Oilsands Quest (BQI) 10-K/A 2010 FY Annual report (amended)

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Amendment No. 2)

(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, 2010.

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES   EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD OFTO

Commission File Number: 001-32994

OILSANDS QUEST INC.

(Exact Name of Registrant as Specified in its charter)

Colorado	98-0461154
State or other jurisdiction of incorporation or organization	(I.R.S. Employer Identification No.)

800, 326 11th AVENUE SW, CALGARY, ALBERTA, CANADA T2R 0C5

(Address of principal executive offices, including zip code)

Issuer’s telephone number: (403) 263-1623

Securities registered under Section 12(b) of the Act:

Title of each class	Name of each exchange on which is registered
Common Stock, $.001 Par Value	NYSE Amex

Securities registered under Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known, seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (s 229.405 or this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer: o	Accelerated filer: þ	Non-accelerated filer: o	Smaller reporting company: o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The aggregate market value of the common stock held by non-affiliates of the Registrant as of October 31, 2010 was approximately $138,270,741 based upon the closing sale price of the Registrant’s Common Stock on such date.

As of May 13, 2011 there were 348,495,556 shares of common stock issued and outstanding.

Certain portions of the Registrant's definitive proxy statement filed with the Securities and Exchange Commission on August 27, 2010 are incorporated by reference into Part III of this Annual Report on Form 10-K.

 

EXPLANATORY NOTE

This Amendment No. 2 to the Annual Report on Form 10-K (this “Amendment”) of Oilsands Quest Inc. (the “Registrant”), amends the Registrant’s Annual Report on Form 10-K for the year ended April 30, 2010, which was filed with the Securities and Exchange Commission (the “SEC”) on July 13, 2010, and amended on July 22, 2010.  The purpose of this Amendment is to include (a) an audit report of Smythe Ratcliffe LLP covering the period from the Registrant’s date of inception through April 30, 2007; and (b) a revised report of KPMG LLP on the Registrant's consolidated financial statements to make reference to the report of Smythe Ratcliffe LLP, and a revised report of KPMG LLP on the Registrant's internal control over financial reporting.

Except as stated herein, this Amendment does not reflect events occurring after the original filing of the Registrant’s Annual Report on Form 10-K on July 13, 2010 or the amendment filed on July 22, 2010 and no attempt has been made in this Form 10-K/A to modify or update other disclosures as presented in the original filing of our Annual Report on Form 10-K or the amendment filed on July 22, 2010. Accordingly, this Form 10-K/A should be read in conjunction with our filings with the SEC subsequent to the original filing of our Annual Report on Form 10-K and the amendment filed on July 22, 2010.

In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, new certifications by our principal executive officer and principal financial officer are filed as exhibits to this Form 10-K/A.

i

PART IV

Item 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)1.  Financial Statements

See index to Financial Statements at page F-1 of this Report.

(a)2.  Financial Statement Schedules

Not Applicable.

(b)  Exhibits

23.1	Consent of Smythe Ratcliffe LLP, filed herewith.
23.2	Consent of KPMG LLP, 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.

ii

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	OILSANDS QUEST INC.
Date: May 16, 2011	By:	/s/ Garth Wong
		Garth Wong, President and Chief Executive Officer (Principal Executive Officer)
Date: May 16, 2011	By:	/s/ Annie Lamoureux
		Annie Lamoureux, Vice President and Controller (Principal Accounting Officer)

 Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

/s/ Ronald Blakely	Director	May 16, 2011
Ronald Blakely
/s/ Paul Ching	Director	May 16, 2011
Paul Ching
/s/ Christopher H. Hopkins	Director	May 16, 2011
Christopher H. Hopkins
/s/ Brian MacNeill	Director	May 16, 2011
Brian MacNeill
/s/ Ronald Phillips	Director	May 16, 2011
Ronald Phillips
/s/ John Read	Director	May 16, 2011
John Read
/s/ Gordon Tallman	Director	May 16, 2011
Gordon Tallman
/s/ Pamela Wallin	Director	May 16, 2011
Pamela Wallin
/s/ T. Murray Wilson	Director	May 16, 2011
T. Murray Wilson

iii

OILSANDS QUEST INC.

YEAR ENDED APRIL 30, 2010

CONSOLIDATED FINANCIAL STATEMENTS

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firms

Consolidated Balance Sheets, April 30, 2010 and 2009

Consolidated Statements of Operations, Three Years Ended April 30, 2010 and Period from Inception on April 3, 1998 to April 30, 2010

Consolidated Statements of Stockholders’ Equity, Three Years Ended April 30, 2010 and Period from Inception on April 3, 1998 to April 30, 2010

Consolidated Statements of Comprehensive Loss, Three Years Ended April 30, 2010 and Period from Inception on April 3, 1998 to April 30, 2010

Consolidated Statements of Cash Flows, Three Years Ended April 30, 2010 and Period from Inception on April 3, 1998 to April 30, 2010

Notes to Consolidated Financial Statements

FS-1

Report of Independent Registered Public Accounting Firm

TO THE STOCKHOLDERS AND DIRECTORS OF OILSANDS QUEST INC.

(A Development Stage Company)

We have audited the accompanying consolidated statements of operations, stockholders’ equity, comprehensive loss and cash flows of Oilsands Quest Inc. (a development stage company) for the period from inception on April 3, 1998 through to April 30, 2007 (not separately presented herein). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United Sates of America). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, these consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of Oilsands Quest Inc. (a development stage company) for the period from inception April 3, 1998 through to April 30, 2007 (not separately presented herein) in conformity with accounting principles generally accepted in the United States of America.

/s/ Smythe Ratcliffe LLP

Chartered Accountants

Vancouver, Canada

July 29, 2009

FS-2

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Oilsands Quest Inc.

We have audited the accompanying consolidated balance sheets of Oilsands Quest Inc. and subsidiaries (a development stage company) as of April 30, 2010 and 2009, and the related consolidated statements of operations, stockholders’ equity, comprehensive loss and cash flows for each of the years in the three-year period ended April 30, 2010 and for the period from inception on April 3, 1998 to April 30, 2010. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The cumulative statements of operations, stockholders’ equity, comprehensive loss and cash flows for the period from inception on April 3, 1998 to April 30, 2010 include amounts for the period from inception on April 3, 1998 to April 30, 2007, which were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the period from inception on April 3, 1998 to April 30, 2007 is based solely on the report of other auditors.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Oilsands Quest Inc. and subsidiaries (a development stage company) as of April 30, 2010 and 2009, and the results of their operations and their cash flows for each of the years in the three-year period ended April 30, 2010 and for the period from April 3, 1998 to April 30, 2010, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of April 30, 2010, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated July 12, 2010, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG LLP

Calgary, Canada

July 12, 2010

FS-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Oilsands Quest Inc.

We have audited Oilsands Quest Inc.’s (the “Company”) (a development stage company) internal control over financial reporting as of April 30, 2010, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting under Item 9A of the April 30, 2010 Annual Report on Form 10-K. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of April 30, 2010, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Oilsands Quest Inc. and subsidiaries (a development stage company) as of April 30, 2010 and 2009, and the related consolidated statements of operations, stockholders’ equity, comprehensive loss and cash flows for each of the years in the three-year period ended April 30, 2010 and for the period from inception on April 3, 1998 to April 30, 2010, and our report dated July 12, 2010 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Calgary, Canada

July 12, 2010

FS-4

OILSANDS QUEST INC.

(A Development Stage Company)

Consolidated Balance Sheets

(in thousands, except share data)

		April 30, 2010	April 30, 2009
ASSETS
Current Assets:
Cash and cash equivalents	$	18,642	$	6,986
Accounts receivable		1,421		3,617
Short-term investments		-		25,209
Prepaid expenses		739		337
Available for sale equity securities		65		60
Total Current Assets		20,867		36,209
Property and Equipment (note 5)		458,168		398,975
Assets held for sale (note 3)		5,059		-
Total Assets	$	484,094	$	435,184
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable (notes 15 and 16)	$	1,606	$	3,463
Accrued liabilities		2,626	5,604
Flow-through share premium liability		-	749
Total Current Liabilities		4,232	9,816
Deferred Taxes (note 7)		62,516	65,651
Asset Retirement Obligation (note 6)		17,485	2,621
Liabilities related to assets held for sale (note 3)		1,146	-
Stockholders’ Equity:
Capital Stock
Preferred Stock, par value of $0.001 each, 10,000,000 shares authorized, 1 Series B Preferred share outstanding (note 10)		-	-
Common Stock, par value of $0.001 each, 750,000,000 shares authorized, 292,491,188 and 241,559,549 shares outstanding at April 30, 2010 and April 30, 2009 respectively (note 11)		292	242
Additional Paid-in Capital		758,007	713,591
Deficit Accumulated During Development Stage		(395,196)	(330,715)
Accumulated Other Comprehensive Income (Loss)		35,612	(26,022)
Total Stockholders’ Equity		398,715	357,096
Total Liabilities and Stockholders’ Equity	$	484,094	$	435,184

Contingencies and commitments (note 16)

Subsequent events (notes 3, 5(a) and 17)

See Notes to Consolidated Financial Statements

FS-5

OILSANDS QUEST INC.

(A Development Stage Company)

Consolidated Statements of Operations

(in thousands, except share data and per share amounts)

	For the Years Ended April 30,						From Inception on April 3, 1998 through to April 30, 2010
	2010		2009		2008
Expenses
Exploration	$	48,682	$	70,843	$	96,362	$	253,723
General and administrative
Corporate		16,979		12,567		11,386		58,820
Stock-based compensation (notes 9, 11 and 12)		5,584		17,481		20,847		146,827
Foreign exchange (gain) loss		(5,088)		4,780		(441)		(548)
Depreciation and accretion		2,528		1,564		1,073		5,532
		68,685		107,235		129,227		464,354
Other Items
Interest income		(134)		(1,089)		(2,469)		(6,432)
Loss before income tax		68,551		106,146		126,758		457,922
Deferred income tax benefit (note 7)		(9,830)		(17,847)		(34,053)		(61,680)
Net loss from continuing operations		58,721		88,299		92,705		396,242
Net loss from discontinued operations (note 3)		5,760		835		42		6,648
Net loss		64,481		89,134		92,747		402,890
Net loss attributable to non-controlling interest (note 8)		-		-		-		(7,694)
Net loss attributable to common stockholders	$	64,481	$	89,134	$	92,747	$	395,196
Net loss from continuing operations per share – Basic and Diluted	$	0.19	$	0.34	$	0.41
Net loss from discontinued operations per share – Basic and Diluted		0.02		-		-
Net loss attributable to common stockholders per share – Basic and Diluted	$	0.21	$	0.34	$	0.41
Weighted Average Number of Common Shares Outstanding (note 11)		305,327,827		261,510,084		227,054,265

See Notes to Consolidated Financial Statements

FS-6

OILSANDS QUEST INC.

(A Development Stage Company)

Consolidated Statements of Stockholders' Equity

(in thousands, except shares)

									Additional Paid in Capital		Accumulated Other Comprehensive Income (Loss)		Deficit Accumulated During the Development Stage		Total Stockholders’ Equity
	Common Stock				Preferred Stock
	Shares		Par Value		Shares		Par Value
Balance, April 30, 2009		241,559,549	$	242		1	$	-	$	713,591	$	(26,022)	$	(330,715)	$	357,096
Common stock issued for:														-
Cash		44,789,313		45		-		-		39,969		-		-		40,014
Stock option exercises		964,769		-		-		-		782		-		-		782
Exchange of OQI Sask Exchangeable shares		5,177,557		5		-		-		(5)		-		-		-
Stock-based compensation cost		-		-				-		5,584		-		-		5,584
Share issue costs		-		-		-		-		(2,096)		-		-		(2,096)
Proceeds from exercise of OQI Sask options		-		-		-		-		182		-		-		182
Other comprehensive income
Foreign exchange gain on translation		-		-		-		-		-		61,634		-		61,634
Net loss		-		-		-		-		-		-		(64,481)		(64,481)
Balance April 30, 2010		292,491,188	$	292		1	$	-	$	758,007	$	35,612	$	(395,196)	$	398,715

See Notes to Consolidated Financial Statements

FS-7

OILSANDS QUEST INC.

(A Development Stage Company)

Consolidated Statements of Stockholders' Equity

(in thousands, except shares)

	Common Stock				Preferred Stock				Additional Paid in Capital		Accumulated Other Comprehensive Income (Loss)		Deficit Accumulated During the Development Stage		Total Stockholders’ Equity
	Shares		Par Value		Shares		Par Value
Balance, April 30, 2008		213,861,958	$	214		1	$	-	$	604,403	$	36,732	$	(241,581)	$	399,768
Common stock issued for:
Cash		23,784,917		24		-		-		91,215		-		-		91,239
Property (note 5(d))		640,000		1		-		-		3,718		-		-		3,719
Premium on flow-through shares		-		-		-		-		(1,803)		-		-		(1,803)
Stock option exercises		35,000		-		-		-		165		-		-		165
Exchange of OQI Sask Exchangeable shares		3,237,674		3		-		-		(3)		-		-		-
Stock-based compensation cost		-		-				-		17,481		-		-		17,481
Share issue costs		-		-		-		-		(3,108)		-		-		(3,108)
Proceeds from exercise of OQI Sask options		-		-		-		-		1,523		-		-		1,523
Other comprehensive income
Transfer of unrealized loss on available-for-sale equity securities		-		-		-		-		-		168		-		168
Foreign exchange loss on translation		-		-		-		-		-		(62,922)		-		(62,922)
Net loss		-		-		-		-		-		-		(89,134)		(89,134)
Balance April 30, 2009		241,559,549	$	242		1	$	-	$	713,591	$	(26,022)	$	(330,715)	$	357,096

See Notes to Consolidated Financial Statements

FS-8

OILSANDS QUEST INC.

(A Development Stage Company)

Consolidated Statements of Stockholders' Equity

(in thousands, except shares)

	Common Stock				Preferred Stock				Additional Paid in Capital		Accumulated Other Comprehensive Income (Loss)		Deficit Accumulated During the Development Stage		Total Stockholders’ Equity
	Shares		Par Value		Shares		Par Value
Balance, April 30, 2007		164,624,278	$	165		1	$	-	$	440,460	$	3,365	$	(148,834)	$	295,156
Common stock issued for:
Cash		31,314,166		31		-		-		128,224		-		-		128,255
Stock option exercises		1,456,250		2		-		-		3,821						3,823
Premium on flow-through shares		-		-		-		-		(4,379)		-		-		(4,379)
Warrant exercises		8,856,015		9						17,510						17,519
Property (notes 5(a) and (d))		750,000		-		-		-		3,292		-		-		3,292
Stock-based compensation		44,000		-		-		-		116		-		-		116
Exchange of OQI Sask Exchangeable shares		6,817,249		7		-		-		(7)		-		-		-
Stock-based compensation cost		-		-				-		20,847		-		-		20,847
Share issue costs		-		-		-		-		(7,079)		-		-		(7,079)
Proceeds from exercise of OQI Sask options and warrants		-		-		-		-		1,598		-		-		1,598
Other comprehensive income
Unrealized loss on available for sale equity securities		-		-		-		-		-		(142)		-		(142)
Foreign exchange gain on translation		-		-		-		-		-		33,509		-		33,509
Net loss		-		-		-		-		-		-		(92,747)		(92,747)
Balance April 30, 2008		213,861,958	$	214		1	$	-	$	604,403	$	36,732	$	(241,581)	$	399,768

See Notes to Consolidated Financial Statements

FS-9

OILSANDS QUEST INC.

(A Development Stage Company)

Consolidated Statements of Stockholders' Equity

(in thousands, except shares)

	Common Stock				Perferred Stock
	Shares	Par Value		Shares		Par Value		Additonal Paid in Capital		Accumulated Other Comprehensive Income		Deficit Accumulated During the Development Stage		Non-Controlling Interest		Total Stockholders' Equity
Common stock issued at inception on April 3, 1998 for assets Common stock issued for:	6,000,000	$	6		-	$	-	$	92	$	-	$	-	$	-	$	98
subscription	77,500		-		-		-		36		-		-		-		36
Property	17,406,604		17		-		-		5,805		-		-		-		5,822
Cash	49,254,199		50		-		-		99,243		-		-		-		99,293
Cashless Exercise of warrants and options	13,184,966		13		-		-		(13)		-		-		-		-
Services	17,973,611		18		-		-		10,836		-		-		-		10,854
Settlement of debt	32,490,383		33		-		-		28,294		-		-		-		28,327
Premium on flow-through shares	-		-		-		-		(2,535)		-		-		-		(2,535)
Preferred shares issued on reorganization (noted 10)	-		-		1		-		223,579		-		-		-		223,579
Exchange of OQI Sask Exchangeables	28,237,015		28		-		-		(28)		-		-		-		-
Share issue costs	-		-		-		-		(2,895)		-		-		-		(2,895)
Stock-based compensation cost	-		-		-		-		56,067		-		-		-		56,067
Proceeds from exercise of OQI Sask options and warrants	-		-		-		-		1,056		-		-		-		1,056
Beneficial convesion feature of Convertible debentures and warrants	-		-		-		-		20,923		-		-		-		20,923
Noncontrolling interest: Shares issued to noncontrolling interest	-		-		-		-		-		-		-		13		13
Net loss attributable to noncontrolling interest	-		-		-		-		-		-		-		(7,694)		(7,694)
Increase in interest arising from share issuance by OQI Sask	-		-		-		-		-		-		-		24,433		24,433
Shares purchased from noncontrolling interest	-		-		-		-		-		-		-		(16,752)		(16,752)
Other comprehensive income:
Unrealized loss on available for sale equity securities	-		-		-		-		-		(26)		-		-		(26)
Foreign excahnge gain on translation	-		-		-		-		-		3,391		-		-		3,391
Net loss	-	-		-		-		-		-		(148,834)		-		(148,834)
Balance April 30, 2007	164,624,278	$	165		1	$	-	$	440,460		3,365	$	(148,834)	$	-	$	295,156

See Notes to Consolidated Financial Statement

FS-10

OILSANDS QUEST INC.

(A Development Stage Company)

Consolidated Statements of Comprehensive Loss

(in thousands)

	Year Ended April 30,						From Inception on April 3, 1998 through to April 30, 2010
	2010		2009		2008
Net loss	$	64,481	$	89,134	$	92,747	$	402,890
Unrealized loss on available for sale equity securities		-		-		142		168
Transfer of unrealized loss on available for sale equity securities to net loss		-		(168)		-		(168)
Exchange (gain) loss on translation		(61,634)		62,922		(33,509)		(35,612)
Comprehensive loss	$	2,845	$	151,888	$	59,380	$	367,278
Comprehensive loss attributable to non-controlling interest		-		-		-		(7,694)
Comprehensive  loss attributable to common stockholders	$	2,845	$	151,888	$	59,380	$	359,584

See Notes to Consolidated Financial Statements

FS-11

OILSANDS QUEST INC.

(A Development Stage Company)

Consolidated Statements of Cash Flows

(in thousands)

	Years Ended April 30,						From Inception on April 3, 1998 Through to April 30, 2010
	2010		2009		2008
Operating Activities
Net loss	$	(64,481)	$	(89,134)	$	(92,747)	$	(402,890)
Non-cash adjustments to net loss
Stock-based compensation		5,584		17,481		20,847		146,827
Deferred income tax benefit		(11,961)		(18,156)		(34,069)		(64,139	)
Depreciation and accretion		2,528		1,564		1,073		5,532
Asset retirement obligation expensed		13,618		1,068		-		14,686
Impairment of unproved properties		6,403		-		-		7,260
Other non-cash items		-		388		(82)		378
Changes in Non-Cash Working Capital
Accounts receivable and prepaid expenses		2,321		(600)		(2,341)		(1,016)
Accounts payable		(5,715)		(4,845)		10,915		8,414
Changes in non-cash working capital related to assets    held for sale		(481)		84		-		(397)
Cash Used in Operating Activities		(52,184)		(92,150)		(96,404)		(285,345)
Investing Activities
Property and equipment expenditures		(1,781)		(7,418)		(14,621)		(81,195)
Short-term investment		25,209		(5,397)		(17,812)		-
Other investments		-		117		(248)		(548)
Cash Used in Investing Activities		23,428		(12,698)		(32,681)		(81,743)
Financing Activities
Issuance of shares for cash		38,702		88,297		142,518		366,263
Bank loan		-		-		(21,208)		-
Shares issued on exercise of subsidiary options and warrants		116		1,523		1,598		4,293
Shares issued by subsidiary to non-controlling interest (note 4(a))		-		-		-		7,664
Convertible debentures		-		-		-		8,384
Cash Provided by Financing Activities		38,818		89,820		122,908		386,604
Inflow of Cash and cash equivalents		10,062		(15,028)		(6,177)		19,516
Effects of exchange rate changes on cash		1,594		(4,484)		281		(874)
Cash and cash equivalents, Beginning of Year		6,986		26,498		32,394		-
Cash and cash equivalents, End of Year	$	18,642	$	6,986	$	26,498	$	18,642
Non-Cash Financing Activities
Common stock issued for properties	$	-	$	3,718	$	3,293	$	10,848
Warrants issued for properties	$	-	$	-	$	-	$	1,764
Common stock issued for services	$	-	$	-	$	116	$	10,505
Common stock issued for debt settlement	$	-	$	-	$	-	$	28,401

See Notes to Consolidated Financial Statements

FS-12

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS

On 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”).

Oilsands Quest Inc. (“OQI”) together with its subsidiaries, (collectively the “Company”) is in the development stage and follows the guidance for a development stage company as defined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915-10. The principal business activity is the acquisition, exploration and development of natural resource properties in Canada.

To date, the Company has not earned revenue from any of its natural resource properties, and none of its estimated resources have been classified as proved reserves. The Company expects that significant additional exploration and development activities will be necessary to establish proved reserves and to develop the infrastructure necessary to facilitate production, if any, from the estimated resources.

As at April 30, 2010, the Company has working capital of $16.6 million.  On May 10, 2010, the Company raised an additional $18.6 million by issuing 10.5 million flow-through shares at $1.00 CDN ($0.995 USD) and 9.2 million common shares at $0.85 per share. The Company believes that it has sufficient funds to maintain its interests in the existing properties and to maintain other core activities through April 2011. The Company monitors its expenditure budgets and adjusts its expenditure plans to conform to available funding. However, additional funding will be required to complete the exploration or development activities, or for changes in the nature or cost of the activities currently planned.

The Company plans to fund future exploration and development activities by way of financings such as a public offering or private placement of debt or equity securities. The Company’s development strategy may also include entering into partnerships with third parties on a joint venture basis. However, the Company cannot provide any assurance that debt or equity financing or joint venture partner arrangements will be available on acceptable terms, if at all, to meet future requirements.

These financial statements have been prepared on a going concern basis in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). The going concern basis assumes that the Company will continue its operations for the foreseeable future and realize its assets and discharge its liabilities in the normal course of business. The Company has no revenues and no near term prospects for revenue, and its operating results, profitability and any future growth are dependent on management’s ability to successfully implement the business plans, including accessing future funding.  If the Company is not able to develop its natural resource properties to a commercial stage, or if the going concern is otherwise not appropriate in future periods, adjustments to the amounts recorded for, and classification of, assets and liabilities may be necessary.

2. BASIS OF PRESENTATION

These consolidated financial statements have been prepared in accordance with US GAAP and reflect all adjustments (all of which are normal and recurring in nature) that, in the opinion of management, are necessary for fair presentation of the annual financial information. Certain comparative figures have been reclassified to conform to current financial statement presentation.  The significant accounting policies used in these consolidated financial statements are as follows:

a) Principles of consolidation

These consolidated financial statements include the accounts of OQI and all of its wholly-owned Canadian subsidiaries (directly and indirectly) including Oilsands Quest Sask Inc. (“OQI Sask”),Township Petroleum Corporation (“Township”), Western Petrochemicals Corporation, 1291329 Alberta Limited, Oilsands Quest Technology Inc. and Stripper Energy Services, Inc. (“Stripper”).

All inter-company transactions and balances have been eliminated.

FS-13

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

b) Use of estimates

The preparation of financial statements in conformity with US GAAP 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 the carrying value of unproved properties, income taxes, stock-based compensation and asset retirement obligations. Actual results could differ from those estimates and changes in estimates are recorded when known.

c) Foreign currency translation

The U.S. dollar is the functional and reporting currency for OQI (the parent company).  The Canadian dollar (CDN) is the functional currency for OQI’s Canadian subsidiaries.  The assets and liabilities of OQI’s Canadian subsidiaries are translated into U.S. dollars based on the current exchange rate in effect at the balance sheet dates.  Canadian income and expenses are translated at weighted average rates for the periods in which those elements are recognized.  Translation adjustments have no effect on net income and are included in accumulated other comprehensive income (loss) in stockholders’ equity.  Gains and losses arising from transactions denominated in currencies other than the functional currency are included in the results of operations of the period in which they occur.  Deferred taxes are not provided on translation gains and losses where OQI expects undistributed earnings of a foreign operation to be indefinitely reinvested.

d) Cash and cash equivalents

Cash and cash equivalents include cash and term deposits that carry terms less than three months at the date of investment. As at April 30, 2010, cash and cash equivalents was comprised of $8.0 million (2009 - $3.1 million) in cash and $10.6 million in money market funds (2009 - $3.9 million in term deposits).

e) Short-term investments

Short-term investments consist of Guaranteed Investment Certificates with a term to maturity of greater than three months at the date of investment.  These investments were at fair value at April 30, 2009. There were no short term investments at April 30, 2010.

f) Property and equipment

Property represents the capitalized costs of acquisition of natural resource properties, principally the rights to explore for in-situ oil sands deposits in the provinces of Alberta and Saskatchewan, Canada and oil shale deposits in the province of Saskatchewan, Canada. At April 30, 2010 the rights to the oil shale deposits in the province of Saskatchewan, Canada are included in assets held for sale.

The Company follows the successful efforts method of accounting for its in-situ oil sands and oil shale exploration activities. Under the successful efforts method, acquisition costs of proved and unproved properties are capitalized. Costs of unproved properties are transferred to proved properties when proved reserves are confirmed. Exploration costs, including geological and geophysical costs, are expensed as incurred. Exploratory drilling costs are initially capitalized. If it is determined that a specific well does not contain proved reserves, the related capitalized exploratory drilling costs are charged to expense. To date all exploration costs have been expensed.

Development costs, which include the costs of wellhead equipment, development drilling costs and handling facilities, applicable geological and geophysical costs and the costs of acquiring or constructing support facilities and equipment, are capitalized. Costs incurred to operate and maintain wells and equipment and to lift oil and gas to the surface will be expensed as operating expenses.

FS-14

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

If and when the Company achieves production, acquisition costs of proved properties will be depleted using the unit-of-production method based on proved reserves. Capitalized exploratory drilling and development costs will be depleted on the basis of proved developed reserves by area. Support facilities and equipment will be depreciated on a straight-line basis over their useful lives.

Significant undeveloped properties are assessed periodically for impairment individually, based on the Company’s current exploration plans.  If an impairment is indicated, a valuation allowance is provided.

The Company has not yet converted any of its exploration permits or licenses in Saskatchewan and Alberta to development leases. In the event that the Company does not meet the regulated requirement or development conditions to convert its permits to leases or obtain an extension of such development requirements, its right to explore for bitumen, as applicable, may be lost resulting in an impairment being recorded.  The Company is satisfied that it has good and proper right, title and interest in and to the permits and licenses.

Equipment is 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.

g) Income Taxes

The Company files United States federal and state, and Canadian federal and provincial tax returns.  Deferred federal and provincial income taxes are provided on temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases.  The Company recognizes a tax benefit from an uncertain position when it is more likely than not that the position will be sustained upon examination, based on the technical merits of the position and will record the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement with a taxing authority.

h) Stock-based compensation

The Company estimates 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. The Company estimates the fair value of stock options using the Black-Scholes valuation model. The Black-Scholes valuation model requires the input of highly subjective assumptions, including the option’s expected life, the expected price volatility of the Company’s common stock and forfeitures.  For the Company’s performance options containing market conditions, fair value is estimated using the Hull-White Trinomial model.  This model also contains highly subjective assumptions, including expected price volatility of the Company’s common stock, forfeitures, employee exit rate and suboptimal exercise factor.  The expected stock price volatility assumption was determined using historical volatility of the Company’s common stock. The Company’s share-based payments take the form of stock options granted to employees and non-employees all of which are equity classified.

FS-15

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

i) Financial Instruments

(i) Fair value

Fair value is defined as the price that would be received to sell an asset or price paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard characterizes inputs used in determining fair value according to a hierarchy that prioritizes those inputs based upon the degree to which they are observable. The three levels of the fair-value-measurement hierarchy are as follows:

Level 1 - inputs represent quoted prices in active markets for identical assets or liabilities (for example, exchange-traded commodity derivatives).

Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (for example, quoted market prices for similar assets or liabilities in active markets or quoted market prices for identical assets or liabilities in markets not considered to be active, inputs other than quoted prices that are observable for the asset or liability, or market-corroborated inputs).

Level 3 - inputs that are not observable from objective sources, such as the Company’s internally developed assumptions used in pricing an asset or liability (for example, an estimate of future cash flows used in the Company’s internally developed present value of future cash flows model that underlies the fair-value measurement).

In determining fair value, the Company utilizes observable market data when available, or models that incorporate observable market data. In addition to market information, the Company incorporates transaction-specific details that, in management’s judgment, market participants would take into account in measuring fair value.

In arriving at fair-value estimates, the Company utilizes the most observable inputs available for the valuation technique employed. If a fair-value measurement reflects inputs at multiple levels within the hierarchy, the fair-value measurement is characterized based upon the lowest level of input that is significant to the fair-value measurement.

The carrying amount of cash and cash equivalents, accounts receivable, short term investments, available for sale equity securities and accounts payable and accrued liabilities reported on the balance sheet approximates fair value.

Nonfinancial assets and liabilities initially measured at fair value include certain assets and liabilities acquired in a business combination, impaired long-lived assets (asset groups), intangible assets and goodwill, and initial recognition of asset retirement obligations and exit or disposal costs.

(ii) Interest rate risk

The 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 risk

The 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 risk

The Company has no significant concentrations of credit risk.

FS-16

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(v) Foreign currency exchange rate

Foreign currency risk is the risk that we will incur economic losses due to adverse fluctuations in foreign currency exchange rates. This risk arises to the extent that monetary assets and liabilities held or expenditures incurred by the Company and its subsidiaries are not denominated in their respective currencies.

j) Loss per share

Loss per share calculations are based on the weighted average number of shares (including Exchangeable 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 obligations

An asset retirement obligation associated with the retirement of a tangible long-lived asset is recognized as a liability in the period incurred, with an associated increase in the carrying amount of the related long-lived asset. The cost of the tangible asset, including the asset retirement cost, is depreciated over the useful life of the asset. The asset retirement obligation is recorded at its estimated fair value, measured by reference to the expected future cash outflows required to satisfy the retirement obligation discounted at the Company’s credit-adjusted risk-free interest rate. Accretion expense is recognized over time as the discounted liability is accreted to its expected settlement value. If the estimated future cost of the asset retirement obligation changes, an adjustment is recorded to both the asset retirement obligation and the long-lived asset. Revisions to estimated asset retirement obligations can result from changes in retirement cost estimates and changes in the estimated timing of abandonment.The initial measurement of an asset retirement obligation is recorded as a liability at its fair value, with an offsetting asset retirement cost recorded as an increase to property and equipment or exploration expense. The capitalized asset retirement cost 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 records the fair value of a liability for an asset retirement obligation when there is a legal obligation associated with the retirement of a tangible long-lived asset and the liability can be reasonably estimated. The legal obligation to perform the asset retirement activity is unconditional even though uncertainty may exist about the timing and/or method of settlement that may be beyond the Company’s control. This uncertainty about the timing and/or method of settlement is factored into the measurement of the liability when sufficient information exists to reasonably estimate the fair value. The amount of asset retirement obligation recorded reflects the expected costs, taking into account the probability of particular scenarios. The difference between the upper end of the range of these assumptions and the lower end of the range can be significant, and consequently changes in these assumptions could have a material effect on the fair value of asset retirement obligations and future losses in a period of change.

l) Environmental contingencies

The Company accrues for losses associated with environmental remediation obligations when such losses are probable and can be reasonably estimated. Accruals for estimated losses from environmental remediation obligations are recognized no later than the time of the completion of the remediation feasibility study. These accruals are adjusted as additional information becomes available or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. At April 30, 2010 and 2009 there were no environmental obligations to be accrued.

m) Immaterial corrections

Subsequent to the issuance of the consolidated financial statements for the year ended April 30, 2009, the Company determined that two immaterial errors occurred in its previously issued consolidated financial statements for the year ended April 30, 2009.

The first immaterial error related to an overstated accrual on a short-term discretionary incentive plan for employees of the Company for the year ended April 30, 2009. The Company concluded that the adjustment was not material to the financial statements for the year ended April 30, 2009 and has reflected the adjustment as an immaterial correction of prior period comparative financial information in these financial statements.

FS-17

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

The Company determined that the cumulative impact of the immaterial error, was a decrease to corporate general and administrative expense, net loss and comprehensive loss of $1.5 million (net of deferred income tax benefit of nil) for the three months and the year ended April 30, 2009 and for the period from inception on April 8, 1998 to April 30, 2009 and recorded corresponding decreases to accrued liabilities and deficit accumulated during the development stage at April 30, 2009. Basic and diluted net loss attributable to common stockholders decreased by $0.01 per share for the three months and the year ended April 30, 2009.  

The second immaterial correction related to an error in the accounting for stock-based compensation for the years ended April 30, 2007, 2008 and 2009. The Company incorrectly calculated stock-based compensation expense by reversing the expense associated with the portion of forfeited stock option awards that had already vested, resulting in an understatement of stock-based compensation expense for the respective periods. The Company also corrected the grant date fair value (a decrease) of one option award which partially offset the understatement of stock-based compensation expense associated with the forfeited options. 

-
The Company determined that the net impact of the immaterial error for the year ended April 30, 2007 was a decrease to stock-based compensation expense, net loss and comprehensive loss of $0.1 million with a corresponding decrease to additional paid-in-capital and deficit accumulated during the development stage at April 30, 2007. The basic and diluted net loss attributable to common stockholders remained unchanged for the year ended April 30, 2007.

-
The Company determined that the net impact of the immaterial error for the year ended April 30, 2008 was an increase to stock-based compensation expense, net loss and comprehensive loss of $1.6 million with a decrease to the basic and diluted net loss attributable to common stockholders of $0.01 per share for the year ended April 30, 2008. The cumulative impact of the immaterial error as of April 30, 2008 was an increase of $1.6 million to additional paid-in-capital and deficit accumulated during the development stage at April 30, 2008.

- The Company determined that the net impact of the immaterial error for the year ended April 30, 2009 was an increase to stock-based compensation expense, net loss and comprehensive loss of $0.2 million which did not result in any change to the basic and diluted net loss attributable to common stockholders for the year ended April 30, 2009.  The cumulative impact of the immaterial error as of April 30, 2009 was an increase of $1.8 million to additional paid-in-capital and deficit accumulated during the development stage at April 30, 2009.  

The Company concluded that these adjustments were not material to the financial statements for the years ended April 30, 2007, 2008 and 2009.

n) Recent accounting pronouncements

The following new accounting standards were adopted by the Company during the year ended April 30, 2010.

Effective May 1, 2009, the Company adopted the authoritative guidance issued by the FASB on consolidation as it relates to non-controlling interests. The guidance establishes accounting and reporting standards for the non-controlling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance clarifies that a non-controlling interest in a subsidiary is an ownership interest in a consolidated entity that should be reported as equity in the consolidated financial statements. This statement also changes the way the consolidated statements of income (loss) and comprehensive income (loss) are presented by requiring consolidated net income (loss) and comprehensive income (loss) to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. In addition, the guidance establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation. The guidance required retrospective adoption of the presentation and disclosure requirements for non-controlling interests for the period from inception on April 3, 1998 through April 30, 2009. All other requirements of the guidance have been applied prospectively. Upon the reorganization on August 14, 2006, the Company acquired the remaining non-controlling interest in OQI Sask, accordingly, no adjustment was required to reclassify the non-controlling interest to be reported within equity in the consolidated balance sheets.

FS-18

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

The Company adopted a new fair-value-measurement standard as of May 1, 2008. The standard defines fair value, establishes a framework for measuring fair value under existing accounting pronouncements that require fair-value measurements and expands fair-value-measurement disclosures.  The Company elected to implement the standard with the one-year deferral permitted for nonfinancial assets and nonfinancial liabilities, except those nonfinancial items recognized or disclosed at fair value on a recurring basis (at least annually). The deferral period ended on January 1, 2009. Accordingly, the Company applies the fair-value framework to nonfinancial assets and nonfinancial liabilities initially measured at fair value, such as assets and liabilities acquired in a business combination, impaired long-lived assets (asset groups), intangible assets and goodwill, and initial recognition of asset retirement obligations and exit or disposal costs.

Effective May 1, 2009, the Company adopted the authoritative guidance issued by FASB on the disclosures about derivative instruments and hedging activities. This guidance amends and expands the disclosure requirements for derivative instruments and hedging activities. The new guidance requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.

The guidance encourages, but does not require, comparative disclosure for earlier periods at initial adoption. The adoption of the guidance did not have any impact on the Company’s consolidated financial statements.

Effective May 1, 2009, the Company adopted the authoritative guidance issued by FASB on subsequent events. The guidance establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The statement sets forth:

1. The period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements.

2. The circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements.

3.   The disclosures that an entity should make about events or transactions that occurred after the balance sheet date.

The adoption of the guidance did not have a significant impact on the Company’s consolidated financial statements.

Effective May 1, 2009, the Company adopted the authoritative guidance issued by FASB on business combinations. The guidance retains the fundamental requirements that the acquisition method of accounting be used for all business combinations and that an acquirer be identified for each business combination. This guidance also establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling (minority) interests in an acquiree and any goodwill acquired in a business combination or gain recognized from a bargain purchase. Effective May 1, 2009, the Company also adopted the authoritative guidance on the accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies which establishes a model to account for certain pre-acquisition contingencies. Under this guidance, an acquirer is required to recognize at fair value an asset acquired or a liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period. If it cannot be determined, the recognition criteria prescribed by the guidance on accounting for contingencies should be followed. The adoption of this guidance did not have any impact on the Company’s consolidated financial statements.

In August 2009, the FASB issued an update to the Fair Value Topic of the Codification. The FASB issued the update because some entities have expressed concern that there may be a lack of observable market information to measure the fair value of a liability. The guidance is effective for the first reporting period beginning after August 28, 2009, with earlier application permitted. The guidance provides clarification on measuring liabilities at fair value when a quoted price in an active market is not available. In such circumstances, the topic specifies that a valuation technique should be applied that uses either the quote of the liability when traded as an asset, the quoted prices for similar liabilities or similar liabilities when traded as assets, or another valuation technique consistent with existing fair value measurement guidance.

Examples of the alternative valuation methods include using a present value technique or a market approach, which is based on the amount at the measurement date that the reporting entity would pay to transfer the identical liability or would receive to enter into the identical liability. The guidance also states that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustments to other inputs relating to the existence of a restriction that prevents the transfer of the liability.  We adopted the guidance effective October 31, 2009, and the adoption did not have a significant impact on our consolidated financial statements.

FS-19

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

The following new accounting standards have issued, but have not yet been adopted by the Company as of April 30, 2010.

In January 2010, the FASB issued an update to the Fair Value Topic, which enhances the usefulness of fair value measurements. The amended guidance requires both the disaggregation of information in certain existing disclosures, as well as the inclusion of more robust disclosures about valuation techniques and inputs to recurring and nonrecurring fair value measurements.

The topic amends the disclosures about fair value measurements in the Fair Value Topic as follows:

- Entities must disclose the amounts of, and reasons for, significant transfers between Level 1 and Level 2, as well as those into and out of Level 3, of the fair value hierarchy. Transfers into a level must be disclosed separately from transfers out of the level. Entities are required to judge the significance of transfers based on earnings and total assets or liabilities or, when changes in fair value are recognized in other comprehensive income, on total equity;

- Entities must also disclose and consistently follow their policy for when to recognize transfers into and out of the levels, which might be, for example, on the date of the event resulting in the transfer or at the beginning or end of the reporting period;

- Entities must separately present gross information about purchases, sales, issuances, and settlements in the reconciliation disclosure of Level 3 measurements, which are measurements requiring the use of significant unobservable inputs;

- For Level 2 and Level 3 measurements, an entity must disclose information about inputs and valuation techniques used in both recurring and nonrecurring fair value measurements. If a valuation technique changes, for example, from a market approach to an income approach, an entity must disclose the change and the reason for it. The amendments include implementation guidance on disclosures of valuation techniques and inputs; and

- Fair value measurement disclosures must be presented by class of assets and liabilities. Identifying appropriate classes requires judgment, and will often require the disaggregation of assets or liabilities included within a line item on the financial statements. An entity must determine the appropriate classes requiring disclosure based on the nature and risks of the assets and liabilities, their classification in the fair value hierarchy, and the level of disaggregated information required by other U.S. GAAP for specific assets and liabilities, such as derivatives.

The amended guidance does not include the sensitivity disclosures, as had been proposed.

The amended guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disaggregation requirement for the reconciliation disclosure of Level 3 measurements, which is effective for fiscal years beginning after December 15, 2010 and for interim periods within those years.

3.      ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

On January 15, 2010 the Company reached an agreement through due process to sell its Pasquia Hills oil shale properties to Canshale Corp., a private company formed by the former President and Chief Executive Officer of the Company (the “Purchaser”) for consideration of CDN $1 million (US $ 0.9 million) in cash and 8,000,000 shares of the private company.  The sale is conditional on the Purchaser raising a minimum financing amount as defined in the terms of the agreement by June 30, 2010.  The transaction will have an effective date of November 1, 2009 when the condition is met and the Purchaser will be responsible for all costs incurred related to the properties from the effective date to the date of close.  As part of this transaction, the Company has agreed to loan to the Purchaser $250,000 and funds to cover certain advisory costs, which will be repaid when the financing is obtained or if the financing is not obtained, all amounts will be forgiven.On July 6, 2010, for an extension incentive of an additional 2,000,000 common shares of Canshale Corp., the Company agreed to an extension of the transaction to July 30, 2010.

The Company has estimated the fair value of the oil shale assets based on the purchase and sale agreement and has included the lower of their carrying amounts and fair value less cost to sell of these assets within assets held for sale for the current period.

Included in assets held for sale at April 30, 2010 are deposits of $0.4 million related to the oil shale permits, the cost of the Pasquia Hills assets of $4.7 million (net of an impairment of the properties of $6.4 million). The liabilities related to assets held for sale consist of the deferred taxes of $1.1 million on the assets held for sale.

The Company has accounted for the oil shale properties as discontinued operations and has reclassified prior period financial statements to exclude these properties from continuing operations. A summary of financial information related to the Company’s discontinued operations for each of the periods presented is as follows:

FS-20

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

	For the Years Ended April 30,						From Inception on April 3, 1998 through to
	2010		2009		2008			April 30, 2010
	(in thousands)		(in thousands)		(in thousands)			(in thousands)
Exploration costs	$	1,487	$	1,144	$	58		$	2,704
Impairment on unproved properties		6,403		-		-			6,403
Loss before income taxes		7,890		1,144		58			9,107
Provision for income taxes		(2,130)		(309)		(16)			(2,459)
Net loss from discontinued operations	$	5,760	$	835	$	42		$	6,648

4. ACQUISITIONS

As detailed below, OQI acquired certain businesses for cash, shares and liabilities assumed.  These acquisitions were accounted for as asset acquisitions and accordingly, results of operations have been included in the financial statements from their respective dates of acquisition.

a) Reorganization of Oilsands Quest Sask Inc. and Acquisition of Non-controlling Interest

On August 14, 2006, pursuant to the terms of a reorganization agreement, OQI acquired the non-controlling interest (35.92%) in OQI Sask, going from a 64.08% ownership interest to a 100% voting interest (note 10(b)) (the “Reorganization”).

In connection with the Reorganization, OQI also entered into a Voting and Exchange Trust Agreement with OQI Sask and Computershare Trust Company of Canada (“CTC”), and a Support Agreement with OQI Sask.  Collectively, these agreements are referred to as the “Acquisition Agreements”. According to the Acquisition Agreements, all common shares of OQI Sask, other than those held by OQI, were exchanged for a new class of OQI Sask shares called Exchangeable Shares on the basis of 8.23 Exchangeable Shares for each one OQI Sask common share.  The 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, equivalent to those of a share 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 10(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 OQI Sask Exchangeable Shares with a fair value of $1,204,383 and paid $353,450 as success fees to its financial advisors.  These amounts have been included in General and Administration expense.

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 $223,579,501, calculated at 57,349,391 Exchangeable Shares to be issued for OQI Sask Common Shares multiplied by $3.73 per share and 2,859,514 OQI Sask Warrants at a fair value of $9,666,273. The total purchase price of $223,579,501 has been allocated as follows:

FS-21

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

Consideration comprised of:	(in thousands)
Fair value of Exchangeable Shares issued for OQI Sask Common Shares	$	213,913
Fair value of  OQI Sask Warrants		9,666
	$	223,579
Purchase price allocation:
Property	$	322,271
Deferred income taxes		(98,692)
Net assets acquired	$	223,579

This purchase price allocation was based on the fair value of the underlying assets and recognizes that all other assets and liabilities of OQI Sask were carried at fair value.

As a part of the Reorganization, OQI may issue up to an aggregate of 76,504,304 shares of OQI common stock of which 43,429,373 have been issued, 21,409,935 may be issued on the exchange of Exchangeable Shares and the balance to be issued on the exercise of OQI Sask options into Exchangeable Shares and their subsequent exchange.  Options representing 768,131 OQI Sask Exchangeable Shares expired in the year ended April 30, 2009. This reduces the number of shares that may be issued. The fair value of the outstanding OQI Sask stock options were excluded in the purchase price of the acquisition.  Any future proceeds received from the exercise of OQI Sask options or warrants will be credited to Additional Paid-in Capital (note 9).

b) Acquisition of Stripper Energy Services Inc.

On August 15, 2006, the Company acquired all of the issued and outstanding shares of Stripper for cash consideration of $17,948,722. Stripper is a private inactiveAlberta company, whose sole asset is a 2.5% GORR on certain Saskatchewan permit lands held by OQI Sask.  The total purchase price of $17,948,722 has been allocated as follows:

Consideration comprised of:	(in thousands)
Cash Paid	$	17,949
Purchase Price allocation
Property	$	25,407
Deferred income taxes		(7,458	)
Net assets acquired	$	17,949

5. PROPERTY AND EQUIPMENT

	April 30, 2010		April 30, 2009
	(in thousands)		(in thousands)
Saskatchewan Oil Sands Rights
Permits	$	403,152	$	341,921
Licenses		2,301		1,950
Alberta Oil Sands Rights
Permits		35,478		30,045
Leases		7,849		6,622
Saskatchewan Oil Shale Rights (Permits) (note 3)		-		9,440
Equipment		14,894		11,636
		463,674		401,614
Less: Accumulated Depreciation		(5,506)		(2,639)
Net Book Value	$	458,168	$	398,975

FS-22

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

a) Saskatchewan Oil Sands Permits

As at April 30, 2007, the Saskatchewan permits comprised an area of approximately 846,680 acres. On July 9, 2007, in accordance with the terms of the Saskatchewan permits, the Company completed the second and final relinquishment of its Saskatchewan permit lands. Following all relinquishments the Saskatchewan permit lands comprised an area totaling 508,080 acres. The permits were granted by the Province of Saskatchewan in 2004 under The Oil Shale Regulations, 1964 as amended, revised or substituted from time to time. The permits provide for the right to explore and work the permit lands but not to remove, produce or recover, except for test purposes, oil products until a lease, pursuant to these regulations has been granted. The initial five-year term of the permits expired on May 31, 2009 and the Company applied for and received on June 21, 2010, the second of three one-year extensions of the permits as allowed under the regulation to May 31, 2011.  The Company is currently working with the regulators to assess an issue relating to the re-abandonment of early exploration coreholes.  As indicated by the Ministry of Energy and Resources it is possible that the outcome of such  assessment could result in cancellation of the Axe Lake permits if the Company does not comply with the governing regulations (See note 6).

The permits were subject to a 2.5% gross overriding royalty (the “2.5% GORR”), a $0.07 CDN per barrel royalty which may be bought at any time by paying $7,000,000 CDN and a $0.04 CDN per barrel royalty. During the year ended April 30, 2007, the Company purchased the 2.5% GORR for $25,406,544 through the acquisition of Stripper (note 4(b)). On September 21, 2007, in conjunction with the acquisition of the interests of an external joint venture partner to the Triple 7 Joint Venture (note 5(d)), the Company acquired the $0.07 per barrel royalty obligation for consideration of $99,980 ($100,000 CDN) cash plus the issuance of 500,000 shares of its common stock valued at $2,195,000 based on the September 20, 2007 closing market price of the shares.  The Saskatchewan permits are now only subject to a $0.04 per barrel royalty.

The permits, when granted, were subject to annual rental payments and certain levels of expenditures annually pursuant to the terms of the permits and government regulations. The annual rentals were payable in advance as to $0.02 ($0.02 CDN) per acre for the first year and escalating to $0.10 ($0.10 CDN) per acre in the fifth year. On May 7, 2007, the province updated the Oil Shale Regulations, 1964 requiring an increase to annual rentals of $0.10 ($0.10 CDN) per acre for the remaining term of the permits.  The required exploration expenditures to hold the permits were also increased to $0.80 ($0.81 CDN) per acre for each of the remaining years of the permits and $1.20 ($1.21 CDN) per acre for each year that the permits are extended.

b) Saskatchewan Oil Sands Licenses

On August 13, 2007, the Company acquired five oil sands licenses totaling 109,920 acres granted under The Petroleum and Natural Gas Regulations, 1969, as amended revised or substituted from time to time, for a term of five years which expires on April 12, 2012 for an aggregate cost of $2,140,233 ($2,249,089 CDN).   The licenses provide for the exclusive right to search for oil sands on the lands granted and to win, recover, extract, carry off, dispose of and sell the oils sands products found on the license lands.  The oil sands licenses provide the opportunity to convert up to 100% of the licenses to a production lease following the completion of specified work requirements. Licenses require annual rental payments of $0.70 ($0.71 CDN) per acre.

c) Alberta Oil Sands Permits

As at April 30, 2007, the Alberta oil sands permits comprised an area totaling 67,053 acres (“Raven Ridge Prospect”).  The permits were granted by the Province of Alberta under the terms of the Mines and Minerals Act, Alberta. The permits provide the opportunity to convert up to 100% of the permits to a production lease following the completion of specified work requirements.  Permits are granted for a five year primary term which expires on March 22, 2012 – 55,667 acres and August 10, 2011 – 11,386 acres, and require annual rental payments of $1.40 ($1.42 CDN) per acre.

On January 23, 2008, the Company acquired two oil sands permits totaling 45,546 acres (“Wallace Creek Prospect”) in a public offering of Crown Oil Sands Rights. The total consideration paid for these permits was $9,732,500 ($10,010,880 CDN). The permits were granted by the Province of Alberta under the terms of the Mines and Minerals Act, Alberta. The permits provide the opportunity to convert up to 100% of the permits to a production lease following the completion of specified work requirements.  Permits are granted for a five year primary term which expires January 24, 2013 and require annual rental payments of $1.40 ($1.42 CDN) per acre. Following the acquisition, the Alberta permit lands comprised an area totaling 112,598 acres.

FS-23

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

d) Alberta Oil Sands Lease

On June 1, 2005, a subsidiary, Township Petroleum Corporation (“township”), entered into an agreement with three third parties (collectively the Triple 7 Joint Venture) to post, acquire, develop and produce oil sands deposits located in the Athabasca Region of Alberta, Canada (the “Triple 7 Joint Venture Agreement”). As a result of this agreement, Township acquired one lease consisting of approximately 22,773 acres (the “Eagles Nest Prospect”).

Township agreed to pay the Triple 7 Joint Venture partners, as ongoing fees, $125,628 ($150,000 CDN) in cash or common shares of OQI (at the discretion of the Company) on the first and second anniversary dates of the agreements. On the third anniversary date and each subsequent anniversary date of the agreement, Township agreed to pay the Triple 7 Joint Venture $376,884 ($450,000 CDN) until such time as the lease was surrendered or a commercial project was identified. Also, if Township received a feasibility study, conducted by an independent third party that indicated that a commercial project was economic and wished to construct a commercial project, Township was required to notify the Triple 7 Joint Venture. Upon commencement of construction of such a commercial project Township was to pay the Triple 7 Joint Venture the sum of $5,025,126 ($6,000,000 CDN).

In addition of such payments Township had granted each of the Triple 7 Joint Venture partners a royalty in the acquired leases of $0.03 ($0.03 CDN) on each barrel of crude bitumen produced, saved and sold or $125,628 ($150,000 CDN) per Joint Venture Partner, per year, whichever was greater. Such royalty was governed by the royalty procedure, which stipulated, among other things, that the royalty would be secured by a lien, first charge or security interest on the royalty lands, and that the royalty was assignable or transferable subject to a right of first offer to Township.

On September 21, 2007, the Company acquired rights of one of the three external joint venture partners for consideration of $49,939 ($50,000 CDN) plus the issuance of 250,000 shares of the Company’s common stock valued at $1,097,500 based on the September 20, 2007 closing market price of the shares. On June 17, 2008, the Company acquired the rights of the remaining external joint venture partners for aggregate consideration of $1,600,626 ($1,632,000 CDN) and 640,000 shares of the Company’s common stock valued at $3,718,400 based on the June 17, 2008 closing market price. The Company’s obligations under the Triple 7 Joint Venture Agreement have therefore been eliminated.

As part of the acquisition of the lease, Township granted royalties as to $0.0057 ($0.0058 CDN) (net after a buy back) on each barrel of crude bitumen produced, saved and sold from the Eagles Nest Prospect.

The annual lease rental payable to the Province of Alberta for the Eagles Nest Prospect is $31,886 ($32,256 CDN) per year.

e) Saskatchewan Oil Shale Permits (note 3)

As at April 30, 2010 and 2009, the Company held seven oil shale exploration permits near Hudson bay, Saskatchewan covering 405,961 acres granted under The Oil Shale Regulations, 1964 (Saskatchewan) as amended, revised or substituted from time to time for a term of five years which expire in September and October 2011. The Permits provide for the right to explore and work the permit lands but not to remove, produce or recover, except for test purposes, oil products until a lease, pursuant to these regulations has been granted. The term of the permits may be extended for up to three on-year extensions subject to regulatory approvals, as required.

Annual rentals are payable in advance as to $0.10 ($0.10 CDN) per acre during the term of the permit. Required exploration expenditures to hold the permits are $0.80 ($0.81 CDN) per acre for the remaining years of the permits and $1.20 ($1.21 CDN) per acre for each year that the permit is extended, as required.

As at April 30, 2010 and 2009, the Company held one oil shale exploration permit granted under The Petroleum and Natural Gas Regulations, 1969 (Saskatchewan) as amended, revised or substituted from time to time for a term of five years totaling 83,769 acres in the same area near Hudson Bay, Saskatchewan. The permit provides for the right, license, privilege and authority to explore for oil shale within the permit lands and expires on August 12, 2012.

FS-24

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

The term of the permits may be extended for up to three one-year extensions subject to regulatory approvals, if required. This oil shale permit was acquired under a land sale work commitment bid for the first two years of the permit. The Company bid a total work commitment of $298,110 ($301,568 CDN) to be incurred during the first two years of the permit and the permit requires a further work commitment of $0.80 ($0.81 CDN) per acre for the last three years and $1.20 ($1.21 CDN) for each extension year plus annual rental payments of $0.10 ($0.10 CDN) per acre. Through the exploration program conducted during the year ended April 30, 2009, the Company has fulfilled its work commitment for the term of the permit.

6. ASSET RETIREMENT OBLIGATION

The Company’s obligations with respect to asset retirement relate to reclamation of an airstrip, camp site, access roads and reservoir test holes. The obligation is recognized when incurred at the present value of the estimated future reclamation cost using a credit-adjusted risk-free rate of 7 to 13 percent and an inflation rate of 2.5 percent. During the year ended April 30, 2010, the Company conducted a review of their development plans and well licenses and determined that a number of wells were not abandoned to accommodate our thermal development plans. We are also evaluating the wells that are located outside the potential commercial development area and have included a portion of these costs in the re-abandonment liability based on a 50% probability of performing the obligation over a 15 year period.  The Company has submitted a re-abandonment program to the Saskatchewan Ministry of Energy and Resources that included cost estimates and a timeline to complete the work. At April 30, 2010 the total undiscounted inflation-adjusted future obligation is approximately $35.0 million. The uncertainty related to the timing and/or method of settlement that may be beyond the Company’s control is factored into the measurement of the liability.

At April 30, 2010, the total undiscounted inflation-adjusted future obligation was approximately $35.4 million.

	April 30, 2010			April 30, 2009
	(in thousands)			(in thousands)
Obligation at beginning of year	$	2,621		$	-
Liabilities incurred		14,321			3,873
Liabilities settled		(160	)		-
Accretion expense		210			150
Revisions		-			(998	)
Foreign currency translation adjustment		493			(404	)
Obligation at end of year	$	17,485		$	2,621

Obligations related to property and equipment in the amount of $1.4 million has been capitalized and obligations related to exploration expense in the amount of $15.7 million have been expensed since inception.

7. DEFERRED INCOME TAX

a) Deferred tax liability

The following summarizes the temporary differences that give rise to the deferred income tax liability from continuing operations at April 30, 2010 and 2009:

	April 30, 2010		April 30, 2009
	(in thousands)		(in thousands)
Book value of property and equipment in excess of tax values	$	(62,516)	$	(65,651)
Non-capital loss carry-forward benefit		15,640		11,696
Valuation allowance		(15,640)		(11,696)
	$	(62,516)	$	(65,651)

FS-25

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

b) Deferred income tax benefit differs from that which would be expected from applying the combined effective Canadian federal and provincial income tax rates of 27% (2009 - 27%, 2008 - 27%) to loss from continuing operations before income taxes.  The difference results from the following:

	April 30, 2010		April 30, 2009			April 30, 2008
					��
Expected current income tax benefit	$	(18,509)	$	(28,659)		$	(34,225)
Stock-based compensation		1,508		4,720			5,629
Flow-through expenditures		3,524		4,743			6,190
Change in valuation allowance		3,854		3,162			621
Impact of change in Canadian tax rate				-			(12,881)
Other		(207)		(1,813)			613
	$	(9,830)	$	(17,847)		$	(34,053)

At April 30, 2010, the Company had US federal and state and Canadian federal and provincial net operating loss carry-forwards of $62.7 million and $67.9 million respectively, which can be used to offset future tax liabilities and expire at various dates beginning in fiscal 2012. Utilization of these net operating loss carry-forwards may be limited pursuant to provisions of the respective local jurisdiction.

8. NON-CONTROLLING INTEREST IN OQI SASK

The non-controlling interest (representing 35.92% of total OQI Sask common shares outstanding) related to OQI Sask, as calculated to the date of acquisition by OQI.

	Common Shares			Amount (in thousands)
Balance, April 30, 2006		6,962,459		$	4,736
Shares issued to non-controlling interests		5,875			10
Shares of net loss of OQI Sask to date of acquisition		-			(4,722)
Non-controlling interest in shares issued to OQI		-			16,728
Share of net loss of OQI Sask to date of acquisition		6,968,334			16,752
Transferred to the OQI Sask property account on acquisition of the non-controlling interest (see note 4(a) and 5)		(6,968,334	)		(16,752)
Balance, April 30, 2007, 2008, 2009 and 2010		-		$	-

9. OQI SASK OPTIONS AND WARRANTS

Upon OQI acquiring the non-controlling interest in OQI Sask on August 14, 2006, certain options and warrants issued by OQI Sask remained outstanding.  On exercise, each OQI Sask option and warrant is exchanged into 8.23 OQI Sask Exchangeable Shares which are exchangeable into shares of OQI common stock.

FS-26

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

The following tables summarize information about OQI Sask stock options outstanding for each of the three years ended April 30, 2010:

	Number	Weighted Average Exercise Price (CDN)
Outstanding, April 30, 2006	700,000	$	4.00
Granted	1,280,000	$	21.40
Exercised and exchanged into shares of OQI common stock (note 11)	(205,000)	$	3.32
Outstanding, April 30, 2007	1,775,000	$	16.55
Exercised and exchanged into shares of OQI common stock (note 11)	(135,000)	$	11.63
Outstanding, April 30, 2008	1,640,000	$	16.96
Exercised and exchanged into shares of OQI common stock (note 11)	(125,000)	$	12.50
Expired	(93,333)	$	25.00
Outstanding, April 30, 2009	1,421,667	$	16.82
Exercised and exchanged into shares of OQI common stock (note 11)	(102,500)	$	1.18
Outstanding, April 30, 2010	1,319,167	$	18.04

Exercise Price (CDN)		Number Outstanding at April 30, 2010		Number Exercisable at April 30, 2010	Weighted Average Remaining Contractual Life		Weighted Average Grant-Date Fair Value (CDN)	Aggregate Intinsic Value at April 30, 2010 (CDN)
$	3.00		72,500	72,500		0.29	2.45	318,183
$	6.00		465,000	465,000		0.76	5.02	645,758
$	25.00		731,667	731,667		1.00	26.06	-
$	50.00		50,000	50,000		1.25	34.60	-
			1,319,167	1,319,167		0.89		963,941

The 1,319,167 OQI Sask options outstanding at April 30, 2010 represent 10,856,744 OQI Sask Exchangeable Shares that would be issued on exercise of the OQI Sask options as a result of the completion of the acquisition of the non-controlling interest in OQI Sask.

The following tables summarize information about OQI Sask warrants outstanding for each of the three years ended at April 30, 2010:

	Number			Weighted Average Exercise Price (CDN)
Outstanding, April 30, 2007		16,000		$	2.00
Exercised		(16,000	)	$	2.00
Outstanding, April 30, 2008, 2009 and 2010		-

FS-27

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

10. PREFERRED SHARES

a) Series A Preferred Shares

As at March 9, 2006, OQI adopted a shareholders right plan and reserved 250,000 of its preferred shares for issuance pursuant to the exercise of the rights.  The rights are designed to have certain anti-takeover effects and as such they will cause substantial dilution to a person or group that attempts to acquire OQI in a manner or on terms not approved by the Board of Directors of OQI.  The rights, however, should not deter any prospective offer or willingness to negotiate in good faith with the Board of Directors, nor should the rights interfere with any merger or other business combination approved by the Board of Directors.  To effect the shareholders rights plan OQI declared a distribution of one right to each outstanding share of common stock, payable to shareholders of record on March 23, 2006.  After the record date, one right is issued with each share of common stock issued until the earlier of the distribution date (as defined in the plan), the redemption of the right by the Company or termination of the right.  This right will be attached to the underlying common share and remain with the common share should the common share be sold or transferred.

b) Series B Preferred Stock

As noted in note 4(a) in connection with the Reorganization, 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, OQI Sask common shares not held by OQI were exchanged for a new class of OQI Sask shares called Exchangeable Shares on the basis of 8.23 Exchangeable Shares for each OQI Sask common share. The Exchangeable Shares are exchangeable at any time on a one-for-one basis, at the option of the holder, for shares of OQI common stock.  An Exchangeable Share provides the holder with economic terms and voting rights which are, as nearly as practicable, effectively equivalent to those of a share of OQI common stock.  Holders of Exchangeable Shares have registration rights with respect to the resale of OQI common stock to be received upon exchanging the Exchangeable Shares into OQI shares. The holders of the Exchangeable Shares may receive up to an aggregate of 76,504,304 shares of OQI common stock (on a diluted basis) at each holder’s election. The Exchangeable Shares are represented for voting purposes in the aggregate by one share of OQI Series B Preferred Stock (the “Preferred Share”), which Preferred Share is held by CTC. In turn, CTC will vote the one Series B Preferred Share as indicated by the individual holders of Exchangeable Shares.

The one Preferred Share represents a number of votes equal to the total outstanding Exchangeable Shares on the applicable record date for the vote submitted to OQI shareholders.

FS-28

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

Exchangeable shares issuable as a result of the Acquisition Agreements (note 4(a)):

	OQI Sask Exchangeable Shares		OQI Sask Exchangeable Shares issuable on exercise of OQI Sask options and warrants			Total Exchangeable Shares
Acquisition date, August 14, 2006		57,349,388		19,154,916			76,504,304
OQI 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
OQI Sask options and warrants exercised		1,242,730		(1,242,730	)		-
Exchangeable shares exchanged into OQI common shares		(6,817,249)		-			(6,817,249)
Balance, April 30, 2008		27,952,840		13,497,200			41,450,040
OQI Sask options  exercised		1,028,750		(1,028,750)			-
OQI Sask options expired		-		(768,131)			(768,131)
Exchangeable shares exchanged into OQI common shares		(3,237,674)		-			(3,237,674)
Balance, April 30, 2009		25,743,916		11,700,319			37,444,235
OQI Sask options exercised		843,575		(843,575)			-
Exchangeable Shares exchanged into OQI common shares		(5,177,556)		-			(5,177,556)
Balance, April 30, 2010		21,409,935		10,856,744			32,266,679

11. COMMON STOCK

a) Authorized shares of common stock

The Company’s Articles of Incorporation, as amended, authorize the issuance of up to 750,000,000 shares of common stock.

b) Share-based compensation

On July 3, 2007 the Board of Directors granted 44,000 bonus shares of common stock to employees under the Company’s 2006 Stock Option Plan (SOP 2006).  These bonus shares were valued at the closing share price on the date of grant.

c) Settlement with Subsidiary Creditors

During the year ended April 30, 2004, in an attempt to settle outstanding liabilities of a subsidiary, OQI made an offer to creditors to settle outstanding debts for shares of OQI common stock with a fair value of $0.10 per share for every $0.15 CDN of debt held.  The offer was based on the market trading price for the Company’s shares of common stock at the time of the original proposal to creditors.  In May 2003 when the proposal was made the price fluctuated in the range of $0.09 to $0.12 per share.  OQI received acceptances from creditors that represented 2,203,227 OQI common shares.  OQI has issued 814,660 shares of common stock pursuant to these agreements since May 2003 and has reserved 1,388,567 shares of common stock for further issuances.  No shares of common stock were issued during the years ended April 30, 2010 and 2009 pursuant to these agreements.  The subsidiary was sold to a third party on October 31, 2005.

FS-29

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

d) Private Placements and Public Offerings of Shares of Common Stock

On July 6, 2006, OQI completed a private placement of 5,668,100 shares of common stock issued on a flow-through basis for gross proceeds of $33,684,009 ($37,409,460 CDN).  Because these shares were issued on a flow-through basis, the proceeds must be used for exploration in Canada and the tax benefits from that exploration will flow through to the subscribers. In conjunction with this financing OQI paid investment banking fees of$1,852,659and entered into a subscription agreement with OQI Sask whereby it purchased 703,054 OQI Sask flow-through shares of common stock for $33,684,048.  Under the terms of the flow-through shares, the Company renounced the tax benefits of the related expenditures to the subscribers effective December 31, 2006.

In August 2006 OQI completed a private placement of 4,150,000 shares of common stock for gross proceeds of $15,770,000.  No commissions were paid in connection with the Offering.  According to the terms of the private placement, the gross proceeds were used for the purchase of the shares of Stripper (see note 4(b)).

On March 6, 2007, the Company entered into an underwriting agreement for a private placement with a syndicate of underwriters to issue up to 5,320,000 shares of the Company’s common stock issued on a flow-through basis at a price of $4.82 ($5.64 CDN) per share for aggregate gross proceeds of $25,642,400 ($30,004,800 CDN). In consideration for the services of the underwriters, the Company agreed to pay a fee equal to $0.241($0.282 CDN) (or 5%) for each flow-through share issued by the Company.

On March 6, 2007 and March 9, 2007, under the terms and conditions of an underwriting agreement, the Company issued 3,155,834 shares of common stock on a flow-through basis for gross proceeds of $15,211,120 ($17,798,904 CDN). These shares of common stock were issued on a flow-through basis whereby the proceeds must be used for exploration in Canada and the tax benefits from that exploration will flow through to the subscribers. The Company fulfilled its obligation to file a resale registration statement under the terms of the private placement on May 4, 2007 and as such no reduction in price was required.

On May 3, 2007, the Company issued 13,900,000 shares of common stock at a price of $2.75 per share for gross proceeds of $38,225,000 pursuant to a private placement.  In connection with the private placement, the Company paid an aggregate of $2,197,938 in fees to the agents pursuant to an agency agreement.

On May 3, 2007, the Company issued 2,164,166 shares of common stock on a flow-through basis at a price of $3.44 ($3.85 CDN) per share for gross proceeds of $7,444,731 ($8,332,039 CDN) in a private placement pursuant to an amended underwriting agreement originally entered into on March 6, 2007.  These shares have been issued on a flow-through basis whereby the proceeds must be used for exploration in Canada and the tax benefits from that exploration will flow through to the subscribers. In connection with this private placement, the Company received an additional payment of $3,499,419 ($3,873,857 CDN) from the underwriters pursuant to their obligations under the underwriting agreement, as amended.  The Company paid an aggregate of $551,305 ($610,295 CDN) in fees to the underwriters.

On September 21, 2007, the Company issued 750,000 shares of common stock as part of the consideration provided for the purchase of a royalty which encumbered the Saskatchewan permit lands and the interests of one of the joint venture partners to the Triple 7 Joint Venture Agreement in the Eagles Nest Prospect (notes 5 (a) and (d)).

On December 5, 2007, the Company issued 11,000,000 units at a price of $5.00 per unit for gross proceeds of $55,000,000 pursuant to a marketed public offering. Each unit was comprised of one share of common stock and one-half of a share of common stock purchase warrant with each whole warrant entitling the holder to purchase one share of common stock of the Company for $6.75 per share until December 5, 2009.

On December 5, 2007, as part of the marketed public offering, the Company issued 2,600,000 shares of common stock of a flow-through basis at a price of $6.11 ($6.17 CDN) per share for gross proceeds of $15,886,000 ($16,042,000 CDN).

On December 20, 2007, an over-allotment option granted to the underwriters as part of the agreement under the marketed public offering was exercised. As a result the Company issued an additional 1,650,000 units at a price of $5.00 per unit for gross proceeds of $8,250,000. Each unit is comprised of one share of common stock and one-half of a share of common stock purchase warrant with each whole warrant entitling the holder to purchase one share of common stock of the Company for $6.75 per share until December 5, 2009.

FS-30

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

Under the terms of the flow-through shares issued on March 6, 2007, March 9, 2007, May 3, 2007 and December 5, 2007, the Company renounced the tax benefits of the related expenditures to the subscribers effective December 31, 2007. As at April 30, 2008 all amounts have been expended on exploration in Canada. The flow-through shares were issued at a premium to the then market price in recognition of the tax benefits accruing to subscribers. The premium was originally recorded as a current liability and then it was drawn down as a reduction of deferred tax expense as the exploration expenditures were incurred.

On May 23, 2008, the Company issued 12,976,761 shares of common stock at a price of $4.20 per share for gross proceeds of $54,502,397 pursuant to a private placement.  The Company paid an aggregate of $1,225,120 in fees to a syndicate of agents under the terms of an agency agreement.

On June 17, 2008, the Company issued 640,000 shares of the Company’s common stock as part of the consideration provided for the purchase of the rights of the remaining external partners under the Triple 7 Joint Venture Agreement in the Eagles Nest Prospect (Note 5(d)).

On October 3, 2008, the Company issued 6,008,156 shares of common stock on a flow-through basis at a price of $3.675 CDN ($3.40 US) per share for gross proceeds of $22,079,973 CDN ($20,421,727 US) pursuant to a non-brokered private placement. These proceeds must be used for exploration in Canada and the tax benefits from that exploration will flow through to the subscribers.

On October 3, 2008, the Company issued a further 4,800,000 shares of common stock on a flow-through basis at a price of $3.675 CDN ($3.40 US) per share for gross proceeds of $17,640,000 CDN ($16,315,204 US) pursuant to a private placement. The Company paid an aggregate of $970,200 CDN ($898,369 US) in fees to the agents pursuant to an agency agreement.  These proceeds must be used for exploration in Canada and the tax benefits from that exploration will flow through to the subscribers.

Under the terms of the flow-through shares issued on October 3, 2008, the Company renounced the tax benefits of the related expenditures to the subscribers effective December 31, 2008. As at December 31, 2009, all required expenditures under these flow-through shares had been incurred by the Company and there is no further spending obligation.

On May 12, 2009, the Company issued 35,075,000 units at a price of $0.85 per unit for gross proceeds of $29,813,750 pursuant to a marketed public offering. Each unit was comprised of one share of common stock and one-half of a share of common stock purchase warrant with each whole warrant entitling the holder to purchase one share of common stock of the Company for $1.10 per share until May 12, 2011. The Company paid an aggregate of $1.5 million in fees to a syndicate of agents under the terms of the agency agreement and $1.2 million of legal fees and other expenses in relation to the offering.  Of these costs, $0.7 million were incurred prior to April 30, 2009.

On December 23, 2009, the Company issued 9,714,300 at $1.05 per share pursuant to a private placement offering for gross proceeds of $10,200,015.

e) Weighted average shares

Weighted average shares disclosed on the income statement include shares of common stock as well as OQI Sask Exchangeable shares.

12.           STOCK OPTIONS

Stock based compensation generally takes the form of equity classified stock options granted to employees and non-employees. Options are granted under the Company’s 2006 Stock Option Plan and vest over various terms – generally 18 months to three years. One set of option grants included a performance condition based upon achieving a defined bitumen in place barrel count. Another set of option grants included both a market condition based upon total shareholder return over a three year period and performance conditions based upon achieving a combination of defining a reservoir recovery configuration and achieving a defined bitumen in place barrel count.  The fair value of the options containing the performance and market conditions were estimated at the date of grant and amortization of these amounts commences when satisfaction of the performance conditions becomes probable.

FS-31

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

The following summarizes our stock option activity under the Company’s 2006 Stock Plan (SOP 2006) for the three years ended April 30, 2010:

	Options			Weighted- Average Exercise Price		Weighted- Average Grant-Date Fair Value		Aggregate Intrinsic Value
Outstanding at April 30, 2007		10,125,000			5.33
Granted		5,077,000			4.19		3.69
Exercised		(1,456,250	)		2.62			$	3,027,625
Forfeited		(718,750	)		4.84		3.72
Outstanding at April 30, 2008		13,027,000			5.22
Granted		13,631,000			3.00		1.57
Exercised		(35,000	)		4.72			$	53,100
Forfeited		(2,040,038	)		4.63		3.19
Outstanding at April 30, 2009		24,582,962		$	4.14	$	2.95
Granted		7,037,000			0.98		0.43
Exercised		(964,769)			0.81		0.73	$	359,405
Forfeited		(6,921,633)			3.58		2.23
Outstanding at April 30, 2010		23,733,560		$	3.25	$	2.49
Exercisable at April 30, 2010		16,333,562		$	3.97	$	3.17	$	329,213

The weighted-average remaining contractual term of vested and exercisable options at April 30, 2010, was 1.25 years.

In addition to the above, OQI Sask has 1,319,167 outstanding options which may be exercised and exchanged into OQI Sask Exchangeable Shares whereby up to an additional 10,856,744 OQI common shares may be issued (note 10).

During the year ended April 30, 2010, 7,037,000 options were granted and were accounted for using either the Black-Scholes option-pricing model or the trinomial option-pricing model for the option grant subject to a market condition.  The trinomial option-pricing model takes into account the same input assumptions as the Black-Scholes model; however, it also further incorporates into the fair-value determination, the possibility that the market condition may not be satisfied and the impact of the possible differing stock price paths.   The following weighted average assumptions were used to determine the fair value of the options granted during the year ended April 30, 2010:

	Years Ended April 30,
	2010		2009		2008
Expected life (years)		5.6		7.2		5
Risk free interest rate		2.71		3.40		4.41
Expected volatility		100		84		124
Dividend yield		-		-		-
Grant date fair value	$	0.43	$	1.93	$	3.69

As at April 30, 2010, the Company had unamortized stock-based compensation costs of $1,732,385 which will be recorded in future periods as options vest. The cost is expected to be recognized over a weighted-average period of 10 months. The intrinsic value of options exercised during the years ended April 30, 2010, 2009 and 2008 was $359,405, $53,100 and $3,027,625 respectively. As at April 30, 2010, there were 7,049,228 unvested options with a weighted average grant date fair value of $0.90 (2009 – 13,795,500 and $2.46). The weighted average grant date fair value of options that vested and expired during the year was $2.04 and 1.73 respectively

FS-32

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

13. WARRANTS

A summary of OQI’s share purchase warrant activity for the three years ended April 30, 2010:

	Number of warrants			Weighted Average Exercise Price
Balance, April 30, 2007		8,856,067		$	1.98
Issued during the year		6,325,000		$	6.75
Exercised		(8,856,067	)	$	1.98
Balance, April 30, 2008 and 2009		6,325,000		$	6.75
Issued during the year		17,537,500		$	1.10
Expired		(6,325,000)		$	6.75
Balance, April 30, 2010		17,537,500		$	1.10

14.      FAIR VALUE MEASUREMENTS

Certain of the Company’s assets and liabilities are reported at fair value in the accompanying balance sheet. The following tables provide fair value measurement information for such assets and liabilities as of April 30, 2010 and 2009.

As of April 30, 2010 (in thousands)
					Fair Value Measures Using:
	Carrying Amount		Total Fair Value		Quoted Prices In Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets (Liabilities):
Securities Held for Sale	$	65	$	65	$	65	$	-	$	-
Asset Retirement Obligation	$	17,485	$	17,485	$	-	$	-	$	17,485

As of April 30, 2009 (in thousands)
					Fair Value Measures Using:
	Carrying Amount		Total Fair Value		Quoted Prices In Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets:
Securities Held for Sale	$	60	$	60	$	60	$	-	$	-
Short-term investment	$	25,209	$	25,209	$	25,209	$	-	$	-

FS-33

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

15. RELATED PARTY TRANSACTIONS

The son of a director of the Company is a 50% shareholder of a company that facilitates local on-site kitchen labour and catering functions to the Company for field operations.  For the year ended April 30, 2010, $1,741,838 (2009 – $1,638,305) has been included in exploration expense. These transactions are in the normal course of operations.  As at April 30, 2010, nil (April 30, 2009 - $52,010) was payable to the above mentioned company.

The step-mother of a former executive (resigned December 2008) of the Company is the sole shareholder of a company that facilitates local on-site labour and equipment rentals to the Company for field operations.  For the year ended April 30, 2010, $559 (2009 - $2,247,385) has been included in exploration expense. These transactions are in the normal course of operations.  As at April 30, 2010, nil (April 30, 2009 – $220,273) was payable to the above mentioned company.  The contract with this company was terminated on March 13, 2009.

The brother of a director of the Company is a 50% shareholder of a company that provides geophysical and geological analysis to the Company. For the year ended April 30, 2010, $194,430 (2009 - $161,361) has been included in exploration expense. These transactions are in the normal course of operations.  As at April 30, 2010, nil (April 30, 2009 – nil) was payable to the above mentioned company.

16. CONTINGENCIES AND COMMITMENTS

CONTINGENCIES

On February 24, 2010, a derivative action entitled Make a Difference Foundation Inc. v. Hopkins, et al., Case No.  10-CV-00408, was filed in United States District Court for the District of Colorado by plaintiff  Make a Difference Foundation, Inc.  The derivative action names the following individual defendants:  Christopher H. Hopkins, T. Murray Wilson, Ronald Blakely, Paul Ching, Brian MacNeill, Ronald Phillips, John Read, Gordon Tallman, Pamela Wallin, Thomas Milne and W. Scott Thompson.  In addition, the Company is named as a nominal defendant.  Plaintiff asserts, among other things, claims for waste and breaches of the fiduciary duty of loyalty and good faith by the defendants stemming from the Company's approval of the proposed sale of the Company's Pasquia Hills assets to Canshale Corp.  The plaintiff seeks unspecified damages, restitution, and reasonable costs and expenses including counsel fees and experts' fees.  A response to the Complaint is currently due on March 16, 2010.  The Company believes the claims are wholly without merit and intends to file a motion to dismiss the Complaint.

COMMITMENTS

The following table sets out OQI’s expected future payment commitments as at April 30, 2010 and the estimated timing of such payments relating to corporate office and operations facility leases:

	As at April 30, 2010
	(in thousands)
Year 1	$	1,951
Year 2		1,087
Year 3		994
Year 4		991
Year 5		688
>5 years		952
	$	6,663

The Company is subject to annual lease rentals, minimum exploration expenditures and work commitments related to its exploration permits, licenses and lease assets. These required expenditures have not been included in the above schedule. For details of these required expenditures refer to note 5.

FS-34

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

17. SUBSEQUENT EVENTS

a) On May 10, 2010, the Company issued 10.5 million flow-through shares at $1.00 CDN ($0.995 USD) and 9.2 million common shares at $0.85 per share for gross proceeds of $18.6 million pursuant to a non-brokered private placement.

b) Subsequent to April 30, 2010, 4,411,000 options were issued with a weighted average exercise price of $ 0.81 per option.  Included in these grants were 3,050,000 options that were comprised of a market condition based upon total shareholder return over a three year period and performance conditions based upon achieving a combination of defining a reservoir recover configuration and achieving a defined bitumen in place barrel count.

c) On May 31, 2010, the Company relinquished two of its northernmost land permits (PS00213 and PS00215) as it focuses its development opportunities to include those lands that recent exploration activity has demonstrated to be prospective.  Relinquishing these permits will not impact the Company’s resource estimates or development plans. 

d) With respect to the purchase and sale agreement made with Canshale Corp., the Company agreed on July 6, 2010 to an extension of the transaction to July 30, 2010 for consideration of an incentive of an additional 2,000,000 common shares of Canshale Corp.

FS-35

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

SUPPLEMENTARY QUARTERLY INFORMATION (UNAUDITED)

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Total
2010
Net loss from continuing operations	$	4,595	$	12,679	$	19,357	$	22,090	$	58,721
Net loss from discontinued operations		202		530		4,379		649		5,760
Net loss	$	4,797	$	13,209	$	23,736	$	22,739	$	64,481
Net loss from continuing operations per share – basic and diluted	$	0.02	$	0.04	$	0.06	$	0.07	$	0.19
Net loss from discontinued operations per share – basic and diluted		-		-		0.02		-		0.02
Net loss attributable to common stockholders per share - basic and diluted	$	0.02	$	0.04	$	0.08	$	0.07	$	0.21
2009
Net loss from continuing operations	$	14,251	$	42,359	$	19,193	$	12,496	$	88,299
Loss from discontinued operations		73		514		103		145		835
Net loss	$	14,324	$	42,873	$	19,296	$	12,641	$	89,134
Net loss from continuing operations per share – basic and diluted	$	0.06	$	0.17	$	0.07	$	0.04	$	0.34
Net loss from discontinued operations per share – basic and diluted		-		-		-		-		-
Net loss per share attributable to common stockholders - basic and diluted	$	0.06	$	0.17	$	0.07	$	0.04	$	0.34

FS-36

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCING ACTIVITIES (UNAUDITED)

The following supplemental unaudited information regarding the Company’s oil and gas activities is presented in accordance with SASC 932-235, “Extractive Activities – Oil and Gas – Notes to financial statements”.  The Company currently has no proved reserves.  All of the Company’s exploration and producing activities are carried out in Canada.

Unless otherwise noted, this supplemental information excludes amounts for all periods presented related to the Company’s discontinued operations.

Capitalized Costs Related to Oil and Gas Activities

	Total At April 30,
	2010		2009
	(in thousands)		(in thousands)
Unproved oil and gas properties	$	448,780	$	389,978
Proved oil and gas		-		-
		448,780		389,978
Accumulated depreciation, depletion, and amortization and valuation allowances		-		-
Net capitalized costs	$	448,780	$	389,978

Costs Incurred in Oil and Gas Activities

	Total Year Ended April 30,
	2010		2009		2008
Property acquisition costs	(in thousands)		(in thousands)		(in thousands)
Proved properties	$	-	$	-	$	-
Unproved properties		140		5,867		15,999
Exploration costs		48,682		70,843		96,362
Development costs		-		-		-
Costs incurred	$	48,822	$	76,710	$	112,361

 FS-37