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1 GOLDEN STATE RESOURCES LIMITED AND CONTROLLED ENTITIES ACN: INTERIM FINANCIAL REPORT FOR THE HALF-YEAR ENDED 31 DECEMBER 2011 ABN Unit 18, 40 St Quentin Avenue, Claremont, WA, 6010 PO Box 216, Claremont, WA, 6910 Ph: Fax: gsr@goldenstate.com.au

2 GOLDEN STATE RESOURCES LIMITED AND CONTROLLED ENTITIES ACN : CONTENTS Directors Report Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Performance Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Directors Declaration Independent Auditor s Review Report Auditor s Independence Declaration

3 DIRECTORS REPORT Your Directors submit their report for the half-year ended 31 December DIRECTORS Directors were in office for the entire period unless otherwise stated. The names of the Company s Directors in office during the half-year and until the date of this report are as below: Mr Lewis Cross Mr Richard Sciano Mr Anthony Kain RESULTS OF OPERATIONS The net loss of the Company after income tax for the six months ended 31 December 2011 amounted to $0.376 million (31 December 2010: profit $2.188 million). REVIEW OF OPERATIONS Golden State Resources Limited is an active explorer for oil and gas with international operations based in Ukraine and the United States. The Company also retains mineral royalties in Australia. NEW PROJECT ACQUISITION In recognition of identified limitations on the pace of development of the Golden Eagle Field, the Board of Directors moved to seek a new acquisition to complement the current project to maintain investor interest in the Company s activities and provide the prospect of an accelerated increase in shareholder value. During the period the Company pursued the process of acquiring an exploration project, the Povorotnoye Gas Field on the Kerch Peninsula in the region of Crimea, Ukraine. Subsequent to the end of the period, Golden State executed an agreement which gives the Company an initial 62.1% beneficial interest in the project. Settlement is set to take place at the end of January Spudding of the first well is scheduled to take place prior to the end of June 2012, with operational management of the field to be conducted under a Joint Activity Agreement with Crymgeologia, the State body controlling oil and gas operations in Crimea. THE POVOROTNOYE GAS AND CONDENSATE FIELD EAST CRIMEA, UKRAINE The Povorotnoye gas field is located in an area of producing fields in the southern Foredeep section of the hydrocarbon province known as the Azov-Kuban Basin, the boundary of which straddles the eastern Crimean Kerch Peninsula and the western most region of Russia. The Foredeep which forms a band along the southern section of the Azov-Kuban Basin is recognized as the most prolific section of the basin for hydrocarbon discovery and production with the Russians having developed vast oil and gas reserves including substantial continuing production from their portion of the geological sector. Although an extension of the same hydrocarbon province, and displaying similar geological structures, the Crimean section of the Basin has been far less developed but is now recognized to have virtually the same substantial hydrocarbon discovery and production potential. The Povorotnoye gas field is 8.5 by 2.5 kilometers in size with gas and condensate bearing horizons located at a depth of approximately 3900 metres. The field is delineated by 2D seismic and by seven - 1 -

4 DIRECTORS REPORT appraisal wells drilled in the 1980 s that confirmed gas in the Maykop M3 and M4 reservoir intervals. Initial two wells drilled in crestal positions on the geological structure produced gas and condensate to surface, defining a significant hydrocarbon discovery. Povorotnoye is a project which provides the opportunity of realizing the $60m+ of present value (historic) exploration expenditure. Data gathered from previous exploration significantly de-risks the project. Reviews of the Povorotnoye Field have indicated OGIP ranging from 61 BCF (AWT International), 91BCF (Fekete and Associates, 1990s) to 100 BCF (Fekete, 2010). Source: US Geological Survey World Petroleum Assessment 2000 The Povorotnoye Gas and Condensate Field in the Autonomous Region of Crimea, Ukraine, is part of the very attractive East European oil and gas rich sector. The project is located in the prolific Foredeep sector of the Azov Kuban Basin which straddles the highly productive gas and oil fields of the most western oil region in Russia and the eastern Crimean peninsula. OGIP (mean) of 61 BCF is currently calculated for the field. THE GOLDEN EAGLE GAS FIELD - UTAH, USA The Golden Eagle Gas Field in Grand County Utah, USA, is located in the northern part of the Paradox Basin. The field is a large shelf-edge /basement structure with multiple objectives within Pennsylvanian and Mississippian aged strata and contains a look-alike structure to the nearby Lisbon oil and gas field which has produced multi millions of barrels of oil. The field was discovered by Golden State Resources with the drilling of the Paradox Basin #1 wildcat well in The latest well Paradox Basin #3 was focused on appraising and commercialising the shallower Pennsylvanian Ismay Formation gas bearing intervals. In the context of exploration and discovery the Company has drilled three successful wells on the Golden Eagle Field with an ASX announced Independent Resource Evaluation providing a best estimate (P50) Discovered Gas Initially in Place (GIIP), of over 80 Billion Cubic Feet. The area which provides the discovered gas estimate for the resource evaluation is restricted to a limited spacing around the existing wells and represents only a very small part of the field. The mapped structure covers a large portion of over 22,000 acres under license and original deeper primary targets are yet to be explored

5 DIRECTORS REPORT Golden State holds an initial 100% interest in Paradox Basin #1 well, and operatorship through its 100%- owned US subsidiary, Golden Eagle Exploration LLC. Denver-based joint venture partner Eclipse Exploration Inc has the right to back in with a 16.67% working interest. Paradox Basin #1 Paradox Basin #1 is shut-in as a producer. Gas production from the well stabilised at a steady plateau of approximately 500,000 cubic feet per day. Paradox Basin #1 is capable of gas production in its current condition. A production and stimulation assessment will be conducted when a production pipeline is in place. Paradox Basin #2 Paradox Basin #2 remains suspended. Sidetracking and deepening the well to the Leadville Limestone is being considered as a second obligation well under the provisions of a proposed new unit agreement. Drilling of Paradox Basin #2 was terminated prior to reaching the Leadville formation. Paradox Basin #3 Paradox Basin #3 is shut-in as a producer. Gas production from the well stabilised at a steady plateau of approximately 500,000 cubic feet per day. Paradox Basin #3 is capable of gas production in its current condition. The well represents as a significant production prospect with only 16 of a total of 116 net pay accessed. A production and stimulation assessment will be conducted when a production pipeline is in place. Golden Eagle 70 II Unit: Unitization In mid May 2011, the Bureau of Land Management (BLM) informed the Company that the Golden Eagle 70 Unit had been terminated. Subsequently, the BLM had determined it in the public interest to reunitize the Golden Eagle leases into a new unit with the same form as the terminated Golden Eagle 70 Unit. Subject to staff availability at the BLM, the designation of the new Golden Eagle 70 II Unit is expected to be issued early this month. JOHNSTON RANGE IRON ORE ROYALTIES Golden State has an agreement with Cliffs Asia Pacific Iron Ore Pty Ltd ("Cliffs") with respect to its previously owned Johnston Range Iron Ore tenements in the Yilgarn region of Western Australia. Cliffs will pay Golden State a gross royalty of 2% on the iron ore sales from the tenements as well as a 2% gross royalty on the sale of all other minerals. It is expected that mining will commence in LEONORA CRAWFORD GOLD PROJECT On March , the company executed a formal agreement with Messina Resources Ltd for the sale of all its right, title and interest in the Leonora Project for the consideration of 2.5m shares in the new listing of Messina Resources Limited, valued at $500,000 on listing. APPOINTMENT OF NEW CEO Subsequent to the end of the quarter, Golden State appointed Mr Wal Muir, as the new Chief Executive Officer. His appointment will assist the Company to take advantage of significant opportunities provided by the Povorotnoye acquisition

6 DIRECTORS REPORT Mr Wal Muir has a B.Sc. (Hons.) degree from the University of New South Wales (1978) with a double major in Geology, a major in Pure Mathematics and honors in Geophysics. He has a Master of Business Administration (1989) from the University of Queensland. Mr Muir has more than 30 years of experience in the petroleum exploration and production industry, both within Australia and overseas. He is a Technical Director of AWT International. Mr Muir has undertaken projects for many clients in Australia and overseas. AWT is focused on exploration, development, drilling and technology in the fields of shale gas, coal seam methane, and conventional oil and gas. Wal is a member of the Australian Society of Exploration Geophysicists, Queensland Petroleum Exploration and is a Distinguished Member of the Petroleum Exploration Society of Australia (PESA). Mr Muir is an Adjunct Professor in Bio-geosciences at the Queensland University of Technology. He is an experienced and highly motivated petroleum professional. He specializes in the accurate evaluation of the value and risks associated with exploration acreage. He has specific skills in seismic interpretation, risk analysis, play and prospect evaluation and team leadership. Until founding his own company, he was Exploration and New Ventures Manager for Petroz NL. He has worked on all Australian petroleum basins and in SE Asia, the North Sea, Italy, Falklands and East Africa. After recently visiting the project site in Ukraine and comprehensively assessing its attributes, Mr Muir commented: This is an exciting opportunity; I believe that the assets Golden State has acquired in the Ukraine are robust indeed and look forward to assisting in ensuring their best economic outcomes. CLASS ORDER RELIEF The Financial Report is presented in Australian dollars and all values are rounded to the nearest thousand dollar ($ 000), unless otherwise stated under the option available to the Company under ASIC Class order 98/100. The Company is an entity to which the class order applies. AUDITOR S INDEPENDENCE DECLARATION The Auditor s Independence Declaration under Section 307C of the Corporations Act 2001 has been received and is included within the Financial Report. Signed in accordance with a resolution of the Directors Mr Richard Sciano Director Dated this 15th day of March

7 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the half-year ended 31 December 2011 Consolidated 31 December December 2010 $ 000 $ 000 Revenue Profit on sale of investments - 3,063 Director and employee benefits expenses (137) (440) Legal fees (6) (60) Depreciation (7) (7) Rental expense (43) (34) Share based payments - (112) Loss on disposal of investments (45) - Corporate and administration expenses (258) (233) Profit / (loss) before income tax (376) 2,188 Income tax expense - - Profit / (loss) for the period (376) 2,188 Other Comprehensive Income Foreign currency translation Income tax relating to components of other comprehensive income for the period 1,839 - (8,463) - Other comprehensive income for the period 1,839 (8,463) Total comprehensive (loss) / income for the period 1,463 (6,275) Basic and diluted earnings per share (cents per share) (0.05) 0.39 The accompanying notes form part of this interim financial report

8 CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 31 December 2011 Consolidated CURRENT ASSETS Note 31 December June 2011 $ 000 $ 000 Cash and cash equivalents 3,466 4,216 Trade and other receivables Other financial assets Other current assets TOTAL CURRENT ASSETS 4,394 4,950 NON CURRENT ASSETS Property, plant and equipment Deferred exploration and evaluation expenditure 4 47,058 44,510 TOTAL NON CURRENT ASSETS 47,114 44,572 TOTAL ASSETS 51,508 49,522 CURRENT LIABILITIES Trade and other payables TOTAL CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS 51,162 48,738 EQUITY Contributed equity 5 69,402 68,866 Reserves (6,934) (9,198) Accumulated losses (11,306) (10,930) TOTAL EQUITY 51,162 48,738 The accompanying notes form part of this interim financial report - 6 -

9 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the half- year ended 31 December 2011 Contributed Equity Option Reserve Consolidated Foreign Exchange Reserve Accumulated Losses Total $ 000 $ 000 $ 000 $ 000 $ 000 At 1 July ,486 5,691 (3,984) (14,303) 50,890 Profit for the period ,188 2,188 Foreign currency - - (8,463) - (8,463) translation Total comprehensive - - (8,463) 2,188 (6,275) income for the period Shares issued 1, ,730 Cost of capital raising (238) (238) Share based payment Disposal of investment in associate - (196) (428) At December ,090 5,495 (12,875) (11,440) 46,270 At 1 July ,866 5,572 (14,770) (10,930) 48,738 Loss for the period (376) (376) Foreign currency - - 1,839-1,839 translation Total comprehensive - - 1,839 (376) 1,463 income for the period Shares issued Cost of capital raising (112) (112) Share based payment Options Issued (net) At 31 December ,402 5,997 (12,931) (11,306) 51,162 The accompanying notes form part of this interim financial report

10 CONSOLIDATED STATEMENT OF CASH FLOWS For the half- year ended 31 December 2011 Consolidated 31 December 31 December $ 000 $ 000 Cash flows from operating activities Payments to suppliers and employees (369) (778) Payments for exploration expenditure (1,060) (2,882) Interest and dividends received Net cash used in operating activities (1,316) (3,649) Cash flows from investing activities Payments for plant and equipment (2) (6) Payment for bonds (6) - Proceeds from disposal of investments 113 3,113 Net cash from investing activities 105 3,107 Cash flows from financing activities Proceeds from issue of shares 1,073 1,730 Proceeds from placement held in trust (500) - Payments for capital raising costs (112) (238) Net cash from financing activities 461 1,492 Net increase in cash and cash equivalents (750) 950 Cash and cash equivalents at the beginning of the half year 4, Cash and cash equivalents at the end of the half year 3,466 1,152 The accompanying notes form part of this interim financial report

11 NOTES TO THE FINANCIAL STATEMENTS For the half- year ended 31 December BASIS OF PREPARATION OF THE INTERIM FINANCIAL REPORT Basis of Preparation These general purpose financial statements for the interim half-year reporting period ended 31 December 2011 have been prepared in accordance with requirements of the Corporations Act 2001 and Australian Accounting Standards including AASB 134: Interim Financial Reporting. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards. This interim financial report is intended to provide users with an update on the latest annual financial report of the company. As such, it does not contain information that represents relatively insignificant changes occurring during the half-year within the company. It is therefore recommended that this financial report be read in conjunction with the annual financial report of the company for the year ended 30 June 2011, together with any public announcements made by Golden State Resources Limited during the half-year in accordance with continuous disclosure requirements arising under the Corporations Act A summary of the material accounting policies adopted by the Company in the preparation of the financial report can be found in the annual financial report for the year ended 30 June The accounting policies have been consistently applied, unless otherwise stated. New and revised Accounting Standards In the current year, the consolidated entity has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to its operations and effective for the current annual reporting period. The adoption of these new and revised Standards and Interpretations has not resulted in a significant or material change to the consolidated entity s accounting policies. Reporting Basis and Conventions The financial report has been prepared on an accrual basis and is based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. 2. DIVIDENDS There have been no dividends declared or recommended and no distributions made to shareholders or other persons during the period

12 NOTES TO THE FINANCIAL STATEMENTS For the half- year ended 31 December SEGMENT INFORMATION Business The consolidated entity operates in one business segment, being the exploration and mining of oil and gas within the geographical segments of Australia and USA. Geographical Australia USA Consolidated 31 Dec Dec Dec Dec Dec Dec 10 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 Revenue 120 3, ,074 Profit / (Loss) (229) 2,204 (147) (16) (376) 2,188 Assets 4,782 1,245 46,726 46,332 51,508 47,577 Liabilities 335 1, , DEFERRED EXPLORATION AND EVALUATION EXPENDITURE The ultimate recoupment of exploration expenditure carried forward is dependent upon successful development and commercial exploitation, or sale of the respective areas. The Company is in the process of re-unitising the Golden Eagle leases which accounts for $ million of the total deferred exploration and evaluation expenditure. Negotiations between the Company and the Bureau of Land Management in relation to the terms of the proposed new unit are well advanced. The Company expects that the re-unitisation of the Golden Eagle leases and the formation of the new unit will be completed in the short term. Based on the above, the Company believes that the Company has rights of tenure to the area of interest at reporting date

13 NOTES TO THE FINANCIAL STATEMENTS For the half- year ended 31 December CONTRIBUTED EQUITY a) Ordinary Shares No. of shares $ At the beginning of reporting period 643,776,834 68,866,010 Shares issued during the year: - 8 July 2011 Rights Issue 64,755, , August Option conversion 12, Capital raising costs - (111,894) At reporting date 708,544,959 69,401,937 b) Unlisted Options The balance of unlisted options at 31 December 2011 is 11,000,000, which are exercisable at $0.02 each on or before 31 January c) Listed Options The balance of listed options at 31 December 2011 is 424,742,609, which are exercisable at $0.02 and expiring 31 January CONTINGENT LIABILITIES Since the last annual reporting date there has been no material change of any contingent liabilities

14 NOTES TO THE FINANCIAL STATEMENTS For the half- year ended 31 December EVENTS SUBSEQUENT TO REPORTING DATE On 11 January 2012, the Company issued 300,000,000 fully paid ordinary shares and 300,000,000 listed options. The listed options are exercisable at $0.02 and expire on 31 January The issue of these shares and options were as consideration for the acquisition of all the issued capital in Honoratus Holdings Pty Ltd ( Honaratus ) to the shareholders of Honoratus. Pursuant to this, the Company, through Honoratus, will acquire a 61.2% beneficial interest in a number of oil and gas exploration licences containing the Povorotnoye Gas/Condensate Field, onshore the Autonomous Republic of Crimea, Ukraine, held by East Crimea Energy B. V., which is owned by Transeuro Energy B.V. On 25 January 2012, the Company announced the appointment of a new Chief Executive Officer, Mr Wal Muir. Mr Muir has a B.Sc. (Hons.) degree from the University of New South Wales with a double major in Geology, a major in Pure Mathematics and Honours in Geophysics. He has a Masters of Business Administration from the University from Queensland. He is a Technical Director of AWT International. On 6 February 2012, the Company advised that they had completed the transaction for the Povorotnoye Gas/Condensate Field in accordance with the binding Heads of Agreement. The initial payment to Transeuro Energy B.V. was US$500,000. The second payment of US$500,000 is payable upon spudding of the first well on the project, scheduled for June Except for the above, since the balance sheet date, there are no items, transactions or events of a material and unusual nature likely, in the opinion of the Directors, to affect significantly, the results of those operations, or the state of affairs of the consolidated entity in future financial years

15 DIRECTORS DECLARATION The directors of the company declare that: 1. The financial statements and notes, as set out in this half year financial report, are in accordance with the Corporations Act 2001, including: a. complying with Accounting Standard AASB 134: Interim Financial Reporting; and b. giving a true and fair view of the consolidated entity s financial position as at 31 December 2011 and of its performance for the half-year ended on that date. 2. In the director s opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. The declaration is made in accordance with a resolution of the Board of Directors. Mr Richard Sciano Director Dated this 15th day of March

16 RSM Bird Cameron Partners 8 St Georges Terrace Perth WA 6000 GPO Box R1253 Perth WA 6844 T F Report on the Half-Year Financial Report INDEPENDENT AUDITOR S REVIEW REPORT TO THE MEMBERS OF GOLDEN STATE RESOURCES LIMITED We have reviewed the accompanying half-year financial report of Golden State Resources Limited which comprises the consolidated statement of financial position as at 31 December 2011, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the half-year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors declaration of the consolidated entity comprising the company and the entities it controlled at the half year. Directors Responsibility for the Half-Year Financial Report The directors of the company are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such control as the directors determine is necessary to enable the preparation of the half-year financial report that is free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of consolidated entity s financial position as at 31 December 2011 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations As the auditor of Golden State Resources Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report. A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Liability limited by a scheme approved under Professional Standards Legislation Major Offices in: Perth, Sydney, Melbourne, Adelaide and Canberra ABN RSM Bird Cameron Partners is an independent member firm of RSM International, an affiliation of independent accounting and consulting firms. RSM International is the name given to a network of independent accounting and consulting firms each of which practices in its own right. RSM International does not exist in any jurisdiction as a separate legal entity.

17 Independence In conducting our review, we have complied with the independence requirements of the Corporations Act We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Golden State Resources Limited, would be in the same terms if given to the directors as at the time of this auditor s review report. Conclusion Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Golden State Resources Limited is not in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the consolidated entity s financial position as at 31 December 2011 and of its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and Corporations Regulations Emphasis of Matter We draw attention to Note 4 to the half-year financial report which describes the uncertainty relating to the outcome of the re-unitisation of the Golden Eagle leases. Our conclusion is not qualified in respect of this matter. RSM BIRD CAMERON PARTNERS Chartered Accountants Perth, WA Dated: 15 March 2012 TUTU PHONG Partner

18 RSM Bird Cameron Partners 8 St Georges Terrace Perth WA 6000 GPO Box R1253 Perth WA 6844 T F AUDITOR S INDEPENDENCE DECLARATION As lead auditor for the review of the financial report of Golden State Resources Limited for the half-year ended 31 December 2011, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (i) (ii) the auditor independence requirements of the Corporations Act 2001 in relation to the review; and any applicable code of professional conduct in relation to the review. RSM BIRD CAMERON PARTNERS Chartered Accountants Perth, WA Dated: 15 March 2012 TUTU PHONG Partner Liability limited by a scheme approved under Professional Standards Legislation Major Offices in: Perth, Sydney, Melbourne, Adelaide and Canberra ABN RSM Bird Cameron Partners is an independent member firm of RSM International, an affiliation of independent accounting and consulting firms. RSM International is the name given to a network of independent accounting and consulting firms each of which practices in its own right. RSM International does not exist in any jurisdiction as a separate legal entity.