----

----

**FORM      10-KSB**

**Commission      File No. 000-28543**

**NOVASTAR      RESOURCES LTD.**

| NEVADA                                                                        |   | 91-1975651                                          |
|-------------------------------------------------------------------------------|--------|-----------------------------------------------------|
| (State                or other jurisdiction of incorporation or organization) |   | (I.R.S.                Employer Identification No.) |

| 8300                Greensboro Drive, Suite 800McLean,                Virginia 22102 |   |  703.918.4904                                        |
|--------------------------------------------------------------------------------------|--------|-----------------------------------------------------------|
| (Address                of Principal Executive Office)                               |   | (Issuer                Telephone No. Including Area Code) |

----

**TABLE      OF CONTENTS**

|                                                                                                                                                                          |  Page |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **PART                  I**                                                                                                                                                   |  3    |
|                                                                                                                                                                          |       |
| Item                  1. Description of                  Business                                                                                                             |  3    |
|                                                                                                                                                                          |       |
| Item                  2. Description of Property                                                                                                                              |  8    |
|                                                                                                                                                                          |       |
| Item                  3. Legal Proceedings                                                                                                                                    |  9    |
|                                                                                                                                                                          |       |
| Item                  4. Submission of Matters to a Vote of Security                  Holders                                                                                 |  9    |
|                                                                                                                                                                          |       |
| **PART                  II**                                                                                                                                                  |  10   |
|                                                                                                                                                                          |       |
| Item                  5. Market for Common Equity and Related Stockholder                  Matters                                                                            |  10   |
|                                                                                                                                                                          |       |
| Item                  6. Management's Discussion and Analysis or Plan of                  Operation                                                                           |  11   |
|                                                                                                                                                                          |       |
| Item                  7. Financial Statements                                                                                                                                 |  18   |
|                                                                                                                                                                               |       |
| Item                  8. Changes in and Disagreements with Accountants on                  Accounting and                  Financial Disclosure                               |  18   |
|                                                                                                                                                                          |       |
| Item                  8A. Controls and Procedures                                                                                                                             |  18   |
|                                                                                                                                                                          |       |
| **PART                  III**                                                                                                                                                 |  19   |
|                                                                                                                                                                          |       |
| Item                  9. Directors and Executive Officers, Promoters and                  Control Persons; Compliance with Section 16(a) of the Exchange                  Act |  19   |
|                                                                                                                                                                          |       |
| Item                  10. Executive Compensation                                                                                                                              |  23   |
|                                                                                                                                                                          |       |
| Item                  11. Security Ownership of Certain Beneficial Owners                  and Management and                  Related Stockholder Matters                    |  26   |
|                                                                                                                                                                          |       |
| Item                  12. Certain Relationships and Related                  Transactions                                                                                     |  26   |
|                                                                                                                                                                          |       |
| Item                  13. Exhibits                                                                                                                                            |  27   |
|                                                                                                                                                                          |       |
| Item                  14. Principal Accountant Fees and                  Services                                                                                             |  31   |
|                                                                                                                                                                          |       |
| Signatures                                                                                                                                                                    |  32   |
|                                                                                                                                                                          |       |
| Financial                  Statements                                                                                                                                         |  F-1  |

----

**FORWARD-LOOKING      STATEMENTS**

**PART      I**

**Item      1. DESCRIPTION OF BUSINESS.**

***General      Overview***

----

***Corporate      History***

***Employees***

***Government      Regulation***

----

***Competition***

***Key      Developments in 2006***

|   | · | On                February 14, 2006 we entered into a merger agreement with Thorium                Power                Inc. and we anticipate the merger to occur in October                2006. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We                have hired a new management team and formed a technical advisory                board and                international advisory board, all with the capability to pursue other                growth opportunities in the nuclear power                industry. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We                have been able to raise in three separate private placements approximately                $17.4 million to support our business                segments. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Risk      Factors***

----

|   | o | costs                of bringing each property into production, including exploration                work,                preparation of production feasibility studies and construction of                production facilities; |
|--------|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | availability                and costs of financing; |
|--------|---|-----------------------------------------------------|

|   | o | ongoing                costs of production; |
|--------|---|---------------------------------------------|

|   | o | market                prices for the minerals to be                produced; |
|--------|---|------------------------------------------------------------------------------|

----

|   | o | environmental                compliance regulations and restraints;                and |
|--------|---|----------------------------------------------------------------------------------------|

|   | o | political                climate and/or governmental regulation and                control. |
|--------|---|---------------------------------------------------------------------------------------------|

----

**Item      2. DESCRIPTION OF PROPERTY.**

----

**. **
**.**

**Item      3. LEGAL PROCEEDINGS.**

The      action was filed in the Supreme Court of the State of New York, County of New      York, and Novastar filed a Motion to Dismiss the complaint on May 23,      2006.  On August 8, 2006, the parties entered into a Settlement Agreement      whereby Mr. Pamnani irrevocably and forever waived and released any and all      claims against Novastar, Thorium Power and the other defendants named in the      complaint, through the date of execution of the Settlement Agreement, in return      for the issuance of 215,000 shares of common stock of Novastar, as well as      warrants to purchase 107,500 shares of Novastar common stock at a price of      $0.48      per share. 

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

----

**PART      II**

**Item      5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER      MATTERS.**

***Market      Information***

| FISCAL                  YEAR | QUARTER                  ENDING     | HIGH   | LOW                                  |
|------------------------------|-------------------------------------|--------|--------------------------------------|
|                         |                                |   |                                 |
| 2006                         | June                  30, 2006      | $0.74  |  $0.43                          |
|                              | March                  31, 2006     | $0.88  | $0.19                                |
|                              | December                  31, 2005  | $0.28  | $0.14                                |
|                         | September                  30, 2005 | $0.29  | $0.13                                |
|                         |                                |   |                                 |
| 2005                         | June                  30, 2005      | $0.22  |                    $0.077       |
|                         | March                  31, 2005     | $0.22  |  $0.09                          |
|                         | December                  31, 2004  | $0.29  |  $0.07                          |
|                         | September                  30, 2004 | $0.04  |                     $0.017 |

***Holders***

***Dividends***

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

----

***Transfer      Agent***

***Recent      Sales of Unregistered Securities***

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

***Overview***

----

***Outlook***

|   | o | industrial                super alloys used in the aerospace and nuclear                industries |
|--------|---|----------------------------------------------------------------------------------------------------|

|   | o | crystals                manufactured for the production of                lasers |
|--------|---|----------------------------------------------------------------------------------|

|   | o | the                refining of petroleum products |
|--------|---|---------------------------------------------------|

|   | o | in                magnetic refrigeration technology |
|--------|---|-----------------------------------------------------|

----

|   | o | as                catalysts used in the manufacture of                fuel-cells |
|--------|---|----------------------------------------------------------------------------------|

|   | o | in                cellular phones and other wireless                equipment |
|--------|---|-------------------------------------------------------------------------------|

|   | o | magnetic                plastic technology used in computer data memory                devices |
|--------|---|------------------------------------------------------------------------------------------------|

|   | o | fiber-optic                lines and to color, polarize and polish                glass |
|--------|---|-----------------------------------------------------------------------------------------|

|   | o | the                creation of high temperature                superconductors |
|--------|---|--------------------------------------------------------------------------------|

|   | o | catalytic                converters for the automotive                industry |
|--------|---|--------------------------------------------------------------------------------|

***Plan      of Operation***

----

***Results        of Operations - Fiscal Year Ended June 30, 2006 and        2005***

| **Line                Item**                |   | **6/30/06** |       | **6/30/05** |    | **Increase                (Decrease)** |   | **Percentage                Increase (Decrease)** |       |
|---------------------------------------------|--------|-------------|------------|-------------|---------|----------------------------------------|--------|---------------------------------------------------|------------|
|                                        |   |        |       |        |    |                                   |   |                                              |       |
| Revenues                                    |   |  $     | 0          |        |  $ | 0                                      |   |  $                                           | 0          |   |  % | 0 |   |
| Operating                expenses           |   |        | 13,147,485 |        |    | 2,691,516                              |   |                                              | 10,455,969 |   |   | 388 |   |
| Other                income (expense) - net |   |        | (197,050   | )           |    | 0                                      |   |                                              | 197,050    |   |   | - |   |
| Net                loss                     |   |        | 13,344,535 |        |    | 2,691,516                              |   |                                              | 10,653,019 |   |   | 396 |   |
|  Loss              per common share    |   |  $     | .12        |        |  $ | .05                                    |   |  $                                           | .07        |   |  % | 140 |   |

**Revenues**

**Operating      Expenses**

|   | · | Payroll                expenses and related fringe benefits increased $116,436 due to the                hiring                of additional key management. We increased our payroll and related                fringe                benefits costs in our first fiscal quarter ended September 30, 2006,                as we                have hired an additional 6 employees. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Professional                fees expense increased                approximately                $672,000                due primarily to legal fees incurred in connection with the upcoming                merger with Thorium Power, Inc and financing activities. We anticipate                that our legal fees will decrease once we are able to complete the                merger                with Thorium Power Inc., unless we engage in other financing or                acquisition activities. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Travel,                business development, and public relations expense increased $93,385.                We                anticipate that our travel, business development and public relations                expense will increase as we continue to promote our business and                seek                other opportunities in the nuclear                industry. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Consulting                expense increased $3,466,600,                which included costs associated with finance, geological                work,                government advocacy                work,                technical advisory                board,                and international advisory                board. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Stock                Based Compensation was $4,949,729, which included stock and stock                option                grants to our executive officers and advisory board members. Our                implementation of SFAS No. 123R (a modification to the existing standard                -                SFAS No. 123) in 2006 (see notes to the financial statements), changed                the                way we account for Stock-Based Compensation in 2006, and required                us to                record expenses for equity instruments for which we would not have                been                required to report under SFAS No.                123. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We                incurred a net impairment loss of $670,544 on the mineral property                acquisition costs, as we wrote off the entire amounts expended to                acquire                the rights to mine properties in Alabama and Australia. This                impairment was based on management's assessment of future projected                undiscounted and discounted cash flows from the                properties. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Mineral                exploration costs increased $394,516 due to our exploration activities                in                our mining operations. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Director                and officer liability insurance expense increased $91,506 due to                liability                insurance related to the merger                agreement |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Other      income (expense)**

|   | · | We                recorded a warrant liability in the amount of $3,678,278 for the                fair                value of warrants accruing under a Registration Rights Agreement                entered                into on May 4, 2006 (see Item 7 of Part II, “Financial Statements—Note                9(ii) —Share Capital”). The change in the fair value of the warrants, from                May 4, 2006 to June 30, 2006 was a loss recorded of                $139,220. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Research      and Development Activities**

***Cash      Flows - Fiscal Year Ended June 30, 2006 and 2005***

|   | · | Increased                overhead expenses attributable to the addition of key management                and                staff. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Payroll                expenses and related fringe benefits increased $116,436 due to the                hiring                of additional key management and staff. We increased our payroll                and                related fringe benefits costs in our first fiscal quarter ended September                30, 2006, as we have hired an additional 6 employees. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Professional                fees expense increased $672,000                due primarily to legal fees incurred in connection with the upcoming                merger with Thorium Power, Inc and financing activities. We anticipate                that our legal fees will decrease once we are able to complete the                merger                with Thorium Power Inc., unless we engage in other financing or                acquisition activities. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Travel,                business development, and public relations expense increased $93,385.                We anticipate that our travel, business development and public relations                expense will increase as we continue to promote our business and                seek                other opportunities in the Nuclear                Industry. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Other                general and administrative expenses increased $358,000 which consisted                primarily of insurance expense, other office expenses which were                offset by                a payable due to Thorium Power Inc. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Liquidity      and Capital Resources***

----

***Off      Balance Sheet Arrangements***

***Seasonality***

***Inflation***

***Critical      Accounting Policies***

----

----

**Item      7. FINANCIAL STATEMENTS.**

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

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

----

**PART      III**

**Item      9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL      PERSONS;**

**            ****COMPLIANCE      WITH SECTION 16(a) OF THE EXCHANGE ACT.**

***Directors      and Executive Officers***

**SETH      GRAE.**

**THOMAS      GRAHAM, JR.**

**CORNELIUS      J. MILMOE**

----

**VICTOR      E. ALESSI**

**LARRY      GOLDMAN. **

**,**
**.      **
** **
** **

----

**ANDREY      MUSHAKOV.**

***Committees      and Board Meetings***

***Audit      Committee and Audit Committee Financial Expert***

***Director      Compensation***

----

***Family      Relationships***

***Code      of Ethics***

***Compliance      with Section 16(a) of the Securities Exchange Act***

----

**Item      10. EXECUTIVE COMPENSATION.**

**SUMMARY      COMPENSATION TABLE**

|                                                                                                                 |   |                                 |     |                                            | LONG                  TERM COMPENSATION |
|----------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|----------|-------------------------------------------------|-----------------------------------------|
|                                                                                                                 |   | ANNUAL                  COMPENSATION | AWARDS   | PAYOUTS                                         |
| Name                  And Principal                  Position                                                        | Year   | Salary(1)($)                         | Bonus($) | OtherAnnualCompensation($)                  (4) | RestrictedStockAward(s)($)              | SecuritiesUnder-Lying                  Options/SARs (#) | LTIP                  Payouts ($) |  All                  Other Compensation($) |
| Paul                  Carter (1)Chief                  Executive Officer, President, Chairman and Director           | 2006   | $0                                   | $0       | $0                                              | $0                                      | $0 | $0 | $0 |
| 2005                                                                                                                 | $0     | $0                                   | $40,000  | $0                                              | $0                                      | $0 | $0 |
| 2004                                                                                                                 | $0     | $0                                   | $0       | $0                                              | $0                                      | $0 | $0 |
| Charles                  H. Merchant (2)Interim                  Chief Executive Officer and Chief Operating Officer | 2006   | $0                                   | $0       | $0                                              | $127,500                                | $0 | $0 | $0 |
| 2005                                                                                                                 | $0     | $0                                   | $0       | $0                                              | $0                                      | $0 | $0 |
| 2004                                                                                                                 | $0     | $0                                   | $0       | $0                                              | $0                                      | $0 | $0 |
| Seth                  Grae (3)Chief                  Executive Officer, President and Director                       | 2006   | $29,762                              | $0       | $0                                              | $4,150,000                              | $647,133 | $0 | $0 |
| 2005                                                                                                                 | N/A    | N/A                                  | N/A      | N/A                                             | N/A                                     | N/A | N/A |
| 2004                                                                                                                 | N/A    | N/A                                  | N/A      | N/A                                             | N/A                                     | N/A | N/A |

----

| (1) | Mr.                Carter served as Novastar’s Chief Executive Officer from 2002 until                December 1, 2005. |
|-----|-------------------------------------------------------------------------------------------------------------------------------|

| (2) | Mr.                Merchant served as Novastar’s interim Chief Executive Officer from                December 1, 2005 until March 17,                2006. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Mr.                Grae was named the Chief Executive Officer and President of Novastar                on                March 17, 2006, and effective April 2, 2006, became a director of                Novastar. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | The                value of perquisites and other personal benefits, securities and                property                for the named executive officers that do not exceed the lesser of                $1,000                or 10% of the total of the annual salary and bonus is not reported                herein. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Bonuses      and Deferred Compensation***

***Options      and Stock Appreciation Rights***

**OPTION      GRANTS IN LAST FISCAL YEAR**

|   Name                     | Number                  ofSecurities                  Underlying Options Granted                  (1) | %                  of Total Options Granted To Employees in the                  Fiscal Year |  Exercise                  Price |   Expiration                  Date |
|--------------------------------------|-------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------|---------------------------------------|----------------------------------------------|
| Paul                  Carter         | 0                                                                                                     | N/A                                                                                          | N/A                                   | N/A                                          |
|                                 |                                                                                                  |                                                                                         |                                  |                                         |
| Charles                  H. Merchant | 0                                                                                                     | N/A                                                                                          | N/A                                   | N/A                                          |
|                                 |                                                                                                  |                                                                                         |                                  |                                         |
| Seth                  Grae           | 7,200,000                                                                                             | 69%                                                                                          | $0.80                                 | February                  14, 2016           |

----

|                               |                                       |                              | Number                of Shares of Common Stock Underlying Unexercised Options                at Year End June 30, 2006 | Value                of Unexpected In-The-Money Options atYear                End June 30, 2006 (1) |
|------------------------------------|--------------------------------------------|-----------------------------------|-------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------|
| Name                               | Shares                Acquired on Exercise | Value                Realized ($) | Exercisable                                                                                                             | Unexercisable                                                                                       | Exercisable | Unexercisable |
| Paul                Carter         | 0                                          | N/A                               | N/A                                                                                                                     | N/A                                                                                                 | N/A | N/A |
|                               |                                       |                              |                                                                                                                    |                                                                                                |   |   |
| Charles                H. Merchant | 0                                          | N/A                               | N/A                                                                                                                     | N/A                                                                                                 | N/A | N/A |
|                               |                                       |                              |                                                                                                                    |                                                                                                |   |   |
| Seth                Grae           | 0                                          | N/A                               | 1,650,000                                                                                                               | 5,550,000                                                                                           | $0 | $0 |

***Employment      Contracts and Termination of Employment and Change-in-Control      Arrangements***

with        Cornelius J. Milmoe, the Chief Operating Officer and a        Director of the Company. Under the terms of the agreement,        the        Company agreed to pay Mr. Milmoe an annual salary of $200,000, as consideration        for performance of his duties as Chief Operating Officer. Mr. Milmoe was        paid an        amount equal to a 75% pro rata share of his annual salary, as consideration        for        services already performed by him on behalf of the Company from April 3,        2006        through May 1, 2006. In addition, the Company has agreed (i) to issue to        Mr.        Milmoe, 75,000 (37,500 restricted) shares of the common stock the Company        and        (ii) to grant to Mr. Milmoe an incentive ten-year option for the purchase        of        525,000 shares of the common stock the Company, at an exercise price of $0.465        per share. The initial        term of        the Mr. Milmoe’s employment agreement will be one year and but will        automatically be extended for        additional one-year periods unless terminated by either party in accordance        with        its terms and conditions.

        with Mr.        Goldman. Mr.        Goldman        receives hourly compensation of $170.00 for services provided to Novastar,        subject to a maximum of ten hours per day. The contract includes payment        for a        minimum of 40 hours per month. The contract can be terminated by Novastar        at any        time, but Novastar must provide at least 180 days advance written notice.        Pursuant to the consulting agreement, Mr. Goldman was granted nonqualified        options for the purchase of an additional 350,000 shares of Novastar common        stock pursuant to Novastar's 2006 stock plan. Upon consummation of the merger,        Mr. Goldman will own a total of 75,000 shares of Novastar common stock and        options to purchase a total of 350,000 shares of Novastar common        stock.

----

**Item      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND      MANAGEMENT AND RELATED STOCKHOLDER MATTERS.**

|   | o | each                security holder known by us to be the beneficial owner of more than                5% of                our outstanding common stock; |
|--------|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | each                current director; |
|--------|---|---------------------------------------|

|   | o | each                of our named executive officers listed in the table under the caption                “Executive Compensation” and |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | all                current directors and executive officers as a                group. |
|--------|---|----------------------------------------------------------------------------------------|

| **Name                  and Address of Beneficial Owner****(1)**                                                                  | **Amount                  and Nature of****Beneficial                  Ownership****(1** | **Percent                  of****Common                  Stock****(2)** |
|-----------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------|-------------------------------------------------------------------------|
| Seth                  Grae                                                                                                        | 7,050,000                                                                                | 4.5%                                                                    |
| Andrey                  Mushakov                                                                                                  | 1,828,125                                                                                | 1.2%                                                                    |
| Thomas                  Graham, Jr.                                                                                               | 273,333                                                                                  | *                                                                       |
| Cornelius                  J. Milmoe                                                                                              | 75,000                                                                                   | *                                                                       |
| Larry                  Goldman                                                                                                    | 75,000                                                                                   | *                                                                       |
| OTC                  Investments Ltd.1710-1177                  West Hastings StreetVancouver,                  BC V6E 2L3 Canada | 15,000,000                                                                               | 9.6%                                                                    |
| Directors                  and Officers as a Group (five people)                                                                  | 9,301,458                                                                                | 5.9%                                                                    |

**Item      12. CERTAIN RELATIONSHIPS AND RELATED      TRANSACTIONS.**

----

**Item      13. EXHIBITS.**

| ***Exhibit                Number*** |   ***Description***                                                                                                                                                                                                                                                              |
|-------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                                 | Articles                of Incorporation (incorporated by reference from Novastar’s Registration                Statement on Form 10-SB filed on December 17, 1999).                                                                                                                 |
| 3.2                                 | By-laws                (incorporated by reference from Novastar’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 Novastar’s                Registration Statement on Form S-8 filed on March 10,                2005). |
| 4.2                                 | 2005                Augmented Compensation Plan for Outside Consultants of Novastar Resources                Ltd. dated August 15, 2005 (incorporated by reference from Novastar’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 Novastar 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 Novastar’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 Novastar’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 Novastar’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 Novastar’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 Novastar’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 Novastar’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 Novastar’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 Novastar’s Registration                Statement on Form S-8 filed on January 27, 2005).                                                                                                  |
| 10.9        | Assignment                of Specific Mineral Rights dated September 14, 2005 between American                Graphite Holdings and Novastar Resources Ltd. (incorporated by reference                from Novastar’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 Novastar Resources Ltd.                (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                Novastar Resources Ltd. (incorporated by reference from Novastar’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 Novastar Resources Ltd. (incorporated by reference from                Exhibit                10.12 of the initial filing of this 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 Novastar’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                Novastar on Form 8-K filed June 13, 2006).                                  |
| 10.15       | Employment                Agreement, dated as of February 14, 2006, between Novastar and Seth                Grae                (incorporated by reference to Exhibit 10.2 of the current report                of                Novastar on Form 8-K filed February 21, 2006)                                                                                             |
| 10.16       | Stock                Option Agreement, dated as of February 14, 2006, between Novastar                and Seth                Grae (incorporated by reference to Exhibit 10.3 of the current report                of                Novastar on Form 8-K filed February 21, 2006)                                                                                           |
| 10.17       | Subscription                Agreement, dated as of February 14, 2006, between Novastar and Thorium                Power (incorporated by reference to Exhibit 10.4 of the current report                of                Novastar on Form 8-K filed February 21, 2006)                                                                                                      |
| 10.18  | Amended                and Restated Consulting Agreement, dated February 6, 2006, between                Novastar and Alan Gelband (incorporated by reference to Exhibit 10.5                of                the current report of Novastar on Form 8-K filed February 21,                2006)                                                                            |

----

| 10.19  | Form                of Subscription Agreement between Novastar and the investors in the                private placement closed on February 14, 2006 (incorporated by reference                to Exhibit 10.6 of the current report of Novastar on Form 8-K filed                February 21, 2006)                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|-------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.20  | Assignment                of Minerals Lease, dated December 31, 2005, between CM Properties                and                Novastar Resources Ltd. (incorporated by reference to Exhibit 10.1                of the                current report of Novastar 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 Novastar Resources Ltd. (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 10.25 of the initial filing of this 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 Novastar Resources, Ltd., Alan Gelband and Alan Gelband Company,                Inc. (incorporated by reference to Exhibit 10.1 of the current report                of                Novastar on Form 8-K filed June 13, 2006).                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.27       | Employment                Agreement, dated June 6, 2006, between Novastar Resources, Ltd. and                Cornelius J. Milmoe (incorporated by reference to Exhibit 10.1 of                the                current report of Novastar on Form 8-K filed June 13,                2006).                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.28       | Stock                Option Agreement, dated June 6, 2006, between Novastar Resources,                Ltd. and                Cornelius J. Milmoe (incorporated by reference to Exhibit 10.1 of                the                current report of Novastar on Form 8-K filed June 13,                2006).                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.29       | Consulting                Agreement, dated June 12, 2006, between Novastar Resources, Ltd.                and Larry                Goldman (incorporated by reference to Exhibit 10.1 of the current                report                of Novastar on Form 8-K filed June 13, 2006).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.30       | Stock                Option Agreement, dated June 12, 2006, between Novastar Resources,                Ltd.                and Larry Goldman (incorporated by reference to Exhibit 10.1 of the                current report of Novastar on Form 8-K filed June 13,                2006).                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.31  | Office                Service Agreement, dated April 19, 2006, between Tysons Business                Center                LLC and Novastar Resources Ltd. (incorporated by reference from Exhibit                10.31 of the initial filing of this Registration Statement on Form                S-4                filed June 14, 2006).                                                                                                                                                                                                                                                                                                                                                                                                                          |

----

| 10.32       | Employment                Agreement, dated July 27, 2006, between Novastar Resources, Ltd.                and                Andrey Mushakov (incorporated by reference to Exhibit 10.1 of the                current                report of Novastar on Form 8-K filed August 4, 2006).                                                     |
|-------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.33       | Stock                Option Agreement, dated July 27, 2006, between Novastar Resources,                Ltd.                and Andrey Mushakov (incorporated by reference to Exhibit 10.2 of                the                current report of Novastar on Form 8-K filed August 4,                2006).                                    |
| 10.34       | Employment                Agreement, dated July 27, 2006, between Novastar Resources, Ltd.                and                Thomas Graham, Jr. (incorporated by reference to Exhibit 10.3 of                the                current report of Novastar on Form 8-K filed August 4,                2006).                                   |
| 10.35       | Stock                Option Agreement, dated July 27, 2006, between Novastar Resources,                Ltd.                and Thomas Graham, Jr. (incorporated by reference to Exhibit 10.4                of the                current report of Novastar 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 Novastar Resources,                Ltd.                and Victor Alessi (incorporated by reference to Exhibit 10.1 of the                current report of Novastar on Form 8-K filed August 25,                2006).                                           |
| 10.38       | Stock                Option Agreement, dated August 21, 2006, between Novastar Resources,                Ltd.                and Victor Alessi (incorporated by reference to Exhibit 10.2 of the                current report of Novastar on Form 8-K filed August 25,                2006).                                                  |
| 14.1        | Code                of Ethics (incorporated by reference from Novastar’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 Novastar’s Current                Report on Form 8-K filed on October 11, 2005).                                                                         |
| 23.1*       | Consent                of Telford Sadovnick, P.L.L.C.                                                                                                                                                                                                                                                                                          |
| 31.1*       | Rule                13a-14(a)/15d-14(a) Certification - Principal Executive                Officer                                                                                                                                                                                                                                             |
| 31.2*       | Rule                13a-14(a)/15d-14(a) Certification - Principal Accounting                Officer                                                                                                                                                                                                                                            |
| 32*         | Section                1350 Certifications                                                                                                                                                                                                                                                                                                     |

----

**Item      14. PRINCIPAL ACCOUNTANT FEES AND      SERVICES.**

***Audit      Fees***

***Audit      - Related Fees***

***Tax      Fees***

***All      Other Fees***

***Pre-Approval      Policies and Procedures***

*de      minimus*

----

SIGNATURES

| SIGNATURE                                                                      | TITLE                                                                                                      |
|--------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------|
| /s/                Seth Grae   Seth                Grae              | Chief                Executive Officer, President and Director(Principal                Executive Officer) |
| /s/                Larry Goldman  Larry                Goldman       | Acting                Chief Financial Officer and Treasurer(Principal                Financial Officer)    |
| /s/                Thomas Graham, Jr. Thomas                Graham, Jr.   | Director                                                                                                   |
| /s/                Cornelius J. Milmoe Cornelius                J. Milmoe | Director                                                                                                   |
| /s/                Victor Alessi   Victor                Alessi      | Director                                                                                                   |

----

**AUDITED      FINANCIAL STATEMENTS**

**NOVASTAR      RESOURCES LTD**

**(A      Development Stage Company)**

**JUNE      30, 2006**

**TABLE      OF CONTENTS**

|                                                                                      |  Page |
|-------------------------------------------------------------------------------------------|------------|
| Report                  of Independent Registered Public Accounting Firm                  | F-2        |
|                                                                                 |       |
| Consolidated                  Balance Sheets                                              | F-3        |
|                                                                                      |       |
| Consolidated                  Statements of                  Operations                   | F-4        |
|                                                                                      |       |
| Consolidated                  Statements of Cash                  Flows                   | F-5        |
|                                                                                      |       |
| Consolidated                  Statement of Stockholders’                  Deficit   | F-6        |
|                                                                                      |            |
| Notes                  to Consolidated Financial                  Statements              | F-10       |
|                                                                                      |       |
| Unaudited                Pro Forma Balance Sheet - June 30, 2006                          |  F-42 |
|                                                                                      |       |
| Unaudited                Pro Forma Statement of Operations - June 30,                2006 |  F-43 |

----

**REPORT        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING        FIRM**

**To        the Board of Directors and Stockholders of**

**Novastar        Resources Ltd.**

**(An        Exploration Stage Company)**

**Novastar        Resources Ltd. **

**Novastar        Resources Ltd. **

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**CONSOLIDATED        BALANCE SHEETS**

|                                                                                                                                                                                                                               |   | June                      30 |        |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|-------------|
|                                                                                                                                                                                                                               |   | 2006                         |        | 2005 |   |
| **ASSETS**                                                                                                                                                                                                                         |   |                         |        |   |   |
|                                                                                                                                                                                                                               |   |                         |        |   |   |
| Current                      assets:                                                                                                                                                                                               |   |                         |        |   |   |
| Cash                      and cash equivalents                                                                                                                                                                                     |   | $                            | 14,431,407  |   | $ | 802 |   |
| Prepaid                      expenses and other current assets                                                                                                                                                                     |   |                         | 808,425     |   |   | - |   |
| Total                      current assets                                                                                                                                                                                          |   |                         | 15,239,832  |   |   | 802 |   |
|                                                                                                                                                                                                                               |   |                         |        |   |   |   |   |
| Investment                      - Thorium Power Inc.                                                                                                                                                                               |   |                         | 1,350,000   |   |   | - |   |
|                                                                                                                                                                                                                               |   |                         |        |   |   |   |   |
| Total                      assets                                                                                                                                                                                                  |   | $                            | 16,589,832  |   | $ | 802 |   |
|                                                                                                                                                                                                                               |   |                         |        |   |   |   |   |
| **LIABILITIES                      AND STOCKHOLDERS’ DEFICIENCY**                                                                                                                                                            |   |                         |        |   |   |   |   |
|                                                                                                                                                                                                                               |   |                         |        |   |   |   |   |
| Current                      liabilities:                                                                                                                                                                                          |   |                         |        |   |   |   |   |
| Accounts                      payable                                                                                                                                                                                              |   | $                            | 463,354     |   | $ | 121,438 |   |
| Accrued                      liabilities                                                                                                                                                                                           |   |                         | 103,541     |   |   | 103,542 |   |
| Due                      to related parties                                                                                                                                                                                        |   |                         | 128,675     |   |   | - |   |
| Due                      to Thorium Power Inc.                                                                                                                                                                                     |   |                         | 264,740     |   |   | - |   |
| Warrant                      Liability - Note 9(ii)                                                                                                                                                                                |   |                         | 3,678,278   |   |   | - |   |
| Accrued                      payroll tax liability                                                                                                                                                                                 |   |                         | 635,000     |   |   | - |   |
| Total                      Current Liabilities                                                                                                                                                                                     |   |                         | 5,273,588   |   |   | 224,980 |   |
|                                                                                                                                                                                                                               |   |                         |        |   |   |   |   |
| Total                      Liabilities                                                                                                                                                                                             |   |                         | 5,273,588   |   |   | 224,980 |   |
|                                                                                                                                                                                                                               |   |                         |        |   |   |   |   |
| Commitments                      - Note 13                                                                                                                                                                                         |   |                         |        |   |   |   |   |
|                                                                                                                                                                                                                               |   |                         |        |   |   |   |   |
| Common                      Stock With Registration Rights - Note 9(ii):                                                                                                                                                           |   |                         |        |   |   |   |   |
| Common                      Stock subject to continuing registration, $0.001 par value,                      36,659,837                      shares issued and outstanding at June 30, 2006 (2005                      - 0 shares) |   |                         | 12,041,373  |   |   | - |   |
|                                                                                                                                                                                                                               |   |                         |        |   |   |   |   |
| **STOCKHOLDERS’                      DEFICIENCY**                                                                                                                                                                            |   |                         |        |   |   |   |   |
|                                                                                                                                                                                                                               |   |                         |        |   |   |   |   |
| Preferred                      stock, $0.001 par value; 50,000,000 authorized shares; no                      shares issued and outstanding                                                                                   |   |                         | -           |   |   | - |   |
| Voting                      Common stock, $0.001 par value; 250,000,000 authorized shares;                      118,101,637                      shares issued and outstanding (                      2005 - 86,072,532)           |   |                         | 118,101     |   |   | 86,073 |   |
| Additional                      paid-in capital                                                                                                                                                                                    |   |                         | 14,913,153  |   |   | 4,328,081 |   |
| Deferred                      Stock Compensation                                                                                                                                                                                   |   |                         | (83,328     | ) |   | (499,967 | ) |
| Common                      Stock and Warrants Reserved for Future Issuance                                                                                                                                                        |   |                         | 1,807,445   |   |   | - |   |
| Accumulated                      Deficit                                                                                                                                                                                           |   |                         | (17,482,900 | ) |   | (4,138,365 | ) |
| Accumulated                      Other Comprehensive Income                                                                                                                                                                        |   |                         | 2,400       |   |   | - |   |
|                                                                                                                                                                                                                               |   |                         |        |   |   |   |   |
| Total                      Stockholders’ Deficiency                                                                                                                                                                          |   |                         | (725,129    | ) |   | (224,178 | ) |
|                                                                                                                                                                                                                               |   |                         |        |   |   |   |   |
| Total                      Liabilities and Stockholders’ Deficiency                                                                                                                                                          |   | $                            | 16,589,832  |   | $ | 802 |   |

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**CONSOLIDATED        STATEMENTS OF OPERATIONS**

|                                                                                                           |   | Years                    Ended |        | Cumulative                    Period from  June                    28, 1999 (Inception)                    to |   |
|----------------------------------------------------------------------------------------------------------------|--------|--------------------------------|-------------|--------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                           |   | June                    30     |        | June                    30                                                                                         |   |
|                                                                                                           |   | 2006                           |        | 2005                                                                                                               |   | 2006 |   |
| Revenue                                                                                                        |   | $                              | -           |                                                                                                               | $      | - |   | $ | 184,162 |   |
|                                                                                                           |   |                           |        |                                                                                                               |   |   |   |   |   |   |
| Operating                    Expenses                                                                          |   |                           |        |                                                                                                               |   |   |   |   |   |   |
| Consulting                                                                                                     |   |                           | 5,770,133   |                                                                                                               |   | 2,303,533 |   |   | 8,268,046 |   |
| Forgiveness                    of debt                                                                         |   |                           | -           |                                                                                                               |   | (169,818 | ) |   | (169,818 | ) |
| General                    and administrative                                                                  |   |                           | 1,362,563   |                                                                                                               |   | 114,988 |   |   | 2,714,493 |   |
| Impairment                    loss - equipment                                                                 |   |                           | -           |                                                                                                               |   | - |   |   | 12,445 |   |
| Impairment                    loss - Mineral property acquisition costs                                        |   |                           | 670,544     |                                                                                                               |   | - |   |   | 720,544 |   |
| Interest                    attributable to beneficial conversion feature for notes                    payable |   |                           | -           |                                                                                                               |   | 442,813 |   |   | 580,057 |   |
| Mineral                    property exploration expenses                                                       |   |                           | 394,516     |                                                                                                               |   | - |   |   | 394,516 |   |
| Stock-based                    compensation                                                                    |   |                           | 4,949,729   |                                                                                                               |   | - |   |   | 4,949,729 |   |
|                                                                                                           |   |                           | 13,147,485  |                                                                                                               |   | 2,691,516 |   |   | 17,470,012 |   |
|                                                                                                           |   |                           |        |                                                                                                               |   |   |   |   |   |   |
| Operating                    Loss                                                                              |   |                           | (13,147,485 | )                                                                                                                  |   | (2,691,516 | ) |   | (17,285,850 | ) |
|                                                                                                           |   |                           |        |                                                                                                               |   |   |   |   |   |   |
| Other                    Income and Expenses                                                                   |   |                           |        |                                                                                                               |   |   |   |   |   |   |
| Dividend                    income                                                                             |   |                           | 8,136       |                                                                                                               |   | - |   |   | 8,136 |   |
| Interest                    income                                                                             |   |                           | 72,435      |                                                                                                               |   | - |   |   | 72,435 |   |
| Legal                    Settlement                                                                            |   |                           | (146,445    | )                                                                                                                  |   | - |   |   | (146,445 | ) |
| Loss                    on fair value of warrant derivatives                                                   |   |                           | (139,220    | )                                                                                                                  |   | - |   |   | (139,220 | ) |
| Other                    income                                                                                |   |                           | 8,044       |                                                                                                               |   | - |   |   | 8,044 |   |
|                                                                                                           |   |                           |        |                                                                                                               |   |   |   |   |   |   |
| Net                    Loss                                                                                    |   | $                              | (13,344,535 | )                                                                                                                  | $      | (2,691,516 | ) | $ | (17,482,900 | ) |
|                                                                                                           |   |                           |        |                                                                                                               |   |   |   |   |   |   |
|                                                                                                           |   |                           |        |                                                                                                               |   |   |   |   |   |   |
| Net                    Loss Per Common Share, Basic and diluted                                                |   | $                              | (0.12       | )                                                                                                                  | $      | (0.05 | ) |   |     |   |
|                                                                                                           |   |                           |        |                                                                                                               |   |   |   |   |   |   |
|                                                                                                           |   |                           |        |                                                                                                               |   |   |   |   |   |   |
| Weighted                    Average Number Of Common Shares                                                    |   |                           |        |                                                                                                               |   |   |   |   |   |   |
| Outstanding                                                                                                    |   |                           | 111,913,155 |                                                                                                               |   | 57,188,970 |   |   |      |   |

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**CONSOLIDATED        STATEMENTS OF CASH FLOWS**

|                                                                                                                                  |   | Years                      Ended |        | Cumulative                      Period from June                      28, 1999 (Inception) to |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|-------------|----------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                  |   | June                      30     |        | June                      30                                                                       |   |
|                                                                                                                                  |   | 2006                             |        | 2005                                                                                               |   | 2006 |   |
| Operating                      Activities                                                                                             |   |                             |        |                                                                                               |   |   |   |
| Loss                      for the year                                                                                                |   | $                                | (13,344,535 | )                                                                                                  | $      | (2,691,516 | ) | $ | (17,482,900 | ) |
| Adjustments                      to reconcile net loss from operations to net cash used in operating                      activities: |   |                             |        |                                                                                               |   |   |   |   |   |   |
| Shares                      issued for other than cash for payment of expences                                                        |   |                             | 10,686,652  |                                                                                               |   | 2,339,533 |   |   | 13,071,185 |   |
| Loss                      on fair value of warrant liability                                                                          |   |                             | 139,220     |                                                                                               |   | - |   |   | 139,220 |   |
| Interest                      attributable to beneficial conversion feature                                                           |   |                             |        |                                                                                               |   |   |   |   |   |   |
| for                      notes payable                                                                                                |   |                             | -           |                                                                                               |   | 442,813 |   |   | 580,057 |   |
| Amortization                      of equipment                                                                                        |   |                             | -           |                                                                                               |   | 774 |   |   | 3,813 |   |
| Impairment                      loss - mineral property acquisition costs                                                             |   |                             | 670,544     |                                                                                               |   | - |   |   | 670,544 |   |
| Forgiveness                      of debt                                                                                              |   |                             | -           |                                                                                               |   | (169,818 | ) |   | (169,818 | ) |
| Impairment                      loss - equipment                                                                                      |   |                             | -           |                                                                                               |   | - |   |   | 12,445 |   |
| Unrealized                      gain on investment                                                                                    |   |                             | 2,400       |                                                                                               |   | - |   |   | 2,400 |   |
| Changes                      in non-cash operating working capital items:                                                             |   |                             |        |                                                                                               |   |   |   |   |   |   |
| Prepaid                      expenses and other current liabilities                                                                   |   |                             | (808,425    | )                                                                                                  |   | - |   |   | (808,425 | ) |
| Accounts                      payable and accrued liabilities                                                                         |   |                             | 379,415     |                                                                                               |   | 71,135 |   |   | 859,454 |   |
| Due                      to related party                                                                                             |   |                             | 128,675     |                                                                                               |   | - |   |   | 42,756 |   |
| Due                      to Thorium Power Inc.                                                                                        |   |                             | 264,740     |                                                                                               |   | - |   |   | 264,740 |   |
| Accrued                      payroll tax liability                                                                                    |   |                             | 635,000     |                                                                                               |   | - |   |   | 635,000 |   |
| Net                      Cash (Used In) Operating Activities                                                                          |   |                             | (1,246,314  | )                                                                                                  |   | (7,079 | ) |   | (2,179,529 | ) |
|                                                                                                                                  |   |                             |        |                                                                                               |   |   |   |   |   |   |
| Investing                      Activities                                                                                             |   |                             |        |                                                                                               |   |   |   |   |   |   |
| Purchase                      of equipment                                                                                            |   |                             | -           |                                                                                               |   | - |   |   | (1,808 | ) |
| Acquisition                      of long-term investment                                                                              |   |                             | (1,350,000  | )                                                                                                  |   | - |   |   | (1,350,000 | ) |
| Net                      Cash (Used In) Investing Activities                                                                          |   |                             | (1,350,000  | )                                                                                                  |   | - |   |   | (1,351,808 | ) |
|                                                                                                                                  |   |                             |        |                                                                                               |   |   |   |   |   |   |
| Financing                      Activities                                                                                             |   |                             |        |                                                                                               |   |   |   |   |   |   |
| Proceeds                      from loan payable to shareholder                                                                        |   |                             | -           |                                                                                               |   | - |   |   | 16,097 |   |
| Issue                      of common shares                                                                                           |   |                             | 1,846,488   |                                                                                               |   | - |   |   | 1,865,438 |   |
| Net                      proceeds from issuance of common stock with registration                      rights                         |   |                             | 15,580,431  |                                                                                               |   | - |   |   | 15,580,431 |   |
| Cash                      paid for redemption of shares                                                                               |   |                             | (400,000    | )                                                                                                  |   | - |   |   | (400,000 | ) |
| Advances                      on notes payable                                                                                        |   |                             | -           |                                                                                               |   | 7,881 |   |   | 900,000 |   |
| Cash                      acquired on acquisition of subsidiary                                                                       |   |                             | -           |                                                                                               |   | - |   |   | 778 |   |
| Net                      Cash Provided By Financing Activities                                                                        |   |                             | 17,026,919  |                                                                                               |   | 7,881 |   |   | 17,962,744 |   |
|                                                                                                                                  |   |                             |        |                                                                                               |   |   |   |   |   |   |
| Net                      Increase In Cash and Cash Equivalents                                                                        |   |                             | 14,430,605  |                                                                                               |   | 802 |   |   | 14,431,407 |   |
|                                                                                                                                  |   |                             |        |                                                                                               |   |   |   |   |   |   |
| Cash                      and Cash Equivalents, Beginning Of Period                                                                   |   |                             | 802         |                                                                                               |   | - |   |   | - |   |
|                                                                                                                                  |   |                             |        |                                                                                               |   |   |   |   |   |   |
| Cash                      and Cash Equivalents, End Of Period                                                                         |   | $                                | 14,431,407  |                                                                                               | $      | 802 |   | $ | 14,431,407 |   |
|                                                                                                                                  |   |                             |        |                                                                                               |   |   |   |   |   |   |
| Supplemental                      Disclosure of Cash Flow Information                                                                 |   |                             |        |                                                                                               |   |   |   |   |   |   |
| Cash                      paid during the year:                                                                                       |   |                             |        |                                                                                               |   |   |   |   |   |   |
| Interest                      paid                                                                                                    |   | $                                | -           |                                                                                               | $      | - |   | $ | - |   |
| Income                      taxes paid                                                                                                |   | $                                | -           |                                                                                               | $      | - |   | $ | - |   |
|                              Other (Note 12)                                                       |   |                             |        |                                                                                               |   |      |   |   |      |   |

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**CONSOLIDATED        STATEMENT OF STOCKHOLDERS’DEFICIENCY**

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

|                                                                                                                                                              |   | Common                    Stock |       | Additional                    Paid-in |   | Deferred |   | Common                    Stock and Warrants Reserved for Future |    | Accumulated |   | Accumulated                    Other Comprehensive |   |   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|------------|---------------------------------------|--------|----------|--------|------------------------------------------------------------------|---------|-------------|--------|----------------------------------------------------|--------|--------|--------|
|                                                                                                                                                              |   | Shares                          |       | Amount                                |   | Capital  |   | Compensation                                                     |    | Issuance    |   | Deficit                                            |   | Income |   | Total |   |
|                                                                                                                                                              |   |                            |       |                                  |   |     |   |                                                             |    |        |   |                                               |   |   |   |   |   |
| Issuance                    of shares to founders                                                                                                                 |   |                            | 3,465      |                                  | $      | 3        |   | $                                                                | 18,947  |        | $      | -                                                  |   | $      | -      |   | $ | - |   | $ | - |   | $ | 18,950 |   |
| Net                    loss for the period                                                                                                                        |   |                            | -          |                                  |   | -        |   |                                                             | -       |        |   | -                                                  |   |   | -      |   |   | (159,909 | ) |   | - |   |   | (159,909 | ) |
|                                                                                                                                                              |   |                            |       |                                  |   |     |   |                                                             |    |        |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance,                    June 30, 2000                                                                                                                         |   |                            | 3,465      |                                  |   | 3        |   |                                                             | 18,947  |        |   | -                                                  |   |   | -      |   |   | (159,909 | ) |   | - |   |   | (140,959 | ) |
|                                                                                                                                                              |   |                            |       |                                  |   |     |   |                                                             |    |        |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Repurchase                    of common stock by consideration of forgiveness of loan payable                    to                    shareholder                |   |                            | (1,445     | )                                     |   | (1       | )      |                                                             | 16,098  |        |   | -                                                  |   |   | -      |   |   | - |   |   | - |   |   | 16,097 |   |
|                                                                                                                                                              |   |                            | 2,020      |                                  |   | 2        |   |                                                             | 35,045  |        |   | -                                                  |   |   | -      |   |   | (159,909 | ) |   | - |   |   | (124,862 | ) |
| Adjustment                    to number of shares issued and outstanding as a result of the                    reverse                    take-over transaction - |   |                            |       |                                  |   |     |   |                                                             |    |        |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Custom                    Branded Networks, Inc.                                                                                                                  |   |                            | (2,020     | )                                     |   | (2       | )      |                                                             | 2       |        |   | -                                                  |   |   | -      |   |   | - |   |   | - |   |   | - |   |
| Aquistar                    Ventures (USA) Inc.                                                                                                                   |   |                            | 15,463,008 |                                  |   | 15,463   |   |                                                             | (15,463 | )           |   | -                                                  |   |   | -      |   |   | - |   |   | - |   |   | - |   |
|                                                                                                                                                              |   |                            | 15,463,008 |                                  |   | 15,463   |   |                                                             | 19,584  |        |   | -                                                  |   |   | -      |   |   | (159,909 | ) |   | - |   |   | (124,862 | ) |
| Shares                    allotted in connection with the acquisition of Custom Branded                    Networks,                    Inc.                      |   |                            | 25,000,000 |                                  |   | 25,000   |   |                                                             | (9,772  | )           |   | -                                                  |   |   | -      |   |   | - |   |   | - |   |   | 15,228 |   |
| Less:                    Allotted and not yet issued                                                                                                              |   |                            | (8,090,476 | )                                     |   | (8,090   | )      |                                                             | 8,090   |        |   | -                                                  |   |   | -      |   |   | - |   |   | - |   |   | - |   |
| Common                    stock conversion rights                                                                                                                 |   |                            | -          |                                  |   | -        |   |                                                             | 421,214 |        |   | -                                                  |   |   | -      |   |   | - |   |   | - |   |   | 421,214 |   |
| Net                    loss for the year                                                                                                                          |   |                            | -          |                                  |   | -        |   |                                                             | -       |        |   | -                                                  |   |   | -      |   |   | (723,239 | ) |   | - |   |   | (723,239 | ) |
|                                                                                                                                                              |   |                            |       |                                  |   |     |   |                                                             |    |        |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance,                    June 30, 2001                                                                                                                         |   |                            | 32,372,532 |                                  |   | 32,373   |   |                                                             | 439,116 |        |   | -                                                  |   |   | -      |   |   | (883,148 | ) |   | - |   |   | (411,659 | ) |

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**CONSOLIDATED        STATEMENT OF STOCKHOLDERS’ DEFICIENCY (Continued)**

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

|                                                                                                                                                              |   | Common                        Stock |             | Additional                        Paid-in |   | Deferred     |   | Common                        Stock and Warrants Reserved for Future |          | Accumulated |   | Accumulated                        Other Comprehensive |   |   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|------------------|-------------------------------------------|--------|--------------|--------|----------------------------------------------------------------------|---------------|-------------|--------|--------------------------------------------------------|--------|--------|--------|
|                                                                                                                                                              |   | Shares                              |             | Amount                                    |   | Capital      |   | Compensation                                                         |          | Issuance    |   | Deficit                                                |   | Income |   | Total |   |
|                                                                                                                                                              |   |                                |             |                                      |   |         |   |                                                                 |          |        |   |                                                   |   |   |   |   |   |
| Balance,                        June 30, 2001                                                                                                                     |   |                                | 32,372,532       |                                      | $      | 32,373       |   | $                                                                    | 439,116       |        | $      | -                                                      |   | $      | -      |   | $ | (883,148 | ) | $ | - |   | $ | (411,659 | ) |
|                                                                                                                                                              |   |                                |             |                                      |   |         |   |                                                                 |          |        |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Additional                        shares issued in connection with the acquisition of Custom                        Branded                        Networks, Inc. |   |                                | 1,500,000        |                                      |   | 1,500        |   |                                                                 | (1,500        | )           |   | -                                                      |   |   | -      |   |   | - |   |   | - |   |   | - |   |
| Common                        stock conversion rights                                                                                                             |   |                                | -                |                                      |   | -            |   |                                                                 | 109,748       |        |   | -                                                      |   |   | -      |   |   | - |   |   | - |   |   | 109,748 |   |
| Net                        loss for the year                                                                                                                      |   |                                | -                |                                      |   | -            |   |                                                                 | -             |        |   | -                                                      |   |   | -      |   |   | (326,038 | ) |   | - |   |   | (326,038 | ) |
|                                                                                                                                                              |   |                                |             |                                      |   |         |   |                                                                 |          |        |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance,                        June 30, 2002                                                                                                                     |   |                                | 33,872,532       |                                      |   | 33,873       |   |                                                                 | 547,364       |        |   | -                                                      |   |   | -      |   |   | (1,209,186 | ) |   | - |   |   | (627,949 | ) |
|                                                                                                                                                              |   |                                |             |                                      |   |         |   |                                                                 |          |        |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issue                        of common stock for deferred compensation expense                                                                                    |   |                                | 4,500,000        |                                      |   | 4,500        |   |                                                                 | 40,500        |        |   | (45,000                                                | )      |   | -      |   |   | - |   |   | - |   |   | - |   |
| Amortization                        of deferred compensation                                                                                                      |   |                                | -                |                                      |   | -            |   |                                                                 | -             |        |   | 22,500                                                 |   |   | -      |   |   | - |   |   | - |   |   | 22,500 |   |
| Common                        stock conversion rights                                                                                                             |   |                                | -                |                                      |   | -            |   |                                                                 | 45,116        |        |   | -                                                      |   |   | -      |   |   | - |   |   | - |   |   | 45,116 |   |
| Net                        loss for the year                                                                                                                      |   |                                | -                |                                      |   | -            |   |                                                                 | -             |        |   | -                                                      |   |   | -      |   |   | (142,233 | ) |   | - |   |   | (142,233 | ) |
|                                                                                                                                                              |   |                                |             |                                      |   |         |   |                                                                 |          |        |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance,                        June 30, 2003                                                                                                                     |   |                                | 38,372,532       |                                      |   | 38,373       |   |                                                                 | 632,980       |        |   | (22,500                                                | )      |   | -      |   |   | (1,351,419 | ) |   | - |   |   | (702,566 | ) |
|                                                                                                                                                              |   |                                |             |                                      |   |         |   |                                                                 |          |        |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Amortization                        of deferred compensation                                                                                                      |   |                                | -                |                                      |   | -            |   |                                                                 | -             |        |   | 22,500                                                 |   |   | -      |   |   | - |   |   | - |   |   | 22,500 |   |
| Common                        stock conversion rights                                                                                                             |   |                                | -                |                                      |   | -            |   |                                                                 | 3,301         |        |   | -                                                      |   |   | -      |   |   | - |   |   | - |   |   | 3,301 |   |
| Net                        loss for the year                                                                                                                      |   |                                | -                |                                      |   | -            |   |                                                                 | -             |        |   | -                                                      |   |   | -      |   |   | (95,430 | ) |   | - |   |   | (95,430 | ) |
|                                                                                                                                                              |   |                                |             |                                      |   |         |   |                                                                 |          |        |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance,                        June 30, 2004                                                                                                                     |   |                                | 38,372,532       |                                      |   | 38,373       |   |                                                                 | 636,281       |        |   | -                                                      |   |   | -      |   |   | (1,446,849 | ) |   | - |   |   | (772,195 | ) |
|                                                                                                                                                              |   |                                |             |                                      |   |         |   |                                                                 |          |        |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issue                        of common stock for services                                                                                                         |   |                                | 14,800,000       |                                      |   | 14,800       |   |                                                                 | 901,200       |        |   | -                                                      |   |   | -      |   |   | - |   |   | - |   |   | 916,000 |   |
| Issue                        of common stock for convertible notes                                                                                                |   |                                | 20,000,000  |                                      |   | 20,000  |   |                                                                 | 484,166  |        |   | -                                                      |   |   | -      |   |   | - |   |   | - |   |   | 504,166  |   |
| Issue                        of warrants for convertible notes                                                                                                    |   |                                | -                |                                      |   | -            |   |                                                                 | 495,834       |        |   | -                                                      |   |   | -      |   |   | - |   |   | - |   |   | 495,834 |   |
| Issue                        of common stock for services                                                                                                         |   |                                | 11,600,000       |                                      |   | 11,600       |   |                                                                 | 1,583,900     |        |   | (598,000                                               | )      |   | -      |   |   | - |   |   | - |   |   | 997,500 |   |
| Issue                        of common stock for services                                                                                                         |   |                                | 1,300,000        |                                      |   | 1,300        |   |                                                                 | 226,700       |        |   | -                                                      |   |   | -      |   |   | - |   |   | - |   |   | 228,000 |   |
| Amortization                        of deferred compensation                                                                                                      |   |                                | -                |                                      |   | -            |   |                                                                 | -             |        |   | 98,033                                                 |   |   | -      |   |   | - |   |   | - |   |   | 98,033 |   |
| Net                        loss for the year                                                                                                                      |   |                                | -                |                                      |   | -            |   |                                                                 | -             |        |   | -                                                      |   |   | -      |   |   | (2,691,516 | ) |   | - |   |   | (2,691,516 | ) |
|                                                                                                                                                              |   |                                |             |                                      |   |         |   |                                                                 |          |        |   |                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance,                        June 30, 2005                                                                                                                     |   |                                | 86,072,532       |                                      |   | 86,073       |   |                                                                 | 4,328,081     |        |   | (499,967                                               | )      |   | -      |   |   | (4,138,365 | ) |   | - |   |   | (224,178 | ) |

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**CONSOLIDATED        STATEMENT OF STOCKHOLDERS’ DEFICIENCY (Continued)**

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

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

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**CONSOLIDATED        STATEMENT OF STOCKHOLDERS’ DEFICIENCY (Continued)**

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

|                                                                |   | Common                    Stock |   | Additional                    Paid-in |   | Deferred |   | Common                    Stock and Warrants Reserved for Future |   | Accumulated |   | Accumulated                    Other Comprehensive |   |   |   |
|---------------------------------------------------------------------|--------|---------------------------------|--------|---------------------------------------|--------|----------|--------|------------------------------------------------------------------|--------|-------------|--------|----------------------------------------------------|--------|--------|--------|
|                                                                |   | Shares                          |   | Amount                                |   | Capital  |   | Compensation                                                     |   | Issuance    |   | Deficit                                            |   | Income |   | Total |   |
|                                                                |   |                            |   |                                  |   |     |   |                                                             |   |        |   |                                               |   |   |   |   |   |
| Deficit                    accumulated during the development stage |   |                            |   |                                  |   |     |   |                                                             |   |        |   |                                               |   |   |   |   | $ | (1,351,419 | ) |   |   |   |   |   |   |
| Deficit                    accumulated during the exploration stage |   |                            |   |                                  |   |     |   |                                                             |   |        |   |                                               |   |   |   |   |   | (16,131,481 | ) |   |   |   |   |   |   |
|                                                                |   |                            |   |                                  |   |     |   |                                                             |   |        |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance,                    June 30, 2006                           |   |                            |   |                                  |   |     |   |                                                             |   |        |   |                                               |   |   |   |   | $ | (17,482,900 | ) |   |   |   |   |   |   |

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL        STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **1.** | **NATURE                  OF OPERATIONS** |
|--------|-------------------------------------------|

| **2.** | **SUMMARY                  OF SIGNIFICANT ACCOUNTING                  POLICIES** |
|--------|----------------------------------------------------------------------------------|

|   |                     a) | Consolidation |
|--------|----------------------------------|---------------|

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

| b)   | Use                  of Estimates |
|----------------|-----------------------------------|

| c)   | Prior                Year Reclassifications |
|----------------|---------------------------------------------|

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **2.** | **SUMMARY                  OF SIGNIFICANT ACCOUNTING POLICIES**                  (Continued) |
|--------|----------------------------------------------------------------------------------------------|

| c)   | Prior                Year Reclassifications (Continued) |
|----------------|---------------------------------------------------------|

| d)   | Cash                and Cash Equivalents |
|----------------|------------------------------------------|

|   |                    e) | Equipment |
|--------|----------------------------|-----------|

|   |                     f) | Income                  Taxes |
|--------|----------------------------------|-------------------------------|

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **2.** | **SUMMARY                  OF SIGNIFICANT ACCOUNTING POLICIES**                  (Continued) |
|--------|----------------------------------------------------------------------------------------------|

|   |                     f) | Income                  Taxes (Continued) |
|--------|----------------------------------|-------------------------------------------|

|   |                    g) | Mineral                  Property Acquisition Costs and Exploration                  Expenditures |
|--------|----------------------------|---------------------------------------------------------------------------------------------------|

|   |   | The                  Company follows a policy of capitalizing mineral property acquisition                  costs and expensing mineral property exploration expenditures until                  a                  production decision is made in respect of the project and the Company                  is                  reasonably assured that it will receive regulatory approval to                  permit                  mining operations which may include the receipt of a legally binding                  project approval certificate. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | Management                  periodically reviews the carrying value of its investments in mineral                  leases and claims with internal and external mining related professionals.                  A decision to abandon, reduce or expand a specific project is based                  upon                  many factors including general and specific assessments of mineral                  deposits, anticipated future mineral prices, anticipated future                  costs of                  exploring, developing and operating a production mine, the expiration                  term                  and ongoing expenses of maintaining mineral properties and the                  general                  likelihood that the Company will continue exploration on such project.                  The                  Company does not set a pre-determined holding period for properties                  with                  unproven deposits, however, properties which have not demonstrated                  suitable metal concentrations at the conclusion of each phase of                  an                  exploration program are re-evaluated to determine if future exploration                  is                  warranted, whether there has been any impairment in value and that                  their                  carrying values are appropriate. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | If                  an area of interest is abandoned or it is determined that its carrying                  value cannot be supported by future production or sale, the related                  costs                  or impairment loss is charged against operations in the year of                  abandonment or determination of value. The amounts recorded as                  mineral                  leases and claims represent costs to date and do not necessarily                  reflect                  present or future values. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | The                  Company’s exploration activities and proposed mine development are subject                  to various laws and regulations governing the protection of the                  environment. These laws are continually changing, generally becoming                  more                  restrictive. The Company has made, and expects to make in the future,                  if                  it continues its mining operations, expenditures to comply with                  such laws                  and regulations. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **2.** | **SUMMARY                  OF SIGNIFICANT ACCOUNTING POLICIES**                  (Continued) |
|--------|----------------------------------------------------------------------------------------------|

|   |                    g) | Mineral                  Property Acquisition Costs and Exploration Expenditures                  (Continued) |
|--------|----------------------------|---------------------------------------------------------------------------------------------------------------|

|   |   | The                  accumulated costs of properties that are developed on the stage                  of                  commercial production will be amortized to operations using the                  unit-of-production depletion method. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |                    h) | Financial                  Instruments |
|--------|----------------------------|----------------------------------------|

|   |                    i) | Stock-Based                  Compensation |
|--------|----------------------------|-------------------------------------------|

*Share-Based        Payment, *
*Accounting        for Stock-Based Compensation. *
* *
*Accounting        for Stock Issued to Employees,*

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **2.** | **SUMMARY                  OF SIGNIFICANT ACCOUNTING POLICIES**                  (Continued) |
|--------|----------------------------------------------------------------------------------------------|

|  |                     i) | Stock-Based                  Compensation (Continued) |
|--|----------------------------------|-------------------------------------------------------|

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

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

| j)                   | Warrants |
|--------------------------------|----------|

|   |                    k) | Basic                  and Diluted Loss per Share |
|--------|----------------------------|---------------------------------------------------|

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **2.** | **SUMMARY                  OF SIGNIFICANT ACCOUNTING POLICIES**                  (Continued) |
|--------|----------------------------------------------------------------------------------------------|

|   |                     l) | Impairment                  Charges |
|--------|----------------------------------|-------------------------------------|

| m)   | Foreign                  Currency Translation |
|----------------|-----------------------------------------------|

| a.   | monetary                  items at the rate prevailing at the balance sheet                  date; |
|----------------|----------------------------------------------------------------------------------------------------|

| b.   | non-monetary                  items at the historical exchange                  rate; |
|----------------|---------------------------------------------------------------------------------------|

| c.   | revenue                  and expenses that are monetary items are valued at the average                  rate in                  effect during the applicable accounting                  period. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **2.  ** | ** SUMMARY                OF SIGNIFICANT ACCOUNTING POLICIES**                (Continued) |
|--------------------|------------------------------------------------------------------------------------------------|

| n)   | Revenue                  Recognition |
|----------------|--------------------------------------|

| o)   | Comprehensive                  Income |
|----------------|---------------------------------------|

| p)   | Asset                  Retirement Obligations |
|----------------|-----------------------------------------------|

| q)   | Environmental                  Protection and Reclamation Costs |
|----------------|-----------------------------------------------------------------|

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

**2.**
**SUMMARY        OF SIGNIFICANT ACCOUNTING POLICIES**

| r)   | Advertising                  Costs |
|----------------|------------------------------------|

|   |                     s)  | Exploration                  Stage Enterprise |
|--------|----------------------------------------|-----------------------------------------------|

|  |                   t) | Investments |
|--|--------------------------------|-------------|

| **3.  ** | **RECENT                  ACCOUNTING PRONOUNCEMENTS** |
|--------------------|-------------------------------------------------------|

| a)   | In                March 2005, the FASB issued FASB Interpretation (“FIN”) No. 47,                “Accounting for Conditional Asset Retirement Obligations.” FIN 47 is an                interpretation of SFAS No. 143, “Asset Retirement Obligations,” which was                issued in June 2001. FIN 47 was issued to address diverse accounting                practices that have developed with regard to the timing of liability                recognition for legal obligations associated with the retirement                of a                tangible long-lived asset in which the timing and/or method of settlement                are conditional on a future event that may or may not be within the                control of the entity. According to FIN 47, uncertainty about the                timing                and/or method of settlement of a conditional asset retirement obligation                should be factored into the measurement of the liability when sufficient                information exists. FIN 47 also clarifies when an entity would have                sufficient information to reasonably estimate the fair value of an                asset                retirement obligation. FIN 47 is effective no later than December                31, 2005                for the Company. The Company is currently evaluating the impact of                the                adoption of FIN 47 on its financial                statements. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **  3.  ** | **RECENT                  ACCOUNTING PRONOUNCEMENTS**(Continued) |
|--------------------------------|------------------------------------------------------------------|

| b)   | In                  May 2005, the Financial Accounting Standards Board (FASB) issued                  SFAS No.                  154, “Accounting Changes and Error Corrections” (SFAS No. 154) which                  replaces APB No. 20, “Accounting Changes” and SFAS No. 3, “Reporting                  Accounting Changes in Interim Financial Statements - an Amendment                  of APB                  Opinion No. 28”. SFAS No. 154 provides guidance on the methods issuers                  should use to account for and reporting accounting changes and                  error                  corrections. Specifically, this statement requires that issuers                  retrospectively apply any voluntary change in accounting principles                  to                  prior period financial statements, if it is practicable to do so.                  This                  principle replaces APB No. 20, which required that most voluntary                  changes                  in accounting principle be recognized by including the cumulative                  effect                  of the change to the new accounting principle on prior periods                  in the net                  income reported by the issuer in the period in which it instituted                  the                  change. SFAS No. 154 also redefines the term “restatement” to mean the                  correction of an error by revising previously issued financial                  statements.                  Unless adopted early, SFAS No. 154 is effective for accounting                  changes and                  corrections of errors made in fiscal years beginning after December                  15,                  2005. The Company does not expect the adoption of SFAS No. 154                  to have an                  impact on its financial position or result of                  operations. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

** 4.        CASH AND CASH EQUIVALENTS**

|                                                           |   | **JUNE                  30** |       |
|----------------------------------------------------------------|--------|------------------------------|------------|
|                                                           |   | **2006**                     |       | **2005** |   |
| Cash                  on deposit                               |   | $                            | 1,316,993  |   | $ | 802 |   |
| Investment                  grade commercial paper - Note 2(d) |   |                         | 12,019,947 |   |   | - |   |
| Money                  market funds                            |   |                         | 1,043,235  |   |   | - |   |
| Funds                  held in attorney trust account          |   |                         | 51,232     |   |   | - |   |
| Total                  cash and cash equivalents               |   | $                            | 14,431,407 |   | $ | 802 |   |

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL        STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **5.  ** | **INVESTMENT                  / DUE TO THORIUM POWER                  INC.** |
|--------------------|------------------------------------------------------------------------------|

| **6.  ** | **OFFICER                  COMPENSATION / ACCRUED PAYROLL TAX                  LIABILITY** |
|--------------------|--------------------------------------------------------------------------------------------|

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **7.** | **MINERAL                  PROPERTIES** |
|--------|-----------------------------------------|

| i)   | Properties |
|----------------|------------|

| a)   | On                May 1, 2005 the Company entered into an agreement to purchase a 92.25%                interest in three mineral interests located in the state of Queensland,                Australia. This agreement was replaced and superseded by an agreement                dated September 30, 2005, to increase the Company’s purchase to a 100%                interest. As consideration, the Company issued 5,000,000 restricted                common                shares of the Company to the vendor at a deemed value price of $1,450,000                (issued on October 21, 2005). In addition, the Company must incur                the                following exploration expenditures, not to exceed                $695,000: |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |                      i) | $125,000                  by December 31, 2006; |
|--------|----------------------------------------|-------------------------------------------------|

|  |                               b) | On                  September 14, 2005 the Company entered into an agreement whereby                  certain                  mineral leases in the Clay County District of Alabama were assigned                  to the                  Company. The Company assumed a lease held by the lessee, for consideration                  of $100,000 cash (paid as of June 30, 2006), 1,000,000 restricted                  common                  shares of the Company at a deemed price of $160,000 (issued on                  October 21,                  2005) and a $15 per ton net royalty of Thorium/monazite removed                  from the                  leased properties. |
|--|--------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **7.** | **MINERAL                  PROPERTIES**                  (Continued) |
|--------|----------------------------------------------------------------------|

| i)   | Properties                (Continued) |
|----------------|---------------------------------------|

| c)   | On                    December 31, 2005 the Company entered into an agreement with                    CM Properties                    and Mr. Merchant, whereby certain mineral leases in the Cleburne                    County District of Alabama can be assigned to the Company. The                    Company                    will assume 51% of a lease held by the lessee, who subsequently                    became an                    officer of the Company but no longer serves as an officer as                    of June 30,                    2006, for consideration of 2,000,000 restricted common shares                    of the                    Company.  In addition, the Company must incur $1,500,000 on property                    expenditures and for each $100,000 in additional expenditures;                    the Company                    will receive an additional 4% interest in the lease up to a maximum                    of an                    extra 40% interest. Upon reaching a 91% interest, the lessee                    shall retain                    a 9% interest and shall receive $17.50 per ounce of pure Platinum                    Group                    Metal (PGM) produced. For each 2,500 ounces of PGM produced,                    the lessee                    shall receive an additional 1,000,000 restricted common shares                    of the                    Company, up to a maximum of 8,000,000 shares, for a period of                    two years                    from the acquisition of the Company’s 91% interest being                    obtained**. **Aspects                    of the contract remain executory, and the company has not issued                    the                    2,000,000 shares, while entities controlled by CM Properties continue                    to oversee the properties and are reimbursed by the Company for                    their                    services. In February 2006, the Company and CM Properties amended                    the                    lease agreements to make the sole remedy to CM Properties for                    a breach of                    the agreement by the Company termination of the mineral lease                    agreements,                    with no further relief or recourse against the Company**.**                    Accordingly, the balance sheet does not reflect the value of                    the property                    (this value determined by the stock value of the 2 million shares at                    the date of the agreement - $380,000) as an asset nor does it                    reflect the Company's obligation to issue the shares (valued                    at                    the stock value of $380,000) as common stock reserved for                    future issuance (an equity account on the balance                    sheet). |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ii) | Impairment                  Loss |
|-----|----------------------------------|

|    | In                2006, during the course of the Company’s strategic review of its mineral                exploration operations, the Company recorded a net impairment charge                of                $670,544 (non-deductible for income tax purposes) relating to the                impairment of all mineral acquisition costs when it was determined                that                future undiscounted and discounted cash flows associated with these                assets                were insufficient to recover their carrying values. These assets                may have                a nominal value, but were written down at June 30, 2006 to                $0. |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

**8.**
**CONVERTIBLE        NOTE PAYABLE**

| **9.** | **SHARE                  CAPITAL** |
|--------|------------------------------------|

|   | i) | Common                  Stock |
|--------|----|-------------------------------|

|   | a) | On                  August 3, 2005 the Company issued 800,000 restricted shares of                  common                  stock to its former advisory board as compensation for consulting                  services                  performed. The value attributed to these shares was $128,000 ($0.16                  per                  share). |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **9.** | **SHARE                  CAPITAL**                  (Continued) |
|--------|-----------------------------------------------------------------|

|   | i) | Common                  Stock (Continued) |
|--------|----|-------------------------------------------|

|   | b) | On                  September 22, 2005 the Company issued a total of 4,187,500 shares                  of                  common stock to outside consultants as payment for various services                  rendered on behalf of the Company. Of the total issuance, 4,000,000                  were                  issued pursuant to the March 2005 Compensation Plan, while 187,500                  were                  issued pursuant to the August 2005 Augmented Compensation Plan.                  The value                  attributed to these shares in total was $462,828 ($0.11 per                  share). |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c) | On                  September 30, 2005 the Company issued 300,000 shares of restricted                  common                  stock to an outside consultant as payment for services rendered                  for                  mineral exploration activities. These shares were issued pursuant                  to the                  August 2005 Augmented Compensation Plan, and the value attributed                  was                  $51,000 ($0.17 per share). |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | d) | On                  October 21, 2005 the Company issued 1,000,000 restricted common                  shares                  with value of $160,000 ($0.16 per share at the agreement date)                  for mineral                  property acquisition costs, as described in note                  7(i)(b). |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | e) | On                  October 21, 2005 the Company issued 5,000,000 restricted common                  shares                  with value of $1,450,000 ($0.29 per share at the agreement date)                  for                  mineral property acquisition costs, as described in note                  7(i)(c). |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | f) | On                  November 1, 2005 the Company issued 300,000 shares of common stock                  to an                  outside consultant as payment for his services rendered for mineral                  exploration activities. These shares were issued pursuant to the                  August                  2005 Augmented Compensation Plan and the value attributed to these                  shares                  was $51,000 ($0.17 per share). |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | g) | On                  November 23, 2005 the Company closed a private placement of $631,500,                  consisting of an offering of 4,209,998 units of at a price of $0.15                  per                  unit. Each unit consists of one common share of restricted stock                  and                  one-half of a non-transferable share purchase warrant. Each warrant                  entitles the holder thereof to acquire one additional share of                  common                  stock at a price of $0.30 per share and have an expiry date of                  twelve                  months from the closing date of the subscription. The warrants                  were valued                  using the Black Scholes option pricing model using the following                  assumptions: weighted average expected life of 1 year, volatility                  of 141%,                  rate of quarterly dividends -0%, risk free interest rate of 3.61%.                  The                  amount allocated to the share purchase warrants was $127,467. Of                  the                  4,209,998 units issued in the private placement, 249,999 units                  were issued                  as settlement of debt of $37,500. The remainder of the units were                  issued                  for total cash proceeds of                  $594,000. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **9.** | **SHARE                  CAPITAL**(Continued) |
|--------|-----------------------------------------------|

|   | i) | Common                  Stock (Continued) |
|--------|----|-------------------------------------------|

|   | h) | On                  December 1, 2005 the Company issued 15,000,000 shares of restricted                  common                  stock as compensation for the cancellation of 20,000,000 share                  purchase                  warrants, which were issued during the year ended June 30, 2005,                  as                  described in note 8, with a value of $495,834. The total value                  attributable to the compensating shares was $2,250,000 ($0.15 per                  share).                  On February 20, 2006, all 15,000,000 of these shares were returned                  to the                  Company’s treasury for                  cancellation. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | i) | On                  December 1, 2005 the Company issued 3,658,333 shares of common                  stock to                  various outside consultants as payment for various services rendered                  on                  behalf of the Company. The total issuance was pursuant to the August                  2005                  Augmented Compensation Plan. The value attributed to these shares                  was                  $621,916 ($0.17 per share). |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | j) | On                  December 1, 2005 the Company issued 1,250,000 shares of restricted                  common                  stock to an outside consultant, who subsequently became the Company’s                  Chief Executive Officer, as payment for services rendered. The                  value                  attributable to these shares was $192,500 ($0.15 and $0.17 per                  share                  issuances). |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | k) | On                  December 1, 2005 the Company issued 550,000 shares of common stock                  to                  outside consultants as payment for their services rendered regarding                  our                  mineral exploration activities. These shares were issued pursuant                  to the                  August 2005 Augmented Compensation Plan and the value attributed                  to these                  shares was $93,500 ($0.17 per                  share). |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | l) | On                  January 9, 2006 the Company issued 355,714 shares of restricted                  common                  stock to 3West LLC for drilling services in the Clay County District                  of                  Alabama. These shares were issued pursuant to a drilling agreement                  at                  $0.29 per share for total consideration of                  $104,173. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | m) | On                  January 11, 2006 the Company issued 3,100,000 shares of common                  stock to                  various outside consultants as payment for various services rendered                  on                  behalf of the Company. The total issuance was pursuant to the August                  2005                  Augmented Compensation Plan. The value attributed to these shares                  was                  $527,000 ($0.17 per share), which was the market price on the date                  of the                  agreements. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | n) | On                  January 24, 2006 the Company issued 181,428 shares of restricted                  common                  stock to 3West LLC for drilling services in the Clay County District                  of                  Alabama. The shares were issued pursuant to a drilling agreement                  at $0.29                  per share for total consideration of                  $53,132. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **9.** | **SHARE                  CAPITAL**(Continued) |
|--------|-----------------------------------------------|

|   | i) | Common                  Stock (Continued) |
|--------|----|-------------------------------------------|

|   | o) | On                  January 27, 2006 the Company issued 150,000 shares of restricted                  common                  stock to an outside consultant as payment for his services rendered.                  The                  value attributed to these shares was $94,500 ($0.63 per                  share). |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | p) | On                  February 2, 2006 the Company issued 135,545 shares of restricted                  common                  stock to 3West LLC for drilling services in the Clay County District                  of                  Alabama. The shares were issued pursuant to a drilling agreement                  at $0.29                  per share for total consideration of                  $39,695. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | q) | On                  February 13, 2006 the Company issued 2,389,558 shares of restricted                  common                  stock to an outside consultant as payment for services rendered,                  and a                  portion for services to be rendered. The value attributed to these                  shares                  was $955,823 ($0.40 per share). |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | r) | On                  February 20, 2006 15,000,000 shares at the Company’s common stock were                  returned to treasury for cancellation, as described in Note                  8. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | s) | On                  February 20, 2006 5,000,000 shares of the Company’s common stock were                  returned to treasury for cancellation, as described in Note                  7(a). |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | t) | On                  March 30, 2006 3,374,998 shares of the Company’s common stock were issued                  pursuant to a private placement whereby the Company offered 4,208,331                  units at $0.30 per unit for cash proceeds of $1,262,500. The proceeds                  were                  used to complete the proposed merger with Thorium Power Inc. as                  described                  in Note 14. Each unit consists of one share of restricted common                  stock and                  one-half of a non-transferable share purchase warrant. Each whole                  warrant                  entitles the holder thereof to acquire one additional share of                  common                  stock at a price of $0.50 per share and expires twelve months from                  the                  closing date of the subscription. The warrants were valued using                  the Black                  Scholes option pricing model using the following assumptions: weighted                  average expected life of 1 year, volatility of 148%, rate of quarterly                  dividends 0%, risk free interest rate of 2.86%. The amount allocated                  to                  the share purchase warrants was $281,117. The remaining 833,333                  shares                  were issued on April 25, 2006. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| u)                    | On                June 29, 2006, the Company issued 252,698 shares of restricted common                stock to an outside consultant as payment for services rendered.                The value                attributable to these shares was $101,079 ($0.40 per                share). |
|--------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **9.** | **SHARE                  CAPITAL**(Continued) |
|--------|-----------------------------------------------|

|                  ii)      | Common                  Stock Issued With Registration                  Rights |
|----------------------------------------------------|--------------------------------------------------------------------------------|

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **9.** | **SHARE                  CAPITAL**(Continued) |
|--------|-----------------------------------------------|

|    | ii)                   Common Stock Issued With Registration Rights                (Continued) |
|--------------|--------------------------------------------------------------------------------------------------------------|

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **9.** | **SHARE                  CAPITAL**(Continued) |
|--------|-----------------------------------------------|

|   | a) | No                    more than 10,000.000 options can be granted for the purchase of                    restricted common shares. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------|

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

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

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

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

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

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **9.** | **SHARE                  CAPITAL**(Continued) |
|--------|-----------------------------------------------|

** **

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **9.** | **SHARE                  CAPITAL**(Continued) |
|--------|-----------------------------------------------|

|   | iii) | Stock                  Options (Continued) |
|--------|------|--------------------------------------------|

|                                                | **JUNE                  30** |
|-----------------------------------------------------|------------------------------|
|                                                | **2006**                     | **2005** |
| Outstanding                  at beginning of year   | -                            | - |
| Granted                                             | 10,425,000                   | - |
| Exercised                                           | -                            | - |
| Expired                                             | -                            | - |
| Forfeited                                           | -                            | - |
| Outstanding                  at end of year         | 10,425,000                   | - |
| Options                  exercisable at end of year | 1,669,445                    | - |

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **9.** | **SHARE                  CAPITAL**(Continued) |
|--------|-----------------------------------------------|

|   | iii) | Stock                  Options (Continued) |
|--------|------|--------------------------------------------|

| ·   | A                  total of 2,350,000 non-qualified 10 year options have been issued                  to                  advisory board members at exercise prices of $0.50 to $0.64 a share                  and a                  weighted average exercise price and fair value per share of $0.62                  and                  $0.62 respectively; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | A                  total of 8,075,000 non-qualified 10 year options have been issued                  to                  directors and officers of the Company, at exercise prices of $0.50                  to                  $0.80 per share and a weighted average exercise price and fair                  value per                  share of $0.77 and $0.79 respectively. From this total, 7,200,000                  options                  were issued on February 14, 2006, with a remaining contractual                  life of 9.6                  years. All other options issued have a remaining contractual life                  of 9.9                  years. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **Exercise                  Prices** | **Stock                  Options Outstanding and Exercisable** | **Weighted                  Average Remaining Contractual Life - Years** |
|--------------------------------------|----------------------------------------------------------------|--------------------------------------------------------------------------|
| $0.50                                | 5,556                                                          | 9.9                                                                      |
| $0.51                                | 13,889                                                         | 9.9                                                                      |
| $0.80                                | 1,650,000                                                      | 9.6                                                                      |
|                                 |                                                           |                                                                     |
| Total                                | 1,669,445                                                      |                                                                     |

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **9.** | **SHARE                  CAPITAL**(Continued) |
|--------|-----------------------------------------------|

|   | iii) | Stock                  Options (Continued) |
|--------|------|--------------------------------------------|

|                                             | 2006                           |
|--------------------------------------------------|--------------------------------|
|                                             |                           |
| Average                  risk-free interest rate | 4.30%                  - 4.35% |
| Average                  expected life           | 5                  years       |
| Expected                  volatility             | 279%                  - 284%   |
| Expected                  dividends              | 0%                             |

|   | iv) | Stock-Based                  Compensation |
|--------|-----|-------------------------------------------|

|  | a) | On                  February 14, 2006, the Company, pursuant to an employment agreement                  granted its Chief Executive Officer and director options to purchase                  7,200,000 shares at $0.80 per share. The options will vest over                  a period                  of 42 months; with 900,000 options vesting immediately and 150,000                  options                  vesting each month thereafter. As at June 30, 2006, stock-based                  compensation of $647,133 has been recorded, in accordance with                  SFAS 123R,                  to the statement of operations as a result of this                  grant. |
|--|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b) | On                  April 24, 2006, the Company issued to its Chief Executive Officer                  and                  Director an aggregate of 5,000,000 shares of the Company’s restricted                  common stock. The shares were valued at $4,150,000 ($0.83 per share)                  using                  the closing stock price on the date of the employment agreement.                  This                  stock issuance resulted in the Company having a payroll tax liability,                  see                  note 6. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  |  c) | On                  June 13, 2006, the Company entered into a consulting agreement                  with                  interim Acting Chief Financial Officer whereby they are committed                  to issue                  an aggregate of 75,000 shares of restricted common stock. As at                  June 30,                  2006, this stock has not been issued, but has been accrued for                  on the                  balance sheet as common stock reserved for future issuance. The                  value of                  the stock was calculated using the closing share price on the date                  of the                  agreement, for a total commitment of $35,250 ($0.47 per share).                  The stock                  was issued subsequent to the Company’s year end, see Note                  9(vi). |
|--|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **9.** | **SHARE                  CAPITAL**(Continued) |
|--------|-----------------------------------------------|

|   | iv) | Stock-Based                  Compensation (Continued) |
|--------|-----|-------------------------------------------------------|

|  | d) | On                  June 5, 2006, the Company entered into an employment agreement                  with its                  Chief Operating Officer and Director whereby they are committed                  to issue                  an aggregate of 75,000 shares of restricted common stock. As at                  June 30,                  2006, this stock has not been issued, but has been accrued for                  on the                  balance sheet as common stock reserved for issuance. The value                  of the                  stock was calculated using the closing share price on the date                  of the                  agreement, for a total commitment of $38,250 ($0.51 per share).                  The stock                  was issued subsequent to the Company’s year end, see Note                  9(vi). |
|--|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | e) | On                  June 20, 2006, the Company granted an advisory board member options                  to                  purchase 150,000 shares at $0.51 per share. The options will vest                  over a                  period of 36 months; with 4,167 options vesting each month. As                  at June 30,                  2006, stock-based compensation of $1,997 has been recorded to the                  statement of operations as a result of this                  grant. |
|--|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| f)                     | On                  June 19, 2006, the Company granted an advisory board member options                  to                  purchase 200,000 shares at $0.50 per share. The options will vest                  over a                  period of 36 months; with 5,556 options vesting each month. As                  at June 30,                  2006, stock-based compensation of $2,773 has been recorded to the                  statement of operations as a result of this                  grant. |
|--------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| g)                    | On                  April 25, 2006, the Company granted an advisory board member options                  to                  purchase 2,000,000 shares at $0.64 per share. The options will                  vest over a                  period of 42 months; with 500,000 options vesting on October 1,                  2006 and                  41,667 options vesting each month thereafter. As at June 30, 2006,                  stock-based compensation of $62,337 has been recorded to the statement                  of                  operations as a result of this                  grant. |
|--------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **9.** | **SHARE                  CAPITAL**(Continued) |
|--------|-----------------------------------------------|

|   | v) | Warrants |
|--------|----|----------|

|                                        | **Number                  of Warrants** | **Weighted                  Average Exercise Price** | **Warrants                  Exercisable** | **Weighted                  Average Exercise Price** |
|---------------------------------------------|-----------------------------------------|------------------------------------------------------|-------------------------------------------|------------------------------------------------------|
| Outstanding,                  June 30, 2004 | -                                       | -                                                    | -                                         | -                                                    |
| Granted                                     | 20,000,000                              | $0.05                                                | 20,000,000                                | $0.05                                                |
| Exercised                                   | -                                       | -                                                    | -                                         | -                                                    |
| Expired/Cancelled                           | -                                       | -                                                    | -                                         | -                                                    |
| Outstanding,                  June 30, 2005 | 20,000,000                              | $0.05                                                | 20,000,000                                | $0.05                                                |
| Granted                                     | 23,272,279                              | $0.60                                                | 23,272,279                                | $0.60                                                |
| Exercised                                   | -                                       | -                                                    | -                                         | -                                                    |
| Expired/Cancelled                           | (20,000,000)                            | -                                                    | (20,000,000)                              | -                                                    |
| Outstanding,                  June 30, 2006 | 23,272,279                              | $0.60                                                | 23,272,279                                | $0.60                                                |

|                                           | **Warrants                  Outstanding and Exercisable** |
|------------------------------------------------|-----------------------------------------------------------|
| **Warrants                  - Exercise Price** | **Number                  of Warrants**                   | **Weighted                  Average Remaining Contractual Life - Years** |
| $0.30                                          | 2,104,999                                                 | 0.40 |
| $0.50                                          | 2,104,166                                                 | 0.75 |
| $0.65                                          | 19,063,114                                                | 0.86 |
|                                           |                                                      |   |
| Total                                          | 23,272,279                                                |   |

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **9.** | **SHARE                  CAPITAL**(Continued) |
|--------|-----------------------------------------------|

|   | v) | Warrants                  (Continued) |
|--------|----|---------------------------------------|

|                                             | 2006                           |
|--------------------------------------------------|--------------------------------|
|                                             |                           |
| Average                  risk-free interest rate | 2.86%                  - 4.30% |
| Average                  expected life           | 1                  year        |
| Expected                  volatility             | 142%                  - 153%   |
| Expected                  dividends              | 0%                             |

|   | vi) | Common                  Stock and Warrants reserved for Future                  Issuance |
|--------|-----|------------------------------------------------------------------------------------------|

|                                                                           | **SHARES                    OF** | **STOCK**    |       |
|--------------------------------------------------------------------------------|----------------------------------|--------------|------------|
|                                                                           | **COMMON**                       | **PURCHASE** |       |
|                                                                           | **STOCK**                        | **WARRANTS** | **AMOUNT** |
| Consulting                                                                     | 3,182,291                        | -            | $          | 1,587,500 |
| Settlement                    of lawsuit - see Note 13(f)                 | 215,000                          | 107,500      |       | 146,445 |
| Employment                    agreements - see Note 9(iv)(c) and Note 9(iv)(d) | 150,000                          | -            |       | 73,500 |
|                                                                           |                             |         |       |   |
| Total                                                                          | 3,547,291                        | 107,500      | $          | 1,807,445 |

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **                   10.** | **DEFERRED                  COMPENSATION** |
|---------------------------------|--------------------------------------------|

| ** 11.                   ** | **RELATED                  PARTY TRANSACTIONS** |
|-------------------------------------------------|-------------------------------------------------|

| a)   | During                  the year ended June 30, 2006, an officer and director of the Company                  made                  payments on behalf of the Company in the amount of $51,613. These                  amounts                  were advanced without interest and are due on demand. A total of                  $50,000                  was reimbursed to this individual through cash payment and the                  issuance of                  common stock. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b)   | During                  the year                  ended June 30, 2006, officer and director of the Company was paid                  $100,000                  in cash and issued 1,000,000 restricted common shares of the Company                  pursuant to the mineral property agreement discussed in Note 7(b). |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **11.                   ** | **RELATED                  PARTY TRANSACTIONS**                  (Continued) |
|-------------------------------------------|------------------------------------------------------------------------------|

|   | c) | During                  the year ended June 30, 2006, the Company paid                  or                  accrued a total of $32,932 in consulting fees to one of its officers,                  of                  which $21,572 remains payable as of the year end. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **                   12.** | **SUPPLEMENTAL                  DISCLOSURE ON NON-CASH FINANCING AND INVESTING                  ACTIVITIES** |
|---------------------------------|--------------------------------------------------------------------------------------------------------------|

| a)                    | The                  Company issued 6,000,000 common shares to two individuals for mineral                  property acquisition costs with value of $1,610,000 as described                  in Notes                  7(a), 7(b) and 7(c). On February 20, 2006, 5,000,000 of these shares                  were                  purchased and returned to the Company’s treasury for                  cancellation. |
|--------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b)                    | The                  Company issued 250,000 shares to settle a liability of $37,500,see                  Note                  9(i)(g). |
|--------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------|

**         13.    **
**COMMITMENTS**

|   | a) | On                  February 1, 2006 the Company entered into an employment contract                  with an                  individual whereby the Company is obligated to pay $600 per week                  for a                  period of one year. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b) | On                  January 24, 2006 the Company entered into an employment contract                  with an                  individual whereby the Company is obligated to pay $600 per week                  for a                  period of one year. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  c)     | The                  Company has employment agreements with its executive officers,                  the terms                  of which expire at various times through February 28, 2011. Such                  agreements, which have been revised from time to time, provide                  for minimum                  salary levels as well as for incentive bonuses that are payable                  if                  specified management goals are attained. |
|----------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| d)                    | The                  Company’s Certificate of Incorporation provides that the Company indemnify                  its officers and directors for certain events or occurrences that                  happen                  by reason of the fact that the officer or director is, was, or                  has agreed                  to serve as an officer or director of the Company. The Company                  has a                  Director and Officer insurance policy that limits its exposure                  and enables                  the Company to recover a portion of any future amounts paid. |
|--------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

**           13.   COMMITMENTS (Continued)**

| e)                     | The                  Company has a contractual obligation to lease office space until                  April 30,                  2007 on a monthly basis. Payment of $1,800 per month is                  required. |
|--------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

The        action was filed in the Supreme Court of the State of New York, County of        New        York, and the Company filed a Motion to Dismiss the complaint on May 23,        2006.        On August 8, 2006, the parties entered into a Settlement Agreement whereby        Mr.        Pamnani irrevocably and forever waived and released any and all claims against        the Company, Thorium Power and the other defendants named in the complaint,        through the date of execution of the Settlement Agreement, in return for        the        issuance of 215,000 shares of common stock of the Company, as well as warrants        to purchase 107,500 shares of the Company's common stock at a price of $0.48        per        share, see Note 9(vi). The total expense, recorded in 2006 in legal settlement        expense was $146,445.

| **14.** | **DEFINITIVE                  MERGER AGREEMENT** |
|---------|--------------------------------------------------|

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **14.** | **DEFINITIVE                  MERGER AGREEMENT**                  (Continued) |
|---------|-------------------------------------------------------------------------------|

| **15.** | **INCOME                  TAXES** |
|---------|-----------------------------------|

|                                                                                                                                               |   | Year                      ended June 30 |       |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|------------|
|                                                                                                                                               |   | 2006                                    |       | 2005 |   |
| Federal                      statutory rate                                                                                                        |   | $                                       | (4,670,587 | ) | $ | (942,031 | ) |
|                                                                                                                                               |   |                                    |       |   |   |   |   |
| Nondeductible                      stock - based compensation                                                                                      |   |                                    | 2,854,180  |   |   | 0 |   |
|                                                                                                                                               |   |                                    |       |   |   |   |   |
| Impairment                      loss on mineral acquisition assets                                                                                 |   |                                    | 234,690    |   |   | 0 |   |
|                                                                                                                                               |   |                                    |       |   |   |   |   |
|                 Change                      in valuation allowance |   |                                    | 1,581,717  |   |   | 942,031 |   |
|                                                                                                                                               |   |                                    |       |   |   |   |   |
|                                Total                                                                            |        | $                                       | 0          |  | $ | 0 |   |

| **16.** | **SUBSEQUENT                  EVENTS** |
|---------|----------------------------------------|

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

----

**NOVASTAR        RESOURCES LTD.**

**(An        Exploration Stage Company)**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**JUNE        30, 2006 AND 2005**

| **16.** | **SUBSEQUENT                  EVENTS**                  (Continued) |
|---------|---------------------------------------------------------------------|

| b)   | On                  July 3, 2006, the Company granted a total of 4,000,000 stock options                  to                  its international advisory board members. The stock options will                  be                  exercisable at $0.445 per share and will expire five years after                  the date                  of grant. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c)   | On                  July 27, 2006, the Company granted 3,750,000 stock options to two                  executives pursuant to employment agreements entered into subsequently.                  The options will be exercisable at $0.49 per share and will expire                  ten                  years after the date of grant. The Company also issued 1,500,000                  shares to                  one of these employees pursuant to their employment                  agreement. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| d)   | On                  July 15, 2006, the Company granted 600,000 stock options to an                  employee                  pursuant to an employment                  agreement. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| e)   | On                  August 8, 2006, the Company amended the Agreement and Plan of Merger                  with                  Thorium Power Inc. by changing the share exchange ratio with the                  Thorium                  Power stockholders. Pursuant to the merger the Thorium Power stockholders                  will have the right to receive 25.628 shares of the Company's stock                  for 1                  share of Thorium Power stock. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| f)   | On                  July 1, 2006, the Company entered into a consulting agreement for                  financial advisory services, for a 1 year period. As compensation                  for the                  services to be provided, the Company issued 850,000 shares of the                  Company’s common stock, pursuant to Company’s Amended and Restated Stock                  Plan. The shares shall vest in equal monthly installments from                  the date of                  the agreement. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| g)   | On                  July 18, 2006, the Company entered into consulting agreements with                  two                  individuals for financial advisory services to be provided for                  a 1 year                  period. As compensation for the services to be provided, the Company                  issued a total of 285,000 shares of the Company’s restricted common                  stock. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**NOVASTAR          RESOURCES, LTD.**

**UNAUDITED          PRO FORMA FINANCIAL STATEMENTS**

**Basis          of Presentation**

----

| **Novastar                Resources Ltd.**                                       |
|----------------------------------------------------------------------------------|
| **Unaudited                Pro Forma Consolidated Balance                Sheet** |
| **June                30, 2006**                                                 |

**Note:        The merger for accounting purposes will be treated as a recapitalization        of        Thorium Power Inc. **

|                                                                                                                                                                                     |   |                    |        |        |                    |        |   | **Pro                  Forma** |        |                           |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|-------------|-------------|-------------------------|-------------|--------|--------------------------------|-------------|--------------------------------|--------|
|                                                                                                                                                                                     |   | **Novastar**            |        | **Thorium** |                    | **Total**   |   | **Adjustment**                 |        | **Pro                  Forma** |   |
| **ASSETS**                                                                                                                                                                               |   |                    |        |        |                    |        |   |                           |        |                           |   |
| **Currrent                  Assets**                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           |   |
| Cash                                                                                                                                                                                     |   |                  $ | 14,431,407  |        |                  $ | 528,213     |   |                  $        | 14,959,620  |                           |   |                  $ | 0 |   |   | 14,959,620 |   |
| Prepaid                  Expenses and othr current assets                                                                                                                                |   |                    | 808,425     |        |                    | 990         |   |                           | 809,415     |                           |   |   | 0 |   |   | 809,415 |   |
| Due                  From Novastar Resources Inc.                                                                                                                                        |   |                    | 0           |        |                    | 264,740     |   |                           | 264,740     |                           | 5      |   | (264,740 | ) |   | 0 |   |
| Total                  Current Assets                                                                                                                                                    |   |                    | 15,239,832  |        |                    | 793,943     |   |                           | 16,033,775  |                           |   |   | (264,740 | ) |   | 15,769,035 |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| Property                  Plant and Equipment -net                                                                                                                                       |   |                    | 0           |        |                    | 21,534      |   |                           | 21,534      |                           |   |   |   |   |   | 21,534 |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| **Other                  Assets**                                                                                                                                                        |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| Investment                  in Thorium Power                                                                                                                                             |   |                    | 1,350,000   |        |                    | 0           |   |                           | 1,350,000   |                           | 1      |   | (1,350,000 | ) |   | 0 |   |
| Patent                  Costs - net                                                                                                                                                      |   |                    | 0           |        |                    | 209,311     |   |                           | 209,311     |                           |   |   |   |   |   | 209,311 |   |
| Security                  Deposits                                                                                                                                                       |   |                    | 0           |        |                    | 7,567       |   |                           | 7,567       |                           |   |   |   |   |   | 7,567 |   |
| Total                  Other Assets                                                                                                                                                      |   |                    | 1,350,000   |        |                    | 216,878     |   |                           | 1,566,878   |                           |   |   | (1,350,000 | ) |   | 216,878 |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| **Total                  Assets**                                                                                                                                                        |   |  $                 | 16,589,832  |        |  $                 | 1,032,355   |   |  $                        | 17,622,187  |                           |   |  $ | (1,614,740 | ) | $ | 16,007,447 |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| **Liabilities                  and Stockholdes Equity**                                                                                                                                  |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| **Current                  Liabilities**                                                                                                                                                 |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| Current                  portion long term debt                                                                                                                                          |   |  $                 | 0           |        |  $                 | 3,913       |   |  $                        | 3,913       |                           |   |  $ |   |   |   | 3,913 |   |
| Accounts                  Payable                                                                                                                                                        |   |                    | 463,354     |        |                    | 131,478     |   |                           | 594,832     |                           |   |   |   |   |   | 594,832 |   |
| Accrued                  Liabilities                                                                                                                                                     |   |                    | 103,541     |        |                    | 336,502     |   |                           | 440,043     |                           |   |   |   |   |   | 440,043 |   |
| Due                  to related party                                                                                                                                                    |   |                    | 128,675     |        |                    | 17,500      |   |                           | 146,175     |                           |   |   |   |   |   | 146,175 |   |
| Accrued                  payroll tax and other liability                                                                                                                                 |   |                    | 635,000     |        |                    | 5,983       |   |                           | 640,983     |                           |   |   |   |   |   | 640,983 |   |
| Warrant                  Liability                                                                                                                                                       |   |                    | 3,678,278   |        |                    | 0           |   |                           | 3,678,278   |                           |   |   |   |   |   | 3,678,278 |   |
| Due                  to Thorium Power Inc.                                                                                                                                               |   |                    | 264,740     |        |                    | 0           |   |                           | 264,740     |                           | 5      |   | (264,740 | ) |   | 0 |   |
| Total                  Current Liabilities                                                                                                                                               |   |                    | 5,273,588   |        |                    | 495,376     |   |                           | 5,768,964   |                           |   |   | (264,740 | ) |   | 5,504,224 |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| Notes                  Payable - long term                                                                                                                                               |   |                    | 0           |        |                    | 12,657      |   |                           | 12,657      |                           |   |   | 0 |   |   | 12,657 |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| **Total                  Liabilites**                                                                                                                                                    |   |                    | 5,273,588   |        |                    | 508,033     |   |                           | 5,781,621   |                           |   |   | (264,740 | ) |   | 5,516,881 |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| Common                  Stock with Registration Rights                                                                                                                                   |   |                    | 12,041,373  |        |                    | 0           |   |                           | 12,041,373  |                           |   |   |   |   |   | 12,041,373 |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| **Stockholders                  Equity**                                                                                                                                                 |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| Common                  Stock                                                                                                                                                            |   |                    | 118,101     |        |                    | 192,626     |   |                           | 310,727     |                           |   |   |   |   |   | 253,739 |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           | 1      |   | (8,750 | ) |   |   |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           | 2      |   | 135,638 |   |   |   |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           | 4      |   | (183,876 | ) |   |   |   |
| Additional                  Paid in Capital - Stock and Warrants                                                                                                                         |   |                    | 14,913,153  |        |                    | 16,713,706  |   |                           | 31,626,859  |                           |   |   |   |   |   | 12,850,947 |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           | 1      |   | (1,341,250 | ) |   |   |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           | 2      |   | (135,638 | ) |   |   |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           | 3      |   | (17,482,900 | ) |   |   |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           | 4      |   | 183,876 |   |   |   |   |
| Accumulated                  deficit - development stage                                                                                                                                 |   |                    | (17,482,900 | )           |                    | (16,382,010 | )      |                           | (33,864,910 |                           | 3      |   | 17,482,900 |   |   | (16,382,010 | ) |
| Deferred                  stock compensation                                                                                                                                             |   |                    | (83,328     | )           |                    | 0           |   |                           | (83,328     |                           |   |   |   |   |   | (83,328 | ) |
| Common                  Stock and Warrants reserved future issue                                                                                                                         |   |                    | 1,807,445   |        |                    |        |   |                           | 1,807,445   |                           |   |   |   |   |   | 1,807,445 |   |
| Accumulated                  Other Comprehensive Income                                                                                                                                  |   |                    | 2,400       |        |                    |        |   |                           | 2,400       |                           |   |   |   |   |   | 2,400 |   |
| **Total                  Stockholders Equity**                                                                                                                                           |   |                    | (725,129    | )           |                    | 524,322     |   |                           | (200,807    |                           |   |   | (1,350,000 | ) |   | (1,550,807 | ) |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| **Total                  Liabilities and Stockholders Equity**                                                                                                                           |   |  $                 | 16,589,832  |        |  $                 | 1,032,355   |   |  $                        | 17,622,187  |                           |   |  $ | (1,614,740 | ) |  $ | 16,007,447 |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| **Pro-Forma                  Adjustments**                                                                                                                                               |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| Pro-Forma                  Adjustment - 1                                                                                                                                                |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| Common                  Stock - Thorium                                                                                                                                                  |   |                    | 8,750       |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| Additonal                  Paid in Capital - Thorium                                                                                                                                     |   |                    | 1,341,250   |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| Investment                  - Thorium Power                                                                                                                                              |   |                    |        |        |                    | 1,350,000   |   |                           |        |                           |   |   |   |   |   |   |   |
| To                  eliminate Novastar's investment in Thorium                                                                                                                           |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| 175,000                  shares at $4 per share                                                                                                                                          |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| Pro-Forma                  Adjustment - 2                                                                                                                                                |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| Additional                  paid in Capital                                                                                                                                              |   |                    | 135,638     |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| Common                  Stock                                                                                                                                                            |   |                    |        |        |                    | 135,638     |   |                           |        |                           |   |   |   |   |   |   |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| To                  record the issuance of Novastar stock pursuant to the merger agreement                                                                                               |   |                    |        |        |                    |        |   |                           |        |                           |
| Novastar                  will issue 135,638,023 common shares at $.001 par value granting                  Thorium                                                                      |   |                    |        |        |                    |        |   |                           |        |                           |
| Sharholders                  a 54.5% interest in Novastar, prior to the private placement. In                  addition,                  Thorium management will control                |   |
| the                  combined entity and Board of Directors, therefore this will be                  accounted                  for as a recapitalization of Thorium Power Inc.          |
| Novastar                  was a shell with minimal assets prior to the merger agreement and                  the                  fundraising that took place after the merger agreement |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| Pro-Forma                  Adjustment - 3                                                                                                                                                |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| Additional                  Paid in Captial - Novastar                                                                                                                                   |   |                    | 17,482,900  |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| Retained                  Earnings - Novastar                                                                                                                                            |   |                    |        |        |                    | 17,482,900  |   |                           |        |                           |   |   |   |   |   |   |   |
| To                  eliminate Novastar's retained earnings                                                                                                                               |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| Pro-Forma                  Adjustment - 4                                                                                                                                                |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| Common                  Stock - Thorium                                                                                                                                                  |   |                    | 183,876     |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| Additonal                  Paid In Capital                                                                                                                                               |   |                    |        |        |                    | 183,876     |   |                           |        |                           |   |   |   |   |   |   |   |
| To                  eliminate Thorium's capital stock - recapitalization                                                                                                                 |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |
| March                  31, 2006 Balance 192,626                                                                                                                                          |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| Elimin.                  Of Novastar Invest (8,750)                                                                                                                                      |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| Pro-Forma                  Adjustment - 5                                                                                                                                                |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
|                                                                                                                                                                                     |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| Due                  to Thorium Power Inc.                                                                                                                                               |   |                    | 264,740     |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |
| Due                  from Novastar Resources Ltd                                                                                                                                         |   |                    |        |        |                    | 264,740     |   |                           |        |                           |   |   |   |   |   |   |   |
| To                  eliminate interco. balance                                                                                                                                           |   |                    |        |        |                    |        |   |                           |        |                           |   |   |   |   |   |   |   |

----

| **Novastar                Resources Ltd.**                                                 |
|--------------------------------------------------------------------------------------------|
| **Unaudited                Pro Forma Consolidated Statement of                Operations** |
| **Fiscal                Year Ended June 30, 2006**                                         |

|                                               |   |         |        |        |    | **Pro                  Forma**           |                                  |                           |                         |
|----------------------------------------------------|--------|--------------|-------------|-------------|---------|------------------------------------------|---------------------------------------|--------------------------------|------------------------------|
|                                               |   | **Novastar** |        | **Thorium** |    | **Adjustment**                           |                                  | **Pro                  Forma** |                         |
|                                               |   |         |        |        |    |                                     |                                  |                           |                         |
| Revenue                                            |   |  $      | 0           |        |  $ | 0                                        |                                  |  $                        |                         |   |  $ | 0 |   |
|                                               |   |         |        |        |    |                                     |                                  |                           |                         |   |   |   |   |
| Operating                  Expenses                |   |  $      | 13,147,485  |        |  $ | 755,714                                  |                                  |  $                        |                         |   |  $ | 13,903,199 |   |
|                                               |   |         |        |        |    |                                     |                                  |                           |                         |   |   |   |   |
| Other                  Income and Expense          |   |  $      | 197,050     |        |  $ | 803,867                                  |                                  |  $                        |                    |   |  $ | 1,000,917 |   |
|                                               |   |         |        |        |    |                                     |                                  |                           |                         |   |   |   |   |
| Net                  Loss                          |   |  $      | 13,344,535  |        |  $ | 1,559,581                                |                                  |  $                        |                    |   |  $ | 14,904,116 |   |
|                                               |   |         |        |        |    |                                     |                                  |                           |                         |   |   |   |   |
| Basic                  and Dilluted Loss Per Share |   |  $      | 0.12        |        |  $ |                                |                                  |  $                        |                         |   | $ | 0.06 |   |
|                                               |   |         |        |        |    |                                     |                                  |                           |                         |   |   |   |   |
| Common                  Shares Outstanding         |   |         | 111,913,155 |        |    |                      |       1 |                           | 135,638,023                  |   |   | 247,551,178 |   |

----

Exhibit        23.1

**INDEPENDENT        REGISTERED PUBLIC ACCOUNTING FIRM’S        CONSENT**

**TELFORD        SADOVNICK, P.L.L.C.**

**CERTIFIED        PUBLIC ACCOUNTANTS**

----

Exhibit      31.1

1. I      have      reviewed this Annual Report on Form 10-KSB of Novastar Resources      Ltd.;

2. Based      on      my knowledge, this report does not contain any untrue statement of a material      fact or omit to state a material fact necessary to make the statements made,      in      light of the circumstances under which such statements were made, not misleading      with respect to the period covered by this report;

3. Based      on      my knowledge, the financial statements, and other financial information included      in this report, fairly present in all material respects the financial condition,      results of operations and cash flows of the small business issuer as of, and      for, the periods presented in this report;

4. The      small      business issuer's other certifying officer(s) and I are responsible for      establishing and maintaining disclosure controls and procedures (as defined      in      Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and      have:

|   | a. | Designed                such disclosure controls and procedures, or caused such disclosure                controls and procedures to be designed under our supervision, to                ensure                that material information relating to the small business issuer,                including                its consolidated subsidiaries, is made known to us by others within                those                entities, particularly during the period in which this report is                being                prepared; |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | Evaluated                the effectiveness of the small business issuer's disclosure controls                and                procedures and presented in this report our conclusions about the                effectiveness of the disclosure controls and procedures, as of the                end of                the period covered by this report based on such evaluation;                and |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c. | Disclosed                in this report any change in the small business issuer's internal                control                over financial reporting that occurred during the small business                issuer's                most recent fiscal quarter (the small business issuer's fourth fiscal                quarter in the case of an annual report) that has materially affected,                or                is reasonably likely to materially affect, the small business issuer's                internal control over financial reporting;                and |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

5. The      small      business issuer's other certifying officer(s) and I have disclosed, based on      our      most recent evaluation of internal control over financial reporting, to the      small business issuer's auditors and the audit committee of the small business      issuer's board of directors (or persons performing the equivalent      functions):

|   | a. | All                significant deficiencies and material weaknesses in the design or                operation of internal control over financial reporting which are                reasonably likely to adversely affect the small business issuer's                ability                to record, process, summarize and report financial information;                and |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | Any                fraud, whether or not material, that involves management or other                employees who have a significant role in the small business issuer's                internal control over financial                reporting. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Exhibit      31.2

|   | a. | Designed                such disclosure controls and procedures, or caused such disclosure                controls and procedures to be designed under our supervision, to                ensure                that material information relating to the small business issuer,                including                its consolidated subsidiaries, is made known to us by others within                those                entities, particularly during the period in which this report is                being                prepared; |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | Evaluated                the effectiveness of the small business issuer's disclosure controls                and                procedures and presented in this report our conclusions about the                effectiveness of the disclosure controls and procedures, as of the                end of                the period covered by this report based on such evaluation;                and |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c. | Disclosed                in this report any change in the small business issuer's internal                control                over financial reporting that occurred during the small business                issuer's                most recent fiscal quarter (the small business issuer's fourth fiscal                quarter in the case of an annual report) that has materially affected,                or                is reasonably likely to materially affect, the small business issuer's                internal control over financial reporting;                and |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | a. | All                significant deficiencies and material weaknesses in the design or                operation of internal control over financial reporting which are                reasonably likely to adversely affect the small business issuer's                ability                to record, process, summarize and report financial information;                and |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | Any                fraud, whether or not material, that involves management or other                employees who have a significant role in the small business issuer's                internal control over financial                reporting. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Exhibit      32

**STATEMENT      FURNISHED PURSUANT TO**

**SECTION      906 OF THE SARBANES-OXLEY ACT OF 2002**

*By:      /s/ Seth Grae*

*-----------------------------------------*

*Name:      Seth Grae*

*Title:      President, Chief Executive Officer and Director*

*(Principal      Executive Officer)*

*By:      /s/ Larry Goldman*

*-----------------------------------------*

*Name:      Larry Goldman*

*Title:      Acting Chief Financial Officer*

*(Principal      Financial Officer)*

----

----