Exhibit 99.1

(An Exploration Stage Company)

Consolidated Financial Statements

June 30, 2010 (unaudited)

(Expressed in Canadian dollars, unless indicated otherwise)

Quaterra Resources Inc.

(An Exploration Stage Company)

Consolidated Balance Sheets

(Unaudited and Expressed in Canadian dollars)

		June 30, 2010			December 31, 2009
Assets
Current assets:
Cash and cash equivalents		$	8,732,238		$	4,795,220
Restricted cash			48,972			-
Investment	Notes 3 & 5(e)		17,667			26,000
Other receivables			279,281			60,323
Prepaids and deposits			270,348			177,603
Amount due from Joint Venture Partner	Note 5(a)		99,949			251,904
			9,448,455			5,311,050
Equipment	Note 4		193,970			163,094
Mineral properties	Note 5		41,272,285			36,091,683
Reclamation bonds			326,625			306,670
		$	51,241,335		$	41,872,497
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities		$	1,129,593		$	628,750
Due to related parties	Note 8		13,822			250,637
			1,143,415			879,387
Shareholders' Equity
Share capital	Note 7		74,358,443			63,168,843
Contributed surplus			13,591,965			13,453,030
Accumulated other comprehensive loss			(21,199	)		(12,866	)
Deficit			(37,831,289	)		(35,615,897	)
			50,097,920			40,993,110
		$	51,241,335		$	41,872,497

Nature of operations (Note 1)

Commitments (Note 9)

Subsequent events (Note 14)

(See accompanying notes to consolidated financial statements)

Approved on behalf of the

Board of Directors:

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

Page 2 of 28

Quaterra Resources Inc.

(An Exploration Stage Company)

Consolidated Statements of Operations

(Unaudited and Expressed in Canadian dollars)

	Three months ended June 30,						Six months ended June 30,
	2010			2009			2010			2009
General Administrative Expenses
Administration	$	39,290		$	45,045		$	72,984		$	92,790
Amortization		14,312			17,867			28,622			35,733
Consulting		82,933			63,167			171,713			183,701
Directors' fees		33,125			27,125			57,250			48,750
Investor relations and communications		112,244			48,417			169,940			87,264
Office and general		125,837			86,997			215,192			275,923
Professional fees		122,233			151,323			239,850			216,224
Regulatory fees and taxes		81,276			(17,344	)		121,124			61,526
Salaries and benefits		196,877			107,285			384,820			235,269
Stock-based compensation (Note 7(c))		201,598			382,776			409,960			790,263
Transfer agent		6,166			8,648			22,271			15,140
Travel and promotion		33,730			1,759			72,006			19,753
Operating Expenses		(1,049,621	)		(923,063	)		(1,965,732	)		(2,062,336	)
Other
General exploration costs		(251,264	)		(38,899	)		(310,677	)		(162,123	)
Foreign exchange gain		187,015			409,851			7,474			183,215
Interest income		929			71			5,413			353
Interest and financing charges		(3,019	)		(163,173	)		(7,918	)		(335,060	)
Administration fees		30,614			2,621			56,048			7,366
Fair value of warrant re-pricing		-			(84,115	)		-			(84,115	)
		(35,725	)		126,356			(249,660	)		(390,364	)
Loss for the period		(1,085,346	)		(796,707	)		(2,215,392	)		(2,452,700	)
Unrealized gain (loss) on investment		1,334			-			(8,333	)		-
Comprehensive loss for the period	$	(1,084,012	)	$	(796,707	)	$	(2,223,725	)	$	(2,452,700	)
Loss per share - basic and diluted	$	(0.01	)	$	(0.01	)	$	(0.02	)	$	(0.03	)
Weighted average number of common shares outstanding		118,988,150			87,610,273			116,509,187			87,582,134

(See accompanying notes to consolidated financial statements)

Page 3 of 28

Quaterra Resources Inc.

(An Exploration Stage Company)

Consolidated Statements of Cash Flows

(Unaudited and Expressed in Canadian dollars)

	Three months ended June 30,						Six months ended June 30,
	2010			2009			2010			2009
Operating Activities
Net loss for the period	$	(1,085,346	)	$	(796,707	)	$	(2,215,392	)	$	(2,452,700	)
Items not involving cash:
Amortization		14,312			17,867			28,622			35,733
Stock-based compensation		201,598			382,776			409,960			790,263
Shares issued for services		22,500			22,500			45,000			45,000
Fair value of warrant re-pricing		-			84,115			-			84,115
Interest expense on convertible notes		-			155,855			-			326,423
Unrealized foreign exchange (gain)		-			(310,522	)		-			(206,908	)
		(846,936	)		(444,116	)		(1,731,810	)		(1,378,074	)
Changes in non-cash working capital
Other receivables		(122,316	)		48,557			(218,958	)		103,899
Prepaid and deposits		(25,686	)		28,121			(92,745	)		107,139
Accounts payable and accrued liabilities		(172,550	)		67,381			(73,336	)		313,857
Due to related parties		(210,802	)		450,357			(236,815	)		728,799
Cash provided by (used in) operating activities		(1,378,290	)		150,300			(2,353,664	)		(124,380	)
Financing Activities
Shares issued for cash, net of share issue costs		5,515,141			-			10,518,075			33,220
Net proceeds from convertible notes		-			-			-			1,410,260
Cash provided by financing activities		5,515,141			-			10,518,075			1,443,480
Investing Activities
Expenditures on mineral properties		(1,618,108	)		(390,945	)		(4,250,923	)		(2,018,083	)
Due from Joint Venture partner		173,285			33,380			151,955			70,600
Purchase of equipment		-			-			(59,498	)		-
Refund (purchase) of reclamation bonds		(65,941	)		92,819			(19,955	)		92,819
Restricted cash		(2,245	)		56,028			(48,972	)		56,028
Cash used in investing activities		(1,513,009	)		(208,718	)		(4,227,393	)		(1,798,636	)
Increase (decrease) in cash during the period		2,623,842			(58,418	)		3,937,018			(479,536	)
Cash and cash equivalents, beginning of period		6,108,396			103,472			4,795,220			524,590
Cash and cash equivalents, end of period	$	8,732,238		$	45,054		$	8,732,238		$	45,054
Supplemental Cash Flow Information - Note 12

(See accompanying notes to consolidated financial statements)

Page 4 of 28

Quaterra Resources Inc.

(An Exploration Stage Company)

Consolidated Statements of Shareholders’ Equity

(Unaudited and Expressed in Canadian dollars)\

	Common Shares
	Shares		Amount		Convertible Notes			Contributed Surplus			Deficit			Accumulated Other Comprehensive Loss			Total
Balance at December 31, 2008		87,463,483	$	48,318,994							$	(28,627,483	)	$	-		$	29,953,008
Common shares issued during the year:
Shares issued for cash, net of issue costs		15,227,410		8,790,689														8,790,689
Exercise of options		60,200		33,220														33,220
Exercise of warrants		1,670,000		1,100,905														1,100,905
Shares issued for services		178,483		90,000														90,000
Units issued for finders' fees		114,000							45,150									45,150
Shares issued for convertible notes		6,545,795		4,588,555														4,588,555
Shares issued for property		200,000		137,000														137,000
Equity portion of convertible note						(259,164	)											(259,164	)
Fair value of options and warrants exercised				109,480					(109,480	)								-
Stock-based compensation									3,419,775									3,419,775
Warrant modification expense									95,252									95,252
Unrealized loss on available-for-sale investment															(12,866	)		(12,866	)
Net loss for the year												(6,988,414	)					(6,988,414	)
Balance at December 31, 2009		111,459,371		63,168,843		-			13,453,030			(35,615,897	)		(12,866	)		40,993,110
Common shares issued during the period:
Shares issued for cash, net of issue costs		3,001,418		4,187,279														4,187,279
Exercise of options		493,000		451,100														451,100
Exercise of warrants		7,475,786		5,879,696														5,879,696
Shares issued for services		34,976		45,000														45,000
Shares issued for property (Note 5)		250,000		355,500														355,500
Fair value of options and warrants exercised				271,025					(271,025	)								-
Stock-based compensation									409,960									409,960
Unrealized loss on available-for-sale investment															(8,333	)		(8,333	)
Net loss for the period												(2,215,392	)					(2,215,392	)
Balance at June 30, 2010		122,714,551	$	74,358,443	$	-		$	13,591,965		$	(37,831,289	)	$	(21,199	)	$	50,097,920

(See accompanying notes to consolidated financial statements)

Page 5 of 28

Quaterra Resources Inc.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements June 30, 2010

(Unaudited and Expressed in Canadian dollars)

1. NATURE OF OPERATIONS

Quaterra Resources Inc., along with its subsidiary companies (collectively “Quaterra” or “the Company”), is engaged in the acquisition and exploration of precious and base metal mineral properties in the United States and Mexico.

The Company incurred a net loss of $2,215,392 for six months ended June 30, 2010 (2009 - $2,452,700). As at June 30, 2010, the Company had an accumulated deficit of $37,831,289 (December 31, 2009 - $35,615,897) and working capital of $8,305,040 (December 31, 2009 - $4,431,663).

The ability of the Company to continue as a going concern and meet its commitments as they become due, including completion of the acquisition, exploration and development of its mineral properties, is dependent on the Company’s ability to obtain the necessary financing. The Company intends to fund its plan of operations from working capital and the proceeds of future financings. Future financings are expected to be obtained through joint ventures, exercise of warrants and options, equity financing or other means.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation

These unaudited interim consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles (“GAAP”) and are stated in Canadian dollars. As described in Note 15, accounting principles generally accepted in Canada differ in certain material respects from accounting principles generally accepted in the United States (“U.S. GAAP”).

These unaudited interim consolidated financial statements include the accounts of the Company, its wholly-owned integrated subsidiaries, Quaterra Alaska Inc. - incorporated in the United States, Minera Agua Tierra S.A. de C.V. - incorporated in Mexico, and Quaterra International Limited - incorporated in the British Virgin Islands, and its proportionate share of the accounts of its joint venture. All significant inter-company accounts and transactions have been eliminated on consolidation.

These unaudited interim consolidated financial statements do not contain all of the information or note disclosures required by Canadian GAAP for annual financial statements, and should be read in conjunction with the notes to the Company’s audited annual consolidated financial statements for the year ended December 31, 2009.

The accounting policies followed by the Company are set out in Notes 2 and 3 to the audited consolidated financial statements for the year ended December 31, 2009, and have been consistently followed in the preparation of these consolidated financial statements.

Page 6 of 28

Quaterra Resources Inc.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements June 30, 2010

(Unaudited and Expressed in Canadian dollars)

3. INVESTMENT

The Company acquired common shares in Copper Ridge Exploration Inc. (“Copper Ridge”), which are classified as available-for-sale. The Copper Ridge shares were obtained in consideration for payments required pursuant to a property option agreement on the Duke Island property, located in Alaska, United States (Note 5(e)).

	Cost		Fair Value
Balance December 31, 2008	$	-	$	-
Acquisition, 66,667 Copper Ridge common shares		38,866		38,866
Fair value adjustment		-		(12,866	)
Balance December 31, 2009		38,866		26,000
Fair value adjustment		-		(8,333	)
Balance June 30, 2010	$	38,866	$	17,667

4. EQUIPMENT

Details of equipment are as follows:

	June 30, 2010						December 31, 2009
	Cost		Accumulated Amortization		Net		Cost		Accumulated Amortization		Net
Computer	$	37,482	$	29,192	$	8,290	$	37,482	$	26,685	$	10,797
Equipment and furniture		81,714		51,820		29,894		81,714		46,788		34,926
Software		59,866		53,978		5,888		59,866		49,963		9,903
Vehicles		275,230		125,332		149,898		215,732		108,264		107,468
	$	454,292	$	260,322	$	193,970	$	394,794	$	231,700	$	163,094

Page 7 of 28

Quaterra Resources Inc.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements June 30, 2010

(Unaudited and Expressed in Canadian dollars)

5. MINERAL PROPERTIES

The total deferred exploration and acquisition costs of mineral properties for 2010 were as follows:

	Mexico				United States
	Nieves		Other		MacArthur		Yerington		Alaska		Uranium		Other		Total
Mineral Properties			Properties		Copper						Properties		Properties
Acquisition
Balance, December 31, 2009	$	1,413,183	$	795,977	$	1,069,819	$	1,659,336	$	275,707	$	3,951,141	$	2,171,767	$	11,336,930
Additions during the period		49,109		353,385		520,754		213,501		618		50,716		138,879		1,326,962
Balance, June 30, 2010		1,462,292		1,149,362		1,590,573		1,872,837		276,325		4,001,857		2,310,646		12,663,892
Exploration
Balance, December 31, 2009		2,017,463		3,521,777		8,299,960		739,824		2,410,713		7,391,365		373,651		24,754,753
Geological		54,312		403,932		439,498		6,375		4,488		68,302		60,930		1,037,837
Geophysical		46,133		603,992		9,799		-		540		3,739		-		664,203
Geochemical		37,563		34,227		224,546		-		-		-		816		297,152
Drilling		135,092		483,893		883,318		-		-		-		110,884		1,613,187
Technical Studies		7,466		26,332		-		13,505		-		-		-		47,303
Other		12,427		76,374		97,466		-		-		7,691		-		193,958
Additions during the period		292,993		1,628,750		1,654,627		19,880		5,028		79,732		172,630		3,853,640
Balance, June 30, 2010		2,310,456		5,150,527		9,954,587		759,704		2,415,741		7,471,097		546,281		28,608,393
Total acquisition and exploration at June 30, 2010	$	3,772,748	$	6,299,889	$	11,545,160	$	2,632,541	$	2,692,066	$	11,472,954	$	2,856,927	$	41,272,285

Page 8 of 28

Quaterra Resources Inc.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements June 30, 2010

(Unaudited and Expressed in Canadian dollars)

5. MINERAL PROPERTIES (Continued)

The total deferred exploration and acquisition costs of mineral properties for 2009 were as follows

	Mexico					United States
	Nieves		Other			MacArthur		Yerington		Alaska		Uranium		Other			Total
Mineral Properties			Properties			Copper						Properties		Properties
Acquisition
Balance, December 31, 2008	$	1,355,726	$	632,868		$	812,380	$	1,338,894	$	254,772	$	3,534,618	$	1,628,601		$	9,557,859
Additions during the year		57,457		168,052			257,439		320,442		20,935		416,523		568,449			1,809,297
Write-offs during the year		-		(4,943	)		-		-		-		-		(25,283	)		(30,226	)
Balance, December 31, 2009		1,413,183		795,977			1,069,819		1,659,336		275,707		3,951,141		2,171,767			11,336,930
Exploration
Balance, December 31, 2008		1,734,890		3,173,142			7,452,228		689,125		2,357,173		6,982,347		938,307			23,327,212
Geological		53,689		255,987			396,159		49,839		44,336		209,249		66,408			1,075,667
Geophysical		-		-			-		-		-		-		-			-
Geochemical		35,113		28,221			102,055		-		-		-		34,303			199,692
Drilling		131,369		6,773			39,192		-		-		33,852		29,916			241,102
Technical Studies		31,379		-			115,069		-		-		-		-			146,448
Other		31,023		65,731			195,257		860		9,204		165,917		33,694			501,686
Additions during the year		282,573		356,712			847,732		50,699		53,540		409,018		164,321			2,164,595
Write-offs during the year		-		(8,077	)								-		(728,977	)		(737,054	)
Balance, December 31, 2009		2,017,463		3,521,777			8,299,960		739,824		2,410,713		7,391,365		373,651			24,754,753
Total acquisition and exploration at December 31, 2009	$	3,430,646	$	4,317,754			9,369,779	$	2,399,160	$	2,686,420	$	11,342,506	$	2,545,418		$	36,091,683

Page 9 of 28

Quaterra Resources Inc.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements June 30, 2010

(Unaudited and Expressed in Canadian dollars)

5. MINERAL PROPERTIES (Continued)

(a) Nieves Concessions, Mexico

The Company originally owned a 100% interest in the Nieves silver property located in northern Zacatecas, Mexico. In 2003 the Company entered into an agreement with the U.S.-based Blackberry Ventures 1, LLC (“Blackberry”). Pursuant to the terms of the agreement, Blackberry advanced US$1,500,000 to the Company and earned a 50% interest in the property. Accordingly, the Company owns the remaining 50% interest. All work plans are made in consultation with the joint venture partner Blackberry, which contributes its share of ongoing exploration costs plus a 10% administration fee.

The Nieves concessions are subject to a maximum 3% net smelter return royalty (“NSR”) to the original concession holders, which the Company may purchase at any time for US$2,000,000. In addition, Kennecott Exploration Company, the optionor in the initial Underlying Agreement, retains NSR royalties of 2% on certain core claims and 1% on certain peripheral claims. Commencing January 26, 2004, an annual advance minimum royalty payment (“AMR”) of US$75,000 is due to the concession holders until the commencement of commercial production. On January 24, 2007, this NSR was purchased by Royal Gold Inc.

During the period ended June 30, 2010, the Company received $541,524 from Blackberry in respect to its share of ongoing exploration costs that were incurred on the property. As of June 30, 2010, $99,949 (2009 - $251,904) was due from Blackberry.

(b) Other Properties, Mexico

(1) Goldcorp - Investment Framework Agreement (“IFA”)

On January 29, 2010, the Company entered into an IFA with Goldcorp Inc. (“Goldcorp”) for its mining properties in central Mexico (except the Nieves property). The IFA provides Goldcorp with an option to acquire an interest in these properties in return for funding a two-year generative exploration program through a private placement investment of US$10 million in the Company; US$4 million in 2010 (received, see Note 7(a)) and US$6 million in 2011.

In the aggregate the number of shares acquired by Goldcorp shall not exceed more than 9.9% of the issued and outstanding shares of the Company.

The terms of the option allow Goldcorp to acquire up to 65% in any property held by the Company by spending an additional US$2 million over a two-year period on advanced exploration on that property and by completing a feasibility study.  Thereafter, Goldcorp will solely fund operations at the property until a production decision is made, at which point the Company will be responsible for contributing its proportionate share of expenditures.

On February 5, 2010, Goldcorp selected the Sierra Sabino property for advanced exploration and has incurred US$410,258 in exploration expenditures as of June 30, 2010.

Page 10 of 28

Quaterra Resources Inc.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements June 30, 2010

(Unaudited and Expressed in Canadian dollars)

5. MINERAL PROPERTIES (Continued)

(b) Other Properties, Mexico (Continued)

(2) Santo Domingo, Mexico (part of IFA)

On January 6, 2010, the Company entered into an option agreement with La Cuesta International Inc. (“LCI”), pursuant to which the Company has an option to acquire a 100% interest in four mineral concessions located in Durango, Mexico, known as the Santo Domingo prospect. Total consideration consists of US$7.5 million in cash payments, 100,000 common shares of the Company and $50,000 in work expenditures as follows:

(i) US$10,000 (paid) on effective date; US$10,000 by July 31, 2010 (paid); 100,000 common shares (issued) and US$50,000 work expenditures by December 31, 2010

(ii) US$30,000 in 2011

(iii) US$40,000 in 2012

(iv) Commencing January 1, 2013, US$25,000 every six months.

The property is subject to 1% NSR on materials removed from the property, and 0.5% on any properties acquired within a specified area. The Company shall pay a minimum of US$25,000 per calendar quarter or the NSR, whichever is greater, upon commencing mining operations.

(3) Tecolote (formerly East Durango), Mexico (part of IFA)

On September 30, 2008, the Company and EXMIN Resources Inc. (“EXMIN”) entered into an agreement allowing the Company to earn a 75% interest in EXMIN’s Tecolote Property, Mexico. Under the terms of the agreement, the Company can earn a 75% interest in the property by spending US$500,000 in exploration costs before September 30, 2012 plus making cash payments as follows:

(i) US$40,000 (paid)

(ii) US$20,000 on September 30, 2010

(iii) US$40,000 on September 30, 2011

(c) MacArthur Claim, United States

Pursuant to an agreement entered into in October 2005, as amended January 9, 2010, with North Exploration LLC, the Company acquired the right to earn an interest in certain unpatented mining claims covering the former MacArthur copper-oxide mine, in the Yerington district of Lyon County, Nevada.  The Company may elect to acquire the property by making the following payments:

(i) US$335,000 (paid)

(ii) US$300,000 (paid before January 15, 2010) and 150,000 shares (issued)

(iii) US$1,572,000 on or before January 15, 2011

The property is subject to a 2% NSR, which may be reduced to 1% for US$1,000,000.

Page 11 of 28

Quaterra Resources Inc.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements June 30, 2010

(Unaudited and Expressed in Canadian dollars)

5. MINERAL PROPERTIES (Continued)

(d) Yerington, United States

On May 1, 2007, the Company received approval from the appropriate US court for the acquisition of all Arimetco assets in the Yerington Mining District. The purchase price comprises US$500,000 cash and 250,000 common shares of the Company. The original 180-day due diligence review period that began on July 13, 2007 was extended to October 12, 2010. Up to June 30, 2010, the Company had paid a US$300,000 non-refundable deposit and issued 250,000 common shares (issued), and may elect to acquire a 100% interest in the property by making a further payment of US$200,000 on closing once the due diligence review has been completed.

The property is subject to a 2% NSR to a maximum of US$7,500,000 on commencement of commercial production.

(e) Alaska Properties (Duke Island and Herbert Glacier), United States

On September 29, 2009, the Company signed an option agreement with Copper Ridge for its 100% owned Duke Island property located in southeast Alaska. The agreement provides that Copper Ridge can earn up to a 51% interest by issuing 66,667 common shares (received) and spending $3,000,000 on exploration by December 31, 2012, with a minimum of $750,000 to be spent by December 31, 2010.  Copper Ridge may increase its interest in the property to 65% by spending an additional $2,000,000 on exploration by December 31, 2013.

Pursuant to an agreement made in November 2007, the Company acquired the right to earn an interest in certain mining claims, known as the Herbert Glacier. To earn a 100% interest, the Company is required to make annual payments of US$12,000 from November 2007 to 2011, US$20,000 from November 2012 to 2017, and US$30,000 from November 2018 and every consecutive anniversary thereafter.  Up to June 30, 2010, the Company has paid US$36,000.

The property is subject to a NSR as follows:

(i) 3.0% on gold prices less than US$400

(ii) 3.5% on gold prices between US$401 and US$500

(iii) 4.0% on gold prices between US$501 and US$600

(iv) 5.0% on gold prices above US$601

On June 17, 2010, the Company signed an option agreement with Grande Portage Resources for the Herbert Glacier property. Under the terms of the agreement, Grande Portage can earn a 51% interest by spending US$750,000 on or before June 15, 2011, and has the option to earn an additional 14% interest by spending US$500,000 on or before June 15, 2012.

If Grande Portage earns an interest, the two parties will form a joint venture to further explore and develop the property. If the interest of either party falls to 10% or less, it will revert to a 1% NSR, which maybe acquired by the other party at any time for US$1 million.

Page 12 of 28

Quaterra Resources Inc.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements June 30, 2010

(Unaudited and Expressed in Canadian dollars)

5. MINERAL PROPERTIES (Continued)

(f) Uranium Properties (Arizona, Utah and Wyoming), United States

Pursuant to a June 2005 agreement with North Exploration LLC, the Company acquired an option to purchase mining claims situated in Arizona, Utah and Wyoming.  The Company is required to make the following payments and issue common shares as follows:

(i) US$300,000 and 600,000 shares (paid and issued)

(ii) US$200,000 on or before September 6, 2010

The agreement is subject to a 2% NSR payable upon commencement of commercial production, which can be reduced to 1% for US$1,000,000.

Pursuant to an August 2006 agreement, as amended August 14, 2009, with Nustar Exploration LLC, the Company leased 18 claims in the Arizona strip district.  The Company is required to pay the following:

(i) US$90,000 (paid)

(ii) US$100,000 on or before August 10, 2011

This agreement is subject to a 4% royalty payable upon commencement of commercial production of which 3% royalty can be bought back for US$500,000.

The lawsuit filed in September 2008 against the U.S. Secretary of Interior, the U.S. Department of Interior and U.S. Bureau of Land Management for authorizing uranium exploration on one million acres of public land near Grand Canyon was dismissed on February 22, 2010. The Company’s rights to explore and develop its uranium claims on Arizona strip were unaffected.

(g) Other Properties, United States

(1) Cave Peak Molybdenum Prospect

Pursuant to an option agreement made in March 2007, the Company may acquire a 100% interest in certain prospect permits. The option payments are as follows:

(i) US$160,000 (paid)

(ii) US$70,000 on or before March 27, 2010 (paid)

(iii) US$150,000 on or before March 27, 2011

(iv) US$220,000 on or before March 27, 2012

This property is subject to a royalty of 6.25% on commencement of commercial production.

Page 13 of 28

Quaterra Resources Inc.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements June 30, 2010

(Unaudited and Expressed in Canadian dollars)

5. MINERAL PROPERTIES (Continued)

(g) Other Properties, United States (Continued)

(2) Willow Creek Molybdenum Prospect

On October 11, 2008, as amended October 26, 2009, the Company secured an option with the Willow Creek Discovery Group, LLC to acquire 100% of the Willow Creek porphyry molybdenum prospect in south western Montana. The Company has the right to earn a 100% interest in the property by making the following AMR payments to the Willow Creek Discovery Group totalling US$2,505,000 over a six-year period and issuing 200,000 common shares of the Company:

(i) US$105,000 and 200,000 shares (paid and issued)

(ii) US$150,000 or US$50,000 and 100,000 shares on October 11, 2010

(iii) US$150,000 on October 11, 2011

(iv) US$350,000 on October 11, 2012

(v) US$750,000 October 11, 2013

(vi) US$1,000,000 October 11, 2014

The agreement is subject to a 2% NSR payable upon commencement of commercial production. In the event royalty payments are imposed by government agencies such that the total royalty exceeds the equivalent of 4% NSR, the Company can exercise the right to reduce the NSR to the optionor by 1% for $1,000,000 within one year of commencement of commercial production.

(3) Copper Canyon Project

Pursuant to an agreement in November 2007, as amended October 9, 2009, the Company acquired the right to earn an interest in certain mining claims, known as the Copper Canyon Project in Mineral County, Nevada. To earn a 100% interest, the Company is required to make payments totalling US$625,000 as follows:

(i) US$85,000 (paid)

(ii) US$190,000 on or before November 6, 2010

(iii) US$350,000 on or before November 6, 2011

The property is subject to a 2.5% NSR, which can be reduced to 2.0% for US$500,000.

Should the Company decide to commence commercial production, a payment of US$750,000 is due within five business days from the date the decision is made.

Page 14 of 28

Quaterra Resources Inc.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements June 30, 2010

(Unaudited and Expressed in Canadian dollars)

5. MINERAL PROPERTIES (Continued)

(g) Other Properties, United States (Continued)

(4) Gray Hills

Pursuant to an agreement made in July 2007, as amended July 24, 2009, the Company entered into a lease with an option to purchase certain mining claims, known as the Gray Hills claims in Lyon County, Nevada. To earn a 100% interest, the Company is required to make payments as follows:

(i) US$75,000 (paid)

(ii) US$35,000 on or before July 11, 2010 (paid)

(iii) US$40,000 on or before July 11, 2011 and each anniversary until such time the option to purchase the property is exercised by the Company or the optionee chooses to withdraw from the lease

The Company may exercise its option to purchase the property at any time, for US$500,000. The property is subject to a 3% NSR, up to 2% of which may be reduced by the Company for US$500,000 per 1%.

(5) South West Tintic and Peg Leg

On May 29, 2009, the Company signed an earn-in agreement with Freeport-McMoRan Exploration Corporation of Phoenix, Arizona (“FMEC”) for the Company’s South West Tintic project in Utah. Under the terms of the agreement, FMEC has the exclusive right and option to acquire a 70% ownership interest in this property by making a US$275,000 property payment and by spending US$4,725,000 on exploration costs over four years. To keep the option in good standing, FMEC must make a minimum expenditure of US$750,000 by August 29, 2010.

Pursuant to an agreement made in March 2007, the Company acquired the right to earn an interest in certain unpatented mining claims, which forms part of the South West Tintic Claims in Juba County, Utah. To earn a 100% interest, the Company is required to make US$1,000,000 option payments over 10 years, of which US$60,000 has been paid by the Company, US$40,000 by FMEC and the remaining US$900,000 to be paid by FMEC under the earn-in agreement.

Alternatively, the Company may acquire the property at any time by paying US$1,000,000 less any previously paid amounts. The property is subject to a 2% NSR, which may be reduced to 1% for US$1,000,000.

On August 27, 2009, the Company signed an earn-in agreement with FMEC for the Company’s Peg Leg copper project in Arizona. FMEC has the exclusive right and option to acquire a 70% interest in the Peg Leg project by spending US$3,000,000 on exploration by December 31, 2012.

Page 15 of 28

Quaterra Resources Inc.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements June 30, 2010

(Unaudited and Expressed in Canadian dollars)

5. MINERAL PROPERTIES (Continued)

(g) Other Properties, United States (Continued)

(6) Wassuk Copper Project (formerly Majuba Hill)

Pursuant to an agreement made in December 2007, as amended December 2, 2009, the Company acquired the right to earn an interest in certain mining claims, known as the Majuba Hill in Mineral County, Nevada. To earn a 100% interest, the Company is required to make payments totaling US$2,930,000 by December 10, 2015 as follows:

(i) US$230,000 (paid)

(ii) US$250,000 on or before December 10, 2010

(iii) US$250,000 on or before December 10, 2011

(iv) US$500,000 on or before December 10, 2012

(v) US$500,000 on or before December 10, 2013

(vi) US$500,000 on or before December 10, 2014

(vii) US$700,000 on or before December 10, 2015

The Company must also incur US$1,000,000 cumulative exploration expenditures by December 10, 2012.  Should the Company incur less than US$1,000,000, the Company must pay the shortfall to the vendor by December 10, 2012.

On commencement of commercial production, the property is subject to a 3% NSR, which may be reduced to 2% for US$1,000,000.

(h) Realization

The Company’s investment in and expenditures on mineral property interests comprise a significant portion of the Company’s assets. Realization of the Company’s investment in the assets is dependent on establishing legal ownership of the property interest, on the attainment of successful commercial production or from the proceeds of its disposal. The recoverability of the amounts shown for the mineral property interest is dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain necessary financing to complete the development of the property interest, and upon future profitable production or proceeds from the disposition thereof.

(i) Title

Although the Company has taken steps to ensure the title to the mineral properties in which it has interests, in accordance with industry standards for the current stage of exploration of such properties, these procedures may not guarantee the Company’s title. Property title may be subject to unregistered prior agreements or transfers and title may be affected by undetected defects.

Page 16 of 28

Quaterra Resources Inc.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements June 30, 2010

(Unaudited and Expressed in Canadian dollars)

5. MINERAL PROPERTIES (Continued)

(j) Environmental

The Company is subject to the laws and regulations relating to environmental matters in all jurisdictions in which it operates, including provisions relating to property reclamation, discharge of hazardous material and other matters.  The Company may also be held liable should environmental problems be discovered that were caused by former owners and operators of its properties and properties in which it has previously had an interest.  The Company conducts its mineral exploration activities in compliance with applicable environmental protection legislation. The Company is not aware of any existing environmental problems related to any of its current or former properties that may result in material liability to the Company.

Environmental legislation is becoming increasingly stringent and costs and expenses of regulatory compliance are increasing. The impact of new and future environmental legislation on the Company’s operations may cause additional expenses and restrictions.

If the restrictions adversely affect the scope of exploration and development on the mineral properties, the potential for production on the property may be diminished or negated.

6. CONVERTIBLE NOTES

The convertible notes issued as part of private placement units in tranches on November 27, 2008, December 19, 2008 and January 15, 2009, as well as interest payable, were fully converted during the year ended December 31, 2009. As a result 6,545,795 common shares were issued.

Each unit consisted of one convertible promissory note (“Notes”) and one non-transferable warrant exercisable at a price of US$0.75 for 24 months from the date of issuance. The notes bore interest at a rate of 10% per annum, maturing 24 months from date of issuance or upon conversion or redemption.

The warrants contained a provision that allows the Company to accelerate the expiry date of the warrants in the event its common shares trade at a closing price of greater than US$1.00 per share for a period of 10 consecutive days at any time after issue of the warrant. In such case, the warrants will expire on the thirtieth day after a notice is given to the holders of the notes.  The Company accelerated the expiry date of these warrants to May 25, 2010 and as of June 30, 2010 all these warrants were either exercised or expired unexercised (see Note 7).

Page 17 of 28

Quaterra Resources Inc.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements June 30, 2010

(Unaudited and Expressed in Canadian dollars)

6. CONVERTIBLE NOTES (Continued)

Prior to conversion, the net value assigned to the liability component on issuance was calculated as the present value of the principal and interest payments using an effective interest of 15% as follows:

	December 31, 2009
Liability component of convertible notes - beginning of year	$	2,953,370
Present value of convertible notes on issue		1,356,114
Interest		518,520
Conversion of convertible notes		(4,583,310	)
Foreign exchange revaluation		(244,694	)
Liability component of convertible notes - end of year	$	-
Equity component of convertible notes - beginning of year	$	259,164
Equity component of convertible notes on issue		119,986
Conversion of equity component of convertible notes		(379,150	)
Equity component of convertible notes - end of year	$	-

7. SHARE CAPITAL

(a)  Common stock

Authorized - unlimited common shares without par value.

On February 4, 2010, the Company completed a private placement of 3,001,418 units for gross proceeds of US$4.0 million ($4,231,999) received from Goldcorp pursuant to the IFA dated January 29, 2010. Each unit consists of one common share and one-half of one share warrant with an exercise price of US$1.76 ($1.89) per full warrant expiring February 4, 2012.

(b) Share Purchase Warrants

The following summarizes information about the warrants outstanding:

	June 30, 2010					December 31, 2009
	Number of Warrants			Weighted Average Exercise Price		Number of Warrants			Weighted Average Exercise Price
Outstanding, beginning of the period		21,584,701		$	0.80		6,104,041		$	0.85
Issued:
Private placement		1,500,709		$	1.89		15,341,410		$	0.75
Convertible notes		-		$	-		1,950,500		$	0.94
Expired		(37,001	)	$	0.85		(141,250	)	$	0.68
Exercised		(7,475,786	)	$	0.79		(1,670,000	)	$	0.66
Outstanding, end of the period		15,572,623		$	1.67		21,584,701		$	0.80

Page 18 of 28

Quaterra Resources Inc.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements June 30, 2010

(Unaudited and Expressed in Canadian dollars)

7. SHARE CAPITAL (Continued)

(b) Share Purchase Warrants (Continued)

The following summarizes information about the warrants outstanding at June 30, 2010:

Expiry Date	Exercise Price		June 30, 2010		December 31, 2009
November 27, 2010	$	0.75 US		-		1,921,458
December 19, 2010	$	0.75 US		-		2,441,333
January 15, 2011	$	0.75 US		-		1,880,500
September 29, 2011	$	0.75		8,663,540		9,666,206
October 28, 2011	$	0.75		5,408,374		5,675,204
February 4, 2012	$	1.76 US		1,500,709		-
				15,572,623		21,584,701

On April 21, 2010, the Company accelerated the expiry date of 6,120,958 outstanding warrants related to convertible notes to May 25, 2010. Of these warrants, 6,083,957 were exercised and 37,001 expired unexercised.

(c) Stock Options

The Company has a stock option plan (the “Plan”) allowing for the reservation of common shares issuable under the Plan to a maximum 10% of the number of issued and outstanding common shares of the Company at any given time. The term of any stock option granted under the Plan may not exceed five years and the exercise price may not be less than the closing price of the Company’s shares on the last business day immediately preceding the date of grant, less any permitted discount. On an annual basis, the Plan requires approval by the Company’s shareholders and submission for regulatory review and acceptance. Stock options are exercisable once they have vested under the terms of the grant. The following summarizes information about the Company’s options outstanding:

	June 30, 2010					December 31, 2009
	Number of Options			Weighted Average Exercise Price		Number of Options			Weighted Average Exercise Price
Outstanding, beginning of the period		9,237,000		$	1.56		7,200,500		$	2.56
Granted		470,000		$	1.86		4,880,000		$	1.00
Cancelled (due to modification)		(17,000	)	$	1.55		(2,575,000	)	$	3.24
Expired		(106,000	)	$	2.48		(50,000	)	$	0.62
Forfeited		-		$	-		(158,300	)	$	3.10
Exercised		(493,000	)	$	0.92		(60,200	)	$	0.55
Outstanding, end of the period		9,091,000		$	1.60		9,237,000		$	1.56

The weighted average remaining contractual life of options granted as of June 30, 2010 was 3.15 years (December 31, 2009 – 3.55 years).  The weighted average grant date fair value of options during the period ended June 30, 2010 was $0.95 (December 31, 2009 - $0.93).

Page 19 of 28

Quaterra Resources Inc.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements June 30, 2010

(Unaudited and Expressed in Canadian dollars)

7. SHARE CAPITAL (Continued)

(c) Stock Options (Continued)

At June 30, 2010, the aggregate intrinsic value of the outstanding stock options is $1,319,720 (December 31, 2009 - $6,672,850).

The allocation of stock-based compensation included in the statements of operations was as follows:

	June 30, 2010				June 30, 2009
	Number of Options Granted		Stock-based Compensation		Number of Options Granted		Stock-based Compensation
Consultants		270,000	$	215,346		-	$	297,919
Officers		200,000		194,614		-		363,059
Employees		-		-		-		129,285
Total		470,000	$	409,960		-	$	790,263

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

	June 30, 2010			June 30, 2009
Risk-free interest rate		2.89	%		3.84	%
Expected share price volatility		91.85	%		85.33	%
Expected option life in years		3.0			3.0
Forfeiture rate		0	%		0	%
Expected dividend yield		0	%		0	%

The following summarizes information about the stock options outstanding and exercisable at June 30, 2010:

Page 20 of 28

Quaterra Resources Inc.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements June 30, 2010

(Unaudited and Expressed in Canadian dollars)

7. SHARE CAPITAL (Continued)

(d) Stock Options (Continued)

Price		Fair Value		Date	June 30, 2010		December 31, 2009
$	0.35	$	0.20	August 9, 2010		212,000		270,000
$	0.40	$	0.30	January 29, 2011		200,000		200,000
$	1.04	$	0.81	March 27, 2011		125,000		125,000
$	1.00	$	1.24	May 19, 2011		50,000		75,000
$	1.12	$	1.16	June 12, 2011		100,000		100,000
$	1.55	$	1.17	July 28, 2011		1,364,000		1,431,000
$	1.55	$	1.17	August 23, 2011		100,000		100,000
$	1.50	$	1.00	September 25, 2011		100,000		100,000
$	3.33	$	1.98	July 20, 2012		805,000		836,000
$	3.45	$	2.05	March 31, 2013		150,000		150,000
$	3.30	$	1.87	June 19, 2013		945,000		970,000
$	0.98	$	0.52	November 9, 2014		2,265,000		2,575,000
$	1.02	$	0.51	November 9, 2014		2,205,000		2,305,000
$	2.00	$	1.22	January 14, 2015		170,000		-
$	1.80	$	0.85	April 1, 2015		100,000		-
$	1.76	$	0.97	April 22, 2015		200,000		-
						9,091,000		9,237,000

The aggregate intrinsic value of stock options exercised during the period ended June 30, 2010 was $140,180 (December 31, 2009 - $12,532).

8. RELATED PARTY TRANSACTIONS

The Company had the following related party transactions during the six months ended June 30:

(a) $251,792 (2009 - $206,036) was charged by a company of which a director and officer is the principal for administration, professional fees, office and general, and investor relations and communications.  As of June 30, 2010, $13,822 (December 31, 2009 - $31,578) was still owing to the company and is included in due to related parties (Note 9(b)).

(b) $87,500 of consulting fees (2009 - $23,990) were recorded to a company of which an officer is the principal.

(c) $1,857 of professional fees (2009 - $7,477) were charged by a law firm of which a director is the principal. As of June 30, 2010, $nil (December 31, 2009 - $1,344) was owing.

(d) On March 17, 2009, the Company borrowed US$200,000 from the CEO at an annual interest rate of 4.5% due within one year and unsecured. During the period ended June 30, 2010, the loan was fully repaid including $10,578 interest expense (December 31, 2009 - US$207,151; $217,715).

The above transactions are conducted in the normal course of business and were measured at the amount of consideration established and agreed by the parties.

Page 21 of 28

Quaterra Resources Inc.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements June 30, 2010

(Unaudited and Expressed in Canadian dollars)

9. COMMITMENTS

The Company has the following annual commitments in respect to mineral option payments, office leases and service agreements:

	Mineral Property (cash payment) (a)		Office Lease (b)		Total
Year ending December 31, 2010	$	944,300	$	75,000	$	1,019,300
Year ending December 31, 2011		3,187,412		150,000		3,337,412
Year ending December 31, 2012		1,352,042		75,000		1,427,042
Year ending December 31, 2013		1,570,285		-		1,570,285
Year ending December 31, 2014		1,857,727		-		1,857,727
Year ending December 31, 2015		899,587		-		899,587
Year ending December 31, 2016		154,367		-		154,367
Year ending December 31, 2017		154,367		-		154,367
Year ending December 31, 2018		165,013		-		165,013
	$	10,285,100	$	300,000	$	10,585,100

(a) The Company is required to make option payments and other expenditure commitments to maintain the properties and continue to earn its interest.

(b) During 2007, the Company entered into a service agreement with Manex Resource Group (“Manex”) for its Vancouver office space, administration and corporate secretarial services at a monthly rate of $12,500. The agreement can be cancelled at anytime upon one year’s notice. The current expiry date is June 30, 2012 (Note 8(a)). The Company also has one office lease in Kanab, Utah, and Yerington, Nevada, United States.

(c) In January 2007, the Company engaged Roman Friedrich & Company Ltd. to provide financial and advisory services to the Company. The retainer fee was $15,000 per month of which 50% was paid in cash and 50% was payable in common shares of the Company. The agreement was amended to $7,500 per month commencing September 1, 2009 until terminated, payable solely in shares of the Company. As of June 30, 2010, $15,000 was due in shares of the Company.

10. CAPITAL MANAGEMENT

The Company considers its capital under management to consist of shareholders’ equity. The Company manages the capital structure and makes adjustments in light of changes in economic conditions and the risk characteristics of the Company’s assets.

The Company’s objectives of capital management are intended to ensure the entity’s ability to support the Company’s normal operating requirements on an ongoing basis, continue the development and exploration of its mineral properties, and support any expansionary plans.

To effectively manage the entity’s capital requirements, the Company has in place a planning and budgeting process to help determine the funds required to ensure the Company has the appropriate liquidity to meet its operating and growth objectives. The Company ensures that there is sufficient cash, and short-term investments to meet its short-term business requirements.

Page 22 of 28

Quaterra Resources Inc.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements June 30, 2010

(Unaudited and Expressed in Canadian dollars)

10. CAPITAL MANAGEMENT (Continued)

There were no changes in the Company’s approach to capital management during the six months ended June 30, 2010. The Company is not subject to external restrictions on its capital.

11. RISK MANAGEMENT AND FINANCIAL INSTRUMENTS

The Company’s activities expose it to a variety of risks arising from financial instruments. These risks and management’s objectives, policies and procedures for managing these risks are disclosed as follows.

Fair Value

The following table sets forth the Company’s financial assets measured at fair value by level within the fair value hierarchy:

	Level 1		Level 2		Level 3		Total
Investment	$	17,667	$	-	$	-	$	17,667

The following provides a comparison of carrying and fair values of each classification of financial instruments as at June 30, 2010 and December 31, 2009 respectively:

June 30, 2010	Loans and Receivables		Available-for-Sale		Held-for-Trading		Held-to-Maturity		Other Financial Liabilities		Total Carrying Value
Financial assets
Cash and cash equivalents					$	8,732,238					$	8,732,238
Restricted cash							$	48,972			$	48,972
Investment			$	17,667							$	17,667
Other receivables	$	28,226									$	28,226
Amount due from Joint Venture Partner		99,949									$	99,949
Financial liabilities
Accounts payable and accrued liabilities									$	1,129,593	$	1,129,593
	$	128,175	$	17,667	$	8,732,238	$	48,972	$	1,129,593

Dececmber 31, 2009	Loans and Receivables		Available-for-Sale		Held-for-Trading		Held-to-Maturity		Other Financial Liabilities		Total Carrying Value
Financial assets
Cash and cash equivalents					$	4,795,220					$	4,795,220
Investment			$	26,000							$	26,000
Other receivables	$	1,659									$	1,659
Amount due from Joint Venture Partner		251,904									$	251,904
Financial liabilities
Accounts payable and accrued liabilities									$	628,750	$	628,750
	$	253,563	$	26,000	$	4,795,220	$	-	$	628,750

Page 23 of 28

Quaterra Resources Inc.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements June 30, 2010

(Unaudited and Expressed in Canadian dollars)

11. RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (Continued)

Fair Value (Continued)

The recorded amounts for cash and cash equivalents, restricted cash, other receivables, amount due from Joint Venture Partner, and accounts payable and accrued liabilities approximate their fair value due to their short-term nature. The fair value of the investment is based on active market prices at the quarter end date.

The fair value amount due to related party has not been disclosed as the fair value cannot be reliably measured.

Market Risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risks: currency risk, interest rate risk and other price risk.

Currency Risk

The Company operates internationally and is exposed to foreign exchange risk from fluctuations in exchange rates between the Canadian dollar and various currencies, primarily US dollars and Mexican pesos. The Company has not hedged its exposure to foreign currency fluctuations.

The Company is exposed to currency risk as follows:

	June 30, 2010					December 31, 2009
	US$			Pesos		US$			Pesos
Cash	$	7,205,567		$	34,271	$	1,593,545		$	61,683
Other receivables and restricted cash		66,513					-			638,668
Due from Joint Venture Partner		93,884					239,680			-
Reclamation bonds		316,453					291,789			-
Accounts payable and accrued liabilities		(947,339	)				(452,444	)		-
Due to related parties		-					(207,151	)		-
Net foreign exposure	$	6,735,078		$	34,271	$	1,465,419		$	700,351

Based on the above net foreign currency exposures as at June 30, 2010, and assuming all other variables remain constant, a 5% weakening or strengthening of the Canadian dollar against a) the US dollar would result in a change of $381,668 (December 31, 2009 - $161,870) in the Company’s loss; and b) the Mexican peso would have no material impact in the Company’s loss.

Page 24 of 28

Quaterra Resources Inc.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements June 30, 2010

(Unaudited and Expressed in Canadian dollars)

11. RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (Continued)

Interest Rate Risk

The Company’s cash and cash equivalents are held in bank accounts that earn interest at variable interest rates. Due to the short-term nature of these financial instruments, fluctuations in market rates do not have a significant impact on estimated fair value as of June 30, 2010. The Company manages interest rate risk by maintaining an investment policy that focuses primarily on preservation of capital and liquidity.

Other Price Risk

Other price risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market prices, other than those arising from currency risk or interest rate risk. The Company’s investment is carried at market value, and is therefore directly affected by fluctuations in the market value of the underlying securities. The Company’s sensitivity analysis suggests that a 15% change in market prices would change the value of the investment by $2,667.

Credit Risk

Credit risk is the risk of a financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations.

The Company manages credit risk, in respect of cash and cash equivalents by purchasing highly liquid, short-term investment-grade securities held through large Canadian financial institutions. Included in cash equivalents is $6,323,000 in guaranteed investment certificates earning interest at 0.60% cashable at any time. The amount due from Joint Venture Partner is not exposed to significant credit risk as the Company has a strong and continuing working relationship with the joint venture partner.

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 by forecasting cash flows from operations and anticipated investing and financing activities and through the management of its capital structure. Accounts payable and accrued liabilities of $1,129,593 (December 31, 2009 - $628,750) are due in the third quarter of fiscal 2010.

Page 25 of 28

Quaterra Resources Inc.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements June 30, 2010

(Unaudited and Expressed in Canadian dollars)

12. SUPPLEMENTAL CASH FLOW INFORMATION

	Three months ended				Six months ended
	June 30, 2010		June 30, 2009		June 30, 2010		June 30, 2009
Cash Items
Interest paid	$	-	$	-	$	-	$	-
Income tax paid	$	-	$	-	$	-	$	-
Non-Cash Items
Mineral property expenditures included in accounts payable	$	986,021	$	464,314	$	986,021	$	464,314
Shares issued for mineral properties	$	205,500	$	50,000	$	355,500	$	50,000
Cash and cash equivalents
Cash	$	2,409,238	$	45,054	$	2,409,238	$	45,054
Term deposits and bankers acceptance		6,323,000		-		6,323,000		-
	$	8,732,238	$	45,054	$	8,732,238	$	45,054

13. SEGMENTED INFORMATION

The Company has one business segment, the acquisition and exploration of mineral properties. The Company’s major non-current assets are distributed by geographic locations as follows:

	June 30, 2010						December 31, 2009
			Mineral		Total				Mineral		Total
	Equipment		Properties		Assets		Equipment		Properties		Assets
Canada	$	8,409	$	-	$	8,083,566	$	11,896	$	-	$	4,648,633
Mexico		109,592		10,072,637		11,240,060		60,909		7,748,400		8,178,767
U.S.A		75,969		31,199,648		31,917,709		90,289		28,343,283		29,045,097
Total	$	193,970	$	41,272,285	$	51,241,335	$	163,094	$	36,091,683	$	41,872,497

14. SUBSEQUENT EVENTS

Subsequent to June 30, 2010,

a) 60,000 warrants were exercised at an average exercise price of $0.75 per share and 150,000 stock options were exercised at $0.35 per share.

b) On August 5, 2010, the Company announced that Caracle Creek International Consulting Inc. has completed an updated NI43-101 compliant independent resource estimate for its Nieves silver property in Mexico.

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Quaterra Resources Inc.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements June 30, 2010

(Unaudited and Expressed in Canadian dollars)

15. RECONCILIATION OF CANADIAN AND U.S.GAAP

Canadian GAAP varies in certain significant respects from the principles and practices generally accepted in the United States (“U.S. GAAP”). The effect of the principal measurement differences on the Company’s consolidated financial statements is quantified below. The accounting policies followed by the Company under U.S. GAAP are set out in Notes 17 to the audited consolidated financial statements for the year ended December 31, 2009.

	June 30, 2010			December 31, 2009
Total assets - Canadian GAAP	$	51,241,335		$	41,872,497
Deferred expenditures on mineral properties		(32,246,639	)		(27,954,375	)
Total assets - U.S. GAAP	$	18,994,696		$	13,918,122
Total liabilities - Canadian GAAP	$	1,143,415		$	879,387
Derivative liability - warrants		659,192			8,477,944
Total liabilities - U.S. GAAP		1,802,607			9,357,331
Total shareholders' equity - Canadian GAAP		50,097,920			40,993,110
Expenditures on mineral properties		(32,246,639	)		(27,954,375	)
Derivative liability - adjustment to warrants		(659,192	)		(8,477,944	)
Total shareholders' equity - U.S. GAAP		17,192,089			4,560,791
Total Liabilities and Shareholders' Equity - U.S. GAAP	$	18,994,696		$	13,918,122

The adjustments to the statements of operations would be as follows:

	Three months ended June 30,						Six months ended June 30,
	2010			2009			2010			2009
Loss for the period - Canadian GAAP	$	(1,085,346	)	$	(796,707	)	$	(2,215,392	)	$	(2,452,700	)
Expenditures on mineral properties		(2,118,365	)		(320,776	)		(4,292,264	)		(1,128,114	)
Interest expense on convertible notes		-			(47,567	)		-			(93,775	)
Realized gain on derivative liability		4,647,708			-			4,647,708			-
Unrealized gain (loss) on derivative liability		466,439			210,941			3,171,044			(626,032	)
Net income (loss) for the period - U.S. GAAP		1,910,436			(954,109	)		1,311,096			(4,300,621	)
Deficit, Beginning of period - U.S. GAAP		(71,296,411	)		(57,019,720	)		(70,697,071	)		(53,673,208	)
Deficit, end of period - U.S. GAAP	$	(69,385,975	)	$	(57,973,829	)	$	(69,385,975	)	$	(57,973,829	)
Net loss per common share - Canadian GAAP	$	(0.01	)	$	(0.01	)	$	(0.02	)	$	(0.03	)
Net gain (loss) per common share - U.S. GAAP	$	0.02		$	(0.01	)	$	0.01		$	(0.05	)
Weighted average number of shares outstanding		118,988,150			87,610,273			116,509,187			87,582,134

Page 27 of 28

Quaterra Resources Inc.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements June 30, 2010

(Unaudited and Expressed in Canadian dollars)

15. RECONCILIATION OF CANADIAN AND U.S.GAAP (Continued)

The adjustments to the consolidated statements of cash flows would be as follows:

	Three months ended June 30,						Six months ended June 30,
	2010			2009			2010			2009
Operating activities - Canadian GAAP	$	(1,378,290	)	$	150,300		$	(2,353,664	)	$	(124,380	)
Adjustments for mineral expenditures		(1,636,696	)		(249,135	)		(3,718,084	)		(1,528,314	)
Cash used in operating activities - U.S. GAAP		(3,014,986	)		(98,835	)		(6,071,748	)		(1,652,694	)
Investing activities - Canadian GAAP		(1,513,009	)		(208,718	)		(4,227,393	)		(1,798,636	)
Reclassification of expenditures on mineral properties		1,636,696			249,135			3,718,084			1,528,314
Cash provided by (used in) investing activities - U.S. GAAP		123,687			40,417			(509,309	)		(270,322	)
Cash provided by financing activities - Canadian & U.S. GAAP		5,515,141			-			10,518,075			1,443,480
Increase (decrease) in cash during the period		2,623,842			(58,418	)		3,937,018			(479,536	)
Cash, beginning of period		6,108,396			103,472			4,795,220			524,590
Cash, end of period - U.S. GAAP	$	8,732,238		$	45,054		$	8,732,238		$	45,054

The Company’s financial assets measured at fair value by level within the fair value hierarchy would be as follows:

	Level 1		Level 2		Level 3		Total
Investment	$	17,667	$	-	$	-	$	17,667
Derivative liability - warrants			$	659,792			$	659,792

The derivative liability – warrants would be classified as held-for-trading.

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