**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-KSB/A**




**Amendment
      No. 1**




x
            **ANNUAL
              REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
              OF
              1934:** For the fiscal year ended: December 31,
              2006  o
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934:**For
                the transition period from __________ to
                ____________




Commission
      File Number: 000-28543




**THORIUM
      POWER, LTD.**


(Exact
      name of registrant as specified in its charter)





**Nevada**
            **91-1975651**(State
                or other jurisdiction of incorporation or organization)
            (I.R.S.
                Employer Identification Number)8300
                Greensboro Drive, Suite 800
              McLean,
                Virginia 22102(Address
                of principal executive office and zip code)703.918.4904(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, par value $.001**




Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      Section 15(d) of the Exchange Act. o





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





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will 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-KSB or any
      amendment to this Form 10-KSB. o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yesx
      No o





State
      issuer's revenues for its most recent fiscal year: $0




The
      aggregate market value of voting and non-voting common equity held by
      non-affiliates of the registrant as of March 2, 2007 was $57,097,275.





The
      number of shares of the registrant's common stock outstanding as of March 2,
      2007: **** 297,221,116 **** shares.




Documents
      Incorporated by Reference: Part III (Items 9, 10, 11, 12 and 14) incorporates
      by
      reference portions of the Registrant’s Proxy Statement for its Annual Meeting of
      Stockholders, which will be filed not later than 120 days after December 31,
      2006.









**TABLE
      OF CONTENTS**


**PART
                  I**
              ****
              **4****Item
                  1.**
              **DESCRIPTION
                  OF BUSINESS.**
              **4****PART
                  II**
              ****
              **14****Item
                  7.**
              **FINANCIAL
                  STATEMENTS**
              **14****PART
                  III**
              ****
              **14****Item
                  13.**
              **EXHIBITS.**
              **14**


2


**EXPLANATORY
      NOTE**




Thorium
      Power, Ltd. is filing this Amendment No. 1 on Form 10-KSB/A (the “Amendment”) to
      its Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006
      (the “Original Filing”), originally filed with the Securities and Exchange
      Commission (the “SEC”) on March 20, 2007, to revise the disclosure contained in
      Item 1 “Description of Business” and Item 7 “Financial Statements.”





Under
      Item 1, we have made the following amendments:





·
            We
                have revised the section located on page 5 of the Original Filing
                under
                the section “Competition” to clarify that we do not intend to directly
                compete with the entities identified, which are the four primary
                entities
                that account for the fabrication of a majority of the world’s nuclear
                fuel, in terms of fabrication of nuclear fuels. We plan to partner
                with
                one or more of these entities and license our nuclear fuel designs
                so that
                the entities may fabricate and sell our thorium-based nuclear fuel
                designs. At the same time, however, these same entities may be competitors
                if that they design and fabricate their own uranium-based nuclear
                fuel
                designs for use in the same reactors for which our thorium-based
                fuel
                designs would be used.





·
            We
                have revised the section located on page 6 of the Original Filing
                under
                the sub-section “Thorium/reactor-grade
                plutonium disposing fuel”to
                explain our basis for believing that the fabrication of thorium/reactor
                grade plutonium disposing fuel will be less expensive than MOX
                conventional uranium fuel.





·
            We
                have removed the third paragraph on page F-10 of the financial statements
                contained in the Original Filing. We have moved this discussion to
                the
                section “Sources and Availability of Raw Materials” on page 8 of this
                Amendment No. 1 to the Original Filing, and revised it to clearly
                explain
                the contracting process for obtaining materials for the fabrication
                of
                nuclear fuels.





Under
      Item 7, we have restated our December 31, 2006 and 2005 consolidated financial
      statements in their entirety in order to correct disclosures made so that they
      are in accordance with generally accepted accounted principles. The
      first
      item restated was to reclassify the cash flow impact of common stock issue
      costs, total $441,553 from operating activities to financing activities in
      the
      statement of cash flows. This change in the statement of cash flows had no
      impact on the total net cash flows reported for the periods presented. It was
      also found that the company needs to change its presentation of the capital
      stock transactions in the statement of stockholders deficiency from January
      8,
      1992 (inception) to December 31, 2006. This change was made to reflect the
      equivalent number of Thorium Power Ltd. shares for each capital transaction,
      calculated by using the ratio of Thorium Power Ltd shares that were issued
      in
      the reverse merger to Thorium Power Inc. stockholders, to the outstanding shares
      held by the Thorium Power Inc. stockholders at the merger date (10/6/06). This
      change had no impact on the total number of common shares reported as
      outstanding as of December 31, 2006 on the statement of stockholders deficiency
      as well as the balance sheet. A restatement was made to increase the weighted
      average shares outstanding at December 31, 2006 and 2005. The loss per share
      reported for the year ended December 31, 2006 decreased from $0.09 to $0.08
      per
      share. Additional footnote disclosures in the financial statements were madeto
      clarify certain other disclosures. The cumulative financial numbers presented,
      required to be presented for all development stage companies, from inception
      (January 8, 1992) to December 31, 2006, reported on the statement of operations
      and statement of stockholders deficiency are now marked as unaudited, as it
      was
      not practicable for us to obtain permission from the prior auditor to reissue
      their audit report, which was for the periods up to December 31, 2001 and for
      the cumulative period January 8, 1992 to December 31, 2001.





Additionally,
      we have revised Exhibit 99.1, Thorium Power, Inc.’s interim financial statements
      for the nine month period ended September 30, 2006, to include an introductory
      section and footnotes, which were omitted from the Exhibit 99.1 submitted with
      the Original Filing.




Except
      as
      described above, no other changes have been made to the Original Filing. The
      Original Filing continues to speak as of the dates set forth in the Original
      Filing, and the disclosures in the Original Filing have not been updated to
      reflect any events which occurred at any time subsequent thereto.




Except
      as
      otherwise indicated by the context, references in this Amendment to
      “Thorium Power,” “Company,” “we,” “our,” and “us” refer to Thorium Power, Ltd.
      and its wholly-owned subsidiary Thorium Power, Inc. (“Thorium Power, Inc.”).




3





**FORWARD-LOOKING
      STATEMENTS**





This
      Amendment contains forward-looking statements within the meaning of Section
      27A
      of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E
      of the Securities Exchange Act of 1934, as amended (the “Exchange
      Act”) concerning, without limitation: our operations; financial condition; management
      forecasts; liquidity; anticipated growth; the economy; future economic
      performance; future acquisitions and dispositions; potential and contingent
      liabilities; management’s plans; taxes; and the development and utilization of
      our intellectual property. Because such statements involve risks and
      uncertainties, actual results may differ materially from those expressed or
      implied by such forward-looking statements. These statements may be preceded
      by,
      followed by or include the words “believes,” “expects,” “anticipates,”
“intends,” “plans,” “estimates” or similar expressions.





Forward-looking
      statements are not guarantees of performance and by their nature are subject
      to
      inherent risks and uncertainties. We caution you therefore that you should
      not
      rely on these forward-looking statements. You should understand the risks and
      uncertainties discussed in the section on “Risk Factors” and elsewhere in this
      report, could affect our future results and could cause those results or other
      outcomes to differ materially from those expressed or implied in our
      forward-looking statements.





Any
      forward-looking information contained in this report speaks only as of the
      date
      of the report. Factors or events may emerge from time to time and it is not
      possible for us to predict all of them. We undertake no obligation to update
      or
      revise any forward-looking statements to reflect new information, changed
      circumstances or unanticipated events.




**PART
      I**





**Item
              1.**
            **DESCRIPTION
                OF BUSINESS.**





***General
      Overview***




On
      October 6, 2006, we acquired Thorium Power, Inc. through a merger transaction.
      Thorium Power, Inc. was incorporated on January 8, 1992. Thorium Power, Inc.
      has
      patented proprietary nuclear fuel designs for use in existing commercial nuclear
      power plants. The merger was accounted for as a reverse merger and Thorium
      Power, Inc. is being treated as the accounting acquiror.





As
      discussed in more detail below, in connection with the merger, we changed our
      line of business. This new line of business, which is now our only business
      line, is research and development of proprietary nuclear fuel designs for use
      in
      nuclear power plants. We began to shift our focus to this business in
      anticipation of the merger with Thorium Power, Inc. and, upon completion of
      the
      merger, this business is conducted through both Thorium Power, Inc. and the
      Company. Our historical business preceding the merger was mineral exploration
      which has been phased out completely and all operations of the Company now
      revolve around Thorium Power, Inc.’s proprietary
      nuclear fuel designs, although the Company maintains ownership of mineral
      rights.





We
      are
      primarily engaged in the development of proprietary nuclear fuel designs which
      we intend ultimately to introduce for sale into three markets: (1) nuclear
      fuel
      designs for use in commercial nuclear power plants, (2) nuclear fuel designs
      for
      reactor-grade plutonium disposition, and (3) nuclear fuel designs for
      weapons-grade plutonium disposition. These fuel designs are primarily for use
      in
      existing or future VVER-1000 light water reactors. We have also been conducting
      research and development relating to a variant of these nuclear fuel designs
      for
      use in existing pressurized water reactors (PWR).




Our
      future customers may include nuclear fuel fabricators and/or nuclear power
      plants, and/or the U.S. or foreign governments.




To
      date,
      our operations have been devoted primarily to the development and demonstration
      of our nuclear fuel designs, developing strategic relationships within and
      outside of the nuclear power industry, securing political and financial support
      from the U.S. and Russian governments, the filing of patent applications and
      related administrative functions. We do not currently have any revenues from
      our
      activities in this area and expect that we will not generate licensing revenues
      from this business for several years, until our fuel designs can be fully tested
      and demonstrated and we obtain the proper approvals to use our nuclear fuel
      designs in nuclear reactors. Future revenues could be generated through the
      licensing of our technology and also by providing other services in the nuclear
      power industry. Accordingly, we prepare our financial statements as a
      development stage company in accordance with FASB Statement No. 7, “Accounting
      and Reporting by Development Stage Enterprises.”





***Corporate
      History***




We
      were
      incorporated under the laws of the State of Nevada on February 2, 1999. During
      the period from inception until October 6, 2006 we were engaged in businesses
      other than our current business. On October 6, 2006, we acquired Thorium Power,
      Inc. in a merger transaction and changed our name to Thorium Power, Ltd. At
      that
      time, our operations became the operations of Thorium Power Inc.




4




***The
      Nuclear Fuel Design Business Story***




Before
      World War II, a then young professor Dr. Edward Teller taught a student named
      Alvin Radkowsky. Dr. Teller later became one of the most prominent nuclear
      weapons designers, at the Manhattan Project, and then a lead developer of the
      hydrogen bomb. Dr. Radkowsky, who never worked on bombs, was the scientific
      leader of the teams that developed the nuclear reactors that propel submarines
      and other ships, as well as the first commercial nuclear power
      plant.




In
      1948,
      H.G. Rickover, who would later be known as Admiral Rickover, proposed the
      creation of a U.S. nuclear-powered naval fleet. Admiral Rickover believed that
      the advantages of using nuclear power to propel naval vessels would include
      the
      ability of submarines to stay under water for longer periods of time making
      detection more difficult. Submarines and surface ships, including aircraft
      carriers, powered by nuclear generators, could also enter combat areas without
      any need to refuel, obviating the need for refueling tankers to be sent into
      war
      zones. Admiral Rickover’s dream had many disbelievers. The idea, which at the
      time seemed grandiose, would require the design of a nuclear reactor that could
      fit into a relatively small space within a naval vessel.




By
      this
      time, Dr. Teller was one of the most prominent names in physics. When asked
      by
      Dr. Teller for a recommendation for Admiral Rickover’s project, Teller referred
      Dr. Radkowsky, his former student. In 1948 Admiral Rickover hired Dr. Radkowsky
      as the first Chief Scientist of the Naval Reactors programs. Dr. Radkowsky
      held
      that position from the program’s founding in 1948 until he retired from the
      program in 1972.




In
      July
      1951, the United States Congress authorized the construction of the world’s
      first nuclear powered submarine. Two and a half years later, on January 21,
      1954, First Lady Mamie Eisenhower broke the traditional bottle of champagne
      across the bow of the ship, that had been named the Nautilus, as it slid into
      the Thames River in Groton, Connecticut, as the world’s first nuclear powered
      ship. Dr. Radkowsky was the Chief Scientist for the Naval Reactors project
      that
      designed the nuclear power plant of that ship, and all other nuclear powered
      naval vessels produced during his tenure. The Nautilus shattered all submerged
      speed and distance records for naval vessels.




In
      1953,
      President Eisenhower asked Admiral Rickover to work on a project that later
      became known as Atoms for Peace. The project involved the design of the first
      commercial nuclear power plant on land that could generate electricity. Dr.
      Radkowsky was asked to be the lead to design the reactor. The reactor was built
      just outside Pittsburgh, in Shippingport, Pennsylvania, and it began operating
      on December 2, 1957. It was in operation until October 1982. The groundbreaking
      for the plant was held in May 1954, with President Eisenhower in attendance,
      and
      on May 26, 1958, President Eisenhower opened the plant as the cornerstone of
      his
      Atoms for Peace program and marked the beginning of the commercial nuclear
      power
      industry. The Shippingport reactor was a light water breeder reactor, and in
      many ways would be the prototype of all commercial nuclear power plants to
      follow. Dr. Radkowsky’s name was on key patents as the inventor of the reactor,
      including the invention of key technologies, without which commercial nuclear
      power or nuclear propulsion of ships would not be practical. Dr. Radkowsky
      also
      designed a thorium-based fuel, in a novel seed-and-blanket configuration, as
      the
      original fuel for this first nuclear power plant.




In
      1983,
      Dr. Edward Teller contacted Alvin Radkowsky to encourage Dr. Radkowsky to
      develop a nuclear fuel that could work in the world’s existing commercial
      nuclear power plants, but that would not produce nuclear weapons-usable
      plutonium. Dr. Teller encouraged Dr. Radkowsky to further develop the
      thorium-based fuels that had been used at the Shippingport reactor, but in
      an
      effort to optimize the non-proliferation benefits of thorium-based fuels. Dr.
      Teller was concerned that plutonium taken from spent fuels could be used to
      create nuclear weapons. Thereafter, Dr. Radkowsky immediately began working
      on
      nuclear fuel designs using thorium.




In
      1991,
      Dr. Radkowsky contacted Seth Grae, our Chief Executive Officer, and asked Mr.
      Grae to assist him in the development of a company that could create and exploit
      these fuel designs. At the time, Mr. Grae was a business attorney and Dr.
      Radkowsky had heard of Mr. Grae’s work with emerging companies and asked Mr.
      Grae to assist in the establishment of a new company that would later become
      Thorium Power, Inc. In the 1980s, while in law school, Mr. Grae had represented
      Soviet refuseniks, who had been scientists at nuclear institutes in Russia,
      on a
      pro bono basis. Mr. Grae was interested in high technology development and
      international cooperation in technology development. Mr. Grae’s father, Joel
      Grae, met Dr. Radkowsky soon thereafter in New York, and Joel Grae and Dr.
      Radkowsky founded Radkowsky Thorium Power on January 8, 1992 to develop Dr.
      Radkowsky’s technology.




In
      1993,
      Thorium Power, Inc., became one of the first Western companies to have
      discussions with the Russian Kurchatov Institute, where the Soviet Union’s first
      atomic bomb had been developed, and much of its nuclear reactor technology
      had
      been developed. In 1995, Thorium Power’s project at the Kurchatov Institute
      became one of the first recipients of a grant from the US Department of Energy
      for nuclear work in Russia. Since its founding in 1992 until its acquisition
      by
      us in October 2006, Thorium Power, Inc. has been a privately held company
      developing the nuclear fuel designs originally invented by Dr. Alvin
      Radkowsky.




***The
      Nuclear Power Industry***





Presently,
      nuclear power provides approximately 7% of the world’s energy, including 17% of
      the world’s electricity. According to the International Atomic Energy Agency,
      there are over 440 nuclear power plants in operation today, mostly light water
      reactors, with the most dominant types being pressurized water reactors (PWRs),
      boiling water reactors (BWRs) and VVER reactors (a Russian equivalent of
      PWRs).




5




Nuclear
      power generators, which convert nuclear energy into electricity, are the largest
      consumers of products and services within the nuclear power industry. The
      product and service providers that service these customers include both large
      vertically-integrated nuclear companies that provide a complete array of reactor
      services and niche providers. These services include reactor design,
      construction, servicing, and decommissioning; front-end nuclear fuel services
      (nuclear fuel materials procurement and processing; nuclear fuel design (our
      market of interest) and fuel fabrication); back-end nuclear fuel services (spent
      fuel management and reprocessing), transportation, and various other services.




Today
      the
      vast majority of commercial nuclear power plants around the world use uranium
      oxide fuel. This uranium oxide fuel is comprised of uranium enriched up to
      5% by
      uranium-235, with the remaining 95% or more being uranium-238. During
      irradiation inside a reactor core, some of the uranium-238 isotopes capture
      a
      neutron and become plutonium-239, a long-lived fissionable element that can
      be
      used to make nuclear weapons. Each year, an average 1,000-megawatt PWR produces
      over 200 kilograms of reactor-grade plutonium in its spent fuel. The
      plutonium-bearing spent fuel may be buried in a repository such as the facility
      being constructed by the US Department of Energy facility at Yucca Mountain,
      Nevada, recycled so the plutonium is “burned” as nuclear fuel, or used to make
      nuclear weapons.




All
      of
      the above-mentioned options for the disposition of plutonium-bearing spent
      fuel
      raise environment, safety, or non-proliferation issues. One recycling
      technology, used by a small number of nuclear power plants, is mixed oxide
      (MOX)
      fuel, a mixture of uranium oxide and recovered plutonium oxide. MOX fuel has
      never been used in Russian VVER reactors and, due to its higher cost, MOX fuel
      has never caught on among most nuclear power generators, which prefer the ‘once
      through” fuel cycle, with spent fuel being stored at a high-level waste
      repository. MOX fuel, in general occupies only a portion of the reactor core,
      with the remaining portion containing conventional uranium fuel assemblies
      which
      generate weapons-usable plutonium in spent fuel.




***Competition***




There
      are
      four groups of companies that collectively fabricate a large majority of the
      fuel used in the world’s commercial nuclear power plants: Areva (based in
      France), Westinghouse Electric Company (based in the United States), General
      Electric (based in the United States), and AtomStroyExport/Tvel (based in
      Russia). We do not plan to fabricate fuel for reactors. To do so and directly
      compete with these four groups of companies would require overcoming high
      barriers to entry that include the cost of building a nuclear fuel fabrication
      plant, hiring hundreds of workers, and bundling the fuel sales with services
      for
      the reactor (we do not provide reactor services). Within the nuclear power
      industry there have been companies, such as Belgonucleaire, that have developed
      nuclear fuel designs and licensed the technology to the larger companies that
      fabricate the fuel. This is our plan. We plan to partner with one or more of
      the
      above four companies that fabricate nuclear fuel and sell it to reactor
      operators, and receive a royalty for the right to utilize our proprietary
      intellectual property. To the extent that those four companies currently own
      and
      may in the future develop new nuclear fuel designs that can be used in the
      same
      types of reactors as those targeted by us, the companies can also be viewed
      as
      competitors. To date, we have not entered into formal material negotiations
      with
      any of these fuel fabricators regarding the potential licensing of our fuel
      technology to them.




We
      face
      different competition for each of our three markets for our proprietary nuclear
      fuel designs:





Thorium/uranium
      fuel




Management
      believes that our thorium/uranium nuclear fuel will offer significant advantages
      over conventional uranium fuel, including: (1) enhanced proliferation resistance
      of spent fuel, (2) improved reactor safety, (3) significantly reduced volume,
      weight and long-term radio-toxicity of spent fuel, and (4) cost savings in
      the
      back-end operations (spent fuel management) of the nuclear fuel cycle. We expect
      the front-end costs (cost of fresh thorium/uranium fuel) to be cost competitive
      with conventional uranium fuel. At the same time, the back-end (waste handling)
      costs are expected to be less than that for conventional uranium fuel due to
      significantly reduced volume and weight of spent thorium/uranium
      fuel.




The
      primary barrier to industry adoption of our fuel designs is that the entire
      industry infrastructure is based on uranium fuel with enrichments of 3-5%.
      Our
      designs require plutonium or more highly enriched uranium (up to 20%). Although
      the designs can be accommodated by most existing reactors, there are no existing
      fuel fabrication facilities licensed and capable of fabricating commercial
      lots
      of fuel containing the more highly enriched uranium and plutonium. There are
      also transportation and logistics issues with the fuel that must be addressed.




The
      primary marketing strategy that we intend to pursue with respect to our
      thorium/uranium fuel product is to form an alliance or alliances with existing
      nuclear fuel fabricators, to which we would license our intellectual property
      rights to our thorium/uranium nuclear fuel. An alternative marketing strategy
      that we may pursue is to form an international consortium that may involve
      government and/or private sector entities to build “green field” nuclear fuel
      fabrication facilities. In that case, we would license our intellectual property
      rights to the thorium/uranium fuel to the consortium that would own and/or
      operate the new nuclear fuel fabrication facilities.




6




Thorium/reactor-grade
      plutonium disposing fuel




This
      fuel
      technology is designed to provide an effective means to dispose of separated
      reactor-grade plutonium. As of 2004, there were 274 metric tons of separated
      reactor-grade plutonium (equivalent of 15,000-20,000 nuclear weapons) stored
      at
      various locations around the world. According to *No
      Future Plutonium?* by Spiez
      Laboratory, The Swiss NBC Defense Establishment, dated November 2002, another
      1,400 metric tons of this potentially weapons useable material are embedded
      in
      spent fuel and stored at hundreds of commercial reactor sites around the
      globe.




Management
      believes that our thorium/reactor-grade plutonium disposing fuel technology
      may
      offer a more economically viable way to dispose of separated reactor-grade
      plutonium than the mixed oxide (MOX) fuel or long-term storage alternatives.
      Currently, some nuclear reactor operators, primarily in the European Union
      and
      Japan, have their spent fuel reprocessed and re-used in nuclear reactors as
      MOX
      fuel. We expect that our thorium/reactor grade plutonium disposing fuel will
      be
      less expensive compared to MOX or conventional uranium fuel, assuming that
      the
      separated reactor-grade plutonium is available to us at no cost.





The
      cost
      of reprocessing spent fuel from reactors and converting it into reactor fuel
      is
      typically more expensive than producing new fuel from uranium. Spent reactor
      fuel has been reprocessed as a method of reducing the amount of nuclear waste
      in
      certain locations, particularly in Europe, Russia, and Japan. This reprocessing
      has resulted in stockpiles of plutonium that has been extracted from the spent
      reactor fuel. The governments of these countries generally regard this
      stockpiled plutonium as a liability because they pay to safeguard and secure
      the
      plutonium. In these locations, the government may be willing to provide the
      plutonium free of charge if it can be used to generate electricity in a way
      that
      eliminates the plutonium stockpiles. If plutonium can be provided without
      additional cost, which management believes is likely, and there is no current
      charge for the reprocessing that occurred in the past, then management believes
      that our fuel will be substantially less expensive than MOX fuel. If there
      is a
      cost for plutonium, then our fuel would still cost much less to produce than
      MOX, so long as the price charged for plutonium used in our fuel were not
      substantially higher than the cost of plutonium used in MOX fuel.




The
      long-term storage alternative faces substantial opposition from the communities
      chosen as sites, such as Yucca Mountain in Nevada, on grounds of environmental
      and safety risks. Also, the long life of plutonium means that the stored spent
      fuel will be a proliferation risk for centuries. The United States and many
      countries have been committed to the long-term storage alternative for a number
      of years. In early 2006, in announcing its Global Nuclear Energy Partnership
      (GNEP), the United States announced that it would work with other countries
      to
      develop proliferation-resistant environmentally compatible technologies and
      processes to promote recycling and reduce the need for storage in long term
      repositories.




Management
      believes that benefits offered by thorium/reactor-grade plutonium fuel designs
      include enhanced proliferation resistance, improved reactor safety, and
      significantly reduced volume, weight and long-term radio-toxicity of spent
      fuel.




Our
      marketing strategy with respect to thorium/reactor-grade plutonium disposing
      fuel is to educate reactor operators, who presently own stockpiles of separated
      reactor-grade plutonium and are forced to pay ongoing plutonium storage fees,
      about the benefits offered by this fuel technology to convince them to recycle
      these plutonium stockpiles in their reactors using thorium/reactor-grade
      plutonium disposing fuel. This strategy is attuned with GNEP and the strategies
      of countries that wish to recycle but are not committed to MOX
      technology.




Thorium/weapons-grade
      plutonium disposing fuel




This
      fuel
      design (the Radkowsky Thorium Plutonium Incinerator, or RTPI) was developed
      to
      meet the needs of the U.S.-Russia plutonium disposition program. It is the
      policy of those countries to eliminate their extensive stockpiles of surplus
      weapons grade plutonium. In 2000, the U.S. and Russia signed a bi-lateral
      agreement, committing each country to dispose of 34 metric tons of surplus
      weapons-grade plutonium. Originally, a mixed oxide (MOX) fuel technology,
      promoted by Areva, was selected by the U.S. Department of Energy (DOE) for
      both
      the United States and Russia to accomplish this mission.  However, over the
      past several years, the implementation of the 2000 plutonium disposition
      agreement has been delayed due to political, financial, and technical issues
      experienced by the MOX program.  During the fiscal years from 1999-2005,
      Congress appropriated a total of over $3 billion for the MOX program. Despite
      such significant funding levels, the MOX program has experienced substantial
      schedule slippage and has made little progress since 1999 toward accomplishing
      the goal of plutonium disposition. In the consideration of FY07 appropriations,
      several members of Congress and Committees have publicly expressed doubts the
      MOX program should continue.





Management
      believes that our thorium/weapons-grade plutonium disposing fuel could offer
      a
      faster, cheaper, and more effective means to dispose of excess quantities of
      weapons-grade plutonium by “burning” it using the RTPI fuel design in existing
      VVER nuclear power plants in Russia (a similar design may be usable in the
      US
      and other Western countries). We plan to educate government officials and key
      decision-makers to convince them to use this technology for the plutonium
      disposition mission.




7




***Sources
      and Availability of Raw Materials***




We
      are a
      fuel designer that intends to license its technology to fuel fabricators.
      Accordingly, we do not plan to utilize any raw materials in the conduct of
      our
      operations. However, the fuel fabricators which potentially will license our
      fuel designs in the future will need thorium and uranium to fabricate
      thorium-based fuels.




All
      of
      our nuclear fuel designs require both thorium and uranium in the oxide form
      which are the main raw materials for blanket rods. The seed rods can contain
      either enriched uranium or plutonium metals mixed with zirconium.




The
      current demand for thorium is very low. Thorium is sometimes used in government
      flares, camping lantern wicks and in other products in small quantities. If
      thorium based fuels become commercially accepted in the nuclear power industry,
      there would be a significant increase in the demand for thorium. According
      to
      the International Atomic Energy Agency, or IAEA, thorium is over three times
      more naturally abundant than uranium and is found in large quantities in
      monazite sands in many countries, including, Australia, India, the United States
      of America, and China. Several companies that process monazite sands to extract
      rare earth minerals for use in other markets have stockpiled thorium as a
      byproduct with no significant current market. Currently, there is no large
      supplier of thorium.




Uranium
      and zirconium are available to the fuel fabricators from various suppliers
      at
      market driven prices. Weapons-grade plutonium, which would be used to fabricate
      Thorium Power’s weapons grade plutonium disposing fuel, is generally
      unavailable. However, governments that have developed nuclear weapons
      capabilities could use our fuel designs to dispose of their excess weapons-grade
      plutonium. Reactor-grade plutonium is available in Europe, Russia and Japan
      from
      reprocessed spent fuel. The transfer and use of reactor-grade plutonium is
      highly regulated.





Nuclear
      fuel generally works as a tolling operation. Rather than ordering assembled
      nuclear fuel, reactor operators separately source (1) uranium, (2) services
      to
      convert the uranium into uranium hexafluoride gas that is capable of being
      enriched, (3) uranium enrichment services, and then (4) pay a nuclear fuel
      fabricating company to fabricate the enriched uranium into nuclear fuel. We
      expect that when its fuel is ordered in the future by a reactor operator from
      a
      nuclear fuel fabrication company, following the standard nuclear power industry
      model, the reactor operator will need to provide the thorium materials that
      the
      nuclear fuel fabricating company will use to fabricate the nuclear fuel. It
      will
      then be necessary for the nuclear reactor operator to obtain thorium material
      on
      a timely basis and on acceptable terms. Management believes that reactor
      operators will readily be able to obtain thorium on a timely basis and on
      acceptable terms, given that thorium is at least three times as abundant as
      uranium in the earth, and that the extraction method for thorium is well
      established and is used for extracting thorium for various small-scale
      industrial applications.




***Dependence
      Upon Government Support and Cooperation***





Management
      believes that deployment and commercialization of the thorium/uranium and
      reactor-grade plutonium disposing fuel designs can be largely completed without
      direct government support. These fuel designs are more dependent on interest
      in
      these fuels within the commercial nuclear power industry.





Successful
      development and deployment of our thorium/weapons-grade plutonium disposing
      fuel
      technology, however, is dependent upon government support. This fuel design
      is
      being developed for application in the U.S.-Russia plutonium disposition mission
      that is a government program run by the National Nuclear Security Administration
      (NNSA) of the U.S. Department of Energy (DOE) and its Russian government
      counterparts pursuant to the plutonium disposition agreement the United States
      and Russia entered into in 2000. The total cost to carry out the plutonium
      disposition mission will be in the billions of dollars. To date, the plutonium
      disposition program in the United States and Russia has been funded primarily
      by
      the U.S. government. The G-8 countries have made funding commitments for
      approximately $800 million toward the Russian part of the plutonium disposition
      program but have not yet provided the funds.




In
      the
      fiscal year 2004 federal budget cycle, the U.S. Congress appropriated $4 million
      for testing and evaluation of our thorium/weapons-grade plutonium disposing
      fuel
      technology for the plutonium disposition mission in Russia. Additional funding
      support is required from the U.S. and other governments to complete the
      development, testing, demonstration and deployment of our thorium/weapons-grade
      plutonium disposing fuel.





***Intellectual
      Property***




Our
      nuclear fuel technologies are protected by several U.S. and international
      patents. Our current patent portfolio is comprised of the following
      patents:




U.S.
      patents:




·Patent
      No. 6,026,136, a seed-blanket unit
      fuel assembly for a nuclear reactor




·Patent
      No. 5,949,837, a nuclear reactor
      having a core including a plurality of seed-blanket units




·Patent
      No. 5,864,593, a method for
      operating a nuclear reactor core comprised of at least first and second groups
      of seed-blanket units




·Patent
      No. 5,737,375, a nuclear reactor
      having a core including a plurality of seed-blanket units




8




The
      U.S.
      patents expire August 16, 2014 **.**




International
      patents:




·Russia
      - Patent No. 2,176,826




·Russia
      - Patent No. 2,222,837




·South
      Korea - Patent No.
      301,339




·South
      Korea - Patent No.
      336,214




·China
      - Patent No. ZL
      96196267.4




The
      international patents expire August 16, 2014 **.**




Presently,
      we are executing a strategy aimed at expanding our intellectual property
      portfolio.




***Regulation***




No
      safety
      regulatory approval is required to design thorium-based nuclear fuels, although
      certain technology transfers may be subject to national and international export
      controls. However, the testing, fabrication and use of nuclear fuels by our
      future partners and licensees are heavily regulated. The Kurchatov Institute
      and
      other locations where our fuel designs may be initially tested require
      governmental approvals from the host country’s nuclear regulatory authority to
      test fuel in research reactors and other nuclear testing facilities. The
      Kurchatov Institute has obtained such approvals from the Russian nuclear
      regulatory authorities for the ongoing tests of our fuel designs that are taking
      place at Russian facilities. Nuclear fuel fabricators, which will potentially
      fabricate fuel using our technology under licenses from us, are similarly
      regulated. Nuclear power plants that may utilize the fuel produced by these
      fuel
      fabricators require specific licenses relating to possession and use of nuclear
      materials as well as numerous other governmental approvals for the ownership
      and
      operation of nuclear power plants.





***Employees***




As
      of
      December 31, 2006, we had 7 employees, 5 **** of
      which
      were full-time employees. We believe that our relationship with our employees
      is
      satisfactory.




We
      use
      consultants with specific skills to assist with various business functions
      including evaluation, finance, due diligence, acquisition initiatives, corporate
      governance, business development, research and development and government
      relations.





***Risk
      Factors***





**Business
      Risks**




OUR
      LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO JUDGE OUR
      PROSPECTS.




We
      are a
      development stage company. Our fuel design patents and technology have not
      been
      commercially used and we have not received any royalty or sales revenue. We
      are
      subject to the risks, expenses and problems frequently encountered by companies
      in the early stages of development.




OUR
      FUEL
      DESIGNS HAVE NEVER BEEN TESTED IN AN EXISTING COMMERCIAL REACTOR AND ACTUAL
      FUEL
      PERFORMANCE, AS WELL AS THE WILLINGNESS OF COMMERCIAL REACTOR
      OPERATORS AND FUEL
      FABRICATORS TO ADOPT
      A NEW FUEL DESIGN, IS UNCERTAIN.




Nuclear
      power research and development entails significant technological risk. New
      designs must be fabricated, tested and licensed before market opportunities
      will
      exist. Our fuel designs are still in the research and development stage and
      while irradiation testing in a test reactor in Russia (which mimics the
      operating characteristics of an actual commercial reactor) and thermal-hydraulic
      experiments have been ongoing for several years, the fuel technology is yet
      to
      be demonstrated in an existing commercial reactor. We will not be certain about
      the ability of the fuel we design to perform in actual commercial reactors
      until
      we are able to demonstrate our fuel designs. We
      will
      also have to establish a relationship with a fuel fabricator to actually produce
      fuel using our designs. If
      our
      fuel designs do not perform as anticipated in commercial use, we will
      not
      realize revenues from licensing or other use of our fuel designs.




9




In
      addition, there are several technical challenges involved in commercializing
      thorium based fuels. Some of the technical challenges with our technology
      identified by the experts at Russian Research Centre Kurchatov Institute, an
      independent contractor that is closely affiliated with the government of the
      Russian Federation, Westinghouse Electric Company LLC, and the International
      Atomic Energy Agency (“IAEA”), include:




·
            *Fuel
                fabrication*:
                The relatively high melting point of thorium oxide will require fuel
                pellet manufacturing techniques that are different from those currently
                used for uranium pellets.




·
            *Fuel
                fabrication*:
                Our metallic seed fuel rod designs are greater than 3 meters long
                compared
                to conventional Russian metallic icebreaker fuel rods that we understand
                are approximately 1 meter long. The longer rods will require new
                equipment
                and experience making longer
                extrusions.




·
            *Fuel
                design*:
                Our “seed-and-blanket” fuel assembly design has a detachable central part
                which is not in conventional fuel
                designs.




·
            *Fuel
                design*:
                Some of our fuel designs include plutonium-zirconium fuel rods which
                will
                operate in a soluble boron environment. Current reactor operating
                experience is with uranium-zirconium fuel in a boron-free
                environment.




·
            *Fuel
                use*:
                Our fuel is expected to be capable of producing more gigawatt days
                per ton
                of fuel than is allowed by current reactor licenses, so to gain full
                economic benefits, reactor operators will have to obtain regulatory
                approval.




·
            *Fuel
                use*:
                The thorium-uranium oxide blanket section in our fuels is expected
                to
                produce energy economically for up to 9 years in the reactor core.
                Conventional uranium fuel demonstrates the cladding can remain
                corrosion-free for up to 5 years. Testing is needed to prove corrosion
                resistance for the longer residence time.




·
            *Fuel
                reprocessing*:
                The IAEA has identified a number of ways that reprocessing spent
                thorium
                fuel will require technologies different from existing uranium fuel
                reprocessing. Management’s current marketing plans do not assume or depend
                on the ability to reprocess and recycle spent fuel. Management expects
                spent thorium fuel will go into long term storage. This is current
                U.S.
                government policy for all spent commercial nuclear fuel.




OUR
      FUEL
      DESIGNS DIFFER FROM FUELS CURRENTLY LICENSED AND USED BY COMMERCIAL NUCLEAR
      POWER PLANTS. AS A RESULT, THE LICENSING AND APPROVAL PROCESS FOR OUR FUELS
      MAY
      BE DELAYED AND MADE MORE COSTLY, AND INDUSTRY ACCEPTANCE OF OUR FUELS MAY BE
      HAMPERED.




Our fuel
      designs differ significantly in some aspects from the fuel licensed and used
      today by commercial nuclear power plants. Some of the differences between our
      fuels and those currently used include:




·
            use
                of thorium and uranium oxide mix instead of only uranium
                oxide,




·
            higher
                uranium enrichment level,




·
            seed-and
                blanket fuel assembly design integrating thorium and
                uranium,




·
            high
                burn-up levels of seed and blanket,




·
            use
                of metallic seed rods,




·
            longer
                residence time of the blanket in the reactor, and




·
            the
                ability of some of our fuels to dispose of reactor-grade plutonium
                and/or
                weapons-grade plutonium through the use of new fuel designs and in
                reactors that have never used plutonium-bearing fresh
                fuels.




These
      differences will likely result in more prolonged and extensive review by the
      U.S. Nuclear Regulatory Commission and other nuclear licensing authorities
      and
      customers. Also, the nuclear industry may be hesitant to switch to another
      fuel
      with little or no history of successful commercial use because of the need
      for
      additional engineering and testing with no guarantee of success as well as
      investor reluctance to invest in a new technology when viable existing
      technologies are available.




OUR
      PLANS
      TO DEVELOP OUR THORIUM/WEAPONS-GRADE PLUTONIUM DISPOSING FUEL ARE DEPENDENT
      UPON
      U.S. GOVERNMENT FUNDING AND SUPPORT. WITHOUT SUCH SUPPORT, WE ARE UNLIKELY
      TO BE
      ABLE TO SERVE THIS MARKET.




Our
      thorium/weapons-grade plutonium disposing fuel design is highly dependent upon
      U.S. and perhaps other government funding and acceptance as a technology
      appropriate to eliminate U.S. and Russian stockpiles of surplus weapons-grade
      plutonium. In the past, we have faced resistance from some offices within the
      U.S. Department of Energy (DOE) that support other alternative plutonium
      disposing technology, particularly mixed plutonium uranium oxide (MOX) fuel
      designs. The Company has spent a significant amount of funds to gain commercial
      and market acceptance for its fuel designs. Over the last two years we have
      spent in excess of $500,000, in the aggregate, including both cash and the
      fair
      market value of equity compensation, on third party service providers in
      connection with these government relations initiatives. We expect to continue
      spending additional resources on these efforts to gain acceptance. These efforts
      may not result in funding for our Company or government acceptance of our
      technologies for plutonium disposition or other government-funded
      projects.




10




WE
      DO NOT
      HAVE RIGHTS TO ALL OF THE DESIGNS, PROCESSES AND METHODOLOGIES THAT ARE USED
      OR
      MAY BE USED OR USEFUL IN OUR BUSINESS IN THE FUTURE. IF WE ARE UNABLE TO OBTAIN
      SUCH RIGHTS ON REASONABLE TERMS IN THE FUTURE, OUR ABILITY TO EXPLOIT OUR
      INTELLECTUAL PROPERTY MAY BE LIMITED.




Dr.
      Alvin
      Radkowsky invented the thorium fuel technology that we are developing. Upon
      founding Thorium Power in 1992, Dr. Radkowsky assigned all of his rights in
      the
      intellectual property relating to such fuel designs to Thorium Power, Inc.
      Thorium Power, Inc. then filed patent applications in the United States and
      other countries and the patents were issued and are held solely by our Company.
      We are currently conducting fuel assembly design work in Russia through Russian
      Research Centre Kurchatov Institute, an independent contractor that is closely
      affiliated with the government of the Russian Federation and other nuclear
      institutes. We do not have any licensing or other rights to acquire or utilize
      certain designs, methodologies or processes required for fuel assemblies. If we
      desire to utilize such processes or methodologies in the future, we must obtain
      a license or other right to use such technologies from the Kurchatov Institute
      and other Russian entities that performed work on our project. If we are unable
      to obtain such a license or other right on terms that the Kurchatov Institute
      or
      other Russian entities deem to be reasonable, then we may not be able to fully
      exploit our intellectual property and may be hindered in the sale of products
      and services.




WE
      RELY
      UPON CERTAIN MEMBERS OF OUR SENIOR MANAGEMENT, INCLUDING SETH GRAE, AND THE
      LOSS
      OF MR. GRAE OR ANY OF OUR SENIOR MANAGEMENT WOULD HAVE AN ADVERSE EFFECT ON
      THORIUM POWER.




Our
      success depends upon certain members of our senior management, including Seth
      Grae. Mr. Grae’s knowledge of the nuclear power industry, his network of key
      contacts within that industry and in governments and, in particular, his
      expertise in the potential markets for the company’s technologies, is critical
      to the implementation of our business model. Mr. Grae is likely to be a
      significant factor in our future growth and success. The loss of the service
      of
      Mr. Grae would have a material adverse effect on our Company. We do not have
      key
      man insurance policies relating to Seth Grae or any other key individuals and
      do
      not anticipate obtaining any such insurance.




THE
      PRICE
      OF FOSSIL FUELS OR URANIUM MAY FALL, WHICH WOULD REDUCE THE INTEREST IN THORIUM
      FUEL BY REDUCING ECONOMIC ADVANTAGES OF UTILIZING THORIUM BASED FUELS AND
      ADVERSELY AFFECT THE MARKET PROSPECTS FOR OUR FUEL DESIGNS.




Coal,
      uranium and crude oil prices are currently at historically high levels.
      Management believes the high cost of these energy sources has resulted in
      increased interest in other sources of energy such as thorium. If prices of
      traditional energy sources fall, then the demand that the company expects for
      thorium based fuels may not materialize. A decrease in demand for thorium based
      fuels would negatively affect our future operating results.




OUR
      RESEARCH OPERATIONS ARE CONDUCTED PRIMARILY IN RUSSIA, MAKING THEM SUBJECT
      TO
      POLITICAL UNCERTAINTIES RELATING TO RUSSIA AND U.S.-RUSSIA
      RELATIONS.




Substantially
      all of our present research activities are in Russia. Our research operations
      are subject to various political risks and uncertainties inherent in the country
      of Russia. If U.S.-Russia relations deteriorate, the Russian government may
      decide to scale back or even cease completely its cooperation with the United
      States on various international projects, including in the plutonium disposition
      program and nuclear power technology development programs. If this happened,
      our
      research and development program in Russia could be scaled back or shut down,
      which could have a significant adverse impact on our ability to execute our
      business model. Furthermore, the Russian institutes engaged in the Thorium
      Power
      project are highly regulated and, in many instances, are controlled by the
      Russian government. The Russian government could decide that the nuclear
      scientists engaged in our project in Russia or testing facilities employed
      in
      this project should be redirected to other high priority national projects
      in
      the nuclear sector which could lead to delays or have other significant adverse
      impact on our project.





WE
      SERVE
      THE NUCLEAR POWER INDUSTRY, WHICH IS HIGHLY REGULATED.




The
      nuclear power industry is a highly regulated industry. We intend to license
      our
      fuel designs to nuclear fuel fabricators, which would, in turn, sell the
      thorium-based nuclear fuel that would be fabricated using our intellectual
      property to nuclear generating companies. All nuclear companies are subject
      to
      the jurisdiction of the United States Nuclear Regulatory Commission, or its
      foreign equivalents, with respect to the operation of nuclear reactors, fuel
      cycle facilities and handling of nuclear materials and technologies. The U.S.
      Nuclear Regulatory Commission, and its foreign equivalents, subject nuclear
      facilities to continuing review and regulation covering, among other things,
      operations, maintenance, emergency planning, security and environmental and
      radiological aspects of those facilities. These nuclear regulatory bodies may
      modify, suspend or revoke operating licenses and impose civil penalties for
      failure to comply with applicable laws and regulations such as the Atomic Energy
      Act, the regulations under such Act or the terms of such licenses. Possession
      and use of nuclear materials, including thorium-based nuclear fuel, would
      require the approval of the United States Nuclear Regulatory Commission or
      its
      counterparts around the world and would be subject to monitoring by
      international agencies.




11




PUBLIC
      OPPOSITION TO NUCLEAR POWER COULD INCREASE.




Successful
      execution of our business model is dependent upon public support for nuclear
      power in the United States and other countries. Nuclear power faces strong
      opposition from certain competitive energy sources, individuals and
      organizations. The occurrence of another major, Chernobyl-like, nuclear accident
      could have a significant adverse effect on public opinion about nuclear power
      and the favorable regulatory climate needed to introduce new nuclear
      technologies. Strong public opposition could hinder the construction of new
      nuclear power plants and lead to early shut-down of the existing nuclear power
      plants. Furthermore, nuclear fuel fabrication and the use of new nuclear fuels
      in reactors must be licensed by the United States Nuclear Regulatory Commission
      and equivalent foreign governmental authorities. The licensing process includes
      public hearings in which opponents of the use of nuclear power might be able
      to
      cause the issuance of required licenses to be delayed or denied. In fact, since
      the Chernobyl nuclear accident, no new nuclear power plant has been built and
      opened in the United States.





MODIFICATIONS
      TO EXISTING NUCLEAR FUEL CYCLE INFRASTRUCTURE AS WELL AS REACTORS MAY PROVE
      TOO
      EXTENSIVE OR COSTLY.




The
      existing nuclear fuel cycle infrastructure is predominantly based on
      low-enrichment uranium oxide fuels. Introduction of thorium based fuel designs,
      which require relatively higher enriched uranium or plutonium as a source of
      reactivity, into the existing nuclear fuel cycle supply chain would necessitate
      certain changes to procedures, processes and equipment used by existing nuclear
      fuel fabrication facilities and nuclear fuel transportation companies. In
      addition, our nuclear fuel designs rely on fabrication technologies that in
      certain material ways are different from the fabrication techniques presently
      utilized by existing commercial fuel fabricators. In particular, our metallic
      seed rods must be produced using a co-extrusion fabrication process that was
      developed in Russia. Presently, most commercial nuclear fuel is produced using
      a
      pellet fabrication technology, whereby uranium oxide is packed into small
      pellets that are stacked and sealed inside metallic tubes. The co-extrusion
      fabrication technology involves extrusion of a single-piece solid fuel rod
      from
      a metallic matrix containing uranium or plutonium seed fuel. While we understand
      that the co-extrusion fabrication process has been successfully used in Russia
      for decades to produce one-meter long metallic nuclear fuel rods used in nuclear
      reactors that propel Russian icebreakers, it must be upgraded and tested to
      demonstrate its ability to produce longer metallic rods (approximately
      3.5-meters long for Russian VVER-1000 reactors) so that our seed fuel can be
      consistent with the standard length of fuel rods used in existing commercial
      reactors. Full-size metallic fuel rods have not yet been produced using this
      fabrication process, and there are no guarantees that this new fabrication
      technology will be successful.





Deployment
      of our nuclear fuel designs into existing commercial reactors may require
      modifications to existing equipment, refueling and fuel handling procedures,
      and
      other processes utilized at existing nuclear power plants. The costs of such
      modifications are difficult to ascertain. While one of our goals is to make
      our
      fuel designs as compatible as possible with the design of existing commercial
      reactors in order to minimize the extent and cost of modifications that may
      be
      required, we may not be able to achieve compatibility sufficient to reduce
      the
      extent and costs of required modifications enough to make our fuel designs
      economical for reactor operations.




OUR
      NUCLEAR FUEL PROCESS IS DEPENDENT ON OUTSIDE SUPPLIERS OF NUCLEAR AND OTHER
      MATERIALS.




Production
      of fuel assemblies using our nuclear fuel designs is dependent on the ability
      of
      fuel fabricators to obtain supplies of thorium oxide for the “blanket” component
      of our fuel assembly design. Fabricators will also need to obtain metal for
      components, particularly zirconium. These materials are regulated and can be
      difficult to obtain or may have unfavorable pricing terms. The inability of
      fabricators to obtain these materials could have a material adverse effect
      on
      their ability to market fuel based on our technology.





WE
      MAY BE
      UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, PARTICULARLY IN LIGHT OF RUSSIAN
      INTELLECTUAL PROPERTY LAWS.





Intellectual
      property rights are evolving in Russia, trending towards international norms,
      but are by no means fully developed. We work closely with the Kurchatov
      Institute and other Russian institutes to develop some of our intellectual
      property and so some of our intellectual property rights derive, or are affected
      by, Russian intellectual property laws. If the application of these laws to
      our
      intellectual property rights proves inadequate, then the Company may not be
      able
      to fully avail itself of our intellectual property and our business model may
      therefore be impeded.





**Financial
      Risks**





WE
      CONTINUE TO EXPERIENCE SIGNIFICANT OPERATING LOSSES.




12




We
      have
      never realized significant revenues or realized an operating profit from the
      development of our proprietary nuclear fuel designs. Our acquisition of Thorium
      Power, Inc. through the merger is being accounted for as a reverse merger and
      Thorium Power, Inc. is being treated as the accounting acquirer. Since Thorium
      Power, Inc.’s formation, its operating costs have exceeded its revenue in each
      year. Thorium Power, Inc. incurred a net loss of approximately $11.7 million
      for
      the year ended December 31, 2006. Since Thorium Power, Inc.’s inception in 1992
      to December 31, 2006 our operating costs have exceeded our revenues by
      approximately $27 million, and we will continue to experience significant
      operating losses in the future until we can demonstrate, deploy and
      commercialize our proprietary nuclear fuel designs or pursue other growth
      opportunities in the nuclear power industry. We may not be able to obtain or
      maintain any level of revenues. If we are unsuccessful in these efforts, we
      may
      never achieve profitability.




OUR
      LIQUIDITY AND CAPITAL RESOURCES ARE UNCERTAIN.




For
      the
      year ended December 31, 2006, we had a net loss of approximately $11.7 million.
      At December 31, 2006, we had a working capital surplus of approximately $8.7
      million. During the period from July 1, 2005 through June 30, 2006, we raised
      gross proceeds of approximately $17,500,000 in private placement transactions.
      While we expect these proceeds will meet our foreseeable needs in 2007, we
      will
      need to raise additional capital by way of an offering of equity securities,
      an
      offering of debt securities, or by obtaining financing through a bank or other
      entity. If we need to obtain additional financing, that financing may not be
      available or we may not be able to obtain that financing on terms acceptable
      to
      us. If additional funds are raised through the issuance of equity securities,
      there may be a significant dilution in the value of our outstanding common
      stock.




**Risks
      Relating to the Ownership of Our Securities**




*THERE
      MAY BE VOLATILITY IN OUR STOCK PRICE, WHICH COULD NEGATIVELY AFFECT INVESTMENTS,
      AND STOCKHOLDERS MAY NOT BE ABLE TO RESELL THEIR SHARES AT OR ABOVE THE VALUE
      THEY ORIGINALLY PURCHASED SUCH SHARES.*




The
      market price of our common stock may fluctuate significantly in response to
      a
      number of factors, some of which are beyond its control, including:


·
              quarterly
                  variations in operating results;
 ·
              changes
                  in financial estimates by securities analysts;·
              changes
                  in market valuations of other similar companies;·
              announcements
                  by us or its competitors of new products or of significant technical
                  innovations, contracts, receipt of (or failure to obtain) government
                  funding or support, acquisitions, strategic partnerships or joint
                  ventures;·
              additions
                  or departures of key personnel;·
              any
                  deviations in net sales or in losses from levels expected by securities
                  analysts or any reduction in political support from levels expected
                  by
                  securities analysts;·
              future
                  sales of common stock; and·
              results
                  of analyses of mining and resources
                  assets.




In
      addition, the stock market has recently experienced extreme volatility that
      has
      often been unrelated to the performance of particular companies. These market
      fluctuations may cause our stock price to fall regardless of its
      performance.




*BECAUSE
      OUR SECURITIES TRADE ON THE OTC BULLETIN BOARD, THE ABILITY TO SELL SHARES
      IN
      THE SECONDARY MARKET MAY BE LIMITED.*




The
      shares of our common stock are quoted on the NASD OTC Bulletin Board. Because
      our common stock currently trades on the OTC Bulletin Board, it is subject
      to
      the rules promulgated under the Securities Exchange Act of 1934, as amended,
      which impose additional sales practice requirements on broker-dealers that
      sell
      securities governed by these rules to persons other than established customers
      and “accredited investors” (generally, individuals with a net worth in excess of
      $1,000,000 or annual individual income exceeding $200,000 or $300,000 jointly
      with their spouses). For such transactions, the broker-dealer must determine
      whether persons that are not established customers or accredited investors
      qualify under the rule for purchasing such securities and must receive that
      person’s written consent to the transaction prior to sale. Consequently, these
      rules may adversely effect the ability of purchasers to sell our securities
      and
      otherwise affect the trading market in our securities.




13




Because
      our shares are deemed “penny stocks,” there may be difficulty selling them in
      the secondary trading market. The Securities and Exchange Commission has adopted
      regulations, which generally define a “penny stock” to be any equity security
      that has a market price (as defined in the regulations) less than $5.00 per
      share or with an exercise price of less than $5.00 per share, subject to certain
      exceptions. As our common stock falls within the definition of penny stock,
      these regulations require the delivery, prior to any transaction involving
      our
      common stock, of a risk disclosure schedule explaining the penny stock market
      and the risks associated with it. Disclosure is also required to be made about
      compensation payable to both the broker-dealer and the registered representative
      and current quotations for the securities. In addition, monthly statements
      are
      required to be sent disclosing recent price information for the penny stocks.
      The ability of broker/dealers to sell our common stock and the ability of
      stockholders to sell our common stock in the secondary market would be limited.
      As a result, the market liquidity for our common stock would be severely and
      adversely affected.




**PART
      II**




**Item
              7.**
            **FINANCIAL
                STATEMENTS**





The
      full
      text of our audited consolidated financial statements as of December 31, 2006
      and 2005 begins on page F-1 of this Report.




**PART
      III**




**Item
              13.**
            **EXHIBITS.**





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




***Exhibit***
                ***Number***
              
              ***Description***3.1
              
              Articles
                  of Incorporation (incorporated by reference from the Company’s
                  Registration Statement on Form 10-SB filed on December 17,
                  1999).3.2
              
              By-laws
                  (incorporated by reference from the Company’s Current Report on Form 8-K
                  filed on September 18, 2006).4.1
              
              2005
                  Compensation Plan for Outside Consultants of Custom Brand Networks,
                  Inc.
                  dated March 1, 2005 (incorporated by reference from the Company’s
                  Registration Statement on Form S-8 filed on March 10,
                  2005).4.2
              
              2005
                  Augmented Compensation Plan for Outside Consultants of the Company
                  dated
                  August 15, 2005 (incorporated by reference from the Company’s Registration
                  Statement on Form S-8 filed on August 19, 2005).4.3
              
              2006
                  Stock Plan (incorporated by reference to Exhibit 10.1 of the current
                  report of the Company on Form 8-K filed February 21,
                  2006)10.1
              
              Consulting
                  Agreement dated October 15, 2004 between Custom Branded Networks,
                  Inc. and
                  Walter Doyle (incorporated by reference from the Company’s Registration
                  Statement on Form S-8 filed on October 19, 2004).10.2
              
              Consulting
                  Agreement dated October 15, 2004 between Custom Branded Networks,
                  Inc. and
                  Adam Harrison (incorporated by reference from the Company’s Registration
                  Statement on Form S-8 filed on October 19, 2004).10.3
              
              Consulting
                  Agreement dated October 15, 2004 between Custom Branded Networks,
                  Inc. and
                  Tim Lelek (incorporated by reference from the Company’s Registration
                  Statement on Form S-8 filed on October 19, 2004).10.4
              
              Consulting
                  Agreement dated October 15, 2004 between Custom Branded Networks,
                  Inc. and
                  Bruce Fearn (incorporated by reference from the Company’s Registration
                  Statement on Form S-8 filed on October 19, 2004).10.5
              
              Compensation
                  Agreement dated October 15, 2004 between Custom Branded Networks,
                  Inc. and
                  Paul G. Carter (incorporated by reference from the Company’s Registration
                  Statement on Form S-8 filed on October 19, 2004).10.6
              
              Consulting
                  Agreement dated January 24, 2005 between Custom Branded Networks,
                  Inc. and
                  Walter Doyle (incorporated by reference from the Company’s Registration
                  Statement on Form S-8 filed on January 27, 2005).10.7
              
              Consulting
                  Agreement dated January 24, 2005 between Custom Branded Networks,
                  Inc. and
                  Sanjeev Pamnani (incorporated by reference from the Company’s Registration
                  Statement on Form S-8 filed on January 27, 2005).10.8
              
              Consulting
                  Agreement dated January 24, 2005 between Custom Branded Networks,
                  Inc. and
                  Seth Shaw (incorporated by reference from the Company’s Registration
                  Statement on Form S-8 filed on January 27, 2005).10.9
              
              Assignment
                  of Specific Mineral Rights dated September 14, 2005 between American
                  Graphite Holdings and the Company (incorporated by reference from
                  the
                  Company’s Current Report on Form 8-K filed on October 11,
                  2005).10.10
              
              Amendment
                  No. 1, dated March 5, 2006, to Assignment of Specific Mineral Rights
                  between American Graphite Amendment No. 1, dated March 5, 2006,
                  to
                  Assignment of Specific Mineral Rights between American Graphite
                  Holdings
                  and the Company (incorporated by reference from Exhibit 10.10 of
                  the
                  initial filing of this Registration Statement on Form S-4 filed
                  June 14,
                  2006).
  14
  10.11
              
              Mining
                  Acquisition Agreement dated September 30, 2005 between Walter Doyle
                  and
                  the Company (incorporated by reference from the Company’s Current Report
                  on Form 8-K filed on October 11, 2005).10.12
              
              Amendment
                  No. 1, dated March 5, 2006, to Mining Acquisition Agreement between
                  Walter
                  Doyle and the Company (incorporated by reference from Exhibit 10.12
                  of the
                  Company’s Registration Statement on Form S-4 filed June 14,
                  2006).10.13
              
              Agreement
                  and Plan of Merger dated as of February 14, 2006, between Novastar
                  Resources Ltd., TP Acquisition Corp. and Thorium Power, Inc. (incorporated
                  by reference from the Company’s Current Report on Form 8-K filed on June
                  13, 2006).10.14
              
              Amendment
                  No. 1, dated June 9, 2006, to Agreement and Plan of Merger between
                  Novastar Resources Ltd., TP Acquisition Corp. and Thorium Power,
                  Inc.
                  (incorporated by reference to Exhibit 10.1 of the current report
                  of the
                  Company on Form 8-K filed June 13, 2006).10.15
              
              Employment
                  Agreement, dated as of February 14, 2006, between the Company and
                  Seth
                  Grae (incorporated by reference to Exhibit 10.2 of the current
                  report of
                  the Company on Form 8-K filed February 21, 2006)10.16
              
              Stock
                  Option Agreement, dated as of February 14, 2006, between the Company
                  and
                  Seth Grae (incorporated by reference to Exhibit 10.3 of the current
                  report
                  of the Company on Form 8-K filed February 21, 2006)10.17
              
              Subscription
                  Agreement, dated as of February 14, 2006, between the Company and
                  Thorium
                  Power (incorporated by reference to Exhibit 10.4 of the current
                  report of
                  the Company on Form 8-K filed February 21, 2006)10.18
              
              Amended
                  and Restated Consulting Agreement, dated February 6, 2006, between
                  the
                  Company and Alan Gelband (incorporated by reference to Exhibit
                  10.5 of the
                  current report of the Company on Form 8-K filed February 21,
                  2006)10.19
              
              Form
                  of Subscription Agreement between the Company and the investors
                  in the
                  private placement closed on February 14, 2006 (incorporated by
                  reference
                  to Exhibit 10.6 of the current report of the Company on Form 8-K
                  filed
                  February 21, 2006)10.20
              
              Assignment
                  of Minerals Lease, dated December 31, 2005, between CM Properties
                  and the
                  Company (incorporated by reference to Exhibit 10.1 of the current
                  report
                  of the Company on Form 8-K filed January 10, 2006)10.21
              
              Amendment
                  No. 1 to Assignment of Minerals Lease, dated March 5, 2006 between
                  CM
                  Properties and the Company (incorporated by reference from Exhibit
                  10.21
                  of the initial filing of this Registration Statement on Form S-4
                  filed
                  June 14, 2006).10.22
              
              Office
                  Service Renewal Agreement, dated September 21, 2005, between Tysons
                  Business Center, LLC and Thorium Power (incorporated by reference
                  from
                  Exhibit 10.22 of the initial filing of this Registration Statement
                  on Form
                  S-4 filed June 14, 2006).10.23
              
              Sublease
                  Agreement, dated May 28, 2004, between Thorium Power and Carmen
&
                  Muss, P.L.L.C. (incorporated by reference from Exhibit 10.23 of
                  the
                  initial filing of this Registration Statement on Form S-4 filed
                  June 14,
                  2006).10.24
              
              Office
                  Building Lease, dated August 14, 2001, between Washington Real
                  Estate
                  Investment Trust and Thorium Power (incorporated by reference from
                  Exhibit
                  10.24 of the initial filing of this Registration Statement on Form
                  S-4
                  filed June 14, 2006).10.25
              
              Teaming
                  Agreement dated February 22, 2006 between The University of Texas
                  System,
                  The University of Texas of the Permian Basin, The University of
                  Texas at
                  Austin, The University of Texas at Arlington, The University of
                  Texas at
                  Dallas, The University of Texas at El Paso, The City of Andrews,
                  Texas,
                  Andrews County, Texas, the Midland Development Corporation, the
                  Odessa
                  Development Corporation, Thorium Power and General Atomics (incorporated
                  by reference from Exhibit 10. the Company’s Registration Statement on Form
                  S-4 filed June 14, 2006).10.26
              
              Amendment
                  No. 1 to Amended and Restated Consulting Agreement, dated June
                  12, 2006,
                  among the Company, Alan Gelband and Alan Gelband Company, Inc.
                  (incorporated by reference to Exhibit 10.1 of the current report
                  of the
                  Company on Form 8-K filed June 13, 2006).10.27
              
              Employment
                  Agreement, dated June 6, 2006, between the Company and Cornelius
                  J. Milmoe
                  (incorporated by reference to Exhibit 10.1 of the current report
                  of the
                  Company on Form 8-K filed June 13, 2006).10.28
              
              Stock
                  Option Agreement, dated June 6, 2006, between the Company and Cornelius
                  J.
                  Milmoe (incorporated by reference to Exhibit 10.1 of the current
                  report of
                  the Company on Form 8-K filed June 13, 2006).10.29
              
              Consulting
                  Agreement, dated June 12, 2006, between the Company and Larry Goldman
                  (incorporated by reference to Exhibit 10.1 of the current report
                  of the
                  Company on Form 8-K filed June 13, 2006).10.30
              
              Stock
                  Option Agreement, dated June 12, 2006, between the Company and
                  Larry
                  Goldman (incorporated by reference to Exhibit 10.1 of the current
                  report
                  of the Company on Form 8-K filed June 13, 2006).10.31
              
              Office
                  Service Agreement, dated April 19, 2006, between Tysons Business
                  Center
                  LLC and the Company (incorporated by reference from Exhibit 10.31
                  the
                  Company’s Registration Statement on Form S-4 filed June 14,
                  2006).10.32
              
              Employment
                  Agreement, dated July 27, 2006, between the Company and Andrey
                  Mushakov
                  (incorporated by reference to Exhibit 10.1 of the current report
                  of the
                  Company on Form 8-K filed August 4, 2006).10.33
              
              Stock
                  Option Agreement, dated July 27, 2006, between the Company and
                  Andrey
                  Mushakov (incorporated by reference to Exhibit 10.2 of the current
                  report
                  of the Company on Form 8-K filed August 4,
                  2006).
  15
  10.34
              
              Employment
                  Agreement, dated July 27, 2006, between the Company and Thomas
                  Graham, Jr.
                  (incorporated by reference to Exhibit 10.3 of the current report
                  of the
                  Company on Form 8-K filed August 4, 2006).10.35
              
              Stock
                  Option Agreement, dated July 27, 2006, between the Company and
                  Thomas
                  Graham, Jr. (incorporated by reference to Exhibit 10.4 of the current
                  report of the Company on Form 8-K filed August 4,
                  2006).10.36
              
              Amendment
                  No. 2, dated August 8, 2006, to Agreement and Plan of Merger between
                  Novastar Resources Ltd., TP Acquisition Corp. and Thorium Power,
                  Inc.
                  (incorporated by reference to Exhibit 10.1 of the current report
                  of
                  Novastar on Form 8-K filed August 9, 2006).10.37
              
              Independent
                  Director Contract, dated August 21, 2006, between the Company and
                  Victor
                  Alessi (incorporated by reference to Exhibit 10.1 of the current
                  report of
                  the Company on Form 8-K filed August 25, 2006).10.38
              
              Stock
                  Option Agreement, dated August 21, 2006, between the Company and
                  Victor
                  Alessi (incorporated by reference to Exhibit 10.2 of the current
                  report of
                  the Company on Form 8-K filed August 25, 2006).14.1
              
              Code
                  of Ethics (incorporated by reference from the Company’s Annual Report on
                  Form 10-KSB filed on November 25, 2005).16.1
              
              Letter
                  from Morgan and Company dated September 14, 2005 regarding change
                  in
                  independent accountant (incorporated by reference from the Company’s
                  Current Report on Form 8-K filed on October 11, 2005).31.1*
              
              Rule
                  13a-14(a)/15d-14(a) Certification - Principal Executive
                  Officer31.2*
              
              Rule
                  13a-14(a)/15d-14(a) Certification - Principal Accounting
                  Officer32*
              
              Section
                  1350 Certifications99.1*
              
              Thorium
                  Power, Inc. interim financial statements for the nine month period
                  ended
                  September 30, 2006.99.2
              
              Report
                  of Pricewaterhouse Coopers dated March 29,
                  2002.





*
      Filed
      herewith




16





**AUDITED
      FINANCIAL STATEMENTS**





**THORIUM
      POWER, LTD**


**(A
      Development Stage Company)**


**DECEMBER
      31, 2006**


**(Restated)**





**TABLE
      OF CONTENTS**





PageReport
                of Independent Registered Public Accounting Firm
            
            F-2Consolidated
                Balance Sheets
            
            F-3Consolidated
                Statements of Operations and Comprehensive Loss
            
            F-4Consolidated
                Statements of Cash Flows
            
            F-5Consolidated
                Statement of Stockholders' Deficiency
            
            F-6
                - F-9Notes
                to Consolidated Financial Statements
            
            F-10




F-1




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




To
      The
      Board of Directors


Thorium
      Power, Ltd.


Washington,
      DC





We
      have
      audited the accompanying consolidated balance sheets of Thorium Power, Ltd.
      (a
      development stage company) as of December 31, 2006 and 2005, and the related
      consolidated statements of operations and comprehensive income, changes in
      stockholders' deficit, and cash flows for the years then ended. 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 audits.




We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States of America). Those standards require
      that we plan and perform the audit to obtain reasonable assurance about whether
      the consolidated financial statements are free of material misstatement. The
      Company is not required to have, nor were we engaged to perform, an audit of
      its
      internal control over financial reporting. Our audits included consideration
      of
      internal control over financial reporting, as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
      expressing an opinion on the effectiveness of the Company's internal control
      over financial reporting. Accordingly, we express no such opinion. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the consolidated financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall consolidated financial statement
      presentation. We believe that our audits provide 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 Thorium Power, Ltd. (a
      development state company) as of December 31, 2006 and 2005, and the related
      consolidated statements of operations and comprehensive income, changes in
      stockholders' deficit, and cash flows for the years then ended, in conformity
      with accounting principles generally accepted in the United States of
      America.





Since
      our
      previous report dated March 19, 2007 as described in the Introductory Note,
      the
      Company discovered a material error in its presentation of stock issue costs
      in
      the statements of cash flows and the presentation of outstanding shares of
      common stock in the statement of stockholders deficiency. However, the Company
      has restated the financial statements to reflect the correction of these
      errors.





/s/
      Child, Van Wagoner & Bradshaw, PLLC


Child,
      Van Wagoner & Bradshaw, PLLC


Salt
      Lake
      City, Utah


March
      19,
      2007, except the Introductory Note, which is dated July 5, 2007




F-2




**Thorium
      Power, Ltd.**


**(A
      Development Stage Company)**


**Consolidated
      Balance Sheets**




**December
                31**
            
            **December
                31****2006**
            
            **2005****ASSETS****Current
                Assets**Cash
                and cash equivalents
            
            $
            10,927,775
            
            $
            283Prepaid
                expenses & other current assets
            
            
            394,443
            
            
            6,280Total
                Current Assets
            
            
            11,322,218
            
            
            6,563Property
                Plant and Equipment -net
            
            
            21,290
            
            
            21,215**Other
                Assets**Patent
                costs - net
            
            
            217,875
            
            
            211,211Security
                deposits
            
            
            2,049
            
            
            7,567Total
                Other Assets
            
            
            219,924
            
            
            218,778**Total
                Assets**
            
            **$**
            **11,563,432**
            
            **$**
            **246,556****Liabilities
                and Stockholders' Deficiency****Current
                Liabilities**Current
                portion long term debt
            
            $
            4,739
            
            $
            4,135Accounts
                payable and accrued liabilities
            
            
            1,121,083
            
            
            938,776Other
                current liabilities
            
            
            347,690
            
            
            0Warrant
                liability
            
            
            1,132,440
            
            
            0Note
                payable
            
            
            0
            
            
            45,930Total
                Current Liabilities
            
            
            2,605,952
            
            
            988,841Notes
                Payable - long term
            
            
            10,433
            
            
            14,818**Total
                Liabilities**
            
            
            2,616,385
            
            
            1,003,659Commitments
                and contingencies - note 10**Common
                Stock with Registration Rights**Common
                  Stock subject to continuing registration, $0.001 par value, 36,659,837
                  shares issued and outstanding at December 31, 2006, 0 at December
                  31,
                  2005
            
            
            12,041,373
            
            
            0**Stockholders'
                Deficiency**Preferred
                stock, $0.001 par value, 50,000,000 authorized shares, no shares
                issued
                and outstanding
            
            
            0
            
            
            0Common
                stock, $0.001par value, 500,000,000 authorized, 257,291,709 shares
                issued
                and 256,441,709 shares outstanding (December 31, 2005, equivalent
                shares
                outstanding 86,185,881)
            
            
            257,292
            
            
            168,149Additional
                paid in capital - stock and stock equivalents
            
            
            23,148,560
            
            
            14,544,410Deficit
                accumulated during the development stage
            
            
            (27,177,989
            )
            
            (15,469,662
            )Common
                stock reserved for issuance, 4,000,000 shares
            
            
            1,200,000
            
            
            0Accumulated
                other comprehensive income
            
            
            18,861
            
            
            0Deferred
                stock compensation
            
            
            (285,200
            )
            
            0Treasury
                stock - 850,000 shares
            
            
            (255,850
            )
            
            0**Total
                Stockholders' Deficiency**
            
            
            (3,094,326
            )
            
            (757,103
            )**Total
                Liabilities and Stockholders' Deficiency**
            
            **$**
            **11,563,432**
            
            **$**
            **246,556**




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




F-3




**Thorium
      Power, Ltd.**


**(A
      Development Stage Company)**


**Consolidated
      Statements of Operations and Comprehensive Loss**


**(Restated)**


Year
                      End
                    December
                      31,
              
              Cumulative
                Period from
                January 8, 1992
                  (Inception) to
                (unaudited)
                20062006
              
              2005
              
              December
                  31,Revenue:License
                  revenue
              
              $
              0
              
              $
              0
              
              $
              624,985Total
                  Revenue
              
              
              
              
              
              
              
              
              624,985Operating
                  ExpensesGeneral
                  and administrative
              
              
              3,150,243
              
              
              440,003
              
              
              13,154,561Research
                  and development
              
              
              34,400
              
              
              17,500
              
              
              3,926,558Stock-based
                  compensation
              
              
              9,131,746
              
              
              303,055
              
              
              11,361,617Total
                  Operating Loss
              
              
              12,316,389
              
              
              760,558
              
              
              27,817,751Other
                  Income and ExpensesGain
                  on fair value of derivative instruments
              
              
              1,902,286
              
              
              0
              
              
              1,902,286Other
                  income/expense
              
              
              115,128
              
              
              54
              
              
              146,829Stock
                  settlement expense
              
              
              (92,260
              )
              
              0
              
              
              (92,260
              )Registration
                  right expense
              
              
              (353,706
              )
              
              0
              
              
              (353,706
              )Warrant
                  expense
              
              
              (963,387
              )
              
              0
              
              
              (963,387
              )Total
                  Other Income and [Expenses]
              
              
              608,061
              
              
              54
              
              
              639,762Net
                  Loss
              
              $
              11,708,328
              
              $
              760,504
              
              $
              27,177,989Other
                  Comprehensive Income (loss)Unrealized
                  Gain - Marketable Securities
              
              
              18,861
              
              
              0Total
                  Comprehensive Loss
              
              $
              11,689,467
              
              $
              760,504Net
                  Loss Per Common Share, Basic and diluted
              
              $
              (0.08
              )
              $
              (0.01
              )Weighted
                  Average Number of shares used to compute per share data
              
              
              153,733,780
              
              
              105,463,178




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




F-4




**Thorium
      Power, Ltd.**


**(A
      Development Stage Company)**


**Consolidated
      Statements of Cash Flows**


Years
                  Ended
                December
                  31,
              
              Cumulative
                Amounts
                January 8, 1992
                  (Inception) to December 31,
                20062006
                (Restated)
              
              2005
              
              (unaudited)
                (Restated)Operating
                  ActivitiesLoss
                  for the year
              
              $
              (11,708,327
              )
              $
              (760,504
              )
              $
              (27,177,989
              )Adjustments
                  to reconcile net loss from operations to net cash used in operating
                  activities:Shares
                  issued for other than cash for payment of expenses
              
              
              9,131,746
              
              
              303,055
              
              
              11,449,866Gain
                  on fair value of derivative instruments
              
              
              (1,902,286
              )
              
              0
              
              
              (1,902,286
              )Depreciation
                  and Amoritzation
              
              
              10,886
              
              
              22,704
              
              
              357,211Gain
                  or loss on disposition of assets
              
              
              0
              
              
              3,710
              
              
              86,855Warrant
                  Expense
              
              
              963,387
              
              
              0
              
              
              963,387Settlement
                  Expense
              
              
              92,260
              
              
              0
              
              
              92,260Allocated
                  general and administrative expenses - contributed capital
              
              
              290,769
              
              
              0
              
              
              290,769Changes
                  in non-cash operating working capital items:Prepaid
                  expenses and other current assets
              
              
              (270,779
              )
              
              525
              
              
              (277,059
              )Accounts
                  payable and accrued liabilities
              
              
              (220,201
              )
              
              142,913
              
              
              718,576Other
                  assets
              
              
              5,518
              
              
              0
              
              
              5,518Other
                  current liabilities
              
              
              302,392
              
              
              0
              
              
              302,392Net
                  Cash (Used In) Operating Activities
              
              
              (3,304,635
              )
              
              (287,597
              )
              
              (15,090,500
              )Investing
                  ActivitiesPurchase
                  of equipment
              
              
              (10,961
              )
              
              (22,217
              )
              
              (285,145
              )Proceeds
                  from the sale of equipment
              
              
              0
              
              
              937
              
              
              13,583Acquisition
                  of patents
              
              
              (6,664
              )
              
              (4,523
              )
              
              (411,669
              )Other
                  assets
              
              
              0
              
              
              (154
              )
              
              (7,567
              )Net
                  Cash (Used In) Investing Activities
              
              
              (17,625
              )
              
              (25,957
              )
              
              (690,798
              )Financing
                  ActivitiesIssue
                  of common shares
              
              
              2,202,678
              
              
              260,992
              
              
              14,498,016Disbursements
                  - stock issue costs
              
              
              (441,553
              )
              
              -
              
              
              (441,553
              )Payments
                  on notes payable and other
              
              
              (3,781
              )
              
              18,952
              
              
              15,171Proceeds
                  of loan - related party
              
              
              0
              
              
              85,227
              
              
              384,690Repayment
                  of loan - related party
              
              
              0
              
              
              (51,796
              )
              
              (239,659
              )Purchase
                  of treasury stock
              
              
              (255,850
              )
              
              0
              
              
              (255,850
              )Other
              
              
              5,850
              
              
              0
              
              
              5,850Cash
                  acquired in recapitalization of Thorium Power Inc.
              
              
              12,742,408
              
              
              0
              
              
              12,742,408Net
                  Cash Provided By Financing Activities
              
              $
              14,249,752
              
              $
              313,375
              
              $
              26,709,073Net
                  Increase In Cash and Cash Equivalents
              
              $
              10,927,492
              
              $
              (179
              )
              $
              10,927,775Cash
                  and Cash Equivalents, Beginning Of Period
              
              
              283
              
              
              462
              
              
              0Cash
                  and Cash Equivalents, End Of Period
              
              **$**
              **10,927,775**
              
              **$**
              **283**
              
              **$**
              **10,927,775**Supplemental
                  Disclosure of Cash Flow InformationCash
                  paid during the year:Interest
                  paid
              
              $
              -
              
              $
              -
              
              $
              -Income
                  taxes paid
              
              $
              -
              
              $
              -
              
              $
              -Non-cash
                  transactions (Note 1)




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




F-5




**Thorium
      Power, Ltd.**


**(A
      Development Stage Company)**


**Consolidated
      Statements of Changes in Stockholders' Deficiency**


**From
      January 8, 1992 (Inception) to December 31, 2006**


**(Restated)**




Common
                Stock
            
            Additional
              Paid-in
            
            Accumulated
            
            Stockholders’Shares
            
            Amount
            
            Capital
            
            (Deficit)
            
            Equity**Inception –
                January 8,
                1992**Issuance
                of common stock for technology and service
            
            
            37,632,000
            
            
            60,000
            
            
            -
            
            
            -
            
            
            60,000Net
                (loss) for the period ended
            
            
            -
            
            
            -
            
            
            -
            
            
            (60,000
            )
            
            (60,000
            )**Balance –
                December 31, 1992****(unaudited)**
            
            
            37,632,000
            
            
            60,000
            
            
            -
            
            
            (60,000
            )
            
            -Issuance
                of common stock and warrants for cash
            
            
            8,106,560
            
            
            12,925
            
            
            535,030
            
            
            -
            
            
            547,955Issuance
                of stock in exchange for services
            
            
            1,473,920
            
            
            2,350
            
            
            20,000
            
            
            -
            
            
            22,350Exercise
                of stock options and warrants
            
            
            313,600
            
            
            500
            
            
            99,500
            
            
            
            
            
            100,000Net
                (loss) for the year ended December 31, 1993
            
            
            -
            
            
            -
            
            
            -
            
            
            (81,526
            )
            
            (81,526
            )**Balance –
                December 31, 1993 (unaudited)**
            
            
            47,526,080
            
            
            75,775
            
            
            654,530
            
            
            (141,526
            )
            
            588,779Authorized
                10,000,000 shares - $.05 par valueIssuance
                of common stock and warrants for cash
            
            
            821,632
            
            
            1,310
            
            
            260,690
            
            
            -
            
            
            262,000Issuance
                of stock in exchange for services
            
            
            313,600
            
            
            500
            
            
            9,500
            
            
            -
            
            
            10,000Issuance
                of options to non-employees for services
            
            
            -
            
            
            -
            
            
            15,400
            
            
            -
            
            
            15,400Net
                (loss) for the year ended December 31, 1994
            
            
            -
            
            
            -
            
            
            -
            
            
            (639,861
            )
            
            (639,861
            )**Balance –
                December 31, 1994 (unaudited)**
            
            
            48,661,312
            
            
            77,585
            
            
            940,120
            
            
            (781,387
            )
            
            236,318Issuance
                of common stock and warrants for cash
            
            
            1,301,440
            
            
            2,075
            
            
            412,925
            
            
            -
            
            
            415,000Issuance
                of stock in exchange for services
            
            
            244,608
            
            
            390
            
            
            7,410
            
            
            -
            
            
            7,800Exercise
                of stock options and warrants
            
            
            313,600
            
            
            500
            
            
            9,500
            
            
            -
            
            
            10,000Net
                (loss) for the year ended December 31, 1995
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,088,082
            )
            
            (1,088,082
            )**Balance –
                December 31, 1995 (unaudited)**
            
            
            50,520,960
            
            
            80,550
            
            
            1,369,955
            
            
            (1,869,469
            )
            
            (418,964
            )Issuance
                of common stock for cash
            
            
            950,208
            
            
            1,515
            
            
            301,485
            
            
            -
            
            
            303,000Issuance
                of common stock for services
            
            
            250,880
            
            
            400
            
            
            7,600
            
            
            -
            
            
            8,000Exercise
                of stock options and warrants
            
            
            1,066,240
            
            
            1,700
            
            
            32,300
            
            
            -
            
            
            34,000Issuance
                of options to non-employees for services
            
            
            -
            
            
            -
            
            
            7,950
            
            
            -
            
            
            7,950Net
                (loss) for the year ended December 31, 1996
            
            
            -
            
            
            -
            
            
            -
            
            
            (763,179
            )
            
            (763,179
            )**Balance –
                December 31, 1996 (unaudited)**
            
            
            52,788,288
            
            $
            84,165
            
            $
            1,719,290
            
            $
            (2,632,648
            )
            $
            (829,193
            )





F-6




**Thorium
      Power, Ltd.**


**(A
      Development Stage Company)**


**Consolidated
      Statements of Changes in Stockholders' Deficiency
      (Continued)**


**From
      January 8, 1992 (Inception) to December 31, 2006**


**(Restated)**




Common
                Stock
            
            Additional
              Paid-in
            
            Accumulated
            
            Stockholders’Shares
            
            Amount
            
            Capital
            
            (Deficit)
            
            Equity**Balance –
                December 31, 1996 (unaudited)**
            
            
            52,788,288
            
            $
            84,165
            
            $
            1,719,290
            
            $
            (2,632,648
            )
            $
            (829,193
            )Issuance
                of common stock and warrants for cash
            
            
            1,778,112
            
            
            2,835
            
            
            564,165
            
            
            -
            
            
            567,000Exercise
                of stock options and warrants
            
            
            1,599,360
            
            
            2,550
            
            
            79,450
            
            
            -
            
            
            82,000Issuance
                of options to non-employees for services
            
            
            -
            
            
            -
            
            
            15,960
            
            
            -
            
            
            15,960Net
                (loss) for the year ended December 31, 1997
            
            
            -
            
            
            -
            
            
            -
            
            
            (598,718
            )
            
            (598,718
            )**Balance –
                December 31, 1997 (unaudited)**
            
            
            56,165,760
            
            
            89,550
            
            
            2,378,865
            
            
            (3,231,366
            )
            
            (762,951
            )Issuance
                of common stock and warrants for cash
            
            
            2,086,568
            
            
            3,327
            
            
            662,033
            
            
            -
            
            
            665,360Exercise
                of stock options and warrants
            
            
            8,780,800
            
            
            14,000
            
            
            456,000
            
            
            -
            
            
            470,000Issuance
                of options to non-employees for services
            
            
            
            
            
            
            
            
            1,325
            
            
            
            
            
            1,325Net
                (loss) for the year ended December 31, 1998
            
            
            -
            
            
            -
            
            
            -
            
            
            (792,185
            )
            
            (792,185
            )**Balance
                – December 31, 1998 (unaudited)**
            
            
            67,033,128
            
            
            106,877
            
            
            3,498,223
            
            
            (4,023,551
            )
            
            (418,451
            )Issuance
                of common stock for cash
            
            
            1,118,768
            
            
            1,784
            
            
            354,966
            
            
            -
            
            
            356,750Exercise
                of stock options and warrants
            
            
            1,105,440
            
            
            1,762
            
            
            180,738
            
            
            -
            
            
            182,500Net
                (loss) for the year ended December 31, 1999
            
            
            -
            
            
            -
            
            
            -
            
            
            (822,803
            )
            
            (822,803
            )**Balance –
                December 31, 1999 (unaudited)**
            
            
            69,257,336
            
            
            110,423
            
            
            4,033,927
            
            
            (4,846,354
            )
            
            (702,004
            )Issuance
                of common stock for cash
            
            
            8,925,056
            
            
            14,230
            
            
            2,831,770
            
            
            -
            
            
            2,846,000Issuance
                of common stock for services
            
            
            3,198,720
            
            
            5,100
            
            
            449,900
            
            
            -
            
            
            455,000Net
                (loss) for the year ended December 31, 2000
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,487,354
            )
            
            (1,487,354
            )**Balance –
                December 31, 2000 (unaudited)**
            
            
            81,381,112
            
            
            129,753
            
            
            7,315,597
            
            
            (6,333,708
            )
            
            1,111,642Issuance
                of common stock and warrants for cash
            
            
            10,976,000
            
            
            17,500
            
            
            3,468,031
            
            
            -
            
            
            3,485,531Issuance
                of common stock for settlement
            
            
            313,600
            
            
            500
            
            
            36,100
            
            
            -
            
            
            36,600Exercise
                of stock options and warrants
            
            
            896,896
            
            
            1,430
            
            
            139,570
            
            
            -
            
            
            141,000Modification
                of options
            
            
            -
            
            
            -
            
            
            28,500
            
            
            -
            
            
            28,500Net
                (loss) for the year ended December 31, 2001
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,606,466
            )
            
            (2,606,466
            )**Balance –
                December 31, 2001 (unaudited)**
            
            
            93,567,608
            
            $
            149,183
            
            $
            10,987,798
            
            $
            (8,940,174
            )
            $
            2,196,807




F-7




**Thorium
      Power, Ltd.**


**(A
      Development Stage Company)**


**Consolidated
      Statements of Changes in Stockholders' Deficiency
      (Continued)**


**From
      January 8, 1992 (Inception) to December 31, 2006**


**(Restated)**




Common
                Stock
            
            Additional
              Paid-in
            
            Accumulated
            
            Stockholders’Shares
            
            Amount
            
            Capital
            
            (Deficit)
            
            Equity**Balance –
                December 31, 2001 (unaudited)**
            
            
            93,567,608
            
            
            149,183
            
            
            10,987,798
            
            
            (8,940,174
            )
            
            2,196,807Issuance
                of common stock and warrants for cash
            
            
            156,800
            
            
            250
            
            
            49,750
            
            
            -
            
            
            50,000Exercise
                of stock options and warrants
            
            
            156,800
            
            
            250
            
            
            22,750
            
            
            -
            
            
            23,000Issuance
                of common stock not previously recognized
            
            
            31,360
            
            
            50
            
            
            (50
            )
            
            -
            
            
            -Net
                (loss) for the year ended December 31, 2002
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,224,775
            )
            
            (2,224,775
            )**Balance –
                December 31, 2002 (unaudited)**
            
            
            93,912,568
            
            
            149,733
            
            
            11,060,248
            
            
            (11,164,949
            )
            
            45,032Issuance
                of common stock and warrants for cash
            
            
            3,606,400
            
            
            5,750
            
            
            604,250
            
            
            
            
            
            610,000Exercise
                of stock options and warrants
            
            
            3,333,568
            
            
            5,315
            
            
            157,685
            
            
            
            
            
            163,000Modifications
                of options and warrants
            
            
            -
            
            
            -
            
            
            1,506,427
            
            
            
            
            
            1,506,427Issuance
                of common stock not previously recognized
            
            
            156,800
            
            
            250
            
            
            (250
            )
            
            
            
            
            -Net
                (loss) for the year ended December 31, 2003
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,569,534
            )
            
            (2,569,534
            )**Balance –
                December 31, 2003 (unaudited)**
            
            
            101,009,336
            
            $
            161,048
            
            $
            13,328,360
            
            $
            (13,734,483
            )
            $
            (245,075
            )Issuance
                of common stock and warrants for cash
            
            
            1,991,360
            
            
            3,175
            
            
            254,576
            
            
            
            
            
            257,751Loan
                conversion into stock
            
            
            54,880
            
            
            88
            
            
            6,913
            
            
            
            
            
            7,000Issuance
                of options to non-employees for services
            
            
            -
            
            
            -
            
            
            351,253
            
            
            -
            
            
            351,253Net
                (loss) for the year ended December 31, 2004
            
            
            -
            
            
            -
            
            
            -
            
            
            (974,674
            )
            
            (974,674
            )**Balance –
                December 31, 2004 (unaudited)**
            
            
            103,055,576
            
            $
            164,311
            
            $
            13,941,101
            
            $
            (14,709,158
            )
            $
            (603,746
            )Issuance
                of common stock and warrants for cash
            
            
            2,069,697
            
            
            3,300
            
            
            257,692
            
            
            
            
            
            260,992Loan
                conversion into stock
            
            
            337,904
            
            
            539
            
            
            42,561
            
            
            
            
            
            43,100Issuance
                of options to non-employees for services
            
            
            -
            
            
            -
            
            
            303,055
            
            
            -
            
            
            303,055Net
                (loss) for the year ended December 31, 2005
            
            
            -
            
            
            -
            
            
            -
            
            
            (760,504
            )
            
            (760,504
            )**Balance –
                December 31, 2005**
            
            
            105,463,177
            
            $
            168,149
            
            $
            14,544,410
            
            $
            (15,469,662
            )
            $
            (757,103
            )




F-8




**Thorium
      Power, Ltd.**


**(A
      Development Stage Company)**


**Consolidated
      Statements of Changes in Stockholders' Deficiency
      (Continued)**


**From
      January 8, 1992 (Inception) to December 31, 2006**


Common
                  Stock
              
              Additional
                Paid-in
              
              Accumulated
                (Deficit)
                  Accumulated During the Development
              
              Stock
                  Committed
                Future
              
              Accumulated
                Comprehensive
              
              Deferred
                  Stock
              
              Treasury
              
              Stockholders’Shares
              
              Amount
              
              Capital
              
              Stage
              
              Issuance
              
              Income
              
              Compensation
              
              Stock
              
              EquityBalance
                  - December 31, 2005
              
              
              105,463,177
              
              $
              168,149
              
              $
              14,544,410
              
              $
              (15,469,662
              )
              $
              0
              
              $
              0
              
              $
              0
              
              $
              
              
              $
              (757,103
              )Issuance
                  of common stock and warrants for cash
              
              
              15,319,674
              
              
              24,426
              
              
              2,165,248
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,189,674Loan
                  conversion into stock
              
              
              32,144
              
              
              51
              
              
              4,049
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              4,100Cashless
                  exercise of stock options andwarrants
              
              
              20,385,474
              
              
              32,502
              
              
              (32,502
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              0Exercise
                  of stock options and warrants for cash
              
              
              407,680
              
              
              650
              
              
              12,350
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              13,000Issuance
                  of stock for services
              
              
              627,200
              
              
              1,000
              
              
              104,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              105,000Cancellation
                  of shares-held by Thorium Power Ltd (pursuant to merger)
              
              
              (6,597,495
              )
              
              (10,506
              )
              
              10,506Recapitalization
                  - 10/6/06 reverse merger*
              
              
              124,101,637
              
              
              43,467
              
              
              (3,035,878
              )
              
              
              
              
              
              
              
              
              
              
              (306,000
              )
              
              
              
              
              (3,298,411
              )Extension
                  of investor warrants terms - 6months
              
              
              
              
              
              
              
              
              963,387
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              963,387Stock
                  Option Expense
              
              
              
              
              
              
              
              
              1,055,648
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,055,648Issuance
                  of stock for services
              
              
              204,341
              
              
              205
              
              
              226,284
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              226,489Cashless
                  exercise of stock options andwarrants
              
              
              49,333
              
              
              49
              
              
              (49
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              0Stock
                  issued - settlement expense
              
              
              307,534
              
              
              308
              
              
              91,952
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              92,260Share
                  issue and merger costs
              
              
              
              
              
              
              
              
              (441,553
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (441,553
              )Shares
                  retired, redeemed for payroll taxes onstock-based
                  compensation
              
              
              (3,008,990
              )
              
              (3,009
              )
              
              3,009
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              0Net
                  (loss) for the year ended December 31,2006
              
              
              
              
              
              
              
              
              
              
              
              (11,708,327
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              (11,708,327
              )Unrealized
                  gains on marketable securities
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              18,861
              
              
              
              
              
              
              
              
              18,861Amortization
                  of deferred stock compensationcosts
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              20,800
              
              
              
              
              
              20,800Allocation
                  of expenses fromThorium
                  Power Ltd.
              
              
              
              
              
              
              
              
              7,477,700
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              7,477,700Buyback
                  of stock - 850,000 shares to treasurystock
              
              
              (850,000
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (255,850
              )
              
              (255,850
              )Stock
                  based compensation - sharescommitted
                  for future issuance
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,200,000
              
              
              
              
              
              
              
              
              
              
              
              1,200,000Balance
                  - December 31, 2006
              
              
              256,441,709
              
              $
              257,292
              
              $
              23,148,560
              
              $
              (27,177,989
              )
              $
              1,200,000
              
              $
              18,861
              
              $
              (285,200
              )
              $
              (255,850
              )
              $
              (3,094,326
              )




*
      See
      footnote 1 regarding the recapitalization of Thorium Power Inc.




Shares
      subject to continuing registration rights is shown on the balance sheet as
      temporary equity, not shareholders deficiency




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




F-9




**Thorium
      Power, Ltd.**


**(A
      Development Stage Company)**


**Notes
      to the Consolidated Financial Statements**


**December
      31, 2006**


**(Restated)**





**INTRODUCTORY
      NOTE**





**RESTATEMENT
      OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS**




Subsequent
      to the issuance of the December 31, 2006 and 2005 consolidated financial
      statements, the Company determined that it needed to restate its 2006 and 2005
      financial statements in order to correct earlier disclosures made so that they
      are in accordance with generally accepted accounting principles. The first
      item
      restated was to reclassify the cash flow impact of common stock issue costs,
      total $441,553 from operating activities to financing activities in the
      statement of cash flows. This change in the statement of cash flows had no
      impact on the total net cash flows reported for the periods presented. It was
      also found that the company needs to change its presentation of the capital
      stock transactions in the statement of stockholders deficiency from January
      8,
      1992 (inception) to December 31, 2006. This change was made to reflect the
      equivalent number of Thorium Power Ltd. shares for each capital transaction,
      calculated by using the ratio of Thorium Power Ltd shares that were issued
      in
      the reverse merger to Thorium Power Inc. stockholders, to the outstanding shares
      held by the Thorium Power Inc. stockholders at the merger date (10/6/06). This
      change had no impact on the total number of common shares reported as
      outstanding as of December 31, 2006 on the statement of stockholders deficiency
      as well as the balance sheet. A restatement was made to increase the weighted
      average shares outstanding at December 31, 2006 and 2005. The loss per share
      reported for the year ended December 31, 2006 decreased from $0.09 to $0.08
      per
      share. Additional footnote disclosures in the financial statements were madeto
      clarify certain other disclosures. The cumulative financial numbers presented,
      required to be presented for all development stage companies, from inception
      (January 8, 1992) to December 31, 2006, reported on the statement of operations
      and statement of stockholders deficiency are now marked as unaudited, as it
      was
      not practicable for us to obtain permission from the prior auditor to reissue
      their audit report, which was for the periods up to December 31, 2001 and for
      the cumulative period January 8, 1992 to December 31, 2001.





Accordingly,
      these accompanying 2006 consolidated financial statements have been restated,
      for the items mentioned above, from the amounts previously reported. There
      were
      no changes on the balance sheet at December 31, 2006 and 2005 and the reported
      net loss for the years ended December 31, 2006 and 2005.




F-10




**Thorium
      Power, Ltd.**


**(A
      Development Stage Company)**


**Notes
      to the Consolidated Financial Statements**


**December
      31, 2006**




1.  NATURE
      OF OPERATIONS AND MERGER WITH THORIUM POWER INC.




Radkowsky
      Thorium Power Corp., incorporated in the state of Delaware on January 8, 1992
      (“Inception”), changed its name to Thorium Power, Inc. in Apri1 2001. Thorium
      Power, Inc. is engaged in the development, promotion and marketing of its three
      patented nuclear fuel designs: (1) Thorium/uranium nuclear fuel, (2)
      Thorium/reactor-grade plutonium disposing fuel, and (3) Thorium/weapons-grade
      plutonium disposing fuel. These fuels are designed to be used in existing light
      water reactors. Presently, we are focusing most of our efforts on demonstrating
      and testing our nuclear fuel technology for the Russian designed VVER-1000
      reactors.





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





We
      participate in a highly regulated industry that is characterized by governmental
      regulation. Our results of operations are affected by a wide variety of factors
      including general economic conditions, decreases in the use or public favor
      of
      nuclear power, the ability of our technology, the ability to safeguard the
      production of nuclear power and safeguarding our patents and intellectual
      property from competitors. Due to these factors, we may experience substantial
      period-to-period fluctuations in our future operating results.





We
      may in
      the future be designated as a potentially responsible party (PRP) by federal
      and
      state agencies with respect to certain sites with which we may have direct
      or
      indirect future involvement. Such designations can be made regardless of the
      extent of our involvement.





Operations
      to date have been devoted primarily to continued development of our fuel designs
      filing for certain patents relating to our technology, developing strategic
      relationships within the nuclear industry, securing political and some financial
      support from the United States and Russian governments, and administrative
      functions. We, therefore, based on our current operations, prepare our
      accompanying consolidated financial statements as a Development Stage
      Enterprise.





Merger
      Agreement




On
      February 14, 2006 Novastar Resources Ltd. (“Novastar”), entered into an
      Agreement and Plan of Merger (the “Merger Agreement”) with Thorium Power, Inc.
      and TP Acquisition Corp., a direct wholly-owned subsidiary of Thorium Power,
      Ltd. which was formed in connection with the merger transaction contemplated
      by
      the Merger Agreement. (Collectively after the merger, all entities are
      referred to as the “Company"). Concurrently therewith, Thorium Ltd (1)
      adopted its 2006 Stock Plan, (2) entered into an employment agreement with
      Seth
      Grae, President and Chief Executive Officer of Thorium Power, Inc. to also
      become President and Chief Executive Officer of Thorium Power, Ltd., which
      granted certain nonqualified stock options to Mr. Grae and (3) also entered
      into
      a subscription agreement with Thorium Power, Inc. for the purchase of 6,597,495
      shares for $0.13 per share (equivalent to $4.00 per Thorium Power Inc share
      price), subsequently these 6,597,495 shares were cancelled at the Merger date,
      October 6, 2006.





The
      Merger was consummated pursuant to the terms of an Agreement and Plan of Merger
      among the parties that was entered into on February 14, 2006 and then
      subsequently the original merger terms were amended on June 12, 2006 and August
      8, 2006. On October 6, 2006, subsequent to the merger, Novastar changed its
      name to Thorium Power Ltd. (“Thorium Power, Ltd.”)




F-11




**Thorium
      Power, Ltd.**


**(A
      Development Stage Company)**


**Notes
      to the Consolidated Financial Statements**


**December
      31, 2006**





Under
      the
      Merger Agreement each common share of Thorium Power, Inc. was converted into
      common stock securities of Thorium Power, Ltd. such that Thorium Power, Inc.'s
      current stockholders owned approximately 54.5% of the combined company (prior
      to
      dilution from common stock and warrants issued in connection with the May 2006
      private placement), and each share of Thorium Power, Ltd.'s common stock will
      remain outstanding. In addition, Thorium Power, Ltd. appointed new directors
      and
      officers following the merger. The combined company is headquartered in McLean,
      Virginia, where the Company's operations are presently based.





In
      accordance with the terms of the Merger Agreement, the following occurred with
      respect to the outstanding common shares, stock options and warrants of Thorium
      Power, Inc. at the closing of the Merger:





i) all
      of the shares of common stock of Thorium Power, Inc. were cancelled and each
      registered owner of outstanding shares of Thorium Power, Inc. common stock
      automatically became the registered owner of 31.36 shares of common stock of
      Thorium Power, Ltd., for each share of Thorium Power, Inc. common stock that
      they previously owned (recapitalization ratio for reverse merger accounting
      purposes). In accordance to the Merger Agreement, each holder of
      non-compensatory options or warrants of Thorium Power, Inc. that had an exercise
      price of $5.00 or $1.00, received from Thorium Ltd 12.315 shares and 22.965
      shares of Thorium Power, Ltd. respectively, for each option or warrant owned.
      There were 135,637,854 total common shares issued to the Thorium Power, Inc.
      stockholders in the aggregate. There was a total of 160,761,474 of common shares
      outstanding in Thorium Power Ltd. prior to the merger, of which 124,101,637
      shares are being shown as permanent equity in the statement of changes in
      stockholders’ deficiency and 36,659,837 as shown on the balance sheet as
      temporary equity. As a result of the merger, there were 296,399,328 common
      shares outstanding on October 6, 2006 (including the 36,659,837 shares of common
      stock shown as temporary equity).




ii) all
      of other outstanding warrants and options of Thorium Power, Inc. were assumed
      by
      Thorium Power, Ltd. and became exercisable for Thorium Power, Ltd. common stock
      in an amount and at an exercise price that is consistent with the exchange
      ratio
      described above for the conversion of Thorium Power, Inc. common stock. There
      were 22,539,083 Thorium Power, Ltd., stock purchase warrants and 22,567,242
      Thorium Power, Ltd., stock options assumed by Thorium Power, Inc. as of the
      date
      of the merger.





For
      financial reporting purposes, this merger transaction was recorded as a
      recapitalization of Thorium Power, Inc. whereby Thorium Power, Inc. is deemed
      to
      be the continuing, surviving entity for accounting purposes, but through
      reorganization, has deemed to have adopted the capital structure of Thorium
      Power, Ltd.




Accordingly,
      all references to common shares of Thorium Power, Inc.'s common stock have
      been
      restated to reflect the equivalent number of Thorium Power, Ltd.'s common
      shares. In other words, the 4,325,447 Thorium Power, Inc. shares outstanding
      (net of the 210,119 shares held by Thorium Power Ltd. that were cancelled at
      the
      Merger date) are restated as 135,637,854 common shares, as of October 6, 2006.
      Each share of Thorium Power Inc. is restated to 31.36 shares of Thorium Power
      Ltd, which includes the shares issued to holders of non-compensatory options
      or
      warrants of Thorium Power, Inc. that had an exercise price of $5.00 or $1.00,
      as
      mentioned above.





A
      summary
      of assets and liabilities that, for accounting purposes, were deemed to have
      been acquired by Thorium Power, Inc. from Thorium Power Ltd, book value as
      of
      the date of acquisition (October 6, 2006) were as follows:


Total
                  assets - consisting of cash of $12,742,408, prepaid and other receivables,
                  $117,384
              
              $
              12,859,792Temporary Equity Transfer
              
              
              (12,041,373
              )Total
                  Liabilities-consisting of warrant liabilities of $3,080,024 and
                  other
                  payables
              
              $
              (4,116,830
              )Book
                  Value of Thorium Power, Ltd. - transferred to stockholders
                  equity
              
              $
              (3,298,411
              )




For
      the
      purpose of disclosing the non-cash transactions for the statement of cash flows
      for the years ended December 31, 2006 and 2005, these assets acquired at book
      value represent the non-cash transactions. Also the company acquired $12,742,408
      of cash at the merger date (October 6, 2006). Due to this merger being recorded
      as a recapitalization of Thorium Power, Inc., this cash received was recorded
      as
      a financing activity on the Statement of Cash Flows.




F-12




**Thorium
      Power, Ltd.**


**(A
      Development Stage Company)**


**Notes
      to the Consolidated Financial Statements**


**December
      31, 2006**




In
      accordance with the Security and Exchange Commissions Staff Accounting Bulletin
      SAB.T.1B1, an allocation of expenses attributable to Thorium Power, Inc., was
      made to Thorium Power, Inc. from Thorium Power, Ltd. for periods prior to the
      merger date of October 6, 2006. The total expenses allocated to Thorium Power,
      Inc. up to October 6, 2006 (merger date) were $7,477,700, which consisted of
      $875,602 of general and administrative expense s
      and
      $6,602,098 of stock based compensation from Thorium Power, Ltd. These total
      allocated expenses of approximately $7.5 million were recorded as deemed capital
      contributions to Thorium Power Inc. by Thorium Power Ltd.





2.  SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES





a)
      Consolidation




These
      financial statements include the accounts of Thorium Ltd (a Nevada corporation)
      and our wholly-owned subsidiaries, Thorium Power, Inc. (a Delaware corporation)
      and TP Acquisition Corp., (a Delaware corporation). Due to the accounting
      treatment of the reverse merger mentioned above, the operating results reported
      are those of Thorium Power Inc. from January 1, 2006 to October 6, 2006 and
      the
      operating results of Thorium Power Inc., Thorium Power Ltd and TP Acquisition
      Corp consolidated, from October 6, 2006 (merger date) to December 31,
      2006.




All
      significant intercompany transactions and balances have been eliminated in
      consolidation.




b)
      Use of
      Estimates




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




F-13




**Thorium
      Power, Ltd.**


**(A
      Development Stage Company)**


**Notes
      to the Consolidated Financial Statements**


**December
      31, 2006**





These
      consolidated financial statements include some amounts that are based on
      management's best estimates and judgments. The most significant estimates relate
      to valuation of stock grants, stock options and stock purchase warrants,
      allocation of certain expenses incurred by Thorium Power, Ltd. that were
      attributable to Thorium Power, Inc., accrued liquidation damages pursuant to
      the
      Registration Right Agreement for the May 4, 2006 private placement, and various
      contingent liabilities. These above-mentioned estimates and others may be
      adjusted as more current information becomes available, and any adjustment
      could
      be significant in future reporting periods.




c)
      Prior
      Year Reclassifications




Certain
      reclassifications have been made to our prior years' financial statements in
      order to conform to the current year presentation. On our Statement of
      Operations, certain general and administrative expenses were combined into
      the
      one expense caption called general and administrative expenses. These
      reclassifications had no effect on previously reported results of operations
      or
      accumulated deficit of Thorium Power, Inc.




d
      ) Cash
      and Cash Equivalents




Cash
      and
      cash equivalents consists of cash on deposit, money market accounts, and
      investment grade commercial paper that are readily convertible into cash and
      purchased with original maturities of three months or less.




As
      part
      of its cash management program, the Company from time to time maintains a
      portfolio of marketable investment securities. The securities are investment
      grade and include tax and tax exempt securities and have a term to earliest
      maturity of less than 3 months. These marketable securities, classified as
      either available for sale, or trading securities are recorded at market
      value.




Concentration
      of Credit Risk





Cash
      in
      bank accounts is at risk to the extent that it exceeds Federal Deposit Insurance
      Corporation insured amounts. To minimize risk, the Company places its cash
      with
      high credit quality institutions. Substantially all cash is deposited in two
      prominent U.S. financial institutions.




Investment
      Securities




Trading
      and available-for-sale securities are recorded at fair value. Unrealized holding
      gains and losses on trading securities are included in the net income.
      Unrealized holding gains and losses, net of the related tax effect, on available
      for sale securities are excluded from net income and are reported as a separate
      component of other comprehensive income until realized. Realized gains and
      losses from the sale of available-for-sale securities are determined on a
      specific-identification basis.




A
      decline
      in the market value of any available-for-sale security below cost that is deemed
      to be other-than-temporary results in a reduction in carrying amount to fair
      value. The impairment is charged as an expense to the statement of income and
      comprehensive income and a new cost basis for the security is established.
      To
      determine whether an impairment is other-than-temporary, the Company considers
      whether it has the ability and intent to hold the investment until a market
      price recovery and considers whether evidence indicating the cost of the
      investment is recoverable outweighs evidence to the contrary. Evidence
      considered in this assessment includes the reasons for the impairment, the
      severity and duration of the impairment, changes in value subsequent to year
      end, and forecasted performance of the investee.




e)
      Property and Equipment





Property,
      Plant and Equipment is comprised of an automobile, computer and office equipment
      and is stated at cost less accumulated depreciation. Depreciation of furniture,
      computer and office equipment is computed over the estimated useful life of
      the
      asset, generally five and seven years respectively, utilizing the double
      declining balance methodology. Depreciation for the leasehold improvements
      is
      computed using the straight-line method over the 5 year term of the lease.
      Upon
      disposition of assets, the related cost and accumulated depreciation are
      eliminated and any gain or loss is included in the statement of income.
      Expenditures for major improvements are capitalized. Maintenance and repairs
      are
      expensed as incurred.




F-14




**Thorium
      Power, Ltd.**


**(A
      Development Stage Company)**


**Notes
      to the Consolidated Financial Statements**


**December
      31, 2006**




f)
      Income
      Taxes ****





Income
      taxes are accounted for under the asset and liability method in accordance
      with
      SFAS No. 109 "Accounting for Income Taxes." Deferred tax assets and liabilities
      are recognized for the future tax consequences attributable to differences
      between the financial carrying amounts of existing assets and liabilities and
      their respective tax bases and operating loss and tax credit carry forwards.
      Deferred tax assets and liabilities are measured using enacted tax rates
      expected to apply to taxable income in the years in which those temporary
      differences are expected to be recovered or settled. The effect on deferred
      tax
      assets and liabilities of a change in tax rates is recognized in income in
      the
      period that includes the enactment date. Deferred tax assets are reduced by
      a
      valuation allowance to the extent that the recoverability of the asset is
      unlikely to be recognized. The Company did not provide any current or deferred
      income tax provision or benefit for any periods presented to date because the
      Company has continued to experience a net operating loss since
      inception.





g)
      Stock-Based Compensation





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





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




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





The
      Company adopted FAS-123R on January 1, 2006, using the modified prospective
      method. The valuation of the stock issued to consultants for consulting services
      are valued as of the date of the agreements with the various consultants, which
      in all cases is earlier than the dates when the services are committed to be
      performed by the various consultants.





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




F-15




**Thorium
      Power, Ltd.**


**(A
      Development Stage Company)**


**Notes
      to the Consolidated Financial Statements**


**December
      31, 2006**




h)
      Warrants




Warrants
      issued in conjunction with equity financing were accounted for under the
      Emerging Issues Task Force FSP (“EITF”) Issue No. 00-19, `Accounting for
      Derivative Financial Instruments Indexed to and Potentially Settled in a
      Company's Own Stock'. In December 2006, the FASB approved FSP EITF 00-19-2
      Accounting for Registration Payment Arrangements, which establishes the standard
      that contingent obligations to make future payments under a registration rights
      arrangement shall be recognized and measured separately in accordance with
      Statement 5 and FASB Interpretation No. 14, Reasonable Estimation of the
      Amount of a Loss. The Company has currently evaluating the effect of how FSP
      EITF 00-19-2 and FSP EITF Topic D-98 will affect future financial statements.
      The adoption of this pronouncement on January 1, 2007 will change the
      classification of the warrant liability, $1,132,440 at December 31, 2006, to
      equity (additional paid in capital).





i)
      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 December
      31, 2006 and 2005, the Company stock equivalents were anti-dilutive and excluded
      in the loss per share computation.




j)
      Impairment Charges





Unlike
      goodwill and indefinite-lived intangible assets, the accounting rules do not
      provide for an annual impairment test in determining whether property, plant,
      and equipment and finite-lived intangible assets (e.g., patents) are impaired.
      Instead, they require that a triggering event occur before testing an asset
      for
      impairment. Examples of such triggering events include current-period operating
      or cash flow loss combined with a history of operating or cash flow losses,
      a
      significant disposal of a portion of such assets, an adverse change in the
      market involving the business employing the related asset, a significant
      decrease in the benefits realized from an acquired business, difficulties or
      delays in integrating the business and a significant change in the operations
      of
      an acquired business.





Once
      a
      triggering event has occurred, the impairment test employed is based on whether
      the intent is to hold the asset for continued use or to hold the asset for
      sale.
      If the intent is to hold the asset for continued use, the impairment test
      involves a comparison of undiscounted cash flows against the carrying value
      of
      the asset as an initial test. If the carrying value of such asset exceeds the
      undiscounted cash flow, the asset would be deemed to be impaired. Impairment
      would then be measured as the difference between the fair value of the fixed
      or
      amortizing intangible asset and the carrying value to determine the amount
      of
      the impairment. The Company generally determines fair value by using the
      discounted cash flow method. If the intent is to hold the asset for sale and
      certain other criteria are met (i.e., the asset can be disposed of currently,
      appropriate levels of authority have approved sale, and there is an actively
      pursuing buyer), the impairment test is a comparison of the asset's carrying
      value to its fair value less costs to sell. To the extent that the carrying
      value is greater than the asset's fair value less costs to sell, an impairment
      loss is recognized for the difference. The Company conducted an impairment
      test
      of its Patent at December 31, 2006 and determined that the future undiscounted
      cash flows associated with the Patent rights were sufficient to recover its
      carrying value. Assets held for sale are separately presented on the balance
      sheet and are no longer depreciated.





In
      November 2005, FASB issued FSP FAS 115-1 and FAS 124-1, The
      Meaning of Other-Than-Temporary Impairment and Its Application to Certain
      Investments (“FSP 115-1 and 124-1”), which clarifies when an investment is
      considered impaired, whether the impairment is other than temporary, and the
      measurement of an impairment loss. It also includes accounting considerations
      subsequent to the recognition of an other-than-temporary impairment and requires
      certain disclosures about unrealized losses that have not been recognized as
      other-than-temporary impairments. FSP 115-1 and 124-1 are effective for all
      reporting periods beginning after December 15, 2005. Implementation of
      these statements is not expected to have a significant impact on the Company's
      consolidated financial position or results of operations.





F-16




**Thorium
      Power, Ltd.**


**(A
      Development Stage Company)**


**Notes
      to the Consolidated Financial Statements**


**December
      31, 2006**




k)
      Comprehensive Income





Comprehensive
      income consists of net income and other gains and losses affecting shareholders'
      equity that, under generally accepted accounting principles are excluded from
      net income. For the Company, such items consist primarily of unrealized gains
      and losses on marketable debt securities, which the Company has classified
      as
      cash equivalents, as their maturities are three months or less.





l)
      Development 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 we are devoting substantially all of our efforts to
      developing our nuclear fuel designs. Until such designs are developed and
      significant revenue is derived from these nuclear fuel designs or other revenue
      sources, we will continue to prepare our consolidated financial statements
      and
      related disclosures in accordance with entities in the development
      stage.





m)
      Revenue Recognition





All
      of
      the Company's revenue to date from January 8, 1992 (Inception) to December
      31,
      2006 had been derived from licensing fees from nuclear industry commercial
      partners.




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




Total
      subsidies and grants from the US government totaled approximately $5.45 million,
      cumulative from January 8, 1992 (Inception) to December 31, 2006. These amounts
      were not paid to us but paid directly from the US government to third party
      research and development companies that worked on our nuclear project, as well
      as other projects.





n)
      Government Grants




Receipts
      of government grants to encourage research and development activities which
      are
      non-refundable will be credited to deferred income upon receipt. Government
      grants are used either for purchases of assets or to subsidize the research
      and
      development expenses incurred.




For
      purchases of assets, government grants are deducted from the carrying amount
      of
      the assets. For the research and development expenses, the Company matches
      and
      offsets the government grants with the expenses of the research and development
      activities as specified in the grant approval document in the corresponding
      period when such expenses incurred.





o)
      Segment Reporting




The
      Company uses the “management approach” in determining reportable operating
      segments. The management approach considers the internal organization and
      reporting used by the Company's chief operating decision maker for making
      operating decisions and assessing performance as the source for determining
      the
      Company's reportable segments. The Company has determined that the Company
      has
      one operating segment as defined by SFAS 131, “Disclosures about Segments of an
      Enterprise and Related Information”.





F-17




**Thorium
      Power, Ltd.**


**(A
      Development Stage Company)**


**Notes
      to the Consolidated Financial Statements**


**December
      31, 2006**





p)
      Commitments and Contingencies




Liabilities
      for loss contingencies arising from various claims, assessments, litigation,
      fines and penalties and other sources are recorded when it is probable that
      a
      liability has been incurred and the amount of the assessment can be reasonably
      estimated.





q)
      Recently Issued Accounting Standards




FASB
      Interpretation No. (“FIN”) 48, Accounting for Uncertainty in Income Taxes--an
      Interpretation of FASB Statement No. 109. In July 2006, the FASB issued FIN
      48,
      Accounting for Uncertainty in Income Taxes--an Interpretation of FASB Statement
      No. 109, which clarifies the accounting for uncertainty in tax positions. This
      Interpretation requires the Company recognizes in its consolidated financial
      statements the impact of a tax position if that position is more likely than
      not
      of being sustained on audit, based on the technical merits of the position.
      The
      provisions of FIN 48 are effective for the Company on January 1, 2007, with
      the
      cumulative effect of the change in accounting principle, if any, recorded as
      an
      adjustment to opening retained earnings. The Company does not believe FIN 48
      will have an impact on its consolidated financial statements.




SFAS
      157,
      Fair Value Measurements. In September 2006, the FASB issued SFAS 157, Fair
      Value
      Measurements, which defines fair value, establishes a framework for measuring
      fair value in generally accepted accounting principles, and expands disclosures
      about fair value measurements. SFAS 157 applies under other accounting
      pronouncements that require or permit fair value measurements, where fair value
      is the relevant measurement attribute. The standard does not require any new
      fair value measurements. SFAS 157 is effective for financial statements issued
      for fiscal years beginning after November 15, 2007, and interim periods within
      those fiscal years. The Company is currently evaluating the impact of adopting
      SFAS 157 on its consolidated financial statements.





Staff
      Accounting Bulletin (“SAB”) No. 108





In
      September 2006, the SEC issued SAB No. 108, which provides guidance on the
      process of quantifying financial statement misstatements. In SAB No. 108, the
      SEC staff establishes an approach that requires quantification of financial
      statement errors, under both the iron-curtain and the roll-over methods, based
      on the effects of the error on each of the Company's financial statements and
      the related financial statement disclosures. SAB No.108 is generally effective
      for annual financial statements in the first fiscal year ending after November
      15, 2006. The transition provisions of SAB No. 108 permits existing public
      companies to record the cumulative effect in the first year ending after
      November 15, 2006 by recording correcting adjustments to the carrying values
      of
      assets and liabilities as of the beginning of that year with the offsetting
      adjustment recorded to the opening balance of retained earnings. Management
      does
      not expect that the adoption of SAB No.108 would have a material effect on
      the
      Company's consolidated financial statements.





The
      Company is currently evaluating the effect of other new accounting
      pronouncements on its future statements of financial position and results of
      operations.





r)
      Intangible Assets - Patents




Patents
      are stated in the balance sheet at cost less accumulated amortization. The
      costs
      of the patents are amortized on a straight-line basis over their estimated
      useful lives. The amortization period for our patents range between 17-20
      years.




s)
      Retirement 401K Plan





We
      have a
      401(k) savings plan that was set up in 2006 covering substantially all of our
      employees. Eligible employees may contribute through payroll deductions. There
      were no Company matching contributions made to the 401(k) savings plan in
      2006.





3.  Financial
      Status of the Company - December 31, 2006




Management
      anticipates, based on its current projected working capital requirements, that
      it will have enough working capital funds to sustain its current operations
      at
      its current operating level, until sometime during the first quarter of 2008.
      The Company will have future issuances of its stock or incur debt, in order
      to
      provide funds to continue its operations into 2008 and beyond.




F-18




**Thorium
      Power, Ltd.**


**(A
      Development Stage Company)**


**Notes
      to the Consolidated Financial Statements**


**December
      31, 2006**





4.  Research and
      Development Costs





Research
      and development costs, included under the caption “general and administrative
      expenses” in the statement of operations amounted to $34,400 and $17,500 for the
      years ended December 31, 2006 and 2005, respectively and $3,926,558 from January
      8, 1992 (Inception) to December 31, 2006





5.  Property
      Plant and Equipment





The
      following represents the detail of the Company's property, plant and equipment
      at December 31, 2006 and 2005:


2006
              
              2005Furniture,
                  computer and office equipment
              
              $
              24,840
              
              $
              13,879Automobile
              
              
              22,217
              
              
              22,217Total
                  Cost
              
              
              47,057
              
              
              36,096Accumulated
                  Depreciation
              
              
              25,767
              
              
              14,881Net
                  Book Value
              
              $
              21,290
              
              $
              21,215





Depreciation
      expense for the years ended December 31, 2006 and 2005 were $10,886, and $5,434,
      respectively.





6. **** Intangible
      Assets - Patents





Patents
      represent legal fees and filing costs that are capitalized and amortized over
      their estimated useful lives of 17-20 years. There were no patents placed in
      service for the year ended December 31, 2006.





The
      following table summarizes the lives and carrying values of the Company's
      patents at December 31, 2006 and 2005:


2006
              
              2005Patents
              
              $
              411,669
              
              $
              405,005Accumulated
                  Amortization
              
              
              193,794
              
              
              193,794Net
                  Book Value
              
              $
              217,875
              
              $
              211,211





Amortization
      expense of patents was $- and $17,270 for the years ended December 31, 2006
      and
      2005 and $193,794 for the cumulative period from January 8, 1992 (Inception)
      to
      December 31, 2006.





7.  Stockholders'
      Equity





Total
      Common stock outstanding at December 31, 2006 was 293,101,546 (including
      36,659,837 shares of common stock with registration rights). There were also
      850,000 shares that were held as Treasury stock at December 31, 2006, bringing
      the total number of shares issued to 293,951,546. At December 31, 2006, there
      were 25,282,745 stock purchase warrants and 34,578,993 stock options
      outstanding, all totaling 352,963,284 of total stock and stock equivalents
      outstanding at December 31, 2006.




F-19




**Thorium
      Power, Ltd.**


**(A
      Development Stage Company)**


**Notes
      to the Consolidated Financial Statements**


**December
      31, 2006**





a). Common
      Stock Issuances





STOCK
      ISSUANCES PRIOR TO THE MERGER DATE (10/6/06)





During
      the year ended December 31, 2006, Thorium Power Inc., sold 8,354,919 (equivalent
      to 326,010 shares of Thorium Power Inc) shares of common stock to 22 investors
      for $1,539,678. Thorium Power, Inc. also sold, pursuant to the Merger Agreement,
      4,164,518 shares (equivalent to 162,500 shares of Thorium Power Inc.) of common
      stock to Novastar, at a stock price of $0.1561 per share (equivalent to $4.00
      per Thorium Power Inc share price), total proceeds of $650,000. These shares
      were subsequently cancelled after the merger. Thorium Power, Inc., also received
      $13,000 from the exercise of 333,161 stock options (equivalent to 13,000 Thorium
      Power Inc.stock options) at $0.0435 per share (equivalent to $1.00 price per
      Thorium Power Inc share). Total proceeds from the issuance of the above
      12,852,598 shares (equivalent to 501,510 shares of Thorium Power Inc. was
      $2,202,678. Thorium Power, Inc., also issued 26,268 shares (equivalent to 1,025
      shares of Thorium Power Inc. common stock at $0.1561 per share (equivalent
      to
      $4.00 per stock price of Thorium Power Inc.) shares in repayment of a loan
      from
      a director, which totaled $4,100. Thorium Power, Inc. also issued 512,556 shares
      (equivalent to 20,000 shares of Thorium Power Inc. common stock to directors,
      for director service rendered at $0.2049 per share (equivalent to $5.25 per
      Thorium Power Inc.) share price, total value of the services recorded was
      $105,000. Thorium Power, Inc., was a private company, so the value of the stock
      issued for services was determined by the price paid by the investors mentioned
      above, where 21 out of the 22 of these investors paid $0.2049 per share
      (equivalent to Thorium Power Inc. price of $5.25 per share). There were also
      16,659,275 (equivalent to 650,047 Thorium Power Inc.shares) of Thorium Power,
      Inc. shares issued to stock option holders, who exercised their stock options
      through the cashless exercise feature in accordance to their individual stock
      option agreements. All of these option holders had an exercise price of $0.039
      per share (equivalent to $1.00 per Thorium Power Inc. share price and the
      numbers of shares issued in the cashless exercise were based on the market
      price
      of $0.2049 per share (equivalent to Thorium Power Inc. $5.25 per
      share).





STOCK
      ISSUANCES-PURSUANT TO THE MERGER AGREEMENT-MERGER DATE - 10/6/2006





On
      October 6, 2006, the Company completed the merger, as more fully described
      in
      note 1, and issued 135,637,854 shares of Thorium Power, Ltd., stock to the
      stockholders of Thorium Power, Inc. For accounting purposes, Thorium Power
      Inc.
      is the continuing accounting entity, therefore Thorium Power Inc. is deemed
      to
      have issued these shares to its stockholders pursuant to the Merger Agreement.
      An additional 307,534 shares were issued pursuant to the Merger Agreement,
      after
      the merger date, for Thorium Power, Inc. shareholders that were not reflected
      in
      the Thorium Power, Inc. stockholders list, at the merger date. This stock
      issuance of 307,534 shares was recorded as a stock settlement expense which
      totaled $92,260, valued at the stock price of $0.30 per share, valued at the
      date the Company was first made aware of these shares being outstanding, that
      were not accounted for in their stock records. The Company reviewed these share
      certificates and determined that they were valid stock certificates and settled
      this matter, post merger, by issuing the equivalent Thorium Power Ltd. shares
      to
      these stockholders.





STOCK
      ISSUANCES AFTER THE MERGER DATE-After October 6, 2006





The
      Board
      of Directors of the Thorium Power, Ltd. increased the size of the board to
      five
      members and appointed two Independent Directors: Jack D. Ladd and Daniel B.
      Magraw, Jr., as a members of the Board of Directors of the Company, effective
      October 23, 2006. Pursuant to terms of the Independent Director's Contracts,
      dated October 23, 2006, between Mr. Ladd and the Company and Mr. Magraw and
      the
      Company Mr. Ladd and Mr. Magraw will each receive a fee of $20,000 per year
      in
      cash, as well as such number of restricted shares, issued quarterly, equal
      to
      $5,000 each quarter, to be paid to each Director for the respective quarter
      based on the average closing price of the Company's common stock, as quoted
      on
      the trading market on which the Company's securities are traded, over the thirty
      day period prior to the first day of the applicable quarter. On December 27,
      2006, a total of 22,050 shares were issued to the directors for their services.
      Additionally, the Director Contracts grant to Messrs. Ladd and Magraw for each
      year of service on the Board of Directors non-qualified options to purchase
      up
      to 500,000 shares of the common stock of the Company (the “Director Options”),
      which shall vest with respect to 13,889 shares on November 23, 2006 and the
      remaining 486,111 shares will subsequently vest in equal monthly installments
      of
      13,889 shares on each one month anniversary of the grant until all shares
      underlying the Director Options have vested. The third independent Director,
      Victor Alessi, was appointed as a director in August, 2006 and received 500,000
      stock options, term 5 years, vesting equally over 36 month period. On October
      11, 2006, 182,291 shares were issued pursuant to a legal settlement. On November
      6, 2006, 491,333 shares were issued, pursuant to a cashless stock option
      exercise of 140,953 shares, strike price was $0.195 per share and market value
      of the stock was $0.30 per share.




F-20




**Thorium
      Power, Ltd.**


**(A
      Development Stage Company)**


**Notes
      to the Consolidated Financial Statements**


**December
      31, 2006**




In
      November, 2006 the company redeemed 3,008,990 shares of common stock from its
      two executive officers in order to satisfy the payroll tax withholding
      obligations of the Company owed on their stock based compensation.





b).
      Common Stock Buyback Program - Treasury Stock





On
      October 17, 2006, the Company announced that its Board of Directors authorized
      a
      share buyback program for an aggregate of $1,000,000 over the next 12 months,
      with $250,000 of stock to be repurchased immediately. At the discretion of
      the
      CEO Seth Grae, the Company may effect further share repurchases over the course
      of the year depending on valuation of the Company reflected in the share price.
      As of the date of this report 850,000 shares had been repurchased pursuant
      to
      this program at the average approximate price of $0.30 per share. The Company
      valued all shares issued in the twelve month period ended December 31, 2006
      using the traded quoted market price of the Company's common stock as of the
      applicable agreement date. These shares are being held as Treasury Stock as
      of
      December 31, 2006.




c).
      Common Stock Issued With Registration Rights - Temporary Equity





On
      May 4,
      2006, the Company completed a private placement with certain investors in which
      it sold an aggregate of 36,659,837 units, consisting of 36,659,837 shares of
      its
      restricted common stock and 18,329,98 common stock purchase warrants for
      $15,580,431. Each unit consists of one share of common stock and one-half of
      a
      non-transferable share purchase warrant. Each whole warrant entitles the holder
      of the warrant to acquire one additional share of common stock at a price of
      $0.65 per share and expires twelve months from the closing date of the
      subscription expiration date or term subsequently extended 6
      months.





Under
      the
      terms of the sale, the investors were granted registration rights in which
      the
      Company agreed to timely file a registration statement to register the common
      shares and the shares underlying the warrants, obtain effectiveness of the
      registration statement by the SEC on or before September 1, 2006, and maintain
      the effectiveness of this registration statement for a pre-set time thereafter.
      In the event the Company failed to timely perform under the registration rights
      agreement, the Company agreed to pay the investors liquidated damages in an
      amount equal to 2% of the aggregate amount invested by the investors for each
      30-day period or pro rata for any portion thereof following the date by which
      the registration statement should have been effective. The initial registration
      statement was timely filed, however it was not declared effective by the SEC
      within the allowed time. Accordingly, the Company is liable to the investors
      for
      liquidated damages under the registration rights agreement. The Company
      recognized in other income and expenses, in its statements of operatons under
      the caption Registration Rights Expense, an amount of approximately $354,000
      for
      unpaid liquidated damages at December 31, 2006.




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




F-21




**Thorium
      Power, Ltd.**


**(A
      Development Stage Company)**


**Notes
      to the Consolidated Financial Statements**


**December
      31, 2006**





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





Based
      on
      the above interpretation, as of May 4, 2006, the Company classified $12,041,373
      for the value of common stock subject to registration rights as temporary equity
      instead of shareholders' equity. In addition, the Company measured the initial
      fair value of the warrants on May 4, 2006 at $3,539,058 and classified at that
      date the fair value of the warrants as warrant liability instead of
      shareholders' equity.





At
      the
      end of each reporting period, the value of these warrants is re-measured based
      on the fair value of the underlying shares, and changes to the warrant liability
      and related “gain or loss in fair value of the warrants” is recorded as a
      non-cash charge or credit to earnings. The warrant liability will be
      reclassified to shareholders' equity when the Company is no longer subject
      to
      all of its performance obligations under the registration rights agreement,
      or
      under FSP 00-19-2 as equity in 2007.





At
      December 31, 2006, the warrant liability decreased to $1,132,440 due to changes
      in the fair value of the warrants. The fair value of the warrants was estimated
      using the Black Scholes option-pricing model, with the following assumptions
      for
      the year ended December 31, 2006: risk-free interest rate of 3.86% dividend
      yield of 0%, expected life of .9 year and volatility of 106% were used. We
      expect to reclassify this warrant liability, in accordance with FSP 00-19-2
      to
      stockholders' equity, additional paid in capital, at January 1,
      2007.





For
      the
      period ended October 6, 2006 to December 31, 2006, the non-cash gain on fair
      value of warrants, or deduction in warrant liability, was $1,902,286. The gain
      recorded on the change in the fair value
      of derivative instruments was due principally to the decrease in
      the volatility factor used in the Black Scholes valuation of the warrants.
      The
      date range used to calculate this volatility factor was from January 5, 2006,
      date of announcement of Thorium Power, Ltd. and Thorium Power, Inc. merger,
      to
      December 31, 2006. The stock volatility factor for the fourth quarter of 2006
      was low, as the stock trading price remained primarily at $0.30 per share for
      this period of time. The non-cash gain on fair value of warrants, recorded
      as
      gain on fair value of warrant derivatives, has no effect on the Company's cash
      flows or liquidity.




d)
      Share-based Compensation





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




i).
                
                No
                    more than 37,500,000 options can be granted for the purchase
                    of restricted
                    common shares.ii).
                
                No
                    more than 8,000,000 options can be granted to any one
                    person.iii).
                
                No
                    more than 5,000,000 options can be granted to any one person
                    for the
                    purchase of restricted common
                    shares.




On
      January 1, 2006, the Company adopted FAS-123R. In March 2005, the SEC staff
      expressed their views with respect to FAS-123R in Staff Accounting Bulletin
      No.
      107, Share-Based Payment (“SAB 107”). SAB 107 provides guidance on valuing
      options. The impact of adopting FAS-123R for the year ended December 31, 2006
      was to record a non-cash compensation expense of $2,184,001, of which $937,619
      was allocated prior to the merger from Thorium Power, Ltd. for services rendered
      on behalf of Thorium Power, Inc. . Prior to January 1, 2006, the Company
      accounted for share-based payments under the recognition and measurement
      provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees
      (“APB
      25”), and related Interpretations, as permitted by FAS-123. In accordance with
      APB 25, no compensation cost was required to be recognized for options granted
      that had an exercise price equal to the market value of the underlying common
      stock on the date of grant. The Company adopted FAS-123R using the
      modified-prospective-transition method. Under that transition method,
      compensation cost recognized in future interim and annual reporting periods
      includes: a) compensation cost for all share-based payments granted prior to,
      but not yet vested as of January 1, 2006, based on the grant-date fair value
      estimated in accordance with the original provisions of FAS-123, and b)
      compensation cost for all share-based payments granted subsequent to January
      1,
      2006, based on the grant-date fair value estimated in accordance with the
      provisions of FAS-123R.




F-22




**Thorium
      Power, Ltd.**


**(A
      Development Stage Company)**


**Notes
      to the Consolidated Financial Statements**


**December
      31, 2006**




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





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





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





Total
      stock options outstanding at December 31, 2006 were 34,578,993 (22,567,242
      were
      assumed by Thorium Power Inc. in accordance with the Merger Agreement with
      Thorium Power, Ltd. and remain outstanding) and 16,325,523 of these total
      options were vested at December 31, 2006.





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


2006
              
              2005**Stock
                  Options Outstanding**Assumed
                  by the Merger
              
              
              22,567,242
              
              
              -Thorium
                  Power Inc. Options Outstanding
              
              
              12,011,751
              
              
              -Expired
              
              
              -
              
              
              -Forfeited
              
              
              
              
              
              -Outstanding
                  end of the year
              
              
              34,578,993
              
              
              -Options
                  exercisable at the end of the year
              
              
              16,325,523
              
              
              -




The
      above
      table includes options issued as of December 31, 2006 as follows:


i).
              
              A
                  total of 2,150,000 non-qualified 10 year options have been issued
                  by
                  Thorium Power, Ltd., to advisory board members at exercise prices
                  of $0.51
                  to $0.64 per share.ii).
              
              A
                  total of 5,500,000 non-qualified 5 year options have been issued
                  to
                  advisory board members at an exercise price of $0.445 per share
                  and a
                  weighted average of $0.445;
                  and




F-23




**Thorium
      Power, Ltd.**


**(A
      Development Stage Company)**


**Notes
      to the Consolidated Financial Statements**


**December
      31, 2006**




iii).
            
            A
                total of 14,917,242 non-qualified 10 year options have been issued
                to
                directors and officers of the Company, at exercise prices of $0.30
                to
                $0.80 per share. From this total, 7,200,000 options were issued to
                Chief
                Executive Officer who is also a director, on February 14, 2006, with
                a
                remaining contractual life of 9.1 years. All other options issued
                have a
                remaining contractual life ranging from 4.75 years to 9.9
                years.





The
      following table provides certain information with respect to the
      above-referenced stock options that are outstanding and exercisable at December
      31, 2006:





Stock
                  Options Outstanding
              
              Stock
                  Options Vested**Exercise
                  Prices**
              
              **Weighted**
                **Average**
                **Remaining**
                **Contractual Life**
                **- Years**
              
              **Number of**
                **Awards**
              
              **Number of**
                **Awards**
              
              **Weighted**
                **Average**
                **Exercise Price**$0.16
                  - $0.20
              
              
              3.1
              
              
              6,650,415
              
              
              6,650,415
              
              $
              0.16$0.30-$0.39
              
              
              1.2
              
              
              6,853,578
              
              
              4,478,277
              
              $
              0.37$0.45-$0.51
              
              
              7.2
              
              
              11,875,000
              
              
              1,627,085
              
              $
              0.48$0.64-$0.80
              
              
              9.2
              
              
              9,200,000
              
              
              2,083,334
              
              $
              0.77Total
              
              
              5.9
              
              
              34,578,993
              
              
              16,325,523
              
              $
              0.48





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





The
      aggregate intrinsic value of stock options outstanding at December 31, 2006
      was
      $931,058 of which $931,058 relates to vested awards. Intrinsic value is
      calculated based on the difference between the exercise price of the underlying
      awards and the quoted price of our common stock as of the reporting date ($0.30
      per share as of December 31, 2006)





**December 31,  2006**Average
                risk-free interest rate
            
            
            4.18%
                - 4.45%Average
                expected life
            
            
            5
                yearsExpected
                volatility
            
            
            108%
                - 275%Expected
                dividends
            
            
            0%





During
      the year ended December 31, 2006, $9,131,746 was recorded as stock-based
      compensation expense in the statement of operations. The result of all the
      above
      stock option grants that occurred after January 1, 2006 for Thorium Power Inc
      and stock option grants for Thorium Power Ltd that were recorded in the
      statement of operations totaled $2,719,496 (non-deductible for tax purposes,
      may
      provide a tax deduction for the Company when exercised). Stock compensation
      to
      executive officers totaled $6,138,250, one bonus at year end recorded to common
      stock reserved for issuance totaled $1,200,000, and the other stock compensation
      to officers in accordance with their employment agreements totaled $4,938,250.
      From this total amount of stock-based compensation of $9,131,746, $6,602,098
      was
      recorded on Novastar Resources Ltd. books for the period January 1, 2006 to
      October 6, 2006, but all of this compensation amount was incurred for Thorium
      Power Inc.'s benefit, thus allocated to Thorium Power Inc. statement of
      operations for the year ended December 31, 2006. The remaining stock-based
      compensation expense was to directors of $105,000 and the amortization of
      deferred stock compensation of $169,000. Some volatility factors used by
      Novastar, for five option grants in its fiscal year ended June 30, 2006
      calculated the volatility factor for Black Scholes using the term of the option,
      which is general practice, not from the announcement date of the merger, January
      5, 2006, which was later determined to be a more applicable date range due
      to
      the announcement date being the date the stock market reflected the merger
      in
      the valuation of the Company's stock. This difference in these volatility
      factors for these five option grants is not material to these financial
      statements, therefore, no current adjustment to the volatility factors was
      made
      to these financial statements for these five option grants and we have decided
      to continue to use these factors for future expense recognition of options
      under
      SFAS #123R.




F-24




**Thorium
      Power, Ltd.**


**(A
      Development Stage Company)**


**Notes
      to the Consolidated Financial Statements**


**December
      31, 2006**




e).
      Warrants





During
      the year ended December 31, 2006, there were 25,282,745 warrants outstanding
      as
      of December 31, 2006.





At
      December 31, 2006 the range of warrant prices for shares under warrants and
      the
      weighted-average remaining contractual life are as follows:




**Warrants
                  Outstanding****and**
                **Exercisable****Warrants
                  - Exercise Price**
              
              **Number of**
                **Warrants**
              
              **Weighted**
                **Average**
                **Remaining**
                **Contractual Life**
                **-
                  Years**$0.30
                  (Assumed from Thorium Power Ltd.)
              
              
              2,104,999
              
              
              .4$0.39
              
              
              2,743,662
              
              
              .6$0.50
                  (Assumed from Thorium Power Ltd.)
              
              
              2,104,166
              
              
              .8$0.65
                  (Assumed from Thorium Power Ltd.)
              
              
              18,329,918
              
              
              .9Total
              
              
              25,282,745




The
      investors in the November 23, 2005, March 30, 2006 and May 4, 2006 private
      placements received detachable warrants for the purchase of 2,104,999, 2,104,166
      and 18,329,918 shares of common stock, respectively, which were valued at
      $127,467, $281,117 and $3,539,058, respectively. For purposes of estimating
      the
      intrinsic fair value of each warrant as of dates of the private placements,
      the
      Company utilized the Black Scholes option-pricing model. The Company estimated
      the fair value of the warrants assuming no expected dividends and the following
      weighted-average assumptions:





**December 31, 2006**Average
                risk-free interest rate
            
            
            2.86%
                - 4.30%Average
                expected life
            
            
            1
                yearExpected
                volatility
            
            
            142%
                - 153%Expected
                dividends
            
            
            0%




On
      November 17, 2006 the Board of Directors of Thorium Power, Ltd., authorized
      the
      extension of the expiration date of all common stock purchase warrants above
      by
      six months from the expiration date identified on the respective warrants.
      This
      extension of the warrant terms resulted in an expense of $963,387, recorded
      under the caption warrant expense in the statement of operations in the category
      other income and expenses.




f).
      Common Stock and Warrants reserved for Future Issuance





Common
      stock and warrants reserved for future issuance consists of:




**Shares
                  of**
              
              **Stock****Common**
              
              **Purchase****Stock**
              
              **Warrants**
              
              **Amount**Stock-based
                  Compensation
              
              
              4,000,000
              
              
              0
              
              $
              1,200,000




F-25




**Thorium
      Power, Ltd.**


**(A
      Development Stage Company)**


**Notes
      to the Consolidated Financial Statements**


**December
      31, 2006**





The
      Compensation Committee of the Board of Directors on December 18, 2006 had
      unanimously voted to issue 4 million shares of restricted stock as a year end
      2006 bonus to its CEO and Executive VP of International Nuclear Operations.
      The
      price was to value these shares was the market price as of the date of the
      stock
      grant. In a subsequent capital transaction, in order for the company to remit
      the required payroll tax obligations related to this stock grant to the Federal
      and State taxing authorities, the Company redeemed 1,620,000 shares of this
      stock grant from the two executives, at a price of $0.20 per share (price
      determined by applying a lack of marketability discount). .. The Company, in
      January 2007, paid a total of $347,690 for primarily payroll tax withholdings
      (as a result of redeeming 1,620,000 shares of stock) and payroll tax expense
      due
      on these stock compensation issuances.




8.  Income
      Taxes





Deferred
      income taxes reflect the net tax effects of temporary differences between the
      carrying amounts of assets and liabilities recognized for financial reporting
      and the amounts recognized for income tax purposes. The significant components
      of deferred tax assets (at a 40% effective tax rate) as of December 31, 2006
      are
      as follows:


Total
                  Amount
              
              Deferred
                  Tax Asset Amount**Assets**Stock-based
                  compensation
              
              
              2,719,496
              
              
              1,087,798Approximate
                  net operating loss
              
              
              24,458,493
              
              
              9,783,397Less:
                  valuation allowance
              
              
              (27,177,989
              )
              
              (10,871,196
              )$
              -
              
              
              -





Management
      believes that it is more likely than not that the forecasted taxable income
      will
      not be sufficient to utilize the tax carryforwards of approximately $24,458,493,
      before its expiration in 2012 and 2026 to fully recover the asset. As a result,
      the amount of the deferred tax assets considered realizable was reduced 100%
      by
      a valuation allowance. In the near term, if estimates of future taxable income
      are increased, such an increase will change the valuation allowance. The Company
      has no other deferred tax assets or liabilities.





9.  Research
      Agreement





The
      Company is party to an agreement whereby all of its current research is being
      performed by the Russian Research Centre, known as the Kurchatov Institute
      (“RRC”), on the Company's fuel designs. All the funding under this agreement is
      supplied by the Company. As of March 12, 2007, the Company fulfilled all of
      its
      financial obligations under that agreement.





The
      Company is now in the final stage of negotiations over a new Cooperative
      Research Agreement (CRA) with an entity closely affiliated with the Russian
      Atomic Energy Agency (RosAtom) that will provide a necessary legal mechanism
      for
      the next phase of research and demonstration activities leading to lead test
      assembly testing in an operating VVER-1000 reactor in Russia. The initial scope
      of work under the new CRA is expected to cost approximately $5,000,000 over
      a 15
      month period.





10.  Commitments
      and Contingencies





Firm
      Price Commitments





The
      Company entered into a firm price commitment agreement with the University
      of
      Texas of the Permian Basin (“UTPB”), in connection with its participation in the
      pre-conceptual design phase for the construction of a high-temperature test
      and
      research reactor in Texas. The agreement had created a commitment by the Company
      for a minimum of $1.25 million financial contribution toward the project. A
      minimum payment of $50,000 on the agreement was due and paid on February 22,
      2006, with 10 additional conditional contributions totaling $1.2 million due
      by
      December 31, 2006. A total of $550,000 has been paid as of December 31, 2006
      and
      these amounts were recorded as donations, under the caption general and
      administrative expenses.




The
      terms
      of this agreement allow either party to terminate the agreement at any time
      upon
      giving written notice of termination. The Company, after having further detailed
      discussions with UTPB regarding the use of the $550,000 donations that were
      made
      to UTPB in 2006 and the terms of the agreement, it was understood between the
      parties that if future donations were to be given, they would be given at the
      discretion of Thorium Power based on the future use of these funds. 
Therefore, it is management's assessment and opinion, that under the terms
      of
      this agreement, the Company has no further obligations to fund the additional
      $675,000 to UTPB project; any future funding will be made at the discretion
      of
      Thorium Power, subject to the condition that the proceeds are directed by UTPB
      to the Company’s nuclear research or other development work related to its
      Thorium based fuel designs, as agreed to by the parties.




F-26




**Thorium
      Power, Ltd.**


**(A
      Development Stage Company)**


**Notes
      to the Consolidated Financial Statements**


**December
      31, 2006**





Lease
      Commitments





i) The
      Company leases office space. Future estimated rental payments under these
      operating leases are as follows:




**Dollars**Year
                  ending December 31, 2007
              
              $
              70,000Year
                  ending December 31, 2008
              
              $
              35,000





COMMITMENTS
      AND CONTRACTUAL OBLIGATIONS





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




F-27




SIGNATURES





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


Date:
                   September 11, 2007THORIUM
                  POWER, LTD./s/
                  Seth GraeBy:
              Seth
                  GraeChief
                  Executive Officer,President
                  and Director





In
      accordance with 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/s/
                Seth Grae
            Chief
                Executive Officer, President and DirectorSeth
                Grae
            (Principal
                Executive Officer)/s/
                Larry Goldman
            Acting
                Chief Financial Officer and TreasurerLarry
                Goldman
            (Principal
                Financial Officer)/s/
                Thomas Graham, Jr.
            DirectorThomas
                Graham, Jr./s/
                Victor Alessi
            DirectorVictor
                Alessi/s/
                Jack Ladd
            DirectorJack
                Ladd/s/
                Dan Magraw
            DirectorDan
                Magraw