_________________________________________________________________________


U.S.
        SECURITIES AND EXCHANGE COMMISSION
 Washington,
        D.C. 20549
 
 **FORM
        10-QSB**
 
 (Mark
        One)
 [X]
        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT
        OF 1934
 For
        the
        quarterly period ended: September
        30, 2006
 
 [
        ]
        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT
        OF 1934
 For
        the
        transitional period from __________________ to __________________
 
 **Commission
        File No. 000-28543**
 
 **THORIUM
        POWER, LTD.**
 ----------------------------------------------------
 (Name
        of
        Small Business Issuer in Its Charter)
 
 NEVADA
              
              91-1975651(State
                  or other jurisdiction of incorporation or organization)
              
              (I.R.S.
                  Employer Identification No.)
 
 8300
                  Greensboro Drive, Suite 800
                McLean,
                  Virginia 22102
              
              703.918.4904(Address
                  of Principal Executive Office)
              
              (Issuer
                  Telephone No. Including Area Code)
 
 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).
 
 Yes___
        No
        _ X _
 
 The
        number of shares outstanding of each of the issuer’s classes of common equity,
        as of October 11, 2006 are as follows:
 
 Class
                  of Securities Shares Outstanding
                --------------------------------
                  -------------------------------
                Common
                  Stock, $0.001 par value 293,950,604
 
 Transitional
        Small Business Disclosure Format (check one): Yes   No
        __ X __









**ITEM
        1.**  **FINANCIAL
        STATEMENTS**


**THORIUM
      POWER LTD.**


**(FORMERLY
      NOVASTAR RESOURCES LTD.)**


**(A
      Development Stage Company)**





**CONSOLIDATED
      BALANCE SHEETS**




September
                30,
            
            June
                30,2006
            
            2006**ASSETS**
            
            (Unaudited)
            
            (Audited)Current
                assets:Cash
                and cash equivalents
            
            $
            12,742,408
            
            $
            14,431,407Prepaid
                expenses and other current assets
            
            
            117,384
            
            
            808,425Total
                current assets
            
            
            12,859,792
            
            
            15,239,832Investment
                - Thorium Power, Inc.
            
            
            1,350,000
            
            
            1,350,000Total
                assets
            
            $
            14,209,792
            
            
            16,589,832**LIABILITIES
                AND STOCKHOLDERS’ DEFICIENCY**Current
                liabilities:Accounts
                payable
            
            $
            281,912
            
            $
            463,354Accrued
                liabilities
            
            
            73,700
            
            
            103,541Due
                to related parties
            
            
            91,168
            
            
            128,675Due
                to Thorium Power, Inc.
            
            
            505,824
            
            
            264,740Warrant
                liability
            
            
            3,080,024
            
            
            3,678,278Accrued
                payroll tax liability
            
            
            -
            
            
            635,000Total
                Current Liabilities
            
            
            4,032,628
            
            
            5,273,588Total
                Liabilities
            
            
            4,032,628
            
            
            5,273,588Commitments
                (Note 7 )Common
                Stock With Registration Rights:Common
                Stock subject to continuing registration, $0.001 par value, 36,659,837
                shares issued and outstanding at September 30, 2006 and June 30,
                2006
            
            
            12,041,373
            
            
            12,041,373**STOCKHOLDERS’
                DEFICIENCY**Preferred
                stock, $0.001 par value; 50,000,000 authorized shares; no shares
                issued
                and outstanding
            
            
            -
            
            
            -Voting
                Common stock, $0.001 par value; 500,000,000 authorized shares; 121,185,622
                shares issued and outstanding ( June 30, 2006
                -118,101,637)
            
            
            121,186
            
            
            118,101Additional
                paid-in capital
            
            
            17,955,474
            
            
            14,913,153Deferred
                Stock Compensation
            
            
            (306,000
            )
            
            (83,328
            )Common
                Stock and Warrants Reserved for Future Issuance
            
            
            87,500
            
            
            1,807,445Accumulated
                Deficit
            
            
            (19,735,905
            )
            
            (17,482,900
            )Accumulated
                Other Comprehensive Income
            
            
            13,536
            
            
            2,400Total
                Stockholders’ Deficiency
            
            
            (1,864,209
            )
            
            (725,129
            )Total
                Liabilities and Stockholders’ Deficiency
            
            $
            14,209,792
            
            $
            16,589,832








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





2




**THORIUM
      POWER LTD.**


**(FORMERLY
      NOVASTAR RESOURCES LTD.)**


**(A
      Development Stage Company)**





**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(Unaudited)**




Three
                Months Ended
            
            Cumulative
                Period from (Inception) June 28, 1999 toSeptember
                30,
            
            September
                302006
            
            2005
            
            2006Revenue
            
            $
            -
            
            $
            -
            
            $
            184,162Operating
                ExpensesConsulting
            
            
            532,674
            
            
            1,250,634
            
            
            8,800,720Forgiveness
                of debt
            
            
            -
            
            
            -
            
            
            (169,818
            )General
                and administrative
            
            
            770,577
            
            
            44,391
            
            
            3,485,070Impairment
                loss - equipment
            
            
            -
            
            
            -
            
            
            12,445Impairment
                loss - Mineral property acquisition costs
            
            
            -
            
            
            -
            
            
            720,544Interest
                attributable to beneficial conversion feature for notes
                payable
            
            
            -
            
            
            
            
            
            580,057Mineral
                property exploration expenses
            
            
            17,012
            
            
            -
            
            
            411,528Stock-based
                compensation
            
            
            1,687,619
            
            
            -
            
            
            6,637,3483,007,882
            
            
            1,295,025
            
            
            20,477,894Operating
                Loss
            
            
            (3,007,882
            )
            
            (1,295,025
            )
            
            (20,293,732
            )Other
                Income and ExpensesDividend
                income
            
            
            2,007
            
            
            -
            
            
            10,143Interest
                income
            
            
            154,617
            
            
            -
            
            
            227,052Legal
                Settlement
            
            
            -
            
            
            -
            
            
            (146,445
            )Gain
                on fair value of warrant derivatives
            
            
            598,254
            
            
            -
            
            
            459,034Other
                income
            
            
            -
            
            
            -
            
            
            8,043Net
                Loss
            
            $
            (2,253,004
            )
            $
            (1,295,025
            )
            $
            (19,735,905
            )Net
                Loss Per Common Share, Basic and diluted
            
            $
            (.01
            )
            $
            (0.01
            )
            $
            -Weighted
                Average Number Of Common SharesOutstanding
            
            
            155,946,235
            
            
            86,998,483
            
            
            -





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














3




**THORIUM
      POWER LTD.**


**(FORMERLY
      NOVASTAR RESOURCES LTD.)**


**(A
      Development Stage Company)**





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(Unaudited)**





Three
                  Months Ended
              
              Cumulative
                  Period from Inception June 28, 1999 toSeptember
                  30,
              
              September
                  302006
              
              2005
              
              2006Operating
                  ActivitiesLoss
                  for the period
              
              $
              (2,253,004
              )
              $
              (1,295,025
              )
              $
              (19,735,904
              )Adjustments
                  to reconcile net loss from operations to net cash used in operating
                  activities:Shares
                  issued for other than cash for payment of expenses
              
              
              1,687,619
              
              
              870,000
              
              
              14,332,132(Gain)
                  on fair value of warrant liability
              
              
              (598,254
              )
              
              -
              
              
              (459,034
              )Interest
                  attributable to beneficial conversion feature for notes
                  payable
              
              
              -
              
              
              -
              
              
              580,057Amortization
                  of equipment
              
              
              -
              
              
              -
              
              
              3,813Deferred
                  stock compensation
              
              
              185,328
              
              
              300,635
              
              
              612,000Impairment
                  loss – mineral property acquisition costs
              
              
              -
              
              
              -
              
              
              670,544Forgiveness
                  of debt
              
              
              -
              
              
              -
              
              
              (169,818
              )Impairment
                  loss - equipment
              
              
              -
              
              
              -
              
              
              12,445Unrealized
                  gain on investment
              
              
              11,136
              
              
              -
              
              
              13,536Changes
                  in non-cash operating working capital items:Prepaid
                  expenses and other current liabilities
              
              
              (79,117
              )
              
              -
              
              
              (887,542
              )Accounts
                  payable and accrued liabilities
              
              
              (211,284
              )
              
              169,170
              
              
              644,988Due
                  to related party
              
              
              (37,507
              )
              
              51,236
              
              
              5,249Due
                  to Thorium Power Inc.
              
              
              241,084
              
              
              -
              
              
              505,824Accrued
                  payroll tax liability
              
              
              (635,000
              )
              
              -
              
              
              -Net
                  Cash (Used In) Provided by Operating Activities
              
              
              (1,688,999
              )
              
              96,016
              
              
              (3,871,710
              )Investing
                  ActivitiesPurchase
                  of equipment
              
              
              -
              
              
              -
              
              
              (1,808
              )Acquisition
                  of long-term investment and property acquisition
              
              
              -
              
              
              100,000
              
              
              (1,350,000
              )Net
                  Cash (Used In) Investing Activities
              
              
              -
              
              
              100,000
              
              
              (1,351,808
              )Financing
                  ActivitiesCash
                  overdraft
              
              
              -
              
              
              3,182
              
              
              3,182Proceeds
                  from loan payable to shareholder
              
              
              -
              
              
              -
              
              
              16,097Issue
                  of common shares
              
              
              -
              
              
              -
              
              
              1,865,438Net
                  proceeds from issuance of common stock with registration
                  rights
              
              
              -
              
              
              -
              
              
              15,580,431Cash
                  paid for redemption of common shares
              
              
              -
              
              
              -
              
              
              (400,000
              )Advances
                  on notes payable
              
              
              -
              
              
              
              
              
              900,000Cash
                  acquired on acquisition of subsidiary
              
              
              -
              
              
              -
              
              
              778Net
                  Cash Provided By Financing Activities
              
              
              -
              
              
              3,182
              
              
              17,965,926Net
                  Increase (Decrease) In Cash and Cash Equivalents
              
              
              (1,688,999
              )
              
              (802
              )
              
              12,742,408Cash
                  and Cash Equivalents, Beginning Of Period
              
              
              14,431,407
              
              
              802
              
              
              -Cash
                  and Cash Equivalents, End Of Period
              
              $
              12,742,408
              
              $
              -
              
              $
              12,742,408Supplemental
                  Disclosure of Cash Flow InformationCash
                  paid during the period:Interest
                  paid
              
              $
              -
              
              $
              -
              
              $
              -Income
                  taxes paid
              
              $
              -
              
              $
              -
              
              $
              -







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






4




**THORIUM
      POWER LTD.**


**(FORMERLY
      NOVASTAR RESOURCES LTD.)**


**(A
      Development Stage Company)**





**CONSOLIDATED
      STATEMENT OF STOCKHOLDERS DEFICIENCY**


**FROM
      (INCEPTION) JUNE 28, 1999 TO SEPTEMBER 30, 2006**





Common
                Stock
            
            Additional
                Paid-in
            
            Deferred
            
            Common
                Stock and Warrants Reserved for Future
            
            Accumulated
            
            Accumulated
                Other ComprehensiveShares
            
            Amount
            
            Capital
            
            Compensation
            
            Issuance
            
            Deficit
            
            Income
            
            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 by consideration of forgiveness of loan payable to
                shareholder
            
            
            (1,445
            )
            
            (1
            )
            
            16,098
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            16,097Balance
            
            
            2,020
            
            
            2
            
            
            35,045
            
            
            -
            
            
            -
            
            
            (159,909
            )
            
            -
            
            
            (124,862
            )Adjustment
                to number of shares issued and outstanding as a result of the reverse
                take-over transaction -Custom
                Branded Networks, Inc.
            
            
            (2,020
            )
            
            (2
            )
            
            2
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Aquistar
                Ventures (USA) Inc.
            
            
            15,463,008
            
            
            15,463
            
            
            (15,463
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Balance
            
            
            15,463,008
            
            
            15,463
            
            
            19,584
            
            
            -
            
            
            -
            
            
            (159,909
            )
            
            -
            
            
            (124,862
            )Shares
                allotted in connection with the acquisition of Custom Branded Networks,
                Inc.
            
            
            25,000,000
            
            
            25,000
            
            
            (9,772
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            15,228Less:
                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
            )





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





5




**THORIUM
      POWER LTD.**


**(FORMERLY
      NOVASTAR RESOURCES LTD.)**


**(A
      Development Stage Company)**





**CONSOLIDATED
      STATEMENT OF STOCKHOLDERS DEFICIENCY**


**FROM
      (INCEPTION) JUNE 28, 1999 TO SEPTEMBER 30, 2006**




Common
                Stock
            
            Additional
                Paid-in
            
            Deferred
            
            Common
                Stock and Warrants Reserved for Future
            
            Accumulated
            
            Accumulated
                Other ComprehensiveShares
            
            Amount
            
            Capital
            
            Compensation
            
            Issuance
            
            Deficit
            
            Income
            
            TotalBalance,
                June 30, 2001
            
            
            32,372,532
            
            $
            32,373
            
            $
            439,116
            
            $
            -
            
            $
            -
            
            $
            (883,148
            )
            $
            -
            
            $
            (411,659
            )Additional
                shares issued in connection with the acquisition of Custom Branded
                Networks, 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 deferred compensation 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 for convertible notes
            
            
            20,000,000
            
            
            20,000
            
            
            484,166
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            504,166Issue
                of warrants for convertible notes
            
            
            -
            
            
            -
            
            
            495,834
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            495,834Issue
                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
            
            $
            4,328,081
            
            $
            (499,967
            )
            $
            -
            
            $
            (4,138,365
            )
            $
            -
            
            $
            (224,178
            )




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





6





**THORIUM
      POWER LTD.**


**(FORMERLY
      NOVASTAR RESOURCES LTD.)**


**(A
      Development Stage Company)**





**CONSOLIDATED
      STATEMENT OF STOCKHOLDERS DEFICIENCY**


**FROM
      (INCEPTION) JUNE 28, 1999 TO SEPTEMBER 30, 2006**




Common
                Stock
            
            Additional
                Paid-in
            
            Deferred
            
            Common
                Stock and Warrants Reserved for Future
            
            Accumulated
            
            Accumulated
                Other ComprehensiveShares
            
            Amount
            
            Capital
            
            Compensation
            
            Issuance
            
            Deficit
            
            Income
            
            TotalBalance,
                June 30, 2005
            
            
            86,072,532
            
            $
            86,073
            
            $
            4,328,081
            
            $
            (499,967
            )
            $
            -
            
            $
            (4,138,365
            )
            $
            -
            
            $
            (224,178
            )Issuance
                of common stock for services
            
            
            17,610,776
            
            
            17,611
            
            
            3,679,269
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            3,696,880Issuance
                of common stock for settlement of debt
            
            
            249,999
            
            
            250
            
            
            29,681
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            29,931Issuance
                of warrants for settlement of debt
            
            
            -
            
            
            -
            
            
            7,569
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            7,569Issuance
                of common stock for property acquisition
            
            
            6,000,000
            
            
            6,000
            
            
            1,604,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,610,000Stock
                based compensation - employment agreement
            
            
            5,000,000
            
            
            5,000
            
            
            4,145,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            4,150,000Private
                placement for issuance of common stock
            
            
            44,828,167
            
            
            44,827
            
            
            13,494,852
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            13,539,679Reallocation
                of proceeds from sales of common stock with registration
                rights
            
            
            (36,659,837
            )
            
            (36,660
            )
            
            (12,004,713
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (12,041,373
            )Warrants
                issued pursuant to private placement
            
            
            -
            
            
            -
            
            
            348,185
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            348,185Issuance
                of stock as compensation for warrants cancelled by
                shareholder
            
            
            15,000,000
            
            
            15,000
            
            
            1,739,166
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,754,166Amortization
                of deferred compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            499,967
            
            
            -
            
            
            -
            
            
            -
            
            
            499,967Deferred
                compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            (83,328
            )
            
            -
            
            
            -
            
            
            -
            
            
            (83,328
            )Repurchase
                of issued stock
            
            
            (5,000,000
            )
            
            (5,000
            )
            
            (1,445,000
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,450,000
            )Stock
                returned to treasury
            
            
            (15,000,000
            )
            
            (15,000
            )
            
            (1,739,166
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,754,166
            )Stock
                reserved for future issuance
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,690,700
            
            
            -
            
            
            -
            
            
            1,690,700Stock
                based compensation - stock reserved for future issuance
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            73,500
            
            
            -
            
            
            -
            
            
            73,500Warrants
                reserved for future issuance
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            43,245
            
            
            -
            
            
            -
            
            
            43,245Stock
                based compensation - options
            
            
            -
            
            
            -
            
            
            726,229
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            726,229Other
                comprehensive income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2,400
            
            
            2,400Net
                loss for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (13,344,535
            )
            
            -
            
            
            (13,344,535
            )Balance,
                June 30, 2006
            
            
            118,101,637
            
            $
            118,101
            
            $
            14,913,153
            
            $
            (83,328
            )
            $
            1,807,445
            
            $
            (17,482,900
            )
            $
            2,400
            
            $
            (725,129
            )




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





7





**THORIUM
        POWER LTD.**
 **(FORMERLY
        NOVASTAR RESOURCES LTD.)**
 **(A
        Development Stage Company)**
 
 **CONSOLIDATED
        STATEMENT OF STOCKHOLDERS DEFICIENCY**
 **FROM
        (INCEPTION) JUNE 28, 1999 TO SEPTEMBER 30, 2006**


Common
                  Stock
              
              Additional
                  Paid-in
              
              Deferred
              
              Common
                  Stock and Warrants Reserved for Future
              
              Accumulated
              
              Accumulated
                  Other ComprehensiveShares
              
              Amount
              
              Capital
              
              Compensation
              
              Issuance
              
              Deficit
              
              Income
              
              TotalBalance,
                  June 30, 2006
              
              
              118,101,637
              
              $
              118,101
              
              $
              14,913,153
              
              $
              (83,328
              )
              $
              1,807,445
              
              $
              (17,482,900
              )
              $
              2,400
              
              $
              (725,129
              )Issuance
                  of common stock for services
              
              
              850,000
              
              
              850
              
              
              407,150
              
              
              (408,000
              )
              
              -
              
              
              -
              
              
              -
              
              
              -Stock
                  based compensation - options
              
              
              -
              
              
              -
              
              
              937,619
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              937,619Stock
                  based compensation - stock
              
              
              1,500,000
              
              
              1,500
              
              
              748,500
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              750,000Amortization
                  of deferred compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              185,328
              
              
              -
              
              
              -
              
              
              -
              
              
              185,328Issuance
                  of Stock reserved for future issuance
              
              
              3,365,000
              
              
              3,365
              
              
              1,716,580
              
              
              -
              
              
              (1,719,945
              )
              
              -
              
              
              -
              
              
              -Redemption
                  of shares
              
              
              (2,631,015
              )
              
              (2,631
              )
              
              (767,528
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (770,159
              )Other
                  comprehensive income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              11,136
              
              
              11,136Net
                  loss for the period
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,253,004
              )
              
              -
              
              
              (2,253,004
              )Balance,
                  September 30, 2006
              
              
              121,185,622
              
              $
              121,185
              
              $
              17,955,474
              
              $
              (306,000
              )
              $
              87,500
              
              $
              (19,735,904
              )
              $
              13,536
              
              $
              (1,864,209
              )





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








8




**THORIUM
      POWER LTD.**


**(FORMERLY
      NOVASTAR RESOURCES LTD.)**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**







**1.**  **BASIS
      OF PRESENTATION**





The
      unaudited financial information of Thorium Power Ltd. (formerly, Novastar
      Resources Ltd.) (the “Company”) and subsidiaries furnished herein has been
      prepared by the Company pursuant to the rules and regulations of the Securities
      and Exchange Commission (the “SEC”) and 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. C ertain
      information and note disclosures normally included in financial statements
      prepared in accordance with GAAP have been condensed or omitted from these
      statements pursuant to such rules and regulations and, accordingly,
      t his
      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 for the
      fiscal year ended June 30, 2006. 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 for the fiscal year ended
      June 30, 2006, has been omitted. The results of operations for the three-month
      period ended September 30, 2006 are not necessarily indicative of results for
      the entire fiscal year ending June 30, 2007.








**2.**  **NATURE
      OF OPERATIONS**




In
      the
      prior fiscal year, the Company was an exploration stage company engaged in
      the
      acquisition and exploration of mineral claims. We changed our name in connection
      with our merger on October 6, 2006 with Thorium Power, Inc. to Thorium Power
      Ltd., (see note 8a) and became a development stage company, now with our primary
      business being the development, promotion and marketing of our three patented
      nuclear fuel designs: (1) Thorium/weapons-grade plutonium disposing fuel, (2)
      Thorium/reactor-grade plutonium disposing fuel, and (3) Thorium/uranium nuclear
      fuel. These fuels are designed to be used in existing light water reactors.
      Presently, we are focusing almost all of our efforts on demonstrating and
      testing our fuel designs for the Russian VVER-1000 reactors. We are also
      looking at opportunities to potentially make acquisitions of other companies
      doing business in the nuclear power industry and to otherwise provide services
      to the nuclear power industry.




Our
      future customers may include nuclear fuel fabricators (which in many cases
      are
      also nuclear fuel vendors) and/or nuclear power plants, and/or U.S. or foreign
      governments. We are still evaluating the economic benefits and deciding on
      whether to continue Novastar Resources Ltd.’s legacy business of exploration of
      mineral claims. For the three months ended September 30, 2006, we had not
      conducted or expended any significant resources in the furtherance of Novastar
      Resources Ltd.’s present mineral claims. Presently we do not expect to engage in
      the mineral exploration business in the future.




On
      July
      7, 2006, the Company’s board of directors approved a proposal to amend the
      Company’s Certificate of Incorporation to increase the number of authorized
      shares of common stock from 250,000,000 shares to 500,000,000 shares and to
      amend the total shares authorized to be issued under the 2006 stock option
      plan
      from 20 million shares to 75 million shares. This amendment and other proposals
      was voted on and approved by the stockholders on October 5, 2006.




Operations
      to date for Thorium Power, Inc., had been devoted primarily to filing for
      patents, developing strategic relationships within the industry, securing
      political and financial support from the United States and Russian governments,
      continued development of the fuel designs and administrative functions. We,
      therefore, are now preparing our financial statements as a Development Stage
      Enterprise instead of an exploration stage company .




**3.**  **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**





a).
            Consolidation





These
                financial statements include the accounts of the Company (a Nevada
                corporation) and its wholly-owned subsidiary, Custom Branded Networks,
                Inc. (a Delaware corporation) and TP Acquisition Corp. (a Delaware
                corporation). All significant intercompany transactions and balances
                have
                been eliminated.





b).
            Use
                of Estimates





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





The
                consolidated financial statements include some amounts that are based
                on
                management’s best estimates and judgments. The most significant estimates
                relate to valuation of stock grants and stock options, impairment
                charges
                for mineral acquisition costs and contingent liabilities. These estimates
                may be adjusted as more current information becomes available, and
                any
                adjustment could be significant in future
                periods.






9




**THORIUM
      POWER LTD.**


**(FORMERLY
        NOVASTAR RESOURCES LTD.)**
 **(A
        Development Stage Company)**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


**3.****SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED**








c).
            Prior
                Periods Reclassifications





Certain
                reclassifications have been made to the prior periods’ financial
                statements to conform to the current period presentation. These
                reclassifications had no effect on previously reported results of
                operations or accumulated deficit.





d).
            Stock-Based
                Compensation





In
                December 2004, the Financial Accounting Standards Board (“FASB”) issued
                Statement of Financial Accounting Standards No. 123R (“FAS-123R”),*Share-Based
                Payment,*which
                is a revision of Statement of Financial Accounting Standards No.
                123
                (“FAS-123”),*Accounting
                for Stock-Based Compensation.*In
                addition to requiring supplemental disclosures, FAS-123R addresses
                the
                accounting for share-based payment transactions in which a company
                receives goods or services in exchange for (a) equity instruments
                of the
                company or (b) liabilities that are based on the fair value of the
                company’s equity instruments or that may be settled by the issuance of
                such equity instruments. FAS-123R focuses primarily on accounting
                for
                transactions in which a company obtains employee**services
                in share-based payment transactions. The Statement eliminates the
                ability
                to account for share-based compensation transactions using Accounting
                Principles Board Opinion No. 25 (“APB-25”),*Accounting
                for Stock Issued to Employees,*and generally requires that such transactions be accounted for using
                a
                fair value based method. Accordingly, proforma disclosure is no longer
                an
                alternative.





Under
                FAS-123R, the Company is required to recognize compensation cost
                for the
                portion of outstanding awards previously accounted for under the
                provisions of APB-25 for which the requisite service had not been
                rendered
                as of the adoption date for this Statement. The Statement also requires
                companies to estimate forfeitures of stock compensation awards as
                of the
                grant date of the award.





FAS-123R
                permits public companies to adopt its requirements using one of the
                following two methods:





i)
            A
                “modified prospective” method in which compensation cost is recognized
                beginning with the effective date (a) based on the requirements of
                FAS-123R for all share-based payments granted after the effective
                date and
                (b) based on the requirements of FAS-123 for all awards granted to
                employees prior to the effective date of FAS-123R that remain unvested
                on
                the effective date; or





ii)
            A
                “modified retrospective” method, which includes the requirements of the
                modified prospective method described above but also permits entities
                to
                restate, based on the amounts previously recognized under FAS-123
                for
                purposes of pro forma disclosures, either (a) all prior periods presented
                for which FAS-123 was effective or (b) prior interim periods of the
                year
                in which FAS-123R is adopted.





The
                Company adopted FAS-123R on January 1, 2006, using the modified
                prospective method. The valuation of the stock issued to consultants
                for
                consulting services are valued as of the date of the agreements with
                the
                various consultants.





References
                to the issuances of restricted stock (see note 5) and other sections
                of
                this financial statement is stock issued to individuals whom are
                eligible
                to sell all or some of their shares of restricted common stock by
                means of
                ordinary brokerage transactions in the open market pursuant to Rule
                144,
                promulgated under the Securities Act ("Rule 144"), subject to certain
                limitations. In general, pursuant to Rule 144, a stockholder (or
                stockholders whose shares are aggregated) who has satisfied a one-year
                holding period may, under certain circumstances, sell within any
                three-month period a number of securities which does not exceed the
                greater of 1% of the then outstanding shares of common stock or the
                average weekly trading volume of the class during the four calendar
                weeks
                prior to such sale. Rule 144 also permits, under certain circumstances,
                the sale of securities, without any limitations, by a non-affiliate
                of our
                company that has satisfied a two-year holding
                period.





e).
            Warrants





Warrants
                issued in conjunction with equity financing transactions were accounted
                for under the Emerging Issues Task Force (“EITF”) Issue No. 00-19,*Accounting
                for Derivative Financial Instruments Indexed to and Potentially Settled
                in
                a Company’s Own Stock*








10




**THORIUM
        POWER LTD.**
 **(FORMERLY
        NOVASTAR RESOURCES LTD.)**
 **(A
        Development Stage Company)**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**




**4.**  **INVESTMENT
      / DUE TO THORIUM POWER, INC.**




The
      Company has invested a total of $1,350,000 in Thorium Power, Inc. (“Thorium
      Power”). The investment consists of 337,500 common shares of Thorium Power
      purchased at $4.00 per share, which represents approximately 10% of the issued
      and outstanding common shares of Thorium Power as of September 30, 2006. The
      Company’s investment is being carried at cost. There are no undistributed
      earnings in Thorium Power. There is no market for the common stock of Thorium
      Power and accordingly, no quoted market price is available.





Thorium
      Power charged the Company for certain shared expenses. These expenses consisted
      of legal fees that were incurred by Thorium Power on behalf of the Company,
      in
      connection with the merger that was subsequently consummated on October 6,
      2006
      (see note 8a). The Company believes that its allocation method for these legal
      fees is reasonable. Amounts charged from Thorium Power have directly increased
      the Company’s general and administrative expenses by $241,084 for the three
      months ended September 30, 2006. The amount that remains payable as September
      30, 2006 is $505,824, and accordingly is shown as a current liability under
      the
      caption “Due to Thorium Power, Inc.”





**5.**  **SHARE
      CAPITAL**





Total
      Common stock outstanding at September 30, 2006 was 157,845,459.





a)
            Common
                Stock





i)
            On
                July 24, 2006 the Company issued 150,000 restricted shares of common
                stock
                to two executive officers pursuant to agreements that they signed
                with the
                Company. The value attributed to these shares was $73,500 ($0.47
                and
                $0.51per share). This amount was expensed in the fiscal year ended
                June
                30, 2006 and recorded under the caption “Common Stock and Warrants
                Reserved for Future Issuance,” and, accordingly, this stock issuance
                reduced the amount recorded in “Common Stock and Warrants Reserved for
                Future Issuance.”





ii)
            On
                March 31, 2006,,
                the Company, Thorium Power and their respective officers were served,
                through their counsel, with a verified complaint by Raj Pamnani.
                Mr.
                Pamnani alleges that Novastar and Thorium Power and their respective
                officers breached an oral consulting agreement he alleges was entered
                into
                between Mr. Pamnani and the Company and demanded a combination of
                shares
                of unrestricted common stock of the Company and payment of monetary
                damages in the amount of $10 million plus an additional $5 million
                in
                punitive damages. The action was filed in the Supreme Court of the
                State
                of New York, County of New York, and the Company filed a Motion to
                Dismiss
                the complaint on May 23, 2006.On
                August 8, 2006, the parties entered into a Settlement Agreement under
                which Mr. Pamnani irrevocably and forever waived and released any
                and all
                claims against the Company, Thorium Power and the other defendants
                named
                in the complaint,through the date of execution of the Settlement Agreement, in return
                for
                the issuance of 215,000 shares of common stock of the Company, as
                well as
                warrants to purchase 107,500 shares of the Company's common stock
                at a
                price of $0.48 per share. On August 17, 2006, the Company issued
                these
                shares.The
                value attributed to these shares was $103,200 ($0.48 per share).
                This
                amount was expensed in the fiscal year ended June 30, 2006, and recorded
                under the caption “Common Stock and Warrants Reserved for Future Issuance”
                and, accordingly, this stock issuance reduced the amount recorded
                in
                “Common Stock and Warrants Reserved for Future Issuance.”





iii)
            On
                September 12, 2006 the Company issued 1,500,000 shares of restricted
                stock
                to an executive pursuant to an employment agreement dated July 27,
                2006.
                The value attributed to these shares was $750,000 ($0.50 per share)
                (see
                note 5d).







iv)
            On
                September 12, 2006 the Company issued 3,000,000 shares of restricted
                stock
                with value of $1,500,000 ($0.50 per share) for payment of consulting
                services that were rendered to the Company for the year ended June
                30,
                2006. This amount was expensed in the fiscal year ended June 30,
                2006 and
                recorded under the caption “Common Stock and Warrants Reserved for Future
                Issuance” and, accordingly, this stock issuance reduced the amount
                recorded in Common Stock and Warrants Reserved for Future Issuance.





v)
            On
                September 14, 2006, the Company entered into an agreement with a
                consultant to provide investor relations and other services and issued
                850,000 restricted common shares with value of $408,000 ($0.48 per
                share)
                for these services. The period of this agreement is from July 1,
                2006 to
                July 1, 2007, and these shares vest in equal monthly installments
                over the
                one year period. As a result, deferred stock compensation was recorded
                as
                a contra equity account on the Balance Sheet and the balance at September
                30, 2006 was $306,000.





The
      Company valued all shares issued in the three month period ended September
      30,
      2006 using the traded quoted market price of the Company’s common stock as of
      the applicable agreement date.






11




**THORIUM
        POWER LTD.**
 **(FORMERLY
        NOVASTAR RESOURCES LTD.)**
 **(A
        Development Stage Company)**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**




5.  **SHARE
      CAPITAL - CONTINUED**




b).
            Common
                Stock Issued With Registration
                Rights





On
                May 4, 2006, the Company completed a private placement with certain
                investors in which it sold an aggregate of 36,659,837 units, consisting
                of
                36,659,837 shares of its restricted common stock and 18,329,919 common
                stock purchase warrants for $15,580,431. 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 of the warrant 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.


Under
        the
        terms of the sale, the investors were granted registration rights in which
        the
        Company agreed to timely file a registration statement to register the common
        shares and the shares underlying the warrants, obtain effectiveness of the
        registration statement by the SEC on or before September 1, 2006, and maintain
        the effectiveness of this registration statement for a pre-set time thereafter.
        In the event the Company failed to timely perform under the registration
        rights
        agreement, the Company agreed to pay the investors liquidated damages in
        an
        amount equal to 2% of the aggregate amount invested by the investors for
        each
        30-day period or pro rata for any portion thereof following the date by which
        the registration statement should have been effective. The initial registration
        statement was timely filed, however it was not declared effective by the
        SEC
        within the allowed time. .  Accordingly, the Company is liable to the investors for liquidated damages
        under
        the registration rights agreement.




The
                EITF is currently reviewing the accounting for securities with liquidated
                damages clauses as stated in EITF 05-04,*The
                Effect of a Liquidated Damages Clause on a Freestanding Financial
                Instrument Subject to EITF 00-19*.
                There are currently several views as to how to account for this type
                of
                transaction and the EITF has not yet reached a consensus. In accordance
                with EITF 00-19,*Accounting
                for Derivative Financial Instruments Indexed To, and Potentially
                Settled
                in the Company's Own Stock*,
                and EITF 05-04, because of the potential liquidated damages for failure
                to
                obtain and maintain an effective registration statement is substantial,
                the value of the common stock subject to such registration rights
                should
                be classified as temporary equity. Additionally, in accordance with
                EITF
                00-19 and the terms of the above warrants, the fair value of the
                warrants
                should be recorded as a liability, with an offsetting reduction to
                shareholders’ equity. The warrant liability is initially measured at fair
                value using the Black Scholes option pricing model, and is then re-valued
                at each reporting date, with changes in the fair value reported as
                non-cash charges or credits to
                earnings.





The
                SEC concluded that under EITF 00-19, common stock and warrants subject
                to
                registration rights where significant liquidated damages could be
                required
                to be paid to the holder of the instrument in the event the issuer
                fails
                to maintain the effectiveness of a registration statement for a preset
                time period, the common stock subject to such liquidated damages
                does not
                meet the tests required for shareholders’ equity classification, and
                accordingly must be reflected between liabilities and shareholders’ equity
                in the balance sheet until the conditions are eliminated. In analyzing
                instruments under EITF 00-19, the likelihood or probability related
                to the
                failure to maintain an effective registration statement is not a
                factor.





Based
                on the above interpretation, as of June 30, 2006, the Company classified
                $12,041,373 for the value of common stock subject to registration
                rights
                as temporary equity instead of shareholders’ equity. In addition, the
                Company measured the initial fair value of the warrants on the closing
                date and at June 30, 2006 at $3,539,058 and classified the fair value
                of
                the warrants as warrant liability instead of shareholders’
                equity.





An
                additional 733,196 warrants have been reserved for the subscribers,
                representing 4% of the warrants originally issued under the private
                placement. This additional grant represents a warrant penalty or
                the
                liquidated damages in accordance with the placement’s registration rights,
                as management had determined that the Company would require an additional
                time of two months past the specified date of effectiveness of September
                1, 2006, in the Registration Rights agreement to complete the registration
                of the units. The total warrants were valued using the Black Scholes
                option pricing model using the following assumptions: weighted average
                expected life of one year, volatility of 153%, rate of quarterly
                dividends
                0%, risk free interest rate of
                4.30%.





At
                the end of each reporting period, the value of the warrants is re-measured
                based on the fair value of the underlying shares, and changes to
                the
                warrant liability and related “gain or loss in fair value of the warrants”
                is recorded as a non-cash charge or credit to earnings. The warrant
                liability will be reclassified to shareholders’ equity when the Company is
                no longer subject to all of its performance obligations under the
                registration rights agreement.





At
                September 30, 2006, the warrant liability was $3,080,024, due to
                changes
                in the fair value of the warrants. The fair value of the warrants
                was
                estimated using the Black Scholes option-pricing model, with the
                following
                assumptions for the period ended September 30, 2006: risk-free interest
                rate of 4.18% dividend yield of 0%, expected life of 1 year and volatility
                of 115% were used.





For
                the three month period ended September 30, 2006, the non-cash gain
                on fair
                value of warrants was $598,254. The gain on fair value of warrants
                is due
                principally to the decrease in the volatility factor used in the
                Black
                Scholes valuation of the warrants. The non-cash gain on fair value
                of
                warrants, recorded as gain on fair value of warrant derivatives,
                has no
                effect on the Company’s cash flows or
                liquidity.






12




**THORIUM
        POWER LTD.**
 **(FORMERLY
        NOVASTAR RESOURCES LTD.)**
 **(A
        Development Stage Company)**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
   5.  **SHARE
        CAPITAL - CONTINUED**


c)
            Stock
                Options





The
      Company has in place a stock-based employee and director compensation plan.
      On
      July 17, 2006, the Company amended this stock plan. The Company has reserved
      75,000,000 shares of common stock of its unissued share capital for the stock
      plan. Other limitations are as follows:





i)
            No
                more than 37,500,000 options can be granted for the purchase of restricted
                common shares.





ii)
            No
                more than 8,000,000 options can be granted to any one
                person.





iii)
            No
                more than 5,000,000 options can be granted to any one person for
                the
                purchase of restricted common
                shares.





On
                January 1, 2006, the Company adopted FAS-123R. In March 2005, the
                SEC
                staff expressed their views with respect to FAS-123R in Staff Accounting
                Bulletin No. 107,*Share-Based
                Payment*(“SAB 107”). SAB 107 provides guidance on valuing options. The impact of
                adopting FAS-123R for the three months ended September 30, 2006 was
                to
                record a non-cash compensation expense of $726,229. Prior to January
                1,
                2006, the Company accounted for share-based payments under the recognition
                and measurement provisions of APB Opinion No. 25,*Accounting
                for Stock Issued to Employees*(“APB 25”), and related Interpretations, as permitted by FAS-123. In
                accordance with APB 25, no compensation cost was required to be recognized
                for options granted that had an exercise price equal to the market
                value
                of the underlying common stock on the date of grant. The Company
                adopted
                FAS-123R using the modified-prospective-transition method. Under
                that
                transition method, compensation cost recognized in future interim
                and
                annual reporting periods includes: a) compensation cost for all
                share-based payments granted prior to, but not yet vested as of January
                1,
                2006, based on the grant-date fair value estimated in accordance
                with the
                original provisions of FAS-123, and b) compensation cost for all
                share-based payments granted subsequent to January 1, 2006, based
                on the
                grant-date fair value estimated in accordance with the provisions
                of
                FAS-123R.





The
                adoption of FAS-123R had no effect on cash flow from operations or
                cash
                flow from financing activities for the three months ended September
                30,
                2006. FAS-123R requires the cash flows from tax benefits resulting
                from
                tax deductions in excess of the compensation cost recognized for
                those
                options (“excess tax benefits”) to be classified as financing cash flows.
                Prior to the adoptions of FAS-123R, excess tax benefits would have
                been
                classified as operating cash inflows. The Company has not****recognized,
                and does not expect to recognize in the near future, any tax benefit
                related to stock-based compensation costs as a result of the full
                valuation allowance on our net operating loss
                carryforwards.





The
                Company recognizes share-based compensation expense for all service-based
                awards with graded vesting schedules on a straight-line basis over
                the
                requisite service period for the entire award. Initial accruals of
                compensation expense are based on the estimated number of shares
                for which
                requisite service is expected to be rendered. Estimates are revised
                if
                subsequent information indicates that forfeitures will differ from
                previous estimates, and the cumulative effect on compensation cost
                of a
                change in the estimated forfeitures is recognized in the period of
                the
                change.





For
                awards with service conditions and graded vesting that were granted
                prior
                to the adoption of FAS-123R, the Company estimates the requisite
                service
                period and the number of shares expected to vest and recognize
                compensation expense for each tranche on a straight-line basis over
                the
                estimated requisite service period. The Company will continue to
                recognize
                compensation expense over the applicable vesting periods for awards
                granted prior to adoption of FAS-123R, but for all awards granted
                after
                December 31, 2005, compensation expense will be recognized over the
                requisite service period of the award or over a period ending with
                an
                employee’s eligible retirement date, if earlier. Adjustments to
                compensation expense as a result of revising the estimated requisite
                service period are recognized
                prospectively.





Total
                stock options outstanding at September 30, 2006 were 20,075,000 of
                which
                2,714,239 of these options were vested. There were no stock options
                outstanding prior to January 1, 2006.





Stock
                option transactions to the employees, directors, advisory board members
                and consultants are summarized as
                follows:





**Stock
                Options Outstanding at July 1, 2006**
            **10,425,000**Granted
            9,850,000Exercised
            -Expired
            -Forfeited
            (200,000)Outstanding
                at September 30, 2006
            20,075,000Options
                exercisable at September 30, 2006
            2,714,239






13




**THORIUM
        POWER LTD.**
 **(FORMERLY
        NOVASTAR RESOURCES LTD.)**
 **(A
        Development Stage Company)**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


5.  **SHARE
        CAPITAL - CONTINUED**


The
                above table includes options issued as of September 30, 2006 as
                follows:





(i)A
                total of 2,150,000 non-qualified 10 year options have been issued
                to
                advisory board members at exercise prices of $0.51 to $0.64 per share
                and
                a weighted average exercise price and fair value per share of $0.63
                and
                $0.63 respectively;





(ii)A
                total of 4,500,000 non-qualified 5 year options have been issued
                to
                advisory board members at an exercise price of $0.445 per share and
                a
                weighted average and fair value per share of $0.445;
                and





(iii)A
                total of 13,425,000 non-qualified 10 year options have been issued
                to
                directors and officers of the Company, at exercise prices of $0.47
                to
                $0.80 per share and a weighted average exercise price and fair value
                per
                share of $0.66 and $0.66, respectively. From this total, 7,200,000
                options
                were issued to one officer who is also a director, on February 14,
                2006,
                with a remaining contractual life of 9.0 years. All other options
                issued
                have a remaining contractual life ranging from 4.75 years to 9.9
                years.





The
                following table provides certain information with respect to the
                above-referenced stock options that are outstanding and exercisable
                at
                September 30, 2006:





**Exercise
                Prices**
            **Stock
                Options Outstanding and Exercisable**
            **Weighted
                Average Remaining**
              **Contractual
                Life - Years**$0.48
            41,667
            9.9$0.49
            503,127
            9.9$0.50
            13,889
            9.9$0.51
            55,556
            9.75$0.80
            2,100,000
            9.0Total
            2,714,239





There
      have been no modifications of outstanding stock option rewards.





Assumptions
                used in the option-pricing model are as
                follows:





**September
                30, 2006**Average
                risk-free interest rate
            4.18%
                - 4.45%Average
                expected life
            5
                yearsExpected
                volatility
            269%
                - 275%Expected
                dividends
            0%





During
                the three month ended September 30, 2006, $937,619 was recorded as
                stock-based compensation expense (non-deductible for tax purposes)
                in the
                statement of operations as the result of all the stock option grants
                that
                occurred after January 1, 2006.






d)
            Stock-Based
                Compensation





On
                July 27, 2006, the Company, pursuant to an employment agreement,
                granted
                an executive officer restricted stock options, resulting in stock
                based
                compensation expense of $750,000 (see note 5(a)(iii)). This executive
                officer was also granted 2,250,000 non-qualified ten year stock option
                that will vest over a period of 43 months; with 234,375 options vesting
                immediately and 46,875 options vesting each month
                thereafter.






14




**THORIUM
      POWER LTD.**


**(FORMERLY
      NOVASTAR RESOURCES LTD.)**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


5.  **SHARE
        CAPITAL - CONTINUED**
  e)
            Warrants 
 During
                the three-month period ended September 30, 2006, there were no warrants
                issued or exercised to purchase stock. There were 23,272,279 warrants
                outstanding as of September 30, 2006.  At
                September 30, 2006 the range of warrant prices for shares under warrants
                and the weighted-average remaining contractual life is as
                follows:  **Warrants
                  Outstanding and Exercisable****Warrants
                  - Exercise Price**
              **Number
                  of Warrants**
              **Weighted
                  Average Remaining**
                **Contractual
                  Life - Years**$0.30
              2,104,999
              0.15$0.50
              2,104,166
              0.51$0.65
              19,063,114
              0.61Total
              23,272,279
 
 
 The
                investors in the November 23, 2005, March 30, 2006 and May 4, 2006
                private
                placements received detachable warrants for the purchase of 2,104,999,
                1,687,499 and 19,063,114 (including the 733,196 penalty warrants
                - see
                note 5(b)), shares of common stock, respectively, which were valued
                at
                $127,467, $281,117 and $3,678,278, respectively. For purposes of
                estimating the intrinsic fair value of each warrant as of dates of
                the
                private placements, the Company utilized the Black Scholes option-pricing
                model. The Company estimated the fair value of the warrants assuming
                no
                expected dividends and the following weighted-average
                assumptions:  **September
                  30, 2006**Average
                  risk-free interest rate
              2.86%
                  - 4.30%Average
                  expected life
              1
                  yearExpected
                  volatility
              142%
                  - 153%Expected
                  dividends
              0%
  
 f)
            Common
                Stock and Warrants reserved for Future
                Issuance 
 Common
                stock and warrants reserved for future issuance consists
                of: 
 **Shares
                  of**
              **Stock****Common**
              **Purchase****Stock**
              **Warrants**
              **Amount**Consulting
              182,291
              0
              $
              87,500
 
  15
  **THORIUM
          POWER LTD.**
 **(FORMERLY
          NOVASTAR RESOURCES LTD.)**
 **(A
          Development Stage Company)**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
  **6.**  **OFFICER
        COMPENSATION / PAYROLL TAX LIABILITY**
 
 The
                Company signed an employment agreement with its Chief Executive Officer
                on
                February 14, 2006, and issued 5 million shares to the CEO in compensation
                in accordance with the agreement. The Board of Directors on September
                18,
                2006 had unanimously voted to redeem 2 million shares of this stock
                grant,
                at a price of $0.31 per share (after applying a 50% discount off
                the
                closing market stock price on the date of issuance), from the CEO,
                in
                order to pay the payroll taxes due on this stock issuance. A stock
                valuation was done after the stock grant and the stock price was recently
                determined by an independent third party valuation company, for payroll
                tax reporting purposes, to be $0.31 per share on the date of issuance.
                The
                Company also signed an employment agreement with another officer
                (see note
                5 (a) (iii)) pursuant to which the Company is to redeem 600,628 shares
                of
                the stock grant, at a price of $0.25 per share (after applying a
                50%
                discount off the closing market stock price on the date of issuance),
                and
                redeemed 30,000 shares from another former officer, in order to pay
                the
                payroll taxes due on these stock issuances. The Company, on September
                28,
                2006, paid $814,481 for the payroll tax withholdings and payroll
                tax
                expense due on these stock issuances. 
 As
                a result, at September 30, 2006, the total common shares that were
                redeemed and held by the Company in order for the Company to fulfill
                its
                payroll obligations were 2,631,015 shares. These shares will be retired
                to
                treasury. 
 **7.**  **COMMITMENTS
        AND CONTRACTUAL OBLIGATIONS**
 
 The
                Company has employment agreements with its executive officers, the
                terms
                of which expire at various times. Such agreements provide for minimum
                salary levels, as well as incentive bonuses that are payable if specified
                management goals are attained. Under each of the agreements, in the
                event
                the officer’s employment is terminated (other than voluntarily by the
                offier or by the Company for cause or upon the death of the officer),
                the
                Company, if all provisions of the employment agreements are met,
                is
                committed to pay certain benefits, including specified monthly severance. 
 
 **8.**  **SUBSEQUENT** **EVENTS**
 
 a)
        Acquisition of Thorium Power, Inc.
 
 On
                October 6, 2006, Thorium Power, Ltd. (formerly Novastar Resources
                Ltd.)
                (“Thorium Ltd.”), a Nevada corporation, TP Acquisition Corp.
                (“Acquisition”), a wholly-owned subsidiary of Thorium Ltd., and Thorium
                Power, Inc. (“Thorium Inc.”) consummated a business combination pursuant
                to which Acquisition merged with and into Thorium Inc., with Thorium
                Inc.
                being the surviving entity and, as a result, becoming a wholly-owned
                subsidiary of Thorium Ltd. (the “Merger”).  The
                Merger was consummated pursuant to the terms of an Agreement and
                Plan of
                Merger among the parties that was entered into on February 14, 2006
                and
                then amended on June 12, 2006 and August 8, 2006 (the “Merger Agreement”). 
 The
        Merger is being accounted for as a reverse merger and Thorium Inc. is being
        treated as the accounting acquiror. Thorium Ltd.’s fiscal year end prior to the
        closing of the Merger was June 30 and it will remain June 30 from and after
        the
        closing of the Merger. However, since Thorium Inc., the accounting acquiror,
        has
        a fiscal year of December 31, retaining the June 30 fiscal year end of Thorium
        Ltd. constitutes a change of fiscal year. Accordingly, Thorium Ltd. will
        file a
        transition report for the period from January 1, 2006 through June 30, 2006
        on
        Form 10-KSB.
 
 In
                accordance with the terms of the Merger Agreement, the following
                occurred
                with respect to the outstanding common shares, stock options and
                warrants
                of Thorium Inc. at the closing of the
                Merger: 
 i)
            all
                of the shares of common stock of Thorium Inc. were cancelled and
                each
                registered owner of outstanding shares Thorium Inc. common stock
                automatically became the registered owner of 25.6278 shares of common
                stock of Thorium Ltd for each share of Thorium Inc. common stock
                that they
                previously owned. Each
                holder of non-compensatory options or warrants of Thorium Inc. that
                had an
                exercise price of $5.00 or $1.00, received from Thorium Ltd12.315
                shares and 22.965 shares of Thorium Ltd. respectively, for each option
                or
                warrant owned. There were 135,637,854 shares issued to the Thorium
                Inc.
                stockholders in the aggregate. ii)
            all
                of other outstanding warrants and options of Thorium Inc. were assumed
                by
                Thorium Ltd. and became exercisable for Thorium Ltd. common stock
                instead
                of Thorium Inc. common stock in an amount and at an exercise price
                that is
                consistent with the exchange ratio described above for the conversion
                of
                Thorium Inc. common stock. There were 2,743,662 stock warrants and
                21,122,434 stock options assumed by Thorium Ltd. as of the date of
                the
                merger. 
 As
                a result of the merger, there were 293,768,313 common shares outstanding
                on October 6, 2006. Assuming the merger had occurred on July 1, 2006,
                Thorium Ltd’s net sales, net loss, basic and diluted earning per share
                would have been $ - , $2,569,161 and $.00,
                respectively.   16
  **THORIUM
          POWER LTD.**
 **(FORMERLY
          NOVASTAR RESOURCES LTD.)**
 **(A
          Development Stage Company)**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
  8.  **SUBSEQUENT** **EVENTS - CONTINUED**
 
 The
                following Pro Forma balance sheet gives effect to the above events
                as if
                they had occurred on September 30, 2006: 
 **Thorium
                  Power, Ltd.****Unaudited
                  Pro Forma Condensed Consolidated Balance Sheet****September
                  30, 2006****Note:
                  This merger will be accounted for as a recapitalization of Thorium
                  Power,
                  Inc.****Pro
                  Forma****Thorium
                  Power Ltd.**
              
              **Thorium
                  Power Inc.**
              
              **Adjustment**
              
              **Pro
                  Forma****ASSETS****Currrent
                  Assets**Cash
              
              
              12,742,408
              
              
              56,169
              
              
              
              
              
              0
              
              
              12,798,577Prepaid
                  Expenses
              
              
              117,384
              
              
              9
              
              
              
              
              
              0
              
              
              117,393Due
                  From Thorium Power, Ltd.
              
              
              
              
              
              505,824
              
              
              
              
              
              
              
              
              505,824Total
                  Current Assets
              
              
              12,859,792
              
              
              562,002
              
              
              
              
              
              0
              
              
              13,421,794Property
                  Plant and Equipment -net
              
              
              0
              
              
              25,637
              
              
              
              
              
              
              
              
              25,637**Other
                  Assets**Investment
                  in Thorium Power
              
              
              1,350,000
              
              
              0
              
              
              1
              
              
              (1,350,000
              )
              
              0Patent
                  Costs - net
              
              
              0
              
              
              204,830
              
              
              
              
              
              
              
              
              204,830Security
                  Deposits
              
              
              0
              
              
              7,567
              
              
              
              
              
              
              
              
              7,567Total
                  Other Assets
              
              
              1,350,000
              
              
              212,397
              
              
              
              
              
              (1,350,000
              )
              
              212,397**Total
                  Assets**
              
              
              14,209,792
              
              
              800,036
              
              
              
              
              
              (1,350,000
              )
              
              13,659,828**Liabilities
                  and Stockholdes Equity****Current
                  Liabilities**Current
                  portion long term debt
              
              
              0
              
              
              3,217
              
              
              
              
              
              
              
              
              3,217Accounts
                  Payable
              
              
              281,912
              
              
              600,664
              
              
              
              
              
              
              
              
              882,576Accrued
                  Liabilities
              
              
              73,700
              
              
              0
              
              
              
              
              
              
              
              
              73,700Due
                  to related party
              
              
              91,168
              
              
              0
              
              
              
              
              
              
              
              
              91,168Due
                  to Thorium Power, Inc.
              
              
              505,824
              
              
              0
              
              
              
              
              
              
              
              
              505,824Warrant
                  Liability
              
              
              3,080,024
              
              
              0
              
              
              
              
              
              
              
              
              3,080,024Other
                  current liabilities
              
              
              0
              
              
              101
              
              
              
              
              
              
              
              
              101Total
                  Current Liabilities
              
              
              4,032,628
              
              
              603,982
              
              
              
              
              
              0
              
              
              4,636,610Notes
                  Payable - long term
              
              
              0
              
              
              12,657
              
              
              
              
              
              0
              
              
              12,657**Total
                  Liabilites**
              
              
              4,032,628
              
              
              616,639
              
              
              
              
              
              0
              
              
              4,649,267Temporarty
                  Equity - Stock with Registration Rights
              
              
              12,041,373
              
              
              
              
              
              
              
              
              
              
              
              12,041,373**Stockholders
                  Equity**Common
                  Stock
              
              
              121,186
              
              
              226,778
              
              
              
              
              
              
              
              
              256,8241
              
              
              (8,750
              )2
              
              
              135,6384
              
              
              (218,028
              )Additional
                  Paid in Capital - Stock and Warrants
              
              
              17,955,474
              
              
              16,797,554
              
              
              1
              
              
              (1,341,250
              )
              
              13,758,2632
              
              
              (135,638
              )3
              
              
              (19,735,905
              )4
              
              
              218,0280
              
              
              0
              
              
              
              
              
              
              
              
              0Common
                  stock reserved for issuance
              
              
              87,500
              
              
              0
              
              
              
              
              
              
              
              
              87,500Accumulated
                  deficit - development stage
              
              
              (19,735,905
              )
              
              (16,840,935
              )
              
              3
              
              
              19,735,905
              
              
              (16,840,935
              )Deferred
                  stock compensation
              
              
              (306,000
              )
              
              0
              
              
              
              
              
              
              
              
              (306,000
              )Accumulated
                  other comprehensive income
              
              
              13,536
              
              
              
              
              
              
              
              
              
              
              
              13,536**Total
                  Stockholders Equity**
              
              
              (1,864,209
              )
              
              183,397
              
              
              
              
              
              (1,350,000
              )
              
              (3,030,812
              )**Total
                  Liabilities and Stockholders Equity**
              
              
              14,209,792
              
              
              800,036
              
              
              
              
              
              (1,350,000
              )
              
              13,659,828
 
    17
 **THORIUM
          POWER LTD.**
 **(FORMERLY
          NOVASTAR RESOURCES LTD.)**
 **(A
          Development Stage Company)**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
  8.  **SUBSEQUENT** **EVENTS - CONTINUED**
  b)
        Appointment of Directors.
 
 On
                October 6, 2006, the Board of Directors of the Thorium Power, Ltd.
                increased the size of the board to five members and appointed Jack
                D. Ladd
                and Daniel B. Magraw, Jr., as a members of the Board of Directors
                of the
                Company, effective October 23, 2006. Pursuant to terms of the Independent
                Director’s Contracts, dated October 23, 2006, between Mr. Ladd and the
                Company and Mr. Magraw and the Company Mr. Ladd and Mr. Magraw will
                each
                receive a fee of $20,000 per year in cash, as well as such number
                of
                restricted shares, issued quarterly, equal to $5,000 each quarter,
                to be
                paid to each Director for the respective quarter based on the average
                closing price of the Company’s common stock, as quoted on the trading
                market on which the Company’s securities are traded, over the thirty day
                period prior to the first day of the applicable quarter. Additionally,
                the
                Director Contracts grant to Messrs. Ladd and Magraw for each year
                of
                service on the Board of Directors non-qualified options to purchase
                up to
                500,000 shares of the common stock of the Company (the “Director
                Options”), which shall vest with respect to 13,889 shares on November 23,
                2006 and the remaining 486,111 shares will subsequently vest in equal
                monthly installments of 13,889 shares on each one month anniversary
                of the
                grant until all shares underlying the Director Options have
                vested. 
 c)
        Departure of Director and Principal Officer *.*
 
 Effective
                on October 17, 2006, Cornelius J. Milmoe resigned from the Board
                of
                Directors of the Company. Mr. Milmoe was not a member of any committee
                of
                the Board of Directors at the time of his resignation. Additionally,
                on
                October 17, 2006, Mr. Milmoe was removed from the position of Chief
                Operating Officer of the Company. The Company has retained an outside
                firm
                to aid in the search for Mr. Milmoe’s replacement. The Company, in
                accordance with its employment agreement with Mr. Milmoe, if the
                provisions of the employment agreement are met, is required to pay
                him
                certain amounts as severance in accordance with the terms of the
                agreement. 
 
 d)
        Company Common Stock Buyback Program
 
 On
        October 17, 2006, the Company announced that its Board of Directors authorized
        a
        share buyback program for an aggregate of $1,000,000 over the next 12 months,
        with $250,000 to be repurchased immediately. At the discretion of the CEO
        Seth
        Grae, the Company may effect further share repurchases over the course of
        the
        year depending on valuation of the Company reflected in the share price.
        As of
        the date of this report 825,000 shares had been repurchased pursuant to this
        program at the average price of $0.30 per share.
 18
  *When
        used in this report, the terms “Thorium Power,” “Company,” “we,” “our,” and “us”
refer to Thorium Power, Ltd. (Formerly Novastar Resources Ltd.) and its
        subsidiary Thorium Power, Inc.*
 
 **FORWARD-LOOKING
        STATEMENTS**
 
 In
        addition to historical information, this report contains forward-looking
        statements within the meaning of Section 27A of the Securities Act of 1933,
        as
        amended and Section 21E of the Securities Exchange Act of 1934, as amended.
        We
        use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,”
“plan,” “may” and “will” and similar expressions to identify forward-looking
        statements. Such statements include, among others, those concerning our expected
        financial performance and strategic and operational plans, as well as all
        assumptions, expectations, predictions, intentions or beliefs about future
        events. You are cautioned that any such forward-looking statements are not
        guarantees of future performance. These statements are based on the beliefs
        of
        our management as well as assumptions made by and information currently
        available to us and reflect our current view concerning future events and
        are
        subject to risks, uncertainties and assumptions, including among many others:
        our significant operating losses; our limited operating history; uncertainty
        of
        capital resources; the speculative nature of our business; our ability to
        successfully implement new strategies; present and possible future governmental
        regulations; operating hazards; competition; the loss of key personnel; and
        other factors referenced in this Report and our previous filings with the
        Securities and Exchange Commission (or “SEC”). Should any of these risks or
        uncertainties materialize, or should underlying assumptions prove incorrect,
        actual results may vary materially from those described in this report as
        anticipated, estimated or expected. We undertake no obligation to update
        any
        forward-looking statements, whether as a result of new information, future
        developments or otherwise.
 
 Thorium
        Power, Ltd. files annual and quarterly reports and other information with
        the
        SEC. You may obtain and copy any document we file with the SEC at the SEC’s
        public reference room at 100 F Street, NE, Room 1580, Washington, D.C. 20549.
        You may obtain information on the operation of the SEC’s public reference
        facilities by calling the SEC at 1-800-SEC-0330. You can request copies of
        these
        documents, upon payment of a duplicating fee, by writing to the SEC at its
        principal office at 100 F Street, NE, Room 1580, Washington, D.C. 20549-1004.
        The SEC maintains an Internet website at http://www.sec.gov that contains
        reports and other information regarding issuers that file electronically
        with
        the SEC. Our SEC filings, including the exhibits thereto, are accessible
        through
        the Internet at that website.
 
 Thorium
        Power, Ltd’s reports on Forms 10-KSB, 10-QSB and 8-K, and amendments to those
        reports, are available for download, free of charge, as soon as reasonably
        practicable after these reports are filed with the SEC, at our website at
        www.thoriumpower.com. The content of our website is not a part of this Report.
        You may request a copy of our SEC filings, at no cost to you, by telephoning
        us
        at 703.918.4932 or writing us care of: Thorium Power, Ltd., 8300 Greensboro
        Drive, Suite 800, McLean, Virginia 22102. We will not send exhibits to the
        documents, unless the exhibits are specifically requested and you pay our
        fee
        for duplication and delivery.
   19
  **ITEM 2.**  **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.**
 
 *The
        following analysis discusses changes in the financial condition and results
        of
        operations of Thorium Power, Ltd and it’s subsidiary, Thorium Power, Inc., at
        and for the three months ended on September 30, 2006 and 2005, and should
        be
        read in conjunction with our unaudited consolidated financial statements
        and the
        notes thereto.*
 
 ***Overview***
 
 On
        October 6, 2006, TP Acquisition Corp., a wholly-owned subsidiary of the Thorium
        Power, Ltd. (formerly, Novastar Resources Ltd.), merged with and into Thorium
        Power, Inc., with Thorium Power, Inc., the surviving entity, becoming a
        wholly-owned subsidiary of the Thorium Power, Ltd. The merger was consummated
        pursuant to a merger agreement executed on February 14, 2006, as amended
        on June
        12, 2006 and again on August 8, 2006. Thorium Power, Inc. was incorporated
        on
        January 8, 1992. As discussed further below, Thorium Power, Inc. has patented
        proprietary nuclear fuel designs for use in certain existing commercial nuclear
        power plants. The merger is being accounted for as a reverse merger and Thorium
        Power, Inc. is being treated as the accounting acquiror.
 
 As
        discussed in more detail below, in connection with the merger, we entered
        into a
        new line of business. This new line of business, which is now our primary
        business is research and development of proprietary nuclear fuel designs
        for use
        in nuclear power plants and in the disposal of weapons- and reactor-grade
        plutonium. We began to shift our focus to this business in anticipation of
        the
        merger with Thorium Power, Inc. and, upon completion of the merger, this
        business will be conducted through Thorium Power, Inc. and the Company. Our
        second business, which constituted our historical business preceding the
        merger,
        is mineral exploration. We have reduced our operations in this area, and
        expect
        that this business activity will decrease in the future and will be
        insignificant compared to our primary business of research and development
        of
        proprietary nuclear fuel designs.
 
 We
        are
        primarily engaged in the development of proprietary nuclear fuel designs
        which
        we intend ultimately to introduce for sale into three markets: (1) weapons-grade
        plutonium disposition, (2) reactor-grade plutonium disposition, and (3) nuclear
        fuel designs for use in commercial nuclear power plants. These fuel designs
        are
        for use in existing light water reactors.
 
 Our
        future customers may include nuclear fuel fabricators and/or nuclear power
        plants, and/or the U.S. or foreign governments.
 
 Operations
        to date (conducted by Thorium Power, Inc.) have been devoted primarily to
        filing
        for patents, developing strategic relationships within the industry, securing
        political and financial support from the U.S. and Russian governments, continued
        development of the fuel designs and administrative functions. We do not
        currently have any revenues from our activities in this area and expect that
        we
        will not generate revenues from this business for several years, until our
        fuel
        designs can be tested as discussed below. Future revenues could be generated
        through the licensing of our technology and by also providing other services
        in
        the nuclear power industry. Accordingly, we prepare our financial statements
        as
        a development stage company in accordance with FASB Statement No. 7, “Accounting
        and Reporting by Development Stage Enterprises.”
 
 ***Material
        Opportunities and Challenges***
 
 We
        believe that a major opportunity for us is the possibility that our fuel
        designs, which are currently in the research and development stage, will
        be used
        in the manufacturing of nuclear fuel utilized in many existing light water
        nuclear reactors in the future. We are currently planning our research and
        development activities to develop nuclear fuel designs for use in Russian
        VVER-1000 light water reactors. We believe that these designs can later be
        used
        in Western reactors. Light water reactors are the dominant reactor types
        currently in use in the world and fuels for such reactors constitute the
        majority of the commercial market for nuclear fuel. Our focus is on three
        different types, or variants, of thorium fuel designs. The first is designed
        to
        dispose of weapons-grade plutonium that is stockpiled in Russia. The second
        is
        designed to dispose of reactor-grade plutonium that has been extracted from
        spent fuel from commercial rectors and stockpiled in Russia, Western Europe,
        the
        U.S., Japan and other countries. The third is designed not to dispose of
        plutonium, but rather to provide reactor owner-operators with an economically
        viable alternative fuel that will not generate spent fuel containing
        weapons-usable plutonium. All three of these fuel variants are also expected
        to
        have additional benefits, including reduced volume and reduced long-term
        radio-toxicity of spent fuel for the same amount of electricity generated,
        as
        compared with the uranium fuels that are currently used in light water
        reactors.
  20
  We
        believe that our greatest challenge will be acceptance of these fuel designs
        by
        nuclear power plant operators, who have in the past been hesitant to be the
        first to use a new type of nuclear fuel. In addition, our fuel designs would
        require regulatory approval by relevant nuclear regulatory authorities, such
        as
        Nuclear Regulatory Commission in the United States or its equivalent agencies
        in
        other countries, before they can be used in commercial reactors. The regulatory
        review process, which is outside of our control, may take longer than expected
        and may delay a rollout of the fuel designs into the market. Management believes
        that demonstration of one of the Company’s fuel designs in a commercial nuclear
        reactor would make deployment of the other designs easier due to many
        similarities that exist among all of our fuel designs.
 
 Thorium
        Power, Inc. has been developing relations with relevant entities within the
        United States and Russian governments for over ten years. Thorium Power,
        Inc.,
        in cooperation with these governments, has been demonstrating its fuel concepts
        in a research reactor in Russia for over three years and has helped cause
        independent analyses of the technology to be performed, including a May 2005
        report by the International Atomic Energy Agency (“IAEC”) and a Spring 2005
        report by Westinghouse Electric Company (“Westinghouse”). The IAEC and
        Westinghouse analyses were positive and management believes that they can
        help
        lead to the favorable reception of our nuclear fuel designs in the
        future.
 
 We
        are
        also working with Russian nuclear research institutes and Russian nuclear
        regulatory authorities to have one or more of the fuel variants demonstrated
        in
        a Russian VVER-1000 reactor as soon as three years from now, if we are able
        to
        obtain necessary support from the Russian government. Management believes
        that
        it will be necessary to develop a working relationship with one or more major
        nuclear fuel fabricators, which in many cases are also nuclear fuel vendors,
        as
        a prerequisite to having its fuel designs widely deployed in global
        markets.
 
 The
        Company’s nuclear fuel designs have never been demonstrated in a full-size
        commercial reactor. Our planned demonstration of the fuels in a VVER-1000
        reactor in Russia would provide operating experience that is critical to
        reactor
        owners and regulatory authorities. We believe that, if the project is adequately
        funded by a public-private partnership, the fuels can be demonstrated in
        the
        VVER-1000 reactor, which can help convince other light water reactor operators
        around the world to accept our thorium fuel designs.
 
 Thorium
        Power, Inc. has been building relationships with companies and organizations
        in
        the nuclear power industry for several years. We will attempt to cause some
        or
        all of these companies and organizations to work in a consortium or a joint
        venture type arrangement with us in the future, however, we may not be able
        to
        develop any such consortium or arrangement in the near term or at all. The
        companies that we have identified for potential relationships have existing
        contracts with nuclear power plants under which they supply nuclear fuel
        branded
        with their name to such nuclear power plants. We will attempt to cause these
        nuclear fuel vending companies to provide their nuclear power plant operating
        customers with fuels that are designed with our technology. To do so, we
        will
        need to enter into agreements with one or more of these companies. Without
        such
        arrangements it would be more difficult for us to license our fuel designs
        because, in addition to the reputations, guarantees, services, and other
        benefits that these nuclear fuel vendors provide when selling fuel to nuclear
        power plant operators, they also often have multi-year fuel supply contracts
        with the reactor operators. These multi-year fuel supply contracts act as
        a
        barrier to entry into the market, such that it can be almost impossible to
        penetrate some markets for nuclear fuel without working with a nuclear fuel
        vendor that can support long term contracts. If we are successful in
        demonstrating our fuel designs in Russia and in continuing to build
        relationships with nuclear fuel vendors, we believe it may lead to one or
        more
        of these major companies in the nuclear power industry working with us in
        producing and selling our nuclear fuel designs to commercial reactor operators
        and governments.
 
 Overview
        of Thorium Power, Ltd. (formerly, Novastar Resources Ltd.) Prior to October
        6,
        2006
 
 Prior
        to
        the consummation of the merger on October 6, 2006, including the quarterly
        period covered by this report, we had begun to shift our focus to the research
        and development of proprietary nuclear fuel designs. During that time, we
        were
        also engaged in the acquisition, exploration and evaluation of mineral rights
        in
        properties containing thorium, as well as potentially other minerals. As
        described above, this business is now the secondary business of the Company.
        We
        expect to continue to reduce our operations in this area in the future,
        accordingly, we expect that this business will continue to have an insignificant
        impact on our financial results in future periods. As a result, our historical
        2005 financial performance will not be indicative of our 2006 financial
        performance.
 
 All
        commercially viable thorium metal is extracted from monazite. The phosphate
        mineral monazite exists as a sand and may contain concentrations of 3.0%
        to
        12.0% thorium oxide as well as other rare earth minerals such as cerium,
        lanthanum, yttrium and neodymium, and platinum group metals.
  The
        current market for thorium is very limited. Our objective had been to become
        a
        supplier of thorium to be used in the future as fuel in nuclear energy industry,
        including use in our proprietary fuel designs. While we may, in the future,
        use
        our own thorium in our proprietary fuel designs, we do not expect this to
        be a
        major factor for our business going forward
  We
        do not
        expect to generate revenues in the future through the sale of thorium, platinum
        group metals and other rare earth minerals. We have not conducted any mining
        activities on any of the properties for which we hold mineral leases and
        claims.
  21
  ***Plan
        of Operation***
 
 Major
        cash commitments in the next fiscal year are related to the funding of the
        business, corporate administration and operations, and proposed development
        activities of our primary business, the research and development of proprietary
        nuclear fuel designs. Although the merger with Thorium Power, Inc. was
        consummated after the end of the fiscal quarter covered by this report, the
        2006
        financial information provided still reflects primarily the operations of
        the
        Company related to our nuclear business technology, as well as actions taken
        in
        anticipation of the merger.
  At
        September 30, 2006, our total assets were $14,209,792. Liabilities as of
        September 30, 2006 totaled $4,032,628. We had working capital surplus of
        $8,827,164 at September 30, 2006.
 
 On
        May 4,
        2006, we closed a private placement for gross proceeds to the Company of
        $15,580,431 for the purpose of acquiring, exploring and developing thorium
        and
        rare earth minerals properties as well as to assist us in connection with
        the
        acquisition of Thorium Power, Inc. and the current development of our
        proprietary nuclear fuel technology.
  While
        management expects these proceeds and our present working capital will meet
        our
        foreseeable needs for at least the next 12 months, we may need to raise
        additional capital this fiscal year by way of an offering of equity securities,
        an offering of debt securities, or by obtaining financing through a bank
        or
        other entity. If we need to obtain additional financing, that financing may
        not
        be available or we may not be able to obtain that financing on terms acceptable
        to us. If additional funds are raised through the issuance of equity securities,
        there may be a significant dilution in the value of our outstanding common
        stock.
  In the next 12 to 24 months, we expect to incur research and development
        expenses related to the development of our proprietary nuclear fuel designs
        and
        related patents. Thorium Power has been working with Kurchatov Institute
        and its
        subcontractors through a Cooperative Research Agreement entered into by the
        two
        parties in 2002.  Over the past six to nine months, there have been changes
        at the senior leadership level in Russia across a number of research institutes
        and commercial entities involved in the civilian nuclear power industry,
        including at Kurchatov Institute.  While the 2002 Cooperative Research
        Agreement is still in force, management believes that new agreements with
        Russian entities are needed to reinforce and strengthen our existing contractual
        relationships in Russia.  To that end, management has been recently working
        with Kurchatov Institute and other entities on setting up new agreements
        for the
        next phase of research and development activities in Russia relating to Thorium
        Power’s nuclear fuel designs.
  We
        currently have seven employees and we do not expect to have any significant
        changes in the number of employees we hire over the next 12 months.
  
 22
 
 ***Results
        of Operations***
 
 Summary
  The
        following table summarizes our results of operations during the three months
        ended September 30, 2006 and 2005, and provides information regarding the
        dollar
        and percentage increase or (decrease) from the three months ended September
        30,
        2006 and the same period in 2005. As noted above, we are refocusing our business
        in connection with our merger with Thorium Power, Inc. and, accordingly,
        our
        historical financial performance in 2005 as discussed below is not likely
        to be
        indicative of our 2006 financial performance.
  
 **9/30/06**
              
              **9/30/05**
              
              **Increase
                  (Decrease)**
              
              **Percentage
                  Increase (Decrease)**Revenues
              
              $
              -
              
              $
              -
              
              $
              -
              
              %
              -Operating
                  expenses
              
              
              3,007,882
              
              
              1,295,025
              
              
              1,712,857
              
              
              132Other
                  (income) expense - net
              
              
              (754,878)
              
              
              -Net
                  loss
              
              
              2,253,004
              
              
              1,295,025
              
              
              957,979
              
              
              74Loss
                  per common share
              
              $
              .01
              
              $
              .01
              
              $
              -
              
              %
              -
 
 **Revenues**
 
 We
        did
        not generate any revenues during the three months ended September 30, 2006,
        as
        we focused on our nuclear technology business development and our research
        and
        development efforts during this period. As noted above, we do not expect
        to
        generate revenues for at least the next 12 months, and likely for several
        years,
        until our nuclear fuel designs can be tested, commericially accepted and
        ultimately sold.
 
 **Operating
        Expenses**
 
 Operating
        expenses totaled $3,007,882, with $1,872,947 attributable to expenses paid
        for
        by equity issuances.
 
 Operating
        expenses increased $1,712,857 due primarily to:
 
 •
              Payroll
                  expenses and related fringe benefits increased $212,683 due to
                  the hiring
                  of additional key management. We anticipate increasing our payroll
                  and
                  related fringe benefits costs in our second fiscal quarter ended
                  December
                  31, 2006, as we look to hire one or two employees to add to our
                  management
                  team.
 
 •
              Professional
                  fees expense increased $337,414 due primarily to legal fees incurred
                  in
                  connection with the merger with Thorium Power, Inc., and professional
                  fees
                  incurred to complete the filing of our annual report on Form 10-KSB,
                  and
                  agency fees to identify and hire other key management personnel.
  •
              Travel
                  and business development expense increased $29,414. We anticipate
                  that our
                  travel, business development and public relations expense will
                  increase as
                  we continue to promote our business and seek other opportunities
                  in the
                  nuclear power industry.
  •
              Consulting
                  expense decreased $717,960, which included stock based compensation
                  to
                  consultants, costs associated with finance, geological work, government
                  advocacy work, technical advisory board, and international advisory
                  board.
  •
              Other
                  Stock Based Compensation, other than stock based compensation to
                  consultants, increased $1,687,619, which included stock and stock
                  option
                  grants to our executive officers, advisory board members and employees
                  Our
                  implementation of SFAS No. 123R (a modification to the existing
                  standard -
                  SFAS No. 123) in 2006 changed the way we account for Stock-Based
                  Compensation in 2006, and required us to record expenses for equity
                  instruments for which we would not have been required to report
                  under SFAS
                  No. 123.
  •
              Director
                  and officer liability insurance expense increased $68,630 due to
                  directors
                  and officers liability insurance related to the merger
                  agreement.
    23
  **Other
        income (expense)**
 
 Changes
        in Fair Value of Warrants:
 
 •
              We
                  recorded a warrant liability in the amount of $3,080,024 for the
                  fair
                  value of warrants accruing under a Registration Rights Agreement
                  entered
                  into on May 4, 2006. The change in the fair value of the warrants,
                  from
                  June 30, 2006 to September 30, 2006 was a gain recorded of
                  $598,254.
 
 Interest
        and Dividend income increased $156,624 for the three months ended September
        30,
        2006. This increase is due to the increase in our cash balances, due to the
        private placement that we completed May 4, 2006.
 
 **Research
        and Development Activities**
 
 In
        the
        next 12 to 24 months we expect to incur research and development expenses
        related to the development of our proprietary nuclear fuel designs and related
        patents. We expect these expenses to be in the range of approximately $1.5
        million to $2 million for fiscal 2007, but it is possible that such expenses
        could be less or more than those amounts.
 
 ***Cash
        Flows - Three Months Ended September 30, 2006 and
        2005***
 
 Cash
        Flows
  We
        used
        $1,688,999 in cash from our operating activities during the three months
        ended
        September 30, 2006 as compared to $96,016 used during the same period of
        2005.
        The difference of $1,592,983 which is attributable to the following
        factors:
 
 •
              Increase
                  in cash paid to consultants.
 
 •
              Increase
                  in payroll expenses and related fringe benefits.
 
 •
              Increase
                  in professional fees.
  •
              Increase
                  in travel, business development, and public relations expense.
  •
              Increase
                  in other general and administrative
                  expenses
  •
              Stock
                  redemption, see Item 1 "Financial Statements"- (note 6 Officers
                  Compensation/Payroll Tax Liability)
 
 For
        further information on the cumulative cash flows from June 28, 1999 (Inception)
        to September 30, 2006 see Item I “Financial Statements — Consolidated Statements
        of Cash Flows.”
   24
  ***Liquidity
        and Capital Resources***
  At
        September 30, 2006, our total assets were $14,209,792. Liabilities as of
        September 30, 2006 totaled $4,032,628. We had working capital surplus of
        $8,827,164 at September 30, 2006.
  On
        May 4,
        2006, we closed a private placement for gross proceeds to the Company of
        $15,580,431 for the purpose of acquiring, exploring and developing thorium
        and
        rare earth minerals properties as well as to assist us in connection with
        the
        acquisition of Thorium Power, Inc. and the current development of our
        proprietary nuclear fuel designs.
  While
        management expects these proceeds will meet our foreseeable needs for the
        next
        12 months, we may need to raise additional capital this fiscal year by way
        of an
        offering of equity securities, an offering of debt securities, or by obtaining
        financing through a bank or other entity. If we need to obtain additional
        financing, that financing may not be available or we may not be able to obtain
        that financing on terms acceptable to us. If additional funds are raised
        through
        the issuance of equity securities, there may be a significant dilution in
        the
        value of our outstanding common stock.
  Major
        cash commitments in the next fiscal year are related to the funding of our
        proprietary nuclear fuel designs, and corporate administration and
        operations.
  The
            Company signed an employment agreement with its Chief Executive Officer
            on
            February 14, 2006, and issued 5 million shares to the CEO in compensation
            in
            accordance with the agreement. The Board of Directors on September 18,
            2006 had
            unanimously voted to redeem 2 million shares of this stock grant, at
            a price of
            $0.31 per share, from the CEO, in order to pay the payroll taxes due
            on this
            stock issuance. A stock valuation was done after the stock grant and
            the stock
            price was recently determined by an independent third party valuation
            company,
            for payroll tax reporting purposes, to be $0.31 per share (after applying
            a 50%
            discount off the closing market stock price on the date of issuance).
            The
            Company also signed an employment agreement with another officer (see
            note 5 (a) (iii))
            pursuant to which the Company is to redeem 600,628 shares of the stock
            grant, at
            a price of $0.25 per share (after applying a 50% discount off the closing
            market
            stock price on the date of issuance) and redeem 30,000 shares from another
            former officer, in order to pay the payroll taxes due on these stock
            issuances.
            The Company, on September 28, 2006, paid $814,481 for the payroll tax
            withholdings and payroll tax expense due on these stock issuances.
 As
          a
          result, at September 30, 2006, the total common shares that were held by
          the
          Company or redeemed by the Company in order for the Company to fulfill
          its
          payroll obligations were 2,631,015 shares. These shares will be retired
          to
          treasury.
  On
          October 17, 2006, the Company announced that its Board of Directors had
          authorized a share buyback program for an aggregate of $1,000,000 over
          the next
          12 months, with $250,000 authorized to be repurchased immediately. At the
          discretion of the CEO Seth Grae, the Company may effect further share
          repurchases over the course of the year depending on valuation of the Company
          reflected in the share price. As of the date of this report 825,000 shares
          had
          been repurchased pursuant to this program at an average price of $0.30
          per
          share.
   25
  ***Off
        Balance Sheet Arrangements***
  Thorium
        Power, Inc. entered into a firm price commitment agreement with
        the
        University of Texas of the Permian Basin and the University of Texas
        System in
        connection with our participation in the pre-conceptual design phase for
        the
        construction of a high-temperature test and research reactor in Texas. The
        agreement has created a firm commitment by the Company for a minimum of $1.25
        million financial contribution toward the project. A total of $550,000 was
        paid
        by Thorium Power, Inc. in respect of this commitment, with additional payments
        totaling $700,000 due by December 31, 2006.
 
 We
        do not
        have any other off balance sheet arrangements that have or are reasonably
        likely
        to have a current or future effect on our financial condition, changes in
        financial condition, revenues or expenses, results of operations, liquidity
        or
        capital expenditures or capital resources that is material to an investor
        in our
        securities.
  ***Seasonality***
  Our
        business has not been subject to any material seasonal variations in operations,
        although this may change in the future.
  ***Inflation***
  As
        a
        development stage company, our business, revenues and operating results have
        not
        been affected in any material way by inflation. If and when we begin marketing
        our proprietary nuclear fuel designs, management expects the Company’s business
        could be affected by inflation.
  ***Critical
        Accounting Policies***
  The
        SEC
        issued Financial Reporting Release No. 60, "Cautionary Advice Regarding
        Disclosure About Critical Accounting Policies" suggesting that companies
        provide
        additional disclosure and commentary on their most critical accounting policies.
        In Financial Reporting Release No. 60, the SEC has defined the most critical
        accounting policies as the ones that are most important to the portrayal
        of a
        company's financial condition and operating results, and require management
        to
        make its most difficult and subjective judgments, often as a result of the
        need
        to make estimates of matters that are inherently uncertain. Based on this
        definition, we have identified the following significant policies as critical
        to
        the understanding of our financial statements.
  The
        preparation of financial statements in conformity with generally accepted
        accounting principles requires management to make a variety of estimates
        and
        assumptions that affect (i) the reported amounts of assets and liabilities
        and
        disclosure of contingent assets and liabilities as of the date of the financial
        statements and (ii) the reported amounts of revenues and expenses during
        the
        reporting periods covered by the financial statements.
  Our
        management expects to make judgments and estimates about the effect of matters
        that are inherently uncertain. As the number of variables and assumptions
        affecting the future resolution of the uncertainties increase, these judgments
        become even more subjective and complex. Although we believe that our estimates
        and assumptions are reasonable, actual results may differ significantly from
        these estimates. Changes in estimates and assumptions based upon actual results
        may have a material impact on our results of operation and/or financial
        condition. We have identified certain accounting policies that we believe
        are
        most important to the portrayal of our current financial condition and results
        of operations. Our significant accounting policies are disclosed in Note
        2 to
        the Consolidated Financial Statements included in our Annual Report on Form
        10-KSB filed with the Commission on September 27, 2006 and in Note 1 of the
        Consolidated Condensed Financial Statements in Item 1. “Financial Statements” of
        this Report.
 
 
 26
  Deferred
        tax assets and liabilities
  We
        will
        recognize the expected future tax benefit from deferred tax assets when the
        tax
        benefit is considered to be more likely than not of being realized. Assessing
        the recoverability of deferred tax assets requires management to make
        significant estimates related to expectations of future taxable income.
        Estimates of future taxable income are based on forecasted cash flows and
        the
        application of existing tax laws in each jurisdiction. To the extent that
        future
        cash flows and taxable income differ significantly from estimates, our ability
        to realize deferred tax assets could be impacted. Additionally, future changes
        in tax laws in the jurisdictions in which we operate could limit our ability
        to
        obtain the future tax benefits.
 
 Accounting
        for Stock Based Compensation, Stock Options and Warrants Granted to Employees
        and Nonemployees
  We
        currently report stock issued to employees under the rules of SFAS No.
        123R.
  The
        options were valued using the Black-Scholes option pricing model. The
        assumptions used were as follows: volatility of 269% to 275%, a risk-free
        interest rate of 4.18% to 4.45% and an exercise term of five years.
  ***Risk
        Factors***
 
 *The
        risk factors identified in the Company’s Annual Report on Form 10-KSB, filed
        with the Commission on September 27, 2006, are updated to include the risk
        factors set forth below. The risk factors identified in the Company’s Annual
        Report on Form 10-KSB, filed with the Commission on September 27, 2006 relate
        solely to the Company’s mineral exploration business, which was the Company’s
        primary business prior to the merger with Thorium Power, Inc. The risk factors
        included herein relate primarily to the research and development of proprietary
        nuclear fuel designs, the Company’s primary business following the merger with
        Thorium Power, Inc.*
 
 WE
        CONTINUE TO EXPERIENCE SIGNIFICANT OPERATING LOSSES.
  We
        have
        never realized significant revenues or realized an operating profit from
        the
        development of our proprietary nuclear fuel designs or by our mineral
        exploration activities. The merger is being accounted for as a reverse merger
        and Thorium Power, Inc. is being treated as the accounting acquirer. Since
        Thorium Power, Inc.’s formation, its operating costs have exceeded its revenue
        in each quarter. Thorium Power, Inc. incurred a net loss of approximately
        $1,371,000 for the nine months ended September 30, 2006, and anticipates
        a net
        loss of at least $1,500,000 **** through
        the end of its calendar year 2006. Since mid-2005, when we began pursuing
        the
        exploration of thorium and other rare earth minerals and development
        opportunities, our operating costs have exceed our revenue in each quarter.
        Taking into consideration cumulative losses from its inception in 1992 to
        September 30, 2006 sustained by Thorium Power, Inc. of $16,841,000 prior
        to the
        merger, we will continue to experience significant operating losses in the
        future. We may not be able to obtain or maintain any level of revenues. If
        we
        are unsuccessful in these efforts, we may never achieve profitability.
  OUR
        LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO JUDGE OUR
        PROSPECTS.
  Following
        the merger, we are a development stage company. Our fuel design patents and
        technology have not been commercially used and we have not received any royalty
        or sales revenue. We are subject to the risks, expenses and problems frequently
        encountered by all companies in the early stages of development.
  OUR
        LIQUIDITY AND CAPITAL RESOURCES ARE UNCERTAIN.
  For
        the
        three month period ending September 30, 2006, we had a net loss of $2,253,004.
        At September 30, 2006, we had a working capital surplus of $8,827,164. For
        the
        nine month period ending September 30, 2006, Thorium Power, Inc. (became
        our
        wholly owned subsidiary on October 6, 2006) had an operating loss of
        approximately $1,371,000. At September 30, 2006, Thorium Power, Inc. had
        a
        working capital deficit of approximately $42,000. During the period from
        July 1,
        2005 through June 30, 2006, we raised gross proceeds of approximately
        $17,500,000 in private placement transactions. While we expect these proceeds
        will 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 we
        need to obtain additional financing, that financing may not be available
        or we
        may not be able to obtain that financing on terms acceptable to us. If
        additional funds are raised through the issuance of equity securities, there
        may
        be a significant dilution in the value of our outstanding common
        stock.
    27
  OUR
        FUEL
        DESIGNS HAVE NEVER BEEN TESTED IN AN EXISTING COMMERCIAL REACTOR AND ACTUAL
        FUEL
        PERFORMANCE, AS WELL AS THE WILLINGNESS OF COMMERCIAL REACTOR
        OPERATORS AND FUEL
        FABRICATORS TO ADOPT
        A NEW FUEL DESIGN, IS UNCERTAIN.
  Nuclear power research and development entails significant technological
        risk.
        New designs must be fabricated, tested and licensed before market opportunities
        will exist. Our fuel designs are still in the research and development stage
        and
        while irradiation testing in a test reactor in Russia (which mimics the
        operating characteristics of an actual commercial reactor) and thermal-hydraulic
        experiments have been ongoing for several years, the fuel technology is yet
        to
        be tested in an existing commercial reactor. We will not be certain about
        the
        ability of the fuel we design to perform in actual commercial reactors until
        we
        are able to commercialize our fuel designs. We
        will
        also have to establish a relationship with a fuel fabricator to actually
        produce
        fuel using our designs. If
        our
        fuel designs do not perform as anticipated in commercial use, we will
        not
        realize revenues from the licensing or other use of our fuel designs.
  In addition, there are several technical challenges involved in commercializing
        thorium based fuels. Some of the technical challenges with our technology
        identified by the experts at Russian Research Centre Kurchatov Institute,
        an
        independent contractor that is closely affiliated with the government of
        the
        Russian Federation, Westinghouse, and the IAEA, include:
  ·
            *Fuel
                fabrication*:
                The relatively high melting point of thorium oxide will require fuel
                pellet manufacturing techniques that are different from those currently
                used for uranium pellets.  ·
            *Fuel
                fabrication*:
                Our metallic seed fuel rod designs are greater than 3 meters long
                compared
                to conventional Russian metallic icebreaker fuel rods that we understand
                are approximately 1 meter long. The longer rods will require new
                equipment
                and experience making longer extrusions.  ·
            *Fuel
                design*:
                Our “seed-and-blanket” fuel assembly design has a detachable central part
                which is not in conventional fuel
                designs.  ·
            *Fuel
                design*:
                Some of our fuel designs include plutonium-zirconium fuel rods which
                will
                operate in a soluble boron environment. Current reactor operating
                experience is with uranium-zirconium fuel in a boron-free
                environment.  ·
            *Fuel
                use*:
                Our fuel is expected to be capable of producing more gigawatt days
                per ton
                of fuel than is allowed by current reactor licenses, so to gain full
                economic benefits, reactor operators will have to get regulatory
                approval.  ·
            *Fuel
                use*:
                Our fuels are expected to produce energy economically for up to 9
                years in
                the reactor core. Current fuel demonstrates the cladding can remain
                corrosion-free for up to 5 years. Testing is needed to prove corrosion
                resistance for the longer residence time.  ·
            *Fuel
                reprocessing*:
                The IAEA has identified a number of ways that reprocessing spent
                thorium
                fuel will require technologies different from existing uranium fuel
                reprocessing. Management’s current marketing plans do not assume or depend
                on the ability to reprocess and recycle spent fuel. Management expects
                spent thorium fuel will go into long term storage. This is current
                U.S.
                Government policy.  OUR
        FUEL
        DESIGNS DIFFER FROM FUELS CURRENTLY LICENSED AND USED BY COMMERCIAL NUCLEAR
        POWER PLANTS. AS A RESULT, THE LICENSING AND APPROVAL PROCESS FOR OUR FUELS
        MAY
        BE DELAYED AND MADE MORE COSTLY, AND INDUSTRY ACCEPTANCE OF OUR FUELS MAY
        BE
        HAMPERED.
  Our fuel
        designs differ significantly in some aspects from the fuel licensed and used
        today by commercial nuclear power plants. Some of the differences between
        our
        fuels and those currently used include:
  ·
            use
                of thorium and uranium oxide mix instead of only uranium
                oxide,  ·
            higher
                uranium enrichment level,  ·
            seed-and
                blanket fuel assembly design integrating thorium and
                uranium,  ·
            high
                burn-up levels of uranium,  28
  ·
            use
                of metallic seed rods,  ·
            longer
                residence time of the blanket in the reactor, and  ·
            the
                ability of some of our fuels to dispose of reactor-grade plutonium
                and/or
                weapons-grade plutonium through the use of a new fuel design and
                in
                reactors that have never used plutonium-bearing fresh
                fuels.  These
        differences will likely result in more prolonged and extensive review by
        the
        U.S. Nuclear Regulatory Commission and other nuclear licensing authorities
        and
        customers. Also, the nuclear industry may be hesitant to switch to another
        fuel
        with little or no history of successful commercial use because of the need
        for
        additional engineering and testing with no guarantee of success as well as
        investor reluctance to invest in a new technology when viable existing
        technologies are available.
  OUR
        PLANS
        TO DEVELOP OUR THORIUM/WEAPONS-GRADE PLUTONIUM DISPOSING FUEL ARE DEPENDENT
        UPON
        U.S. GOVERNMENT FUNDING AND SUPPORT. WITHOUT SUCH SUPPORT, WE ARE UNLIKELY
        TO BE
        ABLE TO SERVE THIS MARKET.
  Our
        thorium/weapons-grade plutonium disposing fuel design is highly dependent
        upon
        U.S. and perhaps other government funding and acceptance as a technology
        appropriate to eliminate U.S. and Russian stockpiles of surplus weapons-grade
        plutonium. In the past, we have faced resistance from some offices within
        the
        U.S. Department of Energy (DOE) that support other alternative plutonium
        disposing technology, particularly mixed plutonium uranium oxide (MOX) fuel
        designs. The Company has spent a significant amount of funds to gain commercial
        and market acceptance for its fuel designs. Over the last two years Thorium
        Power, Inc. has spent approximately $400,000, in the aggregate, including
        both
        cash and the fair market value of equity compensation, on third party service
        providers in connection with these lobbying efforts. We expect to spend
        significantly more money per year than Thorium Power, Inc. has in the past
        over
        the next three years on these efforts to gain acceptance. These efforts may
        not
        result in funding for our Company or government acceptance of our technologies
        for plutonium disposition or other government-funded projects.
  WE
        DO NOT
        HAVE RIGHTS TO ALL OF THE DESIGNS, PROCESSES AND METHODOLOGIES THAT ARE USED
        OR
        MAY BE USED OR USEFUL IN OUR BUSINESS IN THE FUTURE. IF WE ARE UNABLE TO
        OBTAIN
        SUCH RIGHTS ON REASONABLE TERMS IN THE FUTURE, OUR ABILITY TO EXPLOIT OUR
        INTELLECTUAL PROPERTY MAY BE LIMITED.
  Dr.
        Alvin
        Radkowsky invented the thorium fuel technology that we are developing. Upon
        founding Thorium Power in 1992, Dr. Radkowsky assigned all of his rights
        in the
        intellectual property relating to such fuel designs to Thorium Power, Inc.
        Thorium Power, Inc. then filed patent applications in the United States and
        other countries and the patents were issued and are held solely by our Company.
        We are currently conducting fuel assembly design work in Russia through Russian
        Research Centre Kurchatov Institute, an independent contractor that is closely
        affiliated with the government of the Russian Federation. We do not have
        any
        licensing or other rights to acquire or utilize certain designs, methodologies
        or processes required for fuel assemblies. If we desire to utilizes such
        processes or methodologies in the future, we must obtain a license or other
        right to use such technologies from the Kurchatov Institute or other entities
        that subcontract to the Kurchatov Institute. If we are unable to obtain such
        a
        license or other right on terms that it deems to be reasonable, then we may
        not
        be able to fully exploit our intellectual property and may be hindered in
        the
        sale of its products and services.
  WE
        RELY
        UPON SETH GRAE AND THE LOSS OF MR. GRAE WOULD HAVE AN ADVERSE EFFECT ON THORIUM
        POWER.
  Thorium
        Power’s success depends upon Seth Grae. Mr. Grae’s knowledge of the nuclear
        power industry, his network of key contacts within that industry and in
        government and, in particular, his expertise in the potential markets for
        the
        company’s technologies, is critical to the implementation of our business model.
        Mr. Grae is likely to be a significant factor in our future growth and success.
        The loss of the service of Mr. Grae would have a material adverse effect
        on our
        Company. We do not have key man insurance policies relating to Seth Grae
        or any
        other key individuals and do not anticipate obtaining any such insurance.
  THE
        PRICE
        OF FOSSIL FUELS OR URANIUM MAY FALL, WHICH WOULD REDUCE THE INTEREST IN THORIUM
        FUEL BY REDUCING ECONOMIC ADVANTAGES OF UTILIZING THORIUM BASED FUELS AND
        ADVERSELY AFFECT THE MARKET PROSPECTS FOR OUR FUEL DESIGNS.
  Coal,
        uranium and crude oil prices are currently at very high levels. Management
        believes the high cost of these fuels has resulted in increased interest
        in
        other sources of energy such as thorium. If prices of traditional energy
        sources
        fall, then the demand that the company expects for thorium based fuels may
        not
        materialize. A decrease in demand for thorium based fuels would negatively
        affect our future operating results.
  29
  OUR
        RESEARCH OPERATIONS ARE CONDUCTED PRIMARILY IN RUSSIA, MAKING THEM SUBJECT
        TO
        POLITICAL UNCERTAINTIES RELATING TO RUSSIA AND U.S.-RUSSIA
        RELATIONS.
  Substantially
        all of our present research activities are in Russia. Our research operations
        are subject to various political risks and uncertainties inherent in the
        country
        of Russia. If U.S.-Russia relations deteriorate, the Russian government may
        decide to scale back or even cease completely its cooperation with the United
        States on various international projects, including in the plutonium disposition
        program and nuclear power technology development programs. If this happened,
        our
        research and development program in Russia could be scaled back or shut down,
        which could have a significant adverse impact on our ability to execute our
        business model. Furthermore, the Russian institutes engaged in the Thorium
        Power
        project are highly regulated and, in many instances, are controlled by the
        Russian government. The Russian government could decide that the nuclear
        scientists engaged in our project in Russia or testing facilities employed
        in
        this project should be redirected to other high priority national projects
        in
        the nuclear sector which could lead to delays or have some other significant
        adverse impact on our project.
 
 WE
        SERVE
        THE NUCLEAR POWER INDUSTRY, WHICH IS HIGHLY REGULATED.
  The
        nuclear power industry is a highly regulated industry. We intend to license
        our
        fuel designs to nuclear fuel fabricators, who would, in turn, sell the
        thorium-based nuclear fuel that is produced using our intellectual property
        to
        nuclear generating companies. All nuclear companies are subject to the
        jurisdiction of the United States Nuclear Regulatory Commission, or its foreign
        equivalents, with respect to the operation of nuclear reactors, fuel cycle
        facilities and handling of nuclear materials and technologies. The U.S. Nuclear
        Regulatory Commission, and its foreign equivalents, subject nuclear facilities
        to continuing review and regulation covering, among other things, operations,
        maintenance, emergency planning, security and environmental and radiological
        aspects of those facilities. These nuclear regulatory bodies may modify,
        suspend
        or revoke operating licenses and impose civil penalties for failure to comply
        with applicable laws and regulations such as the Atomic Energy Act, the
        regulations under such Act or the terms of such licenses. Possession and
        use of
        nuclear materials, including thorium-based nuclear fuel, would require the
        approval of the United States Nuclear Regulatory Commission or its counterparts
        around the world and would be subject to monitoring by international
        agencies.
 
 PUBLIC
        OPPOSITION TO NUCLEAR POWER COULD INCREASE.
  Successful
        execution of our business model is dependent upon public support for nuclear
        power in the United States and other countries. Nuclear power faces strong
        opposition from certain competitive fuels, individuals and organizations.
        The
        occurrence of another major, Chernobyl-like, nuclear accident could have
        a
        significant adverse effect on public opinion about nuclear power and the
        favorable regulatory climate needed to introduce new nuclear technologies.
        Strong public opposition could hinder the construction of new nuclear power
        plants and lead to an early shut-down of the existing nuclear power plants.
        Furthermore, nuclear fuel fabrication and the use of new nuclear fuels in
        reactors must be licensed by the United States Nuclear Regulatory Commission
        and
        equivalent foreign governmental authorities. The licensing process includes
        public hearings in which opponents of the use of nuclear power might be able
        to
        cause the issuance of required licenses to be delayed or denied. In fact,
        since
        the Chernobyl nuclear accident, no new nuclear power plant has been built
        and
        opened in the United States.
 
 MODIFICATIONS
        TO EXISTING NUCLEAR FUEL CYCLE INFRASTRUCTURE AS WELL AS REACTORS MAY PROVE
        TOO
        EXTENSIVE OR COSTLY.
  The
        existing nuclear fuel cycle infrastructure is predominantly based on
        low-enrichment uranium oxide fuels. Introduction of thorium based fuel designs,
        which require relatively higher enriched uranium or plutonium as a source
        of
        reactivity, into the existing nuclear fuel cycle supply chain would necessitate
        certain changes to procedures, processes and equipment used by existing nuclear
        fuel fabrication facilities and nuclear fuel transportation companies. In
        addition, our nuclear fuel designs rely on fabrication technologies that
        may be
        different from the fabrication techniques presently utilized by existing
        fuel
        fabricators. In particular, our metallic seed rods must be produced using
        a
        co-extrusion fabrication process that was developed in Russia. Presently,
        most
        commercial nuclear fuel is produced using a pellet fabrication technology,
        whereby uranium oxide is packed into small pellets that are stacked and sealed
        inside metallic tubes. The co-extrusion fabrication technology involves
        extrusion of a single-piece solid fuel rod from a metallic matrix containing
        uranium or plutonium seed fuel. While the co-extrusion fabrication process
        has
        been successfully used in Russia for decades to produce one-meter long metallic
        nuclear fuel rods used in nuclear reactors that propel Russian icebreakers,
        it
        must be upgraded and tested to demonstrate its ability to produce longer
        metallic rods (approximately 3.5-meters long for Russian VVER-1000 reactors)
        so
        that our seed fuel can be consistent with the standard length of fuel rods
        used
        in existing commercial reactors. Full-size metallic fuel rods have not yet
        been
        produced using this fabrication process, and there are no guarantees that
        this
        new fabrication technology will be successful.
 
 Deployment
        of our nuclear fuel designs into existing commercial reactors may require
        modifications to existing equipment, refueling and fuel handling procedures,
        and
        other processes utilized at existing nuclear power plants. The costs of such
        modifications are difficult to ascertain. While one of our goals is to make
        its
        fuel designs as compatible as possible with the design of existing commercial
        reactors in order to minimize the extent and cost of modifications that may
        be
        required, we may not be able to achieve compatibility sufficient to reduce
        the
        extent and costs of required modifications enough to make its design economical
        for reactor operations.
  30
  OUR
        NUCLEAR FUEL PROCESS IS DEPENDENT ON OUTSIDE SUPPLIERS OF NUCLEAR AND OTHER
        MATERIALS.
  Production
        of fuel assemblies using our nuclear fuel designs is dependent on the ability
        of
        fuel fabricators to obtain supplies of thorium oxide for the “blanket” component
        of its fuel assembly design. Fabricators will also need to obtain metal for
        components, particularly zirconium. These materials are regulated and can
        be
        difficult to obtain or may have unfavorable pricing terms. The inability
        of
        fabricators to obtain these materials could have a material adverse effect
        on
        their ability to market fuel based on our technology.
 
 WE
        MAY BE
        UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, PARTICULARLY IN LIGHT OF RUSSIAN
        INTELLECTUAL PROPERTY LAWS.
 
 Intellectual
        property rights are evolving in Russia, trending towards international norms,
        but are by no means fully developed. We work closely with the Kurchatov
        Institute in Russia to develop some of its intellectual property and so some
        of
        its intellectual property rights derive, or are affected by, Russian
        intellectual property laws. If the application of these laws to our intellectual
        property rights proves inadequate, then the Company may not be able to fully
        avail itself of its intellectual property and its business model may therefore
        be impeded.
 
 **ITEM
        3. CONTROLS AND PROCEDURES.**
 
 As
        required by Rule 13a-15 under the Exchange Act, we carried out an evaluation
        of
        the effectiveness of the design and operation of our disclosure controls
        and
        procedures, as of the end of the period covered by this Report. This evaluation
        was carried out under the supervision and with the participation of our
        management, including our President and Chief Executive Officer and our acting
        Chief Financial Officer. Based upon that evaluation, management concluded
        that
        our disclosure controls and procedures are effective to ensure that information
        required to be disclosed in the reports that it files or submits under the
        Exchange Act is accumulated and communicated to management (including the
        Chief
        Executive Officer and acting Chief Financial Officer) to allow timely decisions
        regarding required disclosure and that our disclosure controls and procedures
        are effective to give reasonable assurance that the information required
        to be
        disclosed by us in reports that we file under the Exchange Act is recorded,
        processed, summarized and reported within the time periods specified in the
        rules and forms of the SEC.
 
 There
        were no changes in our internal control over financial reporting identified
        in
        connection with the evaluation performed that occurred during the fiscal
        year
        covered by this report that has materially affected or is reasonably likely
        to
        materially affect, our internal control over financial reporting.
 
 Disclosure
        controls and procedures are controls and other procedures that are designed
        to
        ensure that information required to be disclosed in our reports filed or
        submitted under the Exchange Act is recorded, processed, summarized and
        reported, within the time periods specified in the SEC’s rules and forms.
        Disclosure controls and procedures include, without limitation, controls
        and
        procedures designed to ensure that information required to be disclosed in
        our
        reports filed under the Exchange Act is accumulated and communicated to
        management, including the Company’s Chief Executive Officer and acting Chief
        Financial Officer as appropriate, to allow timely decisions regarding required
        disclosure.
 
  31
  **PART
        II**
 **OTHER
        INFORMATION**
 
 **ITEM
                  1.**
              **LEGAL
                  PROCEEDINGS**
 
 From
        time
        to time, we may become involved in claims
        and legal proceedings which arise in the ordinary course of our business.
        Litigation is subject to inherent uncertainties, and an adverse result in
        a
        claim or legal proceeding matter may arise from time to time that may harm
        our
        business. Other than the following, we are not aware of any such claims
        or
        legal proceedings that would have a material adverse affect on our business,
        financial condition or operating results.
 
 On
        March
        31, 2006, Novastar,
        Thorium Power and their respective officers were served, through their counsel,
        with a verified complaint by Raj Pamnani. Mr. Pamnani alleges that Novastar
        and
        Thorium Power and their respective officers breached an oral consulting
        agreement he alleges was entered into between Mr. Pamnani and Novastar and
        demands a combination of shares of unrestricted common stock of Novastar
        and
        payment of monetary damages in the amount of $10 million plus an additional
        $5
        million in punitive damages. The action was filed in the Supreme Court of
        the
        State of New York, County of New York, and Novastar filed a Motion to Dismiss
        the complaint on May 23, 2006. On August 8, 2006, the parties entered into
        a
        Settlement Agreement whereby Mr. Pamnani irrevocably and forever waived and
        released any and all claims against Novastar, Thorium Power and the other
        defendants named in the complaint, through the date of execution of the
        Settlement Agreement, in return for the issuance of 215,000 shares of common
        stock of Novastar, as well as warrants to purchase 107,500 shares of Novastar
        common stock at a price of $0.48 per share.
 
 **ITEM
        2.**  **UNREGISTERED
        SALES OF EQUITY SECURITIES OR USE OF**  **PROCEEDS**
 
 None
 
 **ITEM
        3.**  **DEFAULTS
        UPON SENIOR SECURITIES**
 
 None
 
 **ITEM
        4.**  **SUBMISSION
        OF MATTERS TO A VOTE OF SECURITY HOLDERS**
 
 On
        October 5, 2006, we held a Special Meeting of Stockholders at which a majority
        of the stockholders of the Company approved certain amendments to the Company’s
        Articles of Incorporation.
  The
        following table sets forth the matters voted upon at the meeting and the
        results
        of the voting on each matter voted upon:
  Matter
                  Voted Upon
              Votes
                  For
              Withheld
              Votes
                  Against
              Abstentions
              Broker
                  Non-Votes(1)
                  To approve the Company’s Second Amended and Restated 2006 Stock
                  Plan
              90,503,078
              --
              2,761,856
              58,710
              --(2)
                  To approve an amendment to the articles of incorporation of the
                  Company
                  that increases the number of authorized common shares from 250,000,000
                  to
                  500,000,000
              93,006,084
              --
              291,050
              26,510
              --(3)To
                  approve an amendment to the articles of incorporation of the Company
                  thatchanges
                  the name of the Company to “Thorium Power, Ltd.”
              93,159,634
              --
              147,500
              16,510
              --(4)
                  To approve an amendment to the articles of incorporation of the
                  Company
                  that increases the maximum number of directors that may be appointed
                  to
                  the Board of Directors from 5 to 15
              91,883,014
              --
              253,160
              1,187,470
              --
  In accordance with the terms set forth in the proxy statement related to
        the
        solicitation of proxies for use at the special meeting, an abstentionfrom
        voting was used for the purpose of establishing a quorum, and was considered
        a
        vote “against” a proposal. Each of the above matters were each approved by the
        stockholders at the annual meeting.
  **ITEM
        5.**  **OTHER
        INFORMATION**
 
 On November 8, 2006, we notified Charles Merchant that we will not make any
        further payments under the mineral lease relating to our Cleburne, Alabama
        property and we relinquished any and all rights in such property to Mr. Merchant
        in accordance with our mineral lease for such property.  Our mineral lease
        amendment provides, among other things, that Mr. Merchant's only remedy for
        our
        breach of this mineral lease is to take back our rights in the property.  A
        copy of the notice of termination is filed as Exhibit 10.12 to this quarterly
        report.
  On November 8, 2006, Seth Grae, our Chief Executive Officer, Larry Goldman,
        our
        Acting Chief Financial Officer, and Andrey Mushakov, our Executive Vice
        President - International Nuclear Operations, each signed our standard form
        of
        indemnification agreement.  A copy of the form of this agreement is filed
        as exhibit 10.13 to this quarterly report.
    32
 
 **ITEM
        6.**  **EXHIBITS**
 
 The
        following exhibits are filed with this report, except those indicated as
        having
        previously been filed with the SEC and are incorporated by reference to another
        report, registration statement or form. As to any shareholder of record
        requesting a copy of this report, we will furnish any exhibit indicated in
        the
        list below as filed with this report upon payment to us of our expenses in
        furnishing the information.
 
 ***Exhibit***
                ***Number***
              ***Description***3.1
              Articles
                  of Incorporation (incorporated by reference from our Registration
                  Statement on Form 10-SB filed on December 17, 1999).3.2
              Certificate
                  of Amendment (incorporated by reference from our Current Report
                  on Form
                  8-K filed on October 5, 2006.3.3
              By-laws
                  (incorporated by reference from our Current Report on Form 8-K
                  filed on
                  September 18, 2006).4.1
              Novastar
                  Resources, Ltd. Second Amended and Restated 2006 Stock Plan, dated
                  July
                  17, 2006 (incorporated by reference from our Current Report on
                  Form 8-K
                  filed on July 21, 2006.10.1
              Agreement
                  and Plan of Merger dated as of February 14, 2006, between Novastar
                  Resources Ltd., TP Acquisition Corp. and Thorium Power Inc. (incorporated
                  by reference from our Current Report on Form 8-K filed on June
                  13,
                  2006).10.2
              Amendment
                  No. 1, dated June 9, 2006, to Agreement and Plan of Merger between
                  Novastar Resources Ltd., TP Acquisition Corp. and Thorium Power
                  Inc.
                  (incorporated by reference to Exhibit 10.1 of our Current Report
                  on Form
                  8-K filed June 13, 2006).10.3
              Amendment
                  No. 2, dated August 8, 2006, to Agreement and Plan of Merger between
                  Novastar Resources Ltd., TP Acquisition Corp. and Thorium Power
                  Inc.
                  (incorporated by reference to Exhibit 10.1 of our Current Report
                  on Form
                  8-K filed August 9, 2006).10.4
              Employment
                  Agreement, dated July 27, 2006, between Novastar Resources, Ltd.
                  and
                  Andrey Mushakov (incorporated by reference to Exhibit 10.1 of from
                  our
                  Current Report on Form 8-K filed August 4, 2006).10.5
              Stock
                  Option Agreement, dated July 27, 2006, between Novastar Resources,
                  Ltd.
                  and Andrey Mushakov (incorporated by reference to Exhibit 10.2
                  of from our
                  Current Report on Form 8-K filed August 4, 2006).10.6
              Employment
                  Agreement, dated July 27, 2006, between Novastar Resources, Ltd.
                  and
                  Thomas Graham, Jr. (incorporated by reference to Exhibit 10.3 of
                  from our
                  Current Report on Form 8-K filed August 4, 2006).10.7
              Stock
                  Option Agreement, dated July 27, 2006, between Novastar Resources,
                  Ltd.
                  and Thomas Graham, Jr. (incorporated by reference to Exhibit 10.4
                  of from
                  our Current Report on Form 8-K filed August 4, 2006).10.8
              Independent
                  Director Contract, dated August 21, 2006, between Novastar Resources,
                  Ltd.
                  and Victor Alessi (incorporated by reference to Exhibit 10.1 of
                  from our
                  Current Report on Form 8-K filed August 25, 2006).10.9
              Stock
                  Option Agreement, dated August 21, 2006, between Novastar Resources,
                  Ltd.
                  and Victor Alessi (incorporated by reference to Exhibit 10.2 of
                  from our
                  Current Report on Form 8-K filed August 25, 2006).10.10
              Independent
                  Director’s Contract, dated October 23, 2006, between Thorium Power, Ltd.
                  and Jack D. Ladd ( incorporated by reference to Exhibit 10.1 of
                  from our
                  Current Report on Form 8-K filed October 23, 2006)10.11
              Independent
                  Director’s Contract, dated October 23, 2006, between Thorium Power, Ltd.
                  and Daniel B. Magraw, Jr. ( incorporated by reference to Exhibit
                  10.1 of
                  from our Current Report on Form 8-K filed October 23,
                  2006)10.12
              Notice
                  of termination ofCleburne,
                  Alabama property mineral property lease agreement *10.13
              Form
                  of indemnification agreement *31.1
              Rule
                  13a-14(a)/15d-14(a) Certification - Principal Executive
                  Officer*31.2
              Rule
                  13a-14(a)/15d-14(a) Certification - Principal Accounting
                  Officer*32
              Section
                  1350 Certifications*
 ______________
 *
          filed
          herewith
  33
 
 
 SIGNATURES
 
 In
        accordance with section 13 or 15(d) of the Securities Exchange Act of 1934,
        the
        Registrant caused this Report on Form 10-QSB to be signed on its behalf by
        the
        undersigned, thereto duly authorized individual.
 
 Date:
        November 9, 2006
 
 THORIUM
        POWER, LTD.
 
 
 /s/
        Seth
        Grae
 By:
 Seth
        Grae
 Chief
        Executive Officer,
 President
        and Director
  34
  **EXHIBIT
        INDEX**
  ***Exhibit***
                ***Number***
              ***Description***3.1
              Articles
                  of Incorporation (incorporated by reference from our Registration
                  Statement on Form 10-SB filed on December 17, 1999).3.2
              Certificate
                  of Amendment (incorporated by reference from our Current Report
                  on Form
                  8-K filed on October 5, 2006.3.3
              By-laws
                  (incorporated by reference from our Current Report on Form 8-K
                  filed on
                  September 18, 2006).4.1
              Novastar
                  Resources, Ltd. Second Amended and Restated 2006 Stock Plan, dated
                  July
                  17, 2006 (incorporated by reference from our Current Report on
                  Form 8-K
                  filed on July 21, 2006.10.1
              Agreement
                  and Plan of Merger dated as of February 14, 2006, between Novastar
                  Resources Ltd., TP Acquisition Corp. and Thorium Power Inc. (incorporated
                  by reference from our Current Report on Form 8-K filed on June
                  13,
                  2006).10.2
              Amendment
                  No. 1, dated June 9, 2006, to Agreement and Plan of Merger between
                  Novastar Resources Ltd., TP Acquisition Corp. and Thorium Power
                  Inc.
                  (incorporated by reference to Exhibit 10.1 of our Current Report
                  on Form
                  8-K filed June 13, 2006).10.3
              Amendment
                  No. 2, dated August 8, 2006, to Agreement and Plan of Merger between
                  Novastar Resources Ltd., TP Acquisition Corp. and Thorium Power
                  Inc.
                  (incorporated by reference to Exhibit 10.1 of our Current Report
                  on Form
                  8-K filed August 9, 2006).10.4
              Employment
                  Agreement, dated July 27, 2006, between Novastar Resources, Ltd.
                  and
                  Andrey Mushakov (incorporated by reference to Exhibit 10.1 of from
                  our
                  Current Report on Form 8-K filed August 4, 2006).10.5
              Stock
                  Option Agreement, dated July 27, 2006, between Novastar Resources,
                  Ltd.
                  and Andrey Mushakov (incorporated by reference to Exhibit 10.2
                  of from our
                  Current Report on Form 8-K filed August 4, 2006).10.6
              Employment
                  Agreement, dated July 27, 2006, between Novastar Resources, Ltd.
                  and
                  Thomas Graham, Jr. (incorporated by reference to Exhibit 10.3 of
                  from our
                  Current Report on Form 8-K filed August 4, 2006).10.7
              Stock
                  Option Agreement, dated July 27, 2006, between Novastar Resources,
                  Ltd.
                  and Thomas Graham, Jr. (incorporated by reference to Exhibit 10.4
                  of from
                  our Current Report on Form 8-K filed August 4, 2006).10.8
              Independent
                  Director Contract, dated August 21, 2006, between Novastar Resources,
                  Ltd.
                  and Victor Alessi (incorporated by reference to Exhibit 10.1 of
                  from our
                  Current Report on Form 8-K filed August 25, 2006).10.9
              Stock
                  Option Agreement, dated August 21, 2006, between Novastar Resources,
                  Ltd.
                  and Victor Alessi (incorporated by reference to Exhibit 10.2 of
                  from our
                  Current Report on Form 8-K filed August 25, 2006).10.10
              Independent
                  Director’s Contract, dated October 23, 2006, between Thorium Power, Ltd.
                  and Jack D. Ladd ( incorporated by reference to Exhibit 10.1 of
                  from our
                  Current Report on Form 8-K filed October 23, 2006)10.11
              Independent
                  Director’s Contract, dated October 23, 2006, between Thorium Power, Ltd.
                  and Daniel B. Magraw, Jr. ( incorporated by reference to Exhibit
                  10.1 of
                  from our Current Report on Form 8-K filed October 23,
                  2006)10.12
              Notice
                  of termination ofCleburne,
                  Alabama property mineral property lease agreement *10.13
              Form
                  of indemnification agreement *31.1
              Rule
                  13a-14(a)/15d-14(a) Certification - Principal Executive Officer
                  *31.2
              Rule
                  13a-14(a)/15d-14(a) Certification - Principal Accounting Officer
                  *32
              Section
                  1350 Certifications *
 ______________
 *
        filed
        herewith
 
 
  35
  Exhibit
        10.12
 Notice
        of termination of Cleburne,
        Alabama property mineral property lease agreement
  **Thorium
          Power, Ltd.**
 
 **www.** **ThoriumPower** **.com** **Seth
            Grae**
 President
            & CEO
 November
          8, 2006
 
 
 VIA
          FAX
          AND FEDEX
 
 Mr.
          Charles Merchant
 CM
          Properties
 3189
          County Road 10
 Heflin,
          AL 36264
 
 Re:
                Notice
                    of Termination - Assignment of Minerals
                    Lease
 
 Dear
          Mr.
          Merchant,
 
 Reference
          is made to the Assignment of Minerals Lease Agreement, dated as of December
          31,
          2005, between your sole proprietorship, CM Properties and Thorium Power,
          Ltd.
          (formerly, Novastar Resources Ltd.) (the “Company’), as amended by Amendment No.
          1 to Assignment of Minerals Lease, dated March 5, 2006, between such parties
          (the “Mineral Lease”).
 
 Section
          1
          of the amendment referred to above provides that notwithstanding any other
          provision of the Mineral Lease, the sole remedy available to you for a
          breach of
          the Agreement by the Company is the termination of the Agreement and that
          no
          further relief or recourse, whether at law, in equity, or otherwise, will
          be
          available to you.
 
 The
          Company has determined, based on independent core drilling sample test
          results
          regarding the mineral content of the Cleburne County District of Alabama
          properties that are the subject of the Mineral Lease (the “Properties”), that it
          is not economically feasible for us to mine the Properties and provide
          a
          satisfactory rate of return on investment to our stockholders. Accordingly,
          the
          Company intends to cease performance of its obligations under the Mineral
          Lease
          and to forfeit any rights that it has to the Properties and re-vest in
          you those
          rights. The Company will pay the outstanding invoice in the amount of $6,671.00
          that you submitted that covers payroll for your two employees for the period
          from October 30 through December 1, 2006 and fuel charges from October
          4 through
          October 24, 2006. The Company, however, will make no further payments to
          you in
          cash or equity and it is the Company’s position that if you believe any amounts
          in cash or equity are due to you, your sole recourse for the Company’s failure
          to pay such amounts would be termination of the Mineral Lease as per the
          provision in Section 1 of the amendment to the Mineral Lease described
          above.
 
 The
          Company will take any reasonable action that you deem necessary to re-vest
          in
          you any interest in the Properties that the Company holds as a result of
          the
          Mineral Lease.
  Please note that this termination is specific to the Properties covered
            by the
            Mineral Lease and in no way affects the thorium/monazite mineral properties
            located in Clay County, Alabama that were assigned to the Company by
            American
            Graphite Holdings pursuant to that certain Assignment of Specific Mineral
            Rights
            Agreement dated September 14, 2005, as amended March 5, 2006.
 
  Very
            truly yours,
 Thorium
            Power, Ltd.
 
 /s/
              Seth
              Grae
 By:
 Seth
              Grae
 Chief
              Executive Officer,
 President
              and Director
 
  Thorium
                Power, Ltd., 8300 Greensboro Drive, Suite 800, McLean, VA 22102 USA
 Tel
                703-918-4918 Fax 202-318-2502 E-Mail sgrae@ThoriumPower.com
 36
  Exhibit 10.13
 Form
        of indemnification agreement
  **INDEMNIFICATION
            AGREEMENT**
 
 This
            Indemnification Agreement, dated as of the __ day of ____________, 2006
            is made
            by and between THORIUM POWER, LTD., a Nevada corporation (the "Company"),
            and
            ________________________, an officer or director of the Company (the
            “Indemnitee”).
 
 **RECITALS**
 
 A.  The
            Company and the Indemnitee recognize that the present state of the law
            is too
            uncertain to provide the Company's officers and directors with adequate
            and
            reliable advance knowledge or guidance with respect to the legal risks
            and
            potential liabilities to which they may become personally exposed as
            a result of
            performing their duties for the Company;
 
 B.  The
            Company and the Indemnitee are aware of the substantial growth in the
            number of
            lawsuits filed against corporate officers and directors in connection
            with their
            activities in such capacities and by reason of their status as
            such;
 
 C.  The
            Company and the Indemnitee recognize that the cost of defending against
            such
            lawsuits, whether or not meritorious, is typically beyond the financial
            resources of most officers and directors of the Company;
 
 D.  The
            Company and the Indemnitee recognize that the legal risks and potential
            liabilities, and the threat thereof, associated with proceedings filed
            against
            the officers and directors of the Company bear no reasonable relationship
            to the
            amount of compensation received by the Company's officers and
            directors;
 
 E.  The
            Company, after reasonable investigation prior to the date hereof, has
            determined
            that the liability insurance coverage available to the Company as of
            the date
            hereof is inadequate, unreasonably expensive or both. The Company believes,
            therefore, that the interest of the Company and its current and future
            shareholders would be best served by a combination of (i) such insurance
            as the
            Company may obtain pursuant to the Company's obligations hereunder and
            (ii) a
            contract with its officers and directors, including the Indemnitee, to
            indemnify
            them to the fullest extent permitted by law (as in effect on the date
            hereof,
            or, to the extent any amendment may expand such permitted indemnification,
            as
            hereafter in effect) against personal liability for actions taken in
            the
            performance of their duties to the Company;
 
 F.  Section
            78.7502 of the Nevada Revised Statutes empowers Nevada corporations to
            indemnify
            their officers and directors and further states that the indemnification
            provided by Section 78.7502 shall not be deemed exclusive of any other
            rights to
            which those seeking
            indemnification may be entitled under the articles of incorporation or
            any
            bylaw, agreement, vote of shareholders or disinterested directors or
            otherwise,
            both as to action in an official capacity and as to action in another
            capacity
            while holding such office; thus, Section 78.7502 does not by itself limit
            the
            extent to which the Company may indemnify persons serving as its officers
            and
            directors;
 
 G.  The
            Company's Articles of Incorporation and Bylaws authorize the indemnification
            of
            the officers and directors of the Company in excess of that expressly
            permitted
            by Section 78.7502;
 
 H.  The
            Board
            of Directors of the Company has concluded that, to retain and attract
            talented
            and experienced individuals to serve as officers and directors of the
            Company
            and to encourage such individuals to take the business risks necessary
            for the
            success of the Company, it is necessary for the Company to contractually
            indemnify its officers and directors, and to assume for itself liability
            for
            expenses and damages in connection with claims against such officers
            and
            directors in connection with their service to the Company, and has further
            concluded that the failure to provide such contractual indemnification
            could
            result in great harm to the Company and its shareholders;
 
 I.  The
            Company desires and has requested the Indemnitee to serve or continue
            to serve
            as a director or officer of the Company, free from undue concern for
            the risks
            and potential liabilities associated with such services to the Company;
            and
 
 J.  The
            Indemnitee is willing to serve, or continue to serve, the Company, provided,
            and
            on the expressed condition, that she is furnished with the indemnification
            provided for herein.
  
 37
  **AGREEMENT**
 
 NOW,
            THEREFORE, the Company and Indemnitee agree as follows:
 
 1.  DEFINITIONS.
 
 (a)  “EXPENSES”
            means, for the purposes of this Agreement, all direct and indirect costs
            of any
            type or nature whatsoever (including, without limitation, any fees and
            disbursements of Indemnitee's counsel, accountants and other experts
            and other
            out-of-pocket costs) actually and reasonably incurred by the Indemnitee
            in
            connection with the investigation, preparation, defense or appeal of
            a
            Proceeding; provided, however, that Expenses shall not include judgments,
            fines,
            penalties or amounts paid in settlement of a Proceeding.
 
 (b)  “PROCEEDING”
            means, for the purposes of this Agreement, any threatened, pending or
            completed
            action or proceeding, whether civil, criminal, administrative or investigative
            (including an action brought by or in the right of the Company) in which
            Indemnitee may be or may have been involved as a party or otherwise,
            by reason
            of the fact that Indemnitee is or was a director or officer of the Company,
            by
            reason of any action taken by her or of any inaction on her part while
            acting as
            such director or officer or by reason of the fact that she is or was
            serving at
            the request of the Company as a director, officer, employee or agent
            of another
            foreign or domestic corporation, partnership, joint venture, trust or
            other
            enterprise, or was a director or officer of the foreign or domestic corporation
            which was a predecessor corporation to the Company or of another enterprise
            at
            the request of such predecessor corporation, whether or not she is serving
            in
            such capacity at the time any liability or expense is incurred for which
            indemnification or reimbursement can be provided under this
            Agreement.
 2.  AGREEMENT
            TO SERVE.
 
 Indemnitee
            agrees to serve or continue to serve as a director or officer of the
            Company to
            the best of her abilities at the will of the Company or under separate
            contract,
            if such contract exists, for so long as Indemnitee is duly elected or
            appointed
            and qualified or until such time as she tenders her resignation in writing.
            Nothing contained in this Agreement is intended to create in Indemnitee
            any
            right to continued employment.
 
 3.  INDEMNIFICATION.
 
 (a)  THIRD
            PARTY PROCEEDINGS. The Company shall indemnify Indemnitee against Expenses,
            judgments, fines, penalties or amounts paid in settlement (if the settlement
            is
            approved in advance by the Company) actually and reasonably incurred
            by
            Indemnitee in connection with a Proceeding (other than a Proceeding by
            or in the
            right of the Company) if Indemnitee acted in good faith and in a manner
            Indemnitee reasonably believed to be in the best interests of the Company,
            and,
            with respect to any criminal action or proceeding, had no reasonable
            cause to
            believe Indemnitee's conduct was unlawful. The termination of any Proceeding
            by
            judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE
            or
            its equivalent, shall not, of itself, create a presumption that Indemnitee
            did
            not act in good faith and in a manner which Indemnitee reasonably believed
            to be
            in the best interests of the Company, or, with respect to any criminal
            Proceeding, had no reasonable cause to believe that Indemnitee's conduct
            was
            unlawful.
 
 (b)  PROCEEDINGS
            BY OR IN THE RIGHT OF THE COMPANY. To the fullest extent permitted by
            law, the
            Company shall indemnify Indemnitee against Expenses and amounts paid
            in
            settlement, actually and reasonably incurred by Indemnitee in connection
            with a
            Proceeding by or in the right of the Company to procure a judgment in
            its favor
            if Indemnitee acted in good faith and in a manner Indemnitee reasonably
            believed
            to be in the best interests of the Company and its shareholders. Notwithstanding
            the foregoing, no indemnification shall be made in respect of any claim,
            issue
            or matter as to which Indemnitee shall have been adjudged liable to the
            Company
            in the performance of Indemnitee's duty to the Company and its shareholders
            unless and only to the extent that the court in which such action or
            proceeding
            is or was pending shall determine upon application that, in view of all
            the
            circumstances of the case, Indemnitee is fairly and reasonably entitled
            to
            indemnity for expenses and then only to the extent that the court shall
            determine.
 
 (c)  SCOPE.
            Notwithstanding any other provision of this Agreement but subject to
            SECTION
            14(b), the Company shall indemnify the Indemnitee to the fullest extent
            permitted by law, notwithstanding that such indemnification is not specifically
            authorized by other provisions of this Agreement, the Company's Articles
            of
            Incorporation, the Company's Bylaws or by statute.
  
 38
 
 4.  LIMITATIONS
            ON INDEMNIFICATION.
 
 Any
            other
            provision herein to the contrary notwithstanding, the Company shall not
            be
            obligated pursuant to the terms of this Agreement:
 (a)  EXCLUDED
            ACTS. To indemnify Indemnitee for any acts or omissions or transactions
            from
            which a director may not be relieved of liability under applicable
            law;
 
 (b)  EXCLUDED
            INDEMNIFICATION PAYMENTS. To indemnify or advance Expenses in violation
            of any
            prohibition or limitation on indemnification under the statutes, regulations
            or
            rules promulgated by any state or federal regulatory agency having jurisdiction
            over the Company.
 
 (c)  CLAIMS
            INITIATED BY INDEMNITEE. To indemnify or advance Expenses to Indemnitee
            with
            respect to Proceedings or claims initiated or brought voluntarily by
            Indemnitee
            and not by way of defense, except with respect to proceedings brought
            to
            establish or enforce a right to indemnification under this Agreement
            or any
            other statute or law or otherwise as required under Section 78.7502 of
            the
            Nevada Revised Statutes, but such indemnification or advancement of Expenses
            may
            be provided by the Company in specific cases if the Board of Directors
            has
            approved the initiation or bringing of such suit;
 
 (d)  LACK
            OF
            GOOD FAITH. To indemnify Indemnitee for any Expenses incurred by the
            Indemnitee
            with respect to any proceeding instituted by Indemnitee to enforce or
            interpret
            this Agreement, if a court of competent jurisdiction determines that
            each of the
            material assertions made by the Indemnitee in such proceeding was not
            made in
            good faith or was frivolous;
 
 (e)  INSURED
            CLAIMS. To indemnify Indemnitee for Expenses or liabilities of any type
            whatsoever (including, but not limited to, judgments, fines, ERISA excise
            taxes
            or penalties, and amounts paid in settlement) which have been paid directly
            to
            or on behalf of Indemnitee by an insurance carrier under a policy of
            directors'
            and officers' liability insurance maintained by the Company or any other
            policy
            of insurance maintained by the Company or Indemnitee;
 
 (f)  CLAIMS
            UNDER SECTION 16(b). To indemnify Indemnitee for Expenses and the payment
            of
            profits arising from the purchase and sale by Indemnitee of securities
            in
            violation of Section 16(b) of the Securities Exchange Act of 1934, as
            amended,
            or any similar successor statute.
 
 5.  DETERMINATION
            OF RIGHT TO INDEMNIFICATION.
 
 Upon
            receipt of a written claim addressed to the Board of Directors for
            indemnification pursuant to SECTION 3, the Company shall determine by
            any of the
            methods set forth in Section 78.751 of the Nevada Revised Statutes whether
            Indemnitee has met the applicable standards of conduct which makes it
            permissible under applicable law to indemnify Indemnitee. If a claim
            under
            SECTION 3 is not paid in full by the Company within ninety (90) days
            after such
            written claim has been received by the Company, the Indemnitee may at
            any time
            thereafter bring suit against the Company to recover the unpaid amount
            of the
            claim and, unless such action is dismissed by the court as frivolous
            or brought
            in bad faith, the Indemnitee shall be entitled to be paid also the expense
            of
            prosecuting such claim. The court in which such action is brought shall
            determine whether Indemnitee or the Company shall have the burden of
            proof
            concerning whether Indemnitee has or has not met the applicable standard
            of
            conduct.
 
 6.  ADVANCEMENT
            AND REPAYMENT OF EXPENSES.
 
 Subject
            to SECTION 4 hereof, the Expenses incurred by Indemnitee in defending
            and
            investigating any Proceeding shall be paid by the Company in advance
            of the
            final disposition of such Proceeding within 30 days after receiving from
            Indemnitee the copies of invoices presented to Indemnitee for such Expenses,
            if
            Indemnitee shall provide an undertaking to the Company to repay such
            amount to
            the extent it is ultimately determined that Indemnitee is not entitled
            to
            indemnification. In determining whether or not to make an advance hereunder,
            the
            ability of Indemnitee to repay shall not be a factor. Notwithstanding
            the
            foregoing, in a proceeding brought by the Company directly, in its own
            right (as
            distinguished from an action bought derivatively or by any receiver or
            trustee),
            the Company shall not be required to make the advances called for hereby
            if the
            Board of Directors determines, in its sole discretion, that it does not
            appear
            that Indemnitee has met the standards of conduct which make it permissible
            under
            Applicable law to indemnify Indemnitee and the advancement of Expenses
            would not
            be in the best interests of the Company and its shareholders.
 
 7.  PARTIAL
            INDEMNIFICATION.
 
 If
            the
            Indemnitee is entitled under any provision of this Agreement to indemnification
            or advancement by the Company of some or a portion of any Expenses or
            liabilities of any type whatsoever (including, but not limited to, judgments,
            fines, penalties, and amounts paid in settlement) incurred by him in
            the
            investigation, defense, settlement or appeal of a Proceeding, but is
            not
            entitled to indemnification or advancement of the total amount thereof,
            the
            Company shall nevertheless indemnify or pay advancements to the Indemnitee
            for
            the portion of such Expenses or liabilities to which the Indemnitee is
            entitled.
   39
 
 8.  NOTICE
            TO
            COMPANY BY INDEMNITEE.
 
 Indemnitee
            shall notify the Company in writing of any matter with respect to which
            Indemnitee intends to seek indemnification hereunder as soon as reasonably
            practicable following the receipt by Indemnitee of written notice thereof;
            provided, however, that any delay in so notifying the Company shall not
            constitute a waiver by Indemnitee of her rights hereunder. The written
            notification to the Company shall be addressed to the Board of Directors
            and
            shall include a description of the nature of the Proceeding and the facts
            underlying the Proceeding and be accompanied by copies of any documents
            filed
            with the court in which the Proceeding is pending. In addition, Indemnitee
            shall
            give the Company such information and cooperation as it may reasonably
            require
            and as shall be within Indemnitee's power.
 
 9.  MAINTENANCE
            OF LIABILITY INSURANCE.
 
 (a)  Subject
            to SECTION 4 hereof, the Company hereby agrees that so long as Indemnitee
            shall
            continue to serve as a director or officer of the Company and thereafter
            so long
            as Indemnitee shall be subject to any possible Proceeding, the Company,
            subject
            to SECTION 9(B), shall use reasonable commercial efforts to obtain and
            maintain
            in full force and effect directors' and officers' liability insurance
            (“D&O
            Insurance”) which provides Indemnitee the same rights and benefits as are
            accorded to the most favorably insured of the Company's directors, if
            Indemnitee
            is a director; or of the Company's officers, if Indemnitee is not a director
            of
            the Company but is an officer.
 
 (b)  Notwithstanding
            the foregoing, the Company shall have no obligation to obtain or maintain
            D&O Insurance if the Company determines in good faith that such insurance
            is
            not reasonably available, the premium costs for such insurance are
            disproportionate to the amount of coverage provided, the coverage provided
            by
            such insurance is limited by exclusions so as to provide an insufficient
            benefit, or the Indemnitee is covered by similar insurance maintained
            by a
            subsidiary or parent of the Company.
 
 (c)  If,
            at
            the time of the receipt of a notice of a claim pursuant to SECTION 8
            hereof, the
            Company has D&O Insurance in effect, the Company shall give prompt notice of
            the commencement of such Proceeding to the insurers in accordance with
            the
            procedures set forth in the respective policies. The Company shall thereafter
            take all necessary or desirable action to cause such insurers to pay,
            on behalf
            of the Indemnitee, all amounts payable as a result of such Proceeding
            in
            accordance with the terms of such policies.
 
 10.  DEFENSE
            OF CLAIM.
 
 In
            the
            event that the Company shall be obligated under SECTION 6 hereof to pay
            the
            Expenses of any Proceeding against Indemnitee, the Company, if appropriate,
            shall be entitled to assume the defense of such Proceeding, with counsel
            approved by Indemnitee, which approval shall not be unreasonably withheld,
            upon
            the delivery to Indemnitee of written notice of its election to do so.
            After
            delivery of such notice, approval of such counsel by Indemnitee and the
            retention of such counsel by the Company, the Company will not be liable
            to
            Indemnitee under this Agreement for any fees of counsel subsequently
            incurred by
            Indemnitee with respect to the same Proceeding, provided that (i) Indemnitee
            shall have the right to employ her counsel in any such Proceeding at
            Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee
            has been previously authorized by the Company, or (B) Indemnitee shall
            have
            reasonably concluded that there may be a conflict of interest between
            the
            Company and the Indemnitee in the conduct of such defense or (C) the
            Company
            shall not, in fact, have employed counsel to assume the defense of such
            Proceeding, then the fees and expenses of Indemnitee's counsel shall
            be at the
            expense of the Company.
 
 11.  ATTORNEYS'
            FEES.
 
 In
            the
            event that Indemnitee or the Company institutes an action to enforce
            or
            interpret any terms of this Agreement, the Company shall reimburse Indemnitee
            for all of the Indemnitee's reasonable fees and expenses in bringing
            and
            pursuing such action or defense, unless as part of such action or defense,
            a
            court of competent jurisdiction determines that the material assertions
            made by
            Indemnitee as a basis for such action or defense were not made in good
            faith or
            were frivolous.
 
 12.  CONTINUATION
            OF OBLIGATIONS.
 
 All
            agreements and obligations of the Company contained herein shall continue
            during
            the period the Indemnitee is a director or officer of the Company, or
            is or was
            serving at the request of the Company as a director, officer, fiduciary,
            employee or agent of another corporation, partnership, joint venture,
            trust or
            other enterprise, and shall continue thereafter so long as the Indemnitee
            shall
            be subject to any possible proceeding by reason of the fact that Indemnitee
            served in any capacity referred to herein.
 
 13.  SUCCESSORS
            AND ASSIGNS.
 
 This
            Agreement establishes contract rights that shall be binding upon, and
            shall
            inure to the benefit of, the successors, assigns, heirs and legal
            representatives of the parties hereto.
   40
 
 14.  NON-EXCLUSIVITY.
 
 (a)  The
            provisions for indemnification and advancement of expenses set forth
            in this
            Agreement shall not be deemed to be exclusive of any other rights that
            the
            Indemnitee may have under any provision of law, the Company's Articles
            of
            Incorporation or Bylaws, the vote of the Company's shareholders or disinterested
            directors, other agreements or otherwise, both as to action in her official
            capacity and action in another capacity while occupying her position
            as a
            director or officer of the Company.
 
 (b)  In
            the
            event of any changes, after the date of this Agreement, in any applicable
            law,
            statute, or rule which expand the right of a Nevada corporation to indemnify
            its
            officers and directors, the Indemnitee's rights and the Company's obligations
            under this Agreement shall be expanded to the full extent permitted by
            such
            changes. In the event of any changes in any applicable law, statute or
            rule,
            which narrow the right of a Nevada corporation to indemnify a director
            or
            officer, such changes, to the extent not otherwise required by such law,
            statute
            or rule to be applied to this Agreement, shall have no effect on this
            Agreement
            or the parties' rights and obligations hereunder.
 
 15.  EFFECTIVENESS
            OF AGREEMENT.
 
 To
            the
            extent that the indemnification permitted under the terms of certain
            provisions
            of this Agreement exceeds the scope of the indemnification provided for
            in the
            Nevada Revised Statutes, such provisions shall not be effective unless
            and until
            the Company's Articles of Incorporation authorize such additional rights
            of
            indemnification. In all other respects, the balance of this Agreement
            shall be
            effective as of the date set forth on the first page and may apply to
            acts of
            omissions of Indemnitee which occurred prior to such date if Indemnitee
            was an
            officer, director, employee or other agent of the Company, or was serving
            at the
            request of the Company as a director, officer, employee or agent of another
            corporation, partnership, joint venture, trust or other enterprise, at
            the time
            such act or omission occurred.
 
 16.  SEVERABILITY.
 
 Nothing
            in this Agreement is intended to require or shall be construed as requiring
            the
            Company to do or fail to do any act in violation of applicable law. The
            Company's inability, pursuant to court order, to perform its obligations
            under
            this Agreement shall not constitute a breach of this Agreement. The provisions
            of this Agreement shall be severable as provided in this SECTION 16.
            If this
            Agreement or any portion hereof shall be invalidated on any ground by
            any court
            of competent jurisdiction, then the Company shall nevertheless indemnify
            Indemnitee to the full extent permitted by any applicable portion of
            this
            Agreement that shall not have been invalidated, and the balance of this
            Agreement not so invalidated shall be enforceable in accordance with
            its
            terms.
 
 17.
            GOVERNING LAW.
 
 This
            Agreement shall be interpreted and enforced in accordance with the laws
            of the
            State of Nevada, without reference to its conflict of law principals.
            To the
            extent permitted by applicable law, the parties hereby waive any provisions
            of
            law which render any provision of this Agreement unenforceable in any
            respect.
 
 18.  NOTICE.
 
 All
            notices, requests, demands and other communications under this Agreement
            shall
            be in writing and shall be deemed duly given (i) if delivered by hand
            and
            receipted for by the party addressee or (ii) if mailed by certified or
            registered mail with postage prepaid, on the third business day after
            the
            mailing date. Addresses for notice to either party are as shown on the
            signature
            page of this Agreement, or as subsequently modified by written
            notice.
 
 19.  MUTUAL
            ACKNOWLEDGMENT.
 
 Both
            the
            Company and Indemnitee acknowledge that in certain instances, federal
            law or
            applicable public policy may prohibit the Company from indemnifying its
            directors and officers under this Agreement or otherwise. Indemnitee
            understands
            and acknowledges that the Company has undertaken or may be required in
            the
            future to undertake with the appropriate state or federal regulatory
            agency to
            submit for approval any request for indemnification, and has undertaken
            or may
            be required in the future to undertake with the Securities and Exchange
            Commission to submit the question of indemnification to a court in certain
            circumstances for a determination of the Company's right under public
            policy to
            indemnify Indemnitee.
 
 20.  COUNTERPARTS.
 
 This
            Agreement may be executed in one or more counterparts, each of which
            shall
            constitute an original.
 
 21.  AMENDMENT
            AND TERMINATION.
 
 No
            amendment, modification, termination or cancellation of this Agreement
            shall be
            effective unless in writing signed by both parties hereto.
 
 
 [ *Signature
            Page Follows* ]
  41
   IN
            WITNESS WHEREOF, the parties have executed this Agreement as of the day
            and year
            set forth above.
 
 
 COMPANY:
                    
                    THORIUM
                      POWER, LTD.
                    
                    
                    
                    By:
                    Name:
                      SETH GRAE
                    Title:
                      CHIEF EXECUTIVE OFFICER
                    
                    Address:****8300
                      Greensboro Drive, Suite 800
                    McLean,
                      VA 22102
                  INDEMNITEE:
                    
                    
                    
                    
                    NAME:
                    
                    Address:
 42
    Exhibit
        31.1
 Certification
        of Principal Executive Officer
 I,
        Seth
        Grae, certify that:
  1.  I
        have
        reviewed this Quarterly Report on Form 10-QSB of Thorium Power,
        Ltd.;
   2.  Based
        on
        my knowledge, this report does not contain any untrue statement of a material
        fact or omit to state a material fact necessary to make the statements made,
        in
        light of the circumstances under which such statements were made, not misleading
        with respect to the period covered by this report;
   3.  Based
        on
        my knowledge, the financial statements, and other financial information included
        in this report, fairly present in all material respects the financial condition,
        results of operations and cash flows of the small business issuer as of,
        and
        for, the periods presented in this report;
   4.  The
        small
        business issuer's other certifying officer(s) and I are responsible for
        establishing and maintaining disclosure controls and procedures (as defined
        in
        Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer
        and
        have:
   a.
              Designed
                  such disclosure controls and procedures, or caused such disclosure
                  controls and procedures to be designed under our supervision, to
                  ensure
                  that material information relating to the small business issuer,
                  including
                  its consolidated subsidiaries, is made known to us by others within
                  those
                  entities, particularly during the period in which this report is
                  being
                  prepared;
   b.
              Evaluated
                  the effectiveness of the small business issuer's disclosure controls
                  and
                  procedures and presented in this report our conclusions about the
                  effectiveness of the disclosure controls and procedures, as of
                  the end of
                  the period covered by this report based on such evaluation;
                  and
   c.
              Disclosed
                  in this report any change in the small business issuer's internal
                  control
                  over financial reporting that occurred during the small business
                  issuer's
                  most recent fiscal quarter (the small business issuer's fourth
                  fiscal
                  quarter in the case of an annual report) that has materially affected,
                  or
                  is reasonably likely to materially affect, the small business issuer's
                  internal control over financial reporting;
                  and
   5.  The
        small
        business issuer's other certifying officer(s) and I have disclosed, based
        on our
        most recent evaluation of internal control over financial reporting, to the
        small business issuer's auditors and the audit committee of the small business
        issuer's board of directors (or persons performing the equivalent
        functions):
   a.
              All
                  significant deficiencies and material weaknesses in the design
                  or
                  operation of internal control over financial reporting which are
                  reasonably likely to adversely affect the small business issuer's
                  ability
                  to record, process, summarize and report financial information;
                  and
   b.
              Any
                  fraud, whether or not material, that involves management or other
                  employees who have a significant role in the small business issuer's
                  internal control over financial
                  reporting.
  
 Date:
        November 9, 2006
 
 /s/
        Seth Grae
 Seth
        Grae, Principal Executive Officer
 
  43
   Exhibit
        31.2
 Certification
        of Principal Financial Officer
 I,
        Larry
        Goldman, certify that:
  1. I
        have
        reviewed this Quarterly Report on Form 10-QSB of Thorium Power,
        Ltd.;
   2.  Based
        on
        my knowledge, this report does not contain any untrue statement of a material
        fact or omit to state a material fact necessary to make the statements made,
        in
        light of the circumstances under which such statements were made, not misleading
        with respect to the period covered by this report;
   3.  Based
        on
        my knowledge, the financial statements, and other financial information included
        in this report, fairly present in all material respects the financial condition,
        results of operations and cash flows of the small business issuer as of,
        and
        for, the periods presented in this report;
   4.  The
        small
        business issuer's other certifying officer(s) and I are responsible for
        establishing and maintaining disclosure controls and procedures (as defined
        in
        Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer
        and
        have:
   a.
              Designed
                  such disclosure controls and procedures, or caused such disclosure
                  controls and procedures to be designed under our supervision, to
                  ensure
                  that material information relating to the small business issuer,
                  including
                  its consolidated subsidiaries, is made known to us by others within
                  those
                  entities, particularly during the period in which this report is
                  being
                  prepared;
   b.
              Evaluated
                  the effectiveness of the small business issuer's disclosure controls
                  and
                  procedures and presented in this report our conclusions about the
                  effectiveness of the disclosure controls and procedures, as of
                  the end of
                  the period covered by this report based on such evaluation;
                  and
   c.
              Disclosed
                  in this report any change in the small business issuer's internal
                  control
                  over financial reporting that occurred during the small business
                  issuer's
                  most recent fiscal quarter (the small business issuer's fourth
                  fiscal
                  quarter in the case of an annual report) that has materially affected,
                  or
                  is reasonably likely to materially affect, the small business issuer's
                  internal control over financial reporting;
                  and
   5.  The
        small
        business issuer's other certifying officer(s) and I have disclosed, based
        on our
        most recent evaluation of internal control over financial reporting, to the
        small business issuer's auditors and the audit committee of the small business
        issuer's board of directors (or persons performing the equivalent
        functions):
   a.
              All
                  significant deficiencies and material weaknesses in the design
                  or
                  operation of internal control over financial reporting which are
                  reasonably likely to adversely affect the small business issuer's
                  ability
                  to record, process, summarize and report financial information;
                  and
   b.
              Any
                  fraud, whether or not material, that involves management or other
                  employees who have a significant role in the small business issuer's
                  internal control over financial
                  reporting.
  
 Date:
        November 9, 2006
 
 /s/
        Larry Goldman
 Larry
        Goldman, Principal Financial Officer
   
  44
   Exhibit
        32
 Section
        1350 Certifications
 
  **STATEMENT
        FURNISHED PURSUANT TO**
 **SECTION
        906 OF THE SARBANES-OXLEY ACT OF 2002**
 
 The
        undersigned is the Chief Executive Officer and Treasurer or Principal Accounting
        Officer of Thorium Power, Ltd. This Certification is made pursuant to Section
        906 of the Sarbanes-Oxley Act of 2002. This Certification accompanies the
        Quarterly Report on Form 10-QSB of Thorium Power, Ltd. for the three months
        ended September 30, 2006.
 
 The
        undersigned certifies that such 10-QSB Report fully complies with the
        requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
        1934
        and that the information contained in such 10-QSB Report fairly presents,
        in all
        material respects, the financial condition and results of operations of Thorium
        Power, Ltd. as of September 30, 2006.
 
 This
        Certification is executed as of November 9, 2006.
 
 
 
 *By:
        /s/ Seth Grae*
 *-----------------------------------------*
 *Name:
        Seth Grae*
 *Title:
        President, Chief Executive Officer and Director*
 *(Principal
        Executive Officer)*
 
 
 *By:
        /s/ Larry Goldman*
 *-----------------------------------------*
 *Name:
        Larry Goldman*
 *Title:
        Acting Chief Financial Officer*
 *(Principal
        Financial Officer)*
   A
        signed
        original of this written statement required by Section 906 has been provided
        to
        Thorium Power, Ltd. and will be retained by Thorium Power and furnished to
        the
        Securities and Exchange Commission or its staff upon request.
 
  
 
 45