UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q/A

Amendment No. 1

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2008

OR

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

For the transition period from _________ to ___________.

COMMISSION FILE NUMBER:  001-32994

OILSANDS QUEST INC.

(Exact name of issuer 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)

(403) 263-1623

(Issuer's telephone number)

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 R                No £

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

As of December 1, 2008, there were 240,031,644 shares of common stock issued and outstanding.

Oilsands Quest Inc. (the “the Company”) is amending its Quarterly Report on Form 10-Q for the quarter ended October 31, 2008, filed on December 9, 2008 (the “Original Filing”) to amend and restate its consolidated financial statements and other financial information for the three and six months ended October 31, 2007 and 2008.

Explanatory Note

On July 14, 2009, the Audit Committee of the Board of Directors of the Company concluded that the Company’s financial statements for the years ended April 30, 2007 and April 30, 2008 and the quarterly periods ended July 31, 2007 to January 31, 2009 should be restated and should no longer be relied upon.  On August 14, 2006, the Company, pursuant to the terms of a reorganization agreement, acquired the non-controlling interest (35.92%) of Oilsands Quest Sask Inc. (“OQI Sask”) which, together with its 64.08% interest, resulted in a 100% interest in OQI Sask. During the preparation of the consolidated financial statements for the year ended April 30, 2009, the Company determined that the consideration paid in the acquisition of the non-controlling interest of OQI Sask in 2006 had been calculated incorrectly.

As a result, the Company incorrectly presented the Company’s consolidated balance sheets as of October 31, 2008 and 2007, Consolidated Statements of Operations, Cash Flows and Stockholders’ Equity and Comprehensive Income for the three months ended October 31, 2008 and October 31, 2007 and is correcting such presentation in this Form 10-Q/A.  See note 2 in the notes to the consolidated financial statements included herein for a discussion of these corrections and a reconciliation of amounts previously reported to those shown herein.

For the convenience of the reader, this Form 10-Q/A sets forth the Original Filing in its entirety.  The Company has not modified or updated the disclosure presented in this Form 10-Q/A, except as required to reflect the effects of the restatement discussed above.  Accordingly, this Form 10-Q/A does not reflect events occurring after the Original Filing or modify or update those disclosures affected by subsequent events.  Concurrently herewith, the Company filed Amendment No. 2 to its Annual Report on Form 10-K for the year ended April 30, 2008 (the “2008 Form 10-K/A”).  The Company has not amended and does not intend to amend any of its previously filed Annual Reports on Form 10-K for the periods affected by the restatement other than the 2008 Form 10-K/A, this Form 10-Q/A and its previously filed Quarterly Reports on Form 10-Q for the quarterly periods July 31, 2008 and January 31, 2009, which amendments are being filed concurrently herewith. Accordingly, this Form 10-Q/A should be read in conjunction with the Company’s filings subsequent to the Original Filing.

The following items have been amended as a result of the restatement:

Item 1. Financial Statements

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 4. Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have also reissued the certifications required by Sections 302 and 906 of the Sarbanes Oxley Act.

 

OILSANDS QUEST INC.

FORM 10Q FOR THE QUARTER ENDED

OCTOBER 31, 2008

Part I  Financial Information

Forward Looking Statements

Item 1.	Financial Statements
	Unaudited Consolidated Balance Sheets as of October 31, 2008 and April 30, 2008	4
	Unaudited Consolidated Statements of Operations for the Three and Six Months Ended October 31, 2008 and 2007 and for the period from Inception on April 3, 1998 to October 31, 2008	5
	Unaudited Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the Six Months Ended October 31, 2008 and 2007	6
	Unaudited Consolidated Statements of Cash Flows for the Six Months Ended October 31, 2008 and 2007 and for the period from Inception on April 3, 1998 to October 31, 2008	7
	Unaudited Notes to Consolidated Financial Statements	8
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 4	Controls and Procedures	32

Part II  Other Information

Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 4.	Submission of Matters to a Vote of Security Holders	34
Item 6.	Exhibits	34
	Signatures	36

2

Cautionary Statement about Forward-Looking Statements

The following includes certain statements that may be deemed to be "forward-looking statements."  All statements, other than statements of historical facts, included in this Form 10-QA that address activities, events or developments that our management expects, believes or anticipates will or may occur in the future are forward-looking statements.  Such forward-looking statements include discussion of such matters as:

· the amount and nature of future capital, exploration and development expenditures;

· the timing of exploration and development activities;

· business strategies and development of our business plan and exploration programs; and

· potential estimates as to the volume and nature of petroleum deposits that are expected to be found present when lands are developed in a project.

Forward-looking statements also typically include words such as "anticipate", "estimate", "expect", "potential", "could" or similar words suggesting future outcomes.  Readers are cautioned that forward-looking statements are not guarantees of future performance and that actual results or developments may differ materially from those expressed or implied in the forward-looking statements.

The Company is under no duty to update any of these forward-looking statements after the date of this report.  You should not place undue reliance on these forward-looking statements.

3

OILSANDS QUEST INC.

(A Development Stage Company)

Consolidated Balance Sheets

(Unaudited)

	October 31, 2008					April 30, 2008
	(as restated)				(as restated)
ASSETS
Current Assets:
Cash and cash equivalents		$	51,958,179			$	26,498,038
Accounts receivable			2,188,064				3,363,642
Short-term investments			28,565,556				19,811,788
Prepaid expenses			780,770				562,593
Available for sale securities			29,596				390,733
Total Current Assets			83,522,165				50,626,794
Property and Equipment (note 4)			393,954,877				459,492,571
Total Assets		$	477,477,042			$	510,119,365
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable (note 13)		$	25,370,259			$	16,400,508
Flow-through share premium liability (note 8)			1,577,144				-
Total Current Liabilities			26,947,403				16,400,508
Deferred Taxes			68,105,526				93,952,338
Asset Retirement Obligation (note 5)			3,528,883				-
			98,581,812				110,352,846
STOCKHOLDERS’ EQUITY
Capital Stock
Preferred stock, par value of $0.001 each, 10,000,000 shares authorized, 1 Series B Preferred share outstanding (note 7)			1				1
Common stock, par value of $0.001 each, 750,000,000 shares authorized 240,031,644 and 213,861,958 shares outstanding at October 31, 2008 and April 30, 2008 respectively (notes 6, 7, 8, 9 and 10)			240,031				213,862
Additional Paid-in Capital			708,453,090				602,754,989
Deficit Accumulated During Development Stage			(298,231,612	)			(238,934,700	)
Other Comprehensive (Loss) Income			(31,566,280	)			36,732,367
Total Stockholders’ Equity			378,895,230				399,766,519
Total Liabilities and Stockholders’ Equity		$	477,477,042			$	510,119,365
Subsequent events (note 14)
See Notes to Unaudited Consolidated Financial Statements

4

OILSANDS QUEST INC.

(A Development Stage Company)

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended October 31,						Six Months Ended October 31,						From Inception on April 3, 1998 through to October 31,
	2008			2007			2008			2007			2008
	(as restated)			(as restated)			(as restated)			(as restated)			(as restated)
Expenditures
Exploration costs	$	37,274,533		$	17,509,171		$	47,747,275		$	22,550,689		$	182,017,215
General and administrative
Cash consideration		8,021,344			1,354,112			11,659,049			3,070,549			40,694,740
Stock-based consideration (note 9)		9,551,029			8,279,103			13,120,186			10,149,433			135,234,885
Depreciation and accretion		453,436			265,843			771,162			502,073			2,211,554
		55,300,342			27,408,229			73,297,672			36,272,744			360,158,394
Other Items
Interest income		(365,802	)		(541,906	)		(795,080	)		(1,109,870	)		(5,067,798	)
Gain on extinguishment of certainliabilities		-			-			-			-			(936,469	)
Net loss before income tax recovery and non-controlling shareholder interest		54,934,540			26,866,323			72,502,592			35,162,874			354,154,127
Income tax recovery		(10,761,310	)		(5,599,526	)		(14,205,680	)		(8,585,170	)		(48,228,261	)
Net loss before non-controlling shareholder interest		44,173,230			21,266,797			58,296,912			26,577,704			305,925,866
Non-controlling shareholder interest (note 6)		-			-			-			-			(7,694,254	)
Net Loss	$	44,173,230		$	21,266,797		$	58,296,912		$	26,577,704		$	298,231,612
Net Loss Per Share	$	0.17		$	0.10		$	0.23		$	0.12
Weighted Average Number of Common Shares Outstanding (note 7)		259,498,487			217,655,813			255,811,160			216,739,261
See Notes to Unaudited Consolidated Financial Statements

5

OILSANDS QUEST INC.

(A Development Stage Company)

Consolidated Statements of Stockholders' Equity and Comprehensive Income

(Unaudited)

	Common Stock				Preferred Stock				Additional Paid in			Accumulated Other Comprehensive (Loss)			Deficit Accumulated During the Development			Total Stockholders’
	Shares		Par Value		Shares		Par Value		Capital			Income			Stage			Equity
Balance, April 30, 2008, as restated		213,861,958	$	213,862		1	$	1	$	602,754,989		$	36,732,367		$	(239,934,700	)	$	399,766,519
Common stock issued for:
Cash		23,784,917		23,785		-		-		91,215,543			-			-			91,239,328
Property (note 4 d))		640,000		640		-		-		3,717,760			-			-			3,718,400
Premium on flow-through shares allocated to liability		-		-		-		-		(1,802,753	)		-			-			(1,802,753	)
Stock option exercises		35,000		35		-		-		165,115			-			-			165,150
Exchange of OQI Sask  Exchangeable Shares		1,709,769		1,709		-		-		(1,709	)		-			-			-
Stock-based compensation expense		-		-		-		-		13,120,186			-			-			13,120,186
Share issue costs		-		-		-		-		(2,238,966	)		-			-			(2,238,966	)
Proceeds from exercise of subsidiary options (post reorganization)		-		-		-		-		1,522,925			-			-			1,522,925
Other comprehensive income																			-
Transfer of unrealized loss to net loss		-		-		-		-		-			141,970			-			141,970
Exchange loss on translation		-		-		-		-		-			(68,440,617	)		-			(68,440,617	)
Net Loss		-		-		-		-		-			-			(58,296,912	)		(58,296,912	)
Balance, October 31, 2008, as restated		240,031,644	$	240,031		1	$	1	$	708,453,090		$	(31,566,280	)	$	(298,231,612	)	$	378,895,230
Balance, April 30, 2007, as restated		164,624,278	$	164,624		1	$	1	$	440,527,975		$	3,365,649		$	(148,903,384	)	$	295,154,865
Common stock issued for:
Cash		20,638,349		20,639		-		-		58,365,787			-			-			58,386,426
Premium on flow-through shares allocated to liability		-		-		-		-		(1,493,275	)		-			-			(1,493,275	)
Property		750,000		750		-		-		3,291,750			-			-			3,292,500
Employee compensation		44,000		44		-		-		116,387			-			-			116,431
Exchange of OQI Sask Exchangeable Shares		4,739,079		4,739		-		-		(4.739	)		-			-			-
Stock-based compensation expense		-		-		-		-		10,033,002			-			-			10,033,002
Share issue costs		-		-		-		-		(2,773,486	)		-			-			(2,773,486	)
Proceeds from exercise of subsidiary options (post reorganization)		-		-		-		-		289,715			-			-			289,715
Other comprehensive income
Unrealized loss on available for sale securities		-		-		-		-		-			(30,393	)		-			(30,393	)
Exchange gain on translation		-		-		-		-		-			53,947,493			-			53,947,493
Net Loss		-		-		-		-		-			-			(26,577,704	)		(26,577,704	)
Balance, October 31, 2007, as restated		190,795,706	$	190,796		1	$	1	$	508,353,116		$	57,282,749		$	(175,481,088	)	$	390,345,574
See Notes to Unaudited Consolidated Financial Statements

6

OILSANDS QUEST INC.

 (A Development Stage Company)

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended October 31,						From Inception on April 3, 1998 Through to October 31,
	2008			2007			2008
	(as restated)			(as restated)			(as restated)
Operating Activities
Net loss	$	(58,296,912	)	$	(26,577,704	)	$	(298,231,612	)
Non-cash adjustments to net loss
Stock-based compensation expense		13,120,186			10,033,002			88,387,418
Deferred income tax recovery		(14,205,680	)		(8,585,170	)		(47,307,087	)
Depreciation and accretion		771,162			502,073			2,211,554
Operating expenses paid with shares		-			116,431			11,070,439
Non-controlling shareholder interest		-			-			(7,694,254	)
Non-cash financing expense		-			-			36,472,143
Gain on extinguishment of certain liabilities		-			-			(936,469	)
Write off of exploration property		-			-			856,359
Other		145,908			-			272,128
Changes in Non-Cash Working Capital
Accounts receivable and prepaid expenses		378,737			(1,286,181	)		(2,359,201	)
Accounts payable		14,038,472			5,659,940			32,198,892
Cash Used in Operating Activities		(44,048,127	)		(20,137,609	)		(185,059,690	)
Investing Activities
Capital expenditures		(6,843,535	)		(2,801,889	)		(78,838,768	)
Short-term investment		(8,753,768	)		-			(28,565,556	)
Other investments		116,824			-			(548,048	)
Changes in Non-Cash Working Capital
Accounts payable		723,676			-			723,676
Cash used in Investing Activities		(14,756,803	)		(2,801,889	)		(107,228,696	)
Financing Activities
Issuance of shares for cash		89,165,512			55,612,940			328,430,312
Bank loan		-			(21,207,500	)		-
Shares issued on exercise of subsidiary options and warrants post reorganization		1,522,925			289,715			4,176,336
Shares issued by subsidiary to non-controlling interest		-			-			7,663,666
Convertible debentures		-			-			8,384,496
Cash Provided by Financing Activities		90,688,437			34,695,155			348,654,810
Inflow of Cash		31,883,507			11,755,657			56,366,424
Effects of exchange rate changes on cash		(6,423,366	)		3,240,331			(4,408,245	)
Cash and cash equivalents, Beginning of Period		26,498,038			32,393,871			-
Cash and cash equivalents, End of Period	$	51,958,179		$	47,389,859		$	51,958,179
Non-Cash Financing Activities
Common stock issued for properties	$	3,718,400		$	3,292,500		$	10,848,342
Warrants granted on purchase of properties	$	-		$	-		$	1,763,929
Common stock issued for services	$	-		$	116,431		$	10,504,594
Common stock issued for debt settlement	$	-		$	-		$	28,401,029

See Notes to Unaudited Consolidated Financial Statements

7

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Unaudited)

1. DESCRIPTION OF BUSINESS AND FUTURE OPERATIONS

Oilsands Quest Inc. (“OQI”) together with its subsidiaries, (collectively the “Company”) is in the exploration stage and follows the guidance for a development stage company as defined in Statement No. 7 of the Financial Accounting Standards Board. The principal business activity is the exploration and development of natural resource properties in Canada.

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 October 31, 2008, the Company has working capital of $58 million. The Company believes that it has sufficient funds to maintain its interests in the existing properties, to complete the announced testing activities at its Axe Lake Property, and to maintain other core activities which include internal operations and general corporate expenditures through April 2010. 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. Current conditions in the global and financial markets have currently limited the availability of these resources. The Company’s development strategy also includes considering partners 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. 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. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

During the preparation of the consolidated financial statements for the year ended April 30, 2009, the Company determined that the consideration paid in the acquisition of the non-controlling interest of Oilsands Quest Sask Inc. (“OQI Sask”) in 2006 had been calculated incorrectly. On August 14, 2006, the Company, pursuant to the terms of a reorganization agreement, acquired the noncontrolling interest (35.92%) of OQI Sask which, together with its 64.08% interest, resulted in a 100% interest in OQI Sask (“the Acquisition”).

The restatement to the financial statements arose as a result of changes to the following items including the components of the consideration exchanged in the Acquisition:

Stock-Based Compensation

The Company had previously treated the exchange of options of the subsidiary’s stock (OQI Sask) for options of the parent’s stock (the Company) as part of the purchase price consideration in the Acquisition rather than by applying modification accounting of stock-based compensation arrangement. In the restated financial statements, the fair value of the options has been removed from the consideration exchanged and modification accounting for stock-based compensation arrangements has been applied.

The Company also corrected accounting for certain forfeitures as well as for the change in status of individuals from employee to nonemployee.

8

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Unaudited)

Fair Value of Purchase Price Consideration

As OQI Sask is in the development stage, the Acquisition is deemed to be an asset acquisition and the fair value of the equity consideration should have been based on the trading price per share of the Company’s common stock on the date the Acquisition closed rather than an average price over a reasonable period.

The fair value of the warrants should have been calculated using the Black Scholes model.

Deferred Income Taxes

For asset acquisitions, deferred income taxes were recalculated based on the revised purchase price consideration and the tax basis to determine the amount assigned to property and equipment and deferred tax liability in the purchase price allocations.

The Company reinstated a full valuation allowance on the Company’s and OQI Sask’s tax losses at the date of the Acquisition and subsequent periods.  The Company changed the tax rate applied on OQI Sask’s taxable temporary differences to the Canadian tax rate and in subsequent periods reflected enacted Canadian tax rate reductions.

Foreign Currency Translation Gains/Losses

Foreign currency translation gains and losses were recalculated based on the revised value of the property and equipment and deferred tax liability allocated on asset acquisitions to OQI Sask, which has a Canadian dollar functional currency.

Other impacted amounts presented throughout these restated consolidated financial statements and accompanying notes have been amended as appropriate.

The Board of Directors, in consultation with the Audit Committee concluded on July 14, 2009 that the Company’s previously issued financial statements for fiscal 2008 and fiscal 2007 (including the interim periods within those years), should no longer be relied upon because of certain accounting errors and irregularities in those financial statements. Accordingly, the Company restated its previously issued financial statements for those periods by filing an Amendment to its Form 10-KA for the year ended April 30, 2008. Restated financial information is presented in this Form 10-QA for the three and six months ended October 31, 2008.

The following table outlines the impact of the adjustment by financial statement line item in the Company’s consolidated balance sheet as of October 31, 2008.

As of October 31, 2008	As previously reported			Restatement adjustment			As restated
ASSETS
Current Assets:
Cash and cash equivalents	$	51,958,179		$	-		$	51,958,179
Accounts receivable		2,188,064			-			2,188,064
Short-term investments		28,565,556			-			28,565,556
Prepaid expenses		780,770			-			780,770
Available for sale securities		29,596			-			29,596
Total Current Assets		83,522,165			-			83,522,165
Property and Equipment		509,923,969			(115,969,092	)		393,954,877
Total Assets	$	593,446,134		$	(115,969,092	)	$	477,477,042
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	25,370,259		$	-		$	25,370,259
Flow-through share premium liability		1,577,144			-			1,577,144
Total Current Liabilities		26,947,403			-			26,947,403
Deferred Taxes		102,405,910			(34,300,384	)		68,105,526
Asset Retirement Obligations		3,528,883			-			3,528,883
		132,882,196			(34,300,384	)		98,581,812
STOCKHOLDERS’ EQUITY
Capital Stock
Preferred stock, par value of $0.001 each, 10,000,000 shares authorized 1 Series B Preferred share outstanding		1			-			1
Common stock, par value of $0.001 each, 750,000,000 shares authorized 240,031,644  shares outstanding at October 31, 2008		240,031			-			240,031
Additional Paid-in Capital		782,892,799			(74,439,709	)		708,453,090
Deficit Accumulated During Development Stage		(285,912,255	)		12,319,357			(298,231,612	)
Other Comprehensive Income (Loss)		(36,656,638	)		5,090,358			(31,566,280	)
Total Stockholders’ Equity		460,563,938			(81,668,708	)		378,895,230
Total Liabilities and Stockholders’ Equity	$	593,446,134		$	(115,969,092	)	$	477,477,042

9

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Unaudited)

The following table outlines the impact of the adjustment by financial statement line item in the Company’s consolidated balance sheet as of April 30, 2008.

April 30, 2008	As previously reported			Restatement adjustment			As restated
ASSETS
Current Assets:
Cash and cash equivalents	$	26,498,038		$	-		$	26,498,038
Accounts receivable		3,363,642			-			3,363,642
Short-term investments		19,811,788			-			19,811,788
Prepaid expenses		562,593			-			562,593
Available for sale securities		390,733			-			390,733
Total Current Assets		50,626,794			-			50,626,794
Property and Equipment		595,611,114			(136,118,543	)		459,492,571
Total Assets	$	646,237,908		$	(136,118,543	)	$	510,119,365
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	16,400,508		$	-		$	16,400,508
Total Current Liabilities		16,400,508			-			16,400,508
Deferred Taxes		137,577,448			(43,625,110	)		93,952,338
		153,977,956			(43,625,110	)		110,352,846
STOCKHOLDERS’ EQUITY
Capital Stock
Preferred stock, par value of $0.001 each, 10,000,000 shares authorized 1 Series B Preferred share outstanding		1			-			1
Common stock, par value of $0.001 each, 500,000,000 shares authorized 213,861,958 shares outstanding at April 30, 2008		213,862			-			213,862
Additional Paid-in Capital		678,774,284			(76,019,295	)		602,754,989
Deficit Accumulated During Development Stage		(230,306,540	)		(9,628,160	)		(239,934,700	)
Other Comprehensive Income (Loss)		43,578,345			(6,845,978	)		36,732,367
Total Stockholders’ Equity		492,259,952			(92,493,433	)		399,766,519
Total Liabilities and Stockholders’ Equity	$	646,237,908		$	(136,118,543	)	$	510,119,365

10

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Unaudited)

 The following table outlines the impact of the adjustment by financial statement line item in the Company’s consolidated statement of operations for the three months ended October 31, 2008.

Three Months Ended October 31, 2008	As previously reported			Restatement adjustment			As restated
Expenditures
Exploration costs	$	37,274,533		$	-		$	37,274,533
General and administrative
Cash consideration		8,091,693			(70,349	)		8,021,344
Stock-based consideration		9,305,369			245,660			9,551,029
Depreciation		453,436			-			453,436
		55,125,031			175,311			55,300,342
Other Items
Interest income		(365,802	)		-			(365,802	)
Net loss before income tax recovery and non-controlling shareholder interest		54,759,229			175,311			54,934,540
Income tax recovery		(11,526,008	)		764,698			(10,761,310	)
Net loss before non-controlling shareholder interest		43,233,221			940,009			44,173,230
Non-controlling shareholder interest		-			-			-
Net loss	$	43,233,221		$	940,009		$	44,173,230
Net Loss Per Share	$	(0.17	)				$	(0.17	)
Weighted Average Number of Common Shares Outstanding		259,498,487						259,498,487

The following table outlines the impact of the adjustment by financial statement line item in the Company’s consolidated statement of operations for the three months ended October 31, 2007.

Three Months Ended October 31, 2007	As previously reported			Restatement adjustment		As restated
Expenditures
Exploration costs	$	17,509,171		$	-	$	17,509,171
General and administrative
Cash consideration		1,354,112			-		1,354,112
Stock-based consideration		7,665,451			613,652		8,279,103
Depreciation		265,843					265,843
		26,794,577			613,652		27,408,229
Other Items
Interest income		(541,906	)		-		(541,906	)
Net loss before income tax recovery and non-controlling shareholder interest		26,252,671			613,652		26,866,323
Income tax recovery		(5,814,000	)		214,474		(5,599,526	)
Net loss before non-controlling shareholder interest		20,438,671			828,126		21,266,797
Non-controlling shareholder interest		-			-		-
Net loss	$	20,438,671		$	828,126	$	21,266,797
Net Loss Per Share	$	(0.09	)			$	(0.10	)
Weighted Average Number of Common Shares Outstanding		218,370,100					218,370,100

The following table outlines the impact of the adjustment by financial statement line item in the Company’s consolidated statement of operations for the six months ended October 31, 2008.

Six Months Ended October 31, 2008	As previously reported			Restatement adjustment			As restated
Expenditures
Exploration costs	$	47,747,275		$	-		$	47,747,275
General and administrative
Cash consideration		11,774,526			(115,477	)		11,659,049
Stock-based consideration		11,425,123			1,695,063			13,120,186
Depreciation		771,162			-			771,162
		71,718,086			1,579,586			73,297,672
Other Items
Interest income		(795,080	)		-			(795,080	)
Net loss before income tax recovery and non-controlling shareholder interest		70,923,006			1,579,586			72,502,592
Income tax recovery		(15,317,291	)		1,111,611			(14,205,680	)
Net loss before non-controlling shareholder interest		55,605,715			2,691,197			58,296,912
Non-controlling shareholder interest		-			-			-
Net loss	$	55,605,715		$	2,691,197		$	58,296,912
Net Loss Per Share	$	(0.22	)				$	(0.23	)
Weighted Average Number of Common Shares Outstanding		255,811,160						255,811,160

11

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Unaudited)

The following table outlines the impact of the adjustment by financial statement line item in the Company’s consolidated statement of operations for the six months ended October 31, 2007.

Six Months Ended October 31, 2007	As previously reported			Restatement adjustment			As restated
Expenditures
Exploration costs	$	22,550,689		$	-		$	22,550,689
General and administrative
Cash consideration		3,070,549			-			3,070,549
Stock-based consideration		8,849,658			1,299,775			10,149,433
Depreciation		502,073			-			502,073
		34,972,969			1,299,775			36,272,744
Other Items
Interest income		(1,109,870	)		-			(1,109,870	)
Net loss before income tax recovery and non-controlling shareholder interest		33,863,099			1,299,775			35,162,874
Income tax recovery		(7,233,944	)		(1,351,226	)		(8,585,170	)
Net loss before non-controlling shareholder interest		26,629,155			(51,451	)		26,577,704
Non-controlling shareholder interest		-			-			-
Net loss	$	26,629,155		$	(51,451	)	$	26,577,704
Net Loss Per Share	$	(0.12	)				$	(0.12	)
Weighted Average Number of Common Shares Outstanding		216,739,261						216,739,261

The following table outlines the impact of the adjustment by financial statement line item in the Company’s consolidated statement of cash flows for the six months ended October 31, 2008.

Six Months Ended October 31, 2008	As previously reported			Restatement adjustment			As restated
Operating Activities
Net loss	$	(55,605,715	)	$	(2,691,197	)	$	(58,296,912	)
Non-cash adjustments to net loss
Stock-based compensation expense		11,425,123			1,695,063			13,120,186
Deferred income tax recovery		(15,317,291	)		1,111,611			(14,205,680	)
Depreciation		771,162			-			771,162
Other		145,908			-			145,908
Changes in Non-Cash Working Capital
Accounts receivable and prepaid expenses		378,737			-			378,737
Accounts payable		14,038,472			-			14,038,472
Cash Used in Operating Activities		(44,163,604	)		115,477			(44,048,127	)
Investing Activities
Capital expenditures		(6,843,535	)		-			(6,843,535	)
Short-term investment		(8,753,768	)		-			(8,753,768	)
Other investment		116,824			-			116,824
Changes in Non-Cash Working Capital
Accounts payable		723,676			-			723,676
Cash Used in Investing Activities		(14,756,803	)		-			(14,756,803	)
Financing Activities
Issuance of shares for cash		89,280,989			(115,477	)		89,165,512
Shares issued on exercise of subsidiary options and warrants post reorganization		1,522,925			-			1,522,925
Cash Provided by Financing Activities		90,803,914			(115,477	)		90,688,437
Inflow of Cash		31,883,507			-			31,883,507
Effects of exchange rate changes on cash		(6,423,366	)		-			(6,423,366	)
Cash and cash equivalents, Beginning of Period		26,498,038			-			26,498,038
Cash and cash equivalents, End of Period	$	51,958,179		$	-		$	51,958,179
Non-Cash Financing Activities
Common stock issued for properties	$	3,718,400		$	-		$	3,718,400

12

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Unaudited)

The following table outlines the impact of the adjustment by financial statement line item in the Company’s consolidated statement of cash flows for the six months ended October 31, 2007.

Six Months Ended October 31, 2007	As previously reported			Restatement adjustment			As restated
Operating Activities
Net loss	$	(26,629,155	)	$	51,451		$	(26,577,704	)
Non-cash adjustments to net loss
Stock-based compensation expense		8,733,227			1,299,775			10,033,002
Deferred income tax recovery		(7,233,944	)		(1,351,226	)		(8,585,170	)
Depreciation		502,073			-			502,073
Flow-through share premium liability		116,431			-			116,431
Changes in Non-Cash Working Capital
Accounts receivable and prepaid expenses		(1,286,181	)		-			(1,286,181	)
Accounts payable		5,659,940			-			5,659,940
Cash Used in Operating Activities		(20,137,609	)		-			(20,137,609	)
Investing Activities
Capital expenditures		(2,801,889	)		-			(2,801,889	)
Cash Used in Investing Activities		(2,801,889	)		-			(2,801,889	)
Financing Activities					-
Issuance of shares for cash		55,612,940			-			55,612,940
Bank loan		(21,207,500	)		-			(21,207,500	)
Shares issued by subsidiary to non-controlling interest		289,715			-			289,715
Convertible debentures		-			-			-
Cash Provided by Financing Activities		34,695,155			-			34,695,155
Inflow of Cash		11,755,657			-			11,755,657
Effects of exchange rate changes on cash		3,240,331			-			3,240,331
Cash and cash equivalents, Beginning of Period		32,393,871			-			32,393,871
Cash and cash equivalents, End of Period	$	47,389,859		$	-		$	47,389,859
Non-Cash Financing Activities
Common stock issued for properties	$	3,292,500		$	-		$	3,292,500
Warrants granted on purchase of properties	$	-		$	-		$	-
Common stock issued for services	$	116,431		$	-		$	116,431
Common stock issued for debt settlement	$	-		$	-		$	-

13

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Unaudited)

3. BASIS OF PRESENTATION

These consolidated financial statements have been prepared in accordance with United States of America Generally Accepted Accounting Principles (“US GAAP”) and reflect all adjustments (all of which are normal and recurring in nature) that, in the opinion of management, are necessary for fair presentation of the interim financial statements. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year ending April 30, 2009. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These unaudited consolidated financial statements and notes included herein have been prepared on a basis consistent with and should be read in conjunction with the Company’s audited consolidated financial statements and notes for the year ended April 30, 2008 as filed in its annual report on Form 10-K/A, however,certaincomparative figures have been reclassified to conform to current financial statement presentation.

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

Recently Adopted Accounting Standards

Effective May 1, 2008, the Company adopted Statement of Financial Accounting Standard No. 157, “Fair Value Measures” (SFAS No. 157). SFAS No. 157 does not require any new fair value measurements but establishes a framework for measuring fair value when required and expands required disclosures about fair value measurements. The application of SFAS No. 157 does not change the Company’s current practice for measuring fair values under other accounting pronouncements that require fair value measurements. The adoption of SFAS No. 157 had no material impact on the Company’s financial statements.

Effective May 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 159 (SFAS No. 159), which permits entities to elect to measure many financial instruments and certain other items at fair value. OQI does not currently have any financial assets or financial liabilities for which the provisions of SFAS No. 159 have been elected.  However, in the future the Company may elect to measure certain financial instruments at fair value in accordance with this standard.

Recently issued Accounting Standards Not Yet Adopted

In December 2007 the FASB issued Statement of Financial Accounting Standards No. 141R (SFAS 141R), which replaced SFAS No. 141, “Business Combinations”. SFAS No. 141R retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting be used for all business combinations and that an acquirer be identified for each business combination.

This statement 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. For the Company, SFAS No. 141R must be applied prospectively to business combinations for which the acquisition date occurs on or after May 1, 2009. The impact to the Company of applying SFAS No. 141(R) for periods subsequent to implementation will be dependent upon the nature of any transactions within the scope of SFAS No. 141(R).

14

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Unaudited)

In December 2007 the FASB issued SFAS No. 160, which amends ARB No. 51, “Consolidated Financial Statements,” to establish accounting and reporting standards for the non-controlling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 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 income statement is presented by requiring consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. In addition, SFAS No. 160 establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation. For the Company, SFAS No. 160 is effective as of May 1, 2009, and must be applied prospectively, except for certain presentation and disclosure requirements which must be applied retrospectively. We do not expect the adoption of SFAS No. 160 to have a material impact on our financial statements and related disclosures.

In March 2008 the FASB issued SFAS No. 161, which amends and expands the disclosure requirements for derivative instruments and hedging activities prescribed by SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 161 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. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008 and encourages, but does not require, comparative disclosure for earlier periods at initial adoption. The adoption of SFAS No. 161 will not have any impact on the Company’s consolidated results of operations, cash flows or financial position.

4. PROPERTY AND EQUIPMENT

	October 31, 2008			April 30, 2008
	(as restated)			(as restated)
Saskatchewan Oil Sands Rights
Permits	$	339,106,414		$	403,474,977
Licenses		1,913,838			2,306,274
Alberta Oil Sands Rights
Permits		29,372,011			35,394,800
Leases		6,499,467			2,426,940
Oil Shale Rights (Permits)		9,271,348			11,101,908
Equipment		9,648,663			6,297,687
Less: Accumulated Depreciation		(1,856,864	)		(1,510,015	)
Net Book Value	$	393,954,877		$	459,492,571

a) Saskatchewan Oil Sands Permits

As at April 30, 2008 and October 31, 2008, the Saskatchewan oil sands permits comprised an area of approximately 508,080 acres. The oil sands 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, for a term of five years. Oil Sands is a defined term in the regulations. The oil sands permits provide for the right to explore and work the permit lands but not to remove, produce or recover, except for test purposes, oil sands or oil shale until a lease, pursuant to these regulations, has been granted. The term of the permits may be extended for up to three one-year extensions subject to regulatory approvals, as required. 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 are payable in advance as to $0.08 ($0.10 CDN) per acre for the remaining term of the permits.  The required exploration expenditures to hold the permits are $0.66 ($0.81 CDN) per acre for the remaining year of the permits and $0.99 ($1.21 CDN) per acre for each year that the permits are extended.  The permits are also subject to a $0.04 per barrel royalty once production begins.

15

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Unaudited)

The Saskatchewan permit lands constitute a single asset for accounting purpose.The Company has paid all required annual rental payments and has complied with the annual exploration expenditure requirements to maintain the permits in good standing.

The carrying value of the Saskatchewan oil sands permits reflects the market price of the Company’s shares at the time of the August 2006 reorganization in which the minority interest in the Saskatchewan oil sands permits was acquired for shares of the Company’s stock.  Based on internal net asset value calculations, the carrying value of the Saskatchewan oil sands permits is supported by the estimated fair value of the 508,080 acres of permit lands.  The Company will continue to monitor the value of this asset in light of capital and commodity market conditions.

b) Saskatchewan Oil Sands Licenses

As at April 30, 2008 and October 31, 2008, the Saskatchewan oil sands licenses comprised an area totaling 109,920 acres. The licenses were granted by the Province of Saskatchewan on August 13, 2007, under The Petroleum and Natural Gas Regulations, 1969, as amended revised or substituted from time to time, for a term of five years 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 oil sands products found on the license lands.

The oil sands licenses were acquired in a public offering of Crown Oil Sands Rights and provide the opportunity to convert up to 100% of the licenses to a production lease on the basis of one section of land (640 acres) for every well that intersects an oil sands zone.  Licenses require annual rental payments of $0.58 ($0.71 CDN) per acre. The Company has paid all required rental payments for the licenses granted.

c) Alberta Oil Sands Permits

As at April 30, 2008 and October 31, 2008, the Alberta oil sands permits comprised an area of 112,599 acres. The permits were granted by the Province of Alberta under the terms of the Mines and Minerals Act, Alberta. The permits provide the exclusive right to drill for, win and work for oil sands on the permit lands and the opportunity to convert up to 100% of the permits to an oil sands production lease following the completion of specified work requirements.  Permits are granted for a five year primary term and require annual rental payments of $1.17 ($1.42 CDN) per acre.

The permits are comprised of six permits, four of the permits totaling 67,053 acres comprise the Raven Ridge Prospect and the remaining two permits totaling 45,546 acres comprise the Wallace Creek Prospect.

The Alberta permit lands constitute two assets (“Raven Ridge Prospect” and “Wallace Creek Prospect”) for accounting purposes and the carrying value of each is supported by the estimated fair value of each prospect. The Company has paid all required annual rental payments to maintain the permits in good standing.

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 22,800 acres (the “Eagles Nest Prospect”) at a cost of $727,187.  Pursuant to the terms of this agreement, OQI issued the Triple 7 Joint Venture 114,015 shares of its common stock with a fair value of $127,432, which was determined using the market price at the date of the transaction.

16

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Unaudited)

Township agreed to pay the Triple 7 Joint Venture partners, as ongoing fees, $123,304 ($150,000 CDN) in cash or common shares of OQI (at the discretion of the Company) on the first and second anniversary dates of the agreement.  Any shares issued under the agreement were subject to "piggyback" registration rights.  On the third anniversary date and each subsequent anniversary date of the agreement, Township agreed to pay the Triple 7 Joint Venture $369,913 ($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 $4,932,182 ($6,000,000 CDN).

In addition to such payments Township had granted each of the three Triple 7 Joint Venture partners a royalty in the acquired leases of $0.025 ($0.03 CDN) on each barrel of crude bitumen produced, saved and sold or $123,304 ($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 all of the rights of one of the three external joint venture partners for consideration of $49,939 ($50,000 CDN) plus the issuance of 250,000 shares of the Company’s common stock valued at $1,097,500 based on the September 20, 2007 closing market price of the shares.  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 $0.0047 ($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 $26,515 ($32,256 CDN) per year. The Company has paid the required lease rentals to maintain the lease in good standing.

e) Oil Shale Rights

As at April 30, 2008 and October 31, 2008, 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. 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 one-year extensions subject to regulatory approvals, as required.

Annual rentals are payable in advance as to $0.08 ($0.10 CDN) per acre during the term of the permit.  Required exploration expenditures to hold the permits are $0.33 ($0.40 CDN) per acre for the current year, $0.66 ($0.81 CDN) per acre for the remaining years of the permits and $0.99 ($1.21 CDN) per acre for each year that the permit is extended, as required.

As at April 30, 2008 and October 31, 2008, 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 yearstotaling 83,769 acres in the same area near Hudson Bay, Saskatchewan.

17

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Unaudited)

The permit provides for the right, license, privilege and authority to explore for oil shale within the permit lands.

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 $247,898 ($301,568 CDN) to be incurred during the first two years of the permit and the permit requires a further work commitment of $0.66 ($0.81 CDN) per acre for the last three years and $0.99 ($1.21 CDN) for each extension year plus annual rental payments of $0.08 ($0.10 CDN) per acre. Through the exploration program conducted to the end of the period, the Company has fulfilled its work commitment for the term of the permit.

The Company has paid the required annual rental payments to maintain the permits in good standing.

f) During the six months ended October 31, 2008 the Company had $4,810,112 in additions to equipment.

5. 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 discount rate of 7 percent and an inflation rate of 2.5 percent. At October 31, 2008, the total undiscounted future obligation is estimated at approximately $10.5 million.

Continuity of Asset Retirement Obligation
Present value of obligation at April 30, 2008	$	-
Liabilities incurred		3,873,055
Accretion expense		83,257
Foreign currency translation adjustment		(427,429	)
Present value of obligation at October 31, 2008	$	3,528,883

6. SUBSIDIARY OPTIONS OUTSTANDING

OQI acquired the non-controlling shareholder interest in OQI Sask in August 2006 (“the reorganization”).  Certain stock options issued by OQI Sask remained outstanding after the reorganization.  On exercise, each OQI Sask option shall be exchanged into 8.23 OQI Sask Exchangeable Shares which are exchangeable on a one-for-one basis into OQI common shares.  Transactions in OQI Sask options during the six months ended October 31, 2008 and OQI Sask options outstanding at October 31, 2008 are detailed below.

	Number			Weighted Average Exercise Price (CDN)
Outstanding, April 30, 2008		1,640,000		$	16.96
Exercised and exchanged into shares of OQI common stock (note 7)		(125,000	)	$	12.50
Expired		(60,000	)	$	25.00
Outstanding, October 31, 2008		1,455,000		$	17.01

18

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Unaudited)

Exercise Price (CDN)		Number Outstanding at October 31, 2008	Number Exercisable at October 31, 2008	Weighted Average Remaining Contractual Life
$	0.50	75,000	75,000	1.03 years
$	3.00	100,000	100,000	1.75 years
$	6.00	465,000	465,000	2.26 years
$	25.00	765,000	665,000	2.50 years
$	50.00	50,000	37,500	2.75 years
		1,455,000	1,342,500	2.30 years

The 1,455,000 OQI Sask options outstanding at October 31, 2008 represent 11,974,650 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 (see note 7).

7. PREFERRED SHARES

OQI acquired the non-controlling shareholder interest in OQI Sask in August 2006.  Holders of OQI Sask common shares received OQI Sask Exchangeable Shares which can be exchanged into shares of OQI common stock at each holder’s option.  Transactions in OQI Sask Exchangeable Shares during the six months ended October 31, 2008 are detailed below.  For voting purposes holders of OQI Sask Exchangeable Shares are represented by one outstanding Series B preferred share which carries a number of votes equal to the number of OQI Sask Exchangeable Shares then outstanding.

	OQI Sask Exchangeable Shares			OQI Sask Exchangeable Shares issuable on exercise of OQI Sask options			Total OQI Sask Exchangeable Shares
Balance, April 30, 2008		27,952,840			13,497,200			41,450,040
OQI Sask options exercised (note 6)		1,028,750			(1,028,750	)		-
OQI Sask options expired (note 6)		-			(493,800	)		(493,800	)
OQI Sask Exchangeable shares exchanged into shares of OQI common stock		(1,709,769	)		-			(1,709,769	)
Balance, October 31, 2008		27,271,821			11,974,650			39,246,471

Outstanding OQI Sask Exchangeable shares are included in the calculation of the Weighted Average Number of Common Shares Outstanding for purposes of calculating the Net Loss Per Share.

8. COMMON STOCK

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 4 d)).

On October 3, 2008, the Company issued 6,008,156 shares of common stock on a flow-through basis at a price of $3.675CDN per share for gross proceeds of $22,079,973 CDN ($20,421,727) 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 $3.675CDN per share for gross proceeds of $17,640,000 CDN ($16,315,204) pursuant to a private placement. The Company paid an aggregate of $970,200 CDN ($898,369) 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.

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OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Unaudited)

Under the terms of the flow-through shares issued on October 3, 2008, the Company will renounce the tax benefits of the related expenditures to the subscribers effective December 31, 2008. As at October 31, 2008, approximately CDN $5.5 million has been expended on exploration in Canada leaving approximately CDN $34.2 million to be incurred.

The October 3, 2008 flow-through shares were issued at a premium to the then market price in recognition of the tax benefits accruing to subscribers.  In accordance with US GAAP the premium was recorded as a current liability which is drawn down as a reduction of deferred tax expense as the exploration expenditures are incurred.

9. STOCK OPTIONS

Transactions in the Company’s stock options during the six months ended October 31, 2008 and stock options outstanding at October 31, 2008 are detailed below:

	Number of Options			Weighted Average Exercise Price
Outstanding, April 30, 2008		13,027,000		$	5.22
Granted		7,636,000		$	4.73
Exercised		(35,000	)	$	4.72
Expired		(390,000	)	$	5.70
Outstanding, October 31, 2008		20,238,000		$	5.03

In addition to the above, OQI Sask has 1,455,000 outstanding options which may be exercised and exchanged into OQI Sask Exchangeable Shares whereby up to an additional 11,974,650 OQI common shares may be issued (note 6).

During the six months ended October 31, 2008, 7,636,000 options were granted and were accounted for using the Black-Scholes option-pricing model with the following weighted average assumptions:

Expected life (years)	4.98
Risk free interest rate	3.67	%
Expected volatility	71	%
Dividend yield	0	%

At October 31, 2008, OQI had outstanding options under the Company’s 2006 Stock Option Plan (SOP 2006) to purchase that same number of shares as follows:

Exercise Price		Number Outstanding at October 31, 2008	Number Exercisable at October 31, 2008	Weighted Average Remaining Contractual Life
$	4.57	250,000	250,000	0.30 years
$	6.00	30,000	30,000	0.55 years
$	5.05	2,860,000	1,072,500	2.81 years
$	3.89	390,000	140,000	2.92 years
$	5.25	50,000	12,500	3.08 years
$	6.75	4,000,000	4,000,000	3.32 years
$	2.70	100,000	62,500	3.36 years
$	2.47	100,000	50,000	3.66 years
$	4.27	4,057,000	2,028,500	3.75 years
$	5.04	30,000	30,000	3.84 years
$	4.60	150,000	75,000	3.95 years
$	4.59	115,000	28,750	4.20 years
$	3.37	200,000	50,000	4.26 years
$	4.00	320,000	80,000	4.37 years
$	3.97	10,000	2,500	4.42 years
$	4.25	40,000	10,000	4.46 years
$	4.79	200,000	50,000	4.55 years
$	4.63	15,000	3,750	4.56 years
$	4.57	60,000	27,500	4.59 years
$	5.45	2,000,000	500,000	4.71 years
$	4.51	5,226,000	1,306,500	4.75 years
$	1.41	35,000	8,750	4.96 years
		20,238,000	9,818,750	3.85 years

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OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Unaudited)

As at October 31, 2008, the Company had unrecognized stock option compensation expense of $21,122,552 which will be recorded in future periods as options vest. The expense is expected to be recognized over a weighted-average period of 0.93 years. The intrinsic value of options exercised during the six months ended October 31, 2008 was $53,100 (2007 – $1,789,125).

10. WARRANTS

As at October 31, 2008, OQI had the following warrants outstanding to purchase that same number of common shares:

Expiry Date	Exercise Price		Number of Warrants
December 5, 2009	$	6.75		6,325,000

11. 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 October 31, 2008 and April 30, 2008. Following the tables, additional information is provided for those liabilities in which the Company uses significant unobservable inputs (Level 3) to measure fair value.

	As of October 31, 2008
							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		29,596			29,596			29,596		-		-
Asset Retirement Obligation		(3,528,883	)		(3,528,883	)		-		-		(3,528,883	)

	As of April 30, 2008
					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		390,733		390,733			390,733		-		-
Asset Retirement Obligation		-		-			-		-		-

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OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Unaudited)

Level 3 Fair Value Measurements

Asset retirement obligation — The fair values of the asset retirement obligations are estimated using internal discounted cash flow calculations based upon the Company’s estimates of future retirement costs. A summary of the asset retirement obligation is presented in Note 5.

12. COMPREHENSIVE LOSS

Comprehensive loss includes net loss and all other non-owner changes in equity.  Components of other comprehensive income and accumulated other comprehensive income for the three and six months ended October 31, 2008 and 2007 are presented in the Consolidated Statements of Stockholders’ Equity and Comprehensive Income.

	Three months ended October 31,					Six months ended October 31,
	2008		2007			2008			2007
	(as restated)		(as restated,)			(as restated)			(as restated)
Net Loss	$	44,173,230	$	21,266,797		$	58,296,912		$	26,577,704
Other comprehensive income
Unrealized (gain) loss on available for sale securities		-		69,494			-			30,393
Transfer of unrealized loss on available for sale securities to net loss		-		-			(141,970	)		-
Foreign exchange (gain) loss on translation		62,575,662		(39,239,714	)		68,440,617			(53,947,493	)
Total Comprehensive Loss (Gain)	$	106,748,892	$	(17,903,423	)	$	126,595,559		$	(27,339,396	)

13. RELATED PARTY TRANSACTIONS

The step-mother of an executive 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 three and six months ended October 31, 2008, $989,787 (2007 - $1,868,393) and $1,328,838 (2007 - $2,730,465) respectively, have been included in Exploration costs. These transactions are in the normal course of operations.

As at October 31, 2008, the Company had $228,132 (April 30, 2008 – $160,295) payable to the above mentioned company.

The son of an executive 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 three and six months ended October 31, 2008, $685,647 (2007 – 312,284) and $792,347 (2007 - $312,284) respectively, have been included in Exploration costs. These transactions are in the normal course of operations.

As at October 31, 2008, the Company had $84,660 (April 30, 2008 - nil) payable to the above mentioned company.

The brother of an executive of the Company is a 50% shareholder of a company that provides geophysical and geological analysis to the Company.  For the three and six months ended October 31, 2008, $54,308 (2007 - $3,827) and $76,960 (2007 - $3,827) respectively, have been included in Exploration costs. These transactions are in the normal course of operations.

As at October 31, 2008, the Company had $21,751 (April 30, 2008 - nil) payable to the above mentioned company.

22

OILSANDS QUEST INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Unaudited)

14. SUBSEQUENT EVENTS

Subsequent to October 31, 2008 the Board approved the granting of 5,295,000 stock options to directors, officers and employees.  The exercise price of the options granted will be based on the closing price of the Company’s stock on the day following the filing of the Company’s October 31, 2008 quarterly report on Form 10-Q. The majority of the options vest on the following schedule: 25% on the date of grant, and 25% thereafter on each six month anniversary.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion addresses material changes in our results of operations and capital resources and uses for the three and six months ended October 31, 2008, compared to the three and six months ended October 31, 2007, and our financial condition and liquidity since April 30, 2008.  Our Annual Report on Form 10-K/A, which includes disclosure regarding critical accounting policies and estimates as part of Management’s Discussion and Analysis of Financial Condition and Results of Operation.  Unless otherwise stated, all dollar amounts are expressed in U.S. dollars.  All future payments in Canadian dollars have been converted to U.S. dollars using an exchange rate of $1.00 U.S. = $1.2165 CDN, which was the October 31, 2008 exchange rate.

Overview

Three Months Ended October 31, 2008

· We completed two private placements by issuing 10.8 million shares of common stock on a flow-through basis at a price of $3.675 CDN per share for total gross proceeds of $39.7 million CDN ($36.7 million).

· We drilled 33 exploration and delineation oil sands test holes in the Axe Lake area along with 11 exploration test holes on the Pasquia Hills oil shale prospect. Evaluation of the drilling results is underway.

· As further described below, installation and construction of the reservoir test program facilities at Test Site 1 neared completion and the drilling of several test holes for the reservoir test program, which included successfully drilling three 750-metre horizontal holes (300 metres length within the reservoir) was completed. A short-term heating test program at Test Site 3 also commenced during the period.

· We continued our in-house computer simulation studies, which are supported by advanced laboratory measurements by selected industry experts specializing in reservoir structural analysis, petro-physical characteristics and laboratory scale reservoir production testing.

· As a consequence of current capital and commodity market conditions, we have undertaken an aggressive program of expenditure prioritization. Our activities are focused on the primary goals of determining the quality of our resources, adding to the Company’s resource values, and maintaining our asset base and core team. We have undertaken decisions to curtail and or defer some of our expenditure plans for the remainder of the fiscal year. The impact of these decisions is further detailed in the Outlook section below.

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Six Months Ended October 31, 2008

· We announced independent third party resource estimates for our Axe Lake Discovery and Raven Ridge Discovery which have been disclosed in our Form 10-K/A.

· We signed an exploration agreement establishing a formal economic relationship with the Northern Village of La Loche in Saskatchewan through which the environmental, social and economic impacts of our exploration activities on the Northern Village of La Loche and certain other local communities will be managed.

· We announced the appointment of our President & Chief Operating Officer and other executives as part of our growing management team along with increasing the size of our operations, reservoir and facilities engineering groups and relocating our corporate office in Calgary

· In aggregate, we have completed three private placements by issuing 23.78 million shares of common stock for total gross proceeds of $91.2 million.

Operations Summary:

Exploration Programs – Oil Sands

During the six months ended October 31, 2008, we drilled 33 exploration and delineation oil sand test holes in the Axe Lake area and have underway a 36 kilometre (22 mile) 2D seismic program. Evaluation of the drilling data is underway. We are also continuing with the interpretation of the 1,847 kilometres (1,149 miles) of 2D and 3D seismic data collected and processed in the 2007-2008 winter program. This interpretation is proving valuable in continued detailed characterization of the reservoir and adjacent formations specific to our three test sites and in assessing the geological structures over our lands. In addition we were focused on developing our 2008-2009 oil sands exploration plans for the Raven Ridge, Wallace Creek and Eagles Nest areas. These planning activities included scouting seismic and exploration drilling targets, preparing regulatory applications and initiating consultation processes for approval of the planned activities.

Significant progress was made on the expanded baseline environmental programs initiated in the Axe Lake, Raven Ridge, Wallace Creek and Eagles Nest areas in anticipation of the upcoming exploration programs and a comprehensive Environmental Impact Assessment report which will be required as part of an application for regulatory approval for development of the Axe Lake Discovery. In addition to our passive (periodic) air monitoring activities which have been ongoing since 2005, our active (continuous) air quality monitoring station at Axe Lake, the first of its kind in northwest Saskatchewan, began operating in July 2008.

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In light of current capital and commodity market conditions, our exploration drilling plans and decisions will be based on their potential impact on our financial resources and the benefits received from such activities. Our focus has and will be on cost control as we believe maintaining liquidity is especially important. The prioritization of our exploration activities and plans is further described in the Outlook section below.

Axe Lake Discovery – Reservoir Testing Activities

Three phases of testing in the reservoir test program on the three existing test sites are planned.

Phase One considers the use of up to six vertical observation test holes at three separate test sites (the vertical well program). The purpose of Phase One of the Axe Lake test program is to measure resource-specific heat and fluid movement under specific operating conditions on a field scale to complement our ongoing simulation and laboratory analysis studies.

Phase Two of the test program will incorporate information gathered from Phase One and will expand the reservoir test programs by measuring commercial scale responses using horizontal test holes.

Phase Three of the test program remains in the scoping phase; options being considered range from a continued reservoir test program to a technology feasibility pilot to a full commercial demonstration project. Development of a commercial project remains subject to regulatory and other contingencies such as successful reservoir tests, board of directors approvals, financing and other risks inherent in the energy industry.  These risks are described in detail in our Form 10-K/A. See also “Outlook”.

Test Site 1 will focus on determining the extent and quality of our resources using recovery processes based on steam and hot water. Test Site 2 is planned to use recovery processes based on mobilization agents other than steam such as hot propane and other gases and Test Site 3 is based on the use of electrical heating based methods.

At Test Site 1, we have drilled six vertical test holes and three 750-metre horizontal holes (300 metres length within the reservoir). The three 750-metre horizontal holes will be utilized in Phase One and will form the bases for our testing during Phase Two of our reservoir test program.  In addition, we have drilled two water source wells which showed excellent fluid mobility and sufficient water withdrawal capacity to meet the needs of the Phase One reservoir test program at Test Site 1. Procurement and construction of water treatment, steam generation and extraction collection facilities, which includes three steam generators totaling 38 million BTU/hour steam generation capacity, two diesel power generators each with 750 kilowatt power output capacity, water/oil treatment and oil handling equipment, control systems and eight 1,000-barrel heated liquid storage tanks to support related Test Site 1 activities is nearly complete.

First steam injection at Test Site 1 for the vertical well program is expected to begin in 2009, subject to completion and commissioning of the facilities. Water and steam will be injected into the reservoir in order to mobilize the bitumen at the bottom of the McMurray formation using the vertical test holes.  We expect the results of Phase One to better define the details of Phase Two (horizontal hole tests) and the continued planning and design of Phase Three. Water and steam injection for the Phase Two tests will begin following the completion of the surface facilities associated with the horizontal test holes and will incorporate results from the vertical well program. Phase Two activities are subject to obtaining additional funding. Please see the section titled “Outlook” below for a description of current plans and timing with respect to the test programs.

At Test Site 2, the front-end engineering and design work on a facility for tests using hot propane vapor, initiated earlier in the year, is nearing completion. Construction will be deferred until funding is in place for these tests. We continue to investigate the possibility of using mobilization agents other than steam, such as hot propane or other gases, as an alternate or complementary process for determining the extent and quality of our resources. Information we obtain on the extent and quality of our resources will enable us to optimize recoverability of our bitumen resource.

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At Test Site 3, we are conducting initial low energy tests using electric heat. This represents the first step towards determining critical reservoir properties at a field scale level.  This information will be used for preliminary calibration of our reservoir simulator. Information from the simulator will help maximize the efficiency of the steaming tests on the vertical well program at Test Site 1. To date, two vertical holes have been drilled and the supporting infrastructure has been constructed at Test Site 3. One vertical test hole is equipped with an electric heater to provide heat to the reservoir and both test holes are equipped with sensors to allow for measurement of the effective reservoir heat transfer and mobilization of the bitumen at lower temperatures. The program at Test Site 3 is designed as a short-term heating program intended to determine critical reservoir properties (such as thermal conductivity and relative permeability of the bitumen tested). Heating of the reservoir was initiated in late October and early results to date are in line with expectations. The data gathered will provide Oilsands Quest with preliminary in-situ reservoir performance data to be used for simulation modeling in preparation for initial water and steam injection at Test Site 1 and in the continued planning for Test Site 2.

To date, as part of the ongoing reservoir and overburden characterization program at the Axe Lake Discovery area, initial laboratory testing on the porosity and permeability characteristics of the reservoir and overburden at various temperatures was completed. These results are being included in ongoing reservoir simulation activities to further refine the details of our reservoir test program as described above.

We continue to conduct economic feasibility, financial planning and market studies for full commercial development. We are undertaking a wide range of studies to examine infrastructure issues (roads and natural gas and product pipelines), market alternatives, and the economic evaluation of a wide range of development scenarios. However, we have deferred the advancement of the engineering work associated with a commercial development as part of our prioritization of capital expenditures.

During the period, we contributed CDN $1 million to the Saskatchewan Research Council towards the constructions costs of a new oil sands research laboratory. The new laboratory and its 3D scaled physical model will facilitate the development of new thermal and solvent extraction processes for recovery of bitumen from oil sands. Laboratory testing of bitumen recovery processes  under reservoir conditions will provide data to evaluate solvent assisted thermal recovery and production methods for our bitumen resources.

Exploration Programs – Pasquia Hills Oil Shale Prospect

In September 2008, we drilled 11 exploration test holes on our oil shale prospect in eastern Saskatchewan with all the holes drilled experiencing meaningful intercepts of oil shale of up to 21.5 metres in thickness. Detailed evaluation and interpretation of the drilling results in underway. We are continuing to research potential methods for kerogen recovery from oil shales.

Outlook

Over the next eighteen months we plan to continue the activities necessary to determine the characteristics and properties of the Axe Lake Discovery resource, as well as conducting exploration programs to further define the location, extent and quality of the potential bitumen resource at the Axe Lake Discovery, Raven Ridge Discovery, and the Wallace Creek and Eagles Nest Prospects. These activities will be undertaken with a view to maintaining maximum liquidity and matching the pace of our activities with available funding under current market conditions. Results from our planned activities will enable us to establish a commercial development plan for the Axe Lake Discovery, including identifying and evaluating an optimum in-situ oil sands recovery process, We also intend to maintain our asset base and core technical team in order to advance the commercial development plan for our resource.

For the remainder of the current fiscal year, we have determined that, in light of current capital markets and commodity market conditions, it is prudent to delay the start-up of the vertical well test program at Test Site 1 until later in 2009 and delay our exploration programs in the Eagles Nest and Wallace Creek areas. In addition, we will not begin any field activities related to Test Site 2, where tests on the use of recovery processes based on mobilization agents other than steam such as hot propane were planned and we have deferred the Design Basis Memorandum (DBM) engineering for a 30,000 BOPD facility, initiated in the prior quarter. We will also only conduct those baseline environmental studies necessary to support current activities. These delays represent a change to the timing of Company’s previously disclosed planned programs. Our decision to delay these programs is based on the need to preserve liquidity in light of recent volatility and uncertainty in the capital markets and commodity markets.

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We are continuing our field test programs using an electrical heater at Test Site 3, including completing the construction of surface facilities at Test Site 1 and pursuing our exploration programs in the Axe Lake Discovery and Raven Ridge Discovery areas. While the scale of our field activities are curtailed in the short term, we will aggressively continue to conduct laboratory measurements and simulation studies required to optimize implementation on a field scale at the test sites. We will continue to examine the geo-mechanical properties of the reservoir and overburden in areas of the planned test sites as part of our reservoir and overburden characterization program.

We have engaged McDaniel & Associates to conduct an independent evaluation, in accordance with National Instrument 51-101 (Canada), which we expect will provide an interim classification of a portion of our discovered and undiscovered resources on certain portions of the Axe Lake and Raven Ridge Discoveries as contingent resources and prospective resources.

Development of a commercial project will remain subject to regulatory and other contingencies such as successful reservoir tests, board of directors’ approvals, financing and other risks inherent in the oil sands industry. These risks are described in detail in our Form 10-K/A. In light of current economic conditions, we will continue to maintain financial discipline, while focusing on liquidity and prioritization of expenditures in order to match the pace of our activities with the availability of funding.

 Liquidity and Capital Resources

At October 31, 2008, the Company held cash and short term investments totaling $80.5 million (April 30, 2008 - $46.3 million), consisting of CDN $73.6 million plus US $20.1 million. At December 1, 2008, the Company held cash and short term investments totaling $66.1 million consisting of CDN $57.2 million plus US $19.9 million.

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 the agency agreement.

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 per share for gross proceeds of $22,079,973 CDN ($20,421,727) pursuant to a non-brokered private placement. In addition, 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 per share for gross proceeds of $17,640,000 CDN ($16,315,204) pursuant to a private placement. The proceeds of these private placements must be used for exploration activities in Canada and the tax benefits from such expenditures will flow through to the subscribers.

During the six months ended October 31, 2008, the Company expended $47.7 million on exploration activities, $11.7 million on corporate and general administrative matters and $10.6 million on capital expenditures, which included the acquisition of the interests of the remaining external joint venture partners in the Eagles Nest Prospect. The joint venture partners’ interests were acquired 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. The Company received $1.7 million from the exercise of stock options including proceeds from the exercise of subsidiary options to purchase OQI Sask Exchangeable shares.

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In light of the extraordinary conditions in the global financial and capital markets, and as discussed in our "Outlook" above, our planned activities as outlined in our Form 10-K/A will not be carried out as originally planned. We are currently focused on our prioritized activities, which include effectively conducting field tests using electric heat at Test Site 3, construction of surface facilities at Test Site 1 and pursuing our exploration programs in the Axe Lake Discovery and Raven Ridge Discovery areas as described above.

At the present time, the Company expects its near term liquidity needs will be met by working capital on hand at October 31, 2008. As at October 31, 2008, the Company has working capital of $58 million. The Company believes that it has sufficient funds to maintain its interest in the existing properties, to complete the announced testing activities at its Axe Lake Property, and to maintain other core activities, which include internal operations and general corporate expenditures, through April 2010. 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 costs 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. Current conditions in the global and financial markets have currently limited the availability of these resources. 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.

If the Company is unable to fully fund all of its planned activities this may result in delays of its business objectives, and in some cases, the objectives may not be met.

Results of Operations

Net Loss

Three Months ended October 31, 2008 as compared to three months ended October 31, 2007. The Company experienced a net loss of $44,173,230 or $0.17 per share for the three months ended October 31, 2008 (2007 - net loss of $21,266,797or $0.10 per share).

Six Months ended October 31, 2008 as compared to six months ended October 31, 2007. The Company experienced a net loss of $58,296,912 or $0.23 per share for the six months ended October 31, 2008 (2007 – net loss of $26,577,704 or $0.12 per share).

The Company expects to continue to incur operating losses and will continue to be dependent on additional equity or debt issuances and/or property joint ventures to fund its activities in the future.

Exploration costs

Three and six months ended October 31, 2008 as compared to three and six months ended October 31, 2007. Exploration costs for the three months ended October 31, 2008 were $37,274,533 (2007 - $17,509,171). Exploration costs for the six months ended October 31, 2008 were $47,747,275 (2007 - $22,550,689). The Operations Summary above provides a summary of the exploration activities conducted in the three and six months ended October 31, 2008. Exploration expenditures in the three and six months ended October 31, 2007 related mainly to the 2008 winter Axe Lake Drilling program which commenced in September 2007 and to extensive seismic and magnetic survey activities and baseline environmental studies.

General and administrative

Cash consideration

29

Three and six months ended October 31, 2008 as compared to three and six months ended October 31, 2007. General and administrative expenses settled with cash for the three months ended October 31, 2008 were $8,021,344 (2007 - $1,354,112), for the six months ended October 31, 2008, these were $11,659,049 (2007 - $3,070,549). Expenditures in the three month period ended October 31, 2008 consist of foreign exchange loss ($4.6 million), salaries ($1.5 million), legal and other professional fees ($0.8 million), general office costs ($0.6 million) and communications and investor relations ($0.5 million). Expenditures in the six month period ended October 31, 2008 consisted of foreign exchange loss ($5.4 million), salaries ($2.4 million), legal and other professional fees ($1.6 million), general office costs ($1.3 million) and communications and investor relations ($1.0 million). General and administrative expenses in the three months ended October 31, 2007 consisted of salaries ($0.5 million), legal and other professional fees ($0.4 million), general office costs ($0.2 million) and communications and investor relations ($0.2 million). General and administrative expenses in the six months ended October 31, 2007 consisted of salaries ($1.3 million), legal and other professional fees ($0.9 million), communications and investor relations ($0.7 million), general office costs ($0.4 million) and foreign exchange gain ($0.2 million).

At October 31, 2007 we had 22 employees including 3 seasonal field employees. At October 31, 2008 we had 117 employees including 69 seasonal field employees. The increase this period as compared to the same period in the prior year is consistent with increased activities as discussed above. The foreign exchange loss in the three and six months ended October 31, 2008 results mainly from holding Canadian funds in the parent company while the value of the Canadian dollar declined compared to the U.S. dollar.

Stock-based consideration

Three and six months ended October 31, 2008 as compared to three and six months ended October 31, 2007.  Stock-based consideration expense for the three months ended October 31, 2008 was $9,551,029 (2007 – $8,279,103), and for the six months ended October 31, 2008 it was $13,120,186 (2007 - $10,149,433).  Stock-based consideration expense for the three and six months ended October 31, 2008 consists of stock-based compensation related to the issuance of options to directors, officers, employees and consultants.  Stock-based consideration expense for the three and six months ended October 31, 2007 consisted of stock-based compensation related to the issuance of options to directors, officers, employees and consultants and to bonus shares issued to employees. The fair value of the stock options was estimated using the Black-Scholes valuation model consistent with the provisions of SFAS No. 123R. The Black-Scholes valuation model requires the input of highly subjective assumptions, including the option’s expected life and the expected stock price volatility determined using the historical volatility of the price of shares of the Company’s common stock. The increase this period as compared to the same period in the prior year is consistent with the increased number of employees as noted above.  Stock-based compensation is a non-cash expense. The average value of the stock options using the Black-Scholes valuation model issued during the quarter ended October 31, 2008 was $2.71 (October 31, 2007 - $3.79) and during the six months ended October 31, 2008 was $2.88 (October 31, 2007 - $3.76).

Depreciation and accretion

Three and six months ended October 31, 2008 as compared to three and six months ended October 31, 2007. Depreciation and accretion expense for the three months ended October 31, 2008 was $453,436 (2007 - $265,843), and for the six months ended October 31, 2008 was $771,162 (2007 - $502,073).  Depreciation expense relates to camp facilities, equipment and corporate assets which are being depreciated over their useful lives of three to five years. Accretion expense relates to the asset retirement obligation recognized on the airstrip, camp site, access road, the reservoir test sites which is being brought into income over a period of 10 to 30 years. The change from the period ended October 31, 2007 to the period ended October 31, 2008 is not significant and relates to the increase in assets held during the period and the recognition of accretion expense.

Interest income

Three and six months ended October 31, 2008 as compared to three and six months ended October 31, 2007. Interest income for the three months ended October 31, 2008 was $365,802 (2007 - $541,906).  Interest income for the six months ended October 31, 2008 was $795,080 (2007 - $1,109,870).  Interest income is earned because the Company pre-funds its activities resulting in cash on hand which is invested in short-term deposits. The decrease in interest income this period as compared to the same period in the prior year reflects the decrease in market interest rates over the intervening year.

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Income tax recovery

Three and six months ended October 31, 2008 as compared to three and six months ended October 31, 2007. The income tax recovery for the three months ended October 31, 2008 was $10,761,310 (2007 - $5,599,526). The income tax recovery for the six months ended October 31, 2008 was $14,205,680 (2007 - $8,585,170). The tax recovery reported relates to the tax benefit that is generated by expensing all exploration costs. This results in a higher tax basis for the Company’s capital assets when compared to their carrying value. This is reduced by the impact of flow through expenditures: the tax benefit of which flows through to subscribers. Drawdown of the flow through share premium liability decreases the recovery. The net impact for the period was a reduction of tax recovery in the amount of $1,015,718 (2007 - $4,040) over three months and $1,015,718 (2007 - $172,956) over six months. The deferred tax liability reported on the balance sheet is mainly related to the book value of property which will not be deductible for tax purposes and is related to the Company’s 2006 acquisition of the non controlling (minority) interest in OQI Sask.

Recently Issued Accounting Standards Not Yet Adopted

In December 2007 the FASB issued Statement of Financial Accounting Standards No. 141R (SFAS 141R), which replaces SFAS No. 141, “Business Combinations”. SFAS No. 141R retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting be used for all business combinations and that an acquirer be identified for each business combination. This statement 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. For the Company, SFAS No. 141R must be applied prospectively to business combinations for which the acquisition date occurs on or after May 1, 2009. The impact to the Company of applying SFAS No. 141(R) for periods subsequent to implementation will be dependent upon the nature of any transactions within the scope of SFAS No. 141(R).

In December 2007 the FASB issued SFAS No. 160, which amends ARB No. 51, “Consolidated Financial Statements,” to establish accounting and reporting standards for the non-controlling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 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 income statement is presented by requiring consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. In addition, SFAS No. 160 establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation. For the Company, SFAS No. 160 is effective as of May 1, 2009, and must be applied prospectively, except for certain presentation and disclosure requirements which must be applied retrospectively. We do not expect the adoption of SFAS No. 160 to have a material impact on our financial statements and related disclosures.

In March 2008 the FASB issued SFAS No. 161, which amends and expands the disclosure requirements for derivative instruments and hedging activities prescribed by SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 161 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. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008 and encourages, but does not require, comparative disclosure for earlier periods at initial adoption. The adoption of SFAS No. 161 will not have any impact on the Company’s consolidated results of operations, cash flows or financial position.

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Item 4. Controls and Procedures (As Restated)

Disclosure Controls and Procedures

As of October 31, 2008, we carried out an evaluation under the supervision of, and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended.   Based on the evaluation as of October 31, 2008, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e)) under the Securities Exchange Act of 1934) were effective.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

In connection with the restatement described in note 2 of our October 31, 2008 financial statements, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has re-evaluated the effectiveness of our disclosure controls and procedures as of April 30, 2009.   Based on this re-assessment, management concluded that as of October 31, 2008 the Company’s disclosure controls and procedures were not effective because of the material weakness in internal control described below.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness in our internal control over financial reporting as of October 31, 2008 existed as we did not maintain effective processes and controls over the accounting for and reporting of complex and non-routine transactions. Specifically, we did not have sufficient appropriate level of technical knowledge, experience and training in the accounting for asset acquisitions, stock-based compensation, and deferred income taxes. This control deficiency resulted in the restatement of the consolidated financial statements for the years ended April 30, 2008 and 2007 and each of the quarters in fiscal 2009 and 2008.  The restatement of the prior periods also resulted in a material adjustment to the April 30, 2009 financial statement prior to their issuance.

We plan to remediate the material weakness described above by consulting with an independent big four accounting firm on complex accounting issues and obtain written analysis of the accounting options available to us.  The analysis would be reviewed with the independent auditors on the appropriateness of the accounting treatment for any new transactions.  We will also amend our period close procedures to include access to independent consultation on technical accounting treatment with respect to highly complex transactions.

Changes in Internal Control Over Financial Reporting

We regularly review our system of internal control over financial reporting to ensure that we maintain an effective control environment.  There were no changes in our internal control over financial reporting during the period covered by this report on Form 10-Q/A that have materially affected or is reasonably likely to materially affect, our internal control over financial reporting except as described above under “Disclosure Controls and Procedures”.

  

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PART II - OTHER INFORMATION

Item 1A.  Risk Factors

The impact of disruptions in the global financial and capital markets on our ability to obtain financing.

The global financial and capital markets have been experiencing extreme volatility and disruption, including the failures of financial services companies and the related liquidity crisis. Although we expect to meet our near term liquidity needs with our working capital on hand, we will continue to need further funding to achieve our business objectives. In the past, the issuance of equity securities has been the major source of capital and liquidity for us. The extraordinary conditions in the global financial and capital markets have currently limited the availability of this funding. If the disruptions in the global financial and capital markets continue, debt or equity financing may not be available to us on acceptable terms, if at all. If we are unable to fund future operations by way of financing, including public or private offerings of equity or debt securities, our business, financial condition and results of operations will be adversely impacted.

Other than as described above, there have been no material changes to the information included in Item 1. “Description of Business – Risk Factors” in our 2008 Annual Report on Form 10-K/A.

ITEM 2.  Unregistered Sales of Equity Securities and Use of Proceeds

Following are descriptions of all unregistered equity securities of the Company sold during the last fiscal quarter and excluding transactions that were previously reported on Form 10-Q/A or Form 8-K.

On September 11, 2008, pursuant to the Company’s 2006 Stock Option Plan (the “Plan”), we granted an officer 50,000 options to purchase our common stock exercisable at $2.70 per share with the options vesting on a pro-rata basis over a three year period from the date of grant. The option was granted in consideration for the person agreeing to become an officer of the Company and for services to be rendered in the recipient’s capacity as an officer. The options were granted to a non-U.S. person pursuant to Regulation S under the Securities Act of 1933.  To the extent this option grant constituted a “sale” of securities we relied on the exemption from registration provided by Section 4(2) under the Securities Act of 1933 for this grant because we: (i) did not engage in any public advertising or general solicitation in connection with the grants; (ii) made available to the recipient disclosure regarding all aspects of our business including our reports filed with the SEC and our press releases, and other financial, business, and corporate information; and (iii) believed that the recipient obtained all information regarding the Company he requested (or believed appropriate) and received answers to all questions he (and his advisors) posed, and otherwise understood the risks of accepting our securities for investment purposes. No commissions or other remuneration was paid in connection with this issuance.

On September 11, 2008, pursuant to the Company’s 2006 Stock Option Plan (the “Plan”), we granted a former officer of a subsidiary 50,000 options to purchase our common stock exercisable at $2.70 per share with the options vesting immediately. The options were granted in consideration for services rendered in the recipient’s capacity as an officer of a subsidiary. The options were granted to a non-U.S. person pursuant to Registration S under the Securities Act of 1933.  To the extent these option grants constituted a “sale” of securities we relied on the exemption from registration provided by Section 4(2) under the Securities Act of 1933 for this grant because we: (i) did not engage in any public advertising or general solicitation in connection with the grant; (ii) made available to the recipient disclosure regarding all aspects of our business including our reports filed with the SEC and our press releases, and other financial, business, and corporate information; and (iii) believed that the recipient obtained all information regarding the Company he requested (or believed appropriate) and received answers to all questions he (and his advisors) posed, and otherwise understood the risks of accepting our securities for investment purposes. No commissions or other remuneration was paid in connection with this issuance.

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On  October 16, 2008, pursuant to the Company’s 2006 Stock Option Plan (the “Plan”), we granted employees 35,000 options to purchase our common stock exercisable at $1.41 per share with the options vesting on a pro-rata basis over a three year period from the date of grant. The option was granted in consideration for each person agreeing to become a Company employee and for services to be rendered in the recipient’s capacity as an employee. The options were granted to non-U.S. persons pursuant to Registration S under the Securities Act of 1933. To the extent these option grants constituted a “sale” of securities we relied on the exemption from registration provided by Section 4(2) under the Securities Act of 1933 for this grant because we: (i) did not engage in any public advertising or general solicitation in connection with the grant; (ii) made available to the recipient disclosure regarding all aspects of our business including our reports filed with the SEC and our press releases, and other financial, business, and corporate information; and (iii) believed that the recipients obtained all information regarding the Company he or she requested (or believed appropriate) and received answers to all questions he or she (and his/her advisors) posed, and otherwise understood the risks of accepting our securities for investment purposes. No commissions or other remuneration was paid in connection with this issuance.

ITEM 4. Submission of Matters to a Vote of Security Holders.

On October 15, 2008, we held our annual meeting of share-holders.  We reported the results of that meeting in a current report on Form 8-K filed with the SEC on October 21, 2008.

ITEM 5. Other Information

Karim Hirji, Chief Financial Officer, has indicated to the Board on December 4, 2008 that for personal and family health reasons he will reduce his roles and responsibilities in 2009.  Christopher Hopkins, our Chief Executive Officer, will be appointed as interim Chief Financial Officer in the event that Mr. Hirji's successor has not been selected at the time.  Mr. Hirji currently intends to remain with the Company, although in a reduced capacity.

Eric Kimball, Vice President Exploration, has resigned his position effective as of December 4, 2008. Mr. Kimball informed the Company that he resigned to pursue other options.

ITEM 6. Exhibits.

3.1 Articles of Incorporation,as amended. (1), (2), (3), (4), (5) (8)

3.2 By laws, as amended. (6)(7)

31.1 Certification of CEO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

31.2 Certification of CFO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

32.1 Certification of CEO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

32.2 Certification of CFO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

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__________

(1) Incorporated by reference from Form 10-SB, filed October 14, 1999; and Form 8-K, filed November 29, 2004.

(2) Incorporated by reference from Form 10-Q/SB dated December 14, 2005.

(3) Incorporated by reference from Form 8-K dated March 13, 2006.

(4) Incorporated by reference from Form 8-K dated August 14, 2006.

(5) Incorporated by reference herein from Form 10-Q/SB filed December 15, 2006.

(6) Incorporated by reference herein from Form 8-K filed July 26, 2007.

(7) Incorporated by reference herein from Form 8-K filed November 23, 2007.

(8) Incorporated by reference herein from Form 8-K filed October 21, 2008.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-Q/A to be signed on its behalf by the undersigned, thereunto duly authorized.

	OILSANDS QUEST INC.
Date:  July 29, 2009	By:	/s/ Christopher H. Hopkins
		Christopher H. Hopkins, President, Chief Executive Officer and Director
Date:  July 29, 2009	By:	/s/ Garth Wong
		Garth Wong, Chief Financial Officer

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