue costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,773,486
    )
    
    
    
    
    
    
    
    
    
    
    (2,773,486
    )Proceeds from exercise of subsidiary warrants
and options (post reorganization)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    289,715
    
    
    
    
    
    
    
    
    
    
    
    289,715Other comprehensive incomeUnrealized loss on available for sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,393
    )
    
    
    
    
    
    
    (30,393
    )Exchange gain on translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70,893,465
    
    
    
    
    
    
    
    70,893,465Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,629,155
    )
    
    
    (26,629,155
    )Balance, October 31, 2007
    
    
    190,795,706
    
    
    $
    190,796
    
    
    
    1
    
    
    $
    1
    
    
    $
    585,790,994
    
    
    $
    69,701,973
    
    
    $
    (158,064,764
    )
    
    $
    497,619,000Balance, April 30, 2006
    
    
    115,046,408
    
    
    $
    115,046
    
    
    
    
    
    
    
    
    
    
    $
    77,724,920
    
    
    $
    256,085
    
    
    $
    (62,640,868
    )
    
    $
    15,455,183Common stock issued for:Cash
    
    
    11,207,802
    
    
    
    11,208
    
    
    
    
    
    
    
    
    
    
    
    50,974,105
    
    
    
    
    
    
    
    
    
    
    
    50,985,313Settlement of debt
    
    
    3,523,727
    
    
    
    3,524
    
    
    
    
    
    
    
    
    
    
    
    18,689,096
    
    
    
    
    
    
    
    
    
    
    
    18,692,620Cashless exercise of warrants
    
    
    2,213,953
    
    
    
    2,214
    
    
    
    
    
    
    
    
    
    
    
    (2,214
    )
    
    
    
    
    
    
    
    
    
    
    Exchange of Exchangeable Shares
    
    
    5,530,494
    
    
    
    5,530
    
    
    
    
    
    
    
    
    
    
    
    (5,530
    )
    
    
    
    
    
    
    Preferred shares issued on reorganization
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    319,022,947
    
    
    
    
    
    
    
    
    
    
    
    319,022,948Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,211,022
    
    
    
    
    
    
    
    
    
    
    
    33,211,022Share issue costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,945,299
    )
    
    
    
    
    
    
    
    
    
    
    (1,945,299
    )Other comprehensive incomeExchange loss on translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (438,027
    )
    
    
    
    
    
    
    (438,027
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,560,084
    )
    
    
    (35,560,084
    )Balance, October 31, 2006
    
    
    137,522,384
    
    
    $
    137,522
    
    
    
    1
    
    
    $
    1
    
    
    $
    497,669,047
    
    
    $
    (181,942
    )
    
    $
    (98,200,952
    )
    
    $
    399,423,676
   5




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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
 From Inception onSix Months Ended
    
    
    April 3, 1998October 31,
    
    
    Through to2007
    
    
    2006
    
    
    October 31, 2007Operating ActivitiesNet loss
    
    $
    (26,629,155
    )
    
    $
    (35,560,084
    )
    
    $
    (158,064,764
    )Non-cash adjustments to net lossStock-based compensation expense
    
    
    8,733,227
    
    
    
    33,211,022
    
    
    
    50,114,940Income tax recovery
    
    
    (7,067,639
    )
    
    
    (1,096,174
    )
    
    
    (9,436,624
    )Depreciation
    
    
    502,073
    
    
    
    
    
    
    
    869,900Flow-through share premium liability
    
    
    (166,305
    )
    
    
    
    
    
    
    (166,305
    )Operating expenses paid with shares
    
    
    116,431
    
    
    
    
    
    
    
    11,070,439Non-controlling shareholder interest
    
    
    
    
    
    
    (5,151,083
    )
    
    
    (8,123,254
    )Non-cash financing expense
    
    
    
    
    
    
    
    
    
    
    36,472,143Gain on extinguishment of certain liabilities
    
    
    
    
    
    
    
    
    
    
    (936,469
    )Write-off of exploration property
    
    
    
    
    
    
    
    
    
    
    856,359Other
    
    
    
    
    
    
    20,260
    
    
    
    126,220Changes in Non-Cash Working CapitalAccounts receivable and prepaid expenses
    
    
    (1,286,181
    )
    
    
    (180,953
    )
    
    
    (1,683,574
    )Accounts payable
    
    
    5,659,940
    
    
    
    578,581
    
    
    
    12,905,143Cash Used in Operating Activities
    
    
    (20,137,609
    )
    
    
    (8,178,431
    )
    
    
    (65,995,846
    )Investing ActivitiesCapital expenditures
    
    
    (2,801,889
    )
    
    
    (18,974,433
    )
    
    
    (60,176,013
    )Short-term investment
    
    
    
    
    
    
    4,000,000
    
    
    
    (2,000,000
    )Other investments
    
    
    
    
    
    
    
    
    
    
    (416,799
    )Cash Used in Investing Activities
    
    
    (2,801,889
    )
    
    
    (14,974,433
    )
    
    
    (62,592,812
    )Financing ActivitiesIssuance of shares for cash
    
    
    55,612,940
    
    
    
    49,040,014
    
    
    
    152,505,937Bank loan
    
    
    (21,207,500
    )
    
    
    
    
    
    
    Shares issued on exercise of subsidiary
options and warrants post reorganization
    
    
    289,715
    
    
    
    
    
    
    
    1,345,300Shares issued by subsidiary to non-controlling interest
    
    
    
    
    
    
    250,273
    
    
    
    7,663,666Convertible debentures
    
    
    
    
    
    
    
    
    
    
    8,384,496Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    1,120,206Common stock returned to treasury
    
    
    
    
    
    
    
    
    
    
    (15,212
    )Cash Provided by Financing Activities
    
    
    34,695,155
    
    
    
    49,290,287
    
    
    
    171,004,393Inflow of Cash
    
    
    11,755,657
    
    
    
    26,137,423
    
    
    
    42,415,735Effects of exchange rate changes on cash
    
    
    3,240,331
    
    
    
    (421,963
    )
    
    
    4,974,124Cash, Beginning of Period
    
    
    32,393,871
    
    
    
    16,127,315
    
    
    
    Cash, End of Period
    
    $
    47,389,859
    
    
    $
    41,842,775
    
    
    $
    47,389,859Non-Cash Financing ActivitiesCommon stock issued for properties
    
    $
    3,292,500
    
    
    $
    
    
    
    $
    7,129,942Warrants granted on purchase of properties
    
    $
    
    
    
    $
    
    
    
    $
    1,763,929Common stock issued for services
    
    $
    116,431
    
    
    $
    1,204,383
    
    
    $
    10,504,594Common stock issued for debt settlement
    
    $
    
    
    
    $
    18,692,620
    
    
    $
    28,401,029
   6




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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
 1.
    
    DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONSOn October 31, 2006 CanWest Petroleum Corporation changed its name to Oilsands Quest Inc.
(OQI). At the same time the name of the Companys main operating subsidiary was changed from
Oilsands Quest Inc. to Oilsands Quest Sask Inc. (OQI Sask).OQI together with its subsidiaries (collectively referred to as the Company) is in the
exploration stage and follows the guidance for a development stage company as defined in
Statement No. 7 of the Financial Accounting Standards Board. The principal business activity
is the exploration and development of natural resource properties in Canada.2.
    
    BASIS OF PRESENTATIONThese consolidated financial statements have been prepared in accordance with United States of
America Generally Accepted Accounting Principles (US GAAP) and reflect all adjustments (all
of which are normal and recurring in nature) that, in the opinion of management, are necessary
for fair presentation of the interim financial information. The results of operations for the
interim periods presented are not necessarily indicative of the results to be expected for any
subsequent quarter or for the entire year ending April 30, 2008. Certain information and
footnote disclosures normally included in annual financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted. These unaudited
consolidated financial statements and notes included herein have been prepared on a basis
consistent with and should be read in conjunction with the Companys audited consolidated
financial statements and notes for the year ended April 30, 2007 as filed in its annual report
on Form 10-KSB, however, certain comparative figures have been reclassified to conform to
current financial statement presentation.The U.S. dollar is the functional currency for OQI (the parent company). The CDN dollar is the
functional currency for OQIs Canadian subsidiaries. The assets and liabilities of OQIs
Canadian subsidiaries are translated into U.S. dollars based on the current exchange rate in
effect at the balance sheet dates. Canadian income and expenses are translated at average
rates for the periods presented. Translation adjustments have no effect on net income and are
included in other comprehensive income in stockholders equity. Gains and losses arising from
transactions denominated in currencies other than the functional currency, which were not
material for all periods presented, are included in the results of operations of the period in
which they occur. Deferred taxes are not provided on translation gains and losses where OQI
expects earnings of a foreign operation to be permanently reinvested.Additions to accounting polices presented at April 30, 2007:
 a)
    
    Short-term investmentShort-term investment
consists of a Guaranteed Investment Certificate with an original
maturity date greater then 90 days which is valued at the lower of cost or market.
 3.
    
    PROPERTY AND EQUIPMENT
 October 31,
    
    
    April 30,2007
    
    
    2007OQI Sask Oil Sands Exploration Permits
    
    $
    605,996,607
    
    
    $
    511,999,565OQI Sask Oil Sands Exploration Licences
    
    
    2,450,978
    
    
    
    Pasquia Hills Oil Shale Exploration Permits
    
    
    3,854,648
    
    
    
    3,854,648Eagles Nest Oil Sands Lease
    
    
    2,354,835
    
    
    
    1,016,934Equipment
    
    
    4,977,507
    
    
    
    3,797,821619,634,575
    
    
    
    520,668,968Less: Accumulated Amortization
    
    
    1,002,611
    
    
    
    367,827Net Book Value
    
    
    618,631,964
    
    
    
    520,301,141
  7




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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
 3.
    
    PROPERTY AND EQUIPMENT (continued)The Companys Property and Equipment is recorded in Canadian subsidiaries which use the CDN
dollar as their functional currency. As a result, Property and Equipment includes a foreign
exchange translation adjustment of $92,738,507 that is due to the increase in the value of the
CDN dollar as compared to the U.S. dollar at April 30, 2007 and October 31, 2007. As the value
of the CDN dollar continues to fluctuate as compared to the U.S. dollar it is expected that
significant exchange translation adjustments will continue to occur in subsequent reporting
periods. The translation adjustment arises in the translation of the financial statements of
Canadian subsidiaries from their CDN dollar functional currency to the U.S. dollar reporting
currency.
 a)
    
    OQI Sask Oil Sands Exploration PermitsThe Company holds oil sands exploration permits in the Canadian provinces of Alberta and
Saskatchewan.On July 9, 2007, in accordance with the terms of the Saskatchewan exploration permits, OQI
Sask completed the second and final relinquishment of its Saskatchewan permit lands. At
April 30, 2007, the Saskatchewan exploration permits comprised an area totaling 846,680
acres and following all relinquishments the Saskatchewan permit lands comprised an area
totaling 508,026 acres. The Saskatchewan permit lands constitute a single asset for
accounting purposes and the carrying value of the Saskatchewan permit lands is supported
by the estimated fair value of the 508,026 acres held after the final relinquishment.At April 30, 2007, the Saskatchewan exploration permits were subject to two royalties
totaling $0.11 per barrel, whereby one of the royalties for $0.07 per barrel could be
acquired at any time by paying $7,000,000. On September 21, 2007, in conjunction with the
acquisition of the interests of an external joint venture partner to the Triple 7 Joint
Venture (note 3d)), the Company acquired the $0.07 per barrel royalty obligation for
consideration of $99,980 ($100,000 CDN) cash plus the issuance of 500,000 shares of its
common stock valued at $2,195,000 based on the September 20, 2007 closing market price of
the shares. The Saskatchewan exploration permits are now only subject to $0.04 per barrel
royalty.b)
    
    OQI Sask Oil Sands Exploration LicensesOn August 13, 2007, the Company acquired five oil sands exploration licenses totaling
109,920 acres granted under The Petroleum and Natural Gas Amendment Regulations 2007
(Saskatchewan) for an aggregate cost of $2,140,233 ($2,249,089 CDN). The oil sands
licenses were acquired in a land sale bonus bid process and provide the opportunity to
convert up to 100% of the license to a production lease on the basis of one section of land
for every well that intersects an oil sands zone. Licenses are granted for a five year
primary term and require annual rental payments of $0.75 ($0.71 CDN) per acre.c)
    
    Pasquia Hills, Oil Shale Exploration PermitsAt April 30, 2007, the Company held approximately 406,000 acres located near Hudson Bay,
Saskatchewan under exploration permits granted under the Oil Shale Regulations, 1964
subject to amendment from time to time.On August 13, 2007, the
Company acquired one additional oil shale exploratory permit
granted under The Petroleum and Natural Gas Amendment Regulations 2007 (Saskatchewan)
totaling 83,769 acres in the same area near Hudson Bay, Saskatchewan. This oil shale
permit was acquired under a land sale work commitment bid for the first two years of the
permit. The Company bid a total work commitment of $317,473 ($301,568 CDN) during the
first two years of the permit and the permit requires a work commitment of $0.84 ($0.80
CDN) per acre for the last three years and $1.26 ($1.20 CDN) for each extension year plus
annual rental payments of $0.11 ($0.10 CDN) per acre.
  8




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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
 3.
    
    PROPERTY AND EQUIPMENT (continued)
 d)
    
    Eagles Nest, Oil Sands LeaseThe Eagles Nest Oil Sands Lease was acquired in 2005 pursuant to a joint venture agreement
(the Triple 7 Joint Venture Agreement). Under the Triple 7 Joint Venture Agreement the
Company is required to make annual payments to each of three external joint venture
partners to the agreement in the amount of $157,911 ($150,000 CDN); on commencement of
construction of a commercial project pay a lump sum payment of $2,105,484 ($2,000,000 CDN)
to each of the three external partners; and to pay a royalty at a rate of $0.032 ($0.03
CDN) per barrel of bitumen produced, saved or sold, subject to a annual minimum of
$157,911 ($150,000 CDN) to each of the three external joint venture partners. On
September 21, 2007, in conjunction with the acquisition of the royalty described in note
3a), the Company acquired all of the rights of one of the three external joint venture
partners for consideration of $49,939 ($50,000 CDN) plus the issuance of 250,000 shares of
the Companys common stock valued at $1,097,500 based on the September 20, 2007 closing
market price of the shares. The Companys obligations under the Triple 7 Joint Venture
Agreement have therefore been reduced by one third.
 4.
    
    LOAN PAYABLEOn March 21, 2007 the Company funded the acquisition of OQI Sask permit lands in Alberta using
a line of credit from a Canadian bank under a Credit Agreement dated March 19, 2007. OQI Sask
was the borrower with OQI providing a secured guarantee. OQI Sask borrowed $22,589,681
($25,000,000 CDN) under the Credit Agreement. The loan was repaid on May 4, 2007 and all
security has been released.5.
    
    SUBSIDIARY OPTIONS AND WARRANTS OUTSTANDINGOQI acquired the non-controlling shareholder interest in OQI Sask in August 2006. Certain
options and warrants issued by OQI Sask remained outstanding after the reorganization. On
exercise, each OQI Sask option may be exchanged into 8.23 Exchangeable Shares which are
exchangeable into OQI common shares. Transactions in OQI Sask options and warrants during the
six months ended October 31, 2007 and OQI Sask options outstanding at October 31, 2007 are
detailed below.A summary of OQI Sask share purchase warrant activity is as follows:
 Weighted AverageNumber
    
    
    Exercise Price (CDN)Issued and outstanding, April 30, 2007
    
    
    16,000
    
    
    $
    2.00Exercised
    
    
    (16,000
    )
    
    $
    2.00Issued and outstanding, October 31, 2007
    
    
    
  Weighted AverageNumber
    
    
    Exercise Price (CDN)Issued and outstanding, April 30, 2007
    
    
    1,775,000
    
    
    $
    16.55Exercised
    
    
    (45,000
    )
    
    $
    6.00Issued and outstanding, October 31, 2007
    
    
    1,730,000
    
    
    $
    16.83
  9




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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
 5.
    
    SUBSIDIARY OPTIONS AND WARRANTS OUTSTANDING (continued)
 Number
    
    
    Number
    
    
    Weighted AverageExercise
    
    Outstanding at
    
    
    Exercisable at
    
    
    Remaining ContractualPrice (CDN)
    
    October 31, 2007
    
    
    October 31, 2007
    
    
    Life$ 0.50
    
    
    100,000
    
    
    
    100,000
    
    
    2.04 years$ 3.00
    
    
    100,000
    
    
    
    100,000
    
    
    2.75 years$ 6.00
    
    
    565,000
    
    
    
    565,000
    
    
    3.30 years$25.00
    
    
    915,000
    
    
    
    715,000
    
    
    3.50 years$50.00
    
    
    50,000
    
    
    
    25,000
    
    
    3.75 years1,730,000
    
    
    
    1,505,000
    
    
    3.32 years
  6.
    
    PREFERRED SHARESAs detailed in the Companys 2007 10-KSB filing, OQI acquired the non-controlling shareholder
interest in OQI Sask in August 2006. Holders of OQI Sask common shares received Exchangeable
Shares which can be exchanged into shares of OQI common stock at each holders option.
Transactions in Exchangeable Shares during the six months ended October 31, 2007 are detailed
below. For voting purposes holders of Exchangeable Shares are represented by one outstanding
Series B preferred share which carries a number of votes equal to the number of Exchangeable
Shares then outstanding.
 OQI SaskExchangeableOQI Sask
    
    
    Shares issuable
    
    
    TotalExchangeable
    
    
    on exercise of OQI
    
    
    ExchangeableShares
    
    
    Sask options
    
    
    SharesBalance, April 30, 2007
    
    
    33,527,359
    
    
    
    14,739,930
    
    
    
    48,267,289OQI Sask options and warrants exercised
    
    
    502,030
    
    
    
    (502,030
    )
    
    
    Exchangeable Shares exchanged into
OQI common shares
    
    
    (4,739,079
    )
    
    
    
    
    
    
    (4,739,079
    )Balance, October 31, 2007
    
    
    29,290,310
    
    
    
    14,237,900
    
    
    
    43,528,210
 7.
    
    COMMON STOCKOn May 3, 2007, the Company issued 13,900,000 common shares at a price of $2.75 per share for
gross proceeds of $38,225,000 pursuant to a private placement. In connection with the private
placement, the Company paid an aggregate of $2,197,938 in fees to the agents pursuant to an
agency agreement.On May 3, 2007, the Company issued 2,164,166 flow-through common shares at a price of $3.44
($3.85 CDN) per share for gross proceeds of $7,444,731 ($8,332,039 CDN) in a private placement
pursuant to an amended underwriting agreement originally entered into on March 6, 2007. These
common shares have been issued on a flow through basis whereby the proceeds must be used for
exploration in Canada and the tax benefits from that exploration will flow through to the
subscribers. The Company will renounce the tax benefits to the subscribers at December 31,
2007. In connection with this private placement, the Company received an additional payment of
$3,499,419 ($3,873,857 CDN) from the underwriters pursuant to their obligations under the
underwriting agreement, as amended. The Company paid an aggregate of $551,305 ($610,295 CDN)
in fees to the underwriters.
  10




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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
 7.
    
    COMMON STOCK (continued)The May 3, 2007 flow-through private placement was issued at a premium to the then market price
in recognition of the tax benefits accruing to subscribers. In accordance with US GAAP, the
premium is recorded as a current liability and will be drawn down as a reduction of deferred
tax expense as the flow-through expenditures are incurred.On September 21, 2007, the Company issued 750,000 common shares as part of the consideration
provided for the purchase of a royalty which encumbered the Saskatchewan permit lands and the
interests of one of the joint venture partners to the Triple 7 Joint Venture Agreement in the
Eagles Nest Prospect (Note 3a) and d)).8.
    
    STOCK OPTIONSAt October 31, 2007, OQI had outstanding options under the Companys Stock Option Plan 2006
(SOP 2006) to purchase that same number of shares as follows:
 Stock option
    
    Exercise
    
    
    NumberExpiry Date
    
    Price
    
    
    of Options1-Jan-08
    
    $
    2.00
    
    
    
    400,0008-Feb-08
    
    $
    4.62
    
    
    
    250,00017-Feb-09
    
    $
    4.57
    
    
    
    250,0009-Mar-08
    
    $
    4.60
    
    
    
    250,0001-May-11
    
    $
    6.75
    
    
    
    1,000,00014-Aug-11
    
    $
    6.75
    
    
    
    1,000,0001-May-12
    
    $
    6.75
    
    
    
    1,000,0001-May-13
    
    $
    6.75
    
    
    
    1,000,00018-May-08
    
    $
    6.00
    
    
    
    300,00018-May-09
    
    $
    6.00
    
    
    
    30,00023-Aug-08
    
    $
    5.05
    
    
    
    75,00023-Aug-11
    
    $
    5.05
    
    
    
    2,870,0002-Oct-11
    
    $
    3.89
    
    
    
    400,0001-Dec-11
    
    $
    5.25
    
    
    
    50,00029-Jun-12
    
    $
    2.47
    
    
    
    100,0001-Aug-12
    
    $
    4.27
    
    
    
    4,112,00031-Aug-12
    
    $
    5.04
    
    
    
    30,00011-Oct-12
    
    $
    4.60
    
    
    
    150,00013,267,000
  1,000,000
    
    
    options at $6.75 with an expiry date of May 1, 2013 which vest on May 1, 2008;717,500
    
    
    options at $5.05 which vest as to 358,750 in each of 2008 and 2009 on August 23;100,000
    
    
    options at $3.89 which vest as to 25,000 in each of 2008 and 2009 on October 2;18,750
    
    
    options at $5.25 which vest as to 6,250 in each of 2007, 2008 and 2009 on December 1;75,000
    
    
    options at $2.47 which vest as to 25,000 on each of June 29, 2008, 2009, and 2010;3,084,000
    
    
    options at
$4.27 which vest as to 1,028,000 in each of 2008, 2009 and 2010 on August 1;22,500
    
    
    options at $5.04 which vest as to 7,500 on February 28, 2007 and 15,000 on August 31, 2007;112,500
    
    
    options at $4.60 which vest as to 37,500 on each of October 11, 2008, 2009, and 2010;1,660,000
    
    
    options which vest on or after dates between August 23 and December 1, 2009 as to
415,000 upon achieving a 750 million bitumen in place (BIP) barrel count defined as the
high resource (P10) estimate of bitumen in place (as determined in accordance with
National Instrument 51-101 Standard of Disclosure for Oil and Gas Activities issued by
the securities regulatory authorities in Canada) and 415,000 options thereafter for each
250 million increase in the BIP barrel count.6,790,250
  11




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OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
 8.
    
    STOCK OPTIONS (continued)A summary of OQIs stock option activity is as follows:
 WeightedNumber of
    
    
    AverageOptions
    
    
    Exercise PriceBalance, April 30, 2007
    
    
    10,125,000
    
    
    $
    5.33Granted during the six months ended October 31, 2007
    
    
    4,392,000
    
    
    $
    4.25Exercised
    
    
    (806,250
    )
    
    $
    2.32Cancelled
    
    
    (443,750
    )
    
    $
    4.97Balance, October 31, 2007
    
    
    13,267,000
    
    
    $
    5.17
 In addition, the Board of Directors granted 44,000 bonus common shares to employees under the
Companys Stock Option Plan 2006 (SOP 2006). These bonus common shares were valued at the
closing common share price on the date of grant, August 1, 2007.As set out in Note 5 above, OQI Sask has 1,730,000 outstanding options which may be exercised
and exchanged into 14,237,900 Exchangeable Shares.During the six months ended October 31, 2007, 4,392,000 options were granted and were accounted
for using the Black-Scholes option-pricing model. As at October 31, 2007, the Company had an
unrecognized stock option compensation expense of $18,417,940 which will be recorded in future
periods as options vest.9.
    
    WARRANTSOQI had the following warrants outstanding to purchase that same number of common shares at
October 31, 2007:
 Expiry
    
    Exercise
    
    
    Number ofDate
    
    Price
    
    
    WarrantsDecember 12, 2007
    
    $
    2.00
    
    
    
    3,578,333December 15, 2007
    
    $
    2.00
    
    
    
    1,500,000December 15, 2007
    
    $
    1.75
    
    
    
    9,8015,088,134
  WeightedNumber
    
    
    AverageOf Warrants
    
    
    Exercise PriceBalance, April 30, 2007
    
    
    8,856,067
    
    
    $
    1.98Exercised
    
    
    (3,767,933
    )
    
    $
    1.95Balance, October 31, 2007
    
    
    5,088,134
    
    
    $
    2.00
  12




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OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
 10.
    
    COMPREHENSIVE INCOME
 Three months ended
    
    
    Six months ended October 31,July 31, 2007
    
    
    October 31, 2007
    
    
    2007
    
    
    2006Net Loss
    
    $
    6,190,484
    
    
    $
    20,438,671
    
    
    $
    26,629,155
    
    
    $
    35,560,084Other comprehensive incomeUnrealized (gain) loss on available
for sale securities
    
    
    (39,101
    )
    
    
    69,494
    
    
    
    30,393
    
    
    
    Foreign exchange (gain) loss
on translation
    
    
    (5,367,292
    )
    
    
    (65,526,173
    )
    
    
    (70,893,465
    )
    
    
    438,027Total Comprehensive (Gain) Loss
    
    $
    784,091
    
    
    $
    (45,018,008
    )
    
    $
    (44,233,917
    )
    
    $
    35,998,111
  11.
    
    SUBSEQUENT EVENTS
 (a)
    
    On December 5, 2007, the Company issued 11,000,000 units at a price of $5.00 per
unit for gross proceeds of $55,000,000 pursuant to a marketed public offering. Each unit
is comprised of one common share and one-half of a common share purchase warrant with
each whole warrant entitling the holder to purchase one common share of the Company for
$6.75 per share for a period of 24 months following the closing of the offering.(b)
    
    On December 5, 2007, the Company issued 2,600,000 Flow-Through common shares at a
price of $6.11 ($6.17 CDN) per share for gross proceeds of $15,886,000 ($16,042,000 CDN)
in a marketed public offering.(c)
    
    Subsequent to October 31, 2007, 3,273,332 warrants and options have been exercised
into the same number of OQI common shares for proceeds of $7,196,664.
  13




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
  
    
    During the six months ended October 31, 2007, $55.6 million, net of issuance costs, was
raised through private placement share issuances and proceeds of warrant and option
exercises to pre-fund the Companys exploration programs and general corporate
requirements.
 
    
    On May 4, 2007, the Company repaid a loan payable of $22.6 million ($25.0 million CDN)
originally incurred to fund the acquisition of oil sands exploration permits in Alberta
adjacent to its Saskatchewan oil sands permits.
 
    
    Exploration costs incurred during the six months ended October 31, 2007 were $22.6
million compared to $2.6 million during the same period in 2006 due to increased
exploration activities summarized below.
 
    
    The Company continued to advance its pre-commercialization evaluation studies of its Axe
Lake Discovery, including opening a technical facility in Calgary, Alberta and finalizing
plans for a technical office in Regina, Saskatchewan.
    14




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##### Table of Contents




    
    continue exploration in Saskatchewan and on adjacent Alberta permits;
 
    
    evaluate drilling data and perform laboratory studies of bitumen characterization and
recovery methods;
 
    
    undertake computer reservoir modeling studies;
 
    
    conduct environmental programs to establish base-line data and facilitate regulatory
approvals;
 
    
    engineer and procure surface and downhole equipment for reservoir field tests;
 
    
    develop engineering timelines and designs of pilot plan production testing facilities;
 
    
    conduct advanced economic feasibility and risk assessment studies;
 
    
    drill test wells to confirm laboratory studies; and,
 
    
    initiate joint venture partnership negotiations for the development of the Axe Lake
Discovery.
  Liquidity and Capital Resources
    15




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16




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Changes in Financial Condition
 Net loss
 Three Months Ended October 31, 2007 as compared to October 31, 2006.
 Six Months Ended October 31, 2007 as compared to October 31, 2006.
 Exploration costs
 Three Months Ended October 31, 2007 as compared to October 31, 2006.
  17




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##### Table of Contents



Six Months Ended October 31, 2007 as compared to October 31, 2006.
 Stock-based compensation expense
 Three Months Ended October 31, 2007 as compared to October 31, 2006.
 Six Months Ended October 31, 2007 as compared to October 31, 2006.
 Corporate salaries
 Three Months Ended October 31, 2007 as compared to October 31, 2006.
 Six Months Ended October 31, 2007 as compared to October 31, 2006.
 Professional fees
 Three Months Ended October 31, 2007 as compared to October 31, 2006.
 Six Months Ended October 31, 2007 as compared to October 31, 2006.
  18




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##### Table of Contents



Office
 Three Months Ended October 31, 2007 as compared to October 31, 2006.
 Six Months Ended October 31, 2007 as compared to October 31, 2006.
 Corporate communication
 Three Months Ended October 31, 2007 as compared to October 31, 2006.
 Six Months Ended October 31, 2007 as compared to October 31, 2006.
 Board fees and expenses
 Three Months Ended October 31, 2007 as compared to October 31, 2006.
 Six Months Ended October 31, 2007 as compared to October 31, 2006.
 Travel
 Three Months Ended October 31, 2007 as compared to October 31, 2006.
 Six Months Ended October 31, 2007 as compared to October 31, 2006.
 Transfer agent fees
 Three Months Ended October 31, 2007 as compared to October 31, 2006.
 Six Months Ended October 31, 2007 as compared to October 31, 2006.
  19




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##### Table of Contents



Consulting
  Interest income
 Three Months Ended October 31, 2007 as compared to October 31, 2006.
 Six Months Ended October 31, 2007 as compared to October 31, 2006.
  Critical Accounting Policies
    Foreign currency translation
   20




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Item 4. Controls and Procedures
      
 PART II  OTHER INFORMATION
 
 ITEM 1A. Risk Factors
  Fiscal Regime
    21




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ITEM 2. Unregistered Sales of Equity Securities
     22




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23




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ITEM 4. Submission of Matters to a Vote of Security Holders.
 Results of Annual General Meeting of Shareholders
  Name
    
    Votes FOR
    
    WITHHOLD Authority To VoteRonald Phillips
    
    
    111,997,258
    
    
    
    2,482,852W. Scott Thompson
    
    
    112,993,041
    
    
    
    1,487,069
  
 ITEM 6. Exhibits.
 3.1
    
    Articles of Incorporation,as amended. (1), (2), (3), (4), (5)3.2
    
    Bylaws, as amended.(6)(7)31.1
    
    Certification of CEO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.31.2
    
    Certification of CFO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith.32.1
    
    Certification of CEO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.32.2
    
    Certification of CFO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
 
 (1)
    
    Incorporated by reference from Form 10-SB, filed October 14, 1999; and Form
8-K, filed November 29, 2004.(2)
    
    Incorporated by reference from Form 10-QSB dated December 14, 2005.(3)
    
    Incorporated by reference from Form 8-K dated March 13, 2006.(4)
    
    Incorporated by reference from Form 8-K dated August 14, 2006.(5)
    
    Incorporated by reference herein from Form 10-QSB filed December 15, 2006.(6)
    
    Incorporated by reference herein from Form 8-K filed July 26, 2007.(7)
    
    Incorporated by reference herein from Form 8-K filed November 23, 2007.  24




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##### Table of Contents



SIGNATURES
  OILSANDS QUEST INC.Date: December 14, 2007
    By:
    /s/ Christopher H. HopkinsChristopher H. Hopkins, President,Chief Executive Officer and DirectorDate: December 14, 2007
    By:
    /s/ Karim HirjiKarim Hirji, Chief Financial Officer andChief Accounting Officer  25




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNo.
    
    Description31.1
    
    Certification of CEO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.31.2
    
    Certification of CFO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith.32.1
    
    Certification of CEO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.32.2
    
    Certification of CFO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
  26