SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 
 ---------------------
 
 
 FORM
10-KSB
 -------------
 
 
 /x/
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 For the fiscal year ended June 30, 2005
 
 OR
 
 /_/
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 000-28535
 ---------------------
 
 NOVASTAR
RESOURCES LTD.
 ------------------------------------------------------
 (Exact
Name of Registrant as Specified in its Charter)
 
 Nevada
    91-1975651(State
      or other Jurisdiction of
    (IRS
      EmployerIncorporation
      or Organization)
    Identification
      Number)
 
 
 
 
 1 East
Liberty Street, Suite 6000, Reno, Nevada  89501
 ------------------------------------------------------------
 (Address
of Principal Executive Offices)  (Zip
Code)
 
 (775)
686-6182
 --------------
 (Registrant's
Telephone Number, Including Area Code)
 ---------------------
 
 
 Securities
registered pursuant to Section 12(b) of the Act: None.
 
 
 Securities
registered pursuant to Section 12(g) of the Act: Common Stock
 
 
 Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports); and (2) has been subject to the filing requirements for
the past 90 days: Yes /x/ No / /
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K: / /
 
 State
issuer's revenues for its most recent fiscal year ended June 30, 2005:
$-0-
 
 Aggregate
market value of outstanding Common Stock held by non-affiliates: As of October
11, 2005, the aggregate market value of outstanding Common Stock of the
registrant held by non-affiliates was approximately $17,846,400.
 
 Outstanding
Common Stock: As of October 11, 2005, the Company had 91,360,032 shares of
Common Stock outstanding. NIL additional shares are potentially outstanding
pursuant to options which have vested or will vest within 60 days of October 11,
2005. As of the date of filing this report, no options have been exercised.
 
 
 Transitional
Small Business Disclosure Format (Check one): Yes [ ] No [X]
 
 
 **- 1
-**
 
 TABLE OF
CONTENTS
 -----------------
 
 PART
      I
    PageITEM
      1. DESCRIPTION OF BUSINESS AND RISK FACTORS
    4ITEM
      2. DESCRIPTION OF PROPERTY
    12ITEM
      3. LEGAL PROCEEDINGS
    13ITEM
      4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
    13PART
      IIITEM
      5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
    14ITEM
      6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
      OF OPERATIONS
    16ITEM
      7. FINANCIAL STATEMENTS
    23ITEM
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
      FINANCIAL DISCLOSURE
    45ITEM
      8A. CONTROLS AND PROCEDURES
    46ITEM
      8B. OTHER INFORMATION
    46PART
      IIIITEM
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
      COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
    46ITEM
      10. EXECUTIVE COMPENSATION
    50ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
      RELATED STOCKHOLDER MATTERS
    51ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    51ITEM
      13. EXHIBITS
    51ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    51
 
 
 **- 2
-**
 USE OF
NAMES
 ------------
 
 In this
report, the terms "Novastar", “our”, “we” and "Company", unless the context
otherwise requires, mean Novastar Resources Ltd. and its
subsidiaries.
 
 
 CURRENCY
 --------
 
 Unless
otherwise specified, all dollar amounts in this report are expressed in United
States dollars.
 
 
 UNCERTAINTY
OF FORWARD-LOOKING STATEMENTS
 -----------------------------------------
 
 This
document, including any documents that are incorporated by reference as set
forth on the face page under "Documents incorporated by reference", contains
forward-looking statements concerning, among other things, mineralized material,
proven or probable reserves and cash operating costs. Such statements are
typically punctuated by words or phrases such as "anticipates", “expects”,
"estimates", "projects", "foresees", "management believes", "believes" and words
or phrases of similar import. Such statements are subject to certain risks,
uncertainties or assumptions. If one or more of these risks or uncertainties
materialize, or if underlying assumptions prove incorrect, actual results may
vary materially from those anticipated, estimated or projected. Important
factors that could cause actual results to differ materially from those in such
forward-looking statements are identified in this document under "Part I--Item
1. Description of the Business and Risk Factors". Novastar assumes no obligation
to update these forward-looking statements to reflect actual results, changes in
assumptions, or changes in other factors affecting such statements.
 
 
 **- 3
-**
 PART
I
 
 ITEM
1. DESCRIPTION OF BUSINESS AND RISK FACTORS
 
 
 General
Overview
 ----------------
 
  Novastar
is currently a development stage mineral exploration company. As of fiscal
year-end June 30, 2005, Novastar had no mineral properties. Subsequently,
Novastar acquired mineral leases and claims located in Alabama, USA and North
Queensland, Australia, respectively. These are exploration stage mineral
properties prospective for Thorium and other rare Earth Minerals
(“REM”).
  The
Company's objective is to become a global supplier of Thorium to the nuclear
energy industry.
  The
phosphate mineral monazite, which exists as a sand, contains concentrations of
Thorium Oxide as well as other REM. All commercially viable Thorium metal is
extracted from monazite.
  Utilizing
Thorium based nuclear fuels has several important societal benefits, such as
safety benefits, environmental benefits, and non-proliferation benefits. Thorium
is more abundant, more efficient and safer to use as a reactor fuel than
uranium. Also important, Thorium reactors leave behind very little plutonium,
meaning less material available for making nuclear weapons.
  To this
end, the Company has acquired, and plans to acquire, both physical properties
and rights to properties that contain monazite deposits. Properties of interest
to us contain both monazite stockpiles and in ground concentrations of
monazite.
  
 Corporate
History
 ----------------
 
 Novastar
Resources Ltd. was incorporated under the laws of the state
 of Nevada
on February 2, 1999, under the name of Aquistar Ventures (USA) Inc. The Company
was organized for the purpose of exploring for and, if possible, developing
mineral properties primarily in the province of Ontario, Canada, through its
wholly owned subsidiary, Aquistar Ventures Inc. ("Aquistar Canada"). Aquistar
Canada was incorporated under the laws of the province of British Columbia,
Canada, on April 13, 1995 and is now inactive.
 
 On
February 2, 2001, the Company acquired 100% of the issued and outstanding
capital stock of Custom Branded Networks, Inc. (“CBN”), a Delaware orporation,
in exchange for 25,000,000 common shares of the Company. The Company then
changed its name to Custom Branded Networks, Inc. on or about May 29, 2001. The
business of CBN, the Delaware corporation which was the Company's wholly owned
subsidiary, was the provision of turnkey private label Internet solutions to
businesses and private organizations.
 
 **- 4
-**
 The
current addresses, telephone and facsimile numbers of the offices of the Company
are:
 
 
 USA
      Office
    Canada
      Office1
      E. Liberty Street
    821
      E. 29thStreetSuite
      6000
    North
      Vancouver,Reno,
      Nevada, 89501
    B.C.
      V7K 1B6Tel:
      (775) 686-6182
    Tel:
      (604) 904-6949Fax:
      775-686-6066
    Fax:
      604-904-6946
 
 Property
Interests and Mining Claims
 ------------------------------------------
 
 As of
June 30, 2005 the Company held no minerals properties. Subsequently, Novastar
acquired leases and claims located in Alabama, USA and North Queensland,
Australia, respectively. These are exploration stage mineral properties
prospective for Thorium and other Rare Earth Minerals(“REM”).
 
 
 Employees
 ---------
 
 As of
June 30, 2005 the Company had only one officer and employee, Mr. Paul G. Carter,
President & CEO. Subsequently, Mr. Sean Mulhearn joined the Company as
Corporate Secretary.
 
 The
Company uses consultants with specific skills to assist with various aspects of
its project evaluation, due diligence, acquisition initiatives, corporate
governance and business development.
 
 
 Government
Regulation
 ---------------------
 
 Mining
operations and exploration activities are subject to various national, state,
provincial and local laws and regulations in the United States, Canada and
Australia, as well as other jurisdictions, which govern prospecting,
development, mining, production, exports, taxes, labor standards, occupational
health, waste disposal, protection of the environment, mine safety, hazardous
substances and other matters. The Company has obtained, has pending or will make
applications for those licenses, permits and other authorizations required to
conduct its exploration activities on its leases and claims located in Alabama,
USA and North Queensland, Australia, respectively.
 
 Such
approval may involve many levels of government (i.e. Federal, State, Provincial,
County and/or City approval), and the Company cannot guarantee that all such
approvals will be successfully obtained.
 
 The
Company's exploration projects are subject to various regulations governing
protection of the environment, both in North America and in Australia. These
laws are continually changing and, as a general matter, are becoming more
restrictive. The Company's policy is to conduct business in a way that
safeguards public health and the environment.
 
 **- 5
-**
 The
Company believes that it is and will continue to be in compliance in all
material respects with applicable statutes and regulations.
 
 Changes
to laws and regulations in the jurisdictions where the Company operates or may
operate in the future could require additional capital expenditures and
increased operating costs. Although the Company is unable to predict what
additional legislation, if any, might be proposed or enacted, additional
regulatory requirements could impact the economics of its projects.
 
 The
Company estimates that it will not incur material capital expenditures for
environmental control facilities during the 2006 fiscal year.
 
 
 Competition
 -----------
 
 The
Company competes with other mining companies in connection with the acquisition
of prospective properties and mineral rights. There is competition for the
limited number of opportunities, some of which is with other companies having
substantially greater financial resources than the Company. As a result, the
Company may have difficulty acquiring attractive projects at reasonable
prices.
 
 The
Company believes no single company has sufficient market power to affect the
price or supply of Thorium, Rare Earth Minerals or other minerals in the world
market.
 
 
 Recent
Events
 -------------------
 
 Effective
May 9, 2005, by action of the majority shareholders, the Company changed its
name to Novastar Resources Ltd.
 
 Also
effective May 9, 2005, Novastar began trading under the new symbol of "NVAS" and
had the new CUSIP number of 669886 10 3.
 
 On
September 14, 2005 the Company entered into an agreement with American Graphite
Holdings, an Alabama sole proprietorship, under which Novastar was assigned all
mineral rights located on certain properties located in the Clay County District
of Alabama and commonly referred to as the Ashland Graphite
Properties.
 
 On
September 14, 2005 the Company entered into an agreement with Walter Doyle
whereby the Company will acquire an undivided 100% interest in and to any
deposits of Thorium, Monazite and other Rare Earth Minerals on certain mining
properties in North Queensland, Australia. In consideration for obtaining its
interest the Company agreed to issue 5,000,000 restricted shares of common stock
to Walter Doyle, an arm’s length party and in addition the Company is obliged to
incur certain exploration expenditures. Mr. Doyle also retains a 2.5% net
smelter return royalty on the property.
 
 Effective
September 30, 2005 the Company closed a $680,500 private placement of its common
stock and warrants.
 
 
 **- 6
-**
 Risk
Factors
 
 
 The
following risk factors should be considered in connection with an evaluation of
the business of the Company:
 
 THE
COMPANY'S LIMITED OPERATING HISTORY MAKES IT DIFFICULT FOR YOU TO JUDGE ITS
PROSPECTS.
  The
Company has a limited operating history upon which an evaluation of the Company,
its current business and its prospects can be based. You should consider any
purchase of the Company's shares in light of the risks, expenses and problems
frequently encountered by all companies in the early stages of its corporate
development.
 
 LIQUIDITY
AND CAPITAL RESOURCES ARE UNCERTAIN.
 
 For the
twelve month period ending June 30, 2005 the Company had an operating loss of
$2,691,516. At June 30, 2005, the Company had a working capital deficit of
$224,178. Subsequent to year-end the Company raised $680,500 in an
oversubscribed private placement of shares and warrants . While
these proceeds meet the Company’s foreseeable needs for the next 12 months, the
Company may need to raise additional capital by way of an offering of equity
securities, an offering of debt securities, or by obtaining financing through a
bank or other entity. If the Company needs to obtain additional financing, there
is no assurance that financing will be available from any source, that it will
be available on terms acceptable to us, or that any future offering of
securities will be successful. If additional funds are raised through the
issuance of equity securities, there may be a significant dilution in the value
of the Company's outstanding common stock.
 
 THE
VALUE AND TRANSFERABILITY OF THE COMPANY'S SHARES MAY BE ADVERSELY IMPACTED BY
THE LIMITED TRADING MARKET FOR ITS SHARES AND THE PENNY STOCK
RULES.
 
 There is
only a limited trading market for the Company's shares. The Company's common
stock is traded in the over-the-counter market and "bid" and "asked" quotations
regularly appear on the OTC-Bulletin Board under the symbol "NVAS". There can be
no assurance that the Company's common stock will trade at prices at or above
its present level, and an inactive or illiquid trading market may have an
adverse impact on the market price. In addition, holders of the Company's common
stock may experience substantial difficulty in selling their securities as a
result of the "penny stock rules," which restrict the ability of brokers to sell
certain securities of companies whose assets or revenues fall below the
thresholds established by those rules.
 
 
 FUTURE
SALES OF SHARES MAY ADVERSELY IMPACT THE VALUE OF THE COMPANY'S
STOCK.
 
 If
required, the Company may seek to raise additional capital through the sale of
common stock. Future sales of shares by the Company or its stockholders could
cause the market price of its common stock to decline.
 
 
 **- 7
-**
 MINERAL
EXPLORATION AND DEVELOPMENT ACTIVITIES ARE SPECULATIVE IN
NATURE.
 
 Resource
exploration and development is a speculative business, characterized by a number
of significant risks including, among other things, unprofitable efforts
resulting not only from the failure to discover mineral deposits but from
finding mineral deposits which, though present, are insufficient in quantity and
quality to return a profit from production. The marketability of minerals
acquired or discovered by the Company may be affected by numerous factors which
are beyond the control of the Company and which cannot be accurately predicted,
such as market fluctuations, the proximity and capacity of milling facilities,
mineral markets and processing equipment and such other factors as government
regulations, including regulations relating to royalties, allowable production,
importing and exporting of minerals and environmental protection, the
combination of which factors may result in the Company not receiving an adequate
return of investment capital.
 
 Substantial
expenditures are required to establish mineral reserves through drilling, to
develop metallurgical processes to extract the metal from the ore and, in the
case of new properties, to develop the mining and processing facilities and
infrastructure at any site chosen for mining. Although substantial benefits may
be derived from the discovery of a major mineralized deposit, no assurance can
be given that minerals will be discovered in sufficient quantities and grades to
justify commercial operations or that funds required for development can be
obtained on a timely basis. Estimates of reserves, mineral deposits and
production costs can also be affected by such factors as environmental
permitting regulations and requirements, weather, environmental factors,
unforeseen technical difficulties, unusual or unexpected geological formations
and work interruptions. In addition, the grade of ore ultimately mined may
differ from that indicated by drilling results. Short term factors relating to
reserves, such as the need for orderly development of ore bodies or the
processing of new or different grades, may also have an adverse effect on mining
operations and on the results of operations. Material changes in ore reserves,
grades, stripping ratios or recovery rates may affect the economic viability of
any project.
 
 THE
COMPANY WILL BE SUBJECT TO OPERATING HAZARDS AND RISKS WHICH MAY ADVERSELY
AFFECT THE COMPANY'S FINANCIAL CONDITION.
 
 Mineral
exploration involves many risks, which even a combination of experience,
knowledge and careful evaluation may not be able to overcome. The Company's
operations will be subject to all the hazards and risks normally incidental to
exploration, development and production of minerals and metals, such as unusual
or unexpected formations, cave-ins or pollution, all of which could result in
work stoppages, damage to property and possible environmental damage. The
Company does not have general liability insurance covering its operations and
does not presently intend to obtain liability insurance as to such hazards and
liabilities. Payment of any liabilities as a result could have a materially
adverse effect upon the Company's financial condition
 
 
 THE
COMPANY'S ACTIVITIES WILL BE SUBJECT TO ENVIRONMENTAL AND OTHER INDUSTRY
REGULATIONS WHICH COULD HAVE AN ADVERSE EFFECT ON THE FINANCIAL CONDITION OF THE
COMPANY.
 
 The
Company's activities are subject to environmental regulations promulgated by
government agencies from time to time. Environmental legislation generally
provides for restrictions and prohibitions on spills, releases or emissions of
various substances produced in association with certain mining industry
operations, which would result in environmental pollution. A breach of such
legislation may result in imposition of fines and penalties. In addition,
certain types of operations require the submission and approval of environmental
impact assessments. Environmental legislation is evolving in a manner which
means stricter standards and enforcement, fines and penalties for non-compliance
are more stringent.
 
 Environmental
assessments of proposed projects carry a heightened degree of responsibility for
companies and directors, officers and employees. The cost of compliance with
changes in governmental regulations could have an adverse effect on the
financial condition of the Company.
 
 The
operations of the Company including exploration and development activities and
commencement of production on its properties, require permits from various
federal, state, provincial and local governmental authorities and such
operations are and will be governed by laws and regulations governing
prospecting, development, mining, production, exports, taxes, labor standards,
occupational health, waste disposal, toxic substances, land use, environmental
protection, mine safety and other matters. Companies engaged in the development
and operation of mines and related facilities generally experience increased
costs and delays in production and other schedules as a result of the need to
comply with applicable laws, regulations and permits.
 
 Failure
to comply with applicable laws, regulations, and permitting requirements may
result in enforcement actions thereunder, including orders issued by regulatory
or judicial authorities causing operations to cease or be curtailed, and may
include corrective measures requiring capital expenditures, installation of
additional equipment, or remedial actions. Parties engaged in mining operations
may be required to compensate those suffering loss or damage by reason of the
mining activities and may have civil or criminal fines or penalties imposed for
violations of applicable laws or regulations and, in particular, environmental
laws.
 
 **- 8
-**
 
 COMPETITION
MAY HAVE AN IMPACT ON THE COMPANY'S ABILITY TO ACQUIRE ATTRACTIVE MINERAL
PROPERTIES, WHICH MAY HAVE AN ADVERSE IMPACT ON THE COMPANY'S
OPERATIONS.
 
 Significant
and increasing competition exists for the limited number of mineral acquisition
opportunities available. As a result of this competition, some of which is with
large established mining companies with substantial capabilities and greater
financial and technical resources than the Company, the Company may be unable to
acquire attractive mineral properties on terms it considers acceptable.
Accordingly, there can be no assurance that any exploration program intended by
the Company on properties it intends to acquire will yield any reserves or
result in any commercial mining operation.
 
 
 DOWNWARD
FLUCTUATIONS IN METAL PRICES MAY SEVERELY REDUCE THE VALUE OF THE
COMPANY.
 
 The
Company has no control over the fluctuations in the prices of the Thorium and
other Rare Earth Minerals that it is exploring for. A significant decline in
such prices would severely reduce the value of the Company.
 
 THE
COMPANY CURRENTLY RELIES ON CERTAIN KEY INDIVIDUALS AND THE LOSS OF ONE OF THESE
CERTAIN KEY INDIVIDUALS COULD HAVE AN ADVERSE EFFECT ON THE
COMPANY.
 
 The
Company's success depends to a certain degree upon certain key members of the
management. These individuals are a significant fact in the Company's growth and
success. The loss of the service of members of the management and certain key
employees could have a material adverse effect on the Company. In particular,
the success of the Company is highly dependant upon the efforts of the
President, Treasurer, CEO and director of the Company, Paul Carter, the loss of
whose services could have a material adverse effect on the success and
development of the Company.
 
 
 THE
COMPANY DOES NOT MAINTAIN KEY MAN INSURANCE TO COMPENSATE THE COMPANY FOR THE
LOSS OF CERTAIN KEY INDIVIDUALS.
 
 The
Company does not anticipate having key man insurance in place in respect of any
of its senior officers or personnel.
 
 **- 9
-**
 
 WE ARE
AN EXPLORATION STAGE COMPANY, AND THERE IS NO ASSURANCE THAT A COMMERCIALLY
VIABLE DEPOSIT OR "RESERVE" EXISTS ON ANY PROPERTIES FOR WHICH THE COMPANY HAS,
OR MIGHT OBTAIN, AN INTEREST.
  The
Company is an exploration stage company and cannot give assurance that a
commercially viable deposit, or "reserve," exists on any properties for which
the Company currently has or may have an interest. Therefore, determination of
the existence of a reserve depends on appropriate and sufficient exploration
work and the evaluation of legal, economic, and environmental factors. If the
Company fails to find a commercially viable deposit on any of its properties,
its financial condition and results of operations will be materially adversely
affected.
 **- 10
-**
 WE
REQUIRE SUBSTANTIAL FUNDS MERELY TO DETERMINE WHETHER COMMERCIAL MINERAL
DEPOSITS EXIST ON OUR PROPERTIES.
 
 Any
potential development and production of the Company's exploration properties
depends upon the results of exploration programs and/or feasibility studies and
the recommendations of duly qualified engineers and geologists. Such programs
require substantial additional funds. Any decision to further expand the
Company's operations on these exploration properties is anticipated to involve
consideration and evaluation of several significant factors including, but not
limited to:
 
 v
    Costs
      of bringing each property into production, including exploration work,
      preparation of production feasibility studies and construction of
      production facilities;
 v
    Availability
      and costs of financing;
 v
    Ongoing
      costs of production;
 v
    Market
      prices for the minerals to be produced;
 v
    Environmental
      compliance regulations and restraints; and
 v
    Political
      climate and/or governmental regulation and
control.
 
 
 GENERAL
MINING RISKS
  Factors
beyond the control of Novastar may affect the marketability of any substances
discovered from any resource properties the Company may acquire. Metal prices
have fluctuated widely in recent years. Government regulations relating to
price, royalties, allowable production and importing and exporting of minerals
can adversely affect the Company. There can be no certainty that the Company
will be able to obtain all necessary licenses and permits that may be required
to carry out exploration, development and operations on any projects it may
acquire and environmental concerns about mining in general continue to be a
significant challenge for all mining companies.
 
 
 **- 11
-**
 ITEM
2. DESCRIPTION OF PROPERTIES.
 
 Mineral
Property Descriptions
  The
Company owned no mineral properties as of June 30, 2005. On September 14, 2005
the Company entered into an agreement with American Graphite Holdings, an
Alabama sole proprietorship, under which Novastar was assigned all mineral
rights located on certain properties located in the Clay County District of
Alabama and commonly referred to as the Ashland Graphite
Properties.
 
 On
September 14, 2005 the Company entered into an agreement with Walter Doyle
whereby the Company will acquire an undivided 100% interest in and to any
deposits of Thorium, Monazite and other Rare Earth Minerals on certain mining
properties in North Queensland, Australia. These mineral properties are known as
A.P. 1956M, A.P. 1957M and E.P.M. 14834.
 
 No
further mineral property descriptions are available for public dissemination as
of the date of this report.
 
 
 Other
Property Descriptions
  As of
June 30, 2005 the Company had use of property located at 821 East 29 th Street,
North Vancouver, British Columbia, Canada, made available to the Company by our
President as an accommodation to the Company for its current minimal operations.
 
 
 Exploration
Plan for Mineral Properties
 
 
 Near-term
Exploration Focus
 
 
 The
Company owned no mineral properties as of June 30, 2005. Subsequent to year-end
the Company acquired interests in two exploration stage properties as described
above. However, no exploration plans have been finalized as of the date of this
report.
 
 
 Leased
Office Space
 
 The
Company leased no office space during the fiscal year ended June 30, 2005.
 
 
 **- 12
-**
 ITEM
3. LEGAL PROCEEDINGS.
  Management
is not aware of any legal proceedings contemplated by any
 governmental
authority or any other party involving the Company or its
 properties.
None of the Company's directors, officers or affiliates are (i) a party adverse
to the Company in any legal proceedings, or (ii) has an adverse interest to the
Company in any legal proceedings. Management is not aware of any other legal
proceedings pending or that have been threatened against the Company or its
properties.
 
 
 ITEM
4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
  Effective
February 12, 2005, Novastar, by action of the majority shareholders, took the
following corporate actions: (i)increased the authorized shares of common stock
of the Company from 50,000,000 to 250,000,000 shares with a par value of $0.001
per share and authorized the issuance of 50,000,000 preferred shares with a par
value of $0.001 per share pursuant to rights and preferences established by the
Board of Directors in its sole discretion and ii) Authorized the Board of
Directors to change the name of the Company from Custom Branded Networks, Inc.
to Novastar Resources Ltd.
 
 
 **- 13
-**
 PART
II
 
 
 ITEM
5. MARKET FOR COMPANY'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
 
 
 Market
Information
  The
Company's common stock is listed and posted for trading on the Over the Counter
Bulletin Board Exchange (OTC-BB), under the symbol “NVAS” (formerly "CBNK").
 
 The
market for the Company’s common stock is limited, volatile and sporadic. The
following table sets forth the high and low sale prices relating to Novastar’s
common stock since 2002. These quotations reflect inter-dealer prices without
retail mark-up, mark-down, or commissions and may not reflect actual
transactions.
 
 
 Quarter
ended
 
 2002
    High
      Trade
    Low
      TradeMarch
      31
    0.09
    0.03June
      30
    0.09
    0.03September
      30
    0.04
    0.0055December
      31
    0.031
    0.012003March
      31
    0.09
    0.009June
      30
    0.09
    0.025September
      30
    0.05
    0.01December
      31
    0.05
    0.022004March
      31
    0.09
    0.009June
      30
    0.09
    0.025September
      30
    0.04
    0.017December
      31
    0.29
    0.072005March
      31
    0.22
    0.09June
      30
    0.22
    0.077September
      30
    0.29
    0.11
 
 **- 14
-**
 Holders
  As of
October 11, 2005, Novastar had 74 shareholders of record.
 
 Dividends
  The
Company has never paid dividends. While any future dividends will be determined
by the directors of the Company after consideration of the earnings, financial
condition and other relevant factors, it is currently expected that available
cash resources will be utilized in connection with the ongoing acquisition,
exploration and development programs of the Company.
 
 Section
15(g) of the Securities Exchange Act of 1934
  The
Company's shares are covered by Section 15(g) of the Securities Exchange Act of
1934, as amended that imposes additional sales practice requirements on
broker/dealers who sell such securities to persons other than established
customers and accredited investors (generally institutions with assets in excess
of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouses). For
transactions covered by this Section 15(g), the broker/dealer must make a
special suitability determination for the purchase and have received the
purchaser's written agreement to the transaction prior to the sale.
Consequently, Section 15(g) may affect the ability of broker/dealers to sell the
Company's securities and also may affect your ability to sell your shares in the
secondary market.
 
 Section
15(g) also imposes additional sales practice requirements on broker/dealers who
sell penny securities. These rules require a one page summary of certain
essential items. The items include the risk of investing in penny stocks in both
public offerings and secondary marketing; terms important to in understanding of
the function of the penny stock market, such as "bid" and "offer" quotes, a
dealers "spread" and broker/dealer compensation; the broker/dealer compensation,
the broker/dealers duties to its customers, including the disclosures required
by any other penny stock disclosure rules; the customers rights and remedies in
causes of fraud in penny stock transactions; and, the NASD's toll free telephone
number and the central number of the North American Administrators Association,
for information on the disciplinary history of broker/dealers and their
associated persons.
 
 
 **- 15
-**
 ITEM
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
 **- 16
-**
  Overview
  Novastar
is currently in the development stage and is engaged in the acquisition,
exploration and development of mineral properties containing naturally occurring
isotope Thorium 232 (Th 232) in the oxide form (ThO2) and other Rare Earth
Minerals (“REM”) such as Cerium (Ce), Lanthanum (La), Yttrium (Y) and Neodymium
(Nd).
  The
phosphate mineral monazite, which exists as a sand, contains concentrations of
Thorium Oxide (3.0% -12.0% by composition) as well as other REM. All
commercially viable Thorium metal is extracted from monazite.
  Our
company has a strategy of acquiring both physical properties and rights to
properties that contain monazite deposits. Properties of interest to us contain
both monazite stockpiles and in ground concentrations of mineral
monazite.
  The
Company's objective is to become a global supplier of Thorium to the nuclear
energy industry. Combined with a small quantity of Uranium 238 (catalyst),
fertile Thorium 232 can be converted into fissile Uranium 233. This process
known as the Thorium-Cycle occurs over a 27 day period. Utilizing Thorium based
nuclear fuels has several important societal benefits, such as safety benefits,
environmental benefits, and non-proliferation benefits. Thorium is more
abundant, more efficient and safer to use as a reactor fuel than uranium. Also
important, Thorium reactors leave behind very little plutonium, meaning less
material available for making nuclear weapons.
  
 Outlook
  As of
June 30, 2005 there was not yet global demand for Thorium 232 as a source of
nuclear fuel. We believe that there will be significant surges in demand for
Thorium at some future point; however we are unable to predict when or if this
will occur.
  The
International Atomic Energy Agency (IAEA), a United Nations organization,
submitted an official report on Thorium utilization in May of 2005. On July 6,
2005 we issued a press release commenting on this report. The IAEA is publicly
promoting the significant benefits of Thorium utilization as a source of nuclear
energy. In addition, on page # 91 of this report, the IAEA recommended that
companies augment the exploration and mining of Thorium to insure the
availability of sufficient supplies of reactor grade Thorium.
  We have
entered into an informal but strategic relationship with Thorium Power, Inc.
(www.thoriumpower.com), a privately-held Washington, DC area-based company that
develops and deploys Thorium based nuclear fuel designs developed to stop the
production of weapons-suitable plutonium and eliminate existing plutonium
stockpiles. Both Novastar and Thorium Power share a common goal of driving
public awareness and lobbying government officials as to the societal benefits
of Thorium utilization.
  **- 17
-**
 On July
14, 2005 Seth Grae, Thorium Power’s President and CEO, joined the non-executive
Advisory Board of our company. Mr. Grae joined Thorium Power in 1992 and has
held various executive positions there, leading that company's efforts in
structuring relationships with major companies, government agencies,
universities, laboratories, and international organizations in several
countries.
  We are
actively promoting global demand for Thorium through various public relations
efforts and government lobbying efforts. We are working closely with our public
relations firm, Rubenstein Public Relations of New York, New York, which we
contractually retained on May 15, 2005, to penetrate major news agencies and
periodicals with the intent of encouraging articles to be written on the subject
of Thorium use. On July 5, 2005 an article was written in Wired
News by Amit
Asaravala, titled: "Thorium Fuels Safer Reactor Hopes." This article mentioned
both Novastar and Thorium Power and demonstrates the goals of our public
awareness campaign.
  In
addition Novastar works with the Government relations firm Tew & Cardenas
LLP, a Washington D.C. based law firm that also performs Government relations
work for Thorium Power. On July 27, 2005 we appointed former United States
Ambassador Dennis K. Hays, Managing Director, Tew Cardenas LLP to our
non-executive Advisory Board. He has been very helpful in introducing us to
important members of the United States Congress who share our belief in the
importance of future Thorium utilization.
  In
addition to the acquisition of Thorium properties and mineral rights, we have
identified potential short term revenue opportunities to supplement our business
since other metals of commercial significance can be extracted from monazite.
Namely, Rare Earth Minerals (“REM”) of the Yttrium Group. REM can be divided
into two groups, the first containing Yttrium, Lanthanum, Cerium, Neodymium
(Yttrium group), and the second containing Europium, Gadolinium, Terbium,
Dysprosium, Holmium, & Erbium (Dysprosium group). Mineral monazite only
contains concentrations of REM classified in the Yttrium Group. Yttrium Group
REM selling prices currently range from $350 to $540 per kg, while REM of the
dysprosium group from $400 to $7500 (Source 2004 U.S. Geological Survey
Report).
   We plan
on processing and stockpiling REM as a by-product of mining and refining mineral
monazite into Thorium Oxide. We are in the process of identifying potential
buyers of REM both in the United States and abroad. With approximately 80% of
world production sourced from the Peoples' Republic of China and no REM mines
operating in North America, REM may become an important strategic commodity. We
feel that there may be short and intermediate term revenue generating
opportunities from sales of REM. Some of the commercial applications for REM
include, but are not limited to:
   ·
    Industrial
      super alloys used in the aerospace and nuclear industries
   ·
    Crystals
      manufactured for the production of lasers.
   ·
    The
      refining of petroleum products.
   ·
    In
      magnetic refrigeration technology.
   ·
    As
      catalysts used in the manufacture of fuel-cells.
   ·
    In
      cellular phones and other wireless equipment.
   ·
    Magnetic
      plastic technology used in computer data memory devices.
   ·
    Fiber-optic
      lines and to color, polarize and polish glass.
   ·
    The
      creation of high temperature superconductors.
   ·
    Catalytic
      converters for the automotive industry.
   **- 18
-**
 
 Corporate
History & Structure
  The
Company is incorporated in Nevada and its stock is quoted on the Over the
Counter Bulletin Board Exchange (OTC-BB), under the symbol “NVAS” (formerly
"CBNK").
 
 Effective
May 10, 2005 the Company changed its name to Novastar Resources Ltd. Its legal
predecessor Custom Branded Networks, Inc. had been searching for new business
opportunities in hopes of enhancing shareholder value. Going back to 2001, the
business plan for the Company had been to provide Internet solutions to
businesses and private organizations. However, since May of 2003 we have been
actively looking for other business opportunities that would provide the Company
with economic opportunity. The Board of Directors decided to pursue a business
model within the mining and exploration sector and proposed a name change
accordingly.
 
 
 Results
of Operations
  Summary
  The
Company's consolidated net loss for the fiscal year ended June 30, 2005 was
$2,691,516 or $.05 per share compared to the previous year's consolidated net
loss of $95,430 or $0.002 per share for a net loss increase of $2,596,086. The
largest new expense was related to consulting services performed by consultants
whose services included research into prospective business venues, seeking out
business opportunities, making introductions and other business consulting.
 
 
 Mineral
production and revenue
  As we are
still a development stage company and in the exploration stage on our mineral
interests (leases and claims located in Alabama, USA and North Queensland,
Australia respectively and both acquired subsequent to year-end), we have not,
as of yet, produced any minerals revenues nor produced any
minerals.
 
 Exploration,
property evaluation and holding costs
 
 As of
year-end the Company held no mineral interests. The agreement under which the
Alabama mineral leases were assigned to the Company subsequent to year-end,
requires we pay $100,000 cash (paid) , 1 million
restricted common shares of the Company (not yet issued) and a net royalty of
$15 per ton of thorium/monazite removed from the leased properties. There are no
minimum required exploration or development expenditures.
 
 The
agreement under which we acquired the North Queensland mineral claims subsequent
to year-end, requires we issue 5 million restricted common shares of the Company
(not yet issued), a 2.5% net smelter return royalty and that we incur the
following exploration expenditures:
 i)
    $125,000
      by December 31, 2006
 ii)
    An
      additional $150,000 by December 31, 2007
 iii)
    An
      additional $140,000 by December 31, 2008
 iv)
    An
      additional $140,000 by December 31, 2009
 v)
    An
      additional $140,000 by December 31, 2010
 
 
 **- 19
-**
 
 Corporate
administration,public
and investor relations
  Corporate
administrative and public relations costs totalled $84,828 in the  current
fiscal year compared to $3,996 in the previous year, representing an increase of
$80,832. Included in these costs are the costs of a public relations program
started in the year and business development costs in association with seeking
mineral interest opportunities and promoting the use of Thorium based nuclear
fuels. Also included are travel expenses for executives and geologists, travel
to various conferences and other miscellaneous office expenses.
 
 The
Company incurred no Investor Relations costs in the current or prior fiscal
years.
 
 
 Financial
Position, Liquidity and Capital Resources
  Cash
provided by Operations
  Cash
provided by operations was $87,061 in the current fiscal year compared to
cash  used of
$10,294 in the previous year.
 
 The
change of $97,355 can be attributed to increases in shares issued for consulting
services, amortization of interest expense, accounts payable and accrued
liabilities.
 
 During
the year $2,239,533 of consulting services were provided the Company for payment
in common shares in lieu of cash and a further $100,000 of consulting services
were provided for debt which then converted to common shares and common stock
purchase warrants. This compares to $22,500 of services in the prior fiscal year
paid for by the issuance of shares in lieu of cash.
 
 Accounts
payable and accrued liabilities increased by $71,135 as compared to $7,265 in
the prior year.
 
 The
above-noted increases and increases in other costs (namely, public relations and
legal) arise from increased business activity as the Company embarked on its new
business plan of acquiring, exploring and developing Thorium and Rare Earth
Mineral properties and rights thereto.
 
 During
the year interest amortization totalled $442,813 as compared to $55,856 in the
prior year. This increase is attributable to the conversion of notes in the
current year to shares and warrants.
 
 **- 20
-**
 
 Financing
Activities
  The
Company received cash from financing activities of $7,881 in its fiscal year
ended June 30, 2005, compared to $9,400 in the previous year.
 
 In
addition the Company received proceeds of $94,140 in the fiscal year through a
private placement which was to close subsequent to year-end; this placement was
terminated after year-end and the proceeds returned to the
subscribers.
 
 Subsequent
to year-end, effective September 30, 2005 the Company closed an over-subscribed
private placement of $680,500, which represents the first stage of the Company’s
financing strategy. This private placement consisted of an offering of
approximately 4,536,700 Units at a price of $0.15 per Unit with each Unit
consisting of one common share and one-half of a non-transferable share purchase
warrant (each whole a “Warrant”). Each Warrant entitles the holder thereof to
acquire one additional share of common stock at a price of $0.30 per share and
having an expiry date of twelve months from the closing date of the
subscription.
 
 Liquidity
and Capital Resources
  At June
30, 2005, the Company's total assets were $94,942 as compared to $774 the
previous year. Long-term liabilities as of June 30, 2005 totaled $0 as compared
to $449,306 in the previous year. The Company had working capital deficiency of
$224,178 at June 30, 2005.
 
 Subscriptions
of $94,140 received during the fiscal year are presented in the financial
statements as a current liability pending closure of the private placement and
issuance of the shares. The private placement was terminated subsequent to
year-end and the funds returned to subscribers.
 
 The
Company recently closed a $680,500 private placement(see above under "Financing
Activities") and has announced its aims to close a second stage of financing for
an aggregate raise of $2,000,000, for the purpose of acquiring, exploring and
developing Thorium and Rare Earth Minerals properties as well as assist the
Company in future merger and acquisitions activity. There can be no assurance
that the Company will be successful in raising further funds.
 
 Major
cash commitments in the next fiscal year are related to proposed exploration
activities, corporate administration and operations. Regarding minimum
exploration funding commitments, see “Exploration, property evaluation and
holding costs” above.
 
 
 **- 21
-**
 Subsequent
Events
  Subsequent
to year-end we acquired mineral interests in Alabama, USA and North Queensland,
Australia, under terms as described above under “Exploration, property
evaluation and holding costs”.
 
 Subsequent
to year-end we closed a private placement of common shares for cash proceeds of
$680,500 as described above under "Financing Activities".
 
 Subsequent
to year-end we cancelled 20,000,000 warrants carrying a strike price of $0.05
per share, with the agreement of the warrants holder.
 
 Subsequent
to year-end we issued an aggregate of 5,487,500 shares of our common stock with
a deemed value of $139,331, for consulting services rendered.
 
 Subsequent
to year-end we returned $94,140 to subscribers on the cancellation of a private
placement.
 
 As
described in Item 8. below, subsequent to year-end we dismissed Morgan &
Company, Chartered Accountants as Auditor in favour of Telford Sadovnick,
P.L.L.C., Certified Public Accountants.
 
 Subsequent
to year-end we established a corporate office in Reno, Nevada.
 
 
 
 **- 22
-**
 
 ITEM
7. FINANCIAL STATEMENTS
 
 
 NOVASTAR
RESOURCES, LTD.
 ------------------------------------------
 (formerly
Custom Branded Networks, Inc.)
 
 
 
 INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
 ------------------------------------------
 
 
 PageConsolidated
      Financial Statements:
    23Report
      of Independent Registered Public Accounting Firm for 2005
    25Report
      of Independent Registered Public Accounting Firm for 2004
    26Consolidated
      Balance Sheets
    27Consolidated
      Statements of Operations
    28Consolidated
      Statements of Cash Flows
    29Consolidated
      Statement of Shareholders’ Deficiency
    30Notes
      to Consolidated Financial Statements
    33
 
  **- 23
-**
  
 **NOVASTAR
RESOURCES LTD.**
 **(formerly
Custom Branded Networks, Inc.)**
 **(An
Exploration Stage Company)**
 
 
  **CONSOLIDATED
FINANCIAL STATEMENTS**
 
 
 **JUNE
30, 2005**
 **(Audited)**
 **(Stated
in U.S. Dollars)**
  **- 24
-**
  **REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 
 **To
the Board of Directors and Stockholders of**
 **Novastar
Resources Ltd.**
 **(formerly
Custom Branded Networks, Inc.)**
 **(An
Exploration Stage Company)**
 
 
 We have
audited the accompanying consolidated balance sheet of **Novastar
Resources Ltd. (formerly Custom Branded Networks, Inc.)** (the
“Company”) (an Exploration Stage Company) as at June 30, 2005, the related
consolidated statements of operations, stockholders’ deficiency and cash flows
for the year ended June 30, 2005 and for the cumulative period from June 28,
1999 (inception) to June 30, 2005. These consolidated financial statements are
the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit. We did
not audit the Company’s consolidated financial statements as of and for the year
ended June 30, 2004, and the cumulative data from June 28, 1999 (inception) to
June 30, 2004 in the consolidated statements of operations, stockholders’
deficiency and cash flows, which were audited by other auditors whose report,
dated September 27, 2004, which expressed an unqualified opinion, has been
furnished to us. Our opinion, insofar as it relates to the amounts included for
cumulative data from June 28, 1999 (inception) to June 30, 2004, is based solely
on the report of the other auditors.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform an audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of **Novastar
Resources Ltd. (formerly Custom Branded Networks, Inc.)** (an Exploration Stage Company) as at June 30, 2005 and the results of its
operations and its cash flows for the year then ended, and for the period from
June 28, 1999 (inception) to June 30, 2005 in conformity with accounting
principles generally accepted in the United States of America.
  The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses and
net cash outflows from operations since inception. These factors raise
substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans in regard to these matters are also described in Note 1.
These consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
 
 
 **TELFORD
SADOVNICK, P.L.L.C.**
  **CERTIFIED
PUBLIC ACCOUNTANTS**
   Bellingham,
Washington
 October
11, 2005
  **- 25
-**
  **REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 
 
 
 To the
Stockholders of
 Custom
Branded Networks, Inc.
 (An
exploration stage company)
 
 
 We have
audited the consolidated balance sheet of Custom Branded Networks, Inc. (an
exploration stage company) as at June 30, 2004 and the consolidated statements
of operations, cash flows and stockholders’ deficiency for the year then ended,
and for the period from inception on June 28, 1999 to June 30, 2004. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
 In our
opinion, these consolidated financial statements present fairly, in all material
respects, the financial position of the Company as at June 30, 2004 and the
results of its operations, cash flows, and changes in stockholders’ deficiency
for the year then ended, and for the period from inception on June 28, 1999 to
June 30, 2004 in conformity with United States generally accepted accounting
principles.
 
  The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses and
net cash outflows from operations since inception. These factors raise
substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans in regard to these matters are also discussed in Note 1.
These consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
  
 Vancouver,
Canada
 “Morgan
& Company”
  
 September
27, 2004
 Chartered
Accountants
 
   **- 26
-**
  
 **NOVASTAR
RESOURCES LTD.**
 **(formerly
Custom Branded Networks, Inc.)**
 **(an
Exploration Stage Company)**
 
  **CONSOLIDATED
BALANCE SHEETS**
 **(Audited)**
 **(Stated
in U.S. Dollars)**
 
 **JUNE 30****2005**
    
    **2004*****ASSETS*****Current**Cash
    $
    802
    
    $
    -Restricted
      cash
    
    **94,140**
    
    
    -**94,942**
    
    
    -**Equipment**,
      net
    
    **-**
    
    
    774$
    94,942
    
    $
    774**LIABILITIES****Current**Accounts
      payable and accrued liabilities
    $
    **224,980**
    
    $
    323,663Refundable
      to subscribers of common stock
    
    **94,140**
    
    
    -**319,120**
    
    
    323,663**Convertible
      Notes Payable**,****net
      of discount
    
    **-**
    
    
    449,306**319,120**
    
    
    772,969**STOCKHOLDERS’
      DEFICIENCY****Share
      Capital**Authorized:250,000,000
      (2004 - 50,000,000) common shares with a par value of $0.001 per
      share50,000,000
      (2004 - nil) preferred shares with a parvalue
      of $0.001 per shareIssued
      and outstanding:86,072,532
      common shares at June 30, 2005 and38,372,532
      common shares at June 30, 2004
    
    **86,073**
    
    
    38,373Additional
      paid-in capital
    
    **3,832,247**
    
    
    636,281**Share
      Purchase Warrants**
    
    **495,834**
    
    
    -**Deficit
      Accumulated During The Exploration Stage**
    
    **(4,138,365**
    **)**
    
    (1,446,849
    )**Deferred
      Compensation**
    
    **(499,967**
    **)**
    
    -**(224,178**
    **)**
    
    (772,195
    )$
    94,942
    
    $
    774
 The
accompanying notes are an integral part of these consolidated financial
statements.
  **- 27
-**
  **NOVASTAR
RESOURCES LTD.**
 **(formerly
Custom Branded Networks, Inc.)**
 **(an
Exploration Stage Company)**
 
  **CONSOLIDATED
STATEMENTS OF OPERATIONS**
 **(Audited)**
 **(Stated
in U.S. Dollars)**
 
 
 CUMULATIVEPERIOD
      FROMJUNE
      28, 1999(INCEPTION)**YEAR
      ENDED**
    TO**JUNE
      30**
    JUNE
      30,**2005**
    2004
    2005***Revenue***
    **$**
    **-**
    $
    -
    $
    184,162***Expenses****Consulting*
    
    **2,303,533**
    
    23,635
    
    2,497,913*Interest
      expense*
    
    **442,813**
    
    55,856
    
    580,057*Public
      relations*
    
    **68,899**
    
    -
    
    143,343*Legal*
    
    **27,654**
    
    8,912
    
    209,596*Administrative*
    
    **15,929**
    
    3,996
    
    920,123*Accounting*
    
    **2,506**
    
    3,031
    
    78,868*Forgiveness
      of debt*
    
    **(169,818)**
    
    -
    
    (169,818)*Mineral
      property payment*
    
    **-**
    
    -
    
    50,000*Write
      down of equipment*
    
    **-**
    
    -
    
    12,445**2,691,516**
    
    95,430
    
    4,322,527***Net
      Loss For The Period***
    **$**
    **(2,691,516)**
    $
    (95,430)
    $
    (4,138,365)***Net
      Loss Per Common Share, Basic And Diluted***
    **$**
    **(0.05)**
    $
    (0.00)**Weighted
      Average Number Of Common Shares Outstanding, Basic and
      Diluted**
    
    **57,188,970**
    
    38,372,532
  The
accompanying notes are an integral part of these consolidated financial
statements.
  **- 28
-**
  **NOVASTAR
RESOURCES LTD.**
 **(formerly
Custom Branded Networks, Inc.)**
 **(an
Exploration Stage Company)**
 
  **CONSOLIDATED
STATEMENTS OF CASH FLOWS**
 **(Audited)**
 **(Stated
in U.S. Dollars)**
 
 CUMULATIVEPERIOD
      FROMJUNE
      28, 1999(INCEPTION)**YEAR
      ENDED**
    TO**JUNE
      30**
    JUNE
      30,**2005**
    2004
    2005**Cash
      provided by (used in):****Operating
      Activities**Loss
      for the period
    **$**
    **(2,691,516)**
    $
    (95,430)
    $
    (4,138,365)Items
      not involving cash:Shares
      issued for other than cash
    
    **2,339,533**
    
    22,500
    
    2,384,533Amortization
      of interest
    
    **442,813**
    
    55,178
    
    579,379Amortization
      of equipment
    
    **774**
    
    193
    
    3,813Forgiveness
      of debt
    
    **(169,818)**
    
    -
    
    (169,818)Write
      down of equipment
    
    **-**
    
    -
    
    12,445**(78,214)**
    
    (17,559)
    
    (1,328,013)Changes
      in non-cash operating working capital items:Accounts
      payable and accrued liabilities
    
    **71,135**
    
    7,265
    
    394,798Refundable to subscribers of common stock
    
    **94,140**
    
    -
    
    94,140**87,061**
    
    (10,294)
    
    (839,075)**Investing
      Activity**Purchase
      of equipment
    
    **-**
    
    -
    
    (1,808)**Financing
      Activities**Proceeds
      from loan payable to shareholder
    
    **-**
    
    -
    
    16,097Issue
      of common shares
    
    **-**
    
    -
    
    18,950Advances
      on notes payable
    
    **7,881**
    
    9,400
    
    900,000Cash
      acquired on acquisition of subsidiary
    
    **-**
    
    -
    
    778**7,881**
    
    9,400
    
    935,825**Increase
      (Decrease) In Cash**
    
    **94,942**
    
    (894)
    
    94,942**Cash,
      Beginning Of Period**
    
    **-**
    
    894
    
    -***Cash,
      End Of Period***
    **$**
    **94,942**
    $
    -
    $
    94,942***Supplemental
      Disclosure of Cash Flow*****Information***Cash
      paid during the year:**Interest
      paid*
    **$**
    **-**
    $
    -
    $
    -*Income
      taxes paid*
    **$**
    **-**
    $
    -
    $
    -***Cash
      Consists Of The Following:****Cash
      on hand and balances with banks*
    **$**
    **802**
    $
    -
    $
    802*Restricted
      cash*
    
    **94,140**
    
    -
    
    94,140**$**
    **94,942**
    $
    -
    $
    94,942
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
   
 **- 29
-**
 **NOVASTAR
RESOURCES LTD.**
 **(formerly
Custom Branded Networks, Inc.)**
 **(an
Exploration Stage Company)**
  **CONSOLIDATED
STATEMENT OF SHAREHOLDERS’ DEFICIENCY**
 
 **PERIOD
FROM JUNE 28, 1999 (INCEPTION) TO JUNE 30, 2005**
 **(Audited)**
 **(Stated
in U.S. Dollars)**
 
 **DEFICIT****ACCUMULATED****COMMON
      STOCK**
    **ADDITIONAL**
    
    **DURING
      THE****COMMON
      STOCK**
    **PURCHASE
      WARRANTS**
    **PAID-IN**
    **DEFERRED**
    **EXPLORATION****SHARES**
    **AMOUNT**
    **WARRANTS**
    **AMOUNT**
    **CAPITAL**
    **COMPENSATION**
    **STAGE**
    **TOTAL**Issuance
      of shares to founders
    3,465
    $
    3
    -
    $
    -
    $
    18,947
    $
    -
    $
    -
    $
    18,950Net
      loss for the period
    -
    
    -
    -
    
    -
    
    -
    
    -
    
    (159,909)
    
    (159,909)Balance,
      June 30, 2000
    3,465
    
    3
    -
    
    -
    
    18,947
    
    -
    
    (159,909)
    
    (140,959)Repurchase
      of common stock by consideration of forgiveness of loan payable to
      shareholder
    (1,445)
    
    (1)
    -
    
    -
    
    16,098
    
    -
    
    -
    
    16,0972,020
    
    2
    -
    
    -
    
    35,045
    
    -
    
    (159,909)
    
    (124,862)Adjustment
      to number of shares issued and outstanding as a result of the reverse
      take-over transaction -Custom
      Branded Networks, Inc.
    (2,020)
    
    (2)
    -
    
    -
    
    2
    
    -
    
    -
    
    -Aquistar
      Ventures (USA) Inc.
    15,463,008
    
    15,463
    -
    
    -
    
    (15,463)
    
    -
    
    -
    
    -15,463,008
    
    15,463
    -
    
    -
    
    19,584
    
    -
    
    (159,909)
    
    (124,862)Shares
      allotted in connection with the acquisition of Custom Branded Networks,
      Inc.
    25,000,000
    
    25,000
    -
    
    -
    
    (9,772)
    
    -
    
    -
    
    15,228Less:
      Allotted and not yet issued
    (8,090,476)
    
    (8,090)
    -
    
    -
    
    8,090
    
    -
    
    -
    
    -Common
      stock conversion rights
    -
    
    -
    -
    
    -
    
    421,214
    
    -
    
    -
    
    421,214Net
      loss for the year
    -
    
    -
    -
    
    -
    
    -
    
    -
    
    (723,239)
    
    (723,239)Balance,
      June 30, 2001
    32,372,532
    
    32,373
    -
    
    -
    
    439,116
    
    -
    
    (883,148)
    
    (411,659)
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
 **- 30
-**
 **NOVASTAR
RESOURCES LTD.**
 **(formerly
Custom Branded Networks, Inc.)**
 **(an
Exploration Stage Company)**
  **CONSOLIDATED
STATEMENT OF SHAREHOLDERS’ DEFICIENCY (Continued)**
 
 **PERIOD
FROM JUNE 28, 1999 (INCEPTION) TO JUNE 30, 2005**
 **(Audited)**
 **(Stated
in U.S. Dollars)**
 
 
 **DEFICIT****ACCUMULATED****COMMON
      STOCK**
    **ADDITIONAL**
    
    **DURING
      THE****COMMON
      STOCK**
    **PURCHASE
      WARRANTS**
    **PAID-IN**
    **DEFERRED**
    **EXPLORATION****SHARES**
    **AMOUNT**
    **WARRANTS**
    **AMOUNT**
    **CAPITAL**
    **COMPENSATION**
    **STAGE**
    **TOTAL**Balance,
      June 30, 2001
    32,372,532
    $
    32,373
    -
    $
    -
    $
    439,116
    $
    -
    $
    (883,148)
    $
    (411,659)Additional
      shares issued in connection with the acquisition of Custom Branded
      Networks, Inc.
    1,500,000
    
    1,500
    -
    
    -
    
    (1,500)
    
    -
    
    -
    
    -Common
      stock conversion rights
    -
    
    -
    -
    
    -
    
    109,748
    
    -
    
    -
    
    109,748Net
      loss for the year
    -
    
    -
    -
    
    -
    
    -
    
    -
    
    (326,038)
    
    (326,038)Balance,
      June 30, 2002
    33,872,532
    
    33,873
    -
    
    -
    
    547,364
    
    -
    
    (1,209,186)
    
    (627,949)Issue
      of common stock for deferred compensation expense
    4,500,000
    
    4,500
    -
    
    -
    
    40,500
    
    (45,000)
    
    -
    
    -Amortization
      of deferred compensation
    -
    
    -
    -
    
    -
    
    -
    
    22,500
    
    -
    
    22,500Common
      stock conversion rights
    -
    
    -
    -
    
    -
    
    45,116
    
    -
    
    -
    
    45,116Net
      loss for the year
    -
    
    -
    -
    
    -
    
    -
    
    -
    
    (142,233)
    
    (142,233)Balance,
      June 30, 2003
    38,372,532
    
    38,373
    -
    
    -
    
    632,980
    
    (22,500)
    
    (1,351,419)
    
    (702,566)
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  **- 31
-**
  
 **NOVASTAR
RESOURCES LTD.**
 **(formerly
Custom Branded Networks, Inc.)**
 **(an
Exploration Stage Company)**
  **CONSOLIDATED
STATEMENT OF SHAREHOLDERS’ DEFICIENCY (Continued)**
 
 **PERIOD
FROM JUNE 28, 1999 (INCEPTION) TO JUNE 30, 2005**
 **(Audited)**
 **(Stated
in U.S. Dollars)**
 
 
 **DEFICIT****ACCUMULATED****COMMON
      STOCK**
    **ADDITIONAL**
    
    **DURING
      THE****COMMON
      STOCK**
    **PURCHASE
      WARRANTS**
    **PAID-IN**
    **DEFERRED**
    **EXPLORATION****SHARES**
    **AMOUNT**
    **WARRANTS**
    **AMOUNT**
    **CAPITAL**
    **COMPENSATION**
    **STAGE**
    **TOTAL**Balance,
      June 30, 2003
    38,372,532
    $
    38,373
    -
    $
    -
    $
    632,980
    $
    (22,500)
    $
    (1,351,419)
    $
    (702,566)Amortization
      of deferred compensation
    -
    
    -
    -
    
    -
    
    -
    
    22,500
    
    -
    
    22,500Common
      stock conversion rights
    -
    
    -
    -
    
    -
    
    3,301
    
    -
    
    -
    
    3,301Net
      loss for the year
    -
    
    -
    -
    
    -
    
    -
    
    -
    
    (95,430)
    
    (95,430)Balance,
      June 30, 2004
    38,372,532
    
    38,373
    -
    
    -
    
    636,281
    
    -
    
    (1,446,849)
    
    (772,195)Issue
      of common stock for services
    14,800,000
    
    14,800
    -
    
    -
    
    901,200
    
    -
    
    -
    
    916,000Issue
      of common stock and warrants for convertible notes
    20,000,000
    
    20,000
    20,000,000
    
    495,834
    
    484,166
    
    -
    
    -
    
    1,000,000Issue
      of common stock for services
    11,600,000
    
    11,600
    -
    
    -
    
    1,583,900
    
    (598,000)
    
    -
    
    997,500Issue
      of common stock for services
    1,300,000
    
    1,300
    -
    
    -
    
    226,700
    
    -
    
    -
    
    228,000Amortization
      of deferred compensation
    -
    
    -
    -
    
    -
    
    -
    
    98,033
    
    -
    
    98,033Net
      loss for the year
    -
    
    -
    -
    
    -
    
    -
    
    -
    
    (2,691,516)
    
    (2,691,516)Balance,
      June 30, 2005
    86,872,532
    $
    86,073
    20,000,000
    $
    495,834
    $
    3,832,247
    $
    (499,967)
    $
    (4,138,365)
    $
    (224,178)
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
 **- 32
-**
   **NOVASTAR
RESOURCES LTD.**
 **(formerly
Custom Branded Networks, Inc.)**
 **(an
Exploration Stage Company)**
 
  **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
30, 2005**
 **(Audited)**
 **(Stated
in U.S. Dollars)**
 
 
 **1.**
    **NATURE
      OF OPERATIONS AND GOING CONCERN**
 
 Novastar
Resources Ltd. (the “Company”) was previously engaged in the business of
providing turnkey private label internet services to organizations throughout
the domestic United States and Canada. During the year ended June 30, 2003, the
Company became an exploration stage company engaged in the acquisition and
exploration of mineral claims. Upon location of a commercial minable reserve,
the Company expects to actively prepare the site for its extraction and enter a
development stage. During the year ended June 30, 2005, the Company charged its
name from Custom Branded Networks, Inc. and increased its authorized common
shares from 50,000,000 shares to 250,000,000 shares and also authorized
50,000,000 preferred shares for issuance at a par value of $0.001.
 
 Going
Concern
 
 The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern.
 
 As shown
in the accompanying consolidated financial statements, the Company has incurred
a net loss of $4,138,365 since inception, and has no sales. The future of the
Company is dependent upon its ability to obtain financing and upon future
profitable operations from the development of its mineral claims. Management has
plans to seek additional capital through a private placement and public offering
of its common stock. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded
assets, or the amounts of and classification of liabilities that might be
necessary in the event the Company cannot continue in existence.
 
 
 **2.**
    **SIGNIFICANT
      ACCOUNTING POLICIES**
 
 The
consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in the United States.
Because a precise determination of many assets and liabilities is dependent upon
future events, the preparation of financial statements for a period necessarily
involves the use of estimates which have been made using careful
judgment.
 
 The
consolidated financial statements have, in management’s opinion, been properly
prepared within reasonable limits of materiality and within the framework of the
significant accounting policies summarized below:
 
 
  **- 33
-**
  **NOVASTAR
RESOURCES LTD.**
 **(formerly
Custom Branded Networks, Inc.)**
 **(an
Exploration Stage Company)**
 
  **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
30, 2005**
 **(Audited)**
 **(Stated
in U.S. Dollars)**
 
 
 **2.**
    **SIGNIFICANT
      ACCOUNTING POLICIES**(Continued)
 
 a)
    Consolidation
 
 These
      consolidated financial statements include the accounts of the Company (a
      Nevada corporation) and its wholly-owned subsidiary, Custom Branded
      Networks, Inc. (a Delaware corporation).
 
 b)
    Use
      of Estimates
 
 The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from management’s best
estimates as additional information becomes available in the
future.
 
 c)
    Equipment
 
 Equipment
is recorded at cost and is amortized over its useful life at a rate of 20% on a
declining balance basis. As of June 30, 2005, the equipment has been fully
amortized.
 
 d)
    Income
      Taxes
 
 The
Company has adopted Statement of Financial Accounting Standards No. 109 -
“Accounting for Income Taxes” (SFAS 109). This standard requires the use of an
asset and liability approach for financial accounting and reporting on income
taxes. If it is more likely than not that some portion of all of a deferred tax
asset will not be realized, a valuation allowance is
recognized.
  **- 34
-**
  **NOVASTAR
RESOURCES LTD.**
 **(formerly
Custom Branded Networks, Inc.)**
 **(an
Exploration Stage Company)**
 
  **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
30, 2005**
 **(Audited)**
 **(Stated
in U.S. Dollars)**
 
 
 **2.**
    **SIGNIFICANT
      ACCOUNTING POLICIES**(Continued)
 
 e)
    Mineral
      Property Option Payments and Exploration
Expenditures
 
 The
      Company follows a policy of expensing exploration expenditures until a
      production decision is made in respect of the project and the Company is
      reasonably assured that it will receive regulatory approval to permit
      mining operations which may include the receipt of a legally binding
      project approval certificate.
 
 Management
      periodically reviews the carrying value of its investments in mineral
      leases and claims with internal and external mining related professionals.
      A decision to abandon, reduce or expand a specific project is based upon
      many factors including general and specific assessments of mineral
      deposits, anticipated future mineral prices, anticipated future costs of
      exploring, developing and operating a production mine, the expiration term
      and ongoing expenses of maintaining mineral properties and the general
      likelihood that the Company will continue exploration on such project. The
      Company does not set a pre-determined holding period for properties with
      unproven deposits, however, properties which have not demonstrated
      suitable metal concentrations at the conclusion of each phase of an
      exploration program are re-evaluated to determine if future exploration is
      warranted, whether there has been any impairment in value and that their
      carrying values are appropriate.
 
 If
      an area of interest is abandoned or it is determined that its carrying
      value cannot be supported by future production or sale, the related costs
      are charged against operations in the year of abandonment or determination
      of value. The amounts recorded as mineral leases and claims represent
      costs to date and do not necessarily reflect present or future
      values.
 
 The
      Company’s exploration activities and proposed mine development are subject
      to various laws and regulations governing the protection of the
      environment. These laws are continually changing, generally becoming more
      restrictive. The Company has made, and expects to make in the future,
      expenditures to comply with such laws and
regulations.
 
 The
      accumulated costs of properties that are developed on the stage of
      commercial production will be amortized to operations through
      unit-of-production depletion. The Company has no mineral property interest
      as at June 30, 2005 or 2004.
  **- 35
-**
  **NOVASTAR
RESOURCES LTD.**
 **(formerly
Custom Branded Networks, Inc.)**
 **(an
Exploration Stage Company)**
 
  **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
30, 2005**
 **(Audited)**
 **(Stated
in U.S. Dollars)**
 
 
 **2.**
    **SIGNIFICANT
      ACCOUNTING POLICIES**(Continued)
 
 f)
    Financial
      Instruments
 
 The
Company’s financial instruments consist of cash, restricted cash on deposit,
accounts payable and accrued liabilities and refundable to subscribers of common
stock.
 
 Management
of the Company does not believe that the Company is subject to significant
interest, currency or credit risks arising from these financial instruments. The
respective carrying values of financial instruments approximate their fair
values. Fair values were assumed to approximate carrying values since they are
short-term in nature or they are receivable or payable on demand.
 
 g)
    Stock-Based
      Compensation
 
 The
Company accounts for employee stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion (“APB”) No. 25 (“APB”),
“Accounting for Stock Issued to Employees”, and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the fair value of the Company’s common stock at the date of the grant
over the amount an employee must pay to acquire the common stock. Non-employee
stock-based compensation is accounted for using the fair value method in
accordance with Statement of Financial Accounting Standard No. 123 (“SFAS 123”),
“Accounting for Stock-based Compensation.
 
 The
Company has not granted any stock options during the years ended June 30, 2005
and 2004.
 
 h)
    Basic
      and Diluted Loss Per Share
 
 In
accordance with Financial Accounting Standards Board (“FASB”) Statement of
Financial Accounting Standard No. 128 (“SFAS 128”), “Earnings Per Share”, the
basic loss per common share is computed by dividing net loss available to common
stockholders by the weighted average number of common shares outstanding.
Diluted loss per common share is computed similar to basic loss per common share
except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the potential common shares
had been issued and if the additional common shares were dilutive. At June 30,
2005, the Company has no stock equivalents that were anti-dilutive and excluded
in the earnings per share computation.
 
 
 
 
 **NOVASTAR
RESOURCES LTD.**
 **(formerly
Custom Branded Networks, Inc.)**
 **(an
Exploration Stage Company)**
 
  **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
30, 2005**
 **(Audited)**
 **(Stated
in U.S. Dollars)**
 
 
 **2.**
    **SIGNIFICANT
      ACCOUNTING POLICIES**(Continued)
 
 i)
    Impairment
      Asset Policy
 
 The
Company periodically reviews its long-lived assets when applicable to determine
if any events or changes in circumstances have transpired which indicate that
the carrying value of its assets may not be recoverable, pursuant to guidance
established in Statement of Financial Accounting Standards No. 144 (“SFAS 144”),
“Accounting for the Impairment of Disposal of Long-lived Assets”. The Company
determines impairment by comparing the undiscounted future cash flows estimated
to be generated by its assets to their respective carrying amounts. If
impairment is deemed to exist, the assets will be written down to fair
value.
 
 j)
    Foreign
      Currency Translation
 
 The
Company’s functional currency is the U.S. dollar. Transactions in foreign
currency are translated into U.S. dollars as follows:
 
 i)
    monetary
      items at the rate prevailing at the balance sheet
date;
 ii)
    non-monetary
      items at the historical exchange rate;
 iii)
    revenue
      and expense at the average rate in effect during the applicable accounting
      period.
 
 k)
    Revenue
      Recognition
 
 Revenue
from the sale of minerals is recognized when the risks and rewards of ownership
pass to the purchaser, including delivery of the product the selling price is
fixed or determinable and collectibility is reasonably assured. Settlement
adjustments, if any, are reflected in revenue when the amounts are
known.
 
 l)
    Comprehensive
      Income
 
 The
Company has adopted Statement of Financial Accounting Standards No. 130 (“SFAS
130”) “Reporting Comprehensive Income”, which establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances. When applicable, the Company would disclose this information on its
Statement of Stockholders’ Equity. Comprehensive income comprises equity except
those resulting from investments by owners and distributions to owners. The
Company has not had any significant transactions that are required to be
reported in other comprehensive income.
 
  **- 36
-**
  **NOVASTAR
RESOURCES LTD.**
 **(formerly
Custom Branded Networks, Inc.)**
 **(an
Exploration Stage Company)**
 
  **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
30, 2005**
 **(Audited)**
 **(Stated
in U.S. Dollars)**
 
 
 **2.**  **SIGNIFICANT
ACCOUNTING POLICIES** (Continued)
 
 m)
    Asset
      Retirement Obligations
 
 The
Company has adopted Statement of Financial Accounting Standards No. 143 (“SFAS
143”), “Accounting for Asset Retirement Obligations”, which requires that an
asset retirement obligation (“ARO”) associated with the retirement of a tangible
long-lived asset be recognized as a liability in the period in which it is
incurred and becomes determinable, with an offsetting increase in the carrying
amount of the associated asset. The cost of the tangible asset, including the
initially recognized ARO, is depleted, such that the cost of the ARO is
recognized over the useful life of the asset. The ARO is recorded at fair value,
and accretion expense is recognizable over time as the discounted liability is
accreted to its expected settlement value. The fair value of the ARO is measured
using expected future cash flow, discounted at the Company’s credit-adjusted
risk-free interest rate. To date, no significant asset retirement obligation
exists due to the early stage of exploration. Accordingly, no liability has been
recorded.
 
 n)
    Environmental
      Protection and Reclamation Costs
 
 The
operations of the Company have been, and may in the future be affected from time
to time in varying degrees by changes in environmental regulations, including
those for future removal and site restorations costs. Both the likelihood of new
regulations and their overall effect upon the Company may vary from region to
region and are not predictable.
 
 Environmental
expenditures that relate to ongoing environmental and reclamation programs are
charged against statements of operations as incurred or capitalized and
amortized depending upon their future economic benefits. The Company does not
anticipate any material capital expenditures for environmental control
facilities because it has no mineral property holdings as at June 30, 2005 or
2004.
 
 o)
    Intangible
      Assets
 
 The
Company has adopted Statement of Financial Accounting Standards No. 142 (“SFAS
142”), “Goodwill and Other Intangible Assets”, which requires that goodwill and
intangible assets with indefinite life are not amortized but rather tested at
least annually for impairment. Intangible assets with a definite life are
required to be amortized over their useful life. The Company does not have any
goodwill nor intangible assets with indefinite or definite life since
inception.
  **- 37
-**
  **NOVASTAR
RESOURCES LTD.**
 **(formerly
Custom Branded Networks, Inc.)**
 **(an
Exploration Stage Company)**
 
  **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
30, 2005**
 **(Audited)**
 **(Stated
in U.S. Dollars)**
 
 
 **2.**  **SIGNIFICANT
ACCOUNTING POLICIES** (Continued)
 
 p)
    Advertising
      Costs
 
 Advertising
costs are expensed as incurred. No advertising costs were incurred in fiscal
years 2005 or 2004, respectively.
 
 q)
    Exploration
      Stage Enterprise
 
 The
Company’s consolidated financial statements are prepared using the accrual
method of accounting and according to the provisions of Statement of Financial
Accounting Standards No. 7 (“SFAS 7”), “Accounting and Reporting for Development
Stage Enterprises,” as it devotes substantially all of its efforts to acquiring
and exploring mineral properties. Until such properties are acquired and
developed, the Company will continue to prepare its consolidated financial
statements and related disclosures in accordance with entities in the
exploration stage.
 
 
 
 **3.**
    **RECENT
      ACCOUNTING PRONOUNCEMENTS**
 
 a)
    In
      November 2004, FASB issued Statement of Financial Accounting Standards No.
      151 (“SFAS 151”), “Inventory Costs”. This Statement amends the guidance in
      ARB No. 43, Chapter 4, Inventory Pricing, “to clarify the accounting for
      abnormal amounts of idle facility expense, freight, handling costs and
      wasted material (spoilage). In addition, this Statement requires that
      allocation of fixed production overheads to the costs of conversion be
      based on the normal capacity of the production facilities. The provisions
      of this Statement will be effective for the Company beginning with its
      fiscal year ending 2006. The Company has determined that the adoption of
      SFAS 151 does not have an impact on its results of operations of financial
      position.
 
 b)
    In
      December 2004, FASB issued Statement of Financial Accounting Standards No.
      153 (“SFAS 153”), “Exchanges of Non-monetary Assets - an amendment of APB
      Opinion No. 29”. This Statement amended APB Opinion 29 to eliminate the
      exception of non-monetary exchanges of similar productive assets and
      replaces it with a general exception for exchanges of non-monetary assets
      that do not have commercial substance. A non-monetary exchange has
      commercial substance if the future cash flows of the entity are expected
      to change significantly as a result of the exchange. The Company has
      determined that the adoption of SFAS 153 does not have an impact on its
      results of operations or financial
position.
  **- 38
-**
  **NOVASTAR
RESOURCES LTD.**
 **(formerly
Custom Branded Networks, Inc.)**
 **(an
Exploration Stage Company)**
 
  **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
30, 2005**
 **(Audited)**
 **(Stated
in U.S. Dollars)**
 
 
 **3.**
    **RECENT
      ACCOUNTING PRONOUNCEMENTS**(Continued)
 
 c)
    In
      December 2004, FASB issued Statement of Financial Accounting Standards No.
      123 (revised 2004) (“SFAS 123 Revised”), “Share-Based Payment”. This
      Statement requires that the cost resulting from all share-based
      transactions be recorded in the financial statements. The Statement
      establishes fair value as the measurement objective in accounting for
      share-based payment arrangements and requires all entities to apply a
      fair-value-based measurement in accounting for share-based payment
      transactions with employees. The Statement also establishes fair value as
      the measurement objective for transactions in which an entity acquires
      goods or services from non-employees in shar-based payment transactions.
      The Statement replaces FASB Statement No. 123 “Accounting for Stock-Based
      Compensation” and supercedes APB Opinion No. 25 “Accounting for Stock
      Issued to Employees”. The provisions of this Statement will be effective
      for the Company beginning its fiscal year ending 2007. The Company has
      determined that the adoption of SFAS 123 (Revised) does not have an impact
      on its results of operations or financial
position.
 
 
 **4.**
    **RESTRICTED
      CASH**
 
 During
the year ended June 30, 2005, proceeds totaling $94,140 were received through a
private placement of common stock that was to close subsequent to the year end.
This private placement was terminated and no shares of the Company were issued.
The full amount of proceeds received from this private placement was reimbursed
to subscribers subsequent to the Company’s year end.
 
 
 **5.**  **CONVERTIBLE
NOTES PAYABLE**
 
 On
January 31, 2002, the Company executed $1,000,000 aggregate principal amount of
convertible notes due not earlier than January 31, 2009. The notes were secured
by the assets of the Company. The Company has received $1,000,000 in advances
through to June 30, 2005, including in-kind consideration of $100,000. The notes
bore no interest until the maturity date.
  **- 39
-**
  **NOVASTAR
RESOURCES LTD.**
 **(formerly
Custom Branded Networks, Inc.)**
 **(an
Exploration Stage Company)**
 
  **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
30, 2005**
 **(Audited)**
 **(Stated
in U.S. Dollars)**
 
 
 **5.**  **CONVERTIBLE
NOTE PAYABLE** (Continued)
 
 On
January 20, 2005, the Company issued 20,000,000 common shares at a price of
$0.05 per share, and 20,000,000 warrants, f or the
purchase of 20,000,000 shares of common stock of the Company, to the
holder on conversion of the notes. The warrants are exercisable at a price of
$0.05 per share until January 20, 2008. The warrants was valued using the Black
Scholes option pricing model using the following assumptions: weighted average
expected life of 3 years, volatility of 24%, rate of quarterly dividends - $nil,
risk free interest rate of 3.5%. The $1,000,000 consideration was allocated to
the common stock and share purchase warrants based upon their relative fair
values on the date of conversion. The amount allocated to the common shares
issued is $504,166. The amount allocated to the share purchase warrants is
$495,834.
 
 Because
the market interest rate on similar types of notes was approximately 14% per
annum the day the notes were issued, the Company has recorded a discount of
$579,378 related to the beneficial conversion feature. During the year ended
June 30, 2005, $442,813 (2004 - $55,170) was amortized and recorded as interest
expense. The discount was fully amortized as interest expense upon
conversion.
 
 
 **6.**
    **MINERAL
      PROPERTIES**
 
 On
February 5, 2003, the Company entered into an agreement to acquire 100% interest
in mineral properties located in outer Mongolia by making a cash payment of
$50,000 (paid) and issuing 5,000,000 common shares, as such time as legal title
to the mineral property is delivered. The shares were not issued and title was
not transferred. The Company does not intend to further pursue the acquisition
of these properties.
 
 On May 1,
2005, the Company entered into an agreement with a shareholder of the Company to
purchase a 92.25% interest in three mineral properties in North Queensland,
Australia. To obtain the interest, the Company must either:
 
 i)
    raise
      $1,000,000 and deposit the funds in a separate bank account on or before
      May 1, 2006, such funds to be used for testing and/or developing the
      properties, or
 ii)
    if
      the Company fails to raise the $1,000,000 in development funds and deposit
      such funds into a separate bank account by May 1, 2006, then the Company
      has an option to acquire the 92.25% interest in the property by issuing
      common shares of the Company the aggregate number of which will be equal
      to the aggregate share price (defined as an amount equal to $1,000,000
      less the aggregate amount of funds deposited into the separate development
      bank account (if any)) divided by the value of the individual shares of
      the Company (defined as an amount equal to the greater of (a) the closing
      price per share for the sale of Company shares on the OTC bulletin board
      on May 1, 2006 and (b) the amount of $0.10 per common
    share).
  **- 40
-**
  **NOVASTAR
RESOURCES LTD.**
 **(formerly
Custom Branded Networks, Inc.)**
 **(an
Exploration Stage Company)**
 
  **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
30, 2005**
 **(Audited)**
 **(Stated
in U.S. Dollars)**
 
 
 **7.**
    **DEFERRED
      COMPENSATION**
 
 On June
1, 2005, the Company entered into consulting agreements with two consultants
whereby the consultants were issued 4,600,000 common shares at $0.13 per share.
The terms of the agreements are for 6 months. Amortization is taken on a monthly
basis over the term of the agreement.
 
 
 **8.**
    **RELATED
      PARTIES**
 
 During
the year ended June 30, 2005, two former directors and officers forgave $169,818
of accounts payable owed to them, relating to consulting fees, rent, payroll and
vacation pay liabilities.
 
 During
the year ended June 30, 2005, the Company issued 2,000,000 common shares to a
director for consulting services rendered at a value of $40,000.
 
 
 **9.**
    **INCOME
      TAX LOSSES**
 
 The
Company’s provision for income taxes differs from the amounts computed by
applying the United States federal statutory income tax rates to the loss as a
result of the following:
 
 **2005**
    2004Statutory
      rates
    
    **35%**
    
    35%Recovery
      of income taxes computed at statutory rates
    **$**
    **(942,031)**
    $
    (33,000)Mineral
      property
    
    **(315)**
    
    1,000Tax
      benefit not recognized on current year’s losses
    
    **942,346**
    
    32,000**$**
    **-**
    $
    -
 
 The tax
effects of temporary timing differences that give rise to significant components
of the future tax assets and future tax liabilities are as follows:
 
 **2005**
    2004Net
      operating loss carry forward
    **$**
    **1,442,031**
    $
    500,000Mineral
      property
    
    **945**
    
    4,000Less:
      Valuation allowance
    
    **(1,442,976)**
    
    (504,000)Deferred
      tax asset
    **$**
    **-**
    $
    -
  **- 41
-**
  **NOVASTAR
RESOURCES LTD.**
 **(formerly
Custom Branded Networks, Inc.)**
 **(an
Exploration Stage Company)**
 
  **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
30, 2005**
 **(Audited)**
 **(Stated
in U.S. Dollars)**
 
 
 **9.**
    **INCOME
      TAX LOSSES**(Continued)
 
 At June
30, 2005, the Company has net operating losses of approximately $4,098,000,
which may be carried forward to apply against future years’ income for tax
purposes expiring as follows:
 
 2020
    $159,0002021
    $723,0002022
    $326,0002023
    $102,0002024
    $96,0002025
    $2,692,000
 
 
 **10.**
    **SUPPLEMENTAL
      DISCLOSURE ON NON-CASH FINANCING AND INVESTING
      ACTIVITIES**
 
 During
the year ended June 30, 2005, the Company had the following non-cash financing
and investing activities:
 
 a)
    The
      Company issued 16,900,000 common shares to consultants for consulting
      services provided to the Company with value of
  $1,144,000.
 
 b)
    The
      Company issued 20,000,000 common shares and 20,000,000 common stock
      purchase warrants with a value of $1,000,000 pursuant to the exercise of
      convertible notes payable referred to in Note
5.
 
 c)
    The
      Company issued 11,600,000 common shares to consultants for consulting
      services provided to the Company with a value of $1,595,500. Of this
      amount, $499,967 was recorded as deferred compensation to be amortized
      over the life of the consulting contracts as described in Note
      7.
 
 d)
    Two
      former directors of the Company forgave a total of $169,818 relating to
      accrued vacation payable, payroll liabilities and other accrued expenses
      incurred.
 
 
 **11.**
    **COMPARATIVE
      FIGURES**
 
 Certain
comparative figures have been reclassified to conform to the current year’s
presentation.
 
  **- 42
-**
  **NOVASTAR
RESOURCES LTD.**
 **(formerly
Custom Branded Networks, Inc.)**
 **(an
Exploration Stage Company)**
 
  **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
30, 2005**
 **(Audited)**
 **(Stated
in U.S. Dollars)**
 
 
 **12.** **COMMITMENTS
AND CONTRACTUAL OBLIGATIONS**
 
 The
Company has no significant commitments or contractual obligations with any
parties respecting executive compensation, consulting arrangements or other
matters. Rental of premises is on a month-to-month basis.
 
 
 **13.**  **SUBSEQUENT
EVENTS**
 
 Subsequent
to June 30, 2005, the Company:
 
 a)
    issued
      an aggregate of 5,487,500 shares of the Company’s common stock, with a
      total deemed value of $139,331, for various consulting services
      rendered;
 
 b)
    entered
      into an agreement whereby certain mineral leases in the Clay County
      District of Alabama were assigned to the Company. The Company assumed a
      lease held by the lessee for the consideration of $100,000 cash (paid),
      1,000,000 restricted common shares of the Company at a deemed issue price
      of $0.001 per share and a $15 per ton net royalty per ton of
      Thorium/monazite removed from the leased
properties;
 
 c)
    entered
      into an agreement to purchase a 100% undivided interest in three mineral
      interests located in the state of North Queensland, Australia. As
      consideration, the Company must issue 5,000,000 restricted common shares
      to the vendor. In addition, the Company must incur the following
      exploration expenditures, not to exceed
$695,000:
 
 i)
    $125,000
      by December 31, 2006;
 ii)
    an
      additional $150,000 by December 31, 2007;
 iii)
    an
      additional $140,000 by December 31, 2008;
 iv)
    an
      additional $140,000 by December 31, 2009;
 v)
    an
      additional $140,000 by December 31, 2010.
 
 In
regards to the property, the vendor shall retain a 2.5% net smelter return
royalty on the property;
 
 d)  cancelled
the 20,000,000 warrants, for the purchase of 20,000,000 shares of common stock
of the Company, that had been issued on January 20, 2005;
 
 e)  returned
proceeds to subscribers of $94,140 received relating to a private placement that
was cancelled.
 
 **- 43
-**
 
 
 
 **NOVASTAR
RESOURCES LTD.**
 **(formerly
Custom Branded Networks, Inc.)**
 **(an
Exploration Stage Company)**
 
  **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
30, 2005**
 **(Audited)**
 **(Stated
in U.S. Dollars)**
 
 
 **13.**
    **SUBSEQUENT
      EVENTS******(Continued)
 
  f)
    closed
      an over-subscribed private placement of $680,500, consisting of an
      offering of 4,536,667 units at a price of $0.15 per unit. Each unit
      consists of one common share and one-half of a non-transferable share
      purchase warrant. Each warrant entitles the holder thereof to acquire one
      additional share of common stock at a price of $0.30 per share and having
      an expiry date of twelve months from the closing date of the
      subscription.
 
 
  **- 44
-**
  ITEM
8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
  On
September 14, 2005, a resolution was adopted by unanimous written consent of the
Board of Directors of the Registrant dismissing Morgan & Company, Chartered
Accountants ("Morgan & Company") as our independent accountant.
   None of
Morgan & Company's reports on our financial statements for the fiscal years
ended June 30, 2004, June 30, 2003, and for the period from inception on June
28, 1999 to June 30, 2004, contained an adverse opinion or disclaimer of
opinion, nor was any such report qualified or modified as to uncertainty, audit
scope or accounting principles, except that the reports were qualified as to the
Company’s ability to continue as a going concern.
   During
the fiscal years ended June 30, 2004 and June 30, 2003 and through September 14,
2005, the date of Morgan & Company's dismissal, there were no disagreements
between the Company and Morgan & Company on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which disagreements if not resolved to Morgan & Company's
satisfaction would have caused it to make reference to the subject matter of the
disagreement in connection with its reports, and there were no reportable events
as defined in Item 304(a)(1)(v) of Regulation S-K.
   On
September 14, 2005, a resolution was adopted by unanimous written consent of the
Registrant's Board of Directors appointing Telford Sadovnick, P.L.L.C.,
Certified Public Accountants ("Telford Sadovnick") as the Registrant's new
independent accountant. Prior to the engagement of Telford Sadovnick, the
Registrant did not consult with such firm regarding the application of
accounting principles to a specific completed or contemplated transaction, or
regarding the type of audit opinion that might be rendered on the Registrant's
financial statements and no oral or written advice was provided by Telford
Sadovnick that was an important factor considered by the Registrant in reaching
a decision as to the accounting, auditing or financial reporting issue. The
Registrant also did not consult with Telford Sadovnick regarding any matter that
was either the subject of a disagreement or a reportable event as defined in
Item 304(a)(1)(v) of Regulation S-K.
  **- 45
-**
 
 ITEM
8A. CONTROLS AND PROCEDURES.
  The
Company has under the supervision of its President and Chief Financial Officer,
conducted an evaluation of the effectiveness of the design and operation of its
disclosure controls and procedures as of the end of the period covered by this
Annual Report. Based upon the results of this evaluation, the Company believes
that it maintains proper procedures for gathering, analyzing and disclosing all
information in a timely fashion that is required to be disclosed in its reports
under the Securities Exchange Act of 1934, as amended, and our certifying
officers have concluded that our disclosure controls and procedures are
effective. In addition, our certifying officers have concluded that our
disclosure controls and procedures are effective to ensure that information
required to be disclosed in the reports that we file or submit under the
Exchange Act is accumulated and communicated to our management to allow timely
decisions regarding required disclosure. There have been no significant changes
in the Company's controls subsequent to the evaluation date.
 
 There
were no significant changes in the Company's internal controls or in other
factors that could significantly affect its internal controls subsequent to the
evaluation date.
 
 
 ITEM
8B. OTHER INFORMATION.
  There is
no other information that is reportable under this heading.
 
 
 PART
III
 
 ITEM
9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT.
  Current
Directors and Executive Officers
  As of the
date of this Annual Report, the Company's directors and executive officers are
as follows:
 
 NAME
    AGE
    OFFICES
      HELDPaul
      G.Carter
    43
    President,
      CEO, CFO, Director, TreasurerSean
      Mulhearn
    39
    Secretary
 
 
 The
Directors hold their positions until the next annual general meeting of
Novastar’s shareholders or until their successors are duly elected and
qualified. Novastar’s executive officers serve at the pleasure of the Board of
Directors.
 
 **- 46
-**
 The
backgrounds of our directors and executive officers are as follows:
  PAUL
CARTER has been the President, CEO, CFO, Treasurer and a Director of the Company
since 2002. Mr. Carter brings over 20 years experience in mining, exploration
and development to Novastar. He has worked more than ten years in Northern
British Columbia in one of the most rugged regions in North America, where he
played a big part in bringing Skyline explorations Johnny Mountain gold mine
into production from a grass roots exploration project. He also worked as
project manager for other successful exploration companies in the same region,
mainly Gulf International Mineral Ltd. Later on Mr. Carter went on to run their
overseas operations in Tajikistan (an Independent State of the former Soviet
Union), where he functioned as a Liaison between the Tajik Government and the
Company. Through his hard work in Tajikistan, Mr. Carter proved himself as being
an important asset to the company and was appointed to Gulf International's
Board of Directors. Gulf International presently operates a successful producing
gold mine in Tajikistan. Mr. Carter has also worked in the Oil and Gas Industry
and in environmental cleanup. Currently he serves on the Boards of Directors of
Gulf International and Rio Grana Resources Ltd.
 
 
 SEAN
MULHEARN has been Secretary of the Company since October 10, 2005.  Mr.
Mulhearn graduated from Hamilton College, NY in 1988 with a dual Major in
Government & English. He then worked in sales for RJR Nabisco, Maxwell Paper
Products and Cutting USA. From 1996-99 Mr. Mulhearn was Membership Director at
Reebok Sports Club-World Famous Health and Fitness Center in NYC. Membership
increased to over 10,000 Members and Club Revenues exceeded $20 Million
annually. From 2000-2003 He was Corporate Sales Director at Equinox Fitness
Clubs in NYC and worked directly with upper management to launch Equinox's entry
into Corporate Health and Wellness Programs and Membership Sales to top NYC
companies. Mr. Mulhearn left Equinox in 2003 and started own company, New York
Hedge Consultants, assisting Hedge Funds with their Equity Trading and raising
capital for Hedge Funds.
 
 
 Significant
Employees /Consultants
  The
Company has no key persons outside the directors and officers noted above.
 
 **- 47
-**
 
 Involvement
in Certain Legal Proceedings
  To our
knowledge, during the past five years, no present or former director or
executive officer of the Company has been involved in any of the following
events:
 
 (1)
    any
      bankruptcy petition filed by or against any business of which such person
      was a general partner or executive officer either at the time of
      bankruptcy or within two years prior to that
time;
 
 (2)
    any
      conviction in a criminal proceeding or being subject to a pending criminal
      proceeding (excluding traffic violations and other minor
      offences);
 
 (3)
    being
      subject to any order, judgment or decree, not subsequently reversed,
      suspended or vacated, of any court of competent jurisdiction, permanently
      or temporarily enjoining, barring, suspending or otherwise limiting his
      involvement in any type of business, securities or banking activities;
      or
 
 (4)
    being
      found by a court of competent jurisdiction (in a civil action), the
      Commission or the Commodity Futures Trading Commission to have violated a
      federal or state securities or commodities law, and the judgment has not
      been reversed, suspended or vacated.
 
 
 Compliance
with Section 16(a) of the Exchange Act
  Section
16(a) of the Exchange Act, as amended, requires our executive officers,
directors and persons who beneficially own more than 10% of our shares of common
stock to file reports of their beneficial ownership and changes in ownership
(Forms 3, 4 and 5, and any amendment thereto) with the SEC. Executive officers,
directors, and greater-than-ten percent holders are required to furnish us with
copies of all Section 16(a) forms they file.
 
 Based
solely upon a review of the Forms 3, 4, and 5 furnished to us for the fiscal
year ended June 30, 2005, we have determined that our directors, officers, and
greater than 10% beneficial owners complied with all applicable Section 16
filing requirements, except as described below.
 
 
 **Name**
    **Number
      of Late Reports**
    **Number
      of Transactions Not**
      
      **Reported
      on a Timely Basis**
    **Failure
      to File**
      
      **Requested
      Forms**OTC
      Investments Ltd.
    1(1)
    1(1)
    Nil
 
 (1) The
named officer, director or greater than 10% stockholder, as applicable, filed a
late Form 3 - Initial Statement of Beneficial Ownership of
Securities.
 
 
 **- 48
-**
 Information
concerning the Company's audit committee, including designation of the "Audit
Committee Financial Expert" under applicable Securities and Exchange Commission
rules
 
 At the
present time, the Company does not have an audit committee, nor does it employ a
financial expert. We currently rely on our accountant and auditor to prepare and
audit our financial statements. Our accountant is not an employee of the
Company. The Company intends to appoint an audit committee in the future.
 
 
 Code
of Ethics
  Effective
October 13, 2004, our Company's Board of Directors adopted a Code of Business
Conduct and Ethics that applies to, among other persons, our company's President
and Secretary (being our principal executive officer, principal financial
officer and principal accounting officer), as well as persons performing similar
functions. As adopted, our Code of Business Conduct and Ethics sets forth
written standards that are designed to deter wrongdoing and to
promote:
  1.
    honest
      and ethical conduct, including the ethical handling of actual or apparent
      conflicts of interest between personal and professional
      relationships;
  2.
    full,
      fair, accurate, timely, and understandable disclosure in reports and
      documents that we file with, or submit to, the Securities and Exchange
      Commission and in other public communications made by
  us;
  3.
    compliance
      with applicable governmental laws, rules and
  regulations;
  4.
    the
      prompt internal reporting of violations of the Code of Business Conduct
      and Ethics to an appropriate person or persons identified in the Code of
      Business Conduct and Ethics; and
  5.
    accountability
      for adherence to the Code of Business Conduct and
  Ethics.
  Our Code
of Business Conduct and Ethics requires, among other things, that all of our
company's Senior Officers commit to timely, accurate and consistent disclosure
of information; that they maintain confidential information; and that they act
with honesty and integrity.
  In
addition, our Code of Business Conduct and Ethics emphasizes that all employees,
and particularly Senior Officers, have a responsibility for maintaining
financial integrity within our company, consistent with generally accepted
accounting principles, and federal and state securities laws. Any Senior Officer
who becomes aware of any incidents involving financial or accounting
manipulation or other irregularities, whether by witnessing the incident or
being told of it, must report it to our company. Any failure to report such
inappropriate or irregular conduct of others is to be treated as a severe
disciplinary matter. It is against our company policy to retaliate against any
individual who reports in good faith the violation or potential violation of our
company's Code of Business Conduct and Ethics by another.
  Our Code
of Business Conduct and Ethics as filed with the Securities and Exchange
Commission is incorporated by reference as Exhibit 14.1 to this annual report.
We will provide a copy of the Code of Business Conduct and Ethics to any person
without charge, upon request. Requests can be sent to: Novastar Resources Ltd.,
1 E. Liberty Street, Suite 6000, Reno, Nevada 89501
 
 
 **- 49
-**
 ITEM
10. EXECUTIVE COMPENSATION.
  The
following table sets forth information with respect to compensation paid by the
Company to the Chief Executive Officer during the three most recent fiscal
years. The Company did not have any other highly compensated executive officers
with annual salary and bonus in excess of $100,000 per year.
 
 **Summary
      Compensation Table****Name
      and Principal**
      **Position**
    **Year**
    **Annual
      Compensation**
    **Long
      Term Compensation****(1)**
    **All
      Other**
      **Compen-**
      **sation****Salary**
      **(US$)**
    **Bonus**
      **(US$)**
    **Other**
      **Annual**
      **Compen-**
      **sation**
      **(US$)****(1)**
    **Awards**
    **Payouts****Securities**
      **Underlying**
      **Options/**
      **SARs**
      **Granted**
    **Restricted**
      **Shares
      or**
      **Restricted**
      **Share**
      **Units**
    **LTIP**
      **Payouts**
      **(US$)**Paul
      Carter(2)
      
      President,
      CEO, Chairman and Director
    2005
      
      2004
      
      2003
    N/A
      
      N/A
      
      N/A
    Nil
      
      N/A
      
      N/A
    40,000
      
      N/A
      
      N/A
    Nil
      
      N/A
      
      N/A
    Nil
      
      N/A
      
      N/A
    Nil
      
      N/A
      
      N/A
    Nil
      
      N/A
      
      N/A
  (1)
    The
      value of perquisites and other personal benefits, securities and property
      for the named executive officers that do not exceed the lesser of $1,000
      or 10% of the total of the annual salary and bonus is not reported
      herein.
  (2)
    Mr.
      Carter was appointed as our president and chief executive officer in
      2002.
 
 Officers
and directors of the Company are reimbursed for any out-of-pocket expenses
incurred by them on behalf of the Company. None of the Company's directors or
officers are currently a party to employment agreements with the Company. The
Company presently has no pension, health, annuity, insurance, or profit sharing
plans.
 
 No long
term incentive plan awards were made to any executive officer during the fiscal
year ended June 30, 2005.
 
 
 Option/SAR
Grants in Last Fiscal Year
  None
 
 Aggregated
Option/SAR Exercises and Year-End Option/SAR Value Table
  None.
 
 
 **- 50
-**
 ITEM
11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
 
 The
following table sets forth information as of the date of this Annual Report with
respect to the Company's directors, named executive officers, and each person
who is known by the Company to own beneficially, more than five percent (5%) of
the Company's common stock, and with respect to shares owned beneficially by all
of the Company's directors and executive officers as a group. Common Stock not
outstanding but deemed beneficially owned by virtue of the right of an
individual to acquire shares within 60 days is treated as outstanding only when
determining the amount and percentage of Common Stock owned by such individual.
Except as noted, each person or entity has sole voting and sole investment power
with respect to the shares shown.
 
 As of the
date of this Annual Report, there are 91,360,032 shares of common stock issued
and outstanding.
  
 **Name
      and Address of Beneficial Owner**
    **Amount
      and Nature of**
      
      **Beneficial
      Ownership**
    **Percentage**
      
      **of
      Class****(1)**Paul
      Carter
      821
      E. 29th
      North
      Vancouver, BC V7K 1B6
    2,000,000
    2%OTC
      Investments Ltd.
      1710-1177
      West Hastings Street
      Vancouver,
      BC V6E 2L3
    15,000,000
    16%Directors
      and Executive Officers as a Group
    2,000,000
    2%
 
 (1)
Beneficial ownership of common stock has been determined for this purpose in
accordance with Rule 13d-3 under the Exchange Act, under which a person is
deemed to be the beneficial owner of securities if such person has or shares
voting power or investment power with respect to such securities, has the right
to acquire beneficial ownership within 60 days or acquires such securities with
the purpose or effect of changing or influencing the control of the
Company.
 
 
 Securities
Authorized for Issuance Under Equity Compensation Plans
  None.
 
 
 ITEM
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
  Other
than as listed below, we have not been a party to any transaction, proposed
transaction, or series of transactions in which the amount involved exceeds
$60,000, and in which, to our knowledge, any of our directors, officers, five
percent beneficial security holder, or any member of the immediate family of the
foregoing persons has had or will have a direct or indirect material
interest:
 
 During
the year, two former directors of the Company forgave a total of $169,818
relating to accrued vacation payable, payroll liabilities and other accrued
expenses incurred.
 
 During
the year, the Company issued 20,000,000 common shares and 20,000,00 common stock
purchase warrants with a value of $1,000,000 pursuant to the exercise by OTC
Investments Ltd. of $1,000,000 aggregate principal value of convertible notes.
The Company had received $1,000,000 in advances through to June 30, 2005,
including in-kind consideration of $100,000. The notes bore no interest until
the maturity date. Subsequent to year-end the 20,000,000 warrants were cancelled
with the consent of OTC Investments Ltd.
 
 
 ITEM
13. EXHIBITS
  The
following exhibits are filed as part of this Annual Report:
 
 
 Exhibit
      No.
    Description
      of Exhibit3.1
    Articles
      of Incorporation (1)3.2
    By-laws
      (1)14.1
    Code
      of Ethics (3)21.1
    Subsidiaries
      (2)31.1
    Certification
      of CEO and CFO pursuant to Securities Exchange Act rules 13a-15 and
      15d-15(c) as adopted pursuant to section 302 of the Sarbanes-Oxley act of
      200232.1
    Certification
      of CEO and CFO pursuant to 18 U.S.C. section 1350, as adopted pursuant to
      section 906 of the Sarbanes-Oxley act of
2002.
 ___________________________________
 (1)
    Previously
      filed as an exhibit to the Form 10SB on December 17,
  1999.(2)
    As
      filed with Form 10-KSB for the fiscal year ended June 30,
      2001.(3)
    Previously
      file as an exhibit to Form 10-KSB on October 13,
2004.
 
 ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  (1)
Audit Fees
  The
aggregate fees billed for the last two fiscal years for professional services
rendered by the principal accountant for the audit of the Company's annual
financial statements and review of financial statements included in the
Company's Form 10-QSBs or services that are normally provided by the accountant
in connection with statutory and regulatory engagements for those fiscal years
was:
 
 2005 -
$10,000 Telford Sadovnick, P.L.L.C.
 2004 -
$2,750 Morgan & Company
 
 
 (2)
Audit - Related Fees
  The
aggregate fees billed in each of the last two fiscal years for assurance and
related services by the principal accountants that are reasonably related to the
performance of the audit or review of the Company's financial statements and are
not reported in the preceding paragraph:
 
 2005 -
$Nil Telford Sadovnick, P.L.L.C.
 2004 -
$4,250 Morgan & Company
 
 
 (3)
Tax Fees
  The
aggregate fees billed in each of the last two fiscal years for professional
services rendered by the principal accountant for tax compliance, tax advice,
and tax planning was:
 
 2005 -
$Nil Telford Sadovnick, P.L.L.C.
 2004 -
$Nil Morgan & Company
 
 
 (4)
All Other Fees
  The
aggregate fees billed in each of the last two fiscal years for the products and
services provided by the principal accountant, other than the services reported
in paragraphs (1), (2), and (3) was:
 
 2005 -
$Nil Telford Sadovnick, P.L.L.C.
 2004 -
$7,000 Morgan & Company
 
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 SIGNATURES
 
 
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized on this 31st day of March,
2005.
 
 
 NOVASTAR
RESOURCES LTD.
 Registrant)
 
 
 By: /s/ Paul
Carter
 --------------------------------
 Paul G.
Carter
 President and Chief
Executive Officer
 
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:
 
 Signature  Title  Date
 
 /s/
Paul Carter  President,
CEO,  October
14,2005
 CFO, Treasurer
 Paul G.
Carter  a   and Director


**- 52
-**


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