Lion Copper and Gold (LCGMF) 6-K Condensed Consolidated Interim Financial Statements

(An Exploration Stage Company)

Condensed Consolidated Interim Financial Statements

June 30, 2012

(Unaudited - Expressed in Canadian Dollars)

Quaterra Resources Inc.

Condensed Consolidated Interim Statements of Financial Position

(Unaudited - Expressed in Canadian Dollars)

	Note		June 30, 2012			December 31, 2011
Assets
Current assets:
Cash and cash equivalents		$	4,691,682		$	12,147,321
Restricted cash			93,249			94,638
Amounts due from Exploration Partners	5 (d)&(e)		383,873			240,222
Taxes and other receivables			54,389			15,498
Prepaids and deposits			222,060			257,488
			5,445,253			12,755,167
Non-current assets:
Marketable securities	3		18,000			27,667
Taxes and other receivables			923,131			919,315
Equipment	4		296,476			348,795
Mineral properties	5		66,078,313			59,040,786
Reclamation bonds			507,645			519,092
			67,823,565			60,855,655
Total assets		$	73,268,818		$	73,610,822
Liabilities
Current liabilities:
Accounts payable and accrued liabilities		$	794,768		$	1,829,704
Due to related parties	9		31,623			47,884
			826,391			1,877,588
Shareholders' Equity
Share capital	6		114,379,903			111,923,521
Share-based payment reserve			18,969,509			17,988,540
Accumulated other comprehensive loss			(60,866	)		(51,199	)
Deficit			(60,846,119	)		(58,127,628	)
			72,442,427			71,733,234
Total liabilities and shareholders' equity		$	73,268,818		$	73,610,822

Approved on behalf of the Board of Directors

“Thomas Patton”(signed)	“Robert Gayton” (signed)
Thomas Patton	Robert Gayton

(See the accompanying notes to condensed consolidated interim financial statements)

Page 2 of 15

Quaterra Resources Inc.

Condensed Consolidated Interim Statements of Comprehensive Loss

(Unaudited - Expressed in Canadian Dollars)

	Note		Three months ended June 30,						Six months ended June 30,
			2012			2011			2012			2011
General administrative expenses
Administration and general office expense		$	174,575		$	173,773		$	342,073		$	351,773
Consulting			90,444			73,554			205,208			155,123
Depreciation			26,159			25,097			52,319			62,292
Directors' fees			35,788			37,626			62,283			63,716
Investor relations and communications			69,214			105,743			117,329			193,226
Personnel costs			269,883			224,305			593,739			503,099
Professional fees			140,345			118,297			239,932			231,164
Share-based payments	7 (a)		915,609			198,503			988,469			239,415
Transfer agent and regulatory fees			20,941			(2,830	)		90,006			117,789
Travel and promotion			(39,820	)		38,387			4,769			71,951
			1,703,138			992,455			2,696,127			1,989,548
Exploration partner administration income			(9,679	)		(38,362	)		(32,252	)		(85,986	)
Foreign exchange loss			19,770			15,329			97,683			233,543
General exploration costs			12,657			42,382			22,357			145,250
Impairments			-			1,471,698			-			4,220,632
Write-off of equipment (recovery)			(19,569	)		38,525			(19,569	)		38,525
Interest income			(26,955	)		(2,262	)		(45,855	)		(4,593	)
			(23,776	)		1,527,310			22,364			4,547,371
Net loss for the period			(1,679,362	)		(2,519,765	)		(2,718,491	)		(6,536,919	)
Unrealized (loss) gain on marketable securities			(15,333	)		(12,333	)		(9,667	)		(14,667	)
Comprehensive (loss) gain for the period		$	(1,694,695	)	$	(2,532,098	)	$	(2,728,158	)	$	(6,551,586	)
Loss per share - basic and diluted		$	(0.01	)	$	(0.02	)	$	(0.02	)	$	(0.05	)
Weighted average number of common sharesoutstanding			155,930,659			142,395,080			154,146,215			140,877,545

(See the accompanying notes to condensed consolidated interim financial statements)

Page 3 of 15

Quaterra Resources Inc.

Condensed Consolidated Interim Statements of Cash Flows

(Unaudited - Expressed in Canadian Dollars)

		Three months ended June 30,						Six months ended June 30,
		2012			2011			2012			2011
Operating activities
Net loss for the period	$	(1,679,362	)	$	(2,519,765	)	$	(2,718,491	)	$	(6,536,919	)
Items not involving cash:
Depreciation		26,159			25,097			52,319			62,292
Write-off of equipment		-			38,525			-			38,525
Impairments		-			1,471,698			-			4,220,632
Share-based payments		915,609			198,503			988,469			239,415
Shares issued for services		7,500			22,500			30,000			45,000
		(730,094	)		(763,442	)		(1,647,703	)		(1,931,055	)
Changes in non-cash working capital
Taxes and other receivables		(38,998	)		(153,698	)		(42,707	)		(276,739	)
Prepaids and deposits		36,384			52,775			35,428			38,354
Accounts payable and accrued liabilities		(127,988	)		(40,321	)		(163,852	)		34,109
Due to related parties		(31,189	)		103			(16,261	)		(181	)
Cash used in operating activities		(891,885	)		(904,583	)		(1,835,095	)		(2,135,512	)
Financing activity
Shares issued for cash, net of issue costs		2,433,520			915,080			2,418,882			8,466,487
Cash provided by financing activity		2,433,520			915,080			2,418,882			8,466,487
Investing activities
Expenditures on mineral properties, net of recoveries		(3,326,834	)		(4,009,377	)		(7,908,611	)		(6,761,740	)
Due from Exploration Partners		(40,818	)		(182,588	)		(143,651	)		(72,654	)
Purchase of equipment		-			-			-			(98,877	)
Reclamation bonds		1,854			(127,116	)		11,447			(65,427	)
Restricted cash		(1,421	)		(22,765	)		1,389			(21,615	)
Cash used in investing activities		(3,367,219	)		(4,341,846	)		(8,039,426	)		(7,020,313	)
Decrease in cash and cash equivalents during period		(1,825,584	)		(4,331,349	)		(7,455,639	)		(689,338	)
Cash and cash equivalents, beginning of period		6,517,266			21,854,226			12,147,321			18,212,215
Cash and cash equivalents, end of period	$	4,691,682		$	17,522,877		$	4,691,682		$	17,522,877
Cash and cash equivalents comprises
Cash	$	2,691,682		$	2,522,877		$	2,691,682		$	2,522,877
Term deposits and bankers acceptance		2,000,000			15,000,000			2,000,000			15,000,000
	$	4,691,682		$	17,522,877		$	4,691,682		$	17,522,877
Supplemental cash flow information
Exploration expenditures included in accounts payable	$	544,515		$	772,480		$	544,515		$	772,480

(See accompanying notes to condensed consolidated interim financial statements)

Page 4 of 15

Quaterra Resources Inc.

Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity

(Unaudited - Expressed in Canadian Dollars)

	Common Shares
						Share-based			Accumulated Other
	Shares			Amount		payment reserve			Comprehensive Loss			Deficit			Total
Balance, December 31, 2010	136,464,161		$	95,800,950	$	15,643,693		$	(17,199	)	$	(46,863,089	)	$	64,564,355
Common shares issued during the period:
Shares issued for cash, net of issue costs	3,293,407			5,918,882											5,918,882
Exercise of options	654,500			723,405											723,405
Exercise of warrants	2,432,267			1,824,200											1,824,200
Common shares issued for services	33,901			45,000											45,000
Fair value of options and warrants exercised				501,860		(501,860	)								-
Share-based payments						239,415									239,415
Unrealized loss on marketable securities									(14,667	)					(14,667	)
Net loss for the period												(6,536,919	)		(6,536,919	)
Balance, June 30, 2011	142,878,236		$	104,814,297	$	15,381,248		$	(31,866	)	$	(53,400,008	)	$	66,763,671
Balance, December 31, 2011	152,353,283		$	111,923,521	$	17,988,540		$	(51,199	)	$	(58,127,628	)	$	71,733,234
Common shares issued during the period:
Shares issued for cash, net of issue costs	4,000,000			2,418,882											2,418,882
Cancelled shares	(2,501	)		-											-
Common shares issued for services	75,756			37,500		(7,500	)								30,000
Commitment to issue shares for services															-
Share-based payments						988,469									988,469
Unrealized loss on marketable securities									(9,667	)					(9,667	)
Net loss for the period												(2,718,491	)		(2,718,491	)
Balance, June 30, 2012	156,426,538		$	114,379,903	$	18,969,509		$	(60,866	)	$	(60,846,119	)	$	72,442,427

(See the accompanying notes to condensed consolidated interim financial statements)

Page 5 of 15

Quaterra Resources Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2012

(Unaudited - Expressed in Canadian Dollars)

1.	Nature of operations
	Quaterra Resources Inc., (“Quaterra” or “the Company”), is engaged in the acquisition and exploration of precious and base metal mineral properties in the United States and Mexico. Quaterra is a publicly listed company incorporated in Canada under theBusiness Corporations Act(British Columbia). The Company’s shares are listed on the TSX Venture Exchange (“QTA”) and the New York Stock Exchange MKT (“QMM”).
	The head office, principal address and records office of the Company are located at 1100 – 1199 West Hastings Street, Vancouver, British Columbia, Canada, V6E 3T5. The Company’s registered office is 950 - 1199 West Hastings Street, Vancouver, British Columbia, Canada, V6E 3T5.
	The Company is in the process of exploring its mineral properties and has not yet determined whether its mineral properties contain economically recoverable mineral reserves. The underlying value and the recoverability of the amounts recorded as mineral properties is entirely dependent upon the existence of economically recoverable mineral reserves, the ability of the Company to obtain the necessary financing to complete its acquisition, exploration and development of its mineral properties or receive proceeds from joint venture partners’ contributions or from the sale of such properties. The carrying value of the Company’s mineral properties does not reflect current or future values.
	The condensed consolidated interim financial statements have been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. The Company believes that it has sufficient resources to continue operations for at least the next twelve months.
2.	Basis of presentation and consolidation
	These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting, using the same accounting policies as detailed in the Company‘s audited consolidated financial statements for the year ended December 31, 2011. These condensed consolidated interim financial statements do not include all of the information required for complete annual consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board ("IASB") and therefore they should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2011 and the notes to the consolidated financial statements.
	These consolidated financial statements were approved by the board of directors for issue on August 8, 2012.
	These condensed consolidated interim financial statements incorporate the financial statements of the Company and the entities controlled by the Company (its subsidiaries). The wholly-owned subsidiaries includeQuaterra Alaska Inc.– incorporated in the United States,Minera Agua Tierra S.A. de C.V.– incorporated in Mexico, andQuaterra International Limited– incorporated in the British Virgin Islands. All significant intercompany transactions and balances have been eliminated.

Page 6 of 15

Quaterra Resources Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2012

(Unaudited - Expressed in Canadian Dollars)

2.	Basis of presentation and consolidation, continued
	These condensed consolidated interim financial statements have been prepared on a historical cost basis except for financial instruments classified as available-for-sale which have been stated at their fair values. These condensed consolidated interim financial statements are presented in Canadian dollars, the Company’s functional currency.
	The significant accounting policies used in the preparation of these condensed consolidated interim financial statements are consistent with those used in the preparation of the Company’s annual consolidated financial statements.
3.	Marketable securities
	The following table presents details of the Company’s shares of Redtail Metals Corp. (formerly Copper Ridge Exploration Inc.) (“Redtail”) and Auramex Resource Corp. (“Auramex”).

			June 30, 2012							December 31, 2011
					Accumulated							Accumulated
	Number				unrealized			Carrying				unrealized			Carrying
	of shares		Cost		gains (losses)			value		Cost		gains (losses)			value
Redtail	66,667	$	38,866	$	(30,866	)	$	8,000	$	38,866	$	(26,199	)	$	12,667
Auramex	1,000,000		40,000		(30,000	)		10,000		40,000		(25,000	)		15,000
		$	78,866	$	(60,866	)	$	18,000	$	78,866	$	(51,199	)	$	27,667

The fair value of these marketable securities has been determined by reference to their closing quoted share price at the reporting date.

Page 7 of 15

Quaterra Resources Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2012

(Unaudited - Expressed in Canadian Dollars)

4. Equipment

		Computer		Field
		equipment		equipment		Vehicles			Total
Cost
Balance, December 31, 2010	$	97,348	$	93,651	$	354,228		$	545,227
Additions during the year		50,683		81,219		186,885			318,787
Disposals		-		-		(59,498	)		(59,498	)
Balance, December 31, 2011		148,031		174,870		481,615			804,516
Balance, June 30, 2012	$	148,031	$	174,870	$	481,615		$	804,516
Accumulated depreciation
Balance December 31, 2010	$	93,708	$	63,679	$	169,497		$	326,884
Depreciation for the year		19,006		32,174		98,630			149,810
Disposals		-		-		(20,973	)		(20,973	)
Balance, December 31, 2011		112,714		95,853		247,154			455,721
Depreciation for the period		4,751		11,852		35,716			52,319
Balance, June 30, 2012	$	117,465	$	107,705	$	282,870		$	508,040
Carrying value
At December 31, 2011	$	35,317	$	79,017	$	234,461		$	348,795
At June 30, 2012	$	30,566	$	67,165	$	198,745		$	296,476

Page 8 of 15

Quaterra Resources Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2012

(Unaudited - Expressed in Canadian Dollars)

5.	Mineral properties
	The total deferred acquisition and exploration costs of mineral properties for June 30, 2012 were as follows:

		United States										Mexico
		MacArthur		Yerington		Alaska		Uranium		Other		Nieves		Other			Total
Mineral Properties		Copper		Copper				Properties		Properties				Properties
Acquisition
Balance, December 31, 2011	$	2,358,534	$	2,803,906	$	120,357	$	4,761,909	$	2,384,460	$	1,535,959	$	1,737,922		$	15,703,047
Additions during the period		523,494		208,194		4,277		121,837		148,733		60,997		404,885			1,472,417
Recovery - Goldcorp		-		-		-		-		-		-		(5,950	)		(5,950	)
Balance, June 30, 2012		2,882,028		3,012,100		124,634		4,883,746		2,533,193		1,596,956		2,136,857			17,169,514
Exploration
Balance, December 31, 2011		17,144,368		3,623,164		554,119		7,728,123		763,148		3,920,039		9,604,778			43,337,739
Geological		497,943		441,064		45,679		44,138		35,470		78,169		761,072			1,903,535
Geophysical		41,794		17,874		4,468		-		85,395		76,056		10,731			236,318
Geochemical		50,856		166,812		3,817		-		191		20,936		476,827			719,439
Drilling		6,390		496,678		119,678		-		-		1,455		877,730			1,501,931
Technical Studies		390,977		210,275		1,055		1,815		-		61,941		116,956			783,019
Other		123,626		180,944		40,045		11,754		-		3,206		102,861			462,436
Additions during the period		1,111,586		1,513,647		214,742		57,707		121,056		241,763		2,346,177			5,606,678
Recovery - Goldcorp		-		-		-		-		-		-		(35,618	)		(35,618	)
Balance, June 30, 2012	$	18,255,954	$	5,136,811	$	768,861	$	7,785,830	$	884,204	$	4,161,802	$	11,915,337		$	48,908,799
Total acquisition and exploration Balance,
December 31, 2011	$	19,502,902	$	6,427,070	$	674,476	$	12,490,032	$	3,147,608	$	5,455,998	$	11,342,700		$	59,040,786
Total acquisition and exploration
Balance, June 30, 2012	$	21,137,982	$	8,148,911	$	893,495	$	12,669,576	$	3,417,397	$	5,758,758	$	14,052,194		$	66,078,313

Page 9 of 15

Quaterra Resources Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2012

(Unaudited - Expressed in Canadian Dollars)

5.	Mineral properties, continued
	The Company is in the business of acquiring, exploring, and developing mineral properties in North America. Exploration programs are carried out through the Company’s management expertise and the use of consultants and contractors. Continuation of these programs is dependent on the Company’s ability to raise additional funds from the market and continuing participation of its exploration partners. Detailed property information can be found in Note 6 of the audited consolidated financial statements for the year ended December 31, 2011.
	During the six months ended June 30, 2012, the Company had the following significant transactions related to its mineral properties:
	a)	MacArthur Copper Project, Nevada
		Pursuant to an agreement dated September 13, 2005, and as subsequently amended, with North Exploration LLC (“North Exploration”), the Company negotiated the final option payment to be made in two installments of US$524,000 each, one on January 15, 2012 (paid), and one on January 15, 2013. The amended agreement called for a 6% interest per annum for the installments.
	b)	Yerington, Nevada
		The Company filed a Canadian National Instrument 43-101 (“NI 43-101”) compliant technical report on the Yerington mine portion of the Yerington copper project on February 29, 2012. The acquisition of this property was completed on April 27, 2011 after a four-year environmental and legal due diligence review.
	c)	Uranium Properties, Arizona, Utah and Wyoming
		On January 9, 2012, the Interior Department announced a Public Land Order to withdraw approximately one million acres of federal land in northern Arizona from mineral exploration on new claims for a twenty-year period. Approximately 85% of the Company’s claims lie within these federal jurisdiction lands and 15% lie within Arizona State lands, which are unaffected by the withdrawal.
		In April 2012, the Company, together with various co-Plaintiffs has filed a lawsuit in the United States District Court for the State of Arizona naming as Defendants the United States Department of the Interior and the Bureau of Land Management. The results of this legal action are unknown at this time and, if unsuccessful, could lead to an impairment write-down of approximately $10 million.
	d)	Nieves Silver Concessions, Mexico
		During the six months ended June 30, 2012, the Company incurred total $605,520 exploration expenditures of which 50% are shared by its exploration partner Blackberry Ventures 1, LLC (“Blackberry”). US$75,000 advanced minimum royalty was paid in January 2012. As of June 30, 2012, $225,302 was due from Blackberry for its share of ongoing exploration expenditures that were incurred in the current period.

Page 10 of 15

Quaterra Resources Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2012

(Unaudited - Expressed in Canadian Dollars)

5.	Mineral properties, continued
	e)	Goldcorp Inc. (“Goldcorp”) – Investment Framework Agreement (“IFA”), Mexico
		During the six months ended June 30, 2012, the Company entered into an Amended and Restated IFA with Goldcorp extending the term of the original IFA until January 29, 2013.
		As of June 30, 2012, $158,571 was owed from Goldcorp for the exploration expenditures of the advanced property incurred in the current period.
6.	Share capital
	The Company has authorized an unlimited number of common shares without par value.
	Under the terms of the Amended and Restated IFA, Goldcorp agreed to fund additional exploration on certain properties through a private placement of 4 million common shares of the Company at a price of $0.62 per share for gross proceeds of $2.48 million. The private placement closed on April 12, 2012.
	Pursuant to a financial and advisory service agreement dated April 15, 2011, the Company issued 75,756 common shares at a weighted average price of $0.49 per share for a total consideration of $37,500. The agreement expired on April 15, 2012.
7.	Share-based payments
	a)	Stock options
		The Company has a stock option plan (the “Plan”), which is approved by the shareholders annually. The Plan is designed to attract and retain individuals and to reward them for current and expected future performance. Options generally are granted for a maximum term of five years and expire 90 days following the termination of the optionee’s agreement, unless termination is for cause. The exercise price for the options is set at the closing market price of the common shares on the grant date. The vesting periods of options vary with terms determined by the board of directors. Under the Plan, the Company is authorized to grant stock options of up to 10% of the number of common shares issued and outstanding of the Company at any given time.
		The following table presents changes in stock options for the six months ended June 30, 2012 and 2011:

	June 30, 2012				June 30, 2011
	Number of			Weighted Average	Number of			Weighted Average
	Options			Exercise Price	Options			Exercise Price
Outstanding, beginning of period	11,460,000		$	1.53	10,624,000		$	1.60
Granted	3,295,000		$	0.46	355,000		$	1.60
Expired	(230,000	)	$	1.30	(116,000	)	$	2.48
Exercised	-		$	-	(654,500	)	$	1.11
Outstanding, end of period	14,525,000		$	1.29	10,208,500		$	1.62
Exercisable, end of period	14,341,667		$	1.29	9,905,167		$	1.61

Page 11 of 15

Quaterra Resources Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2012

(Unaudited - Expressed in Canadian Dollars)

7.	Share-based payments, continued
	a)	Stock options, continued
		The following table summarizes information about the stock options outstanding as at June 30, 2012 and December 31, 2011:

				Options Outstanding
Exercise price		Fair Value	Expire Date	June 30, 2012	December 31, 2011
$ 3.33	$	1.98	July 20, 2012	775,000	775,000
$ 3.45	$	2.05	March 31, 2013	150,000	150,000
$ 3.30	$	1.87	June 19, 2013	905,000	905,000
$ 0.98	$	0.52	November 9, 2014	1,750,000	1,750,000
$ 1.02	$	0.51	November 9, 2014	2,100,000	2,100,000
$ 2.00	$	1.22	January 14, 2015	40,000	40,000
$ 1.80	$	0.85	April 1, 2015	100,000	100,000
$ 1.76	$	0.97	April 22, 2015	200,000	200,000
$ 1.29	$	0.75	August 9, 2015	1,605,000	1,685,000
$ 1.55	$	0.90	October 6, 2015	65,000	65,000
$ 1.51	$	0.90	November 3, 2015	100,000	100,000
$ 1.60	$	0.96	March 24, 2016	330,000	355,000
$ 1.25	$	0.74	August 9, 2016	2,810,000	2,935,000
$ 0.90	$	0.51	October 24, 2016	300,000	300,000
$ 0.50	$	0.32	March 27, 2017	100,000	-
$ 0.45	$	0.28	June 28, 2017	3,195,000	-
Total stock options outstanding				14,525,000	11,460,000

On July 20, 2012, 775,000 options expired unexercised.

The weighted average remaining contract life for options outstanding and exercisable on June 30, 2012 was 3.24 (December 31, 2011 – 3.25) years and 3.23 (December 31, 2011 – 3.22) years, respectively.

The Company uses the following weighted average assumptions to fair value the options granted using the Black-Scholes option pricing model:

		June 30, 2012		June 30, 2011
Weighted average share price	$	0.50	$	1.61
Risk-free interest rate		1.64%		2.05%
Expected share price volatility		89%		87%
Expected option life in years		4.0		4.0
Forfeiture rate		0%		0%
Expected dividend yield		0%		0%

Page 12 of 15

Quaterra Resources Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2012

(Unaudited - Expressed in Canadian Dollars)

7.	Share-based payments, continued
	a)	Stock options, continued
		Volatility was determined based on the Company’s historical volatility over the estimated lives of the options.
		The share-based payments expense is incurred as follows:

		Three months ended June 30,				Six months ended June 30,
		2012		2011		2012		2011
Consultants	$	338,800	$	27,957	$	338,800	$	55,096
Directors and officers		379,409		-		432,442		-
Employees		197,400		170,546		217,227		184,319
	$	915,609	$	198,503	$	988,469	$	239,415

b)	Share purchase warrants
	The following table presents changes in warrants for the six months ended June 30, 2012 and 2011:

	June 30, 2012					June 30, 2011
	Number of			Weighted Average	��	Number of			Weighted Average
	Warrants			Exercise Price		Warrants			Exercise Price
Outstanding, beginning of period	9,009,512		$	1.94		20,186,023		$	1.16
Issued	-		$	-		1,646,703		$	2.27
Expired	(1,500,709	)	$	1.76		-		$	-
Exercised	-		$	-		(2,432,267	)	$	0.75
Outstanding, end of period	7,508,803		$	1.98		19,400,459		$	1.30

The following table presents the warrants outstanding as at June 30, 2012 and December 31, 2011

Expiry date	Exercise price	June 30, 2012	December 31, 2011
February 4, 2012	$ 1.76	-	1,500,709
October 27, 2012	$ 1.90	5,862,100	5,862,100
February 7, 2013	$ 2.27	1,646,703	1,646,703
		7,508,803	9,009,512

Page 13 of 15

Quaterra Resources Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2012

(Unaudited - Expressed in Canadian Dollars)

7.	Share-based payments, continued
	c)	Agent compensation options
		The Company issued 703,452 agent compensation options at an exercise price of $1.45 expiring October 27, 2012 in relation to the brokered private placement on October 27, 2010. Each option entitles the agent to acquire one common share of the Company and one-half share purchase warrant exercisable at $1.90 by October 27, 2012.
8.	Compensation of key management
	Key management comprises directors and executive officers. Certain executive officers are entitled to termination benefits equal up to two years’ gross salary amounting to $1,687,000 in the event of a change of control. The Company has no post-employment benefits and other long-term employee benefits. Compensation awarded to key management was as follows:

		Three months ended June 30,				Six months ended June 30,
		2012		2011		2012		2011
Personnel costs	$	243,750	$	163,464	$	487,500	$	338,465
Directors' fees		35,788		37,626		62,283		63,716
Share-based payments		379,409		-		432,442		-
	$	658,947	$	201,090	$	982,225	$	402,181

9.	Related party transactions
	The Company’s related parties consist of companies owned by executive officers. The following fees and expenses were incurred in the normal course of operations:

		Three months ended June 30,				Six months ended June 30,
		2012		2011		2012		2011
Manex Resources Group(a)	$	129,598	$	121,420	$	260,602	$	259,324
Lawrence Page Q.C. Law Corp(b)		60		320		545		3,030
Atherton Enterprises Ltd.(c)		43,750		43,750		87,500		87,500
	$	173,408	$	165,490	$	348,647	$	349,854

a)	Manex Resource Group (“Manex”) is a private company owned by an officer and director that provides general office and administrative services. As of June 30, 2012, $31,623 (December 31, 2011 - $47,884) was still owing in due to related parties.
b)	Lawrence Page, Q.C. Law Corp. is a company owned by an officer and director that provides legal services.
c)	Atherton Enterprises Ltd. is a private company owned by an officer that provides CFO services.

Page 14 of 15

Quaterra Resources Inc.

Notes to Condensed Consolidated Interim Financial Statements

For the Six Months Ended June 30, 2012

(Unaudited - Expressed in Canadian Dollars)

10.	Commitments
	a)	On February 9, 2012, the Company renewed its service agreement with Manex for its Vancouver head office administration and corporate services at a monthly fee of $19,250 for a five-year term expiring August 31, 2017. The Company may terminate the agreement by paying Manex the lesser of $462,000 or a total fee owing for the remaining of the term.
	b)	On March 1, 2011, the Company’s US subsidiary entered into a lease agreement for its premises located in the City of Yerington, Nevada. The initial term of the lease is three years with an option to extend for additional three years.
	c)	As of June 30, 2012, the Company had the following commitments related to its office premises:

Period ending June 30, 2013	$	287,199
Period ending June 30, 2014		284,756
Period ending June 30, 2015		231,000
Period ending June 30, 2016		231,000
Period ending June 30, 2017		231,000
Period ending June 30, 2018		38,500
	$	1,303,455

11.	Segmented information
	The Company has one business segment, the exploration of mineral properties. The Company’s significant non-current assets are distributed by geographic locations as follows:

		June 30, 2012								December 31, 2011
		Taxes and								Taxes and
		other				Mineral		Reclamation		other				Mineral		Reclamation
		receivables		Equipment		Property		bonds		receivables		Equipment		Property		bonds
Canada	$	54,389	$	-	$	-	$	-	$	15,498	$	-	$	-	$	-
Mexico		923,131		165,147		19,810,953		-		919,315		194,290		16,798,700		-
U.S.A		-		131,329		46,267,360		507,645		-		154,505		42,242,086		519,092
Total	$	977,520	$	296,476	$	66,078,313	$	507,645	$	934,813	$	348,795	$	59,040,786	$	519,092

Page 15 of 15