UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10−Q





(Mark
One)


x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934


For the
quarterly period ended: March 31, 2009





 ̈ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934


For the
transition period from ____________ to _____________




Commission
File Number: 000-28543




THORIUM POWER,
LTD.


(Exact
name of registrant as specified in its charter)





Nevada
                
                91-1975651(State
      or other jurisdiction of
                
                (I.R.S.
      Empl. Ident. No.)incorporation
      or organization)





1600
Tyson’s Boulevard, Suite 550


McLean,
VA  22102


(Address
of principal executive offices, Zip Code)





(571) 730-1200





(Registrant’s
telephone number, including area code)








(Former
Name, Former Address and Former Fiscal Year if Changed Since Last
Report)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.Yes   x  No   ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).  Yes    ̈  No   ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.





Large
      Accelerated Filer  ̈
                      
                      Accelerated
      Filer  ̈Non-Accelerated
      Filer    ̈ (Do not check if
      a smaller reporting company)
                      
                      Smaller
      reporting companyx





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange
Act).     Yes    ̈  No  x





The
number of shares outstanding of each of the issuer’s classes of common equity,
as of March 31, 2009 is as follows:





Class
      of Securities
                    
                    Shares
      OutstandingCommon
      Stock, $0.001 par value
                    
                    301,841,722





Transitional
Small Business Disclosure Format (check one):  Yes ̈Nox





ITEM
1.     FINANCIAL STATEMENTS





THORIUM POWER,
LTD.





UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS





MARCH 31, 2009 AND
2008





TABLE OF
CONTENTS





PageUnaudited
      Condensed Consolidated Balance Sheets
                
                2Unaudited
      Condensed Consolidated Statements of Operations and Comprehensive
      Loss
                
                3Unaudited
      Condensed Consolidated Statements of Cash Flows
                
                4Unaudited
      Condensed Consolidated Statement of Changes in Stockholders’
      Equity
                
                5Notes
      to Unaudited Condensed Consolidated Financial Statements
                
                6




1





Thorium
Power Ltd.


Condensed
Consolidated Balance Sheets





March 31,
                            
                            
                            December 31,2009
                            
                            
                            2008(Unaudited)ASSETSCurrent
      AssetsCash
      and cash equivalents
                            
                            $
                            4,375,361
                            
                            
                            $
                            5,580,244Restricted
      cash
                            
                            
                            650,000
                            
                            
                            
                            650,000Accounts
      receivable - project revenue and reimbursable project
costs
                            
                            
                            4,319,212
                            
                            
                            
                            5,357,804Prepaid
      expenses & other current assets
                            
                            
                            797,097
                            
                            
                            
                            394,315Total
      Current Assets
                            
                            
                            10,141,670
                            
                            
                            
                            11,982,363Property
      Plant and Equipment -net
                            
                            
                            102,117
                            
                            
                            
                            108,121Other
      AssetsPatent
      costs - net
                            
                            
                            234,277
                            
                            
                            
                            217,875Security
      deposits
                            
                            
                            122,825
                            
                            
                            
                            138,418Total
      Other Assets
                            
                            
                            357,102
                            
                            
                            
                            356,293Total
      Assets
                            
                            $
                            10,600,889
                            
                            
                            $
                            12,446,777LIABILITIES
      AND STOCKHOLDERS EQUITYCurrent
      LiabilitiesAccounts
      payable and accrued liabilities
                            
                            $
                            3,542,581
                            
                            
                            $
                            5,138,979Total
      Liabilities
                            
                            
                            3,542,581
                            
                            
                            
                            5,138,979Commitments
      and contingencies (note 10)Stockholders'
      EquityPreferred
      stock, $0.001 par value, 50,000,000 authorized shares, no shares issued
      and outstanding
                            
                            
                            -
                            
                            
                            
                            -Common
      stock, $0.001par value, 500,000,000 authorized, 301,841,722 shares issued
      and outstanding at  March 31, 2009 and 301,493,084 issued and
      outstanding at December 31, 2008
                            
                            
                            301,842
                            
                            
                            
                            301,493Additional
      paid in capital - stock and stock equivalents
                            
                            
                            49,902,488
                            
                            
                            
                            48,607,451Deficit
                            
                            
                            (43,012,435
                            )
                            
                            
                            (41,489,974
                            )Common
      stock reserved for issuance, 152,174 shares and 484,055 shares at March
      31, 2009 and December 31, 2008, respectively
                            
                            
                            35,000
                            
                            
                            
                            114,787Deferred
      stock compensation
                            
                            
                            (168,587
                            )
                            
                            
                            (225,959
                            )Total
      Stockholders' Equity
                            
                            
                            7,058,308
                            
                            
                            
                            7,307,798Total
      Liabilities and Stockholders' Equity
                            
                            $
                            10,600,889
                            
                            
                            $
                            12,446,777





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


2


Thorium
Power Ltd.


Condensed
Consolidated Statements of Operations and Comprehensive Loss





(Unaudited)





Three Months EndedMarch
      31,2009
                
                
                2008Revenue:Consulting
      Revenue
                
                $
                2,944,053
                
                
                $
                3,815,125Cost
      of  Consulting Services Provided
                
                
                1,748,518
                
                
                
                1,648,004Gross
      Margin
                
                
                1,195,535
                
                
                
                2,167,121Operating
      ExpensesGeneral
      and administrative
                
                
                1,037,495
                
                
                
                1,260,186Research
      and development expenses
                
                
                453,805
                
                
                
                389,521Stock-based
      compensation
                
                
                1,225,186
                
                
                
                1,363,803Total
      Operating Expenses
                
                
                2,716,486
                
                
                
                3,013,510Operating
      Loss
                
                
                (1,520,951
                )
                
                
                (846,389
                )Other
      Income and (Expenses)Interest
      income
                
                
                3,028
                
                
                
                89,282Other
      income and expenses
                
                
                (4,538
                )
                
                
                0Total
      Other Income and Expenses
                
                
                (1,510
                )
                
                
                89,282Net
      Loss before Income Taxes
                
                
                (1,522,461
                )
                
                
                (757,107
                )Income
      taxes
                
                
                0
                
                
                
                30,828Net  Loss
                
                
                (1,522,461
                )
                
                
                (787,935
                )Other
      Comprehensive Income (Loss)Unrealized
      loss on marketable securities
                
                
                0
                
                
                
                (131,723
                )Total
      Comprehensive Loss
                
                $
                (1,522,461
                )
                
                $
                (919,658
                )Net
      Loss Per Common Share, Basic and diluted
                
                $
                (0.01
                )
                
                $
                (0.00
                )Weighted
      Average Number of Shares Outstanding For The Period Used To Compute Per
      Share Data
                
                
                301,667,403
                
                
                
                299,064,014





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


3


Thorium
Power Ltd.


Condensed
Consolidated Statements of Cash Flows





(Unaudited)





Three months endedMarch
      31,2009
                      
                      
                      2008Operating
      Activities:Net
      Loss
                      
                      $
                      (1,522,461
                      )
                      
                      $
                      (787,935
                      )Adjustments
      to reconcile net loss from operations to net cash used in operating
      activities:Stock
      based compensation
                      
                      
                      1,272,971
                      
                      
                      
                      1,363,803Depreciation
      and amortization
                      
                      
                      6,004
                      
                      
                      
                      3,011Loss
      on marketable securities - available for sale
                      
                      
                      0
                      
                      
                      
                      (131,723
                      )Changes
      in non-cash operating working capital items:Accounts
      receivable - fees and reimbursable project costs
                      
                      
                      1,038,592
                      
                      
                      
                      0Prepaid
      expenses and other current assets
                      
                      
                      (387,189
                      )
                      
                      
                      (28,123
                      )Accounts
      payable, accrued liabilities and other current liabilities
                      
                      
                      (1,596,398
                      )
                      
                      
                      (190,541
                      )Deferred
      revenue
                      
                      
                      0
                      
                      
                      
                      (3,793,125
                      )Deferred
      project costs - net
                      
                      
                      0
                      
                      
                      
                      319,902Net
      Cash Used In Operating Activities
                      
                      
                      (1,188,481
                      )
                      
                      
                      (3,244,731
                      )Investing
      Activities:Patent
      costs
                      
                      
                      (16,402
                      )
                      
                      
                      0Net
      Cash Used In Investing Activities
                      
                      
                      (16,402
                      )
                      
                      
                      0Financing
      Activities:Proceeds
      from issue of common shares
                      
                      
                      0
                      
                      
                      
                      49,975Payments
      on notes payable and other
                      
                      
                      0
                      
                      
                      
                      (10,433
                      )Net
      Cash Used In Financing Activities
                      
                      
                      0
                      
                      
                      
                      39,542Net
      Decrease In Cash and Cash Equivalents
                      
                      
                      (1,204,883
                      )
                      
                      
                      (3,205,189
                      )Cash
      and Cash Equivalents, Beginning of Period
                      
                      
                      5,580,244
                      
                      
                      
                      7,910,766Cash
      and Cash Equivalents, End of Period
                      
                      $
                      4,375,361
                      
                      
                      $
                      4,705,577Supplemental
      Disclosure of Cash Flow InformationCash
      paid during the year:Interest
      paid
                      
                      $
                      0
                      
                      
                      $
                      183Income
      taxes paid
                      
                      $
                      266,000
                      
                      
                      $
                      30,828





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


4





Thorium
Power Ltd.


Condensed
Consolidated Statements of Changes in Stockholders’ Equity


For
the Three Months Ended March 31, 2009 (Unaudited) and Year Ended December 31,
2008





Common Stock
                    
                    
                    Additional
                    
                    
                    
                    
                    
                    Stock
                      Committed
                    
                    
                    Accumulated
                    
                    
                    Deferred
                    
                    
                    Treasury Stock
                    
                    
                    Stockholders’Shares
                    
                    
                    Amount
                    
                    
                    Paid-in Capital
                    
                    
                    Deficit
                    
                    
                    Future
                      Issuance
                    
                    
                    Comprehensive
                      Income
                    
                    
                    Stock
                      Compensation
                    
                    
                    Shares
                    
                    
                    Amount
                    
                    
                    EquityBalance
      - December 31, 2007
                    
                    
                    299,014,182
                    
                    
                    $
                    299,014
                    
                    
                    $
                    41,791,735
                    
                    
                    $
                    (38,630,572
                    )
                    
                    $
                    590,000
                    
                    
                    $
                    30,143
                    
                    
                    $
                    (479,445
                    )
                    
                    
                    0
                    
                    
                    $
                    0
                    
                    
                    $
                    3,600,875Unrealized
      loss on marketable securities
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (30,143
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (30,143
                    )Exercise
      of stock options
                    
                    
                    320,350
                    
                    
                    
                    320
                    
                    
                    
                    49,655
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    49,975Stock
      option expense
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    6,138,220
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    6,138,220Stock
      based compensation
                    
                    
                    158,552
                    
                    
                    
                    159
                    
                    
                    
                    39,841
                    
                    
                    
                    
                    
                    
                    
                    114,787
                    
                    
                    
                    
                    
                    
                    
                    (114,787
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    40,000Amortization
      of deferred stock compensation costs
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    368,273
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    368,273Shares
      issued
                    
                    
                    2,000,000
                    
                    
                    
                    2,000
                    
                    
                    
                    588,000
                    
                    
                    
                    
                    
                    
                    
                    (590,000
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    0Net
      loss for the year
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (2,859,402
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (2,859,402
                    )Balance
      - December 31, 2008
                    
                    
                    301,493,084
                    
                    
                    $
                    301,493
                    
                    
                    $
                    48,607,451
                    
                    
                    $
                    (41,489,974
                    )
                    
                    $
                    114,787
                    
                    
                    $
                    0
                    
                    
                    $
                    (225,959
                    )
                    
                    
                    0
                    
                    
                    $
                    0
                    
                    
                    $
                    7,307,798Stock
      based compensation
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    1,210,391
                    
                    
                    
                    
                    
                    
                    
                    35,000
                    
                    
                    
                    
                    
                    
                    
                    (35,000
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    1,210,391Amortization
      of deferred stock compensation costs
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    62,580
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    62,580Net
      loss for the period
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (1,522,461
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (1,522,461
                    )Shares
      issued
                    
                    
                    348,638
                    
                    
                    
                    349
                    
                    
                    
                    84,646
                    
                    
                    
                    
                    
                    
                    
                    (114,787
                    )
                    
                    
                    
                    
                    
                    
                    29,792
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    0Balance
      - March 31, 2009
                    
                    
                    301,841,722
                    
                    
                    $
                    301,842
                    
                    
                    $
                    49,902,488
                    
                    
                    $
                    (43,012,435
                    )
                    
                    $
                    35,000
                    
                    
                    $
                    0
                    
                    
                    $
                    (168,587
                    )
                    
                    
                    0
                    
                    
                    $
                    0
                    
                    
                    $
                    7,058,308





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


5


Thorium
Power Ltd.


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Three Month Periods Ended March 31, 2009 and 2008





1.
NATURE OF OPERATIONS AND BASIS OF PRESENTATION





Basis
of presentation





The
accompanying unaudited condensed consolidated financial statements of the
Company and its subsidiaries have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission including the instructions
to Form 10-Q and Regulation S-X. Certain information and note disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles in the United States of America have been
condensed or omitted from these statements pursuant to such rules and regulation
and, accordingly, they do not include all the information and notes necessary
for comprehensive consolidated financial statements and should be read in
conjunction with our audited consolidated financial statements for the year
ended December 31, 2008, included in our Annual Report on Form 10-K for the year
ended December 31, 2008. Certain prior period amounts have been reclassified to
conform to the current period presentation.





In the
opinion of the management of the Company, all adjustments, which are of a normal
recurring nature, necessary for a fair statement of the results for the
three-month period have been made. Results for the interim periods presented are
not necessarily indicative of the results that might be expected for the entire
fiscal year.  When used in these notes, the terms "Company," "we," "us" or
"our" means Thorium Power Ltd. and all entities included in our consolidated
financial statements.





Nature
of operations





Radkowsky
Thorium Power Corp., incorporated in the state of Delaware on January 8, 1992
(“Inception”), changed its name to Thorium Power, Inc. in Apri1 2001. On
February 14, 2006, Novastar Resources Ltd. (“Novastar”), now called Thorium
Power Ltd., entered into an Agreement and merged on October 6, 2006 with Thorium
Power, Inc. We are engaged in two business segments.





The first
business segment is the development, promotion and marketing of its patented
nuclear fuel designs: (1) thorium/uranium nuclear fuel and (2)
thorium/reactor-grade plutonium disposing fuel. The Company also has a
conceptual design of a thorium/plutonium disposing fuel. These fuels are
designed to be used in existing light water reactors. Presently, we are focusing
most of our efforts on demonstrating and testing our nuclear fuel technology for
the Russian designed VVER-1000 reactors. Operations to date in this business
segment have been devoted primarily to continued development of our fuel
designs, filing for certain patents related to our technology, developing
strategic relationships within the nuclear power industry, and securing
political as well as some financial support from the United States and Russian
governments.





Once our
reactor fuels are further developed and tested, we plan to license our
intellectual property rights to fuel fabricators, nuclear generators, and
governments for use in commercial light water nuclear reactors, or sell the
technology to a major nuclear company or government contractor, or some
combination of the two. We anticipate having the final design of our fuel
technology for VVER-1000 reactors and demonstration of our fuel in a VVER-1000
operating reactor to commence in the next three to five years. Presently all our
research, testing and demonstration activities are being conducted in Russia.
Our research operations are subject to various political, economic, and other
risks and uncertainties inherent in Russia.





Our
business model expanded in 2007 and our second business segment is providing
consulting and strategic advisory services to companies and governments planning
to create or expand electricity generation capabilities using nuclear power
plants. We have to date secured four contracts with successively larger values
for consulting and strategic advisory services in the United Arab Emirates
(“UAE”). On August 1, 2008, we signed separate consulting services agreements
with two government entities to be formed by Abu Dhabi. Under these two new
agreements, we are to provide consulting and strategic advisory services over a
contract term of five years starting from June 23, 2008, with automatic renewals
of these contracts for one year periods. We entered into a next phase follow-on
agreement in March 2009 to continue our consulting services under the ENEC
agreement for 2009.


6


Thorium
Power Ltd.


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Three Month Periods Ended March 31, 2009 and 2008





Accounting
Policies





a)
Consolidation





These
financial statements include the accounts of Thorium Ltd. (a Nevada corporation)
and our wholly-owned subsidiaries, Thorium Power, Inc. (a Delaware corporation)
and Lightbridge Power International Holding, LLC (a Delaware limited liability
company).





All
significant intercompany transactions and balances have been eliminated in
consolidation. We have formed a branch office in England in 2008 called
Lightbridge Advisors Limited, which is wholly-owned by our subsidiary
Lightbridge Power International Holding, LLC and we anticipate forming several
more foreign branch offices in other countries during 2009. All branch offices
will be consolidated in our consolidated financial statements.





b)
Use of Estimates and Assumptions





The
preparation of financial statements, in conformity with accounting principles
generally accepted in the United States of America, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.





Significant
Estimates





These
consolidated financial statements include some amounts that are based on
management's best estimates and judgments. The most significant estimates relate
to valuation of stock grants and stock options, the net operating loss
carry-forward, the valuation allowance for deferred taxes and various contingent
liabilities. It is reasonably possible that these above-mentioned estimates and
others may be adjusted as more current information becomes available, and any
adjustment could be significant in future reporting periods.





c)
Revenue Recognition





Consulting
Business Segment





Revenue—at
the present time we are deriving all of our revenue from our consulting and
strategic


advisory
services business segment, by offering services to foreign governments planning
to create or expand electricity generation capabilities using nuclear power
plants. Our fee structure for each client engagement is dependent on a number of
variables, including the size of the client, the complexity, the level of the
opportunity for us to improve the client’s electrical generation capabilities
using nuclear power plants, and other factors. The accounting policy we use to
recognize revenue depends on the terms of the specific contract. All of our
consulting contracts mentioned below are with the Executive Affairs Authority
(“EAA”) of Abu Dhabi, one of the member Emirates of the UAE, and the related
entities to be formed: Emirates Nuclear Energy Corporation (“ENEC”) and Federal
Authority for Nuclear Regulation (“FANR”). All of the Company's revenues
recognized for the first quarter of 2009 were recognized on a time and material
basis. All of the Company's revenues recognized for the first quarter of 2008
were recognized under the completed performance model of revenue recognition for
our first consulting project with EAA (Road Map).


7


Thorium
Power Ltd.


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Three Month Periods Ended March 31, 2009 and 2008





Technology
Business Segment





Once the
company's thorium-based nuclear fuel designs have advanced to a commercially
usable stage, the company will seek to license our technology to major
government contractors or nuclear companies, working for the US and other
governments. We expect that our revenue from license fees will be recognized on
a straight-line basis over the expected period of the related license
term.





d)
Stock-Based Compensation


We
account for stock-based awards under SFAS No. 123(R), which requires
measurement of compensation cost for all stock-based awards at fair value on
date of grant and recognition of compensation over the service period for awards
expected to vest. The fair value of restricted stock and restricted stock units
is determined based on the number of shares granted and the quoted price of our
common stock. Such value is recognized as expense over the service period, net
of estimated forfeitures.





e)
Earnings per Share


Basic
earnings per share are calculated using our weighted-average outstanding common
shares. Diluted earnings per share is calculated using our weighted-average
outstanding common shares including the dilutive effect of stock awards as
determined under the treasury stock method.





f)
Recent Accounting Pronouncements





In
September 2006, the FASB issued SFAS No. 157, which defines fair
value, establishes a framework for measuring fair value in accordance with
generally accepted accounting principles and expands disclosures about fair
value measurements. SFAS No. 157 was effective for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years. In
February 2008, FSP No. 157-2 delayed the effective date of SFAS
No. 157 one year for all nonfinancial assets and nonfinancial liabilities,
except those recognized or disclosed at fair value in the financial statements
on a recurring basis. Those assets and liabilities measured at fair value under
SFAS No. 157 in Q1 2008 did not have a material impact on our consolidated
financial statements. The adoption of FSP 157-2 for nonfinancial assets and
liabilities in Q1 2009 did not have any impact on our consolidated financial
statements.





In April
2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of
Intangible Assets. FSP No. 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS No. 142, Goodwill
and Other Intangible Assets. We adopted FSP No. 142-3 as of January 1,
2009. Adoption did not have any material impact on our consolidated financial
statements.





g)Contingent
Liabilities





Liabilities
for accrued expenses and loss contingencies arising from various claims,
assessments, litigation, fines and penalties and other sources are recorded when
it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated. When facts and circumstances show that in
a particular reporting period it is no longer probable that a contingent
liability previously reported will not be paid, those accrued liabilities are
adjusted in that period or are no longer recorded on the balance
sheet.


8


Thorium
Power Ltd.


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Three Month Periods Ended March 31, 2009 and 2008





2.
FINANCIAL STATUS OF THE COMPANY





The
company is currently executing its strategic plan for 2009 and is working on
determining its future cash needs. Management anticipates, based on its current
working capital and projected working capital requirements, that it will have
enough working capital funds to sustain its current operations at its current
operating level until sometime in 2010. In support of the Company’s longer-term
business plan, the Company will need to raise additional capital by way of an
offering of equity securities, an offering of debt securities, or by obtaining
financing through a bank or other entity to finance its research and development
expenditures. The Company may also need to raise additional capital sooner to
support its overhead operation if the consulting and strategic advisory services
business becomes non-sustaining. Currently, the Company is restructuring its
operations and working on revenue opportunities with the overall goal of
increasing the company’s profitability and cash flow. The Company expects to
meet all of its financial commitments and operating needs for 2009.





3.  CONSULTING
REVENUES





ENEC
and FANR Projects





Substantially
all of the Company’s revenue earned in the amount of approximately $2.9 million
for the first quarter of 2009, has been derived from the two consulting
contracts we entered into in August 2008, for consulting services to be rendered
for future periods. We entered into a next phase follow-on agreement in March
2009 to continue our consulting services under the ENEC agreement for 2009. We
will continue to provide strategic advisory services to the EAA of Abu Dhabi and
to both the ENEC and FANR entities during the five year term of these consulting
agreements. Under these agreements, revenue will be recognized on a time and
material basis. We periodically discuss our consulting work with the EAA of Abu
Dhabi, who will review the work we perform, and our reimbursable travel
expenses, prior to the date of our monthly invoicing for services and
expenses.





Travel
costs and other reimbursable costs under these contracts are reported in the
accompanying statements of operations as both revenue and cost of consulting
services provided and totaled $334,577 for the three months ended March 31,
2009. The total accounts receivable as of March 31, 2009 was $4,319,212.
Included in this total are travel and other reimbursable expenses charged in the
amount of $1,409,701 at March 31, 2009. The remaining amount of accounts
receivable of $2,909,511 represents consulting fees due for the work performed
for both the ENEC and FANR projects, mentioned above, ($1,069,366 of which was
unbilled fees at March 31, 2009).





Road
Map Project





All of
the Company's revenues recognized for the first quarter of 2008 were recognized
under the completed performance model of revenue recognition for our first
consulting project with EAA (Road Map). The consulting fee under this contract
could have been refundable to our client, under the provisions of this contract,
if we would have breached the contract, such as not deliver the final report to
the foreign government. We received our fee for this contract in December 2007,
in advance of our billing in March 2008. The total consulting revenue recognized
under this contract during the three months ended March 31, 2008, was $3.8
million.





4.
BUSINESS SEGMENTS





The
Company has two principal operating segments, which are (1) technology and (2)
consulting. These operating segments were determined based on the nature of the
operations and the services offered. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision-maker, in
deciding how to allocate resources and in assessing performance. The Company’s
chief executive officer, chief operating officer and chief financial officer
have been identified as the chief operating decision makers. The Company’s chief
operating decision makers direct the allocation of resources to operating
segments based on the profitability, the cash flows, and the business plans of
each respective segment.


9


Thorium
Power Ltd.


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Three Month Periods Ended March 31, 2009 and 2008





The
Company evaluates performance based on several factors, of which the primary
financial measure is business segment income before taxes. The following tables
show the operations of the Company’s reportable segments for the three months
ended March 31, 2009 and 2008.





March 31,
                              2009
                            
                            Consulting
                            
                            
                            Technology
                            
                            
                            Corporate
                              and
                              Eliminations
                            
                            
                            TotalRevenue
                            
                            $
                            2,944,053
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            2,944,053Segment
      Profit (Loss)- Before Tax
                            
                            $
                            1,195,535
                            
                            
                            $
                            (453,805
                            )
                            
                            $
                            (2,264,191
                            )
                            
                            $
                            (1,522,461
                            )Total
      Assets
                            
                            $
                            4,319,212
                            
                            
                            $
                            234,277
                            
                            
                            $
                            6,047,400
                            
                            
                            $
                            10,600,889Property
      Additions
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            -Interest
      Expense
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            -Depreciation
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            6,004
                            
                            
                            $
                            6,004March
      31,
                              2008
                            
                            Consulting
                            
                            
                            Technology
                            
                            
                            Corporate
                              and
                              Eliminations
                            
                            
                            TotalRevenue
                            
                            $
                            3,815,125
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            3,815,125Segment
      Profit (Loss)- Before Tax
                            
                            $
                            2,167,121
                            
                            
                            $
                            (389,521
                            )
                            
                            $
                            (2,534,707
                            )
                            
                            $
                            (757,107
                            )Total
      Assets
                            
                            $
                            51,729
                            
                            
                            $
                            217,875
                            
                            
                            $
                            6,964,374
                            
                            
                            $
                            7,233,978Property
      Additions
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            -Interest
      Expense
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            183
                            
                            
                            $
                            183Depreciation
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            $
                            
                            3,010
                            
                            
                            $
                            3,010


10





Thorium
Power Ltd.


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Three Month Periods Ended March 31, 2009 and 2008





5.
RESEARCH AND DEVELOPMENT COSTS





Research
and development costs, included in the statement of operations amounted to
$453,805 and $389,521 for the three months ended March 31, 2009 and 2008,
respectively. Total cumulative expense has amounted to $6,702,711 from January
8, 1992 (date of inception of Thorium Power, Inc.) to March 31, 2009. In 2008,
research and development costs were presented separately in the statement of
operations in the amount of $130,661 which did not include certain general and
administrative and stock based expenses totaling $258,860, and which are
appropriately identified as research and development costs in the segment
reports and reclassified in the statement of operations for the three months
ended March 31, 2008.




6.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES




Accounts
      payable and accrued liabilities consisted of the following
                  
                  2009
                  
                  
                  2008Trade
      Payables
                  
                  $
                  441,193
                  
                  
                  $
                  2,474,564Accrued
      Expenses
                  
                  
                  1,423,245
                  
                  
                  
                  801,082Accrued
      Payroll
                  
                  
                  1,678,143
                  
                  
                  
                  1,863,333$
                  3,542,581
                  
                  
                  $
                  5,138,979





7.  STOCKHOLDERS'
EQUITY





Total
common stock outstanding at March 31, 2009 was 301,841,722. At March 31, 2009,
there were 152,174 shares reserved for future issuance and 54,125,893 stock
options outstanding, all totaling 356,119,789 of total stock and stock
equivalents outstanding at March 31, 2009.





a)
Share-based Compensation





The
Company has in place a stock-based compensation plan to reward for services
rendered by officers, directors, employees and consultants. On July 17, 2006,
the Company amended this stock plan. The Company has reserved 75,000,000 shares
of common stock of its unissued share capital for the stock plan. Other
limitations are as follows:





(i)
            No
      more than an aggregate of 37,500,000 shares can be granted for the
      purchase of restricted common shares during the term of the stock
      plan;





(ii)
            The
      maximum number of shares of common stock with respect to which options may
      be granted to any one person during any fiscal year of the Company may not
      exceed 8,000,000 shares; and





(iii)
            The
      maximum number of restricted shares that may be granted to any one person
      during any fiscal year of the company may not exceed 5,000,000 common
      shares.





Total
stock options outstanding at March 31, 2009 were 54,125,893 of which 37,081,247
of these options were vested at March 31, 2009.


11


Thorium
Power Ltd.


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Three Month Periods Ended March 31, 2009 and 2008





Stock
option transactions to the employees, directors, advisory board members and
consultants are summarized as follows for the three months ended March 31,
2009:





Stock Options
                              Outstanding
                            
                            2009Beginning
      of the Year
                            
                            
                            52,084,522Granted
                            
                            
                            5,500,000Exercised
                            
                            
                            —Forfeited
                            
                            
                            (1,972,217
                            )Expired
                            
                            
                            (1,486,412
                            )End
      of Period
                            
                            
                            54,125,893Options
      exercisable
                            
                            
                            37,081,247




The
following table provides certain information with respect to the
above-referenced stock options that are outstanding and exercisable at March 31,
2009:





Stock Options Outstanding
                  
                  
                  Stock Options VestedExercise
      Prices
                  
                  Weighted
                  
                  
                  Number
                    of
                  
                  
                  Number
                    of
                  
                  
                  WeightedAverage
                  
                  
                  Awards
                  
                  
                  Awards
                  
                  
                  AverageRemaining
                  
                  
                  
                  
                  
                  
                  
                  
                  Exercise
                    PriceContractual
                    Life-
      Years$0.16
      - $0.29
                  
                  
                  5.082
                  
                  
                  
                  23,314,779
                  
                  
                  
                  14,814,808
                  
                  
                  $
                  0.18$0.30
      - $0.44
                  
                  
                  6.915
                  
                  
                  
                  5,695,346
                  
                  
                  
                  3,104,300
                  
                  
                  $
                  0.35$0.445-$0.63
                  
                  
                  5.471
                  
                  
                  
                  15,915,768
                  
                  
                  
                  11,612,139
                  
                  
                  $
                  0.47$0.64-$0.80
                  
                  
                  6.402
                  
                  
                  
                  9,200,000
                  
                  
                  
                  7,550,000
                  
                  
                  $
                  0.76Total
                  
                  
                  5.614
                  
                  
                  
                  54,125,893
                  
                  
                  
                  37,081,247
                  
                  
                  $
                  0.39




The
aggregate intrinsic value of stock options outstanding at March 31, 2009 was
$1,167,582 of which $752,708 related to vested awards. Intrinsic value is
calculated based on the difference between the exercise price of the underlying
awards and the quoted price of our common stock as of the reporting date ($0.225
per share as of March 31, 2009)


12




Thorium
Power Ltd.


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Three Month Periods Ended March 31, 2009 and 2008





Assumptions
used in the Black Scholes option-pricing model for the three months ended March
31, 2009 and 2008 were as follows:





Three months ended3/31/2009
                  
                  
                  3/31/2008Average
      risk-free interest rate
                  
                  
                  2.56
                  %
                  
                  
                  2.59
                  %Average
      expected life
                  
                  10
      years
                  
                  
                  10
      yearsExpected
      volatility
                  
                  
                  97.62
                  %
                  
                  
                  114.51
                  %Expected
      dividends
                  
                  
                  0
                  %
                  
                  
                  0
                  %





During
the three months ended March 31, 2009 and 2008, $1,272,971 and $1,363,803
respectively, was recorded as stock-based compensation expense in the statement
of operations (this total amount of stock based compensation for the three
months ended March 31, 2009, included stock based compensation in the amount of
$12,785 to employees and others providing revenue generating services, that was
presented in the financial statements as cost of consulting services, $1,225,186
to employees shown as general and administrative expenses and $35,000 to the
Board of Directors and strategic advisory council).





Stock
compensation to two executive officers totaled $590,000, as a one-time stock
grant pursuant to employment agreements that they entered into in 2007, was
recorded to deferred stock compensation (total 2 million shares were issued in
September 2007). The vesting of 1 million of these shares was accelerated upon
the termination of one of these executive officers in November 2008. The Company
also issued additional shares of common stock of 127,626, which was granted in
May 2008 to 3 employees that resulted in $36,373 of deferred stock compensation,
and 356,429 shares granted to 8 employees in August 2008, that resulted in
$78,414 of deferred stock compensation (of which $29,792 was forfeited in
January 2009). The amortization of deferred stock compensation, recorded as
stock based compensation for the three months ended March 31, 2009 and 2008 was
$27,580 and $49,167, respectively. The remaining stock-based compensation was
issued to two directors and four Strategic Advisory Council (“SAC”) members
, as mentioned above, which resulted in recording $10,000 of director fees and
$25,000 in SAC fees respectively in the three months ended March 2009, and
$10,000 in directors fees for the three months ended March 2008.





b)
Warrants





There no
warrants outstanding as of March 31, 2009.





c)
Common Stock reserved for Future Issuance





Common
stock reserved for future issuance consists of





Shares of
                            
                            
                            StockCommon
                            
                            
                            PurchaseStock
                            
                            
                            Warrants
                            
                            AmountStock-based
      Compensation
                            
                            
                            152,174
                            
                            
                            
                            0
                            
                            
                            $
                            35,000




13




Thorium
Power Ltd.


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Three Month Periods Ended March 31, 2009 and 2008





8. INCOME
TAXES





Our tax
provision for interim periods is determined using an estimate of our annual
effective tax rate adjusted for discrete items, if any, that are taken into
account in the relevant period. Each quarter we update our estimate of the
annual effective tax rate, and if our estimated tax rate changes we make a
cumulative adjustment. The 2009 and 2008 annual effective tax rate is estimated
to be at the 35% U.S. federal statutory rate.





As of
March 31, 2009 and December 31, 2008, there were no tax contingencies
recorded.





Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities recognized for financial reporting
and the amounts recognized for income tax purposes. The significant components
of deferred tax assets (at a 40% effective tax rate) as of March 31, 2009 and
December 31, 2008 respectively, are as follows:





Deferred
      Tax Assets
                      
                      Total Amount
                      
                      
                      Deferred Tax
      Asset Amount2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008Capitalized
      start up costs
                      
                      $
                      7,125,807
                      
                      
                      $
                      7,125,807
                      
                      
                      $
                      2,850,323
                      
                      
                      $
                      2,850,323Stock-based
      compensation
                      
                      
                      14,048,186
                      
                      
                      
                      12,775,215
                      
                      
                      
                      5,619,274
                      
                      
                      
                      5,110,086Approximate
      net operating loss  carryforward
                      
                      
                      10,000,000
                      
                      
                      
                      10,000,000
                      
                      
                      
                      4,000,000
                      
                      
                      
                      4,000,000Less:
      valuation allowance
                      
                      
                      (31,173,993
                      )
                      
                      
                      (29,901,022
                      )
                      
                      
                      (12,469,597
                      )
                      
                      
                      (11,960,409
                      )$
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -





The
Company has a net operating loss carry forward for federal and state tax
purposes with substantially all of the net operating losses presently expected
to expire unused or not be available to offset future taxable income. As a
result, the amount of the deferred tax assets considered realizable was reduced
100% by a valuation allowance. In 2009, the company will compute the actual
Internal Revenue Code Section 382 limitation which will change the reported net
operating loss carry forward estimated at $10,000,000 above, and the valuation
allowance shown above. The net operating loss carryforward does include
approximately $1.4 million that represents operating loss carryforwards
generated subsequent to October 6, 2006, and are therefore not subject to any
Section 382 limitation. The Company has no other deferred tax assets or
liabilities. The change in the valuation allowance was $509,188 for the three
months ended March 31, 2009.





The
company will file a consolidated tax return with its subsidiaries.





The
company had paid in 2009 income taxes in the amount of $266,000 in estimates for
its 2008 corporate taxes, but it expects to receive substantially all or
most, not both of this amount back from the Internal Revenue Service when the
corporate tax returns are filed. Many of the company’s operating expenses in its
2007 and 2006 tax years were classified under the internal revenue code as
capitalized start-up costs which were not deductible for tax purposes, and the
company had interest income that was taxable for tax purposes. The Company filed
a refund claim to the IRS in 2008 for these federal taxes paid and received its
refund in 2008. The remaining income tax expense for the three months ended
March 31, 2008 represents the income taxes paid that were not
refunded.


14




Thorium
Power Ltd.


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Three Month Periods Ended March 31, 2009 and 2008





9.  RESEARCH
AGREEMENT





On
September 15, 2008, Thorium Power, Inc. (“TPI”), a wholly-owned subsidiary of
the Company, entered into an agreement for post-irradiation examination of
experimental fuel element (the “Agreement”) with the Russian Research Centre
“Kurchatov Institute” (“Kurchatov”). Under the Agreement, Kurchatov agreed to
perform post-irradiation examination of an irradiated uranium-zirconium seed
fuel sample using non-destructive and destructive methods. Pursuant to the
Agreement, TPI is obligated to pay to Kurchatov a total of approximately
$138,000, and Kurchatov is obligated to transfer to TPI the worldwide rights in
all of the post-irradiation examination data generated in the course of
performance by Kurchatov of work under the Agreement. Kurchatov agrees not to
use, in any manner, the work product associated with such post-irradiation
examination work or exercise any rights associated therewith without the written
consent of TPI. Further, Kurchatov is obligated to provide to TPI and its
affiliates specified information and documentation for audit purposes, and to
obtain any and all permits from Russian governmental entities which may be
required in order for Kurchatov to perform under the Agreement. In addition to
this agreement, there are consulting agreements with several consultants working
on various projects for the company, which total approximately $20,000 per
month.





10.  COMMITMENTS
AND CONTINGENCIES





The
Company has employment agreements with its executive officers and some
consultants, the terms of which expire at various times. Such agreements provide
for minimum compensation levels, as well as incentive bonuses that are payable
if specified management goals are attained. Under each of the agreements, in the
event the officer's employment is terminated (other than voluntarily by the
officer or by the Company for cause, or upon the death of the officer), the
Company, if all provisions of the employment agreements are met, is committed to
pay certain benefits, including specified monthly severance.





The
Company moved from its prior office facility and has entered into an agreement
to lease new office space, under the terms of a sublease with a term of 65
months commencing August 1, 2008. Under the terms of the sublease, the lease
payments are inclusive of pass-through costs, which include real estate taxes
and standard operating expenses. As of December 31, 2008, the Company has paid
the security deposit related to this sublease agreement in the amount of
$120,486. The Company pays monthly rental fees in the amount of $40,162 in the
first year of the sublease agreement, and payments increase by a factor of 4%
each year thereafter. The Company may terminate this agreement by providing 60
days notice to the Sublessor. The monthly straight-line rental expense from
August 1, 2008 to December 1, 2013 is $45,189.  As a result of the
straight-line rent calculation generated by the one free rent period and rent
escalation, the Company has a deferred rent credit at March 31, 2009 of
$66,127.





Future
estimated rental payments under our operating leases are as
follows:





TotalYear
      Ending - December 31, 2009
                  
                  $
                  561,640Year
      Ending - December 31, 2010
                  
                  
                  563,467Year
      Ending - December 31, 2011
                  
                  
                  564,109Year
      Ending - December 31, 2012
                  
                  
                  586,136Year
      Ending - December 31, 2013
                  
                  
                  609,016Total
      Minimum lease payments
                  
                  $
                  2,807,368


15


FORWARD-LOOKING
STATEMENTS





This
Quarterly Report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). The words “believe,” “expect,” “anticipate,”
“project,” “target,” “optimistic,” “intend,” “aim,” “will” or similar
expressions are intended to identify forward-looking statements. Such statements
include, among others, those concerning our expected financial performance and
strategic and operational plans, as well as all assumptions, expectations,
predictions, intentions or beliefs about future events. These statements are
based on the beliefs of our management as well as assumptions made by and
information currently available to us and reflect our current view concerning
future events. As such, they are subject to risks and uncertainties that could
cause our results to differ materially from those expressed or implied by such
forward-looking statements. Such risks and uncertainties include, among many
others: our significant operating losses; our limited operating history;
uncertainty of capital resources; the speculative nature of our business; our
ability to successfully implement new strategies; present and possible future
governmental regulations; operating hazards; competition; the loss of key
personnel; any of the factors in the “Risk Factors” section of the Company’s
Annual Report on Form 10-K; other risks identified in this Report; and any
statements of assumptions underlying any of the foregoing. You should also
carefully review other reports that we file with the SEC. The Company assumes no
obligation and does not intend to update these forward-looking statements,
except as required by law.





All
statements other than statements of historical fact are statements that could be
deemed forward-looking statements. The Company assumes no obligation and does
not intend to update these forward-looking statements, except as required by
law. When used in this report, the terms “Thorium Power”, “Company”, “we”,
“our”, and “us” refer to Thorium Power, Ltd. and its wholly-owned subsidiaries
Thorium Power, Inc. (a Delaware corporation) and Lightbridge Power International
Holding, LLC (a Delaware limited liability company).





ITEM
2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OR 
PLAN OF OPERATION.





The
following discussion should be read in conjunction with our financial
statements, together with the notes to those statements, included elsewhere in
this report. The following discussion contains forward-looking statements that
involve risks, uncertainties, and assumptions such as statements of our plans,
objectives, expectations, and intentions. Our actual results may differ
materially from those discussed in these forward-looking statements because of
the risks and uncertainties inherent in future events. For additional
information, see Item 7 of Part II, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations—Overview” of our 2008 Annual
Report on Form 10-K.





General
Overview





We are a
provider of nuclear energy consulting and strategic advisory services and a
developer of proprietary nuclear fuel designs, each of which will be described
in the following sections.





Consulting
and Strategic Advisory Services Business Segment





Substantially
all of our revenues are derived from our business segment which provides nuclear
consulting services to entities within the UAE, as described above. Revenue from
the Roadmap contract was recognized during our first fiscal quarter of 2008,
when the work on the contract was substantially completed. We recognized revenue
related to the Quickstart project ratably over the term of the agreement as this
contract called for on-going consulting services from March 2008 through June
2008. Under the August 1, 2008 Agreements, revenues are being derived from fixed
professional fee agreements, which were ultimately paid out in 2008 on a time
and expense basis. Going forward, we may enter into additional consulting
contracts to provide support and assistance to other commercial and governmental
entities that are looking to develop and expand their nuclear power industry
capabilities and infrastructure. In future consulting engagements we expect that
revenues may be derived either from fixed professional fee agreements or from
fees generated through hourly rates, billed on a time and expense
basis.


16


Our most
significant expense related to our consulting and strategic advisory services
business segment is the cost of services before reimbursable expenses, which
generally relates to costs associated with generating consulting revenues, and
includes employee payroll expenses and benefits, contractor compensation, vendor
compensation, marketing expenses, and direct costs of training and recruiting
the consulting staff. Consultant compensation consists of salaries, incentive
compensation, and benefits. As revenues are generated from services performed by
our permanent staff and contractors, our success depends on attracting,
retaining and motivating talented, creative and experienced professionals at all
levels.





Technology
Business Segment





Our
operations related to development and demonstration of our nuclear fuel designs
primarily involve testing of the fuel designs, developing strategic
relationships within and outside of the nuclear power industry, securing
political and financial support from the U.S. and Russian governments, and the
filing of patent applications including related administrative
functions.





While we
do not currently have any direct revenues from our research and development
activities regarding our proprietary nuclear fuel technology, and expect that we
will not generate licensing revenues from this business for several years, until
our fuel designs can be fully tested and demonstrated and we obtain the proper
approvals to use our nuclear fuel designs in nuclear reactors, we are utilizing
certain common corporate capabilities in both our technology and consulting
businesses. We believe we can leverage our general nuclear technology, business
and regulatory expertise as well as industry relationships, to optimize our
technology development plans and create integrated advisory services with the
highest levels of expertise and experience in the nuclear power industry.
Additionally, our knowledge of and credibility in addressing proliferation
related issues that we have developed over many years, benefit our new
consulting business. Our advisory services include a focus on non-proliferation,
safety and operational transparency of nuclear power programs.





Material
Opportunities and Challenges





Consulting
and Strategic Advisory Services





Our
emergence in the field of nuclear energy consulting is in direct response to the
need for independent assessments, and highly qualified and integrated strategic
advisory services for countries looking to establish nuclear energy programs,
while still providing a blueprint for safe, clean, efficient and cost-effective
non-proliferative nuclear power. We offer full-scope planning and strategic
advisory services for new and existing markets, and offer such services without
a bias towards or against any reactor vendor or fuel technology. We believe that
there are significant opportunities available to provide services to governments
that are dedicated to non-proliferative, safe, and transparent nuclear
programs.





Our major
challenge in pursuing our business is that the decision making process for
nuclear power programs typically involves careful consideration by many parties,
and therefore requires significant time. Also, many of the potential clients
that could benefit from our services are in regions of the world where tensions
surrounding nuclear energy are high, or in countries where public opinion plays
an important role. Domestic and international political pressure may hinder our
efforts to provide nuclear energy services, regardless of our focus on
non-proliferative nuclear power.


17





Proprietary
Nuclear Fuel Technology Development





We
believe that a major opportunity for us is the possibility that our fuel
designs, which are currently in the research and development stage, will be used
in the manufacturing of nuclear fuel utilized in many existing light water
nuclear reactors in the future. Light water reactors are the dominant reactor
types currently in use in the world, and fuels for such reactors constitute the
majority of the commercial market for nuclear fuel. Our focus is on two
different types, or variants, of thorium-based fuel designs. The first is
designed to provide reactor owner-operators with an economically viable
alternative fuel that will not generate weapons-usable plutonium in the spent
fuel. The second is designed to dispose of reactor-grade plutonium that has been
extracted from spent fuel from commercial reactors and stockpiled in Russia,
Western Europe, the U.S., Japan, and other countries. We also have developed a
conceptual design for a fuel to dispose of weapons-grade plutonium that is
stockpiled in Russia and the United States. All three of these fuel variants are
expected to have additional benefits, including reduced volume and reduced
long-term radio-toxicity of spent fuel for the same amount of electricity
generated, as compared with the uranium fuels that are currently used in light
water reactors.





We,
through our wholly owned subsidiary Thorium Power, Inc., have been developing
relations with relevant entities within the United States and Russian
governments for over fifteen years. Thorium Power, Inc., in cooperation with
these governments, has been demonstrating its fuel designs in a research reactor
in Russia for over four years. Independent analyses of the technology have been
performed, including a May 2005 report by the International Atomic Energy
Agency, or the IAEA, and an April 2005 report by Westinghouse Electric Company
LLC, or Westinghouse. The IAEA and Westinghouse analyses were positive, and
management believes that they can help lead to the favorable reception of our
nuclear fuel designs in the future.





We are
also working with Russian nuclear research institutes and Russian nuclear
regulatory authorities, to have one or more of the fuel designs demonstrated in
a Russian VVER-1000 reactor within the next three to four years, if we are able
to obtain necessary support and enter into agreements with the Russian
government and Russian research institutes. We believe that it will be necessary
to enter into commercial arrangements with one or more major nuclear fuel
fabricators, which in many cases are also nuclear fuel vendors, as a
prerequisite to having our fuel designs widely deployed in global
markets.





Our
nuclear fuel designs have never been demonstrated in a full-size commercial
reactor. Our planned demonstration of the fuels in a VVER-1000 reactor in Russia
would provide operating experience that is critical to reactor owners and
regulatory authorities. We believe that once the fuels have been demonstrated in
the VVER-1000 reactor, this can help convince other light water reactor
operators around the world to accept our thorium-based fuel
designs.





We have
also been conducting research and development related to a variant of these
nuclear fuel designs for use in existing and future Western pressurized water
reactors.





We
believe that our greatest challenge will be acceptance of these fuel designs by
nuclear power plant operators, which have in the past been hesitant to be the
first to use a new type of nuclear fuel. In addition, our fuel designs would
require regulatory approval by relevant nuclear regulatory authorities, such as
the Nuclear Regulatory Commission in the United States or its equivalent
agencies in other countries, before they can be used in commercial reactors. The
regulatory review process, which is outside of our control, may take longer than
expected and may delay a rollout of the fuel designs into the market. We believe
that demonstration of one of the Company’s fuel designs in a commercial nuclear
reactor would make deployment of the other designs easier, due to the many
similarities that exist among all of our fuel designs.


18





Thorium
Power, Inc. has been building relationships with companies and organizations in
the nuclear power industry for several years. We will attempt to cause some or
all of these companies and organizations to work in a consortium or a joint
venture type arrangement with us in the future, however, we may not be able to
develop any such consortium or arrangement in the near term or at all. The
companies that we have identified for potential relationships have existing
contracts with nuclear power plant owner-operators, under which they supply
nuclear fuel branded with their name to such nuclear power plants. We will
attempt to cause these nuclear fuel vending companies to provide their nuclear
power plant operating customers with fuels that are designed with our
technology. To do so, we will need to enter into agreements with one or more of
these companies. Without such arrangements it would be more difficult for us to
license our fuel designs because, in addition to the reputations, guarantees,
services, and other benefits that these nuclear fuel vendors provide when
selling fuel to nuclear power plant operators, they also often have multi-year
fuel supply contracts with the reactor operators. These multi-year fuel supply
contracts act as a barrier to entry into the market, such that it can be almost
impossible to penetrate some markets for nuclear fuel without working with a
nuclear fuel vendor that can support long term contracts. If we are successful
in demonstrating our fuel designs in Russia and in continuing to build
relationships with nuclear fuel vendors, we believe it may lead to one or more
of these major companies in the nuclear power industry working with us in
producing and selling our nuclear fuel designs to commercial reactor operators
and governments.




Business
Segments and Periods Presented




We have
provided a discussion of our results of operations on a consolidated basis and
have also provided certain detailed segment information for each of our business
segments below for the three months ended March 31, 2009 and 2008, in order to
provide a meaningful discussion of our business segments. We have organized our
operations into two principal segments: Consulting and Technology. We present
our segment information along the same lines that our chief executive reviews
our operating results in assessing performance and allocating
resources.


Consulting
                
                
                Technology
                
                
                Corporate and Eliminations
                
                
                TotalThree Months Ended
                  March 31,
                
                
                Three Months Ended March 31,
                
                
                Three Months Ended
                  March 31,
                
                
                Three Months Ended
                  March 31,2009
                
                
                2008
                
                
                2009
                
                
                2008
                
                
                2009
                
                
                2008
                
                
                2009
                
                
                2008Revenue
                
                $
                2,944,053
                
                
                $
                3,815,125
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                2,944,053
                
                
                $
                3,815,125Segment
      Profit (Loss)- Before Tax
                
                
                1,195,535
                
                
                
                2,167,121
                
                
                
                (453,805
                )
                
                
                (389,521
                )
                
                
                (2,264,191
                )
                
                
                (2,534,707
                )
                
                
                (1,522,461
                )
                
                
                (757,107
                )Total
      Assets
                
                
                4,319,212
                
                
                
                51,729
                
                
                
                234,277
                
                
                
                217,875
                
                
                
                6,047,400
                
                
                
                6,964,374
                
                
                
                10,600,889
                
                
                
                7,233,978Property
      Additions
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Interest
      Expense
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                183
                
                
                
                -
                
                
                
                183Depreciation
                
                $
                -
                
                
                $
                -
                
                
                $
                —
                
                
                $
                -
                
                
                $
                6,004
                
                
                $
                3,010
                
                
                $
                6,004
                
                
                $
                3,010


19




Consulting
and Strategic Advisory Services Business





At the
present time, all of our revenue for the three months ended March 31, 2009, is
derived from our consulting and strategic advisory services business segment, by
offering services to foreign governments planning to create or expand
electricity generation capabilities using nuclear power plants benefiting from
thorium-based or other nuclear fuels. The fee type and structure that we offer
for each client engagement is dependent on a number of variables, including the
complexity, the level of the opportunity for us to improve the client’s
electricity generation capabilities using nuclear power plants, and other
factors. Substantially all of the Company’s revenues totaling $2,944,053 for the
three months ended March 31, 2009, have been derived from the our continuing
work under the August 1, 2008 Agreements, with the EAA, and upon formation, with
and the related entities to be formed: Emirates Nuclear Energy Corporation
(“ENEC”) and Federal Authority for Nuclear Regulation (“FANR”). We entered into
a next phase follow-on agreement in March 2009 to continue our consulting
services under the ENEC agreement for 2009. The cost of consulting services
provided was $1,748,518 for the three months ended March 31, 2009, which
consists primarily of direct labor consulting expenses and other labor support
costs incurred. Some indirect corporate overhead expenses incurred were not
allocated to the consulting and strategic advisory services business segment,
and are reported above in the business segment information chart as corporate
overhead costs in the above segment reporting financial table.





Technology
Business





Over the
next 12 to 18 months we expect to incur approximately up to $5 – $6
million in research and development expenses related to the development of our
proprietary nuclear fuel designs. We expect to incur these expenses after we
have entered into formal agreements with Russian nuclear entities that will
grant us licensing and other rights to use such technologies or intellectual
property developed by the Russian entities. Any such agreement would require
formal review and approval by the Russian State Atomic Energy Corporation
(RosAtom). We have spent approximately $453,805 for research and development so
far in 2009, and a cumulative amount from the date of our inception (January 8,
1992, date of inception of Thorium Power Inc.) to March 31, 2009 of $6.7
million. We have established an office in Moscow and leased office space to
support our research and development activities in Russia, as of May 1,
2008.





Over the
next several years, we expect that our research and development activities will
increase and will be primarily focused on testing and demonstration of our fuel
technology for VVER-1000 reactors. The main objective of this research and
development phase is to prepare for full-scale demonstration of our nuclear fuel
technology in an operating commercial VVER-1000 reactor in Russia. Key research
and development activities will include: (1) Scaling up the fuel fabrication
process to full length (10 feet) rods used in commercial VVER-1000 reactors, (2)
Validating thermal hydraulic performance of full size (10 feet) seed and blanket
fuel assembly, (3) Performing post-irradiation examination of fuel samples that
have been irradiated in ampoules in the IR-8 research reactor and conducting
loop irradiation testing, and (4) Obtaining final regulatory approvals for
insertion of fuel in VVER-1000 commercial reactors. As this research and
development program relates to commercial applications of our fuel technology,
and retaining ownership or control over as much key intellectual property as we
possibly can is critical to the long-term success of our licensing business
model, our plan is to fully fund these research and development activities
ourselves. At the same time, we do not currently plan to fund research, testing
and demonstration of our thorium/weapons-grade plutonium disposing fuel, which
can only be used in the U.S.-Russia government-to-government weapons-grade
plutonium disposition program and has no commercial applications. Hence, funding
for any future research and development activities on this fuel design would
have to be provided by the U.S. government or other
stakeholders.


20


Financial
Status





At March
31, 2009, our total assets were approximately $10,600,889 and total liabilities
as of March 31, 2009, were approximately $3,542,581. For the three months ended
March 31, 2009, from the results of operations from our consulting business
segment, we have essentially maintained our working capital surplus at December
31, 2008, which was $6.8 million, to $6.6 million as of March 31, 2009. Accounts
payable and accrued liabilities balance as of March 31, 2009 equaled $3.5
million, a decrease of approximately $1.6 million from December 31, 2008. These
liabilities have decreased primarily due to the payment of prior year
liabilities.





Management
expects that our current cash position, as well as the expected revenue and
profits that are expected to be earned from our follow-on agreements from the
two consulting agreements we entered into in August 2008, will meet our
foreseeable working capital needs for our current operations until sometime in
2010. In support of our longer-term business plan for our technology business
segment, we will need to raise additional capital by way of an offering of
equity securities, an offering of debt securities, or by obtaining financing
through a bank or other entity to finance our overhead and research and
development expenditures. We will also need to raise capital to support our
technology business if the consulting and strategic advisory services business
becomes non-sustaining. Our current average monthly projected working capital
requirements for the company, excluding the $5 – $6 million of
research and development expenses we expect to incur in Russia over the next
12 – 18 months is approximately $1,200,000 per month. This financing
will need to take place in 2009, to ensure that we have the necessary working
capital to continue our planned business operations through 2009 and beyond. It
is important to note that financing may not be available or we may not be able
to obtain that financing on terms acceptable to us. If additional funds are
raised through the issuance of equity securities, there may be a significant
dilution in the value of our outstanding common stock. To support this financing
activity, we are exploring transaction opportunities that could simultaneously
create strategic industry and market alliances for the company, to support our
operations in 2009 and beyond.





Consolidated
Results of Operations





Comparison
of the Three Months Ended March 31, 2009 to March 31, 2008





The
following table summarizes certain aspects of the Company’s consolidated results
of operations for the three months ended March 31, 2009 compared to the three
months ended March 31, 2008.





Three
      Months EndedMarch
      31,
                
                
                (Decrease)
                
                
                (Decrease)2009
                
                
                2008
                
                
                Change $
                
                
                Change %Consulting
      Revenues
                
                $
                2,944,053
                
                
                $
                3,815,125
                
                
                $
                (871,072
                )
                
                
                -23
                %Cost
      of services providedConsulting
      expenses
                
                $
                1,748,518
                
                
                $
                1,648,004
                
                
                $
                100,514
                
                
                
                6
                %%
      of total revenues
                
                
                59
                %
                
                
                43
                %Gross
      profit
                
                $
                1,195,535
                
                
                $
                2,167,121
                
                
                $
                (971,586
                )
                
                
                -45
                %%
      of total revenues
                
                
                41
                %
                
                
                57
                %Operating
      ExpensesGeneral
      and administrative
                
                $
                1,037,495
                
                
                $
                1,260,186
                
                
                $
                (222,691
                )
                
                
                -18
                %%
      of total revenues
                
                
                35
                %
                
                
                33
                %Research
      and development expenses
                
                $
                453,805
                
                
                $
                389,521
                
                
                $
                64,284
                
                
                
                17
                %%
      of total revenues
                
                
                15
                %
                
                
                10
                %Stock-based
      compensation
                
                $
                1,225,186
                
                
                $
                1,363,803
                
                
                $
                (138,617
                )
                
                
                -10
                %%
      of total revenues
                
                
                42
                %
                
                
                36
                %Total
      Operating Loss
                
                $
                (1,520,951
                )
                
                $
                (846,389
                )
                
                $
                674,562
                
                
                
                80
                %%
      of total revenues
                
                
                -52
                %
                
                
                -22
                %Other
      Income and (Expenses)Interest
      income/expense, other
                
                $
                (1,510
                )
                
                $
                89,282
                
                
                $
                (90,792
                )
                
                
                -102
                %%
      of total revenues
                
                
                0
                %
                
                
                2
                %Net
      loss - before income taxes
                
                $
                (1,522,461
                )
                
                $
                (757,107
                )
                
                $
                765,354
                
                
                
                101
                %%
      of total revenues
                
                
                -52
                %
                
                
                -20
                %




21




Revenues





The
$2,944,053 of revenue for the three months ended March 31, 2009, was generated
from our consulting and strategic advisory services business segment. This
revenue earned was from the continuation of consulting work we performed,
pursuant to the August 1, 2008 consulting contracts we signed with ENEC and
FANR, mentioned above. We will continue in 2009 to provide consulting services
under both of these agreements, following the successful work we performed in
2008 for the ENEC and FANR projects.





We
entered into a next phase follow-on agreement in March 2009 to continue our
consulting services under the ENEC agreement for 2009. We anticipate that
revenue earned in 2009 from this follow-on agreement will be up to $7 million.
We also anticipate entering into a follow-on consulting agreement in the near
term for the FANR work as well, in an amount up to $10 million of revenue to be
earned in 2009. Revenue earned under both these agreements in 2009 will be
recognized on a time and material basis. The revenue to be earned and recognized
under both of these agreements will depend upon the agreed upon work plans and
time spent working on these projects, which can be more or less than the revenue
amounts initially planned to be earned under these agreements. We also
anticipate entering into other consulting and technology agreements that may
generate revenue for us as well in 2009.





The
$3,815,125 of revenue for the three months ended March 31, 2008 was earned from
our Roadmap consulting project with the UAE, the first consulting project that
we started working on during the fourth quarter of 2007. The revenue from this
project was recognized on a completed performance model method, where revenue is
usually recognized near the end of the contract, when substantially all of the
project deliverables under the contract are completed and then approved by the
customer.





Cost of Services
Provided





The
increase in the cost of services for the three months ended March 31, 2009 is
due to expenses related to the consulting, professional, administrative and
other costs allocated to the consulting projects, which were incurred to perform
and support the work done for our consulting projects in Abu Dhabi.





Gross
Margin





The 2009
gross margin is lower in 2009 versus 2008 because the advisory contracts changed
from fixed price contracts to time and expense contracts.





General and Administrative
Expenses





There was
an 18 percent decrease in the general and administrative expenses (G&A) for
three months ended March 31, 2009 as compared to the same period in 2008. The
majority of this percentage decrease in G&A is due to an increase in the
allocation of indirect costs to support our consulting and strategic advisory
services business segment, which was allocated to cost of services provided,
mentioned above. This decrease was partially offset by an increase in absolute
dollars in Q1 2009 to (1) establish a human resources department to hire new
consultants with the proper nuclear expertise for our consulting projects, (2)
implement a new ERP accounting system to support the activities of our
consulting projects and to strengthen our internal controls, (3) larger office
space to accommodate the additional people working for our company in 2009 and
(4) other consulting and general overhead costs. We incurred professional fees
by engaging consulting firms to assist us (1) in establishing foreign branch
offices in Abu Dhabi and Russia in 2009 and (2) establishing our Strategic
Advisory Board which replaced our International Advisory Board. We expect our
general and administrative expenses to increase in future periods due to the
expansion of our consulting and strategic advisory services business segment and
the hiring of new officers, employees and consultants to help further develop
and support our consulting and strategic advisory services and technology
business segments.


22




Research and Development
Costs





The
increase in research and development costs for the three months ended March 31,
2009 is due to the increase in the scope of work for our research and
development activities in Russia. We expect that our research and development
expenses will increase in the future periods.   Over the next 12 to 18
months we expect to incur approximately up to $5 – $6 million in
research and development expenses related to the development of our proprietary
nuclear fuel designs.





Stock-Based
Compensation





The
decrease in stock based compensation for the three months ended March 31, 2009,
is due to certain long-term incentive stock options and stock that were granted
in prior years under our stock plan to executives, directors, advisors and
employees, which became fully vested in 2008. We anticipate that stock based
incentives will be offered to attract new employees in 2009, due to our
expansion to meet the demands of contracts with our current customer, and
anticipated future business with new customers.





Other Income and
Expense





The
decrease in other income and expense for the three months ended March 31, 2009
is due to the decrease in interest income earned on our idle cash.





Liquidity
and Capital Resources





As of
March 31, 2009, we had a total of cash and cash equivalents of $4,375,361. The
following table provides detailed information about our net cash flow for all
financial statements periods presented in this report.





Cash
      FlowThree
      Months EndedMarch
      31,2009
                  
                  
                  2008Net
      cash used in operating activities
                  
                  $
                  (1,188,481
                  )
                  
                  $
                  (3,244,731
                  )Net
      cash used in investing activities
                  
                  $
                  (16,402
                  )
                  
                  $
                  0Net
      cash provided by financing activities
                  
                  $
                  0
                  
                  
                  $
                  39,542Net
      cash outflow
                  
                  $
                  (1,204,883
                  )
                  
                  $
                  (3,205,189
                  )


23


Operating
Activities




Net cash
used in our operating activities decreased for the three months ended March 31,
2009, compared to the same period in 2008 by $2,056,250.  This
decrease in funds used in our operating activities was primarily due to the
increase in the collections of our accounts receivable in 2009 and the
prepayment of consulting fees we received in 2007, for revenue we earned and
recognized for the three months ended March 31, 2008. This decrease in the cash
used in operating activities was partially offset by an increase in our cost of
services provided to perform these contracts, which was paid to our employees
and consultants in order to provide the necessary services related to these
consulting projects. The other changes to the operating activities cash flows
are mentioned above in the consolidated results of operations section regarding
expenses incurred for general and administrative expenses mentioned above, and
items mentioned in the other income and expense.




Investing
Activities




Net cash
used in our investing activities increased for the three months ended March 31,
2009 due to professional fees incurred for the filing of patent applications.
These patent applications are filed for the new developments resulting from our
research and development activities in our fuel technology.




Financing
Activities




Net cash
provided by our financing activities decreased for the three months ended March
31, 2009, compared to the same period in 2008 by $39,542. This decrease in the
cash provided by financing activities was mainly attributable to a decrease
in the proceeds from the issuance of stock, partially offset by a decrease in
the payments of notes payable.




Management
expects that the proceeds from our consulting agreements in 2009, as well as the
expected proceeds for the remainder of 2009 that we will earn under the two new
consulting agreements we entered into in August 2008, will meet our foreseeable
working capital needs for our current operations until sometime in 2010.
However, we will need to raise additional capital by way of an offering of
equity securities, an offering of debt securities, or by obtaining financing
through a bank or other entity to support our longer term business plan. We will
also need to raise capital to support our overhead operation if the consulting
and strategic advisory services business becomes non-sustaining. If we need to
obtain additional financing, that financing may not be available or we may not
be able to obtain that financing on terms acceptable to us. If additional funds
are raised through the issuance of equity securities, there may be a significant
dilution in the value of our outstanding common stock.





Off Balance Sheet
Arrangements




We do not
have any off balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity or capital
expenditures or capital resources that is material to an investor in our
securities.





Seasonality




Our
business has not been subject to any material seasonal variations in operations,
although this may change in the future.




Inflation





Our
business, revenues and operating results have not been affected in any material
way by inflation.





Critical
Accounting Policies and Estimates




The SEC
issued Financial Reporting Release No. 60, “Cautionary Advice Regarding
Disclosure About Critical Accounting Policies” suggesting that companies provide
additional disclosure and commentary on their most critical accounting policies.
In Financial Reporting Release No. 60, the SEC has defined the most critical
accounting policies as the ones that are most important to the portrayal of a
company’s financial condition and operating results, and require management to
make its most difficult and subjective judgments, often as a result of the need
to make estimates of matters that are inherently uncertain. Based on this
definition, we have identified the following significant policies as critical to
the understanding of our financial statements.


24


The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make a variety of estimates and
assumptions that affect (i) the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and (ii) the reported amounts of revenues and expenses during the
reporting periods covered by the financial statements.





Our
management expects to make judgments and estimates about the effect of matters
that are inherently uncertain. As the number of variables and assumptions
affecting the future resolution of the uncertainties increase, these judgments
become even more subjective and complex. Although we believe that our estimates
and assumptions are reasonable, actual results may differ significantly from
these estimates. Changes in estimates and assumptions based upon actual results
may have a material impact on our results of operation and/or financial
condition. We have identified certain accounting policies that we believe are
most important to the portrayal of our current financial condition and results
of operations. Our significant accounting policies are disclosed in Note 2 to
the Consolidated Financial Statements included in the Annual Report on Form 10-K
filed with the Commission on March 27, 2008.





Accounting for Stock Based
Compensation, Stock Options and Warrants Granted to Employees and
Non-employees




We
adopted SFAS 123(R), as of January 1, 2006. SFAS 123(R) replaced the existing
requirements under SFAS No. 123, Accounting for Stock Based Compensation, and
Accounting Principles Board Opinion No. 25, Accounting for Stock-based
Compensation to Employees, or APB 25. According to SFAS 123(R), all forms of
share-based payments to employees, including employee stock options and employee
stock purchase plans, are treated the same as any other form of compensation by
recognizing the related cost in the statement of income.




Under
SFAS 123(R), stock-based compensation expense is measured at the grant date
based on the fair value of the award, and the expense is recognized ratably over
the award's vesting period. For all grants made, we recognize compensation cost
under the straight-line method.




We
measure the fair value of stock options on the date of grant using a
Black-Scholes option-pricing model which requires the use of several estimates,
including:




• the
volatility of our stock price;


• the
expected life of the option;


• risk
free interest rates; and


•
expected dividend yield.




Prior to
the completion of our merger in October 2006, we had limited historical
information on the price of our stock as well as employees' stock option
exercise behavior for stock options issued prior to the merger. As a result, we
could not rely on historical experience alone to develop assumptions for stock
price volatility and the expected life of options. As such, our stock price
volatility was estimated with reference to our historical stock price for the
time period before the merger, from the date the announcement of the merger was
made. We utilized the closing prices of our publicly-traded stock from the
announcement date in January 2006 to determine our volatility and will continue
to use our historical stock price closing prices to determine our volatility in
2008.




The
expected life of options is based on internal studies of historical experience
and projected exercise behavior. We estimate expected forfeitures of stock-based
awards at the grant date and recognize compensation cost only for those awards
expected to vest. The forfeiture assumption is ultimately adjusted to the actual
forfeiture rate. Estimated forfeitures are reassessed in subsequent periods and
may change based on new facts and circumstances. We utilize a risk-free interest
rate, which is based on the yield of U.S. treasury securities with a maturity
equal to the expected life of the options. We have not and do not expect to pay
dividends on our common shares.


25


The
options were valued using the Black-Scholes option pricing model. The
assumptions used were as follows: volatility of 96% to 284%, a risk-free
interest rate of 2.56% to 5.24%, dividend yield of 0% and an exercise term of
two to ten years.





Income
Taxes





We
account for income taxes using the liability method in accordance with SFAS
No.109 Accounting for Income Taxes, which requires the recognition of deferred
tax assets or liabilities for the tax-effected temporary differences between the
financial reporting and tax bases of our assets and liabilities and for net
operating loss and tax credit carry forwards. The tax expense or benefit for
unusual items, prior year tax exposure items or certain adjustments to valuation
allowances are treated as discrete items in the interim period in which the
events occur.





On
January 1, 2007, we adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109, or FIN
48. FIN 48 addresses the determination of whether tax benefits claimed or
expected to be claimed on a tax return should be recorded in the financial
statements. Under FIN 48, we may recognize the tax benefit from an uncertain tax
position only if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the technical
merits of the position. As a result of the implementation of FIN 48, we did not
recognize any current tax liability for unrecognized tax benefits. We have
estimated the amount of our net operating loss carry-forwards and  we
currently have engaged tax professionals to evaluate the amount of net operating
loss carry-forward available to us to offset future taxable income, under
Internal Revenue Code Section 382.





Contingent
Liabilities





Liabilities
for accrued expenses and loss contingencies arising from various claims,
assessments, litigation, fines and penalties and other sources are recorded when
it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated. When facts and circumstances show that in
a particular reporting period it is no longer probable that a contingent
liability previously reported will be paid, those accrued liabilities are
adjusted in that period or are no longer recorded on the balance
sheet.





Revenue Recognition from
Consulting Contracts





We
believe one of our critical accounting policies is revenue recognition from our
consulting contracts. We are currently primarily deriving our revenue from fees
by offering consulting and strategic advisory services to foreign commercial and
government owned entities planning to create or expand electricity generation
capabilities, using nuclear power plants. Our fee type and structure for each
client engagement depend on a number of variables, including the size of the
client, the complexity, the level of the opportunity for us to improve the
client’s electricity generation capabilities using nuclear power plants, and
other factors.





We
recognized the revenues for our first consulting project which we completed in
March 2008, using the completed performance model. We recognize revenue from the
current two consulting agreements that we entered into in August 2008, which we
are now working on in 2009, as time and material contracts.





We
recognize revenue associated with fixed-fee service contracts in accordance with
the proportional performance method, measured by the percentage of costs
(primarily labor) incurred to date as compared to the estimated total costs
(primarily labor) for each contract. When a loss is anticipated on a contract,
the full amount of the anticipated loss is recognized
immediately.


26




Our
management uses its judgment concerning the estimation of the total costs to
complete the contract considering a number of factors, including the experience
of the personnel that are performing the services, and the overall complexity of
the project. Should changes in management’s estimates be required, due to
business conditions that cause the actual financial results to differ
significantly from management's present estimates, revenue recognized in future
periods could be adversely affected.





We
recognize revenue in accordance with SEC Staff Accounting Bulletin or SAB,
No. 104, Revenue Recognition. We recognize revenue when all of the
following conditions are met:





1.         There
is persuasive evidence of an arrangement;





2.         The
service has been provided to the customer;




3.         The
collection of the fees is reasonably assured; and




4.         The
amount of fees to be paid by the customer is fixed or determinable.




In
situations where contracts include client acceptance provisions, we do not
recognize revenue until such time as the client has confirmed its
acceptance.




Intangibles




As
presented on the accompanying balance sheet, we had patents with a net book
value of $234,277 as of March 31, 2009. There are many assumptions and estimates
that may directly impact the results of impairment testing, including an
estimate of future expected revenues, earnings and cash flows, and discount
rates applied to such expected cash flows in order to estimate fair value. We
have the ability to influence the outcome and ultimate results based on the
assumptions and estimates we choose for testing. To mitigate undue influence, we
set criteria that are reviewed and approved by various levels of management. The
determination of whether or not intangible assets have become impaired involves
a significant level of judgment in the assumptions. Changes in our strategy or
market conditions could significantly impact these judgments and require
adjustments to recorded amounts of intangible assets.





Recent
Accounting Pronouncements





See
Item 1 of Part I, “Financial Statements — Note 1 — Accounting Policies —
Recent Accounting Pronouncements.”





ITEM 4T. CONTROLS AND
PROCEDURES.





Disclosure
Controls and Procedures





As
required by Rule 13a-15 under the Exchange Act, we carried out an evaluation of
the effectiveness of the design and operation of our disclosure controls and
procedures, as of the end of the period covered by this report on Form 10-Q.
This evaluation was carried out under the supervision and with the participation
of our management, including our President and Chief Executive Officer, and our
Chief Financial Officer. Based upon that evaluation, management concluded that
our disclosure controls and procedures are effective to ensure that information
required to be disclosed in the reports that it files or submits under the
Exchange Act is accumulated and communicated to management (including the chief
executive officer and chief financial officer) to allow timely decisions
regarding required disclosure and that our disclosure controls and procedures
are effective to give reasonable assurance that the information required to be
disclosed by us in reports that we file under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the SEC.


27


There
were no changes in our internal control over financial reporting identified in
connection with the evaluation performed that occurred during the period covered
by this report that have materially affected or are reasonably likely to
materially affect, our internal control over financial reporting.





Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in our
reports filed under the Exchange Act is accumulated and communicated to
management, including the Company’s Chief Executive and acting Chief Financial
Officer as appropriate, to allow timely decisions regarding required
disclosure.





Internal
Controls Over Financial Reporting





Section
404 of the Sarbanes-Oxley Act of 2002 requires that management document and test
the Company’s internal control over financial reporting and include in this
Quarterly Report on Form 10-Q a report on management’s assessment of the
effectiveness of our internal control over financial reporting.





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rule 13a-15(f) of
the Exchange Act. Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
we conducted an evaluation of the effectiveness of our internal control over
financial reporting based upon the framework in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”). Based on that evaluation, our management concluded that our
internal control over financial reporting is effective, as of March 31, 2009,
and was effective during the entire quarter ended March 31, 2009.





PART
II


OTHER
INFORMATION





ITEM
1.     LEGAL PROCEEDINGS





From time
to time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. We are currently not aware
of any such legal proceedings or claims that we believe will have a material
adverse affect on our business, financial condition or operating
results.





ITEM
1A.     RISK FACTORS





In
addition to the other information set forth in this report, you should carefully
consider the factors discussed in Part I, "Item 1A. Risk Factors" in
our Annual Report on Form 10-K for the year ended December 31, 2008,
which could materially affect our business, financial condition or future
results. The risks described in our Annual Report on Form 10-K are not the
only risks facing our Company. Additional risks and uncertainties not currently
known to us or that we currently deem to be immaterial also may materially
adversely affect our business, financial condition or future
results.


28


ITEM
2.     UNREGISTERED SALES OF EQUITY SECURITIES OR USE
OF PROCEEDS





There
were no unregistered sales of equity securities during the fiscal quarter ended
March 31, 2009.





ITEM
3.     DEFAULTS UPON SENIOR SECURITIES





There
were no defaults upon senior securities during the fiscal quarter ended March
31, 2009.





ITEM
4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS





No
matters were submitted to a vote of security holders during the fiscal quarter
ended March 31, 2009.





ITEM
5.     OTHER INFORMATION





Not
applicable.





ITEM
6.     EXHIBITS





The
following exhibits are filed with this report, except those indicated as having
previously been filed with the SEC and are incorporated by reference to another
report, registration statement or form. As to any shareholder of record
requesting a copy of this report, we will furnish any exhibit indicated in the
list below as filed with this report upon payment to us of our expenses in
furnishing the information.





Exhibit Number
                        
                        Description3.1
                        
                        Articles
      of Incorporation (incorporated by reference from the Company’s
      Registration Statement on Form 10-SB filed on December 17,
      1999).3.2
                        
                        By-laws
      (incorporated by reference from the Company’s Current Report on Form 8-K
      filed on September 18, 2006).4.1
                        
                        2005
      Compensation Plan for Outside Consultants of Custom Brand Networks, Inc.
      dated March 1, 2005 (incorporated by reference from the Company’s
      Registration Statement on Form S-8 filed on March 10,
    2005).4.2
                        
                        2005
      Augmented Compensation Plan for Outside Consultants of the Company dated
      August 15, 2005 (incorporated by reference from the Company’s Registration
      Statement on Form S-8 filed on August 19, 2005).4.3
                        
                        2006
      Stock Plan (incorporated by reference to Exhibit 10.1 of the current
      report of the Company on Form 8-K filed February 21,
  2006)31.1*
                        
                        Rule
      13a-14(a)/15d-14(a) Certification - Principal Executive
      Officer31.2*
                        
                        Rule
      13a-14(a)/15d-14(a) Certification - Principal Accounting
      Officer32*
                        
                        Section
      1350
Certifications





* Filed
Herewith


29


SIGNATURES





In
accordance with section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant caused this Report on Form 10-Q to be signed on its behalf by the
undersigned, thereto duly authorized individuals.





Date: May
12, 2009





THORIUM
POWER, LTD.





By:
              /s/ Seth GraeSeth
      GraeChief
      Executive Officer,President
      and Director(Principal
      Financial Officer)By:
              /s/ James GuerraJames
      GuerraChief
      Operating Officer andChief
      Financial Officer(Principal
      Financial Officer andPrincipal
      Accounting Officer)


30


EXHIBIT
INDEX





Exhibit
      Number
                        
                        Description3.1
                        
                        Articles
      of Incorporation (incorporated by reference from the Company’s
      Registration Statement on Form 10-SB filed on December 17,
      1999).3.2
                        
                        By-laws
      (incorporated by reference from the Company’s Current Report on Form 8-K
      filed on September 18, 2006).4.1
                        
                        2005
      Compensation Plan for Outside Consultants of Custom Brand Networks, Inc.
      dated March 1, 2005 (incorporated by reference from the Company’s
      Registration Statement on Form S-8 filed on March 10,
    2005).4.2
                        
                        2005
      Augmented Compensation Plan for Outside Consultants of the Company dated
      August 15, 2005 (incorporated by reference from the Company’s Registration
      Statement on Form S-8 filed on August 19, 2005).4.3
                        
                        2006
      Stock Plan (incorporated by reference to Exhibit 10.1 of the current
      report of the Company on Form 8-K filed February 21,
  2006)31.1*
                        
                        Rule
      13a-14(a)/15d-14(a) Certification - Principal Executive
      Officer31.2*
                        
                        Rule
      13a-14(a)/15d-14(a) Certification - Principal Accounting
      Officer32*
                        
                        Section
      1350
Certifications





*Filed
Herewith