UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10−Q





(Mark
One)


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


For the
quarterly period ended: June 30, 2009





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


For the
transition period from ____________ to _____________




Commission
File Number: 000-28543




THORIUM POWER,
LTD.


(Exact
name of registrant as specified in its charter)





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





1600
Tyson’s Boulevard, Suite 550


McLean,
VA  22102


(Address
of principal executive offices, Zip Code)





(571)
730-1200





(Registrant’s
telephone number, including area code)





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





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





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





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





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





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 June 30, 2009 is as
follows:




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




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





ITEM
1.     FINANCIAL STATEMENTS





THORIUM POWER,
LTD.





UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS





JUNE 30, 2009 AND
2008





TABLE OF
CONTENTS





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


1


Thorium
Power Ltd.


Condensed
Consolidated Balance Sheets





June
      30,
                    
                    
                    December
      31,2009
                    
                    
                    2008(Unaudited)ASSETSCurrent
      AssetsCash
      and cash equivalents
                    
                    $
                    4,910,717
                    
                    
                    $
                    5,580,244Restricted
      cash
                    
                    
                    650,000
                    
                    
                    
                    650,000Accounts
      receivable - project revenue and reimbursable project
costs
                    
                    
                    3,898,475
                    
                    
                    
                    5,357,804Prepaid
      expenses & other current assets
                    
                    
                    667,407
                    
                    
                    
                    394,315Total
      Current Assets
                    
                    
                    10,126,599
                    
                    
                    
                    11,982,363Property,
      Plant and Equipment -net
                    
                    
                    107,120
                    
                    
                    
                    108,121Other
      AssetsPatent
      costs - net
                    
                    
                    236,215
                    
                    
                    
                    217,875Security
      deposits
                    
                    
                    125,548
                    
                    
                    
                    138,418Total
      Other Assets
                    
                    
                    361,763
                    
                    
                    
                    356,293Total
      Assets
                    
                    $
                    10,595,482
                    
                    
                    $
                    12,446,777LIABILITIES
      AND STOCKHOLDERS EQUITYCurrent
      LiabilitiesAccounts
      payable and accrued liabilities
                    
                    $
                    3,637,997
                    
                    
                    $
                    5,138,979Total
      Liabilities
                    
                    
                    3,637,997
                    
                    
                    
                    5,138,979Commitments
      and contingencies
                    
                    
                    -
                    
                    
                    
                    -Stockholders'
      EquityPreferred
      stock, $0.001 par value, 50,000,000 authorized shares, no shares issued
      and outstanding
                    
                    
                    -
                    
                    
                    
                    -Common
      stock, $0.001 par value, 500,000,000 authorized, 301,841,722 shares issued
      and outstanding at  June 30, 2009 and 301,493,084 issued and
      outstanding at December 31, 2008
                    
                    
                    301,842
                    
                    
                    
                    301,493Additional
      paid in capital - stock and stock equivalents
                    
                    
                    51,086,020
                    
                    
                    
                    48,607,451Accumulated
      Deficit
                    
                    
                    (44,359,385
                    )
                    
                    
                    (41,489,974
                    )Common
      stock reserved for issuance, 505,972 shares and 484,055 shares at June 30,
      2009 and December 31, 2008, respectively
                    
                    
                    109,297
                    
                    
                    
                    114,787Deferred
      stock compensation
                    
                    
                    (180,289
                    )
                    
                    
                    (225,959
                    )Total
      Stockholders' Equity
                    
                    
                    6,957,485
                    
                    
                    
                    7,307,798Total
      Liabilities and Stockholders' Equity
                    
                    $
                    10,595,482
                    
                    
                    $
                    12,446,777





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


2


Thorium
Power Ltd.


Unaudited
Condensed Consolidated Statements of Operations and Comprehensive
Loss





Three
      Months Ended
                
                
                Six
      Months EndedJune 30,
                
                
                June 30,2009
                
                
                2008
                
                
                2009
                
                
                2008Revenue:Consulting
      Revenue
                
                $
                3,430,485
                
                
                $
                4,301,500
                
                
                $
                6,374,538
                
                
                $
                8,116,625Cost
      of  Consulting Services Provided
                
                
                1,888,846
                
                
                
                1,736,562
                
                
                
                3,637,364
                
                
                
                3,384,566Gross
      Margin
                
                
                1,541,639
                
                
                
                2,564,938
                
                
                
                2,737,174
                
                
                
                4,732,059Operating
      ExpensesGeneral
      and administrative
                
                
                1,140,223
                
                
                
                1,597,941
                
                
                
                2,107,717
                
                
                
                3,116,987Research
      and development expenses
                
                
                559,112
                
                
                
                154,788
                
                
                
                1,012,917
                
                
                
                285,449Stock-based
      compensation
                
                
                1,202,357
                
                
                
                1,423,376
                
                
                
                2,497,544
                
                
                
                2,787,179Total
      Operating Expenses
                
                
                2,901,692
                
                
                
                3,176,105
                
                
                
                5,618,178
                
                
                
                6,189,615Operating
      loss
                
                
                (1,360,053
                )
                
                
                (611,167
                )
                
                
                (2,881,004
                )
                
                
                (1,457,556
                )Other
      Income and (Expenses)Interest
      income
                
                
                13,492
                
                
                
                53,898
                
                
                
                16,520
                
                
                
                143,180Realized
      loss on marketable securities and other
                
                
                (389
                )
                
                
                (438,750
                )
                
                
                (4,927
                )
                
                
                (438,750
                )Total
      Other Income and Expenses
                
                
                13,103
                
                
                
                (384,852
                )
                
                
                11,593
                
                
                
                (295,570
                )Net
      loss before income taxes
                
                
                (1,346,950
                )
                
                
                (996,019
                )
                
                
                (2,869,411
                )
                
                
                (1,753,126
                )Income
      taxes
                
                
                —
                
                
                
                1,111
                
                
                
                —
                
                
                
                31,939Net  loss
                
                
                (1,346,950
                )
                
                
                (997,130
                )
                
                
                (2,869,411
                )
                
                
                (1,785,065
                )Other
      Comprehensive Income (Loss)Unrealized
      loss on marketable securities
                
                
                —
                
                
                
                128,208
                
                
                
                —
                
                
                
                (3,515
                )Total
      Comprehensive Loss
                
                $
                (1,346,950
                )
                
                $
                (868,922
                )
                
                $
                (2,869,411
                )
                
                $
                (1,788,580
                )Net
      Loss Per Common Share, Basic and diluted
                
                $
                (0.00
                )
                
                $
                (0.00
                )
                
                $
                (0.01
                )
                
                $
                (0.01
                )Weighted
      Average Number of shares outstanding for the period (used to compute per
      share data)
                
                
                301,841,722
                
                
                
                299,366,947
                
                
                
                301,754,563
                
                
                
                299,215,481





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


3


Thorium
Power Ltd.


Unaudited
Condensed Consolidated Statements of Cash Flows





Six
      months endedJune 30,2009
                
                
                2008Operating
      Activities:Net
      Loss
                
                $
                (2,869,411
                )
                
                $
                (1,785,065
                )Adjustments
      to reconcile net loss from operations to net cash used in operating
      activities:Stock
      based compensation
                
                
                2,519,098
                
                
                
                2,787,178Depreciation
      and amortization
                
                
                13,040
                
                
                
                3,467Changes
      in non-cash operating working capital items:Accounts
      receivable - fees and reimburseable project costs
                
                
                1,459,329
                
                
                
                —Prepaid
      expenses and other current assets
                
                
                (260,222
                )
                
                
                (150,514
                )Accounts
      payable, accrued liabilities and other current liabilities
                
                
                (1,500,982
                )
                
                
                (520,359
                )Deferred
      revenue
                
                
                —
                
                
                
                (3,793,125
                )Deferred
      project costs – net
                
                
                —
                
                
                
                371,631Net
      Cash Used In Operating Activities
                
                
                (639,148
                )
                
                
                (3,086,787
                )Investing
      Activities:Property
      and equipment
                
                
                (12,039
                )
                
                
                —Patent
      costs
                
                
                (18,340
                )
                
                
                —Net
      Cash Used In Investing Activities
                
                
                (30,379
                )
                
                
                —Financing
      Activities:Proceeds
      from issuance of common shares
                
                
                —
                
                
                
                49,975Payments
      on notes payable and other
                
                
                —
                
                
                
                (10,433
                )Net
      Cash Provided by Financing Activities
                
                
                —
                
                
                
                39,542Net
      Decrease In Cash and Cash Equivalents
                
                
                (669,527
                )
                
                
                (3,047,245
                )Cash
      and Cash Equivalents, Beginning of Period
                
                
                5,580,244
                
                
                
                9,907,691Reclassification
      of cash equivalents to marketable securities - available for
      sale
                
                
                —
                
                
                
                (1,674,849
                )Cash
      and Cash Equivalents, End of Period
                
                $
                4,910,717
                
                
                $
                5,185,597Supplemental
      Disclosure of Cash Flow InformationCash
      paid during the period for:Interest
      paid
                
                $
                —
                
                
                $
                183Income
      taxes paid
                
                $
                266,000
                
                
                $
                31,939





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


4


Thorium
Power Ltd.


Unaudited
Condensed Consolidated Statements of Changes in Stockholders’
Equity


For
the Six Months Ended June 30, 2009 (Unaudited) and Year Ended December 31,
2008





Common
      Stock
                    
                    
                    Additional
                    
                    
                    
                    
                    
                    Stock
                      Committed
                    
                    
                    Accumulated
                    
                    
                    Deferred
                    
                    
                    Stockholders’Shares
                    
                    
                    Amount
                    
                    
                    Paid-in
                      Capital
                    
                    
                    Accumulated
                      Deficit
                    
                    
                    For
      Future
                      Issuance
                    
                    
                    Comprehensive
                      Income
                    
                    
                    Stock
                      Compensation
                    
                    
                    EquityBalance
      - December 31, 2007
                    
                    
                    299,014,182
                    
                    
                    $
                    299,014
                    
                    
                    $
                    41,791,735
                    
                    
                    $
                    (38,630,572
                    )
                    
                    $
                    590,000
                    
                    
                    $
                    30,143
                    
                    
                    $
                    (479,445
                    )
                    
                    $
                    3,600,875Unrealized
      loss on marketable securities
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (30,143
                    )
                    
                    
                    
                    
                    
                    
                    (30,143
                    )Exercise
      of stock options
                    
                    
                    320,350
                    
                    
                    
                    320
                    
                    
                    
                    49,655
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    49,975Stock
      option expense
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    6,138,220
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    6,138,220Stock
      based compensation
                    
                    
                    158,552
                    
                    
                    
                    159
                    
                    
                    
                    39,841
                    
                    
                    
                    
                    
                    
                    
                    114,787
                    
                    
                    
                    
                    
                    
                    
                    (114,787
                    )
                    
                    
                    40,000Amortization
      of deferred stock compensation costs
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    368,273
                    
                    
                    
                    368,273Shares
      issued
                    
                    
                    2,000,000
                    
                    
                    
                    2,000
                    
                    
                    
                    588,000
                    
                    
                    
                    
                    
                    
                    
                    (590,000
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    —Net
      loss for the year
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (2,859,402
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (2,859,402
                    )Balance
      - December 31, 2008
                    
                    
                    301,493,084
                    
                    
                    
                    301,493
                    
                    
                    
                    48,607,451
                    
                    
                    
                    (41,489,974
                    )
                    
                    
                    114,787
                    
                    
                    
                    —
                    
                    
                    
                    (225,959
                    )
                    
                    
                    7,307,798Stock
      based compensation
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    2,392,930
                    
                    
                    
                    
                    
                    
                    
                    109,297
                    
                    
                    
                    
                    
                    
                    
                    (39,297
                    )
                    
                    
                    2,462,930Amortization
      of deferred stock compensation costs
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    56,168
                    
                    
                    
                    56,168Net
      loss for the period
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (2,869,411
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (2,869,411
                    )Shares
      issued
                    
                    
                    348,638
                    
                    
                    
                    349
                    
                    
                    
                    85,639
                    
                    
                    
                    
                    
                    
                    
                    (114,787
                    )
                    
                    
                    
                    
                    
                    
                    28,799
                    
                    
                    
                    —Balance
      - June 30, 2009
                    
                    
                    301,841,722
                    
                    
                    $
                    301,842
                    
                    
                    $
                    51,086,020
                    
                    
                    $
                    (44,359,385
                    )
                    
                    $
                    109,297
                    
                    
                    $
                    —
                    
                    
                    $
                    (180,289
                    )
                    
                    $
                    6,957,485





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


5


Thorium
Power Ltd.
 Notes
to Unaudited Condensed Consolidated Financial Statements
 For
the Three Month Periods Ended June 30, 2009 and 2008


1. NATURE
OF OPERATIONS AND BASIS OF PRESENTATION





Basis
of presentation





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





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




Nature
of operations





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





The first
business segment is the development, promotion and marketing of our
patented thorium-based nuclear fuel designs for existing pressurized water
reactors. Presently, we are focusing most of our efforts on demonstrating and
testing our nuclear fuel technology for the Russian designed VVER-1000 reactors.
Operations to date in this business segment have been devoted primarily to
continued development of our fuel designs, filing for certain patents related to
our technology, developing strategic relationships within the nuclear power
industry, and securing political as well as some financial support from the
United States and Russian governments.





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





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




6


Thorium
Power Ltd.
 Notes
to Unaudited Condensed Consolidated Financial Statements
 For
the Three Month Periods Ended June 30, 2009 and 2008


Accounting
Policies





a)
Consolidation




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




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





b) Use of Estimates and
Assumptions




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





Significant
Estimates





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





c) Revenue
Recognition





Consulting
Business Segment





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




7


Thorium
Power Ltd.
 Notes
to Unaudited Condensed Consolidated Financial Statements
 For
the Three Month Periods Ended June 30, 2009 and 2008


Certain
customer arrangements require evaluation of the criteria outlined in the
accounting standards of reporting revenue Gross as a Principal Versus Net as an
Agent(“EITF
99-19”), in determining whether it is appropriate to record the gross amount of
revenue and related costs or the net amount earned as agent fees. Generally,
when we are primarily obligated in a transaction, revenue is recorded on a gross
basis. Other factors that we consider in determining whether to recognize
revenue on a gross versus net basis include our assumption of credit risk,
latitude in establishing prices, our determination of service specifications and
our involvement in the provision of services. When we conclude that we are not
primarily obligated as a Principal, we record the net amount earned as agent
fees within net sales.





For the
year ended December 31, 2008, we were paid upfront by our customer for all
travel costs and other reimbursable costs, thus these costs were not recorded as
revenue in 2008. Starting January 1, 2009 we have determined, based on the
credit risk that we now bear for collecting travel costs and other reimbursable
costs, that in 2009 we are acting as a principal, and therefore we are
recognizing the revenue related to all travel costs and other reimbursable
costs.





Technology
Business Segment





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





d) Stock-Based
Compensation





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





e) Earnings per
Share





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





f) Recent Accounting
Pronouncements





In
April 2008, the FASB issued guidance regarding the, “Determination of the
Useful Life of Intangible Assets.” This guidance amends the factors that should
be considered in developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under SFAS No. 142 (“SFAS
142”), “Goodwill and Other Intangible Assets.” The intent of this guidance is to
improve the consistency between the useful life of a recognized intangible asset
under SFAS 142 and the period of expected cash flows used to measure the fair
value of the asset under other U.S. generally accepted accounting principles.
This guidance is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years. The guidance for determining the useful life of a recognized intangible
asset shall be applied prospectively to intangible assets acquired after the
effective date. Certain disclosure requirements shall be applied prospectively
to all intangible assets recognized as of, and subsequent to, the effective
date.




8


Thorium
Power Ltd.
 Notes
to Unaudited Condensed Consolidated Financial Statements
 For
the Three Month Periods Ended June 30, 2009 and 2008


In
April 2009, the FASB issued guidance regarding “Interim Disclosures
about Fair Value of Financial Instruments.” which amended SFAS No. 107,
“Disclosures about Fair Values of Financial Instruments,” to require disclosures
about fair value of financial instruments in interim financial statements as
well as in annual financial statements. It also amends Accounting Principles
Board (“APB”) Opinion No. 28, “Interim Financial Reporting,” to require
those disclosures in all interim financial statements. This guidance is
effective for interim and annual periods ending after June 15, 2009, with
early application permitted. The fair value of all cash, receivables and
payables are equal to the carrying amounts.





In
May 2009, the FASB issued guidance regarding “Subsequent Events”. This
guidance establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before the financial
statements are issued or are available to be issued. It requires the disclosure
of the date through which an entity has evaluated subsequent events and the
basis for that date. This guidance is effective for interim and annual reporting
periods ending after June 15, 2009, and shall be applied
prospectively.





2.
FINANCIAL STATUS OF THE COMPANY





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





3.  CONSULTING
REVENUES





ENEC and
FANR Projects





Substantially
all of the Company’s revenue earned in the amount of approximately $3 million
for the first quarter of 2009 and $3.4 million for the second quarter of 2009,
has been derived from the two consulting contracts we entered into in August
2008, for consulting services to be rendered for future periods. We expect to
continue to provide strategic advisory services to the EAA of Abu Dhabi and to
both the ENEC and FANR entities during the five-year term of these consulting
agreements. Under these agreements, revenue will be recognized on a time and
material basis. We periodically discuss our consulting work with the EAA of Abu
Dhabi, who will review the work we perform, and our reimbursable travel
expenses, prior to the date of our monthly invoicing for services and
expenses.





Travel
costs and other reimbursable costs under these contracts are reported in the
accompanying statement of operations as both revenue and cost of consulting
services provided, and totaled approximately $304,000 for the three months ended
June 30, 2009 and approximately $638,000 for the six months ended June 30, 2009.
The total travel and other reimbursable expenses that have not been reimbursed
are being presented on the accompanying balance sheet and included in total
accounts receivable in the amount of approximately $251,000 at June 30, 2009.
The remaining accounts receivable reported at June 30, 2009 of approximately
$3,647,000, represents consulting fees billed and due for the work performed for
both the ENEC and FANR projects, mentioned above. Total accounts receivable
reported on the accompanying balance sheet is $3,898,475 at June 30,
2009.


9




Thorium
Power Ltd.


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Three Month Periods Ended June 30, 2009 and 2008





4.
BUSINESS SEGMENTS





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





The
Company evaluates performance based on several factors, of which the primary
financial measure is business segment income before taxes. The following tables
show the operations of the Company’s reportable segments for the three months
and six months ended June 30, 2009 and 2008.





BUSINESS SEGMENT RESULTS – 3
MONTHS ENDED JUNE 30, 2009 AND 2008





Consulting
                                
                                Fuel Technology
                                
                                
                                Corporate and
                                  Eliminations
                                
                                
                                Total2009
                                
                                2008
                                
                                2009
                                
                                2008
                                
                                
                                2009
                                
                                2008
                                
                                
                                2009
                                
                                
                                2008Revenue
                                
                                
                                3,430,485
                                
                                
                                4,301,500
                                
                                
                                —
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                —
                                
                                
                                
                                3,430,485
                                
                                
                                
                                4,301,500Segment
      Profit – Pre
      Tax
                                
                                
                                1,404,485
                                
                                
                                2,564,938
                                
                                
                                (559,111
                                )
                                
                                (315,543
                                )
                                
                                
                                (2,192,324
                                )
                                
                                (3,245,414
                                )
                                
                                
                                (1,346,950
                                )
                                
                                
                                (996,019
                                )Total
      Assets
                                
                                
                                3,907,115
                                
                                
                                —
                                
                                
                                236,215
                                
                                
                                217,875
                                
                                
                                
                                6,452,152
                                
                                
                                7,244,253
                                
                                
                                
                                10,595,482
                                
                                
                                
                                7,462,128Property
      Additions
                                
                                
                                —
                                
                                
                                —
                                
                                
                                —
                                
                                
                                —
                                
                                
                                
                                12,039
                                
                                
                                —
                                
                                
                                
                                12,039
                                
                                
                                
                                —Interest
      Expense
                                
                                
                                —
                                
                                
                                —
                                
                                
                                —
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                183
                                
                                
                                
                                —
                                
                                
                                
                                183Depreciation
                                
                                
                                —
                                
                                
                                —
                                
                                
                                —
                                
                                
                                —
                                
                                
                                
                                7,036
                                
                                
                                3,010
                                
                                
                                
                                7,036
                                
                                
                                
                                3,010





BUSINESS SEGMENT RESULTS –
SIX MONTHS ENDED JUNE 30, 2009 AND 2008





Consulting
                              
                              Fuel Technology
                              
                              
                              Corporate and
                                Eliminations
                              
                              
                              Total2009
                              
                              2008
                              
                              2009
                              
                              2008
                              
                              
                              2009
                              
                              2008
                              
                              
                              2009
                              
                              
                              2008Revenue
                              
                              
                              6,374,538
                              
                              
                              8,116,625
                              
                              
                              —
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              —
                              
                              
                              
                              6,374,538
                              
                              
                              
                              8,116,625Segment
      Profit - Pre
      Tax
                              
                              
                              2,600,020
                              
                              
                              4,732,059
                              
                              
                              (1,012,916
                              )
                              
                              (632,992
                              )
                              
                              
                              (4,456,515
                              )
                              
                              (5,852,193
                              )
                              
                              
                              (2,869,411
                              )
                              
                              
                              (1,753,126
                              )Total
      Assets
                              
                              
                              3,907,115
                              
                              
                              —
                              
                              
                              236,215
                              
                              
                              217,875
                              
                              
                              
                              6,452,152
                              
                              
                              7,244,253
                              
                              
                              
                              10,595,482
                              
                              
                              
                              7,462,128Property
      Additions
                              
                              
                              —
                              
                              
                              —
                              
                              
                              —
                              
                              
                              —
                              
                              
                              
                              12,039
                              
                              
                              —
                              
                              
                              
                              12,039
                              
                              
                              
                              —Interest
      Expense
                              
                              
                              —
                              
                              
                              —
                              
                              
                              —
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              183
                              
                              
                              
                              —
                              
                              
                              
                              183Depreciation
                              
                              
                              —
                              
                              
                              —
                              
                              
                              —
                              
                              
                              —
                              
                              
                              
                              13,040
                              
                              
                              3,467
                              
                              
                              
                              13,040
                              
                              
                              
                              3,467




10


Thorium
Power Ltd.


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Three Month Periods Ended June 30, 2009 and 2008





5.
RESEARCH AND DEVELOPMENT COSTS





Research
and development costs, included in the statement of operations amounted to
$559,000 and $155,000 for the three months ended June 30, 2009 and 2008,
respectively and $1,013,000 and $285,000 for the six months ended June 30, 2009
and 2008, respectively. Total cumulative expense has amounted to $7,261,823 from
January 8, 1992 (date of inception of Thorium Power, Inc.) to June 30, 2009. In
2008, research and development costs were presented separately in the statement
of operations in the amount of $285,000 and $155,000 for the six and three
months ending June 30, 2008 which did not include certain general and
administrative and stock based expenses totaling approximately $348,000 and
$161,000 for the six months and three months ended June 30, 2008 respectively,
and which are appropriately identified as Fuel Technology costs in the segment
reports.




6.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES




Accounts payable and accrued expenses consisted
                    of the following:
                  
                  June
                    2009
                  
                  
                  December
                    2008Trade
      Payables -
                  
                  $
                  760,502
                  
                  
                  $
                  2,474,564Accrued
      Expenses
                  
                  
                  1,123,603
                  
                  
                  
                  801,082Accrued
      Payroll and Severance
                  
                  
                  1,753,892
                  
                  
                  
                  1,863,333$
                  3,637,997
                  
                  
                  $
                  5,138,979





7.  STOCKHOLDERS'
EQUITY





Total
Common stock outstanding at June 30, 2009 was 301,841,722. At June 30, 2009,
there were 505,972 shares reserved for future issuance and 54,590,046 stock
options outstanding, all totaling 356,937,740 of total stock and stock
equivalents outstanding at June 30, 2009.




a)
Share-based Compensation





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




(i)
              No more than an aggregate of
      37,500,000 shares can be granted for the purchase of restricted common
      shares during the term of the stock
plan;
 
 (ii)
              The maximum number of shares of
      common stock with respect to which options may be granted to any one
      person during any fiscal year of the Company may not exceed 8,000,000
      shares; and
 (iii)
                The maximum number of restricted
      shares that may be granted to any one person during any fiscal year of the
      company may not exceed 5,000,000 common
  shares.




Total
stock options outstanding at June 30, 2009 were 54,590,046 of which 39,671,808
of these options were vested at June 30, 2009.


11


Thorium
Power Ltd.


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Three Month Periods Ended June 30, 2009 and 2008





Stock
option transactions to the employees, directors, advisory board members and
consultants are summarized as follows for the six months ended June 30,
2009:





Stock
      Options Outstanding
                  
                  2009Beginning
      of the Year
                  
                  
                  52,084,522Granted
                  
                  
                  6,067,763Exercised
                  
                  
                  —Forfeited
                  
                  
                  (2,075,827
                  )Expired
                  
                  
                  (1,486,412
                  )End
      of Period
                  
                  
                  54,590,046Options
      exercisable
                  
                  
                  39,671,808




The above
table includes options issued as of June 30, 2009 as follows:





i).
                A
      total of 17,937,500 non-qualified 5-10 year options have been issued by
      Thorium Power, Ltd., and are outstanding, to advisory board members at
      exercise prices of $0.15 to $0.64 per share.ii).
                A
      total of 29,421,681 2-10 year options have been issued to directors,
      officers and employees of the Company and are outstanding, at exercise
      prices of $0.156 to $0.795 per share. From this total, 17,133,494 options
      are outstanding to the Chief Executive Officer who is also a director,
      with remaining contractual lives of 1.1 - 8.4 years. All other options
      issued have a remaining contractual life ranging from 1.0 years to 9.8
      years.iii).
                A
      total of 7,230,865 non-qualified 3-10 year options have been issued and
      are outstanding to consultants of the Company, at exercise prices of $0.16
      to $0.51 per share.




The
following table provides certain information with respect to the
above-referenced stock options that are outstanding and exercisable at June 30,
2009:





Stock Options Outstanding
                  
                  
                  Stock Options VestedExercise Prices
                  
                  Weighted
                    Average
                    Remaining
                    Contractual Life
                    - Years
                  
                  
                  Number of
                    Awards
                  
                  
                  Number of
                    Awards
                  
                  
                  Weighted
                    Average
                    Exercise Price$0.15
      - $0.29
                  
                  
                  4.93
                  
                  
                  
                  23,785,042
                  
                  
                  
                  15,219,742
                  
                  
                  $
                  0.18$0.30
      - $0.43
                  
                  
                  6.66
                  
                  
                  
                  5,689,236
                  
                  
                  
                  3,570,210
                  
                  
                  $
                  0.35$0.44-$0.63
                  
                  
                  5.22
                  
                  
                  
                  15,915,768
                  
                  
                  
                  12,881,856
                  
                  
                  $
                  0.47$0.64-$0.80
                  
                  
                  6.15
                  
                  
                  
                  9,200,000
                  
                  
                  
                  8,000,000
                  
                  
                  $
                  0.76Total
                  
                  
                  5.40
                  
                  
                  
                  54,590,046
                  
                  
                  
                  39,671,808
                  
                  
                  $
                  0.41




12


Thorium
Power Ltd.


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Three Month Periods Ended June 30, 2009 and 2008





The
aggregate intrinsic value of stock options outstanding at June 30, 2009 was
$737,848 of which $468,348 related to vested awards. Intrinsic value is
calculated based on the difference between the exercise price of the underlying
awards and the quoted price of our common stock as of the reporting date ($0.20
per share as of June 30, 2009)





Assumptions
used in the Black Scholes option-pricing model for the six months ended June 30,
2009 and 2008 were as follows:





Six months ended6/30/2009
                  
                  
                  6/30/2008Average
      risk-free interest rate
                  
                  
                  2.59
                  %
                  
                  
                  3.28
                  %Average
      expected life
                  
                  10
      years
                  
                  
                  7.4
      yearsExpected
      volatility
                  
                  
                  97.79
                  %
                  
                  
                  113.54
                  %Expected
      dividends
                  
                  
                  0
                  %
                  
                  
                  0
                  %





During
the three months ended June 30, 2009 and 2008, $1,246,128 and $1,423,376
respectively, was recorded as stock-based compensation expense in the statement
of operations (this total amount of stock based compensation for the three
months ended June 30, 2009, included stock based compensation in the amount of
$8,771 to employees and others providing revenue generating services, that was
presented in the financial statements as cost of consulting services, $1,202,357
to employees shown as general and administrative expenses, and $35,000 to the
Board of Directors and strategic advisory committee).




Stock
compensation to two executive officers totaled $590,000, as a one-time stock
grant pursuant to employment agreements that they entered into in 2007, was
recorded to deferred stock compensation (total 2 million shares were issued in
September 2007). The vesting of 1 million of these shares was accelerated upon
the termination of one of these executive officers in November 2008. The Company
also issued additional shares of common stock of 127,626, which was granted in
May 2008 to 3 employees that resulted in $36,373 of deferred stock compensation,
and 356,429 shares granted to 8 employees in August 2008, that resulted in
$78,414 of deferred stock compensation (of which $30,984 has been forfeited in
2009). On April 6, 2009, 187,130 shares were granted to 5 employees that
resulted in $39,297 of deferred stock compensation. The amortization of deferred
stock compensation, recorded as stock based compensation for the six months
ended June 30, 2009 and 2008 was $56,169 and $98,333, respectively. The
remaining stock-based compensation was issued to two directors and four
Strategic Advisory Council (“SAC”) members , as mentioned above, which resulted
in recording $20,000 of director fees and $50,000 in SAC fees respectively for
the six months ended June 30, 2009, and $20,000 in directors fees for the six
months ended June 30, 2008.





c).
Warrants





There no
warrants outstanding as of June 30, 2009.




d).
Common Stock reserved for Future Issuance





Common
stock reserved for future issuance consists of


13


Thorium
Power Ltd.


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Three Month Periods Ended June 30, 2009 and 2008





Shares of
                  
                  StockCommon
                  
                  PurchaseStock
                  
                  Warrants
                  
                  AmountStock-based
      Compensation
                  
                  
                  505,972
                  
                  —
                  
                  $
                  109,297





8.
            INCOME
      TAXES





Our tax
provision for interim periods is determined using an estimate of our annual
effective tax rate adjusted for discrete items, if any, that are taken into
account in the relevant period. Each quarter we update our estimate of the
annual effective tax rate, and if our estimated tax rate changes we make a
cumulative adjustment. The 2009 and 2008 annual effective tax rate is estimated
to be at a combined 40% for the U.S. federal and states statutory tax
rate.





As of
June 30, 2009 and December 31, 2008, there were no tax contingencies
recorded.





Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities recognized for financial reporting
and the amounts recognized for income tax purposes. The significant components
of deferred tax assets (at a 40% effective tax rate) as of June 30, 2009 and
December 31, 2008 respectively, are as follows:





Deferred
      Tax Assets
                        
                        Total Amount
                        
                        
                        Deferred Tax
      Asset Amount2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Capitalized
      start up costs
                        
                        $
                        7,125,807
                        
                        
                        $
                        7,125,807
                        
                        
                        $
                        2,850,323
                        
                        
                        $
                        2,850,323Stock-based
      compensation
                        
                        
                        15,230,726
                        
                        
                        
                        12,775,215
                        
                        
                        
                        6,092,290
                        
                        
                        
                        5,110,086Approximate
      net operating loss  carryforward
                        
                        
                        20,000,000
                        
                        
                        
                        10,000,000
                        
                        
                        
                        8,000,000
                        
                        
                        
                        4,000,000Less:
      valuation allowance
                        
                        
                        (42,356,533
                        )
                        
                        
                        (29,901,022
                        )
                        
                        
                        (16,942,613
                        )
                        
                        
                        (11,960,409
                        )$
                        —
                        
                        
                        $
                        —
                        
                        
                        $
                        —
                        
                        
                        $
                        —




The
Company has net operating loss carryforwards for federal and state tax purposes
with substantially all of the net operating losses expected to expire unused or
some losses may not be available to offset future taxable income, due to the
Internal Revenue Code Section 382 limitation for the ownership change that
occurred on October 6, 2006. As a result, the amount of the deferred tax assets
considered realizable was reduced 100% by a valuation allowance. In 2009, the
Company will compute the actual Internal Revenue Code Section 382 limitation
which will change the reported net operating loss carry forward estimated at
$20,000,000 above, and the valuation allowance shown above. The Company has no
other deferred tax assets or liabilities. The change in the valuation allowance
was $4,982,204 for the six months ended June 30, 2009.




The
Company files a consolidated tax return with its subsidiaries.





In 2009,
the Company prepaid income taxes in the amount of $266,000, for estimates for
2008 corporate taxes. The Company expects to receive most of this amount back
from the Internal Revenue Service when the corporate tax returns are filed for
2008. Many of the Company’s operating expenses in its 2007 and 2006 tax years
were classified under the internal revenue code as capitalized start-up costs
which were not deductible for tax purposes, and the company had interest income
that was taxable for tax purposes. The Company filed a refund claim to the IRS
in 2008 for these federal taxes paid and received its refund in 2008. The
remaining income tax expense for the three and six months ended June 30, 2009
and 2008 represents the income taxes paid that were due to the taxing
authorities.


14


Thorium
Power Ltd.


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Three Month Periods Ended June 30, 2009 and 2008





9.  RESEARCH
AGREEMENT





On
September 15, 2008, Thorium Power, Inc. (“TPI”), a wholly-owned subsidiary of
the Company, entered into an agreement for post-irradiation examination of
experimental fuel element (the “Agreement”) with the Russian Research Centre
“Kurchatov Institute” (“Kurchatov”). Under the Agreement, Kurchatov agreed to
perform post-irradiation examination of an irradiated uranium-zirconium seed
fuel sample using non-destructive and destructive methods. Pursuant to the
Agreement, TPI is obligated to pay to Kurchatov a total of approximately
$138,000, and Kurchatov is obligated to transfer to TPI the worldwide rights in
all of the post-irradiation examination data generated in the course of
performance by Kurchatov of work under the Agreement. Kurchatov agrees not to
use, in any manner, the work product associated with such post-irradiation
examination work or exercise any rights associated therewith without the written
consent of TPI. Further, Kurchatov is obligated to provide to TPI and its
affiliates specified information and documentation for audit purposes, and to
obtain any and all permits from Russian governmental entities which may be
required in order for Kurchatov to perform under the Agreement. In addition to
this agreement, there are consulting agreements with several consultants working
on various projects for the company, which total approximately $5,000 per
month.





10.  COMMITMENTS
AND CONTINGENCIES





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





The
Company moved from its prior office facility and has entered into an agreement
to lease new office space, under the terms of a sublease with a term of 65
months commencing August 1, 2008. Under the terms of the sublease, the lease
payments are inclusive of pass-through costs, which include real estate taxes
and standard operating expenses. As of December 31, 2008, the Company has paid
the security deposit related to this sublease agreement in the amount of
$120,486. The Company pays monthly rental fees in the amount of $40,162 in the
first year of the sublease agreement, and payments increase by a factor of 4%
each year thereafter. The Company may terminate this agreement by providing 60
days notice to the Sublessor. The monthly straight-line rental expense from
August 1, 2008 to December 1, 2013 is $45,189.  As a result of the
straight-line rent calculation generated by the one free rent period and rent
escalation, the Company has a deferred rent credit at June 30, 2009 of
$73,183.





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





TotalYear
      Ending - December 31, 2009
                        
                        $
                        561,640Year
      Ending - December 31, 2010
                        
                        
                        536,467Year
      Ending - December 31, 2011
                        
                        
                        564,109Year
      Ending - December 31, 2012
                        
                        
                        586,136Year
      Ending - December 31, 2013
                        
                        
                        609,016Total
      Minimum lease payments
                        
                        $
                        2,807,368




15


Thorium
Power Ltd.


Notes
to Unaudited Condensed Consolidated Financial Statements


For
the Three Month Periods Ended June 30, 2009 and 2008





11. SUBSEQUENT
EVENTS





Effective
this quarter, the Company implemented Statement of Financial Accounting
Standards No. 165, Subsequent Events,(“FAS
No. 165”). This standard establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued. The adoption of FAS 165 did not impact our
financial position or results of operations. The Company evaluated all events or
transactions that occurred after June 30, 2009 up through July 29,
2009, the date these financial statements were issued. During this period the
Company did not have any material recognizable subsequent
events.


16


FORWARD-LOOKING
STATEMENTS





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




When used
in this report, the terms “Thorium Power”, “Company”, “we”, “our”, and “us”
refer to Thorium Power, Ltd. and its wholly-owned subsidiaries Thorium Power,
Inc. (a Delaware corporation) and Lightbridge Power International Holding, LLC
(a Delaware limited liability company).





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





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





General
Overview





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





Consulting
and Strategic Advisory Services Business Segment





All of
our revenues are derived from this business segment, which provides nuclear
consulting services to entities within the UAE, as described in Item 1 of Part
1, “Financial Statements – Note 3 – Consulting Revenues”. Going forward,
we may enter into additional consulting contracts to provide support and
assistance to other commercial and governmental entities that are looking to
develop and expand their nuclear power industry capabilities and infrastructure.
In future consulting engagements, we expect that revenues may be derived either
from fixed professional fee agreements or from fees generated through hourly
rates, billed on a time and expense basis.


17


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





Technology
Business Segment





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





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





Material
Opportunities and Challenges





Consulting
and Strategic Advisory Services





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





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




18


Proprietary
Nuclear Fuel Technology Development





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





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





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





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





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





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


19


On July
22, 2009, we entered into an Initial Collaborative Agreement and on August 3,
2009, we entered into a Consulting Agreement with Areva pursuant to which we
will conduct the first phase of an investigation of specific topics of thorium
fuel cycles in light water reactors, or LWRs. See the recent developments
section of this 10-Q filing below for more details.




Business
Segments and Periods Presented




We have
provided a discussion of our results of operations on a consolidated basis and
have also provided certain detailed segment information for each of our business
segments below for the three and six months ended June 30, 2009 and 2008, in
order to provide a meaningful discussion of our business segments. We have
organized our operations into two principal segments: Consulting and Strategic
Advisory Services and Fuel Technology. We present our segment information along
the same lines that our chief executive reviews our operating results in
assessing performance and allocating resources.





BUSINESS SEGMENT RESULTS – 3
MONTHS ENDED JUNE 30, 2009 AND 2008





Consulting
                              
                              Fuel Technology
                              
                              
                              Corporate and
                                Eliminations
                              
                              
                              Total2009
                              
                              2008
                              
                              2009
                              
                              2008
                              
                              
                              2009
                              
                              2008
                              
                              
                              2009
                              
                              
                              2008Revenue
                              
                              
                              3,430,485
                              
                              
                              4,301,500
                              
                              
                              —
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              —
                              
                              
                              
                              3,430,485
                              
                              
                              
                              4,301,500Segment
      Profit – Pre-Tax
                              
                              
                              1,404,485
                              
                              
                              2,564,938
                              
                              
                              (559,111
                              )
                              
                              (315,543
                              )
                              
                              
                              (2,192,324
                              )
                              
                              (3,245,414
                              )
                              
                              
                              (1,346,950
                              )
                              
                              
                              (996,019
                              )Total
      Assets
                              
                              
                              3,907,115
                              
                              
                              —
                              
                              
                              236,215
                              
                              
                              217,875
                              
                              
                              
                              6,452,152
                              
                              
                              7,244,253
                              
                              
                              
                              10,595,482
                              
                              
                              
                              7,462,128Property
      Additions
                              
                              
                              —
                              
                              
                              —
                              
                              
                              —
                              
                              
                              —
                              
                              
                              
                              12,039
                              
                              
                              —
                              
                              
                              
                              12,039
                              
                              
                              
                              —Interest
      Expense
                              
                              
                              —
                              
                              
                              —
                              
                              
                              —
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              183
                              
                              
                              
                              —
                              
                              
                              
                              183Depreciation
                              
                              
                              —
                              
                              
                              —
                              
                              
                              —
                              
                              
                              —
                              
                              
                              
                              7,036
                              
                              
                              3,010
                              
                              
                              
                              7,036
                              
                              
                              
                              3,010


20


BUSINESS SEGMENT RESULTS –
SIX MONTHS ENDED JUNE 30, 2009 AND 2008





Consulting
                
                
                Fuel
      Technology
                
                
                Corporate
      and
                  Eliminations
                
                
                Total2009
                
                
                2008
                
                
                2009
                
                
                2008
                
                
                2009
                
                
                2008
                
                
                2009
                
                
                2008Revenue
                
                
                6,374,538
                
                
                
                8,116,625
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                6,374,538
                
                
                
                8,116,625Segment
      Profit -Pre-Tax
                
                
                2,600,020
                
                
                
                4,732,059
                
                
                
                (1,012,916
                )
                
                
                (632,992
                )
                
                
                (4,456,515
                )
                
                
                (5,852,193
                )
                
                
                (2,869,411
                )
                
                
                (1,753,126
                )Total
      Assets
                
                
                3,907,115
                
                
                
                —
                
                
                
                236,215
                
                
                
                217,875
                
                
                
                6,452,152
                
                
                
                7,244,253
                
                
                
                10,595,482
                
                
                
                7,462,128Property
      Additions
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                12,039
                
                
                
                —
                
                
                
                12,039
                
                
                
                —Interest
      Expense
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                183
                
                
                
                —
                
                
                
                183Depreciation
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                13,040
                
                
                
                3,467
                
                
                
                13,040
                
                
                
                3,467





Consulting
and Strategic Advisory Services Business





At the
present time, all of our revenue for the three months and six months ended June
30, 2009, is derived from our consulting and strategic advisory services
business segment, by offering services to foreign governments planning to create
or expand electricity generation capabilities using nuclear power plants
benefiting from thorium-based or other nuclear fuels. The fee type and structure
that we offer for each client engagement is dependent on a number of variables,
including the complexity, the level of the opportunity for us to improve the
client’s electricity generation capabilities using nuclear power plants, and
other factors. Substantially all of our revenues totaling, $3.4 million and $6.4
million for the three months and six months ended June 30, 2009 respectively,
have been derived from the our continuing work under the August 1, 2008
Agreements, with the EAA, and upon formation, with the related entities to be
formed: Emirates Nuclear Energy Corporation (“ENEC”) and Federal Authority for
Nuclear Regulation (“FANR”). We entered into next phase follow-on agreements in
March 2009 and July 2009 to continue our consulting services under the ENEC
and FANR agreements for 2009.





Revenue
was recognized during our first fiscal quarter of 2008 from our initial project
with the EAA called Roadmap, when the work on this contract was substantially
completed. We recognized revenue during the second quarter of 2008 from the
second project with the EAA called the Quickstart project. This revenue was
recognized on this contract ratably over the term of the agreement, as this
contract called for on-going consulting services from March 2008 through June
2008. Revenues from these two projects totaled $4.3 million and $8.1 million for
the three months and six months ended June 30, 2008 respectively.





The cost
of consulting services provided was $1.9 million and $3.6 million for the three
months and six months ended June 30, 2009 respectively, and $1.7 million and
$3.4 million for the three and six months ended June 30, 2008. These amounts
consisted primarily of direct labor consulting expenses and other labor support
costs incurred, as mentioned in the general overview section above. Some
indirect corporate overhead expenses incurred were allocated to the consulting
and strategic advisory services business segment, and are included above in the
business segment information chart as part of Segment Profit – Before
tax.


21


Technology
Business





Over the
next 12 to 15 months we expect to incur approximately up to $5 – $6
million in research and development expenses related to the development of our
proprietary nuclear fuel designs. We expect to incur these expenses after we
have entered into formal agreements with Russian nuclear entities that will
grant us licensing and other rights to use such technologies or intellectual
property developed by the Russian entities. Any such agreement may require
formal review and approval by the Russian State Atomic Energy Corporation
(RosAtom). We have spent $1,012,917 for research and development so far in 2009,
and a cumulative amount from the date of our inception (January 8, 1992, date of
inception of Thorium Power Inc.) to June 30, 2009 of approximately $7.3 million.
We have established an office in Moscow and leased office space to support
research and development activities in Russia, as of May 1, 2008, and have now
hired several employees working on our research and development projects in
Russia, starting in July 2009.





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





Financial
Status





At June
30, 2009, our total assets were approximately $10.6 million and total
liabilities as of June 30, 2009, were approximately $3.6 million. For the six
months ended June 30, 2009, from the results of operations from our consulting
business segment, we have essentially maintained our working capital surplus at
December 31, 2008, which was $6.8 million, now $6.5 million as of June 30, 2009.
Accounts payable and accrued liabilities balance as of June 30, 2009 equaled
$3.6 million, a decrease of approximately $1.5 million from the total accounts
payable and accrued expenses reported at December 31, 2008.





Management
expects that our current cash position, as well as the expected revenue and
profits that are expected to be earned from our follow-on agreements from the
two consulting agreements we entered into in August 2008, will meet our
foreseeable working capital needs for our current operations until sometime in
2010. In support of our longer-term business plan for our technology business
segment, we will need to raise additional capital by way of an offering of
equity securities, an offering of debt securities, or by obtaining financing
through a bank or other entity to finance our overhead and research and
development expenditures. We will also need to raise capital to support our
technology business if the consulting and strategic advisory services business
becomes non-sustaining. Our current average monthly projected working capital
requirements, excluding the $5 – $6 million of research and
development expenses we expect to incur in Russia over the next
12 – 15 months, is approximately $1,200,000 per month. This financing
will need to take place in 2009, to ensure that we have the necessary working
capital to continue our planned business operations through 2009 and beyond.
Financing may not be available or we may not be able to obtain financing on
terms acceptable to us. If additional funds are raised through the issuance of
equity or equity linked securities, there may be a significant dilution in the
value of our outstanding common stock. To support this financing activity, we
are exploring transaction opportunities that could simultaneously create
strategic industry and market alliances for the company, to support our
operations in 2009 and beyond.


22


Recent
Events




On August
3, 2009, as we reported on SEC Form 8-K filed on August 4, 2009, we
entered into an Agreement for Consulting Services with Areva, pursuant to
which we will conduct the first phase of an investigation of specific topics of
thorium fuel cycles in Areva’s light water reactors, or LWRs. This first phase
will focus on providing initial general results relating to evolutionary
approaches to the use of thorium in Areva’s LWRs, specifically within Areva’s
Evolutionary Power Reactor. We will receive total fees of $550,000 for services
provided pursuant to the Consulting Agreement. The anticipated second phase
and further phases of the collaboration, including a detailed study of
evolutionary and longer-term thorium fuel concepts, will be conducted in
accordance with additional collaborative agreements based upon the results of
the first phase.


The first
and second phases of the collaboration between us and Areva are being conducted
with the intention of future cooperation agreements between the two parties in
order to develop and set up new products and technologies related to thorium
fuel concepts. Areva’s use of Thorium Power’s intellectual property for
commercial purposes or any purpose other than as specified in the Agreement
would be separately negotiated on a royalty basis.  The initial term of the
Agreement for Consulting Services is 12 months, with an additional 14 month term
if the parties decide to perform a preliminary review of thermal hydraulic
characteristics and fuel behavior for the selected concepts for an EPR 18-month
equilibrium cycle.
  The
Agreement for Consulting Services replaces and supersedes the Initial
Collaborative Agreement we entered into with Areva on July 23, 2009, which we
reported on SEC Form 8-K filed on July 23, 2009.
  On August
3, as we reported on SEC Form 8-K on August 4, 2009, we entered into an
Collaborative Framework Agreement with Areva, as the next step contemplated by
the Initial Collaborative Agreement and the Agreement for Consulting Services,
pursuant to which we will establish a joing steering committee with Areva,
consisting of two employees from each party.  The steering committee
will be responsible for reviewing project proposals, will be empowered to make
scientific and/or technical decisions and to allocate the resources required to
implement future collaborative projects.  All research and development
activities carried out under a collaboration project will be governed by the
general terms of the Collaboration Framework Agreement and the specific terms of
project plan approved by the steering committee.  The term of the
Collaborative Framework Agreement is for a period of 5 years and may be
extended upon written agreement of the parties.
  Consolidated
Results of Operations





Comparison
of the Three Months Ended June 30, 2009 to June 30, 2008





The
following table summarizes certain aspects of the Company’s consolidated results
of operations for the three months ended June 30, 2009 compared to the three
months ended June 30, 2008.





Three
      Months EndedJune
      30,
                
                
                (Decrease)
                
                
                (Decrease)2009
                
                
                2008
                
                
                Change $
                
                
                Change %Consulting
      Revenues
                
                $
                3,430,485
                
                
                $
                4,301,500
                
                
                $
                (871,015
                )
                
                
                (20
                )%Cost
      of services providedConsulting
      expenses
                
                $
                1,888,846
                
                
                $
                1,736,562
                
                
                $
                152,284
                
                
                
                9
                %%
      of total revenues
                
                
                55
                %
                
                
                40
                %Gross
      profit
                
                $
                1,541,639
                
                
                $
                2,564,938
                
                
                $
                (1,023,299
                )
                
                
                (40
                )%%
      of total revenues
                
                
                45
                %
                
                
                60
                %Operating
      ExpensesGeneral
      and administrative
                
                $
                1,140,223
                
                
                $
                1,597,941
                
                
                $
                (457,718
                )
                
                
                (29
                )%%
      of total revenues
                
                
                33
                %
                
                
                37
                %Research
      and development expenses
                
                $
                559,112
                
                
                $
                154,788
                
                
                $
                404,324
                
                
                
                261
                %%
      of total revenues
                
                
                16
                %
                
                
                4
                %Stock-based
      compensation
                
                $
                1,202,357
                
                
                $
                1,423,376
                
                
                $
                (221,019
                )
                
                
                (16
                )%%
      of total revenues
                
                
                35
                %
                
                
                33
                %Total
      Operating Loss
                
                $
                (1,360,053
                )
                
                $
                (611,167
                )
                
                $
                748,886
                
                
                
                123
                %%
      of total revenues
                
                
                (40
                )%
                
                
                (14
                )%Other
      Income and (Expenses)Interest
      income/expense, other
                
                $
                13,103
                
                
                $
                (384,852
                )
                
                $
                397,955
                
                
                
                103
                %%
      of total revenues
                
                
                0
                %
                
                
                (9
                )%Net
      loss - before income taxes
                
                $
                (1,346,950
                )
                
                $
                (996,019
                )
                
                $
                350,931
                
                
                
                35
                %%
      of total revenues
                
                
                (39
                )%
                
                
                (23
                )%


23


Revenues





The
$3.4 million
of revenue for the three months ended June 30, 2009, was generated from our
consulting and strategic advisory services business segment. This revenue earned
was from the continuation of consulting work we performed, pursuant to the
August 1, 2008 consulting contracts we signed with ENEC and FANR, mentioned
above. We expect to continue in 2009 to provide consulting services under both
of these agreements.





We
entered into a next phase follow-on agreement in March 2009 to continue our
consulting services under the ENEC agreement for 2009. We anticipate that
revenue earned in 2009 from this follow-on agreement will be up to $7 million.
We also entered into a follow-on consulting agreement for FANR work, in an
amount up to $10 million of revenue to be earned in 2009. Revenue earned under
both these agreements in 2009 will be recognized on a time and material basis.
The revenue to be earned and recognized under both of these agreements will
depend upon the agreed upon work plans and time spent working on these projects,
which can be more or less than the revenue amounts initially planned to be
earned under these agreements. Notwithstanding normal variations in billable
hours, we have recently re-negotiated our billing rates under these contracts to
further enhance and maintain the competitiveness of our advisory services.
 As a result, in future reporting periods we anticipate generating lower
revenue on a per billable hours basis, which would adversely affect our
total revenue and gross margin.  We entered into a consulting agreement
with AReva for $550,000 on August 3, 2009 (see the details regarding this
agreement in the above recent events section of this 10-Q filing). We anticipate
entering into other consulting and technology agreements with our existing and
new clients that may generate new 2009 revenues.





The $4.3
million of revenue for the three months ended June 30, 2008 was earned from our
second consulting project with the UAE, that we started working on during March
of 2008. All of the company’s revenue for the second quarter of 2008 was derived
from the completion of certain defined contract deliverables from the Quickstart
project in June 2008.





Cost of Services
Provided





The
increase in the cost of services for the three months ended June 30, 2009 is due
to expenses related to the consulting, professional, administrative and other
costs allocated to the consulting projects, which were incurred to perform and
support the work done for our consulting projects with the EAA in Abu
Dhabi.





Gross
Margin





Gross
margin is lower for the three months ended June 30, 2009 versus the same period
in 2008 because the advisory contracts changed from fixed price contracts to
time and expense contracts.  We expect our future gross margins from
our present advisory contracts with the EAA to decrease, due to the recent
reduction in our hourly billing rates to the EAA.


24


General and Administrative
Expenses





There was
a 29 percent
decrease in the general and administrative expenses (G&A) for three months
ended June 30, 2009 as compared to the same period in 2008. The decrease in
G&A was due to an increase in the allocation of indirect G&A costs to
support our consulting and strategic advisory services business segment, which
was allocated to cost of services provided, mentioned above. The G&A
allocation of approximately $522,000 was equal to 31% of total G&A type
costs for the three months ended June 30, 2009. This decrease was partially
offset by an increase in absolute dollars in Q-2 2009 to (1) increase in
employee wages and benefits (2) increase in finance personnel to support our new
ERP accounting system to support the activities of our consulting projects and
to strengthen our internal controls for Sarbanes Oxley compliance, (3) larger
office space to accommodate the additional people working for our company in
2009 and (4) other consulting and general overhead costs. We incurred
professional fees by engaging consulting firms to assist us (1) in establishing
foreign branch offices in Abu Dhabi and Russia in 2009 and (2) establishing our
Strategic Advisory Board which replaced our International Advisory Board. We
expect our general and administrative expenses may increase in future periods
due to the expansion of our consulting and strategic advisory services business
segment and the hiring of new officers, employees and consultants to help
further develop and support our consulting and strategic advisory services and
technology business segments.





Research and Development
Costs





The
increase in research and development costs for the three months ended June 30,
2009 is due to the increase in the scope of work for our research and
development activities in Russia. We expect that our research and development
expenses will increase in the future periods.   Over the next 12 to 15
months we expect to incur approximately up to $5 – $6 million in
research and development expenses related to the development of our proprietary
nuclear fuel designs.





Stock-Based
Compensation





The
decrease in stock based compensation for the three months ended June 30, 2009,
is due to certain long-term incentive stock options and stock that were granted
in prior years under our stock plan to executives, directors, advisors and
employees, which became fully vested in 2008. Stock based incentives were
granted to current management and employees on April 6, 2009 and on July 14,
2009. Stock-Based compensation will be offered to attract new employees in 2009,
due to our expansion to meet the demands of contracts with our current customer,
and anticipated future business with new customers. We expect Stock-Based
compensation to increase in future periods due to issuance of these new equity
grants in 2009.





Other Income and
Expense





The
decrease in other income and expense for the three months ended June 30, 2009 is
due to the decrease in interest income earned on our idle cash.





Comparison
of the Six Months Ended June 30, 2009 to June 30, 2008





The
following table summarizes certain aspects of the Company’s consolidated results
of operations for the six months ended June 30, 2009 compared to the six months
ended June 30, 2008.


25





Six
      Months EndedJune
      30,
                
                
                (Decrease)
                
                
                (Decrease)2009
                
                
                2008
                
                
                Change $
                
                
                Change %Consulting
      Revenues
                
                $
                6,374,538
                
                
                $
                8,116,625
                
                
                $
                (1,742,087
                )
                
                
                (21
                )%Cost
      of services providedConsulting
      expenses
                
                $
                3,637,364
                
                
                $
                3,384,566
                
                
                $
                252,798
                
                
                
                7
                %%
      of total revenues
                
                
                57
                %
                
                
                42
                %Gross
      profit
                
                $
                2,737,174
                
                
                $
                4,732,059
                
                
                $
                (1,994,885
                )
                
                
                (42
                )%%
      of total revenues
                
                
                43
                %
                
                
                58
                %Operating
      ExpensesGeneral
      and administrative
                
                $
                2,107,717
                
                
                $
                3,116,987
                
                
                $
                (1,009,270
                )
                
                
                (32
                )%%
      of total revenues
                
                
                33
                %
                
                
                38
                %Research
      and development expenses
                
                $
                1,012,917
                
                
                $
                285,449
                
                
                $
                727,468
                
                
                
                255
                %%
      of total revenues
                
                
                16
                %
                
                
                4
                %Stock-based
      compensation
                
                $
                2,497,544
                
                
                $
                2,787,179
                
                
                $
                (289,635
                )
                
                
                (10
                )%%
      of total revenues
                
                
                39
                %
                
                
                34
                %Total
      Operating Loss
                
                $
                (2,881,004
                )
                
                $
                (1,457,556
                )
                
                $
                1,423,448
                
                
                
                98
                %%
      of total revenues
                
                
                (45
                )%
                
                
                (18
                )%Other
      Income and (Expenses)Interest
      income/expense, other
                
                $
                11,593
                
                
                $
                (295,570
                )
                
                $
                307,163
                
                
                
                104
                %%
      of total revenues
                
                
                0
                %
                
                
                -4
                %Net
      loss - before income taxes
                
                $
                (2,869,411
                )
                
                $
                (1,753,126
                )
                
                $
                1,116,285
                
                
                
                64
                %%
      of total revenues
                
                
                (45
                )%
                
                
                (22
                )%





Revenues





The
$6.4 million
of revenue for the six months ended June 30, 2009, was generated from our
consulting and strategic advisory services business segment. This revenue earned
was from the continuation of consulting work we performed, pursuant to the
August 1, 2008 consulting contracts we signed with ENEC and FANR, mentioned
above. We expect to continue in 2009 to provide consulting services
under both of these agreements, following the successful work we performed in
2008 for the ENEC and FANR projects.





We
entered into a next phase follow-on agreement in March 2009 to continue our
consulting services under the ENEC agreement for 2009. We anticipate that
revenue earned in 2009 from this follow-on agreement will be up to $7 million.
We entered into a follow-on consulting agreement for FANR work as well, in an
amount up to $10 million of revenue to be earned in 2009. Revenue earned under
both these agreements in 2009 will be recognized on a time and material basis.
The revenue to be earned and recognized under both of these agreements will
depend upon the agreed upon work plans and time spent working on these projects,
which can be more or less than the revenue amounts initially planned to be
earned under these agreements. Notwithstanding normal variations in billable
hours, we have recently re-negotiated our billing rates under these contracts to
further enhance and maintain the competitiveness of our advisory services.
 As a result, in future reporting periods we anticipate generating lower
revenue on a per billable hours basis, which would adversely affect our
total revenue and gross margin.  We entered into a consulting
agreement with Areva for $550,000 on August 3, 2009 (see the details of this
agreement in the above recent events section of this 10-Q filing). We anticipate
entering into other consulting and technology agreements with our existing and
new clients that may generate new 2009 revenues.


26


The
$8.1 million
of revenue for the six months ended June 30, 2008 was earned from our Roadmap
and Quickstart consulting projects with the UAE, the first two consulting
projects that we started working on during the fourth quarter of 2007 to June
2008. The revenue from the Roadmap project was recognized on a completed
performance model method, where revenue is usually recognized near the end of
the contract and from the Quickstart project when substantially all of the
project deliverables under the contract were completed and then approved by the
EAA.





Cost of Services
Provided





The
increase in the cost of services for the six months ended June 30, 2009 is due
to expenses related to the consulting, professional, administrative and other
costs allocated to the consulting projects, which were incurred to perform and
support the work done for our consulting projects in Abu Dhabi.





Gross
Margin





Gross
margin is lower for the six months ended June 30, 2009 versus the same period in
2008 because the advisory contracts changed from fixed price contracts to time
and expense contracts. We expect our future gross margins from our present
advisory contracts with the EAA to decrease, due to the recent reduction in our
hourly billing rates to the EAA.





General and Administrative
Expenses





There was
a 32 percent
decrease in the general and administrative expenses (G&A) for six months
ended June 30, 2009 as compared to the same period in 2008. The decrease in
G&A was due to an increase in the allocation of indirect G&A costs to
support our consulting and strategic advisory services business segment, which
was allocated to cost of services provided, mentioned above. The G&A
allocation of approximately $1,236,000 was equal to 37% of total G&A type
costs for the six months ended June 30, 2009. This decrease was partially offset
by an increase in absolute dollars for the six months ended June 30, 2009 to (1)
increase in employee wages and benefits (2) establish a human resources
department to hire new consultants with the proper nuclear expertise for our
consulting projects, (3) increase in finance personnel to support our new ERP
accounting system to support the activities of our consulting projects and to
strengthen our internal controls for Sarbanes Oxley compliance, (4) larger
office space to accommodate the additional people working for our company in
2009 and (5) other consulting and general overhead costs. We incurred
professional fees by engaging consulting firms to assist us (1) in establishing
foreign branch offices in Abu Dhabi and Russia in 2009 and (2) establishing our
Strategic Advisory Board which replaced our International Advisory Board. We
expect our general and administrative expenses may increase in future periods
due to the expansion of our consulting and strategic advisory services business
segment and the hiring of new officers, employees and consultants to help
further develop and support our consulting and strategic advisory services and
technology business segments.





Research and Development
Costs





The
increase in research and development costs for the six months ended June 30,
2009 is due to the increase in the scope of work for our research and
development activities in Russia. We expect that our research and development
expenses will increase in the future periods.   Over the next 12 to 15
months we expect to incur approximately up to $5 – $6 million in
research and development expenses related to the development of our proprietary
nuclear fuel designs.


27


Stock-Based
Compensation





The
decrease in stock based compensation for the six months ended June 30, 2009, is
due to certain long-term incentive stock options and stock that were granted in
prior years under our stock plan to executives, directors, advisors and
employees, which became fully vested in 2008. Stock based incentives were
granted to current management and employees on April 6, 2009 and on July 14,
2009. We anticipate that stock based incentives will be offered to attract new
employees in 2009, due to our expansion to meet the demands of contracts with
our current customer, and anticipated future business with new
customers.





Other Income and
Expense





The
decrease in other income and expense for the six months ended June 30, 2009 is
due to the decrease in interest income earned on our idle cash.





Liquidity
and Capital Resources





As of
June 30, 2009, we had a total of cash and cash equivalents of $4.9 million. The
following table provides detailed information about our net cash flow for all
financial statements periods presented in this report.





Cash
      FlowSix
      Months EndedJune
      30,2009
                  
                  
                  2008Net
      cash used in operating activities
                  
                  $
                  (639,148
                  )
                  
                  $
                  (3,086,787
                  )Net
      cash used in investing activities
                  
                  $
                  (30,379
                  )
                  
                  $
                  —Net
      cash provided by financing activities
                  
                  $
                  —
                  
                  
                  $
                  39,542Net
      cash outflow
                  
                  $
                  (669,527
                  )
                  
                  $
                  (3,047,245
                  )




Operating
Activities




Net cash
used in our operating activities decreased by $2,447,639 for the six months
ended June 30, 2009, compared to the same period in 2008.  This
decrease in funds used in our operating activities was primarily due to the
increase in the collections of our accounts receivable in 2009 and the
prepayment of consulting fees we received in 2007, for revenue we earned and
recognized for the six months ended June 30, 2008. This decrease in the cash
used in operating activities was partially offset by an increase in our cost of
consulting services provided to perform these contracts, which was paid to our
employees and consultants in order to provide the necessary services related to
these consulting projects. The other changes to the operating activities cash
flows are mentioned above in the consolidated results of operations section of
this management discussion and analysis, regarding expenses incurred for general
and administrative expenses mentioned above, and items mentioned in the other
income and expense.




Investing
Activities




Net cash
used in our investing activities increased for the six months ended June 30,
2009 which was due to professional fees incurred for the filing of patent
applications. These patent applications are filed for the new developments
resulting from our research and development activities in our fuel technology
business segment. We also acquired property and equipment during the six month
period ended June 30, 2009.


28


Financing
Activities




Net cash
provided by our financing activities decreased for the six months ended June 30,
2009, compared to the same period in 2008 by $39,542. This decrease in the cash
used in financing activities was mainly attributable to a decrease in the
proceeds from the issuance of stock, offset by a decrease in the payments of
notes payable.




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





Off Balance Sheet
Arrangements




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





Seasonality




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




Inflation





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





Critical
Accounting Policies and Estimates




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




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




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


29


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




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




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




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




• the
volatility of our stock price;


• the
expected life of the option;


• risk
free interest rates; and


•
expected dividend yield.




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




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





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





Income
Taxes





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


30





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





Contingent
Liabilities





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





Revenue Recognition from
Consulting Contracts





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





We
recognized the revenues for our first consulting project which we completed in
March 2008, using the completed performance model and for our second consulting
project as contract deliverables were delivered and agreed upon by our client.
We recognize revenue from the current two consulting agreements that we entered
into in August 2008, which we are now working on in 2009, as time and materials
contracts.





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





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





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





1.           There
is persuasive evidence of an arrangement;





2.           The
service has been provided to the customer;


31


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




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




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




Intangibles




As
presented on the accompanying balance sheet, we had patents with a net book
value of $236,215 as of June 30, 2009. There are many assumptions and estimates
that may directly impact the results of impairment testing, including an
estimate of future expected revenues, earnings and cash flows, and discount
rates applied to such expected cash flows in order to estimate fair value. We
have the ability to influence the outcome and ultimate results based on the
assumptions and estimates we choose for testing. To mitigate undue influence, we
set criteria that are reviewed and approved by various levels of management. The
determination of whether or not intangible assets have become impaired involves
a significant level of judgment in the assumptions. Changes in our strategy or
market conditions could significantly impact these judgments and require
adjustments to recorded amounts of intangible assets. We will amortize our
patents when they are placed in service. Our patents were not placed into
service as of June 30, 2009.





Recent Accounting
Pronouncements





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





ITEM 4T. CONTROLS AND
PROCEDURES.





Disclosure
Controls and Procedures





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





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





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


32


decisions
regarding required disclosure.





Internal
Controls Over Financial Reporting





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





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rule 13a-15(f) of
the Exchange Act. Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
we conducted an evaluation of the effectiveness of our internal control over
financial reporting based upon the framework in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”). Based on that evaluation, our management concluded that our
internal control over financial reporting is effective, as of June 30, 2009, and
was effective during the entire quarter ended June 30, 2009.





PART
II


OTHER
INFORMATION





ITEM
1.     LEGAL PROCEEDINGS





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





ITEM
1A.     RISK FACTORS





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





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





There
were no unregistered sales of equity securities during the fiscal quarter ended
June 30, 2009.





ITEM
3.     DEFAULTS UPON SENIOR SECURITIES





There
were no defaults upon senior securities during the fiscal quarter ended June 30,
2009.





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





On June
29, 2009, we held an annual meeting at which a majority of the Company’s
shareholders (i) elected five (5) directors to our Board of Directors, and (ii)
ratified the appointment of Child, Van Wagoner & Bradshaw PLLC as the
Company’s independent registered public accounting firm for the fiscal year
ending December 31, 2009.


33


The
following table sets forth the matters voted upon at the annual meeting and the
results of the voting on each matter voted upon:





Matter Voted Upon
                            
                            Votes For
                            
                            
                            Withheld
                            
                            
                            Votes Against
                            
                            
                            Abstentions
                            
                            
                            Broker
                              Non-VotesElection
      of Seth Grae to theCompany’s
      Board of Directors
                            
                            
                            227,069,222
                            
                            
                            
                            8,225,644
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —Election
      of Thomas Graham Jr. to the Company’s Board of Directors
                            
                            
                            233,558,722
                            
                            
                            
                            1,736,144
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —Election
      of Victor Alessi to the Company’s Board of Directors
                            
                            
                            231,820,971
                            
                            
                            
                            3,473,895
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —Election
      of Jack Ladd to the Company’s Board of Directors
                            
                            
                            231,855,434
                            
                            
                            
                            3,439,432
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —Election
      of Daniel Magraw to the Company’s Board of Directors
                            
                            
                            231,858,584
                            
                            
                            
                            3,436,282
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —Approval
      of Child, Van Wagoner & Bradshaw PLLC as the Company’s independent
      accountants for fiscal year 2009
                            
                            
                            232,233,454
                            
                            
                            
                            —
                            
                            
                            
                            2,688,189
                            
                            
                            
                            373,223
                            
                            
                            
                            —





Each of
the above matters was approved by the stockholders at the annual
meeting.





ITEM
5.     OTHER INFORMATION





Not
applicable.





ITEM
6.     EXHIBITS





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





Exhibit
                            Number
                          
                          Description3.1
                          
                          Articles
      of Incorporation3.2
                          
                          By-laws
      (incorporated by reference from the Company’s Current Report on Form 8-K
      filed on September 18, 2006).4.1
                          
                          2005
      Compensation Plan for Outside Consultants of Custom Brand Networks, Inc.
      dated March 1, 2005 (incorporated by reference from the Company’s
      Registration Statement on Form S-8 filed on March 10,
    2005).4.2
                          
                          2005
      Augmented Compensation Plan for Outside Consultants of the Company dated
      August 15, 2005 (incorporated by reference from the Company’s Registration
      Statement on Form S-8 filed on August 19, 2005).4.3
                          
                          2006
      Stock Plan (incorporated by reference to Exhibit 10.1 of the current
      report of the Company on Form 8-K filed February 21,
  2006)31.1*
                          
                          Rule
      13a-14(a)/15d-14(a) Certification - Principal Executive
      Officer31.2*
                          
                          Rule
      13a-14(a)/15d-14(a) Certification - Principal Accounting
      Officer32*
                          
                          Section
      1350
Certifications


______________


* Filed
Herewith


34


SIGNATURES





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





Date: August
10, 2009





THORIUM
POWER, LTD.





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


35


EXHIBIT
INDEX





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


______________


*Filed
Herewith