##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-QSB
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended January 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: 0-27659
 OILSANDS QUEST INC.
  Colorado
    
    98-0461154(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 205, 707  7th Avenue SW, Calgary, Alberta, Canada T2P 3H6
 (Issuers telephone number)
 
  þ o
 o þ
  o þ




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##### 



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Nine Months Ended January 31, 2007 and 2006
(Unaudited  Prepared by Management)
 INDEX TO INTERIM FINANCIAL STATEMENTSConsolidated Balance Sheets
    
    F-1Consolidated Statements of Operations
    
    F-2Consolidated Statements of Stockholders Equity
    
    F-3Consolidated Statements of Cash Flows
    
    F-4Notes to the Consolidated Financial Statements
    
    F-5 to F-21




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
 
 Consolidated Balance Sheets
 January 31,
    
    
    April 30,2007
    
    
    2006(Unaudited)
    
    
   (Audited)ASSETSCurrentCash (note 2 (f))
    
    $
    36,291,681
    
    
    $
    22,127,315Accounts receivable
    
    
    774,184
    
    
    
    443,895Prepaid expenses (note 15 (a))
    
    
    1,442,139
    
    
    
    1,245,20238,508,004
    
    
    
    23,816,412Properties(note 4)
    
    
    355,759,401
    
    
    
    17,123,098Investment in Watch Resources Ltd.(note 5)
    
    
    310,291
    
    
    
    310,291$
    394,577,696
    
    
    $
    41,249,801LIABILITIESCurrentAccounts payable (note 6)
    
    $
    5,227,361
    
    
    $
    19,682,268Convertible debentures (note 7)
    
    
    
    
    
    
    295,9285,227,361
    
    
    
    19,978,196Future Income taxes
    
    
    
    
    
    
    1,080,821Non-controlling shareholder interest(note 8)
    
    
    
    
    
    
    4,735,6015,227,361
    
    
    
    25,794,618Commitments and contingencies(notes 2, 3, 4, 9, 10, 11, 12, 13 and 15)STOCKHOLDERS EQUITYCapital StockAuthorized500,000,000 Common stock with a par value of $0.001 each
(notes 9, 10, 11 and 12)10,000,000 Preferred stock with a par value of $0.001 each
(notes 3(a) and 9)Issued153,199,336 Common stock
    
    
    153,199115,046,408 Common stock
    
    
    
    
    
    
    115,0461 Series B Preferred stock (notes 3(a) and 9(b))
    
    
    1Additional Paid-in Capital
    
    
    503,419,148
    
    
    
    77,724,920Deficit Accumulated During Exploration Stage
    
    
    (112,466,451
    )
    
    
    (62,640,868
    )Other Comprehensive (Loss) Income
    
    
    (1,755,562
    )
    
    
    256,085389,350,335
    
    
    
    15,455,183$
    394,577,696
    
    
    $
    41,249,801
  F-1




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
 
 Consolidated Statements of Operations
 (Unaudited  Prepared by Management)
 Frominception onThree Months Ended
    
    
    Nine Months Ended
    
    
    April 3, 1998January 31,


    
    
    January 31,

    
    
    through to2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    January 31, 2007ExpendituresStock-based compensation expense (note 16)
    
    $
    3,366,840
    
    
    $
    
    
    
    $
    36,577,862
    
    
    $
    
    
    
    $
    36,577,862Exploration costs
    
    
    10,057,967
    
    
    
    3,813,360
    
    
    
    12,655,436
    
    
    
    4,885,393
    
    
    
    23,627,774Consulting (note 16)
    
    
    259,508
    
    
    
    6,270,764
    
    
    
    3,867,292
    
    
    
    8,237,411
    
    
    
    15,677,974Professional fees
    
    
    409,100
    
    
    
    217,978
    
    
    
    1,414,416
    
    
    
    405,877
    
    
    
    3,191,903Corporate salaries
    
    
    166,338
    
    
    
    
    
    
    
    1,139,126
    
    
    
    
    
    
    
    1,139,126Office
    
    
    89,950
    
    
    
    155,585
    
    
    
    576,083
    
    
    
    261,820
    
    
    
    1,266,035Transfer agent fee
    
    
    58,800
    
    
    
    27,020
    
    
    
    245,303
    
    
    
    82,210
    
    
    
    495,421Advertising and promotion
    
    
    61,757
    
    
    
    992,518
    
    
    
    242,597
    
    
    
    1,617,775
    
    
    
    3,581,339Travel
    
    
    46,987
    
    
    
    37,330
    
    
    
    156,134
    
    
    
    74,572
    
    
    
    438,666Board fees and expenses
    
    
    65,338
    
    
    
    
    
    
    
    150,955
    
    
    
    
    
    
    
    150,955Other Items
    
    
    1,026
    
    
    
    
    
    
    
    82,511
    
    
    
    
    
    
    
    208,731Interest and bank charges
    
    
    274
    
    
    
    303,748
    
    
    
    25,055
    
    
    
    461,147
    
    
    
    774,392Non-cash financing expense
    
    
    
    
    
    
    408,899
    
    
    
    
    
    
    
    6,094,908
    
    
    
    36,472,143Management fee
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    414,60214,583,885
    
    
    
    12,227,202
    
    
    
    57,132,770
    
    
    
    22,121,113
    
    
    
    124,016,923Other ItemsGain on extinquishment of a liability
on sale of a subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (736,782
    )
    
    
    (936,469
    )Interest income
    
    
    (387,834
    )
    
    
    (59,096
    )
    
    
    (1,129,377
    )
    
    
    (109,835
    )
    
    
    (1,402,681
    )Net loss before income tax recovery
and non-controlling
shareholder interest
    
    
    14,196,051
    
    
    
    12,168,106
    
    
    
    56,003,393
    
    
    
    21,274,496
    
    
    
    121,677,773Income tax expense (recovery)
    
    
    69,447
    
    
    
    (38,351
    )
    
    
    (1,026,727
    )
    
    
    (32,651
    )
    
    
    (1,088,068
    )Net loss before non-controlling
shareholder interest
    
    
    14,265,498
    
    
    
    12,129,755
    
    
    
    54,976,666
    
    
    
    21,241,845
    
    
    
    120,589,705Non-controlling shareholder interest
    
    
    
    
    
    
    (1,170,719
    )
    
    
    (5,151,083
    )
    
    
    (1,516,538
    )
    
    
    (8,123,254
    )Net loss
    
    $
    14,265,498
    
    
    $
    10,959,036
    
    
    $
    49,825,583
    
    
    $
    19,725,307
    
    
    $
    112,466,451Net Loss Per Share
    
    $
    0.10
    
    
    $
    0.12
    
    
    $
    0.38
    
    
    $
    0.27Weighted Average Number
of Shares Outstanding
    
    
    141,989,112
    
    
    
    91,394,612
    
    
    
    129,974,884
    
    
    
    73,629,373
  F-2




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
 
 Consolidated Statements of Stockholders Equity
 For the Nine Months Ended January 31, 2007 and the Year Ended April 30, 2006
 (Unaudited  Prepared by Management)
 DeficitAdditional
    
    
    Other
    
    
    Accumulated
    
    
    TotalCommon Stock
    
    
    Preferred Stock
    
    
    Paid-in
    
    
    Comprehensive
    
    
    During the
    
    
    StockholdersShares
    
    
    Par Value
    
    
    Shares
    
    
    Par Value
    
    
    Capital
    
    
    (Loss) Income
    
    
    Exploration Stage
    
    
    EquityBalance, April 30, 2005
    
    
    58,408,661
    
    
    $
    58,409
    
    
    
    
    
    
    $
    
    
    
    $
    13,835,432
    
    
    $
    (165,834
    )
    
    $
    (9,999,965
    )
    
    $
    3,728,042Common stock issued for:Cash
    
    
    24,512,052
    
    
    
    24,512
    
    
    
    
    
    
    
    
    
    
    
    28,888,364
    
    
    
    
    
    
    
    
    
    
    
    28,912,876Cashless exercise of warrants
and options
    
    
    10,971,013
    
    
    
    10,971
    
    
    
    
    
    
    
    
    
    
    
    (10,971
    )
    
    
    
    
    
    
    
    
    
    
    Property
    
    
    385,880
    
    
    
    385
    
    
    
    
    
    
    
    
    
    
    
    500,059
    
    
    
    
    
    
    
    
    
    
    
    500,444Services
    
    
    11,746,945
    
    
    
    11,747
    
    
    
    
    
    
    
    
    
    
    
    9,298,262
    
    
    
    
    
    
    
    
    
    
    
    9,310,009Settlement of debt
    
    
    9,021,857
    
    
    
    9,022
    
    
    
    
    
    
    
    
    
    
    
    5,449,975
    
    
    
    
    
    
    
    
    
    
    
    5,458,997Stock option compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,314,505
    
    
    
    
    
    
    
    
    
    
    
    1,314,505Beneficial conversion feature of
convertible debenture and warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,449,294
    
    
    
    
    
    
    
    
    
    
    
    18,449,294Other comprehensive incomeExchange gain on translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    421,919
    
    
    
    
    
    
    
    421,919Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (52,640,903
    )
    
    
    (52,640,903
    )Balance, April 30, 2006
    
    
    115,046,408
    
    
    
    115,046
    
    
    
    
    
    
    
    
    
    
    
    77,724,920
    
    
    
    256,085
    
    
    
    (62,640,868
    )
    
    
    15,455,183Common stock issued for:Cash
    
    
    12,267,991
    
    
    
    12,268
    
    
    
    
    
    
    
    
    
    
    
    52,756,921
    
    
    
    
    
    
    
    
    
    
    
    52,769,189Settlement of debt
    
    
    3,523,727
    
    
    
    3,524
    
    
    
    
    
    
    
    
    
    
    
    18,689,096
    
    
    
    
    
    
    
    
    
    
    
    18,692,620Cashless exercise of warrants
    
    
    2,213,953
    
    
    
    2,214
    
    
    
    
    
    
    
    
    
    
    
    (2,214
    )
    
    
    
    
    
    
    
    
    
    
    Preferred shares issued on reorganization
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    319,022,947
    
    
    
    
    
    
    
    
    
    
    
    319,022,948Exchange of exchangeable shares
    
    
    20,147,257
    
    
    
    20,147
    
    
    
    
    
    
    
    
    
    
    
    (20,147
    )
    
    
    
    
    
    
    
    
    
    
    Stock option compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,577,862
    
    
    
    
    
    
    
    
    
    
    
    36,577,862Share issue costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,945,299
    )
    
    
    
    
    
    
    
    
    
    
    (1,945,299
    )Proceeds of exercise of subsidiary warrants and options (post reorganization)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    615,062
    
    
    
    
    
    
    
    
    
    
    
    615,062Other comprehensive incomeExchange loss on translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,011,647
    )
    
    
    
    
    
    
    (2,011,647
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49,825,583
    )
    
    
    (49,825,583
    )Balance, January 31, 2007
    
    
    153,199,336
    
    
    $
    153,199
    
    
    
    1
    
    
    $
    1
    
    
    $
    503,419,148
    
    
    $
    (1,755,562
    )
    
    $
    (112,466,451
    )
    
    $
    389,350,335
  F-3




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
 
 Consolidated Statements of Cash Flows
 (Unaudited  Prepared by Management)
 From Inception onFor the Nine Months Ended
    
    
    April 3, 1998January 31,
    
    
    through January 31,2007
    
    
    2006
    
    
    2007Operating ActivitiesNet loss
    
    $
    (49,825,583
    )
    
    $
    (19,725,307
    )
    
    $
    (112,466,451
    )Non-cash adjustments to net lossNon-cash financing expense
    
    
    
    
    
    
    6,094,908
    
    
    
    36,472,143Stock-based compensation expense
    
    
    36,577,862
    
    
    
    
    
    
    
    36,577,862Consulting expenses satisfied by shares
    
    
    
    
    
    
    7,572,478
    
    
    
    10,541,970Exploration costs acquired for shares
    
    
    
    
    
    
    316,685
    
    
    
    578,684Advertising and promotion for shares
    
    
    
    
    
    
    
    
    
    
    1,459,475Write-off of exploration property
    
    
    
    
    
    
    
    
    
    
    856,359Other
    
    
    34,894
    
    
    
    
    
    
    
    161,114Gain on extinguishment of a liability on sale
of a subsidiary
    
    
    
    
    
    
    (736,782
    )
    
    
    (936,469
    )Income tax (recovery) expense
    
    
    (1,026,727
    )
    
    
    (32,651
    )
    
    
    (1,088,068
    )Non-controlling shareholder interest
    
    
    (5,151,083
    )
    
    
    (1,516,538
    )
    
    
    (8,123,254
    )Changes In Non-Cash Working CapitalAccounts receivable and prepaid expenses
    
    
    (565,861
    )
    
    
    (373,889
    )
    
    
    (1,241,625
    )Accounts payable
    
    
    4,125,798
    
    
    
    1,914,125
    
    
    
    6,943,412Cash Used in Operating Activities
    
    
    (15,830,700
    )
    
    
    (6,486,971
    )
    
    
    (30,264,848
    )Investing ActivitiesAdditions to properties
    
    
    (19,184,103
    )
    
    
    (9,715,521
    )
    
    
    (32,480,671
    )Other investments
    
    
    
    
    
    
    
    
    
    
    (416,799
    )Cash Used in Investing Activities
    
    
    (19,184,103
    )
    
    
    (9,715,521
    )
    
    
    (32,897,470
    )Financing ActivitiesIssuance of shares for cash
    
    
    50,823,890
    
    
    
    26,308,278
    
    
    
    82,118,159Common stock returned to treasury
    
    
    
    
    
    
    
    
    
    
    (15,212
    )Convertible debentures
    
    
    
    
    
    
    5,390,344
    
    
    
    8,384,496Advances from related parties
    
    
    
    
    
    
    (11,627
    )
    
    
    653,062Future income taxes
    
    
    
    
    
    
    940,148
    
    
    
    1,120,206Shares issued by subsidiary to
non-controlling interest (note 3(a))
    
    
    570,955
    
    
    
    5,812,702
    
    
    
    8,278,727Cash Provided by Financing Activities
    
    
    51,394,845
    
    
    
    38,439,845
    
    
    
    100,539,438Inflow of Cash
    
    
    16,380,042
    
    
    
    22,237,353
    
    
    
    37,377,120Effects of exchange rate changes on cash
    
    
    (2,215,676
    )
    
    
    739,235
    
    
    
    (1,085,439
    )Cash, Beginning of Period
    
    
    22,127,315
    
    
    
    1,022,175
    
    
    
    Cash, End of Period
    
    $
    36,291,681
    
    
    $
    23,998,763
    
    
    $
    36,291,681Non-Cash Financing ActivitiesCommon stock issued for properties
    
    $
    
    
    
    $
    125,271
    
    
    $
    3,837,442Warrants granted on purchase of properties
    
    $
    
    
    
    $
    
    
    
    $
    1,763,929Common stock issued for services
    
    $
    
    
    
    $
    8,362,434
    
    
    $
    10,388,163Common stock issued for debt
    
    $
    18,692,620
    
    
    $
    2,394,308
    
    
    $
    28,401,029
  F-4




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
 
 Notes to the Consolidated Financial Statements
 For the Nine Months Ended January 31, 2007
 (Unaudited  Prepared by Management)
 1.
    
    DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONSOn November 1, 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 PRESENTATION:
 a)
    
    Unaudited financial informationThese consolidated financial statements are presented in United States dollars unless
otherwise indicated and have been prepared in accordance with accounting principles
generally accepted in the United States of America (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, 2007.
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, 2006 as filed in its annual report on Form 10-KSB.The significant accounting polices used in these consolidated financial statements are
as follows:b)
    
    Principles of consolidationThese consolidated financial statements include the accounts of OQI and all of its
subsidiaries as follows:
 

    
    Oilsands Quest Sask Inc. in which it holds a 100% interest (April 30,
2006  62.75% (note 3(a) and 4 (a));

    
    Western Petrochemicals Corp. (Western Petrochemicals) in which it holds
a 100% interest (note 4 (b));

    
    Township Petroleum Corporation (Township), in which it holds a 100% interest (note 4 (c));

    
    Stripper Energy Services Inc. (Stripper), in which OQI Sask holds a 100% interest (note 3(b));

    
    1291329 Alberta Ltd., in which it holds a 100% interest (incorporated in 2007); and
    
    its wholly owned subsidiary, Anhydride Petroleum (USA), Inc. (Anhydride
USA) and Anhydride USAs wholly owned subsidiary Anhydride Petroleum (Canada) Inc.
(Anhydride Canada), both acquired April 30, 2002, until October 31, 2005 when
Anhydride Canada was sold to a third party for nominal cash proceeds.All inter-company transactions and balances have been eliminated.
 F-5




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Nine Months Ended January 31, 2007
(Unaudited  Prepared by Management)
 2.
    
    BASIS OF PRESENTATION:(continued)
 c)
    
    Use of estimatesThe preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amount of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results may differ from those
estimates. Estimates are significant in the area of future income taxes  see Note 3.d)
    
    Foreign currency translationThe Companys operations and activities are conducted principally in Canada; hence the
Canadian dollar is the functional currency that is translated into U.S. dollars for
reporting purposes as follows:
 (i)
    
    Monetary assets and liabilities at the rate of exchange in effect
as at the balance sheet date;(ii)
    
    Non-monetary assets and liabilities at the exchange rates
prevailing at the time of the acquisition of the assets or assumption of the
liabilities; and,(iii)
    
    Revenues and expenditures at the average rate of exchange for the period.Gains and losses arising from the translation of foreign currency financial
statements are included in other comprehensive (loss) income as a separate
component of stockholders equity.
 e)
    
    Properties and exploration stage expendituresProperties represents the capitalized costs of acquisition of natural resource properties
principally, the right to explore for oil sands deposits in the provinces of Alberta and
Saskatchewan, Canada and oil shale deposits in the province of Saskatchewan, Canada.Property costs are reviewed for impairment at least annually to consider whether there
are conditions that may indicate impairment. The carrying value of each property is
compared to its net recoverable amount as estimated by quantifiable evidence of the
market value of similar land or geological resources. If the carrying value is found to
exceed the estimated net recoverable amount a write down will be recorded.Property amounts reported represent costs incurred to date and do not necessarily reflect
present or future values. All exploration costs incurred to the date of establishing
that a property is economically recoverable are charged to operations.The Company is in the very early stages of the exploration process, currently exploring
for oil sands deposits. The exploration process will attempt to delineate the resource
and identify a likely method of extraction. At this early stage in the exploration
process whether operations will constitute an oil and gas or mining activity or both
cannot yet be determined. Accounting policies will evolve as knowledge of the resource
is obtained.
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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Nine Months Ended January 31, 2007
(Unaudited  Prepared by Management)
 2. BASIS OF PRESENTATION: (continued)
 f)
    
    Restricted CashCash includes $24,461,727 ($28,845,269 CDN) representing the balance of proceeds of a
flow through share offering outstanding to be spent on qualifying
expenditures including $4,539,000 in accounts payable at period end. In
accordance with the terms of the offering and pursuant to certain provisions of the
Income Tax Act (Canada) the Company is required to expend these funds on qualifying
resource property expenditures by December 31, 2007.g)
    
    Stock-based compensation:In December 2004, the Financial Accounting Standards Board (the FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 123R. Share Based Payment. SFAS No. 123R
requires companies to estimate the fair value of share-based payment awards on the date of
grant using an option-pricing model. The value of the portion of the award that is
ultimately expected to vest is recognized as expense over the requisite service period in
the Companys financial statements. Stock based compensation expense recognized during the
period is based on the value of the portion of the share based payment award that is
ultimately expected to vest during the period. The Company estimates the fair value of
stock options using the Black-Scholes valuation model, consistent with the provisions of
SFAS No. 123R and the Companys prior period pro-forma disclosures of net earnings. The
Black-Scholes valuation model requires the input of highly subjective assumptions,
including the options expected life and the expected price volatility of the Companys
common stock. The expected stock price volatility assumption was determined using
historical volatility of the Companys common stock. The fair value of each option grant
is estimated on the date of grant using the Black-Scholes option valuation model with the
following weighted average assumptions:
 Nine Months Ended January 31,2007
    
    2006Expected Life (years)
    
    
    5.09
    
    
    
    1.70Risk free interest rate
    
    
    4.41
    %
    
    
    4.40
    %Expected volatility
    
    
    118
    %
    
    
    137
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
 The estimated fair value is then amortized on the straight-line method over the vesting
period.The Company adopted SFAS 123R effective May 1, 2006 using the Modified Prospective Method.
This method requires that awards granted, modified, repurchased or cancelled in the
quarter beginning after the adoption date use the fair value method to recognize stock
based compensation.In applying the Modified Prospective Application method for the nine months ended January
31, 2007, the Company recorded stock based compensation cost totalling the amount that
would have been recognized had the fair value method been applied since the effective date
of SFAS No.123. Previous amounts have not been restated.
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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Nine Months Ended January 31, 2007
(Unaudited  Prepared by Management)
 2.
    
    BASIS OF PRESENTATION:(continued)
 g)
    
    Stock-based compensation (continued)Prior to the May 1, 2006 adoption of SFAS No. 123R, the Company applied Accounting
Principles Board Opinion No 25. Accounting for Stock Issued to Employees (APB No. 25),
and related interpretations and provided the required pro-forma disclosures of Financial
Accounting Standards 123 Accounting for Stock-based Compensation (SFAS 123). Under APB
25, compensation expenses are only recorded to the extent that the exercise price is less
than fair value on the measurement date. Non-employee options were recognized at the fair
value of the options as determined by an option-pricing model as the services were
performed and the options earned. The pro-forma information for the nine months ended
January 31, 2006 was as follows:
 Net loss for the period, as reported
    
    $
    19,725,307Stock-based employee compensation if fair-value
based method applied
    
    
    6,998,451Pro-forma net loss as if fair-value method had been applied
    
    $
    26,723,758Basic and diluted loss per shareAs reported
    
    $
    0.27Pro forma
    
    $
    0.36
 The weighted average fair value of stock options granted during the nine months ended
January 31, 2006 was $1.09 per option.h)
    
    Loss per shareLoss per share calculations are based on the weighted average number of shares outstanding
during the period. Diluted loss per share has not been presented separately as the
outstanding warrants and options are anti-dilutive for each of the periods presented.
 3.
    
    ACQUISITIONS
 a)
    
    Acquisition of the minority interest (35.92%) in Oilsands Quest Sask. Inc.On August 14, 2006, OQI completed the reorganization pursuant to the terms of a
reorganization agreement, whereby OQI increased its ownership interest in OQI Sask, going
from a 64.08% ownership interest to a 100% voting interest. OQI acquired all of the
minority interest (35.92%) in OQI Sask.The Company has consolidated the operating results of OQI Sask from its commencement of
operations on September 24, 2004. The total purchase price of the acquisition
$319,022,948, which is comprised of the fully diluted number of Exchangeable Shares, has
been allocated to property costs. The deemed value of the Exchangeable Shares is based on
$4.17 per share, being the
average trading price of the Companys common shares for the five days prior to and
following August 14, 2006.On August 14, 2006 there were a certain number of shares to be issued on the exercise of
OQI Sask stock options and warrants outstanding which were included in the purchase price
of the acquisition. Any future proceeds received from the exercise of OQI Sask options or
warrants will be credited to Additional Paid-in Capital.
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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Nine Months Ended January 31, 2007
(Unaudited  Prepared by Management)
 3.
    
    ACQUISITIONS(continued)
 In connection with the reorganization agreement, OQI also entered into a Voting and
Exchange Trust Agreement with OQI Sask and Computershare Trust Company of Canada (CTC),
and a Support Agreement with OQI Sask. Collectively, these agreements are referred to as
the Acquisition Agreements. According to the Acquisition Agreements, all common shares
of OQI Sask, other than those held by OQI, were exchanged for a new class of OQI Sask
shares called Exchangeable Shares on the basis of 8.23 Exchangeable Shares for each one
OQI Sask common share. The Exchangeable Shares are exchangeable at any time on a
one-for-one basis, at the option of the holder, for shares of OQI common stock. OQI Sask
can redeem the outstanding Exchangeable Shares on the same terms at any time after August
14, 2013 and only under certain limited circumstances prior to August 14, 2013 in
accordance with the Acquisition Agreements. An Exchangeable Share provides the holder
with economic terms and voting rights, which are as nearly as practicable, effectively
equivalent to those of a share of OQI common stock. Holders of Exchangeable Shares have
registration rights with respect to the resale of OQI common stock. The Exchangeable
Shares are entitled to a preference over the OQI Sask common shares in the event of a
liquidation, dissolution or wind-up of OQI Sask whether voluntary or involuntary, or any
other distribution of the assets of OQI Sask among its shareholders for the purpose of
winding up its affairs. OQI may issue up to an aggregate of 76,504,304 shares of OQI
common stock of which 20,147,257 have been issued and 40,104,852 may be issued on the
exchange of Exchangeable Shares and the balance to be issued on the exercise of OQI Sask
options and warrants into Exchangeable Shares and their subsequent exchange. The
Exchangeable Shares are represented for voting purposes in the aggregate by one share of
OQIs Series B Preferred Stock (note 9(b)).In connection with the closing of the Acquisition Agreements, OQIs financial advisor was
paid a success fee of $1,590,528. In addition, OQI Sask issued 288,050 Exchangeable
Shares, with a deemed value of $1,204,383 and paid $353,450 as success fees to its
financial advisors.b)
    
    Acquisition of Stripper Energy Services Inc.On August 15, 2006, the Company acquired all of the issued and outstanding shares of
Stripper for $17,948,722, which amount includes $116,349 in interest and working capital
adjustments. Stripper is a private inactive Alberta company, whose sole asset is a 2.5%
gross overriding royalty on certain permit lands held by OQI Sask. The total purchase
price for the Stripper shares has been allocated to property costs.In conjunction with the acquisition of Stripper, OQI completed a private placement of
4,150,000 shares of its common stock for gross proceeds of $15,770,000, which according
to the terms of the private placement were used for the purchase of Stripper. No
commissions were paid in connection with this private placement.
 For purposes of these interim unaudited consolidated financial statements the purchase
consideration has been allocated on a preliminary basis to the properties acquired. The
full future income tax impact of the acquisitions on a consolidated basis has not yet been
determined. OQI will perform further analysis on the combined companys tax position prior
to finalizing the allocation of the purchase price. Although the results of this review are
presently unknown it is anticipated that it may result in the recognition of a future tax
liability related to these acquisitions with a corresponding addition to the property
account.
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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Nine Months Ended January 31, 2007
(Unaudited  Prepared by Management)
 4. PROPERTIES
 OQI Sask
    
    
    Pasquia Hills,Oil Sands
    
    
    Oil Shale
    
    
    Eagles Nest,Exploration
    
    
    Exploration
    
    
    Oil SandsPermits
    
    
    Permits
    
    
    Lease
    
    
    TotalBalance April 30, 2006
    
    $
    12,415,991
    
    
    $
    3,854,648
    
    
    $
    852,459
    
    
    $
    17,123,098Additions to property
    
    
    19,019,628
    
    
    
    
    
    
    
    164,475
    
    
    
    19,184,103Excess of
OQI Sask share acquisition cost
over book value
    
    
    16,752,262
    
    
    
    
    
    
    
    
    
    
    
    16,752,262Acquisition of minority interest
    
    
    319,022,948
    
    
    
    
    
    
    
    
    
    
    
    319,022,948Reclass of minority interest at date of
acquisition to property
    
    
    (16,323,010
    )
    
    
    
    
    
    
    
    
    
    
    (16,323,010
    )Balance January 31, 2007
    
    $
    350,887,819
    
    
    $
    3,854,648
    
    
    $
    1,016,934
    
    
    $
    355,759,401
 a)
    
    OQI Sask Oil Sands Exploration PermitsOn September 29, 2004, OQI Sask acquired a 49% interest in certain Oil Shale Exploration
Permits (the Permits) in northwestern Saskatchewan near the Alberta border. The 49%
interest in the permits was acquired from a third party for $769,125, the issuance of
50,000 OQI common shares, with a deemed value of $19,000, and a 2.5% gross overriding
royalty (the 2.5% GORR). On May 3, 2005, OQI Sask acquired the remaining 51% interest
in the Permits for $1,202,131, 2 million OQI common shares, with a deemed value of
$640,000 and the assumption of $0.11 per barrel in royalties which may be bought down to
$0.04 per barrel at any time by paying $7,000,000.The Permits are granted by the Province of Saskatchewan under the Oil Shale Regulations,
1964 subject to amendment from time to time, and provide for the right to explore and work
the permit lands in the Province of Saskatchewan for a term of five years to May 31, 2009
or until a lease has been granted for their development. The regulations are currently
under review and new regulations are expected to be implemented in spring 2007.The Permits granted by the Province of Saskatchewan require the relinquishment of 40% of
the total acreage covered by the permits by the first anniversary date of the permits (May
31, 2005) and relinquishment of 40% of the remaining acreage by the second anniversary
date (May 31, 2006). In addition to the above relinquishment requirements, under the
governing regulations, OQI Sask is required to make annual rental payments and meet annual
expenditure targets in order to maintain the permit lands as reduced by the
relinquishments.In accordance with the terms of the Permits, OQI relinquished 40% of the total acreage
covered by the Permits on May 31, 2005, and was required to relinquish another 40% of the
remaining acreage by May 31, 2006. Prior to May 31, 2006, OQI Sask obtained an extension
of the 2006 relinquishment to June 1, 2007. As at January 31, 2007, the Permits comprised
an area of approximately 847,000
acres and following all relinquishments the Permits will comprise an area of approximately
508,000 acres.The annual rentals are payable in advance as to $0.042 ($0.05 CDN) per acre for the
current (third) year and escalating to $0.085 ($0.10 CDN) per acre in the fourth year.
The required exploration expenditures to hold the permits for the current year are $0.051
($0.06 CDN) per acre and escalate to $0.085 ($0.10 CDN) per acre by the fifth year. OQI
has paid all required annual rental payments and met all annual exploration expenditure
targets and the permits are in good standing.
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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Nine Months Ended January 31, 2007
(Unaudited  Prepared by Management)
 4. PROPERTIES (continued)
 During the nine months ended January 31, 2007, the Company added $18,508,813 to the OQI
Sask Oil Sands exploration permits consisting of $17,948,722 paid for Stripper (note 3(b))
plus $1,070,906 paid for equipment and other property additions.b)
    
    Pasquia Hills, Oil Shale Exploration PermitsDuring the period ended January 31, 2007, all of the original permits expired and were
returned to the Saskatchewan government. The Company then reapplied to the Saskatchewan
government to reacquire the permits and was granted a certain number of them with the
balance to be addressed under the revised oil shale regulations expected in the spring of
2007.c)
    
    Eagles Nest, Oil Sands LeaseOn June 1, 2005, Township entered into an agreement with three third parties (collectively
the Triple 7 Joint Venture) to post, acquire, develop and produce oil sands deposits
located in the Athabasca Region of Alberta, Canada (the Triple
7 Joint Venture Agreement).
As a result of this agreement, Township acquired one lease consisting of approximately
22,800 acres (the Eagles Nest, Oil Sands Lease) at a cost of $727,187. Pursuant to the
terms of this agreement OQI issued the Triple 7 Joint Venture 114,015 of its common shares
with a deemed value of $127,432. Township has also agreed to pay the Triple 7 Joint
Venture partners, as ongoing fees, $127,205 ($150,000 CDN) in cash or common shares of OQI
(at the discretion of the Company) on the first and second anniversary dates of the
agreement. Any shares issued under the agreement are subject to piggyback registration
rights. On the third anniversary date and each subsequent anniversary date of the
agreement Township shall pay to the Triple 7 Joint Venture $381,615 ($450,000 CDN) until
such time as the lease is surrendered or a commercial project has been identified. In the
event that Township receives a feasibility study, conducted by an independent third party,
that indicates that a commercial project is economic and wishes to construct a commercial
project, Township is required to notify the Triple 7 Joint Venture. Upon commencement of
construction of such a commercial project Township shall pay to the Triple 7 Joint Venture
the sum of $5,088,195 ($6,000,000 CDN). In addition to such payments Township has granted
each of the three Triple 7 Joint Venture partners a royalty in the acquired leases of
$0.025 ($0.03 CDN) on each barrel of crude bitumen produced, saved and sold or $381,615
($450,000 CDN) per year, whichever is greater. Such royalty is governed by the royalty
procedure, which stipulates, among other things, that the royalty will be secured by a
lien, first charge or security interest on the royalty lands, and that the royalty is
assignable or transferable subject to a right of first offer to Township.To finance the acquisition of the project OQI issued convertible debentures pursuant to
which Township also granted royalties as to $0.0049 ($0.0058 CDN), net after a buy back,
on each barrel of crude bitumen produced, saved and sold from the project.Pursuant to the terms of the lease Townships lease rental payments are $27,354 ($32,256
CDN) per year.
 5.
    
    INVESTMENT IN WATCH RESOURCES LTD. (formerly known as Energy 51 Inc.)
 On January 2, 2007, Energy 51 Inc. was amalgamated with Watch Resources Ltd (Watch), a
public energy resource development company engaged in the exploration and production of
petroleum and natural gas traded on the TSX Venture Exchange. On amalgamation the 1,500,000
shares in Energy 51 Inc. held by OQI were replaced by 300,000 common shares in Watch.
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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Nine Months Ended January 31, 2007
(Unaudited  Prepared by Management)
 6. ACCOUNTS PAYABLE
 Accounts payable consists of the following:
 January 31,
    
    
    April 30,2007
    
    
    2006Accounts payable and accrued liabilities
    
    $
    5,227,361
    
    
    $
    2,369,645Penalty share accrual (note 10(a))
    
    
    
    
    
    
    17,312,623$
    5,227,361
    
    
    $
    19,682,268
 7.
    
    CONVERTIBLE DEBENTURESThe convertible debentures outstanding at April 30, 2006 were converted into 821,701 OQI
common shares during the nine months ended January 31, 2007.8.
    
    NON-CONTROLLING SHAREHOLDER INTERESTThe non-controlling shareholder interest as calculated to the date of acquisition by OQI was
transferred to the OQI Sask property account.
 CommonShares
    
    
    AmountBalance, April 30, 2006
    
    
    6,962,459
    
    
    $
    4,735,601Shares issued to non-controlling shareholders
    
    
    5,875
    
    
    
    10,518Share of net loss of OQI Sask to date of acquisition
    
    
    
    
    
    
    (5,151,083
    )Non controlling shareholders interest in shares issued
to OQI
    
    
    
    
    
    
    16,727,974Balance held by non-controlling interest at date of acquisition
(representing 35.92% of total common shares outstanding)
    
    
    6,968,334
    
    
    
    16,323,010Transferred to the OQI Sask property account on acquisition
of the minority interest (see note 4)
    
    
    (6,968,334
    )
    
    
    (16,323,010
    )
    
    
    $
    
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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Nine Months Ended January 31, 2007
(Unaudited  Prepared by Management)
 8.
    
    NON-CONTROLLING SHAREHOLDER INTEREST(continued)The following tables summarize information about OQI Sask share purchase warrants
outstanding at January 31, 2007:
 Weighted AverageNumber
    
    Exercise Price (CDN)Issued and outstanding,
April 30, 2006
    
    
    2,216,013
    
    
    $
    6.48Exercised
    
    
    (2,061,263
    )
    
    $
    6.84Issued and outstanding,
January 31, 2007
    
    
    154,750
    
    
    $
    1.76
 Expiry
    
    Exercise
    
    Number ofDate
    
    Price (CDN)
    
    WarrantsMay 31, 2007
    
    $
    2.00
    
    
    
    61,000Feb 28, 2008
    
    $
    1.60
    
    
    
    93,750154,750
  Weighted AverageNumber
    
    Exercise Price (CDN)Issued and outstanding,
April 30, 2006
    
    
    700,000
    
    
    $
    4.00Granted
    
    
    1,280,000
    
    
    $
    21.40Exercised
    
    
    (160,000
    )
    
    $
    2.56Issued and outstanding,
January 31, 2007
    
    
    1,820,000
    
    
    $
    16.29
 Number
    
    Number
    
    Weighted AverageExercise Price
    
    Outstanding at
    
    Exercisable at
    
    Remaining(CDN)
    
    Jan 31, 2007
    
    Jan 31, 2007
    
    Contractual Life$  0.50
    
    
    100,000
    
    
    
    100,000
    
    
    2.78 Years$  3.00
    
    
    100,000
    
    
    
    100,000
    
    
    3.50 Years$  6.00
    
    
    655,000
    
    
    
    655,000
    
    
    4.04 Years$25.00
    
    
    915,000
    
    
    
    615,000
    
    
    4.25 Years$50.00
    
    
    50,000
    
    
    
    12,500
    
    
    4.50 Years1,820,000
    
    
    
    1,482,500
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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Nine Months Ended January 31, 2007
(Unaudited  Prepared by Management)
 8.
    
    NON-CONTROLLING SHAREHOLDER INTEREST(continued)Stock based compensation expense for the nine months ended January 31, 2007 recorded in OQI
Sask prior to the date of acquisition of $13,623,781 (2006  $0).OQI Sask options and warrants outstanding at January 31, 2007 total 1,974,750 and represent
16,252,195 Exchangeable Shares that may be issued (see notes 3(a) and 9(b)).9.
    
    PREFERRED SHARES
 a)
    
    Series A Preferred SharesAs at March 9, 2006 OQI adopted a shareholders right plan and reserved 250,000 of its
preferred shares for issuance pursuant to the exercise of the rights. The rights are
designed to have certain anti-takeover effects and as such they will cause substantial
dilution to a person or group that attempts to acquire OQI without conditioning the offer
on a substantial number of rights being acquired, or in a manner or on terms not approved
by the board of directors of OQI. The rights, however, should not deter any prospective
offer or willingness to negotiate in good faith with the board of directors, nor should
the rights interfere with any merger or other business combination approved by the board
of directors. To effect the shareholders rights plan OQI declared a distribution of one
right to each outstanding share of common stock, payable to shareholders of record on
March 23, 2006. This right will be attached to the underlying common share and remain
with the common share should the common share be sold or transferred.b)
    
    Series B Preferred StockOn August 14, 2006, OQI closed a reorganization agreement with OQI Sask, which was
initially executed on June 9, 2006, whereby OQI acquired the minority interest in OQI
Sask, going from a 64.08% ownership interest to a 100% voting interest (the
Reorganization Agreement). In connection with the Reorganization Agreement, OQI Sask
also entered into a Voting and Exchange Trust Agreement with OQI Sask and Computershare
Trust Company of Canada (CTC), and a Support Agreement with OQI Sask. Collectively,
these agreements are referred to as the Acquisition Agreements.According to the Acquisition Agreements, OQI Sask common shares not held by OQI were
exchanged for a new class of OQI Sask shares called Exchangeable Shares on the basis of
8.23 Exchangeable Shares for each OQI Sask common share. The Exchangeable Shares are
exchangeable at any time on a one-for-one basis, at the option of the holder, for shares
of OQI common stock. An Exchangeable Share provides the holder with economic terms and
voting rights which are, as nearly as practicable, effectively equivalent to those of a
share of OQI common stock. Holders of Exchangeable Shares have registration rights with
respect to the resale of OQI common stock to be received upon exchanging the Exchangeable
Shares into OQI shares. The holders of the Exchangeable Shares may receive up to an
aggregate of 76,504,304 shares of OQI common stock at each holders election. The
Exchangeable Shares are represented for voting purposes in the aggregate by one share of
OQI Series B Preferred Stock (the Preferred Share), which Preferred Share is held by
CTC. CTC will in turn vote the one Series B Preferred Share as indicated by the
individual holders of Exchangeable Shares. The one Preferred Share represents a number of
votes equal to the total outstanding Exchangeable Shares on the applicable record date
for the vote submitted to OQI shareholders.
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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Nine Months Ended January 31, 2007
(Unaudited  Prepared by Management)
 9. PREFERRED SHARES (continued)
 b)
    
    Series B Preferred Stock (continued)Exchangeable shares issuable as a result of the Acquisition
Agreements (note 3(a)):
 Exchangeableshares issuableOQI Sask
    
    
    on exercise of
    
    
    TotalExchangeable
    
    
    OQI Sask options
    
    
    Exchangeableshares
    
    
    and warrants
    
    
    shares issuableAcquisition date, August 14, 2006
    
    
    57,349,388
    
    
    
    19,154,916
    
    
    
    76,504,304OQI Sask options and warrants exercised
    
    
    2,902,721
    
    
    
    (2,902,721
    )
    
    
    Exchangeable Shares exchanged into
OQI common shares
    
    
    (20,147,257
    )
    
    
    
    
    
    
    (20,147,257
    )Balance, January 31, 2007
    
    
    40,104,852
    
    
    
    16,252,195
    
    
    
    56,357,047
 10. COMMON STOCK
 a)
    
    Private placement of common sharesIn August 2006 OQI completed a private placement of 4,150,000 shares of its common stock
for gross proceeds of $15,770,000. No commissions were paid in connection with the
Offering. According to the terms of the private placement, the gross proceeds were used
for the purchase of the shares of Stripper (see Notes 3(b) and 4(a)).In July 2006 OQI completed a private placement of 5,668,100 flow through common shares
for gross proceeds of $33,684,009.Because these common shares were issued on a flow
through basis the proceeds must be used for exploration in Canada and the tax benefits
from that exploration will flow through to the subscribers. In conjunction with this
financing OQI paid investment banking fees of $1,852,659 and entered into a subscription
agreement with OQI Sask whereby it purchased 703,054 OQI Sask flow through common shares
for $33,684,048.At December 31, 2006, the Company renounced the tax benefits of the above financing to
the subscribers. To January 31, 2007 OQI Sask has expended Cdn
$13,103,191 on exploration in Canada and tax benefits in that amount have been renounced to the
Company. The balance of Cdn $24,306,269 (US $20,612,508) is outstanding to be expended
by OQI Sask see Note 2 f).
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OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Nine Months Ended January 31, 2007
(Unaudited  Prepared by Management)
 10. COMMON STOCK (continued)
 During the year ended April 30, 2006 OQI completed a private placement of 15,268,000
units at $1.50 per unit whereby it issued 15,268,000 common shares and 7,634,000 warrants
exercisable at $2.00 per share until December 12, 2007. Pursuant to this placement OQI paid
consultants $390,870 cash plus 260,580 warrants exercisable at
$1.75 per share. In conjunction with this financing OQI also granted the investors and consultants
certain registration rights whereby OQI undertook to file a resale registration statement
covering the shares and shares underlying the warrants within sixty days of closing,
otherwise a 2% penalty for each month or part month was payable. In addition, OQI had to
respond to any queries on that resale registration statement within two weeks of receipt
or else be subject to an additional penalty as to 2% for each two weeks thereafter. The
penalties were payable, at the unit-holders election, in either common shares or cash at
$1.75 per penalty share. Any penalty shares would also be qualified for resale by the
same SB2 registration statement. OQI filed the required SB2 registration statement on
August 3, 2006 and issued 2,889,371 common shares at a deemed cost of $17,312,623.b)
    
    Debt settlementThe Company has reserved 1,961,900 shares to settle outstanding debts of a former
subsidiary. No shares were issued pursuant to these agreements during the nine
months ended January 31, 2007.
 11. STOCK OPTIONS
 As at January 31, 2007, OQI had outstanding options to purchase that same number of
shares as follows:
 Stock option
    
    Exercise
    
    Number ofPlan
    
    Expiry Date
    
    Price
    
    OptionsSOP 2005(b)
    
    20-Oct-07
    
    $
    1.50
    
    
    
    200,000SOP 2006
    
    1-Jan-08
    
    $
    2.00
    
    
    
    400,000SOP 2006
    
    1-Nov-08
    
    $
    2.58
    
    
    
    600,000SOP 2006
    
    8-Feb-08
    
    $
    4.62
    
    
    
    250,000SOP 2006
    
    17-Feb-09
    
    $
    4.57
    
    
    
    250,000SOP 2006
    
    9-Mar-08
    
    $
    4.60
    
    
    
    250,000SOP 2006
    
    1-May-11
    
    $
    6.75
    
    
    
    1,000,000SOP 2006
    
    14-Aug-11
    
    $
    6.75
    
    
    
    1,000,000SOP 2006
    
    1-May-12
    
    $
    6.75
    
    
    
    1,000,000SOP 2006
    
    1-May-13
    
    $
    6.75
    
    
    
    1,000,000SOP 2006
    
    18-May-08
    
    $
    6.00
    
    
    
    300,000SOP 2006
    
    18-May-09
    
    $
    6.00
    
    
    
    30,000SOP 2006
    
    23-Aug-08
    
    $
    5.05
    
    
    
    75,000SOP 2006
    
    23-Aug-11
    
    $
    5.05
    
    
    
    3,080,000SOP 2006
    
    5-Sep-11
    
    $
    5.10
    
    
    
    300,000SOP 2006
    
    27-Sep-11
    
    $
    3.90
    
    
    
    50,000SOP 2006
    
    2-Oct-11
    
    $
    3.89
    
    
    
    400,000SOP 2006
    
    1-Dec-11
    
    $
    5.25
    
    
    
    50,00010,235,000
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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Nine Months Ended January 31, 2007
(Unaudited  Prepared by Management)
 11.
    
    STOCK OPTIONS(continued)Included in the number of options outstanding as at January 31, 2007 are the following
options which have not completely vested:
 
    
    111,111 options at $2.00 with an expiry date of January 1, 2008 that vest
evenly until June 30, 2007;
    
    1,000,000 options at $6.75 with an expiry date of May 1, 2012 which vest on May 1, 2007;
    
    1,000,000 options at $6.75 with an expiry date of May 1, 2013 which vest on May 1, 2008;
    
    485,000 options which vest on anniversary dates between August 23 and December
1st in
each of 2007, 2008 and 2009; and,
    
    1,940,000 which vest on or after dates between August 23 and December 1, 2009
as to 485,000 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 485,000 options thereafter for each
250 million increase in the BIP barrel count.
 A summary of the OQIs stock option activity is as follows:
 AverageNumber
    
    
    Exerciseof Options
    
    
    PriceBalance April 30, 2006
    
    
    2,450,000
    
    
    $
    2.82Options granted
    
    
    8,540,344
    
    
    $
    5.67Options exercised
    
    
    (705,344
    )
    
    $
    2.65Options cancelled
    
    
    (50,000
    )
    
    $
    5.05Balance, Jan 31, 2007
    
    
    10,235,000
    
    
    $
    5.33
 During the nine months ended January 31, 2007, 8,335,00 options that were granted were
accounted for using the Black-Scholes option-pricing model, which resulted in a stock based
compensation expense of $22,954,081. As at January 31, 2007, the Company also had unrecognized
stock option compensation expense of $9,598,531 which will be
recorded in future periods as options vest.In addition to the above, OQI Sask has 1,820,000 outstanding options which may be exercised
and exchanged into Exchangeable Shares whereby up to an additional 14,978,600 OQI common
shares may be issued, see note 8.
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OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Nine Months Ended January 31, 2007
(Unaudited  Prepared by Management)
 12. WARRANTS
 OQI had the following warrants outstanding to purchase that same number of common shares as
at January 31, 2007:
 Expiry
    
    Exercise
    
    Number ofDate
    
    Price
    
    Warrants19-Sep-07
    
    $
    0.55
    
    
    
    104,88312-Dec-07
    
    $
    2.00
    
    
    
    7,198,33415-Dec-07
    
    $
    2.00
    
    
    
    1,500,00015-Dec-07
    
    $
    1.75
    
    
    
    232,2009,035,417
 A summary of OQIs share purchase warrant activity is as follows:
 WeightedNumber
    
    Averageof Warrants
    
    Exercise PriceBalance, April 30, 2006
    
    
    13,565,321
    
    
    $
    1.63Warrants expired / cancelled
    
    
    (200,013
    )
    
    $
    4.50Warrants exercised  cash
    
    
    (1,949,891
    )
    
    $
    1.28Warrants exercised  cashless
    
    
    (2,380,000
    )
    
    $
    0.34Balance, January 31, 2007
    
    
    9,035,417
    
    
    $
    1.98
 In addition to the above, OQI Sask has 154,750 outstanding warrants which may be exercised
and exchanged into Exchangeable Shares whereby up to an additional 1,273,593 OQI common
shares may be issued, see note 8.13.
    
    RELATED PARTY TRANSACTIONSThe following non-arms length transactions occurred with parties who are directors and
stockholders of the Company during the nine months ended January 31, 2007, other than in the
normal course of business:
 (a)
    
    OQI issued a former officer 100,000 bonus shares at a deemed cost of $517,000
that was included in accounts payable at April 30, 2006. Another former officer also
received 41,667 bonus shares at a deemed cost of $215,418 which was included in
accounts payable as at April 30, 2006.(b)
    
    OQI has entered into employment agreements with all its officers which require
payment of up to twenty-four months salary (including bonuses and benefits) and the
acceleration of the vesting of options on a change of control or termination without
cause.
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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Nine Months Ended January 31, 2007
(Unaudited  Prepared by Management)
 14
    
    COMPREHENSIVE LOSS
 Nine Months Ended January 31,2007
    
    
    2006Net loss
    
    $
    49,825,583
    
    
    $
    19,725,307Other comprehensive (income)
    
    
    2,011,647
    
    
    
    (739,235
    )$
    51,837,230
    
    
    $
    18,986,072
 15.
    
    COMMITMENTS
 a)
    
    In support of an expanded drilling program on the OQI Sask Exploration Permits
OQI Sask has committed to the purchase of a portable residence camp facility in the
amount of $3,562,840 ($4,000,000 CDN). As at January 31, 2007 OQI has advanced a total
of $1,094,126 in relation to the camp facility and this amount is included in prepaid
expenses.b)
    
    The following table sets out OQIs expected future payment commitments as at
January 31, 2007 and the estimated timing of such payments relating to corporate office
and warehouse leases:Office and Warehouse lease commitments
 At January 31, 2007< 1 year
    
    $
    183,9771-3 years
    
    
    856,1104-5 years
    
    
    526,2976-10 years
    
    
    1,321,577> 10 years
    
    
    44,151$
    2,932,112
 The above totals include the Companys commitment to enter into a ten year lease for
office space commencing on April 1, 2008.
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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Nine Months Ended January 31, 2007
(Unaudited  Prepared by Management)
 16.
    
    CORRECTION OF AN ERROR IN PREVIOUSLY ISSUED FINANCIAL STATEMENTS
 The following schedule details the correction of an error in previously issued interim
financial statements. The October 31, 2006 interim financial statements included certain
post-reorganization, subsidiary level Stock Based Compensation and Consulting Expenses which
should have been eliminated on consolidation. These items should have been eliminated on
consolidation because the full cost was already included in the purchase price of the
acquisition of the non-controlling (minority) interest of OQI Sask. The corrected Net Loss
and Net Loss per Share for the six months ended October 31, 2006 are set out below.
 As Reported
    
    
    As CorrectedFor the Six Months Ended
    
    
    For the Six Months Ended
    
    
    Effect ofOctober 31, 2006
    
    
    October 31, 2006
    
    
    CorrectionStock Based Compensation Expense
    
    $
    43,622,692
    
    
    $
    33,211,022
    
    
    $
    (10,411,670
    )Consulting Expense
    
    
    4,812,166
    
    
    
    3,607,783
    
    
    
    (1,204,383
    )Other Expenses
    
    
    (1,258,721
    )
    
    
    (1,258,721
    )
    
    
    Net Loss
    
    $
    47,176,137
    
    
    $
    35,560,084
    
    
    $
    (11,616,053
    )Net Loss Per Share
    
    $
    0.38
    
    
    $
    0.29As Reported
    
    
    As Corrected
    
    
    Effect ofOctober 31, 2006
    
    
    October 31, 2006
    
    
    CorrectionAdditional Paid in Capital
    
    $
    (508,080,717
    )
    
    $
    (497,669,047
    )
    
    $
    10,411,670Properties
    
    
    354,060,449
    
    
    
    355,264,832
    
    
    
    1,204,383$
    11,616,053
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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
For the Nine Months Ended January 31, 2007
(Unaudited  Prepared by Management)
 17.
    
    COMPARATIVE FIGURESCertain comparative figures have been reclassified to conform to current financial statement
presentation.18.
    
    SUBSEQUENT EVENTS
 a.
    
    On March 6, 2007 the Company entered into an underwriting agreement for a private
placement with a syndicate of underwriters of up to 5,320,000 shares of the Companys
common stock issued on a flow-through basis at a price of $4.82 (Cdn. $5.64) per share
for an aggregate gross proceeds of $25,642,400 (Cdn. $30,004,800). Concurrent with the
underwriting agreement, and under the terms and conditions of the underwriting agreement,
the Company closed on the sale of 3,097,534 common shares for gross
proceeds of $14,930,114 (Cdn. $17,470,092). These common shares have been
issued on a flow through basis whereby the Company will incur an amount equal to the
proceeds of the private placement for exploration in Canada and the tax benefits from that
exploration will flow through to the subscribers. According to the terms and conditions of
the underwriting agreement, the Company has agreed to reduce the price per share to Cdn.
$5.13 if the Company does not file a resale registration statement with the U.S.
Securities and Exchange Commission registering on or before May 5, 2007. Such reduction
in price shall be satisfied by issuing to the subscribers 0.1 of a flow-through share for
each flow-through share subscribed. In the event that less than 5,320,000 Flow-Through
Shares are sold by the underwriters, the underwriters have agreed to purchase the
Flow-Through Shares in the respective percentages described in the underwriting agreement.
In consideration for the services of the underwriters, the Company agreed to pay a fee
equal to Cdn. $0.282 (or 5%) for each Flow-Through Share issued by the Company.The Company closed on the sale of an additional 58,300 common shares issued on a
flow-through basis for gross proceeds of $281,006 (Cdn. $328,812) on March 9, 2007.b.
    
    On February 28, 2007 OQI sold its interests in certain research and development joint
ventures. OQIs interests in the joint ventures were sold to one of the remaining
partners for consideration of $350,000 plus amounts paid by OQI to the joint ventures
since November 2006. OQIs rights and obligations under the agreements were assigned to
and assumed by the purchasing partner and OQI was released from any further obligations
and liabilities under the agreements.
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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Plans of Operations
   Plan of Operations
 Oilsands Quest Inc. (formerly CanWest Petroleum Corporation) (CanWest or OQI), together with
its subsidiaries Oilsands Quest Sask Inc. (formerly Oilsands Quest Inc.) (OQI Sask), Anhydride
Petroleum (USA) Inc., Township Petroleum Corporation (Township), Stripper Energy Services Inc.
(Stripper), Western Petrochemicals Corporation (Western Petrochemicals) and 1291329 Alberta
Ltd. collectively (the Company), is in the exploration stage and does not currently have any
income from operating activities. The Company has sufficient working capital and other capital
resources to meet the obligations anticipated by its presently planned activity programs until
January 2008. To the extent these plans may be adjusted or other business opportunities are
identified, management may seek to raise additional capital through the issuance of equity and or
debt. No assurance can be given that the Company will be successful in raising additional capital
or that other opportunities will be found.
 Oilsands Quest Sask Inc., Oil Sands Exploration
Permits
 During the nine months ended January 31, 2007 the Company, through its operating subsidiary, OQI
Sask, conducted a wide range of exploration activities. By early April 2006, the Winter 2005/2006
exploration drilling program consisting of 24 resource delineation wells was completed and an
assessment of the data began. In August 2006 the Company received the independent geological
consultants assessment of in-place volumes of bitumen in the area covered by the Winter 2005/2006
exploration program. The assessment, prepared by Norwest Corporation of Calgary, was made in
accordance with the Canadian Oil and Gas Evaluation Handbook (COGEH), which is a primary reference
for reporting resources under Canadian Securities Administrators National Instrument 51-101
Standards of Disclosure for Oil and Gas Activities. The area covered in the assessment
represented approximately 1.4 percent of OQIs net permit lands (the Permits) of approximately
508,000 acres. The end of season report for the Winter 2005/2006 exploration drilling program
documenting conformance with the original plans was prepared and submitted to the Canadian federal
and provincial governments.
 Beginning in July 2006, site infrastructure development activities, including road construction,
drill pad preparation and camp construction were undertaken and the application for the winter
2006/2007 exploration program, including the installation of an airstrip was submitted. By the end
of January 2007 two residential camps were operating with a third camp planned for operations in
February 2007. The total camp capacity of over 200 persons is sufficient to support the needs of
the planned 2006/2007 exploration program.
 In October 2006, an approximately five mile, 2-D geophysical program, was successfully completed,
demonstrating that seismic techniques could contribute to the planned exploration program. On
November 3, 2006 exploration drilling began with one drilling rig and by the end of November 2006
three drilling rigs were working on the site. These three rigs drilled continuously until the
scheduled
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##### Table of Contents



Christmas break on December 21. Drilling recommenced in early January 2007, with four rigs and by
the end of January 2007 six rigs were operating onsite. By late February 2007, the seventh and
eighth rigs were in place and drilling.
 As of March 9, 2007 a total of 116 holes had been drilled, representing total drilling of 24,500
metres (80,000 feet). Drilling has been conducted in the Axe Lake Discovery area (36 sections)
and to the north along the Permit lands west boundary. The core samples are transported regularly to third party laboratories for
analysis and assessment. The testing includes bitumen saturation analysis and net pay
determination as well as a comprehensive program of reservoir
characterization testing. Bitumen saturation and net pay thicknesses
will be determined following third party core and laboratory analysis, which will take several
months to conduct.
 An 850 kilometre (528-mile) helicopter borne, combined electromagnetic and magnetic survey was
undertaken during February 2007 and a 120 kilometre (74-mile) 2-D seismic program was initiated
and is ongoing. Approval for the airstrip was received in late February 2007 and construction
began in early March 2007.
 In accordance with the terms of its exploration permits, OQI Sask relinquished 40% of the total
acreage covered by the Permits on May 31, 2005, and was required to relinquish another 40% of the
remaining acreage by May 31, 2006. OQI Sask requested an extension of the 2006 relinquishment from
the Saskatchewan government, which was approved and the relinquishment is now scheduled for June
2007. As at March 9, 2006, the Permit lands comprised an area of approximately 847,000 acres and
following all relinquishments the Permit lands will comprise an area of approximately 508,000
acres. The Permits are regulated under the Saskatchewan Oil Shale Regulations, 1964, subject to
amendment. The regulations are currently under review and new regulations are expected to be
implemented in spring 2007.
 Over the next 12 months the Company intends to, complete the 2006/2007 winter exploration program,
assess the results of the core and laboratory analysis currently underway and subject to
regulatory approvals, continue with both summer and 2007/2008 winter exploration programs
currently in the planning phase. The Company recently approved a plan to initiate
pre-commercialization studies of the Axe Lake Discovery area, which includes testing bitumen and
reservoir characteristics and simulation testing of production recovery mechanisms over the next
12 months. Laboratory simulation testing will be undertaken in advance of potentially undertaking
experimental field studies on the most promising of the recovery techniques. Field tests will be
undertaken as soon as possible, subject to regulatory approvals. Although the Axe Lake Discovery
has not yet been determined to be a commercial project, management believes its oil sands
resources in the Axe Lake area could be suitable for in-situ recovery. Assumptions about the
commercial viability of the resource potential or whether current recovery processes will be
effective cannot be determined without further drilling, testing and analysis. In order to
undertake the required technical studies in a timely manner, the company has engaged a number of
third-party technical specialists and will be collaborating with agencies of the Province of
Saskatchewan.
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##### Table of Contents



Pasquia Hills Oil Shale Prospect
 During the nine months ended January 31, 2007, nine of the Companys eleven permits on the Pasquia
Hills Oil Shale Prospect were reacquired as new exploration permits. The Permits are currently
regulated under the Saskatchewan Oil Shale Regulations, 1964, subject to amendment from time to
time. In accordance with the terms of the permits, the Company relinquished 30% of the total
acreage of the newly granted permits within 90 days of the grant. The Company currently holds
seven permits, with five year terms, that cover approximately 407,000 acres. The Permits provide
for the right to explore, mine, quarry and work the permit lands, but not to produce or recover
oil shale except for test purposes until a lease has been granted.
 No field operations were carried out on the Pasquia Hills Oil Shale Prospect during the period as
the Company has concentrated its efforts on acquiring the new permits. The Company has applied
for the remaining two permits that reached the end of their term in the period, totaling 189,369
acres, and has been advised by the regulator that these remaining two applications will be
addressed under the planned revised oil shale regulations, expected in the spring of 2007. The
overall prospects for this project will continue to be examined in 2007.
 Eagles Nest Prospect
 Township Petroleum Corporation is the operating subsidiary for the Companys one township, oil
sands lease in Alberta (Eagles Nest Prospect). No field activity was carried out on this asset
during the period.For both the Eagles Nest and Pasquia Hills Prospects, exploration programs will be developed over
the course of the winter, with implementation planned to commence later in 2007/2008.
 Apex Joint Ventures
 On February 28, 2007 OQI sold its interests in all research and development joint ventures
pertaining to certain resource recovery techniques. OQIs interests in the joint ventures were
sold to one of the remaining partners for consideration of $350,000 plus amounts paid by OQI to
the joint ventures since November 2006. OQIs rights and obligations under the agreements were
assigned to and assumed by the purchasing partner and OQI was released from any further
obligations and liabilities under the agreements.
 Liquidity and Capital Resources
 During the nine months ended January 31, 2007 the Company was focused on raising funding for
exploration on the OQI Sask Permit lands, the acquisition of the outstanding 2.5% gross overriding
royalty on the OQI Sask Permit lands and planning, infrastructure
development and execution of the
exploration programs on the OQI Sask Permit lands. The Company also entered into a reorganization
agreement and completed the acquisition of the non-controlling (minority) shareholder interest in
OQI Sask.
 The full future income tax impact of the acquisitions of the non-controlling interest in OQI Sask
and the acquisition of the outstanding 2.5% gross overriding royalty on the OQI Sask Permit lands
on a consolidated basis has not yet been determined. OQI will perform further analysis on the
combined companys tax position and it is anticipated that a future tax liability related to these
acquisitions may be recognized in future periods with a corresponding addition to the property
account.
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##### Table of Contents



On March 6, 2007, OQI and OQI Sask entered into an underwriting agreement for a private placement
with a syndicate of underwriters of up to 5,320,000 shares of the Companys common stock, $.001
par value per share, issued on a flow-through basis at a price of $4.82 (Cdn. $5.64) per share for
an aggregate gross proceeds of $25,642,400 (Cdn. $30,004,800). Concurrently with the underwriting
agreement, and under the terms and conditions of the underwriting agreement, the Company closed on
the sale of 3,097,534 common shares issued on a flow-through basis. On March 9, 2007 the Company
closed on an additional 58,300 common shares issued on a flow-through basis under the terms of the
underwriting agreement. These common shares have been issued on a flow through basis whereby the
Company will incur an amount equal to the gross proceeds of the private placements on eligible
exploration activity in Canada and the tax benefits from that exploration will flow through to the
subscribers, as defined in the underwriting agreement.
 According to the terms and conditions of the underwriting agreement, the Company has agreed to
reduce the price per share to Cdn. $5.13 if the Company does not file a resale registration
statement with the U.S. Securities and Exchange Commission registering the common shares on or
before May 5, 2007. Such reduction in price shall be satisfied by
issuing to the subscribers 0.1 of a common share issued on a flow-through basis for each share
subscribed for by the subscribers. In the event that less than 5,320,000 shares are sold by the
underwriters, the underwriters have agreed to purchase the remaining shares in the respective
percentages described in the underwriting agreement. In consideration for the services of the
underwriters, the Company agreed to pay a fee equal to Cdn. $0.282 (or 5%) for each share
subscribed for and accepted by the Company.
 At March 9, 2007, the Company had approximately $43.0 million in cash on hand. The Company is
committed to spend an amount equal to approximately
$30.7 million (Cdn. $36.2 million) on
qualifying resource property expenditures pursuant to the terms of its 2006 and 2007 flow-through
share private placements. The Company believes that it has sufficient funding to complete its
upcoming exploration programs and for general working capital requirements until January 2008.
Additional funding will be required if the current explorations programs are increased in scope or
changes are made to current plans. It is expected that the Company will continue to need further
funding and we plan to fund future operations by way of financing, including the public offering
or private placement of equity or debt securities. However, we cannot assure you that debt or
equity financing will be available to us on acceptable terms, if at all, to meet these
requirements. We have no revenues, and our operating results, profitability and future rate of
growth depend solely on our ability to successfully implement our business plan and our ability to
raise further funding.
 At March 9, 2007, the Company had 24 employees, including the officers of the Company, Included in
the total are 8 short-term employees primarily engaged in the field activities related to the
Companys exploration programs. Additional employees will be added as activity levels dictate and
field exploration increases.
 Changes in Financial Condition
 During the nine months ended January 31, 2007 the primary focus of the Company was exploring the
OQI Sask Permit lands, raising exploration funds, completing the acquisition of the
non-controlling (minority) interest in OQI Sask and the purchase of a 2.5% gross overriding
royalty on certain of the OQI Sask Permit lands. During the nine months ended January 31, 2006,
the primary focus of the Company was on completing the purchase of the OQI Sask Permits, obtaining
funds for exploration programs and assessing and acquiring other possible investment opportunities
within the Athabasca
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##### Table of Contents



Oil Sands region which resulted in the purchase of the Eagles Nest oil sands lease.
 In total the Company experienced a net loss of $49,825,583 or $0.38 per share for the nine months
ended January 31, 2007, compared to a net loss $19,725,307 or $0.27 per share for the nine months
ended January 31, 2006. The Company expects to continue to incur operating losses and will
continue to be dependent on additional equity or debt sales and or property joint ventures to fund
its activities in the future.
 Stock based compensation expense for the nine months ended January 31, 2007 of $36,577,862 (2006 -
$Nil) is related to the issuance of options to directors, officers, employees and consultants of
the Company and was determined based on the Black-Scholes option valuation model. OQI has
unrecognized stock based compensation costs of $9,598,531 related to unvested options which will
be recognized in future periods as the options vest. Stock based compensation is a non-cash
expense.
 Exploration costs for the nine months ended January 31, 2007 were $12,655,436 (2006  $4,885,393).
$12,376,063 was expended on the OQI Sask Permit lands and the remaining $279,373 was expended on
other project areas. Exploration costs for the nine months ended January 31, 2006 included
payments related to the Sylvan Lake and Barrhead oil and gas prospects as to $438,574 and
$108,073 respectively, $210,331 expended on the Sulfoxy Joint Venture, $153,564 in costs
associated with the Eagles Nest prospect, $326,674 in costs associated with the Pasquia
Hills Oil Shale prospect and $3,303,533 in costs incurred on the OQI Sask Permit lands. Also
included in exploration was $233,333 related to property acquired from the Anhydride Limited
Partnership which was subsequently written off.
 Consulting expenses for the nine months ended January 31, 2007 were $3,867,292 (2006 -
$8,237,411). In the nine months ended January 31, 2007 consulting costs included $1,943,078 in
expenses paid to investment advisors by the Company on the successful completion of the
Reorganization. In 2006 Consulting costs included $3,795,062 related to the issuance of options
to employees and consultants and also included fees related to successful financing attempts that
were paid in stock and cash totaling $1,055,993.
 During the nine months ended January 31, 2007 the Companys financing activities did not involve
the issuance of warrants and or convertible debt and as such it did not incur any non-cash
financing expenses. As a result of the Companys convertible note financing activities during the
nine months ended January 31, 2006 non-cash financing expenses of $6,094,908 were incurred.
 Professional fees for the nine months ended January 31, 2007 of $1,414,416 (2006  $405,877)
included costs related to the successful completion of the Reorganization with OQI Sask and
several major funding initiatives.
 Corporate salaries during the nine months ended January 31, 2007 were $1,139,126 (2006  $Nil) and
included a bonus of $135,123 paid in conjunction with the hiring of a new CEO. The increase over
the same period in 2006 is related to the expanded activity of the Company and the hiring of
additional employees.
 Office expenses for the nine months ended January 31, 2007 were $576,083 (2006  $261,820). Travel
costs for the nine months ended January 31, 2007 were $156,134 (2006  $74,572). This increase has
been as a result of higher activity levels, additional staff and relocation of the corporate
offices.
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Transfer agent fees for the nine months ended January 31, 2007 were $245,303 (2006  $82,210). The
increase was due to costs associated with the annual shareholder meeting during the period and the
completion of the reorganization with OQI Sask.
 Advertising and promotion expenses during the nine months ended January 31, 2007 of $242,597 (2006
  $1,617,775) primarily included costs for communication and informational material for the
Companys stakeholders. 2006 costs included the cost of the engagement of a consulting firm which
agreed to be paid in common shares of the Company. Pursuant to this agreement the Company issued
2,000,000 common shares at a deemed cost of $860,000 of which $645,000 was expensed during the
nine months ended January 31, 2006 and the balance was recorded as a prepaid expense.
 Directors fees and reimbursements in the period were $150,955 (2006  $Nil) in accordance with a
corporate policy implemented during the period.
 Interest and bank charges of $25,055 (2006  $461,147) for the nine months ended January 31, 2007
are lower as a result of the timing when various convertible notes converted.
 The overall increase in the January 31, 2007 period costs over the same period in 2006 can be
attributed to an overall increased level of activity by the Company.
 During the nine months ended January 31, 2006 the Company sold its interest in its subsidiary
Anhydride Petroleum (Canada) Inc. for nominal proceeds which resulted in the Company recording
$736,782 as Gain on extinguishment of a liability on sale of a subsidiary (previously described as
Recovery of exploration costs).
 Interest income for the nine months ended January 31, 2007 was $1,129,377 (2006  $109,835).
Interest income increased in the 2007 period because the Company had pre-funded its exploration
programs resulting in cash on hand which was invested in short term deposits.
 The following schedule details the correction of an error in previously issued interim financial
statements. The October 31, 2006 interim financial statements included certain non-cash post
reorganization, subsidiary level Stock Based Compensation and Consulting expenses which should
have been eliminated on consolidation. These items should have been eliminated on consolidation
because the full cost was already included in the purchase price of the acquisition of the
non-controlling (minority) interest of OQI Sask. The corrected Net Loss and Net Loss per Share
for the six months ended October 31, 2006 are set out below.
 As Reported
    
    
    As CorrectedSix months ended
    
    
    Six months endedOctober 31, 2006
    
    
    October 31, 2006Stock Based Compensation Expense
    
    $
    43,622,692
    
    
    $
    33,211,022Consulting Expense
    
    
    4,812,166
    
    
    
    3,607,783Other Expenses
    
    
    (1,258,721
    )
    
    
    (1,258,721
    )Net Loss
    
    $
    47,176,137
    
    
    $
    35,560,084Net Loss Per Share
    
    $
    0.38
    
    
    $
    0.29
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Critical Accounting Policies
   
    
    Foreign currency translation;
    
    Properties and exploration stage expenditures;
    
    Income taxes; and
    
    Stock based compensation.
 Foreign currency translation
 The Companys operations and activities are conducted principally in Canada; hence the Canadian
dollar is the functional currency which is translated into U.S. dollars for reporting purposes as
follows:
 (i)
    
    Monetary assets and liabilities at the rate of exchange in effect as at the balance sheet
date;(ii)
    
    Non-monetary assets and liabilities at the exchange rates prevailing at the time of the
acquisition of the assets or assumption of the liabilities; and,(iii)
    
    Revenues and expenditures at the average rate of exchange for the year.Gains and losses arising from this translation of foreign currency are included in other
comprehensive income (loss) as a separate component of stockholders equity (deficiency).
 Properties and exploration stage expenditures
 Properties represent the capitalized costs of acquisition of natural resource properties
principally, the right to explore for oil sands deposits in the provinces of Alberta and
Saskatchewan, Canada and oil shale deposits in the province of Saskatchewan, Canada.
 Property costs are reviewed for impairment at least annually to consider whether there are
conditions that may indicate impairment. The carrying value of each property is compared to its
net recoverable amount as estimated by quantifiable evidence of the market value of similar land
or geological resources. If the carrying value is found to exceed the estimated net recoverable
amount a write down will be recorded.
 During the nine months ended January 31, 2007 the Company acquired the non-controlling (minority)
interest in OQI Sask as described herein. The purchase price of $319,022,948 was allocated based
on the fair value of the assets acquired. The book value of each of the OQI Sask
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assets and liabilities, other than the OQI Sask Oil Sands Exploration permits, was equal to its
fair value. The fair value of the OQI Sask Oil Sands Exploration permits exceeded both its book
value and the purchase price to be allocated. Therefore the excess of the purchase price over the
book value of the assets and liabilities acquired was allocated to the OQI Sask Oil Sands
Exploration permits property.
 Property amounts reported represent costs incurred to date and do not necessarily reflect present
or future values. All exploration costs incurred to the date of establishing that a property is
economically recoverable are charged to operations.
 The Company is in the very early stages of the exploration process exploring for oil sands
deposits. As the Company continues the exploration process the Company will attempt to delineate
the resource and identify a likely method of extraction. At this early stage in our exploration
process whether the Companys operations will constitute an oil and gas or mining activity or both
cannot yet be determined. Accounting policies will evolve as the knowledge of the resource is
obtained.
 Income taxes
 Income taxes are calculated using the liability method of accounting. Temporary differences
arising from the difference between the tax basis of an asset or liability and its carrying amount
on the balance sheet are used to calculate deferred income tax liabilities or assets. These
standards require that the deferred income tax asset and liabilities be measured using tax rates
and laws that are expected to apply when the temporary differences are expected to reverse.
 Stock-based compensation
 The Company adopted SFAS 123R Share Based Payments effective May 1, 2006 using the Modified
Prospective Method. This method requires that awards granted, modified, repurchased or cancelled
in the quarter beginning after the adoption date use the fair value method to recognize stock
based compensation. Also any unvested options, where compensation expense was amortized over the
vesting period, and was previously disclosed in the notes to the financial statements as
pro-forma, shall now be expensed over the same amortization period.
 Prior to May 1, 2006, the Company applied the intrinsic value method of accounting as prescribed
by APB Opinion No. 25 Accounting for Stock Issued to Employees and related interpretations, in
accounting for options granted to employees. As such, compensation expense is recorded on the
date of the grant when the market price of the underlying stock exceeds the exercise price. SFAS
123 Accounting for Stock-based Compensation establishes accounting and disclosure requirements
using the fair value-based method of accounting for stock-based compensation plans. As allowed by
SFAS 123, the Company elected to continue to apply the intrinsic value-based method of accounting
described above and adopted the disclosure requirements of SFAS 123, as amended by SFAS 148
effective May 1, 2003.
 Item 3. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
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Changes in Internal Control
  Forward-Looking Statements
 These statements are based on certain assumptions and analyses made by us in light of our
experience and our perception of historical trends, current conditions, expected future
developments and other factors we believe are appropriate in the circumstances. Such statements
are subject to a number of assumptions, risks and uncertainties, including such factors as the
volatility and level of oil and natural gas prices, uncertainties in cash flow, expected
acquisition benefits, production rates and reserve replacement, reserve estimates, drilling and
operating risks, competition, litigation, environmental matters, the potential impact of
government regulations, and other matters, many of which are beyond our control. Readers are
cautioned that forward-looking statements are not guarantees of future performance and that actual
results or developments may differ materially from those expressed or implied in the
forward-looking statements.
 PART II  OTHER INFORMATION
 Item 2. Unregistered Sales of Equity Securities
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Item 5. Other Information.
 Information being reported in this Form 10-QSB in lieu of Form 8-K, as occurring within four
business days prior to the date of this filing
  Item 1.01. Entry into a Material Definitive Agreement.
    Item 4.02. Non-Reliance on Previously Issued Financial Statements or a Related Audit Report
or Completed Interim Review.
 On March 13, 2007, the Board of Directors determined that we need to restate our financial
statements included in our Quarterly Report on Form 10-QSB for the quarter ended October 31, 2006,
and such financial statements should no longer be relied upon.
 The purpose of the restatement of our financial statements for the period ended October 31, 2006 is
to eliminate certain non-cash post reorganization, subsidiary level stock based compensation and
consulting expenses. These items should have been eliminated on consolidation because the full
cost was already included in the purchase price of the acquisition of the non-controlling
(minority) interest of OQI Sask. The net result is to decrease the amount of stock based
compensation and consulting expenses on our consolidated statements of operations and, as a result,
to decrease our net loss and net loss per share. See Note 16 to
our financial statements in this Quarterly Report for the period
ended January 31, 2007, for more detail about this restatement.
 Our Chief Financial Officer and our Audit Committee discussed the matters disclosed above with our
independent accountant.
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##### Table of Contents



Item 6. Exhibits.
 3.1
    
    Articles of Incorporation,as amended.(1), (2), (3), (4)3.2
    
    Bylaws, as amended.(4)10.1
    
    Form of Indemnity Agreement, filed herewith.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.(2)
    
    Incorporated by reference from Form 8-K, filed March 13, 2006.(3)
    
    Incorporated by reference from Form 8-K, filed August 17, 2006.(4)
    
    Incorporated by reference from Form 10-QSB, filed December 15, 2006. 
   OILSANDS QUEST INC.Date: March 15, 2007
    
    
    
    By:
    
    /s/ Christopher H. Hopkins

Christopher H. Hopkins, President, Chief ExecutiveOfficer and DirectorDate: March 15, 2007
    
    
    
    By:
    
    /s/ Karim Hirji

Karim Hirji, Chief Financial Officer and ChiefAccounting Officer
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Exhibit Number
    
    Description3.1
    
    Articles of Incorporation,as amended.(1), (2), (3), (4)3.2
    
    Bylaws, as amended.(4)10.1
    
    Form of Indemnity Agreement, filed herewith.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.(2)
    
    Incorporated by reference from Form 8-K, filed March 13, 2006.(3)
    
    Incorporated by reference from Form 8-K, filed August 17, 2006.(4)
    
    Incorporated by reference from Form 10-QSB, filed December 15, 2006.