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EX-23.1 - EXHIBIT 23.1 - Oilsands Quest Incexhibit23-1.htm
EX-23.2 - EXHIBIT 23.2 - Oilsands Quest Incexhibit23-2.htm


As filed with the Securities and Exchange Commission on November 4, 2009

Registration No. 333-162023


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Amendment No. 1 to
FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

OILSANDS QUEST INC.
(Exact name of registrant as specified in its charter)

Colorado
1311
98-0461154
(State or other jurisdiction of incorporation or organization)
(Primary Standard Industrial Classification Code Number)
(I.R.S. Employer Identification Number)

800, 326 – 11th Avenue SW

Calgary, Alberta, Canada T2R 0C5

 (403) 263-1623
 (Address, including zip code, and telephone number, including area code,

of registrant’s principal executive offices)

Garth Wong

Chief Financial Officer

Oilsands Quest Inc.

800, 326 – 11th Avenue SW

Calgary, Alberta, Canada T2R 0C5

 (403) 263-1623
 (Name, address, including zip code, and telephone number, including area code,

of agent for service)

Copies to:
Andrew J. Foley, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, New York 10019-6064
 (212) 373-3000

Approximate date of commencement of proposed sale to public:  From time to time after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: þ

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act Registration Statement number of the earlier effective Registration Statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large Accelerated Filer o
Accelerated Filer þ
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o
 
 
 
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.


 
 
 

 


The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to completion, dated November 4, 2009

Base Shelf Prospectus
 
LOGO

 

99,598,673 SHARES OF
COMMON STOCK


This prospectus relates to: (i) up to 6,325,000 shares of common stock issuable from time to time upon the exercise of warrants of the Company previously issued in December 2007 (the “2007 Warrants”) and (ii) up to 17,537,500 shares of common stock issuable from time to time upon the exercise of warrants of the Company previously issued in May 2009 (the “2009 Warrants”).  The 2007 Warrants entitle the purchaser to purchase one share of common stock for a price of US$6.75 at any time on or prior to December 5, 2009 and the 2009 Warrants entitle the purchaser to purchase one share of common stock for a price of US$1.10 at any time on or prior to May 12, 2011.

In addition, this prospectus relates to the resale by the selling shareholders described herein of up to 75,736,173 shares of our common stock issued or to be issued upon the exchange of exchangeable shares (the "Exchangeable Shares") in Oilsands Quest Sask Inc. ("OQI Sask"), the Company's wholly owned subsidiary. The Exchangeable Shares were issued by OQI Sask as part of the reorganization on August 14, 2006, and are exchangeable at any time on a one-for-one basis, at the option of the holder, for shares of the Company’s common stock.

The actual number of shares of common stock offered by the selling shareholders in this prospectus, and included in the registration statement of which this prospectus is a part, includes such additional number of shares of common stock as may be issued or issuable upon exercise of the 2007 Warrants, the 2009 Warrants or the Exchangeable Shares by reason of any stock split, stock dividend or similar transaction involving the common stock, in accordance with Rule 416 under the Securities Act of 1933 (the “Securities Act”).
 
The selling shareholders may sell securities from time to time in the principal market on which the securities are traded at the prevailing market price or in negotiated transactions. The selling shareholders may be deemed underwriters of the securities which they are offering.  We will pay the expenses of registering these securities.

Our common stock is registered under Section 12(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and is listed on the NYSE AMEX under the symbol “BQI”. The last reported sales price per share of our common stock as reported by the NYSE AMEX on September 18, 2009 was $1.19.  The 2007 Warrants and the 2009 Warrants are also listed on the NYSE AMEX.  

You should carefully read this prospectus, together with the documents incorporated by reference, before you invest. Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 10.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is ______________, 2009.


 
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TABLE OF CONTENTS



 
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ABOUT THIS PROSPECTUS
 
This prospectus is part of a “shelf” registration statement that we filed with the SEC.

This prospectus relates to: (i) up to an aggregate 23,862,500 shares of common stock issuable from time to time upon the exercise of the 2007 Warrants and the 2009 Warrants, and (ii) the resale by the selling shareholders described herein of up to 75,736,173 shares of our common stock issued or to be issued upon the exchange of the Exchangeable Shares.   Before investing in any securities, you should carefully read this prospectus and any free writing prospectus prepared by or on behalf of us, together with the documents we have incorporated by reference in this prospectus described under the heading “Documents Incorporated by Reference.”  You should also review the additional information described under the heading “Where You Can Find More Information.”

You should only rely on the information contained in or incorporated by reference into this prospectus. We have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus, and any free writing prospectus, or the documents incorporated by reference herein or therein, prepared by or on behalf of us is accurate only as of the date such information is presented. Our business, financial condition, plan of operations and prospects may have subsequently changed.

When we use the terms “Oilsands Quest,” the “Company,” “we,” “us,” “our,” or “OQI,” we are referring to Oilsands Quest Inc. and its subsidiaries, unless the context otherwise requires.
 

 
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 PROSPECTUS SUMMARY
 
This summary highlights information contained or incorporated by reference in this prospectus. This summary does not contain all of the information that you should consider before deciding to invest in the securities. You should read this entire prospectus carefully, including the financial data and related notes, risk factors and other information incorporated by reference in this prospectus.

Oilsands Quest Inc.

Background

We are a Colorado corporation formed on April 3, 1998 as Uranium Power Corporation. On November 2, 2004 we changed our name to CanWest Petroleum Corporation. On October 31, 2006 we changed our name to Oilsands Quest Inc.

The Company operates through its subsidiary corporations and conducts limited joint venture activities directly. Our primary operating subsidiary is Oilsands Quest Sask Inc. (“OQI Sask”), an Alberta corporation. OQI Sask was established as an operating subsidiary of the Company primarily to explore for and develop oil sands deposits in the provinces of Saskatchewan and Alberta. We currently own 100% of the issued and outstanding voting common shares of OQI Sask following the acquisition of the noncontrolling (minority) interest of OQI Sask on August 14, 2006. Following this acquisition, our Board of Directors was reorganized and the executive team of OQI Sask was appointed as the Company’s executive team.

In addition to OQI Sask, we also have the following wholly-owned subsidiaries:

 
Township Petroleum Corporation (“Township”), an Alberta corporation. Township owns an oil sands lease in the Province of Alberta acquired in 2005, referred to as the Eagles Nest, and is currently developing plans for exploring the oil sands potential on the lease.

 
Western Petrochemicals Corp. (“WPC”), an Alberta corporation. WPC formerly owned certain rights relating to exploration for oil shale, referred to as the Pasquia Hills Oil Shale, and is currently inactive.

 
Stripper Energy Services Inc. (“Stripper”), acquired in 2007 and currently a wholly owned subsidiary of OQI Sask.

 
1291329 Alberta Ltd., incorporated in 2007 to own assets related to camp facilities and equipment.

 
Oilsands Quest Technology Inc., incorporated in 2007 to assess technologies related to bitumen and shale oil extraction and to ensure any proprietary information created from the development of our prospects can be commercially exploited. Since incorporation, this subsidiary has been focused on assessing technologies related to the extraction of bitumen and planning research for the development technologies applicable for the extraction of resources from its lands.


 
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Strategy

Our strategy is to focus on business opportunities in the oil and gas sector and in particular the oil sands and oil shale sectors in Western Canada with the objective of maximizing value on a per share basis. We will execute our strategy by:

 
Selectively identifying and acquiring key targets in the oil sands and oil shale sectors. We have amassed one of the largest contiguous land positions in the oil sands industry in Canada along with a significant oil shale land position in Saskatchewan. We have an undivided, 100% interest in each of the permits, licenses and leases held.

 
Exploring and delineating resources on our lands. Our operating teams have conducted extensive exploration programs, consisting of drilling 424 exploration and delineation wells, conducting 2,080 kilometres of 2-D and 3-D seismic surveys, and other exploration activities resulting in the Axe Lake and Raven Ridge Discoveries and the identification of multiple other oil sands prospects. We manage and operate all of our activities.

 
Exploiting the oil sands resources identified. We are focused on the commercialization of our  reservoirs and are in the process of conducting a comprehensive reservoir test program at Axe Lake to determine the optimal recovery processes that will be utilized to produce bitumen from our reservoirs. Our development strategy includes evaluating alternative recovery processes and joint venture partners on specific projects to optimize economic recovery and to accelerate the development of such projects in a timely and responsible manner.

 
Separate the mineral assets of the company. Our intent is to reorganize the Pasquia Hills oil shales held by Oilsands Quest, so that these interests will form a distinct and separate business.  The Company is considering establishing a subsidiary and separating the assets for the purpose of creating a separate business.

Our business plan is to focus on the exploration, delineation and exploitation of bitumen resources on our oil sands exploration permits, licenses and lease located in the provinces of Saskatchewan and Alberta. In the present market we also view our oil shale prospects as having significant long-term potential value.

Operating Results

We have generated no revenue. We have used significant funds in operations, and expect this trend to continue for the foreseeable future. There is no assurance that we can generate net income, increase revenues or successfully explore and exploit our properties.

Our Corporate Information

Our principal offices are located at 800, 326 – 11th Avenue SW, Calgary, Alberta, Canada T2R 0C5, and our telephone number is (403) 263-1623. Our website is www.oilsandsquest.com. Our website is not a part of this prospectus.
 

 
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The Offering
 
Securities Offering                                                              
This prospectus relates to: (i) up to an aggregate 23,862,500 shares of common stock issuable from time to time upon the exercise of the 2007 Warrants and the 2009 Warrants, and (ii) the resale by the selling shareholders described herein of up to 75,736,173 shares of our common stock issued or to be issued upon the exchange of the Exchangeable Shares.   See the “Plan of Distribution” section of this prospectus for additional information concerning the manner in which our securities may be offered.  
   
Common Stock Outstanding                                                              
As of September 18, 2009, 277,884,511 shares of our common stock were issued and outstanding (excluding 48,870,917 shares of our common stock reserved for issuance upon exercise of outstanding options under option plans and warrants, and 1,388,567 shares of common stock reserved for issuance on settlement of debt of a former subsidiary).  In addition, pursuant to our Reorganization Agreement with OQI Sask dated August 14, 2006, we are required to issue up to 76,504,304 shares of our common stock for all of the exchangeable shares of OQI Sask (the “OQI Sask Exchangeable Shares”) (including warrants and options to acquire) issued at closing. As of September 18, 2009, 38,996,938 OQI Sask Exchangeable Shares have already been exchanged for shares of our common stock, 768,131 OQI Sask options were forfeited and up to an additional 36,739,235 OQI Sask Exchangeable Shares may be exchanged for shares of our common stock.
 
NYSE AMEX Symbol                                                              
Our common stock is listed on the NYSE AMEX under the symbol “BQI”.
   
Use of Proceeds                                                              
We will not receive any proceeds from the resale of securities by the selling shareholders.
   
Dividends                                                              
We have never declared or paid any dividends or distributions on our common stock. We anticipate that for the foreseeable future all earnings will be retained for use in our business and no cash dividends will be paid to shareholders. Any payment of cash dividends in the future on our common stock will be dependent upon our financial condition, results of operations, current and anticipated cash requirements, plans for expansion, as well as other factors that the Board of Directors deems relevant.
   
Risk Factors                                                              
Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 10.
 

 
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 DOCUMENTS INCORPORATED BY REFERENCE
 
The SEC allows us to “incorporate by reference” the information in documents we file with them, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus. These documents provide a significant amount of information about us. We incorporate by reference the documents listed below:

 
·
Our Annual Report on Form 10-K for the fiscal year ended April 30, 2009 (filed July 30, 2009).
 
·
Our Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2009 (filed September 9, 2009).
 
·
Our Current Reports on Form 8-K reporting events of (filing date in parentheses):

 
September 10, 2009
(September 10, 2009)
 
August 25, 2009
(August 27, 2009)
 
July 30, 2009
(August 4, 2009)
 
July 14, 2009
(July 17, 2009; amended on July 28, 2009)
 
July 6, 2009
(July 10, 2009)
 
May 1, 2009
(May 1, 2009)

 
·
Our Definitive Proxy Statement on Schedule 14A (those portions incorporated by reference into our Form 10-K only) filed on August 28, 2009.
 
·
The description of our common stock set forth in our Registration Statement on Form 10-SB (filed October 14, 1999), as amended by Form 8-A (filed March 13, 2006 and August 23, 2006).

The above information incorporated by reference has also been filed with the securities regulatory authorities in each of the provinces of Canada except Quйbec.

We will provide to each person to whom a prospectus is delivered a copy of any or all of the reports or documents that have been incorporated by reference in this prospectus but not delivered with the prospectus.  You may request a copy of these filings or a copy of any or all of the documents referred to above which have been incorporated in this prospectus by reference, at no cost, by writing the following individual at the Corporation or calling the following individual of the Corporation at the following address and telephone number:

Vice President, Legal

Oilsands Quest Inc.

800, 326 – 11th Avenue SW

Calgary, Alberta, Canada T2R 0C5

Telephone No.:  (403) 263-1623

Facsimile No.:  (403) 263-9812

Copies of these reports and documents are also available on our website at http://www.oilsandsquest.com. Our website is not a part of this prospectus.

 WHERE YOU CAN FIND MORE INFORMATION
 
We have filed with the SEC a “shelf” registration statement on Form S-1 under  the Securities Act relating to the securities that may be offered by this prospectus. This prospectus is a part of that registration statement, but does not contain all of the information in the registration statement. We have omitted parts of the registration statement in accordance with the rules and regulations of the SEC. For more detail about us and any securities that may be offered by this prospectus, you may examine the registration statement on Form S-1 and the exhibits filed with or incorporated by reference into the registration statement at the locations listed below.


 
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We file annual, quarterly and periodic reports, proxy statements and other information with the SEC. You may read and copy any document we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549 by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that  contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC at http://www.sec.gov. We also file reports and other information with the securities regulatory authorities in each of the provinces of Canada except Quйbec. These documents are electronically available at http://www.sedar.com.

NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS
 
This prospectus includes certain statements that may be deemed to be “forward-looking statements” within the meaning of applicable securities laws. All statements, other than statements of historical facts, included in this prospectus 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, development and exploration expenditures;
 
 
·
the timing of exploration activities;
 
 
·
business strategies and development of our business plan and drilling programs; and
 
 
·
potential reservoir recovery optimization processes.

Forward-looking statements are statements other than relating to historical fact and are frequently characterized by words such as “plan”, “expect”, “project”, “intend”, “believe”, “anticipate”, “estimate”, “potential”, “prospective” and other similar words or statements that certain events or conditions “may” “will” or “could” occur. Forward-looking statements such as references to Oilsands Quest’s drilling program, geophysical programs, reservoir field testing and analysis program, preliminary engineering and economic assessment program for a first commercial project, and the timing of such programs are based on the opinions and estimates of management and the Company’s independent evaluators at the date the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those anticipated in the forward-looking statements, which include but are not limited to risks inherent in the oil sands industry, regulatory and economic risks, lack of infrastructure in the region in which the Company’s resources are located and risks associated with the Company’s ability to implement its business plan. The Company’s views about the restatement, its remediation of a material weakness in its controls, its financial condition, performance and other matters also constitute “forward-looking statements”. These forward-looking statements are subject to risks and uncertainties including, but not limited to, the results and effect of the Company’s review of its accounting practices, potential delisting of our common stock on the NYSE Amex or cease trade orders by regulatory authorities; potential claims and proceedings relating to the adjustments to the Company’s financial statements or its accounting practices, including shareholder litigation and action by the SEC or other governmental agencies which could result in civil or criminal sanctions against the Company and/or certain of its current or former officers, directors and/or employees; and negative tax or other implications for the Company resulting from the accounting adjustments and other factors detailed from time to time in the Company’s filings under the Exchange Act. Many of these risks and uncertainties are beyond the control of the Company. The Company undertakes no obligation to update forward-looking statements if circumstances or management’s estimates or opinions should change, except as required by law. The reader is cautioned not to place undue reliance on forward-looking statements.

The risks and uncertainties set forth above are not exhaustive.  Readers should refer to our Annual Report on Form 10-K and other documents incorporated by reference in this prospectus, which are available at www.sec.gov and at www.sedar.com for a detailed discussion of these risks and uncertainties and details regarding the location and extent of our land holdings.


 
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RISK FACTORS
 
An investment in our securities has a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described below and the other information in our Form 10-K for the fiscal year ended April 30, 2009. If any of the following risks actually occur, our business, operating results and financial condition could be harmed and the value of our stock could go down. This means you could lose all or a part of your investment in our securities.

RISKS RELATED TO OUR BUSINESS

If we fail to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, the price of our common shares may be reduced.

We are required to maintain effective internal control over financial reporting under the Sarbanes-Oxley Act of 2002 and related regulations. Any material weakness in our internal control over financial reporting that needs to be addressed, disclosure of management’s assessment of our internal control over financial reporting, or disclosure of our public accounting firm’s report on internal control over financial reporting that reports a material weakness in our internal control over financial reporting may reduce the price of our common shares.

In connection with the audit of our consolidated financial statements for the year ended April 30, 2009, we and our independent registered public accounting firm identified deficiencies in our internal control over financial reporting that were “material weaknesses” as defined by standards established by the Public Company Accounting Oversight Board. The deficiencies related to our accounting for the August 2006 acquisition of a noncontrolling interest of OQI Sask which together with our 64.08% interest resulted in a 100% interest in OQI Sask. We have restated our financial statements for the period ended April 30, 2008 and the interim periods from July 31, 2008 through January 31, 2009 to correct the accounting treatment for this acquisition.  However, we cannot assure you that our remediation of our internal control over financial reporting relating to the identified material weakness will re-establish the effectiveness of our internal control over financial reporting or that we will not be subject to material weaknesses in the future.

The restatement of our consolidated financial statements may result in litigation and government enforcement actions.

We have restated our consolidated financial statements and other financial information for the years ended April 30, 2008 and 2007 and the interim periods ended from July 31, 2008 through January 31, 2009 primarily with respect to the accounting treatment of our August 2006 acquisition of a noncontrolling interest (35.92%) of OQI Sask which together with our 64.08% interest resulted in a 100% interest in OQI Sask.  The restatement of our prior financial statements may expose us to risks associated with litigation, regulatory proceedings and government enforcement actions, including the risk that the SEC may disagree with the manner in which we have accounted for and reported the financial impact of the restatement which could result in the Company having to further restate its prior financial statements, amend prior filings with the SEC, or take other actions not currently contemplated.

In addition, securities class action litigation has often been brought against companies who have been unable to provide current public information or who have restated previously filed financial statements.  Such litigation is complex and could result in substantial costs, divert management’s attention and resources, and harm our business, financial condition and results of operations.

Due to Our History of Operating Losses, We are Uncertain That We Will Be Able to Maintain Sufficient Cash to Accomplish Our Business Objectives

The consolidated financial statements have been prepared assuming that we will continue as a going concern. During the fiscal years ended April 30, 2009 and 2008 we suffered net losses of $88,965,180 and $91,031,316, respectively. At April 30, 2009, there was stockholders’ equity and working capital of $357,095,332 and $27,141,625, respectively. There is no assurance that we can generate net income, increase revenues or successfully explore and exploit our properties.


 
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Significant amounts of capital will be required to explore the permit lands in Saskatchewan and Alberta, oil sands exploration licenses in Saskatchewan, the Eagles Nest Prospect and the Pasquia Hills Oil Shale Prospect. The only source of future funding presently available to us is through the sale of additional equity capital and borrowing funds or selling a portion of our interest in our assets. There is no assurance that any additional equity capital or borrowings required will be obtainable on terms acceptable to us, if at all. Failure to obtain such additional financing could result in delays or indefinite postponement of further exploration and development of our projects. Equity financing, if available, may result in substantial dilution to existing shareholders. Our financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should we become unsuccessful in implementing these plans.

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.  Additionally, these factors, as well as other related factors, may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses.

Our Business Plan is Highly Speculative and its Success Depends, in part, on Exploration Success on the Permit, License and Lease Lands and the Development of Identified Discoveries

Our business plan is focused primarily on the exploration for and development of oil sands deposits on our permitted, licensed and leased lands in the Provinces of Saskatchewan and Alberta.

Exploration itself is highly speculative. We are subject to all of the risks inherent in oil sands exploration and development, including identification of commercial projects, selection of optimal recovery processes for successful production, operation and revenue uncertainties, market sizes, profitability, market demand, commodity price fluctuations and the ability to raise further capital to fund activities. There can be no assurance that we will be successful in overcoming these risks.

Status and Stage of Reservoir Test Program

The reservoir test program is currently at the early stages of its planned implementation schedule. There is a risk that the program will not be completed on time or on budget or at all. Additionally, there is a risk that the program may have delays, interruption of operations or increased costs due to many factors, including, without limitation: breakdown or failure of equipment or processes; construction performance falling below expected levels of output or efficiency; design errors; challenges to, or inability to access in a timely or economic fashion, the proprietary technology anticipated to be licensed for the program; contractor or operator errors; non-performance by third-party contractors; labour disputes, disruptions or declines in productivity; increases in materials or labour costs; inability to attract sufficient numbers of workers; delays in obtaining, or conditions imposed by, regulatory approvals; changes in program scope; violation of permit requirements; disruption in the supply of energy; transportation accidents, disruption or delays in availability of transportation services or adverse weather conditions affecting transportation; unforeseen site surface or subsurface conditions; and catastrophic events such as fires, earthquakes, storms or explosions.


 
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Access to Infrastructure

Production from our lease, license, and permit lands will depend upon certain infrastructure that does not currently exist in close proximity to where we currently anticipate to locate our initial projects and such infrastructure, if put in place, may be operated by others. Such infrastructure will include, without limitation, the following: pipelines for the transportation of natural gas and certain feedstock to our site and the transportation of bitumen and other petroleum products we produce to upgrading facilities and markets for sale; and electricity transmission and distribution systems for the provision of electricity. The failure to have any of this infrastructure in place on economic terms will negatively impact the operation of any potential commercial project and will adversely affect the ability to convert our resources into reserves.

Access to Markets

By the time we have a commercial project ready for start-up, it will likely have been preceded by other projects which began development at an earlier time and are more advanced in terms of production. As a result, preferred markets for our products may have already been taken up or upgraders or refiners may lack sufficient capacity to process our products in a timely or economic fashion.

Location of Discovery Areas

With the exception of Eagles Nest, all of Oilsands Quest’s prospective areas are located east of what has to date been considered the established bitumen resources that are exploitable by in-situ production techniques in the Athabasca oil sands area.   Similar to some other bitumen accumulations within the eastern portion of Alberta, the Axe Lake and Raven Ridge areas lack a distinct overlying shale formation. The absence of this may preclude the use of certain high-pressure in-situ recovery methods, but the quality of the reservoirs and high bitumen saturations present at the Axe Lake and Raven Ridge areas provide the potential for extraction using a number of recovery methods, re-configured for our reservoirs.  However, there can be no assurances that any such recovery method will be successful in enabling us to recover significant volumes of bitumen from our reservoirs.  See “—Status and Stage of Reservoir Test Program”.

Independent Reviews

Although third parties have prepared reviews, reports and projections relating to the evaluation, viability and expected performance of our resources and plans for development thereof, no assurance can be given that these reports, reviews and projections and the assumptions on which they are based will, over time, prove to be accurate.

Personnel

The design, development and construction of the reservoir test program and any subsequent pilot and commercial projects will require experienced executive and management personnel and operational employees and contractors with expertise in a wide range of areas. No assurance can be given that all of the required personnel and contractors with the necessary expertise will be available. Should other oil sands projects or expansions proceed in the same time frame as Oilsands Quest programs and projects, we will have to compete with these other projects and expansions for qualified personnel and such competition may result in increases to compensation paid to such personnel or in a lack of qualified personnel. Any inability of Oilsands Quest to attract and retain qualified personnel may delay or interrupt the design, development and construction of, and commencement of operations at, the reservoir test program and any subsequent pilot and commercial projects. Sustained delays or interruptions could have a material adverse effect on the financial condition of Oilsands Quest.


 
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THE BUSINESS OF OIL SANDS EXPLORATION IS SUBJECT TO MANY RISKS

Nature of Oil Sands Exploration and Development

Oil sands exploration and development is very competitive and involves many risks that even a combination of experience, knowledge and careful evaluation may not be able to overcome. As with any petroleum property, there can be no assurance that commercial deposits of bitumen will be produced from our permit lands in Saskatchewan and Alberta, oil sands exploration licenses in Saskatchewan, or the Eagles Nest Prospect and Pasquia Hills Oil Shale Prospect. Furthermore, the marketability of any resource will be affected by numerous factors beyond our control. These factors include, but are not limited to, market fluctuations of prices, proximity and capacity of pipelines and processing equipment, equipment and labour availability and government regulations (including, without limitation, regulations relating to prices, taxes, royalties, land tenure, allowable production, importing and exporting of oil and gas and environmental protection). The extent of these factors cannot be accurately predicted, but the combination of these factors may result in us not receiving an adequate return on invested capital.

The Viability of our Business Plan, Business Operations, and Future Operating Results and Financial Condition are and will be Exposed to Fluctuating Prices for Oil, Natural Gas, Oil Products and Chemicals.

Prices of oil, natural gas, oil products and chemicals are affected by supply and demand, which can fluctuate significantly.  Factors that influence supply and demand include operational issues, natural disasters, weather, political instability, or conflicts, economic conditions and actions by major oil-exporting countries.  Price fluctuations can have a material effect on our ability to raise capital and fund our exploration activities, our potential future earnings, and our financial condition.  For example, in a low oil and gas price environment oil sands exploration and development may not be financially viable or profitable.  Prolonged periods of low oil and gas prices, or rising costs, could result in our exploration projects being delayed or cancelled, as well as in the impairment of certain assets.

Reserves and Resources

We have not yet established any reserves. There are numerous uncertainties inherent in estimating quantities of bitumen resources and reserves, including many factors beyond our control, and no assurance can be given that the recovery of bitumen will be realized. In general, estimates of resources and reserves are based upon a number of factors and assumptions made as of the date on which the resources and reserves estimates were determined, such as geological and engineering estimates which have inherent uncertainties, the assumed effects of regulation by governmental agencies and estimates of future commodity prices and operating costs, all of which may vary considerably from estimated results. All such estimates are, to some degree, uncertain and classifications of resources and reserves are only attempts to define the degree of uncertainty involved. For these reasons, estimates of reserves and resources, the classification of such resources and reserves based on risk of recovery, prepared by different engineers or by the same engineers at different times, may vary substantially.

Investors are cautioned not to assume that all or any part of a resource is economically or legally extractable.

ENVIRONMENTAL AND REGULATORY COMPLIANCE MAY IMPOSE SUBSTANTIAL COSTS ON US

Our operations are or will be subject to stringent federal, provincial and local laws and regulations relating to improving or maintaining environmental quality. Environmental laws often require parties to pay for remedial action or to pay damages regardless of fault. Environmental laws also often impose liability with respect to divested or terminated operations, even if the operations were terminated or divested many years ago.

Our exploration activities and drilling programs are or will be subject to extensive laws and regulations governing prospecting, development, production, exports, taxes, labor standards, occupational health, waste disposal, protection and remediation of the environment, protection of endangered and protected species, operational safety, toxic substances and other matters. Exploration and drilling is also subject to risks and liabilities associated with pollution of the environment and disposal of waste products. Compliance with these laws and regulations will impose substantial costs on us and will subject us to significant potential liabilities.  In addition, should there be changes to existing laws or regulations, our competitive position within the oil sands industry may be adversely affected, as many industry players have greater resources than we do.  The absence of a distinct overlying shale formation on portions of our leases may make it more difficult or costly to obtain regulatory approvals.  There is no assurance that regulatory approvals for development will be obtained at all.


 
13

 


Government Regulations, Permits, Leases and Licenses

The business of resource exploration and development is subject to substantial regulation under Canadian provincial and federal laws relating to the exploration for, and the development, upgrading, marketing, pricing, taxation, and transportation of oil sands bitumen and related products and other matters. Amendments to current laws and regulations governing operations and activities of oil sands exploration and development operations could have a material adverse impact on our business. In addition, there can be no assurance that income tax laws, royalty regulations, environmental regulations and government incentive programs related to the permits in Saskatchewan, oil sands exploration licenses in Saskatchewan, the permits in Alberta, the Eagles Nest Prospect and the Pasquia Hills Oil Shale Prospect and the oil sands industry generally, will not be changed in a manner which may adversely affect our progress and cause delays, or cause the inability to explore and develop, resulting in the abandonment of these interests.

Permits, leases, licenses and approvals are required from a variety of regulatory authorities at various stages of exploration and development. There can be no assurance that the various government permits, leases, licenses and approvals sought will be granted in respect of our activities or, if granted, will not be cancelled or will be renewed upon expiry. There is no assurance that such permits, leases, licenses and approvals will not contain terms and provisions which may adversely affect our exploration and development activities. Our exploration permits in Saskatchewan do not give us the right to produce and will require conversion to a lease prior to the expiry of the permits.

Certain First Nations and Mйtis people have treaty and aboriginal rights, and claim aboriginal title, in relation to our permit and lease lands in Alberta and Saskatchewan and other lands that are potentially affected by our activities.   The Governments of Canada and Saskatchewan have a duty to consult with those aboriginal people in relation to actions and decisions which may impact those rights and claims and, in certain cases, have a duty to accommodate their concerns.  These duties have the potential to adversely affect our ability to obtain permits, leases, licenses and other approvals, or the terms of those approvals, which could adversely impact our progress and ability to explore and develop.

Third Party Liability and Environmental Liability

The Company’s operations could result in liability for personal injuries, property damage, oil spills, discharge of hazardous materials, remediation and clean-up costs and other environmental damages. We could be liable for environmental damages caused by previous owners. As a result, substantial liabilities to third parties or governmental entities may be incurred, and the payment of such liabilities could have a material adverse effect on our financial condition and results of operations. The release of harmful substances in the environment  or other environmental damages caused by our activities could result in us losing our operating and environmental permits. We currently have a limited amount of insurance and, at such time as we commence additional operations, we expect to obtain and maintain additional insurance coverage for our operations, including limited coverage for sudden environmental damages, but we do not believe that insurance coverage for environmental damage that occurs over time is available at a reasonable cost. Moreover, we do not believe that insurance coverage for the full potential liability that could be caused by sudden environmental damages is available at a reasonable cost. Accordingly, we may be subject to liability or may lose substantial portions of our properties in the event of certain environmental damages. The Company could incur substantial costs to comply with environmental laws and regulations which could affect our ability to operate as planned.

Emissions Regulations

Development of our assets is expected to result in the emission of greenhouse gases (GHGs) and other pollutants.

On April 26, 2007, the Government of Canada announced a Regulatory Framework for Air Emissions and Other Measures to Reduce Air Emissions, or the “Framework”, which outlines proposed new requirements governing the emission of GHGs and other industrial air pollutants, including sulphur oxides, volatile organic compounds, particulate matter and possibly additional sector-specific pollutants in accordance with the Notice. The Framework introduces further, but not full, detail on new GHG and industrial air pollutant limits and compliance mechanisms that will apply to various industrial sectors, including oil sands extraction, starting in 2010. The Framework proposes GHG emission-intensity reduction targets of six percent per year from 2007 to 2010, followed by annual reductions of two percent through 2015. On March 10, 2008, the Canadian Federal Government elaborated on the Framework with the release of its “Turning the Corner” policy document. It is contemplated that new regulations will take effect January 1, 2010. Draft regulations were expected to be available for public comment in the Fall of 2008 but have not yet been released, and it's not known when they will be released or implemented.


 
14

 


The proposed regulatory framework provides that existing oil sands facilities in operation by 2004 will be subject to an 18% emission intensity reduction requirement commencing in 2010, with 2% additional annual reductions thereafter until 2020. Facilities commissioned between 2004 to 2011 or facilities existing prior to 2004 which between 2004 and 2011 have had a major expansion resulting in an increase of 25% or more in physical capacity or which undergo a significant change to processes will be exempt from the 2010 emissions intensity reduction target of 18% but will have to report their emissions each year.  After their third year of operation they will be required to reduce their emissions intensity by 2% annually from a baseline emissions standard which is to be determined by reference to a sector-specific cleaner-fuel standard. For oil sands facilities, it is contemplated that there will be specific cleaner-fuel standards based on the use of natural gas for each of mining, in situ and upgrading. However, an incentive to deploy carbon capture and storage (CCS) has been included in the proposed regulatory framework. CCS is where carbon dioxide is separated from a facility’s process or exhaust gas emissions before they are emitted, transferred from the facility to a suitable storage location, and injected into deep underground geological formations and monitored to ensure they do not escape into the atmosphere. If a facility commissioned between 2004 and 2011 is built such that it is able or ready to undertake CCS, then it will be exempt from the cleaner-fuel standard until 2018 and it will only be required to reduce its emission-intensity by 2% per year from its actual emissions. In-situ oil sands projects and oil sands upgraders built after 2011 must have their GHG emissions profiles by 2018 equivalent to that of facilities employing CCS technology. The proposed regulatory framework further encourages widespread use of CCS by 2018 by crediting emitters that make use of CCS technology for investments in pre-certified CCS projects up to 100% of their regulatory obligations through 2017.

The proposed compliance mechanisms include an emissions credit trading system for GHGs and certain industrial air pollutants, and several options for companies to choose among to meet GHG emission intensity reduction targets and encourage the development of new emission reduction technologies, including the option of making payments into a technology fund, an emissions and offset trading system, limited credits for emission reductions created between 1992 and 2006, and international emission credits under the clean development mechanism under the Kyoto Protocol for up to 10% of each firm’s regulatory obligation.

On April 20, 2007, the Government of Alberta passed the Climate Change and Emissions Management Amendment Act establishing a framework for GHG emission reductions similar to the proposed federal Framework. The Specified Gas Emitters Regulation created under the Act came into effect on July 1, 2007. The Specified Gas Emitters Regulation requires facilities that emit more than 100,000 tonnes of carbon dioxide equivalent annually to reduce their emission intensity starting July 1, 2007  by 12 percent from 2003-2005 levels. New facilities in operation less than eight years will be required to achieve these reductions over the fourth to eighth years of operation. These obligations may be met by in-house reductions, the purchase of certain emission reductions or offset credits or a contribution of $15 per tonne of GHG emissions to a provincial technology fund.

On May 11, 2009, the Government of Saskatchewan introduced in the Provincial Legislature Bill 95:  The Management and Reduction of Greenhouse Gases Act.  Bill 95 proposes a policy and regulatory framework for reducing GHG emissions in Saskatchewan.  The Bill proposes a new provincial target for a 20% reduction in GHG emissions by 2020, which is consistent with proposed federal target and different than the 32% reduction previously proposed by the Government of Saskatchewan.  The specific GHG emission reduction requirements, and the industries required to meet those reductions, as well as details on the methods by which reductions may be achieved, are to be set by further regulations expected in the Fall of 2009.


 
15

 


Future legislated GHG and industrial air pollutant emission reduction requirements and emission intensity requirements, or GHG and industrial air pollutant emission reduction or intensity requirements in future regulatory approvals, may require the restriction or reduction of GHG and industrial air pollutant emissions or emissions intensity from our future operations and facilities, payments to technology funds or purchase of emission reductions or offset credits. The reductions may not be technically or economically feasible for our operations and the failure to meet such emission reduction or emission intensity reduction requirements or other compliance mechanisms may materially adversely affect our business and result in fines, penalties and the suspension of operations. As well, equipment from suppliers which can meet future emission standards may not be available on an economic basis and other compliance methods of reducing emissions or emission intensity to levels required in the future may significantly increase our operating costs or reduce output. Emission reductions or offset credits may not be available for acquisition or may not be available on an economic basis. There is also the risk that provincial or federal governments, or both, could pass legislation which would tax such emissions.

American Climate Change Legislation Could Negatively Affect Markets for Crude and Synthetic Crude Oil

Environmental legislation regulating carbon fuel standards in jurisdictions that import crude and synthetic crude oil in the United States could result in increased costs and/or reduced revenue.  For example, both California and the United States federal governments have passed legislation which, in some circumstances, considers the lifecycle greenhouse gas emissions of purchased fuel and which may negatively affect our business, or require the purchase of emissions credits, which may not be economically feasible.

Abandonment and Reclamation Costs

We are responsible for compliance with terms and conditions of environmental and regulatory approvals and all laws and regulations regarding the abandonment of a project and reclamation of its lands at the end of its economic life, which abandonment and reclamation costs may be substantial. A breach of such legislation and/or regulations may result in the issuance of remedial orders, the suspension of approvals, the seizure of posted security or the imposition of fines and penalties, including an order for cessation of operations at the site until satisfactory remedies are made. All delineation wells are abandoned and reclaimed immediately and these costs are included with our exploration costs incurred.  At April 30, 2009, we estimate the total undiscounted inflation adjustment amount required to settle the asset retirement obligations in respect of the Company’s wells and facilities is approximately $8.2 million. This estimate includes the costs to reclaim the air strip, camp site, access roads and reservoir test sites. However, since we have yet to determine the commercial viability of the Axe Lake Discovery we cannot with certainty determine a reasonable timeframe in which those costs will be incurred. This estimate could change as the reclamation requirements will be a function of regulatory regulations in place at the time.  In the future we may determine it prudent or be required by applicable laws or regulations to establish and fund one or more reclamation funds to provide for payment of future abandonment and reclamation costs.

Fiscal Regime

Any development of our resource assets will be directly affected by the royalty regime applicable. The economic benefit of future capital expenditures for the project is, in many cases, dependent on a satisfactory fiscal regime (royalties and taxes). The Government of Saskatchewan receives royalties on production of oil, gas and other minerals from lands in which it owns the relevant mineral rights. The Government of Saskatchewan owns the relevant mineral rights on the OQI Saskatchewan lands. The current royalty regime relating to bitumen production in Saskatchewan provides for a royalty of 1% of gross bitumen revenue is payable until the project has recovered specified allowed costs. Once such allowed costs are recovered, a net royalty of 20% of operating income is payable.

The Government of Alberta receives royalties on production of natural resources from lands in which it owns the mineral rights. On October 25, 2007, the Government of Alberta announced a new royalty regime. The new regime introduced new royalties for conventional oil, natural gas and bitumen that became effective January 1, 2009 and are linked to commodity prices and production levels and apply to both new and existing oil sands projects and conventional oil and gas activities.

Currently, in respect of oil sands projects in Alberta having regulatory approval, a royalty of one percent of gross bitumen revenue is payable prior to the payout of specified allowed costs, including certain exploration and development costs, operating costs and a return allowance. Once such allowed costs have been recovered, a royalty of the greater of: (a) one percent of gross bitumen revenue; and (b) 25 percent of net bitumen revenue (calculated as being gross bitumen revenue less operating costs and additional capital expenditures incurred since payout (“net royalty”)) is levied.


 
16

 


Under the new regime, the Government of Alberta increased its royalty share from oil sands production by introducing price-sensitive formulas which are applied both before and after specified allowed costs have been recovered. The gross royalty starts at one percent of gross bitumen revenue and increases for every dollar that world oil price, as reflected by the West Texas Intermediate (“WTI”) crude oil price, is above CDN$120 per barrel or higher. The net royalty on oil sands starts at 25 percent of net bitumen revenue and increases for every dollar the WTI crude oil price is above CDN$55 per barrel to 40 percent when the WTI crude oil price is CDN$120 per barrel or higher. Prior to the payout of specified allowed costs, including certain exploration and development costs, operating costs and a return allowance, the gross royalty is payable. Once such allowed costs have been recovered, a royalty of the greater of: (a) the gross royalty and (b) the net royalty is payable. The Government of Alberta has announced that it intends to review and, if necessary, revise current rules and enforcement procedures with a view to clearly defining what expenditures will qualify as specified allowed costs.

The implementation of the proposed changes to the royalty regime in Alberta is subject to certain risks and uncertainties. The significant changes to the royalty regime require new legislation, changes to existing legislation and regulation and development of proprietary software to support the calculation and collection of royalties. Additionally, certain proposed changes contemplate further public and/or industry consultation. There may be modifications introduced to the proposed royalty structure prior to the implementation thereof.

There can be no assurance that the Governments of Alberta or Saskatchewan or the Government of Canada will not adopt a new fiscal regime or otherwise modify the existing fiscal regime (royalties and taxes) governing oil sands producers in a manner that could materially affect the financial prospects and results of operations of oil sands developers and producers in Alberta and Saskatchewan.

Title Risks

None of the exploration permits and exploration licenses in Saskatchewan and Alberta, nor the Pasquia Hills Oil Shale Prospect permits has been converted to development leases. In the event that we do not meet the regulated requirements or development conditions to convert our permits or licenses to leases or obtain an extension of such development requirements, our right to explore for bitumen or oil shale, as applicable, may be lost. We are satisfied that we have good and proper right, title and interest in and to the permits, licenses and leases that we intend to exploit. However, we have not obtained title opinions on any of our interests. Accordingly, ownership of the oil sands and oil shale exploration rights could be subject to prior unregistered agreements or interests or undetected claims or interests.

Aboriginal peoples have claimed aboriginal title and rights to a substantial portion of western Canada. Certain aboriginal peoples have filed a claim against the Government of Canada, the Province of Alberta, certain governmental entities and the regional municipality of Wood Buffalo (which includes the City of Fort McMurray, Alberta) claiming, among other things, aboriginal title to large areas of lands surrounding Fort McMurray. Certain Metis have filed an action for aboriginal title and consequential relief in relation to a large portion of northwest Saskatchewan, including our Saskatchewan lands. Various First Nations and Metis groups have stated, and one First Nation has filed an action alleging, that governments have not complied with their constitutionally mandated duty to consult with and accommodate First Nations and Metis in relation to decisions that enabled us to acquire and that enable us to develop our Saskatchewan and Alberta lands. Additional claims of this kind have been and could be made in the Provinces of Saskatchewan and Alberta. Certain of these claims, if successful, could have a significant adverse effect on our ability to conduct our business.

Operational Hazards

Our exploration and development activities are subject to the customary hazards of operation in remote areas, such as fires and explosions. A casualty occurrence might result in the loss of equipment or life, as well as injury, property damage or other liability. While we maintain limited insurance to cover current operations, our property and liability insurance may not be sufficient to cover any such casualty occurrences or disruptions. Equipment failures could result in damage to our facilities and liability to third parties against which we may not be able to fully insure or may elect not to insure because of high premium costs or for other reasons. Our operations could be interrupted by natural disasters or other events beyond our control. Losses and liabilities arising from uninsured or under-insured events could have a material adverse effect on  our  business, our financial condition and results of our operations.


 
17

 


Competitive Risks

The Canadian and international petroleum industry is highly competitive in all aspects, including the exploration for, and the development of, new sources of supply, the acquisition of oil interests and the distribution and marketing of petroleum products. A number of competing companies are engaged in the oil sands business and are actively exploring for and delineating their resource bases. Some of our competitors have announced plans to begin production of synthetic crude oil, or to expand existing operations. If these plans are affected, they could materially increase the supply of synthetic crude oil and other competing crude oil products in the marketplace and adversely affect plans for development of our lands.

The Loss of Current Management May Make It Difficult For Us to Operate

Investors must rely upon the ability, expertise, judgment, discretion, integrity and good faith of our management and directors. The Company’s success is dependent upon its management and key personnel. We do not maintain key-man insurance for any of our employees.  The unexpected loss or departure of any of our key officers and employees could be detrimental to our future success.

Fluctuations in U.S. and Canadian Dollar Exchange Rates May Have a Material Adverse Impact

Commodity prices and costs related to the Company’s activities, if and when applicable, will generally be based on a U.S. dollar market price. Fluctuations in the U.S. and Canadian dollar exchange rate may cause a negative impact on revenue and costs and could have a material adverse impact on the Company.

RISKS RELATING TO OUR SECURITIES
 
We Have Numerous Outstanding Options, Warrants and Commitments to Issue Shares, Which May Adversely Affect The Price of Our Common Stock

As of September 18, 2009, we have reserved 48,870,917 shares of our common stock for issuance upon exercise of outstanding options under plans and warrants at prices as low as $0.71 per share. The Company has also reserved 1,388,567 shares of common stock to be issued on settlement of debt of a former subsidiary. Pursuant to the Reorganization Agreement with OQI Sask dated August 14, 2006, the Company is required to issue up to 76,504,304 shares of its common stock for all of the OQI Sask Exchangeable Shares (including warrants and options to acquire OQI Exchangeable Shares) issued upon the closing. As of September 18, 2009, 38,996,938 OQI Sask Exchangeable Shares have already been exchanged for shares of our common stock, 768,131 OQI Sask options were forfeited and up to an additional 36,739,235 OQI Sask Exchangeable Shares may be exchanged for common stock. Any sale into the public market of our common stock purchased privately at prices below the current market price could be expected to have a depressive effect on the market price of our common stock.

Future Sales of our Common Stock May Cause our Stock Price to Decline

Our stock price may decline due to future sales of our shares or the perception that such sales may occur.   The Board of Directors of the Company has discretion to determine the issue price and the terms of issue of shares of our common stock.  Such future issuances may be dilutive to investors.  Holders of shares of common stock have no preemptive rights under our articles of incorporation to participate in any future offerings of securities.

If we issue additional shares of common stock in private financings under an exemption from the registration requirements, then those shares will constitute “restricted shares” as defined in Rule 144 under the Securities Act. The restricted shares may only be sold if they are registered under the Securities Act, or sold under Rule 144, or another exemption from registration under the Securities Act.


 
18

 


Some of our outstanding restricted shares of common stock are either eligible for sale pursuant to Rule 144 or have been registered under the Securities Act for resale by the holders. We are unable to estimate the amount, timing, or nature of future sales of outstanding common stock. Sales of substantial amounts of our common stock in the public market may cause the stock’s market price to decline.

Dividend Policy

The Company did not declare or pay cash or other dividends on its common stock during the past three fiscal years. Payment of dividends by the Company will depend upon the Company’s financial condition, results of operations, capital requirements and such other factors as the Board of Directors of the Company may deem relevant.

Our Stock Price Can Be Extremely Volatile

The trading price of our common stock has been and could continue to be subject to wide fluctuations in response to announcements of our business developments or those of our competitors, world commodity prices, periodic updates on our resource assessments, quarterly variations in operating results, and other events or factors. In addition, stock markets have experienced extreme price volatility in recent years. This volatility has had a substantial effect on the market prices of companies, at times for reasons unrelated to their operating performance. Such broad market fluctuations may adversely affect the price of our common stock.

Issuance of Preferred Stock and Our Anti-Takeover Provisions Could Delay or Prevent a Change in Control and May Adversely Affect our Common Stock

We are authorized to issue 10,000,000 shares of preferred stock which may be issued in series from time to time with such designations, rights, preferences and limitations as our Board of Directors may determine by resolution. The rights of the holders of our common stock will be subject to and may be adversely affected by the rights of the holders of any of our preferred stock that may be issued in the future. Issuance of a new series of preferred stock, or providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could make it more difficult for a third party to acquire, or discourage a third party from acquiring our outstanding shares of common stock. On October 30, 2006, the Company’s shareholders approved staggered terms for the Board of Directors, which could make removal of the Board of Directors more difficult for a third party. The Class A directors will serve until the annual meeting in 2009, the Class B directors until the annual meeting in 2011, and the Class C directors until the annual meeting in 2010, or each until their successors are duly elected or appointed or until their earlier death, resignation or removal. Each term for directors is three years. In addition to a staggered board, our Board of Directors adopted a shareholders rights plan in March 2006 and reserved 250,000 shares of Series A Junior Participating Preferred Stock. This shareholders rights plan could have the effect of discouraging, delaying or preventing an acquisition.




 
19

 


USE OF PROCEEDS
 
We will not receive any proceeds from the resale of securities by the selling shareholders.

SELLING SECURITY HOLDERS

The following table sets forth the name of each person who is offering for resale the shares of common stock by this prospectus, the number of shares of common stock beneficially owned by each person, the number of shares of common stock that may be sold in this offering and the number of shares of common stock each person will own after the offering, assuming they sell all of the shares offered. We will not receive any proceeds from the resale of the common stock by the selling shareholders.
 
   
A
   
B
   
C
   
D
   
E
   
F
 
Name
 
Outstanding Shares Owned (1), (7), (8)
   
Shares Underlying Exchangeable Shares (7)
   
Shares Underlying Options and Warrants to Acquire Exchangeable Shares
   
Total Shares (Based on Columns A, B and C) Beneficially Owned Prior to Offering (1), (7), (8)
   
Shares Offered Hereby
(1)
   
Shares Owned After Offering (1), (2)
 
944128 Alberta Ltd. (3)
   
1,234,500
     
0
     
0
     
1,234,500
     
1,234,500
     
0
 
Royce Allen Baker
   
30,000
     
11,150
     
0
     
41,150
     
41,150
     
0
 
Derrick G. Morris
   
932,253
     
0
     
0
     
932,253
     
932,253
     
0
 
805503 Alberta Ltd. (3)
   
32,920
     
0
     
0
     
32,920
     
32,920
     
0
 
878557 Alberta Ltd. (3)
   
9,876
     
0
     
0
     
9,876
     
9,876
     
0
 
Eric Blakely
   
139,910
     
0
     
0
     
139,910
     
139,910
     
0
 
Gary Nissen
   
12,345
     
0
     
0
     
12,345
     
12,345
     
0
 
Grant Dennler
   
8,230
     
0
     
0
     
8,230
     
8,230
     
0
 
John Rooney
   
54,318
     
0
     
0
     
54,318
     
54,318
     
0
 
Lawrence Lee
   
14,403
     
0
     
0
     
14,403
     
14,403
     
0
 
Malcolm Albery
   
50,000
     
361,500
     
0
     
411,500
     
411,500
     
0
 
Mike Machalski
   
54,318
     
0
     
0
     
54,318
     
54,318
     
0
 
Rena Nathanail
   
26,748
     
0
     
0
     
26,748
     
26,748
     
0
 
Ronald Cawston
   
28,805
     
0
     
0
     
28,805
     
28,805
     
0
 
Victor Choy
   
29,628
     
0
     
0
     
29,628
     
29,628
     
0
 
Woon Chin Chee
   
102,875
     
0
     
0
     
102,875
     
102,875
     
0
 
Donna Cheung
   
50,000
     
52,875
     
0
     
102,875
     
102,875
     
0
 
Robert Robertshaw
   
82,300
     
0
     
0
     
82,300
     
82,300
     
0
 
Ben J. Hadala
   
329,200
     
0
     
0
     
329,200
     
329,200
     
0
 
Jeffrey A. Helper (4), (8)
   
125,750
     
130,000
     
246,900
     
502,650
     
452,650
     
50,000
 
Hoerich Capital Inc. (3)
   
5,144
     
0
     
0
     
5,144
     
5,144
     
0
 


 
20

 

 
 
 
   
A
   
B
   
C
   
D
   
E
   
F
 
   
Outstanding Shares Owned (1), (7), (8)
   
Shares Underlying Exchangeable Shares (7)
   
Shares Underlying Options and Warrants to Acquire Exchangeable Shares
   
Total Shares (Based on Columns A, B and C) Beneficially Owned Prior to Offering (1), (7), (8)
   
Shares Offered Hereby (1)
   
Shares Owned After Offering (1), (2)
 
Jayvee & Co. (3), (4), (5)
   
288,050
     
0
     
0
     
288,050
     
288,050
     
0
 
Ronald D. Johnston
   
16,460
     
0
     
0
     
16,460
     
16,460
     
0
 
Keptar Gold Corp. (3)
   
0
     
935,175
     
0
     
935,175
     
935,175
     
0
 
Michael Mann
   
205,750
     
0
     
0
     
205,750
     
205,750
     
0
 
Calvin Manz
   
720,545
     
0
     
0
     
720,545
     
720,545
     
0
 
Mibrea Holdings, Inc. (6)
   
82,300
     
0
     
0
     
82,300
     
82,300
     
0
 
Susan A. Milne
   
288,050
     
0
     
0
     
288,050
     
288,050
     
0
 
Thomas Milne (4) (8)
   
675,050
     
411,500
     
1,851,750
     
2,938,300
     
2,469,000
     
469,300
 
1201112 Alberta Ltd. (3), (7)
   
94,645
     
0
     
0
     
94,645
     
94,645
     
0
 
267554 Alberta Ltd. (6), (7)
   
41,150
     
0
     
0
     
41,150
     
41,150
     
0
 
924849 Alberta Ltd. (6), (7)
   
32,920
     
0
     
0
     
32,920
     
32,920
     
0
 
957637 Alberta Ltd. (6), (7)
   
24,690
     
0
     
0
     
24,690
     
24,690
     
0
 
Brian and Janet Cassie (7)
   
41,150
     
0
     
0
     
41,150
     
41,150
     
0
 
Brisil Capitale Inc. (6) (7)
   
8,230
     
0
     
0
     
8,230
     
8,230
     
0
 
Bruce Bowser (7)
   
6,584
     
0
     
0
     
6,584
     
6,584
     
0
 
Charles Matson (7)
   
3,292
     
0
     
0
     
3,292
     
3,292
     
0
 
Charles Tuchel (7)
   
329,200
     
0
     
0
     
329,200
     
329,200
     
0
 
Cougar Assets Ltd. (6) (7)
   
41,150
     
0
     
0
     
41,150
     
41,150
     
0
 
Crossroads Financial Corp. (6) (7)
   
2,386,700
     
0
     
0
     
2,386,700
     
2,386,700
     
0
 
David Cross P.C. (6) (7)
   
65,840
     
0
     
0
     
65,840
     
65,840
     
0
 
David Terry (7)
   
41,150
     
0
     
0
     
41,150
     
41,150
     
0
 
DC-Osadchuk Holdings, Inc. (6) (7)
   
16,460
     
0
     
0
     
16,460
     
16,460
     
0
 
Elaine Matson (7)
   
3,292
     
0
     
0
     
3,292
     
3,292
     
0
 
Eric Galcher (7)
   
8,230
     
0
     
0
     
8,230
     
8,230
     
0
 
Evelyn Wallace (7)
   
41,150
     
0
     
0
     
41,150
     
41,150
     
0
 
Gary Gillett (7)
   
8,230
     
0
     
0
     
8,230
     
8,230
     
0
 
Gordon Johnston (7)
   
144,848
     
0
     
0
     
144,848
     
144,848
     
0
 
Green Eco Investments SA (6) (7)
   
246,900
     
0
     
0
     
246,900
     
246,900
     
0
 
Horacio Guibelalde (7)
   
219,766
     
0
     
0
     
219,766
     
219,766
     
0
 


 
21

 

 
 
 
   
A
   
B
   
C
   
D
   
E
   
F
 
   
Outstanding Shares Owned (1), (7), (8)
   
Shares Underlying Exchangeable Shares (7)
   
Shares Underlying Options and Warrants to Acquire Exchangeable Shares
   
Total Shares (Based on Columns A, B and C) Beneficially Owned Prior to Offering (1), (7), (8)
   
Shares Offered Hereby (1)
   
Shares Owned After Offering (1), (2)
 
James F. Hole, Jr. (7)
   
4,938
     
0
     
0
     
4,938
     
4,938
     
0
 
Jason Clemett (7)
   
8,230
     
0
     
0
     
8,230
     
8,230
     
0
 
Jean Lesourd (7)
   
16,460
     
0
     
0
     
16,460
     
16,460
     
0
 
Jeff Shafer (7)
   
8,230
     
0
     
0
     
8,230
     
8,230
     
0
 
John A. Bolter (7)
   
16,460
     
0
     
0
     
16,460
     
16,460
     
0
 
John Cameron Bolter (7)
   
12,345
     
0
     
0
     
12,345
     
12,345
     
0
 
John Hooks (7)
   
341,545
     
0
     
0
     
341,545
     
341,545
     
0
 
Julian Smith (7)
   
8,230
     
0
     
0
     
8,230
     
8,230
     
0
 
Kamaldip Jeerh (7)
   
16,460
     
0
     
0
     
16,460
     
16,460
     
0
 
Kenneth and Dorothy Summach (7)
   
24,690
     
0
     
0
     
24,690
     
24,690
     
0
 
Kent Racz (7)
   
8,230
     
0
     
0
     
8,230
     
8,230
     
0
 
Kerry Tychonick (7)
   
12,345
     
0
     
0
     
12,345
     
12,345
     
0
 
Landmark Sport Group (6) (7)
   
4,115
     
0
     
0
     
4,115
     
4,115
     
0
 
Lockhold Consultants Ltd. (6) (7)
   
16,460
     
0
     
0
     
16,460
     
16,460
     
0
 
Lone Mountain Resources Ltd. (6) (7)
   
8,230
     
0
     
0
     
8,230
     
8,230
     
0
 
Makow Properties Corp. Ltd. (6) (7)
   
82,300
     
0
     
0
     
82,300
     
82,300
     
0
 
Mark and Rose Zivot (7)
   
26,336
     
0
     
0
     
26,336
     
26,336
     
0
 
Melissa and George Summach (7)
   
57,610
     
0
     
0
     
57,610
     
57,610
     
0
 
Michael Henson (7)
   
312,740
     
0
     
0
     
312,740
     
312,740
     
0
 
Mike Shaikh (7)
   
41,150
     
0
     
0
     
41,150
     
41,150
     
0
 
Mohawk Capital Corp. (6) (7)
   
32,920
     
0
     
0
     
32,920
     
32,920
     
0
 
Oceanic Greystone Securities Inc. (3) (7)
   
2,964,355
     
0
     
0
     
2,964,355
     
2,964,355
     
0
 
Remington Capital Corp. (6) (7)
   
411,500
     
0
     
0
     
411,500
     
411,500
     
0
 
Richard Dettbarn (7)
   
201,635
     
0
     
0
     
201,635
     
201,635
     
0
 
Richard Pelletier (7)
   
246,900
     
0
     
0
     
246,900
     
246,900
     
0
 
Robert Maxwell (7)
   
16,460
     
0
     
0
     
16,460
     
16,460
     
0
 
Ryan Lambe (7)
   
2,469
     
0
     
0
     
2,469
     
2,469
     
0
 
Sohan Jeerh (7)
   
94,645
     
0
     
0
     
94,645
     
94,645
     
0
 


 
22

 

 
 
 
   
A
   
B
   
C
   
D
   
E
   
F
 
   
Outstanding Shares Owned (1), (7), (8)
   
Shares Underlying Exchangeable Shares (7)
   
Shares Underlying Options and Warrants to Acquire Exchangeable Shares
   
Total Shares (Based on Columns A, B and C) Beneficially Owned Prior to Offering (1), (7), (8)
   
Shares Offered Hereby (1)
   
Shares Owned After Offering (1), (2)
 
Vangoor Holdings Co. (6) (7)
   
8,230
     
0
     
0
     
8,230
     
8,230
     
0
 
William Gillett (7)
   
6,584
     
0
     
0
     
6,584
     
6,584
     
0
 
Scotia Capital Inc. (6)
   
0
     
3,086
     
0
     
3,086
     
3,086
     
0
 
Ernie Antonchuk
   
60,000
     
63,450
     
0
     
123,450
     
123,450
     
0
 
Supreme Pacific Holdings Inc. (3)
   
41,150
     
0
     
0
     
41,150
     
41,150
     
0
 
William G. Timmins (4)
   
1,728,300
     
0
     
0
     
1,728,300
     
1,728,300
     
0
 
Erdal Yildirim (4)
   
890,000
     
102,875
     
0
     
992,875
     
102,875
     
890,000
 
349150 Alberta Ltd. (6)
   
164,600
     
0
     
0
     
164,600
     
164,600
     
0
 
541588 Alberta Ltd. (3)
   
0
     
40,121
     
0
     
40,121
     
40,121
     
0
 
Sarah Anderson
   
0
     
16,460
     
0
     
16,460
     
16,460
     
0
 
Grafton L. Bertram
   
329,200
     
0
     
0
     
329,200
     
329,200
     
0
 
Brian W. Lawrence Living Trust
   
164,600
     
0
     
0
     
164,600
     
164,600
     
0
 
Kade Demuth
   
20,575
     
0
     
0
     
20,575
     
20,575
     
0
 
Henry J. Dunfield
   
102,875
     
0
     
0
     
102,875
     
102,875
     
0
 
Gundyco
   
203,520
     
10,460
     
0
     
213,980
     
213,980
     
0
 
NBCN Inc.
   
2,641,419
     
0
     
0
     
2,641,419
     
2,641,419
     
0
 
Angelo L. Guido
   
0
     
70,778
     
0
     
70,778
     
70,778
     
0
 
Armando Guido
   
0
     
132,503
     
0
     
132,503
     
132,503
     
0
 
Bentree Investments Inc. (3)
   
205,750
     
0
     
0
     
205,750
     
205,750
     
0
 
Chen Fong
   
411,500
     
0
     
0
     
411,500
     
411,500
     
0
 
Cliff Du Fresne
   
0
     
263,360
     
0
     
263,360
     
263,360
     
0
 
Colin Campbell
   
32,920
     
0
     
0
     
32,920
     
32,920
     
0
 
Dan Bulbec
   
0
     
61,725
     
0
     
61,725
     
61,725
     
0
 
Danich Investments Ltd. (6)
   
0
     
106,990
     
0
     
106,990
     
106,990
     
0
 
Edward Burtynsky
   
102,875
     
0
     
0
     
102,875
     
102,875
     
0
 
Enzo B. Minghella
   
41,150
     
0
     
0
     
41,150
     
41,150
     
0
 
Grant Maglis
   
0
     
123,450
     
0
     
123,450
     
123,450
     
0
 
John Holmlund
   
329,200
     
0
     
0
     
329,200
     
329,200
     
0
 
John R. Barton
   
61,725
     
0
     
0
     
61,725
     
61,725
     
0
 
John Savard
   
61,725
     
0
     
0
     
61,725
     
61,725
     
0
 
Kenneth Lee
   
65,840
     
0
     
0
     
65,840
     
65,840
     
0
 
Stuart O’Connor
   
0
     
106,990
     
0
     
106,990
     
106,990
     
0
 
Thompson Contractors Inc. (6)
   
617,250
     
0
     
0
     
617,250
     
617,250
     
0
 
Wallace Mitchell
   
61,725
     
0
     
0
     
61,725
     
61,725
     
0
 
Karim Hirji (4) (8)
   
2,668,500
     
3,000,000
     
2,057,500
     
7,726,000
     
6,172,500
     
1,553,500
 
Christopher H. Hopkins (4)
   
1,869,730
     
17,138,975
     
4,115,000
     
23,123,705
     
21,253,975
     
1,869,730
 
Edna D. Hopkins
   
54,766
     
205,750
     
0
     
260,516
     
205,750
     
54,766
 


 
23

 

 
 
 
   
A
   
B
   
C
   
D
   
E
   
F
 
   
Outstanding Shares Owned (1), (7), (8)
   
Shares Underlying Exchangeable Shares (7)
   
Shares Underlying Options and Warrants to Acquire Exchangeable Shares
   
Total Shares (Based on Columns A, B and C) Beneficially Owned Prior to Offering (1), (7), (8)
   
Shares Offered Hereby (1)
   
Shares Owned After Offering (1), (2)
 
George Nicholas Hopkins
   
0
     
24,690
     
0
     
24,690
     
24,690
     
0
 
Jessica Yvonne Marie Hopkins
   
0
     
24,690
     
0
     
24,690
     
24,690
     
0
 
Sanovest Holdings Ltd. (3)
   
123,450
     
0
     
0
     
123,450
     
123,450
     
0
 
Leslie Kearney
   
0
     
102,875
     
0
     
102,875
     
102,875
     
0
 
Errin Kimball (4)
   
2,880,500
     
0
     
960,169
     
3,840,668
     
3,840,669
     
0
 
John Leder
   
1,354,897
     
0
     
0
     
1,354,897
     
1,354,897
     
0
 
Leder Investments (6)
   
514,375
     
0
     
0
     
514,375
     
514,375
     
0
 
David G. Mills
   
0
     
123,450
     
0
     
123,450
     
123,450
     
0
 
Christopher Milne
   
0
     
16,460
     
0
     
16,460
     
16,460
     
0
 
Deesons Investments Ltd. (3) (7)
   
703,805
     
0
     
0
     
703,805
     
703,805
     
0
 
F. George Orr (4)
   
82,300
     
0
     
0
     
82,300
     
82,300
     
0
 
Ross H. and Debra I. Pitman
   
257,157
     
1,088,953
     
0
     
1,346,140
     
1,346,140
     
0
 
Roytor & Co., for the Acct. of T13155201, ref: Fund ID# H7D3
   
4,115,000
     
0
     
0
     
4,115,000
     
4,115,000
     
0
 
Roytor & Co., for the Acct. of T13155201, ref: Fund ID# H6C7
   
2,880,500
     
0
     
0
     
2,880,500
     
2,880,500
     
0
 
Cecil Paul Spring
   
0
     
164,600
     
0
     
164,600
     
164,600
     
0
 
Thompson Bros. (Constr.) Ltd. (3)
   
411,500
     
0
     
0
     
411,500
     
411,500
     
0
 
West Peak Ventures of Canada Ltd. (3), (4)
   
82,300
     
0
     
0
     
82,300
     
82,300
     
0
 
Jason Wild
   
20,575
     
0
     
0
     
20,575
     
20,575
     
0
 
James F. Wong
   
205,750
     
0
     
0
     
205,750
     
205,750
     
0
 
Joosten Holdings Ltd. (6)
   
70,778
     
0
     
0
     
70,778
     
70,778
     
0
 
Heatherdale Consulting Services (6), (7)
   
8,230
     
0
     
0
     
8,230
     
8,230
     
0
 
Amber Tyndall (7)
   
2,469
     
0
     
0
     
2,469
     
2,469
     
0
 
David J. Larocque P.C. (6) (7)
   
8,230
     
0
     
0
     
8,230
     
8,230
     
0
 
David Sapunjis (7)
   
16,460
     
0
     
0
     
16,460
     
16,460
     
0
 
Hermine Lazib (7)
   
8,230
     
0
     
0
     
8,230
     
8,230
     
0
 
Howard Crone (7)
   
32,920
     
0
     
0
     
32,920
     
32,920
     
0
 
Jane Pedersen (7)
   
16,460
     
0
     
0
     
16,460
     
16,460
     
0
 
Jerry Segal (7)
   
8,230
     
0
     
0
     
8,230
     
8,230
     
0
 


 
24

 

 
 
 
   
A
   
B
   
C
   
D
   
E
   
F
 
   
Outstanding Shares Owned (1), (7), (8)
   
Shares Underlying Exchangeable Shares (7)
   
Shares Underlying Options and Warrants to Acquire Exchangeable Shares
   
Total Shares (Based on Columns A, B and C) Beneficially Owned Prior to Offering (1), (7), (8)
   
Shares Offered Hereby (1)
   
Shares Owned After Offering (1), (2)
 
John Hickie P.C. (6) (7)
   
8,230
     
0
     
0
     
8,230
     
8,230
     
0
 
Kate Finlay (7)
   
4,115
     
0
     
0
     
4,115
     
4,115
     
0
 
Keith Laatsch P.C. (6) (7)
   
8,230
     
0
     
0
     
8,230
     
8,230
     
0
 
Leith Pedersen (7)
   
63,371
     
0
     
0
     
63,371
     
63,371
     
0
 
Passar Capital Corp. (6) (7)
   
82,300
     
0
     
0
     
82,300
     
82,300
     
0
 
RM England P.C. (6) (7)
   
8,230
     
0
     
0
     
8,230
     
8,230
     
0
 
Tamlane Holdings Ltd. (3) (7)
   
8,230
     
0
     
0
     
8,230
     
8,230
     
0
 
Tania Lazib (7)
   
8,230
     
0
     
0
     
8,230
     
8,230
     
0
 
Techni Trend Investments Ltd. (6) (7)
   
16,460
     
0
     
0
     
16,460
     
16,460
     
0
 
Donald Padgett
   
740,700
     
0
     
0
     
740,700
     
740,700
     
0
 
Ronald Phillips (4) (8)
   
1,271,750
     
0
     
0
     
1,271,750
     
823,000
     
448,750
 
W. Scott Thompson (4)
   
883,464
     
0
     
2,057,500
     
2,940,964
     
2,057,500
     
883,464
 
Simon Raven
   
375,000
     
123,450
     
411,500
     
909,950
     
534,950
     
375,000
 
Charles Wallace
   
0
     
20,575
     
0
     
20,575
     
20,575
     
0
 
Majan Management (6)
   
148,140
     
0
     
0
     
148,140
     
148,140
     
0
 
James A. Malcolm
   
370,350
     
0
     
0
     
370,350
     
370,350
     
0
 
James Carter
   
98,760
     
0
     
0
     
98,760
     
98,760
     
0