**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-KSB**


x
              **ANNUAL
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934:**
                For
                  the fiscal year ended: 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).  Yes
o No x





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**
              
              
              
              3**Item
                  1.**
              
              **DESCRIPTION
                  OF BUSINESS.**
              
              3**Item
                  2.**
              
              **DESCRIPTION
                  OF PROPERTY.**
              
              13**Item
                  3.**
              
              **LEGAL
                  PROCEEDINGS.**
              
              13**Item
                  4.**
              
              **SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS.**
              
              13**PART
                  II**
              
              
              
              13**Item
                  5.**
              
              **MARKET
                  FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
                  ISSUER
                  PURCHASES OF EQUITY SECURITIES.**
              
              13**Item
                  6.**
              
              **MANAGEMENT'S
                  DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.**
              
              14**Item
                  7.**
              
              **FINANCIAL
                  STATEMENTS**
              
              19**Item
                  8.**
              
              **CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                  DISCLOSURE.**
              
              19**Item
                  8A.**
              
              **CONTROLS
                  AND PROCEDURES.**
              
              19**Item
                  8B.**
              
              **OTHER
                  INFORMATION.**
              
              20**PART
                  III**
              
              
              
              20**Item
                  13.**
              
              **EXHIBITS.**
              
              20
  2





**FORWARD-LOOKING
      STATEMENTS**





Certain
      statements contained in this report under “Item 1—Business,” “Item
      6—Management’s Discussion and Analysis of Financial Condition and Results of
      Operations,” “Item 9—Directors and Officers of the Registrant” and “Item
      10—Executive Compensation” including, without limitation, those concerning our
      liquidity and capital resources, contain forward-looking statements within
      the
      meaning of the Private Securities Litigation Reform Act of 1995 concerning
      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.





When
      used
      in this report, the terms “Thorium Power,” “Company,” “we,” “our,” and “us”
refer to Thorium Power, Ltd. and its wholly-owned subsidiary Thorium Power,
      Inc.
      (“Thorium Power, Inc.”).





**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.


3


***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.




4




***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).




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***




Our
      market of interest is the supply of thorium-based nuclear fuel designs. The
      world's nuclear fuel fabrication market is controlled by a handful of large
      nuclear fuel fabricators which develop proprietary uranium-based fuel designs.
      The key world nuclear fuel market players are, in order of magnitude of fuel
      fabrication: (1) Areva of France, owned predominantly by the French government,
      (2) Westinghouse, predominantly owned by Toshiba, (3) Global Nuclear Fuel,
      a
      joint venture of three companies, General Electric, Hitachi and Toshiba, and
      (4)
      Russian fuel companies supplying fuel primarily to Russian-type
      reactors.




Each
      of
      these companies has its own fuel design capabilities and also has the ability
      to
      fabricate nuclear fuels. Thorium Power, on the other hand, only intends to
      provide fuel design services. We do not intend to fabricate fuels. Accordingly,
      these companies will be our competitors in that they may design alternatives
      to
      our fuel designs, however, they will also be potential licensees of our fuel
      designs and may fabricate nuclear fuels using our fuel design technology.




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.





5




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
      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.




***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.




6




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.




***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:


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


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


l  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


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




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




International
      patents:


l  Russia
          -
          Patent No. 2,176,826
 l  Russia
          -
          Patent No. 2,222,837
 l  South
          Korea - Patent No. 301,339
 l  South
          Korea - Patent No. 336,214




7




l 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.




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:




l
            *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.




l
            *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.




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




8




l
            *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.




l
            *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.




l
            *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.




l
            *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:




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




l
            higher
                uranium enrichment level,




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




l
            high
                burn-up levels of seed and blanket,




l
            use
                of metallic seed rods,




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




l
            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.




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.




9




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.





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.





10




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.




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.




11




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:


l
              quarterly
                  variations in operating results;l
              changes
                  in financial estimates by securities analysts;l
              changes
                  in market valuations of other similar companies;l
              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;l
              additions
                  or departures of key personnel;l
              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;l
              future
                  sales of common stock; andl
              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.




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.





12




**Item
      2.** **DESCRIPTION
      OF PROPERTY.**





We
      are
      obligated to pay approximately $10,000 per month for office rent and
      approximately another $2,500 per month for other fees for the rented
      office space located at 8300 Greensboro Drive, Suite 800, McLean, Virginia
      22102.  The space is used by our executives for administrative
      purposes.  The term of the lease expires for one office on April 30, 2007
      and for the other offices in the summer of 2007.





**Item
      3.**  **LEGAL
      PROCEEDINGS.**





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




**Item
      4.**  **SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.**





On
      October 5, 2006, we held a Special Meeting of Stockholders at which a majority
      of the stockholders of the Company approved certain amendments to the Company’s
      Articles of Incorporation.





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





Matter
                Voted Upon
            
            Votes
                For
            
            Withheld
            
            Votes
                Against
            
            Abstentions
            
            Broker
                Non-Votes(1)
                To approve the Company’s Second Amended and Restated 2006 Stock
                Plan
            
            
            90,503,078
            
            
            —
            
            
            2,761,856
            
            
            58,710
            
            
            —(2)
                To approve an amendment to the articles of incorporation of the Company
                that increases the number of authorized common shares from 250,000,000
                to
                500,000,000
            
            
            93,006,084
            
            
            —
            
            
            291,050
            
            
            26,510
            
            
            —(3)
                To approve an amendment to the articles of incorporation of the Company
                that changes the name of the Company to “Thorium Power,
                Ltd.”
            
            
            93,159,634
            
            
            —
            
            
            147,500
            
            
            16,510
            
            
            —(4)
                To approve an amendment to the articles of incorporation of the Company
                that increases the maximum number of directors that may be appointed
                to
                the Board of Directors from 5 to 15
            
            
            91,883,014
            
            
            —
            
            
            253,160
            
            
            1,187,470
            
            
            —





In
      accordance with the terms set forth in the proxy statement related to the
      solicitation of proxies for use at the Special Meeting, an abstentionfrom
      voting was used for the purpose of establishing a quorum, and was considered
      a
      vote “against” a proposal. All of the above matters were approved by the
      stockholders at the Special Meeting.





**PART
      II**





**Item
      5.**  **MARKET
      FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER
      PURCHASES OF EQUITY SECURITIES.**





***Market
      Information***




Our
      common stock is listed and traded on the OTC Bulletin Board. The following
      table
      sets forth the high and low closing per share sales prices of our common stock
      as reported on the OTC Bulletin Board for the quarterly fiscal periods presented
      below. The quotations were obtained from the OTC Bulletin Board website and
      reflect inter-dealer prices, without retail mark-up, mark-down or commission
      and
      may not represent actual transactions.





FISCAL
                YEAR
            
            QUARTER
                ENDING
            
            HIGH
            
            LOW2006
            
            December
                31, 2006
            
            $0.30
            
            $0.30September
                30, 2006
            
            $0.49
            
            $0.44June
                30, 2006
            
            $0.74
            
            $0.43March
                31, 2006
            
            $0.88
            
            $0.192005
            
            December
                31, 2005
            
            $0.28
            
            $0.14September
                30, 2005
            
            $0.29
            
            $0.13June
                30, 2005
            
            $0.22
            
            $0.08March
                31, 2005
            
            $0.22
            
            $0.09




13




***Holders***





As
      of
      March 2, 2007, our common stock was held by 305 stockholders of record.





***Reports
      to Stockholders***





We
      plan
      to furnish our stockholders with an annual report for each fiscal year ending
      December 31 containing financial statements audited by our independent certified
      public accountants. Additionally, we may, in our sole discretion, issue
      unaudited quarterly or other interim reports to our stockholders when we deem
      appropriate. We intend to maintain compliance with the periodic reporting
      requirements of the Exchange Act.




***Dividends***





We
      have
      never paid dividends. While any future dividends will be determined by our
      directors after consideration of the earnings, financial condition and other
      relevant factors, it is currently expected that available cash resources will
      be
      utilized in connection with our ongoing operations.





***Section
      15(g) of the Securities Exchange Act of 1934 - The Penny Stock
      Rules***





Our
      shares are covered by Section 15(g) of the Securities Exchange Act of 1934,
      as
      amended that imposes additional sales practice requirements on broker/dealers
      who sell such securities to persons other than established customers and
      accredited investors (generally institutions with assets in excess of $5,000,000
      or individuals with net worth in excess of $1,000,000 or annual income exceeding
      $200,000 or $300,000 jointly with their spouses). For transactions covered
      by
      this Section 15(g), the broker/dealer must make a special suitability
      determination for the purchase and have received the purchaser's written
      agreement to the transaction prior to the sale. Consequently, Section 15(g)
      may
      affect the ability of broker/dealers to sell our securities and also may affect
      your ability to sell your shares in the secondary market.





Section
      15(g) also imposes additional sales practice requirements on broker/dealers
      who
      sell penny securities. These rules require a one page summary of certain
      essential items. The items include the risk of investing in penny stocks in
      both
      public offerings and secondary marketing; terms important to an understanding
      of
      the function of the penny stock market, such as "bid" and "offer" quotes, a
      dealers "spread" and broker/dealer compensation; the broker/dealer compensation,
      the broker/dealers’ duties to its customers, including the disclosures required
      by any other penny stock disclosure rules; the customers’ rights and remedies in
      causes of fraud in penny stock transactions; and, the NASD's toll free telephone
      number and the central number of the North American Administrators Association,
      for information on the disciplinary history of broker/dealers and their
      associated persons.





***Transfer
      Agent***





Our
      transfer agent and registrar for our common stock is Computershare Investor
      Services, 350 Indiana Street, Suite 800, Golden, Colorado, 80401. Its telephone
      number is 303.262.0600 and facsimile is 303.262.0632.





***Recent
      Sales of Unregistered Securities***





Except
      for sales previously disclosed in quarterly reports on form 10-QSB or in a
      current report on Form 8-K filed by us with the Securities and Exchange
      Commission, we have not sold any securities without registration under the
      Securities Act of 1933. See Item **7** of Part
      II “Financial Statements - Note 6 - Share
      Capital” for unregistered stock issuances by us for the year ended December 31,
      2006.





**Item
      6.**  **MANAGEMENT'S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.**





The
      following discussion should be read in conjunction with our financial
      statements, together with the notes to those statements, included elsewhere
      in
      this report. The following discussion contains forward-looking statements that
      involve risks, uncertainties, and assumptions such as statements of our plans,
      objectives, expectations, and intentions. Our actual results may differ
      materially from those discussed in these forward-looking statements because
      of
      the risks and uncertainties inherent in future events.




***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.


14


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 out 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.”





***Material
      Opportunities and Challenges***




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




Thorium
      Power, Inc. has been developing relations with relevant entities within the
      United States and Russian governments for over thirteen years. Thorium Power,
      Inc., in cooperation with these governments, has been demonstrating its fuel
      designs in a research reactor in Russia for over three years. Independent
      analyses of the technology have been performed, including a May 2005 report
      by
      the IAEA and a Spring 2005 report by Westinghouse Electric Company LLC
      (“Westinghouse”). The IAEA and Westinghouse analyses were positive and
      management believes that they can help lead to the favorable reception of our
      nuclear fuel designs in the future.




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




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




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




15




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




***Plan
      of Operation***





At
      December 31, 2006, our total assets were approximately $ 11.6
      million .
      Liabilities as of December 31, 2006 totaled approximately $ 2.6
      million .
      We had
      working capital surplus of approximately $ 8.7
      million at
      December 31, 2006.





While
      management presently expects that our present working capital will meet our
      foreseeable working capital needs for the next 10-12 months from the date of
      this filing. Our current average monthly projected working capital requirements
      for the company, excluding the $5 million of research and development expenses
      we expect to incur in Russia over the next 12-15 months, as mentioned below,
      is
      approximately $500,000 per month (including approximately $100,000 per month
      for
      payroll and payroll-related fringe benefits). 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 sometime
      in
      2007 in order to insure we have the necessary working capital available to
      continue our operations in 2008. 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.




Over
      the
      next 12 to 15 months we expect to incur approximately $5 million in research
      and
      development expenses related to the development of our proprietary nuclear
      fuel
      designs. Of the $5 million, the cost of seed and blanket fuel fabrication
      equipment that would be purchased and used to fabricate trial seed and blanket
      fuel rods is expected to be approximately $2 million and the cost of nuclear
      materials used in fabrication of trial seed and blanket fuel rods is estimated
      at about $850,000. We expect to incur these expenses after we have reached
      a
      formal agreement with Russian nuclear entities that will grant us licensing
      and
      other rights to use such technologies or intellectual property developed by
      the
      Russian entities. We expect this agreement to be signed within the next several
      months and these research expenses to be in the range of approximately $2
      million to $2.5 million for fiscal 2007, but it is possible that such expenses
      could be less or more than those amounts. We spent approximately $35,000 for
      research and development in 2006 and no significant additional amounts spent
      in
      2007, as of the date of this filing.





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





Additionally,
      we anticipate increasing our payroll and related fringe benefits costs in our
      fiscal year ended December 31, 2007, as we are looking to hire a permanent
      Chief
      Financial Officer in 2007 to add to our management team.





16





***Results
      of Operations***





Fiscal
      Year 2006





We
      had no
      revenues during the fiscal years ended December 31, 2006.





Our
      total
      operating expenses for fiscal year 2006 were $12.3 million consisting
      of:





·
            $9.1
                million of stock based
                compensation;




·
            $1.5
                million in professional fees and other general and administrative
                expenses;




·
            $0.8
                million of payroll and severance
                expenses;




·
            $0.6
                million in contributions to a nuclear reactor project in Texas;
                and




·
            $0.3
                million in consulting expenses.





Other
      income and expense was $0.6 million for fiscal year 2006. This consists of





·
            $1.9
                million gain on the fair value of derivative instruments;
                and




·
            $0.1
                million of interest income, which was offset
                by




·
            $1.0
                million of warrant expense;




·
            $0.3
                million of registration rights expense;
                and




·
            $0.1
                million of stock settlement
                expense.





Our
      net
      loss was approximately $11.7 million in fiscal year 2006.





Since
      the
      acquisition by Thorium Power, Ltd. of Thorium Power, Inc. was treated from
      an
      accounting perspective as a reverse acquisition, income and loss of Thorium
      Power, Ltd prior to October 6, 2006 (the date of acquisition) is generally
      not
      included in the consolidated financial statements of Thorium Power, Ltd.
      However, prior to the acquisition, approximately $7.5 million in expenses were
      incurred by Thorium Power, Ltd. on behalf of Thorium Power, Inc. Consequently,
      this $7.5 million was allocated to Thorium Power, Inc. This allocation is the
      result of the application of SEC Staff Accounting Bulletin (SAB)
      T.1B1.





Fiscal
      Year 2005





We
      had no
      revenues in 2005.





Our
      total
      expenses for fiscal year 2005 were $0.8 million consisting of:





·
            $0.3
                million of stock based
                compensation;




·
            $0.3
                million of payroll expenses; and




·
            $0.2
                million in other general and administrative
                expenses.





Our
      net
      loss was approximately $0.8 million in fiscal year 2005.





***Liquidity
      and Capital Resources***




As
      of
      December 31, 2006 and December 31, 2005, we had cash and cash equivalents of
      $ 10,927,775 and
      $283,
      respectively. At March 1, 2007 we had total cash and cash equivalents of $9.5
      million. In 2007 we have set up a separate account (“R&D Account”) and have
      designated $5 million of our total cash to be held in this R&D Account. The
      following table provides detailed information about our net cash flow for all
      financial statements periods presented in this Report.




**Cash
      Flow**




**Years
                Ended December 31,****2006**
            
            **2005**Net
                cash used in operating activities
            
            
            (3,746,188
            )
            
            (287,597
            )Net
                cash used in investing activities
            
            
            (17,625
            )
            
            (25,957
            )Net
                cash provided financing activities
            
            
            14,691,305
            
            
            313,375Net
                cash Flow
            
            
            10,927,492
            
            
            (179
            )




*Operating
      Activities* :


17




Net
      cash
      used for operating activities was $ 3,746,188 for the
      year ended December 31, 2006 which is an increase of $3,458,591 **** from
      the
      $287,597 **** net
      cash
      used for operating activities for the same period in 2005. This increase was
      mainly due to an increase in overhead expenses.




*Investing
      Activities* :




Net
      cash
      used for investing activities in the year ended December 31, 2006 was $17,625,
      which is a decrease of $8,332 **** from
      net
      cash used for investing activities of $25,957 **** in
      the
      same period of 2005 due to the company’s purchase of equipment.




*Financing
      Activities* :




Net
      cash
      provided by financing activities in the year ended December 31, 2006 totaled
      $14,691,305 as compared to $313,375 provided by financing activities in the
      same
      period of 2005. The increase of the cash provided by financing activities was
      mainly attributable to $2,202,678
      of cash acquired from the issuance of the company’s common stock ($650,000
      received from Novastar Resources Ltd prior to the merger) and also $12,742,408
      of cash acquired at the merger date (October 6, 2006) from Novastar Resources
      Ltd .
      We also
      purchased 850,000 shares of treasury stock in the open market at a total cost
      of
      $255,850.




While
      management expects these proceeds will meet our foreseeable needs for the next
      10-12 months, 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.





***Off
      Balance Sheet Arrangements***




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




***Seasonality***




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




***Inflation***




As
      a
      development stage company, our business, revenues and operating results have
      not
      been affected in any material way by inflation. If and when it begins marketing
      thorium and other minerals, management expects its business will be affected
      by
      inflation and commodity price volatility.




***Critical
      Accounting Policies***




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




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




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





Deferred
      tax assets and liabilities




We
      will
      recognize the expected future tax benefit from deferred tax assets when the
      tax
      benefit is considered to be more likely than not of being realized. Assessing
      the recoverability of deferred tax assets requires management to make
      significant estimates related to expectations of future taxable income.
      Estimates of future taxable income are based on forecasted cash flows and the
      application of existing tax laws in each jurisdiction. To the extent that future
      cash flows and taxable income differ significantly from estimates, our ability
      to realize deferred tax assets could be impacted. Additionally, future changes
      in tax laws in the jurisdictions in which we operate could limit our ability
      to
      obtain the future tax benefits.


18


Accounting
      for Stock Based Compensation, Stock Options and Warrants Granted to Employees
      and Nonemployees




We
      adopted the provisions of SFAS 123R, which requires the use of the fair value
      method of accounting for share-based compensation. Under the fair value based
      method, compensation cost related to employee stock options or similar equity
      instruments is measured at the grant date based on the value of the award and
      is
      recognized over the service period, which is usually the vesting period. SFAS
      123R also requires measurement of cost of a liability-classified award based
      on
      its current fair value.  The fair value of the liability-classified award
      will be subsequently remeasured at each reporting date through the settlement
      date.  Change in fair value during the requisite service period will be
      recognized as compensation cost over that period.  We determine fair value
      using the Black-Scholes model. Under this model, certain assumptions, including
      the risk-free interest rate, the expected life of the options and the estimated
      fair value of our ordinary shares and the expected volatility, are required
      to
      determine the fair value of the options. If different assumptions had been
      used,
      the fair value of the options would have been different from the amount we
      computed and recorded, which would have resulted in either an increase or
      decrease in the compensation expense.





The
      options were valued using the Black-Scholes option pricing model. The
      assumptions used were as follows: volatility of 106% to 275%, a risk-free
      interest rate of 3.86% to 4.45%, dividend yield of 0% and an exercise term
      of
      one to five years.





Allocation
      of Expenses between Thorium Power Ltd. and Thorium Power Inc.





We
      adopted Staff Accounting Bulletin SAB.T.1B1 whereby 2006 expenses incurred
      by
      Thorium Power Ltd on behalf of Thorium Power Inc. prior to the merger on October
      6, 2006, were allocated to Thorium Power Inc. and included as expenses in the
      accompanying Consolidated Statements of Operations. This allocation required
      management to make some estimates on how to allocate certain general and
      administrative expenses. A total of $7,477,700 of expenses was allocated for
      the
      period January 1, 2006 to October 6, 2006, which included $6,602,098 of stock
      based compensation and $875,602 of general and administrative
      expenses.





Registration
      Rights Expense





We
      incurred an estimated cost of approximately $354,000, captioned in the statement
      of operations as registration rights expense, due to the late date of a
      registration statement being declared effective that was filed with the
      Securities and Exchange Commission, filed in connection with the May 4, 2006
      private placement and the Registration Rights agreement. This amount was
      estimated based on the responses we received from most of the investors. We
      have
      not yet settled with all the investors so our total expense could change in
      future periods, once we resolve this issue with all of the
      investors.










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




**AUDITED
        FINANCIAL STATEMENTS**
 
 **THORIUM
        POWER, LTD**
 (A
        Development Stage Company)
  **DECEMBER
        31, 2006**
 
 **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 and for the
          period from January 1, 2002 to December 31, 2006. 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 did not audit the financial statements
          from
          January 8, 1992 (date of inception), to December 31, 2001. Those statements
          were
          audited by other auditors, whose report dated March 29, 2002, gave an
          unqualified opinion thereon.
  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 and for the
          period from January 1, 2002 (Inception) to December 31, 2006, in conformity
          with
          accounting principles generally accepted in the United States of America.
 
 
 /s/
          Child, Van Wagoner & Bradshaw, PLLC
 Child,
          Van Wagoner & Bradshaw, PLLC
 Salt
          Lake
          City, Utah
 March
          19,
          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 issuedand
                  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**
  Year
                  End
              
              Cumulative
                  Period from January 8, 1992 (Inception) toDecember
                  31,
              
              December
                  31,2006
              
              2005
              
              2006Revenue: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
              
              $
              (0.09
              )
              $
              (0.01
              )Weighted
                  Average Number of shares used to compute per share data
              
              
              131,630,954
              
              
              84,952,620
  **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 31,2006
              
              2005
              
              2006Operating
                  ActivitiesLoss
                  for the year
              
              $
              (11,708,328
              )
              $
              (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
              
              
              86,855Capitalization
                  of Share Issue costs
              
              
              (441,553
              )
              
              0
              
              
              (441,553
              )Warrant
                  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
              
              
              (220,200
              )
              
              142,913
              
              
              718,576Other
                  assets
              
              
              5,518
              
              
              0
              
              
              5,518Other
                  current liabilities
              
              
              302,392
              
              
              0
              
              
              302,392Net
                  Cash (Used In) Operating Activities
              
              
              (3,746,188
              )
              
              (287,597
              )
              
              (15,532,053
              )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
              
              
              14,498,016Payments
                  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
              
              $
              14,691,305
              
              $
              313,375
              
              $
              27,150,626Net
                  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
              
              $
              -
              
              $
              -
              
              $
              -
  **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**
  Common
                  Stock
              
              Additional
                  Paid-in
              
              Accumulated
              
              Stockholders’Shares
              
              Amount
              
              Capital
              
              (Deficit)
              
              Equity**Inception
                  - January 8, 1992**Authorized
                  2,500,000 shares - $.05 par value
              
              
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -Issuance
                  of common stock for technology and service
              
              
              1,200,000
              
              
              60,000
              
              
              -
              
              
              -
              
              
              60,000Net
                  (loss) for the period ended
              
              
              -
              
              
              -
              
              
              -
              
              
              (60,000
              )
              
              (60,000
              )**Balance
                  - January 1, 1993**
              
              
              1,200,000
              
              
              60,000
              
              
              -
              
              
              (60,000
              )
              
              -Issuance
                  of common stock and warrants for cash
              
              
              258,500
              
              
              12,925
              
              
              535,030
              
              
              -
              
              
              547,955Issuance
                  of stock in exchange for services
              
              
              47,000
              
              
              2,350
              
              
              20,000
              
              
              -
              
              
              22,350Exercise
                  of stock options and warrants
              
              
              10,000
              
              
              500
              
              
              99,500
              
              
              
              
              
              100,000Net
                  (loss) for the year ended December 31, 1993
              
              
              -
              
              
              -
              
              
              -
              
              
              (81,526
              )
              
              (81,526
              )**Balance
                  - January 1, 1994**
              
              
              1,515,500
              
              
              75,775
              
              
              654,530
              
              
              (141,526
              )
              
              588,779Authorized
                  10,000,000 shares - $.05 par valueIssuance
                  of common stock and warrants for cash
              
              
              26,200
              
              
              1,310
              
              
              260,690
              
              
              -
              
              
              262,000Issuance
                  of stock in exchange for services
              
              
              10,000
              
              
              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
                  - January 1, 1995**
              
              
              1,551,700
              
              
              77,585
              
              
              940,120
              
              
              (781,387
              )
              
              236,318Issuance
                  of common stock and warrants for cash
              
              
              41,500
              
              
              2,075
              
              
              412,925
              
              
              -
              
              
              415,000Issuance
                  of stock in exchange for services
              
              
              7,800
              
              
              390
              
              
              7,410
              
              
              -
              
              
              7,800Exercise
                  of stock options and warrants
              
              
              10,000
              
              
              500
              
              
              9,500
              
              
              -
              
              
              10,000Net
                  (loss) for the year ended December 31, 1995
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,088,082
              )
              
              (1,088,082
              )**Balance
                  - January 1, 1996**
              
              
              1,611,000
              
              
              80,550
              
              
              1,369,955
              
              
              (1,869,469
              )
              
              (418,964
              )Issuance
                  of common stock for cash
              
              
              30,300
              
              
              1,515
              
              
              301,485
              
              
              -
              
              
              303,000Issuance
                  of common stock for services
              
              
              8,000
              
              
              400
              
              
              7,600
              
              
              -
              
              
              8,000Exercise
                  of stock options and warrants
              
              
              34,000
              
              
              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
                  Forward**
              
              
              1,683,300
              
              $
              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**
  Common
                  Stock
              
              Additional
                  Paid-in
              
              Accumulated
              
              Stockholders’Shares
              
              Amount
              
              Capital
              
              (Deficit)
              
              Equity**Balance
                  - January 1, 1997**
              
              
              1,683,300
              
              $
              84,165
              
              $
              1,719,290
              
              $
              (2,632,648
              )
              $
              (829,193
              )Issuance
                  of common stock and warrants for cash
              
              
              56,700
              
              
              2,835
              
              
              564,165
              
              
              -
              
              
              567,000Exercise
                  of stock options and warrants
              
              
              51,000
              
              
              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
                  - January 1, 1998**
              
              
              1,791,000
              
              
              89,550
              
              
              2,378,865
              
              
              (3,231,366
              )
              
              (762,951
              )Issuance
                  of common stock and warrants for cash
              
              
              66,536
              
              
              3,327
              
              
              662,033
              
              
              -
              
              
              665,360Exercise
                  of stock options and warrants
              
              
              280,000
              
              
              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
                  - January 1, 1999**
              
              
              2,137,536
              
              
              106,877
              
              
              3,498,223
              
              
              (4,023,551
              )
              
              (418,451
              )Issuance
                  of common stock for cash
              
              
              35,675
              
              
              1,784
              
              
              354,966
              
              
              -
              
              
              356,750Exercise
                  of stock options and warrants
              
              
              35,250
              
              
              1,762
              
              
              180,738
              
              
              -
              
              
              182,500Net
                  (loss) for the year ended December 31, 1999
              
              
              -
              
              
              -
              
              
              -
              
              
              (822,803
              )
              
              (822,803
              )**Balance
                  - January 1, 2000**
              
              
              2,208,461
              
              
              110,423
              
              
              4,033,927
              
              
              (4,846,354
              )
              
              (702,004
              )Issuance
                  of common stock for cash
              
              
              284,600
              
              
              14,230
              
              
              2,831,770
              
              
              -
              
              
              2,846,000Issuance
                  of common stock for services
              
              
              102,000
              
              
              5,100
              
              
              449,900
              
              
              -
              
              
              455,000Net
                  (loss) for the year ended December 31, 2000
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,487,354
              )
              
              (1,487,354
              )**Balance
                  - January 1, 2001**
              
              
              2,595,061
              
              
              129,753
              
              
              7,315,597
              
              
              (6,333,708
              )
              
              1,111,642Issuance
                  of common stock and warrants for cash
              
              
              350,000
              
              
              17,500
              
              
              3,468,031
              
              
              -
              
              
              3,485,531Issuance
                  of common stock for settlement
              
              
              10,000
              
              
              500
              
              
              36,100
              
              
              -
              
              
              36,600Exercise
                  of stock options and warrants
              
              
              28,600
              
              
              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
                  Forward**
              
              
              2,983,661
              
              $
              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**
  Common
                  Stock
              
              Additional
                  Paid-in
              
              Accumulated
              
              Stockholders’Shares
              
              Amount
              
              Capital
              
              (Deficit)
              
              Equity**Balance
                  - January 1, 2002**
              
              
              2,983,661
              
              
              149,183
              
              
              10,987,798
              
              
              (8,940,174
              )
              
              2,196,807Issuance
                  of common stock and warrants for cash
              
              
              5,000
              
              
              250
              
              
              49,750
              
              
              -
              
              
              50,000Exercise
                  of stock options and warrants
              
              
              5,000
              
              
              250
              
              
              22,750
              
              
              -
              
              
              23,000Issuance
                  of common stock not previously recognized
              
              
              1,000
              
              
              50
              
              
              (50
              )
              
              -
              
              
              -Net
                  (loss) for the year ended December 31, 2002
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,224,775
              )
              
              (2,224,775
              )**Balance
                  - January 1, 2003**
              
              
              2,994,661
              
              
              149,733
              
              
              11,060,248
              
              
              (11,164,949
              )
              
              45,032Issuance
                  of common stock and warrants for cash
              
              
              115,000
              
              
              5,750
              
              
              604,250
              
              
              
              
              
              610,000Exercise
                  of stock options and warrants
              
              
              106,300
              
              
              5,315
              
              
              157,685
              
              
              
              
              
              163,000Modifications
                  of options and warrants
              
              
              -
              
              
              -
              
              
              1,506,427
              
              
              
              
              
              1,506,427Issuance
                  of common stock not previously recognized
              
              
              5,000
              
              
              250
              
              
              (250
              )
              
              
              
              
              -Net
                  (loss) for the year ended December 31, 2003
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,569,534
              )
              
              (2,569,534
              )**Balance
                  - January 1, 2004**
              
              
              3,220,961
              
              $
              161,048
              
              $
              13,328,360
              
              $
              (13,734,483
              )
              $
              (245,075
              )Issuance
                  of common stock and warrants for cash
              
              
              63,500
              
              
              3,175
              
              
              254,576
              
              
              
              
              
              257,751Loan
                  conversion into stock
              
              
              1,750
              
              
              87
              
              
              6,913
              
              
              
              
              
              7,000Issuance
                  of options to non-employees for services
              
              
              -
              
              
              -
              
              
              351,252
              
              
              -
              
              
              351,252Net
                  (loss) for the year ended December 31, 2004
              
              
              -
              
              
              -
              
              
              -
              
              
              (974,674
              )
              
              (974,674
              )**Balance
                  - January 1, 2005**
              
              
              3,286,211
              
              $
              164,310
              
              $
              13,941,101
              
              $
              (14,709,157
              )
              $
              (603,746
              )Issuance
                  of common stock and warrants for cash
              
              
              65,998
              
              
              3,300
              
              
              257,692
              
              
              
              
              
              260,992Loan
                  conversion into stock
              
              
              10,775
              
              
              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
                  Forward**
              
              
              3,362,984
              
              $
              168,149
              
              $
              14,544,409
              
              $
              (15,469,661
              )
              $
              (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
              
              Common
                  Stock
              
              Additional
                  Paid-in
              
              (Deficit)
                  Accumulated During the Development
              
              Stock
                  Committed for Future
              
              Accumulated
                  Comprehensive
              
              Deferred
                  Stock
              
              Treasury
              
              Stockholders’Shares
              
              Amount
              
              Shares
              
              Amount
              
              Capital
              
              Stage
              
              Issuance
              
              Income
              
              Compensation
              
              Stock
              
              EquityBalance
                  - January 1, 2006
              
              
              3,362,984
              
              $
              168,149
              
              
              0
              
              $
              0
              
              $
              14,544,409
              
              
              ($15,469,661
              )
              $
              0
              
              $
              0
              
              $
              0
              
              $
              0
              
              
              ($757,103
              )Issuance
                  of common stock and warrants for cash
              
              
              488,510
              
              
              24,426
              
              
              
              
              
              
              
              
              2,165,248
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,189,674Loan
                  conversion into stock
              
              
              1,025
              
              
              51
              
              
              
              
              
              
              
              
              4,049
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              4,100Cashless
                  exercise of stock options and warrants
              
              
              650,047
              
              
              32,502
              
              
              
              
              
              
              
              
              (32,502
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              0Exercise
                  of stock options and warrants for cash
              
              
              13,000
              
              
              650
              
              
              
              
              
              
              
              
              12,350
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              13,000Issuance
                  of stock for services
              
              
              20,000
              
              
              1,000
              
              
              
              
              
              
              
              
              104,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              105,000Recapitalization
                  - 10/6/06 reverse merger*
              
              
              (4,535,566
              )
              
              (226,778
              )
              
              259,739,491
              
              
              259,739
              
              
              (752,920
              )
              
              
              
              
              
              
              
              
              
              
              (306,000
              )
              
              
              
              
              (1,025,959
              )Extension
                  of investor warrants terms - 6 months
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              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 and warrants
              
              
              
              
              
              
              
              
              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 on stock-based
                  compensation
              
              
              
              
              
              
              
              
              (3,008,990
              )
              
              (3,009
              )
              
              3,009
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              0Net
                  (loss) for the year ended December 31, 2006
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (11,708,328
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              (11,708,328
              )Unrealized
                  gains on marketable securities
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              18,861
              
              
              
              
              
              
              
              
              18,861Amortization
                  of deferred stock compensation costs
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              20,800
              
              
              
              
              
              20,800Allocation
                  of expenses - Thorium Power, Ltd. 1/1/06 - 6/30/06
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,205,248
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,205,248Buyback
                  of stock - 850,000 shares to treasury stock
              
              
              
              
              
              
              
              
              (850,000
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (255,850
              )
              
              (255,850
              )Stock
                  based compensation - shares committed for future issuance
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,200,000
              
              
              
              
              
              
              
              
              
              
              
              1,200,000Balance
                  - December 31, 2006
              
              
              0
              
              $
              0
              
              
              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.
  Common
        Stock subject to continuing registration rights (36,659,837 shares) 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**
 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.
 
 Our
        nuclear fuel process is dependent on the ability of suppliers of the mineral
        thorium, to provide it to our future customers on a timely basis and also
        on
        favorable pricing terms. The loss of certain principal suppliers of thorium
        or a
        significant reduction in thorium availability from principal suppliers could
        have a material adverse effect on the future operating results of the Company.
 
 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”), which subsequent to
        the merger with Thorium Power, Inc., on October 6, 2006, changed its name
        to
        Thorium Power Ltd. (“Thorium Power, Ltd.”) 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 3,844,170
        shares (equivalent to 150,000 shares of common stock of Thorium Power, Inc.)
        for
        $0.1561 per share (equivalent to $4.00 per Thorium Power Inc share price),
        subsequently these 3,844,170 shares were cancelled after the Merger
        Agreement.
 
 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.
  F-10
 **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 25.6278 shares of common stock
        of
        Thorium Power, Ltd., for each share of Thorium Power, Inc. common stock that
        they previously owned. 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. As a result
        of
        the merger, there were 296,399,328 common shares outstanding on October 6,
        2006
        (including 36,659,837 shares of common stock with registration
        rights).
  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. After
        applying the applicable exchange ratios resulting from the merger or the
        exchange of Thorium Power, Inc., stock to Thorium Power, Ltd. stock, there
        were
        an equivalent 22,539,083 Thorium Power, Ltd., stock purchase warrants and
        an
        equivalent 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.
  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, net inter-company receivable
                  and investment in Thorium Power, Inc. of $3,116,629 and prepaid
                  expenses
                  of $117,384.
              
              $
              15,976,421Total
                  Liabilities-consisting of warrant liabilities of $3,080,024 and
                  other
                  payables of $446,780
              
              $
              3,526,804Book
                  Value of Thorium Power, Ltd.
              
              $
              12,449,617
  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.
  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 4,535,566 Thorium Power, Inc. shares outstanding
        at
        the date of the merger are restated as 296,399,328 common shares, as of October
        6, 2006.
  F-11
 **Thorium
          Power, Ltd.**
 **(A
          Development Stage Company)**
 **Notes
          to the Consolidated Financial Statements**
 **December
          31, 2006**
 The
        pro
        forma unaudited results of operations assuming the recapitalization of Thorium
        Power, Inc. occurred as of the beginning of Thorium Power Inc.’s fiscal years,
        starting January 1, 2005 and 2006, are as follows:
  Pro-Forma
                Jan
                  1 -
                Dec
                  31, 2005
              
              Thorium
                  Power, Ltd.
                (Novastar)
                Jan
                  1 -
                October
                  6,
                2006
              
              Thorium
                  Power, Inc.
                Jan
                  1 -
                Dec
                  31, 2006*
              
              2006
                Pro-Forma
                TotalRevenues
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  loss
              
              
              9,256,703
              
              
              2,280,949
              
              
              11,708,328
              
              
              13,989,277Net
                  loss per share - basic and diluted
              
              $
              0.11
              
              $
              0.02
              
              $
              0.09
              
              $
              0.11Shares
                  used for computing net loss per share
              
              
              84,952,620
              
              
              98,818,395
              
              
              131,630,954
              
              
              131,630,954
  *
        This
        represents the operating results of Thorium Power Inc. from January 1, 2006
        to
        October 6, 2006 and the operating results of Thorium Power Inc. and Thorium
        Power Ltd consolidated, from October 6, 2006 (merger date) to December 31,
        2006.
  These
        pro
        forma results are not necessarily indicative of the actual results of operations
        had this recapitalization of Thorium Power, Inc. had taken place as of January
        1, 2005 or January 1, 2006 or the results of future operations of the Company.
        The above schedule consists of the actual historical operations of Novastar
        and
        Thorium Power, Inc., with the addition of Thorium Power, Ltd. pre-merger
        costs
        to effect the merger with Thorium Power, Inc. and some of the operating expenses
        of Thorium Power Inc. 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 expenses
        and $6,602,098 of stock based compensation from Thorium Power, Ltd. Thorium
        Power Inc.’s “stand-alone” loss for the year ended December 31, 2006, without
        this allocation of expenses from Thorium Power Ltd. and the results of
        operations from Thorium Power Ltd. (October 6, 2006 to December 31, 2006)
        was
        approximately 1.4 million.
 
 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-12
 **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-13
 **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-14
  **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 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. 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-15
  **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-16
 **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-17
 **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-18
 **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-19
 **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 and as a result of this stock redemption, paid the
        payroll taxes owed on the 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-20
 **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-21
 **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-22
 **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-23
 **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-24
 **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
        as
        well as redeem 1,620,000 shares of this stock grant from the two executives,
        at
        a price of $0.20 per share (after applying a 50% discount off the closing
        market
        stock price on the date of issuance)., This redemption was effected by the
        Company in order to pay for the payroll taxes owed on the stock based
        compensation to the executives. The 50% discount factor was determined by
        an
        independent third party valuation company, for payroll tax reporting purposes,
        and the lack of marketability discount was determined by this valuation company
        to be 50%. 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 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 has 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 payments totaling $1.2 million
        due
        by December 31, 2006. A total of $550,000 has been paid as of December 31,
        2006.
        Management has decided to prioritize research and demonstration activities
        on
        its nuclear fuel designs in Russia (see above) and currently has no intention
        to
        contribute additional funding toward the high-temperature test and research
        reactor project in Texas. In Management’s opinion, based on the terms of this
        agreement, it has no further obligations to fund this project.
  F-25
 **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-26




**Item
      8.**  **CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND** **FINANCIAL
      DISCLOSURE.**





There
      have been no disagreements regarding accounting and financial disclosure matters
      with our independent certified public accountants.





**Item
      8A.** **CONTROLS
      AND PROCEDURES.**





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





19




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





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




**Item
      8B.**  **OTHER
      INFORMATION.**





None.





**PART
      III**





The
      information required by Item 9 — Directors, Executive Officers, Promoters
      and Control Persons and Corporate Governance; Compliance with Section 16(a)
      of
      the Exchange Act of the Registrant; Item 10 — Executive Compensation;
      Item 11 — Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters, Item 12 — Certain Relationships and
      Related Transactions, and Director Independence and Item 14 — Principal
      Accountant Fees and Services is incorporated into Part III of this Annual
      Report on Form 10-KSB by reference to the Proxy Statement for our Annual Meeting
      of Stockholders scheduled to be held on April 25, 2007.




**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).




20




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 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).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).




21




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).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




22




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 to be signed on its behalf by
      the
      undersigned, thereto duly authorized individual.





Date:
      March 20, 2007


THORIUM
              POWER,
              LTD.By:
            /s/
              Seth
              GraeSeth
                Grae
              Chief
                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





23