Galleon Gold (PNCKF) 6-K Notice of No Auditor Review of Interim Financial Statements

Exhibit 99.1

PURE NICKEL INC.

CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011
(Unaudited)

NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS

The accompanying unaudited interim financial statements of the Company have been prepared by, and are the responsibility of, the Company’s management. The Company’s independent auditor has not performed a review of the these financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an auditor.

1

PURE NICKEL INC.

(An Exploration Stage Company)

CONSOLIDATED BALANCE SHEETS

(Unaudited)

		May 31,			November 30,
		2011			2010
ASSETS
Current assets:
Cash and cash equivalents	$	626,140		$	1,713,784
Restricted cash and cash equivalents (Note 4)		83,901			85,931
Short-term investments (Note 5)		1,765,990			2,305,189
Amounts receivable		62,482			43,373
Prepaid expenses and deposits		78,289			47,711
Due from related party (Note 12)		154,434			85,776
		2,771,236			4,281,764
Fixed assets (Note 6)		10,634			12,409
Mineral properties (Note 7)		39,155,810			38,555,291
Investments (Note 13(a))		36,625			49,750
	$	41,974,305		$	42,899,214
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	156,547		$	309,545
Accrued liabilities		64,276			128,912
		220,823			438,457
Shareholders’ equity:
Share capital (Note 8)		44,441,620			44,441,620
Contributed surplus (Note 8)		12,212,197			12,035,229
Deficit		(14,900,335	)		(14,016,092	)
		41,753,482			42,460,757
	$	41,974,305		$	42,899,214

The accompanying notes are an integral part of these consolidated financial statements.

Approved on behalf of the board of directors:

“David RMcPherson”	“Harry Blum”
David R. McPherson, Director	Harry Blum, Director

2

PURE NICKEL INC.

(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS,

COMPREHENSIVE LOSS AND DEFICIT

(Unaudited)

		Three months ended						Six months ended
		May 31						May 31
		2011			2010			2011			2010
Revenues	$	–		$	– $			–		$	–
Expenses:
Administration and general		527,785			849,731			885,871			1,246,420
Loss before other income (expenses)		(527,785	)		(849,731	)		(885,871	)		(1,246,420	)
Other income (expenses):
Interest income		8,584			6,429			17,478			16,711
Derecognition of liability (impairment of mineral properties) (Note 7(e)(iii))		31,030			–			31,030			(15,454	)
Change in fair value of investments		(30,250	)		(142,750	)		(13,125	)		(131,375	)
Foreign exchange gain (loss)		(5,428	)		32,617			(33,755	)		29,163
		3,936			(103,704	)		1,628			(100,955	)
Net loss for the period		(523,849	)		(953,435	)		(884,243	)		(1,347,375	)
Deficit, beginning of period		(14,376,486	)		(12,101,266	)		(14,016,092	)		(11,707,326	)
Deficit, end of period	$	(14,900,335	)	$	(13,054,701	)	$	(14,900,335	)	$	(13,054,701	)
Loss per share – basic and diluted	$	(0.01	)	$	(0.01	) $		(0.01	)	$	(0.02	)
Weighted average number of shares		67,832,226			67,810,004			67,832,226			67,787,781

The accompanying notes are an integral part of these consolidated financial statements.

3

PURE NICKEL INC.

(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

		Three months ended						Six months ended
					May 31						May 31
		2011			2010			2011			2010
Operating activities:
Net loss for the period	$	(523,849	)	$	(953,435	)	$	(884,243	)	$	(1,347,375	)
Items not affecting cash:
Depreciation		848			1,373			1,775			2,744
Impairment of mineral properties		(31,030	)		–			(31,030	)		15,454
Change in fair value of investments		30,250			142,750			13,125			131,375
Stock-based compensation		157,460			226,394			176,968			231,692
		(366,321	)		(582,918	)		(723,405	)		(966,110	)
Changes in non-cash working capital items:
Amounts receivable		(20,618	)		17,187			(19,109	)		83,005
Prepaid expenses and deposits		2,238			(241,464	)		(30,578	)		(252,293	)
Due from related party		(24,155	)		–			(68,658	)		–
Accounts payable		10,073			51,036			(152,998	)		44,703
Accrued liabilities		37,393			1,458,849			(64,636	)		1,342,366
Total cash flows (used in) provided by operating activities		(361,390	)		702,690			(1,059,384	)		251,671
Investing activities:
Capitalized mineral property expenditures, net		(272,301	)		(333,925	)		(569,489	)		(495,692	)
Redemption (purchase) of short-term investments		(6,805	)		2,009,008			539,199			1,998,089
Changes in restricted cash and cash equivalents		98			315			2,030			423
Acquisition of fixed assets		–			–			–			(1,404	)
Total cash flows (used in) provided by investing activities		(279,008	)		1,675,398			(28,260	)		1,501,416
Financing activities:
Proceeds received from exercise of option		–			507,800			–			507,800
Total cash flows provided by financing activities		–			507,800			–			507,800
Increase (decrease) in cash and cash equivalents during the period		(640,398	)		2,885,888			(1,087,644	)		2,260,887
Cash and cash equivalents, beginning of period		1,266,538			1,273,196			1,713,784			1,898,197
Cash and cash equivalents, end of period	$	626,140		$	4,159,084		$	626,140		$	4,159,084
Cash and cash equivalents consists of:
Cash	$	626,140		$	4,159,084		$	626,140		$	4,159,084
Term deposits		–			–			–			–
	$	626,140		$	4,159,084		$	626,140		$	4,159,084
Supplementary cash flow information
Non-cash investing activities:
Warrants received for options on mineral property	$	–		$	–		$	–		$	193,000

The accompanying notes are an integral part of these consolidated financial statements.

4

PURE NICKEL INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	NATURE OF OPERATIONS
	Pure Nickel Inc. (the “Company”) was incorporated under the laws of British Columbia, Canada, and subsequently continued under the CanadaBusiness Corporations Act. The Company is in the business of acquiring, exploring and developing mineral properties in Canada and the United States, primarily those containing nickel, platinum group elements (PGEs), copper, gold, silver and associated base and precious metals. The Company has not yet determined whether its mineral properties contain economically recoverable reserves. The recoverability of the amounts shown for mineral properties is dependent upon the confirmation of economically recoverable reserves, the ability of the Company to enter into joint ventures or obtain financing to successfully complete their development, and upon future profitable production.
2.	SIGNIFICANT ACCOUNTING POLICIES
	(a)	Basis of presentation
		These interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles, in accordance with disclosure requirements for the presentation of interim financial information, consequently do not contain all of the disclosures included in the annual financial statements, and accordingly should be read in conjunction with the most recent annual financial statements. These interim financial statements follow the same accounting policies and methods of application as in those annual financial statements, and are expressed in Canadian dollars. All significant intercompany balances and transactions have been eliminated upon consolidation. The Company proportionately consolidates its 70% undivided interest in the MAN Alaska property.
	(b)	Use of estimates
		The preparation of consolidated financial statements in conformity with generally accepted accounting principles in Canada requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Significant areas requiring the use of estimates relate to the estimated useful lives of fixed assets, the recoverability or valuation of receivables and mineral properties, the utilization of future income tax assets and the valuation of asset retirement obligations and stock-based compensation. Actual results could differ from these estimates.
	(c)	Cash and cash equivalents
		Cash and cash equivalents include cash on account, demand deposits and money market investments with maturities from the date of acquisition of three months or less that are readily convertible to known amounts of cash and are subject to insignificant changes in value. Funds that are not available for use by the Company are noted as restricted.
	(d)	Short-term investments
		Short-term investments consist of highly liquid short-term interest-bearing securities with a term to maturity of greater than three months on the date of purchase, and less than one year from the fiscal year-end. Short-term investments are recorded at the lower of cost or fair value.

5

PURE NICKEL INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.	SIGNIFICANT ACCOUNTING POLICIES (continued)
	(e)	Fixed assets
		Fixed assets are recorded at cost less accumulated depreciation. Depreciation is provided for based on the estimated useful lives of the assets using the declining balance basis at the following annual rates:

Office equipment	20%
Computer hardware	30%
Computer software	100%

(f)	Mineral properties
	Mineral property acquisition and exploration costs are recorded at cost. All direct and indirect costs related to the acquisition of the interests are capitalized until the properties to which they relate are placed into production, sold, or management determines that there is an impairment in value. The recorded cost of mineral properties consists of cash paid, the value of shares or warrants issued, and exploration and development costs incurred. These costs will be amortized on the basis of units of production produced in relation to the proven reserves available on the related property following commencement of production. When mineral properties (including property earn-ins and options) are sold before a property reaches the production stage, the proceeds are credited against the cost of the property, and any excess recognized as income.
(g)	Investments
	Investments consist of warrants received as part of option agreements negotiated with venture partners. A fair value is ascribed to the warrants at the transaction date using the Black-Scholes option-pricing model, and that amount is offset against capitalized mineral property expenditures. At each subsequent balance sheet date, the fair value is recalculated and any gain or loss is reported in the consolidated statements of operations, comprehensive loss and deficit.
(h)	Impairment of long-lived assets
	The recoverability of long-lived assets, which include fixed assets, investments, and mineral properties, is assessed when an event occurs that indicates impairment. Recoverability is based upon factors such as future asset utilization and the future undiscounted cash flows expected to result from the use or sale of the related assets. An impairment loss is recognized in the period when it is determined that the carrying amount of the asset will not be recoverable and exceeds its fair value. At that time the carrying amount is written down to fair value.
(i)	Foreign currency translation
	The consolidated financial statements are stated in Canadian dollars, which is the Company’s functional currency. Transactions and account balances in foreign currencies and the accounts of integrated foreign subsidiaries have been translated into Canadian dollars using the temporal method. Under the temporal method, monetary assets and liabilities are translated at the exchange rates in effect at the balance sheet dates. Non-monetary assets and liabilities are translated at historic exchange rates. Revenue and expenses are translated at the exchange rates in effect on the transaction dates, except for depreciation, which is translated on the same basis as the related asset. The resulting exchange gains and losses are recognized in income.

6

PURE NICKEL INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.	SIGNIFICANT ACCOUNTING POLICIES (continued)
	(j)	Loss per share
		Basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the year. Outstanding stock options and warrants have not been considered in the computation of diluted loss per share as the result would be anti-dilutive.
	(k)	Stock-based compensation
		The Company has plans for granting stock options to management, directors, employees and consultants. The Company recognizes compensation expense based upon the fair value of each option grant as estimated on the date of the grant, and amortized over the vesting period, with the resulting amount credited to contributed surplus. The fair value of each grant is determined using the Black-Scholes option-pricing model. Consideration paid upon the exercise of stock options is recorded as share capital.
	(l)	Asset retirement obligations
		The Company recognizes liabilities for statutory, contractual or legal obligations associated with the reclamation of mineral properties. Initially, a liability for an asset retirement obligation is recognized at its fair value in the period in which it is incurred and the corresponding asset retirement cost is added to the carrying amount of the related asset. The cost is amortized over the economic life of the asset using either the unit-of-production method or the straight-line method, as appropriate. Following the initial recognition of the asset retirement obligation, the carrying amount of the liability is adjusted for changes to the amount or timing of the underlying cash flows needed to settle the obligation. As at May 31, 2011 and November 30, 2010, the Company had not incurred any asset retirement obligations related to the exploration of its mineral properties.
	(m)	Income taxes
		Future income taxes are recorded using the asset and liability method whereby future income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using the enacted or substantively enacted tax rates expected to apply when the asset is realized or the liability settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that substantive enactment or enactment occurs. To the extent that the Company does not consider it more likely than not that a future tax asset will be recovered, it provides a valuation allowance against the excess.

7

PURE NICKEL INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.	SIGNIFICANT ACCOUNTING POLICIES (continued)
	(n)	Financial instruments
		Cash and cash equivalents, short-term investments and investments are designated as held-for- trading and are measured at fair value. Amounts receivable are designated as loans and receivables and are measured at amortized cost. Accounts payable and accrued liabilities are designated as other financial liabilities and are measured at amortized cost. Changes in fair value of held-for-trading financial instruments are reflected in the consolidated statements of operations, comprehensive loss and deficit and included in deficit on the consolidated balance sheets.
3.	ADOPTION OF NEW ACCOUNTING STANDARDS
	(a)	Business Combinations
		In January 2009, the CICA issued Handbook Sections 1582 –Business Combinations, 1601 –
		Consolidated Financial Statementsand 1602 –Non-Controlling Interestswhich replace CICA Handbook Sections 1581 –Business Combinationsand 1600 –Consolidated Financial Statements. Section 1582 establishes standards for the accounting for business combinations that is equivalent to the business combination accounting standard under International Financial Reporting Standards (“IFRS”). Section 1601 together with Section 1602 establishes standards for the preparation of consolidated financial statements. The Company adopted these sections effective December 1, 2010, which had no effect on its consolidated financial statements.
	(b)	International Financial Reporting Standards
		For fiscal years beginning on or after January 1, 2011, IFRS will replace Canadian GAAP for publicly accountable enterprises. As a result, the Company will report under IFRS for interim and annual periods beginning December 1, 2011 with comparative information for the fiscal year ended November 30, 2011 restated under IFRS. Adoption of IFRS as Canadian GAAP will require the Company to make certain accounting policy choices and could materially affect its reported financial position and results of operations.
4.	RESTRICTED CASH AND CASH EQUIVALENTS
	Restricted cash and cash equivalents include funds invested in guaranteed investment certificates with maturities of less than three months as security for corporate credit cards. The funds securing the corporate credit cards are restricted and cannot be withdrawn while the credit cards are outstanding.
5.	SHORT-TERM INVESTMENTS
	Short-term investments represent funds invested in guaranteed investment certificates placed with a Schedule I Canadian bank.

8

PURE NICKEL INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

6. FIXED ASSETS

				Accumulated		Net book
May 31, 2011		Cost		depreciation		value
Office equipment	$	3,866	$	1,903	$	1,963
Computer hardware		18,319		9,811		8,508
Computer software		14,776		14,613		163
	$	36,961	$	26,327	$	10,634
				Accumulated		Net book
November 30, 2010		Cost		depreciation		value
Office equipment	$	3,866	$	1,691	$	2,175
Computer hardware		18,319		8,375		9,944
Computer software		14,776		14,486		290
	$	36,961	$	24,552	$	12,409

7. MINERAL PROPERTIES

Six months ended May 31, 2011		Balance, beginning of period			Expenditures capitalized, net of disposals and recoveries			Impairment		Value ascribed to warrants received		Balance, end of period
Copper King
Milford (a)	$	4,558,253		$	216,744		$	–	$	–	$	4,774,997
MAN Project (b)		8,369,949			(85,875	)		–		–		8,284,074
Salt Chuck (c)		246,358			7,873			–		–		254,231
Fond du Lac (d)		4,337,955			14,919			–		–		4,352,874
William Lake (e(i))		20,535,053			161,499			–		–		20,696,552
Tower (e(ii))		37,220			(29,800	)		–		–		7,420
Forgues and
HPM (e(iii))		(94,917	)		3,969			31,030		–		(59,918	)
Manibridge (e(iv))		431,667			6,400			–		–		438,067
Raglan (e(v))		(3,930	)		258,441			–		–		254,511
Rainbow (e(vi))		137,683			15,319			–		–		153,002
	$	38,555,291		$	569,489		$	31,030	$	–	$	39,155,810

9

PURE NICKEL INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

7.	MINERAL PROPERTIES (continued)
	(a)	Copper King, Milford, Utah, United States
		The Copper King, Milford property has been operated by Copper King Mining Corporation, and its affiliate Western Utah Copper Company (WUCC), which are currently operating under Chapter 11 bankruptcy protection. Under the terms of a 2002 agreement, if WUCC failed to put the Company’s claims into production within a specified period of time, which was extended by agreement of the parties to November 1, 2008, the Company had an option to reacquire the claims. In June 2009, after repeated attempts to confirm the precise production status of this project, the Company launched an action for declaratory relief in the Federal Court in Utah to decide certain issues. In January 2010, the Company advised WUCC that it was exercising its option to reacquire the claims.
		Under the 2002 agreement the Company had been entitled to certain royalties that were capped at US$10 million ($9.7 million) in the event that WUCC achieved production. A group of private investors that includes a current director of Pure Nickel Inc. has asserted that it holds a 12% interest in those royalties. Another party has alleged that it holds a 2% net smelter return royalty on certain claims.
		After the Company filed the action for declaratory judgement, WUCC launched claims against it which management believes to be wholly without merit. Please refer to Note 17 – Contingencies.
	(b)	MAN Property, Alaska, United States
		In March, 2010 Itochu exercised its option by paying US$500,000 ($507,800 at that time). In consideration for accelerating the exploration program in 2010 by 90% from the previously agreed amount, and for accelerating other payments going forward, Itochu’s participating interest granted under the option was increased to 30% from the 20% originally agreed. Itochu funded an exploration budget of US$7.5 million ($7.7 million) in 2010, and it has the right to earn up to a 75% interest in the MAN property by investing an aggregate of US$40 million (approximately $39 million) and meeting certain other conditions, by 2013.
		Effective April 1, 2010, pursuant to the agreement with Itochu, this property has been owned by MAN Alaska LLC, a joint venture in which the Company has a 70% membership interest.
	(c)	Salt Chuck, Alaska, United States
		The Salt Chuck property consists of mining claims covering approximately 1,082 hectares near the historic Salt Chuck mine on Prince of Wales Island, Alaska.
	(d)	Fond du Lac Project (formerly known as Axis Lake Project), Saskatchewan, Canada
		Fond du Lac is located in northern Saskatchewan and comprises six contiguous claims covering 19,713 hectares on the northern edge of the Athabaska Basin.

10

PURE NICKEL INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

7.	MINERAL PROPERTIES (continued)
	(e)	Former Xstrata properties
		In 2007, the Company purchased the property rights for the properties listed below from Xstrata Nickel, a division of Falconbridge Limited, subject to a 2% net smelter return royalty. In addition, Xstrata has a one-time right to repurchase a 50% working interest in any one of the properties if certain conditions are met. Xstrata also has the right to purchase 100% of the ore produced at market prices.
		(i)	William Lake, Manitoba, Canada
			The William Lake property is located in central Manitoba. There is no joint venture partner on this property at present.
		(ii)	Tower property, Manitoba, Canada
			The Tower property is located immediately north of the William Lake property. During 2008, the Company entered into an option agreement with Rockcliff Resources Inc. under which Rockcliff may earn up to a 70% interest in the Tower property located within the William Lake property area. As at date of writing, Rockcliff has not vested any interest in these claims but work is proceeding under the agreement.
		(iii)	Forgues and HPM, Quebec, Canada
			In 2007, the Company granted Manicouagan Minerals Inc. an option to earn up to a 70% interest in 39 mining claims comprising the Forgues and HPM (Haut Plateau de la Manicouagan East) property in Quebec. In November 2009 Manicouagan had made the required option payments and exploration expenditures to earn a 50% interest in the property. This is a related party transaction as a director of the Company is the founder and a significant shareholder of Manicouagan (Note 12). Management decided during the second quarter that due to the low potential for discovery the 25 claims that comprise the Forgues portion of the property will not be renewed. Consequently those claims have been written off.
		(iv)	Manibridge, Manitoba, Canada
			The Manibridge property is located in Manitoba, 128 km southwest of Thompson. The Company has a 50-50 joint venture agreement with Crowflight Minerals Inc. to explore for deposits. Each party must contribute properties as well as $3 million each, over a four year period to fund preliminary exploration activities. The Company also has an option to earn a 50% interest from Crowflight in an area surrounding the joint venture area subject to meeting certain expenditure requirements.
		(v)	Raglan, Quebec, Canada
			Raglan property located in northern Quebec and comprises two properties: SR1 and Nuvilik. During the fourth quarter of 2010 the Company made the decision to not renew the mining claims on the SR1 portion of the Raglan property.

11

PURE NICKEL INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

7.	MINERAL PROPERTIES (continued)
		(vi)	Rainbow, Nunavut, Canada
			The Rainbow property is located in a remote region of Nunavut and consists of mining claims covering approximately 20,000 hectares.
8.	SHAREHOLDERS’ EQUITY
	(a)	Share capital
		Share capital consists of unlimited authorized common shares without par value. There are 67,832,226 common shares issued and outstanding at May 31, 2011 (November 30, 2010 – 67,832,226).

										Total share-
	Common shares				Contributed					holders’
	Shares		Amount		surplus		Deficit			equity
As at November 30, 2010	67,832,226	$	44,441,620	$	12,035,229	$	(14,016,092	)	$	42,460,757
Stock-based compensation			–		19,508		–			19,508
Net loss			–		–		(360,394	)		(360,394	)
As at February 28, 2011	67,832,226	$	44,441,620	$	12,054,737	$	(14,376,486	)	$	42,119,871
Stock-based compensation			–		157,460		–			157,460
Net loss			–		–		(523,849	)		(523,849	)
As at May 31, 2011	67,832,226	$	44,441,620	$	12,212,197	$	(14,900,335	)	$	41,753,482

(b)

Stock options

Under the Company’s stock option plan options on common shares may be issued for up to a cumulative amount that may not exceed 10% of shares outstanding. The exercise price for each option granted under the Plan is based upon the five-day weighted average market price at the date of the grant, and the term may not exceed ten years from the date of the grant of the option. The specific terms including vesting period and term of the option are set by the board of directors.

12

PURE NICKEL INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

8.	SHARE CAPITAL (continued)
	Stock option activity since November 30, 2009 is presented below:

			Weighted
			average
	Number of		exercise
	shares		price $
Outstanding, November 30, 2009	4,460,000		0.56
Granted	2,630,000		0.22
Exercised	(66,667	)	0.065
Cancelled	(33,333	)	0.065
Expired	(1,900,000	)	1.11
Outstanding, November 30, 2010	5,090,000		0.19
Expired	(100,000	)	0.31
Outstanding, February 28, 2011	4,990,000		0.19
Granted	1,880,000		0.165
Expired	(950,000	)	0.26
Outstanding, May 31, 2011	5,920,000		0.17

The following stock options are outstanding and exercisable at May 31, 2011:

	Options outstanding			Options exercisable
		Weighted
		average	Weighted		Weighted
Exercise		remaining	average		average
price	Number of	contractual life	exercise	Number of	exercise
$	shares	in years	price $	shares	price $
0.06	785,000	0.5	0.06	785,000	0.06
0.065	400,000	0.8	0.065	400,000	0.065
0.165	1,880,000	2.9	0.165	1,305,000	0.165
0.20	2,230,000	1.9	0.20	1,855,000	0.20
0.26	25,000	0.1	0.26	25,000	0.26
0.265	200,000	1.0	0.265	200,000	0.265
0.30	400,000	2.1	0.30	400,000	0.30
	5,920,000	2.0	0.17	4,970,000	0.17

Stock options outstanding at May 31, 2011 expire from June 19, 2011 to May 3, 2014.

13

PURE NICKEL INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

9.

STOCK-BASED COMPENSATION

During the six months ended May 31, 2011, the Company granted 1,880,000 stock options to directors, officers, employees and consultants of the Company (May 31, 2010 – 2,230,000). The weighted average exercise price of the options granted during the six months ended May 31, 2011 was $0.165 (May 31, 2010 – $0.20). The fair value of each option was calculated using the Black- Scholes option-pricing model at the date of each grant using the following assumptions:

	Six months	Six months
	ended May 31,	ended May 31,
	2011	2010
Expected option lives	3.0 years	3.0 years
Risk-free interest rate	1.7%	1.6%
Expected dividend yield	0%	0%
Expected stock price volatility	117%	126%

	During the six months ended May 31, 2011, the Company recognized $176,968 of stock based compensation expense (2010 - $231,692), which has been recorded in the consolidated statements of operations, comprehensive loss and deficit.
10.	INCOME TAXES
	In assessing the realization of the Company’s future income tax assets, management considers whether it is more likely than not that some portion or all of the future income tax assets will not be realized. The ultimate realization of future tax assets is dependent upon the generation of taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of future income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The amount of future income tax assets considered realizable could change materially in the near term based on future taxable income generated during the carry-forward period.
11.	LOSS PER SHARE
	The weighted average number of shares outstanding used in the computation of earnings (loss) per share for the six months ended May 31, 2011 was 67,832,226 (2010 – 67,787,781). Outstanding stock options have not been considered in the computation of diluted loss per share as the result is anti-dilutive.

14

PURE NICKEL INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

12.	RELATED PARTY BALANCES AND TRANSACTIONS
	At May 31, 2011, $154,434 was due from MAN Alaska LLC, the joint venture of which the Company has a 70% participating interest, as reimbursement for expenses incurred or amounts paid by the Company on behalf of MAN Alaska LLC. The amount is non-interest bearing, unsecured, is due on demand and was repaid during June 2011.
	During the six months ended May 31, 2011, the Company incurred legal expenses, which are included within administration and general expenses, with a firm of which a director of the Company was a principal, of $8,455 (2010 - $5,659). The transactions were in the normal course of operations and have been recorded at the exchange amounts which the parties believe to be fair value.
	As described in Notes 7(a) and 7(e)(iii) respectively, a director of the Company is part of a group of investors that may have a net profit interest in copper production of the Copper King property, and a director is the founder and a significant shareholder of Manicouagan Minerals which holds an option in one of the Company’s properties.
13.	FINANCIAL INSTRUMENTS
	(a)	Fair value
		The Company has various financial instruments comprising of cash and cash equivalents, short- term investments, amounts receivable, accounts payable and accrued liabilities. The carrying values of these financial instruments approximate their fair value due to their short-term maturities.
		Investments consist of warrants to purchase common shares of other entities. These are accounted for as derivatives, and thus recorded at their fair value, which at May 31, 2011 was $36,625. The valuation was calculated using the Black-Scholes option pricing model which takes into account various factors including the strike price of the warrants, the current market prices of the underlying securities and the expected volatility of the prices of the underlying securities. The latter two factors may fluctuate significantly during the term that the warrant is held. In addition, the value of the warrants is reduced as time goes by and the time remaining until expiry is reduced. For these reasons, the fair value of the investments may fluctuate significantly, with the maximum loss restricted to the fair value of the investment noted above.
	(b)	Credit risk
		The following assets are exposed to credit risk: cash and cash equivalents, restricted cash and cash equivalents, short-term investments, and amounts receivable. The Company maintains all of its cash and cash equivalents, restricted cash and cash equivalents and short-term investments invested in demand deposits and short-term instruments at a major Canadian financial institution. Most of these amounts are not insured but depend upon the general creditworthiness of the institution. The Company believes that exposure to credit risk is low.
	(c)	Liquidity risk
		The Company has no debt and its financial assets are relatively liquid, therefore has very limited exposure to liquidity risk.
	(d)	Interest rate risk
		The Company is not exposed to significant interest rate risk due to the short-term maturity of its monetary assets and liabilities.

15

PURE NICKEL INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

13.	FINANCIAL INSTRUMENTS (continued)
	(e)	Currency risk
		As the Company operates in the United States, some of the Company’s financial instruments and transactions are denominated in United States funds. Fluctuation in the exchange rates between the United States dollar and the Canadian dollar could have a material effect on the Company’s business, financial condition and results of operations.
		At May 31, 2011, the Company had net monetary assets denominated in United States funds of $252,477 (US$260,657). Based upon the period-end balance, an increase of 15% in the Canada to U.S. dollar exchange would result in an increase in the net loss and comprehensive loss of $33,000, and a reduction of 15% would result in a decrease in the net loss and comprehensive loss of $43,000. Management believes that it is not likely but it is possible that the exchange rate could fluctuate by more than 15% within the next 12 months.
14.	JOINT VENTURE
	The Company’s investment in the MAN Alaska property is owned by MAN Alaska LLC, a joint venture in which the Company has a 70% membership interest. The joint venture was established effective April 1, 2010.
	As at May 31, 2011, the Company’s interest in that joint venture consists of the following asset:

Mineral property $8,111,041

	During the six months ended May 31, 2011, the Company’s interest in revenues, expenses and cash flows in the joint venture were nil.
15.	CAPITAL DISCLOSURES
	The Company considers all of the components of shareholders’ equity to be capital. The Company’s objectives in managing capital are to safeguard its ability to operate as a going concern and to generate a superior return to shareholders. The Company has no debt and does not expect to enter into debt financing. It expects to finance exploration activity through joint ventures, sales of property interests, and by raising additional share capital when market conditions are suitable. Neither the Company nor its subsidiaries are subject to externally imposed capital requirements. There have been no changes to the Company’s approach to capital management during the year.

16

PURE NICKEL INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

16.	SEGMENT DISCLOSURES
	The Company’s fixed assets and mineral properties by geographic distribution are as follows:

May 31, 2011		Canada		United States		Total
Fixed assets	$	10,634	$	–	$	10,634
Mineral properties		25,842,508		13,313,302		39,155,810
	$	25,853,142	$	13,313,302		39,166,444
November 30, 2010		Canada		United States		Total
Fixed assets	$	12,409	$	–	$	12,409
Mineral properties	��	25,380,731		13,174,560		38,555,291
	$	25,393,140	$	13,174,560	$	38,567,700

17.	CONTINGENCIES
	In 2009 the Company (through a subsidiary) filed an action for declaratory relief against Western Utah Copper Company (WUCC) in the United States District Court, Utah, requesting interpretation of and the status and rights under an agreement (see Note 7(a)). After the Company filed the action for declaratory judgement, WUCC launched claims against it which management believes to be wholly without merit. The litigation was initially stayed due to the Chapter 11 bankruptcy, but the bankruptcy court later lifted the stay, and as a result, the litigation is now moving forward.
	Management is of the opinion the court actions and related claims by WUCC are without merit and that the most likely outcome is that title to the claims transferred to WUCC under the 2002 agreement will revert back to us. In any event, the Company is taking actions to protect its interests during the bankruptcy proceedings. However, the outcome of litigation is always uncertain.
18.	COMPARATIVE FIGURES
	Certain comparative figures have been reclassified to conform to the current presentation.

17

PURE NICKEL INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

19.	DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES
	These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”), which differ in certain respects from those generally accepted in the United States of America (“U.S. GAAP”). Under Canadian GAAP, the Company capitalizes all costs related to the acquisition, exploration and development of non- producing mineral properties. Under U.S. GAAP, acquisition costs of mineral rights are capitalized, but exploration and development costs are expensed as incurred, until the establishment of commercially mineable reserves is complete, at which time any further exploration costs are capitalized. Under Canadian GAAP, enterprises in the development stage are encouraged to disclose cumulative information from the inception of the development stage. Under U.S. GAAP, this disclosure is required. Cumulative net losses since inception aggregate $14,900,335.
	Under Canadian GAAP, the Company is required to account for the MAN Alaska LLC joint venture following proportionate consolidation. Under U.S. GAAP, the joint venture would be accounted for on the equity basis.
	For Canadian GAAP, cash flows relating to mineral property exploration are reported as investing activities. For U.S. GAAP, these costs would be characterized as operating activities.
	In June 2009, the FASB issued SFAS 168 –The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162. SFAS 168 provides for the FASB Accounting Standards Codification (“ASC”) to become the single official source of authoritative, nongovernmental U.S. generally accepted accounting principles (GAAP). The ASC did not change GAAP but reorganizes the literature. SFAS 168 was effective for interim and annual periods ending after September 15, 2009. The adoption of this statement has not had any effect on the Company’s consolidated financial statements.
	In February 2010, the FASB issued ASU 2010-09, “Subsequent Events (Topic 855); Amendments to Certain Recognition and Disclosure Requirements” (“ASU 2010-9”). The standard amends Subtopic 855-10, “Subsequent Events” to remove the requirement for a SEC filer to disclose the date through which subsequent events have been evaluated. ASU 2010-9 is effective upon issuance of the final update. The Company does not expect the adoption of ASU 2010-09 to have a material impact on its consolidated financial statements.

18

PURE NICKEL INC.

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

19.	DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES (continued)
	The differences in accounting for mineral properties under Canadian and U.S. GAAP had the following effects on the Company’s financial statements.
	(i)	Net Loss and Loss per Share

		Six months			Six months
		ended May 31,			ended May 31,
		2011			2010
Net loss under Canadian GAAP	$	(884,243	)	$	(1,347,375	)
Capitalized expenditures on unproven mineral properties		(156,460	)		(97,402	)
Net gain (loss) under U.S. GAAP	$	(1,040,703	)	$	(1,444,777	)
Gain (loss) per share under U.S. GAAP – basic and diluted	$	(0.015	)	$	(0.021	)

(ii) Mineral Properties

					November 30,
		May 31, 2011			2010
Mineral properties under Canadian GAAP	$	39,155,810		$	38,555,291
Capitalized expenditures on unproven mineral properties		(18,958,351	)		(18,801,891	)
Reclassification to investment in joint venture		(69,024	)		(69,024	)
Mineral properties under U.S. GAAP	$	20,128,435		$	19,684,376

(iii) Investment in Joint Venture

				November 30,
		May 31, 2011		2010
Investment in joint venture under Canadian GAAP	$	–	$	–
Reclassification from mineral properties		69,024		69,024
Investment in joint venture under U.S. GAAP	$	69,024	$	69,024

(iv) Deficit

		May 31, 2011			May 31, 2010
Deficit under Canadian GAAP	$	(14,900,335	)	$	(13,054,701	)
Capitalized expenditures on unproven mineral properties		(18,958,351	)		(19,684,452	)
Deficit under U.S. GAAP	$	(33,858,686	)	$	(32,739,153	)

19