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U.S. SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-KSB
 (Mark One)
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED APRIL 30, 2007.
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD OF _________ TO ________.
 Commission File Number: 0-27659
 OILSANDS QUEST INC.
 (Name of small business issuer in its charter)
 Colorado
    
    98-0461154State or other jurisdiction of 
incorporation or organization
    
    (I.R.S. Employer
Identification No.)
 205, 707-7th AVENUE SW, CALGARY, ALBERTA CANADA T2P 3H6
 (403) 263-1623
  Common Stock, $.001 Par Value
 None
  þ o
  o þ
   o þ
 o þ




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##### 



Table of Contents
  PART IItem 1. DESCRIPTION OF BUSINESSItem 2. DESCRIPTION OF PROPERTYItem 3. LEGAL PROCEEDINGSItem 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIItem 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERSItem 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONItem 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAItem 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREItem 8A. Controls and ProceduresItem 8B. Other InformationPART IIIItem 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACTItem 10. EXECUTIVE COMPENSATIONItem 11. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENTItem 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSPART IVItem 13. EXHIBITSItem 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESSIGNATURESEXHIBIT INDEXExhibit 4.2Exhibit 10.9Exhibit 10.23Exhibit 10.24Exhibit 10.25Exhibit 10.26Exhibit 21.1Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2   
 PART I
  
 Item 1.
    
    DESCRIPTION OF BUSINESS
 Background and Corporate Structure
 th
   
    
    We own 100% of Township Petroleum Corporation (Township), an Alberta
corporation. Township owns an oil sands lease in the Province of Alberta acquired
in 2005 (the Eagles Nest Prospect) and is currently developing plans for
exploring the oil sands potential on the lease.
 
    
    We own 100% of Western Petrochemicals Corp. (WPC), an Alberta corporation.
WPC formerly owned certain rights relating to exploration for oil shale, referred
to as the Pasquia Hills Oil Shale Prospect and is currently inactive.
 
    
    We own 100% of Stripper Energy Services Inc. (Stripper), acquired in 2007 and
currently a wholly owned subsidiary of OQI Sask.
 
    
    We own 100% of 1291329 Alberta Ltd., incorporated in 2007 to hold camp
facilities and equipment.
 
    
    We own 100% of Anhydride Petroleum (USA) Inc. (Anhydride USA), currently
inactive, 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.
  1




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General Development of the Business
    Oilsands Quest Sask Inc.
     2




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Exploration Permits
        3




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Block
    
    Description
    
    Total Ha(1)P0098
    
    South half of the Township 92, Range 1, West of the 4th Meridian
    
    
    4,608P9039
    
    North half of Township 92, Range 1, West of the 4th Meridian
    
    
    4,608P9040
    
    East half of Township 93 and 94, Range 1, West of the 4th Meridian
    
    
    9,216P9041
    
    West half of Township 93 and 94, excluding sections 32 and 33, Range 1, West of the 4th Meridian
    
    
    8,704Total
    
    
    27,136
 (1)
    
    One (1) Hectare (Ha) equals approximately 2.471 acres. The total acreage of the
Alberta Permits equals 67,053 acres.
   Gross Overriding Royalties on OQI Sask Sask Permit Lands
    4




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The Oil Sands Industry
 The following information quotes liberally from the named sources and a variety of technical
reports. It should be noted that, for the most part, these organizations are just beginning to
recognize the oil sands discovery OQI Sask has made in Saskatchewan, and they are not likely to
include it in their forecasts until the bitumen resources are considered recoverable resources
(recoverable with todays technology and economics) and/or until commercial viability of these
resources is determined.
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Activities to Date
 Oilsands Quest Sask Inc.
 Standards of Disclosure for Oil and Gas Activities
   6




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Outlook
    .
    8




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The Companys Other Business Opportunities
 Eagles Nest Prospect
 Mines and Minerals Act
      9




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Pasquia Hills Oil Shale Prospect
 Oil Shale Regulations,
1964
   Apex Joint Ventures
   Watch Resources Ltd. (formerly known as Energy 51 Inc.)
      10




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Government Regulation
 Energy and Mines Act Oil and Gas Conservation Act Oil Shale Regulations, Minerals Act, Petroleum and Natural Gas Amendment Regulations
2007 Oil Shale
Regulations, 1964 Oil Shale
Regulations, 1964,
 Mines and Minerals Act Oil Sands Conservation Act Oil Sands Tenure Regulation Oil Sands Royalty
Regulation 1984 Oil Sands Royalty Regulation 1997 Experimental Oil Sands Royalty Regulation Oil
Sands Conservation Regulation Mines and Minerals Administration Regulation
  Employees
  RISK FACTORS
   11




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Due to Our History of Operating Losses, We are Uncertain That We Will Be Able to Maintain
Sufficient Cash to Accomplish Our Business Objectives
   Our Business Plan is Highly Speculative and its Success Depends, In Part, On Exploration Success on
the Permit Lands
   Nature of Oil Sands Exploration and Development
  Reserves and Resources
   12




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Capital Requirements and Liquidity
  Government Regulations, Permits, Leases and Licenses
   Third Party Liability and Environmental Liability
   13




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Royalty Regime
  Emissions Regulations
     14




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Abandonment and Reclamation Costs
  Title Risks
    15




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Operational Hazards
  Competitive Risks
       16




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Reliance on Key Personnel
     We Have Numerous Outstanding Options, Warrants and Commitments to Issue Shares, Which May Adversely
Affect The Price of Our Common Stock
 ,
 Future Sales of our Common Stock May Cause our Stock Price to Decline
   Dividend Policy
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Our Stock Price Can Be Extremely Volatile
  Issuance of Preferred Stock and Our Anti-Takeover Provisions Could Delay or Prevent a Change
in Control and May Adversely Affect our Common Stock.
  
 Item 2.
    
    DESCRIPTION OF PROPERTY
 OQI Sask Permit Lands
 Oil Shale Regulations
  18




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Block
    
    Description
    
    Total Ha(1)P0098
    
    South half of the Township 92, Range 1, West of the 4th Meridian
    
    
    4,608P9039
    
    North half of Township 92, Range 1, West of the 4th Meridian
    
    
    4,608P9040
    
    East half of Township 93 and 94, Range 1, West of the 4th Meridian
    
    
    9,216P9041
    
    West half of Township 93 and 94, excluding sections 32 and 33, Range 1, West of the 4th Meridian
    
    
    8,704Total
    
    
    27,136
 (1)
    
    One (1) Hectare (Ha) equals approximately 2.471 acres. The total acreage of the
Alberta Permits equals 67,053 acres.
  Pasquia Hills Oil Shale Prospect
 Oil Shale Regulations, 1964
 Eagles Nest Prospect
  Office Leases
  th
  19




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Production
  Glossary of Common Terms
  API
    
    American Petroleum InstituteBbl
    
    BarrelBitumen or crude bitumen
    
    A highly viscous oil which is too thick to flow in its native state, and which cannot be produced without altering its viscosity; a naturally occurring
mixture, mainly consisting of viscous hydrocarbons heavier than pentane, that may contain sulphur compounds and that in its naturally occurring viscous
state does not usually flow to a well. The density of bitumen is generally less than 10 degrees API (as that term is defined by the American Petroleum
Institute).BOEs
    
    Barrels of oil equivalentCore
    
    Cylindrical sample of rock taken from a formation for the purpose of examination and analysisCore hole, Stratigraphic test well, or Exploration Stratigraphic test well
    
    A drilling effort, geologically directed, to obtain information pertaining to a specific geologic condition. Ordinarily, such wells are drilled without
the intention of being completed for hydrocarbon production. They include wells for the purpose of core tests and all types of expendable holes related
to hydrocarbon exploration.Stratigraphic test wells are classified as(a) exploratory type if not drilled into a proved property; or(b) development type, if drilled into a proved property.Development type stratigraphic wells are also referred to as evaluation wells.Crude oil (conventional)
    
    A mixture that consists mainly of pentanes and heavier hydrocarbons, which may contain sulphur and other non-hydrocarbon compounds, that is recoverable
at a well from an underground reservoir and that is liquid at the conditions under which its volume is measured or estimated. It does not include
solution gas or natural gas liquids.Degrees API
    
    A measure of hydrocarbon density; the lower the number, the higher the viscosity (see viscosity)
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Exploration costs
    
    Costs incurred in identifying areas that may warrant examination and in examining specific areas that are considered to have prospects that may contain
oil and gas reserves, including costs of drilling exploratory wells and exploratory type stratigraphic test wells.Formation
    
    A bed or deposit composed throughout of substantially the same kind of rock. Each different formation is given a name, often as a result of the study
of the formation outcrop at the surface and sometimes based on fossils found in the formation.In-situ
    
    In its original place; in position. When referring to oil sands, in-situ recovery refers to various methods used to recover deeply buried bitumen
deposits, including steam injection, solvent injection and firefloods.Steam assisted gravity drainage (SAGD) is an example of an in-situ process used to recover bitumen from oil sand located too deep to be profitably mined.Lease
    
    An agreement granting to the lessee rights to explore, develop and exploit a property.Oil sands
    
    Sand and other rock materials containing bitumen; the crude bitumen contained in those sands and other rock materials. Each particle of sand is coated
with a layer of water and a thin film of bitumen.Oil sands deposit
    
    A natural reservoir containing or appearing to contain an accumulation of oil sands separated or appearing to be separated from any other accumulation.Overburden
    
    Thickness of material above an occurrence of bitumen. The thickness of the overburden determines the method of bitumen recovery (mining or in-situ
techniques). Overburden could consist of layers of sand, gravel and shale; in many places overburden underlies muskeg which is a water-soaked layer of
decaying plant material one to three metres (three to ten feet) thick. Muskeg supports the growth of shallow-root trees.Permeability
    
    Ability of a porous rock to transmit fluid through its pore spaces. A rock may be highly porous and yet impermeable if it has no interconnecting pore
network (communication).Porosity
    
    Volume of a rock available to contain fluids. Volume of pore spaces between mineral grains expressed as a percentage of the total rock volume.Reserves
    
    Estimated remaining quantities of crude oil and natural gas and related substances anticipated to be recoverable from known accumulations, from a given
date forward, based on:(a) analysis of drilling, geological, geophysical and engineering data;(b) the use of established technology; and(c) specified economic conditions, which are generally accepted as being reasonable, and which are disclosed.Reservoir
    
    Porous, permeable sedimentary rock structure or trap containing oil and/or gas. A reservoir can contain more than one pool (accumulation of oil or gas).
  21




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Resources
    
    Those quantities of oil and gas estimated to exist originally in naturally occurring accumulations.Resources are, therefore, those quantities estimated on a particular date to be remaining in known accumulations plus those quantities already produced
from known accumulations plus those quantities in accumulations yet to be discovered.
Resources are divided into:(a) discovered resources, which are limited to known accumulations; and(b) undiscovered resources.Unproved property
    
    A property or part of a property to which no reserves have been specifically attributed.Viscosity
    
    A measure of the resistance of a liquid to flow. The viscosity of petroleum products is commonly expressed in terms of the time required for a specific
volume of the liquid to flow through an orifice of a specific size.Working interest
    
    The operating interest that gives the owner the right to drill, produce and conduct operating activities on the property and to share in the production.
 
 Item 3.
    
    LEGAL PROCEEDINGS
  
 Item 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 Item 5.
    
    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 Market Information
 http://finance.yahoo.com
  22




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Fiscal Quarter
    
    High Bid Price
    
    Low Bid PriceFiscal Year End
    
    4th Quarter  (2/1/07  4/30/07)
    
    $
    5.00
    
    
    $
    2.75April 30, 2007
    
    3rdQuarter  (11/1/06  1/31/07)
    
    $
    5.49
    
    
    $
    4.032nd Quarter (8/1/06  10/31/06)
    
    $
    5.95
    
    
    $
    3.311st Quarter  (5/1/06  7/31/06)
    
    $
    8.90
    
    
    $
    3.34Fiscal Year End
    
    4th Quarter  (2/1/06  4/30/06)
    
    $
    8.30
    
    
    $
    4.01April 30, 2006
    
    3rdQuarter  (11/1/05  1/31/06)
    
    $
    5.52
    
    
    $
    1.642nd Quarter (8/1/05  10/31/05)
    
    $
    3.32
    
    
    $
    0.431st Quarter  (5/1/05  7/31/05)
    
    $
    0.45
    
    
    $
    0.37
  Holders
  Dividends
  Equity Compensation Plan Information
   Administration of the Plan
   23




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Eligibility
   Adjustment
  U.S. Income Tax Consequences of the Plan
    24




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Canadian Federal Income Tax Consequences
 Income Tax Act
      25




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Other Provisions
    26




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(c) Number of SecuritiesRemaining Available forFuture Issuance(a) Number of Securities to
    
    
    (b) Weighted Average
    
    
    Under Equitybe Issued Upon Exercise of
    
    
    Exercise Price of
    
    
    Compensation PlansOutstanding Options,
    
    
    Outstanding Options,
    
    
    (Excluding SecuritiesPlan Category
    
    Warrants and Rights
    
    
    Warrants and Rights
    
    
    Reflected in Column (a))Equity Compensation
Plans Approved by
Stockholders
    
    
    9,925,000
    (1)
    
    $
    5.41
    
    
    
    17,633,598
    (3)Equity
Compensation Plans
Not Approved by
Stockholders
    
    
    200,000
    (2)
    
    $
    1.50
    
    
    
    1,200,000TOTAL
    
    
    10,125,000
    (1)(2)
    
    $
    5.33
    
    
    
    18,833,598
 
 (1)
    
    Includes: options to acquire 9,925,000 shares of Common Stock under the Companys 2006
Stock Option Plan.(2)
    
    Includes: options to acquire 200,000 shares of Common Stock under the Companys 2005b Stock
Option Plan. The Company does not intend to issue any more securities under this plan.(3)
    
    The aggregate number of securities available for issuance under the 2006 Stock Option Plan is
the lesser of: (A) 15% of the total outstanding shares of the Companys Common Stock, or (B)
30,000,000. As of July 23, 2007, the number of securities available for issuance under the
2006 Stock Option Plan is 27,558,598.
 Recent Sales of Unregistered Securities
      27




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Item 6.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 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.
    28




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Plan of Operation All amounts are in US dollars unless otherwise indicated.)
  Oilsands Quest Sask Inc.
 Standards of Disclosure for Oil and Gas Activities
     29




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Outlook
   30




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.
  The Companys Other Operations:
 Eagles Nest Prospect
 Mines and Minerals Act
  31




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Pasquia Hills Oil Shale Prospect
 Oil Shale Regulations,
1964
   32




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Apex Joint Ventures
   Watch Resources Ltd. (formerly known as Energy 51 Inc.)
     Liquidity and Capital Resources
    33




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34




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35




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Changes in Financial Condition
       36




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37




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As Reported
    
    As CorrectedFor the Year Ended
    
    For the Year Ended
    
    Effect ofApril 30, 2006
    
    April 30, 2006
    
    CorrectionProperty
    
    $
    17,831,417
    
    
    $
    17,123,098
    
    
    $
    (708,319
    )Other Comprehensive Income
    
    $
    964,404
    
    
    $
    256,085
    
    
    $
    (708,319
    )
 Critical Accounting Policies
   
    
    Properties and exploration stage expenditures
    
    Income taxes;
    
    Stock based compensation; and
    
    Foreign currency translation.
 Properties and exploration stage expenditures
    38




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Income taxes
  Stock-based compensation
  Foreign currency translation
  (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.
  
 Item 7.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 Item 8.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
   39




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Item 8A.
    
    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Controls
  
 Item 8B.
    
    Other Information
  
 PART III
 
 Item 9.
    
    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A)
OF THE EXCHANGE ACT
 MANAGEMENT
   40




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Name of Director or Officer
    
    Officer orand Position in the
    
    Director
    
    
    
    
    
    Office(s) Held and OtherCompany
    
    Since
    
    Age
    
    Business ExperienceT. Murray Wilson,
Executive Chairman and
Chairman of the Board of
Directors,
Class B Director
    
    May 2006
    
    
    55
    
    
    Former President,
Former Chief Executive
Officer, Former Chief
Financial Officer from
May 1, 2006 until
August 14, 2006.
Chairman of the Board
since May 1, 2006, and
Executive Chairman from
August 14, 2006 to
present. Mr. Wilson is also a member of the Companys Resources and Reserves Committee. Served as
Chairman and Managing
Partner of Stanway
Capital Partners from
2001 to present; and
from 1997 to 2001,
worked for TD
Securities, Inc. as
Managing Director and
Global Head of Oil &
Gas, Head of Investment
Banking and Corporate
Banking for Alberta,
and Vice Chairman of TD
Securities
International, London.
Prior to that Mr.
Wilson was VP &
Director of RBC
Dominion Securities
London responsible for
the firms
international and
Canadian-transborder
practice in energy and
mining. Mr. Wilson
held numerous senior
positions with Royal
Bank of Canada Group
over a 17 year period
from 1980. Prior to
his investment banking
career Mr. Wilson was
an executive
professional in
technical and economic
areas with Imperial Oil
Limited (Esso/Exxon).
Mr. Wilson has been
involved in various oil
sands projects, both
in-situ and mining,
from either a technical
or financial
perspective over the
past 30 years. Mr.
Wilson holds a Masters
Degree in Business from
the Sloan School,
M.I.T., a Masters in
Engineering from the
University of Manitoba
(National Research
Council Scholar), and a
B.Sc. in Chemical
Engineering (1st Class
Honours - B.E.C. Joyce
Medal) from Queens
University. Mr. Wilson is on the board, amongst others, of the Alberta Childrens Hospital Foundation and chairs its Corporate Governance Committee.
  41




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Name of Director or Officer
    
    Officer orand Position in the
    
    Director
    
    
    
    
    
    Office(s) Held and OtherCompany
    
    Since
    
    Age
    
    Business ExperienceChristopher H. Hopkins
President and Chief
Executive Officer and
Class A Director
    
    August 2006
    
    
    53
    
    
    President, Chief
Executive Officer and a
director since August
14, 2006, and
President, Chief
Executive Officer and a
director of Oilsands
Quest Sask Inc., a
subsidiary of the
Company since November
10, 2004. Executive
Vice President of
Synenco Energy Inc.
(Synenco), an oil
sands exploration
company, from October
1999 to September 2004
and a director of
Synenco from October
1999 until August 2003.
Founder, director and
Vice President, Finance
of Thunder Road
Resources Ltd., a
private oil and gas
production company,
from June 1996 to June
2000. Mr. Hopkins is a
management professional
and businessman with 25
years of Canadian and
international energy
and mining experience.
He has held executive
positions in corporate
planning and business
development with Suncor
Inc.s Oil Sands Group,
Pembina Corporation and
Amoco Canada and has
additional management
experience in
environmental control
and regulatory affairs
in the resource
industry. Mr. Hopkins
holds a B.Sc.
(Chemistry and Biology)
from Carleton
University and an MBA
from Queens
University. Mr. Hopkins also serves as a director of Added Capital Corp., a capital pool company.Karim Hirji
Chief Financial Officer
    
    August 2006
    
    
    44
    
    
    Chief Financial Officer
of the Company since
August 14, 2006, and
Chief Financial Officer
of Oilsands Quest Sask
Inc., since November
10, 2004. Vice
President Finance and
Chief Financial Officer
of Synenco from
November 2001 to June
2004. Vice President
Finance and Chief
Financial Officer of
Anadime Corporation, a
public oilfield
services company, from
September 2000 to
October 2001. Manager
of Financial Reporting
at Enbridge Inc. from
January 2000 to April
2000. Corporate
Controller from 1999 to
January 2000 and
Assistant Corporate
Controller from 1997 to
1999 of AGRA Inc., a
public engineering
company. Mr. Hirji
brings to the Company
over 20 years of
experience in financial
management, including
significant treasury,
project management and
corporate finance
skills. Mr. Hirji
received his B.Comm
from the University of
Calgary and CA while
articling with Deloitte
& Touche LLP. Mr.
Hirji also serves as a
director of Added
Capital Corp.
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Name of Director or Officer
    
    Officer orand Position in the
    
    Director
    
    
    
    
    
    Office(s) Held and OtherCompany
    
    Since
    
    Age
    
    Business ExperienceErrin Kimball
Vice President, Exploration
    
    August 2006
    
    
    38
    
    
    Vice President,
Exploration of the
Company since August
14, 2006, and Vice
President, Exploration
of Oilsands Quest Sask
Inc. since July 2005.
From January 2002 until
June 2005, Mr. Kimball
was Chief Geologist at
Synenco. He was also a
geological consultant
for Synenco from 2000
until he assumed his
staff position in 2002.Erdal Yildirim
Executive Vice President, 
Project Development
    
    October 2006
    
    
    70
    
    
    Executive Vice
President, Project
Development since
October 2, 2006. From
1998 to 2006 Dr.
Yildirim was the
President and CEO of
S&T International,
Inc., a private company
engaged in the oil
sands exploration and
development business.
From 2002 through 2005
Dr. Yildirim was also
employed as a Senior
Vice President
Engineering and
Technology with Synenco
Energy, Inc. From 1983
to 1998 he served as
Division Vice President
for Nexen, Inc. Dr.
Yildirim received his
Doctor of Engineering
Science degree at
Columbia University
School of Engineering
in 1971.Ronald Phillips
Class C Director
    
    February 2006
    
    
    41
    
    
    Director of the Company
since February 2006 and
the Chair of the
Companys Compensation
Committee and a member
of the Audit, Reserves and Resources and
Governance and
Nominating Committees.
Former director of
Oilsands Quest Sask
Inc. from May 2006 to
August 2006. A
managing member of
Saturn Capital
Management LLC and the
Portfolio Manager for
the DKR Saturn Event
Driven Program from
July 2002 to present.
DKR Saturn Event Driven
is an $80 million hedge
fund affiliated with
DKR Capital Inc.,
located in Stamford,
Connecticut. Mr.
Phillips is also a
director of Admiral Bay
Resources, Inc., a coal
bed methane company
incorporated in British
Columbia and traded on
the Toronto Stock
Exchange.
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Name of Director or Officer
    
    Officer orand Position in the
    
    Director
    
    
    
    
    
    Office(s) Held and OtherCompany
    
    Since
    
    Age
    
    Business ExperienceThomas Milne
Class B Director
    
    August 2006
    
    
    60
    
    
    Director of the Company
since August 14, 2006
and a director of
Oilsands Quest Sask
Inc. since November
2004. Mr. Milne is the
Chair of the Companys
Audit Committee and a
member of the
Compensation and Reserves and Resources Committees.
Mr. Milne is a
principal of NEX
Industries, a boutique
merchant banking
partnership
specializing in
advisory and
transaction services,
governance, succession,
strategic planning and
financing. He has had
an extensive career in
international finance
as director, chief
financial officer and
treasurer of major
public corporations in
the energy and
technology sectors and
as an investment banker
and foreign exchange
trader in a major
Canadian bank. From
April 2000 to April
2005, Mr. Milne was the
Chief Financial Officer
of Big Sky Energy
Corp., and from
September 2002 to
February 2004, Mr.
Milne was a Senior
Partner of Meyers,
Norris, Penney LLP.
Mr. Milne has also
served as a director
for the following
public companies: Big
Sky Energy Corp.,
Calcite Inc., Go Sports
Entertainment, Inc., NX
Capital Corp., Added
Capital Corp., and
Longview Petroleum
Corp.Gordon Tallman
Class A Director
    
    August 2006
    
    
    65
    
    
    Director of the Company
since August 14, 2006
and a member of the
Companys Audit, Compensation and Reserves and Resources Committees
and Chair of the
Governance and
Nominating Committee.
Mr. Tallman retired as
the Senior
Vice-President, Royal
Bank of Canada, and
head of the complete
Prairies Region of
Canada - Alberta,
Saskatchewan and
Manitoba, after a
banking career spanning
42 years. Mr. Tallman
is a member of the
Board of
Directors/Trustees of
Big Rock Brewery Income
Trust, ECL Group of
Companies Ltd.,
Investment Saskatchewan
Inc. and PFB
Corporation. He is
Chairman of the Board
of CV Technologies,
Inc. and Chairman of
the Board of Trustees
of Enbridge Income
Fund. He has also
served on the Boards of
Canadian Utilities
Ltd., Calgary and
Gwichn Development
Corporation, Inuvik,
NWT. Mr. Tallman is a
graduate of the
Institute of Corporate
Directors - Corporate
Governance College.
  44




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##### Table of Contents



Name of Director or Officer
    
    Officer orand Position in the
    
    Director
    
    
    
    
    
    Office(s) Held and OtherCompany
    
    Since
    
    Age
    
    Business ExperienceWilliam Scott Thompson
Class C Director
    
    August 2006
    
    
    58
    
    
    Director of the Company
from August 14, 2006 to
April 30, 2007, and
from June 28, 2007 to
present. Mr. Thompson is Chair of the Companys Reserves and Resources Committee. Former
director of Oilsands
Quest Sask Inc. from
June 2005 to August
2006. Mr. Thompson has
over 25 years of
experience in the oil
and gas industry. He
has been President and
a director of Clear
Creek Oil & Gas, Inc.,
a natural gas
exploration company,
since November 2000.
Secretary/Treasurer and
director of Forster
Drilling Corporation,
which builds land
drilling rigs and
provides contract
drilling services to
oil and gas exploration
and production
companies, from March
2005 to present.
President and director
of Harris-Forbes, Inc.,
an investment banking
company to the energy
sector from May 2005 to
present. President and
a director of Process
Technology Systems,
Inc. from 1998 to
present. President and
a director of Eurotrade
Financial, Inc., an
investment banking
company, from June 1993
to May 2005.Pamela Wallin, OC
Class A Director
    
    June 2007
    
    
    54
    
    
    Director of the Company
since June 28, 2007 and a member of the Companys Reserves and Resources and Governance and Nominating Committees.
Since August 2006 Ms.
Wallin has served as
the Senior Advisor to
the President of the
Americas Society and
the Council of the
Americas in New York.
In Canada, she serves
on several corporate
boards, including CTV globemedia, Canadas
premier multimedia
company with ownership
in CTV and the Globe
and Mail; and on the
board of Gluskin Sheff
+ Associates, an
investment and wealth
management firm. Ms.
Wallin is a member of a
special Advisory Board
for BMO Harris Bank.
Ms. Wallin is the
Chancellor of the
University of Guelph in
Ontario. In July 2006
Ms. Wallin completed
her four-year term as
Consul General of
Canada in New York.
She was appointed to
the prestigious post in
2002. From 1995 to
2002, Ms. Wallin served
as President and CEO of
PWP, Inc., a privately
held media production
company.
   45




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##### Table of Contents



Audit Committee
  Nominating Committee
  Section 16(a) Beneficial Ownership Reporting Compliance
   Code of Ethics
   46




---



##### Table of Contents



Item 10.
    
    EXECUTIVE COMPENSATION
 Compensation and other Benefits of Executive Officers
  SUMMARY COMPENSATION TABLE
 (a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)
    
    (f)
    
    (g)
    
    (h)
    
    (i)
    
    (j)NonqualifiedNon-Equity
    
    DeferredStock
    
    Option
    
    Incentive Plan
    
    Compensation
    
    All OtherName and
    
    
    
    
    
    Salary
    
    Bonus
    
    Awards
    
    Awards(5) (6)
    
    Compensation
    
    Earnings
    
    Compensation
(3)
    
    Total(4)Principal Position
    
    Year
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)T. Murray Wilson,
Executive Chairman,
(Principal Executive
    
    
    2007
    
    
    $
    263,667
    
    
    $
    132,712
    
    
    Nil
    
    $
    21,427,791
    
    
    Nil
    
    Nil
    
    $
    800
    
    
    $
    21,824,970Officer)(1)
    
    
    2006
    
    
    N/A
    
    N/A
    
    N/A
    
    N/A
    
    N/A
    
    N/A
    
    N/A
    
    N/AChristopher H.
Hopkins(2)
President and Chief
    
    
    2007
    
    
    $
    263,667
    
    
    Nil
    
    Nil
    
    $
    5,773,028
    
    
    Nil
    
    Nil
    
    $
    820
    
    
    $
    6,037,515Executive Officer
    
    
    2006
    
    
    $
    148,091
    
    
    Nil
    
    Nil
    
    Nil
    
    Nil
    
    Nil
    
    $
    1,736
    
    
    $
    149,827Karim Hirji(2)
    
    
    2007
    
    
    $
    219,722
    
    
    Nil
    
    Nil
    
    $
    3,092,715
    
    
    Nil
    
    Nil
    
    $
    18,103
    
    
    $
    3,330,540Chief Financial Officer
    
    
    2006
    
    
    $
    148,091
    
    
    Nil
    
    Nil
    
    Nil
    
    Nil
    
    Nil
    
    $
    1,736
    
    
    $
    149,827Errin Kimball,
Vice President,
    
    
    2007
    
    
    $
    219,722
    
    
    Nil
    
    Nil
    
    $
    2,975,099
    
    
    Nil
    
    Nil
    
    $
    2,071
    
    
    $
    3,196,892Exploration
    
    
    2006
    
    
    $
    189,526
    
    
    Nil
    
    Nil
    
    Nil
    
    Nil
    
    Nil
    
    $
    1,985
    
    
    $
    191,511
 
 1)
    
    Mr. Wilson became an Officer of the Company on May 1, 2006.2)
    
    Messrs. Hopkins and Hirji became Officers of OQI on August 14, 2006. Prior thereto, they were
employees of OQI Sask from May 1, 2005 to August 14, 2006. Prior thereto, they were
consultants to OQI Sask. All compensation paid to them during the disclosed periods has been
included.3)
    
    Premiums paid on an extended health benefits program, automobile allowances or personal use
benefits of automobiles are included herein.4)
    
    All compensation is paid in Canadian Dollars and shown in United States Dollars converted at
the average exchange rate for the year indicated ($1.00 US = $1.1378 CDN (2007))5)
    
    The dollar amount reported in this column is the compensation cost recognized in our 2007
financial statements pursuant to SFAS No.123(R). The Company estimates the fair value of stock
options using the Black-Scholes valuation model, consistent with the provisions of SFAS No.
123R. 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.6)
    
    Amounts include the estimated fair value of options to acquire OQI Sask common shares granted
prior to the reorganization of August 14, 2006 by OQI Sask as to $5,067,331 for Mr. Hopkins,
$2,622,251 for Mr. Hirji and $2,622,251 for Mr. Kimball.
  47




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##### Table of Contents



Material Terms of Employment Contract
 T. Murray Wilson
    Christopher H. Hopkins
    48




---



##### Table of Contents



Karim Hirji
  Errin Kimball
  Material Terms of Option Grants
    49




---



##### Table of Contents



50




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##### Table of Contents



Outstanding Equity Awards at Fiscal Year-End Table
  OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
 Option Awards
    
    Stock AwardsEquityIncentiveEquity
    
    PlanIncentive
    
    Awards:Plan
    
    Market orEquity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Awards:
    
    PayoutIncentive Plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Number of
    
    Value ofAwards:
    
    
    
    
    
    
    
    
    
    
    
    
    
    Market
    
    Unearned
    
    UnearnedNumber of
    
    
    
    
    
    
    
    
    
    Number of
    
    Value of
    
    Shares,
    
    Shares,Number of
    
    Number of
    
    Securities
    
    
    
    
    
    
    
    
    
    Shares or
    
    Shares or
    
    Units or
    
    Units orSecurities
    
    Securities
    
    Underlying
    
    
    
    
    
    
    
    
    
    Units of
    
    Units of
    
    Other
    
    OtherUnderlying
    
    Underlying
    
    Unexercised
    
    Option
    
    
    
    
    
    Stock That
    
    Stock That
    
    Rights That
    
    Rights ThatUnexercised
    
    Unexercised
    
    Unearned
    
    Exercise
    
    Option
    
    Have Not
    
    Have Not
    
    Have Not
    
    Have NotOptions (#)
    
    Options (#)
    
    Options
    
    Price
    
    Expiration
    
    Vested
    
    Vested
    
    Vested
    
    VestedName
    
    Exercisable
    
    Unexercisable
    
    (#)
    
    ($)
    
    Date
    
    (#)
    
    ($)
    
    (#)
    
    ($)(a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)
    
    (f)
    
    (g)
    
    (h)
    
    (i)
    
    (j)T. Murray Wilson
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    $
    6.75
    
    
    May 1/11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    $
    6.75
    
    
    Aug. 14/11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000,000
    
    
    
    1,000,000
    
    
    $
    6.75
    
    
    May 1/12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000,000
    
    
    
    1,000,000
    
    
    $
    6.75
    
    
    May 1/13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,750
    
    
    
    481,250
    
    
    
    481,250
    
    
    $
    5.05
    
    
    Aug. 23/11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Christopher H.
Hopkins
    
    
    75,000
    
    
    
    525,000
    
    
    
    525,000
    
    
    $
    5.05
    
    
    Aug. 23/11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Karim Hirji
    
    
    50,000
    
    
    
    350,000
    
    
    
    350,000
    
    
    $
    5.05
    
    
    Aug. 23/11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Errin Kimball
    
    
    37,500
    
    
    
    262,500
    
    
    
    262,500
    
    
    $
    5.05
    
    
    Aug. 23/11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
   51




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##### Table of Contents



Compensation of Directors.
 DIRECTOR COMPENSATION
 NonqualifiedFees Earned
    
    
    
    
    
    
    
    
    
    Non-Equity
    
    Deferredor Paid in
    
    Stock
    
    Option
    
    Incentive Plan
    
    Compensation
    
    All OtherCash
    
    Awards
    
    Awards
    
    Compensation
    
    Earnings
    
    Compensation
    
    TotalName
    
    ($)
    
    ($)
    
    ($)(1)(5)
    
    ($)
    
    ($)
    
    ($)
    
    ($)(a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)
    
    (f)
    
    (g)
    
    (h)Thomas Milne (3)(4)(5)
    
    $
    60,250
    
    
    
    
    
    
    $
    247,205
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    307,455Ronald Phillips (3)(4)(5)
    
    $
    49,750
    
    
    
    
    
    
    $
    1,501,916
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,551,661Gordon Tallman
    
    $
    55,750
    
    
    
    
    
    
    $
    235,232
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    290,982W. Scott Thompson (3)(4)(5)
    
    $
    36,750
    
    
    
    
    
    
    $
    259,290
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    296,040Thornton Donaldson (2)
    
    Nil
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NilWilliam Timmins (2)(3)(4)(5)
    
    $
    26,367
    
    
    
    
    
    
    $
    11,973
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    38,340Romeo DAngela (2)
    
    Nil
    
    
    
    
    
    $
    308,833
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    308,833Roderick Haverslew (2)
    
    Nil
    
    
    
    
    
    $
    89,703
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    89,703
 
 1)
    
    The dollar amount reported in this column is the compensation cost recognized in our 2007
financial statements pursuant to SFAS No.123(R). The Company estimates the fair value of
stock options using the Black-Scholes valuation model, consistent with the provisions of SFAS
No. 123R. 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.2)
    
    Messrs. Timmins and Donaldson resigned from the board on May 18, 2006; Messrs. DAngela and
Haverslew resigned from the board on August 14, 2006.3)
    
    Messrs. Milne, Phillips, Thompson and Timmins were directors of OQI Sask prior to August 14,
2006 and received fees of $6,592 ($7,500 CDN), $4,394 ($5,000 CDN), $4,834 ($5,500 CDN) and
$3,516 ($4,000 CDN) respectively during the year ended April 30, 2007 which are not included
in the amounts above.4)
    
    Effective May 1, 2006, the OQI Sask Board of Directors granted Mr. Phillips 50,000 options to
acquire OQI Sask common shares at $6.00 CDN per share vesting immediately, and 50,000 options
to acquire OQI Sask common shares at $25.00 CDN per share vesting immediately. Messrs.
Thompson, Milne and Timmins were granted 50,000 options to acquire OQI Sask common shares at
$25.00 CDN per share vesting immediately. All the options granted have a term of five years.
As a result of the acquisition of the OQI Sask minority interest by OQI, all options of OQI
Sask, when exercised, can be exchanged for a new class of OQI Sask shares called OQI Sask
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 common shares of OQI common stock as described in the audited
financial statements.5)
    
    Amounts include the estimated fair value of options to acquire OQI Sask common shares granted
prior to the reorganization of August 14, 2006 by OQI Sask as to $11,973 for Mr. Milne,
$1,266,684 for Mr. Phillips, $24,058 for Mr. Thompson, and $11,973 for Mr. Timmins.
   52




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##### Table of Contents



Item 11.
    
    SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
   Name and Address of
    
    
    
    Amount and Nature of
    
    Percent ofBeneficial Owner
    
    Position
    
    Beneficial Ownership
    
    Common stockT. Murray Wilson
Suite 205,707-7th Avenue
S.W., Calgary, Alberta
CANADA T2P 3H6
    
    Executive Chairman
and Chairman of the
Board
    
    3,154,300(2)
    
    
    1.4
    %Ronald Phillips
Suite 205,707-7th Avenue
S.W., Calgary, Alberta
CANADA T2P 3H6
    
    Director
    
    1,973,000(3)
    
    
    *Christopher H. Hopkins
Suite 205, 707-7th Avenue
S.W., Calgary, Alberta
CANADA T2P
3H6
    
    Chief Executive
Officer, President
and Director
    
    21,198,465(4)
    
    
    9.7
    %Karim Hirji
Suite 205, 707-7th Avenue
S.W., Calgary, Alberta
CANADA T2P 3H6
    
    Chief Financial Officer
    
    5,724,833(5)
    
    
    2.6
    %Thomas Milne
Suite 205, 707-7th Avenue
S.W., Calgary, Alberta
CANADA T2P 3H6
    
    Director
    
    2,519,000(6),(7)
    
    
    1.2
    %
  53




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##### Table of Contents



Name and Address of
    
    
    
    Amount and Nature of
    
    Percent ofBeneficial Owner
    
    Position
    
    Beneficial Ownership
    
    Common stockWilliam Scott Thompson
Suite 205, 707-7th Avenue
S.W., Calgary, Alberta
CANADA T2P 3H6
    
    Director
    
    2,607,500(8)
    
    
    1.2
    %Gordon Tallman
Suite 205, 707-7th Avenue
S.W., Calgary, Alberta
CANADA T2P 3H6
    
    Director
    
    150,000(9)
    
    
    *Errin Kimball
Suite 205, 707-7th Avenue
S.W., Calgary, Alberta
CANADA T2P 3H6
    
    Vice President, Exploration
    
    3,648,733(10)
    
    
    1.7
    %Pamela Wallin
Suite 205, 707-7th Avenue
S.W., Calgary, Alberta
CANADA T2P 3H6
    
    Director
    
    25,000(11)
    
    
    *All directors,
executive officers
and named executive
officers as a group
(10 persons)
    
    
    
    41,139,206(12)
    
    
    17.9
    %
 
 *
    
    Indicates less than one percent.(1)
    
    The amounts and percentages in these columns reference Exchangeable Shares and options to
purchase Exchangeable Shares (discussed further below) that were issued by OQI Sask in
exchange for OQI Sask common stock and stock options pursuant to that certain Reorganization
Agreement dated June 9, 2006 (the transactions contemplated in the Reorganization Agreement
were consummated on August 14, 2006 and the closing under that Agreement is referred to as the
Reorganization). Each Exchangeable Share (or exercised option) is convertible into one
share of the Companys common stock and the expiration date of each Exchangeable Share is
August 14, 2013 (unless stock options to purchase Exchangeable Shares have an earlier
expiration date). The information related to stock options to purchase Exchangeable Shares
owned by each director, executive officer and each named executive officer, if any,
is disclosed in the respective footnotes to the Amount and Nature of Beneficial Ownership.(2)
    
    Includes vested options to purchase 3,137,500 shares of Common Stock. This number does not
include unvested options to purchase 1,412,500 shares of the Companys common stock.(3)
    
    Includes: (i) vested options to purchase 550,000 shares of Common Stock; (ii) 600,000 shares
of Common Stock owned by DKR Saturn Event Holding Fund, Ltd., of which Mr. Phillips is the
manager; and (iii) options to acquire 823,000 Exchangeable Shares. This number does not
include unvested options to purchase 150,000 shares of Common Stock.(4)
    
    Includes: (i) 20,808,183 Exchangeable Shares and options to acquire Exchangeable Shares
acquired under the Reorganization Agreement; (ii) 150,000 vested options to acquire the
Companys common stock; (iii) 17,266 shares of the Companys common stock owned by Mr.
Hopkins spouse; and (iv) 205,750 Exchangeable Shares owned by Mr. Hopkins spouse. The
number of shares beneficially owned by Mr. Hopkins does not include (i) unvested options to
acquire 548,667 Exchangeable Shares; and (ii) unvested options to purchase 450,000 shares of
the Companys common stock(5)
    
    Includes: (i) 5,623,833 Exchangeable Shares and vested options to acquire Exchangeable
Shares; and (ii) vested options to purchase 100,000 shares of the Companys common stock.
This number does not include (i) unvested options to acquire 548,667 Exchangeable Shares; and
(ii) unvested options to purchase 300,000 shares of the Companys common stock.(6)
    
    Excludes: (i) 16,800 shares of the Companys common stock owned by Mr. Milnes affiliate
Precise Details, Inc.; (ii) 150,000 shares of the Companys common stock owned by Mr. Milnes
spouse; (iii) 288,050 Exchangeable Shares
acquired by Mr. Milnes spouse pursuant to the Reorganization Agreement. Mr. Milne
disclaims investment and voting control of these securities.
  54




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##### Table of Contents



(7)
    
    Includes: (i) 2,469,000 Exchangeable Shares and options to acquire Exchangeable Shares
acquired pursuant to the Reorganization Agreement; and (ii) vested options to purchase 50,000
shares of the Companys common stock. This number does not include unvested options to
purchase 150,000 shares of the Companys common stock.(8)
    
    Includes: (i) 500,000 shares of the Companys common stock held by the WLT Reification Trust
for the Benefit of William Scott Thompson; (ii) vested options to acquire 2,057,500
Exchangeable Shares; and (iii) vested options to purchase 50,000 shares of the Companys
common stock. This number does not include unvested options to purchase 150,000 shares of the
Companys common stock.(9)
    
    Includes vested options to purchase 50,000 shares of the Companys common stock. This number
does not include unvested options to purchase 150,000 shares of the Companys common stock.(10)
    
    Includes: (i) 2,743,333 Exchangeable Shares and options to acquire Exchangeable Shares
acquired pursuant to the Reorganization Agreement; and (ii) vested options to purchase 75,000
shares of the Companys common stock. The number of shares beneficially owned by Mr. Kimball
does not include (i) unvested options to acquire 548,667 Exchangeable Shares; and (ii)
unvested options to purchase 225,500 shares of the Companys common stock.(11)
    
    Includes vested options to purchase 25,000 shares of the Companys common stock. This number
does not include unvested options to purchase 75,000 shares of the Companys common stock.(12)
    
    Includes: (i) securities as reflected in footnotes 2 to 11, and (ii) securities beneficially
owned by Erdal Yildirim, Executive Vice President, Project Development.
 
 Security Ownership of Certain Beneficial Owners
  Securities Authorized for Issuance Under Equity Plans
 (c) Number of SecuritiesRemaining Available forFuture Issuance(a) Number of Securities to
    
    
    (b) Weighted Average
    
    
    Under Equitybe Issued Upon Exercise of
    
    
    Exercise Price of
    
    
    Compensation PlansOutstanding Options,
    
    
    Outstanding Options,
    
    
    (Excluding SecuritiesPlan Category
    
    Warrants and Rights
    
    
    Warrants and Rights
    
    
    Reflected in Column (a))Equity Compensation
Plans Approved by
Stockholders
    
    
    9,925,000
    (1)
    
    $
    5.41
    
    
    
    17,633,598
    (3)Equity
Compensation Plans
Not Approved by
Stockholders
    
    
    200,000
    (2)
    
    $
    1.50
    
    
    
    1,200,000TOTAL
    
    
    10,125,000
    (1)(2)
    
    $
    5.33
    
    
    
    18,833,598
 
 (1)
    
    Includes: options to acquire 9,925,000 shares of Common Stock under the Companys 2006 Stock
Option Plan.(2)
    
    Includes: options to acquire 200,000 shares of Common Stock under the Companys 2005b Stock
Option Plan. The Company does not intend to issue any more securities under this plan.(3)
    
    The aggregate number of securities available for issuance under the 2006 Stock Option Plan is
the lesser of: (A) 15% of the total outstanding shares of the Companys Common Stock, or (B)
30,000,000. As of July 23, 2007, the number of securities available for issuance under the
2006 Stock Option Plan is 27,558,598.
  55




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##### Table of Contents



Changes in Control
  
 Item 12.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
   56




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##### Table of Contents



PART IV
 
 Item 13.
    
    EXHIBITS
 3.1
    
    Articles of Incorporation.  1, 7, 9, 11, 153.2
    
    Bylaws.  194.1
    
    2005b Stock Option Plan. 54.2
    
    2006 Stock Option Plan, filed herewith.4.3
    
    Rights Agreement, dated as of March 9, 2006, between the Company and Computershare Investor
Services, Inc., as Rights Agent.  810.1
    
    Subscription Agreement between the Company and purchasers, dated August 15, 2005. 710.2
    
    Amendment to Subscription Agreement between the Company and purchasers, dated August 31,
2005.  710.3
    
    Form of 8% Secured Convertible Promissory Note.  710.4
    
    Joint Venture Agreement dated August 9, 2005 between the Company and Triple 7 Energy, Inc.,
West Peak Ventures of Canada Ltd., Dr. Michael Ranger and Township.  710.5
    
    Subscription Agreement between the Company and purchasers, dated December 12, 2005. 610.6
    
    Form of Warrant, dated December 12, 2005.  610.7
    
    Financing Agreement with Oilsands Quest Sask, Inc., November 25, 2005.  610.8
    
    Subscription Agreement with Dynamic Power Hedge Fund, dated December 12, 2005.  610.9
    
    Executive Employment Agreement (Amended and Restated) with T. Murray Wilson, dated September
22, 2006 and as amended effective August 1, 2007, filed herewith.10.10
    
    Reorganization Agreement, dated June 9, 2006.  1010.11
    
    Subscription Agreement for Flow-Through Shares with Subscribers, dated July 5, 2006. 1610.12
    
    Subscription Agreement for Flow-Through Shares with Oilsands Quest Sask Inc., dated July 5,
2006. 1610.13
    
    Voting Exchange and Trust Agreement dated August 14, 2006.  1110.14
    
    Exchangeable Share Provisions.  1110.15
    
    Support Agreement dated August 14, 2006.  1110.16
    
    Executive Employment Agreement with Christopher Hopkins dated August 14, 2006.
1110.17
    
    Executive Employment Agreement with Karim Hirji dated August 14, 2006.  11
  57




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##### Table of Contents



10.18
    
    Executive Employment Agreement with Errin Kimball dated August 14, 2006.  1110.19
    
    Form of Subscription Agreement for Common Shares, dated August 2006.  1110.20
    
    Share Purchase Agreement, effective May 31, 2006. 1710.21
    
    Assignment Agreement, effective May 31, 2006. 1710.22
    
    Executive Employment Agreement with Patricia A. Beatch, dated September 21, 2006. 1210.21
    
    Executive Employment Agreement with Erdal Yildirim, dated October 10, 2006.  1410.22
    
    Form of Indemnity Agreement. 1310.23
    
    Credit Agreement dated 3/19/07 with Toronto-Dominion Bank, filed herewith.10.24
    
    Subscription Agreement for Flow-Through Shares, dated March 6, 2007, filed herewith.10.25
    
    Amending Agreement to Subscription Agreement for Flow-Through Shares, dated May 3, 2007,
filed herewith.10.26
    
    Subscription Agreement between the Company and Subscribers, dated May 3, 2007, filed
herewith.21.1
    
    Subsidiaries of the Registrant, filed herewith.23.1
    
    Consent of independent auditors, 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; and Form 8-K, filed
November 29, 2004.(2)
    
    Incorporated by reference from Form 10-KSB dated July 29, 2004.(3)
    
    Incorporated by reference from Form 10-QSB dated March 22, 2005.(4)
    
    Incorporated by reference from Form 10-QSB dated December 20, 2004.(5)
    
    Incorporated by reference from Form SB-2 dated December 29, 2005.(6)
    
    Incorporated by reference from Form 10-QSB dated March 22, 2006.(7)
    
    Incorporated by reference from Form 10-QSB dated December 14, 2005.(8)
    
    Incorporated by reference from Form 8-A dated March 13, 2006.(9)
    
    Incorporated by reference from Form 8-K dated March 13, 2006.(10)
    
    Incorporated by reference from Form 8-K dated June 14, 2006.(11)
    
    Incorporated by reference from Form 8-K dated August 14, 2006.(12)
    
    Incorporated by reference from Form SB-2 filed October 3, 2006.
  58




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##### Table of Contents



(13)
    
    Incorporated by reference herein from Form 10-QSB filed March 15, 2007(14)
    
    Incorporated by reference herein from Form 8-K dated October 12, 2006.(15)
    
    Incorporated by reference herein from Form 10-QSB filed December 15, 2006.(16)
    
    Incorporated by reference herein from Form 10-KSB filed July 21, 2006.(17)
    
    Incorporated by reference herein from Form 8-K filed August 21, 2006.(18)
    
    Incorporated by reference herein from Form 8-K filed August 10, 2005 and Form 8-K/A No. 1 and
No. 2 both filed August 11, 2005.(19)
    
    Incorporated by reference herein from Form 8-K filed July 26, 2007.
 
 Item 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES.
  Audit Fees
  Audit-Related Fees
  Tax Fees
  All Other Fees
  Audit Committees Pre-Approval Practice
 de minimis
 
    
    Preapprove all audit services that the auditor may provide to us or any subsidiary
(including, without limitation, providing comfort letters in connection with securities
underwritings or statutory audits) as required by §10A(i)(1)(A) of the Exchange Act (as
amended by the Sarbanes-Oxley Act of 2002).
 
    
    Preapprove all non-audit services (other than certain de minimisservices described
in §10A(i)(1)(B) of the Exchange Act (as amended by the Sarbanes-Oxley Act of 2002))
that the auditors propose to provide to us or any of our subsidiaries.
   59




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##### Table of Contents



SIGNATURES
  OILSANDS QUEST INC.Date: July 30, 2007
    By:
    /s/ Christopher H.  HopkinsChristopher H. Hopkins,President, Chief Executive
Officer and Director(Principal Executive Officer)Date:  July 30, 2007
    By:
    /s/Karim HirjiKarim Hirji,Chief Financial Officer
(Principal Accounting Officer)  /s/ T. Murray Wilson

T. Murray Wilson
    
    Executive Chairman and Director
    
    July 30, 2007/s/ Christopher H. Hopkins

Christopher H. Hopkins
    
    President and Chief Executive Officer and Director
    
    July 30, 2007/s/ Ronald Phillips

Ronald Phillips
    
    Director
    
    July 30, 2007/s/ Thomas Milne

Thomas Milne
    
    Director
    
    July 30, 2007/s/ Gordon Tallman

Gordon Tallman
    
    Director
    
    July 30, 2007/s/ W. Scott Thompson

W. Scott Thompson
    
    Director
    
    July 30, 2007/s/ Pamela Wallin

Pamela Wallin
    
    Director
    
    July 30, 2007
  60




---



##### 



OILSANDS QUEST, INC.   (Stated in U.S. Dollars unless otherwise noted)
 INDEX
    
    PAGE NO.Report of Independent Registered Public Accounting Firm
    
    F-1Consolidated Financial StatementsConsolidated Balance Sheets
    
    F-2Consolidated Statements of Operations
    
    F-3Consolidated Statements of Stockholders Equity (Deficiency)
    
    F-4 to F-7Consolidated Statements of Cash Flows
    
    F-8Notes to Consolidated Financial Statements
    
    F-9 to F-36




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 TO THE STOCKHOLDERS AND DIRECTORS OF OILSANDS QUEST INC.
(Fomerly Canwest Petroleum Corporation) (An Exploration Stage Company)
    /s/ Pannell Kerr Forster
   
  F-1




---



##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Consolidated Balance Sheets
 April 30,
    
    
    April 30,2007
    
    
    2006(Note 21)ASSETSCurrent Assets:Cash (note 2(d))
    
    $
    34,393,871
    
    
    $
    22,127,315Accounts receivable
    
    
    1,283,415
    
    
    
    443,895Available for sale securities (note 5)
    
    
    284,630
    
    
    
    Prepaid expenses
    
    
    152,481
    
    
    
    1,245,202Total Current Assets
    
    
    36,114,397
    
    
    
    23,816,412Investment in Energy 51(note 5)
    
    
    
    
    
    
    310,291Property and Equipment(note 4)
    
    
    520,301,141
    
    
    
    17,123,098Total Assets
    
    $
    556,415,538
    
    
    $
    41,249,801LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable (note 7)
    
    $
    5,170,063
    
    
    $
    19,682,268Loan payable (note 8)
    
    
    22,589,681
    
    
    
    Flow-through share liability premium (note 13(f))
    
    
    2,535,187
    
    
    
    Convertible debentures (note 9)
    
    
    
    
    
    
    295,928Total Current Liabilities
    
    
    30,294,931
    
    
    
    19,978,196Deferred taxes(note 10)
    
    
    139,287,062
    
    
    
    1,080,821Commitments and contingencies
(notes 2, 3, 4, 12, 13, 14, 15, 16 and 18)Non-controlling shareholder interest(note 11)
    
    
    
    
    
    
    4,735,601169,581,993
    
    
    
    25,794,618STOCKHOLDERS EQUITYCapital StockAuthorizedPreferred stock, par value of $0.001
each, 10,000,000 shares authorized
(notes 3(a) and 12)Common stock, par value of $0.001
each, 500,000,000 shares authorized
(notes 12, 13, 14 and 15)Issued and Outstanding1 Series B Preferred share (notes 3(a) and 12(b))
    
    
    1164,624,278 Common shares
    
    
    164,624115,046,408 Common shares
    
    
    
    
    
    
    115,046Additional Paid-in Capital
    
    
    519,265,628
    
    
    
    77,724,920Deficit Accumulated During Exploration Stage
    
    
    (131,435,609
    )
    
    
    (62,640,868
    )Other Comprehensive (Loss) Income
    
    
    (1,161,099
    )
    
    
    256,085Total Stockholders Equity
    
    
    386,833,545
    
    
    
    15,455,183Total Liabilities and Stockholders Equity
    
    $
    556,415,538
    
    
    $
    41,249,801
   F-2




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Consolidated Statements of Operations
 Frominception onApril 3, 1998For The Years Ended April 30
    
    
    through to2007
    
    
    2006
    
    
    2005
    
    
    April 30, 2007ExpendituresStock-based compensation expense (notes 11 and 14)
    
    $
    39,755,592
    
    
    $
    1,314,505
    
    
    $
    68,552
    
    
    $
    41,381,713Exploration costs
    
    
    26,877,906
    
    
    
    8,291,018
    
    
    
    505,098
    
    
    
    38,850,244Consulting
    
    
    3,994,454
    
    
    
    8,210,650
    
    
    
    1,591,503
    
    
    
    14,203,844Professional fees
    
    
    1,985,338
    
    
    
    1,055,582
    
    
    
    296,941
    
    
    
    3,762,825Corporate salaries
    
    
    2,468,660
    
    
    
    
    
    
    
    
    
    
    
    2,468,660Office
    
    
    819,695
    
    
    
    481,787
    
    
    
    103,347
    
    
    
    1,484,818Depreciation
    
    
    367,827
    
    
    
    
    
    
    
    
    
    
    
    367,827Transfer agent fee
    
    
    355,326
    
    
    
    170,859
    
    
    
    41,311
    
    
    
    605,444Advertising and promotion
    
    
    384,593
    
    
    
    2,464,812
    
    
    
    338,428
    
    
    
    3,723,335Travel
    
    
    183,097
    
    
    
    131,398
    
    
    
    29,103
    
    
    
    465,629Board fees and expenses
    
    
    247,024
    
    
    
    
    
    
    
    
    
    
    
    247,024Other Items
    
    
    74,803
    
    
    
    
    
    
    
    106,507
    
    
    
    201,023Interest and bank charges
    
    
    269,661
    
    
    
    580,718
    
    
    
    131,597
    
    
    
    1,018,998Non-cash financing expense (note 16)
    
    
    
    
    
    
    34,047,988
    
    
    
    1,959,557
    
    
    
    36,472,143Management fee
    
    
    
    
    
    
    
    
    
    
    72,000
    
    
    
    414,60277,783,976
    
    
    
    56,749,317
    
    
    
    5,243,944
    
    
    
    144,668,129Other ItemsGain on extinguishment of certain
liabilities (note 17)
    
    
    
    
    
    
    (936,469
    )
    
    
    
    
    
    
    (936,469
    )Interest income
    
    
    (1,530,720
    )
    
    
    (273,304
    )
    
    
    
    
    
    
    (1,804,024
    )Net loss before income tax recovery
and non-controlling
shareholder interest
    
    
    76,253,256
    
    
    
    55,539,544
    
    
    
    5,243,944
    
    
    
    141,927,636Income tax recovery (note 10)
    
    
    (2,307,432
    )
    
    
    (21,956
    )
    
    
    (39,385
    )
    
    
    (2,368,773
    )Net loss before non-controlling
shareholder interest
    
    
    73,945,824
    
    
    
    55,517,588
    
    
    
    5,204,559
    
    
    
    139,558,863Non-controlling shareholder interest (note 11)
    
    
    (5,151,083
    )
    
    
    (2,876,685
    )
    
    
    (95,486
    )
    
    
    (8,123,254
    )Net loss
    
    $
    68,794,741
    
    
    $
    52,640,903
    
    
    $
    5,109,073
    
    
    $
    131,435,609Net Loss Per Share
    
    $
    (0.50
    )
    
    $
    (0.64
    )
    
    $
    (0.16
    )Weighted Average Number of
Common Shares Outstanding
    
    
    137,099,824
    
    
    
    81,989,009
    
    
    
    31,555,958
   F-3




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##### Table of Contents





OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Consolidated Statements of Stockholders Equity (Deficiency)
 DeficitAccumulated
    
    
    TotalAdditional
    
    
    Other
    
    
    During the
    
    
    StockholdersCommon Stock
    
    
    Preferred Stock
    
    
    paid-in
    
    
    Comprehensive
    
    
    Exploration
    
    
    EquityShares
    
    
    Par Value
    
    
    Shares
    
    
    Par Value
    
    
    Capital
    
    
    Income (Loss)
    
    
    Stage
    
    
    (Deficiency)Common stock issued on
inception for
assets
    
    
    6,000,000
    
    
    $
    6,000
    
    
    
    
    
    
    $
    
    
    
    $
    91,834
    
    
    $
    
    
    
    $
    
    
    
    $
    97,834Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (700
    )
    
    
    (700
    )Balance, April 30, 1998
    
    
    6,000,000
    
    
    
    6,000
    
    
    
    
    
    
    
    
    
    
    
    91,834
    
    
    
    
    
    
    
    (700
    )
    
    
    97,134Common stock issuedFor subscriptions
    
    
    1,000,000
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    606,005
    
    
    
    
    
    
    
    
    
    
    
    607,005For resource properties
    
    
    200,000
    
    
    
    200
    
    
    
    
    
    
    
    
    
    
    
    137,131
    
    
    
    
    
    
    
    
    
    
    
    137,331Share issue costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,586
    )
    
    
    
    
    
    
    
    
    
    
    (15,586
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (210,736
    )
    
    
    (210,736
    )Common stock returned to treausury
for cancellation
    
    
    (922,500
    )
    
    
    (922
    )
    
    
    
    
    
    
    
    
    
    
    (554,700
    )
    
    
    
    
    
    
    
    
    
    
    (555,622
    )Balance April 30, 1999
    
    
    6,277,500
    
    
    
    6,278
    
    
    
    
    
    
    
    
    
    
    
    264,684
    
    
    
    
    
    
    
    (211,436
    )
    
    
    59,526Common stock issued for cash
    
    
    600,000
    
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    299,400
    
    
    
    
    
    
    
    
    
    
    
    300,000Common stock issued for finders fee
    
    
    50,000
    
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    24,950
    
    
    
    
    
    
    
    
    
    
    
    25,000Treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,212
    )
    
    
    
    
    
    
    
    
    
    
    (15,212
    )Share issue costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,000
    )
    
    
    
    
    
    
    
    
    
    
    (25,000
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (319,714
    )
    
    
    (319,714
    )Balance, April 30, 2000
    
    
    6,927,500
    
    
    
    6,928
    
    
    
    
    
    
    
    
    
    
    
    548,822
    
    
    
    
    
    
    
    (531,150
    )
    
    
    24,600Common stock issued for
financial services
    
    
    120,000
    
    
    
    120
    
    
    
    
    
    
    
    
    
    
    
    59,880
    
    
    
    
    
    
    
    
    
    
    
    60,000Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,534
    
    
    
    
    
    
    
    3,534Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (136,856
    )
    
    
    (136,856
    )Balance April 30, 2001
    
    
    7,047,500
    
    
    $
    7,048
    
    
    
    
    
    
    $
    
    
    
    $
    608,702
    
    
    $
    3,534
    
    
    $
    (668,006
    )
    
    $
    (48,722
    )
   F-4




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##### Table of Contents







OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Consolidated Statements of Stockholders Equity (Deficiency)
 DeficitAccumulated
    
    
    TotalAdditional
    
    
    Other
    
    
    During the
    
    
    StockholdersCommon Stock
    
    
    Preferred Stock
    
    
    paid-in
    
    
    Comprehensive
    
    
    Exploration
    
    
    EquityShares
    
    
    Par Value
    
    
    Shares
    
    
    Par Value
    
    
    Capital
    
    
    Income (Loss)
    
    
    Stage
    
    
    (Deficiency)Balance, April 30, 2001
    
    
    7,047,500
    
    
    $
    7,048
    
    
    
    
    
    
    $
    
    
    
    $
    608,702
    
    
    $
    3,534
    
    
    $
    (668,006
    )
    
    $
    (48,722
    )Common stock issued for cash
    
    
    987,000
    
    
    
    987
    
    
    
    
    
    
    
    
    
    
    
    220,113
    
    
    
    
    
    
    
    
    
    
    
    221,100Subscriptions received
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    112,500
    
    
    
    
    
    
    
    
    
    
    
    112,500Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,600
    
    
    
    
    
    
    
    
    
    
    
    77,600Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    256
    
    
    
    
    
    
    
    256Common stock deemed to be issued
    
    
    3,950,000
    
    
    
    3,950
    
    
    
    
    
    
    
    
    
    
    
    193,550
    
    
    
    
    
    
    
    
    
    
    
    197,500Warrants granted on purchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    50,000Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (352,708
    )
    
    
    (352,708
    )Balance April 30, 2002
    
    
    11,984,500
    
    
    
    11,985
    
    
    
    
    
    
    
    
    
    
    
    1,262,465
    
    
    
    3,790
    
    
    
    (1,020,714
    )
    
    
    257,526Common stock issued for cash
and settlement of debt
    
    
    2,300,000
    
    
    
    2,300
    
    
    
    
    
    
    
    
    
    
    
    299,700
    
    
    
    
    
    
    
    
    
    
    
    302,000Subscriptions received
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (112,500
    )
    
    
    
    
    
    
    
    
    
    
    (112,500
    )Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76,124
    
    
    
    
    
    
    
    
    
    
    
    76,124Other comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (79,340
    )
    
    
    
    
    
    
    (79,340
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,289,124
    )
    
    
    (2,289,124
    )Balance, April 30, 2003
    
    
    14,284,500
    
    
    
    14,285
    
    
    
    
    
    
    
    
    
    
    
    1,525,789
    
    
    
    (75,550
    )
    
    
    (3,309,838
    )
    
    
    (1,845,314
    )Common stock issuedFor settlement of debt
    
    
    1,037,638
    
    
    
    1,037
    
    
    
    
    
    
    
    
    
    
    
    102,727
    
    
    
    
    
    
    
    
    
    
    
    103,764For cash
    
    
    3,750,000
    
    
    
    3,750
    
    
    
    
    
    
    
    
    
    
    
    529,950
    
    
    
    
    
    
    
    
    
    
    
    533,700For service
    
    
    1,620,100
    
    
    
    1,620
    
    
    
    
    
    
    
    
    
    
    
    207,320
    
    
    
    
    
    
    
    
    
    
    
    208,940For property
    
    
    92,600
    
    
    
    93
    
    
    
    
    
    
    
    
    
    
    
    36,021
    
    
    
    
    
    
    
    
    
    
    
    36,114Stock-based compensation expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89,340
    
    
    
    
    
    
    
    
    
    
    
    89,340Beneficial conversion feature of
Convertible debentures and warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    464,598
    
    
    
    
    
    
    
    
    
    
    
    464,598Other comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,014
    )
    
    
    
    
    
    
    (37,014
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,581,054
    )
    
    
    (1,581,054
    )Balance, April 30, 2004
    
    
    20,784,838
    
    
    $
    20,785
    
    
    
    
    
    
    $
    
    
    
    $
    2,955,745
    
    
    $
    (112,564
    )
    
    $
    (4,890,892
    )
    
    $
    (2,026,926
    )
   F-5




---



##### Table of Contents







OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Consolidated Statements of Stockholders Equity (Deficiency)
 DeficitAccumulated
    
    
    TotalAdditional
    
    
    Other
    
    
    During the
    
    
    StockholdersCommon Stock
    
    
    Preferred Stock
    
    
    paid-in
    
    
    Comprehensive
    
    
    Exploration
    
    
    EquityShares
    
    
    Par Value
    
    
    Shares
    
    
    Par Value
    
    
    Capital
    
    
    Income (Loss)
    
    
    Stage
    
    
    (Deficiency)Balance, April 30, 2004
    
    
    20,784,838
    
    
    $
    20,785
    
    
    
    
    
    
    $
    
    
    
    $
    2,955,745
    
    
    $
    (112,564
    )
    
    $
    (4,890,892
    )
    
    $
    (2,026,926
    )Common stock issuedFor settlement of debt
    
    
    16,607,161
    
    
    
    16,607
    
    
    
    
    
    
    
    
    
    
    
    3,752,292
    
    
    
    
    
    
    
    
    
    
    
    3,768,899For cash
    
    
    3,801,972
    
    
    
    3,802
    
    
    
    
    
    
    
    
    
    
    
    998,555
    
    
    
    
    
    
    
    
    
    
    
    1,002,357For services
    
    
    4,436,566
    
    
    
    4,437
    
    
    
    
    
    
    
    
    
    
    
    1,245,290
    
    
    
    
    
    
    
    
    
    
    
    1,249,727For property
    
    
    12,778,124
    
    
    
    12,778
    
    
    
    
    
    
    
    
    
    
    
    2,855,441
    
    
    
    
    
    
    
    
    
    
    
    2,868,219Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,552
    
    
    
    
    
    
    
    
    
    
    
    68,552Beneficial conversion feature of
convertible debentures and warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,959,557
    
    
    
    
    
    
    
    
    
    
    
    1,959,557Other comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53,270
    )
    
    
    
    
    
    
    (53,270
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,109,073
    )
    
    
    (5,109,073
    )Balance, 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-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,314,505
    
    
    
    
    
    
    
    
    
    
    
    1,314,505Beneficial conversion feature of
convertible debenture and warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,449,294
    
    
    
    
    
    
    
    
    
    
    
    18,449,294Other comprehensive income
Exchange 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
    )
    
    $
    15,455,183
   F-6




---



##### Table of Contents







OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Consolidated Statements of Stockholders Equity (Deficiency)
 DeficitAccumulated
    
    
    TotalAdditional
    
    
    Other
    
    
    During the
    
    
    StockholdersCommon Stock
    
    
    Preferred Stock
    
    
    paid-in
    
    
    Comprehensive
    
    
    Exploration
    
    
    EquityShares
    
    
    Par Value
    
    
    Shares
    
    
    Par Value
    
    
    Capital
    
    
    Income (Loss)
    
    
    Stage
    
    
    (Deficiency)Balance, April 30, 2006
    
    
    115,046,408
    
    
    $
    115,046
    
    
    
    
    
    
    $
    
    
    
    $
    77,724,920
    
    
    $
    256,085
    
    
    $
    (62,640,868
    )
    
    $
    15,455,183Common stock issued for:Cash
    
    
    15,603,175
    
    
    
    15,603
    
    
    
    
    
    
    
    
    
    
    
    68,306,693
    
    
    
    
    
    
    
    
    
    
    
    68,322,296Premium on flow-through shares
allocated to liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,535,187
    )
    
    
    
    
    
    
    
    
    
    
    (2,535,187
    )Settlement of debt
    
    
    3,523,727
    
    
    
    3,524
    
    
    
    
    
    
    
    
    
    
    
    18,689,096
    
    
    
    
    
    
    
    
    
    
    
    18,692,620Cashless exercise of warrants
    
    
    2,213,953
    
    
    
    2,214
    
    
    
    
    
    
    
    
    
    
    
    (2,214
    )
    
    
    
    
    
    
    
    
    
    
    Preferred share issued on reorganization
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    319,022,948
    
    
    
    
    
    
    
    
    
    
    
    319,022,949Exchange of exchangeable shares
    
    
    28,237,015
    
    
    
    28,237
    
    
    
    
    
    
    
    
    
    
    
    (28,237
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,755,592
    
    
    
    
    
    
    
    
    
    
    
    39,755,592Share issue costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,723,568
    )
    
    
    
    
    
    
    
    
    
    
    (2,723,568
    )Proceeds from exercise of subsidiary
warrants and options (post reorganization)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,055,585
    
    
    
    
    
    
    
    
    
    
    
    1,055,585Other comprehensive incomeUnrealized loss on available for sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,661
    )
    
    
    
    
    
    
    (25,661
    )Exchange loss on translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,391,523
    )
    
    
    
    
    
    
    (1,391,523
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (68,794,741
    )
    
    
    (68,794,741
    )Balance, April 30, 2007
    
    
    164,624,278
    
    
    $
    164,624
    
    
    
    1
    
    
    $
    1
    
    
    $
    519,265,628
    
    
    $
    (1,161,099
    )
    
    $
    (131,435,609
    )
    
    $
    386,833,545
   F-7




---



##### Table of Contents





OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Consolidated Statements of Cash Flows
 FromInception onApril 3, 1998For the years ended April 30,
    
    
    through2007
    
    
    2006
    
    
    2005
    
    
    April 30, 2007Operating ActivitiesNet loss
    
    $
    (68,794,741
    )
    
    $
    (52,640,903
    )
    
    $
    (5,109,073
    )
    
    $
    (131,435,609
    )Non-cash adjustments to net lossNon-cash financing expense
    
    
    
    
    
    
    34,047,988
    
    
    
    1,959,557
    
    
    
    36,472,143Stock-based compensation expense
    
    
    39,755,592
    
    
    
    1,314,505
    
    
    
    68,552
    
    
    
    41,381,713Consulting expenses satisfied by shares
    
    
    
    
    
    
    7,497,849
    
    
    
    1,161,060
    
    
    
    8,915,849Exploration costs acquired for shares
    
    
    
    
    
    
    352,686
    
    
    
    88,667
    
    
    
    578,684Advertising and promotion for shares
    
    
    
    
    
    
    1,459,475
    
    
    
    
    
    
    
    1,459,475Write-off of exploration property
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    856,359Depreciation
    
    
    367,827
    
    
    
    
    
    
    
    
    
    
    
    367,827Other
    
    
    
    
    
    
    
    
    
    
    106,507
    
    
    
    126,220Gain on extinguishment of certain
liabilities (note 17)
    
    
    
    
    
    
    (936,469
    )
    
    
    
    
    
    
    (936,469
    )Income tax recovery
    
    
    (2,307,644
    )
    
    
    (21,956
    )
    
    
    (39,385
    )
    
    
    (2,368,985
    )Non-controlling shareholder interest
    
    
    (5,151,083
    )
    
    
    (2,876,685
    )
    
    
    (95,486
    )
    
    
    (8,123,254
    )Changes In Non-Cash Working CapitalAccounts receivable and prepaid expenses
    
    
    278,371
    
    
    
    (488,154
    )
    
    
    (166,892
    )
    
    
    (397,393
    )Accounts payable
    
    
    3,774,527
    
    
    
    273,235
    
    
    
    1,387,136
    
    
    
    6,592,141Cash Used in Operating Activities
    
    
    (32,077,151
    )
    
    
    (12,018,429
    )
    
    
    (639,357
    )
    
    
    (46,511,299
    )Investing ActivitiesAdditions to property
    
    
    (40,335,164
    )
    
    
    (9,843,580
    )
    
    
    (2,786,789
    )
    
    
    (53,631,732
    )Additions to equipment
    
    
    (3,742,392
    )
    
    
    
    
    
    
    
    
    
    
    (3,742,392
    )Other investments
    
    
    
    
    
    
    
    
    
    
    (157,491
    )
    
    
    (416,799
    )Cash Used in Investing Activities
    
    
    (44,077,556
    )
    
    
    (9,843,580
    )
    
    
    (2,944,280
    )
    
    
    (57,790,923
    )Financing ActivitiesIssuance of shares for cash
    
    
    65,598,728
    
    
    
    28,885,876
    
    
    
    1,002,357
    
    
    
    96,892,997Common stock returned to treasury
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,212
    )Convertible debentures
    
    
    
    
    
    
    4,860,373
    
    
    
    2,503,748
    
    
    
    8,384,496Bank Loan
    
    
    21,207,500
    
    
    
    
    
    
    
    
    
    
    
    21,207,500Advances from related parties
    
    
    
    
    
    
    (11,627
    )
    
    
    25,382
    
    
    
    653,062Deferred income taxes
    
    
    
    
    
    
    938,227
    
    
    
    181,979
    
    
    
    1,120,206Shares issued by subsidiary to
non-controlling interest (note 3(a))
    
    
    1,011,479
    
    
    
    7,164,062
    
    
    
    543,710
    
    
    
    8,719,251Cash Provided by Financing Activities
    
    
    87,817,707
    
    
    
    41,836,911
    
    
    
    4,257,176
    
    
    
    136,962,300Inflow of Cash
    
    
    11,663,000
    
    
    
    19,974,902
    
    
    
    673,539
    
    
    
    32,660,078Effects of exchange rate changes on cash
    
    
    603,556
    
    
    
    1,130,238
    
    
    
    
    
    
    
    1,733,793Cash, Beginning of Period
    
    
    22,127,315
    
    
    
    1,022,175
    
    
    
    348,636
    
    
    
    Cash, End of Period
    
    $
    34,393,871
    
    
    $
    22,127,315
    
    
    $
    1,022,175
    
    
    $
    34,393,871Non-Cash Financing ActivitiesCommon stock issued for properties
    
    $
    
    
    
    $
    500,444
    
    
    $
    2,868,219
    
    
    $
    3,837,442Warrants granted on purchase of properties
    
    $
    
    
    
    $
    1,713,929
    
    
    $
    
    
    
    $
    1,763,929Common stock issued for services
    
    $
    
    
    
    $
    8,856,496
    
    
    $
    1,249,727
    
    
    $
    10,388,163Common stock issued for debt settlement
    
    $
    18,692,620
    
    
    $
    5,939,510
    
    
    $
    3,768,899
    
    
    $
    28,401,029
   F-8




---



##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 1.
    
    DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONSOn October 31, 2006 CanWest Petroleum Corporation changed its name to Oilsands Quest Inc.
(OQI). At the same time the name of the Companys main operating subsidiary was changed from
Oilsands Quest Inc. to Oilsands Quest Sask Inc. (OQI Sask).OQI together with its subsidiaries (collectively referred to as the Company) is in the
exploration stage and follows the guidance for a development stage company as defined in
Statement No. 7 of the Financial Accounting Standards Board. The principal business activity
is the exploration and development of natural resource properties in Canada.2.
    
    BASIS OF PRESENTATIONThese financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (US GAAP). The significant accounting
polices used in these consolidated financial statements are as follows:
 a)
    
    Principles of consolidationThese consolidated financial statements include the accounts of OQI and all of its
subsidiaries as follows:
 
    
    Oilsands Quest Sask Inc. (OQI Sask) 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 3(b));
    
    Township Petroleum Corporation (Township) in which it holds a 100% interest (note 3(c));
    
    Stripper Energy Services Inc. (Stripper) in which OQI Sask holds a 100% interest (note 3(d));
    
    1291329 Alberta Ltd. in which it holds a 100% interest (incorporated in 2007); and
    
    Anhydride Petroleum (USA), Inc. (Anhydride USA) and Anhydride USAs
wholly owned subsidiary, Anhydride Petroleum (Canada) Inc. (Anhydride Canada),
both acquired April 30, 2002. On October 31, 2005, Anhydride Canada was sold to a
third party for nominal cash proceeds.
   F-9




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 2.
    
    BASIS OF PRESENTATION -(continued)
 b)
    
    Use of estimatesThe preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America 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. Significant items
subject to such estimates include income taxes, the carrying value of properties and
stock-based compensation expense. While management believes the estimates used are reasonable,
actual results could differ from those estimates. Changes in estimates are recorded when
known.c)
    
    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.
 d)
    
    CashCash includes $16,083,850 ($17,800,000 CDN) in Bank Deposit notes required as security
pursuant to a Credit Agreement dated March 19, 2007 (note 8).e)
    
    Property and equipmentProperty 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. To date all exploration costs have been charged to operations.The Company is in the 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.
  F-10




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 2.
    
    BASIS OF PRESENTATION -(continued)
 e)
    
    Property and equipment - continued)None of the OQI Sask exploration permits in Saskatchewan and Alberta, nor the Pasquia
Hills Oil Shale Prospect permits has been converted to development leases. In the event
that the Company does not meet the regulated requirements, or development conditions to
convert its permits to leases or obtain an extension of such development requirements, its
right to explore for bitumen or oil shale, as applicable, may be lost. The Company is
satisfied that it has good and proper right, title and interest in and to the permits.Equipment additions are recorded at cost less accumulated depreciation and include
corporate assets, camp facilities and field equipment. Depreciation of these assets is
provided using the straight-line method based on estimated useful lives ranging from two
to five years.f)
    
    Income taxesIncome 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.g)
    
    Stock-based compensationIn 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 in the Companys financial statements
over the requisite service period. 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:
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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 2.
    
    BASIS OF PRESENTATION -(continued)
 g)
    
    Stock-based compensation - (continued)
 Year Ended April 30,2007
    
    2006
    
    2005Expected Life (years)
    
    
    5
    
    
    
    2
    
    
    
    5Risk free interest rate
    
    
    4.41
    %
    
    
    4.28
    %
    
    
    3.98
    %Expected volatility
    
    
    118
    %
    
    
    108
    %
    
    
    146
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    Net loss for the period, as reported
    
    $
    52,640,903Stock-based employee compensation if fair-value
based method applied
    
    
    3,072,214Pro-forma net loss as if fair-value method had been applied
    
    $
    55,713,117Basic and diluted loss per shareAs reported
    
    $
    0.64Pro forma
    
    $
    0.68
   F-12




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 2.
    
    BASIS OF PRESENTATION -(continued)
 h)
    
    Financial Instruments
 (i)
    
    Fair valueThe carrying values of cash, accounts receivable, available for sale securities,
accounts payable, loan payable and convertible debentures approximate their fair
value because of the short-term maturity of these financial instruments.(ii)
    
    Interest rate riskThe Company is not exposed to significant interest rate risk due to the short-term
maturity of its monetary current assets and current liabilities.(iii)
    
    Market riskThe Company is exposed to equity security market risk because of investments held and
classified on the balance sheet as available for sale securities.(iv)
    
    Credit riskThe Company has no significant concentrations of credit risk.(v)
    
    Translation riskThe Company is exposed to foreign currency fluctuations to the extent that funds held
or expenditures incurred by the Company are not denominated in U.S. dollars.
 i)
    
    Comprehensive lossComprehensive loss is comprised of net loss and other comprehensive income (loss) arising
from foreign currency translation and fluctuations in the valuation of available for sale
securities.j)
    
    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.k)
    
    Asset retirement obligationsThe Company recognizes asset retirement obligations in the period in which they are
incurred if a reasonable estimate of fair value can be determined. Fair value is
determined using the present value of the estimated future cash outflows to abandon the
asset at the Companys credit-adjusted risk-free interest rate. The discounted obligation
is initially capitalized as part of property and equipment and is amortized on the same
basis as the remaining property and equipment, while the liability is increased as an
accretion expense until it is settled or sold.The Company has not yet incurred any significant asset retirement obligations and, as
such, no asset retirement obligations have been recorded to April 30, 2007.
  F-13




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 2.
    
    BASIS OF PRESENTATION -(continued)
 l)
    
    Recent accounting pronouncementsIn May 2003, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 150,
Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and
Equity. It establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. During the year
ended April 30, 2007, the Company issued one Series B Preferred share under a Voting and
Exchange Trust Agreement, whereby OQI Sask Exchangeable Shares were represented for voting
purposes in the aggregate by one share of OQI Series B Preferred Stock, which is held by
Computershare Trust Company of Canada (CTC). CTC will in turn vote the one Series B
Preferred Share as indicated by the individual holders of Exchangeable Shares. The
Preferred Share represents the number of votes equal to the total outstanding Exchangeable
Shares on the applicable record date for the vote submitted to OQI shareholders. The
Company has designated the Series B Preferred share as equity as the Company has not
incurred an obligation to redeem the share.In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No.48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement
No.109. Interpretation No.48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprises financial statements in accordance with FASB Statement
No.109, Accounting for Income Taxes. This Interpretation is effective for fiscal years
beginning after December 15, 2006 and OQI will adopt it in the first quarter of fiscal
2008. OQI does not expect the adoption of Interpretation No.48 to have a material impact
on its financial statements and related disclosures.In September 2006, the FASB issued Statement of Financial Accounting No.157, Fair Value
Measurements. Statement No.157 provides a common definition of fair value, establishes a
framework for measuring fair value and expands disclosures about fair value measurements.
However, this Statement does not require any new fair value measurements. Statement No.157
is effective for fiscal years beginning after November 15, 2007. OQI is currently
assessing the effect, if any, the adoption of Statement No.157 will have on its financial
statements and related disclosures.
 3.
    
    ACQUISITIONSAs detailed below OQI acquired certain businesses for cash, shares and liabilities assumed.
These acquisitions were accounted for by the purchase method and, accordingly, results of
operations have been included in the financial statements from their respective dates of
acquisition.
 a)
    
    Oilsands Quest Sask Inc.During the year ended April 30, 2005, OQI acquired all of the issued and outstanding shares
of OQI Sask, a previously inactive Alberta company. OQI and OQI Sask also entered into an
agreement whereby OQI Sask acquired a 49% interest in the OQI Sask Exploration Permits
(note 4(a)) from a third party for $769,125, the issuance of 50,000 common shares of OQI
and a 2.5% gross overriding royalty (2.5% GORR). OQI had another agreement to purchase
the remaining 51% interest in the OQI Sask Oil Sands Exploration Permits through the
indirect purchase of 100% of the issued and outstanding shares of a private Alberta company
for $1,202,131, plus 2 million common shares of OQI and the assumption of $0.11 per barrel
in royalties. Pursuant to this agreement OQI agreed to the issuance of 2 million of its
 shares and assigned the agreement to OQI Sask. During the year ended April 30, 2006, the
acquisition of the remaining 51% interest in the OQI Sask Oil Sands Exploration Permits was
completed and the private Alberta, Canada, company was merged with OQI Sask. OQI Sask now
holds a 100% interest in the OQI Sask Oil Sands Exploration Permits, subject to overriding
royalties (note 3(d)).
  F-14




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 3.
    
    ACQUISITIONS -(continued)
 a)
    
    Oilsands Quest Sask Inc.  (continued)In order to secure management and financing for the OQI Sask Oil Sands Exploration Permits,
OQI Sask issued a number of its own securities, so that on April 30, 2006 OQI held 62.75%
(2005 - 64.89%) of the outstanding OQI Sask common shares (note 11). Included in OQIs
interest in OQI Sask as at April 30, 2006 were 571,428 OQI Sask common shares that were
acquired as part of the purchase of 571,428 units from a third party. Each unit consisted
of one OQI Sask common share and one OQI Sask share purchase warrant to purchase another
common share. OQI paid $4,932,482 for these units and 1,500,000 OQI share purchase
warrants. Each OQI warrant allows the holder to acquire an additional OQI common share for
$2.00 until December 15, 2007. The purchase price was allocated to underlying assets based
on their fair values with the net effect that the $4,069,297 difference between the OQI
cost and the original issue price of these units by OQI Sask and $1,713,929 in non cash
financing expense related to the issuance of the warrants was allocated to property costs.On August 14, 2006, OQI completed the reorganization pursuant to the terms of a
reorganization agreement, whereby OQI acquired the non-controlling interest (35.92%) in OQI
Sask, going from a 64.08% ownership interest to a 100% voting interest (note 12(b)).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 OQI Sask
common share. The Acquisition Agreements also allowed for all OQI Sask options and
warrants providing the right to acquire common shares of OQI Sask to have Exchangeable
 shares issued on the same basis when such OQI Sask options and warrants were exercised.
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. The Exchangeable Shares are
represented for voting purposes in the aggregate by one share of OQIs Series B Preferred
Stock (note 12(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 fair value of $1,204,383 and paid $353,450 as success fees to its financial
advisors. The fair 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. These amounts have been included in Consulting Expense.
  F-15




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 3.
    
    ACQUISITIONS -(continued)
 a)
    
    Oilsands Quest Sask Inc.  (continued)The Company has consolidated the operating results of OQI Sask from its commencement of
operations on September 24, 2004. The total purchase price of acquiring the non-controlling
interest in OQI Sask on August 14, 2006 was $319,022,948, calculated at 76,504,304
Exchangeable Shares to be issued multiplied by $4.17 per share. The fair value of the
Exchangeable Shares was based on the average trading price of the Companys common shares
for the five days prior to and following August 14, 2006. The total purchase price of
$319,022,948 has been allocated as follows:
 Consideration comprised of:Fair value of Exchangeable shares
    
    $
    319,022,948Purchase price allocation:Property
    
    
    451,525,810Deferred income taxes
    
    
    (132,502,862
    )Net assets acquired
    
    $
    319,022,948
   b)
    
    Western Petrochemicals Corp. (Western Petrochemicals)On April 21, 2005 OQI issued 10,728,124 common shares for a 97.53% interest in Western
Petrochemicals, which held the permits to the Pasquia Hills, Oil Shale Project (note 4(b)).
At the time the shares were issued Western Petrochemicals liabilities exceeded its assets
by $926,200 and this along with $2,209,219 for the common shares issued has been recorded
as Pasquia Hill property acquisition costs. On April 6, 2006 OQI completed the purchase of
the remaining 2.47% of Western Petrochemicals through the issuance of 271,865 common shares
and recorded a Pasquia Hills property acquisition cost of $375,174.c)
    
    Township Petroleum Corporation (Township)During the year ended April 30, 2006 OQI acquired all of the issued and outstanding shares
of Township Petroleum Corporation, a previously inactive Alberta company. Subsequently
Township acquired the lease to the Eagles Nest prospect (note 4(c)).
  F-16




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 3.
    
    ACQUISITIONS -(continued)
 d)
    
    Acquisition of Stripper Energy Services Inc.On August 15, 2006, the Company acquired all of the issued and outstanding shares of
Stripper Energy Services Inc (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% GORR on certain permit lands held by OQI Sask. The
total purchase price of $17,948,722 has been allocated as follows:
 Consideration comprised of:Cash Paid
    
    $
    17,948,722Purchase price allocation:Property
    
    
    25,406,544Deferred income taxes
    
    
    (7,457,822
    )Net assets acquired
    
    $
    17,948,722
   F-17




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 4.
    
    PROPERTY & EQUIPMENT
 OQI Sask
    
    
    Pasquia Hills,Oil Sands
    
    
    Oil Shale
    
    
    Eagles Nest,Exploration
    
    
    Exploration
    
    
    Oil SandsPermits
    
    
    Permits
    
    
    Lease
    
    
    TotalPropertyBalance April 30, 2005
    
    $
    2,360,771
    
    
    $
    3,412,692
    
    
    $
    
    
    
    $
    5,773,463Acquisition of property
    
    
    10,055,220
    
    
    
    441,956
    
    
    
    852,459
    
    
    
    11,349,635Balance April 30, 2006
    
    
    12,415,991
    
    
    
    3,854,648
    
    
    
    852,459
    
    
    
    17,123,098Additions to property
    
    
    47,628,512
    
    
    
    
    
    
    
    164,475
    
    
    
    47,792,987Excess of OQI Sask share acquisition costs
over book value
    
    
    16,752,262
    
    
    
    
    
    
    
    
    
    
    
    16,752,262Acquisition of minority interest
    
    
    451,525,810
    
    
    
    
    
    
    
    
    
    
    
    451,525,810Reclass of minority interest at date of
acquisition to property
    
    
    (16,323,010
    )
    
    
    
    
    
    
    
    
    
    
    (16,323,010
    )Balance April 30, 2007
    
    $
    511,999,565
    
    
    $
    3,854,648
    
    
    $
    1,016,934
    
    
    $
    516,871,147EquipmentBalance April 30, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additions to Equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,797,821Accumulated Depreciation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (367,827
    )Balance April 30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,429,994Total Property & Equipment at April 30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    520,301,141
 a)
    
    OQI Sask Oil Sands Exploration Permits
    F-18




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 4.
    
    PROPERTY & EQUIPMENT -(continued)
 a)
    
    OQI Sask Oil Sands Exploration Permits - (continued)
     b)
    
    Pasquia Hills, Oil Shale Exploration Permits
    F-19




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 4.
    
    PROPERTY & EQUIPMENT -(continued)
 b)
    
    Pasquia Hills, Oil Shale Exploration Permits - (continued)
   c)
    
    Eagles Nest, Oil Sands Lease
     F-20




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 4.
    
    PROPERTY & EQUIPMENT -(continued)
 d)
    
    During the year ended April 30, 2007 the Company had $3,797,821 in additions to
equipment including the purchase of a portable residence camp facility and other field
equipment in support of the Companys activities.
 5.
    
    AVAILABLE FOR SALE SECURITIES
     6.
    
    OTHER INVESTMENTS
    7.
    
    ACCOUNTS PAYABLE
  April 30,
    
    
    April 30,2007
    
    
    2006Accounts payable and accrued liabilities
    
    $
    5,170,063
    
    
    $
    2,369,645Penalty share accrual (note 13(f))
    
    
    
    
    
    
    17,312,623$
    5,170,063
    
    
    $
    19,682,268
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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 8.
    
    LOAN PAYABLE
  9.
    
    CONVERTIBLE DEBENTURES
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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 9.
    
    CONVERTIBLE DEBENTURES - (continued)
  10.
    
    DEFERRED INCOME TAX
 a)
    
    Deferred tax liability
  April 30,
    
    
    April 30,2007
    
    
    2006Book value of property and equipment
in excess of tax values
    
    $
    (161,036,504
    )
    
    $
    (1,080,821
    )Non-capital loss carry-forwards tax benefit
    
    
    21,749,442
    
    
    
    $
    (139,287,062
    )
    
    $
    (1,080,821
    )
 b)
    
    Deferred income tax recovery differs from that which would be expected from applying the
combined effective Canadian federal and provincial income tax rates of approximately 34%
(2006 - 34%, 2005 - 34%) to loss before income taxes. The difference results from the following:
 April 30,
    
    
    April 30,
    
    
    April 30,2007
    
    
    2006
    
    
    2005Expected current income tax recovery
    
    $
    (25,926,107
    )
    
    $
    (18,883,445
    )
    
    $
    (1,782,941
    )Stock-based compensation
    
    
    13,516,901
    
    
    
    
    
    
    
    Tax impact of flow-through expenditures
    
    
    8,087,292
    
    
    
    
    
    
    
    Depreciation
    
    
    125,061
    
    
    
    
    
    
    
    Unrecognized tax losses
    
    
    
    
    
    
    18,861,489
    
    
    
    1,743,556Other
    
    
    353,641
    
    
    
    
    
    
    
    Impact of lower Canadian tax rate
    
    
    1,535,780
    
    
    
    
    
    
    
    $
    (2,307,432
    )
    
    $
    (21,956
    )
    
    $
    (39,385
    )
  F-23




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 11.
    
    NON-CONTROLLING SHAREHOLDER INTEREST
  CommonShares
    
    
    AmountBalance, April 30, 2005
    
    
    3,787,500
    
    
    $
    448,224Share of net loss of OQI Sask
    
    
    
    
    
    
    (2,876,685
    )Increase in interest arising from share issuances by OQI SaskPrivate placement including 1,524,875 flow-through shares
    
    
    1,721,075Warrants exercised
    
    
    549,450Conversion of convertible note
    
    
    904,434
    
    
    
    7,164,062Balance, 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 3(a) and 4)
    
    
    (6,968,334
    )
    
    
    (16,323,010
    )Balance, April 30, 2007
    
    
    
    
    
    $
    
  Weighted AverageNumber
    
    
    Exercise Price (CDN)Issued and outstanding,
April 30, 2005
    
    
    5,875
    
    
    $
    2.00Issued
    
    
    3,331,016
    
    
    $
    4.95Exercised
    
    
    (1,120,878
    )
    
    $
    1.90Issued and outstanding,
April 30, 2006
    
    
    2,216,013
    
    
    $
    6.48Issued
    
    
    Exercised
    
    
    (2,200,013
    )
    
    $
    6.52Issued and outstanding,
April 30, 2007
    
    
    16,000
    
    
    $
    2.00
   F-24




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 11.
    
    NON-CONTROLLING SHAREHOLDER INTEREST -(continued)
  Weighted AverageNumber
    
    
    Exercise Price (CDN)Issued and outstanding,
April 30, 2005
    
    
    300,000
    
    
    $
    0.50Granted
    
    
    500,000
    
    
    $
    5.40Cancelled
    
    
    (100,000
    )
    
    $
    0.50Issued and outstanding,
April 30, 2006
    
    
    700,000
    
    
    $
    4.00Granted
    
    
    1,280,000
    
    
    $
    21.40Exercised
    
    
    (205,000
    )
    
    $
    3.32Issued and outstanding,
April 30, 2007
    
    
    1,775,000
    
    
    $
    16.55
 Number
    
    
    Number
    
    
    Weighted AverageExercise
    
    Outstanding at
    
    
    Exercisable at
    
    
    Remaining ContractualPrice (CDN)
    
    Apr 30, 2007
    
    
    Apr 30, 2007
    
    
    Life$0.50
    
    
    100,000
    
    
    
    100,000
    
    
    2.54 Years$3.00
    
    
    100,000
    
    
    
    100,000
    
    
    3.26 Years$6.00
    
    
    610,000
    
    
    
    610,000
    
    
    3.79 Years$25.00
    
    
    915,000
    
    
    
    615,000
    
    
    4.01 Years$50.00
    
    
    50,000
    
    
    
    12,500
    
    
    4.26 Years1,775,000
    
    
    
    1,437,500
    
    
    3.81 Years
 )
   F-25




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 12.
    
    PREFERRED SHARES
 a)
    
    Series A Preferred Shares
  b)
    
    Series B Preferred Stock
    OQI SaskExchangeableshares issuableOQI Sask
    
    
    on exercise of
    
    
    TotalExchangeable
    
    
    OQI Sask options
    
    
    Exchangeableshares
    
    
    and warrants
    
    
    sharesAcquisition date, August 14, 2006
    
    
    57,349,388
    
    
    
    19,154,916
    
    
    
    76,504,304OQI Sask options and warrants exercised
    
    
    4,414,986
    
    
    
    (4,414,986
    )
    
    
    Exchangeable Shares exchanged into
OQI common shares
    
    
    (28,237,015
    )
    
    
    
    
    
    
    (28,237,015
    )Balance, April 30, 2007
    
    
    33,527,359
    
    
    
    14,739,930
    
    
    
    48,267,289
  F-26




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 13.
    
    COMMON STOCK
 a)
    
    Authorized common shares
  b)
    
    Shares issued for services
  c)
    
    Settlement with Anhydride Canada Creditors
  d)
    
    Anhydride Petroleum Limited Partnership
   F-27




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 13.
    
    COMMON STOCK - (continued)
 e)
    
    Debt Settlement
   f)
    
    Private Placements of Common Shares
  .
    F-28




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 13.
    
    COMMON STOCK -(continued)
 f)
    
    Private Placements of Common Shares - (continued)
    g)
    
    Subsequent to April 30, 2007, the Company issued 13,900,000 common shares and
2,164,166 Flow-Through common shares (Note 23).
  F-29




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 14.
    
    STOCK OPTIONS
  Stock option
    
    
    Exercise
    
    
    
    
    
    
    Number of OptionsPlan
    
    Expiry Date
    
    
    Price
    
    
    2007
    
    
    2006
    
    
    2005SOP 2002
    
    15-May-05
    
    $
    0.25
    
    
    
    
    
    
    
    
    
    
    
    225,000SOP 2003(c)
    
    2-Feb-06
    
    $
    0.30
    
    
    
    
    
    
    
    
    
    
    
    100,000SOP 2000
    
    21-Aug-06
    
    $
    0.27
    
    
    
    
    
    
    
    
    
    
    
    850,000SOP 2005(b)
    
    20-Oct-07
    
    $
    1.50
    
    
    
    200,000
    
    
    
    400,000
    
    
    
    SOP 2006
    
    1-Jan-07
    
    $
    1.70
    
    
    
    
    
    
    
    300,000
    
    
    
    SOP 2006
    
    1-Jan-08
    
    $
    2.00
    
    
    
    400,000
    
    
    
    400,000
    
    
    
    SOP 2006
    
    1-Nov-08
    
    $
    2.58
    
    
    
    600,000
    
    
    
    600,000
    
    
    
    SOP 2006
    
    8-Feb-08
    
    $
    4.62
    
    
    
    250,000
    
    
    
    250,000
    
    
    
    SOP 2006
    
    17-Feb-09
    
    $
    4.57
    
    
    
    250,000
    
    
    
    250,000
    
    
    
    SOP 2006
    
    9-Mar-08
    
    $
    4.60
    
    
    
    250,000
    
    
    
    250,000
    
    
    
    SOP 2006
    
    1-May-11
    
    $
    6.75
    
    
    
    1,000,000
    
    
    
    
    
    
    
    SOP 2006
    
    14-Aug-11
    
    $
    6.75
    
    
    
    1,000,000
    
    
    
    
    
    
    
    SOP 2006
    
    1-May-12
    
    $
    6.75
    
    
    
    1,000,000
    
    
    
    
    
    
    
    SOP 2006
    
    1-May-13
    
    $
    6.75
    
    
    
    1,000,000
    
    
    
    
    
    
    
    SOP 2006
    
    18-May-08
    
    $
    6.00
    
    
    
    300,000
    
    
    
    
    
    
    
    SOP 2006
    
    18-May-09
    
    $
    6.00
    
    
    
    30,000
    
    
    
    
    
    
    
    SOP 2006
    
    23-Aug-08
    
    $
    5.05
    
    
    
    75,000
    
    
    
    
    
    
    
    SOP 2006
    
    23-Aug-11
    
    $
    5.05
    
    
    
    2,970,000
    
    
    
    
    
    
    
    SOP 2006
    
    5-Sep-11
    
    $
    5.10
    
    
    
    300,000
    
    
    
    
    
    
    
    SOP 2006
    
    27-Sep-11
    
    $
    3.90
    
    
    
    50,000
    
    
    
    
    
    
    
    SOP 2006
    
    2-Oct-11
    
    $
    3.89
    
    
    
    400,000
    
    
    
    
    
    
    
    SOP 2006
    
    1-Dec-11
    
    $
    5.25
    
    
    
    50,000
    
    
    
    
    
    
    
    10,125,000
    
    
    
    2,450,000
    
    
    
    1,175,000
  F-30




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 14.
    
    STOCK OPTIONS (continued)
  44,444
    
    
    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;1,413,750
    
    
    options which vest as to 471,250 options each on anniversary dates between August 23 and
December 1st in each of 2007, 2008, and 2009;1,885,000
    
    
    options which vest on or after dates between August 23 and December 1, 2009 as to
471,250 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 471,250 options thereafter for each
250 million increase in the BIP barrel count.5,343,194
  WeightedNumber of
    
    
    AverageOptions
    
    
    Exercise PriceBalance, April 30, 2004
    
    
    2,205,000
    
    
    $
    0.24Granted during year
    
    
    2,749,900
    
    
    $
    0.37Exercised
    
    
    (3,649,900
    )
    
    $
    0.33Expired
    
    
    (130,000
    )
    
    $
    0.29Balance, April 30, 2005
    
    
    1,175,000
    
    
    $
    0.27Granted during year
    
    
    4,875,000
    
    
    $
    1.76Exercised
    
    
    (3,375,000
    )
    
    $
    0.58Expired
    
    
    (225,000
    )
    
    $
    0.25Balance, April 30, 2006
    
    
    2,450,000
    
    
    $
    2.82Granted during year
    
    
    8,540,344
    
    
    $
    5.83Exercised
    
    
    (705,344
    )
    
    $
    2.65Cancelled
    
    
    (160,000
    )
    
    $
    5.05Balance, April 30, 2007
    
    
    10,125,000
    
    
    $
    5.33
    F-31




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 15.
    
    WARRANTS
  Expiry
    
    ExerciseDate
    
    Price
    
    
    2007
    
    
    2006
    
    
    200514-Sep-05
    
    $
    0.34
    
    
    
    
    
    
    
    
    
    
    
    2,380,0003-Nov-05
    
    $
    0.35
    
    
    
    
    
    
    
    
    
    
    
    1,791,62714-Sep-06
    
    $
    0.34
    
    
    
    
    
    
    
    2,380,000
    
    
    
    14-Sep-06
    
    $
    0.35
    
    
    
    
    
    
    
    
    
    
    
    6,647,96319-Sep-06
    
    $
    1.30
    
    
    
    
    
    
    
    1,022,630
    
    
    
    19-Sep-07
    
    $
    0.55
    
    
    
    104,883
    
    
    
    568,111
    
    
    
    12-Dec-07
    
    $
    2.00
    
    
    
    7,085,834
    
    
    
    7,634,000
    
    
    
    15-Dec-07
    
    $
    2.00
    
    
    
    1,500,000
    
    
    
    1,500,000
    
    
    
    6-Feb-08
    
    $
    4.50
    
    
    
    
    
    
    
    200,000
    
    
    
    15-Dec-07
    
    $
    1.75
    
    
    
    165,350
    
    
    
    260,580
    
    
    
    8,856,067
    
    
    
    13,565,321
    
    
    
    10,819,590
  WeightedNumber
    
    
    Averageof Warrants
    
    
    Exercise PriceBalance, April 30, 2004
    
    
    2,666,666
    
    
    $
    0.35Issued during year
    
    
    11,854,896
    
    
    $
    0.35Exercised
    
    
    (3,701,972
    )
    
    $
    0.26Balance, April 30, 2005
    
    
    10,819,590
    
    
    $
    0.35Issued during year
    
    
    23,728,503
    
    
    $
    1.31Exercised - cash
    
    
    (10,650,095
    )
    
    $
    0.60Exercised - cashless
    
    
    (10,332,122
    )
    
    $
    0.62Expired/Cancelled
    
    
    (555
    )
    
    $
    0.35Balance, April 30, 2006
    
    
    13,565,321
    
    
    $
    1.63Exercised - cash
    
    
    (2,129,241
    )
    
    $
    1.34Exercised - cashless
    
    
    (2,380,000
    )
    
    $
    0.34Expired/Cancelled
    
    
    (200,013
    )
    
    $
    4.50Balance, April 30, 2007
    
    
    8,856,067
    
    
    $
    1.98
   F-32




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 16.
    
    NON-CASH FINANCING EXPENSE
  17.
    
    GAIN ON EXTINGUISHMENT OF CERTAIN LIABILITIES
  18.
    
    RELATED PARTY TRANSACTIONS
  (a)
    
    OQI issued two former officers a total of 141,667 bonus shares with a fair value of
$732,418 which was included in accounts payable at April 30, 2006. These shares were
recorded at the fair market value on the date on the transaction based on the market
trading price of $5.17 per share on June 27, 2006.
 (b)
    
    OQI has entered into employment agreements with 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.
 19.
    
    COMPREHENSIVE LOSS
 Year Ended April 30,2007
    
    
    2006
    
    
    2005Net loss
    
    $
    68,794,741
    
    
    $
    52,640,903
    
    
    $
    5,109,073Unrealized loss on available for sale securities
    
    
    25,661
    
    
    
    
    
    
    
    Exchange loss on translation
    
    
    1,391,523
    
    
    
    (421,919
    )
    
    
    53,270$
    70,211,925
    
    
    $
    52,218,984
    
    
    $
    5,162,343
  F-33




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 20.
    
    COMMITMENTS
  Office and Warehouse lease commitments
    
    At April 30, 2007Year 1
    
    $
    217,983Year 2
    
    
    320,897Year 3
    
    
    297,334Year 4
    
    
    297,334Year 5
    
    
    288,861> 5 Years
    
    
    1,652,778$
    3,075,187
  21.
    
    CORRECTION OF AN ERROR IN PREVIOUSLY ISSUED FINANCIAL STATEMENTS
 a)
    
    Property and Other Comprehensive Income as originally reported as at April 30, 2006
have been restated to correct an error in the translation from Canadian to US funds of
the OQI Sask balance sheet as follows:
 As Reported
    
    
    As CorrectedFor the Year Ended
    
    
    For the Year Ended
    
    
    Effect ofApril 30, 2006
    
    
    April 30, 2006
    
    
    CorrectionProperty
    
    $
    17,831,417
    
    
    $
    17,123,098
    
    
    $
    (708,319
    )Other Comprehensive Income
    
    $
    964,404
    
    
    $
    256,085
    
    
    $
    (708,319
    )
 b)
    
    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 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.
  F-34




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 21.
    
    CORRECTION OF AN ERROR IN PREVIOUSLY ISSUED FINANCIAL STATEMENTS -(continued)
 ) (continued)
 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
    
    
    $
    0.29
 As 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$
    (154,020,268
    )
    
    $
    (142,404,215
    )
    
    $
    11,616,053
 22.
    
    COMPARATIVE FIGURES
  23.
    
    SUBSEQUENT EVENTS
    F-35




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##### Table of Contents



OILSANDS QUEST INC.
(Formerly CanWest Petroleum Corporation)
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
 23.
    
    SUBSEQUENT EVENTS -(continued)
    F-36




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description4.2
    
    2006 Stock Option Plan, filed herewith.10.9
    
    Executive Employment Agreement (Amended and Restated) with T. Murray Wilson, dated September
22, 2006 and as amended effective August 1, 2007, filed herewith.10.23
    
    Credit Agreement dated 3/19/07 with Toronto-Dominion Bank, filed herewith.10.24
    
    Subscription Agreement for Flow-Through Shares, dated March 6, 2007, filed herewith.10.25
    
    Amending Agreement to Subscription Agreement for Flow-Through Shares, dated May 3, 2007,
filed herewith.10.26
    
    Subscription Agreement between the Company and Subscribers, dated May 3, 2007, filed
herewith.21.1
    
    Subsidiaries of the Registrant, filed herewith.23.1
    
    Consent of independent auditors, 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.