##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended July 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 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 205, 707  7th Avenue SW, Calgary, Alberta, Canada T2P 3H6
 (Issuers telephone number)
 (Former name, former address and former fiscal year, if changed since last report)
 þ o
 o o þ
 o þ




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##### 



OILSANDS QUEST INC.
(An Exploration Stage Company)
(Unaudited)
 INDEX TO INTERIM FINANCIAL STATEMENTS
 Unaudited Consolidated Balance Sheets
    
    F-1Unaudited Consolidated Statements of Operations
    
    F-2Unaudited Consolidated Statements of Stockholders Equity
    
    F-3Unaudited Consolidated Statements of Cash Flows
    
    F-4Unaudited Notes to Consolidated Financial Statements
    
    F-5 to F-11Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Consolidated Balance Sheets
(Unaudited)
 July 31,
    
    
    April 30,2007
    
    
    2007ASSETSCurrent Assets:Cash
    
    $
    53,033,666
    
    
    $
    34,393,871Accounts receivable
    
    
    1,594,680
    
    
    
    1,283,415Prepaid expenses
    
    
    416,379
    
    
    
    152,481Available for sale securities
    
    
    323,731
    
    
    
    284,630Total Current Assets
    
    
    55,368,456
    
    
    
    36,114,397Property and Equipment(note 3)
    
    
    524,235,842
    
    
    
    520,301,141Total Assets
    
    $
    579,604,298
    
    
    $
    556,415,538LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    4,681,013
    
    
    $
    5,170,063Loan payable (note 4)
    
    
    
    
    
    
    22,589,681Flow-through share premium liability (note 7)
    
    
    3,866,043
    
    
    
    2,535,187Total Current Liabilities
    
    
    8,547,056
    
    
    
    30,294,931Deferred Taxes
    
    
    138,241,604
    
    
    
    139,287,062146,788,660
    
    
    
    169,581,993STOCKHOLDERS EQUITYCapital StockPreferred stock, par value of $0.001 each, 10,000,000 shares authorized
1 Series B Preferred share outstanding (note 6)
    
    
    1
    
    
    
    1Common stock, par value of $0.001 each, 500,000,000 shares authorized
183,748,563 and 164,624,278 shares outstanding at July 31, 2007
and April 30, 2007 respectively
    
    
    183,749
    
    
    
    164,624Additional Paid-in Capital
    
    
    566,012,687
    
    
    
    519,265,628Deficit Accumulated During Exploration Stage
    
    
    (137,626,093
    )
    
    
    (131,435,609
    )Other Comprehensive Income (Loss)
    
    
    4,245,294
    
    
    
    (1,161,099
    )Total Stockholders Equity
    
    
    432,815,638
    
    
    
    386,833,545Total Liabilities and Stockholders Equity
    
    $
    579,604,298
    
    
    $
    556,415,538
   F-1




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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Consolidated Statements of Operations
(Unaudited)
 FromInception onThree Months Ended
    
    
    April 3, 1998July 31,
    
    
    Through to2007
    
    
    2006
    
    
    July 31, 2007ExpendituresExploration costs
    
    $
    5,041,518
    
    
    $
    649,272
    
    
    $
    42,891,762Stock-based compensation expense
    
    
    1,184,207
    
    
    
    22,008,597
    
    
    
    42,565,920Consulting
    
    
    
    
    
    
    1,867,423
    
    
    
    14,203,844Corporate salaries
    
    
    759,888
    
    
    
    
    
    
    
    3,228,548Professional fees
    
    
    464,863
    
    
    
    573,338
    
    
    
    4,227,688Office
    
    
    225,135
    
    
    
    341,673
    
    
    
    1,709,952Depreciation
    
    
    236,229
    
    
    
    
    
    
    
    604,057Transfer agent fee
    
    
    26,217
    
    
    
    11,390
    
    
    
    631,660Corporate communication
    
    
    90,632
    
    
    
    80,585
    
    
    
    3,813,967Travel
    
    
    173,617
    
    
    
    28,352
    
    
    
    639,246Board fees and expenses
    
    
    74,056
    
    
    
    
    
    
    
    321,080Foreign exchange gain
    
    
    (98,562
    )
    
    
    
    
    
    
    (23,759
    )Other Items
    
    
    
    
    
    
    
    
    
    
    126,220Interest and bank charges
    
    
    593
    
    
    
    23,005
    
    
    
    1,019,591Non-cash financing expense
    
    
    
    
    
    
    
    
    
    
    36,472,143Management fee
    
    
    
    
    
    
    
    
    
    
    414,6028,178,393
    
    
    
    25,583,635
    
    
    
    152,846,521Other ItemsInterest income
    
    
    (567,965
    )
    
    
    (290,586
    )
    
    
    (2,371,988
    )Gain on extinguishment of certain
liabilities
    
    
    
    
    
    
    
    
    
    
    (936,469
    )Net loss before income tax recovery and
non-controlling shareholder interest
    
    
    7,610,428
    
    
    
    25,293,049
    
    
    
    149,538,064Income tax recovery
    
    
    (1,419,944
    )
    
    
    (196,441
    )
    
    
    (3,788,717
    )Net loss before non-controlling shareholder
interest
    
    
    6,190,484
    
    
    
    25,096,608
    
    
    
    145,749,347Non-controlling shareholder interest
    
    
    
    
    
    
    (5,151,083
    )
    
    
    (8,123,254
    )Net loss
    
    $
    6,190,484
    
    
    $
    19,945,525
    
    
    $
    137,626,093Net Loss Per Share
    
    $
    (0.03
    )
    
    $
    (0.17
    )Weighted Average Number of Common Shares
Outstanding
    
    
    182,424,876
    
    
    
    117,722,101
   F-2




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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Consolidated Statements of Stockholders Equity
(Unaudited)
 DeficitAccumulatedAdditional
    
    
    Other
    
    
    During the
    
    
    TotalCommon Stock
    
    
    Preferred Stock
    
    
    paid-in
    
    
    Comprehensive
    
    
    Exploration
    
    
    StockholdersShares
    
    
    Par Value
    
    
    Shares
    
    
    Par Value
    
    
    Capital
    
    
    Income (Loss)
    
    
    Stage
    
    
    EquityBalance, April 30, 2007
    
    
    164,624,278
    
    
    $
    164,624
    
    
    
    1
    
    
    $
    1
    
    
    $
    519,265,628
    
    
    $
    (1,161,099
    )
    
    $
    (131,435,609
    )
    
    $
    386,833,545Common stock issued for:Cash
    
    
    16,335,716
    
    
    
    16,336
    
    
    
    
    
    
    
    
    
    
    
    49,678,027
    
    
    
    
    
    
    
    
    
    
    
    49,694,363Premium on flow-through shares
allocated to liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,493,275
    )
    
    
    
    
    
    
    
    
    
    
    (1,493,275
    )Exchange of Exchangeable Shares
    
    
    2,788,569
    
    
    
    2,789
    
    
    
    
    
    
    
    
    
    
    
    (2,789
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,184,207
    
    
    
    
    
    
    
    
    
    
    
    1,184,207Share issue costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,749,940
    )
    
    
    
    
    
    
    
    
    
    
    (2,749,940
    )Proceeds from exercise of subsidiary warrants
and options (post reorganization)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    130,829
    
    
    
    
    
    
    
    
    
    
    
    130,829Other comprehensive incomeUnrealized gain on available for sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,101
    
    
    
    
    
    
    
    39,101Exchange gain on translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,367,292
    
    
    
    
    
    
    
    5,367,292Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,190,484
    )
    
    
    (6,190,484
    )Balance, July 31, 2007
    
    
    183,748,563
    
    
    $
    183,749
    
    
    
    1
    
    
    $
    1
    
    
    $
    566,012,687
    
    
    $
    4,245,294
    
    
    $
    (137,626,093
    )
    
    $
    432,815,638Balance, April 30, 2006
    
    
    115,046,408
    
    
    $
    115,046
    
    
    
    
    
    
    
    
    
    
    $
    77,724,920
    
    
    $
    256,085
    
    
    $
    (62,640,868
    )
    
    $
    15,455,183Common stock issued for:Cash
    
    
    6,350,699
    
    
    
    6,351
    
    
    
    
    
    
    
    
    
    
    
    34,382,812
    
    
    
    
    
    
    
    
    
    
    
    34,389,163Settlement of debt
    
    
    821,701
    
    
    
    822
    
    
    
    
    
    
    
    
    
    
    
    2,534,382
    
    
    
    
    
    
    
    
    
    
    
    2,535,204Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,008,597
    
    
    
    
    
    
    
    
    
    
    
    22,008,597Share issue costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,945,299
    )
    
    
    
    
    
    
    
    
    
    
    (1,945,299
    )Other comprehensive incomeExchange loss on translation
    
    



    
    
    
    
    
    
    
    
    
    
    


    
    
    
    
    
    
    
    (754,778
    )
    
    
    
    
    
    
    (754,778
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,945,525
    )
    
    
    (19,945,525
    )Balance, July 31, 2006
    
    
    122,218,808
    
    
    $
    122,219
    
    
    
    
    
    
    
    
    
    
    $
    134,705,412
    
    
    $
    (498,693
    )
    
    $
    (82,586,393
    )
    
    $
    51,742,545
   F-3




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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
 From InceptionThree months Ended
    
    
    on April 3, 1998July 31,
    
    
    Through to2007
    
    
    2006
    
    
    July 31, 2007Operating ActivitiesNet loss
    
    $
    (6,190,484
    )
    
    $
    (19,945,525
    )
    
    $
    (137,626,093
    )Non-cash adjustments to net lossStock-based compensation expense
    
    
    1,184,207
    
    
    
    22,008,597
    
    
    
    42,565,920Non-cash financing expense
    
    
    
    
    
    
    
    
    
    
    36,472,143Consulting expenses satisfied by shares
    
    
    
    
    
    
    
    
    
    
    8,915,849Flow-through share premium liability
    
    
    (162,419
    )
    
    
    
    
    
    
    (162,419
    )Exploration costs paid in shares
    
    
    
    
    
    
    
    
    
    
    578,684Advertising and promotion for shares
    
    
    
    
    
    
    
    
    
    
    1,459,475Write-off of exploration property
    
    
    
    
    
    
    
    
    
    
    856,359Depreciation
    
    
    236,229
    
    
    
    
    
    
    
    604,057Other
    
    
    
    
    
    
    
    
    
    
    126,220Gain on extinguishment of certain liabilities
    
    
    
    
    
    
    
    
    
    
    (936,469
    )Income tax recovery
    
    
    (1,257,525
    )
    
    
    (196,441
    )
    
    
    (3,626,511
    )Non-controlling shareholder interest
    
    
    
    
    
    
    (5,151,083
    )
    
    
    (8,123,254
    )Changes in Non-Cash Working CapitalAccounts receivable and prepaid expenses
    
    
    (524,979
    )
    
    
    820,892
    
    
    
    (922,371
    )Accounts payable
    
    
    (654,131
    )
    
    
    431,837
    
    
    
    6,591,072Cash Used in Operating Activities
    
    
    (7,369,102
    )
    
    
    (2,031,723
    )
    
    
    (53,227,338
    )Investing ActivitiesAdditions to property
    
    
    (26,742
    )
    
    
    (1,187,403
    )
    
    
    (53,658,475
    )Additions to equipment
    
    
    (61,912
    )
    
    
    
    
    
    
    (3,804,303
    )Other investments
    
    
    
    
    
    
    
    
    
    
    (416,799
    )Cash Used in Investing Activities
    
    
    (88,654
    )
    
    
    (1,187,403
    )
    
    
    (57,879,577
    )Financing ActivitiesIssuance of shares for cash
    
    
    46,944,423
    
    
    
    32,443,864
    
    
    
    143,837,420Bank loan
    
    
    (21,207,500
    )
    
    
    
    
    
    
    Common stock returned to treasury
    
    
    
    
    
    
    
    
    
    
    (15,212
    )Convertible debentures
    
    
    
    
    
    
    
    
    
    
    8,384,496Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    1,120,206Shares issued on exercise of subsidiary
options and warrants post reorganization
    
    
    130,829
    
    
    
    
    
    
    
    1,186,414Shares issued by subsidiary to non-controlling
interest
    
    
    
    
    
    
    10,518
    
    
    
    7,663,666Cash Provided by Financing Activities
    
    
    25,867,752
    
    
    
    32,454,382
    
    
    
    162,176,990Inflow of Cash
    
    
    18,409,996
    
    
    
    29,235,256
    
    
    
    51,070,075Effects of exchange rate changes on cash
    
    
    229,799
    
    
    
    (783,615
    )
    
    
    1,963,591Cash, Beginning of Period
    
    
    34,393,871
    
    
    
    22,127,315
    
    
    
    Cash, End of Period
    
    $
    53,033,666
    
    
    $
    50,578,956
    
    
    $
    53,033,666Non-Cash Financing ActivitiesCommon stock issued for properties
    
    $
    
    
    
    $
    
    
    
    $
    3,837,442Warrants granted on purchase of properties
    
    $
    
    
    
    $
    
    
    
    $
    1,763,929Common stock issued for services
    
    $
    
    
    
    $
    
    
    
    $
    10,388,163Common stock issued for debt settlement
    
    $
    
    
    
    $
    2,535,204
    
    
    $
    28,401,029
   F-4




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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
 1.
    
    DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
   2.
    
    BASIS OF PRESENTATION
    F-5




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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
 3.
    
    PROPERTY AND EQUIPMENT
 OQI Sask
    
    
    Pasquia Hills,Oil Sands
    
    
    Oil Shale
    
    
    Eagles Nest,Exploration
    
    
    Exploration
    
    
    Oil SandsPermits
    
    
    Permits
    
    
    Lease
    
    
    TotalPropertyBalance April 30, 2007
    
    $
    511,999,565
    
    
    $
    3,854,648
    
    
    $
    1,016,934
    
    
    $
    516,871,147Additions to property
    
    
    26,742
    
    
    
    
    
    
    
    
    
    
    
    26,742Balance July 31, 2007
    
    $
    512,026,307
    
    
    $
    3,854,648
    
    
    $
    1,016,934
    
    
    $
    516,897,889EquipmentBalance at April 30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,797,821Additions to equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,912Accumulated depreciation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (604,057
    )Balance July 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,255,676Property and Equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    520,153,565Foreign exchange translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,082,277Total Property and Equipment at July 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    524,235,842
    4.
    
    LOAN PAYABLE
   F-6




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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
 5.
    
    SUBSIDIARY OPTIONS AND WARRANTS OUTSTANDING
   Weighted AverageNumber
    
    
    Exercise Price (CDN)Issued and outstanding, April 30, 2007
    
    
    16,000
    
    
    $
    2.00Exercised
    
    
    (16,000
    )
    
    $
    2.00Issued and outstanding, July 31, 2007
    
    
    
  Weighted AverageNumber
    
    
    Exercise Price (CDN)Issued and outstanding, April 30, 2007
    
    
    1,775,000
    
    
    $
    16.55Exercised
    
    
    (18,000
    )
    
    $
    6.00Issued and outstanding, July 31, 2007
    
    
    1,757,000
    
    
    $
    16.55
 Number
    
    
    Number
    
    
    Weighted AverageExercise
    
    Outstanding at
    
    
    Exercisable at
    
    
    Remaining ContractualPrice (CDN)
    
    July 31, 2007
    
    
    July 31, 2007
    
    
    Life$0.50
    
    
    100,000
    
    
    
    100,000
    
    
    2.29 years$3.00
    
    
    100,000
    
    
    
    100,000
    
    
    3.01 years$6.00
    
    
    592,000
    
    
    
    592,000
    
    
    3.55 years$25.00
    
    
    915,000
    
    
    
    715,000
    
    
    3.75 years$50.00
    
    
    50,000
    
    
    
    12,500
    
    
    4.01 years1,757,000
    
    
    
    1,519,500
    
    
    3.56 years
  6.
    
    PREFERRED SHARES
   F-7




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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
 6.
    
    PREFERRED SHARES (continued)
 OQI SaskExchangeableOQI Sask
    
    
    Shares issuable
    
    
    TotalExchangeable
    
    
    on exercise of OQI
    
    
    ExchangeableShares
    
    
    Sask options
    
    
    SharesBalance, April 30, 2007
    
    
    33,527,359
    
    
    
    14,739,930
    
    
    
    48,267,289OQI Sask options and warrants exercised
    
    
    279,820
    
    
    
    (279,820
    )
    
    
    Exchangeable Shares exchanged into
OQI common shares
    
    
    (2,788,569
    )
    
    
    
    
    
    
    (2,788,569
    )Balance, July 31, 2007
    
    
    31,018,610
    
    
    
    14,460,110
    
    
    
    45,478,720
 7.
    
    COMMON STOCK
     F-8




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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
 8.
    
    STOCK OPTIONS
  Stock option
    
    Exercise
    
    
    NumberPlan
    
    Expiry Date
    
    Price
    
    
    of 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
    
    
    
    2,882,500SOP 2006
    
    5-Sep-11
    
    $
    5.10
    
    
    
    37,500SOP 2006
    
    27-Sep-11
    
    $
    3.90
    
    
    
    6,250SOP 2006
    
    2-Oct-11
    
    $
    3.89
    
    
    
    400,000SOP 2006
    
    1-Dec-11
    
    $
    5.25
    
    
    
    50,000SOP 2006
    
    29-Jun-12
    
    $
    2.47
    
    
    
    100,0009,831,250
  1,000,000
    
    
    options at $6.75 with an expiry date of May 1, 2013 which vest on May 1, 2008;1,245,000
    
    
    415,000 options which vest in each of 2007, 2008 and 2009 on anniversary dates
between August 23 and December 1;75,000
    
    
    options at $2.47 which vest as to 25,000 on each of June 29, 2008, 2009, and 2010;1,660,000
    
    
    options which vest on or after dates between August 23 and December 1, 2009 as to
415,000 upon achieving a 750 million bitumen in place (BIP) barrel count defined as the
high resource (P10) estimate of bitumen in place (as determined in accordance with
national Instrument 51-101 Standard of Disclosure for Oil and Gas Activities issued by
the securities regulatory authorities in Canada) and 415,000 options thereafter for each
250 million increase in the BIP barrel count.3,980,000
  WeightedNumber of
    
    
    AverageOptions
    
    
    Exercise PriceBalance, April 30, 2007
    
    
    10,125,000
    
    
    $
    5.33Granted during the three months ended July 31, 2007
    
    
    100,000
    
    
    $
    2.47Cancelled
    
    
    (393,750
    )
    
    $
    5.05Balance, July 31, 2007
    
    
    9,831,250
    
    
    $
    5.32
  F-9




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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
 8.
    
    STOCK OPTIONS (continued)
    9.
    
    WARRANTS
  Expiry
    
    Exercise
    
    
    Number ofDate
    
    Price
    
    
    Warrants19-Sep-07
    
    $
    0.55
    
    
    
    104,88312-Dec-07
    
    $
    2.00
    
    
    
    6,885,83415-Dec-07
    
    $
    2.00
    
    
    
    1,500,00015-Dec-07
    
    $
    1.75
    
    
    
    93,8008,584,517
  WeightedNumber
    
    
    AverageOf Warrants
    
    
    Exercise PriceBalance, April 30, 2007
    
    
    8,856,067
    
    
    $
    1.98Exercised
    
    
    (271,550
    )
    
    $
    1.93Balance, July 31, 2007
    
    
    8,584,517
    
    
    $
    1.98
 10.
    
    COMPREHENSIVE LOSS
 Three months
    
    
    Three monthsended July 31,
    
    
    ended July 31,2007
    
    
    2006Net loss
    
    $
    6,190,484
    
    
    $
    19,945,525Unrealized gain on available for sale securities
    
    
    (39,101
    )
    
    
    Exchange gain on translation
    
    
    (5,367,292
    )
    
    
    754,778$
    784,091
    
    
    $
    20,700,303
  F-10




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##### Table of Contents



OILSANDS QUEST INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
 11.
    
    COMPARATIVE FIGURES
  12.
    
    SUBSEQUENT EVENTS
 (a)
    
    Subsequent to July 31, 2007, the Board of Directors granted 4,142,000 stock options to
employees and directors. The exercise price of options granted, based on the closing
price of the Companys stock on the date of grant, is $4.27 for 4,112,000 of the options
and $5.04 for the remaining 30,000 options.
 (b)
    
    On August 13, 2007, the Company acquired five blocks of oil sands exploration
licenses granted under The Petroleum and Natural Gas Amendment Regulations 2007
(Saskatchewan) for an aggregate cost of $2,140,233 ($2,249,089 CDN), plus an annual
rental of $0.67 ($0.71 CDN per acre). The exploration licenses are for oil sands rights
for a term of five years and cover a total of 109,920 acres.
 (c)
    
    On August 13, 2007, the company acquired an oil shale exploratory permit in the
Pasquia Hills area granted under The Petroleum and Natural Gas Amendment Regulations 2007
(Saskatchewan)totaling 83,769 acres for a total work commitment of $286,972 ($301,568
CDN) during the first two years of the permit and a work commitment of $0.80 per acre for
the remaining three years of the permit, plus an annual rental of $0.09 ($0.10 CDN) per
acre.
 (d)
    
    Subsequent to July 31, 2007, the Company entered into a letter of intent respecting
the purchase of certain royalty interests, which encumber the Saskatchewan Permit Lands
and the purchase of a joint venture interest in the Triple 7 Joint Venture Agreement,
which encumbers the Eagles Nest Prospect. Under the terms of the letter of intent, the
Company or its subsidiaries may buyback certain royalty rights and the joint venture
interest for consideration of $150,000 CDN and 750,000 common shares of OQI. The offer
is subject to standard conditions and is expected to close on or before September 15,
2007. Following closing of this transaction, the obligations under the Triple 7 Joint
Venture Agreement to make certain payments to partners will be reduced by one third and a
$0.04 per barrel royalty will remain on the Saskatchewan Permit Lands.
 (e)
    
    Subsequent to July 31, 2007, 3,031,394 warrants and options have been exercised
into the same number of OQI common shares for proceeds of $6,262,256.
  F-11




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Cautionary Statement about Forward-Looking Statements
  
    
    the amount and nature of future capital, development and exploration expenditures;
 
    
    the timing of exploration activities;
 
    
    business strategies and development of our business plan and drilling programs; and
 
    
    potential estimates as to the volume and nature of petroleum deposits that are expected to
be found present when lands are developed in a project.
    Overview
  
    
    During the three months ended July 31, 2007, $46.9 million, net of issuance costs, was
raised through private placement share issuances and proceeds of warrant exercises to
pre-fund the Companys exploration programs and general corporate requirements for the next
12 months.
  1




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##### Table of Contents




    
    On May 4, 2007, the Company repaid a loan payable of $22.6 million originally incurred
to fund the acquisition of oil sands exploration permits in Alberta adjacent to its
Saskatchewan oil sands permits.
 
    
    Exploration costs incurred during the three months ended July 31, 2007 were $5.0 million
compared to $0.6 million during the same period in 2006 due to increased exploration
activities summarized below.
 
    
    The Company continued to advance its pre-commercialization evaluation studies of its Axe
Lake Discovery, including opening a technical facility in Calgary and finalizing plans for
a technical office in Regina, Saskatchewan.
      2




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##### Table of Contents




    
    evaluate drilling data and perform laboratory studies of bitumen characterization and
recovery methods;
 
    
    undertake computer reservoir modeling studies;
 
    
    conduct environmental programs to establish base-line data and facilitate regulatory
approvals;
 
    
    develop engineering timelines and designs of pilot plan production testing facilities;
 
    
    conduct advanced economic feasibility and risk assessment studies;
 
    
    drill test wells to confirm laboratory studies;
 
    
    initiate joint venture partnership negotiations for Axe Lake development; and
 
    
    continue exploration in Saskatchewan and on adjacent Alberta permits.
  Liquidity and Capital Resources
     The Petroleum and Natural Gas Amendment Regulations 2007
  3




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##### Table of Contents



The Petroleum and Natural Gas Amendment Regulations 2007
    Changes in Financial Condition
    4




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5




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
  Item 4. Controls and Procedures
       6




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##### Table of Contents



PART II  OTHER INFORMATION
 ITEM 2. Unregistered Sales of Equity Securities
            7




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##### Table of Contents



ITEM 6. Exhibits.
 3.1
    
    Articles of Incorporation,as amended. (1), (2), (3), (4), (5)3.2
    
    Bylaws, as amended.(6)10.1
    
    Amending Agreement to Subscription Agreement for Flow-Through Shares,
dated May 3, 2007. (7)10.2
    
    Subscription Agreement between the Company and Subscribers, dated May 3,
2007. (7)31.1
    
    Certification of CEO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.31.2
    
    Certification of CFO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith.32.1
    
    Certification of CEO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.32.2
    
    Certification of CFO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
 
 (1)
    
    Incorporated by reference from Form 10-SB, filed October 14, 1999; and Form
8-K, filed November 29, 2004.(2)
    
    Incorporated by reference from Form 10-QSB dated December 14, 2005.(3)
    
    Incorporated by reference from Form 8-K dated March 13, 2006.(4)
    
    Incorporated by reference from Form 8-K dated August 14, 2006.(5)
    
    Incorporated by reference herein from Form 10-QSB filed December 15, 2006.(6)
    
    Incorporated by reference herein from Form 8-K filed July 26, 2007.(7)
    
    Incorporated by reference herein from Form 10-KSB filed July 30, 2007.
 
  8




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##### Table of Contents



SIGNATURES
  OILSANDS QUEST INC.Date: September 14, 2007
    By:
    /s/ Christopher H. HopkinsChristopher H. Hopkins, President,Chief Executive Officer and DirectorDate: September 14, 2007
    By:
    /s/ Karim HirjiKarim Hirji, Chief Financial Officer andChief Accounting Officer  9




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNo.
    
    Description3.1
    
    Articles of Incorporation,as amended. (1), (2), (3), (4), (5)3.2
    
    Bylaws, as amended.(6)10.1
    
    Amending Agreement to Subscription Agreement for Flow-Through Shares,
dated May 3, 2007. (7)10.2
    
    Subscription Agreement between the Company and Subscribers, dated May 3,
2007. (7)31.1
    
    Certification of CEO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.31.2
    
    Certification of CFO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith.32.1
    
    Certification of CEO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.32.2
    
    Certification of CFO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
 
 (1)
    
    Incorporated by reference from Form 10-SB, filed October 14, 1999; and Form
8-K, filed November 29, 2004.(2)
    
    Incorporated by reference from Form 10-QSB dated December 14, 2005.(3)
    
    Incorporated by reference from Form 8-K dated March 13, 2006.(4)
    
    Incorporated by reference from Form 8-K dated August 14, 2006.(5)
    
    Incorporated by reference herein from Form 10-QSB filed December 15, 2006.(6)
    
    Incorporated by reference herein from Form 8-K filed July 26, 2007.(7)
    
    Incorporated by reference herein from Form 10-KSB filed July 30, 2007.
  10