XSTATE RESOURCES LIMITED

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ABN 96 009 217 154

29 July 2011 ASX Limited Electronic lodgement INTERIM FINANCIAL REPORT

We attach the interim financial report for Xstate Resources Limited for the half year ended 30 June 2011.

For and on behalf of the Board

41 Stirling Highway, Nedlands WA 6009 Tel + 61 8 9423 3200 Fax +61 8 9389 8327 www.xstate.com.au

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ABN 96 009 217 154

INTERIM FINANCIAL REPORT

30 JUNE 2011

XSTATE RESOURCES LIMITED│INTERIM FINANCIAL REPORT│30 JUNE 2011 │CONTENTS

CONTENTS Page Company Directory ................................................................................................................................. 1 Directors’ Report .................................................................................................................................... 2 Auditor’s Independence Declaration ...................................................................................................... 4 Condensed Consolidated Statement of Financial Position ...................................................................... 5 Condensed Consolidated Statement of Comprehensive Income ............................................................ 6 Condensed Consolidated Statement of Changes in Equity ..................................................................... 7 Condensed Consolidated Statement of Cash Flows ................................................................................ 9 Notes to the Condensed Consolidated Financial Statements ................................................................ 10 Directors’ Declaration ........................................................................................................................... 16 Independent Review Report .................................................................................................................. 17

XSTATE RESOURCES LIMITED│INTERIM FINANCIAL REPORT│30 JUNE 2011 │COMPANY DIRECTORY

COMPANY DIRECTORY

DIRECTORS AND COMPANY SECRETARY:

David Whitby Non-executive Chairman

Gary Jeffery Managing Director

Ross Kestel Non-executive director

James Brown

Non-executive director

David McArthur

Company Secretary

REGISTERED OFFICE:

41 Stirling Highway PO Box 985 NEDLANDS NEDLANDS WA 6009 WA 6909

PRINCIPAL OFFICE:

208 Bagot Road SUBIACO WA 6008

PO Box 805 SUBIACO WA 6904

Telephone: Facsimile:

+61 8 9423 3200 +61 8 9389 8327

Telephone: Facsimile:

+61 8 9381 4215 +61 8 9381 9386

SHARE REGISTRY:

Advanced Share Registry Services 110 Stirling Highway NEDLANDS WA 6009

BANKERS:

ANZ Banking Group Limited Business Relationship Banking Level 6, 77 St Georges Terrace PERTH WA 6000

Telephone: +61 8 9389 8033 Facsimile: +61 8 9389 7871

AUDITORS:

KPMG Level 8 235 St George’s Terrace PERTH WA 6000

SOLICITORS:

Steinepreis Paganin Level 4, Next Building 16 Milligan Street PERTH WA 6000

DOMICILE AND COUNTRY OF INCORPORATION:

Australia

WEBSITE AND EMAIL:

www.XState.com.au [email protected]

SECURITIES EXCHANGE:

XState Resources Limited shares and options arelisted the Australian Securities Exchange (ASX)

Ordinary Shares – XST Options - XSTO

XSTATE RESOURCES LIMITED│INTERIM FINANCIAL REPORT│30 JUNE 2011 │DIRECTOR’S REPORT

DIRECTORS’ REPORT

The Directors present their report together with the financial report of XState Resources Limited for the six months ended 30 June 2011 and the review report thereon.

1. DIRECTORS

The directors of the Company at any time during or since the end of the interim period are:

Name	Period of Directorship
Executive
Gary Jeffery	Director since 8 July 2010
Non-executive
David Whitby	Director since 11 February 2011
Ross Kestel	Director since 6 September 2006
James Brown	Director since 5 April 2011
John Begg	Director from 8 July 2010 to 10 June 2011
Brett Mitchell	Director from 27 August 2009 to 5 April 2011

2. PRINCIPAL ACTIVITIES

The principal activity of the Group during the interim period was oil and natural gas exploration and development.

3. DIVIDENDS

No dividend was paid during the interim period and the directors do not recommend payment of a dividend.

4. REVIEW OF OPERATIONS

XState Resources Limited is a Perth-based oil and gas explorer with projects in the Mediterranean and Tunisia region.

Other than the oil and gas exploration activities detailed in the quarterly exploration reports released to the market, there have been no other significant operations by the Group during the six months to 30 June 2011. A decision was made to impair the carrying amount of the Lambouka asset in the accounts of the Group (refer Note 6 to the condensed consolidated financial statements) based on the view that the existing Lambouka well bore is currently considered by the directors to be unlikely to have significant value for evaluating or producing an accumulation of oil and gas in the Lambouka Structure. This is an internal view held by the directors and may not reflect the views of other Joint Venturers. Furthermore, this is an accounting decision and the physical well bore remains available for future use should the joint venture decide to use it.

XSTATE RESOURCES LIMITED│INTERIM FINANCIAL REPORT│30 JUNE 2011 │DIRECTOR’S REPORT

5. DIRECTOR’S REMUNERATION

(a) Executive directors

On 19 May 2011, a deed of executive services was entered into with Mr Gary Jeffery, whereby Mr Jeffery is paid a total remuneration package of $250,000 per annum for 75% of his time, effective 1 April 2011. The agreement has a condition that if it is terminated (other than by Mr Jeffery or for certain specified events) Mr Jeffery shall receive a once only payment equivalent to 6 month’s remuneration. This replaces the agreement entered into on 20 July 2010.

(b) Non-executive directors

On 11 February 2011, Mr David Whitby was appointed to the board as non-executive Chairman. This was ratified by shareholders at the annual general meeting on 19 May 2011.

On 4 April 2011, Mr James Brown was appointed to the board as independent non-executive director. This was ratified by shareholders at the annual general meeting on 19 May 2011.

At the annual general meeting of shareholders on 19 May 2011, total non-executive directors’ remuneration was increased from $200,000 to $400,000.

On 19 May 2011, the board approved an increase in non-executive director fees from $45,000 p.a. to $60,000 p.a. per director following review and approval by the Remuneration and Nomination committee members. At the same meeting, it was resolved that the non-executive Chair of the Board would receive an additional $30,000 per annum and the Chair of the Audit Committee and Remuneration and Nomination Committee would receive an additional $10,000 and $5,000 per annum, respectively, effective 1 April 2011.

The increases in non-executive director’s fees, and the fees paid to the Managing Director, were established based on an independent review of fees commissioned by the remuneration committee.

6. CORPORATE GOVERNANCE

In recognising the need for the highest standards of corporate behaviour and accountability, the directors of XState Resources support and have adhered to the principles of corporate governance. The Group’s corporate governance statement is contained within the 31 December 2010 Annual Report.

7. LEAD AUDITOR’S INDEPENDENCE DECLARATION

The lead auditor’s independence declaration as required under Section 307C of the Corporations Act 2001 is set out on the next page and forms part of the directors’ report, for the six months ended 30 June 2011.

Dated at Perth, Western Australia this 29[th] day of July 2011.

Signed in accordance with a resolution of the directors.

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GARY JEFFERY Director

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Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001

To: the directors of XState Resources Limited

I declare that, to the best of my knowledge and belief, in relation to the review for the half-year ended 30 June 2011 there have been:

(i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the review; and
(ii) no contraventions of any applicable code of professional conduct in relation to the review.

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KPMG

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Graham Hogg Partner

Perth 29 July 2011

KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.

XSTATE RESOURCES LIMITED│INTERIM FINANCIAL REPORT│30 JUNE 2011 │FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2011

Note	30 June 2011 $ 31 December 2010 $
Assets Cash and cash equivalents Trade and other receivables Prepayments 8 Total current assets Exploration and evaluation expenditure 6 Property, plant and equipment Trade and other receivables Total non-current assets Total assets Liabilities Trade and other payables 9 Employee benefits Total current liabilities Total liabilities Net assets Equity Share capital Reserves Retained earnings Total equity attributable to equity holders of the company	1,322,141 1,416,717 46,167 61,239 297,796 68,336
	1,666,104 1,546,292
	3,788,250 7,245,018 28,309 30,194 18,333 3,333
	3,834,892 7,278,545
	5,500,996 8,824,837
	640,477 82,450 7,696 2,435
	648,173 84,885
	648,173 84,885
	4,852,823 8,739,952
	39,695,601 38,517,929 (70,803) (70,803) (34,771,975) (29,707,174)
	4,852,823 8,739,952

The condensed notes on pages 10 to 15 are an integral part of these financial statements.

XSTATE RESOURCES LIMITED│INTERIM FINANCIAL REPORT│30 JUNE 2011 │FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 30 JUNE 2011

Note	30 June 2011 $ 30 June 2010 $
Continuing operations Other income Administrative expenses 11 Other expenses Impairment of exploration expenditure Results from operating activities Finance income Finance expenses Net finance (expense) / income Loss before income tax Income tax benefit Loss from continuing operations Loss for the period Other comprehensive income for the period, net of income tax Total comprehensive loss for the period Loss attributable to owners of the Company Total comprehensive loss attributable to owners of the Company Loss per share Basic and diluted (cents per share)	6,250 - (552,488) (155,733) (199,254) (100,925) (4,325,257) -
	(5,070,749) (256,658)
	27,229 45,578 (21,394) (949)
	5,835 44,629
	(5,064,914) (212,029) 113 -
	(5,064,801) (212,029)
	(5,064,801) (212,029)

	- -
	(5,064,801) (212,029)
	(5,064,801) (212,029)
	(5,064,801) (212,029)
	(6.81) (1.15)

The condensed notes on pages 10 to 15 are an integral part of these financial statements.

XSTATE RESOURCES LIMITED│INTERIM FINANCIAL REPORT│30 JUNE 2011 │FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 JUNE 2011

	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company
	Share capital $ Translation reserve $	Equity-based benefits reserve $ Accumulated losses $ Total $
Balance at 1 January 2011	38,517,929 (486,352)	415,549 (29,707,174)
			8,739,952
Total comprehensive expense for the year
Loss for the year Total other comprehensive expense Total comprehensive expense for the period Transactions with owners, recorded directly in equity Contributions by and distributions to owners Issue of ordinary shares Capital raising costs Total contributions by and distributions to owners Total changes in ownership interests in subsidiaries Total transactions with owners Balance at 30 June 2011	- -	- (5,064,801)	(5,064,801)

	- -	- -	-
	- -	- (5,064,801)	(5,064,801)
	1,250,000 - (72,328) -	- - - -



			1,250,000
			(72,328)
	1,177,672 -	- -	1,177,672
	- -	- -	-
	1,177,672 -	- -	1,177,672
	39,695,601 (486,352)	415,549 (34,771,975)	4,852,823

The condensed notes on pages 10 to 15 are an integral part of these financial statements.

XSTATE RESOURCES LIMITED│INTERIM FINANCIAL REPORT│30 JUNE 2011 │FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 JUNE 2010

	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company
	Share capital $ Translation reserve $	Equity-based benefits reserve $ Accumulated losses $ Total $

Balance at 1 January 2010 Total comprehensive expense for the period Loss for the year Total other comprehensive expense Total comprehensive expense for the year Transactions with owners, recorded directly in equity Contributions by and distributions to owners Capital raising costs Share-based payment transactions Total contributions by and distributions to owners Total changes in ownership interests in subsidiaries Total transactions with owners Balance at 30 June 2010	31,884,265 (486,352)	136,400 (28,565,614)	2,968,699
	- -	- (212,029)
			(212,029)

	- -	- -	-
	- -	- (212,029)	(212,029)
	(89,797) - - -	- - 4,149 -



			(89,797)
			4,149
	(89,797) -	4,149 -	(85,648)
	- -	- -	-
	(89,797) -	4,149 -	(85,648)
	31,794,468 (486,352)	140,549 (28,777,643)	2,671,022

The condensed notes on pages 10 to 15 are an integral part of these financial statements.

XSTATE RESOURCES LIMITED│INTERIM FINANCIAL REPORT│30 JUNE 2011 │FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 30 JUNE 2011

	30 June 2011 $ 30 June 2010 $
Cash flow from operating activities Receipts from customers Cash paid to suppliers and employees Income taxes received Net cash used in operating activities Cash flows from investing activities Interest received Payments for property, plant and equipment Proceeds from sale of property, plant and equipment Payments for exploration, evaluation and development Loan advanced to Bombora Energy Limited (since renamed Xstate Mediterranean Pty Ltd) 12 Net cash used in investing activities Cash flow from financing activities Proceeds from issue of shares and options Capital raising costs Net cash from / (used in) financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at 1 January Effect of exchange rate fluctuations on cash held Cash and cash equivalents at 30 June	6,480 - (732,787) (213,115) 113 -
	(726,194) (213,115)
	27,591 48,950 (3,297) - 2,012 - (550,966) (93,697) - (1,003,168)
	(524,660) (1,047,915)
	1,250,000 - (72,328) (89,797)
	1,177,672 (89,797)
	(73,182) (1,350,827) 1,416,717 3,021,991 (21,394) (949)
	1,322,141 1,670,215

The condensed notes on pages 10 to 15 are an integral part of these financial statements.

XSTATE RESOURCES LIMITED│ INTERIM FINANCIAL REPORT │30 JUNE 2011 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2011

1. REPORTING ENTITY

XState Resources Limited (the “Company”) is a company domiciled in Australia. The condensed consolidated interim financial report of the Company as at and for the six months ended 30 June 2011 comprises the Company and its subsidiaries (together referred to as the “Group”).

The consolidated financial report of the Group as at and for the year ended 31 December 2010 are available upon request from the Company’s registered office at 41 Stirling Highway, Nedlands, Western Australia, 6009.

2. BASIS OF PREPARATION

(a) Statement of compliance

The condensed consolidated interim financial report is a general purpose financial report which has been prepared in accordance with AASB 134 Interim Financial Reporting and the Corporations Act 2001 . It does not include all of the information required for a full annual financial report, and should be read in conjunction with the annual consolidated financial report of the Group as at and for the year ended 31 December 2010.

The condensed consolidated interim financial report was approved by the Board of Directors on 29 July 2011.

(b) Estimates

The preparation of interim financial reports requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.

In preparing this condensed consolidated interim financial report, the significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2010.

(c) Going concern

The condensed consolidated interim financial report has been prepared on a going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the normal course of business.

The ability of the Group to continue funding its oil and gas exploration activities and retain its rights in the corresponding farm-in arrangements, is dependent on the Group securing further working capital by the issue of additional equity or financing facilities. The timing of raising additional capital will depend on current and future planned drilling programs.

The Board is aware that additional funds would need to be sourced from one or more of the following alternatives:

Capital market raising
Private placement
Entitlements Issue – preferably underwritten
Share purchase plan

XSTATE RESOURCES LIMITED│ INTERIM FINANCIAL REPORT │30 JUNE 2011 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. BASIS OF PREPARATION (continued)

(c) Going concern (continued)

At the AGM on 19 May 2011, shareholders approved the issue of up to 25 million ordinary shares within 3 months of the meeting date.

Whilst there is uncertainty regarding the outcomes of the funding alternatives set out above, the Company has a history of successfully raising capital to fund its exploration activities. In addition, the Company has the capacity to delay or cancel a number of expenses that are discretionary in nature, including administrative costs and exploration programs that are not contractually binding. In the event that the Company is unable to secure sources of funding, the Company may not be able to continue as a going concern. Accordingly, the Company may be required to realise assets and extinguish liabilities other than in the normal course of business and at amounts different to those stated in this financial report.

The directors have reviewed the business outlook and are of the opinion that the use of the going concern basis of accounting is appropriate as they believe the Group will achieve the matters set out above.

3. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies applied by the Group in the condensed consolidated interim financial report are the same as those applied by the Group in its financial report as at and for the year ended 31 December 2010.

4. FINANCIAL RISK MANAGEMENT

The Group’s financial risk management objectives and policies are consistent with those disclosed in the financial statements as at and for the year ended 31 December 2010.

5. OPERATING SEGMENTS

At the reporting date the Group had one reportable segment, being oil and gas.

Information about reportable segments

	Oil and gas
	30 June	30 June
	2011	2010
	$	$
Reportable segment loss before income tax	(4,325,257)	-
Other material non-cash items:
Impairment loss on exploration and evaluation	(4,325,257)	-

XSTATE RESOURCES LIMITED│ INTERIM FINANCIAL REPORT │30 JUNE 2011 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5. OPERATING SEGMENTS (continued)

Information about reportable segments (continued)

	30 June 2011 $	31 December 2010 $
Reportable segment assets Other material items: Capital expenditure		7,245,018 7,245,018
	3,788,250


	868,489

Reconciliation of reportable segment loss, assets and liabilities and other material items

	30 June 2011 $ 30 June 2010 $
Loss Total loss for reportable segments Unallocated amounts: other corporate expenses Finance expense (including foreign currency translation) Finance income Consolidated loss before income tax	(4,325,257) - (745,379) (256,658) (21,394) (949) 27,229 45,578
	(5,064,801) (212,029)

	30 June 2011 $ 31 December 2010 $
Assets Total assets for reportable segments Other assets Liabilities Total liabilities for reportable segments Other liabilities	3,788,250 7,245,018 1,712,746 1,579,819
	5,500,996 8,824,837
	(41,810) (283) (606,363) (84,602)
	(648,173) (84,885)

There have been no changes to the basis of segmentation or the measurement basis for the segment profit or loss since 31 December 2010.

XSTATE RESOURCES LIMITED│ INTERIM FINANCIAL REPORT │30 JUNE 2011 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6. EXPLORATION, EVALUATION AND DEVELOPMENT EXPENDITURE

	30 June 2011 $ 31 December 2010 $
Costs carried forward in respect of areas of interest – Exploration phase Opening balance Acquisitions Additions Written off	3,788,250 7,245,018
	7,245,018 - - 1,897,282 868,489 5,347,736 (4,325,257) -
	3,788,250 7,245,018

The farm-in agreement requires the company to contribute its share of the exploration activities in US dollars and, as a result, is subject to foreign currency exchange gains and losses.

Exploration and evaluation activities have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves. The ultimate recovery of exploration and evaluation phase expenditure is primarily dependent upon the successful development and commercial exploitation, or alternatively, sale of the areas of interest.

During the previous reporting period, the Lambouka drill hole incurred damage that resulted in exploration activities being postponed. Currently the directors consider the more likely future path for this project is to drill a new well bore to more efficiently and effectively assess whether there are economically recoverable reserves. Accordingly, the decision was made to impair the carrying amount of the Lambouka asset by $4,325,257 (30 June 2010: Nil). This decision was made as the existing well bore is currently considered unlikely to have significant future value for evaluating or producing an accumulation of oil and gas in the Lambouka structure.

7. CAPITAL AND RESERVES

(a) Share capital

On 28 February 2011 the Company issued 10 million shares at an issue price of 12.5 cents each.

The number of shares on issue at 30 June 2011 was 77,536,588 (30 June 2010: 18,359,864).

(b) Reserves

Equity-based benefits reserve

The equity-based benefits reserve represents the cost of options that have been granted as share-based payments but not exercised. This reserve will be transferred to capital should these options be exercised.

Foreign currency translation reserve

The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.

XSTATE RESOURCES LIMITED│ INTERIM FINANCIAL REPORT │30 JUNE 2011 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8. PREPAYMENTS

	30 June 2011 $	31 December 2010 $
Insurance Australian Securities Exchange Rent and outgoings Subscriptions and conference registrations Exploration cash call Less than one year		5,964 6,668 4,161 16,185 35,358
	13,736
	-
	-
	34,055
	250,005
	297,796	68,336

9. TRADE AND OTHER PAYABLES

	30 June 2011 $ 31 December 2010 $
Current Trade payables Non-trade payables and accrued expenses Exploration cash call Less than one year	48,263 20,452 101,571 61,998 490,643 -
	640,477 82,450

10. PERSONNEL EXPENSES

	30 June 2011 $	30 June 2010 $
Wages and salaries Directors and executive remuneration Contributions to defined contribution plans Increase in liability for annual leave Fringe benefits tax Other associated personnel expenses		- 112,506 5,625 147 - 6,556
	41,570
	329,206
	10,258
	5,261
	84
	51,372
	437,751	124,834

$42,380 of other associated personnel expenses relates to recruitment costs.

XSTATE RESOURCES LIMITED│ INTERIM FINANCIAL REPORT │30 JUNE 2011 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

11. ADMINISTRATIVE EXPENSES

Note	30 June 2011 $	30 June 2010 $
Personnel expenses 10 Advertising and publicity Communication and information services Office administration Bank charges Share registry and statutory fees		124,834 158 3,699 13,410 177 13,455
	437,751
	36,320
	5,161
	48,079
	499
	24,678
	552,488	155,733

12. NOTE TO CASH FLOW STATEMENT

In the June 2010 interim period a loan was advanced to Bombora Energy Limited (since renamed Xstate Mediterranean Pty Ltd). The loan amounted to $1,003,168, and was a non-current receivable, non-interest bearing and payable on demand. Post reporting date, the acquisition of Bombora Energy Limited was finalised and this receivable was acquired as part of the asset acquisition.

13. SUBSEQUENT EVENTS

There have been no matters or circumstances that have arisen since the end of the financial year that have significantly affected, or may significantly affect, the operations of the Company, the results of these operations, or the state of affairs of the Company in future financial years.

XSTATE RESOURCES LIMITED│INTERIM FINANCIAL REPORT│30 JUNE 2011 │DIRECTORS’ DECLARATION

DIRECTORS’ DECLARATION

In the opinion of the directors of XState Resources Limited (the “Company”):

(1) the financial statements and notes set out on pages 5 to 15 are in accordance with the Corporations Act 2001, including:
(a) giving a true and fair view of the Group’s financial position as at 30 June 2011 and of its performance for the six months ended on that date; and
(ii) complying with Australian Accounting AASB 134 Interim Financial Reporting and the Corporations Regulations 2001; and
(2) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

Signed in accordance with a resolution of the directors:

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GARY JEFFERY Director

Dated at Perth this 29[th] day of July 2011.

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Independent auditor’s review report to the members of XState Resources Limited

Report on the financial report

We have reviewed the accompanying interim financial report of XState Resources Limited, which comprises the condensed consolidated statement of financial position as at 30 June 2011, condensed consolidated statement of comprehensive income, condensed consolidated statement of changes in equity and condensed consolidated statement of cash flows for the half-year ended on that date, notes 1 to 13 comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration of the Group comprising the company and the entities it controlled at the halfyear’s end or from time to time during the half-year.

Directors’ responsibility for the interim financial report

The directors of the company are responsible for the preparation of the interim 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 interim 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 interim 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 interim financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the Group’s financial position as at 30 June 2011 and its performance for the half-year ended on that date; and complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001 . As auditor of XState Resources Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

A review of an interim 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.

Independence

In conducting our review, we have complied with the independence requirements of the Corporations Act 2001 .

KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.

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Conclusion

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the interim financial report of XState Resources Limited is not in accordance with the Corporations Act 2001 , including:

(a) giving a true and fair view of the Group’s financial position as at 30 June 2011 and of its performance for the half-year ended on that date; and
(b) complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001 .

Inherent uncertainty regarding continuation as a going concern

Without qualification to the conclusion expressed above, attention is drawn to the following matter. The interim financial report has been prepared on a going concern basis as discussed in Note 2(c) which assumes continuity of normal business activities, the realisation of assets and the settlement of liabilities in the ordinary course of business. In Note 2(c) the directors state why they consider the going concern basis used in preparation of the financial report is appropriate. It is noted that without the securing of further working capital by the issue of additional equity or financing facilities referred to by the directors, there are material uncertainties as to whether the consolidated entity will be able to continue as a going concern and therefore the Company may be unable to realise it assets and discharge its liabilities in the normal course of business.

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KPMG

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Graham Hogg Partner

Perth 29 July 2011

AI assistant

XSTATE RESOURCES LIMITED — Interim / Quarterly Report 2011

66107_rns_2011-07-28_a4e92d66-7efd-402a-b734-c1aefc5332b4.pdf