---

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**Washington, D.C. 20549

FORM 10-QSB

(Mark One)

[ x ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
  EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2006

[]
  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from __________ to __________

Commission file number 000-28543

NOVASTAR RESOURCES LTD.(Exact name of small business issuer as specified in its
charter)

|Nevada                                                               | 91-1975651                       
|-------------------------------------------------------------------- | ---------------------------------
|(State or other jurisdiction of incorporation or
      organization) | (IRS Employer Identification No.)

8300 Greensboro Drive, Suite 800, McLean, VA 22102(Address of principal executive offices)

800.685.8082(Issuers telephone number,
including area code)

N/A(Former name, former address and former
fiscal year, if changed since last report)

Check whether the issuer (1) 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 is a shell company
  (as defined in Rule 12b-2 of the Exchange Act). 
  (Check one): Yes [ x ] No []

State the number of shares outstanding of each of the issuers
classes of common equity, as of the latest practicable date:

127,848,785 shares of common stock issued and outstanding as
of May 18, 2006 with a par value of $0.001 per share.

Transitional Small Business Disclosure Format (Check one): Yes
  []
  No [ x ]

---

- 2 -

Part I -- Financial Information

Item 1. Financial Statements.

We have prepared the financial statements included herein
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such Securities and Exchange
Commission rules and regulations. In our opinion, the accompanying statements
contain all adjustments necessary to present fairly the financial position of
our company as of March 31, 2006, and its results of operations for the three
month and six month periods ended March 31, 2006 and 2005 and its cash flows for
the six month periods ended March 31, 2006 and 2005. The results for these
interim periods are not necessarily indicative of the results for the entire
year. The accompanying financial statements should be read in conjunction with
the financial statements and the notes thereto filed as a part of our annual
report on Form 10-KSB.

---

- 3 -



NOVASTAR RESOURCES LTD.(Formerly Custom Branded Networks, Inc.) (An Exploration
Stage Company)



THIRD QUARTER FINANCIAL STATEMENTS



MARCH 31, 2006(Unaudited) 
  (Stated in U.S. Dollars)



---

NOVASTAR RESOURCES LTD.(An Exploration Stage Company)

CONSOLIDATED BALANCE SHEETS(Unaudited) 
  (Stated in U.S. Dollars)

|                                                      |   | MARCH 31    |   |   | JUNE 30    |  
|----------------------------------------------------- | - | ----------- | - | - | ---------- | -
|                                                      |   | 2006        |   |   | 2005       |  
|                                                      |   |             |   |   |            |  
|ASSETS                                                |   |             |   |   |            |  
|Current                                               |   |             |   |   |            |  
|Cash                                                  | $ | 66,516      |   | $ | 802        |  
|Restricted cash                                       |   | -           |   |   | 94,140     |  
|Less: Refundable
      to subscribers of common stock |   | -           |   |   | (94,140    | )
|Prepaid expenses                                      |   | 258,444     |   |   | -          |  
|                                                      |   | 324,960     |   |   | 802        |  
|Long Term Investment                                  |   | 700,000     |   |   | -          |  
|Exploration Equipment                                 |   | 55,290      |   |   | -          |  
|                                                      |   |             |   |   |            |  
|                                                      | $ | 1,080,250   |   | $ | 802        |  
|                                                      |   |             |   |   |            |  
|LIABILITIES                                           |   |             |   |   |            |  
|Current                                               |   |             |   |   |            |  
|Accounts payable                                      | $ | 306,581     |   | $ | 121,438    |  
|Accrued liabilities                                   |   | 378,061     |   |   | 103,542    |  
|Due to related party                                  |   | 6,863       |   |   | -          |  
|                                                      |   | 691,505     |   |   | 224,980    |  
|                                                      |   |             |   |   |            |  
|STOCKHOLDERS EQUITY (DEFICIENCY)                     |   |             |   |   |            |  
|                                                      |   |             |   |   |            |  
|Share Capital                                         |   |             |   |   |            |  
|Authorized:                                           |   |             |   |   |            |  
|250,000,000 voting common shares with a par value     |   |             |   |   |            |  
|of $0.001 per share                                   |   |             |   |   |            |  
|50,000,000 preferred shares with a par value of       |   |             |   |   |            |  
|$0.001 per share                                      |   |             |   |   |            |  
|                                                      |   |             |   |   |            |  
|Issued and outstanding:                               |   |             |   |   |            |  
|112,015,606 common shares (June 30, 2005 -            |   |             |   |   |            |  
|86,072,532)                                           |   | 112,015     |   |   | 86,073     |  
|                                                      |   |             |   |   |            |  
|Additional paid-in
      capital                      |   | 11,259,343  |   |   | 3,832,247  |  
|                                                      |   |             |   |   |            |  
|Share Subscriptions Received                          |   | 250,000     |   |   | -          |  
|Common Share Purchase Warrants                        |   | 352,918     |   |   | 495,834    |  
|Shares Committed For Issuance                         |   | 4,150,000   |   |   | -          |  
|Accumulated Deficit                                   |   | (15,037,919 | ) |   | (4,138,365 | )
|Deferred Stock Compensation                           |   | (697,612    | ) |   | (499,967   | )
|                                                      |   | 388,745     |   |   | (224,178   | )
|                                                      |   |             |   |   |            |  
|                                                      | $ | 1,080,250   |   | $ | 802        |  

The accompanying notes are an integral part of these financial
  statements

F-1

---

NOVASTAR RESOURCES LTD.(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited) 
  (Stated in U.S. Dollars)

CUMULATIVEPERIOD FROMINCEPTIONJUNE 18THREE MONTHS ENDED
      
      
      NINE MONTHS ENDED
      
      
      1999 TOMARCH 31
      
      
      MARCH 31
      
      
      MARCH 312006
      
      
      2005
      
      
      2006
      
      
      2005
      
      
      2006Revenue
      $
      -
      
      $
      -
      
      $
      -
      
      $
      -
      
      $
      184,162ExpensesConsulting
      
      1,219,379
      
      
      833,048
      
      
      3,362,399
      
      
      833,048
      
      
      5,860,312Interest attributable
        tobeneficial
        conversionfeature for notespayable
      
      -
      
      
      411,693
      
      
      -
      
      
      442,813
      
      
      579,379Interest 
        other
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      678Public relations
      
      37,167
      
      
      -
      
      
      132,785
      
      
      -
      
      
      276,128Legal
      
      246,704
      
      
      -
      
      
      273,776
      
      
      -
      
      
      483,372General andadministrative
      
      58,488
      
      
      77,439
      
      
      69,994
      
      
      80,526
      
      
      990,117Accounting
      
      7,811
      
      
      -
      
      
      50,113
      
      
      -
      
      
      128,981Forgiveness of
        debt
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      (169,818
      )Mineral propertyacquisition costs
      
      -
      
      
      -
      
      
      1,720,544
      
      
      -
      
      
      1,770,544Mineral propertyexplorationexpenses
      
      224,946
      
      
      -
      
      
      269,608
      
      
      -
      
      
      269,608Cancellation
        costs
      
      (1,754,166
      )
      
      -
      
      
      -
      
      
      -
      
      
      -Stock basedcompensation
      
      5,020,335
      
      
      -
      
      
      5,020,335
      
      
      -
      
      
      5,020,335Write down ofequipment
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      12,4455,060,664
      
      
      1,322,180
      
      
      10,899,554
      
      
      1,356,387
      
      
      15,222,081Net Loss For The Period
      $
      (5,060,664
      )
      $
      (1,322,180
      )
      $
      (10,899,554
      )
      $
      (1,356,387
      )
      $
      (15,037,919
      )Net Loss Per CommonShare, Basic and diluted
      $
      (0.04
      )
      $
      (0.02
      )
      $
      (0.11
      )
      $
      (0.03
      )Weighted AverageNumber Of SharesOutstanding
      
      130,887,505
      
      
      65,722,532
      
      
      103,148,271
      
      
      50,110,123


The accompanying notes are an integral part of these financial
  statements

F-2

---

NOVASTAR RESOURCES LTD.(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited) 
  (Stated in U.S. Dollars)

|                                                             |   |                   |   |   |                |   |   | CUMULATIVE    |  
|------------------------------------------------------------ | - | ----------------- | - | - | -------------- | - | - | ------------- | -
|                                                             |   |                   |   |   |                |   |   | PERIOD FROM   |  
|                                                             |   |                   |   |   |                |   |   | JUNE 28, 1999 |  
|                                                             |   | NINE MONTHS ENDED |   |   | (INCEPTION) TO |  
|                                                             |   | MARCH 31          |   |   | MARCH 31       |  
|                                                             |   | 2006              |   |   | 2005           |   |   | 2006          |  
|                                                             |   |                   |   |   |                |   |   |               |  
|Cash provided by (used in):                                  |   |                   |   |   |                |   |   |               |  
|Operating Activities                                         |   |                   |   |   |                |   |   |               |  
|Loss for the period                                          | $ | (10,899,554       | ) | $ | (1,356,387     | ) | $ | (15,037,919   | )
|Items not involving cash:                                    |   |                   |   |   |                |   |   |               |  
|Shares issued for other than cash                            |   | 10,028,491        |   |   | 733,048        |   |   | 12,413,024    |  
|Interest
      attributable to beneficial conversion feature |   |                   |   |   |                |   |   |               |  
|for notes payable                                            |   | -                 |   |   | 442,813        |   |   | 579,379       |  
|Amortization
      of equipment                              |   | 2,910             |   |   | 117            |   |   | 6,723         |  
|Forgiveness of debt                                          |   | -                 |   |   | -              |   |   | (169,818      | )
|Write
      down of equipment                                |   | -                 |   |   | -              |   |   | 12,445        |  
|Changes in non-cash
      operating working capital items:   |   |                   |   |   |                |   |   |               |  
|Accounts payable and accrued liabilities                     |   | 459,662           |   |   | 72,528         |   |   | 854,460       |  
|Due to related party                                         |   | 44,363            |   |   | -              |   |   | 44,363        |  
|Prepaid expenses                                             |   | (258,444          | ) |   | -              |   |   | (258,444      | )
|Net Cash Used In Operating Activities                        |   | (622,572          | ) |   | (107,881       | ) |   | (1,555,787    | )
|                                                             |   |                   |   |   |                |   |   |               |  
|Investing Activities                                         |   |                   |   |   |                |   |   |               |  
|Purchase of equipment                                        |   | (58,200           | ) |   | -              |   |   | (60,008       | )
|Acquisition of
      long term investment                    |   | (700,000          | ) |   | -              |   |   | (700,000      | )
|Net Cash Used In Investing Activities                        |   | (758,200          | ) |   | -              |   |   | (760,008      | )
|                                                             |   |                   |   |   |                |   |   |               |  
|Financing Activities                                         |   |                   |   |   |                |   |   |               |  
|Proceeds from loan
      payable to shareholder              |   | -                 |   |   | -              |   |   | 16,097        |  
|Issue of common shares                                       |   | 1,596,486         |   |   | -              |   |   | 1,615,436     |  
|Share subscriptions
      received                           |   | 250,000           |   |   | -              |   |   | 250,000       |  
|Cash paid for redemption of shares                           |   | (400,000          | ) |   | -              |   |   | (400,000      | )
|Advances on notes
      payable                              |   | -                 |   |   | 107,881        |   |   | 900,000       |  
|Cash acquired on acquisition of
      subsidiary             |   | -                 |   |   | -              |   |   | 778           |  
|Net Cash Provided By Financing Activities                    |   | 1,446,486         |   |   | 107,881        |   |   | 2,382,311     |  
|                                                             |   |                   |   |   |                |   |   |               |  
|Net Increase (Decrease) In Cash                              |   | 65,714            |   |   | -              |   |   | 66,516        |  
|                                                             |   |                   |   |   |                |   |   |               |  
|Cash, Beginning Of Period                                    |   | 802               |   |   | -              |   |   | -             |  
|                                                             |   |                   |   |   |                |   |   |               |  
|Cash, End Of Period                                          | $ | 66,516            |   | $ | -              |   | $ | 66,516        |  
|                                                             |   |                   |   |   |                |   |   |               |  
|Supplemental Disclosure of Cash Flow Information             |   |                   |   |   |                |   |   |               |  
|Cash paid during the period:                                 |   |                   |   |   |                |   |   |               |  
|Interest paid                                                | $ | -                 |   | $ | -              |   | $ | -             |  
|Income
      taxes paid                                      | $ | -                 |   | $ | -              |   | $ | -             |  

The accompanying notes are an integral part of these financial
  statements

F-3

---

NOVASTAR RESOURCES LTD.(AnExplorationStageCompany)

CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
  (DEFICIENCY)

PERIOD FROM JUNE 28, 1999 (INCEPTION) TO MARCH
  31, 2006(Unaudited)(Stated in U.S. Dollars)

SHARESCOMMON STOCK
      
      
      ADDITIONAL
      
      
      
      
      
      SHARE
      
      
      COMMITTEDCOMMON
        STOCK
      
      
      PURCHASE
        WARRANTS
      
      
      PAID-IN
      
      
      DEFERRED
      
      
      SUBSCRIPTIONS
      
      
      FOR
      
      
      ACCUMULATEDSHARES
      
      
      AMOUNT
      
      
      WARRANTS
      
      
      AMOUNT
      
      
      CAPITAL
      
      
      COMPENSATION
      
      
      RECEIVED
      
      
      ISSUANCE
      
      
      DEFICIT
      
      
      TOTALIssuance of shares to founders
      3,465
      
      $
      3
      
      
      -
      
      $
      -
      
      $
      18,947
      
      $
      -
      
      $
      -
      
      $
      -
      
      $
      -
      
      $
      18,950Net loss for the period
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      (159,909
      )
      
      (159,909
      )Balance, June 30, 2000
      3,465
      
      
      3
      
      
      -
      
      
      -
      
      
      18,947
      
      
      -
      
      
      -
      
      
      -
      
      
      (159,909
      )
      
      (140,959
      )Repurchase of common stock byconsideration of forgiveness
        of loan
      (1,445
      )
      
      (1
      )
      
      -
      
      
      -
      
      
      16,098
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      16,097payable to shareholder2,020
      
      
      2
      
      
      -
      
      
      -
      
      
      35,045
      
      
      -
      
      
      -
      
      
      -
      
      
      (159,909
      )
      
      (124,862
      )Adjustment to number of shares issued andoutstanding as a result of
        the reversetake-over transaction -Custom Branded Networks,
        Inc.
      (2,020
      )
      
      (2
      )
      
      -
      
      
      -
      
      
      2
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -Aquistar Ventures (USA)
        Inc.
      15,463,008
      
      
      15,463
      
      
      -
      
      
      -
      
      
      (15,463
      )
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -15,463,008
      
      
      15,463
      
      
      -
      
      
      -
      
      
      19,584
      
      
      -
      
      
      -
      
      
      -
      
      
      (159,909
      )
      
      (124,862
      )Shares allotted in connection with theacquisition of Custom Branded
        Networks,
      25,000,000
      
      
      25,000
      
      
      -
      
      
      -
      
      
      (9,772
      )
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      15,228Inc.Less: Allotted and not yet issued
      (8,090,476
      )
      
      (8,090
      )
      
      -
      
      
      -
      
      
      8,090
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -Common stock conversion rights
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      421,214
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      421,214Net loss for the year
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      (723,239
      )
      
      (723,239
      )Balance, June 30, 2001
      32,372,532
      
      
      32,373
      
      
      -
      
      
      -
      
      
      439,116
      
      
      -
      
      
      -
      
      
      -
      
      
      (883,148
      )
      
      (411,659
      ) F-4


---

NOVASTAR RESOURCES LTD.(AnExplorationStageCompany)

CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
  (DEFICIENCY) (Continued)

PERIOD FROM JUNE 28, 1999 (INCEPTION) TO MARCH
  31, 2006(Unaudited)(Stated in U.S. Dollars)

**SHARES**COMMON STOCK
      
      
      ADDITIONAL
      
      
      
      
      
      SHARE
      
      
      COMMITTEDCOMMON
        STOCK
      
      
      PURCHASE
        WARRANTS
      
      
      PAID-IN
      
      
      DEFERRED
      
      
      SUBSCRIPTIONS
      
      
      FOR
      
      
      ACCUMULATEDSHARES
      
      
      AMOUNT
      
      
      WARRANTS
      
      
      AMOUNT
      
      
      CAPITAL
      
      
      COMPENSATION
      
      
      RECEIVED
      
      
      ISSUANCE
      
      
      DEFICIT
      
      
      TOTALBalance, June 30, 2001
      32,372,532
      
      $
      32,373
      
      
      -
      
      $
      -
      
      $
      439,116
      
      $
      -
      
      $
      -
      
      $
      -
      
      $
      (883,148
      )
      $
      (411,659
      )Additional shares issued in connection withthe acquisition of Custom BrandedNetworks, Inc.
      1,500,000
      
      
      1,500
      
      
      -
      
      
      -
      
      
      (1,500
      )
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -Common stock conversion rights
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      109,748
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      109,748Net loss for the year
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      (326,038
      )
      
      (326,038
      )Balance, June 30, 2002
      33,872,532
      
      
      33,873
      
      
      -
      
      
      -
      
      
      547,364
      
      
      -
      
      
      -
      
      
      -
      
      
      (1,209,186
      )
      
      (627,949
      )Issue of common stock for deferredcompensation expense
      4,500,000
      
      
      4,500
      
      
      -
      
      
      -
      
      
      40,500
      
      
      (45,000
      )
      
      -
      
      
      -
      
      
      -
      
      
      -Amortization of deferred compensation
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      22,500
      
      
      -
      
      
      -
      
      
      -
      
      
      22,500Common stock conversion rights
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      45,116
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      45,116Net loss for the year
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      (142,233
      )
      
      (142,233
      )Balance, June 30, 2003
      38,372,532
      
      
      38,373
      
      
      -
      
      
      -
      
      
      632,980
      
      
      (22,500
      )
      
      -
      
      
      -
      
      
      (1,351,419
      )
      
      (702,566
      )Amortization of deferred compensation
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      22,500
      
      
      -
      
      
      -
      
      
      -
      
      
      22,500Common stock conversion rights
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      3,301
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      3,301Net loss for the year
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      (95,430
      )
      
      (95,430
      )Balance, June 30, 2004
      38,372,532
      
      
      38,373
      
      
      -
      
      
      -
      
      
      636,281
      
      
      -
      
      
      -
      
      
      -
      
      
      (1,446,849
      )
      
      (772,195
      )Issue of common stock for services
      14,800,000
      
      
      14,800
      
      
      -
      
      
      -
      
      
      901,200
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      916,000Issue of common stock and warrants forconvertible notes
      20,000,000
      
      
      20,000
      
      
      20,000,000
      
      
      495,834
      
      
      484,166
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      1,000,000Issue of common stock for services
      11,600,000
      
      
      11,600
      
      
      -
      
      
      -
      
      
      1,583,900
      
      
      (598,000
      )
      
      -
      
      
      -
      
      
      -
      
      
      997,500Issue of common stock for services
      1,300,000
      
      
      1,300
      
      
      -
      
      
      -
      
      
      226,700
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      228,000Amortization of deferred compensation
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      98,033
      
      
      -
      
      
      -
      
      
      -
      
      
      98,033Net loss for the year
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      (2,691,516
      )
      
      (2,691,516
      )Balance, June 30, 2005
      86,072,532
      
      
      86,073
      
      
      20,000,000
      
      
      495,834
      
      
      3,832,247
      
      
      (499,967
      )
      
      -
      
      
      -
      
      
      (4,138,365
      )
      
      (224,178
      ) F-5


---

NOVASTAR RESOURCES LTD.(AnExplorationStageCompany)

CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
  (DEFICIENCY) (Continued)

PERIOD FROM JUNE 28, 1999 (INCEPTION) TO MARCH
  31, 2006(Unaudited)(Stated in U.S. Dollars)

SHARESCOMMON STOCK
      
      
      ADDITIONAL
      
      
      
      
      
      SHARE
      
      
      COMMITTEDCOMMON
        STOCK
      
      
      PURCHASE
        WARRANTS
      
      
      PAID-IN
      
      
      DEFERRED
      
      
      SUBSCRIPTIONS
      
      
      FOR
      
      
      ACCUMULATEDSHARES
      
      
      AMOUNT
      
      
      WARRANTS
      
      
      AMOUNT
      
      
      CAPITAL
      
      
      COMPENSATION
      
      
      RECEIVED
      
      
      ISSUANCE
      
      
      DEFICIT
      
      
      TOTALBalance, June 30, 2005
      86,072,532
      
      $
      86,073
      
      
      20,000,000
      
      $
      495,834
      
      $
      3,832,247
      
      $
      (499,967
      )
      $
      -
      
      $
      -
      
      $
      (4,138,365
      )
      $
      (224,178
      )Issuance of common stock for services
      17,358,078
      
      
      17,358
      
      
      -
      
      
      -
      
      
      3,578,443
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      3,595,801Issuance of commonstock and warrants for settlement
        debt
      249,999
      
      
      250
      
      
      124,999
      
      
      7,569
      
      
      29,681
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      37,500Issuance of common stock for propertyacquisition
      6,000,000
      
      
      6,000
      
      
      -
      
      
      -
      
      
      1,604,000
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      1,610,000Private placement for issuance of commonstock, warrants and subscriptionsreceived
      7,334,997
      
      
      7,334
      
      
      3,667,499
      
      
      345,349
      
      
      1,243,803
      
      
      -
      
      
      250,000
      
      
      -
      
      
      -
      
      
      1,846,486Cancellation of warrants
      -
      
      
      -
      
      
      (20,000,000
      )
      
      (495,834
      )
      
      495,834
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -Issuance of shares as compensation forwarrants cancelled by shareholder
      15,000,000
      
      
      15,000
      
      
      -
      
      
      -
      
      
      1,739,166
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      1,754,166Amortization of deferred compensation
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      499,967
      
      
      -
      
      
      -
      
      
      -
      
      
      499,967Deferred compensation
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      (697,612
      )
      
      -
      
      
      -
      
      
      -
      
      
      (697,612
      )Repurchase of issued shares
      (5,000,000
      )
      
      (5,000
      )
      
      -
      
      
      -
      
      
      (395,000
      )
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      (400,000
      )Shares returned to treasury
      (15,000,000
      )
      
      (15,000
      )
      
      -
      
      
      -
      
      
      (1,739,166
      )
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      (1,754,166
      )Shares committed for issuance
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      4,150,000
      
      
      -
      
      
      4,150,000Stock based compensation
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      870,335
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      870,335Net loss for the period
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      (10,899,554
      )
      
      (10,899,554
      )Balance, March 31, 2006
      112,015,606
      
      $
      112,015
      
      
      3,792,498
      
      $
      352,918
      
      $
      11,259,343
      
      $
      (697,612
      )
      $
      250,000
      
      $
      4,150,000
      
      $
      (15,037,919
      )
      $
      388,745Deficit accumulated during thedevelopment stage
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      $
      (1,351,419
      )Deficit accumulated during theexploration stage
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (13,686,500
      )Balance, March 31, 2006
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      $
      (15,037,919
      )


The accompanying notes are an integral part of these financial
  statements

F-6

---

NOVASTAR RESOURCES LTD.(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006(Unaudited) 
  (Stated in U.S. Dollars)

|1. | BASIS OF PRESENTATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The unaudited financial information furnished herein
        reflects all adjustments, which in the opinion of management are necessary
        to fairly state the Companys interim financial position and the
        results of its operations for the periods presented. This report on Form
        10-QSB should be read in conjunction with the Companys financial
        statements and notes thereto included in the Companys Form 10-KSB/A
        for the fiscal year ended June 30, 2005. The Company assumes that the
        users of the interim financial information herein have read or have access
        to the audited financial statements for the preceding fiscal year and
        that the adequacy of additional disclosure needed for a fair presentation
        may be determined in that context. Accordingly, footnote disclosure, which
        would substantially duplicate the disclosure contained in the Companys
        Form 10-KSB/A for the fiscal year ended June 30, 2005, has been omitted.
        The results of operations for the nine-month period ended March 31, 2006
        are not necessarily indicative of results for the entire fiscal year ending
        June 30, 2006.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|2. | NATURE OF OPERATIONS AND GOING CONCERN                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Novastar Resources Ltd. (the Company) was
        previously a development stage company engaged in the business of providing
        turnkey private label internet services to organizations throughout the
        domestic United States and Canada. Commencing July 1, 2003 the Company
        became an exploration stage company engaged in the acquisition and exploration
        of mineral claims. Upon location of a commercial minable reserve, the
        Company expects to actively prepare the site for its extraction and enter
        a development stage.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | During the year ended June 30, 2005 the Company changed
        its name from Custom Branded Networks, Inc. and increased its authorized
        common shares from 50,000,000 shares to 250,000,000 shares and also authorized
        50,000,000 preferred shares for issuance at a par value of $0.001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Going Concern                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The accompanying consolidated financial statements have
        been prepared assuming the Company will continue as a going concern.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

F-7

---

NOVASTAR RESOURCES LTD.(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006(Unaudited) 
  (Stated in U.S. Dollars)

|2. | NATURE OF OPERATIONS AND GOING CONCERN(Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | As shown in the accompanying financial statements,
        the Company has incurred a net loss of $15,037,919 since inception, and
        has had minimal sales. The future of the Company is dependent upon its
        ability to obtain financing and upon future profitable operations from
        the development of its mineral claims. Management has plans to seek additional
        capital through a private placement or public offering of its common stock
        (See Note 14 (a)). The consolidated financial statements do not include
        any adjustments relating to the recoverability and classification of recorded
        assets, or the amounts of and classification of liabilities that might
        be necessary in the event the Company cannot continue in existence.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|3. | RESTRICTED CASH                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | During the year ended June 30, 2005 proceeds
        totaling $94,140 were received in accordance with a planned private placement
        of common stock scheduled to close subsequent to the year end. This private
        placement was terminated and no shares of the Company were issued. During
        the period ended March 31, 2006, $89,140 was reimbursed to the subscribers
        in cash, while the balance was used, with the consent of the subscribers,
        towards a private placement that closed in the period .                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|4. | LONG TERM INVESTMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | As disclosed in Note 13, as at March 31, 2006
        the Company has invested a total of $700,000 in Thorium Power Inc. (Thorium
        Power). The investment consists of 175,000 common shares of Thorium
        Power purchased at $4.00 per share. The Companys investment of less
        than 5% of the common stock of Thorium Power is carried at cost because
        the Company does not exercise influence over Thorium Powers operating
        and financial activities.                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|5. | MINERAL PROPERTIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

F-8

---

NOVASTAR RESOURCES LTD.(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006(Unaudited) 
  (Stated in U.S. Dollars)

|5. | MINERAL PROPERTIES(Continued)
|-- | -----------------------------
|   |                              
|   | b)                           

| | i)   | $125,000 by December 31, 2006;              
| | ---- | --------------------------------------------
| | ii)  | an additional $150,000 by December 31, 2007;
| | iii) | an additional $140,000 by December 31, 2008;
| | iv)  | an additional $140,000 by December 31, 2009;
| | v)   | an additional $140,000 by December 31, 2010.

The vendor retains a 2.5% net smelter
  return royalty on the property.

On February 20, 2006 the Company repurchased
  the 5,000,000 common shares from the vendor for cash consideration of $400,000.
  The Company can still acquire the 100% interest by incurring the exploration
  expenditures disclosed above. Once returned to the Companys treasury,
  the 5,000,000 shares were cancelled.

| | c) | On December 31, 2005 the Company entered into an agreement
        whereby certain mineral leases in the Cleburne and Clay County Districts
        of Alabama are to be assigned to the Company. The Company will assume
        51% of a lease held by the lessee, who subsequently become an officer
        of the Company but no longer served as an officer as at March 31, 2006,
        for consideration of 2,000,000 restricted common shares of the Company
        (not issued as at March 31, 2006). In addition, the Company must incur
        $1,500,000 on property expenditures and for each $100,000 in additional
        expenditures, the Company will receive an additional 4% interest in the
        lease up to a maximum of an extra 40% interest. Upon reaching a 91% interest,
        the lessee shall retain a 9% interest and shall receive $17.50 per ounce
        of pure Platinum Group Metal (PGM) produced. For each 2,500 ounces of
        PGM produced, the lessee shall receive an additional 1,000,000 restricted
        common shares of the Company, up to a maximum of 8,000,000 shares, for
        a period of two years from the acquisition of the Companys 91% interest
        being obtained.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-9

---

NOVASTAR RESOURCES LTD.(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006(Unaudited) 
  (Stated in U.S. Dollars)

|6. | CONVERTIBLE NOTE PAYABLE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | On January, 31, 2002 the Company executed
        $1,000,000 aggregate principal amount of convertible notes due not earlier
        than January 31, 2009. These notes were secured by the assets of the Company.
        The Company received $1,000,000 in advances through to June 20, 2005 (2004
        - $892,119), including in-kind consideration of $100,000. The notes bore
        no interest until the maturity date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | On January 20, 2005 the Company issued 20,000,000
        common shares at a price of $0.05 per share, and 20,000,000 warrants,
        for the purchase of 20,000,000 shares of common stock of the Company,
        to the holder on conversion of the notes. The warrants are exercisable
        at a price of $0.05 per share until January 20, 2008. The warrants were
        valued using the Black Scholes option pricing model using the following
        assumptions: weighted average expected life of 3 years, volatility of
        284%, rate of quarterly dividends - $nil, risk free interest rate of 3.5%.
        The $1,000,000 consideration was allocated to the common stock and share
        purchase warrants based upon their relative fair values on the date of
        conversion. The amount allocated to the common shares issued was $504,166.
        The amount allocated to the share purchase warrants was $495,834.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Because the market interest rate on similar
        types of notes was approximately 14% per annum the day the notes were
        issued, the Company had recorded a discount of $579,378 related to the
        beneficial conversion feature. During the year ended June 30, 2005, $442,813
        (2004 - $55,170) was amortized and recorded as interest expense. The discount
        was fully amortized as interest expense upon conversion.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | During the period ended March 31, 2006 the
        share purchase warrants were cancelled by mutual agreement of the holder
        and the Company, in return for 15,000,000 shares of the Companys
        common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | On February 20, 2006 the holder returned all
        15,000,000 shares to the Companys treasury for cancellation. The
        Company did not compensate the holder for the return of the shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|7. | SHARE CAPITAL                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

F-10

---

NOVASTAR RESOURCES LTD.(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006(Unaudited) 
  (Stated in U.S. Dollars)

|7. | SHARE CAPITAL(Continued)
|-- | ------------------------
|   |                         
|   | i)                      
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         

F-11

---

NOVASTAR RESOURCES LTD.(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006(Unaudited) 
  (Stated in U.S. Dollars)

|7. | SHARE CAPITAL(Continued)
|-- | ------------------------
|   |                         
|   | i)                      
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         

F-12

---

NOVASTAR RESOURCES LTD.(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006(Unaudited) 
  (Stated in U.S. Dollars)

|7. | SHARE CAPITAL(Continued)
|-- | ------------------------
|   |                         
|   | i)                      
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         

The Company valued all shares issued
  in the nine month period ended March 31, 2006 using exchange amounts of the
  Companys common stock as of the agreement dates.

F-13

---

NOVASTAR RESOURCES LTD.(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006(Unaudited) 
  (Stated in U.S. Dollars)

|7. | SHARE CAPITAL(Continued)
|-- | ------------------------
|   |                         
|   | ii)                     
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         

The following is a summary of the stock
  option activity for the period ended March 31, 2006:

| |                             |  |           |  |   | WEIGHTED | 
| | --------------------------- |  | --------- |  | - | -------- | 
| |                             |  | NUMBER    |  |   | AVERAGE  | 
| |                             |  | OF        |  |   | EXERCISE | 
| |                             |  | SHARES    |  |   | PRICE    | 
| |                             |  |           |  |   |          | 
| | Outstanding, June 30, 2005  |  | -         |  | $ | -        | 
| |                             |  |           |  |   |          | 
| | Granted                     |  | 7,200,000 |  |   | 0.80     | 
| | Expired                     |  | -         |  |   | -        | 
| |                             |  |           |  |   |          | 
| | Outstanding, March 31, 2006 |  | 7,200,000 |  | $ | 0.80     | 

The following is a summary of the status
  of stock options exercisable at March 31, 2006:

WEIGHTEDAVERAGENUMBER
      
      
      
      REMAININGOF
      
      EXERCISE
      
      CONTRACTUALOPTIONS
      
      PRICE
      
      LIFE (YEARS)1,050,000
      
      $ 0.80
      
      9.917 F-14


---

NOVASTAR RESOURCES LTD.(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006(Unaudited) 
  (Stated in U.S. Dollars)

|7. | SHARE CAPITAL(Continued)
|-- | ------------------------
|   |                         
|   | iii)                    
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         

| |                                 | 2005   
| | ------------------------------- | -------
| |                                 |        
| | Average risk-free interest rate | 4.33%  
| | Average expected life           | 5 years
| | Expected volatility             | 284%   
| | Expected dividends              | Nil    

During the period ended March 31, 2006,
  $870,335 was recorded as stock based compensation expense to the statement of
  operations as the result of stock option grants.

|8. | DEFERRED COMPENSATION
|-- | ---------------------
|   |                      
|   | a)                   
|   |                      
|   | b)                   

F-15

---

NOVASTAR RESOURCES LTD.(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006(Unaudited) 
  (Stated in U.S. Dollars)

|8. | DEFERRED COMPENSATION(Continued)
|-- | --------------------------------

| |    | On December 1, 2005 these consultants were issued 1,060,000
        common shares at $0.17 per share on an accelerated basis. Amortization
        is taken on a monthly basis over the remainder of the terms. As at March
        31, 2006, $21,250 has yet to be amortized from this accelerated issuance.                                                                                                                              
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | c) | On January 11, 2006 the Company issued an aggregate
        of 3,100,000 common shares to various consultants at $0.17 per share pursuant
        to various consulting agreements. A portion of these shares were issued
        on an accelerated basis. Amortization is taken on a monthly basis over
        the remainder of the terms. As at March 31, 2006, $676,362 has yet to
        be amortized from this accelerated issuance.

|9. | RELATED PARTIES
|-- | ---------------

| | a) | During the nine month period ended March 31, 2006 an
        officer and director of the Company made payments on behalf of the Company
        in the amount of $51,613. These amounts were advanced without interest
        and are due on demand. A total of $50,000 was reimbursed to this individual
        through cash payment and the issuance of common stock. As at March 31,
        2006 this individual was no longer an officer of the Company.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | Pursuant to the consulting agreement disclosed in Note
        12(a), the Company incurred $9,000 in consulting fees to this individual
        for the period ended March 31, 2006. $6,000 was paid in cash, while the
        remainder was owing as at March 31, 2006, such that the outstanding balance
        payable to this individual as at March 31, 2006 is $4,613.                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | During the nine month period ending March 31, 2006 this
        individual was issued on aggregate of 2,050,000 common shares of the Company
        for consulting services rendered. The value of these services totaled
        $348,500 ($0.17 per share).                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | b) | During the nine month period ended March 31, 2006 an
        officer and director of the Company was paid $100,000 in cash and issued
        1,000,000 restricted common shares of the Company pursuant to the mineral
        property agreement discussed in Note 5(a). As at March 31, 2006 this individual
        was no longer an officer of the Company.                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | Pursuant to the consulting agreement disclosed in Note
        12(b), the Company incurred $26,250 in consulting fees to this individual
        for the period ended March 31, 2006. $24,000 was in paid in cash, while
        the remainder was owing as at March 31, 2006, such that the outstanding
        balance payable to this individual as at March 31, 2006 is $2,250.                                                                            

F-16

---

NOVASTAR RESOURCES LTD.(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006(Unaudited) 
  (Stated in U.S. Dollars)

|9.  | RELATED PARTIES(Continued)                                                                                                                                                                                                                                 
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                            
|    | During the nine month period ended March 31,
        2006 this individual was issued an aggregate 1,000,000 common shares of
        the Company for consulting services rendered. The value of these services
        totalled $170,000 ($0.17 per share).
|    |                                                                                                                                                                                                                                                            
|10. | SUPPLEMENTAL DISCLOSURE ON NON-CASH FINANCING
        AND INVESTING ACTIVITIES                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                            
|    | During the nine month period ended March 31,
        2006 the Company had the following non- cash financing and investing activities:                                                                                                                      
|    |                                                                                                                                                                                                                                                            
|    | a)                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                            
|    | b)                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                            
|    | c)                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                            
|11. | CONSULTING AGREEMENTS                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                            
|    | a)                                                                                                                                                                                                                                                         

F-17

---

NOVASTAR RESOURCES LTD.(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006(Unaudited) 
  (Stated in U.S. Dollars)

|11. | CONSULTING AGREEMENTS(Continued)       
|--- | ---------------------------------------
|    |                                        
|    | b)                                     
|    |                                        
|    | c)                                     
|    |                                        
|12. | COMMITMENTS AND CONTRACTUAL OBLIGATIONS
|    |                                        
|    | a)                                     
|    |                                        
|    | b)                                     
|    |                                        
|    | c)                                     
|    |                                        
|    | d)                                     
|    |                                        
|    | e)                                     

F-18

---

NOVASTAR RESOURCES LTD.(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006(Unaudited) 
  (Stated in U.S. Dollars)

|13. | DEFINITIVE MERGER AGREEMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | On February 14, 2006 the Company entered into
        a Definitive Merger Agreement (Agreement and Plan of Merger)
        for a business combination with Thorium Power, Inc. (Thorium Power).
        Under the Agreement and Plan of Merger, each common share of Thorium Power
        will be converted into securities of the Company pursuant to a conversion
        ratio formula. The combined company will operate under the name of Thorium
        Power Ltd. The merger transaction is subject to certain conditions precedent,
        including an increase in the Companys authorized share capital and
        the declaration of the effectiveness of a registration statement by the
        Securities and Exchange Commission. Other conditions precedent include
        that since January 1, 2006 Novastar shall have raised at least $2,750,000
        in an equity financing transaction (raised as at March 31, 2006), and
        shall have invested at least $1,350,000 in Thorium Power common stock
        at a price per share of $4.00 ($700,000 invested as at March 31, 2006).
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | In conjunction with the Agreement and Plan
        of Merger, the Company entered into a consulting agreement to issue 2,389,558
        common shares as consideration for services received in connection with
        the business combination (issued as at March 31, 2006).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Subsequent to the period ended March 31, 2006,
        a majority of the shareholders of Thorium Power voted in favor of the
        business combination.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|14. | SUBSEQUENT EVENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Subsequent to March 31, 2006 the Company:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

F-19

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- 4 -

Item 2. Managements Discussion and Analysis or Plan
  of Operation.

FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements as
that term is defined in the Private Securities Litigation Reform Act of 1995.
These statements relate to future events or our future financial performance. In
some cases, you can identify forward-looking statements by terminology such as
may, should, expects, plans, anticipates, believes, estimates,
predicts, potential or continue or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors, including the risks in the
section entitled Risk Factors, that may cause our or our industrys actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Specifically, we cannot
guarantee closing of our pending acquisition of Thorium Power, Inc. pursuant to
the definitive merger agreement we signed with them on February 14, 2006.

Except as required by applicable law, including the securities
laws of the United States, we do not intend to update any of the forward-looking
statements to conform these statements to actual results.

Our financial statements are stated in United States dollars
and are prepared in accordance with United States Generally Accepted Accounting
Principles. In this quarterly report, unless otherwise specified all dollar
amounts are expressed in United States dollars.

As used in this quarterly report, the terms we, us, our
company, the Company, Novastar Resources and Novastar mean Novastar
Resources Ltd., a Nevada corporation, unless otherwise indicated.

Background

We were incorporated under the laws of the State of Nevada on
February 2, 1999, under the name of Aquistar Ventures (USA) Inc. Our company was
organized for the purpose of exploring for and developing mineral properties
primarily in the province of Ontario, Canada, through our wholly-owned
subsidiary, Aquistar Ventures Inc. Aquistar Ventures Inc. was incorporated under
the laws of the province of British Columbia, Canada, on April 13, 1995 and is
now inactive.

On February 2, 2001 our company acquired 100% of the issued and
outstanding capital stock of Custom Branded Networks, Inc., a Delaware
corporation, in exchange for 25,000,000 shares of common stock of our company.
Our company then changed its name to Custom Branded Networks, Inc. The business
of Custom Branded Networks, Inc., which was our companys wholly-owned
subsidiary, was the provision of turnkey private label internet solutions to
businesses and private organizations.

Effective May 10, 2005 our company changed its name to Novastar
Resources Ltd. Its legal predecessor Custom Branded Networks, Inc. had ceased
its business of providing private label internet solutions and was searching for
new business opportunities in hopes of enhancing shareholder value. Our board of
directors decided to pursue a business model within the mining and exploration
sector and proposed a name change accordingly.

On February 14, 2006 we entered into an agreement and plan of
  merger with Thorium Power, Inc. (Thorium Power), a Delaware incorporated,
  Washington, D.C. area-based company that designs proliferation-resistant thorium-based
  nuclear fuels, and TP Acquisition Corp., a direct wholly-owned subsidiary of
  Novastar Resources we formed in connection with the planned merger .

---

- 5 -

Our Business

Novastar is a minerals exploration company with the objectives
  of both driving global demand for thorium and becoming a global supplier of
  thorium to the nuclear energy industry. To this end, we have acquired and plan
  to acquire both physical properties and rights to properties that contain monazite
  deposits. The phosphate mineral monazite, which exists as a sand, contains concentrations
  of thorium oxide as well as other Rare Earth Minerals (REM). All commercial
  grade thorium metal (in Oxide Form) is extracted from mineral monazite.

On September 14, 2005 we entered into an agreement under which
we were assigned certain mineral leases in Alabama, USA, prospective for mining
thorium and REM. On December 31, 2005 we entered into an agreement to acquire a
51% (up to 91%) interest in certain other mineral leases located in Alabama,
prospective for REM and Platinum Group Metals (PGM). On September 30, 2005 we
entered in to an agreement to acquire a 100% undivided interest in three mineral
interests located in the state of North Queensland, Australia prospective for
mining Thorium and REM .

Effective January 10, 2006 we entered into a non-binding letter
of intent for a business combination with Thorium Power, Inc. (Thorium Power).
Thorium Power is a privately-held Washington, D.C. area-based company that
develops and deploys thorium-based nuclear fuel technologies designed to stop
the production of weapons-suitable plutonium and eliminate existing plutonium
stockpiles (seewww.thoriumpower.com). On February 14, 2006 we
entered into a definitive Agreement and Plan of Merger (the Merger Agreement)
with Thorium Power.

Effective March 17, 2006 Seth Grae, Chief Executive Officer and
President of Thorium Power, became Chief Executive Officer, President, Interim
Chief Financial Officer and Interim Treasurer of Novastar Resources.

On April 12, 2006 Thorium Power stockholders holding a majority
of that companys common stock approved the Merger Agreement by written consent,
satisfying an approval condition contained in the Merger Agreement.

Upon consummation of the merger, which has been approved by the
board of directors of both Novastar Resources and Thorium Power, Thorium Power
will become a wholly-owned subsidiary of Novastar Resources, and the combined
company will operate under the name Thorium Power Ltd.

Overview

Utilizing thorium based nuclear fuels has several important
societal benefits, such as safety benefits, environmental benefits and
non-proliferation benefits. Thorium is more abundant, more efficient and safer
to use as a reactor fuel than uranium. Also important, thorium reactors leave
behind very little weapons grade plutonium.

As of March 31, 2006 there was not yet global demand for
thorium as a source of nuclear fuel. We believe that there will be significant
surges in demand for thorium at some future point; however we are unable to
predict when or if this will occur.

In addition to the acquisition of thorium properties and
mineral rights, we have identified potential short-term revenue opportunities to
supplement our business since other metals of commercial significance can be
extracted from monazite, namely, REM of the Yttrium Group. REM can be divided
into two groups, the first containing Yttrium, Lanthanum, Cerium, Neodymium
(Yttrium Group), and the second containing Europium, Gadolinium, Terbium,
Dysprosium, Holmium, & Erbium (Dysprosium Group). Mineral monazite only
contains concentrations of REM classified in the Yttrium Group. We plan on
processing and stockpiling REM as a by-product of mining and refining monazite
into thorium oxide. We are in the process of identifying potential buyers of REM
both in the United States and abroad.

Merger Agreement

On February 14, 2006, Novastar Resources entered into an
Agreement and Plan of Merger (the Merger Agreement) with Thorium Power and TP
Acquisition Corp., a direct wholly-owned subsidiary of Novastar Resources formed
in connection with the transactions contemplated by the Merger Agreement.
Concurrently therewith, Novastar Resources (1) adopted its 2006 Stock Plan, (2)
entered into an employment agreement with Seth Grae, President and Chief
Executive Officer of Thorium Power, (3) granted certain nonqualified stock
options to Mr. Grae and (4) entered into a subscription agreement with Thorium
Power for the purchase of 150,000 shares of

---

- 6 -

common stock of Thorium Power for $4.00 per share. In addition,
Novastar Resources amended and restated its consulting agreement with Alan
Gelband.

Prior to and in connection with the execution of the Merger
Agreement, Novastar Resources owned 37,500 shares of common stock of Thorium
Power, also purchased for $4.00 per share. As at March 31, 2006 and currently,
Novastar Resources owns 175,000 shares of Thorium Powers common shares, or
4.74% of Thorium Powers total common shares issued and outstanding. Upon
consummation of the merger, these 175,000 shares will be converted to shares of
Novastar Resources and retired to treasury.

In anticipation of consummation of the merger, on April 2, 2006
Paul G. Carter and Charles H. Merchant resigned from our board of directors and
Seth Grae, Thomas Graham, Jr. and Cornelius J. Milmoe became the new members of
our board of directors.

Upon consummation of the merger, which has been approved by the
boards of directors of both Novastar Resources and Thorium Power as well as
approved by stockholders holding a majority (57.9%) of the shares of Thorium
Power, Thorium Power will become a wholly-owned subsidiary of Novastar Resources
and the combined company will operate under the name Thorium Power Ltd. Under
the Merger Agreement, each common share of Thorium Power will be converted into
securities of Novastar Resources such that Thorium Powers current stockholders
will own less than 50.0% of the combined company, and each share of Novastar
Resources common stock will remain outstanding. The combined company will be
headquartered in the Washington D.C. area.

The merger is conditioned upon, among other things, approvals
by stockholders of Novastar Resources and Thorium Power of certain corporate
matters (received), no legal impediment to the merger, the absence of any
material adverse effect on Novastar Resources or Thorium Power, completion of
due diligence reviews by both companies, the declaration of effectiveness of a
registration statement by the Securities and Exchange Commission and any other
necessary regulatory approvals. The Merger Agreement contains certain
termination rights for both Novastar Resources and Thorium Power, and further
provides that, upon termination of the Merger Agreement under specified
circumstances, either company may be required to pay the other company a
termination fee of $500,000.

2006 Stock Plan

Effective February 14, 2006 Novastar Resources adopted its 2006
Stock Plan. The 2006 Stock Plan provides for grants of restricted shares of
common stock and grants of stock options. Under the terms of the 2006 Stock
Plan, Novastar Resources may grant a maximum of 20 million shares of common
stock, to consist of no more than 20 million shares issuable under incentive
stock options and no more than 10 million restricted shares of common stock. The
maximum number of restricted shares that may be granted to one individual in any
fiscal year is five million shares, and the maximum number of options that may
be granted to one individual in any fiscal year is eight million shares.

On February 14, 2006 Novastar Resources granted a ten-year
share purchase option to Seth Grae, pursuant to the terms of the Employment
Agreement entered into with him on February 14, 2006. The share purchase option
allows Mr. Grae to purchase 7,200,000 shares of the companys common stock at
$0.795 per share, subject to vesting provisions. The option shall vest with
respect to 6/48th or 900,000 of the total number of shares issuable
pursuant to option exercise, on August 14, 2006, and thereafter
1/48th or 150,000 shall vest per month. Accelerated vesting
provisions apply in certain circumstances.

On April 25, 2006 the company appointed George D. Crowley, Jr.
  as Chairman of the companys International Advisory Board and granted him
  a ten-year share purchase option allowing him to purchase 2,000,000 shares of
  the companys common stock at $0.64 per share, subject to vesting provisions.
  The option shall vest with respect to 500,000 of the total number of shares
  issuable pursuant to option exercise, on October 1, 2006, and thereafter 41,667
  shall vest per month. Accelerated vesting provisions apply in certain circumstances.

---

- 7 -

Results of Operations

Summary

Our consolidated net loss for our third fiscal quarter ended
March 31, 2006 was $5,060,664 or $0.04 per share as compared to a net loss of
$1,322,180 or $0.02 per share in the prior years comparative quarter, for a net
loss increase of $3,738,484. During the quarter we incurred a $4,150,000 expense
from the issuance of 5 million shares to Seth Grae pursuant to his employment
agreement. Absent this expense, our net loss would have been $910,664 or a
decrease of $411,516 from the prior years comparative quarter.

During our second fiscal quarter ended December 31, 2005 we
incurred a $1,754,166 expense on the issuance of common shares in compensation
for the cancellation of share purchase warrants. With the agreement of the
shareholders, these shares were cancelled in our third fiscal quarter ended
March 31, 2006. Accordingly, this non-cash expense amount has been reversed into
income in our third fiscal quarter ending March 31, 2006. Absent this expense
reversal, our consolidated net loss for our third fiscal quarter ended March 31,
2006 would have been $6,814,830 or $0.05 per share.

Our consolidated net loss for the nine months ended March 31,
2006 was $10,899,554 or $0.11 per share as compared to a net loss of $1,356,387
or $0.03 per share in the prior years comparative period, for a net loss
increase of $9,543,167. Excluding the $4,150,000 expense from the issuance of 5
million shares to Mr. Grae pursuant to his employment agreement, our
consolidated net loss for the nine months ended March 31, 2006 was $6,749,554 or
$0.07 per share, for a net loss increase of $5,393,167 from the prior years
comparative period. The largest new expenses were related to mineral property
payments and consulting fees paid to consultants whose services included
research into prospective business venues, seeking out business opportunities,
making introductions and other business consulting.

During the three months ended March 31, 2006 we expensed
$224,946 in mineral property exploration costs. We expensed $1,219,379 in
consulting fees during the quarter. In the prior years comparative fiscal
quarter we incurred no mineral property costs and $833,048 in consulting fees
expense.

During the nine months ended March 31, 2006 we expensed
$269,608 in mineral property exploration costs, $1,720,544 in mineral property
acquisition costs and $3,362,399 in consulting fees. The mineral property
acquisition costs and consulting fees were largely non-cash expenses paid for in
shares of our common stock. In the prior years comparative period we incurred
no mineral property costs and $833,048 in consulting fees expense, such expense
mainly attributable to stock based compensation provided to consultants with
respect to the company entering into the natural resources sector.

Our company was essentially inactive in the prior years
comparative periods.

Mineral Production and Revenue

As we are still a development stage company and in the
exploration stage on our mineral interests, being leases and claims located in
Alabama, U.S.A. and North Queensland, Australia, respectively, we have not as of
yet produced any minerals revenues nor produced any minerals.

Exploration, Property Evaluation and Holding Costs

During the quarter ended March 31, 2006 we acquired no mineral
interests. During the nine month period ended March 31, 2006 we acquired mineral
interests as detailed below. During the quarter ended December 31, 2006 we
commenced preliminary exploration activities and expended $44,662 in mineral
property exploration expenses. During the quarter ended March 31, 2006 we
expended $224,946 in mineral property exploration expenses.

On December 31, 2005, we entered into an assignment of minerals
lease with Dr. Charles H. Merchant for the assignment of a lease entered into
between Dr. Merchant and John Hancock Real Estate Division of certain unpatented
mining claims located in Cleburne and Clay Counties, State of Alabama.

Pursuant to the assignment of minerals lease, our company will
acquire a 51% interest in the leased claims on the properties from Dr. Merchant
on the following terms:

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- 8 -

| | (a) | the issuance of 2,000,000 restricted shares of our common
      stock to Dr. Merchant; and                                                                                                                                                     
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                
| | (b) | incurring $1,500,000 on property expenditures (as defined
      in the assignment agreement); and                                                                                                                                              
| |     |                                                                                                                                                                                                                                                
| | (c) | for each additional $100,000 on property expenditures, we
      will receive an additional 4% interest in the lease for the properties, up
      to a maximum of an additional $1,000,000 in expenditures for an additional
      40% interest.

In addition, upon a 91% interest in the leased claims on the
properties being acquired by us, Dr. Merchant will retain a 9% interest in the
leased claims on the properties upon such acquisition, and will receive $17.50
per ounce of pure Platinum Group Metal (PGM) produced for a period of two years
from the acquisition of the 91% interest being obtained. For each 2,500 ounces
of pure PGM produced, Dr. Merchant will receive an additional 1,000,000
restricted shares of our common stock, up to a maximum of 8,000,000 shares of
our common stock.

On September 14, 2005 we entered into an agreement with an
Alabama proprietorship owned by Dr. Merchant, to be assigned all mineral rights
located on certain properties located in the Clay County District of Alabama and
commonly referred to as the Ashland Graphite Properties. The terms of the
agreement require our company to pay $100,000 cash (paid in the quarter ended
September 30, 2005), issue 1,000,000 restricted shares of our common stock
(issued October 21, 2005) and pay a net royalty of $15 per ton of
thorium/monazite removed from the leased properties. There are no minimum
required exploration or development expenditures.

Effective September 30, 2005, we entered into an agreement with
Walter Doyle to acquire an undivided 100% interest in any deposits of thorium,
monazite and other REM on three mining properties in North Queensland,
Australia. In consideration, we agreed to issue 5,000,000 restricted shares of
our common stock (issued October 21, 2005), pay a 2.5% net smelter return
royalty and incur the following exploration expenditures:

| | i)   | $125,000 by December 31, 2006;                  
| | ---- | ------------------------------------------------
| |      |                                                 
| | ii)  | An additional $150,000 by December 31, 2007;    
| |      |                                                 
| | iii) | An additional $140,000 by December 31, 2008;    
| |      |                                                 
| | iv)  | An additional $140,000 by December 31, 2009;
and
| |      |                                                 
| | v)   | An additional $140,000 by December 31,
  2010.  

Effective February 20, 2006 the 5,000,000 restricted shares of
our common stock issued on October 21, 2005 were repurchased by Novastar
Resources from Mr. Doyle for $400,000 and cancelled.

Corporate Administration, Public and Investor Relations

Excluding consulting fees as described above and public
relations costs, corporate administrative costs totalled $313,003 in the
companys third fiscal quarter ended March 31, 2006 as compared to $77,439 in
the prior fiscal years comparative quarter, representing an increase of
$235,564. The increase primarily relates to increased costs for accounting and
legal services in connection with increased corporate activity.

For the nine month period ended March 31, 2006 corporate
administrative costs, excluding consulting fees and public relations costs,
totalled $393,883 as compared to $80,526 in the prior fiscal years comparative
period,

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- 9 -

representing an increase of $313,357. The increase primarily
relates to increased costs for accounting and legal services in connection with
increased corporate activity.

Public relations costs totalled $37,167 in the quarter ended
March 31, 2006 and $132,785 in the nine month period ended March 31, 2006 as
compared to $Nil in the previous years comparative periods. The increase
relates to the engagement of a public relations firm in light of our increased
corporate activity.

During the prior year comparative periods, Novastar Resources
was essentially inactive.

Our company incurred no investor relations costs in the quarter
or nine month period ended March 31, 2006 or in the prior fiscal years
comparative periods.

Employees

On February 14, 2006 we entered into a five year employment
agreement with Seth Grae, for the purpose of employing Mr. Grae as our President
and Chief Executive Officer. A condition precedent to the initiation of Mr.
Graes term of employment was that we obtain directors and officers (D&O)
liability insurance sufficient to cover liabilities of at least $5 million. Such
insurance was obtained and Mr. Graes employment commenced March 17, 2006. On
April 2, 2006 Mr. Grae was appointed to our Board of Directors.

Effective December 1, 2005 Charles H. Merchant was appointed as
Chief Operating Officer and interim Chief Executive Officer. He resigned these
positions effective March 17, 2006 and resigned from our Board of Directors on
April 2, 2006.

On March 17, 2006 Thomas Graham, Jr. became our Interim
Secretary. He was appointed to our Board of Directors on April 2, 2006 and was
appointed Chairman of the Board on April 3, 2006.

Also on April 2, 2006 Paul Carter resigned from our Board of
Directors and Cornelius J. Milmoe was appointed to our Board of Directors. Mr.
Milmoe was appointed our Chief Operating Officer on April 4, 2006.

As of March 31, 2006 we had three officers and employees: Seth
Grae, Chief Executive Officer, President, Interim Chief Financial Officer and
Interim Treasurer, Dr. Charles Merchant, Head of Mining Operations, and Thomas
Graham, Interim Secretary.

We use consultants with specific skills to assist with various
aspects of our project evaluation, due diligence, acquisition initiatives,
corporate governance and business development.

On January 17, 2006 we entered into a six month consulting
agreement with Alan Gelband. This agreement was amended on February 6, 2006.
Pursuant to the amended agreement, Novastar Resources will issue a minimum of
2,389,558 restricted shares of our common stock to Mr. Gelband (issued), in
consideration for his provision of investment banking and advisory services to
Novastar Resources in relation to the proposed business combination with Thorium
Power, to a maximum figure calculated pursuant to a formula and limited to no
more than 1% of the issued and outstanding shares of the combined company.

Agreement to Employ Seth Grae

Pursuant to the terms of the Merger Agreement, effective
February 14, 2006 Novastar Resources entered into a five year employment
agreement with Seth Grae, wherein Novastar Resources has agreed to pay him an
annual salary of $275,000 for performing the duties of President and Chief
Executive Officer as described in the employment agreement. In addition,
Novastar Resources has agreed to issue to Mr. Grae 5,000,000 shares of
restricted stock (issued) and grant to Mr. Grae 7,200,000 non-qualified stock
options (granted), with a term of ten years at an exercise price of $0.795 per
share. The shares of restricted stock vest immediately on issuance and will be
subject to the provisions of Rule 144 promulgated under the Securities Act of
1933, as amended.

Seth Grae has played an active role in all business activities
of Thorium Power since the companys founding. He is a member of the board of
directors of the Bulletin of the Atomic Scientists and has served as co-chair of
the

---

- 10 -

American Bar Associations Committee on Arms Control and
Disarmament. As a member of the board of directors of the Lawyers Alliance for
World Security, Mr. Grae helped advise on the drafting of nuclear export control
regulations in China and Belarus, and he participated in consultations with the
government of India on nuclear power and weapons. He represented refuseniks pro
bono who were nuclear scientists, in securing exit visas from the Soviet Union.
Mr. Grae led the efforts that resulted in Thorium Power becoming one of the
first Western companies to contract with Russian nuclear institutes and become
one of the first grant recipients from the United States Department of Energy
for nuclear non-proliferation related work in Russia. Mr. Grae obtained his B.A.
from Brandeis University cum laude, J.D. from American University, LL.M. in
International Law with honors from Georgetown University, and MBA from
Georgetown University.

Financial Position, Liquidity and Capital Resources

Cash Used In Operations

Cash used in operations was $622,572 in the nine months ended
March 31, 2006 as compared to cash used of $107,881 in the prior fiscal years
comparative period. The change of $514,691 can be primarily attributed to
increased accounting, legal and public relations costs in reflection of our
increased level of corporate activity as compared to the year earlier period,
when the Company was essentially inactive.

During the nine months ended March 31, 2006, interest
amortization totalled $Nil as compared to $442,813 in the prior year. The
decrease is attributable to settlement of the note payable.

Accounts payable and accrued liabilities increased by $459,662
in the nine months ended March 31, 2006 as compared to an increase of $72,528 in
the prior years comparative period.

Prior to consideration of changes in non-cash operating working
capital items, cashed used in operations was $868,153 in the nine months ended
March 31, 2006 as compared to cash used of $180,409 in the prior fiscal years
comparative period. The change of $687,744 can be primarily attributed to
increased accounting, legal and public relations costs in reflection of our
increased level of corporate activity as compared to the year earlier period,
when the Company was essentially inactive.

During the nine months ended March 31, 2006, $7,632,657 of
expenses (including $3,595,801 of consulting services, $1,610,000 of mineral
property acquisition costs and $870,335 of stock based management compensation)
were incurred by payment in shares of common stock in lieu of cash. This
compares to $733,048 of expenses paid in shares in lieu of cash in the prior
fiscal years comparative period, all of which related to consulting fees.

Financing Activities

We received net cash from financing activities of $1,446,486 in
the nine month period ended March 31, 2006, as compared to $Nil in the previous
years comparative period.

On November 23, 2005 we closed a private placement of $631,500,
consisting of an offering of 4,209,998 units at a price of $0.15 per unit. Each
unit consisted of one common share and one-half of a non-transferable share
purchase warrant. Each warrant entitles the holder thereof to acquire one
additional share of common stock at a price of $0.30 per share and has an expiry
date of twelve months from the closing date of the subscription. Of the
4,209,998 units issued in the private placement, 249,999 units were issued as
settlement of debt. The remainder of the units were issued for total cash
proceeds of $594,000.

On March 30, 2006 we closed a $1,262,500 private placement,
consisting of an offering of 4,208,331 units at a price of $0.30 per unit, with
each unit consisting of one share of common stock and one-half of a
non-transferable share purchase warrant. Each whole warrant entitles the holder
thereof to acquire one additional share of common stock at a price of $0.50 per
share and expires twelve months from the closing date of the subscription.

Of the proceeds raised in the $1,262,500 private placement,
$400,000 was expended in order to repurchase 5,000,000 restricted shares from a
shareholder. These shares were returned to treasury and cancelled February 20,
2006.

---

- 11 -

Subsequent to March 31, 2006 we closed a 36,659,837 unit
private placement at $0.425 per unit for cash proceeds of $15,580,434. Each unit
consists of one share of common stock and one-half of a non-transferable share
purchase warrant. Each whole warrant entitles the holder thereof to acquire one
additional share of common stock at a price of $0.65 per share and expires
twelve months from the closing date of the subscription.

Liquidity and Capital Resources

As of March 31, 2006 our total assets were $1,080,250 as
compared to $73,370 at December 31, 2006, our prior quarter-end and $802 on June
30, 2005, our prior fiscal year-end.

Liabilities of $691,505 as of March 31, 2006 compare to
$235,192 as of December 31, 2006 and $224,980 reported as of June 30, 2005.

We had a working capital deficiency of $366,545 on March 31,
2006 as compared to $161,822 on December 31, 2005 and $224,178 on June 30, 2005.

During the quarter ended March 31, 2006 we closed a $1,262,500
private placement of shares and warrants, and subsequent to quarter-end we
closed a $15,580,434 private placement of shares and warrants, both referred to
above under Financing Activities.

Plan of Operations and Cash Requirements

Without regard to the proposed acquisition of Thorium Power
pursuant to the definitive merger agreement as discussed above, which
transaction is subject to closing conditions that may take some months to
satisfy, major cash commitments over the next 12 months are related to proposed
exploration activities, corporate administration and operations. Our minimum
committed exploration expenditures on our mineral properties total $125,000 by
December 31, 2006 and March 31, 2007. Thus, we currently have sufficient
liquidity to meet our minimum required expenditures over the 12 months ending
March 31, 2007.

With regard to the proposed acquisition of Thorium Power, we do
not currently contemplate that the acquisition of Thorium Power will materially
increase our minimum committed expenditures. However, overall expenditures will
materially increase and these amounts will vary in relation to governmental and
private funding. Further detail will be provided in appropriate regulatory
filings and disclosures subsequent to the date of this report.

Estimated Expenditures Over the Next Twelve Months

Absent the proposed acquisition of Thorium Power, we anticipate
that we will expend approximately $885,000 during the twelve-month period ending
March 31, 2007 as follows:

Operating expensesExploration and drilling
    $
    165,000Land and lease
      expenditures
    
    20,000General and Administrative
    
    650,000Capital expenditures
    
    50,000Total
    $
    885,000


We currently have minimal debt and have not established a limit
as to the amount of debt we may incur, nor have we adopted a ratio of our equity
to debt allowance.

If we seek to obtain additional financing, there is no
assurance that financing will be available from any source, or if available that
it will be available on acceptable terms.

---

- 12 -

If additional funds are raised through the issuance of equity
securities, there may be a significant dilution in the value of our outstanding
shares of common stock. We could suffer adverse consequences if we are unable to
obtain additional capital, which would cast substantial doubt on our ability to
continue our operations and growth.

RISK FACTORS

Much of the information included in this quarterly report
includes or is based upon estimates, projections or other forward-looking
statements. Such forward-looking statements include any projections or
estimates made by us and our management in connection with our business
operations. While these forward-looking statements, and any assumptions upon
which they are based, are made in good faith and reflect our current judgment
regarding the direction of our business, actual results will almost always vary,
sometimes materially, from any estimates, predictions, projections, assumptions,
or other future performance suggested herein. We undertake no obligation to
update forward-looking statements to reflect events or circumstances occurring
after the date of such statements.

Such estimates, projections or other forward-looking
statements involve various risks and uncertainties as outlined below. We
caution readers of this quarterly report that important factors in some cases
have affected and in the future could materially affect actual results and cause
actual results to differ materially from the results expressed in any such
estimates, projections or other forward-looking statements. In evaluating us,
our business and any investment in our business, readers should carefully
consider the following factors:

Our companys limited operating history makes it difficult
for you to judge its prospects.

Our company has a limited operating history upon which an
evaluation of our current business and our prospects can be based. You should
consider any purchase of our shares in light of the risks, expenses and problems
frequently encountered by all companies in the early stages of its corporate
development.

Our company has entered into a definitive merger agreement
with another company.

Consolidated results of our company will materially change on a
go-forward basis if and when the proposed acquisition of Thorium Power, Inc. is
consummated pursuant to the recently entered into definitive merger agreement.

Liquidity and capital resources are uncertain.

For the nine month period ended March 31, 2006 we incurred a
net loss of $10,899,554 and used $622,572 of cash in operations. As at March 31,
2006 we had a working capital deficit of $366,545. Subsequent to March 31, 2006
we raised cash proceeds of $15,580,434 in a private placement of shares and
warrants. While these proceeds meet our foreseeable needs for the next 12
months, we may 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. If our company needs to obtain additional financing, there
is no assurance that financing will be available from any source, that it will
be available on terms acceptable to us, or that any future offering of
securities will be successful. If additional funds are raised through the
issuance of equity securities, there may be a significant dilution in the value
of our outstanding shares of common stock.

The value and transferability of our shares of common stock
may be adversely impacted by the limited trading market for our shares and the
penny stock rules.

There is only a limited trading market for our shares of common
  stock. Our shares of common stock are traded in the over-the-counter market
  and bid and asked quotations regularly appear on the
  OTC-Bulletin Board under the symbol NVAS. There can be no assurance
  that our shares of common stock will trade at prices at or above its present
  level, and an inactive or illiquid trading market may have an adverse impact
  on the market price. In addition, holders of our shares of common stock may
  experience substantial difficulty in selling their securities as a result of
  the penny stock rules, which restrict the ability of brokers to
  sell certain securities of companies whose assets or revenues fall below the
  thresholds established by those rules.

---

- 13 -

Future sales of shares may adversely impact the value of our
  shares of common stock.

If required, our company may seek to raise additional capital
  through the sale of our shares of common stock. Future sales of our shares of
  common stock by us or our stockholders could cause the market price of our common
  stock to decline.

Mineral exploration and development activities are
speculative in nature.

Resource exploration and development is a speculative business,
characterized by a number of significant risks including unprofitable efforts
resulting not only from the failure to discover mineral deposits but from
finding mineral deposits which, though present, are insufficient in quantity and
quality to return a profit from production. The marketability of minerals
acquired or discovered by our company may be affected by numerous factors which
are beyond our control and which cannot be accurately predicted, such as market
fluctuations, the proximity and capacity of milling facilities, mineral markets
and processing equipment and such other factors as government regulations,
including regulations relating to royalties, allowable production, importing and
exporting of minerals and environmental protection, the combination of which
factors may result in our company not receiving an adequate return of investment
capital.

Substantial expenditures are required to establish mineral
reserves through drilling, to develop metallurgical processes to extract the
metal from the ore and, in the case of new properties, to develop the mining and
processing facilities and infrastructure at any site chosen for mining. Although
substantial benefits may be derived from the discovery of a major mineralized
deposit, no assurance can be given that minerals will be discovered in
sufficient quantities and grades to justify commercial operations or that funds
required for development can be obtained on a timely basis. Estimates of
reserves, mineral deposits and production costs can also be affected by such
factors as environmental permitting regulations and requirements, weather,
environmental factors, unforeseen technical difficulties, unusual or unexpected
geological formations and work interruptions. In addition, the grade of ore
ultimately mined may differ from that indicated by drilling results. Short term
factors relating to reserves, such as the need for orderly development of ore
bodies or the processing of new or different grades, may also have an adverse
effect on mining operations and on the results of operations. Material changes
in ore reserves, grades, stripping ratios or recovery rates may affect the
economic viability of any project.

Our company will be subject to operating hazards and risks
which may adversely affect our companys financial condition.

Mineral exploration involves many risks, which even a
combination of experience, knowledge and careful evaluation may not be able to
overcome. Our operations will be subject to all the hazards and risks normally
incidental to exploration, development and production of minerals and metals,
such as unusual or unexpected formations, cave-ins or pollution, all of which
could result in work stoppages, damage to property and possible environmental
damage. We do not have general liability insurance covering our operations and
do not presently intend to obtain liability insurance as to such hazards and
liabilities. Payment of any liabilities as a result could have a materially
adverse effect upon our companys financial condition.

Our companys activities will be subject to environmental
and other industry regulations which could have an adverse effect on the
financial condition of our company.

Our activities are subject to environmental regulations promulgated
  by government agencies from time to time. Environmental legislation generally
  provides for restrictions and prohibitions on spills, releases or emissions
  of various substances produced in association with certain mining industry operations,
  which would result in environmental pollution. A breach of such legislation
  may result in imposition of fines and penalties. In addition, certain types
  of operations require the submission and approval of environmental impact assessments.
  Environmental legislation is evolving in a manner which means stricter standards
  and enforcement, fines and penalties for non-compliance are more stringent.

Environmental assessments of proposed projects carry a
heightened degree of responsibility for companies and directors, officers and
employees. The cost of compliance with changes in governmental regulations could
have an adverse effect on the financial condition of our company.

The operations of our company including exploration and
development activities and commencement of production on its properties, require
permits from various federal, state, territorial, provincial and local
governmental authorities

---

- 14 -

and such operations are and will be governed by laws and
regulations governing prospecting, development, mining, production, exports,
taxes, labor standards, occupational health, waste disposal, toxic substances,
land use, environmental protection, mine safety and other matters. Companies
engaged in the development and operation of mines and related facilities
generally experience increased costs and delays in production and other
schedules as a result of the need to comply with applicable laws, regulations
and permits.

Failure to comply with applicable laws, regulations, and
permitting requirements may result in enforcement actions thereunder, including
orders issued by regulatory or judicial authorities causing operations to cease
or be curtailed, and may include corrective measures requiring capital
expenditures, installation of additional equipment, or remedial actions. Parties
engaged in mining operations may be required to compensate those suffering loss
or damage by reason of the mining activities and may have civil or criminal
fines or penalties imposed for violations of applicable laws or regulations and,
in particular, environmental laws.

Competition may have an impact on our companys ability to
acquire attractive mineral properties, which may have an adverse impact on our
companys operations.

Significant and increasing competition exists for the limited
number of mineral acquisition opportunities available. As a result of this
competition, some of which is with large established mining companies with
substantial capabilities and greater financial and technical resources than our
company, we may be unable to acquire attractive mineral properties on acceptable
terms. Accordingly, there can be no assurance that any exploration program
intended by our company on properties it intends to acquire, will yield any
reserves or result in any commercial mining operation.

Downward fluctuations in metal prices may severely reduce
the value of our company.

We have no control over the fluctuations in the prices of the
thorium and other REM that we are exploring for. A significant decline in such
prices could severely reduce the value of our company.

We currently rely on certain key individuals and the loss of
one of these certain key individuals could have an adverse effect on our
company.

Our success depends to a certain degree upon key members of our
management. These individuals are a significant factor in our companys growth
and success. The loss of the service of members of the management and certain
key employees could have a material adverse effect on our company.

We are an exploration stage company, and there is no
assurance that a commercially viable deposit or reserve exists on any
properties for which our company has, or might obtain, an interest.

We are an exploration stage company and cannot give assurance
that a commercially viable deposit or reserve exists on any properties for which
we currently have or may have an interest. Therefore, determination of the
existence of a deposit or reserve depends on appropriate and sufficient
exploration work and the evaluation of legal, economic, and environmental
factors. If we fail to find a commercially viable deposit on any of our
properties, our financial condition and results of operations could be
materially adversely affected.

We require substantial funds merely to determine whether
commercial mineral deposits exist on our properties.

Any potential development and production of our exploration
properties depends upon the results of exploration programs and/or feasibility
studies and the recommendations of duly qualified engineers and geologists. Such
programs require substantial additional funds. Any decision to further expand
our operations on these exploration properties is anticipated to involve
consideration and evaluation of several significant factors including, but not
limited to:

---

- 15 -

| | 1. | Costs of bringing each property into production,
      including exploration work, preparation of production feasibility studies
      and construction of production facilities;
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                  
| | 2. | Availability and costs of financing;                                                                                                                                             
| |    |                                                                                                                                                                                  
| | 3. | Ongoing costs of production;                                                                                                                                                     
| |    |                                                                                                                                                                                  
| | 4. | Market prices for the minerals to be produced;                                                                                                                                   
| |    |                                                                                                                                                                                  
| | 5. | Environmental compliance regulations and restraints;
      and                                                                                                                   
| |    |                                                                                                                                                                                  
| | 6. | Political climate and/or governmental regulation and
      control.                                                                                                              

General Mining Risks

Factors beyond our control may affect the marketability of any
substances discovered from resource properties we own or may acquire. Metal
prices have fluctuated widely in recent years. Government regulations relating
to price, royalties, allowable production and importing and exporting of
minerals can adversely affect our company. There can be no certainty that we
will be able to obtain all necessary licenses and permits that may be required
to carry out exploration, development and operations on any projects we own or
may acquire and environmental concerns about mining in general continue to be a
significant challenge for all mining companies

Item 3. Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of
1934, as of the end of the period covered by the quarterly report, being March
31, 2006, we have carried out an evaluation of the effectiveness of the design
and operation of our companys disclosure controls and procedures. This
evaluation was carried out under the supervision and with the participation of
our companys management, including our Chief Executive Officer. Based upon that
evaluation, our companys Chief Executive Officer concluded that our companys
disclosure controls and procedures are effective as at the end of the period
covered by this report. There have been no changes in our internal controls over
financial reporting that occurred during our most recent fiscal quarter that
have materially affected, or are reasonably likely to materially affect our
internal controls over financial reporting.

Disclosure controls and procedures and other procedures that
are designed to ensure that information required to be disclosed in our reports
filed or submitted under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time period specified in the
Securities and Exchange Commission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
Securities Exchange Act of 1934 is accumulated and communicated to management,
including our Chief Executive Officer as appropriate, to allow timely decisions
regarding required disclosure.

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- 16 -

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

We know of no material, existing or pending legal proceedings
against our company, nor are we involved as a plaintiff in any material
proceeding or pending litigation. There are no proceedings in which any of our
directors, officers or affiliates, or any registered or beneficial stockholder,
is an adverse party or has a material interest adverse to our interest. The
outcome of open unresolved legal proceedings is presently indeterminable. Any
settlement resulting from resolution of these contingencies will be accounted
for in the period of settlement. We do not believe the potential outcome from
these legal proceedings will significantly impact our financial position,
operations or cash flows.

Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds

On February 14, 2006, we completed a private placement of
4,208,340 units (each, a Unit), at a price of $0.30 per Unit, to 13 accredited
investors for total proceeds of $1,262,500. Each Unit consists of one share of
our common stock and one-half of one purchase warrant. Each whole purchase
warrant is non-transferable and entitles the holder to purchase one additional
share of our common stock for a period of 12 months, at a price per share of
$0.50.

Each investor confirmed in writing that it is an accredited
investor and represented its intention to acquire the securities for investment
purposes and not with a view to distribution. We did not use, and no person
acting on its behalf used, any form of general solicitation or general
advertising in connection with this offering. Appropriate legends shall be
affixed to the stock certificates to be issued to each investor. Each investor
acknowledged that the sale of the securities was not registered under the
Securities Act of 1933, as amended, and that the securities could not be resold
unless the securities were registered or an exemption from registration was
available. As a result of the foregoing, we relied on the provisions of Rule 506
of Regulation D promulgated under the Securities Act of 1933, as amended, for
the issuance of the securities.

Pursuant to the agreements with Mr. Gelband, we issued to Mr.
Gelband 2,389,558 restricted shares of common stock on February 13, 2006. Mr.
Gelband confirmed that he is an accredited investor and represented his
intention to acquire the securities for investment purposes and not with a view
to distribution. Mr. Gelband acknowledged that the sale of the securities was
not registered under the Securities Act of 1933, as amended, and that the
securities could not be resold unless the securities were registered or an
exemption from registration was available. As a result of the foregoing, we
relied on the provisions of Rule 506 of Regulation D promulgated under the
Securities Act of 1933, as amended, for the issuance of the securities.

Pursuant to the terms of the employment agreement with Seth
Grae, we agreed to issue 5,000,000 restricted shares of common stock to Mr.
Grae, and grant to Mr. Grae 7,200,000 non-qualified stock options, with a term
of ten years at an exercise price of $0.795 per share. The stock options shall
be granted under the newly adopted 2006 Stock Plan. As a result of the
relationship with Mr. Grae, we relied on the provisions of Rule 506 of
Regulation D promulgated under the Securities Act of 1933, as amended, for the
issuance of the securities.

On May 4, 2006, we completed a private placement of 36,659,837
Units at a price of $0.425 per Unit with a number of institutional investors,
including Magnetar Capital Master Fund, Ltd., clients of Wellington Management
Company, LLP, clients of Highfields Capital Management LP, clients of Cumberland
Associates LLC, SF Capital Partners Ltd., Sunrise Equity Partners, L.P., and
several other institutional investors as well as several accredited individual
investors for total proceeds of $15,580,434.20. Each Unit consists of one share
of our common stock and one-half of one purchase warrant. Each whole purchase
warrant is non transferable and entitles the holder to purchase one additional
share of our common stock for a period of 12 months at a price per share of
$0.65.

Each investor confirmed in writing that it is an accredited
investor and represented its intention to acquire the securities for investment
purposes and not with a view to distribution. We did not use, and no person
acting on its behalf used, any form of general solicitation or general
advertising in connection with this offering. Appropriate legends shall be
affixed to the stock certificates to be issued to each investor. Each investor
acknowledged that the sale of the securities was not registered under the
Securities Act of 1933, as amended, and that the securities could

---

- 17 -

not be resold unless the securities were registered or an
exemption from registration was available. As a result of the foregoing, we
relied on the provisions of Rule 506 of Regulation D promulgated under the
Securities Act of 1933, as amended, for the issuance of the securities.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security
Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits.

Exhibits required by Item 601 of Regulation S-B

Exhibit Number/Description

|    
|----
|(2) 
|    
|2.1 
|    
|(3) 
|    
|3.1 
|    
|3.2 
|    
|(4) 
|    
|4.1 
|    
|4.2 
|    
|4.3 
|    
|4.4 
|    
|(10)
|    
|10.1

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- 18 -

|10.2  | Consulting Agreement dated October 15, 2004 between
      Custom Branded Networks, Inc. and Adam Harrison (incorporated by reference
      from our Registration Statement on Form S-8 filed on October 19, 2004).                                               
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                  
|10.3  | Consulting Agreement dated October 15, 2004 between
      Custom Branded Networks, Inc. and Tim Lelek (incorporated by reference
      from our Registration Statement on Form S-8 filed on October 19, 2004).                                                   
|      |                                                                                                                                                                                                                                                                  
|10.4  | Consulting Agreement dated October 15, 2004 between
      Custom Branded Networks, Inc. and Bruce Fearn (incorporated by reference
      from our Registration Statement on Form S-8 filed on October 19, 2004).                                                 
|      |                                                                                                                                                                                                                                                                  
|10.5  | Compensation Agreement dated October 15, 2004 between
      Custom Branded Networks, Inc. and Paul G. Carter (incorporated by
      reference from our Registration Statement on Form S-8 filed on October 19,
      2004).                                      
|      |                                                                                                                                                                                                                                                                  
|10.6  | Consulting Agreement dated January 24, 2005 between
      Custom Branded Networks, Inc. and Walter Doyle (incorporated by reference
      from our Registration Statement on Form S-8 filed on January 27, 2005).                                                
|      |                                                                                                                                                                                                                                                                  
|10.7  | Consulting Agreement dated January 24, 2005 between
      Custom Branded Networks, Inc. and Sanjeev Pamnani (incorporated by
      reference from our Registration Statement on Form S-8 filed on January 27,
      2005).                                       
|      |                                                                                                                                                                                                                                                                  
|10.8  | Consulting Agreement dated January 24, 2005 between
      Custom Branded Networks, Inc. and Seth Shaw (incorporated by reference
      from our Registration Statement on Form S-8 filed on January 27, 2005).                                                   
|      |                                                                                                                                                                                                                                                                  
|10.9  | Assignment of Specific Mineral Rights dated September 14,
      2005 between American Graphite Holdings and Novastar Resources Ltd.
      (incorporated by reference from our Current Report on Form 8-K filed on
      October 11, 2005).                       
|      |                                                                                                                                                                                                                                                                  
|10.10 | Mining Acquisition Agreement dated September 30, 2005
      between Walter Doyle and Novastar Resources Ltd. (incorporated by
      reference from our Current Report on Form 8-K filed on October 11, 2005).                                                    
|      |                                                                                                                                                                                                                                                                  
|10.11 | Assignment of Minerals Lease dated December 31, 2005
      between Novastar Resources Ltd. and CM Properties, a sole proprietorship
      of Charles H. Merchant (incorporated by reference from our Current Report
      on Form 8-K filed on January 10, 2006).
|      |                                                                                                                                                                                                                                                                  
|10.12 | Letter of Intent dated January 10, 2006 between Novastar
      Resources Ltd. and Thorium Power, Inc. (incorporated by reference from our
      Current Report on Form 8-K filed on January 30, 2006).                                                           
|      |                                                                                                                                                                                                                                                                  
|10.13 | Consulting Agreement dated January 17, 2006 between
      Novastar Resources Ltd. and Alan Gelband (incorporated by reference from
      our Current Report on Form 8-K filed on January 30, 2006).                                                              
|      |                                                                                                                                                                                                                                                                  
|10.14 | Employment Agreement dated as of February 14, 2006
      between Novastar Resources Ltd. and Seth Grae (incorporated by reference
      from our Current Report on Form 8-K filed on February 21, 2006).                                                         
|      |                                                                                                                                                                                                                                                                  
|10.15 | Stock Option Agreement dated as of February 14, 2006
      between Novastar Resources Ltd. and Seth Grae (incorporated by reference
      from our Current Report on Form 8-K filed on February 21, 2006).                                                       
|      |                                                                                                                                                                                                                                                                  
|10.16 | Subscription Agreement dated February 14, 2006 between
      Novastar Resources Ltd. and Thorium Power, Inc. (incorporated by reference
      from our Current Report on Form 8-K filed on February 21, 2006).                                                   
|      |                                                                                                                                                                                                                                                                  
|10.17 | Amended and Restated Consulting Agreement dated February
      6, 2006 between Novastar Resources Ltd. and Alan Gelband (incorporated by
      reference from our Current Report on Form 8-K filed on February 21, 2006).                                        
|      |                                                                                                                                                                                                                                                                  
|10.18 | Form of Subscription Agreement between Novastar Resources
      Ltd. and investors in the private placement closed on February 14, 2006
      (incorporated by reference from our Current Report on Form 8-K filed on
      February 21, 2006).                  

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- 19 -

|10.19 | Form of Subscription
        Agreement between Novastar Resources Ltd. and each investor in the private
        placement that closed on May 4, 2006 (incorporated by reference from our
        Current Report on Form 8-K filed on May 8, 2006).              
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                 
|10.20 | Form of Registration
        Rights Letter Agreement between Novastar Resources Ltd. and each investor
        in the private placement that closed on May 4, 2006 (incorporated by reference
        from our Current Report on Form 8-K filed on May 8, 2006).
|      |                                                                                                                                                                                                                                                                 
|10.21 | Form of Warrant
        issued to each investor in connection with the private placement that
        closed on May 4, 2006(incorporated by reference from our Current Report
        on Form 8-K filed on May 8, 2006).                                        
|      |                                                                                                                                                                                                                                                                 
|10.22 | Option Agreement
        dated April 25, 2006 between Novastar Resources Ltd. and George Crowley
        (incorporated by reference from our Current Report on Form 8-K filed on
        May 10, 2006).                                                         
|      |                                                                                                                                                                                                                                                                 
|(16)  | Letter on
        change in certifying accountant                                                                                                                                                                                                               
|      |                                                                                                                                                                                                                                                                 
|16.1  | Letter from Morgan
        and Company dated September 14, 2005 regarding change in independent accountant
        (incorporated by reference from our Current Report on Form 8-K filed on
        October 11, 2005).                                           
|      |                                                                                                                                                                                                                                                                 
|(21)  | Subsidiaries                                                                                                                                                                                                                                                    
|      |                                                                                                                                                                                                                                                                 
|      | Custom Branded
        Networks, Inc., a Delaware corporation                                                                                                                                                                                                   
|      | Aquistar Ventures Inc., a British
        Columbia corporation                                                                                                                                                                                                  
|      | TP Acquisition
        Corp., a Delaware corporation                                                                                                                                                                                                            
|      |                                                                                                                                                                                                                                                                 
|(31)  | Section 302
        Certifications                                                                                                                                                                                                                              
|      |                                                                                                                                                                                                                                                                 
|31.1  | Section
        302 Certification (filed herewith).                                                                                                                                                                                                             
|      |                                                                                                                                                                                                                                                                 
|(32)  | Section 906
        Certification                                                                                                                                                                                                                               
|      |                                                                                                                                                                                                                                                                 
|32.1  | Section
        906 Certification (filed herewith).                                                                                                                                                                                                             

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- 20 -

SIGNATURES

In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

NOVASTAR RESOURCES LTD.

|By: | /s/ Seth Grae
      Seth Grae 
      President, Chief Executive Officer, 
      Interim Chief Financial Officer, Interim Treasurer and Director 
      (Principal Executive, Financial and Accounting Officer)
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: May 22, 2006

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