Portal Interim Financial Statements

EX-99.1 2 pdoq2dec3110fsfinal.htm PORTAL INTERIM FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 2010 Portal Interim Financial Statements

PORTAL RESOURCES LTD.

Consolidated Financial Statements

(Unaudited)

For the six months ended

December 31, 2010

(An exploration stage company)

	Portal Resources Ltd.		Trading Symbol: PDO
	Head Office: Suite 750 – 625 Howe Street		Telephone: 604-629-1929
	Vancouver, British Columbia, Canada V6C 2T6		Facsimile: 604-629-1930

NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS

Under National Instrument 51-102, Part 4, subsection 4.3 (3) (a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.

The accompanying unaudited interim consolidated financial statements of Portal Resources Ltd. have been prepared by and are the responsibility of the Company’s management.

The Company’s independent auditor has not performed a review of these financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity’s auditor.

PORTAL RESOURCES LTD.

CONSOLIDATED BALANCE SHEETS

(stated in Canadian dollars)

(Unaudited)

	December 31, 2010 (Unaudited)	June 30, 2010 (Audited)

ASSETS
Current
Cash and cash equivalents	$ 75,759	$ 137,609
Short-term investments (Note 3)	726,604	275,222
Marketable securities (Note 4)	8,951	9,581
Amounts receivable	13,480	63,880
Prepaid expenses	31,748	21,552
	156,542	507,844

Equipment (Note 5)	59,820	21,833
Oil and gas properties (Note 7)	645,701	571,932

	$ 862,063	$ 1,101,609

LIABILITIES

Current
Accounts payable and accrued liabilities	$ 185,926	$ 43,417


SHAREHOLDERS’ EQUITY

Share capital (Note 8)	$ 14,900,007	$ 14,850,161
Contributed surplus (Note 8)	1,086,628	1,024,993
Deficit	(15,310,498)	(14,816,962)
	676,137	1,058,192

	$ 862,063	$ 1,101,609

Nature of operations (Note 1)

Commitments (Note 9)

Subsequent Events (Note 15)

Approved by the Board of Directors:

*“David Hottman”*		*“Mark T. Brown”*
David Hottman, Director		Mark T. Brown, Director

See notes to consolidated financial statements

PORTAL RESOURCES LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT

(stated in Canadian dollars)

(Unaudited)

	For the three months ended December 31,		For the six months ended December 31,

	2010	2009	2010	2009

Expenses
Accounting and audit	$ (1,400)	$ 12,180	$ 1,600	$ 17,430
Amortization	5,104	3,717	8,166	7,435
Bank charges and interest	640	630	939	1,156
Consulting and management fees	12,430	2,132	26,595	26,882
Director fees	6,500	6,500	14,333	14,333
Foreign exchange	1,646	1,911	3,849	10,151
Investor relations	36,338	21,565	62,518	25,349
Legal	4,344	7,172	8,511	19,594
Office and miscellaneous	22,540	26,976	40,468	50,742
Rent	21,805	22,930	44,928	48,314
Project investigation	3,750	64,012	15,750	97,499
Salaries and benefits	94,876	50,047	155,505	96,623
Stock-based compensation (Note 8)	52,255	27,330	83,805	80,964
Travel	11,382	10,935	21,439	15,056
Transfer agent and filing fees	3,292	3,311	4,733	4,063

	275,502	261,348	493,139	515,591

Other Items
Interest income	(78)	(872)	(233)	(4,637)
Unrealized (gain)/loss on marketable securities (Note 4)	4,941	(13,362)	630	(20,303)
	4,863	(14,234)	397	(24,940)

Net loss and comprehensive loss for the period	$ (280,365)	$ (247,114)	$ (493,536)	$ (490,651)

Loss per share	$ (0.01)	$ (0.01)	$ (0.02)	$ (0.02)

Weighted average number of common shares outstanding	30,322,789	29,651,539	30,237,164	29,651,539

See notes to consolidated financial statements

PORTAL RESOURCES LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(stated in Canadian dollars)

(Unaudited)

	Number of Shares	Amount	Contributed Surplus	Deficit	Total Shareholders Equity

Balance at June 30, 2009 (Audited)	29,651,539	$ 14,760,161	$ 805,151	$ (13,671,414)	$ 1,893,898
Share issues:
Issued for purchase of oil & gas interest	500,000	90,000	-	-	90,000
Stock based compensation	-	-	219,842	-	219,842
Net loss and comprehensive income	-	-	-	(1,145,548)	(1,145,548)

Balance at June 30, 2010 (Audited)	30,151,539	$ 14,850,161	$ 1,024,993	$ (14,816,962)	$ 1,058,192
Share issues:
Exercise of options	227,500	27,676	-	-	27,676
Fair market value of stock options exercised	-	22,170	(22,170)	-	-
Stock based compensation	-	-	83,805	-	83,805
Net loss and comprehensive income	-	-	-	(493,536)	(493,536)

Balance at December 31, 2010 (Unaudited)	30,379,039	$ 14,900,007	$ 1,086,628	$ (15,310,498)	$ 676,137

See notes to consolidated financial statements

PORTAL RESOURCES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(stated in Canadian dollars)

(Unaudited)

	For the three months ended December 31,		For the six months ended December 31,

	2010	2009	2010	2009


Cash provided by (used for):
Operating Activities
Net loss for the period	$ (280,365)	$ (247,114)	$ (493,536)	$ (490,651)
Items not involving cash:
Stock-based compensation	52,255	27,330	83,805	80,964
Amortization	5,104	3,717	8,166	7,435
Unrealized gain on marketable securities	4,941	(13,362)	630	(20,303)

	(218,065)	(229,429)	(400,935)	(422,555)

Changes in non-cash working capital:
Amounts receivable	2,541	(3,056)	50,400	(4,596)
Prepaid expenses	569	3,927	(10,196)	(4,193)
Accounts payable and accrued liabilities	134,332	7,646	142,509	(21,214)

	(80,623)	(220,912)	(218,222)	(452,558)

Investing Activities
Purchase of equipment and software	(38,153)	-	(46,153)	(856)
Short-term investments	47,999	399,662	248,618	580,693
Expenditures on oil and gas properties	(58,769)	(43,658)	(73,769)	(72,036)

	(48,923)	356,004	128,696	507,801

Financing Activities
Common shares issued on option exercise	27,676	-	27,676	-

	27,676	-	27,676	-

Net increase (decrease) in cash and cash equivalents	(101,870)	135,092	(61,850)	55,243
Cash and cash equivalents – beginning of period	177,629	168,723	137,609	248,572

Cash and cash equivalents– end of period	$ 75,759	$ 303,815	$ 75,759	$ 303,815

See notes to consolidated financial statements

PORTAL RESOURCES LTD.

Notes to the Consolidated Financial Statements

For the six months ended December 31, 2010 (Unaudited)

(stated in Canadian dollars)

NATURE OF OPERATIONS

Portal Resources Ltd. was incorporated on August 14, 2000 under the Company Act of the Province of British Columbia.

The Company is an exploration stage company whose business activity is the exploration of oil and gas in Alberta, Canada. The Company has not yet established the presence of economic oil or gas reserves on Company interest lands, and, accordingly, the amounts shown for deferred exploration costs represent costs incurred to date, less write-downs, and do not necessarily reflect present or future values. The recovery of these amounts is dependent upon the discovery of economically recoverable reserves, the ability of the Company to obtain the necessary financing to complete the exploration of the rights, and upon the commencement of future profitable production or, alternatively, upon the Company’s ability to dispose of its interests on an advantageous basis. To date, the Company has not earned significant revenues and has an accumulated operation deficit of $15,310,498.

Current economic conditions have limited the Company’s ability to access financing through equity markets and this has created significant uncertainty as to the Company’s ability to fund ongoing operations for the next operating period. See Note 13 for further discussion on the Company’s conservation and management of capital.

The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and the classification of liabilities that might be necessary should the Company be unable to continue in the normal course of business.

SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation and principles of consolidation

These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in Canada (Canadian GAAP). These interim consolidated financial statements have been prepared in accordance with the accounting policies described in the Company’s annual consolidated financial statements, do not include in all respects the annual disclosure requirements of generally accepted accounting principles, and should be read in conjunction with the most recent annual consolidated financial statements. The differences between those principles and the ones that would be applied under U.S. generally accepted accounting principles (U.S. GAAP) are disclosed in Note 14.

References to the Company are inclusive of the Canadian parent company, its wholly owned U.S. subsidiary, Portal Resources US Inc., and its formerly owned subsidiary Portal del Oro S.A. All significant inter-company transactions and balances have been eliminated.

The accounting policies followed by the Company are set out in Note 2 to the audited consolidated financial statements for the year ended June 30, 2010 and have been consistently followed in preparation of these interim consolidated financial statements, except with respect to the following new and revised accounting standards which the Company is required to adopt under Canadian GAAP for interim and annual financial statements relating to its fiscal year commencing July 1, 2010.

New accounting policies

CICA Handbook Section 3862 “Financial Instruments – Disclosure” requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The accounting standard establishes a fair value hierarchy based on the level of independent, objecting evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. CICA Handbook Section 3862 prioritizes the inputs into three levels that may be used to measure fair value:

PORTAL RESOURCES LTD.

Notes to the Consolidated Financial Statements

For the six months ended December 31, 2010 (Unaudited)

(stated in Canadian dollars)

SIGNIFICANT ACCOUNTING POLICIES, (Continued)

New accounting policies, (Continued)

Level 1 – Applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2 – Applies to assets or liabilities for which there are inputs other than quoted prices included in Level 1 that are observable for the assets or liability, either directly such as quoted prices for similar assets or liabilities in active markets or indirectly such as quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions.

Level 3 – Applies to assets or liabilities for which there are unobservable market data.

The Company’s financial instruments consist principally of cash, short term investments, GST receivable, accounts payable and accrued liabilities. Pursuant to CICA Handbook 3862, fair value of assets and liabilities measured on a recurring basis include cash and short term investments determined based on Level 1 inputs, which consist of quoted prices in active markets for identical assets. The Company believes that the recorded values of all the other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

Accounting Policies Not Yet Adopted

Convergence to international Financial Reporting Standards (“IFRS”)

In February 2008, the CICA announced that Canadian GAAP for publicly accountable enterprises will be replaced by International Financial Reporting Standards (“IFRS”) for fiscal years beginning on or after January 1, 2011. Companies will be required to provide IFRS comparative information for the previous fiscal year. The transition date of July 1, 2011 will require the restatement for comparative purposes, amounts reported by the Company for the year ended June 30, 2011, for which the current and comparative information will be prepared under IFRS.

The Company has commenced its IFRS conversion project in 2008. The Company’s IFRS project consists of three phases – scoping, evaluation and design, and implementation and review. The Company has commenced the scoping phase of the project, which consists of project initiation and awareness, identification of high-level differences between Canadian GAAP and IFRS and project planning and resourcing. The Company has completed a high level scoping exercise and has prepared a preliminary comparison of financial statement areas that will be impacted by the conversion.

A detailed assessment of the impact of adopting IFRS on the Company’s consolidated financial statements, accounting policies, information technology and data systems, internal controls over financial reporting, disclosure controls and procedures, and the various covenants and capital requirements and business activities has not been completed. The impact on such elements will depend on the particular circumstances prevailing at the adoption date and the IFRS accounting policy choices made by the Company. The Company has not completed its quantification of the effects of adopting IFRS. The financial performance and financial position as disclosed in our Canadian GAAP financial statements may be significantly different when presented in accordance with IFRS.

Business combinations

In January 2009, the CICA issued the new handbook Section 1582, “Business Combinations” effective for fiscal years beginning on or after January 1, 2011. Earlier adoption of Section 1582 is permitted. This pronouncement further aligns Canadian GAAP with US GAAP and IFRS and changes the accounting for business combinations in a number of areas. It establishes principles and requirements governing how an acquiring company recognizes and measures in its financial statements identifiable assets acquired, liabilities assumed, any non-controlling interest in the acquisition, and goodwill acquired. The section also establishes disclosure requirements that will enable users of the acquiring company’s financial statements to evaluate the nature and financial effects of its

PORTAL RESOURCES LTD.

Notes to the Consolidated Financial Statements

For the six months ended December 31, 2010 (Unaudited)

(stated in Canadian dollars)

SIGNIFICANT ACCOUNTING POLICIES, (Continued)

business combinations. Although the Company is considering the impact of adopting this pronouncement on the consolidated financial statements, it will be limited to any future acquisitions beginning in fiscal 2012.

Consolidated financial statement and non-controlling interests

In January 2009, the CICA issued the new handbook Section 1601, “Consolidated Financial Statements”, and Section1602, “Non-controlling Interests”, effective for fiscal years beginning on or after January 1, 2011. Earlier adoption of these recommendations is permitted. These pronouncements further align Canadian GAAP with US GAAP and IFRS. Sections 1601 and 1602 change the accounting and reporting for ownership interest in subsidiaries held by parties other than the parent. Non-controlling interests are to be presented in the consolidated statement of financial position within equity but separate from the parent’s equity. The amount of consolidated net income attributable to the parent and to the non-controlling interest is to be clearly identified and presented on the face of the consolidated statement of income. In addition, these pronouncements establish standards for a change in a parent’s ownership interest in a subsidiary and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated. They also establish reporting requirements for providing sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. The Company is currently considering the impact of adopting these pronouncements on its consolidated financial statements in fiscal 2012 in connection with the conversion to IFRS.

SHORT TERM INVESTMENTS

Short term investments consists of highly liquid investments, including guaranteed investment certificates with major financial institutions, having a maturity of 12 months or less at acquisition and that are readily convertible to contracted amounts of cash.

MARKETABLE SECURITIES

On May 29, 2009 Portal Resources US Inc. acquired 150,000 shares of Pengram Corporation (“Pengram”) in return for assigning all of its interest in an option agreement (see Note 6). The shares were recorded at fair value of $41,104. At December 31, 2010, the fair value of the Pengram shares was $8,951 (June 30, 2010 - $9,581). During the period the Company recorded an unrealized loss of $630 (December 31, 2009 - $Nil).

EQUIPMENT

	December 31, 2010			June 30, 2010

	Cost	Accumulated amortization	Net book value	Cost	Accumulated amortization	Net book value

Computer equipment	$ 24,691	$ 16,556	$ 8,135	$ 17,461	$ 15,580	$ 1,881
Computer software	59,777	22,576	37,201	20,854	20,756	98
Furniture & fixtures	5,655	4,073	1,582	5,655	3,678	1,977
Vehicles	25,896	15,539	10,357	25,896	11,653	14,243
Field equipment	10,892	8,347	2,545	10,892	7,258	3,634
	$ 126,911	$ 67,091	$ 59,820	$ 80,758	$ 58,925	$ 21,833

PORTAL RESOURCES LTD.

Notes to the Consolidated Financial Statements

For the six months ended December 31, 2010 (Unaudited)

(stated in Canadian dollars)

UNPROVEN MINERAL RIGHTS

Argentina

As at May 14, 2009, the Company held a subsidiary and mineral properties in Argentina. During the fiscal year ended June 30, 2009, the Company, after reviewing work done on the properties, concluded that the potential did not justify further work and renounced the mining rights held under the projects. As such the project expenditures were written off and subsequently Portal’s Argentinean subsidiary was sold.

United States

On September 2, 2008, the Company announced that it had entered into an option agreement under which it has the right to acquire, from Claremont Nevada Mines, Scoonover Exploration and JR Exploration, three properties located in the Walker Lane Belt and Battle Mountain/Eureka Trend in Nevada, USA.

On May 29, 2009, the Company closed an Assignment Agreement with Pengram Corporation (“Pengram”) to transfer all the rights on the Nevada claims, in exchange for 150,000 shares of Pengram’s common stock. The Company has no further commitments on the Nevada properties (See Note 4 – Marketable Securities).

OIL AND GAS PROPERTIES

The Company’s oil and gas interests are all located in Central Alberta, Canada.

Oil and Gas Joint Ventures

Bigwave Joint Venture

On November 1, 2008, the Company signed a Joint Venture Agreement to participate for a 15% working interest in the exploration, exploitation and production of petroleum and natural gas relating to lands located in central Alberta. In December of 2008 the Agreement was modified to allow the Company to participate up to a 20% interest. During the quarter ended September 30, 2009, the Company increased its interest in the Joint Venture to 22%.

Within the area of interest, the Company has agreed to pay a 5.5% Gross Over Riding Royalty (GORR) on all products produced from certain geological formations.

On January 5, 2009, the Company signed an agreement, “Participation Agreement”, with certain other partners in the Bigwave Joint Venture. Portal agreed to pay 100% of Portal’s cost per Drill Spacing Unit to earn a 100% interest until pay-out and then, after pay-out, to drop to a 70% interest per Drill Spacing Unit.

On April 22, 2010, the Company agreed to purchase the “Participation Agreement” related to the Bigwave Oil and Gas Joint Venture (the “Joint Venture”) for a total of $5,000 in cash and 500,000 common shares in the capital of the Company. The Participation Agreement was therefore terminated with Portal holding a 22% working interest in the Joint Venture.

On September 21, 2010, the Company it purchased an additional 6.5% working interest in the Bigwave Oil and Gas Joint Venture in return for granting the seller a non-convertible gross overriding royalty on the acquired 6.5% interest of 1/150 (5%-15%) on all future oil, and 15% on all future gas production as well as assuming all of the seller’s future obligations under the Bigwave Joint Venture Agreement dated November 1, 2008, as amended. Portal’s working interest in the Joint Venture increased from 22% to 28.5% as a result of the acquisition.

PORTAL RESOURCES LTD.

Notes to the Consolidated Financial Statements

For the six months ended December 31, 2010 (Unaudited)

(stated in Canadian dollars)

OIL AND GAS PROPERTIES, (Continued)

Bigwave Joint Venture, (Continued)

On September 21, 2010, the Company entered into a binding Farm-in Agreement Term Sheet (the “Agreement”) with all of the Bigwave Joint Venture partners, under which the Company has the right to increase its working interest to 64.25% in two sections (two square miles), out of a total of 17¾ sections of land held by the Joint Venture by undertaking at its sole expense “completion operations” within the horizontal leg of the first exploration well drilled on the property.

The Agreement further provides Portal with the opportunity to drill additional wells, on a rolling option basis, at its sole expense, on the remaining 15.75 sections of land held by the Joint Venture on a rolling option basis. All option wells drilled and completed (one well per section) will increase Portal's working interest up to 71.40% in each of the drilled sections to the deepest formation drilled in that section.

The Agreement further provides Portal with the right, at its sole expense, within 180 days from the commencement of “completion operations” within the horizontal leg of the first exploration well drilled on the property, to select certain lands (the “Selection Period”) of interest out of the land held by the Joint Venture that it considers to have deeper hydrocarbon potential (natural gas).

Portal will then have the option, within 90 days of the Selection Period, to commit to the drilling of a test well on the identified target lands. The drilling and completion operations of the deep test well will increase Portal's existing 28.5% working interest in the drilled section of land to a maximum of 78.55% working interest. Additional deep test wells can be drilled on a rolling option basis in order to earn additional working interest in the remaining unearned lands.

As at December 31, 2010 the Company has spent a total of $627,701 (June 30, 2010 - $553,932) on the Bigwave Joint Venture.

Manito Joint Venture

On March 9, 2009 the Company signed the Manito Joint Venture Agreement to participate for a 33.3% interest for the exploration, exploitation and production of petroleum and natural gas resources from certain land in central Alberta.

The Company has agreed to pay a 5.5% Gross Over Riding Royalty (GORR) on all products produced.

The Manito Joint Venture has acquired one section of land to date through the Alberta Crown Sale.

As at December 31, 2010 the Company has spent a total of $18,000 (June 30, 2009 - $18,000) on the Manito Joint Venture.

Border Play

On May 13^th, 2010, the Company announced that it had acquired a 100% interest in two parcels of land (the Border Play) totaling 560 acres (0.875 square miles) at the April 7, 2010 Alberta Crown Land Sale. The primary play is Bakken oil exploitation using horizontal drilling. The two parcels lie within the Esther Field. Bakken oil production in the field area has exceeded 4.8MMBBL (million barrels) to date.

PORTAL RESOURCES LTD.

Notes to the Consolidated Financial Statements

For the six months ended December 31, 2010 (Unaudited)

(stated in Canadian dollars)

OIL AND GAS PROPERTIES, (Continued)

Oil and gas expenditures

	Bigwave	Manito	Total

Total as at June 30, 2009	$ 343,437	$ 18,000	$ 361,437

Crown Lease	12,023	-	12,023
Lease costs	139,357	-	139,357
Drilling (well costs)	58,526	-	58,526
Geological and engineering	589	-	589

Total expenditures	210,495	-	210,495

Total as at June 30, 2010	$ 553,932	$ 18,000	$ 571,932

Crown Lease	-	-	-
Lease costs	58,769	-	58,769
Drilling (well costs)	-	-	-
Geological and engineering	15,000	-	15,000

Total expenditures	73,769	-	73,769

Total as at December 31, 2010	$ 627,701	$ 18,000	$ 645,701

SHARE CAPITAL

Authorized

100,000,000 Common Shares without par value

100,000,000 Preferred shares issuable in series

Stock-based Compensation

The Company has a stock option plan as described in the most recent annual financial statements of the Company. The maximum aggregate number of common shares reserved and authorized to be issued pursuant to options granted under the Stock Option Plan is 4,447,730 common shares.

The exercise price for options granted under the Stock Option Plan is determined by the Board upon grant provided the price is not less than the closing trading price on the day immediately preceding the date of grant, less any discounts permitted by the TSX Venture Exchange or such other stock exchanges on which the common shares are listed. Options granted under the Stock Option Plan are subject to a minimum one year vesting schedule whereby 25% of each option will vest on each of the three month anniversaries of the date of grant, up to and including the end of the first year after such grant, or such other more restrictive vesting schedule as the administrator of the Stock Option Plan may determine. Options are non-assignable and are exercisable for a period of up to five years from the date the option is granted, subject to earlier termination after certain events such as the optionee’s cessation of service to the Company or death.

The Company accounts for its option grants in accordance with the fair value method of accounting for stock-based compensation. For the six months ended December 31, 2010, the Company recognized $83,805 (2009 - $80,964) in stock-based compensation for employees, directors and consultants.

PORTAL RESOURCES LTD.

Notes to the Consolidated Financial Statements

For the six months ended December 31, 2010 (Unaudited)

(stated in Canadian dollars)

SHARE CAPITAL, (Continued)

Stock-based Compensation, (Continued)

The fair value of the options has been calculated using the Black-Scholes option-pricing model. For the period ending December 31, 2010 and 2009 the following assumptions were used:

	2010	2009

Stock based compensation	$ 83,805	$ 80,964

Risk-free interest rate	1.17% - 2.52%	1.28% - 2.52%
Expected stock price volatility	144%	126% - 129%
Expected option life in years	5 years	5 years
Expected dividend in yield	Nil	Nil

Option prices models require the input of highly subjective assumptions regarding the expected volatility and expected life. Changes in assumptions can materially affect the fair value estimate, and therefore, the existing models do not necessarily provide the reliable measure of the fair value of the company’s stock options at the date of grant.

A summary of changes to stock options outstanding is as follows:

	December 31			June 30
	2010			2010
		Weighted Average			Weighted Average
	Number of shares	Exercise Price	Number of shares		Exercise Price
Outstanding at beginning of period	3,533,600	$0.35	3,688,600		$0.35
Granted under plan	750,000	$0.14	1,020,000		$0.18
Exercised	(227,500)	$0.12	-		-
Forfeited or cancelled	(462,500)	$0.12	(1,175,000)		$0.50
Outstanding at end of period	3,593,600	$0.24	3,533,600		$0.25

Options vested and exercisable at end of period	2,813,600	$26.00	2,868,600		$0.27

At December 31, 2010, the weighted average remaining life of the outstanding options is 3.14 years (June 30, 2010 – 3.33 years).

On September 10, 2010, the Company granted stock options to directors and consultants of the Company to purchase a total of 750,000 common shares at a price of 14 cents per share, exercisable until September 9, 2015.

During the period, a total of 227,500 options at prices ranging from $0.12 to $0.15 were exercised for proceeds of $27,676. A fair value of $22,170 was recognized on these exercised options.

PORTAL RESOURCES LTD.

Notes to the Consolidated Financial Statements

For the six months ended December 31, 2010 (Unaudited)

(stated in Canadian dollars)

SHARE CAPITAL, (Continued)

Stock-based Compensation, (Continued)

Stock options outstanding as at December 31, 2010 are as follows:

Number	Exercise Price	Expiry Date
75,000	$0.70	20-Jan-11
666,400	$0.52	5-Dec-11
810,000	$0.20	7-Oct-13
622,200	$0.12	9-Jun-14
470,000	$0.15	17-Jan-15
200,000	$0.26	6-Mar-15
750,000	$0.14	9-Sep-15
3,593,600

COMMITMENTS

The Company has obligations under an operating lease for its corporate office that is in effect until February 28, 2013. The remaining future minimum lease payments for the non-cancellable lease are:

	2011	$45,354
	2012	$94,961
	2013	$65,197

10.

RELATED PARTY TRANSACTIOINS

Payments to related parties were made in the normal course of operations and were valued at fair value as determined by management. Amounts due to or from related parties are unsecured, non-interest bearing and due on demand.

During the six months ended December 31, 2010

$18,705 (2009 - $5,774) was charged to a public company with a director in common with the Company for rent. As at December 31, 2010, $Nil (June 30, 2010 - $Nil) was receivable from this public company.

$5,910 (2009 - $3,150) was charged to a private company with a director in common with the Company for administrative fees and expense reimbursements. As at December 31, 2010, $Nil (June 30, 2010 - $57,861) was receivable from this private company.

the Company paid or accrued to pay a private company with a director in common with the Company an aggregate of $2,061 (2009 - $4,179) for fees and expense. As at December 31, 2010, the Company owed this company an aggregate of $Nil (June 30, 2010 - $Nil).

the Company incurred director fees of $14,333 (2009 - $14,333) to five directors. As at December 31, 2010, $11,667 (June 30, 2010 - $Nil) are payable to these directors.

$30,000 (2009 - $Nil) was received from a director as demand loan with no fixed term of repayment. As at December 31, 2010, the Company owed this director an aggregate of $30,000 (2009 - $Nil).

PORTAL RESOURCES LTD.

Notes to the Consolidated Financial Statements

For the six months ended December 31, 2010 (Unaudited)

(stated in Canadian dollars)

11.

FINANCIAL INSTRUMENTS

The fair values of the Company’s cash and cash equivalents, marketable securities, short-term investments, amounts receivable, accounts payables and accrued liabilities approximate their carrying values.

The Company’s financial instruments are exposed to certain financial risks, including currency risk, credit risk, liquidity risk and interest risk.

(a)

Currency risk

The Company may have property interests in foreign jurisdictions which could make it subject to foreign currency fluctuations and inflationary pressures which may adversely affect the Company’s financial position, results of operations and cash flows. The Company is affected by changes in exchange rates between the Canadian Dollar and foreign functional currencies. The Company does not invest in foreign currency contracts to mitigate the risks.

(b)

Credit risk

The Company’s cash and cash equivalents are held in a Canadian financial institution. The Company does not have any asset-backed commercial paper in its cash and cash equivalents or short-term investments. The Company’s amount receivable consists primarily of recovered rent and office expense, and tax due from the federal government of Canada.

(c)

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the management of its capital structure. Accounts payable and accrued liabilities are due within the current operating period.

(d)

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The risk that the Company will realize a loss as a result of a decline in the fair value of the short-term investments is limited because they are generally held to maturity. A 1% change in the interest rate, with other variables unchanged, would affect the Company by an annualized amount of interest equal to approximately $100.

(e)

Commodity Price Risk

Commodity price risk is the risk that future cash flows will fluctuate as a result of changes in commodity prices, affecting results of operations and cash generated from operating activities. Such prices may also affect the value of exploration and development properties and the level of spending for future activities. Prices received by the Company for its production are largely beyond the Company’s control as oil and gas prices are impacted by world economic events that dictate the levels of supply and demand. Currently the Company is not in the production phase therefore there is no revenue being generated. In the future, the Company will sell its oil production at spot rates exposing the Company to the risk of price movements.

The Company did not have any commodity price contracts in place as at or during the three months ended December 31, 2010. However changes in commodity prices did not affect the Company’s results of operations.

PORTAL RESOURCES LTD.

Notes to the Consolidated Financial Statements

For the six months ended December 31, 2010 (Unaudited)

(stated in Canadian dollars)

12.

MANAGEMENT OF CAPITAL RISK

The Company manages its cash and cash equivalents, common shares and stock options as capital (see Note 8). The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to pursue the development of its oil and gas properties and to maintain a flexible capital structure which optimizes the cost of capital at an acceptable risk.

The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares, issue new debt, acquire or dispose of assets or adjust the amount of cash and cash equivalents.

In order to facilitate the management of its capital requirements, the Company prepares expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions.

In order to maximize ongoing development efforts, the Company does not pay out dividends. The Company’s investment policy is to invest its short-term excess cash in highly liquid short-term interest-bearing investments with maturities 90 days or less from the original date of acquisition, selected with regards to the expected timing of expenditures from continuing operations.

The Company expects its current capital resources will be sufficient to carry its exploration plans and operations through its current operating period.

13.

SEGMENTED INFORMATION

The Company operates in a single reportable operating segment, being exploration and development of oil and gas properties.

Summarized financial information for the geographic segments the Company operates in are as follows:

	Canada	Total
Six months ended December 31, 2010
Loss for the period	$ 493,536	$ 493,536

Six months ended December 31, 2009
Loss for the period	$ 490,651	$ 490,651

As at December 31, 2010
Assets	$ 862,063	$ 862,063

As at June 30, 2010
Assets	$ 1,101,609	$ 1,101,609

PORTAL RESOURCES LTD.

Notes to the Consolidated Financial Statements

For the six months ended December 31, 2010 (Unaudited)

(stated in Canadian dollars)

14.

DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)

The company uses “successful efforts method” of accounting for our oil and gas properties. Under this method, oil and gas lease acquisition costs and intangible drilling costs associated with exploration efforts that result in the discovery of proved reserves and costs associated with development drilling, whether or not successful, are capitalized when incurred. If proved commercial reserves are not discovered, such drilling costs are expensed. In some circumstances, it may be uncertain whether proved commercial reserves have been found when drilling has been completed. Under Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 932, Extractive Activities – Oil and Gas (“ASC 932”), such exploratory well drilling costs may continue to be capitalized if the reserve quantity is sufficient to justify its completion as a producing well and sufficient progress in assessing the reserves and economic and operating viability of the project is being made. We assess our capitalized exploratory wells pending evaluation periodically to determine whether costs should remain capitalized or should be charged to earnings.

	Three months ended December 31,			Six months ended December 31,			Year ended June 30,
	2010	2009	2010		2009	2010

a) Assets
Unproven Mineral Rights Costs
Unproven mineral rights costs under Canadian GAAP:	$ -	$ -	$ -		$ -	$ -
Unproven mineral rights under U.S. GAAP	$ -	$ -	$ -		$ -	$ -

b) Operations
Net loss under Canadian GAAP	$ (213,171)	$ (247,114)	$ (831,516)		$ (490,651)	$ (1,145,548)
Net loss under U.S. GAAP	$ (213,171)	$ (247,114)	$ (831,516)		$ (490,651)	$ (1,145,548)

c) Deficit
Closing deficit under Canadian GAAP	$(15,030,133)	$ (14,162,065)	$ (15,030,133)		$ (14,162,065)	$ (14,816,962)
Closing deficit under U.S. GAAP	$(15,030,133)	$ (14,162,065)	$ (15,030,133)		$ (14,162,065)	$ (14,816,962)

d) Cash Flows - Operating Activities
Cash applied to operations under Canadian GAAP	$ (137,599)	$ (220,912)	$ (880,678)		$ (452,558)	$ (936,712)
Cash applied to operations under U.S. GAAP	$ (137,599)	$ (220,912)	$ (880,678)		$ (452,558)	$ (936,712)

e) Cash Flows - Investing Activities
Cash applied under Canadian GAAP	$ 177,619	$ 356,004	$ 897,774		$ 507,801	$ 825,749
Cash applied under U.S. GAAP	$ 177,619	$ 356,004	$ 897,774		$ 507,801	$ 825,749

OTHER DIFFERENCES BETWEEN CANADIAN AND U.S. GAAP

Stockholders’ Equity

Common Stock

There are no differences between Canadian and U.S. GAAP for the years ended June 30, 2010, 2009 and 2008 or the three months ended September 30, 2010 with respect to the disclosure of stock-based compensation.

PORTAL RESOURCES LTD.

Notes to the Consolidated Financial Statements

For the six months ended December 31, 2010 (Unaudited)

(stated in Canadian dollars)

14.

DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP), (Continued)

OTHER DIFFERENCES BETWEEN CANADIAN AND U.S. GAAP, (Continued)

Loss per Share

The following is a reconciliation of the numerators and denominators of the basic and diluted loss per share calculations. Diluted loss per share is not presented as it is anti-dilutive.

	For the six months ended			Year ended
	December 31,			June 30,
	2010	2009		2010
Numerator: Net loss for the period under U.S. GAAP	$(493,536)	$(490,651)		$(1,145,548)

Denominator: Weighted-average number of shares under Canadian and U.S. GAAP	30,237,164	29,651,539	29,759,758

Basic and fully diluted loss per share under U. S. GAAP	$ (0.02)	$ (0.02)	$ (0.05)

15.

SUBSEQUENT EVENTS

On January 20, 2011 a total of 75,000 stock options at a price of seventy cents expired.

On February 18, 2011 the Company closed a non-brokered private placement. The proceeds will be used for exploration at the Bigwave project and for general working capital. The placement consists of 6,410,000 units at a price of 12.5 cents per unit. Each unit consists of one common share and one share purchase warrant. Each share purchase warrant will be exercisable to buy one common share at a price of 15 cents until February 17, 2012. A $10,500 fee was paid in cash on a portion of the Private Placement.