As
filed
with the Commission on August 9, 2006
Registration No.
333-135437 SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
____________________________
FORM
SB-2/A
REGISTRATION
STATEMENT UNDER
THE
SECURITIES ACT OF 1933
Amendment
No. 2
NOVASTAR
RESOURCES LTD.
(Name
of small business issuer in its charter)
|
Nevada
|
1000
|
91-1975651
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(Primary
Standard Industrial
Classification
Code Number)
|
(I.R.S.
Employer
Identification
No.)
|
Seth
Grae
8300
Greensboro Drive, Suite 800
McLean,
VA 22102
(703)
287-8743
(Address
and telephone number of principal executive offices)
__________________________________________________
Copies
to:
Louis
A. Bevilacqua, Esq.
Joseph
R. Tiano, Jr., Esq.
Thelen
Reid & Priest LLP
701
8th
Street, N.W.
Washington,
D.C. 20001
(202)
508-4000
(Names,
addresses and telephone numbers of agents for service)
__________________________________________________
Approximate
date of commencement of proposed sale to public:
From
time to time after the effective date of this Registration Statement, as
determined by market conditions and other factors.
If
this
form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. ¨
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. þ
If
this
form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
If
this
form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement the same
offering. ¨
If
delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. ¨
CALCULATION
OF REGISTRATION FEE
|
Title
of each class of securities to be registered
|
Amount
to be registered
(1)
|
Proposed
maximum offering price per share (2)
|
Proposed
maximum aggregate offering price (2)
|
Amount
of registration fee
|
|||||||||
|
Common
stock, $0.001 par value (3)
|
91,001,827
|
$
|
0.45
|
$
|
40,950,822.15
|
$
|
4,381.74
|
||||||
|
Shares
of Common Stock underlying Common Stock Purchase Warrants
|
22,646,579
|
$
|
0.45
|
$
|
10,190,960.55
|
$
|
1,090.43
|
||||||
|
Total
|
113,648,406
|
$
|
0.45
|
$
|
51,141,782.70
|
$
|
5,472.17(4
|
)
|
|||||
(1) In
accordance with Rule 416(a), the Registrant is also registering hereunder
an indeterminate number of shares that may be issued and resold resulting from
stock splits, stock dividends or similar transactions.
(2) Estimated
pursuant to Rule 457(c) of the Securities Act of 1933 solely for the purpose
of
computing the amount of the registration fee based on the average of the high
and low prices reported on the OTC Bulletin Board on June 27, 2006.
(3) Represents
shares of the Registrant’s common stock being registered for resale that have
been issued to the selling stockholders named in this registration
statement.
(4) The
Registrant now increases the number of shares being registered from 113,325,906
to 113,648,406. $4,168.67
was previously paid for the registration fee in connection with the filing
of
the initial registration statement on June 29, 2006
and
$1,287.98 was previously paid for the registration fee in connection with
the
filing of Amendment No. 1 to the initial registration statement on July
3,2006.
The
registrant hereby amends this registration statement on such date or dates
as
may be necessary to delay its effective date until the registrant shall file
a
further amendment which specifically states that this registration statement
shall hereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to such
Section 8(a), may determine.
The
information in this prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities
in
any jurisdiction where the offer or sale is not permitted.
PROSPECTUS
Subject
to completion, dated [__], 2006
NOVASTAR
RESOURCES LTD.
113,648,406
Shares of Common Stock
The information in this prospectus is not complete and may be changed.
We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not
an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not
permitted.
Our
common stock is quoted on the OTC Bulletin Board maintained by the National
Association of Securities Dealers, Inc. under the symbol “NVAS.OB”. The closing
sales price for our common stock on August 2, 2006 was $0.54 per
share, as reported on the OTC Bulletin Board. You are urged to obtain current
market quotations of our common stock before purchasing any of the shares
being
offered for sale pursuant to this prospectus.
The
selling stockholders, and any participating broker-dealers, may be deemed to
be
“underwriters” within the meaning of the Securities Act of 1933, and any
commissions or discounts given to any such broker-dealer may be regarded as
underwriting commissions or discounts under the Securities Act. The selling
stockholders have informed us that they do not have any agreement or
understanding, directly or indirectly, with any person to distribute their
common stock.
Investing
in the shares being offered pursuant to this prospectus involves a high degree
of risk. You should carefully read and consider the information set forth in
the
section of this prospectus titled “Risk Factors,” beginning on page 7, when
determining whether to purchase any of these shares.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
is
truthful or complete. Any representation to the contrary is a criminal
offense.
The
date
of this Prospectus is ____,
2006.
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
1
On
February 14, 2006, Novastar, TP Acquisition Corp. a wholly owned subsidiary
of
Novastar, and Thorium Power, Inc. entered into a merger agreement, as amended
on
June 12, 2006 (the “Merger Agreement”). The Merger Agreement contemplates that
TP Acquisition will be merged with and into Thorium Power, with Thorium Power,
the surviving corporation, becoming a wholly-owned subsidiary of Novastar (the
“Merger”). On June 14, 2006, we filed a registration statement on Form S-4,
registering the shares of our common stock that we will issue to the
shareholders of Thorium Power in connection with the Merger (the “S-4
Registration Statement”). The Merger will not be completed until, among other
things, the S-4 Registration Statement is declared effective by the Securities
and Exchange Commission.
Since the prospectus contained in this registration statement will not be
used
until the Merger is consummated, the information set forth in this registration
statement presents all information as if the Merger was completed, with the
exception of the financial statements and Management’s Discussion and Analysis,
for which information is provided for Novastar and Thorium Power separately,
as
consolidated financial statements are not yet available.
The
unaudited pro forma consolidated balance sheet of Novastar reflecting the
financial position of Novastar had the Merger occurred on March 31, 2006
is
included in the registration statement. These pro forma consolidated financial
statements have been prepared for comparative purposes only and do not purport
to be indicative of the results of operations which actually would have resulted
had the transaction occurred on the date indicated and are not necessarily
indicative of the results that may be expected in the future.
This
summary highlights some information from this prospectus, and it may not contain
all of the information that is important to you. You should read the following
summary together with the more detailed information regarding our company and
the common stock being sold in this offering, including “Risk Factors” and our
financial statements and related notes, included elsewhere in, or incorporated
by reference into, this prospectus.
Except
as
otherwise indicated by the context, references in this prospectus to “Novastar,”
“we,” “us,” or “our,” are references to the combined business of Novastar
Resources Ltd. and our wholly-owned subsidiary, Thorium Power, Inc. The terms
“Novastar,” “we,” “us,” or “our” in each case do not include the selling
stockholders. References to “Securities Act” are references to the Securities
Act of 1933, as amended and references to “Exchange Act” are references to the
Securities Exchange Act of 1934, as amended.
The
Company
Our
Business Generally
We
have
two different lines of business. Our primary line of business is research and
development of proprietary nuclear fuel technology for use in nuclear power
plants. Our second line of business is mineral exploration. We refer to our
primary line of business as our Nuclear Fuel Design Business and we refer to
our
secondary line of business as our Mineral Exploration Business.
2
With
regard to the Nuclear Fuel Design Business, Novastar has proprietary nuclear
fuel designs for use in certain existing commercial nuclear power plants. Its
designs are for fuels that will serve (i) the market for U.S. and Russian
weapons grade plutonium disposition; (ii) the market for disposition of
reactor-grade plutonium that has already been separated or reactor-grade
plutonium currently embedded in spent nuclear fuel that can be separated through
reprocessing of such spent fuel; and (iii) the market for commercial
thorium-uranium nuclear fuel. The above designs require additional developmental
work to be used in reactors, and Novastar plans to fully develop and
commercialize these fuel designs with the cooperation of U.S. and foreign
governments and other nuclear businesses.
Our
objective with regard to the Nuclear Fuel Design Business is to develop fast,
and cost-effective designs for disposing of weapons-grade and reactor-grade
plutonium by using the plutonium combined with thorium as reactor fuel and
to
develop proliferation resistant nuclear fuel designs and to patent and
commercialize these designs in collaboration with public and private entities
worldwide.
With
regard to our Mineral Exploration Business, as of fiscal year-end June 30,
2005,
we had no mineral properties, but subsequently acquired mineral leases and
claims located in Alabama, USA and North Queensland, Australia, respectively.
These are exploration stage mineral properties prospective for thorium, platinum
group metals (platinum group metals) and other rare earth minerals (REM).
The
phosphate mineral monazite, which exists in sands, contains concentrations
of
thorium oxide as well as other REM. All commercially viable thorium metal is
extracted from monazite. Utilizing thorium based nuclear fuels has several
important societal benefits, such as safety benefits, environmental benefits,
and non-proliferation benefits. Thorium is more abundant, more efficient and
safer to use as a reactor fuel than uranium. Also important, thorium fueled
reactors leave behind very little weapons grade plutonium. To this end, Novastar
has acquired, and may acquire, both physical properties and rights to properties
that contain monazite deposits. Properties of interest to Novastar contain
both
monazite stockpiles and in ground concentrations of monazite.
Our
objective with regard to the Mineral Exploration Business is to become a global
supplier of thorium to the nuclear energy industry.
Background
Novastar
Resources Ltd. was incorporated under the laws of the state of Nevada on
February 2, 1999, under the name of Aquistar Ventures (USA) Inc. Novastar was
organized for the purpose of exploring for and, if possible, developing mineral
properties primarily in the province of Ontario, Canada, through our wholly
owned subsidiary, Aquistar Ventures Inc. ("Aquistar Canada"). Aquistar Canada
was incorporated under the laws of the province of British Columbia, Canada,
on
April 13, 1995 and is now inactive.
On
February 2, 2001, Novastar acquired 100% of the issued and outstanding capital
stock of Custom Branded Networks, Inc. or CBN, a Delaware corporation, in
exchange for 25,000,000 common shares of Novastar. We then changed our name
to
Custom Branded Networks, Inc. on or about May 29, 2001. The business of CBN,
the
Delaware corporation which was Novastar’s wholly owned subsidiary, was the
provision of turnkey private label Internet solutions to businesses and private
organizations.
3
In
May of
2003 Novastar began actively looking for other business opportunities that
would
provide superior economic opportunity, and in January 2005 we retained
consultants to assist in the identification of opportunities in the nuclear
sector, particularly with respect to thorium fuel and technology. Effective
May
10, 2005, we changed our name to Novastar Resources Ltd. During the period
from
September through December 2005, we entered into three agreements to acquire
mining interests in two properties in Alabama and one property in Queensland,
Australia.
As
soon
as practicable after the S-4 Registration Statement is declared effective as
well as the satisfaction of the relevant closing conditions, we will acquire
Thorium Power and our Nuclear Fuel Design Business when our wholly-owned
subsidiary that was formed to act as an acquisition vehicle, TP Acquisition
Corp., and Thorium Power, Inc. complete a merger whereby TP Acquisition merges
with and into Thorium Power, which shall become a wholly owned subsidiary of
Novastar. As indicated in the Introductory Statement, the information set forth
in this registration statement presents all information as if the Merger was
completed.
Recent
Capital Raising
On
November 23, 2005, we completed a private placement with a number of
institutional and accredited investors. The aggregate number of units purchased
by all investors in connection with this private placement was 4,209,998 units
at a price of $0.15 per unit, to 21 accredited investors for total proceeds
of
$631,500 the (“November 23 Private Placement Shares”). Each unit consists of one
share of our common stock and one-half of one share of common stock purchase
warrant. Each whole warrant is non transferable and entitles the holder to
purchase one additional share of common stock of the Company for a period of
12
months after the closing date of the offering at a price per warrant share
of
$0.30 (the “November 23 Warrants”).
On
February 14, 2006, we completed a private placement with a number of
institutional and accredited investors. The aggregate number of units purchased
by all investors in connection with this private placement was 4,208,331 units
at a price of $0.30 per unit, to 13 accredited investors for total proceeds
of
$1,262,500 the (“February 14 Private Placement Shares”). Each unit consists of
one share of our common stock and one-half of one share of common stock purchase
warrant. Each whole warrant is non transferable and entitles the holder to
purchase one additional share of common stock of the Company for a period of
12
months after the closing date of the offering at a price per warrant share
of
$0.50 (the “February 14 Warrants”).
On
May 4,
2006, we completed a private placement with a number of institutional and
accredited investors. The aggregate number of units purchased by all investors
in connection with this private placement was 36,659,837 units at a price of
$0.425 per unit, for a total of $15,580,434 (the “May 4 Private Placement
Shares”). On May 4, 2006, the 200 day moving average stock price for Novastar
was $0.44 per share. Each unit consists of one share of our common stock and
one-half of one share of common stock purchase warrant. Each whole warrant
is
non transferable and entitles the holder to purchase one additional share of
common stock of the Company for a period of 12 months after the closing date
of
the offering at a price per warrant share of $0.65 (the “May 4
Warrants”).
4
The
November 23 Private Placement Shares, the February 14 Private Placement Shares
and May 4 Private Placement Shares were sold pursuant to subscription agreements
between Novastar and each subscriber in the offering. We also entered into
a
registration rights letter agreement with each subscriber in the May 4 Private
Placement. Among other things, the registration rights agreement requires us
to
file a Registration Statement on Form SB-2 (or if Form SB-2 is not available,
on
such other form that is available) with the Securities and Exchange Commission
simultaneous with the filing of a registration statement on Form S-4 in
connection with the business combination of Novastar with Thorium Power, or
within 15 days thereafter, to enable the resale of the shares and the warrant
shares by the subscribers. The registration rights agreement also requires
us to
use reasonable best efforts to cause the registration statement to be declared
effective as soon as possible, but in any event not later than the earlier
of
(a) the 120th
day
following the closing date of the offering referenced in the subscription
agreement and (b) the fifth trading day following the date on which we are
notified by the SEC that the registration statement will not be reviewed or
is
no longer subject to further review and comments. The registration rights
agreement also requires Novastar to use reasonable best efforts to keep the
registration statement effective until the earlier of (i) two years from the
date of the final exercise of all the warrants, (ii) the date on which the
subscriber may sell all shares and warrant shares then held by the subscriber
pursuant to Rule 144 without restriction as to the number of securities as
of a
particular date that can then be immediately sold, or (iii) the public sale
of
all of the shares and the warrant shares. If the registration statement is
not
filed within the time frame described above, then we are required to issue
to
each subscriber cash or additional units (at the subscriber’s option), as
liquidated damages, equal to 2% of the number of units for which the subscriber
subscribed on each monthly anniversary of the failure to file (if the failure
has not been cured by such date). If the registration statement is not declared
effective within the time frame described above, then we must issue to the
subscriber cash or additional units (at the subscriber’s option), as liquidated
damages, equal to 2% of the number of units for which the subscriber subscribed
on each monthly anniversary of the failure to be declared effective (if the
failure has not been cured by such date). If the registration statement ceases
to be effective after the date first declared effective by the SEC and prior
to
the expiration of the effectiveness period described above, then we are
obligated to issue to each subscriber cash or additional units (at the
subscriber’s option), as liquidated damages, equal to 2% of the number of units
for which the subscriber subscribed on each monthly anniversary of the
registration statement ceasing to be effective (if the failure has not been
cured by such date). In no event, however, shall the aggregate amount of cash
or
number of units issued as liquidated damages in the case of (a) a failure to
file (as described above), (b) a failure to be declared effective (as described
above) or (c) the registration Statement ceasing to be effective (as described
above), exceed 12% of the amount of cash paid or the number of units paid for
by
the subscriber.
Pursuant
to this prospectus, we are registering, among other shares described on page
54,
the November 23 Private Placement Shares, the February 14 Private Placement
Shares and the May 4 Private Placement Shares described above for resale by
the
selling stockholders identified on pages 54-60. These shares may be offered
by
the selling stockholders through public or private transactions, at prevailing
market prices or at privately negotiated prices. See “PLAN OF DISTRIBUTION” on
page 62. We will not receive proceeds from the sales by the selling stockholders
but we will receive funds from the exercise of the warrants. Our common stock
is
quoted on the OTC Bulletin Board under the symbol “NVAS.OB”.
5
The
Offering
|
Common
stock offered by selling stockholders
|
113,648,406 shares
|
|
|
Common
stock outstanding before the offering
|
292,264,497
shares
(1)
|
|
|
Common
stock outstanding after the offering
|
292,264,497
shares
|
|
|
Proceeds
to us
|
We
will not receive any proceeds from the sale of common stock covered
by
this prospectus. To the extent that the selling stockholders exercise,
for
cash, all of the warrants covering the 22,646,579
shares of common stock registered for resale under this prospectus,
we
would receive approximately $13,649,627 in
the aggregate from such exercises. We intend to use such proceeds
for
working capital, and other general corporate
purposes.
|
|
(1)
|
Represents
the number of shares outstanding on the effective date of the
Merger.
|
Risk
Factors
Because
we are a development stage company with a very limited history of operations,
we
are subject to many risks associated with early-stage companies. We are subject
to numerous risks, including: ongoing significant operating losses that the
Company continues to experience due to a lack of revenue; uncertainty about
the
Company’s liquidity and capital resources; reliance on Seth Grae and other key
individuals who are likely to be a significant factor in the Company’s future
growth; risks associated with the Company’s Exploration Business, such as
existence of a commercially viable deposit or reserves on properties to which
the Company has mineral rights, environmental and other industry regulations
relating to mining operations, and other risks attributable to mineral companies
in general; risks associated with the Company’s Nuclear Fuel Design Business,
such as uncertainties about new nuclear fuel designs developed by the Company
that have only been partially tested in a research reactor and have not been
tested or proven in existing commercial reactors or willingness of reactor
operators to adopt the Company’s new nuclear fuel designs, uncertainties about
licensing and regulatory approval process due to significant differences in
the
Company’s fuel designs from fuels currently licensed and used by commercial
nuclear power plants, high dependency on U.S. government funding and support
for
the company’s weapons-grade plutonium disposing fuel without which
commercialization of this fuel design is unlikely, intellectual property risk
including that the company does not have rights to all the processes and
methodologies that are used or may be used or useful in its Nuclear Fuel Design
Business, political uncertainties from reliance on Russia as the main site
where
research and development activities on the company’s fuel designs are being
conducted; risks related to integration of Novastar and Thorium Power after
the
Merger; high historical volatility of the Company’s stock price and other risks
related to holding the Company’s stock. For a more detailed discussion of some
of the risks you should consider before purchasing shares of our common stock,
you are urged to carefully review and consider the section entitled “Risk
Factors” beginning on page 7 of this prospectus.
6
Additional
Information
Our
corporate headquarters are located at 8300 Greensboro Drive, Suite 800, McLean
VA 22102. Our telephone number is (703) 918-4904. We maintain a website at
www.novastarresources.com that contains information about us, but that
information is not a part of this prospectus.
Investing
in our common stock involves a high degree of risk. You should carefully
consider the risks and uncertainties described below before you purchase any
of
our common stock. If any of these risks or uncertainties actually occurs, our
business, financial condition or results of operations could be materially
adversely affected. In this event, you could lose all or part of your
investment.
BUSINESS
RISKS RELATING TO THE NUCLEAR FUEL DESIGN BUSINESS
NOVASTAR'S
FUEL DESIGNS HAVE NEVER BEEN TESTED IN AN EXISTING COMMERCIAL REACTOR AND
ACTUAL
FUEL PERFORMANCE, AS WELL AS THE WILLINGNESS OF COMMERCIAL REACTOR OPERATORS
AND
FUEL FABRICATORS TO ADOPT A NEW FUEL DESIGN, IS UNCERTAIN.
Nuclear
power research and development entails significant technological risk. New
designs must be fabricated, tested and licensed before market opportunities
will
exist. Novastar's fuel designs are still in the research and development
stage
and while irradiation testing in a test reactor in Russia (which mimics the
operating characteristics of an actual commercial reactor) and thermal-hydraulic
experiments have been ongoing for several years, the fuel technology is yet
to
be tested in an existing commercial reactor. Novastar will not be certain
about
the ability of the fuel it designs to perform in actual commercial reactors
until it is able to commercialize its fuel designs. It will also have to
establish a relationship with a fuel fabricator to actually produce fuel
using
its designs. If the fuel designs do not perform as anticipated in commercial
use, Novastar will not realize revenues from the licensing or other use of
its
fuel designs. In addition, there are several technical challenges involved
in
commercializing thorium based fuels. Some of the technical challenges with
Novastar's technology identified by the experts at the Kurchatov Institute,
Westinghouse, and International Atomic Energy Agency, include:
| o |
Fuel
fabrication: The relatively high melting point of thorium oxide will
require fuel pellet manufacturing techniques that are different from
those
currently used for uranium pellets.
|
| o |
Fuel
fabrication: Novastar’s
fuel rod designs are greater than 3 meters long compared to conventional
Russian fuel rods that are 1 meter long. The longer rods will required
new
equipment and experience making longer
extrusions.
|
| o |
Fuel
design: Novastar’s “seed-and-blanket” fuel assembly design has a
detachable central part which is not in conventional fuel designs.
|
| o |
Fuel
design: Novastar’s fuel design includes plutonium-zirconium fuel rods
which will operate in a soluble boron environment . Current reactor
operating experience is with uranium-zirconium fuel in a boron-free
environment.
|
7
| o |
Fuel
use: Novastar’s fuel is expected to be capable of producing more gigawatt
days per ton of fuel than is allowed by current reactor licenses,
so to
gain full economic benefits, reactor operators will have to get regulatory
approval.
|
| o |
Fuel
use: Novastar’s fuel are expected to produce energy economically for up to
9 years in the reactor core. Current fuel demonstrates the cladding
can
remain corrosion-free for up to 5 years. Testing is needed to prove
corrosion resistance for the longer residence time.
|
| o |
Fuel
reprocessing: The IAEA has identified a number of ways that reprocessing
spent thorium fuel would require technologies different from existing
uranium fuel reprocessing. Management’s current marketing plans do not
assume or depend on the ability to reprocess and recycle spent fuel.
Management expects spent thorium fuel will go into long term storage.
This
is current U.S. Government policy.
|
NOVASTAR’S
FUEL DESIGNS DIFFER FROM FUELS CURRENTLY LICENSED AND USED BY COMMERCIAL NUCLEAR
POWER PLANTS. AS A RESULT, THE LICENSING AND APPROVAL PROCESS FOR NOVASTAR’S
FUELS MAY BE DELAYED AND MADE MORE COSTLY, AND INDUSTRY ACCEPTANCE OF THORIUM
POWER’S FUELS MAY BE HAMPERED.
Novastar’s
fuel designs differ significantly in some aspects from the fuel licensed and
used today by commercial nuclear power plants. Some of the differences between
Novastar’s fuels and those currently used include:
| o |
use
of thorium instead of only uranium,
|
| o |
higher
uranium enrichment level,
|
| o |
seed-and
blanket fuel assembly design integrating thorium and
uranium,
|
| o |
high
burn-up levels of uranium,
|
| o |
use
of metallic seed rods,
|
| o |
longer
residence time of the blanket in the reactor, and
|
| o |
the
ability of Novastar’s
fuels to dispose of reactor-grade plutonium and/or weapons-grade
plutonium
through the use of a new fuel design and in reactors that have never
used
plutonium-bearing fresh fuels.
|
These
differences
will
likely result in more prolonged and extensive review by the U.S. Nuclear
Regulatory Commission and other nuclear licensing authorities and customers.
Also, the nuclear industry may be hesitant to switch to another fuel with little
or no history of successful commercial use because of the need for additional
engineering and testing with no guarantee of success as well as investor
reluctance to invest in a new technology when viable existing technologies
are
available.
NOVASTAR’S
PLANS TO DEVELOP ITS THORIUM/WEAPONS-GRADE PLUTONIUM DISPOSING FUEL ARE
DEPENDENT UPON U.S. GOVERNMENT FUNDING AND SUPPORT. WITHOUT SUCH SUPPORT,
NOVASTAR IS UNLIKELY TO BE ABLE TO SERVE THIS MARKET.
8
Novastar’s
business
model and specifically its thorium/weapons-grade plutonium disposing fuel design
is highly dependent upon U.S. and perhaps other government funding and
acceptance as a technology appropriate to eliminate U.S. and Russian stockpiles
of surplus weapons-grade plutonium. Management believes that participation
in
this multi-billion dollar market is a critical element in its business modeling.
In
the
past, Novastar has faced resistance from some offices within the U.S. Department
of Energy (DOE) that support other alternative plutonium disposing technology,
particularly mixed plutonium uranium oxide (MOX) fuel designs. Novastar has
spent a significant amount of funds to gain commercial and market acceptance
for
its fuel designs. Over the last two years Novastar has spent approximately
$400,000, in the aggregate, including both cash and the fair market value of
equity compensation, on third party service providers in connection with these
lobbying efforts. Novastar expects to spend significantly more money per year
than it has in the past over the next three years on these efforts to gain
acceptance. These efforts may not result in funding for Novastar or government
acceptance of Novastar’s technologies for plutonium disposition or other
government-funded projects.
NOVASTAR
DOES NOT HAVE RIGHTS TO ALL OF THE DESIGNS, PROCESSES AND METHODOLOGIES THAT
ARE
USED OR MAY BE USED OR USEFUL IN ITS BUSINESS IN THE FUTURE. IF NOVASTAR IS
UNABLE TO OBTAIN SUCH RIGHTS ON REASONABLE TERMS IN THE FUTURE, NOVASTAR’S
ABILITY TO EXPLOIT ITS INTELLECTUAL PROPERTY MAY BE LIMITED.
Dr.
Alvin
Radkowsky invented the thorium fuel technology that Novastar is developing.
Upon
founding Thorium Power (the predecessor company of Novastar) in 1992, Dr.
Radkowsky assigned all of his rights in the intellectual property relating
to
such fuel designs to Thorium Power. Thorium Power then filed patent applications
in the United States and other countries and the patents were issued and are
held solely by Thorium Power. Novastar is currently conducting fuel assembly
design work in Russia through Russian Research Centre Kurchatov Institute,
an
independent contractor that is closely affiliated with the government of the
Russian Federation. Novastar does not have any licensing or other rights to
acquire or utilize certain designs, methodologies or processes required for
fuel
assemblies. If Novastar desires to utilizes such processes or methodologies
in
the future, it must obtain a license or other right to use such technologies
from the Kurchatov Institute or other entities that subcontract to the Kurchatov
Institute. If Novastar is unable to obtain such a license or other right on
terms that it deems to be reasonable, then Novastar may not be able to fully
exploit its intellectual property and may be hindered in the sale of its
products and services.
NOVASTAR
MAY BE UNABLE TO PROTECT ITS INTELLECTUAL PROPERTY, PARTICULARLY IN LIGHT OF
RUSSIAN INTELLECTUAL PROPERTY LAWS.
Intellectual
property rights are evolving in Russia, trending towards international norms,
but are by no means fully developed. Novastar works closely with the Kurchatov
Institute in Russia to develop some of its intellectual property and so some
of
its intellectual property rights derive, or are affected by, Russian
intellectual property laws. If the application of these laws to Novastar’s
intellectual property rights proves inadequate, then it may not be able to
fully
avail itself of its intellectual property and its business model may therefore
be impeded.
9
NOVASTAR’S
RESEARCH OPERATIONS ARE CONDUCTED PRIMARILY IN RUSSIA, MAKING THEM SUBJECT
TO
POLITICAL UNCERTAINTIES RELATING TO RUSSIA AND U.S.-RUSSIA
RELATIONS.
Substantially
all of Novastar’s present research activities are in Russia. Novastar’s research
operations are subject to various political risks and uncertainties inherent
in
the country of Russia. If U.S.-Russia relations deteriorate, the Russian
government may decide to scale back or even cease completely its cooperation
with the United States on various international projects, including in the
plutonium disposition program and nuclear power technology development programs.
If this happened, Novastar’s research and development program in Russia could be
scaled back or shut down, which could have a significant adverse impact on
Novastar’s ability to execute its business model. Furthermore, the Russian
institutes engaged in the Novastar project are highly regulated and, in many
instances, are controlled by the Russian government. The Russian government
could decide that the nuclear scientists engaged in Novastar’s project in Russia
or testing facilities employed in this project should be redirected to other
high priority national projects in the nuclear sector which could lead to delays
or have some other significant adverse impact on Novastar’s
project.
NOVASTAR
SERVES THE NUCLEAR POWER INDUSTRY, WHICH IS HIGHLY REGULATED.
The
nuclear power industry is a highly regulated industry. Novastar intends to
license its fuel designs to nuclear fuel fabricators, who would, in turn, sell
the thorium-based nuclear fuel that is produced using Novastar’s intellectual
property to nuclear generating companies. All nuclear companies are subject
to
the jurisdiction of the United States Nuclear Regulatory Commission, or its
foreign equivalents, with respect to the operation of nuclear reactors, fuel
cycle facilities and handling of nuclear materials and technologies. The U.S.
Nuclear Regulatory Commission, and its foreign equivalents, subject nuclear
facilities to continuing review and regulation covering, among other things,
operations, maintenance, emergency planning, security and environmental and
radiological aspects of those facilities. These nuclear regulatory bodies may
modify, suspend or revoke operating licenses and impose civil penalties for
failure to comply with applicable laws and regulations such as the Atomic Energy
Act, the regulations under such Act or the terms of such licenses. Possession
and use of nuclear materials, including thorium-based nuclear fuel, would
require the approval of the United States Nuclear Regulatory Commission or
its
counterparts around the world and would be subject to monitoring by
international agencies.
PUBLIC
OPPOSITION TO NUCLEAR POWER COULD INCREASE.
Successful
execution of Novastar’s business model is dependent upon public support for
nuclear power in the United States and other countries. Nuclear power faces
strong opposition from certain competitive fuels, individuals and organizations.
The occurrence of another major, Chernobyl-like, nuclear accident could have
a
significant adverse effect on public opinion about nuclear power and the
favorable regulatory climate needed to introduce new nuclear technologies.
Strong public opposition could hinder the construction of new nuclear power
plants and lead to an early shut-down of the existing nuclear power plants.
Furthermore, nuclear fuel fabrication and the use of new nuclear fuels in
reactors must be licensed by the United States Nuclear Regulatory Commission
and
equivalent foreign governmental authorities. The licensing process includes
public hearings in which opponents of the use of nuclear power might be able
to
cause the issuance of required licenses to be delayed or denied. In fact, since
the Chernobyl nuclear accident, no new nuclear power plant has been built and
opened in the United States.
10
MODIFICATIONS
TO EXISTING NUCLEAR FUEL CYCLE INFRASTRUCTURE AS WELL AS REACTORS MAY PROVE
TOO
EXTENSIVE OR COSTLY.
The
existing nuclear fuel cycle infrastructure is predominantly based on
low-enrichment uranium oxide fuels. Introduction of thorium based fuel designs,
which require relatively higher enriched uranium or plutonium as a source of
reactivity, into the existing nuclear fuel cycle supply chain would necessitate
certain changes to procedures, processes and equipment used by existing nuclear
fuel fabrication facilities and nuclear fuel transportation companies. In
addition, Novastar’s nuclear fuel designs rely on fabrication technologies that
may be different from the fabrication techniques presently utilized by existing
fuel fabricators. In particular, Novastar’s metallic seed rods must be produced
using a co-extrusion fabrication process that was developed in Russia.
Presently, most commercial nuclear fuel is produced using a pellet fabrication
technology, whereby uranium oxide is packed into small pellets that are stacked
and sealed inside metallic tubes. The co-extrusion fabrication technology
involves extrusion of a single-piece solid fuel rod from a metallic matrix
containing uranium or plutonium seed fuel. While the co-extrusion fabrication
process has been successfully used in Russia for decades to produce one-meter
long metallic nuclear fuel rods used in nuclear reactors that propel Russian
icebreakers, it must be upgraded and tested to demonstrate its ability to
produce longer metallic rods (approximately 3.5-meters long for Russian VVER
reactors) so that Novastar’s seed fuel can be consistent with the standard
length of fuel rods used in existing commercial reactors. Full-size metallic
fuel rods have not yet been produced using this fabrication process, and there
are no guarantees that this new fabrication technology will be
successful.
Deployment
of Novastar’s nuclear fuel designs into existing commercial reactors may require
modifications to existing equipment, refueling and fuel handling procedures,
and
other processes utilized at existing nuclear power plants. The costs of such
modifications are difficult to ascertain. While one of Novastar’s goals is to
make its fuel designs as compatible as possible with the design of existing
commercial reactors in order to minimize the extent and cost of modifications
that may be required, Novastar may not be able to achieve compatibility
sufficient to reduce the extent and costs of required modifications enough
to
make its design economical for reactor operations.
NOVASTAR’S
NUCLEAR FUEL PROCESS IS DEPENDENT ON OUTSIDE SUPPLIERS OF NUCLEAR AND OTHER
MATERIALS.
Production
of fuel assemblies using Novastar’s nuclear fuel designs is dependent on the
ability of fuel fabricators to obtain supplies of thorium oxide for the
“blanket” component of its fuel assembly design. Fabricators will also need to
obtain metal for components, particularly zirconium. These materials are
regulated and can be difficult to obtain or may have unfavorable pricing terms.
The inability of fabricators to obtain these materials could have a material
adverse effect on their ability to market fuel based on Novastar’s technology.
BUSINESS
RISKS RELATING TO THE MINERAL EXPLORATION BUSINESS
MINERAL
EXPLORATION AND DEVELOPMENT ACTIVITIES ARE SPECULATIVE IN
NATURE.
Resource
exploration and development is a speculative business, characterized by a number
of significant risks including, among other things, unprofitable efforts
resulting not only from the failure to discover mineral deposits but from
finding mineral deposits which, though present, are insufficient in quantity
and
quality to return a profit from extraction. The marketability of minerals
acquired or discovered by Novastar may be affected by numerous factors which
are
beyond the control of Novastar and which cannot be accurately predicted, such
as
market fluctuations, the proximity and capacity of milling facilities, mineral
markets and processing equipment and such other factors as government
regulations, including regulations relating to royalties, allowable production,
importing and exporting of minerals and environmental protection, the
combination of which factors may result in Novastar not receiving an adequate
return on investment capital.
11
Substantial
expenditures are required to establish mineral reserves through drilling, to
develop metallurgical processes to extract the metal from the ore and, in the
case of new properties, to develop the mining and processing facilities and
infrastructure at any site chosen for mining. Although substantial benefits
may
be derived from the discovery of a major mineralized deposit, no assurance
can
be given that minerals will be discovered in sufficient quantities and grades
to
justify commercial operations or that funds required for development can be
obtained on a timely basis. Estimates of reserves, mineral deposits and
production costs can also be affected by such factors as environmental
permitting regulations and requirements, weather, environmental factors,
unforeseen technical difficulties, unusual or unexpected geological formations
and work interruptions. In addition, the grade of ore ultimately mined may
differ from that indicated by drilling results. Short term factors relating
to
reserves, such as the need for orderly development of ore bodies or the
processing of new or different grades, may also have an adverse effect on mining
operations and on the results of operations. Material changes in ore reserves,
grades, stripping ratios or recovery rates may affect the economic viability
of
any project.
NOVASTAR
IS AN EXPLORATION STAGE COMPANY, AND THERE IS NO ASSURANCE THAT A COMMERCIALLY
VIABLE DEPOSIT OR "RESERVE" EXISTS ON ANY PROPERTIES FOR WHICH NOVASTAR HAS,
OR
MIGHT OBTAIN, AN INTEREST.
Novastar
is an exploration stage company and cannot be certain that a commercially viable
deposit, or “reserve,” exists on any properties for which Novastar currently has
or may have an interest. Therefore, determination of the existence of a reserve
depends on appropriate and sufficient exploration work and the evaluation of
legal, economic, and environmental factors. If Novastar fails to find a
commercially viable deposit on any of its properties, its financial condition
and results of operations will be materially adversely affected.
Any
potential development and production of Novastar’s exploration properties
depends upon the results of exploration programs and/or feasibility studies
and
the recommendations of duly qualified engineers and geologists. Such programs
require substantial additional funds. Any decision to further expand Novastar’s
operations on these exploration properties is anticipated to involve
consideration and evaluation of several significant factors including, but
not
limited to:
| 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;
|
12
| 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.
|
BUSINESS
RISKS RELATED TO BOTH THE NUCLEAR FUEL DESIGN BUSINESS AND THE MINERAL
EXPLORATION BUSINESS.
NOVASTAR
WILL RELY ON SETH GRAE AND CERTAIN OTHER KEY INDIVIDUALS AND THE LOSS OF MR.
GRAE OR ANY OF THESE OTHER KEY INDIVIDUALS WOULD HAVE AN ADVERSE EFFECT ON
NOVASTAR.
Novastar’s
success will depend upon Seth Grae and certain other key members of the
management team. Mr. Grae’s knowledge of the nuclear power industry, his network
of key contacts within that industry and in government and, in particular,
his
expertise in the potential use of thorium as a fuel in nuclear reactors, is
critical to the implementation of the prospective business model of the combined
company. Mr. Grae and these other individuals are a significant factor in
Novastar’s future growth and success. The loss of the service of Mr. Grae or
these other key members of the management team would have a material adverse
effect on Novastar. Novastar does not have key man insurance policies relating
to Seth Grae or any other key individuals and does not anticipate obtaining
any
such insurance.
FINANCIAL
RISKS RELATING TO THE NUCLEAR
FUEL DESIGN BUSINESS AND THE MINERAL EXPLORATION
BUSINESS.
NOVASTAR’S
LIMITED OPERATING HISTORY MAKES IT DIFFICULT FOR YOU TO JUDGE ITS
PROSPECTS.
Novastar
is an exploration stage company that has a limited operating history upon which
an evaluation of Novastar, its current business and its prospects can be based.
You should consider any purchase of Novastar’s shares in light of the risks,
expenses and problems frequently encountered by all companies in the early
stages of corporate development
NOVASTAR’S
BUSINESS AND FINANCIAL CONDITION ARE SUBJECT TO THE RISKS APPLICABLE TO MINING
COMPANIES GENERALLY
Factors
beyond the control of Novastar may affect the marketability of any substances
discovered from any resource properties Novastar may acquire. Metal prices
have
fluctuated widely in recent years. Government regulations relating to price,
royalties, allowable production and importing and exporting of minerals can
adversely affect Novastar. There can be no certainty that Novastar will be
able
to obtain all necessary licenses and permits that may be required to carry
out
exploration, development and operations on any projects it may acquire and
environmental concerns about mining in general continue to be a significant
challenge for all mining companies.
NOVASTAR
WILL BE SUBJECT TO OPERATING HAZARDS, COMPETITION AND DOWNWARD PRICE FLUCTUATION
WHICH MAY ADVERSELY AFFECT NOVASTAR’S FINANCIAL CONDITION.
13
Mineral
exploration involves many risks, which even a combination of experience,
knowledge and careful evaluation may not be able to overcome. Novastar’s
operations will be subject to all the hazards and risks normally incidental
to
exploration, development and production of metallic minerals, such as unusual
or
unexpected formations, cave-ins or pollution, all of which could result in
work
stoppages, damage to property and possible environmental damage. Novastar does
not have general liability insurance covering its operations. Payment of any
liabilities as a result could have a material adverse effect upon Novastar’s
financial condition.
Significant
and increasing competition exists for the limited number of mineral acquisition
opportunities available. As a result of this competition, some of which is
with
large established mining companies with substantial capabilities and greater
financial and technical resources than Novastar, Novastar may be unable to
acquire attractive mineral properties on terms it considers acceptable.
Novastar
has no control over the fluctuations in the prices of the thorium and other
rare
earth minerals that it is exploring for. A significant decline in such prices
would severely reduce the value of Novastar.
NOVASTAR’S
ACTIVITIES WILL BE SUBJECT TO ENVIRONMENTAL AND OTHER INDUSTRY REGULATIONS
WHICH
COULD HAVE AN ADVERSE EFFECT ON THE FINANCIAL CONDITION OF
NOVASTAR.
Novastar’s
activities are subject to environmental regulations promulgated by government
agencies from time to time. Environmental legislation generally provides for
restrictions and prohibitions on spills, releases or emissions of various
substances produced in association with certain mining industry operations,
which would result in environmental pollution. A breach of such legislation
may
result in imposition of fines and penalties. In addition, certain types of
operations require the submission and approval of environmental impact
assessments. Environmental legislation is evolving in a manner which means
stricter standards and enforcement, fines and penalties for non-compliance
are
more stringent. In addition to existing laws, there can be new federal, state,
or local laws banning, restricting, or taxing mining activities planned by
Novastar.
Environmental
assessments of proposed projects carry a heightened degree of responsibility
for
companies and directors, officers and employees. The cost of compliance with
changes in governmental regulations could have an adverse effect on the
financial condition of Novastar.
The
operations of Novastar, including exploration and development activities and
commencement of production on its properties require permits from various
federal, state, provincial and local governmental authorities and such
operations are and will be governed by laws and regulations governing
prospecting, development, mining, production, exports, taxes, labor standards,
occupational health, waste disposal, toxic substances, land use, environmental
protection, mine safety and other matters. Companies engaged in the development
and operation of mines and related facilities generally experience increased
costs and delays in production and other schedules as a result of the need
to
comply with applicable laws, regulations and permits.
Failure
to comply with applicable laws, regulations, and permitting requirements may
result in enforcement actions thereunder, including orders issued by regulatory
or judicial authorities causing operations to cease or be curtailed, and may
include corrective measures requiring capital expenditures, installation of
additional equipment, or remedial actions. Parties engaged in mining operations
may be required to compensate those suffering loss or damage by reason of the
mining activities and may have civil or criminal fines or penalties imposed
for
violations of applicable laws or regulations and, in particular, environmental
laws.
14
THE
PRICE OF FOSSIL FUELS OR URANIUM MAY FALL, WHICH WOULD REDUCE THE INTEREST
IN
NOVASTAR BY REDUCING ECONOMIC ADVANTAGES OF UTILIZING THORIUM BASED FUELS AND
ADVERSELY AFFECT THE MARKET PROSPECTS FOR NOVASTAR’S FUEL
DESIGNS.
Coal,
uranium, natural gas and crude oil prices are currently at very high levels.
Management believes the high cost of these fuels has resulted in increased
interest in other sources of energy such as thorium. If prices of traditional
energy sources fall, then the demand that the company expects for thorium based
fuels may not materialize. A decrease in demand for thorium based fuels would
negatively affect Novastar’s future operating results.
RISKS
RELATED TO THE OWNERSHIP OF NOVASTAR STOCK
THERE
MAY BE VOLATILITY IN THE NOVASTAR STOCK PRICE, WHICH COULD NEGATIVELY AFFECT
INVESTMENTS, AND STOCKHOLDERS MAY NOT BE ABLE TO RESELL THEIR SHARES AT OR
ABOVE
THE VALUE THEY ORIGINALLY PURCHASED SUCH SHARES.
The
market price of Novastar’s common stock may fluctuate significantly in response
to a number of factors, some of which are beyond its control,
including:
| o |
quarterly
variations in operating results;
|
| o |
changes
in financial estimates by securities
analysts;
|
| o |
changes
in market valuations of other similar
companies;
|
| o |
announcements
by Novastar or its competitors of new products or of significant
technical
innovations, contracts, receipt of (or failure to obtain) government
funding or support, acquisitions, strategic partnerships or joint
ventures;
|
| o |
additions
or departures of key personnel;
|
| o |
any
deviations in net sales or in losses from levels expected by securities
analysts or any reduction in political support from levels expected
by
securities analysts;
|
| o |
future
sales of common stock; and
|
| o |
results
of analyses of mining and resources
assets.
|
In
addition, the stock market has recently experienced extreme volatility that
has
often been unrelated to the performance of particular companies. These market
fluctuations may cause the Novastar stock price to fall regardless of its
performance.
BECAUSE
THE NOVASTAR SECURITIES TRADE ON THE OTC BULLETIN BOARD, THE ABILITY TO SELL
SHARES IN THE SECONDARY MARKET MAY BE LIMITED.
15
The
shares of Novastar common stock have been listed and principally quoted on
the
NASD OTC Bulletin Board. Because Novastar securities currently trade on the
OTC
Bulletin Board, they are subject to the rules promulgated under the Securities
Exchange Act of 1934, as amended, which impose additional sales practice
requirements on broker-dealers that sell securities governed by these rules
to
persons other than established customers and “accredited investors” (generally,
individuals with a net worth in excess of $1,000,000 or annual individual income
exceeding $200,000 or $300,000 jointly with their spouses). For such
transactions, the broker-dealer must determine whether persons that are not
established customers or accredited investors qualify under the rule for
purchasing such securities and must receive that person’s written consent to the
transaction prior to sale. Consequently, these rules may adversely effect the
ability of purchasers to sell Novastar securities and otherwise affect the
trading market in Novastar securities.
A
LARGE NUMBER OF SHARES WILL BE ELIGIBLE FOR FUTURE SALE AND MAY DEPRESS
NOVASTAR’S STOCK PRICE.
Novastar
shares that are eligible for future sale may have an adverse effect on the
price
of the Novastar stock. As of Ausut 2, 2006, there were 156,411,474 shares
of Novastar common stock outstanding. As of June 12, 2006, about 75 million
shares of Novastar common stock were freely tradable without substantial
restriction or the requirement of future registration under the Securities
Act.
The remainder of the Novastar outstanding shares, most of which are held
by
Novastar’s officers, directors and greater than 5% stockholders, may be sold
without registration under the exemption from registration provided by Rule
144
under the Securities Act. In addition, as of March 31, 2006, an additional
10,992,498 shares were subject to outstanding options or
warrants.
Sales
of
substantial amounts of common stock, or a perception that such sales could
occur, and the existence of options or warrants to purchase shares of common
stock at prices that may be below the then current market price of the common
stock, could adversely affect the market price of the Novastar common stock
and
could impair Novastar’s ability to raise capital through the sale of its equity
securities.
NOVASTAR
WILL NOT HAVE CUMULATIVE VOTING AND A SMALL NUMBER OF EXISTING STOCKHOLDERS
CONTROL NOVASTAR, WHICH COULD LIMIT YOUR ABILITY TO INFLUENCE THE OUTCOME OF
STOCKHOLDER VOTES.
16
Novastar
stockholders do not have the right to cumulative voting in the election of
Novastar directors. Cumulative voting, in some cases, could allow a minority
group to elect at least one director to the Novastar board. Because there is
no
provision for cumulative voting, a minority group will not be able to elect
any
directors. Accordingly, the holders of a majority of the shares of common stock
will be able to elect all of the members of the Novastar board of
directors.
Novastar
executive officers and directors, together with a small number of large
stockholders will hold a majority of Novastar’s outstanding common stock.
Similarly, Thorium Power officers and directors as a group together with a
small
number of large stockholders own a majority of Thorium Power’s outstanding
common stock. As a result, these entities and individuals will be able to
control the outcome of stockholder votes, including votes concerning the
election of directors, the adoption or amendment of provisions in the Novastar
charter or bylaws and the approval of mergers and other significant corporate
transactions.
Novastar
has historically not declared or paid any dividends. Novastar does not expect
that Novastar will pay dividends in the foreseeable future. Rather, Novastar
plans to reinvest earnings in mining and nuclear fuel development.
RISK
FACTORS RELATING TO THE MERGER
AVAILABILITY
OF ADDITIONAL SHARES OF NOVASTAR COMMON STOCK RESULTING FROM THE MERGER COULD
DEPRESS THE PRICE OF NOVASTAR COMMON STOCK.
As
of
August 2, 2006, Novastar had 156,411,474 shares
outstanding, which includes 36,659,837 shares
that were issued by Novastar in private placement transactions after the
Merger
Agreement was signed. In connection with the Merger, Novastar issued
approximately 135.6 million shares of its common stock. Therefore,
immediately following the Merger there were approximately 292,000,000 shares
outstanding. Novastar registered the shares issued in the Merger and is
registering the shares issued in private placements under this registration
statement. The Novastar stock issued in the Merger and to the private placement
investors will be available for trading in the public market. The additional
shares in the market may cause the price of Novastar common stock to decline.
Also, if Novastar’s stockholders sell substantial numbers of shares of Novastar
common stock in the public market, including shares issued on the exercise
of
outstanding options and warrants, the market price of Novastar common stock
could fall. These sales might also make it more difficult for Novastar to
sell
equity or equity related securities at a time and price that Novastar would
deem
appropriate. All of the shares of Novastar common stock issued to Thorium
Power
stockholders in the Merger will be freely tradable without restrictions or
further registration under the Securities Act of 1933, as amended (the
“Securities Act”), unless the shares of common stock are held by an “affiliate”
of Novastar or Thorium Power prior to the Merger, as that term is defined
under
the Securities Act.
Novastar
and Thorium Power each entered into the Agreement and Plan of Merger based
on an
assessment of the other company’s resource base, exploration potential,
intellectual property rights, operating costs, potential markets for designs
and
products, potential environmental and other liabilities and other factors beyond
the control of either Novastar or Thorium Power. These assessments are
necessarily inexact and their accuracy inherently uncertain. Such a review
may
not have revealed all existing or potential problems, nor did it necessarily
permit them to become sufficiently familiar with the properties of the other
to
fully assess their merits and deficiencies. The Merger could change the nature
of the operations and business of both Thorium Power and Novastar due to the
character of the properties owned by both companies. Therefore, the Merger
may
not be successfully implemented and may not achieve desired
objectives.
17
THE
INTEGRATION OF THE NOVASTAR AND THORIUM POWER BUSINESSES MAY BE COSTLY AND
THE
FAILURE OF MANAGEMENT TO SUCCESSFULLY EFFECT THE INTEGRATION MAY ADVERSELY
AFFECT NOVASTAR’S BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL
CONDITION.
Novastar’s
ability to realize some of the anticipated benefits of the Merger will depend
in
part on Novastar’s ability to integrate Thorium Power’s operations into
Novastar’s current operations in a timely and efficient manner. The integration
process may require significant efforts from each company. The integration
process may distract Novastar management’s attention from the day-to-day
business of the combined company. If Novastar is unable to successfully
integrate the operations of the two companies or if this integration process
is
delayed or costs more than expected, Novastar’s business, operating results and
financial condition may be negatively impacted
FORWARD-LOOKING
STATEMENTS
This
prospectus and other documents incorporated by reference into this prospectus
contain or may contain “forward looking statements.”
Any
statements contained herein, including, without limitation, statements to the
effect that Novastar or our management “believes,” “expects,” “anticipates,”
“plans,” “may,” “will,” “projects,” “continues,” “estimates” or statements
concerning “potential” or “opportunity” or other variations thereof or
comparable terminology or the negative thereof, that are not statements of
historical fact should be considered forward-looking statements. Actual results
could differ materially and adversely from those anticipated in the
forward-looking statements as a result of several factors, including those
set
forth in “Risk Factors” beginning on page 7, which you should review
carefully.
You
are
cautioned not to place undue reliance on these forward-looking statements,
which
speak only as of the date of this prospectus. Novastar does not undertake any
obligation to publicly update or release any revisions to these forward-looking
statements to reflect events or circumstances after the date of this prospectus
or to reflect the occurrence of unanticipated events, except as required by
law.
18
The
proceeds from the sale of the shares of our common stock being offered by the
selling stockholders pursuant to this prospectus will belong to the selling
stockholders. We will not receive proceeds from the sales by the selling
stockholders but we will receive funds from the exercise of the warrants. We
will utilize any proceeds from the exercise of such warrants for general
corporate and working capital purposes. We will have complete discretion over
how we may use the proceeds, if any, from any exercise of the warrants. We
cannot assure purchasers that our use of the net proceeds will not vary
substantially due to unforeseen factors. Pending use of the proceeds from any
exercise of the warrants, we may invest all or a portion of such proceeds in
marketable securities, equity securities of other companies, short-term,
interest-bearing securities, U.S. Government securities, money market
investments and short-term, interest-bearing deposits in banks.
MARKET
FOR OUR COMMON STOCK
AND
RELATED STOCKHOLDER MATTERS
Principal
Market and Market Prices
Novastar
common stock is listed and traded on the OTC Bulletin Board. The following
table
sets forth the high and low closing per share sales prices of Novastar common
stock as reported on the OTC Bulletin Board for the quarterly fiscal periods
presented below. The quotations were obtained from the OTC Bulletin Board
website and reflect inter-dealer prices, without retail mark-up, mark-down
or
commission and may not represent actual transactions.
|
FISCAL
YEAR
|
QUARTER
ENDING
|
|
HIGH
|
|
LOW
|
|||||
|
2006
|
June
30, 2006
|
$
|
0.74
|
$
|
0.43
|
|||||
|
|
March
31, 2006
|
$
|
0.53
|
$
|
0.51
|
|||||
|
2005
|
December
31, 2005
|
$
|
0.31
|
$
|
0.13
|
|||||
|
|
September
30, 2005
|
$
|
0.30
|
$
|
0.11
|
|||||
|
|
June
30, 2005
|
$
|
0.22
|
$
|
0.077
|
|||||
| March 31, 2005 |
$
|
0.22
|
$
|
0.09
|
||||||
|
2004
|
December
31, 2004
|
$
|
0.29
|
$
|
0.07
|
|||||
|
September
30, 2004
|
$
|
0.04
|
$
|
0.017
|
||||||
|
June
30, 2004
|
$
|
0.09
|
$
|
0.025
|
||||||
| March 31, 2004 |
$
|
0.09
|
$
|
0.009
|
||||||
On
February 13, 2006, the last full trading day before the announcement of the
execution of the Merger Agreement, the closing per share sales price for the
Novastar common stock was $0.80 on the OTC Bulletin Board. On June 30, 2006,
the
most recent practicable date, the closing per share sales price for the Novastar
common stock was $0.45 on the OTC Bulletin Board.
Approximate
Number of Holders of Our Common Stock
As
of the
effective date of the Merger, there were approximately 400 holders of record
of
Novastar common stock.
19
Dividend
Policy
Novastar
has never declared or paid cash dividends on its shares of common stock.
Novastar anticipates that any earnings will be retained for development and
expansion of its business and does not anticipate paying any cash dividends
in
the near future. Novastar’s board of directors has sole discretion to pay cash
dividends based on its financial condition, results of operation, capital
requirements, contractual obligations and other relevant factors.
MANAGEMENT’S
DISCUSSION
AND ANALYSIS
Novastar’s
Management’s Discussion and Analysis
The
following discussion should be read in conjunction with Novastar’s financial
statements, together with the notes to those statements, included elsewhere
in
this report. The following discussion contains forward-looking statements that
involve risks, uncertainties, and assumptions such as statements of Novastar’s
plans, objectives, expectations, and intentions. Novastar’s actual results may
differ materially from those discussed in these forward-looking statements
because of the risks and uncertainties inherent in future events.
Novastar
has engaged in the acquisition, exploration and evaluation of mineral rights
in
properties containing thorium. All commercially viable thorium metal
is extracted from monazite. The phosphate mineral monazite exists in sands
and may contain concentrations of 3.0% -12.0% thorium oxide as well as other
rare earth minerals such as cerium, lanthanum, yttrium and neodymium, and
platinum group metals (“platinum group metals”).
In
the
future, Novastar may acquire rights to properties that contain monazite
deposits. Properties of interest to Novastar would be both monazite stockpiles
and in ground concentrations of mineral monazite.
The
current market for thorium is very limited. Novastar's objective has been to
become a supplier of thorium to be used in the future as fuel in the nuclear
energy industry. Thorium can be used to power existing nuclear reactors using
designs developed by Thorium Power. Thorium based nuclear fuels are believed
to
have several important advantages over conventional nuclear fuels, such as
non-proliferation benefits, environmental benefits and possible cost and safety
benefits.
Novastar
expects to generate revenues in the future through the sale of thorium, platinum
group metals and other rare earth minerals, but we have not done so to
date.
Outlook
As
of the
date of this prospectus, there is not any significant global demand for thorium
as a source of nuclear fuel. Novastar believes that there will be significant
increases in demand for thorium at some future point; however, Novastar is
unable to predict when or if this will occur.
The
International Atomic Energy Agency (IAEA), a United Nations organization,
submitted an official report on the thorium nuclear fuel cycle in May of 2005.
On July 6, 2005 Novastar issued a press release commenting on this report.
The
IAEA report publicly promotes the significant benefits of thorium as a nuclear
fuel. In addition, on page # 91 of its report, the IAEA recommended that
companies augment the exploration and mining of thorium to insure the
availability of sufficient supplies of reactor grade thorium.
20
To
date,
Novastar has invested approximately $1,350,000 in Thorium Power and upon
consummation of the merger, Novastar will acquire Thorium Power and it will
become Novastar’s wholly-owned subsidiary.
Seth
Grae, the CEO of Thorium Power, became Novastar’s CEO on March 17, 2006 pursuant
to the terms of the Merger Agreement. He and Thomas Graham, Jr., a board member
of Thorium Power, also became members of Novastar’s board of directors on April
2, 2006. Cornelius Milmoe became a director of Novastar on April 2, 2006 and
its
COO on April 4, 2006.
Novastar
has worked with the government relations firm Capitol Project Partners, LLC
to
inform government officials on the value of thorium and a thorium nuclear fuel
cycle.
In
addition to the acquisition of thorium properties and mineral rights, Management
believes Novastar may have potential revenue opportunities to supplement its
business since other metals of commercial significance can be extracted from
Novastar’s properties. These would include platinum group metals and rare earth
minerals of the yttrium group. Rare earth minerals can be divided into two
groups: the yttrium group, containing yttrium, lanthanum, cerium, neodymium,
and
the dysprosium group, containing europium, gadolinium, terbium, dysprosium,
holmium, and erbium. Mineral monazite only contains concentrations of rare
earth
minerals classified in the yttrium group.
Management
believes that Novastar’s properties may also contain zirconium oxide. Zirconium
metal is used as an alloy to coat metal parts to provide heat and corrosion
resistance. It is widely used in nuclear reactors and management believes that
there may be a growing use in the automotive industry to replace chrome.
Management believes that platinum may also be present on Novastar’s properties.
Platinum may be used to coat machinery parts to impart wear resistance and
to
electronic components to enhance electrical conductivity. Platinum is also
widely used in the automotive industry for catalytic converters and in the
jewelry industry.
Novastar
Resources may process and stockpile rare earth minerals as a by-product of
mining and refining mineral monazite into thorium oxide. Novastar intends to
identify potential buyers of rare earth minerals both in the United States
and
abroad. With approximately 80% of world rare earth metals production sourced
from the Peoples' Republic of China and no rare earth mineral mines operating
in
North America, rare earth minerals may become an important strategic commodity.
Novastar believes that there may be short and intermediate term revenue
generating opportunities from sales of rare earth minerals. Some of the
commercial applications for rare earth minerals include, but are not limited
to:
| 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
|
21
| 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
|
Results
of Operations - Fiscal Year Ended June 30, 2005 and
2004
Summary
The
following table summarizes the results of Novastar’s operations during the
fiscal year ended June 30, 2005 and 2004 and provides information regarding
the
dollar and percentage increase or (decrease) from the 2005 fiscal year to the
2004 fiscal year.
|
Line
Item
|
6/30/05
|
|
6/30/04
|
|
Increase
(Decrease)
|
|
Percentage
Increase (Decrease)
|
||||||
|
Revenues
|
$
|
0.00
|
$
|
0.00
|
$
|
0.00
|
0
|
%
|
|||||
|
Operating
Expenses
|
$
|
2,248,703
|
$
|
39,574
|
$
|
2,209,129
|
5582
|
%
|
|||||
|
Interest
Expense
|
$
|
442,813
|
$
|
55,856
|
$
|
386,957
|
693
|
%
|
|||||
|
Net
Loss
|
$
|
2,691,516
|
$
|
95,430
|
$
|
2,596,086
|
2720
|
%
|
|||||
|
Loss
per common share
|
$
|
(0.05
|
)
|
$
|
0.00
|
$
|
0.05
|
--
|
|||||
Novastar's
consolidated net loss for the fiscal year ended June 30, 2005 was $2,691,516
or
$.05 per share compared to the previous year's consolidated net loss of $95,430
or $0.00 per share for a net loss increase of $2,596,086. The
largest new expense was related to consulting services, totaling $2,303,533
for
the year ended June 30, 2005, performed by consultants whose services included
research into prospective business venues, seeking out business opportunities,
making introductions and other business consulting. This increase in consulting
expense was $2,279,898, which accounted for approximately 88% of the increase
in
Novastar’s net loss for the year ended June 30, 2005.
Corporate
administration and public relations
Corporate
administrative and public relations costs totaled $84,828 in the 2005 fiscal
year compared to $3,996 in the previous year, representing an increase of
$80,832. Included in these costs are the costs of a public relations program
started in the year and business development costs in association with seeking
mineral interest opportunities and promoting the use of Thorium based nuclear
fuels. Also included are travel expenses for executives and geologists, travel
to various conferences and other miscellaneous office expenses.
Legal
and accounting costs
Legal
and
accounting costs totaled $30,160 in the 2005 fiscal year compared to $11,943
in
the previous year, representing an increase of $18,217 or 152%. This increase
reflects primarily the company’s business activity in the current year in lead
up to the property acquisitions, pre-merger activities and financing achieved
subsequent to fiscal year-end.
22
Cash
Flows - Fiscal Year Ended June 30, 2005 and 2004
Cash
provided by Operations
Cash
provided by operations was $7,079 in the 2005 fiscal year compared to
cash used
of
$10,294 in the previous year. The increase of $17,373 can be attributed to
an
increase in Novastar’s expenses.
During
the 2005 fiscal year $2,239,533 of consulting services were provided to Novastar
for which Novastar paid in common shares in lieu of cash. A further $1,000,000
of consulting services were provided for debt which converted to common shares
and common stock purchase warrants. This compares to $22,500 of services in
the
prior fiscal year paid for by the issuance of shares in lieu of
cash.
Including
the effect of $169,818 in debt forgiven, accounts payable and accrued
liabilities increased by $71,135 as compared to $7,265 in the prior year.
The
above-noted increases and increases in other costs arise from increased business
activity as Novastar embarked on its new business model of acquiring, exploring
and developing thorium and rare earth mineral properties and rights thereto,
and
its alliance and merger negotiations with Thorium Power.
During
the 2005 fiscal year interest attributable to the beneficial conversion of
notes
payable totaled $442,813 as compared to $55,178 in the prior year. This increase
is attributable to the conversion of notes payable in the current year to shares
and warrants.
Financing
Activities
Novastar
received from its noteholders cash from financing activities of $7,881 in its
fiscal year ended June 30, 2005, compared to $9,400 in the previous
year.
In
addition Novastar received proceeds of $94,140 in the 2005 fiscal year through
a
private placement which was to close subsequent to year-end; this placement
was
terminated after year-end and the proceeds returned to the
subscribers.
Results
of Operations - Nine Months Ended March 31, 2006 and
2005
Summary
The
following table summarizes the results of Novastar’s operations during the nine
month period ended March 31, 2006 and 2005 and provides information regarding
the dollar and percentage increase or (decrease) from the 2006 period to the
2005 period.
23
|
Line
Item
|
3/31/06
|
3/31/05
|
Increase
(Decrease)
|
Percentage
Increase (Decrease)
|
|||||||||
|
Revenues
|
$
|
0.00
|
$
|
0.00
|
$
|
0.00
|
0
|
%
|
|||||
|
Operating
Expenses
|
$
|
10,899,554
|
$
|
913,574
|
$
|
9,985,980
|
1090
|
%
|
|||||
|
Interest
Expense
|
--
|
$
|
442,813
|
$
|
(442,813
|
)
|
(100
|
)%
|
|||||
|
Net
Loss
|
$
|
10,899,554
|
$
|
1,356,387
|
$
|
9,543,167
|
700
|
%
|
|||||
|
Loss
per common share
|
$
|
(0.11
|
)
|
$
|
(0.03
|
)
|
$
|
0.08
|
270
|
%
|
|||
Novastar's
consolidated net loss for the nine month period ended March 31, 2006 was
$10,899,554 or $0.11 per share compared to the same period of the previous
year
consolidated net loss of $1,356,387 or $0.03 per share for a net loss increase
of $9,543,167. The largest expense was related to stock-based compensation
expenses of $4,150,000 to Novastar’s new director and CEO issued in accordance
to an employment agreement Novastar entered into in February 2006. Novastar
also
issued stock for consulting services performed by consultants whose services
included research into prospective business venues, seeking out business
opportunities, making introductions and other business consulting. Total
consulting and stock-based compensation issued to officers, consultants and
others totaled approximately $8,400,000, or approximately 77% of Novastar’s
total net loss for the nine month period ended March 31, 2006.
Mineral
production and revenue
As
Novastar is in the exploration stage regarding its mineral interests (leases
located in Alabama, acquired on September 14 and December 31 2005, from entities
controlled by former CEO Charles Merchant, and claims located in North
Queensland, Australia, acquired on September 30, 2005), Novastar has not, as
of
yet, produced any minerals revenues nor produced any minerals.
Exploration,
property evaluation and holding costs
As
of its
fiscal year-end, Novastar held no mineral interests. It subsequently acquired
three mineral leases. A mineral lease in Clay County, Alabama was assigned
to
Novastar on September 14, 2005. The agreement is more completely described
in
the section captioned “PROPERTIES.”
On
December 31, 2005, Novastar acquired a 51% interest in mineral leases in Clay
and Cleburne Counties in Alabama. The assignment agreement is more completely
described in the section captioned “PROPERTIES.”
On
September 30, 2005, Novastar acquired certain North Queensland, Australia
mineral interests. The acquisition agreement is more completely described in
the
section captioned “ PROPERTIES.”
Corporate
administration and public relations
Corporate
administrative and public relations costs totaled $202,779 during the nine
month
period ended March 31, 2006 compared to $80,526 in the same period of the
previous year, representing an increase of $122,253. Included in these costs
are
the costs of a public relations program started in the year and business
development costs in association with seeking mineral interest opportunities
and
promoting the use of thorium based nuclear fuels. Also included are travel
expenses for executives and scientists, travel to various conferences and other
miscellaneous office expenses.
24
Legal
and accounting costs
Legal
and
accounting costs totaled $323,889 during the nine month period ended March
31,
2006 compared to none in the previous year, representing an increase of
$323,889. This increase reflects primarily legal fees incurred in connection
with the entry into the Merger Agreement with Thorium Power and related
transactions, the company’s business activity in the current year in lead up to
the property acquisitions and financing achieved during the nine month period
ended March 31, 2006.
Cash
Flows - Nine Months Ended March 31, 2006 and 2005
Cash
provided by Operations
Cash
used
by operations was $622,572 during the nine month period ended March 31, 2006
as
compared to cash used
of
$107,881 in the same period of the previous year.
The
change can be attributed to an increase in Novastar’s period end accounts
payable and accrued liabilities and other payables of $504,025. This increase
was offset by a decrease in prepaid expenses at period end of
$258,444.
The
above-noted increases and increases in other costs (namely, public relations
and
legal) arise from increased business activity as Novastar embarked on its new
business model of acquiring, exploring and developing thorium, platinum group
metals and rare earth mineral properties and rights thereto. Additional costs
were incurred in connection with the entry by Novastar into the Merger Agreement
with Thorium Power and the actions taken in connection with the Merger
Agreement.
Investing
Activities
Cash
used
by investing activities increased $758,200 during the nine month period ended
March 31, 2006. This increase was due primarily to an investment of $700,000
Novastar made to purchase 175,000 shares of Thorium Power at $4 per share.
The
remaining $58,200 was spent on exploration equipment.
Financing
Activities
Novastar
received cash from financing activities of $1,446,486 during the nine month
period ended March 31, 2006, compared to $107,881 in the same period of the
previous year.
In
addition Novastar received proceeds of $631,500 in the nine month period ended
March 31, 2006 through a private placement. The placement was an offering of
4,209,998 units at a price of $0.15 per unit. Each unit consists of one common
share and one-half of a non-transferable share purchase warrant. Each warrant
entitles the holder thereof to acquire one additional share of common stock
at a
price of $0.30 per share and has an expiry date of twelve months from the
closing date of the subscription.
25
The
company also received $1,262,500 through another private placement, offering
4,208,331 units at $0.30 per unit. There are also warrants that were issued
that
entitle the holder to purchase one additional share of stock at a price of
$0.50
per share.
On
February 20, 2006, Novastar repurchased 5,000,000 shares of its common stock
from Walter Doyle, the prior owner of Novastar’s North Queensland, Australia
property, for $400,000 or $0.08 per share.
Liquidity
and Capital Resources
At
March
31, 2006, Novastar's total assets were $1,080,250. Liabilities as of March
31,
2006 totaled $691,505. Novastar had working capital deficiency of $366,545
at
March 31, 2006.
Novastar
recently closed a $15,000,000 private placement, for the purpose of acquiring,
exploring and developing thorium and rare earth minerals properties as well
as
assist Novastar in connection with the planned acquisition of Thorium Power
and
the development of Thorium Power’s business.
Major
cash commitments in the next fiscal year are related to the funding of Thorium
Power’s business, corporate administration and operations, and proposed
exploration activities.
Off
Balance Sheet Arrangements
Novastar
does not have any off balance sheet arrangements that have or are reasonably
likely to have a current or future effect on Novastar’s financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity or capital expenditures or capital resources that is material to
an
investor in Novastar’s securities.
Seasonality
Novastar’s
business has not been subject to any material seasonal variations in operations,
although this may change in the future.
Inflation
As
a
development stage company, Novastar’s business, revenues and operating results
have not been affected in any material way by inflation. If and when it begins
marketing thorium and other minerals, Management expects its business will
be
affected by inflation and commodity price volatility.
Critical
Accounting Policies
The
Securities and Exchange Commission issued Financial Reporting Release No. 60,
"Cautionary Advice Regarding Disclosure About Critical Accounting Policies"
suggesting that companies provide additional disclosure and commentary on their
most critical accounting policies. In Financial Reporting Release No. 60, the
Securities and Exchange Commission has defined the most critical accounting
policies as the ones that are most important to the portrayal of a company's
financial condition and operating results, and require management to make its
most difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. Based on this definition,
Novastar has identified the following significant policies as critical to the
understanding of its financial statements.
26
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make a variety of estimates and
assumptions that affect (i) the reported amounts of assets and liabilities
and
disclosure of contingent assets and liabilities as of the date of the financial
statements and (ii) the reported amounts of revenues and expenses during the
reporting periods covered by the financial statements.
Novastar’s
management expects to make judgments and estimates about the effect of matters
that are inherently uncertain. As the number of variables and assumptions
affecting the future resolution of the uncertainties increase, these judgments
become even more subjective and complex. Although Novastar believes that its
estimates and assumptions are reasonable, actual results may differ
significantly from these estimates. Changes in estimates and assumptions based
upon actual results may have a material impact on Novastar’s results of
operation and/or financial condition. Novastar has identified certain accounting
policies that it believes are most important to the portrayal of its current
financial condition and results of operations. Novastar’s significant accounting
policies are disclosed in Note 2 to the Consolidated Financial Statements
included in its Annual Report on Form 10-KSB.
Mineral
Property Exploration and Acquisition Costs
Costs
of
acquiring property concessions and exploration costs will be capitalized by
project area when a production decision is made in respect to the project and
Novastar is reasonably assured that it will receive regulatory approval to
permit mining operations. Costs to maintain the property concessions and leases
are expensed as incurred. When a property concession reaches the production
stage, the related capitalized costs will be amortized, using the units of
production method on the basis of periodic estimates of ore reserves. To date
no
property concessions have reached production stage.
Property
concessions will be periodically assessed for impairment of value and any
diminution in value is charged to operations at the time of impairment. Should
a
property concession be abandoned, its capitalized costs will be charged to
operations. Novastar charges to operations the allocable portion of capitalized
costs attributable to property concessions sold. Capitalized costs will be
allocated to property concessions abandoned or sold based on the proportion
of
claims abandoned or sold to the claims remaining within the project
area.
Deferred
tax assets and liabilities
Novastar
will recognize the expected future tax benefit from deferred tax assets when
the
tax benefit is considered to be more likely than not of being realized.
Assessing the recoverability of deferred tax assets requires management to
make
significant estimates related to expectations of future taxable income.
Estimates of future taxable income are based on forecasted cash flows and the
application of existing tax laws in each jurisdiction. To the extent that future
cash flows and taxable income differ significantly from estimates, the ability
of Novastar to realize deferred tax assets could be impacted. Additionally,
future changes in tax laws in the jurisdictions in which Novastar operates
could
limit Novastar’s ability to obtain the future tax benefits.
Property
and equipment
Property
and equipment are stated at cost. Depreciation is provided using the
straight-line or accelerated methods over the estimated useful lives of the
assets. The useful lives of property, plant and equipment for purposes of
computing depreciation are five to seven years for equipment, and 39 years
for
buildings.
27
Novastar
evaluates the recoverability of property and equipment when events and
circumstances indicate that such assets might be impaired. Novastar determines
impairment by comparing the undiscounted future cash flows estimated to be
generated by these assets to their respective carrying amounts. Maintenance
and
repairs are expensed as incurred. Replacements and betterments are capitalized.
The cost and related reserves of assets sold or retired are removed from the
accounts, and any resulting gain or loss is reflected in results of
operations.
Accounting
for Stock Based Compensation, Stock Options and Warrants Granted to Employees
and Nonemployees
Novastar
currently reports stock issued to employees under the rules of SFAS No.
123R.
The
options were valued using the Black-Scholes option pricing model. The
assumptions used were as follows: volatility of 284%, a risk-free interest
rate
of 4.33% and an exercise term of ten years.
Environmental
Matters
When
it
is probable that costs associated with environmental remediation obligations
will be incurred and they are reasonably estimable, Novastar will accrue such
costs at the most likely estimate. Accruals for estimated losses from
environmental remediation obligations generally are recognized no later than
completion of the remedial feasibility study for such facility and are charged
to provisions for closed operations and environmental matters. Novastar
periodically reviews its accrued liabilities for such remediation costs as
evidence becomes available indicating that its remediation liability has
potentially changed. Costs of future expenditures for environmental remediation
are not discounted to their present value unless subject to a contractually
obligated fixed payment schedule. Such costs are based on Novastar’s current
estimate of amounts that are expected to be incurred when the remediation work
is performed within current laws and regulations. Recoveries of environmental
remediation costs from other parties will be recorded as assets when their
receipt is deemed probable.
Future
remediation costs for inactive mines will be accrued based on management’s best
estimate at the end of each period of the undiscounted costs expected to be
incurred. Such costs estimates include, where applicable, ongoing care,
maintenance and monitoring costs. Changes in estimates are reflected in earnings
in the period an estimate is revised.
Accounting
for reclamation and remediation obligations requires management to make
estimates unique to each mining operation of the future costs Novastar will
incur to complete the reclamation and remediation work required to comply with
existing laws and regulations. Actual costs incurred in future periods could
differ from amounts estimated. Additionally, future changes to environmental
laws and regulations could increase the extent of reclamation and remediation
work required. Any such increases in future costs could materially impact the
amounts charged to earnings. At March 31, 2005 and the years ended June 30,
2005
and 2004, Novastar has no accrual for reclamation and remediation obligations
because management cannot make a reasonable estimate. Any reclamation or
remediation costs related to abandoned concessions has been previously
expensed.
28
Thorium
Power’s Management’s Discussion and Analysis
The
following discussion should be read in conjunction with Thorium Power’s
financial statements, together with the notes to those statements, included
elsewhere in this report. The following discussion contains forward-looking
statements that involve risks, uncertainties, and assumptions such as statements
of Thorium Power’s plans, objectives, expectations, and intentions. Thorium
Power’s actual results may differ materially from those discussed in these
forward-looking statements because of the risks and uncertainties inherent
in
future events.
Overview
Radkowsky
Thorium Power Corp., incorporated in the state of Delaware on January 8, 1992,
changed its name to Thorium Power, Inc. in April 2001. Thorium Power is engaged
in the development of nuclear fuel designs into three markets: (1) weapons-grade
plutonium disposition, (2) reactor-grade plutonium disposition, and (3) nuclear
fuel for commercial nuclear fuel designs. These fuel designs are for use in
existing light water reactors. Presently, Thorium Power is focusing most of
its
efforts primarily on demonstrating and testing its thorium/weapons-grade
plutonium disposing fuel designs for the Russian VVER reactors.
Thorium
Power’s future customers may include nuclear fuel fabricators and/or nuclear
power plants, and/or U.S. or foreign governments.
Operations
to date have been devoted primarily to filing for patents, developing strategic
relationships within the industry, securing political and financial support
from
the United States and Russian governments, continued development of the fuel
designs and administrative functions. Thorium Power, therefore, prepares its
financial statements as a Development Stage Company.
Material
Opportunities and Challenges
A
major
opportunity for Thorium Power is the possibility that its fuel designs may
be
used in many existing light water reactors in the future. Thorium Power is
developing nuclear fuel designs for use in Russian VVER-1000 light water
reactors. Management believes that these designs can later be used in Western
reactors. Light water reactors are the dominant reactor types in the world
and
fuels for such reactors constitute the majority of the commercial market for
nuclear fuel. Thorium Power’s focus is on three different types or variants of
thorium fuel designs. The first is a thorium fuel designed to dispose of
weapons-grade plutonium that is stockpiled in Russia. The second is designed
to
dispose of reactor-grade plutonium that has been extracted from spent fuel
from
commercial reactors and stockpiled in Russia, Western Europe, the U.S. and
Japan. The third is a fuel designed not to dispose of plutonium, but rather
to
provide reactor owner-operators with an economically alternative fuel that
will
not generate spent fuel containing weapons-usable plutonium. All three of these
fuel variants are also expected to have additional benefits, including reduced
volume and long-term radio-toxicity of spent fuel for the same amount of
electricity generated as compared with uranium fuels that are currently used
in
light water reactors.
Management
believes its greatest challenge is that nuclear power plant operators are
hesitant to be the first to use a new type of nuclear fuel. For this reason,
it
is important to Thorium Power that the United States and Russian governments
cooperate with each other and with Thorium Power in using Thorium Power’s fuel
design to dispose of weapons-grade plutonium in Russia. Management believes
that
use of this fuel can help the governments meet their policy goal of eliminating
this plutonium, so the plutonium can never be stolen and used by others to
make
nuclear weapons. If the United States and Russian governments cooperate and
this
fuel is used, then management believes that it will be less difficult for
Thorium Power to introduce its reactor-grade plutonium disposing fuel design
to
governments and companies that operate nuclear power plants. If, on the other
hand, Thorium Power’s weapons-grade plutonium disposing fuel is not used in
Russia, it will be more difficult to have the reactor-grade plutonium disposing
fuel used. If the reactor-grade plutonium disposing fuel is used, management
believes that it will be less difficult to interest reactor operators and
governments to use Thorium Power’s commercial fuel design. Management believes
that it will be less difficult because the three fuel variants are quite
similar, so demonstrating any one of them in a nuclear power plant could help
show that the other designs can also be used in commercial nuclear power
plants.
29
Thorium
Power is focusing on the fuel variant to dispose of weapons-grade plutonium
in
Russia because it can help the United States and Russian government meet their
national security goal of disposing of this plutonium. For this reason,
management believes that it will be less difficult to have this fuel used first,
before the other fuel variants are demonstrated.
Thorium
Power has been developing relations with the United States and Russian
governments for over ten years. Thorium Power, in cooperation with these
governments, has been demonstrating its fuel concepts in a research reactor
in
Russia for over three years. Thorium Power has helped cause independent analyses
of the technology to be performed, including a May 2005 report by the
International Atomic Energy Agency and a Spring 2005 report by Westinghouse
Electric Company, and these analyses are positive and management believes can
help lead to deployment of these nuclear fuels.
Thorium
Power also is working with Russian scientific institutes to have all three
of
the fuel variants demonstrated simultaneously in a Russian VVER-1000 rector
as
soon as three years from now if adequate support and funding levels are provided
by the United States government and the Russian government provides necessary
support. Management believes that it will be necessary to have a working
relationship with a major nuclear fuel fabricator and vendor to have its fuel
designs widely deployed in global markets.
Thorium
Power’s nuclear fuel designs have never been demonstrated in a full size
commercial reactor powering a city. The plans for demonstrating the fuels in
a
VVER-1000 reactor in Russia would provide that operating experience that is
important to reactor owners and regulatory authorities. If the project is
adequately funded by a public-private partnership, the fuels can be demonstrated
in the VVER-1000 reactor, which can help convince other light water reactor
operators around the world to accept thorium fuel designs.
Thorium
Power has been building relationships with companies and organizations in the
nuclear power industry for several years. These companies and organizations
can
work in a consortium with Thorium Power as government contractors to dispose
of
weapons-grade plutonium. If Thorium Power is unable to obtain contracts to
dispose of plutonium from weapons or spent fuel, or make arrangements with
companies in the nuclear power industry to seek these contracts, it will be
more
difficult to have the fuel designs deployed beyond the VVER-1000 market. The
companies that Thorium Power is discussing these matters with can have
opportunities to sell into the commercial nuclear power industry nuclear fuel
branded with their name. Thorium Power would need to enter into an agreement
with one or more of these companies. Without such an arrangement with a nuclear
fuel fabricator, it would be more difficult for Thorium Power’s fuels to be
sold. In addition to the reputations, guarantees, service, and other benefits
that these companies provide when selling fuel to nuclear power plant operators,
they also often have multi-year fuel supply contracts with the reactor
operators, so it can be almost impossible to penetrate some markets for nuclear
fuel without working with a nuclear fuel supplier that can support long term
contracts. If Thorium Power is successful in demonstrating the nuclear fuel
designs in Russia and in continuing to build relationships with nuclear fuel
fabricators, management believes it may lead to competition among these major
companies in the nuclear power industry to work with Thorium Power in producing
and selling the nuclear fuels to governments and commercial reactor
operators.
30
Results
of Operations - Fiscal Year Ended December 31, 2005 and
2004
Summary
The
following table summarizes the results of Thorium Power’s operations during the
fiscal year ended December 31, 2005 and 2004 and provides information regarding
the dollar and percentage increase or (decrease) from the 2005 fiscal year
to
the 2004 fiscal year.
|
Line
Item
|
12/31/05
|
|
12/31/04
|
|
$
Increase (Decrease)
|
|
%
Increase (Decrease)
|
||||||
|
Revenues
|
-
|
-
|
-
|
-
|
|||||||||
|
Operating
Expenses
|
$
|
760,558
|
$
|
974,779
|
(214,221
|
)
|
(21.2
|
)%
|
|||||
|
Other
Income
|
$
|
54
|
$
|
105
|
(51
|
)
|
(48.5
|
)%
|
|||||
|
Net
Loss
|
$
|
760,504
|
$
|
974,674
|
(214,170
|
)
|
(21.9
|
)%
|
|||||
|
Loss
per common share
|
$
|
0.23
|
$
|
0.30
|
(0.07
|
)
|
23.3
|
%
|
|||||
Thorium
Power's net loss for the fiscal year ended December 31, 2005 was $760,504 or
$0.23 per share compared to the previous year's net loss of $974,674 or $0.30
per share for a net loss decrease of $214,170.
This
decrease in loss per common share is primarily attributed to a significant
reduction in general and administrative expenses due to lower marketing and
depreciation expenses.
Cash
Flows - Fiscal Year Ended December 31, 2005 and 2004
Cash
provided by Operations
Net
cash
used by operations was $287,597 in the 2005 fiscal year compared to
cash used
of
$265,564 in the previous year.
The
change of $22,033 can be attributed to an increase in research and development
costs and salaries.
31
Financing
Activities
Thorium
Power received net cash from financing activities of $313,375 in its fiscal
year
ended December 31, 2005, compared to $268,950 in the previous year.
The
change of $44,425 can be attributed to an increase in loans advanced to Thorium
Power by related parties and proceeds from a long term note.
Results
of Operations - Three Months Ended March 31, 2006 and
2005
Summary
The
following table summarizes the results of Thorium Power’s operations during the
three month period ended March 31, 2006 and 2005 and provides information
regarding the dollar and percentage increase or (decrease) from the 2006 period
to the 2005 period.
|
Line
Item
|
3/31/06
|
3/31/05
|
$
Increase (Decrease)
|
%
Increase (Decrease)
|
|||||||||
|
Revenues
|
--
|
--
|
--
|
--
|
|||||||||
|
Operating
Expenses
|
$
|
330,973
|
$
|
113,272
|
217,701
|
192
|
%
|
||||||
|
Other
Expenses
|
$
|
866
|
--
|
866
|
--
|
||||||||
|
Net
Loss
|
$
|
331,839
|
$
|
113,272
|
218,567
|
193
|
%
|
||||||
|
Loss
per common share
|
$
|
(0.09
|
)
|
$
|
(0.03
|
)
|
0.06
|
200
|
%
|
||||
Thorium
Power's net loss for the three month period ended March 31, 2006 was $331,839
or
$(0.09) per share compared to the same period of the previous year net loss
of
$113,272 or $(0.03) per share for a net loss increase of $0.06. The largest
new
expense was related to professional fees incurred in preparation for Thorium
Power’s upcoming merger with Novastar.
Cash
Flows - Three Months Ended March 31, 2006 and 2005
Cash
provided by Operations
Cash
used
by operations was $839,606 during the three month period ended March 31, 2006
as
compared to cash used
of
$31,736 in the previous year.
The
change of $807,870 can be primarily attributed to a reduction or payment of
Thorium Power’s accrued liabilities.
Financing
Activities
Thorium
Power received cash from financing activities of $1,514,333 during the three
month period ended March 31, 2006, compared to $56,457 in the same period of
the
previous year.
This
increase is due to an increase in the proceeds from the issuance of Thorium
Power’s common stock of $1,532,075. This increase was offset by a decrease or
repayment of loans from related parties of $24,330.
32
Liquidity
and Capital Resources
At
March
31, 2006, Thorium Power's total assets were $911,732. Total liabilities as
of
March 31, 2006 totaled $456,900. Thorium Power had working capital of $233,791
at March 31, 2006.
Thorium
Power anticipates, prior to and following the Merger, that it will continue
to
have access to the cash that was raised by Novastar in its Private Placement
in
May, 2005. Thorium Power is in the process of creating a plan to develop and
deploy its technology. While Thorium Power presently expects that the proceeds
raised in the Private Placement transactions will be sufficient to meet its
general operating needs for the next 12 months, Thorium Power will need
additional capital to deploy its technology. At this stage of Thorium Power’s
development, it is difficult to estimate the total costs to fully develop and
deploy its technology
On
February 22, 2006, Thorium Power entered into a teaming agreement with numerous
institutions in the University of Texas System, the City of Andrews, Texas,
Midland Development Corporation and the Odessa Development Corporation pursuant
to which Thorium Power committed $1,250,000 for the purpose of developing a
conceptual design nuclear reactor research facility.
Off
Balance Sheet Arrangements
Thorium
Power does not have any off balance sheet arrangements that have or are
reasonably likely to have a current or future effect on Thorium Power’s
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity or capital expenditures or capital resources
that are material to an investor in Thorium Power’s securities.
Seasonality
Management
does not expect that Thorium Power’s business will be subject to any material
seasonal variations in operations.
Inflation
Management
does not expect that Thorium Power’s business, revenues and operating results
will be affected in any material way by inflation.
Critical
Accounting Policies
The
Securities and Exchange Commission issued Financial Reporting Release No. 60,
"Cautionary Advice Regarding Disclosure About Critical Accounting Policies"
suggesting that companies provide additional disclosure and commentary on their
most critical accounting policies. In Financial Reporting Release No. 60, the
Securities and Exchange Commission has defined the most critical accounting
policies as the ones that are most important to the portrayal of a company's
financial condition and operating results, and require management to make its
most difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. Based on this definition,
Thorium Power has identified the following significant policies as critical
to
the understanding of its financial statements.
33
| o |
Accounting
for expenses in connection with stock options and warrants by using
the
Black-Scholes option pricing
method;
|
| o |
Valuation
of intangible assets;
|
| o |
Valuation
of contingent liabilities
|
Management
relies on historical experience, legal advice and on assumptions believed to
be
reasonable under the circumstances in making its judgment and estimates. Actual
results could differ materially from those estimates.
Our
History
Novastar
Resources Ltd. was incorporated under the laws of the state of Nevada on
February 2, 1999, under the name of Aquistar Ventures (USA) Inc. Novastar was
organized for the purpose of exploring for and, if possible, developing mineral
properties primarily in the province of Ontario, Canada, through our wholly
owned subsidiary, Aquistar Ventures Inc. ("Aquistar Canada"). Aquistar Canada
was incorporated under the laws of the province of British Columbia, Canada,
on
April 13, 1995 and is now inactive.
On
February 2, 2001, Novastar acquired 100% of the issued and outstanding capital
stock of Custom Branded Networks, Inc. or CBN, a Delaware corporation, in
exchange for 25,000,000 common shares of Novastar. We then changed our name
to
Custom Branded Networks, Inc. on or about May 29, 2001. The business of CBN,
the
Delaware corporation which was Novastar’s wholly owned subsidiary, was the
provision of turnkey private label Internet solutions to businesses and private
organizations.
In
May of
2003 Novastar began actively looking for other business opportunities that
would
provide superior economic opportunity, and in January 2005 we retained
consultants to assist in the identification of opportunities in the nuclear
sector, particularly with respect to thorium fuel and technology. Effective
May
10, 2005, we changed our name to Novastar Resources Ltd. During the period
from
September through December 2005, Novastar entered into three agreements to
acquire mining interests in two properties in Alabama and one property in
Queensland, Australia.
As
soon
as practicable after the S-4 Registration Statement is declared effective as
well as the satisfaction of the relevant closing conditions, we will acquire
Thorium Power and our Nuclear Fuel Design Business when our wholly-owned
subsidiary that was formed to act as an acquisition vehicle, TP Acquisition
Corp., and Thorium Power, Inc. completes a merger whereby TP Acquisition merges
with and into Thorium Power, with Thorium Power, the surviving corporation,
becoming a wholly owned subsidiary of Novastar. As indicated in the Introductory
Statement, the information set forth in this registration statement presents
all
information as if the Merger was completed.
34
Our
Business Generally
We
have
two different lines of business. Our primary line of business is research and
development of proprietary nuclear fuel technology for use in nuclear power
plants. Our second line of business is mineral exploration. We refer to our
primary line of business as our Nuclear Fuel Design Business and we refer to
our
secondary line of business as our Mineral Exploration Business.
(i) Nuclear
Fuel Design Business
Novastar
patented proprietary nuclear fuel designs for use in certain existing commercial
nuclear power plants. Its designs are for fuels that will serve
| · |
the
market for U.S. and Russian weapons grade plutonium
disposition;
|
| · |
the
market for disposition of plutonium in spent nuclear fuel;
and
|
| · |
the
market for commercial nuclear fuel.
|
The
above
designs require additional developmental work to be used in reactors, and
Thorium Power plans to fully develop and commercialize these fuel designs with
the cooperation of U.S. and foreign governments and other nuclear
businesses.
In
1994
Novastar, through our subsidiary, Thorium Power, began working with the Russian
Research Centre Kurchatov on the development and testing of thorium fuel
designs. At this time, Novastar also began working with Brookhaven National
Laboratory on the development of thorium fuel designs. In 1995, 1996 and 1999,
the U.S. government provided grants for work on the thorium fuel project at
the
Kurchatov Institute. Each of these three grants were matching grants where
the
US government and Novastar each provided funding. As a result of these grants,
contracts between the U.S. government and the Kurchatov Institute and
arrangements directly between Novastar and such institute, Novastar has obtained
access to several hundred nuclear scientists and engineers at the Kurchatov
Institute and other nuclear research institutes and fuel fabrication facilities
in Russia that are developing and testing the fuel designs.
Once
the
fuel designs are further developed and tested, we intend to license our patent
and other intellectual property rights to fuel fabricators, nuclear generators,
and governments for use in nuclear reactors, or sell the technology to major
nuclear companies or government contractors. Novastar plans to remain a
technology company. We have no plans to own or operate nuclear facilities or
otherwise handle nuclear materials.
Novastar’s
thorium/weapons-grade plutonium and thorium/reactor-grade plutonium disposing
fuels are designed for effective and safe disposition of weapons-and
reactor-grade plutonium in existing nuclear power plants at a lower cost than
other approaches.
Novastar’s
thorium/uranium nuclear fuel is designed to replace uranium fuels that are
currently used in commercial nuclear power plants worldwide. Management believes
that thorium fuel could have significant non-proliferation, reactor safety,
and
environmental benefits compared to conventional uranium fuel. In addition to
thorium-based nuclear fuel designs for existing light water reactors, Novastar
is exploring the development of advanced nuclear fuel designs for use in the
next generation reactors, such as a high-temperature helium-cooled reactor
and
small light water reactors, which are primarily intended to power commercial
facilities and provide electricity for small towns located in remote areas
across the globe.
35
The
mission of the Nuclear Fuel Design Business is to develop the fastest, cheapest,
and most effective means of disposing of weapons-grade and reactor-grade
plutonium by using the plutonium combined with thorium as reactor fuel and
to be
the world’s leading developer of proliferation resistant nuclear fuel designs
and to design and patent these designs and coordinate their development and
commercialization with large commercial entities and governments worldwide.
These designs will allow nuclear power plants to produce electricity without
producing weapons-usable plutonium.
Before
World War II, a then young professor Dr. Edward Teller taught a student named
Alvin Radkowsky. Dr. Teller later became one of the greatest nuclear weapons
designers, at the Manhattan Project, and then a lead developer of the hydrogen
bomb. Dr. Radkowsky, who never worked on bombs, was the leader of the teams
that
developed the nuclear reactors that propel submarines and other ships, as well
as the first commercial nuclear power plant.
In
1948,
H.G. Rickover, who would later be known as the legendary Admiral Rickover,
proposed the creation of a U.S. nuclear-powered naval fleet. Admiral Rickover
believed that the advantages of using nuclear power to propel naval vessels
would include the ability of submarines to stay under water for longer periods
of time making detection more difficult. Submarines and surface ships, including
aircraft carriers, powered by nuclear generators, could also enter combat areas
without any need to refuel, obviating the need for refueling tankers to be
sent
into war zones. Admiral Rickover’s dream had many disbelievers. The idea, which
at the time seemed grandiose, would require the design of a nuclear reactor
that
could fit into a relatively small space within a naval vessel.
By
this
time, Dr. Teller was one of the most legendary names in physics. When asked
by
Dr. Teller for a recommendation for Admiral Rickover’s project, Teller referred
Dr. Radkowsky, his former student. In 1948 Admiral Rickover hired Dr. Radkowsky
as the first Chief Scientist of the Naval Reactors programs. Dr. Radkowsky
held
that position from the program’s founding in 1948 until he retired from the
program in 1972.
In
July
1951, the United States Congress authorized the construction of the world’s
first nuclear powered submarine. Two and a half years later, on January 21,
1954, First Lady Mamie Eisenhower broke the traditional bottle of champagne
across the bow of the ship, that had been named the Nautilus, as it slid into
the Thames River in Groton, Connecticut, as the world’s first nuclear powered
ship. Dr. Radkowsky was the Chief Scientist for the Naval Reactors project
that
designed the nuclear power plant of that ship, and all other nuclear powered
naval vessels produced during his tenure. The Nautilus shattered all submerged
speed and distance records for naval vessels.
In
1953,
President Eisenhower asked Admiral Rickover to work on a project that later
became known as Atoms for Peace. The project involved the design of the first
commercial nuclear power plant on land that could generate electricity. Dr.
Radkowsky was asked to lead the project. The reactor was built just outside
Pittsburgh, in Shippingport, Pennsylvania, and it began operating on December
2,
1957. It was in operation until October 1982. The groundbreaking for the plant
was held in May 1954, with President Eisenhower in attendance, and on May 26,
1958, President Eisenhower opened the plant as the cornerstone of his Atoms
for
Peace program and marked the beginning of the commercial nuclear power industry.
The Shippingport reactor was a light water breeder reactor, and in many ways
would be the prototype of all commercial nuclear power plants to follow. Dr.
Radkowsky’s name was on the key patents as the inventor of the reactor,
including the invention of key technologies, without which commercial nuclear
power or nuclear propulsion of ships would not be practical. Dr. Radkowsky
also
designed a thorium-based fuel, in a novel seed-and-blanket configuration, as
the
original fuel for this first nuclear power plant.
36
In
1983,
Dr. Edward Teller contacted Alvin Radkowsky to seek Dr. Radkowsky’s assistance
in developing a nuclear fuel that could work in the world’s existing commercial
nuclear power plants, but that would not produce nuclear weapons-usable
plutonium. Dr. Teller was concerned that plutonium taken from spent fuels could
be used to create nuclear weapons. Thereafter, Dr. Radkowsky immediately began
working on nuclear fuel designs using thorium.
In
1991,
Dr. Radkowsky contacted Seth Grae, our Chief Executive Officer, and asked Mr.
Grae to assist him in the development of a company that could create and exploit
these fuel designs. At the time, Mr. Grae was a business attorney and Dr.
Radkowsky had heard of Mr. Grae’s work with emerging companies and asked Mr.
Grae to assist in the establishment of a new company that would become Novastar.
In the 1980s, while in law school, Mr. Grae had represented Soviet refuseniks,
who had been scientists at nuclear institutes in Russia, on a pro bono basis.
Mr. Grae was interested in high technology development and international
cooperation in technology development. Mr. Grae’s father, Joel Grae, met Dr.
Radkowsky soon thereafter in New York, and Joel Grae and Dr. Radkowsky founded
Radkowsky Thorium Power on January 8, 1992 to develop Dr. Radkowsky’s
technology.
In
1993,
Thorium Power, the predecessor company of Novastar, became one of the first
Western companies to have discussions with the Russian Kurchatov Institute,
where the Soviet Union’s first atomic bomb had been developed, and much of its
nuclear reactor technology had been developed. In 1995, Thorium Power’s project
at the Kurchatov Institute became one of the first recipients of a grant from
the US Department of Energy for nuclear work in Russia. Since its founding
in
1992, Novastar has been a privately held company developing the nuclear fuel
designs originally invented by Dr. Alvin Radkowsky.
Presently,
nuclear power provides 7% of the world’s energy, including 17% of the world’s
electricity. According to the International Atomic Energy Agency, there are
443
nuclear power plants in operation today, mostly light water reactors, with
the
most dominant types being pressurized water reactors (PWRs), boiling water
reactors (BWRs) and VVER reactors (a Russian equivalent of PWRs).
The
commercial nuclear power industry customers are nuclear power generators, who
convert nuclear energy into electricity. The industry serving these customers
includes both large vertically-integrated nuclear companies that provide a
complete array of reactor services and niche providers. The services include
reactor design, construction, servicing, and decommissioning; front-end nuclear
fuel services (nuclear fuel materials procurement and processing; nuclear fuel
design (Novastar’s market of interest) and fuel fabrication); back-end nuclear
fuel services (spent fuel management and reprocessing), transportation, and
various other services.
37
Today
the
vast majority of commercial nuclear power plants around the world use uranium
oxide fuel. This uranium oxide fuel is comprised of uranium enriched up to
5% by
uranium-235, with the remaining 95% or more being uranium-238. During
irradiation inside a reactor core, some of the uranium-238 isotopes capture
a
neutron and become plutonium-239, a long-lived fissionable element that can
be
used to make nuclear weapons. Each year, an average 1,000-megawatt PWR produces
over 200 kilograms of reactor-grade plutonium in its spent fuel. The
plutonium-bearing spent fuel may be buried in a repository such as the US
Department of Energy facility at Yucca Mt., Nevada, recycled so the plutonium
is
“burned” as nuclear fuel, or used to make nuclear weapons.
All
three
options raise environment, safety, or non-proliferation issues. One recycling
technology, used by a small number of nuclear power plants, is mixed oxide
(MOX)
fuel, a mixture of uranium oxide and recovered plutonium oxide. MOX fuel has
never been used in Russian VVER reactors and, due to its higher cost, MOX fuel
has never caught on among most nuclear power generators, who prefer the ‘once
through” and burial cycle. Because it contains uranium, MOX fuel generates a
significant amount of weapons-usable plutonium.
Competition
Novastar’s
market of interest is the supply of thorium-based nuclear fuel designs. The
world's nuclear fuel fabrication market is controlled by a handful of large
nuclear fuel fabricators who develop proprietary uranium-based fuel designs.
The
key world nuclear fuel market players are, in order of magnitude of fuel
fabrication: (1) Areva of France, owned by the French government, (2)
Westinghouse, owned by the British government, which has recently agreed to
sell
Westinghouse to Toshiba, (3) Global Nuclear Fuel, a joint venture of three
companies, General Electric, Hitachi and Toshiba, and (4) Russian fuel companies
supplying fuel primarily to Russian-type reactors.
Each
of
these companies has its own fuel design capabilities and also has the ability
to
fabricate nuclear fuels. Novastar, on the other hand, only intends to provide
fuel design services. Novastar does not intend to fabricate fuels. Accordingly,
these companies will be Novastar’s competitors in that they may design
alternatives to its fuel designs, however, they will also be potential licensees
of Novastar’s fuel designs and may fabricate nuclear fuels using Novastar’s fuel
design technology.
Novastar
faces different competition for each of its three markets for its proprietary
nuclear fuel designs:
Thorium/weapons-grade
plutonium disposing fuel
This
fuel
design (the Radkowsky Thorium Plutonium Incinerator, or “RTPI”) was developed to
meet the needs of the U.S.-Russia plutonium disposition program. It is the
policy of those countries to eliminate their extensive stockpiles of surplus
weapons grade plutonium. In 2000, the U.S. and Russia signed a bi-lateral
agreement, committing each country to dispose of 34 metric tons of surplus
weapons-grade plutonium. Originally, a mixed oxide (MOX) fuel technology,
promoted by Areva, was selected by the U.S. Department of Energy (DOE) for
both
the United States and Russia to accomplish this mission. However, over the
past several years, the implementation of the 2000 plutonium disposition
agreement has been delayed due to political, financial, and technical issues
experienced by the MOX program. During the fiscal years from 1999-2005,
Congress appropriated a total of over $3 billion for the MOX program. Despite
such significant funding levels, the MOX program has experienced substantial
schedule slippage and has made little progress since 1999 toward accomplishing
the goal of plutonium disposition. In the consideration of FY07 appropriations,
several members of Congress and Committees have publicly expressed doubts the
MOX program should continue.
38
Management
believes that Novastar’s thorium/weapons-grade plutonium disposing fuel could
offer a faster, cheaper, and more effective means to dispose of excess
quantities of weapons-grade plutonium by “burning” it using the RTPI fuel design
in existing VVER nuclear power plants in Russia (a similar design may be usable
in the US and other Western countries). Novastar plans to educate government
officials and key decision-makers to convince them to use this technology for
the plutonium disposition mission.
Thorium/reactor-grade
plutonium disposing fuel
This
fuel
technology is designed to provide an effective means to dispose of separated
reactor-grade plutonium. As of 2004, there were 274 metric tons of separated
reactor-grade plutonium (equivalent of 15,000-20,000 nuclear weapons) stored
at
various locations around the world. According to No
Future Plutonium?
by Spiez
Laboratory, The Swiss NBC Defense Establishment, dated November 2002, another
1,400 metric tons of this potentially weapons useable material are embedded
in
spent fuel and stored at hundreds of commercial reactor sites around the
globe.
Management
believes that Novastar’s thorium/reactor-grade plutonium disposing fuel
technology may offer a more economically viable way to dispose of separated
reactor-grade plutonium than the mixed oxide (MOX) fuel or burial alternatives.
MOX fuel costs more than conventional uranium fuel, even if separated plutonium
is treated as sunk cost and is not included in the fuel cost. Novastar’s fuel
design, which management expects to be cost competitive with conventional
uranium fuel designs, could offer a viable alternative to such reactor
operators.
The
burial alternative faces substantial opposition from the communities chosen
as
sites, such as Yucca Mt. Nevada, on grounds of environments and safety risks.
Also, the long life of plutonium means that the buried spent fuel will be a
proliferation risk for centuries. The United States and many countries have
been
committed to the burial alternative for a number of years. In early 2006, in
announcing its Global Nuclear Energy Partnership (GNEP), the United States
announced that it would work with other countries to develop
proliferation-resistant environmentally compatible technologies and processes
to
promote recycling and reduce the need for burial in long term
repositories.
Management
believes that benefits offered by thorium/reactor-grade plutonium fuel designs
include enhanced proliferation resistance, improved reactor safety, and
significantly reduced volume, weight and long-term radio-toxicity of spent
fuel.
Novastar’s
marketing strategy with respect to thorium/reactor-grade plutonium disposing
fuel is to educate reactor operators, who presently own stockpiles of separated
reactor-grade plutonium and are forced to pay ongoing plutonium storage fees,
about the benefits offered by this fuel technology to convince them to recycle
these plutonium stockpiles in their reactors using thorium/reactor-grade
plutonium disposing fuel. This strategy is attuned with GNEP and the strategies
of countries that wish to recycle but are not committed to MOX
technology.
39
Thorium/uranium
fuel
Management
believes that Novastar’s thorium/uranium nuclear fuel will offer significant
advantages over uranium fuel, including: (1) enhanced proliferation resistance
of spent fuel, (2) improved reactor safety, (3) significantly reduced volume,
weight and long-term radio-toxicity of spent fuel, and (4) cost savings in
the
back-end operations (spent fuel management) of the nuclear fuel cycle. Novastar
expects the front-end costs (cost of fresh thorium/uranium fuel) to be cost
competitive with conventional uranium fuel. At the same time, the back-end
(waste handling) costs are expected to be less than that for conventional
uranium fuel due to significantly reduced volume and weight of spent
thorium/uranium fuel.
The
primary barrier to industry adoption of Novastar’s fuel designs is that the
entire industry infrastructure is based on uranium fuel with enrichments of
3-5%. Novastar’s designs require plutonium or more highly enriched uranium (up
to 20%). Although the designs can be accommodated by most existing reactors,
there are no existing fuel fabrication facilities licensed and capable of
fabricating commercial lots of fuel containing the more highly enriched uranium
and plutonium. There are also transportation and logistics issues with the
fuel
that must be addressed.
The
primary marketing strategy Novastar intends to pursue with respect to its
thorium/uranium fuel product is to first demonstrate the fuel design under
the
plutonium disposition program. It will then form an alliance or alliances with
existing nuclear fuel fabricators, to whom Novastar would license its
intellectual property rights to Novastar's thorium/uranium nuclear fuel. An
alternative marketing strategy Novastar may pursue is to form an international
consortium that may involve government and/or private sectors to build “green
field” nuclear fuel fabrication facilities. In that case, Novastar would license
its intellectual property rights to the thorium/uranium fuel to the consortium
that would own and/or operate the new nuclear fuel fabrication
facilities.
Advanced
Reactor Fuel
On
February 22, 2006, Novastar entered into a teaming agreement with The University
of Texas System, the University of Texas of the Permian Basin (UTPB) in Odessa,
Texas and General Atomics (GA), for the pre-conceptual design phase (PCD) to
build a next generation high-temperature reactor in Andrews County, Texas.
Under
the
terms of the teaming agreement, Novastar will be responsible for contributing
to
the specific thorium fuel designs that will be addressed in the PCD. In
addition, to the extent that the PCD may address issues particular to the use
of
thorium fuel experiments in conjunction with hydrogen generation experiments,
Novastar will provide its expertise to General Atomics. Novastar will contribute
$1.25 million toward the PCD phase of the project.
Sources
and Availability of Raw Materials
Novastar
is a fuel designer that intends to license its technology to fuel fabricators.
Accordingly, Novastar does not plan to utilize any raw materials in the conduct
of its operations. However, the fuel fabricators who potentially will license
Novastar’s fuel designs in the future will need thorium and uranium to fabricate
thorium-based fuels.
All
of
Novastar 's nuclear fuel designs require both thorium and uranium in the oxide
form which are the main raw materials for the blanket rods. The seed rods can
contain either enriched uranium or plutonium. In addition, both the blanket
and
the seed rods are designed to be made of zirconium metal as will other fuels
assembly components.
40
The
current demand for thorium is very low. Thorium is sometimes used in government
flares, camping lantern wicks and in other products in small quantities. If
thorium based fuels become commercially accepted in the nuclear power industry,
there would be a significant increase in the demand for thorium. Thorium is
over
three times more naturally abundant than uranium and is found in large
quantities in monazite sands in many countries, including, Australia, India,
the
United States of America, and China. Several companies that process monazite
sands to extract rare earth minerals for use in other markets have stockpiled
thorium as a byproduct with no significant current market. Currently, there
is
no large supplier of thorium. Management believes that Novastar is the first
company that has acquired rights to properties containing thorium in
anticipation of providing large quantities of thorium for use in nuclear fuels
or otherwise.
Uranium
and zirconium are available to the fuel fabricators from various suppliers
at
market driven prices. Weapons-grade plutonium, which would be used to fabricate
Thorium Power’s weapons grade plutonium disposing fuel, is generally
unavailable. However, if government support is obtained, weapons-grade plutonium
would be obtained from governments that have developed nuclear weapons
capabilities. Reactor-grade plutonium is available in Europe, Russia and Japan
from reprocessed spent fuel. The transfer and use of reactor-grade plutonium
is
highly regulated.
Dependence
Upon Government Funding
Successful
development and deployment of Novastar's thorium/weapons-grade plutonium
disposing fuel technology is largely dependent upon government funding and
support. This fuel design is being developed for application in the U.S.-Russia
plutonium disposition mission that is a government program run by the National
Nuclear Security Administration (NNSA) of the U.S. Department of Energy (DOE)
and its Russian government counterparts pursuant to the plutonium disposition
agreement the United States and Russia entered into in 2000. The total cost
to
carry out the plutonium disposition mission will be in the billions of dollars.
To date, the plutonium disposition program in the United States and Russia
has
been funded primarily by the U.S. government. The G-8 countries have made
funding commitments for approximately $800 million toward the Russian part
of
the plutonium disposition program but have not yet provided the
funds.
In
the
fiscal year 2004 federal budget cycle, the U.S. Congress appropriated $4 million
for testing and evaluation of Novastar 's thorium/weapons-grade plutonium
disposing fuel technology for the plutonium disposition mission in Russia.
Additional
funding support is required from the U.S. and other governments to complete
the
development, testing, demonstration and deployment of Novastar’s
thorium/weapons-grade plutonium disposing fuel.
While
the
other two nuclear fuel designs (thorium/reactor-grade plutonium disposing fuel
and thorium/uranium fuel) that are being developed by Novastar are intended
for
commercial applications and are not as dependent on government funding as the
thorium/weapons-grade plutonium disposing fuel, they too could benefit from
government support for the thorium/weapons-grade plutonium disposing fuel.
In
particular, deployment of the thorium/weapons-grade plutonium disposing fuel
into commercial 1,000-megawatt light water reactors through a government program
would provide operating experience. Due to many similarities in the design
of
the three Novastar nuclear fuel designs, this operating experience could be
invaluable to other reactor operators considering switching to one of Novastar
's other two fuels. There are also some potential synergies that could be
achieved in the development and testing phase that may be able to reduce the
overall research and development cost and shorten the product development cycle
for Novastar's three nuclear fuel designs.
41
Intellectual
Property
Novastar's
nuclear fuel technologies are protected by several U.S. and international
patents. The company's current patent portfolio is comprised of the following
patents:
U.S.
patents:
| ● |
Patent
No. 6,026,136, a seed-blanket unit fuel assembly for a nuclear
reactor
|
| ● |
Patent
No. 5,949,837, a nuclear reactor having a core including a plurality
of
seed-blanket units
|
| ● |
Patent
No. 5,864,593, a method for operating a nuclear reactor core comprised
of
at least first and second groups of seed-blanket
units
|
| ● |
Patent
No. 5,737,375, a nuclear reactor having a core including a plurality
of
seed-blanket units
|
The
U.S.
patents expire August 16, 2014.
International
patents:
| ● |
Russia
- Patent No. 2,176,826
|
| ● |
Russia
- Patent No. 2,222,837
|
| ● |
South
Korea - Patent No. 301,339
|
| ● |
South
Korea - Patent No. 336,214
|
| ● |
China
- Patent No. ZL 96196267.4
|
The
international patents expire August 16, 2014.
Presently,
Novastar is in the process of preparing new patent applications that will cover
intellectual property that has been developed since the original patent
applications were filed.
Over
the
past two years, most of the funding for research and development activities
came
from the U.S. government. Since mid-2004, the U.S. Department of Energy has
paid
approximately $2.5 million to Kurchatov Institute and other Russian institutes
for development and testing work they have performed on Novastar’s fuel designs.
Novastar has paid approximately $30,000 of its own funds to these Russian
contractors within the same time period.
42
Regulation
No
safety
regulatory approval is required to design thorium-based nuclear fuels, although
certain technology transfers may be subject to national and international export
controls. However, the testing, fabrication and use of nuclear fuels by
Novastar’s future partners and licensees is heavily regulated. The Kurchatov
Institute and other locations where Novastar’s fuel designs may be initially
tested require governmental approvals from the host country’s nuclear regulatory
authority to test fuel in research reactors and other nuclear testing
facilities. The Kurchatov Institute has obtained such approvals from the Russian
nuclear regulatory authorities for the ongoing tests of Novastar’s fuel designs
that are taking place at Russian facilities. Nuclear fuel fabricators, who
will
potentially fabricate fuel using Novastar’s technology under licenses from
Novastar, are similarly regulated. Nuclear power plants that may utilize the
fuel produced by these fuel fabricators require specific licenses relating
to
possession and use of nuclear materials as well as numerous other governmental
approvals for the ownership and operation of nuclear power plants.
(ii) Mineral
Exploration Business
As
of
fiscal year-end June 30, 2005, Novastar had no mineral properties, but
subsequently acquired mineral leases and claims located in Alabama, USA and
North Queensland, Australia, respectively. These are exploration stage mineral
properties prospective for thorium, platinum group metals (platinum group
metals) and other rare earth minerals (REM).
Novastar's
objective is to become a global supplier of thorium to the nuclear energy
industry.
The
phosphate mineral monazite, which exists as a sand, contains concentrations
of
thorium oxide as well as other REM. All commercially viable thorium metal is
extracted from monazite.
Utilizing
thorium based nuclear fuels has several important societal benefits, such as
safety benefits, environmental benefits, and non-proliferation benefits. Thorium
is more abundant, more efficient and safer to use as a reactor fuel than
uranium. Also important, thorium fueled reactors leave behind very little
weapons grade plutonium.
To
this
end, Novastar has acquired, and may acquire, both physical properties and rights
to properties that contain monazite deposits. Properties of interest to Novastar
contain both monazite stockpiles and in ground concentrations of
monazite.
Government
Regulation
Mining
operations and exploration activities are subject to various national, state,
provincial and local laws and regulations in the United States, Canada and
Australia, as well as other jurisdictions, which govern prospecting,
development, mining, production, exports, taxes, labor standards, occupational
health, waste disposal, protection of the environment, mine safety, hazardous
substances and other matters. Directly, or through a service contractor,
Novastar has pending or will make applications for those licenses, permits
and
other authorizations required to conduct its exploration activities on our
leases and claims located in Alabama, USA and North Queensland, Australia,
respectively.
43
Such
approval may involve many levels of government (i.e. Federal, State, Provincial,
County and/or City approval), and Novastar cannot predict whether all such
approvals will be successfully obtained.
Novastar’s
exploration projects are subject to various regulations governing protection
of
the environment, both in North America and in Australia. These laws are
continually changing and, as a general matter, are becoming more restrictive.
Management intends to conduct business in a way that safeguards public health
and the environment.
We
believe that we are and will continue to be in compliance in all material
respects with applicable statutes and regulations.
Changes
to laws and regulations in the jurisdictions where Novastar owns property or
may
operate in the future could require additional capital expenditures and
increased operating costs. Novastar is unable to predict what additional
legislation or regulatory requirements, if any, might be proposed or enacted,
and how such laws could impact the economics of our projects.
Management
expects that it will not incur material capital expenditures for environmental
control facilities until it determines that the market for its minerals will
support these and all costs of mining.
Competition
Novastar
competes with other mining companies in connection with the acquisition of
prospective properties and mineral rights. There is competition for the limited
number of opportunities, some of which is with other companies having
substantially greater financial resources than Novastar. As a result, Novastar
may have difficulty acquiring attractive projects at reasonable
prices.
Novastar
believes no single company has sufficient market power to affect the price
or
supply of thorium, rare earth minerals, platinum group metals or other minerals
in the world market.
Employees
Currently
we have six employees, five of whom are full-time employees.
We
also
use consultants with specific skills to assist with various aspects of its
project evaluation, due diligence and business development.
Mineral
Property Descriptions and Mining Contracts
On
September 14, 2005, Novastar entered into an Assignment of Specific Mineral
Rights agreement (the “AGH Assignment Agreement”) with Charles Merchant,
Novastar’s former Chief Executive Officer, who was conducting business under the
name American Graphite Holdings (“AGH”), an Alabama sole proprietorship, under
which Novastar was assigned all of his mineral rights located on certain
properties located in Clay County, Alabama and
commonly referred to as
the
Ashland Graphite Properties. In consideration of the assigned rights, Novastar
paid to AGH $100,000 in cash and issued 1,000,000 Novastar restricted shares
to
AGH, at a deemed issued price of $0.001 per share. In addition, AGH is to
receive a $15.00 per ton net royalty of Thorium/monazite removed from the leased
properties. In March of 2006, as contemplated by the Merger Agreement, the
parties entered into Amendment No. 1 to the AGH Assignment Agreement, whereby
the parties agreed that the sole remedy available to AGH for breach of the
AGH
Assignment Agreement by Novastar shall be the termination of the AGH Assignment
Agreement, and that no further relief or recourse, whether in law, in equity
or
otherwise, will be available to AGH.
44
On
September 30, 2005 Novastar entered into a Mining Acquisition Agreement (the
“Acquisition Agreement”) with Walter Doyle whereby Novastar agreed to acquire an
undivided 100% interest in and to any deposits of thorium, monazite and other
rare earth minerals on certain mining properties in North Queensland, Australia.
The consideration paid by Novastar to Mr. Doyle consisted of 5,000,000
restricted shares of common stock of Novastar. In February, 2006, Novastar
purchased all such shares from Mr. Doyle for $400,000 and such shares were
cancelled. Under the Acquisition Agreement, Novastar is to operate the property
subject to the agreement, and is granted the right to prospect, explore, develop
and engage in other mining work on and under the property as it deems necessary
and desirable, including bringing and erecting buildings, plants, machinery
and
equipment. Novastar is further permitted to remove all metals and minerals
derived from its operations as necessary for testing. Pursuant to the terms
of
the Acquisition Agreement, Mr. Doyle is to retain 2.5% of the gross proceeds
received by Novastar in any year from the sale of thorium, monazite or rare
earth minerals of commercial economic value mined from the property, and any
concentrates or other materials or products derived therefrom, less (i) the
cost
of transportation to a smelter or other place of treatment and (ii) any smelter
or other treatment charges. In addition, Novastar is to incur its proportionate
share of the following amounts spent on or with respect to exploration
activities, to total not more than $695,000 as follows: (i) expenditures of
$125,000 by December 31, 2006; (ii) expenditures of an additional $150,000
by
December 31, 2007; (iii) expenditures of an additional $140,000 by December
31,
2008; (iv) expenditures of an additional $140,000 by December 31, 2009 and
(v)
expenditures of an additional $140,000 by December 31, 2010. In March of 2006,
as contemplated by the Merger Agreement, the parties entered into Amendment
No.
1 to the Acquisition Agreement, whereby the parties agreed that the sole remedy
available to Mr. Doyle for breach of the Acquisition Agreement by Novastar
shall
be the termination of the Acquisition Agreement, and that no further relief
or
recourse, whether in law, in equity or otherwise, will be available to Mr.
Doyle.
On
December 31, 2005 Novastar entered into an Assignment of Mineral Lease agreement
with CM Properties, a sole proprietorship of Charles H. Merchant (the “CMP
Assignment Agreement”), under which Novastar was assigned mineral rights located
on certain properties located in Cleburne and Clay Counties, Alabama. Under
the
CMP Assignment Agreement, Novastar acquired a 51% interest in the leased claims
on the properties in return for the issuance of 2,000,000 restricted shares
of
Novastar common stock to Mr. Merchant. In addition, Novastar is required to
incur $1,500,000 in expenditures on exploration activities. For each additional
$100,000 spent on exploration activities in excess of the initial $1,500,000
expenditure, Novastar is to receive an additional 4% interest in the leased
claims on the properties, up to a maximum of $1,000,000 for an additional 40%
interest. If Novastar acquires a 91% interest in the leased claims on the
properties, CM Properties shall retain a 9% interest in the leased claims upon
such acquisition and shall receive $17.50 per ounce of pure Platinum Group
Metal
(“platinum group metals”) produced. For each 2,500 ounces of platinum group
metals produced, CM Properties shall receive an additional 1,000,000 restricted
shares, up to a maximum of 8,000,000 shares, for a period of two years from
the
acquisition of the 91% interest being obtained. In March of 2006, as
contemplated by the Merger Agreement, the parties entered into Amendment No.
1
to the CMP Assignment Agreement, whereby the parties agreed that the sole remedy
available to CM Properties for breach of the CMP Assignment Agreement by
Novastar shall be the termination of the CMP Assignment Agreement, and that
no
further relief or recourse, whether in law, in equity or otherwise, will be
available to CM Properties.
45
Core
drilling samples have been taken at the two Alabama properties, although they
have not been assayed. Novastar has not taken any core samples from the
properties located in Australia. No further mineral property descriptions are
available for public dissemination at this time.
Other
Properties Descriptions
Our
subsidiary, Thorium Power, is obligated to pay $3,234 per month for office
rent
and approximately another $700-1000 per month for utilities and other fees
for the rented office space located at 8300 Greensboro Drive, Suite 800,
McLean, Virginia 22102. The total size of the leased space is 280 square
feet, and is used by Thorium Power's executives for administrative
purposes. The term of the lease expires on December 31, 2006.
Additionally,
in 2004, Thorium Power subleased its old office space located at 1901
Pennsylvania Ave, NW, Suite 202, Washington, DC 20006. The total size of
the sub-leased space is 2,093 square feet. Pursuant to the sublease
agreement, which expires on December 31, 2006 (the expiration date of the
underlying lease agreement), the sublessee pays the entire fixed rent
amount for the space and Thorium Power is obligated to pay a portion
of the total monthly rent payment equal to the prorated portion of the operating
expenses and real estate taxes for the building. Thorium Power estimates the
total remaining balance owed by Thorium Power under this sublease agreement
through December 31, 2006 is about $3,300-4,000 (as of June 14,
2006).
Novastar is obligated to pay $5,000 per month for office rent and approximately
another $1,000 per month for other fees for the rented office space located
at
8300 Greensboro Drive, Suite 800, McLean, Virginia 22102. The space is used
by
Novastar's executives for administrative purposes. The term of the lease
expires
for one office on April 30, 2007 and for the other offices in the summer
of
2007.
PROMOTERS
AND CONTROL PERSONS.
Directors
and Officers
|
NAME
|
AGE
|
POSITION
|
|
Seth
Grae
|
43
|
President,
Chief Executive Officer and Director
|
|
Thomas
Graham, Jr.
|
72
|
Interim
Secretary and Director
|
|
Cornelius
J. Milmoe
|
59
|
Chief
Operating Officer and Director
|
|
Andrey
Mushakov
|
29
|
Executive
Vice President - International Nuclear Operations
|
|
Larry
Goldman
|
49
|
Treasurer
and Acting Chief Financial Officer
|
46
SETH
GRAE.
Mr.
Grae, age 43, was named the Chief Executive Officer and President of Novastar
on
March 17, 2006, and effective April 2, 2006, became a director of Novastar.
Mr.
Grae was the President, the Chief Executive Officer and a director of Thorium
Power prior to the consummation of the Merger from April 8, 1997 until his
present appointment. Mr. Grae has
played an active role in all business activities of Thorium Power prior to
the
consummation of the Merger since its inception in 1992. Mr. Grae led the efforts
that resulted in Thorium Power’s, prior to the consummation of the Merger,
project at the Kurchatov Institute becoming one of the first grant recipients
from the United States Department of Energy (“DOE”) for nuclear
non-proliferation-related work in Russia. He is a member of the board of
directors of the Bulletin of the Atomic Scientists and has served as co-chair
of
the American Bar Association’s Committee on Arms Control and Disarmament. As a
former member of the board of directors of the Lawyers Alliance for World
Security, Mr. Grae helped advise on the drafting of nuclear export control
regulations in China and Belarus, and he participated in consultations with
the
government of India on nuclear power and weapons. On a pro bono basis, he
represented refuseniks, who were nuclear scientists, in securing exit visas
from
the Soviet Union. Mr. Grae obtained his B.A. from Brandeis University cum laude,
J.D. from American University, LL.M. in International Law with honors from
Georgetown University and M.B.A. from Georgetown University. He has been
admitted to the bars of New York, Connecticut, and Florida (all now
inactive).
THOMAS
GRAHAM, JR. Ambassador
Graham, age 72, became the Interim Secretary and a director of Novastar on
April
2, 2006, and Chairman of the Board of Directors on April 4, 2006. Ambassador
Graham is one of the world’s leading experts in nuclear non-proliferation. He is
Chairman of the Board of the Cypress Fund for Peace and Security. Ambassador
Graham has served as a senior U.S. diplomat involved in the negotiation of
every
major international arms control and non-proliferation agreement for the past
35
years, including the Strategic Arms Limitations Talks (SALT), Strategic Arms
Reduction Talks (START Treaties), Anti-Ballistic Missile (ABM) Treaty,
Intermediate Nuclear Forces (INF) Treaty, Nuclear Non-Proliferation Treaty
(NPT), Conventional Armed Forces in Europe (CFE) Treaty and Comprehensive Test
Ban Treaty (CTBT). In 1993, Ambassador Graham served as the Acting Director
of
the U.S. Arms Control and Disarmament Agency (ACDA), and for seven months in
1994 served as the Acting Deputy Director. From 1994 through 1997, he served
as
the Special Representative of the President of the United States for Arms
Control, Non-Proliferation and Disarmament, and in this capacity successfully
led U.S. government efforts to achieve the permanent extension of the NPT.
He
also served for 15 years as the general counsel of ACDA. Ambassador Graham
worked on the negotiation of the Chemical Weapon Convention and the Biological
Weapons Convention. He drafted the implementing legislation for the Biological
Weapons Convention and managed the Senate approval of the ratification of the
Geneva Protocol banning the use in war of chemical and biological weapons.
He is
also Chairman of the Board of Mexco Energy Corporation, an oil and gas
exploration company listed on the American Stock Exchange (stock ticker symbol
MXC). Ambassador
Graham
received an A.B. in 1955 from Princeton and a J.D. in 1961 from Harvard
University. He is a member of the Kentucky, the District of Columbia and the
New
York Bars and is a member of the Council on Foreign Relations. He chaired the
Committee on Arms Control and Disarmament of the American Bar Association from
1986-1994. Ambassador
Graham
received the Trainor Award for Distinction in Diplomacy from Georgetown
University in 1995.
47
CORNELIUS
J. MILMOE.
Mr.
Milmoe, age 59, became a director of Novastar on April 2, 2006 and he was
appointed the Chief Operating Officer of Novastar on April 4, 2006. Mr. Milmoe
served as General Counsel for General Electric’s nuclear fuel business from 1994
until 2000 that provided nuclear fuel fabrication, software and design services
to 50 nuclear reactors in the U.S., Europe, Japan, Mexico and Taiwan. At GE
Nuclear Fuel, Mr. Milmoe led legal negotiations for all reactor reload contracts
(valued at $30 to $300 million each), created a joint venture with Hitachi
and
Toshiba to build a $70 million modern fuel processing plant that reduced costs
by 30% and environmental effluents by 90%, and created a marketing joint venture
with ENUSA that led to GE Nuclear Fuel’s first fuel sales at plants in Germany
and Finland. Since leaving GE in 2000, Mr. Milmoe has run his own consulting
firm that has included GE as a major client, focusing on international energy
transactions. Mr. Milmoe formed a project team to recover low enriched uranium
for fuel fabrication from uranium concentrates at the Ulba Metallurgical plant
in Kazakhstan. The DOE-supported project team included GE, Brookhaven National
Laboratory, Massachusetts Institute of Technology, Kazatomprom and RWE Nukem.
Mr. Milmoe’s other projects include construction of a copper-beryllium
alloy processing plant in Kazakhstan, sourcing zirconium components in Russia
for Western nuclear power plants and R&D agreements for advanced nuclear
technologies. Mr. Milmoe’s firm has also received contracts to improve DOE
reporting and management of all projects relating to the implementation of
President Bush’s National Energy Policy and DOE’s international energy
agreements, particularly science and technology agreements and nuclear
non-proliferation agreements. Mr. Milmoe earned his B.A. from Colgate University
in 1969 and earned his J.D. from Columbia University Law School and was admitted
to the bar in 1974. From 1974 to 1980, Mr. Milmoe served as Staff Attorney
and
Special Assistant to the New York Public Service Commission. From 1980 to 1994,
Mr. Milmoe served as a counsel in the following divisions of General Electric:
GE Naval & Small Steam Turbines, GE Aircraft Engines, GE Government
Services, GE Automated Systems, GE Aircraft Instruments, GE Armament Systems
and
GE Silicones.
ANDREY
MUSHAKOV. Mr.
Mushakov, age 29, became the Executive Vice President - International Nuclear
Operations of Novastar on July 27, 2006. From 2000 until the consummation
of the
Merger, he held various positions at Thorium Power, including Treasurer and
Secretary. He is the primary liaison between Novasatar and the Kurchatov
Institute in Moscow. Mr. Mushakov has expertise in financial analysis, financial
planning and budgeting, financial reporting and accounting, structuring business
transactions, and government contract negotiations. In 2004, Mr. Mushakov
led
successful negotiations with officials from the National Nuclear Security
Administration and Oak Ridge National Laboratory (ORNL) that resulted in
signing
of a $3.5 million government contract between ORNL and Kurchatov Institute
for
work relating to the Novastar's nuclear fuel development effort in Russia.
His
prior experience includes finance-related work in the banking and construction
sectors. Mr. Mushakov has the following degrees: PhD in Economics from St.
Petersburg State University of Economics and Finance (Russia), MS in Management
with excellence (MBA equivalent) from Hult International Business School
(formerly the Arthur D. Little School of Management), based in Cambridge,
MA,
where he was enrolled as a recipient of the Russian President's Scholarship,
and
BS in Banking and Finance with honors from the Finance Academy of Russia
.
LARRY
GOLDMAN. Mr.
Goldman, age 49, became the Treasurer and Acting Chief Financial Officer of
Novastar on June 13, 2006. Mr. Goldman is a certified public accountant with
over 20 years of auditing, consulting and technical experience as a partner
in a
mid-size New York City based accounting firm, working with a wide variety of
companies, assisting them in streamlining their operations and increasing
profitability. Prior to joining Novastar, Mr. Goldman worked as the Chief
Financial Officer, Treasurer and Vice President of Finance of WinWin Gaming,
Inc. (OTCBB: WNWN),
a
multi-media
developer and publisher of sports, lottery and other games.
Prior
to
joining WinWin, in
October 2004, Mr. Goldman was a partner at Livingston Wachtell & Co., LLP
and had been with that firm for the past 19 years.
Mr. Goldman is also an independent director and audit committee chairman of
Winner Medical Group Inc. (OTCBB: WMDG.OB), a China based manufacturer of
medical disposable products and surgical dressings. Mr. Goldman has extensive
experience in both auditing and consulting with public companies, and has
experience providing accounting and consulting services to the Asian
marketplace, having audited several Chinese public companies
48
Family
Relationships
There
are
no family relationships between any of the foregoing individuals.
Involvement
in Certain Legal Proceedings
On
March
31, 2006, Novastar, Thorium Power and their respective officers were served,
through their counsel, with a verified complaint by Raj Pamnani. Mr. Pamnani
alleges that Novastar and Thorium Power and their respective officers breached
an oral consulting agreement he alleges was entered into between Mr. Pamnani
and
Novastar and demands a combination of shares of unrestricted common stock
of
Novastar and payment of monetary damages in the amount of $10 million plus
an
additional $5 million in punitive damages. Management believes the lawsuit
is
without merit. 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.
FOR
SECURITIES ACT LIABILITIES
Novastar's
bylaws provide that its directors and officers will be indemnified to the
fullest extent permitted under the laws of Nevada. Pursuant to Nevada General
Corporation law, a corporation may indemnify any of its directors and officers
if he acted in good faith and in a manner which he reasonably believed to be
in
or not opposed to the best interests of the corporation, and, with respect
to
any criminal action or proceeding, had no reasonable cause to believe such
conduct was unlawful. In addition, Novastar has obtained a Directors and
Officers’ Insurance Policy with AIG for a coverage limit of $5 million and
excess coverage with Hartford for an additional $5 million.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, we have been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and
is, therefore, unenforceable.
CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding beneficial ownership
of
our common stock as of the date of this prospectus by (i) each person known
to
us to be the beneficial owner of more than 5 percent of our outstanding common
stock, (ii) each director, (iii) each executive officer, and (iv) all executive
officers and directors as a group. Unless otherwise indicated, the address
of
each of the following persons is 8300 Greenboro Drive, Suite 800, McLean, VA
22102.
49
|
Title
of Class
|
Name
and
Address
of Beneficial Owner
|
|
Amount
and
Nature
of Beneficial Owner (1)
|
|
Percent
of Class(2)
|
|||||
|
Common
|
Seth
Grae
|
20,420,076
|
(3) |
6.86
|
%
|
|||||
|
Common
|
Thomas
Graham, Jr.
|
3,861,894
|
(4) |
1.31
|
%
|
|||||
|
Common
|
Cornelius
J. Milmoe
|
75,000
|
0.03
|
%
|
||||||
|
Common
|
Larry
Goldman
|
104,166
|
(5) |
0.03
|
%
|
|||||
|
Common
|
OTC
Investments Ltd.
1710-1177
West Hastings Street
Vancouver,
BC V6E 2L3
Canada
|
15,000,000
|
5.13
|
%
|
||||||
|
Common
|
Thunder
Investors, LLC
200
West Madison Street
Chicago,
IL 60606
|
24,150,825
|
8.26
|
%
|
||||||
|
Common
|
Andrey
Mushakov
1701
East West Hwy., Apt. 401
Silver
Spring, MD 20910
|
2,789,175
|
(6) |
0.95
|
%
|
|||||
|
Common
|
Directors
& Officers as a Group
(5
people)
|
|
27,250,311
|
(7) |
9.04
|
%
|
||||
(1)
Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Each of the beneficial owners listed above
has
direct ownership of and sole voting power and investment power with respect
to
the shares of Company common stock.
(2)
A
total of 292,264,497
shares of our common stock are considered to be outstanding pursuant
to
SEC Rule 13d-3(d)(1). For each Beneficial Owner above, any options exercisable
within 60 days have been included in the denominator.
(3)
Includes 6,380,624 shares
underlying Novastar stock options.
50
(4)
Includes 2,646,133 shares
underlying Novastar stock options.
(5)
Includes 29,166 shares
underlying Novastar stock options.
(6)
Includes 1,289,175 shares
underlying Novastar stock options.
(7)
Includes 10,261,765 shares
underlying Novastar stock options.
Summary
of Cash and Certain Other Compensation
The
following sets forth the annual and long-term compensation for services in
all
capacities to Novastar for the fiscal years ended June 30, 2005, 2004 and 2003
paid to the Novastar's Chief Executive Officer ("CEO") and other two executive
officers who were serving as executive officers at the end of the last completed
fiscal year.
Summary
Compensation Table
|
LONG
TERM COMPENSATION
|
|||||||||||||||||||||||||
|
ANNUAL
COMPENSATION
|
AWARDS
|
PAYOUTS
|
|||||||||||||||||||||||
|
Name
And
Principal
Position
|
Year
|
Salary(1)
($)
|
Bonus
($)
|
Other
Annual
Compensation
($)
(4)
|
Restricted
Stock
Award(s)
($)
|
Securities
Under-Lying
Options/SARs (#)
|
LTIP
Payouts ($)
|
All
Other Compensation
($)
|
|||||||||||||||||
|
Seth
Grae (1)
|
2005
|
$
|
158,333
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
150,000
|
$
|
0
|
$
|
0
|
||||||||||
|
President,
Chief
|
2004
|
$
|
150,000
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
||||||||||
|
Executive
Officer and Director
|
2003
|
$
|
158,333
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
||||||||||
|
Paul
Carter (2)
|
2005
|
$
|
0
|
$
|
0
|
$
|
40,000
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
||||||||||
|
Chief
Executive
|
2004
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
||||||||||
|
Officer,
President, Chairman and Director
|
2003
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
||||||||||
|
Charles
H. Merchant (3)
|
2005
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
||||||||||
|
Interim
Chief Executive Officer and Chief Operating Officer
|
2004
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
||||||||||
|
Secretary
|
2003
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
||||||||||
|
(1)
|
Mr.
Grae’s aggregate salary in 2005, 2004 and 2003, includes $145,833,
$125,000, and $75,000 of accrued, but unpaid salary. All of such
accrued
salary was paid to Mr. Grae in the first quarter of calendar 2006.
All of
Mr. Grae’s salary during the periods indicated was paid by our subsidiary,
Thorium Power.
|
|
(2)
|
Mr.
Carter served as Novastar’s Chief Executive Officer from 2002 until
December 1, 2005.
|
|
(3)
|
Mr.
Merchant served as Novastar’s interim Chief Executive Officer from
December 1, 2005 until March 17,
2006.
|
|
(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.
|
51
Option
Grants in last Fiscal Year
|
Name
|
Number
of
Securities
Underlying Options
Granted
(1)
|
%
of Total Options Granted To Employees in the
Fiscal Year
|
Exercise
Price
|
Expiration
Date
|
|||||||||
|
Seth
Grae
|
3,844,200
(1
|
)
|
66
|
%
|
$
|
0.156
|
July
2010
|
||||||
|
Paul
Carter
|
0
|
0
|
0
|
0
|
|||||||||
|
Charles
H. Merchant
|
0
|
0
|
0
|
0
|
|||||||||
(1)
These
shares were issued after the Fiscal year end of June 30, 2005.
Aggregated
Novastar Option Exercises in Last Fiscal Year-End and Fiscal Year-End Option
Value Table
The
following table contains information concerning the number of shares acquired
and value realized from the exercise of options by the named executive officers
during fiscal 2005 and the number of unexercised options held by the named
executive officers at March 31, 2006.
|
Number
of Shares of Common Stock Underlying Unexercised Options at Year
End
June 30, 2005
|
Value
of Unexercised In-The-Money Options at Year
End June 30, 2005 (1)
|
||||||||||||||||||
|
Name
|
Shares
Acquired on
Exercise
|
Value
Realized
($)
|
|
Exercisable
|
|
Unexercisable
|
|
Exercisable
|
|
Unexercisable
|
|||||||||
|
Seth
Grae
|
0
|
0
|
6,380,624
|
|
0
|
1,218,781
|
0
|
||||||||||||
|
Paul
Carter
|
0
|
0
|
0
|
0
|
0
|
0
|
|||||||||||||
|
Charles
H. Merchant
|
0
|
0
|
0
|
0
|
0
|
0
|
|||||||||||||
|
(1)
|
Options
are "in-the-money" if the market price of a share of common stock
exceeds
the exercise price of the option. The value of unexercised in-the-money
stock options is shown as of June 30,
2005.
|
Novastar
has no retirement, pension or profit sharing program for the benefit of its
directors, officers or other employees, but the board of directors may recommend
one or more such programs for adoption in the future.
Options/Sars
Grants
Effective
February 14, 2006, Novastar adopted its 2006 Stock Plan. The 2006 Stock Plan
provides for grants of restricted shares of common stock and grants of stock
options. Under the terms of the 2006 Stock Plan, as amended,Novastar Resources
may grant a maximum of 75 million shares of common stock, to consist of no
more
than 75 million shares issuable under incentive stock options and no more
than
37.5 million restricted shares of common stock. The maximum number of restricted
shares that may be granted to one individual in any fiscal year is five million
shares, and the maximum number of options that may be granted to one individual
in any fiscal year is eight million shares. Since
adopting the 2006 Stock Plan, Novastar has granted a total of 19,225,000
options
to its officers, directors and advisory board members.
See
“INTERESTS OF NOVASTAR OFFICERS AND DIRECTORS IN THE MERGER” for more
information regarding awards that have been granted to officers and directors
of
Novastar under the 2006 Stock Plan.
52
Prior
to
the 2006 Stock Plan, the Novastar board of directors chose to make option or
warrant awards to select officers, directors, consultants, or
stockholder/investors in order to induce them to assist it in implementing its
business model and to provide long term additional incentive. These options
or
warrants, as awarded, were not awarded pursuant to a plan but were specific
individual awards with varying terms and conditions. In some instances, the
board of directors reserved the right to cancel these awards for non-performance
or other reasons, or established a vesting schedule pursuant to which the award
is earned.
Director
Compensation
Novastar
does not currently have any independent directors. All of Novastar’s current
directors are also officers of Novastar and are compensated for the services
that they provide to Novastar in their capacity as officers. The current
directors of Novastar do not receive any additional compensation for the
services they provide to Novastar as directors. Directors are reimbursed for
out
of pocket expenses incurred as a result of their participation on Novastar’s
board. Novastar intends to compensate independent directors that are elected
or
appointed to Novastar’s board in the future.
Employment
Agreements
On
February 14, 2006, at the same time that the merger agreement was entered
into
among the parties, Novastar and Seth Grae entered into an employment agreement
and a stock option agreement. Pursuant to the employment agreement, Novastar
has
agreed to pay Mr. Grae an annual salary of $275,000 for performing the
duties
described in the employment agreement. In addition, Novastar issued to
Mr. Grae
pursuant to the agreement 5,000,000 shares of restricted stock and granted
to
Mr. Grae 7,200,000 non-qualified stock options, with a term of ten years
at an
exercise price of $0.795 per share. The options vest with respect to 6/48
of the
total number of shares granted on August 14, 2006 and vest 1/48 on first
day of
each month thereafter until all options have vested. The 5,000,000 shares
of
restricted stock vest immediately on issuance but 2,500,000 may not be
directly
or indirectly sold, transferred or otherwise disposed of for a period of
one
year and the remaining 2,500,000 for a period of two years, except for
sales,
transfers or other dispositions made to family members, for estate planning
purposes, or pursuant to a qualified domestic relations order. The shares
will
also be subject to the provisions of Rule 144 promulgated under the Securities
Act. Mr. Grae was named CEO of Novastar on March 17, 2006, though the agreement
did not take effect until April 2, 2006, the date that Novastar obtained
D&O
liability insurance coverage, and the agreement terminates on April 2,
2011 the
fifth anniversary of the date of the agreement. Prior to entering into
the
employment agreement with Novastar, Mr. Grae was on the Novastar advisory
board.
He had received a total of 1,000,000 shares of Novastar common stock for
agreeing to be on Novastar’s advisory board. In addition, prior to the merger
Mr. Grae owned 313,698 shares of Thorium Power common stock and options
to
purchase an additional 208,000 shares of Thorium Power common stock at
exercise
prices ranging from $4 to $10. Upon consummation of the merger, these Thorium
Power securities were converted into Novastar securities. Accordingly,
Mr. Grae
currently owns a total of 14,039,452 shares of Novastar common stock as
well as
the options to purchase an additional 12,530,624 shares of Novastar common
stock
that are described above.
Thomas
Graham, Jr. became a director of Novastar on April 2, 2006. On July 27,
2006,
Ambassador Graham entered into an employment and stock option agreement
with
Novastar. Under the employment agreement, Mr. Graham acts as the Chairman
and
Secretary of Novastar. Pursuant to the employment agreement, Novastar has
agreed
to pay Ambassador Graham an annual salary of $130,000 for part-time employment
of an average of three out of five business days per week or 24 hours of
his
business time per week. In addition, Novastar granted to Ambassador Graham
non-qualified stock options for the purchase of 1,500,000 shares, with
a term of
ten years at an exercise price of $0.49. The options vest in equal monthly
installments over a three year period. Ambassador Graham owns 190,000 shares
of
Novastar common stock. Additionally, prior to the merger, Ambassador Graham
owned a total of 40,025 shares of Thorium Power common stock and options
to
purchase 100,000 shares of Thorium Power common stock at a exercise price
of $10
per share. Upon consummation of the merger, these Thorium Power securities
were
converted into Novastar securities. Accordingly, Ambassador Graham currently
owns a total of 1,215,761 shares of Novastar common stock as well as options
to
purchase 4,062,800 shares of Novastar common stock.
53
Andrey
Mushakov has been the Treasurer of Thorium Power since April 2002 and
Treasurer
and Secretary of Thorium Power since July 2003. On July 27, 2006, Mr. Mushakov
entered into an employment and stock option agreement with Novastar. Under
the
employment agreement, Mr. Mushakov was appointed as the Executive Vice
President
- International Nuclear Operations. Pursuant to the employment agreement,
Novastar has agreed to pay Mr. Mushakov an annual salary of $160,000 for
performing the duties described in the agreement. In addition, Novastar
issued
to Mr. Mushakov, pursuant to the agreement, 1,500,000 shares of restricted
stock
and granted Mr. Mushakov 2,250,000 non-qualified stock options with a term
of
ten years at an exercise price of $0.50 per share. On July 27, 2006, 234,375
options vested and the remaining 2,015,625 options will vest in equal monthly
installments. The 1,500,000 shares of restricted stock vest immediately
on
issuance, but 750,000 may not be directly or indirectly sold, transferred
or
otherwise disposed of for a period of one year and the remaining 750,000
for a
period of two years, except for sales, transfers or other dispositions
made to
family members for estate planning purposes or pursuant to a qualified
domestic
relations order. Additionally, prior to the merger, Mr. Mushakov owned
options
to purchase a total of 37,500 shares of Thorium Power common stock. Upon
consummation of the merger, these Thorium Power securities were converted
into
Novastar securities. Accordingly, Mr. Mushakov currently owns 1,500,000
shares
of Novastar common stock and 3,211,050 options to purchase shares of Novastar
common stock.
Cornelius
J. Milmoe has been a director of Novastar since April 2, 2006 and he became
the
Chief Operating Officer of Novastar on April 4, 2006. Mr. Milmoe owns a
total of
75,000 shares of Novastar common stock, which were issued by the Company
upon
Mr. Milmoe’s employment with the Company. However, 37,500 of these shares may
not be directly or indirectly sold, transferred or otherwise disposed of
for a
period of one year and the remaining 37,500 for a period of two years,
except
for sales, transfers or other dispositions made to family members, for
estate
planning purposes, or pursuant to a qualified domestic relations order.
The
shares will also be subject to the provisions of Rule 144 promulgated under
the
Securities Act. In connection with his employment with Novastar, Mr. Milmoe
is
entitled to receive a compensation package that included the following:
an
annual base salary of $200,000; a stock option grant to acquire 525,000
shares
of Novastar common stock pursuant to the Novastar 2006 Stock Plan; an annual
incentive bonus to be determined by the board of directors of Novastar;
reimbursement for all reasonable and necessary expenses incurred in connection
with Mr. Milmoe’s employment with Novastar; and four weeks of paid vacation per
year. Mr. Milmoe will also be permitted to participate in all employee
benefit
plans, policies and practices now or hereafter maintained by or on behalf
of
Novastar commensurate with Mr. Milmoe’s position with Novastar. Accordingly, Mr.
Milmoe currently owns a total of 75,000 shares of Novastar common stock
as well
as options to purchase 525,000 shares of Novastar common
stock.
Larry
Goldman became Novastar’s Treasurer and Acting Chief Financial Officer on June
13, 2006. Mr. Goldman owns a total of 75,000 restricted shares of Novastar
Common Stock, which were issued by Novastar upon Novastar’s entry into a
consulting agreement with Mr. Goldman. Pursuant to the consulting agreement,
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. Accordingly, Mr.
Goldman currently owns a total of 75,000 shares of Novastar common stock
and
options to purchase a total of 350,000 shares of Novastar common
stock.
Except
as
set forth below, there are no currently
threatened or pending claims against Novastar.
On
March
31, 2006, Novastar, Thorium Power and their respective officers were served,
through their counsel, with a verified complaint by Raj Pamnani. Mr. Pamnani
alleges that Novastar and Thorium Power and their respective officers breached
an oral consulting agreement he alleges was entered into between Mr. Pamnani
and
Novastar and demands a combination of shares of unrestricted common stock
of
Novastar and payment of monetary damages in the amount of $10 million plus
an
additional $5 million in punitive damages. Management believes the lawsuit
is
without merit. 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.
Interest
of Some of Novastar’s Officers and Directors in the Merger
As
of
April 2, 2006, Messrs. Grae and Graham, who prior to the consummation of the
business combination with Thorium Power were members of the board of directors
of Thorium Power, became members of the board of directors of Novastar, post
Merger. In addition, on such date, Cornelius J. Milmoe became a director of
Novastar and on April 4, 2006 he became Novastar’s Chief Operating Officer. Paul
Carter, who was the President, Chief Executive Officer, Chief Financial Officer,
Treasurer and a director of the Novastar since 2002 has resigned from all of
such positions with Novastar and no longer holds any positions with Novastar.
Charles Merchant, who was the Chief Operating Officer and Interim Chief
Executive Officer and a director of Novastar has resigned from all of such
positions with Novastar and no longer holds any positions with Novastar. Sean
Mulhearn, the Secretary of Novastar has resigned from such position effective
March 17, 2006 and no longer is an officer of Novastar. Seth Shaw, the Director
of Strategic Planning of Novastar, continues to hold such position.
54
None
An
aggregate of 113,648,406 shares
of our common stock may be offered for sale and sold pursuant to this prospectus
by the selling stockholders. These shares consist of:
| · |
4,209,998
shares of our common stock, and 2,104,999 shares underlying warrants
issued pursuant to the private placement completed in November 23,
2005;
|
| · |
4,208,331
shares of our common stock, and 2,104,165 shares underlying warrants
issued pursuant to the private placement completed on February 14,
2006;
|
| · |
36,659,837
shares of our common stock, and 18,329,915 shares underlying warrants
issued pursuant to the private placement completed on May 4, 2006;
and
|
| · |
45,923,661
shares of our common stock and
107,500 shares underlying warrants that have been issued to
consultants of the Company or that have been issued on the effective
date
of the Merger to persons who were affiliates of Thorium Power prior
to the
Merger.
|
These
shares are to be offered by and for the respective accounts of the selling
stockholders and any pledgees, donees, assignees and transferees or
successors-in-interest of the respective selling stockholders. We have agreed
to
register all of such securities under the Securities Act and to pay all of
the
expenses in connection with such registration and sale of the shares (other
than
underwriting discounts and selling commissions and the fees and expenses of
counsel and other advisors to the selling securityholders).
The
following table and notes to the table sets forth, with respect to each selling
stockholder:
| · |
the
name of the selling stockholder and any material relationship the
selling
stockholder has had with us over the past three
years;
|
| · |
the
number of shares of our common stock beneficially owned by the selling
stockholder as of the date of this
prospectus;
|
| · |
the
number of shares of our common stock being offered for sale by the
selling
stockholder pursuant to this prospectus;
and
|
| · |
the
number of shares of our common stock and percentage that will be
beneficially owned by the selling stockholder assuming the selling
stockholder disposes of all of the shares being offered pursuant
to this
prospectus.
|
Except as set forth in the footnotes to the table below, none of the selling
stockholders has held a position as an officer or director of us, nor has
any
selling stockholder had any material relationship of any kind with us or
any of
our affiliates. All information with respect to share ownership has been
furnished by the selling stockholders. The shares being offered are being
registered to permit public secondary trading of the shares and each selling
stockholder may offer all or part of the shares owned for resale from time
to
time. In addition, unless otherwise specified in the footnotes to the table
below, none of the selling stockholders has any family relationships with
our
officers, directors or controlling stockholders.
Unless
otherwise specified in the footnotes to the table below, none of the selling
stockholders
is a
registered broker-dealer or an affiliate of a registered
broker-dealer.
All
persons who are identified as registered broker-dealers or affiliates of
registered broker-dealers in the footnotes to the table below are deemed
to be
underwriters of the securities listed in the table below opposite their
respective names. Further, any entity listed as an affiliate of a
registered-broker dealer has represented to us that they acquired the securities
to be resold in the ordinary course of business and that at the time of
the
acquisition they did not have any agreements, understandings or arrangements
with any other persons, either directly or indirectly, to dispose of the
securities.
55
|
Name
|
Beneficials
before the Offering
|
Shares
of Common Stock included in
Prospectus
|
Beneficial
Ownership
After
the Offering
|
Percentage
of
Common
Stock
Owned
After the
Offering*
|
|||||||||
|
Magnetar
Capital Master Fund, Ltd.
|
14,850,000
(1
|
)
|
14,850,000
(1
|
)
|
0
|
0
|
%
|
||||||
|
WTC-CIF
Technical Equity Portfolio
|
2,590,950
(2
|
)
|
2,590,950
(2
|
)
|
0
|
0
|
%
|
||||||
|
Raytheon
Master Pension Trust
|
2,584,650
(3
|
)
|
2,584,650
(3
|
)
|
0
|
0
|
%
|
||||||
|
Raytheon
Master Pension Trust
|
1,261,200
(4
|
)
|
1,261,200
(4
|
)
|
0
|
0
|
%
|
||||||
|
WTC-CIF
Opportunistic Equity Portfolio
|
1,177,200
(5
|
)
|
1,177,200
(5
|
)
|
0
|
0
|
%
|
||||||
|
Raytheon
Master Pension Trust
|
678,000
(6
|
)
|
678,000
(6
|
)
|
0
|
0
|
%
|
||||||
|
Madeira
Partners, L.P.
|
614,700
(7
|
)
|
614,700
(7
|
)
|
0
|
0
|
%
|
||||||
|
Madeira
Investors (Bermuda) L.P.
|
594,600
(8
|
)
|
594,600
(8
|
)
|
0
|
0
|
%
|
||||||
|
The
Hartford Mutual Funds, Inc.: The Hartford Capital Appreciation
II
Fund
|
562,500
(9
|
)
|
562,500
(9
|
)
|
0
|
0
|
%
|
||||||
|
WTC-CIF
Special Equity Portfolio
|
524,205
(10
|
)
|
524,205
(10
|
)
|
0
|
0
|
%
|
||||||
|
Highfields
Capital Ltd.
|
3,811,770
(11
|
)
|
3,811,770
(11
|
)
|
0
|
0
|
%
|
||||||
|
Highfields
Capital II LP
|
1,058,820
(12
|
)
|
1,058,820
(12
|
)
|
0
|
0
|
%
|
||||||
|
Highfields
Capital I LP
|
423,525
(13
|
)
|
423,525
(13
|
)
|
0
|
0
|
%
|
||||||
|
Cumberland
Partners
|
1,860,234
(14
|
)
|
1,860,234
(14
|
)
|
0
|
0
|
%
|
||||||
|
Cumberland
Benchmarked Partners, L.P.
|
1,260,480
(15
|
)
|
1,260,480
(15
|
)
|
0
|
0
|
%
|
||||||
|
Cumber
International S.A.
|
554,325
(16
|
)
|
554,325
(16
|
)
|
0
|
0
|
%
|
||||||
|
LongView
Partners B, L.P.
|
437,220
(17
|
)
|
437,220
(17
|
)
|
0
|
0
|
%
|
56
|
Name
|
Beneficial
Before
the
Offering
|
Shares
of
Common
Stock
Included
in
Prospectus
|
Beneficial
Ownership
After
the Offering
|
Percentage
of
Common
Stock
Owned
After the
Offering*
|
|||||||||
|
Summer
Street Cumberland Investors, LLC
|
185,370
(18
|
)
|
185,370
(18
|
)
|
0
|
0
|
%
|
||||||
|
HFR
HE Platinum Master Trust
|
109,290
(19
|
)
|
109,290
(19
|
)
|
0
|
0
|
%
|
||||||
|
Cumberland
Long Partners, L.P.
|
4,845
(20
|
)
|
4,845
(20
|
)
|
0
|
0
|
%
|
||||||
|
SF
Capital Partners Ltd.
|
3,529,413
(21
|
)
|
3,529,413
(21
|
)
|
0
|
0
|
%
|
||||||
|
Sunrise
Equity Partners, L.P.
|
2,647,057
(22
|
)
|
2,647,057
(22
|
)
|
0
|
0
|
%
|
||||||
|
CAMOFI
Master LDC
|
1,764,705
(23
|
)
|
1,764,705
(23
|
)
|
0
|
0
|
%
|
||||||
|
Whalehaven
Capital Fund Limited
|
1,764,705
(24
|
)
|
1,764,705
(24
|
)
|
0
|
0
|
%
|
||||||
|
SDS
Capital Group SPC, Ltd.
|
1,764,705
(25
|
)
|
1,764,705
(25
|
)
|
0
|
0
|
%
|
||||||
|
Excalibur
Limited Partnership
|
1,500,000
(26
|
)
|
1,500,000
(26
|
)
|
0
|
0
|
%
|
||||||
|
RHP
Master Fund, Ltd.
|
882,354
(27
|
)
|
882,354
(27
|
)
|
0
|
0
|
%
|
||||||
|
Springbok
Capital Master Fund, LP
|
1,716,441
(28
|
)
|
1,716,441
(28
|
)
|
0
|
0
|
%
|
||||||
|
David
Hovey
|
1,205,882
(29
|
)
|
1,205,882
(29
|
)
|
225,000
|
.08
|
%
|
||||||
|
Nite
Capital
|
529,500
(30
|
)
|
529,500
(30
|
)
|
0
|
0
|
%
|
||||||
|
AJW
Off Shore Ltd.
|
416,823
(31
|
)
|
416,823
(31
|
)
|
0
|
0
|
%
|
||||||
|
Amnon
Mandelbaum
|
352,941
(32
|
)
|
352,941
(32
|
)
|
0
|
0
|
%
|
||||||
|
Ethel
Marie Grossfeld
|
352,941
(33
|
)
|
352,941
(33
|
)
|
0
|
0
|
%
|
||||||
|
Daniel
M. Kornhauser
|
352,941
(34
|
)
|
352,941
(34
|
)
|
0
|
0
|
%
|
||||||
|
BH
Capital Investmets LP
|
352,500
(35
|
)
|
352,500
(35
|
)
|
0
|
0
|
%
|
||||||
|
David
M. Lewis
|
1,170,000
(36
|
)
|
1,170,000
(36
|
)
|
0
|
0
|
%
|
||||||
|
Richard
and Linda Grossfeld as Joint Tenants
|
264,705
(37
|
)
|
264,705
(37
|
)
|
0
|
0
|
%
|
||||||
|
Aaron
Foley
|
225,000
(38
|
)
|
225,000
(38
|
)
|
0
|
0
|
%
|
||||||
|
AJW
Qualified Partners, LLC
|
201,175
(39
|
)
|
201,175
(39
|
)
|
0
|
0
|
%
|
||||||
57
|
Name
|
Beneficial
Before
the
Offering
|
Shares
of
Common
Stock
Included
in
Prospectus
|
Beneficial
Ownership
After
the Offering
|
Percentage
of
Common
Stock
Owned
After the
Offering*
|
|||||||||
|
Gloria
Kassin
|
190,587
(40
|
)
|
190,587
(40
|
)
|
0
|
0
|
%
|
||||||
|
Thomas
Heinlein
|
1,540,500
(41
|
)
|
1,540,500
(41
|
)
|
0
|
0
|
%
|
||||||
|
Francis
X. Colannino
|
150,000
(42
|
)
|
150,000
(42
|
)
|
0
|
0
|
%
|
||||||
|
DCM
Limited
|
383,559
(43
|
)
|
383,559
(43
|
)
|
0
|
0
|
%
|
||||||
|
AS
Capital Partners, LLC
|
90,000
(44
|
)
|
90,000
(44
|
)
|
0
|
0
|
%
|
||||||
|
Bruce
L. Lewis
|
240,000
(45
|
)
|
240,000
(45
|
)
|
0
|
0
|
%
|
||||||
|
Marilyn
Adler
|
88,234
(46
|
)
|
88,234
(46
|
)
|
0
|
0
|
%
|
||||||
|
David
Goodfriend
|
88,234
(47
|
)
|
88,234
(47
|
)
|
0
|
0
|
%
|
||||||
|
AJW
Partners LLC
|
78,352
(48
|
)
|
78,352
(48
|
)
|
0
|
0
|
%
|
||||||
|
Jeffrey
Grossfeld
|
35,293
(49
|
)
|
35,293
(49
|
)
|
0
|
0
|
%
|
||||||
|
Kevin
Grossfeld
|
35,293
(50
|
)
|
35,293
(50
|
)
|
0
|
0
|
%
|
||||||
|
Michael
P. Murphy
|
22,500
(51
|
)
|
22,500
(51
|
)
|
0
|
0
|
%
|
||||||
|
New
Millenium Capital Partners II, LLC
|
9,528
(52
|
)
|
9,528
(52
|
)
|
0
|
0
|
%
|
||||||
|
Aaron
Leiben
|
1,639,999
(53
|
)
|
1,639,999
(53
|
)
|
0
|
0
|
%
|
||||||
|
Dynamis
Energy Fund L.P.
|
637,500
(54
|
)
|
637,500
(54
|
)
|
0
|
0
|
%
|
||||||
|
REF
Securities & Co.
|
499,999
(55
|
)
|
499,999
(55
|
)
|
0
|
0
|
%
|
||||||
|
John
S. Lemak
|
375,000
(56
|
)
|
375,000
(56
|
)
|
0
|
0
|
%
|
||||||
|
Keith
Bolognese
|
249,999
(57
|
)
|
249,999
(57
|
)
|
0
|
0
|
%
|
||||||
|
Philippe
Allain
|
225,000
(58
|
)
|
225,000
(58
|
)
|
0
|
0
|
%
|
||||||
|
Arthur
Veytsman
|
225,000
(59
|
)
|
225,000
(59
|
)
|
0
|
0
|
%
|
||||||
|
Michael
Karp
|
162,500
(60
|
)
|
162,500
(60
|
)
|
0
|
0
|
%
|
||||||
|
David
S. Cannizzo
|
124,999
(61
|
)
|
124,999
(61
|
)
|
0
|
0
|
%
|
||||||
|
Dynamis
Energy Fund Ltd.
|
112,500
(62
|
)
|
112,500
(62
|
)
|
0
|
0
|
%
|
||||||
|
Stuart
Fox
|
99,999
(63
|
)
|
99,999
(63
|
)
|
0
|
0
|
%
|
||||||
|
David
DiRicco (64)
|
182,291
(64
|
)
|
182,291
(64
|
)
|
0
|
0
|
%
|
||||||
|
Alan
Gelband Company Inc. (65)
|
2,642,256
(65
|
)
|
2,642,256
(65
|
)
|
0
|
0
|
%
|
||||||
58
|
Name
|
Beneficial
Before
the
Offering
|
Shares
of
Common
Stock
Included
in
Prospectus
|
Beneficial
Ownership
After
the Offering
|
Percentage
of
Common
Stock
Owned
After the
Offering*
|
|||||||||
|
Mark
Mamolen
|
11,530,025
|
11,530,025
|
0
|
0
|
%
|
||||||||
|
Craig
Robins
|
7,407,114
|
7,407,114
|
0
|
0
|
%
|
||||||||
|
Thunder
Investors, LLC
|
23,946,975
(66
|
) |
23,946,975
(66
|
) |
0
|
0
|
%
|
||||||
|
Russell
Nichols
|
105,000
(67
|
)
|
105,000
(67
|
)
|
0
|
0
|
%
|
||||||
|
Scott
Renninger
|
375,000
(68
|
)
|
375,000
(68
|
)
|
0
|
0
|
%
|
||||||
|
Richard
P. Howard
|
1,500,000
(69
|
)
|
1,500,000
(69
|
)
|
0
|
0
|
%
|
||||||
|
George
Weiss Associates Profit Sharing Plan; George Weiss Associates,
Inc. Profit
Sharing Plan
|
1,000,001
(70
|
)
|
1,000,001
(70
|
)
|
0
|
0
|
%
|
||||||
|
David
Karp
|
237,499
(71
|
) |
159,999
(71
|
)
|
77,500
|
0.03
|
%
|
||||||
|
Kenneth
M. Ferjo
|
127,500
(72
|
)
|
127,500
(72
|
)
|
0
|
0
|
%
|
||||||
|
Sarah
V. Carrasco
|
15,000
(73
|
)
|
15,000
(73
|
)
|
0
|
0
|
%
|
||||||
|
Douglas
M. Jones
|
30,000
(74
|
)
|
30,000
(74
|
)
|
0
|
0
|
%
|
||||||
|
Richard
J. Tijaden
|
60,000
(75
|
)
|
60,000
(75
|
)
|
0
|
0
|
%
|
||||||
|
Pactrans
Limited LLC
|
15,000
(76
|
)
|
15,000
(76
|
)
|
0
|
0
|
%
|
||||||
|
Thomas
B. Nelis
|
22,500
(77
|
)
|
22,500
(77
|
)
|
0
|
0
|
%
|
||||||
|
Mel
W. Ortner
|
15,000
(78
|
)
|
15,000
(78
|
)
|
0
|
0
|
%
|
||||||
|
J.F.
Miller Sales Company
|
52,500
(79
|
)
|
52,500
(79
|
)
|
0
|
0
|
%
|
||||||
|
John
E. Kiesel
|
300,000
(80
|
)
|
300,000
(80
|
)
|
0
|
0
|
%
|
||||||
|
Sean
Mulhearn
|
174,999
(81
|
)
|
174,999
(81
|
)
|
0
|
0
|
%
|
||||||
|
Seth
M. Shaw
|
2,434,999
(82
|
)
|
199,999
(82
|
)
|
2,235,000
|
0.82
|
%
|
||||||
|
Gary
S. Wade
|
22,500
(83
|
)
|
22,500
(83
|
)
|
0
|
0
|
%
|
||||||
| Raj Pamnani |
322,500
(84
|
) |
322,500
(84
|
) |
0
|
0
|
%
|
||||||
|
TOTAL
SHARES BEING REGISTERED
|
113,648,406
|
||||||||||||
___________
*
Assumes
that all of the November 23 Warrants, the May 4 Warrants and February 14
Warrants have been exercised and sold.
(1)
Includes 4,950,000 shares of common stock issuable upon exercise of the May
4
Warrants. Magnetar Financial LLC is the investment advisor of Magnetar Capital
Master Fund, Ltd. (“Magnetar Master Fund”) and consequently has voting control
and investment discretion over securities held by Magnetar Master Fund. Magnetar
Financial LLC disclaims beneficial ownership of the shares held by Magnetar
Master Fund. Alec Litowitz has voting control over Supernova Management LLC,
the
general partner of Magnetar Capital Partners LP, the sole managing member of
Magnetar Financial LLC. As a result, Mr. Litowitz may be considered the
beneficial owner of any shares deemed to be beneficially owed by Magnetar
Financial LLC. Mr. Litowitz disclaims beneficial ownership of these
shares.
59
(2)
Includes 863,650 shares of common stock issuable upon exercise of the May
4
Warrants.
Wellington Management Company (“Wellington”) is the investment advisor of
WTC-CIF Technical Equity Portfolio and consequently has voting control
and
investment discretion over securities held by WTC-CIF Technical Equity
Portfolio. Wellington disclaims beneficial ownership of the shares held
by
WTC-CIF Technical Equity Portfolio. Frank Catrikas, as manager of this
account,
has voting control and investment discretion over securities held by WTC-CIF
Technical Equity Portfolio, and may be deemed to have beneficial ownership
of
such shares. Mr. Catrikas disclaims beneficial ownership of the
shares.
(3)
Includes 861,550 shares of common stock issuable upon exercise of the May
4
Warrants.
Wellington is the investment advisor of Raytheon Master Pension Trust and
consequently has voting control and investment discretion over securities
held
by Raytheon Master Pension Trust. Wellington disclaims beneficial ownership
of
the shares held Raytheon Master Pension Trust. Frank Catrikas, as manager
of
this account, has voting control and investment discretion over securities
held
by Raytheon Master Pension Trust, and may be deemed to have beneficial
ownership
of such shares. Mr. Catrikas disclaims beneficial ownership of the shares.
(4)
Includes 420,400 shares of common stock issuable upon exercise of the May
4
Warrants.
Wellington is the investment advisor of Raytheon Master Pension Trust and
consequently has voting control and investment discretion over securities
held
by Raytheon Master Pension Trust. Wellington disclaims beneficial ownership
of
the shares held Raytheon Master Pension Trust. Frank Catrikas, as manager
of
this account, has voting control and investment discretion over securities
held
by Raytheon Master Pension Trust, and may be deemed to have beneficial
ownership
of such shares. Mr. Catrikas disclaims beneficial ownership of the shares.
(5)
Includes 392,400 shares of common stock issuable upon exercise of the May
4
Warrants.
Wellington is the investment advisor of WTC-CIF Opportunistic Equity
Portfolio and consequently has voting control and investment discretion
over
securities held by WTC-CIF Opportunistic Equity Portfolio. Wellington disclaims
beneficial ownership of the shares held WTC-CIF Opportunistic Equity Portfolio.
Frank Catrikas, as manager of this account, has voting control and investment
discretion over securities held by WTC-CIF Opportunistic Equity Portfolio,
and
may be deemed to have beneficial ownership of such shares. Mr. Catrikas
disclaims beneficial ownership of the shares.
(6)
Includes 226,000 shares of common stock issuable upon exercise of the May
4
Warrants.
Wellington is the investment advisor of Raytheon Master Pension Trust and
consequently has voting control and investment discretion over securities
held
by Raytheon Master Pension Trust. Wellington disclaims beneficial ownership
of
the shares held Raytheon Master Pension Trust. Frank Catrikas, as manager
of
this account, has voting control and investment discretion over securities
held
by Raytheon Master Pension Trust, and may be deemed to have beneficial
ownership
of such shares. Mr. Catrikas disclaims beneficial ownership of the shares.
(7)
Includes 204,900 shares of common stock issuable upon exercise of the May
4
Warrants.
Wellington is the investment advisor of Madeira Partners, L.P. and consequently
has voting control and investment discretion over securities held by Madeira
Partners, L.P. Wellington disclaims beneficial ownership of the shares
held
Madeira Partners, L.P. Frank Catrikas, as manager of this account, has
voting
control and investment discretion over securities held by Madeira Partners,
L.P., and may be deemed to have beneficial ownership of such shares. Mr.
Catrikas disclaims beneficial ownership of the shares.
(8)
Includes 198,200 shares of common stock issuable upon exercise of the May
4
Warrants.
Wellington is the investment advisor of Madeira Investors (Bermuda), L.P.
and
consequently has voting control and investment discretion over securities
held
by Madeira Investors (Bermuda), L.P. Wellington disclaims beneficial ownership
of the shares held Madeira Investors (Bermuda), L.P. Frank Catrikas, as
manager
of this account, has voting control and investment discretion over securities
held by Madeira Investors (Bermuda), L.P., and may be deemed to have beneficial
ownership of such shares. Mr. Catrikas disclaims beneficial ownership of
the
shares.
(9)
Includes 187,500 shares of common stock issuable upon exercise of the May
4
Warrants.
Wellington is the investment advisor of WTC-CIF Special Equity Portfolio
and
consequently has voting control and investment discretion over securities
held
by WTC-CIF Special Equity Portfolio. Wellington disclaims beneficial ownership
of the shares held by WTC-CIF Special Equity Portfolio. Frank Catrikas,
as
manager of this account, has voting control and investment discretion over
securities held by WTC-CIF Special Equity Portfolio, and may be deemed
to have
beneficial ownership of such shares. Mr. Catrikas disclaims beneficial
ownership
of the shares.
(10)
Includes 174,735 shares of common stock issuable upon exercise of the May 4
Warrants
(11)
Includes 1,270,590 shares of common stock issuable upon exercise of the May
4
Warrants. Highfields Associates LLC is the General Partner of Highfields Capital
Ltd.; Jonathan S. Jacobson and Richard L. Grubmann are senior managing members
of Highfields LLC and they have voting and/or investment control over the
Novastar securities held by Highlands Capital Ltd.
(12)
Includes 352,940 shares of common stock issuable upon exercise of the May 4
Warrants. Highfields Associates LLC is the General Partner of Highfields Capital
II LP; Jonathan S. Jacobson and Richard L. Grubmann are senior managing members
of Highfields LLC and they have voting and/or investment control over the
Novastar securities held by Highlands Capital II LP.
(13)
Includes 141,175 shares of common stock issuable upon exercise of the May 4
Warrants. Highfields Associates LLC is the General Partner of Highfields Capital
I LP; Jonathan S. Jacobson and Richard L. Grubmann are senior managing members
of Highfields LLC and they have voting and/or investment control over the
Novastar securities held by Highlands Capital I LP.
(14)
Includes 620,078 shares of common stock issuable upon exercise of the May 4
Warrants. Bruce Wilcox, Andrew Wallach, Gary Tynes and Brad Gendell have voting
and/or investment control over the Novastar securities owned by Cumberland
Partners.
(15)
Includes 420,160 shares of common stock issuable upon exercise of the May 4
Warrants. Bruce Wilcox, Andrew Wallach, Gary Tynes and Brad Gendell have voting
and/or investment control over the Novastar securities owned by Cumberland
Benchmarked Partners, L.P.
(16)
Includes 184,775 shares of common stock issuable upon exercise of the May 4
Warrants. Bruce Wilcox, Andrew Wallach, Gary Tynes and Brad Gendell have voting
and/or investment control over the Novastar securities owned by Cumber
International S.A.
(17)
Includes 145,740 shares of common stock issuable upon exercise of the May 4
Warrants. Bruce Wilcox, Andrew Wallach, Gary Tynes and Brad Gendell have voting
and/or investment control over the Novastar securities owned by Long View
Partners B, L.P.
(18)
Includes 61,790 shares of common stock issuable upon exercise of the May 4
Warrants. Bruce Wilcox, Andrew Wallach, Gary Tynes and Brad Gendell have voting
and/or investment control over the Novastar securities owned by Summer Street
Cumberland Investors, LLC.
(19)
Includes 36,430 shares of common stock issuable upon exercise of the May 4
Warrants. Bruce Wilcox, Andrew Wallach, Gary Tynes and Brad Gendell have voting
and/or investment control over the Novastar securities owned by HFR HE Platinum
Master Trust.
(20)
Includes 1,615 shares of common stock issuable upon exercise of the May 4
Warrants. Bruce Wilcox, Andrew Wallach, Gary Tynes and Brad Gendell have voting
and/or investment control over the Novastar securities owned by Cumberland
Long
Partners, L.P.
(21)
Includes 1,176,471 shares of common stock issuable upon exercise of the
May 4
Warrants. Michael A. Roth and Brian J. Stark exercise voting and investment
control over the Novastar securities owned by SF Capital Partners Ltd.
Messrs.
Roth and Stark disclaim beneficial ownership of such securities.
Additionally, Messrs. Roth and Stark are registered
broker-dealers.
(22)
Includes 882,352 shares of common stock issuable upon exercise of the May
4
Warrants.
Level
Counter, LLC is the General Partner of Sunrise Equity Partners, L.P. The
unanimous vote of Nathan Low, Marilyn Adler and Amnon Mandelbaum have voting
control of Level Counter, LLC. Each of these individuals is a registered
broker-dealer.
(23)
Includes 588,235 shares of common stock issuable upon exercise of the May 4
Warrants. Richard Smithline has voting and/or investment control over the
Novastar securities held by CAMOFI Master LDC. Mr. Smithline disclaims
beneficial ownership of these securities.
(24)
Includes 588,235 shares of common stock issuable upon exercise of the May
4
Warrants. Michael
Finkelstein maintains voting power and investment control over the securities
held by Whalehaven Capital Fund Limited. Mr. Finkelstein disclaims beneficial
ownership of these securities.
(25)
Includes 588,235 shares of common stock issuable upon exercise of the May 4
Warrants. Steve Derby maintains voting and/or investment control over the
Novastar securities held by SDS Capital Group SPC, Ltd. Mr. Derby disclaims
beneficial ownership of the securities except to the extent, if any, of his
pecuniary interest.
(26)
Includes 500,000 shares of common stock issuable upon exercise of the May 4
Warrants. Excalibur Capital Management Inc. is the General Partner of Excalibur
LP. William Hechter, president of Excalibur Management Inc. has voting and/or
investment control over the Novastar securities held by Excalibur
LP.
60
(27)
Includes 294,118 shares of common stock issuable upon exercise of the May 4
Warrants. RHP Master Fund, Ltd. is a party to an investment management agreement
with Rock Hill Investment Management LP, a limited partnership of which the
general partner is RHP General Partner LLC. Pursuant to such agreement, Rock
Hill Investment Management directs the voting and disposition of shares owned
by
RHP Master Fund. Messrs. Wayne Bloch and Peter Lockhart own all of the interests
in RHP General Partner. The aforementioned entities and individuals disclaim
beneficial ownership of the Novastar securities owned by the RHP Master
Fund.
(28)
Includes 262,088 shares of common stock issuable upon exercise of the May
4
Warrants, as well as 310,059 shares of common stock issuable upon exercise
of
the November 23 Warrants.
Gavin
Saitowitz and Trevor E. Cohen, Managing Members of Springbok Capital Management,
LLC, the investment manager of Springbok Capital Master Fund, LP have voting
power and investment control over the securities held by Springbok Capital
Master Fund, LP. Messrs. Saitowitz and Cohen disclaim beneficial ownership
of
these securities.
(29)
Includes 235,294 shares of common stock issuable upon exercise of the May 4
Warrants as well as 166,667 shares of common stock issuable upon exercise of
the
November 23 Warrants.
(30)
Includes 176,500 shares of common stock issuable upon exercise of the May
4
Warrants. Keith
Goodman, Manager and Partner of Nite Capital, has voting power and investment
control over the securities held by Nite Capital. Mr. Goodman disclaims
beneficial ownership of these securities.
(31)
Includes 138,941 shares of common stock issuable upon exercise of the May 4
Warrants. AJW
Offshore, Ltd., formerly known as AJW/New Millennium Offshore, Ltd., is a
private investment fund that is owned by its investors and managed by First
Street Manager II, LLC. First Street Manager II, LLC, of which Corey S. Ribotsky
is the fund manager, has voting and investment control over the Novastar
securities held by AJW Offshore Ltd.
(32)
Includes
117,647 shares of common stock issuable upon exercise of the May 4 Warrants.
Amnon
Mandelbaum is a registered broker-dealer.
33)
Includes 117,647 shares of common stock issuable upon exercise of the May 4
Warrants.
(34)
Includes 117,647 shares of common stock issuable upon exercise of the May 4
Warrants.
(35)
Includes 117,500 shares of common stock issuable upon exercise of the May 4
Warrants. Henry Branchfield has voting and/or investment control over the
Novastar securities held by BH Capital Investments LP.
(36)
Includes 90,000 shares of common stock issuable upon exercise of the May 4
Warrants, as well as 300,000 shares of common stock issuable upon exercise
of
the February 14 Warrants.
(37)
Includes 88,235 shares of common stock issuable upon exercise of the May
4
Warrants. David
Lewis is a registered broker-dealer.
(38)
Includes 75,000 shares of common stock issuable upon exercise of the May
4
Warrants. Aaron
Foley is a registered broker-dealer.
(39)
Includes 67,058 shares of common stock issuable upon exercise of the May 4
Warrants. AJW
Qualified Partners, LLC, formerly known as Pegasus Capital Partners, LLC, is
a
private investment fund that is owned by its investors and managed by MW
Manager, LLC, of which Corey S. Ribotsky is the fund manager, has voting and
investment control over the Novastar securities owned by MW Qualified Partners,
LLC.
(40)
Includes 63,529 shares of common stock issuable upon exercise of the May 4
Warrants.
(41)
Includes 63,500 shares of common stock issuable upon exercise of the May 4
Warrants, as well as 450,000 shares of common stock issuable upon exercise
of
the February 14 Warrants.
(42)
Includes 50,000 shares of common stock issuable upon exercise of the May 4
Warrants.
(43)
Includes 37,912 shares of common stock issuable upon exercise of the May
4
Warrants, as well as 89,941 shares of common stock issuable upon exercise
of the
November 23 Warrants. Gavin
Saitowitz and Trevor E. Cohen, Managing Members of Springbok Capital Management,
LLC, the investment manager of DCM Limited, have voting power and investment
control over the securities held by DCM Limited.
(44)
Includes 30,000 shares of common stock issuable upon exercise of the May
4
Warrants. Andrew
Smukler has voting power and investment control over the securities held
by SF
Capital Partners, LLC. Mr. Smukler disclaims beneficial ownership of these
securities. Additionally, Mr. Smukler is Managing Member of JAS Securities,
LLC,
a registered broker-dealer.
(45)
Includes 30,000 shares of common stock issuable upon exercise of the May
4
Warrants, as well as 50,000 shares of common stock issuable upon exercise
of the
February 14 Warrants.
Bruce
Lewis is a registered broker-dealer.
(46)
Includes 29,411 shares of common stock issuable upon exercise of the May
4
Warrants.
Marilyn
Adler is a registered broker-dealer.
(47)
Includes 29,411 shares of common stock issuable upon exercise of the May
4
Warrants.
David
Goodfriend is a registered broker-dealer.
(48)
Includes 26,117 shares of common stock issuable upon exercise of the May 4
Warrants. AJW
Partners, LLC is a private investment fund that is owned by its investors and
managed by SMS Group, LLC. SMS Group, LLC, of which Mr. Corey S. Ribotsky is
the
fund manager, has voting and investment control over the Novastar
securities owned by MW Partners, LLC.
(49)
Includes 11,764 shares of common stock issuable upon exercise of the May 4
Warrants.
(50)
Includes 11,764 shares of common stock issuable upon exercise of the May 4
Warrants.
(51)
Includes 7,500 shares of common stock issuable upon exercise of the May 4
Warrants.
(52)
Includes 3,176 shares of common stock issuable upon exercise of the May 4
Warrants. New
Millennium Capital Partners II, LLC, is a private investment fund that is owned
by its investors and managed by First Street Manager II, LLC. First Street
Manager II, LLC, of which Corey S. Ribotsky is the fund manager, has voting
and
investment control over the Novastar
securities owned by New Millennium Capital Partners II, LLC.
(53)
Includes 400,000 shares of common stock issuable upon exercise of the February
14 Warrants, as well as 146,666 shares of common stock issuable upon exercise
of
the November 23 Warrants.
(54)
Includes 212,500 shares of common stock issuable upon exercise of the February
14 Warrants. Dynamis
Advisors LLC is the General Partner of Dynamis Energy Fund LP, with Alexander
H.
Bocock, John H. Bocock, Frederic S. Bocock as the managing members. These
members have voting power and investment control over the securities held
by
Dynamis Energy Fund LP.
(55)
Includes 166,666 shares of common stock issuable upon exercise of the February
14 Warrants. Rodd Friedman has voting and/or investment control over the
Novastar securities held by REF Securities & Co.
(56)
Includes 125,000 shares of common stock issuable upon exercise of the February
14 Warrants.
(57)
Includes 83,333 shares of common stock issuable upon exercise of the February
14
Warrants.
(58)
Includes 75,000 shares of common stock issuable upon exercise of the February
14
Warrants.
(59)
Includes 75,000 shares of common stock issuable upon exercise of the February
14
Warrants.
(60)
Includes 54,167 shares of common stock issuable upon exercise of the February
14
Warrants.
61
(61)
Includes 41,666 shares of common stock issuable upon exercise of the February
14
Warrants.
(62)
Includes 37,500 shares of common stock issuable upon exercise of the February
14
Warrants. Dynamis
Advisors LLC is the General Partner of Dynamis Energy Fund Ltd, with Alexander
H. Bocock, John H. Bocock, Frederic S. Bocock as the managing members. These
members have voting power and investment control over the securities held
by
Dynamis Energy Fund Ltd.
(63)
Includes 33,333 shares of common stock issuable upon exercise of the February
14
Warrants.
(64)
David DiRicco was formerly a consultant to the Company assisting with investor
relations.
(65)
Alan
Gelband is the sole officer and director of Alan Gelband Company Inc. and
has
voting and/or investment control over the securities being registered herewith.
Alan Gelband is the investment banker for the Company and
is also a registered broker-dealer.
(66)
Thomas
Dykster, President of N. Pritzker Capital Management, has
voting power and investment control over the securities held by Thunder
Investors.
(67)
Includes 35,000 shares of common stock issuable upon exercise of the November
23
Warrants.
(68)
Includes 125,000 shares of common stock issuable upon exercise of the November
23 Warrants.
(69)
Includes 500,000 shares of common stock issuable upon exercise of the November
23 Warrants.
(70)
Includes 333,334 shares of common stock issuable upon exercise of the November
23 Warrants. George
Weiss has voting power and investment control over the securities held by
the
George Weiss Associates Profit Sharing Plan; George Weiss Associates, Inc.
Profit Sharing Plan. Mr. Weiss disclaims beneficial ownership of these
securities. Additionally, Weiss Investment Management Services LLC, an affiliate
of George Weiss Associates, Inc., is a registered
broker-dealer.
(71)
Includes 53,333 shares of common stock issuable upon exercise of the November
23
Warrants.
(72)
Includes 42,500 shares of common stock issuable upon exercise of the November
23
Warrants.
(73)
Includes 5,000 shares of common stock issuable upon exercise of the November
23
Warrants.
(74)
Includes 10,000 shares of common stock issuable upon exercise of the November
23
Warrants.
(75)
Includes 20,000 shares of common stock issuable upon exercise of the November
23
Warrants.
(76)
Includes 5,000
shares
of common stock issuable upon exercise of the November 23 Warrants.
Gavin
Saitowitz, Managing Member of Springbok Capital Management, LLC, the investment
manager of Pactrans Limited LLC, has voting power and investment control
over
the securities held by Pactrans Limited LLC.
(77)
Includes 7,500
shares
of common stock issuable upon exercise of the November 23 Warrants.
(78)
Includes 5,000
shares of common stock issuable upon exercise of the November 23
Warrants.
(79)
Includes 17,500
shares of common stock issuable upon exercise of the November 23
Warrants.
John F.
Miller, President of J.F. Miller Sales Company, has voting power and investment
control over the securities held by J.F. Miller Sales Company.
(80)
Includes 100,000 shares of common stock issuable upon exercise of the November
23 Warrants.
(81)
Includes 58,333 shares of common stock issuable upon exercise of the November
23
Warrants.
(82)
Includes 66,666 shares of common stock issuable upon exercise of the November
23
Warrants.
(83)
Includes 7,500 shares of common stock issuable upon exercise of the November
23
Warrants.
(84)
Issued to settle a claim by Raj Pamnani that he had a consulting agreement
with
the Company and was owed money pursuant to such agreement. These shares
include
107,500 shares of common stock issuable upon the exercise of warrants granted
to
Mr. Pamnani.
General
Novastar's
authorized capital stock consists of 500,000,000 shares of common stock, par
value $0.001 per share, and 50,000,000 shares of preferred stock, par value
$0.001 per share. As of the effective date of the Merger, Novastar will have
292,264,497 shares
of common stock issued and outstanding and no shares of preferred stock
issued
and outstanding.
COMMON
STOCK
The
holders of the common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Accordingly, holders
of a majority of the shares of common stock entitled to vote in any election
of
directors may elect all of the directors standing for election. Holders of
common stock are entitled to receive ratably such dividends as may be declared
by the Board out of funds legally available therefor. In the event of Novastar's
liquidation, dissolution or winding up, holders of common stock are entitled
to
share ratably in the assets remaining after payment of liabilities. Holders
of
common stock have no preemptive, conversion or redemption rights. All of the
outstanding shares of common stock are fully-paid and nonassessable.
PREFERRED
STOCK
Novastar's
board of directors may, without stockholder approval, establish and issue shares
of one or more classes or series of preferred stock having the designations,
number of shares, dividend rates, liquidation preferences, redemption
provisions, sinking fund provisions, conversion rights, voting rights and other
rights, preferences and limitations that Novastar's Board may determine. The
Board may authorize the issuance of preferred stock with voting, conversion
and
economic rights senior to the common stock so that the issuance of preferred
stock could adversely affect the market value of the common stock. The creation
of one or more series of preferred stock may adversely affect the voting power
or other rights of the holders of common stock. The issuance of preferred stock,
while providing flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things and under some circumstances,
have
the effect of delaying, deferring or preventing a change in control without
any
action by stockholders.
62
No
other
classes of preferred stock are outstanding.
The
transfer agent and registrar for Novastar's common stock is Computershare
Investor Services, Shareholder Communications Department, 2 LaSalle Street,
3rd
Floor, Chicago, IL 60602. Its telephone number is 888-243-5445 and facsimile
is
212-701-7664.
As
of the
effective date of the Merger, we had outstanding 292,264,497 shares
of common stock.
Shares
Covered by this Prospectus
All of the 113,648,406 shares
being registered in this offering may be sold without restriction under the
Securities Act of 1933.
Rule 144
The
resale of shares that are held by our affiliates and the resale of shares that
are held by non-affiliates for a period of less than two years are governed
by
the following requirements of Rule 144 of the Securities Act.
In
general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who has beneficially owned shares of our common stock
for
at least one year, including any person who may be deemed to be an “affiliate”
(as the term “affiliate” is defined under the Securities Act of 1933), would be
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of:
|
•
|
1%
of the number of shares of common stock then outstanding, which
as of the effective date of the Merger would equal approximately
2,922,645; or
|
|
•
|
the
average weekly trading volume of our common stock during the four
calendar
weeks preceding the filing of a notice on Form 144 with respect to
such sale.
|
Sales
under Rule 144 are also governed by other requirements regarding the manner
of sale, notice filing and the availability of current public information about
us. Under Rule 144, however, a person who is not, and for the three months
prior to the sale of such shares has not been, an affiliate of the issuer is
free to sell shares that are “restricted securities” which have been held for at
least two years without regard to the limitations contained in Rule 144.
The selling shareholders will not be governed by the foregoing restrictions
when
selling their shares pursuant to this prospectus.
We
believe that none of our outstanding shares may currently be sold in reliance
on
Rule 144.
63
Rule 144(k)
Under
Rule 144(k), a person who is not deemed to have been one of our affiliates
at any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, including the
holding period of any prior owner other than an affiliate, is entitled to sell
such shares without complying with the manner of sale, notice filing, volume
limitation or notice provisions of Rule 144.
We
believe that none of our outstanding shares may currently be sold in reliance
on
Rule 144(k).
The
selling stockholders, which as used herein includes donees, pledgees,
transferees or other successors-in-interest selling shares of common stock
or
interests in shares of common stock received after the date of this prospectus
from a selling stockholder as a gift, pledge, partnership distribution or other
transfer, may, from time to time, sell, transfer or otherwise dispose of any
or
all of their shares of common stock or interests in shares of common stock
on
any stock exchange, market or trading facility on which the shares are traded
or
in private transactions. These dispositions may be at fixed prices, at
prevailing market prices at the time of sale, at prices related to the
prevailing market price, at varying prices determined at the time of sale,
or at
negotiated prices.
The
selling stockholders may use any one or more of the following methods when
disposing of shares or interests therein:
| – |
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
| – |
block
trades in which the broker-dealer will attempt to sell the shares
as
agent, but may position and resell a portion of the block as principal
to
facilitate the transaction;
|
| – |
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
| – |
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
| – |
privately
negotiated transactions;
|
| – |
short
sales effected after the date the registration statement of which
this
Prospectus is a part is declared effective by the
SEC;
|
| – |
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
|
| – |
broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per share;
and
|
| – |
a
combination of any such methods of
sale.
|
The
selling stockholders may, from time to time, pledge or grant a security interest
in some or all of the shares of common stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock, from time to time, under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus. The selling stockholders also
may
transfer the shares of common stock in other circumstances, in which case the
transferees, pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus.
64
In
connection with the sale of our common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
aggregate proceeds to the selling stockholders from the sale of the common
stock
offered by them will be the purchase price of the common stock less discounts
or
commissions, if any. Each of the selling stockholders reserves the right to
accept and, together with their agents from time to time, to reject, in whole
or
in part, any proposed purchase of common stock to be made directly or through
agents. We will not receive any of the proceeds from this offering.
Broker-dealers
engaged by the selling stockholders may arrange for other broker-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling stockholders (or, if any broker-dealer acts as agent for the
purchase of shares, from the purchaser) in amounts to be negotiated. The selling
stockholders do not expect these commissions and discounts to exceed what is
customary in the types of transactions involved.
The
selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act of 1933,
provided that they meet the criteria and conform to the requirements of that
rule.
The
selling stockholders and any underwriters, broker-dealers or agents that
participate in the sale of the common stock or interests therein may be
“underwriters” within the meaning of Section 2(11) of the Securities Act. Any
discounts, commissions, concessions or profit they earn on any resale of the
shares may be underwriting discounts and commissions under the Securities Act.
Selling stockholders who are “underwriters” within the meaning of Section 2(11)
of the Securities Act will be subject to the prospectus delivery requirements
of
the Securities Act. We know of no existing arrangements between any of the
selling stockholders and any other stockholder, broker, dealer, underwriter,
or
agent relating to the sale or distribution of the shares, nor can we presently
estimate the amount, if any, of such compensation. See “Selling Stockholders”
for description of any material relationship that a stockholder has with us
and
the description of such relationship.
To
the
extent required, the shares of our common stock to be sold, the names of the
selling stockholders, the respective purchase prices and public offering prices,
the names of any agents, dealer or underwriter, any applicable commissions
or
discounts with respect to a particular offer will be set forth in an
accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this
prospectus.
65
In
order
to comply with the securities laws of some states, if applicable, the common
stock may be sold in these jurisdictions only through registered or licensed
brokers or dealers. In addition, in some states the common stock may not be
sold
unless it has been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied
with.
We
have
advised the selling stockholders that the anti-manipulation rules of Regulation
M under the Exchange Act may apply to sales of shares in the market and to
the
activities of the selling stockholders and their affiliates. In addition, we
will make copies of this prospectus (as it may be supplemented or amended from
time to time) available to the selling stockholders for the purpose of
satisfying the prospectus delivery requirements of the Securities Act. The
selling stockholders may indemnify any broker-dealer that participates in
transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act.
We
have
agreed to pay certain fees and expenses incurred by us incident to the
registration of the shares. We have agreed to indemnify the selling stockholders
against liabilities, including liabilities under the Securities Act and state
securities laws, relating to the registration of the shares offered by this
prospectus.
We
have
agreed with the selling stockholders to keep the registration statement of
which
this prospectus constitutes a part effective until the earlier of (1) such
time
as all of the shares covered by this prospectus have been disposed of pursuant
to and in accordance with the registration statement or (2) the date on which
the shares may be sold pursuant to Rule 144(k) of the Securities
Act.
The
validity of the common stock offered by this prospectus will be passed upon
for
us by Gary R. Henrie, Las Vegas, NV.
Novastar's
financial statements for the year ending June 30, 2005 appearing in this
prospectus have been audited by the accounting firm of Telford Sadovnick,
P.L.L.C., independent registered public accounting firm, 114 W. Magnolia Street,
Suite 423, Bellingham, Washington 98225, and Novastar’s financial statements for
the year ending June 30, 2004 appearing in this prospectus have been audited
by
the accounting firm of Morgan and Company, Chartered Accountants, Suite 1488,
700 West Georgia Street, Vancouver, British Columbia V7Y 181 Canada. The
Novastar financial statements are included in this Prospectus in reliance upon
the said report, given upon such firms’ authority as experts in auditing and
accounting.
Thorium
Power's (pre-Merger) financial statements for the years ending December 31,
2005
and 2004 appearing in this prospectus have been audited by the accounting firm
of Child, Van Wagoner & Bradshaw, PLLC, independent registered public
accounting firm, 5296 South Commerce Drive, Suite 300, Salt Lake City, Utah
84107. The Thorium Power (pre-Merger) financial statements are included in
this
Prospectus in reliance upon the said report, given upon such firm's authority
as
an expert in auditing and accounting.
66
We
have
filed with the Securities and Exchange Commission, or SEC, a registration
statement on Form SB-2 under the Securities Act with respect to the common
stock offered in this offering. This prospectus does not contain all of the
information set forth in the registration statement. For further information
with respect to us and the common stock offered in this offering, we refer
you
to the registration statement and to the attached exhibits. With respect to
each
such document filed as an exhibit to the registration statement, we refer you
to
the exhibit for a more complete description of the matters
involved.
You
may
inspect our registration statement and the attached exhibits and schedules
without charge at the Public Reference Room maintained
by the Securities and Exchange Commission at
100 F
Street, N.E. Room 1580, Washington, DC 20549. You may obtain copies of all
or
any part of our registration statement from the SEC upon payment of prescribed
fees. You may obtain information on the operation of the public reference room
by calling the SEC at 1-800-SEC-0330.
Our
SEC
filings, including the registration statement and the exhibits filed with the
registration statement, are also available from the SEC’s website at
www.sec.gov, which contains reports, proxy and information statements and other
information regarding issuers that file electronically with the
SEC.
67
The
following financial statements listed below are included with this prospectus.
These financial statements have been prepared on the basis of accounting
principles generally accepted in the United States and are expressed in U.S.
dollars.
|
UNAUDITED
CONSOLIDATED QUARTERLY FINANCIAL STATEMENTS -
NOVASTAR
|
|
|
Novastar
Consolidated Balance Sheets as of March 31, 2006 and June 30,
2005
|
F-1
|
|
Novastar
Consolidated Statements of Operations for the three months and nine
months
ended March 31, 2006 and 2005 and from the period from June 28, 1999
(inception) to March 31, 2006
|
F-2
|
|
Novastar
Consolidated Statements of Cash Flows for the nine months ended March
31,
2006 and 2005 and from the period from June 28, 1999 (inception)
to March
31, 2006
|
F-3
|
|
Novastar
Consolidated Statement of Stockholders Equity (Deficiency) for the
period
from the period from June 28, 1999 (inception) to March 31,
2006
|
F-4
|
|
Notes
to Unaudited Consolidated Quarterly Financial Statements
|
F-7
|
|
AUDITED
CONSOLIDATED FINANCIAL STATEMENTS - NOVASTAR
|
|
|
Report
of Telford Sadovnick P.L.L.C., Registered Public Accounting Firm
of
Novastar
|
F-20
|
|
Report
of Morgan & Company, Independent Auditor of Novastar
|
F-21
|
|
Novastar
Audited Consolidated Balance Sheets as of June 30, 2005 and
2004
|
F-22
|
|
Novastar
Audited Consolidated Statements of Operations for the year ended
June 30,
2005 and 2004 and from the period from June 28, 1999 (inception)
to June
30, 2005
|
F-23
|
|
Novastar
Audited Consolidated Statements of Cash Flows for the year ended
June 30,
2005 and 2004 and from the period from June 28, 1999 (inception)
to June
30, 2005
|
F-24
|
|
Novastar
Audited Consolidated Statement of Stockholders Equity for the period
from
the period from June 28, 1999 (inception) to June 30, 2005
|
F-25
|
|
Notes
to Audited Consolidated Financial Statements
|
F-28
|
|
UNAUDITED
QUARTERLY FINANCIAL STATEMENTS - THORIUM POWER
|
|
|
Thorium
Power Balance Sheet as of March 31, 2006
|
F-41
|
|
Thorium
Power Statements of Operations for the three months ended March 31,
2006
and 2005 and for the period from January 8, 1992 (inception) to March
31,
2006
|
F-42
|
|
Thorium
Power Statement of Stockholders Equity for the period from January
8, 1992
(inception) to March 31, 2006
|
F-43
|
|
Thorium
Power Statement of Changes in Stockholders Equity for the period
from
January 8, 1992 (inception) to March 31, 2006
|
F-44
|
|
Thorium
Power Statements of Cash Flows for the three months ended March 31,
2006
and 2005 and for the period from January 8, 1992 (inception) to March
31,
2006
|
F-47
|
|
Notes
to Unaudited Quarterly Financial Statements
|
F-49
|
|
AUDITED
FINANCIAL STATEMENTS - THORIUM POWER
|
|
|
Report
of Child Van Wagoner and Bradshaw, PLLC, Independent Auditor to Thorium
Power
|
F-62
|
|
Thorium
Power Audited Balance Sheets as of December 31, 2005 and
2004
|
F-63
|
|
Thorium
Power Audited Statements of Operations for the years ended December
31,
2005 and 2004
|
F-65
|
|
Thorium
Power Audited Statement of Changes in Stockholders Equity for the
period
from January 8, 1992 (inception) to December 31, 2006
|
F-66
|
|
Thorium
Power Audited Statements of Cash Flows for the years ended December
31,
2005 and 2004 and for the period from January 8, 1992 (inception)
to
December 31, 2005
|
F-69
|
|
Notes
to Audited Financial Statements
|
F-71
|
|
UNAUDITED
CONDENSED CONSOLIDATED PRO FORMA FINANCIAL
STATEMENTS
|
F-86
|
(An
Exploration Stage Company)
CONSOLIDATED
BALANCE SHEETS
(Unaudited)
(Stated
in U.S. Dollars)
|
|
MARCH
31
|
JUNE
30
|
|||||
|
|
2006
|
2005
|
|||||
|
|
|
|
|||||
|
ASSETS
|
|||||||
|
Current
|
|||||||
|
Cash
|
$
|
66,516
|
$
|
802
|
|||
|
Restricted cash
|
-
|
94,140
|
|||||
|
Less: Refundable to subscribers of common
stock
|
-
|
(94,140
|
)
|
||||
|
Prepaid expenses
|
258,444
|
-
|
|||||
|
|
324,960
|
802
|
|||||
|
Long
Term Investment
|
700,000
|
-
|
|||||
|
Exploration
Equipment
|
55,290
|
-
|
|||||
|
|
|||||||
|
$
|
1,080,250
|
$
|
802
|
||||
|
|
|||||||
|
LIABILITIES
|
|||||||
|
Current
|
|||||||
|
Accounts payable
|
$
|
306,581
|
$
|
121,438
|
|||
|
Accrued liabilities
|
378,061
|
103,542
|
|||||
|
Due to related party
|
6,863
|
-
|
|||||
|
|
691,505
|
224,980
|
|||||
|
|
|||||||
|
STOCKHOLDERS’
EQUITY (DEFICIENCY)
|
|||||||
|
|
|||||||
|
Share
Capital
|
|||||||
|
Authorized:
|
|||||||
|
250,000,000
voting common shares with a par value
|
|||||||
|
of $0.001 per share
|
|||||||
|
50,000,000 preferred shares with a par value of
|
|||||||
|
$0.001 per share
|
|||||||
|
|
|||||||
|
Issued and outstanding:
|
|||||||
|
112,015,606
common shares (June 30, 2005 -
|
|||||||
|
86,072,532)
|
112,015
|
86,073
|
|||||
|
|
|||||||
|
Additional paid-in capital
|
11,259,343
|
3,832,247
|
|||||
|
|
|||||||
|
Share
Subscriptions Received
|
250,000
|
-
|
|||||
|
Common
Share Purchase Warrants
|
352,918
|
495,834
|
|||||
|
Shares
Committed For Issuance
|
4,150,000
|
-
|
|||||
|
Accumulated
Deficit
|
(15,037,919
|
)
|
(4,138,365
|
)
|
|||
|
Deferred
Stock Compensation
|
(697,612
|
)
|
(499,967
|
)
|
|||
|
|
388,745
|
(224,178
|
)
|
||||
|
$
|
1,080,250
|
$
|
802
|
||||
The
accompanying notes are an integral part of these financial
statements
F-1
NOVASTAR
RESOURCES LTD.
(An
Exploration Stage Company)
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
(Stated
in U.S. Dollars)
|
|
|
|
|
|
CUMULATIVE
|
|||||||||||
|
|
|
|
|
|
PERIOD
FROM
|
|||||||||||
|
|
|
|
|
|
INCEPTION
|
|||||||||||
|
|
|
|
|
|
JUNE
18
|
|||||||||||
|
|
THREE
MONTHS ENDED
|
NINE
MONTHS ENDED
|
1999
TO
|
|||||||||||||
|
|
MARCH
31
|
MARCH
31
|
MARCH
31
|
|||||||||||||
|
|
2006
|
2005
|
2006
|
2005
|
2006
|
|||||||||||
|
|
|
|
|
|
|
|||||||||||
|
Revenue
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
184,162
|
||||||
|
|
||||||||||||||||
|
Expenses
|
||||||||||||||||
|
Consulting
|
1,219,379
|
833,048
|
3,362,399
|
833,048
|
5,860,312
|
|||||||||||
|
Interest attributable to
|
||||||||||||||||
|
beneficial
conversion
|
||||||||||||||||
|
feature for notes
|
||||||||||||||||
|
payable
|
-
|
411,693
|
-
|
442,813
|
579,379
|
|||||||||||
|
Interest - other
|
-
|
-
|
-
|
-
|
678
|
|||||||||||
|
Public relations
|
37,167
|
-
|
132,785
|
-
|
276,128
|
|||||||||||
|
Legal
|
246,704
|
-
|
273,776
|
-
|
483,372
|
|||||||||||
|
General and
|
||||||||||||||||
|
administrative
|
58,488
|
77,439
|
69,994
|
80,526
|
990,117
|
|||||||||||
|
Accounting
|
7,811
|
-
|
50,113
|
-
|
128,981
|
|||||||||||
|
Forgiveness of debt
|
-
|
-
|
-
|
-
|
(169,818
|
)
|
||||||||||
|
Mineral property
|
||||||||||||||||
|
acquisition costs
|
-
|
-
|
1,720,544
|
-
|
1,770,544
|
|||||||||||
|
Mineral property
|
||||||||||||||||
|
exploration
|
||||||||||||||||
|
expenses
|
224,946
|
-
|
269,608
|
-
|
269,608
|
|||||||||||
|
Cancellation costs
|
(1,754,166
|
)
|
-
|
-
|
-
|
-
|
||||||||||
|
Stock based
|
||||||||||||||||
|
compensation
|
5,020,335
|
-
|
5,020,335
|
-
|
5,020,335
|
|||||||||||
|
Write down of
|
||||||||||||||||
|
equipment
|
-
|
-
|
-
|
-
|
12,445
|
|||||||||||
|
|
5,060,664
|
1,322,180
|
10,899,554
|
1,356,387
|
15,222,081
|
|||||||||||
|
|
||||||||||||||||
|
Net
Loss For The Period
|
$
|
(5,060,664
|
)
|
$
|
(1,322,180
|
)
|
$
|
(10,899,554
|
)
|
$
|
(1,356,387
|
)
|
$
|
(15,037,919
|
)
|
|
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Net
Loss Per Common
|
||||||||||||||||
|
Share,
Basic and diluted
|
$
|
(0.04
|
)
|
$
|
(0.02
|
)
|
$
|
(0.11
|
)
|
$
|
(0.03
|
)
|
||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Weighted
Average
|
||||||||||||||||
|
Number Of Shares
|
||||||||||||||||
|
Outstanding
|
130,887,505
|
65,722,532
|
103,148,271
|
50,110,123
|
||||||||||||
The
accompanying notes are an integral part of these financial
statements
F-2
NOVASTAR
RESOURCES LTD.
(An
Exploration Stage Company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(Stated
in U.S. Dollars)
|
|
|
|
CUMULATIVE
|
|||||||
|
|
|
|
PERIOD
FROM
|
|||||||
|
|
|
|
JUNE
28, 1999
|
|||||||
|
|
NINE
MONTHS ENDED
|
(INCEPTION)
TO
|
||||||||
|
|
MARCH
31
|
MARCH
31
|
||||||||
|
|
2006
|
2005
|
2006
|
|||||||
|
|
|
|
|
|||||||
|
Cash
provided by (used in):
|
|
|
|
|||||||
|
Operating
Activities
|
|
|
|
|||||||
|
Loss for the period
|
$
|
(10,899,554
|
)
|
$
|
(1,356,387
|
)
|
$
|
(15,037,919
|
)
|
|
|
Items not involving cash:
|
||||||||||
|
Shares issued for other
than cash
|
10,028,491
|
733,048
|
12,413,024
|
|||||||
|
Interest attributable to
beneficial conversion feature for notes payable
|
||||||||||
|
Amortization of
equipment
|
2,910
|
117
|
6,723
|
|||||||
|
Forgiveness of
debt
|
-
|
-
|
(169,818
|
)
|
||||||
|
Write down of
equipment
|
-
|
-
|
12,445
|
|||||||
|
Changes in non-cash operating working capital
items:
|
||||||||||
|
Accounts
payable and accrued liabilities
|
459,662
|
72,528
|
854,460
|
|||||||
|
Due to
related party
|
44,363
|
-
|
44,363
|
|||||||
|
Prepaid
expenses
|
(258,444
|
)
|
-
|
(258,444
|
)
|
|||||
|
Net
Cash Used In Operating Activities
|
(622,572
|
)
|
(107,881
|
)
|
(1,555,787
|
)
|
||||
|
|
||||||||||
|
Investing
Activities
|
||||||||||
|
Purchase of equipment
|
(58,200
|
)
|
-
|
(60,008
|
)
|
|||||
|
Acquisition of long term investment
|
(700,000
|
)
|
-
|
(700,000
|
)
|
|||||
|
Net
Cash Used In Investing Activities
|
(758,200
|
)
|
-
|
(760,008
|
)
|
|||||
|
|
||||||||||
|
Financing
Activities
|
||||||||||
|
Proceeds from loan payable to
shareholder
|
-
|
-
|
16,097
|
|||||||
|
Issue of common shares
|
1,596,486
|
-
|
1,615,436
|
|||||||
|
Share subscriptions received
|
250,000
|
-
|
250,000
|
|||||||
|
Cash paid for redemption of shares
|
(400,000
|
)
|
-
|
(400,000
|
)
|
|||||
|
Advances on notes payable
|
-
|
107,881
|
900,000
|
|||||||
|
Cash acquired on acquisition of
subsidiary
|
-
|
-
|
778
|
|||||||
|
Net
Cash Provided By Financing Activities
|
1,446,486
|
107,881
|
2,382,311
|
|||||||
|
|
||||||||||
|
Net
Increase (Decrease) In Cash
|
65,714
|
-
|
66,516
|
|||||||
|
|
||||||||||
|
Cash,
Beginning Of Period
|
802
|
-
|
-
|
|||||||
|
|
||||||||||
|
Cash,
End Of Period
|
$
|
66,516
|
$
|
-
|
$
|
66,516
|
||||
|
|
||||||||||
|
Supplemental
Disclosure of Cash Flow Information
|
||||||||||
|
Cash paid during the period:
|
||||||||||
|
Interest
paid
|
$
|
-
|
$
|
-
|
$
|
-
|
||||
|
Income taxes
paid
|
$
|
-
|
$
|
-
|
$
|
-
|
||||
The
accompanying notes are an integral part of these financial
statements
F-3
NOVASTAR
RESOURCES LTD.
(An
Exploration Stage Company)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIENCY)
PERIOD
FROM JUNE 28, 1999 (INCEPTION) TO MARCH 31, 2006
(Unaudited)
(Stated
in U.S. Dollars)
|
|
|
|
|
|
|
|
SHARES
|
|
|
||||||||||||||||||||||
|
|
|
|
COMMON
STOCK
|
ADDITIONAL
|
|
SHARE
|
COMMITTED
|
|
|
||||||||||||||||||||||
|
|
COMMON
STOCK
|
PURCHASE
WARRANTS
|
PAID-IN
|
DEFERRED
|
SUBSCRIPTIONS
|
FOR
|
ACCUMULATED
|
|
|||||||||||||||||||||||
|
|
SHARES
|
AMOUNT
|
WARRANTS
|
AMOUNT
|
CAPITAL
|
COMPENSATION
|
RECEIVED
|
ISSUANCE
|
DEFICIT
|
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
|
(1,445
|
)
|
(1
|
)
|
-
|
-
|
16,098
|
-
|
-
|
-
|
-
|
16,097
|
|||||||||||||||||||
|
payable to shareholder
|
|||||||||||||||||||||||||||||||
|
|
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,
|
25,000,000
|
25,000
|
-
|
-
|
(9,772
|
)
|
-
|
-
|
-
|
-
|
15,228
|
||||||||||||||||||||
|
Inc.
|
|||||||||||||||||||||||||||||||
|
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
|
)
|
|||||||||||||||||||
F-4
NOVASTAR
RESOURCES LTD.
(An
Exploration Stage Company)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIENCY) (Continued)
PERIOD
FROM JUNE 28, 1999 (INCEPTION) TO MARCH 31, 2006
(Unaudited)
(Stated
in U.S. Dollars)
|
|
|
|
|
|
|
|
|
SHARES
|
|
|
|||||||||||||||||||||
|
|
|
|
COMMON
STOCK
|
ADDITIONAL
|
|
SHARE
|
COMMITTED
|
|
|
||||||||||||||||||||||
|
|
COMMON
STOCK
|
PURCHASE
WARRANTS
|
PAID-IN
|
DEFERRED
|
SUBSCRIPTIONS
|
FOR
|
ACCUMULATED
|
|
|||||||||||||||||||||||
|
|
SHARES
|
AMOUNT
|
WARRANTS
|
AMOUNT
|
CAPITAL
|
COMPENSATION
|
RECEIVED
|
ISSUANCE
|
DEFICIT
|
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 and warrants for
|
|||||||||||||||||||||||||||||||
|
convertible notes
|
20,000,000
|
20,000
|
20,000,000
|
495,834
|
484,166
|
-
|
-
|
-
|
-
|
1,000,000
|
|||||||||||||||||||||
|
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
|
20,000,000
|
495,834
|
3,832,247
|
(499,967
|
)
|
-
|
-
|
(4,138,365
|
)
|
(224,178
|
)
|
||||||||||||||||||
F-5
NOVASTAR
RESOURCES LTD.
(An
Exploration Stage Company)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIENCY) (Continued)
PERIOD
FROM JUNE 28, 1999 (INCEPTION) TO MARCH 31, 2006
(Unaudited)
(Stated
in U.S. Dollars)
|
|
|
|
|
|
|
|
|
SHARES
|
|
|
|||||||||||||||||||||
|
|
|
|
COMMON
STOCK
|
ADDITIONAL
|
|
SHARE
|
COMMITTED
|
|
|
||||||||||||||||||||||
|
|
COMMON
STOCK
|
PURCHASE
WARRANTS
|
PAID-IN
|
DEFERRED
|
SUBSCRIPTIONS
|
FOR
|
ACCUMULATED
|
|
|||||||||||||||||||||||
|
|
SHARES
|
AMOUNT
|
WARRANTS
|
AMOUNT
|
CAPITAL
|
COMPENSATION
|
RECEIVED
|
ISSUANCE
|
DEFICIT
|
TOTAL
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Balance,
June 30, 2005
|
86,072,532
|
$
|
86,073
|
20,000,000
|
$
|
495,834
|
$
|
3,832,247
|
$
|
(499,967
|
)
|
$
|
-
|
$
|
-
|
$
|
(4,138,365
|
)
|
$
|
(224,178
|
)
|
||||||||||
|
|
|||||||||||||||||||||||||||||||
|
Issuance
of common stock for services
|
17,358,078
|
17,358
|
-
|
-
|
3,578,443
|
-
|
-
|
-
|
-
|
3,595,801
|
|||||||||||||||||||||
|
Issuance
of common
|
|||||||||||||||||||||||||||||||
|
stock and warrants for settlement debt
|
249,999
|
250
|
124,999
|
7,569
|
29,681
|
-
|
-
|
-
|
-
|
37,500
|
|||||||||||||||||||||
|
Issuance
of common stock for property
|
|||||||||||||||||||||||||||||||
|
acquisition
|
6,000,000
|
6,000
|
-
|
-
|
1,604,000
|
-
|
-
|
-
|
-
|
1,610,000
|
|||||||||||||||||||||
|
Private
placement for issuance of common
|
|||||||||||||||||||||||||||||||
|
stock, warrants and subscriptions
|
|||||||||||||||||||||||||||||||
|
received
|
7,334,997
|
7,334
|
3,667,499
|
345,349
|
1,243,803
|
-
|
250,000
|
-
|
-
|
1,846,486
|
|||||||||||||||||||||
|
Cancellation
of warrants
|
-
|
-
|
(20,000,000
|
)
|
(495,834
|
)
|
495,834
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
|
Issuance
of shares 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
|
-
|
-
|
-
|
-
|
-
|
(697,612
|
)
|
-
|
-
|
-
|
(697,612
|
)
|
|||||||||||||||||||
|
Repurchase
of issued shares
|
(5,000,000
|
)
|
(5,000
|
)
|
-
|
-
|
(395,000
|
)
|
-
|
-
|
-
|
-
|
(400,000
|
)
|
|||||||||||||||||
|
Shares
returned to treasury
|
(15,000,000
|
)
|
(15,000
|
)
|
-
|
-
|
(1,739,166
|
)
|
-
|
-
|
-
|
-
|
(1,754,166
|
)
|
|||||||||||||||||
|
Shares
committed for issuance
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
4,150,000
|
-
|
4,150,000
|
|||||||||||||||||||||
|
Stock
based compensation
|
-
|
-
|
-
|
-
|
870,335
|
-
|
-
|
-
|
-
|
870,335
|
|||||||||||||||||||||
|
Net
loss for the period
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(10,899,554
|
)
|
(10,899,554
|
)
|
|||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||
|
Balance,
March 31, 2006
|
112,015,606
|
$
|
112,015
|
3,792,498
|
$
|
352,918
|
$
|
11,259,343
|
$
|
(697,612
|
)
|
$
|
250,000
|
$
|
4,150,000
|
$
|
(15,037,919
|
)
|
$
|
388,745
|
|||||||||||
|
|
|||||||||||||||||||||||||||||||
|
Deficit
accumulated during the
|
|||||||||||||||||||||||||||||||
|
development stage
|
$
|
(1,351,419
|
)
|
||||||||||||||||||||||||||||
|
Deficit
accumulated during the
|
|||||||||||||||||||||||||||||||
|
exploration stage
|
(13,686,500
|
)
|
|||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||
|
Balance,
March 31, 2006
|
$
|
(15,037,919
|
)
|
||||||||||||||||||||||||||||
The
accompanying notes are an integral part of these financial
statements
F-6
NOVASTAR
RESOURCES LTD.
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2006
(Unaudited)
(Stated
in U.S. Dollars)
|
1.
|
BASIS
OF PRESENTATION
|
|
|
|
|
|
The
unaudited financial information furnished herein reflects all adjustments,
which in the opinion of management are necessary to fairly state
the
Company’s interim financial position and the results of its operations
for
the periods presented. This report on Form 10-QSB should be read
in
conjunction with the Company’s financial statements and notes thereto
included in the Company’s Form 10-KSB/A for the fiscal year ended June 30,
2005. The Company assumes that the users of the interim financial
information herein have read or have access to the audited financial
statements for the preceding fiscal year and that the adequacy
of
additional disclosure needed for a fair presentation may be determined
in
that context. Accordingly, footnote disclosure, which would substantially
duplicate the disclosure contained in the Company’s Form 10-KSB/A for the
fiscal year ended June 30, 2005, has been omitted. The results
of
operations for the nine-month period ended March 31, 2006 are not
necessarily indicative of results for the entire fiscal year ending
June
30, 2006.
|
|
|
|
|
2.
|
NATURE
OF OPERATIONS AND GOING CONCERN
|
|
|
|
|
|
Novastar
Resources Ltd. (the “Company”) was previously a development stage company
engaged in the business of providing turnkey private label internet
services to organizations throughout the domestic United States
and
Canada. Commencing July 1, 2003 the Company became an exploration
stage
company engaged in the acquisition and exploration of mineral claims.
Upon
location of a commercial minable reserve, the Company expects to
actively
prepare the site for its extraction and enter a development
stage.
|
|
|
|
|
|
During
the year ended June 30, 2005 the Company changed its name from
Custom
Branded Networks, Inc. and increased its authorized common shares
from
50,000,000 shares to 250,000,000 shares and also authorized 50,000,000
preferred shares for issuance at a par value of $0.001.
|
|
|
|
|
|
Going
Concern
|
|
|
|
|
|
The
accompanying consolidated financial statements have been prepared
assuming
the Company will continue as a going
concern.
|
F-7
NOVASTAR
RESOURCES LTD.
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2006
(Unaudited)
(Stated
in U.S. Dollars)
|
2.
|
NATURE
OF OPERATIONS AND GOING CONCERN
(Continued)
|
|
|
|
|
|
|
|
As
shown in the accompanying financial statements, the Company has
incurred a
net loss of $15,037,919 since inception, and has had minimal sales.
The
future of the Company is dependent upon its ability to obtain financing
and upon future profitable operations from the development of its
mineral
claims. Management has plans to seek additional capital through
a private
placement or public offering of its common stock (See Note 14 (a)).
The
consolidated financial statements do not include any adjustments
relating
to the recoverability and classification of recorded assets, or
the
amounts of and classification of liabilities that might be necessary
in
the event the Company cannot continue in existence.
|
|
|
|
|
|
|
3.
|
RESTRICTED
CASH
|
|
|
|
|
|
|
|
During
the year ended June 30, 2005 proceeds totaling $94,140 were received
in
accordance with a planned private placement of common stock scheduled
to
close subsequent to the year end. This private placement was terminated
and no shares of the Company were issued. During the period ended
March
31, 2006, $89,140 was reimbursed to the subscribers in cash, while
the
balance was used, with the consent of the subscribers, towards
a private
placement that closed in the period .
|
|
|
|
|
|
|
4.
|
LONG
TERM INVESTMENT
|
|
|
|
|
|
|
|
As
disclosed in Note 13, as at March 31, 2006 the Company has invested
a
total of $700,000 in Thorium Power Inc. (“Thorium Power”). The investment
consists of 175,000 common shares of Thorium Power purchased at
$4.00 per
share. The Company’s investment of less than 5% of the common stock of
Thorium Power is carried at cost because the Company does not exercise
influence over Thorium Power’s operating and financial
activities.
|
|
|
|
|
|
|
5.
|
MINERAL
PROPERTIES
|
|
|
|
|
|
|
|
a)
|
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, who has
subsequently become an officer of the Company, for consideration
of
$100,000 cash (paid as at March 31, 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.
|
F-8
NOVASTAR
RESOURCES LTD.
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2006
(Unaudited)
(Stated
in U.S. Dollars)
|
5.
|
MINERAL
PROPERTIES
(Continued)
|
|
|
|
|
|
|
|
b)
|
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 North
Queensland, Australia. This agreement was replaced and superceded
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;
|
|
|
ii)
|
an
additional $150,000 by December 31, 2007;
|
|
|
iii)
|
an
additional $140,000 by December 31, 2008;
|
|
|
iv)
|
an
additional $140,000 by December 31, 2009;
|
|
|
v)
|
an
additional $140,000 by December 31,
2010.
|
The
vendor retains a 2.5% net smelter return royalty on the property.
On
February 20, 2006 the Company repurchased the 5,000,000 common shares from
the
vendor for cash consideration of $400,000. The Company can still acquire
the
100% interest by incurring the exploration expenditures disclosed above.
Once
returned to the Company’s treasury, the 5,000,000 shares were
cancelled.
|
|
c)
|
On
December 31, 2005 the Company entered into an agreement whereby
certain
mineral leases in the Cleburne and Clay County Districts of Alabama
are to
be assigned to the Company. The Company will assume 51% of a lease
held by
the lessee, who subsequently become an officer of the Company but
no
longer served as an officer as at March 31, 2006, for consideration
of
2,000,000 restricted common shares of the Company (not issued as
at March
31, 2006). 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.
|
F-9
NOVASTAR
RESOURCES LTD.
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2006
(Unaudited)
(Stated
in U.S. Dollars)
|
6.
|
CONVERTIBLE
NOTE PAYABLE
|
||
|
|
|
|
|
|
|
On
January, 31, 2002 the Company executed $1,000,000 aggregate principal
amount of convertible notes due not earlier than January 31, 2009.
These
notes were secured by the assets of the Company. The Company received
$1,000,000 in advances through to June 20, 2005 (2004 - $892,119),
including in-kind consideration of $100,000. The notes bore no
interest
until the maturity date.
|
||
|
|
|
|
|
|
|
On
January 20, 2005 the Company issued 20,000,000 common shares at
a price of
$0.05 per share, and 20,000,000 warrants, for the purchase of 20,000,000
shares of common stock of the Company, to the holder on conversion
of the
notes. The warrants are exercisable at a price of $0.05 per share
until
January 20, 2008. The warrants were valued using the Black Scholes
option
pricing model using the following assumptions: weighted average
expected
life of 3 years, volatility of 284%, rate of quarterly dividends
- $nil,
risk free interest rate of 3.5%. The $1,000,000 consideration was
allocated to the common stock and share purchase warrants based
upon their
relative fair values on the date of conversion. The amount allocated
to
the common shares issued was $504,166. The amount allocated to
the share
purchase warrants was $495,834.
|
||
|
|
|
|
|
|
|
Because
the market interest rate on similar types of notes was approximately
14%
per annum the day the notes were issued, the Company had recorded
a
discount of $579,378 related to the beneficial conversion feature.
During
the year ended June 30, 2005, $442,813 (2004 - $55,170) was amortized
and
recorded as interest expense. The discount was fully amortized
as interest
expense upon conversion.
|
||
|
|
|
|
|
|
|
During
the period ended March 31, 2006 the share purchase warrants were
cancelled
by mutual agreement of the holder and the Company, in return for
15,000,000 shares of the Company’s common stock.
|
||
|
|
|
|
|
|
|
On
February 20, 2006 the holder returned all 15,000,000 shares to
the
Company’s treasury for cancellation. The Company did not compensate the
holder for the return of the shares.
|
||
|
|
|
|
|
|
7.
|
SHARE
CAPITAL
|
||
|
|
|
|
|
|
|
i)
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
a)
|
On
August 3, 2005 the Company issued 800,000 restricted shares of
common
stock to its advisory board as compensation for consulting services
performed (Note 11(c)). The value attributed to these shares was
$128,000
($0.16 per share).
|
F-10
NOVASTAR
RESOURCES LTD.
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2006
(Unaudited)
(Stated
in U.S. Dollars)
|
7.
|
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 services rendered.
Of
the total issuance, 4,000,000 were issued pursuant to the March
2005
Compensation Plan (Note 11(a)), while 187,500 were issued pursuant
to the
August 2005 Augmented Compensation Plan (Note 11(b)). The value
attributed
to these shares was $462,828 ($0.11 per share).
|
|
|
|
|
|
|
|
|
c)
|
On
September 30, 2005 the Company issued 300,000 shares of common
stock to an
outside consultant as payment for services rendered. These shares
were
issued pursuant to the August 2005 Augmented Compensation Plan
(Note
11(b)), 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) for mineral property acquisition
costs, as described in note 5(a).
|
|
|
|
|
|
|
|
|
e)
|
On
October 21, 2005 the Company issued 5,000,000 restricted common
shares
with value of $1,450,000 ($0.29 per share) for mineral property
acquisition costs, as described in note 5(b).
|
|
|
|
|
|
|
|
|
f)
|
On
November 1, 2005 the Company issued 300,000 shares of common stock
to an
outside consultant as payment for his services rendered. These
shares were
issued pursuant to the August 2005 Augmented Compensation Plan
(Note
11(b)) 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 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 -
$Nil, 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.
|
F-11
NOVASTAR
RESOURCES LTD.
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2006
(Unaudited)
(Stated
in U.S. Dollars)
|
7.
|
SHARE
CAPITAL
(Continued)
|
||
|
|
|
|
|
|
|
i)
|
Common
Stock (Continued)
|
|
|
|
|
|
|
|
|
|
h)
|
On
December 1, 2005 the Company issued 15,000,000 shares of common
stock as
compensation for the cancellation of 20,000,000 share purchase
warrants,
which were issued during the year ended June 30, 2005 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 4,158,333 shares of common stock to
various outside consultants as payment for services rendered. The
total
issuance was pursuant to the August 2005 Augmented Compensation
Plan (Note
11(b)). The value attributed to these shares was $706,916 ($0.17
per
share).
|
|
|
|
|
|
|
|
|
j)
|
On
December 1, 2005 the Company issued 1,000,000 shares of common
stock to an
outside consultant as payment for their services rendered. The
value
attributable to these shares was $150,000 ($0.15 per
share).
|
|
|
|
|
|
|
|
|
k)
|
On
December 1, 2005 the Company issued 300,000 shares of common stock
to an
outside consultant as payment for his services rendered. These
shares were
issued pursuant to the August 2005 Augmented Compensation Plan
(Note
11(b)) and the value attributed to these shares was $51,000 ($0.17
per
share).
|
|
|
|
|
|
|
|
|
l)
|
On
January 9, 2006 the Company issued 355,714 shares of 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 $0.293 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 services rendered. The
total
issuance was pursuant to the August 2005 Augmented Compensation
Plan (Note
11(b)). The value attributed to these shares was $527,000 ($0.17
per
share).
|
|
|
|
|
|
|
|
|
n)
|
On
January 24, 2006 the Company issued 181,428 shares of 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 $0.293
per
share for total consideration of
$53,132.
|
F-12
NOVASTAR
RESOURCES LTD.
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2006
(Unaudited)
(Stated
in U.S. Dollars)
|
7.
|
SHARE
CAPITAL
(Continued)
|
||
|
|
|
|
|
|
|
i)
|
Common
Stock (Continued)
|
|
|
|
|
|
|
|
|
|
o)
|
On
January 27, 2006 the Company issued 150,000 shares of 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 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 $0.293
per
share for total consideration of $39,695.
|
|
|
|
|
|
|
|
|
q)
|
On
February 13, 2006 the Company issued 2,389,558 shares of 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
6.
|
|
|
|
|
|
|
|
|
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
5(b).
|
|
|
|
|
|
|
|
|
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
are
to be used to complete the proposed merger with Thorium Power Inc.
as
described in Note 12. Each unit consists of one share of common
stock and
one-half of a non-transferable share purchase warrant. Each whole
warrant
entitles the holder 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 $Nil, risk free interest rate of 2.86%. The amount allocated
to
the share purchase warrants was $225,450. As at March 31, 2006,
the
Company has an obligation to issue a further 833,333 units to various
subscribers pursuant to this private placement (issued
subsequently).
|
The
Company valued all shares issued in the nine month period ended March 31,
2006
using exchange amounts of the Company’s common stock as of the agreement
dates.
F-13
NOVASTAR
RESOURCES LTD.
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2006
(Unaudited)
(Stated
in U.S. Dollars)
|
7.
|
SHARE
CAPITAL
(Continued)
|
||
|
|
|
|
|
|
|
ii)
|
Stock
Options
|
|
|
|
|
|
|
|
|
|
On
February 14, 2006 the Company approved the 2006 Stock Option Plan
(the
“Plan”) for directors, employees and consultants of the Company. The
Company has reserved up to 20,000,000 shares of common stock of
its
unissued share capital for the Plan. Other limitations are as
follows:
|
|
|
|
|
|
|
|
|
|
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.
|
The
following is a summary of the stock option activity for the period ended
March
31, 2006:
|
|
|
WEIGHTED
|
|||||
|
|
NUMBER
|
AVERAGE
|
|||||
|
|
OF
|
EXERCISE
|
|||||
|
|
SHARES
|
PRICE
|
|||||
|
|
|
|
|||||
|
Outstanding,
June 30, 2005
|
-
|
$
|
-
|
||||
|
|
|||||||
|
Granted
|
7,200,000
|
0.80
|
|||||
|
Expired
|
-
|
-
|
|||||
|
|
|||||||
|
Outstanding,
March 31, 2006
|
7,200,000
|
$
|
0.80
|
||||
The
following is a summary of the status of stock options exercisable at March
31,
2006:
|
|
|
|
|
WEIGHTED
|
|
|
|
|
|
AVERAGE
|
|
NUMBER
|
|
|
|
REMAINING
|
|
OF
|
|
EXERCISE
|
|
CONTRACTUAL
|
|
OPTIONS
|
|
PRICE
|
|
LIFE
(YEARS)
|
|
|
|
|
|
|
|
1,050,000
|
|
$
0.80
|
|
9.917
|
F-14
NOVASTAR
RESOURCES LTD.
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2006
(Unaudited)
(Stated
in U.S. Dollars)
|
7.
|
SHARE
CAPITAL
(Continued)
|
|
|
|
|
|
|
|
iii)
|
Stock
Based Compensation
|
|
|
|
|
|
|
|
During
the period ended March 31, 2006 the Company granted options to
purchase
7,200,000 shares at $0.80 per share. The options will vest over
a period
of 42 months; with 6/48 vesting immediately and 1/48 vesting each
month
thereafter.
|
|
|
|
|
|
|
|
The
fair value of options granted has been estimated on the date of
the grant
using the Black-Scholes option pricing model. The fair value of
options
granted during the year is $0.83 (2004 - $Nil).
|
|
|
|
|
|
|
|
Assumptions
used in the option-pricing model are as
follows:
|
|
|
2005
|
|
|
|
|
Average
risk-free interest rate
|
4.33%
|
|
Average
expected life
|
5
years
|
|
Expected
volatility
|
284%
|
|
Expected
dividends
|
Nil
|
During
the period ended March 31, 2006, $870,335 was recorded as stock based
compensation expense to the statement of operations as the result of stock
option grants.
|
8.
|
DEFERRED
COMPENSATION
|
|
|
|
|
|
|
|
a)
|
On
June 1, 2005 the Company entered into a consulting agreement with
two
consultants whereby the consultants were issued 4,600,000 common
shares at
$0.13 per share. The terms of the agreements are for 6 months.
Amortization is taken on a monthly basis over the term of the agreement.
As at March 31, 2006, this amount was fully amortized.
|
|
|
|
|
|
|
b)
|
On
August 15, 2005 the Company entered into consulting agreements
with two
consultants, whereby the consultants were to be issued shares on
certain
dates over the 8 month terms of the
agreements.
|
F-15
NOVASTAR
RESOURCES LTD.
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2006
(Unaudited)
(Stated
in U.S. Dollars)
|
8.
|
DEFERRED
COMPENSATION
(Continued)
|
|
|
|
On
December 1, 2005 these consultants were issued 1,060,000 common
shares at
$0.17 per share on an accelerated basis. Amortization is taken
on a
monthly basis over the remainder of the terms. As at March 31,
2006,
$21,250 has yet to be amortized from this accelerated
issuance.
|
|
|
|
|
|
|
c)
|
On
January 11, 2006 the Company issued an aggregate of 3,100,000 common
shares to various consultants at $0.17 per share pursuant to various
consulting agreements. A portion of these shares were issued on
an
accelerated basis. Amortization is taken on a monthly basis over
the
remainder of the terms. As at March 31, 2006, $676,362 has yet
to be
amortized from this accelerated
issuance.
|
|
9.
|
RELATED
PARTIES
|
|
|
a)
|
During
the nine month period ended March 31, 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. As at March 31, 2006 this individual
was
no longer an officer of the Company.
|
|
|
|
|
|
|
|
Pursuant
to the consulting agreement disclosed in Note 12(a), the Company
incurred
$9,000 in consulting fees to this individual for the period ended
March
31, 2006. $6,000 was paid in cash, while the remainder was owing
as at
March 31, 2006, such that the outstanding balance payable to this
individual as at March 31, 2006 is $4,613.
|
|
|
|
|
|
|
|
During
the nine month period ending March 31, 2006 this individual was
issued on
aggregate of 2,050,000 common shares of the Company for consulting
services rendered. The value of these services totaled $348,500
($0.17 per
share).
|
|
|
|
|
|
|
b)
|
During
the nine month period ended March 31, 2006 an 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 5(a). As at March 31, 2006 this individual was no longer
an
officer of the Company.
|
|
|
|
|
|
|
|
Pursuant
to the consulting agreement disclosed in Note 12(b), the Company
incurred
$26,250 in consulting fees to this individual for the period ended
March
31, 2006. $24,000 was in paid in cash, while the remainder was
owing as at
March 31, 2006, such that the outstanding balance payable to this
individual as at March 31, 2006 is
$2,250.
|
F-16
NOVASTAR
RESOURCES LTD.
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2006
(Unaudited)
(Stated
in U.S. Dollars)
|
9.
|
RELATED
PARTIES
(Continued)
|
|
|
|
|
|
|
|
During
the nine month period ended March 31, 2006 this individual was
issued an
aggregate 1,000,000 common shares of the Company for consulting
services
rendered. The value of these services totalled $170,000 ($0.17
per
share).
|
|
|
|
|
|
|
10.
|
SUPPLEMENTAL
DISCLOSURE ON NON-CASH FINANCING AND INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
During
the nine month period ended March 31, 2006 the Company had the
following
non- cash financing and investing activities:
|
|
|
|
|
|
|
|
a)
|
The
Company issued 16,685,391 common shares to consultants for consulting
services provided to the Company with value of
$3,398,802.
|
|
|
|
|
|
|
b)
|
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
5(a) and 5(b).
|
|
|
|
|
|
|
|
On
February 20, 2006, 5,000,000 of these shares were returned to the
Company’s treasury for cancellation.
|
|
|
|
|
|
|
c)
|
The
Company issued 15,000,000 common shares to an individual as compensation
for 20,000,000 share purchase warrants that were cancelled as described
in
Note 7(h). On February 20, 2006 all 15,000,000 of these shares
were
returned to the Company’s treasury for cancellation.
|
|
|
|
|
|
11.
|
CONSULTING
AGREEMENTS
|
|
|
|
|
|
|
|
a)
|
On
March 3, 2005 the Company filed a registration statement dated
March 10,
2005, relating to the offer and sale of up to 20,000,000 shares
of its
common stock to outside consultants in payment for services rendered,
pursuant to the 2005 Compensation Plan for Outside Consultants
that was
approved by the board of directors. At March 31, 2006, all of the
shares
have been issued under this
prospectus.
|
F-17
NOVASTAR
RESOURCES LTD.
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2006
(Unaudited)
(Stated
in U.S. Dollars)
|
11.
|
CONSULTING
AGREEMENTS
(Continued)
|
|
|
|
|
|
|
|
b)
|
On
August 18, 2005 the Company filed a registration statement relating
to the
offer and sale of up to 20,000,000 shares of its common stock to
outside
consultants in payment of services rendered, pursuant to the 2005
Augmented Compensation Plan for Outside Consultants as approved
by the
board of directors. It then entered into various consulting agreements
with outside consultants to provide certain consulting services
to the
Company. Compensation is by way of issuance of an aggregate of
11,875,000
shares of common stock of the Company over the term of the agreements.
As
at March 31, 2006, 8,345,833 shares have been issued, having a
value of
$1,418,523 ($0.17 per share).
|
|
|
|
|
|
|
c)
|
On
September 30, 2005 the Company issued 800,000 restricted shares
of common
stock to its advisory board, having a value of $128,000 ($0.16
per
share).
|
|
|
|
|
|
12.
|
COMMITMENTS
AND CONTRACTUAL OBLIGATIONS
|
|
|
|
|
|
|
|
a)
|
On
January 1, 2006 the Company entered into a consulting agreement
with an
officer and a director whereby the Company is obligated to pay
$3,000 per
month for a period of six months. This individual resigned as an
officer
on March 17, 2006.
|
|
|
|
|
|
|
b)
|
On
August 15, 2005 the Company entered into a consulting agreement
with an
officer and a director whereby the Company is obligated to pay
$3,500 per
month for a period of eight months. This individual resigned as
an officer
on March 17, 2006.
|
|
|
|
|
|
|
c)
|
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.
|
|
|
|
|
|
|
d)
|
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.
|
|
|
|
|
|
|
e)
|
On
February 14, 2006 the Company entered into an employment contract
with an
individual whereby the Company is obligated to pay an annual salary
of
$275,000, issue 5,000,000 shares of the Company’s common stock, and grant
7,200,000 stock options (granted as at March 31, 2006). A total
value of
$4,150,000 has been attributed to the common shares committed for
issuance, which was recorded as stock based compensation to the
statement
of operations. This individual was appointed an officer of the
Company on
March 17, 2006.
|
F-18
NOVASTAR
RESOURCES LTD.
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2006
(Unaudited)
(Stated
in U.S. Dollars)
|
13.
|
DEFINITIVE
MERGER AGREEMENT
|
|
|
|
|
|
|
|
On
February 14, 2006 the Company entered into a Definitive Merger
Agreement
(“Agreement and Plan of Merger”) for a business combination with Thorium
Power, Inc. (“Thorium Power”). Under the Agreement and Plan of Merger,
each common share of Thorium Power will be converted into securities
of
the Company pursuant to a conversion ratio formula. The combined
company
will operate under the name of Thorium Power Ltd. The merger transaction
is subject to certain conditions precedent, including an increase
in the
Company’s authorized share capital and the declaration of the
effectiveness of a registration statement by the Securities and
Exchange
Commission. Other conditions precedent include that since January
1, 2006
Novastar shall have raised at least $2,750,000 in an equity financing
transaction (raised as at March 31, 2006), and shall have invested
at
least $1,350,000 in Thorium Power common stock at a price per share
of
$4.00 ($700,000 invested as at March 31, 2006).
|
|
|
|
|
|
|
|
In
conjunction with the Agreement and Plan of Merger, the Company
entered
into a consulting agreement to issue 2,389,558 common shares as
consideration for services received in connection with the business
combination (issued as at March 31, 2006).
|
|
|
|
|
|
|
|
Subsequent
to the period ended March 31, 2006, a majority of the shareholders
of
Thorium Power voted in favor of the business
combination.
|
|
|
|
|
|
|
14.
|
SUBSEQUENT
EVENTS
|
|
|
|
|
|
|
|
Subsequent
to March 31, 2006 the Company:
|
|
|
|
|
|
|
|
a)
|
Closed
a 36,659,837 unit private placement at $0.425 per unit for cash
proceeds
of $15,580,434. Each unit consists of one share of common stock
and
one-half of a non- transferable share purchase warrant. Each whole
warrant
entitles the holder thereof to acquire one additional share of
common
stock at a price of $0.65 per share and expires twelve months from
the
closing date of the subscription.
|
|
|
|
|
|
|
b)
|
Granted
2,000,000 stock options to a member of the Company’s advisory board
pursuant to the 2006 stock option plan. The first 500,000 options
will
vest October 1, 2006 and the remainder will vest in monthly increments
of
41,667. The options are exercisable at a price of $0.64 for a period
of
ten years from the date of grant.
|
F-19
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of
Novastar
Resources Ltd.
(formerly
Custom Branded Networks, Inc.)
(An
Exploration Stage Company)
We
have
audited the accompanying consolidated balance sheet of Novastar Resources
Ltd.
(formerly Custom Branded Networks, Inc.)(the “Company”) (an Exploration
Stage Company) as at June 30, 2005, the related consolidated statements of
operations, stockholders’ deficiency and cash flows for the year ended June 30,
2005 and for the cumulative period from June 28, 1999 (inception) to June
30,
2005. These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. We did not audit the
Company’s consolidated financial statements as of and for the year ended June
30, 2004, and the cumulative data from June 28, 1999 (inception) to June
30,
2004 in the consolidated statements of operations, stockholders’ deficiency and
cash flows, which were audited by other auditors whose report, dated September
27, 2004, which expressed an unqualified opinion, has been furnished to us.
Our
opinion, insofar as it relates to the amounts included for cumulative data
from
June 28, 1999 (inception) to June 30, 2004, is based solely on the report
of the
other auditors.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform an audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the financial position of Novastar Resources Ltd.
(formerly Custom Branded Networks, Inc.)(an Exploration Stage Company) as
at June 30, 2005 and the results of its operations and its cash flows for
the
year then ended, and for the period from June 28, 1999 (inception) to June
30,
2005 in conformity with accounting principles generally accepted in the United
States of America.
The
accompanying consolidated financial statements have been prepared assuming
the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
and
net cash outflows from operations since inception. These factors raise
substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans in regard to these matters are also described in Note 1.
These consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
|
/s/
TELFORD SADOVNICK,
P.L.L.C.
|
|
CERTIFIED
PUBLIC ACCOUNTANTS
|
Bellingham,
Washington
October
11, 2005
F-20
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Stockholders of
Custom
Branded Networks, Inc.
(An
exploration stage company)
We
have
audited the consolidated balance sheet of Custom Branded Networks, Inc. (an
exploration stage company) as at June 30, 2004 and the consolidated statements
of operations, cash flows and stockholders’ deficiency for the year then ended,
and for the period from inception on June 28, 1999 to June 30, 2004. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, these consolidated financial statements present fairly, in all material
respects, the financial position of the Company as at June 30, 2004 and the
results of its operations, cash flows, and changes in stockholders’ deficiency
for the year then ended, and for the period from inception on June 28, 1999
to
June 30, 2004 in conformity with United States generally accepted accounting
principles.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
and
net cash outflows from operations since inception. These factors raise
substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans in regard to these matters are also discussed in Note 1.
These consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Vancouver,
Canada
/s/
“Morgan & Company”
|
September
27, 2004
|
Chartered
Accountants
|
F-21
NOVASTAR
RESOURCES LTD.
(formerly
Custom Branded Networks, Inc.)
(an
Exploration Stage Company)
CONSOLIDATED
BALANCE SHEET
(Audited)
(Stated
in U.S. Dollars)
|
|
JUNE 30
|
|||||||||
|
|
|
2005
|
2004
|
|||||||
|
|
|
|
|
|||||||
|
ASSETS
|
|
|
|
|||||||
|
Current
|
|
|
|
|||||||
|
Cash
|
$
|
802
|
$
|
-
|
||||||
|
Restricted
cash
|
94,140
|
-
|
||||||||
|
Less:
refundable to subscribers of common stock
|
(94,140
|
)
|
-
|
|||||||
|
|
802
|
|||||||||
|
Equipment,
net
|
-
|
774
|
||||||||
|
|
||||||||||
|
$
|
802
|
$
|
774
|
|||||||
|
|
||||||||||
|
LIABILITIES
|
||||||||||
|
|
||||||||||
|
Current
|
||||||||||
|
Accounts
payable and accrued liabilities
|
$
|
224,980
|
$
|
323,663
|
||||||
|
|
||||||||||
|
Convertible
Notes Payable,net
of discount
|
-
|
449,306
|
||||||||
|
|
224,980
|
772,969
|
||||||||
|
|
||||||||||
|
STOCKHOLDERS’
DEFICIENCY
|
||||||||||
|
|
||||||||||
|
Share
Capital
|
||||||||||
|
Authorized:
|
||||||||||
|
250,000,000
(2004 - 50,000,000) common shares with a par value of $0.001 per
share
|
||||||||||
|
50,000,000
(2004 - nil) preferred shares with a par value of $0.001 per
share
|
||||||||||
|
|
||||||||||
|
Issued
and outstanding:
|
||||||||||
|
86,072,532
common shares at June 30, 2005 and
|
||||||||||
|
38,372,532
common shares at June 30, 2004
|
86,073
|
38,373
|
||||||||
|
|
||||||||||
|
Additional
paid-in capital
|
3,832,247
|
636,281
|
||||||||
|
|
||||||||||
|
Share
Purchase Warrants
|
495,834
|
-
|
||||||||
|
|
||||||||||
|
Accumulated
Deficit
|
(4,138,365
|
)
|
(1,446,849
|
)
|
||||||
|
|
||||||||||
|
Deferred
Compensation
|
(499,967
|
)
|
-
|
|||||||
|
|
(224,178
|
)
|
(772,195
|
)
|
||||||
|
|
||||||||||
|
$
|
802
|
$
|
774
|
|||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-22
NOVASTAR
RESOURCES LTD.
(formerly
Custom Branded Networks, Inc.)
(an
Exploration Stage Company)
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Audited)
(Stated
in U.S. Dollars)
|
|
|
|
CUMULATIVE
|
||||||
|
|
|
|
PERIOD
FROM
|
||||||
|
|
|
|
JUNE
28, 1999
|
||||||
|
|
|
|
(INCEPTION)
|
||||||
|
|
YEAR
ENDED
|
TO
|
|||||||
|
|
JUNE
30
|
JUNE
30,
|
|||||||
|
|
2005
|
2004
|
2005
|
||||||
|
|
|
|
|
|
|
|
|||
|
Revenue
|
$
|
-
|
$
|
-
|
$
|
184,162
|
|||
|
|
|
|
|
|
|
|
|||
|
Expenses
|
|
|
|
|
|
|
|||
|
Consulting
|
|
2,303,533
|
|
23,635
|
|
2,497,913
|
|||
|
Interest
attributable to beneficial conversion feature for notes
payable
|
|
442,813
|
|
55,178
|
|
579,379
|
|||
|
Interest
- other
|
|
-
|
|
678
|
|
678
|
|||
|
Public
relations
|
|
68,899
|
|
-
|
|
143,343
|
|||
|
Legal
|
|
27,654
|
|
8,912
|
|
209,596
|
|||
|
Administrative
|
|
15,929
|
|
3,996
|
|
920,123
|
|||
|
Accounting
|
|
2,506
|
|
3,031
|
|
78,868
|
|||
|
Forgiveness
of debt
|
|
(169,818)
|
|
-
|
|
(169,818)
|
|||
|
Mineral
property payment
|
|
-
|
|
-
|
|
50,000
|
|||
|
Write
down of equipment
|
|
-
|
|
-
|
|
12,445
|
|||
|
|
|
2,691,516
|
|
95,430
|
|
4,322,527
|
|||
|
|
|
|
|
|
|
|
|||
|
Net
Loss For The Period
|
$
|
(2,691,516)
|
$
|
(95,430)
|
$
|
(4,138,365)
|
|||
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
|
Net
Loss Per Common Share, Basic And Diluted
|
$
|
(0.05)
|
$
|
(0.00)
|
|
|
|||
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
|
Weighted
Average Number Of Common Shares Outstanding, Basic and
Diluted
|
|
57,188,970
|
|
38,372,532
|
|
|
|||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-23
NOVASTAR
RESOURCES LTD.
(formerly
Custom Branded Networks, Inc.)
(an
Exploration Stage Company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Audited)
(Stated
in U.S. Dollars)
|
|
|
|
CUMULATIVE
|
||||||
|
|
|
|
PERIOD
FROM
|
||||||
|
|
|
|
JUNE
28, 1999
|
||||||
|
|
|
|
(INCEPTION)
|
||||||
|
|
YEAR
ENDED
|
TO
|
|||||||
|
|
JUNE
30
|
JUNE
30,
|
|||||||
|
|
2005
|
2004
|
2005
|
||||||
|
Cash
provided by (used in):
|
|
|
|
|
|
|
|||
|
Operating
Activities
|
|
|
|
|
|
|
|||
|
Loss
for the period
|
$
|
(2,691,516)
|
$
|
(95,430)
|
$
|
(4,138,365)
|
|||
|
Items
not involving cash:
|
|
|
|
|
|
|
|||
|
Shares
issued for other than cash
|
|
2,339,533
|
|
22,500
|
|
2,384,533
|
|||
|
Interest
attributable to beneficial conversion feature for notes
payable
|
|
442,813
|
|
55,178
|
|
579,379
|
|||
|
Amortization
of equipment
|
|
774
|
|
193
|
|
3,813
|
|||
|
Forgiveness
of debt
|
|
(169,818)
|
|
-
|
|
(169,818)
|
|||
|
Write
down of equipment
|
|
-
|
|
-
|
|
12,445
|
|||
|
|
|
(78,214)
|
|
(17,559)
|
|
(1,328,013)
|
|||
|
Changes
in non-cash operating working capital items
Accounts
payable and accrued liabilities
|
|
71,135
|
|
7,265
|
|
394,798
|
|||
|
|
|
7,079
|
|
(10,294)
|
|
(933,215)
|
|||
|
Investing
Activity
|
|
|
|
|
|
|
|||
|
Purchase
of equipment
|
|
-
|
|
-
|
|
(1,808)
|
|||
|
|
|
|
|
|
|
|
|||
|
Financing
Activities
|
|
|
|
|
|
|
|||
|
Proceeds
from loan payable to shareholder
|
|
-
|
|
-
|
|
16,097
|
|||
|
Issue
of common shares
|
|
-
|
|
-
|
|
18,950
|
|||
|
Advances
on notes payable
|
|
7,881
|
|
9,400
|
|
900,000
|
|||
|
Cash
acquired on acquisition of subsidiary
|
|
-
|
|
-
|
|
778
|
|||
|
|
|
7,881
|
|
9,400
|
|
935,825
|
|||
|
|
|
|
|
|
|
|
|||
|
Increase
(Decrease) In Cash
|
|
802
|
|
(894)
|
|
802
|
|||
|
|
|
|
|
|
|
|
|||
|
Cash,
Beginning Of Period
|
|
-
|
|
894
|
|
-
|
|||
|
|
|
|
|
|
|
|
|||
|
Cash,
End Of Period
|
$
|
802
|
$
|
-
|
$
|
802
|
|||
|
|
|
|
|
|
|
|
|||
|
Supplemental
Disclosure of Cash Flow
Information
|
|
|
|
|
|
|
|||
|
Cash
paid during the year:
|
|
|
|
|
|
|
|||
|
Interest
paid
|
$
|
-
|
$
|
-
|
$
|
-
|
|||
|
Income
taxes paid
|
$
|
-
|
$
|
-
|
$
|
-
|
|||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-24
NOVASTAR
RESOURCES LTD.
(formerly
Custom Branded Networks, Inc.)
(an
Exploration Stage Company)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ DEFICIENCY
PERIOD
FROM JUNE 28, 1999 (INCEPTION) TO JUNE 30, 2005
(Audited)
(Stated
in U.S. Dollars)
|
|
|
|
|||||||||||||||||||||||
|
COMMON
STOCK
|
ADDITIONAL
|
||||||||||||||||||||||||
|
COMMON
STOCK
|
PURCHASE
WARRANTS
|
PAID-IN
|
DEFERRED
|
ACCUMULATED
|
|||||||||||||||||||||
|
SHARES
|
AMOUNT
|
WARRANTS
|
AMOUNT
|
CAPITAL
|
COMPENSATION
|
DEFICIT
|
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
|
)
|
||||||||||||||||
|
Adjustments
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
|
)
|
|||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-25
NOVASTAR
RESOURCES LTD.
(formerly
Custom Branded Networks, Inc.)
(an
Exploration Stage Company)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ DEFICIENCY (Continued)
PERIOD
FROM JUNE 28, 1999 (INCEPTION) TO JUNE 30, 2005
(Audited)
(Stated
in U.S. Dollars)
|
COMMON
STOCK
|
ADDITIONAL
|
||||||||||||||||||||||||
|
COMMON
STOCK
|
PURCHASE
WARRANTS
|
PAID-IN
|
DEFERRED
|
ACCUMULATED
|
|||||||||||||||||||||
|
SHARES
|
AMOUNT
|
WARRANTS
|
AMOUNT
|
CAPITAL
|
COMPENSATION
|
DEFICIT
|
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
|
-
|
-
|
-
|
-
|
109,478
|
-
|
-
|
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
|
)
|
|||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-26
NOVASTAR
RESOURCES LTD.
(formerly
Custom Branded Networks, Inc.)
(an
Exploration Stage Company)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ DEFICIENCY (Continued)
PERIOD
FROM JUNE 28, 1999 (INCEPTION) TO JUNE 30, 2005
(Audited)
(Stated
in U.S. Dollars)
|
COMMON
STOCK
|
ADDITIONAL
|
||||||||||||||||||||||||
|
COMMON
STOCK
|
PURCHASE
WARRANTS
|
PAID-IN
|
DEFERRED
|
ACCUMULATED
|
|||||||||||||||||||||
|
SHARES
|
AMOUNT
|
WARRANTS
|
AMOUNT
|
CAPITAL
|
COMPENSATION
|
DEFICIT
|
TOTAL
|
||||||||||||||||||
|
Balance,
June 30, 2003
|
38,372,532
|
$
|
38,373
|
-
|
$
|
-
|
$
|
632,980
|
$
|
(22,500
|
)
|
$
|
(1,351,419
|
$
|
(702,566
|
)
|
|||||||||
|
Amortization
of deferred compensation
|
-
|
-
|
-
|
-
|
-
|
22,500
|
-
|
22,500
|
|||||||||||||||||
|
Common
Stock conversion rights
|
-
|
-
|
-
|
-
|
3,301
|
-
|
-
|
3,301
|
|||||||||||||||||
|
Net
Loss for 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
|
16,100,000
|
16,100
|
-
|
-
|
1,127,900
|
-
|
-
|
1,144,000
|
|||||||||||||||||
|
Issue
of common stock and warrants for convertible notes
|
20,000,000
|
20,000
|
20,000,000
|
495,834
|
484,166
|
-
|
-
|
1,000,000
|
|||||||||||||||||
|
Issue
of common stock for services
|
11,600,000
|
11,600
|
-
|
-
|
1,583,900
|
(598,000
|
)
|
-
|
997,500
|
||||||||||||||||
|
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
|
20,000,000
|
$
|
495,834
|
$
|
3,832,247
|
$
|
(499,967
|
)
|
$
|
(4,138,365
|
)
|
$
|
(224,178
|
)
|
||||||||
|
Deficit
accumulated during the development stage
|
$
|
(1,351,419
|
)
|
||||||||||||||||||||||
|
Deficit
accumulated during the exploration stage
|
(2,786,946
|
)
|
|||||||||||||||||||||||
|
|
|||||||||||||||||||||||||
|
Balance,
June 30, 2005
|
(4,138,365
|
)
|
|||||||||||||||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-27
NOVASTAR
RESOURCES LTD.
(formerly
Custom Branded Networks, Inc.)
(an
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2005
(Audited)
(Stated
in U.S. Dollars)
|
1.
|
NATURE
OF OPERATIONS AND GOING
CONCERN
|
Novastar
Resources Ltd. (the “Company”) was previously engaged in the business of
providing turnkey private label internet services to organizations throughout
the domestic United States and Canada. During the year ended June 30,
2003, the
Company became an exploration staged company engaged in the acquisition
and
exploration of mineral claims. Upon location of a commercial minable
reserve,
the Company expects to actively prepare the site for its extraction and
enter a
development stage. During the year ended June 30, 2005, the Company changed
its
name from Custom Branded Networks, Inc. and increased its authorized
common
shares from 50,000,000 shares to 250,000,000 shares and also authorized
50,000,000 preferred shares for issuance at a par value of $0.001.
Going
Concern
The
accompanying consolidated financial statements have been prepared assuming
the
Company will continue as a going concern.
As
shown
in the accompanying consolidated financial statements, the Company has
incurred
a net loss of $4,138,365 since inception, and currently has no sales.
The future
of the Company is dependent upon its ability to obtain financing and
upon future
profitable operations from the development of its mineral claims. Management
has
plans to seek additional capital through a private placement and public
offering
of its common stock. The consolidated financial statements do not include
any
adjustments relating to the recoverability and classification of recorded
assets, or the amounts of and classification of liabilities that might
be
necessary in the event the Company cannot continue in existence.
|
2.
|
SIGNIFICANT
ACCOUNTING POLICIES
|
The
consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in the United
States.
Because a precise determination of many assets and liabilities is dependent
upon
future events, the preparation of financial statements for a period necessarily
involves the use of estimates which have been made using careful
judgment.
The
consolidated financial statements have, in management's opinion, been
properly
prepared within reasonable limits of materiality and within the framework
of the
significant accounting policies summarized below:
F-28
NOVASTAR
RESOURCES LTD.
(formerly
Custom Branded Networks, Inc.)
(an
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2005
(Audited)
(Stated
in U.S. Dollars)
|
2.
|
SIGNIFICANT
ACCOUNTING POLICIES
(Continued)
|
Consolidation
These
consolidated financial statements include the accounts of the Company
(a Nevada
corporation) and its wholly-owned subsidiary, Custom Branded Networks,
Inc. (a
Delaware corporation).
Use
of
Estimates
The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities at the date of
the
financial statements, and the reported amounts of revenues and expenses
during
the reporting period. Actual results could differ from management's best
estimates as additional information becomes available in the
future.
Equipment
Equipment
is recorded at cost and is amortized over its useful life at a rate of
20% on a
declining balance basis. As of June 30, 2005, the equipment has been
fully
amortized.
Income
Taxes
The
Company has adopted Statement of Financial Accounting Standards No. 109
-
“Accounting for Income Taxes” (SFAS 109). This standard requires the use of an
asset and liability approach for financial accounting and reporting on
income
taxes. If it is more likely than not that some portion of all of a deferred
tax
asset will not be realized, a valuation allowance is
recognized.
F-29
NOVASTAR
RESOURCES LTD.
(formerly
Custom Branded Networks, Inc.)
(an
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2005
(Audited)
(Stated
in U.S. Dollars)
|
2.
|
SIGNIFICANT
ACCOUNTING POLICIES
(Continued)
|
Mineral
Property Option Payments and Exploration Expenditures
The
Company follows a policy of expensing exploration expenditures until a
production decision is made in respect of the project and the Company is
reasonably assured that it will receive regulatory approval to permit mining
operations which may include the receipt of a legally binding project approval
certificate.
Management
periodically reviews the carrying value of its investments in mineral leases
and
claims with internal and external mining related professionals. A decision
to
abandon, reduce or expand a specific project is based upon many factors
including general and specific assessments of mineral deposits, anticipated
future mineral prices, anticipated future costs of exploring, developing
and
operating a production mine, the expiration term and ongoing expenses of
maintaining mineral properties and the general likelihood that the Company
will
continue exploration on such project. The Company does not set a pre-determined
holding period for properties with unproven deposits, however, properties
which
have not demonstrated suitable metal concentrations at the conclusion of
each
phase of an exploration program are re-evaluated to determine if future
exploration is warranted, whether there has been any impairment in value
and
that their carrying values are appropriate.
If
an
area of interest is abandoned or it is determined that its carrying value
cannot
be supported by future production or sale, the related costs are charged
against
operations in the year of abandonment or determination of value. The amounts
recorded as mineral leases and claims represent costs to date and do not
necessarily reflect present or future values.
The
Company's exploration activities and proposed mine development are subject
to
various laws and regulations governing the protection of the environment.
These
laws are continually changing, generally becoming more restrictive. The
Company
has made, and expects to make in the future, expenditures to comply with
such
laws and regulations.
The
accumulated costs of properties that are developed on the stage of commercial
production will be amortized to operations through unit-of-production depletion.
The Company has no mineral property interest as at June 30,
2005.
F-30
NOVASTAR
RESOURCES LTD.
(formerly
Custom Branded Networks, Inc.)
(an
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2005
(Audited)
(Stated
in U.S. Dollars)
|
2.
|
SIGNIFICANT
ACCOUNTING POLICIES
(Continued)
|
Financial
Instruments
The
Company's financial instruments consist of cash, restricted cash on deposit,
accounts payable and accrued liabilities and refundable to subscribers
of common
stock.
Management
of the Company does not believe that the Company is subject to significant
interest, currency or credit risks arising from these financial instruments.
The
respective carrying values of financial instruments approximate their fair
values. Fair values were assumed to approximate carrying values since they
are
short-term in nature or they are receivable or payable on demand.
Stock-Based
Compensation
The
Company accounts for employee stock-based compensation using the intrinsic
value
method prescribed in Accounting Principles Board Opinion (“APB”) No. 25 (“APB”),
“Accounting for Stock Issued to Employees”, and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess,
if
any, of the fair value of the Company's common stock at the date of the
grant
over the amount an employee must pay to acquire the common stock. Non-employee
stock-based compensation is accounted for using the fair value method in
accordance with Statement of Financial Accounting Standard No. 123 (“SFAS 123”),
“Accounting for Stock-based Compensation.
The
Company has not granted any stock options during the years ended June 30,
2005
and 2004.
Basic
and Diluted Loss Per Share
In
accordance with Financial Accounting Standards Board (“FASB”) Statement of
Financial Accounting Standard No. 128 (“SFAS 128”), “Earnings Per Share”, the
basic loss per common share is computed by dividing net loss available
to common
stockholders by the weighted average number of common shares outstanding.
Diluted loss per common share is computed similar to basic loss per common
share
except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the potential common
shares
had been issued and if the additional common shares were dilutive. At June
30,
2005, the Company has no stock equivalents that were anti-dilutive and
excluded
in the earnings per share computation.
F-31
NOVASTAR
RESOURCES LTD.
(formerly
Custom Branded Networks, Inc.)
(an
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2005
(Audited)
(Stated
in U.S. Dollars)
|
2.
|
SIGNIFICANT
ACCOUNTING POLICIES
(Continued)
|
Impairment
Asset Policy
The
Company periodically reviews its long-lived assets when applicable to determine
if any events or changes in circumstances have transpired which indicate
that
the carrying value of its assets may not be recoverable, pursuant to guidance
established in Statement of Financial Accounting Standards No. 144 (“SFAS 144”),
“Accounting for the Impairment of Disposal of Long-lived Assets”. The Company
determines impairment by comparing the undiscounted future cash flows estimated
to be generated by its assets to their respective carrying amounts. If
impairment is deemed to exist, the assets will be written down to fair
value.
Foreign
Currency Translation
The
Company's functional currency is the U.S. dollar. Transactions in foreign
currency are translated into U.S. dollars as follows:
|
|
i)
|
monetary
items at the rate prevailing at the balance sheet date;
|
|
|
|
ii)
|
non-monetary
items at the historical exchange rate;
|
|
|
iii)
|
revenue
and expense at the average rate in effect during the applicable
accounting
period.
|
||
Revenue
Recognition
Revenue
from the sale of minerals is recognized when the risks and rewards of ownership
pass to the purchaser, including delivery of the product the selling price
is
fixed or determinable and collectibility is reasonably assured. Settlement
adjustments, if any, are reflected in revenue when the amounts are
known.
Comprehensive
Income
The
Company has adopted Statement of Financial Accounting Standards No. 130
(“SFAS
130”) “Reporting Comprehensive Income”, which establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances. When applicable, the Company would disclose this information
on its
Statement of Stockholders' Equity. Comprehensive income comprises equity
except
those resulting from investments by owners and distributions to owners.
The
Company has not had any significant transactions that are required to be
reported in other comprehensive income.
F-32
NOVASTAR
RESOURCES LTD.
(formerly
Custom Branded Networks, Inc.)
(an
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2005
(Audited)
(Stated
in U.S. Dollars)
|
2.
|
SIGNIFICANT
ACCOUNTING POLICIES
(Continued)
|
Asset
Retirement Obligations
The
Company has adopted Statement of Financial Accounting Standards No. 143
(“SFAS
143”), “Accounting for Asset Retirement Obligations”, which requires that an
asset retirement obligation (“ARO”) associated with the retirement of a tangible
long-lived asset be recognized as a liability in the period in which
it is
incurred and becomes determinable, with an offsetting increase in the
carrying
amount of the associated asset. The cost of the tangible asset, including
the
initially recognized ARO, is depleted, such that the cost of the ARO
is
recognized over the useful life of the asset. The ARO is recorded at
fair value,
and accretion expense is recognizable over time as the discounted liability
is
accreted to its expected settlement value. The fair value of the ARO
is measured
using expected future cash flow, discounted at the Company's credit-adjusted
risk-free interest rate. To date, no significant asset retirement obligation
exists due to the early stage of exploration. Accordingly, no liability
has been
recorded.
Environmental
Protection and Reclamation Costs
The
operations of the Company have been, and may in the future be affected
from time
to time in varying degrees by changes in environmental regulations, including
those for future removal and site restorations costs. Both the likelihood
of new
regulations and their overall effect upon the Company may vary from region
to
region and are not predictable.
Environmental
expenditures that relate to ongoing environmental and reclamation programs
are
charged against statements of operations as incurred or capitalized and
amortized depending upon their future economic benefits. The Company
does not
anticipate any material capital expenditures for environmental control
facilities because it has no mineral property holdings as at June 30,
2005.
Intangible
Assets
The
Company has adopted Statement of Financial Accounting Standards No. 142
(“SFAS
142”), “Goodwill and Other Intangible Assets”, which requires that goodwill and
intangible assets with indefinite life are not amortized but rather tested
at
least annually for impairment. Intangible assets with a definite life
are
required to be amortized over their useful life. The Company does not
have any
goodwill nor intangible assets with indefinite or definite life since
inception.
F-33
NOVASTAR
RESOURCES LTD.
(formerly
Custom Branded Networks, Inc.)
(an
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2005
(Audited)
(Stated
in U.S. Dollars)
|
2.
|
SIGNIFICANT
ACCOUNTING POLICIES
(Continued)
|
Advertising
Costs
Advertising
costs are expensed as incurred. No advertising costs were incurred in fiscal
year 2005.
Exploration
Stage Enterprise
The
Company's consolidated financial statements are prepared using the accrual
method of accounting and according to the provisions of Statement of Financial
Accounting Standards No. 7 (“SFAS 7”), “Accounting and Reporting for Development
Stage Enterprises,” as it devotes substantially all of its efforts to acquiring
and exploring mineral properties. Until such properties are acquired and
developed, the Company will continue to prepare its consolidated financial
statements and related disclosures in accordance with entities in the
exploration stage.
|
3.
|
RECENT
ACCOUNTING PRONOUNCEMENTS
|
|
a)
|
In
November 2004, FASB issued Statement of Financial Accounting
Standards No.
151 (“SFAS 151”), “Inventory Costs”. This Statement amends the guidance in
ARB No. 43, Chapter 4, Inventory Pricing, “to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling
costs and
wasted material (spoilage). In addition, this Statement requires
that
allocation of fixed production overheads to the costs of conversion
be
based on the normal capacity of the production facilities. The
provisions
of this Statement will be effective for the Company beginning
with its
fiscal year ending 2006. The Company has determined that the
adoption of
SFAS 151 does not have an impact on its results of operations
of financial
position.
|
|
b)
|
In
December 2004, FASB issued Statement of Financial Accounting
Standards No.
153 (“SFAS 153”), “Exchanges of Non-monetary Assets - an amendment of APB
Opinion No. 29”. This Statement amended APB Opinion 29 to eliminate the
exception of non-monetary exchanges of similar productive assets
and
replaces it with a general exception for exchanges of non-monetary
assets
that do not have commercial substance. A non-monetary exchange
has
commercial substance if the future cash flows of the entity are
expected
to change significantly as a result of the exchange. The Company
has
determined that the adoption of SFAS 153 does not have an impact
on its
results of operations or financial
position.
|
F-34
NOVASTAR
RESOURCES LTD.
(formerly
Custom Branded Networks, Inc.)
(an
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2005
(Audited)
(Stated
in U.S. Dollars)
|
3.
|
RECENT
ACCOUNTING PRONOUNCEMENTS
(Continued)
|
|
c)
|
In
December 2004, FASB issued Statement of Financial Accounting
Standards No.
123 (revised 2004) (“SFAS 123 Revised”), “Share-Based Payment”. This
Statement requires that the cost resulting from all share-based
transactions be recorded in the financial statements. The Statement
establishes fair value as the measurement objective in accounting
for
share-based payment arrangements and requires all entities to
apply a
fair-value-based measurement in accounting for share-based payment
transactions with employees. The Statement also establishes fair
value as
the measurement objective for transactions in which an entity
acquires
goods or services from non-employees in share-based payment transactions.
The Statement replaces FASB Statement No. 123 “Accounting for Stock-Based
Compensation” and supercedes APB Opinion No. 25 “Accounting for Stock
Issued to Employees”. The provisions of this Statement will be effective
for the Company beginning its fiscal year ending 2007. The Company
has
determined that the adoption of SFAS 123 (Revised) does not have
an impact
on its results of operations or financial
position.
|
|
4.
|
RESTRICTED
CASH
|
During
the year ended June 30, 2005, proceeds totaling $94,140 were received through
a
private placement of common stock that was to close subsequent to the year
end.
This private placement was terminated and no shares of the Company were
issued.
The full amount of proceeds received from this private placement was reimbursed
to subscribers subsequent to the Company's year end.
|
5.
|
CONVERTIBLE
NOTES PAYABLE
|
On
January 31, 2002, the Company executed $1,000,000 aggregate principal amount
of
convertible notes due not earlier than January 31, 2009. These notes were
secured by the assets of the Company. The Company received $1,000,000 in
advances through to June 30, 2005 (2004 - $892,119), including in-kind
consideration of $100,000. The notes bore no interest until the maturity
date.
F-35
NOVASTAR
RESOURCES LTD.
(formerly
Custom Branded Networks, Inc.)
(an
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2005
(Audited)
(Stated
in U.S. Dollars)
|
5.
|
CONVERTIBLE
NOTES PAYABLE (Continued)
|
On
January 20, 2005, the Company issued 20,000,000 common shares at a price
of
$0.05 per share, and 20,000,000 warrants, for the purchase of 20,000,000
shares
of common stock of the Company, to the holder on conversion of the notes.
The
warrants are exercisable at a price of $0.05 per share until January 20,
2008.
The warrants was valued using the Black Scholes option pricing model using
the
following assumptions: weighted average expected life of 3 years, volatility
of
24%, rate of quarterly dividends - $nil, risk free interest rate of 3.5%.
The
$1,000,000 consideration was allocated to the common stock and share purchase
warrants based upon their relative fair values on the date of conversion.
The
amount allocated to the common shares issued is $504,166. The amount allocated
to the share purchase warrants is $495,834.
Because
the market interest rate on similar types of notes was approximately 14%
per
annum the day the notes were issued, the Company had recorded a discount
of
$579,378 related to the beneficial conversion feature. During the year
ended
June 30, 2005, $442,813 (2004 - $55,170) was amortized and recorded as
interest
expense. The discount was fully amortized as interest expense upon
conversion.
|
6.
|
MINERAL
PROPERTIES
|
On
February 5, 2003, the Company entered into an agreement to acquire 100%
interest
in mineral properties located in outer Mongolia by making a cash payment
of
$50,000 (paid) and issuing 5,000,000 common shares, as such time as legal
title
to the mineral property is delivered. The shares were not issued and title
was
not transferred. The Company does not intend to further pursue the acquisition
of these properties.
On
May 1,
2005, the Company entered into an agreement with a shareholder of the Company
to
purchase a 92.25% interest in three mineral properties in North Queensland,
Australia. To obtain the interest, the Company must either:
|
i)
|
raise
$1,000,000 and deposit the funds in a separate bank account on
or before
May 1, 2006, such funds to be used for testing and/or developing
the
properties, or
|
|
ii)
|
if
the Company fails to raise the $1,000,000 in development funds
and deposit
such funds into a separate bank account by May 1, 2006, then
the Company
has an option to acquire the 92.25% interest in the property
by issuing
common shares of the Company the aggregate number of which will
be equal
to the aggregate share price (defined as an amount equal to $1,000,000
less the aggregate amount of funds deposited into the separate
development
bank account (if any)) divided by the value of the individual
shares of
the Company (defined as an amount equal to the greater of (a)
the closing
price per share for the sale of Company shares on the OTC bulletin
board
on May 1, 2006 and (b) the amount of $0.10 per common
share).
|
F-36
NOVASTAR
RESOURCES LTD.
(formerly
Custom Branded Networks, Inc.)
(an
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2005
(Audited)
(Stated
in U.S. Dollars)
|
7.
|
DEFERRED
COMPENSATION
|
On
June
1, 2005, the Company entered into consulting agreements with two consultants
whereby the consultants were issued 4,600,000 common shares at $0.13 per
share.
The terms of the agreements are for 6 months. Amortization is taken on
a monthly
basis over the term of the agreement. Accordingly, $98,033 was expensed
in
2005.
|
8.
|
RELATED
PARTIES
|
During
the year ended June 30, 2005, two former directors and officers forgave
$169,818
of accounts payable owed to them, relating to consulting fees, rent, payroll
and
benefits.
During
the year ended June 30, 2005, the Company issued 2,000,000 common shares
to a
director for consulting services rendered at a value of $40,000, which
was based
on exchange amounts, representing the amounts established and agreed upon
by the
related parties.
|
9.
|
INCOME
TAX LOSSES
|
The
Company's provision for income taxes differs from the amounts computed
by
applying the United States federal statutory income tax rates to the loss
as a
result of the following:
|
|
2005
|
2004
|
|||||
|
|
|
|
|
|
|||
|
Statutory
rates
|
|
35%
|
|
35%
|
|||
|
|
|
|
|
|
|||
|
Recovery
of income taxes computed at statutory rates
|
$
|
(942,031)
|
$
|
(33,000)
|
|||
|
Mineral
property
|
|
(315)
|
|
1,000
|
|||
|
Tax
benefit not recognized on current year’s losses
|
|
942,346
|
|
32,000
|
|||
|
|
|
|
|
|
|||
|
|
$
|
-
|
$
|
-
|
|||
The
tax
effects of temporary timing differences that give rise to significant components
of the future tax assets and future tax liabilities are as follows:
|
|
2005
|
2004
|
|||||
|
|
|
|
|
|
|||
|
Net
operating loss carry forward
|
$
|
1,442,031
|
$
|
500,000
|
|||
|
Mineral
property
|
|
945
|
|
4,000
|
|||
|
Less:
Valuation allowance
|
|
(1,442,976)
|
|
(504,000)
|
|||
|
|
|
|
|
|
|||
|
Deferred
tax asset
|
$
|
-
|
$
|
-
|
|||
F-37
NOVASTAR
RESOURCES LTD.
(formerly
Custom Branded Networks, Inc.)
(an
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2005
(Audited)
(Stated
in U.S. Dollars)
|
9.
|
INCOME
TAX LOSSES(Continued)
|
At
June
30, 2005, the Company has net operating losses of approximately $4,098,000,
which may be carried forward to apply against future years’ income for tax
purposes expiring as follows:
|
2020
|
$
|
159,000
|
||
|
2021
|
$
|
723,000
|
||
|
2022
|
$
|
326,000
|
||
|
2023
|
$
|
102,000
|
||
|
2024
|
$
|
96,000
|
||
|
2025
|
$
|
2,692,000
|
|
10.
|
2005
COMPENSATION PLAN FOR OUTSIDE
CONSULTANTS
|
On
March
3, 2005 the Company filed a prospectus dated March 10, 2005, relating to
the
offer and sale of up to 20,000,000 shares of its common stock to outside
consultants in payment for services rendered, pursuant to the 2005 Compensation
Plan for Outside Consultants that was approved by the board of directors.
At
June 30, 2005, 16,000,000 shares had been issued under this prospectus.
The
balance of 4,000,000 shares was issued subsequently.
|
11.
|
SUPPLEMENTAL
DISCLOSURE ON NON-CASH FINANCING AND INVESTING
ACTIVITIES
|
During
the year ended June 30, 2005, the Company had the following non-cash financing
and investing activities:
|
a)
|
The
Company issued 16,900,000 common shares to consultants pursuant
to
consulting agreements entered into with the Company with value
of
$1,144,000, which was based on exchange amounts, representing
the amounts
established and agreed upon by the
parties.
|
|
b)
|
The
Company issued 20,000,000 common shares and 20,000,000 common
stock
purchase warrants with a value of $1,000,000 pursuant to the
exercise of
convertible notes payable referred to in Note
5.
|
|
c)
|
The
Company issued 11,600,000 common shares to consultants pursuant
to
consulting agreements entered into with the Company with a value
of
$1,595,500. Of this amount, $598,000 was recorded as deferred
compensation
to be amortized over the life of the consulting contracts as
described in
Note 7.
|
F-38
NOVASTAR
RESOURCES LTD.
(formerly
Custom Branded Networks, Inc.)
(an
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2005
(Audited)
(Stated
in U.S. Dollars)
|
11.
|
SUPPLEMENTAL
DISCLOSURE ON NON-CASH FINANCING AND INVESTING ACTIVITIES
(Continued)
|
|
d)
|
Two
former directors of the Company forgave a total of $169,818 relating
to
accrued vacation payable, payroll liabilities and other accrued
expenses
incurred.
|
|
12.
|
CONSULTING
AGREEMENTS
|
The
Company had entered into various consulting agreements with certain outside
consultants. Duties of the consultants included providing consulting services
to
the Company as directed by the board of directors from time to time. Services
included research into prospective business venues that may be beneficial
to the
Company, seeking out such business opportunities and the making of introductions
and all other business consultations on matters that may be of intrinsic
value
to the Company in developing and promoting the business enterprises of
the
Company. Compensation comprised the issuance of shares of the common shares,
as
disclosed in these financial statements.
|
13.
|
COMPARATIVE
FIGURES
|
Certain
comparative figures have been reclassified to conform to the current year's
presentation.
|
14.
|
COMMITMENTS
AND CONTRACTUAL
OBLIGATIONS
|
Except
as
noted, the Company has no significant commitments or contractual obligations
with any parties respecting executive compensation, consulting arrangements
or
other matters. Rental of premises is on a month-to-month basis.
|
15.
|
SUBSEQUENT
EVENTS
|
Subsequent
to June 30, 2005, the Company:
|
a)
|
entered
into an agreement whereby certain mineral leases in the Clay
County
District of Alabama were assigned to the Company. The Company
assumed a
lease held by the lessee for the consideration of $100,000 cash
(paid),
1,000,000 restricted common shares of the Company at a deemed
issue price
of $0.001 per share and a $15 net royalty per ton of Thorium/monazite
removed from the leased
properties;
|
F-39
NOVASTAR
RESOURCES LTD.
(formerly
Custom Branded Networks, Inc.)
(an
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2005
(Audited)
(Stated
in U.S. Dollars)
|
15.
|
SUBSEQUENT
EVENTS(Continued)
|
|
b)
|
filed
a prospectus dated August 18, 2005, relating to the offer and
sale of up
to 20,000,000 shares of its common stock to outside consultants
in payment
of services rendered, pursuant to the 2005 Augmented Compensation
Plan for
Outside Consultants as approved by the board of directors. It
then entered
into various consulting agreements with outside consultants to
provide
certain consulting services to the Company. Compensation is by
way of
issuance of an aggregate of 11,875,000 shares of common stock
of the
Company over the term of the agreements. Subsequent to June 30,
2005,
4,527,500
shares have been issued, having a value of $747,000. The Company
also
issued 800,000 shares of common stock to its advisory board,
having a
value of $128,000.
|
|
c)
|
cancelled
the agreement entered into on May 1, 2005 to purchase a 92.25%
interest in
three mineral properties in North Queensland, Australia. It then
entered
into a new agreement to purchase a 100% undivided interest in
these
mineral interests. As consideration, the Company must issue 5,000,000
restricted common shares to the vendor. In addition, the Company
must
incur the following exploration expenditures, not to exceed
$695,000:
|
|
i)
|
$125,000
by December 31, 2006;
|
|
|
ii)
|
an
additional $150,000 by December 31, 2007;
|
|
|
iii)
|
an
additional $140,000 by December 31, 2008;
|
|
|
iv)
|
an
additional $140,000 by December 31, 2009;
|
|
|
v)
|
an
additional $140,000 by December 31,
2010.
|
|
The
vendor shall retain a 2.5% net smelter return royalty on the
property;
|
d)
|
cancelled
the 20,000,000 warrants, for the purchase of 20,000,000 shares
of common
stock of the Company, that had been issued on January 20,
2005;
|
|
e)
|
returned
proceeds to subscribers of $94,140 received relating to a private
placement that was cancelled.
|
|
f)
|
closed
a private placement of $631,500, consisting of an offering of
4,209,998
units at a price of $0.15 per unit. Each unit consists of one
common share
and one-half of a non-transferable share purchase warrant. Each
warrant
entitles the holder thereof to acquire one additional share of
common
stock at a price of $0.30 per share and having an expiry date
of twelve
months from the closing date of the
subscription.
|
F-40
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Balance
Sheet
March
31, 2006
|
ASSETS
|
||||
|
CURRENT
ASSETS
|
||||
|
Cash
and cash equivalents
|
$
|
$673,653
|
||
|
Prepaid
expenses and other current assets:
|
3,293
|
|||
|
Total
Current Assets
|
676,946
|
|||
|
PROPERTY,
PLANT AND EQUIPMENT
|
||||
|
Property,
plant and equipment
|
37,153
|
|||
|
Accumulated
depreciation
|
(17,185
|
)
|
||
|
Total
Property, Plant and Equipment
|
19,968
|
|||
|
OTHER
ASSETS
|
||||
|
Patent
costs - net of accumulated amortization of $198,054
|
207,251
|
|||
|
Security
deposits
|
7,567
|
|||
|
Total
Other Assets
|
214,818
|
|||
|
TOTAL
ASSETS
|
$
|
911,732
|
||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||
|
CURRENT
LIABILITIES
|
||||
|
Accounts
payable:
|
$
|
85,631
|
||
|
Accrued
salaries - officers
|
-
|
|||
|
Other
accrued expenses
|
329,945
|
|||
|
Notes
payable - related party
|
17,500
|
|||
|
Current
portion of long-term debt
|
4,196
|
|||
|
Other
current liabilities
|
5,882
|
|||
|
Total
Current Liabilities
|
443,154
|
|||
|
LONG-TERM
LIABILITIES
|
||||
|
Note
payable
|
13,746
|
|||
|
Total
Liabilities
|
456,900
|
|||
|
STOCKHOLDERS'
EQUITY
|
||||
|
Common
Stock-$.05 par value-authorized 20,000,000 shares
issued
and outstanding 3,690,019 shares
|
184,501
|
|||
|
Common
stock and warrants - Additional paid-in capital
|
16,071,832
|
|||
|
Deficit
accumulated during the development stage
|
(15,801,501
|
)
|
||
|
Total
Stockholders' Equity
|
454,832
|
|||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$
|
$911,732
|
||
F-41
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Statements
of Operations
|
Cumulative
|
||||||||||
|
From
|
||||||||||
|
January
8, 1992
|
||||||||||
|
For
the three months ended March 31,
|
Through
March 31,
|
|||||||||
|
2006
|
2005
|
2006
|
||||||||
|
Revenue
|
||||||||||
|
License
revenue
|
$
|
-
|
-
|
$
|
624,985
|
|||||
|
Total
Revenue
|
-
|
-
|
624,985
|
|||||||
|
Costs
and expenses
|
||||||||||
|
Research
and development
|
-
|
-
|
3,892,158
|
|||||||
|
Salaries
|
73,700
|
57,000
|
3,578,714
|
|||||||
|
Professional
fees
|
138,144
|
32,098
|
2,201,269
|
|||||||
|
Stock
based compensation
|
-
|
-
|
2,229,871
|
|||||||
|
Other
selling, general and administrative expenses
|
119,128
|
24,174
|
4,555,308
|
|||||||
|
Total
operating expenses
|
330,972
|
113,272
|
16,457,320
|
|||||||
|
Loss
from operations
|
330,972
|
113,272
|
15,832,335
|
|||||||
|
Other
(income) expenses
|
||||||||||
|
Interest
(income) expense - net
|
566
|
-
|
(107,576
|
)
|
||||||
|
Other
(income) expense
|
(200
|
)
|
-
|
(359
|
)
|
|||||
|
Foreign
currency translation loss
|
501
|
-
|
501
|
|||||||
|
Settlement
costs
|
-
|
-
|
76,600
|
|||||||
|
Net
Loss
|
$
|
331,839
|
113,272
|
$
|
15,801,501
|
|||||
|
Basic
and diluted net loss per share
|
$
|
(0.09
|
)
|
(0.03
|
)
|
|||||
|
Number
of shares used to compute per share data
|
3,558,395
|
3,289,463
|
||||||||
F-42
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Statements
of Changes in Stockholders’ Equity
|
Common
Stock
|
Additional
|
Accumulated
|
Stockholders’
|
|||||||||||||
|
Shares
|
Amount
|
Paid-in
Capital
|
(Deficit)
|
Equity
|
||||||||||||
|
Inception
- January 8, 1992
|
||||||||||||||||
|
Authorized
2,500,000 shares - $.05 par value
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||
|
Issuance
of common stock for technology and service
|
1,200,000
|
60,000
|
-
|
-
|
60,000
|
|||||||||||
|
Net
(loss) for the period ended
|
-
|
-
|
-
|
(60,000
|
)
|
(60,000
|
)
|
|||||||||
|
Balance
- January 1, 1993
|
1,200,000
|
60,000
|
-
|
(60,000
|
)
|
-
|
||||||||||
|
Issuance
of common stock and warrants for cash
|
258,500
|
12,925
|
535,030
|
-
|
547,955
|
|||||||||||
|
Issuance
of stock in exchange for services
|
47,000
|
2,350
|
20,000
|
-
|
22,350
|
|||||||||||
|
Exercise
of stock options and warrants
|
10,000
|
500
|
99,500
|
100,000
|
||||||||||||
|
Net
(loss) for the year ended December 31, 1993
|
-
|
-
|
-
|
(81,526
|
)
|
(81,526
|
)
|
|||||||||
|
Balance
- January 1, 1994
|
1,515,500
|
75,775
|
654,530
|
(141,526
|
)
|
588,779
|
||||||||||
|
Authorized
10,000,000 shares - $.05 par value
|
||||||||||||||||
|
Issuance
of common stock and warrants for cash
|
26,200
|
1,310
|
260,690
|
-
|
262,000
|
|||||||||||
|
Issuance
of stock in exchange for services
|
10,000
|
500
|
9,500
|
-
|
10,000
|
|||||||||||
|
Issuance
of options to non-employees for services
|
-
|
-
|
15,400
|
-
|
15,400
|
|||||||||||
|
Net
(loss) for the year ended December 31, 1994
|
-
|
-
|
-
|
(639,861
|
)
|
(639,861
|
)
|
|||||||||
|
Balance
- January 1, 1995
|
1,551,700
|
77,585
|
940,120
|
(781,387
|
)
|
236,318
|
||||||||||
|
Issuance
of common stock and warrants for cash
|
41,500
|
2,075
|
412,925
|
-
|
415,000
|
|||||||||||
|
Issuance
of stock in exchange for services
|
7,800
|
390
|
7,410
|
-
|
7,800
|
|||||||||||
|
Exercise
of stock options and warrants
|
10,000
|
500
|
9,500
|
-
|
10,000
|
|||||||||||
|
Net
(loss) for the year ended December 31, 1995
|
-
|
-
|
-
|
(1,088,082
|
)
|
(1,088,082
|
)
|
|||||||||
|
Balance
- January 1, 1996
|
1,611,000
|
80,550
|
1,369,955
|
(1,869,469
|
)
|
(418,964
|
)
|
|||||||||
|
Issuance
of common stock for cash
|
30,300
|
1,515
|
301,485
|
-
|
303,000
|
|||||||||||
|
Issuance
of common stock for services
|
8,000
|
400
|
7,600
|
-
|
8,000
|
|||||||||||
|
Exercise
of stock options and warrants
|
34,000
|
1,700
|
32,300
|
-
|
34,000
|
|||||||||||
|
Issuance
of options to non-employees for services
|
-
|
-
|
7,950
|
-
|
7,950
|
|||||||||||
|
Net
(loss) for the year ended December 31, 1996
|
-
|
-
|
-
|
(763,179
|
)
|
(763,179
|
)
|
|||||||||
|
Balance
Forward
|
1,683,300
|
$
|
84,165
|
$
|
1,719,290
|
$
|
(2,632,648
|
)
|
$
|
(829,193
|
)
|
|||||
F-43
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Statements
of Changes in Stockholders’ Equity
|
Common
Stock
|
Additional
|
Accumulated
|
Stockholders’
|
|||||||||||||
|
Shares
|
Amount
|
Paid-in
Capital
|
(Deficit)
|
Equity
|
||||||||||||
|
Balance
- January 1, 1997
|
1,683,300
|
$
|
84,165
|
$
|
1,719,290
|
$
|
(2,632,648
|
)
|
$
|
(829,193
|
)
|
|||||
|
Issuance
of common stock and warrants for cash
|
56,700
|
2,835
|
564,165
|
-
|
567,000
|
|||||||||||
|
Exercise
of stock options and warrants
|
51,000
|
2,550
|
79,450
|
-
|
82,000
|
|||||||||||
|
Issuance
of options to non-employees for services
|
-
|
-
|
15,960
|
-
|
15,960
|
|||||||||||
|
Net
(loss) for the year ended December 31, 1997
|
-
|
-
|
-
|
(598,718
|
)
|
(598,718
|
)
|
|||||||||
|
Balance
- January 1, 1998
|
1,791,000
|
89,550
|
2,378,865
|
(3,231,366
|
)
|
(762,951
|
)
|
|||||||||
|
Issuance
of common stock and warrants for cash
|
66,536
|
3,327
|
662,033
|
-
|
665,360
|
|||||||||||
|
Exercise
of stock options and warrants
|
280,000
|
14,000
|
456,000
|
-
|
470,000
|
|||||||||||
|
Issuance
of options to non-employees for services
|
1,325
|
1,325
|
||||||||||||||
|
Net
(loss) for the year ended December 31, 1998
|
-
|
-
|
-
|
(792,185
|
)
|
(792,185
|
)
|
|||||||||
|
Balance
- January 1, 1999
|
2,137,536
|
106,877
|
3,498,223
|
(4,023,551
|
)
|
(418,451
|
)
|
|||||||||
|
Issuance
of common stock for cash
|
35,675
|
1,784
|
354,966
|
-
|
356,750
|
|||||||||||
|
Exercise
of stock options and warrants
|
35,250
|
1,762
|
180,738
|
-
|
182,500
|
|||||||||||
|
Net
(loss) for the year ended December 31, 1999
|
-
|
-
|
-
|
(822,803
|
)
|
(822,803
|
)
|
|||||||||
|
Balance
- January 1, 2000
|
2,208,461
|
110,423
|
4,033,927
|
(4,846,354
|
)
|
(702,004
|
)
|
|||||||||
|
Issuance
of common stock for cash
|
284,600
|
14,230
|
2,831,770
|
-
|
2,846,000
|
|||||||||||
|
Issuance
of common stock for services
|
102,000
|
5,100
|
449,900
|
-
|
455,000
|
|||||||||||
|
Net
(loss) for the year ended December 31, 2000
|
-
|
-
|
-
|
(1,487,354
|
)
|
(1,487,354
|
)
|
|||||||||
|
Balance
- January 1, 2001
|
2,595,061
|
129,753
|
7,315,597
|
(6,333,708
|
)
|
1,111,642
|
||||||||||
|
Issuance
of common stock and warrants for cash
|
350,000
|
17,500
|
3,468,031
|
-
|
3,485,531
|
|||||||||||
|
Issuance
of common stock for settlement
|
10,000
|
500
|
36,100
|
-
|
36,600
|
|||||||||||
|
Exercise
of stock options and warrants
|
28,600
|
1,430
|
139,570
|
-
|
141,000
|
|||||||||||
|
Modification
of options
|
-
|
-
|
28,500
|
-
|
28,500
|
|||||||||||
|
Net
(loss) for the year ended December 31, 2001
|
-
|
-
|
-
|
(2,606,466
|
)
|
(2,606,466
|
)
|
|||||||||
|
Balance
Forward
|
2,983,661
|
$
|
149,183
|
$
|
10,987,798
|
$
|
(8,940,174
|
)
|
$
|
2,196,807
|
||||||
F-44
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Statements
of Changes in Stockholders’
|
Common
Stock
|
Additional
|
Accumulated
|
Stockholders’
|
|||||||||||||
|
Shares
|
Amount
|
Paid-in
Capital
|
(Deficit)
|
Equity
|
||||||||||||
|
Balance
- January 1, 2002
|
2,983,661
|
149,183
|
10,987,798
|
(8,940,174
|
)
|
2,196,807
|
||||||||||
|
Issuance
of common stock and warrants for cash
|
5,000
|
250
|
49,750
|
-
|
50,000
|
|||||||||||
|
Exercise
of stock options and warrants
|
5,000
|
250
|
22,750
|
-
|
23,000
|
|||||||||||
|
Issuance
of common stock not previously recognized
|
1,000
|
50
|
(50
|
)
|
-
|
-
|
||||||||||
|
Net
(loss) for the year ended December 31, 2002
|
-
|
-
|
-
|
(2,224,775
|
)
|
(2,224,775
|
)
|
|||||||||
|
Balance
- January 1, 2003
|
2,994,661
|
149,733
|
11,060,248
|
(11,164,949
|
)
|
45,032
|
||||||||||
|
Issuance
of common stock and warrants for cash
|
115,000
|
5,750
|
604,250
|
610,000
|
||||||||||||
|
Exercise
of stock options and warrants
|
106,300
|
5,315
|
157,685
|
163,000
|
||||||||||||
|
Modifications
of options and warrants
|
-
|
-
|
1,506,427
|
1,506,427
|
||||||||||||
|
Issuance
of common stock not previously recognized
|
5,000
|
250
|
(250
|
)
|
-
|
|||||||||||
|
Net
(loss) for the year ended December 31, 2003
|
-
|
-
|
-
|
(2,569,534
|
)
|
(2,569,534
|
)
|
|||||||||
|
Balance
- January 1, 2004
|
3,220,961
|
$
|
161,048
|
$
|
13,328,360
|
$
|
(13,734,483
|
)
|
$
|
(245,075
|
)
|
|||||
|
Issuance
of common stock and warrants for cash
|
63,500
|
3,175
|
254,576
|
257,751
|
||||||||||||
|
Loan
conversion into stock
|
1,750
|
88
|
6,913
|
7,000
|
||||||||||||
|
Issuance
of options to non-employees for services
|
-
|
-
|
351,253
|
-
|
351,253
|
|||||||||||
|
Net
(loss) for the year ended December 31, 2004
|
-
|
-
|
-
|
(974,674
|
)
|
(974,674
|
)
|
|||||||||
|
Balance
- January 1, 2005
|
3,286,211
|
$
|
164,311
|
$
|
13,941,101
|
$
|
(14,709,158
|
)
|
$
|
(603,746
|
)
|
|||||
|
Issuance
of common stock and warrants for cash
|
65,998
|
3,300
|
257,692
|
260,992
|
||||||||||||
|
Loan
conversion into stock
|
10,775
|
539
|
42,561
|
43,100
|
||||||||||||
|
Issuance
of options to non-employees for services
|
-
|
-
|
303,055
|
-
|
303,055
|
|||||||||||
|
Net
(loss) for the year ended December 31, 2005
|
-
|
-
|
-
|
(760,504
|
)
|
(760,504
|
)
|
|||||||||
|
Balance
Forward
|
3,362,984
|
$
|
168,149
|
$
|
14,544,410
|
$
|
(15,469,662
|
)
|
$
|
(757,103
|
)
|
|||||
F-45
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Statements
of Changes in Stockholders’
|
Common
Stock
|
Additional
|
Accumulated
|
Stockholders’
|
|||||||||||||
|
Shares
|
Amount
|
Paid-in
Capital
|
(Deficit)
|
Equity
|
||||||||||||
|
Balance
- January 1, 2006
|
3,362,984
|
$
|
168,149
|
$
|
14,544,410
|
$
|
(15,469,662
|
)
|
$
|
(757,103
|
)
|
|||||
|
Issuance
of common stock and warrants for cash
|
326,010
|
16,301
|
1,523,373
|
1,539,674
|
||||||||||||
|
Loan
conversion into stock
|
1,025
|
51
|
4,049
|
4,100
|
||||||||||||
|
Issuance
of options to non-employees for services
|
-
|
-
|
-
|
-
|
0
|
|||||||||||
|
Net
(loss) for the quarter ended March 31, 2006
|
-
|
-
|
-
|
(331,839
|
)
|
(331,839
|
)
|
|||||||||
|
Balance
Forward
|
3,690,019
|
$
|
184,501
|
$
|
16,071,832
|
$
|
(15,801,501
|
)
|
$
|
454,832
|
||||||
F-46
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Statements
of Cash Flows
|
Cumulative
|
||||||||||
|
From
|
||||||||||
|
January
8, 1992
|
||||||||||
|
For
the three months ended March 31
|
Through
March 31
|
|||||||||
|
2006
|
2005
|
2006
|
||||||||
|
Cash
flows from operating activities:
|
||||||||||
|
Net
loss
|
$
|
(331,839
|
)
|
$
|
(113,272
|
)
|
$
|
(15,801,501
|
)
|
|
|
Adjustments
to reconcile net (loss) to net cash
|
||||||||||
|
provided
by (used by) operating activities:
|
||||||||||
|
Write-off
of foreign patent, including amortization
|
-
|
-
|
75,000
|
|||||||
|
Depreciation
and amortization
|
6,564
|
5,467
|
277,889
|
|||||||
|
(Gain)
loss on disposition of assets
|
-
|
-
|
86,855
|
|||||||
|
Issuance
of stock in exchange for technology and services
|
-
|
-
|
88,250
|
|||||||
|
Stock
based compensation
|
-
|
-
|
2,229,870
|
|||||||
|
(Increase)
decrease in prepaid and other expenses
|
2,987
|
3,486
|
(3,293
|
)
|
||||||
|
Increase
(decrease) in accrued expenses
|
(517,318
|
)
|
72,583
|
421,459
|
||||||
|
Net
cash used by operating activities
|
(839,606
|
)
|
(31,736
|
)
|
(12,625,471
|
)
|
||||
|
Cash
flows from investing activities:
|
||||||||||
|
Patent
costs
|
(300
|
)
|
(2,310
|
)
|
(405,305
|
)
|
||||
|
Security
deposits
|
-
|
32
|
(7,567
|
)
|
||||||
|
Purchase
of equipment
|
(1,057
|
)
|
(22,217
|
)
|
(275,241
|
)
|
||||
|
Loans
granted - related parties
|
-
|
-
|
(160,365
|
)
|
||||||
|
Repayment
of loans - related parties
|
-
|
-
|
160,365
|
|||||||
|
Proceeds
from sale of property and equipment
|
-
|
-
|
13,583
|
|||||||
|
Net
cash used by investing activities
|
(1,357
|
)
|
(24,495
|
)
|
(674,530
|
)
|
||||
|
Cash
flows from financing activities:
|
||||||||||
|
Proceeds
from issuance of stock
|
1,543,774
|
7,599
|
13,938,212
|
|||||||
|
Proceeds
from loans - related parties
|
-
|
26,640
|
384,690
|
|||||||
|
Repayment
of loans - related parties
|
(28,430
|
)
|
-
|
(268,089
|
)
|
|||||
|
Conversion
of related party loans to stock
|
-
|
-
|
(99,100
|
)
|
||||||
|
Proceeds
from loan from payroll service
|
-
|
-
|
42,663
|
|||||||
|
Repayment
of loan from payroll service
|
-
|
-
|
(42,663
|
)
|
||||||
|
Proceeds
from issuance of long-term debt
|
61
|
22,218
|
22,278
|
|||||||
|
Principal
repayments of long-term debt
|
(1,072
|
)
|
-
|
(4,337
|
)
|
|||||
|
Net
cash provided by financing activities
|
1,514,333
|
56,457
|
13,973,654
|
|||||||
|
Net
increase (decrease) in cash and cash equivalents
|
673,370
|
226
|
673,653
|
|||||||
F-47
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Statements
of Cash Flows
|
Cumulative
|
||||||||||
|
From
|
||||||||||
|
January
8, 1992
|
||||||||||
|
For
the quarters ended March 31
|
Through
|
|||||||||
|
March
31,
|
||||||||||
|
2006
|
2005
|
2006
|
||||||||
|
Cash
and cash equivalents - beginning
|
283
|
462
|
-
|
|||||||
|
Cash
and cash equivalents - end
|
$
|
673,653
|
$
|
688
|
$
|
673,653
|
||||
|
Supplemental
disclosures
|
||||||||||
|
Cash
paid - interest
|
$
|
566
|
$
|
143
|
$
|
5,376
|
||||
|
Cash
paid - taxes
|
$
|
-
|
$
|
-
|
$
|
-
|
||||
|
Non-Cash
Transactions:
|
||||||||||
|
Conversion
of debt to equity
|
$
|
4,100
|
$
|
26,200
|
$
|
103,200
|
||||
F-48
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
| 1. |
The
Company and Business Operations
|
Radkowsky
Thorium Power Corp., incorporated in the state of Delaware on January
8, 1992
(“Inception”), changed its name to Thorium Power, Inc. in Apri1 2001. Thorium
Power, Inc. (the “Company”) is engaged in the development, promotion and
marketing of its three patented nuclear fuel designs: (1) Thorium/weapons-grade
plutonium disposing fuel, (2) Thorium/reactor-grade plutonium disposing
fuel,
and (3) Thorium/uranium nuclear fuel. These fuels are designed to be
used in
existing light water reactors. Presently, the Company is focusing most
of its
efforts on demonstrating and testing its thorium/weapons-grade plutonium
disposing fuel for the Russian VVER-1000 reactors.
Once
the
fuels are further developed and tested, Thorium Power plans to license
its
intellectual property rights to fuel fabricators, nuclear generators,
and
governments for use in commercial light water nuclear reactors, or
sell the
technology to a major nuclear company or government contractor or some
combination of the two.
Substantially
all of the Company’s present research activities are in Russia. The Company’s
research operations are subject to various political, economic, and
other risks
and uncertainties inherent in the country of Russia.
The
Company’s nuclear fuel process is dependent on the ability of suppliers of
the
mineral Thorium, to provide it to the Company’s future customers on a timely
basis and also on favorable pricing terms. The loss of certain principal
suppliers of Thorium or a significant reduction in Thorium availability
from
principal suppliers could have a material adverse effect on the future
operations of the Company.
The
Company participates in a highly regulated industry that is characterized
by
governmental regulation. The Company’s results of operations are affected by a
wide variety of factors including general economic conditions, decreases
in the
use or public favor of nuclear power, the ability of its technology,
the ability
to safeguard the production of nuclear power and safeguarding its patents
and
intellectual property from competitors. Due to these factors, the Company
may
experience substantial period-to-period fluctuations in future operating
results.
The
Company in the future may be designated as a potentially responsible
party (PRP)
by federal and state agencies with respect to certain sites with which
the
Company may have direct or indirect future involvement. Such designations
can be
made regardless of the extent of the Company’s involvement.
Operations
to date have been devoted primarily to filing for patents, developing
strategic
relationships within the industry, securing political and financial
support from
the United States and Russian governments, continued development of
the fuel
designs and administrative functions. The Company, therefore, prepares
its
financial statements as a Development Stage Enterprise.
F-49
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
Merger
Agreement
On
February 14, 2006, Novastar Resources Ltd. (“Novastar Resources”) entered into
an Agreement and Plan of Merger (the “Merger Agreement”) with the Company and TP
Acquisition Corp., a direct wholly-owned subsidiary of Novastar
Resources formed
in connection with the transactions contemplated by the Merger
Agreement.
Concurrently therewith, Novastar Resources (1) adopted its 2006
Stock Plan, (2)
entered into an employment agreement with Seth Grae, President
and Chief
Executive Officer of Thorium Power, (3) granted certain nonqualified
stock
options to Mr. Grae and (4) entered into a subscription agreement
with Thorium
Power for the purchase of 150,000 shares of common stock of Thorium
Power for
$4.00 per share.
Under
the
Merger Agreement, each common share of Thorium Power will be converted
into
securities of Novastar Resources such that Thorium Power's current
stockholders
will own approximately 54.5% of the combined company, and each
share of Novastar
Resources common stock will remain outstanding. In addition, Novastar
Resources
anticipates the appointment of new directors and officers following
the merger.
The combined company will be headquartered in the Washington D.C.
area, where
Thorium Power is presently based.
The
merger is conditioned upon completion of due diligence reviews
by both
companies, the declaration of effectiveness of a registration statement
by the
Securities and Exchange Commission and any other necessary regulatory
approvals.
|
2.
|
Summary of Significant Accounting
policies
|
A
summary
of significant accounting policies follows:
a. Revenue
Recognition
-
All
of
the Company's revenue to date had been derived from licensing fees
from nuclear
industry commercial partners.
Once
the
company's technology has advanced to the level when it is funded
by the US
Government on an ongoing basis as part of the plutonium disposition
program, the
company will seek to license its technology to major government
contractors or
nuclear companies, working for the US and other governments. We
expect that our
revenue from license fees will be recognized on a straight-line
basis over the
expected period of the related license term.
F-50
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
The
Company
may receive employment and research grants from various U.S. governmental
agencies, and these grants will be recognized in earnings in the period
in which
the related expenditures are incurred. Capital grants for the acquisition
of
equipment will be recorded as reductions of the related equipment cost
and
reduce future depreciation expense.
Total
subsidies and grants from the US government totaled $5.45 million,
cumulative
from inception to March 31, 2006. These amounts were not paid to us
but paid
directly from the US government to third party research and development
companies that work on our project, as well as other projects.
| b. |
Patent
Costs - Patent
costs represent legal fees and filing costs capitalized and
amortized over
their estimated useful lives of 20 years. Amortization expense
for Patents
was $4,259 and $4,261 for the three month periods ended March
31, 2006 and
March 31, 2005 and $198,504 for the cumulative period from
Inception to
March 31, 2006.
|
| c. |
Cash
Equivalents - Cash
equivalents consist of cash and cash investments with maturities
of three
months or less at the time of purchase.
|
| d. |
Start-Up
Costs -
The Company, in accordance with the provisions of the American
Institute
of Certified Public Accountants' Statement of Position (SOP)
98-5,
"Reporting on the Costs of Start-up Activities”, expenses all start-up and
organizational costs as they are
incurred.
|
| e. |
Property,
Plant and Equipment - Property,
Plant and Equipment is comprised of leasehold improvements,
an automobile,
and office equipment and is stated at cost less accumulated
depreciation.
Depreciation of furniture, computer and office equipment is
computed over
the estimated useful life of the asset, generally five and
seven years
respectively, utilizing the double declining balance methodology.
Depreciation for the leasehold improvements is computed using
the
straight-line method over the 5 year term of the lease. Upon
disposition
of assets, the related cost and accumulated depreciation are
eliminated
and any gain or loss is included in the statement of income.
Expenditures
for major improvements are capitalized. Maintenance and repairs
are
expensed as incurred.
|
| f. |
Long-Lived
Assets -
Long-lived assets are reviewed for impairment whenever events
or changes
in circumstances indicate that the carrying amount of the assets
might not
be recoverable. Conditions that would necessitate an impairment
assessment
include a significant decline in the observable market value
of an asset,
a significant change in the extent or manner in which an asset
is used, or
any other significant adverse change that would indicate that
the carrying
amount of an asset or group of assets is not
recoverable.
|
F-51
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
For
long-lived assets used in operations, impairment losses are only recorded
if the
asset’s carrying amount is not recoverable through its undiscounted,
probability-weighted cash flows. We measure the impairment loss based
on the
difference between the carrying amount and estimated fair value.
| g. |
Estimates
and Assumptions - The
preparation of financial statements in conformity with generally
accepted
accounting principles requires management to make estimates
and
assumptions that affect the reported amounts of assets and
liabilities and
disclosure of contingent
assets and liabilities at the date of the financial statements
and
reported amounts of revenue and expenses during the reporting
period.
Actual results could differ from those
estimates.
|
The
financial statements include some amounts that are based on management’s best
estimates and judgments. The most significant estimates relate to contingencies,
and the valuation of stock options, stock warrants and stock issued
for
services. These estimates may be adjusted as more current information
becomes
available, and any adjustment could be significant.
| h. |
Stock-based
Compensation - Employees.
When stock based compensation is issued to employees and directors,
in
connection with their services as directors, the revised Statement
of
Financial Accounting Standards No. 123 ‘Accounting for Stock Based
Compensation’ (“SFAS 123(R)”) requires companies to record compensation
cost for stock based employee compensation plans at fair value.
From
inception through 2003, the Company accounted for stock based
compensation
using the intrinsic value method prescribed in Accounting Principles
Board
Opinion No. 25, ‘Accounting for Stock Issued to Employees’ (“APB No. 25”).
APB No. 25 requires no recognition of compensation expense
for the stock
based compensation arrangements provided by the Company where
the exercise
price is equal to the market price at the date of the grants.
|
Non-Employees
- When stock based compensation is issued to non-employees, the Company
records
these transactions at the fair market value of the equity instruments
issued or
the goods or services received whichever is more reliably measurable.
In
December 2004, the Financial Accounting Standards Board issued Statement
of
Financial Accounting Standards No. 123 (Revised 2004), Share-Based
Payment,
(FAS-123R). This statement replaces FAS-123, Accounting for Stock-Based
Compensation,
supersedes
APB Opinion No. 25, Accounting for Stock Issued to Employees,
and
amends FAS-95, Statement of Cash Flows.
FAS-123R
requires companies to apply a fair-value-based measurement method in
accounting
for shared-based payment transactions with employees and to record
compensation
cost for all stock awards granted after the required effective date
and for
awards modified, repurchased, or cancelled after that date. The scope
of
FAS-123R encompasses a wide range of share-based compensation arrangements,
including share options, restricted share plans, performance-based
awards, share
appreciation rights, and employee share purchase plans.
F-52
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
FAS-123R
is effective for our Company January 1, 2006, however the Company has
decided to
adopt FAS-123R in 2004. Companies are permitted to apply the modified
retrospective method either (a) to all prior periods presented for
which FAS-123
was effective or (b) to prior interim periods of the year in which
FAS-123R is
adopted. Under the modified retrospective method, the recognition of
compensation cost under FAS-123R is generally the same as the accounting
under
the modified prospective method discussed previously for (a) awards
granted,
modified, or settled subsequent to the adoption of FAS-123R, and (b)
awards
granted prior to the date of adoption of FAS-123R for which the requisite
service period has not been completed (i.e., unvested awards). There
were no
restatements or transition adjustments recorded.
| i. |
Income
Taxes - Deferred
tax assets and liabilities are recognized for the future tax
consequences
attributable to differences between the financial statement
carrying
amounts of existing assets and liabilities and their respective
tax bases.
Deferred tax assets, including tax loss and credit carryforwards,
and
liabilities are measured using enacted tax rates expected to
apply to
taxable income in the years in which those temporary differences
are
expected to be recovered or settled. The effect on deferred
tax assets and
liabilities of a change in tax rates is recognized in income
in the period
that includes the enactment date. Deferred income tax expense
represents
the change during the period in the deferred tax assets and
deferred tax
liabilities. The components of the deferred tax assets and
liabilities are
individually classified as current and non-current based on
their
characteristics. Deferred tax assets are reduced by a valuation
allowance
when, in the opinion of management, it is more likely than
not that some
portion or all of the deferred tax assets will not be
realized.
|
| j. |
Earnings
per Share - Basic
net earnings (loss) per common share is computed by dividing
net earnings
(loss) applicable to common shareholders by the weighted-average
number of
common shares outstanding during the period. Diluted net earnings
(loss)
per common share is determined using the weighted-average number
of common
shares outstanding during the period, adjusted for the dilutive
effect of
common stock equivalents. In periods where losses are reported,
the
weighted-average number of common shares outstanding excludes
common stock
equivalents because their inclusion would be
anti-dilutive.
|
| k. |
New
Accounting Pronouncements - In
December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29”. SFAS
153 is effective for nonmonetary asset exchanges occurring
in fiscal
periods beginning after June 15, 2005, with earlier application
permitted.
The adoption of SFAS 153 is not expected to have a material
impact on our
results of operations or financial
position.
|
In
March
2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional
Asset Retirement Obligations,” (FIN 47). 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 our company. The Company
is
currently evaluating the impact of the adoption of FIN 47 on its financial
statements.
F-53
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
| 3. |
Status
of the Company
|
The
accompanying financial statements have been prepared on a going concern
basis,
which contemplates the realization of assets and the satisfaction of
liabilities
in the normal course of business. The Company has sustained operating
losses
while not generating steady revenues. However, the Company’s business plan
anticipates the Company’s current products will become ready for market and
revenue generating sometime between 2008 and 2009. Therefore, the Company
makes
use of issuances of stock to provide funds for operations.
Until
such time as the Company’s products become ready for market and revenue
generating, the Company’s ability to operate is dependent upon receiving
additional corporate funding in the form of issuances of stock, new
debt, or
government funding.
The
financial statements do not include any adjustments relating to the
recovery and
classification of recorded asset amounts and classifications of liabilities
that
might be necessary should the Company be unable to meet its current
obligations
and, therefore, be unable to continue as a going concern.
| 4. |
Research
and Development Costs
|
Research
and development costs amounted to $- for the three months ended March
31, 2006
and March 31, 2005 and $3,892,158 cumulative from inception date through
March
31, 2006
| 5. |
Property
Plant and Equipment
|
The
following represents the detail of Thorium Power’s property, plant and equipment
at March 31, 2006:
|
Original
|
Accumulated
|
Net
Book
|
||||||||
|
Costs
|
Depreciation
|
Value
|
||||||||
|
Furniture,
computer and office equipment
|
$
|
14,935
|
$
|
12,235
|
$
|
2,700
|
||||
|
Automobile
|
22,218
|
4,950
|
17,268
|
|||||||
|
$
|
37,153
|
$
|
17,185
|
$
|
19,968
|
|||||
F-54
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
| 6. |
Stock
Options and Warrants
|
The
Company maintains no formal plan for stock options and warrants. Options
are
issued to employees, directors and others for services provided to
the Company.
Warrants are issued in connection with sales of stock. Since the Company’s stock
is not publicly traded, there is insufficient historical information
about the
past volatility of the Company’s stock, and there are no similar public entities
for which stock information is available. We have estimated the expected
volatility of the Company’s stock using a fair value method, as shown below. As
a result, options granted to both employees and non-employees for services
are
accounted for under the calculated value method, as described in paragraphs
A43-A48 of SFAS 123(R), using a Black-Scholes option-pricing model
with the
following weighted average assumptions:
|
2002
and prior
|
2003
|
2004-2005
|
||||
|
Expected
life of options
|
Actual
life
|
Actual
life
|
Actual
life
|
|||
|
Risk-free
interest rate
|
5%
|
4%
|
4%
|
|||
|
Volatility
of stock
|
100%
|
100%
|
32%
|
|||
|
Expected
dividend yield
|
-
|
-
|
-
|
The
calculated value method under SFAS 123(R) permits for non-public companies
substitution of the historical volatility of an appropriate industry
sector
index for the expected volatility of the Company’s stock price as an assumption
in the valuation model. The Company identified and selected the Standard
&
Poor’s 600 small-cap index for the U.S. energy sector as the one most closely
reflecting the present size of the Company and the industry in which
the Company
operates. The volatility in the Black-Scholes valuation model used
by the
Company is calculated based on the historical volatility of the above
industry
sector index, as measured by the standard deviation of daily historical
closing
values for the period of time prior to the grant date of stock options
that is
equal in length to the expected term of the granted stock options.
If historical
closing values of the above index are not available for the entire
expected
term, then the Company uses the closing values for the longest period
of time
available.
F-55
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
Presented
below is a summary of the options and warrants activity since January
1, 1993:
|
In
Connection
|
Issued
|
Converted
|
||||||||||||||
|
Beginning
|
In
Exchange
|
with
purchase
|
as
|
to
stock/
|
Ending
|
|||||||||||
|
Balance
|
for
Services
|
of
stock
|
Incentive
|
Exercised
|
Expired
|
Repriced
|
Balance
|
|||||||||
|
1/1/1993
|
12/31/1993
|
|||||||||||||||
|
$1
per share
|
0
|
1,040,000
|
35,000
|
15,000
|
(10,000)
|
1,080,000
|
||||||||||
|
$5
per share
|
0
|
220,000
|
220,000
|
|||||||||||||
|
$10
per share
|
0
|
0
|
||||||||||||||
|
1,300,000
|
||||||||||||||||
|
1/1/1994
|
12/31/1994
|
|||||||||||||||
|
$1
per share
|
1,080,000
|
95,000
|
1,175,000
|
|||||||||||||
|
$5
per share
|
220,000
|
50,000
|
25,000
|
295,000
|
||||||||||||
|
$10
per share
|
0
|
55,000
|
36,100
|
91,100
|
||||||||||||
|
1,561,100
|
||||||||||||||||
|
1/1/1995
|
12/31/1995
|
|||||||||||||||
|
$1
per share
|
1,175,000
|
(10,000)
|
25,000
|
1,190,000
|
||||||||||||
|
$5
per share
|
295,000
|
155,000
|
(25,000)
|
425,000
|
||||||||||||
|
$10
per share
|
91,100
|
30,000
|
41,500
|
5,000
|
167,600
|
|||||||||||
|
|
1,782,600
|
|||||||||||||||
|
1/1/1996
|
12/31/1996
|
|||||||||||||||
|
$1
per share
|
1,190,000
|
(34,000)
|
100,000
|
1,256,000
|
||||||||||||
|
$5
per share
|
425,000
|
60,000
|
(82,500)
|
402,500
|
||||||||||||
|
$10
per share
|
167,600
|
25,000
|
30,300
|
14,000
|
(17,500)
|
219,400
|
||||||||||
|
1,877,900
|
||||||||||||||||
|
1/1/1997
|
12/31/1997
|
|||||||||||||||
|
$1
per share
|
1,256,000
|
(47,500)
|
81,000
|
1,289,500
|
||||||||||||
|
$5
per share
|
402,500
|
(42,500)
|
360,000
|
|||||||||||||
|
$10
per share
|
219,400
|
118,000
|
56,700
|
(3,500)
|
(38,500)
|
352,100
|
||||||||||
|
2,001,600
|
F-56
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
|
In
Connection
|
Issued
|
Converted
|
||||||||||||||
|
Beginning
|
In
Exchange
|
with
purchase
|
as
|
to
stock/
|
Ending
|
|||||||||||
|
Balance
|
for
Services
|
of
stock
|
Incentive
|
Exercised
|
Expired
|
Repriced
|
Balance
|
|||||||||
|
01/01/1998
|
12/31/1998
|
|||||||||||||||
|
$1
per share
|
1,289,500
|
(232,500)
|
(95,000)
|
55,000
|
1,017,000
|
|||||||||||
|
$5
per share
|
360,000
|
(47,500)
|
(172,500)
|
(50,000)
|
90,000
|
|||||||||||
|
$10
per share
|
352,100
|
2,500
|
9,500
|
(5,000)
|
359,100
|
|||||||||||
|
1,466,100
|
||||||||||||||||
|
01/01/1999
|
12/31/1999
|
|||||||||||||||
|
$1
per share
|
1,017,000
|
(5,000)
|
(20,000)
|
992,000
|
||||||||||||
|
$5
per share
|
90,000
|
(25,000)
|
65,000
|
|||||||||||||
|
$10
per share
|
359,100
|
(5,250)
|
(26,850)
|
327,000
|
||||||||||||
|
1,384,000
|
||||||||||||||||
|
01/01/2000
|
12/31/2000
|
|||||||||||||||
|
$1
per share
|
992,000
|
(60,000)
|
932,000
|
|||||||||||||
|
$5
per share
|
65,000
|
600,000
|
(5,000)
|
660,000
|
||||||||||||
|
$10
per share
|
327,000
|
(37,000)
|
(13,500)
|
276,500
|
||||||||||||
|
1,868,500
|
||||||||||||||||
|
01/01/2001
|
12/31/2001
|
|||||||||||||||
|
$1
per share
|
932,000
|
(5,000)
|
927,000
|
|||||||||||||
|
$5
per share
|
660,000
|
(20,000)
|
640,000
|
|||||||||||||
|
$10
per share
|
276,500
|
223,000
|
700,000
|
625,000
|
(3,600)
|
(51,200)
|
1,769,700
|
|||||||||
|
3,336,700
|
||||||||||||||||
|
01/01/2002
|
12/31/2002
|
|||||||||||||||
|
$1
per share
|
927,000
|
-
|
-
|
-
|
(3,000)
|
(7,000)
|
-
|
917,000
|
||||||||
|
$5
per share
|
640,000
|
-
|
-
|
-
|
-
|
-
|
-
|
640,000
|
||||||||
|
$10
per share
|
1,769,700
|
-
|
10,000
|
(625,000)
|
(2,000)
|
(97,700)
|
-
|
1,055,000
|
||||||||
|
2,612,000
|
F-57
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
|
In
Connection
|
Issued
|
Converted
|
||||||||||||||
|
Beginning
|
In
Exchange
|
with
purchase
|
as
|
to
stock/
|
Ending
|
|||||||||||
|
Balance
|
for
Services
|
of
stock
|
Incentive
|
Exercised
|
Expired
|
Repriced
|
Balance
|
|||||||||
|
01/01/2004
|
12/31/2004
|
|||||||||||||||
|
$1
per share
|
2,017,000
|
-
|
-
|
-
|
-
|
-
|
-
|
2,017,000
|
||||||||
|
$4
per share
|
0
|
250,000
|
-
|
-
|
-
|
-
|
-
|
250,000
|
||||||||
|
$5
per share
|
80,000
|
-
|
-
|
-
|
-
|
-
|
-
|
80,000
|
||||||||
|
$9.73-$10
per share
|
412,495
|
-
|
-
|
600
|
-
|
-
|
-
|
413,095
|
||||||||
|
2,760,095
|
||||||||||||||||
|
01/01/2005
|
12/31/2005
|
|||||||||||||||
|
$1
per share
|
2,017,000
|
-
|
-
|
-
|
(1,000)
|
-
|
-
|
2,016,000
|
||||||||
|
$4
per share
|
250,000
|
225,000
|
-
|
-
|
-
|
-
|
-
|
475,000
|
||||||||
|
$5
per share
|
80,000
|
-
|
-
|
-
|
-
|
-
|
-
|
80,000
|
||||||||
|
$9.60-$10
per share
|
413,095
|
-
|
-
|
705
|
-
|
-
|
-
|
413,800
|
||||||||
|
2,984,800
|
F-58
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
The
625,000 incentive warrants issued in 2001 were contingent upon achieving
certain
goals, including raising private capital. By December 31, 2002, these
goals had
not been met and, therefore, the warrants were voided. In addition,
included in
the 223,000 options issued in 2001, 100,000 are to a director of which
all
100,000 have vested at December 31, 2005.
In
September 2003, the Company reached an agreement with certain shareholders
whereby, in exchange for certain concessions and a release of claim
against the
company, 1,200,000 warrants at $5 and $10 exercise price were repriced
to $1. In
addition, 300,000 of those warrants had their expiration date extended
three
years from December 2004 to 2007. In connection with this repricing,
the Company
recorded a non-cash expense in the amount of $1,506,427 in 2003. The
Company
also acknowledged certain prior obligations in connection with government
negotiation and raising of capital totalling approximately $130,000.
The Company
also gave antidilution rights to these shareholders for a period of
three years
from September 2003.
Also
in
2003, pursuant to an antidilutive agreement with a shareholder, 50,000
options
were repriced from $10 to $9.84 and 1,590 stock options were issued.
795 of
these stock options expired in 2003. In 2004 and 2005, the price of
those
warrants was further reduced from $9.84 to $9.73 and from $9.73 to
$9.60 and an
additional 600 and 705 stock options were issued respectively. In the
three
months ended March 31, 2006, the price of those warrants was further
reduced
from $9.60 to $9.17 and an additional 2,458 stock options were
issued.
The
following summarizes information for options and warrants currently
outstanding
and exercisable at March 31, 2006:
|
March
31, 2006
|
Number
|
Weighted
average Remaining Life
|
Weighted-
average exercise price
|
||||||
|
Range
of Prices
|
|
||||||||
|
$1.00
|
2,016,000
|
1.5
years
|
$1.00
|
||||||
|
$4.00
|
475,000
|
4.0
years
|
$4.00
|
||||||
|
$5.00
|
80,000
|
|
1.4
years
|
$5.00
|
|||||
|
$9.17-10.00
|
416,258
|
0.9
years
|
$9.89
|
||||||
|
2,987,258
|
$2.82
|
Of
the
total number of stock options and warrants outstanding at March 31,
2006,
1,662,700 were stock options and the remaining 1,324,558 were warrants.
All of
the stock options and warrants outstanding at March 31, 2006 have
vested.
F-59
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
| 7. |
Income
Taxes
|
Deferred
income taxes reflect the net tax effects of temporary differences between
the
carrying amounts of assets and liabilities recognized for financial
reporting
and the amounts recognized for income tax purposes. The significant
components
of deferred tax assets as of March 31, 2006 are as follows:
|
Assets
|
||
|
Approximate
net operating loss
|
13,182,000
|
|
|
Less:
valuation allowance
|
(13,182,000)
|
|
|
$
|
-
|
Management
believes that it is more likely than not that forecasted taxable income
will not
be sufficient to utilize the tax carryforwards before their expiration
in 2012
and 2025 to fully recover the asset. As a result, the amount of the
deferred tax
assets considered realizable was reduced 100% by a valuation allowance.
In the
near term, if estimates of future taxable income are increased, such
an increase
will change the valuation allowance. The Company has no other deferred
tax
assets or liabilities.
| 8. |
Profit
Sharing Plan
|
The
Company established and maintained until the end of 2003 a profit-sharing
plan
that covered all employees who had attained twenty-one years of age
and
satisfied a one-year service requirement. Contributions to the plan
were at the
discretion of the board of directors; however, the contribution could
not exceed
15% of compensation for the eligible employees in any single tax year.
Since
inception through the end of 2003, profit sharing expense amounted
to $51,000.
This plan was dissolved in 2003, and all contributions were distributed
back to
the plan’s participants.
| 9. |
Research
Agreement
|
The
Company is party to an agreement whereby certain research is being
performed by
the Russian Research Centre, known as the Kurchatov Institute (“RRC”), on the
Company’s fuel designs. All the funding under this agreement is supplied by
the
Company. The Company is also a party to another agreement whereby research
relating only to thermal-hydraulic testing is performed by the Brookhaven
National Laboratory in cooperation with the RRC. The funding is supplied
by the
United States Department of Energy Initiatives for Proliferation Prevention
Program (DOE-IPP) and the Company directly to Brookhaven National Laboratory.
At
March 31, 2006, the Company fulfilled its funding obligation in full
with
respect to this agreement.
F-60
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
| 10. |
Commitments
and Contingencies
|
Firm
Price Commitments
The
Company entered into a firm price commitment agreement in connection
with its
participation in the pre-conceptual design phase for the construction
of a
high-temperature test and research reactor in Texas. The agreement
has created a
firm commitment by the Company for a minimum of $1.25 million financial
contribution toward the project. A minimum payment of $50,000 on the
agreement
was due and paid on February 22, 2006, with 10 additional payments
totaling $1.2
million due by December 31, 2006.
The
Company also executed an amendment to its cooperative research agreement
with
Kurchatov Institute, expanding the scope of work and committing $65,000
(paid
$10,000) toward those research and development activities. The work
to be
performed under this amendment is to be completed by July 31, 2006.
Lease
Commitments
The
Company leases office space. Future estimated rental payments under
these
operating leases are as follows:
|
|
|
Dollars
|
|
|
|
|
|
|
|
|
|
Year
ending December 31, 2006
|
|
|
4,500
|
|
| 11. |
Related
Parties
|
The
Company has both made loans to and received loans from related parties
since its
inception. In 2001, Thorium Power made a $50,000 loan, which was repaid
during
the year, to a related party. Thorium Power received $1,361 in interest
income
from the related party associated with this loan. Since inception,
Thorium Power
has made approximately $285,000 in loans to related parties. Of this
amount,
$125,000 was a note received from a related party in exchange for the
purchase
of the Company’s stock. These loans, which generated $1,648 of interest income
from related parties, were repaid, with the exception of approximately
$1,000
written off in 1998. At March 31, 2006, $17,500 was due to related
parties.
12. Capital
Stock Transactions
For
the
three month period ended March 31, 2006, we sold 327,035 shares of
our common
stock in a private placement to 27 accredited investors and received
proceeds
from the sale of these shares totalling $1,539,674.
F-61
Child,
Van Wagoner & Bradshaw, PLLC
A
PROFESSIONAL LIMITED LIABILITY COMPANY OF
CERTIFIED PUBLIC ACCOUNTANTS
[Missing
Graphic Reference] 1284
W. Flint Meadow Dr., Suite D, Kaysville, UT 84037PHONE:
(801) 927-1337 FAX: (801) 927-1344
5296
S. Commerce Dr., Suite 300, Salt Lake City, UT 84107PHONE:
(801) 281-4700 FAX: (801) 281-4701
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
The
Board of Directors
Thorium
Power, Inc.
Washington,
DC
We
have
audited the accompanying balance sheets of Thorium Power, Inc.(a development
stage enterprise) as of December 31, 2005 and 2004, and the related
statements
of operations, statement of changes in stockholders’ equity, and cash flows for
the years then ended and for the period from January 1, 2002 to December
31,
2005. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements
from
January 8, 1992 (date of inception), to December 31, 2001. Those statements
were
audited by other auditors, whose report dated March 29, 2002, gave
an
unqualified opinion thereon.
We
conducted our audits in accordance with the standards of the Public
Company
Accounting Oversight Board (United States of America). Those standards
require
that we plan and perform the audit to obtain reasonable assurance about
whether
the financial statements are free of material misstatement. The Company
is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration
of internal
control over financial reporting, as a basis for designing audit procedures
that
are appropriate in the circumstances, but not for the purpose of expressing
an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes
examining,
on a test basis, evidence supporting the amounts and disclosures in
the
financial statements. An audit also includes assessing the accounting
principles
used and significant estimates made by management, as well as evaluating
the
overall financial statement presentation. We believe that our audits
provide a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly,
in all
material respects, the financial position of Thorium Power, Inc. (a
development
stage enterprise) as of December 31, 2005 and 2004, and the results
of its
operations and its cash flows for each of the two years then ended
and for the
period from January 1, 2002 to December 31, 2005, in conformity with
accounting
principles generally accepted in the United States of America.
Child,
Van Wagoner & Bradshaw, PLLC
Salt
Lake
City, Utah
April
5,
2006
F-62
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Balance
Sheet
December
31, 2005 and December 31, 2004
|
2005
|
2004
|
||||||
|
ASSETS
|
|||||||
|
CURRENT
ASSETS
|
|||||||
|
Cash
and cash equivalents
|
$
|
283
|
$
|
462
|
|||
|
Prepaid
expenses and other current assets:
|
|||||||
|
Prepayment
of premium for directors & officers liability
insurance
|
3,881
|
3,881
|
|||||
|
Prepayment
of premium for life insurance
|
911
|
911
|
|||||
|
Other
prepaid expenses and current assets
|
1,488
|
2,014
|
|||||
|
Total
Current Assets
|
6,563
|
7,268
|
|||||
|
PROPERTY,
PLANT AND EQUIPMENT
|
|||||||
|
Property,
plant and equipment
|
36,096
|
31,235
|
|||||
|
Accumulated
depreciation
|
(14,881
|
)
|
(22,156
|
)
|
|||
|
Total
Property, Plant and Equipment
|
21,215
|
9,079
|
|||||
|
OTHER
ASSETS
|
|||||||
|
Patent
costs - net of accumulated amortization of $193,794 and $176,524
respectively
|
211,211
|
223,959
|
|||||
|
Security
deposits
|
7,567
|
7,412
|
|||||
|
Total
Other Assets
|
218,778
|
231,371
|
|||||
|
TOTAL
ASSETS
|
$
|
246,556
|
$
|
247,718
|
|||
F-63
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Balance
Sheet
December
31, 2005 and December 31, 2004
|
2005
|
2004
|
||||||
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIENCY
|
|||||||
|
CURRENT
LIABILITIES
|
|||||||
|
Current
portion of long-term debt
|
4,135
|
-
|
|||||
|
Accrued
expenses and accounts payable:
|
|||||||
|
Accrued
salaries
|
387,500
|
205,000
|
|||||
|
Accrued
legal fees
|
207,276
|
238,405
|
|||||
|
Other
accrued expenses and accounts payable
|
338,090
|
346,560
|
|||||
|
Note
payable
|
45,930
|
55,600
|
|||||
|
Other
current liabilities
|
5,910
|
5,899
|
|||||
|
Total
Current Liabilities
|
988,841
|
851,464
|
|||||
|
LONG-TERM
LIABILITIES
|
|||||||
|
Note
payable
|
14,818
|
||||||
|
Total
Liabilities
|
1,003,659
|
851,464
|
|||||
|
STOCKHOLDERS'
DEFICIENCY
|
|||||||
|
Common
Stock-$.05 par value-authorized 20,000,000 shares; issued
and outstanding
3,362,984 shares and 3,286,211 shares, respectively
|
168,149
|
164,311
|
|||||
|
Common
stock and warrants - Additional paid-in capital
|
14,544,410
|
13,941,101
|
|||||
|
Deficit
accumulated during the development stage
|
(15,469,662
|
)
|
(14,709,158
|
)
|
|||
|
Total
Stockholders' Deficiency
|
(757,103
|
)
|
(603,746
|
)
|
|||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
|
$
|
246,556
|
$
|
247,718
|
|||
F-64
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Statements
of Operations
|
Cumulative
|
||||||||||
|
From
|
||||||||||
|
January
8, 1992
|
||||||||||
|
For
the years ended December 31
|
Through
December
31
|
|||||||||
|
2005
|
|
|
2004
|
|
|
2005
|
||||
|
Revenue
|
||||||||||
|
License
revenue
|
$
|
-
|
-
|
$
|
624,985
|
|||||
|
Total
Revenue
|
-
|
-
|
624,985
|
|||||||
|
Costs
and expenses
|
||||||||||
|
Research
and development
|
17,500
|
-
|
3,892,158
|
|||||||
|
Salaries
|
257,383
|
231,271
|
3,505,014
|
|||||||
|
Professional
fees
|
14,527
|
32,257
|
2,063,125
|
|||||||
|
Stock
based compensation
|
303,055
|
351,253
|
2,229,871
|
|||||||
|
Other
selling, general and administrative expenses
|
168,093
|
359,998
|
4,436,180
|
|||||||
|
Total
operating expenses
|
760,558
|
974,779
|
16,126,348
|
|||||||
|
Loss
from operations
|
760,558
|
974,779
|
15,501,363
|
|||||||
|
Other
(income) expenses
|
||||||||||
|
Interest
income
|
-
|
0
|
(108,142
|
)
|
||||||
|
Other
income
|
(54
|
)
|
(105
|
)
|
(159
|
)
|
||||
|
Settlement
costs
|
-
|
0
|
76,600
|
|||||||
|
Net
Loss
|
$
|
760,504
|
974,674
|
$
|
15,469,662
|
|||||
|
Basic
and diluted net loss per share
|
0.23
|
0.30
|
||||||||
|
Number
of shares used to compute per share data
|
3,314,862
|
3,249,421
|
||||||||
F-65
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Statements
of Changes in Stockholders’ Equity
|
Common
Stock
|
Additional
Paid-in
|
Accumulated
|
Stockholders’
|
||||||||||||
|
Shares
|
Amount
|
Capital
|
(Deficit)
|
Equity
|
|||||||||||
|
Inception
- January 8, 1992
|
|||||||||||||||
|
Authorized
2,500,000 shares - $.05 par value
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
|
Issuance
of common stock for technology and service
|
1,200,000
|
60,000
|
-
|
-
|
60,000
|
||||||||||
|
Net
(loss) for the period ended
|
-
|
-
|
-
|
(60,000
|
)
|
(60,000
|
)
|
||||||||
|
Balance
- January 1, 1993
|
1,200,000
|
60,000
|
-
|
(60,000
|
)
|
-
|
|||||||||
|
Issuance
of common stock and warrants for cash
|
258,500
|
12,925
|
535,030
|
-
|
547,955
|
||||||||||
|
Issuance
of stock in exchange for services
|
47,000
|
2,350
|
20,000
|
-
|
22,350
|
||||||||||
|
Exercise
of stock options and warrants
|
10,000
|
500
|
99,500
|
100,000
|
|||||||||||
|
Net
(loss) for the year ended December 31, 1993
|
-
|
-
|
-
|
(81,526
|
)
|
(81,526
|
)
|
||||||||
|
Balance
- January 1, 1994
|
1,515,500
|
75,775
|
654,530
|
(141,526
|
)
|
588,779
|
|||||||||
|
Authorized
10,000,000 shares - $.05 par value
|
|||||||||||||||
|
Issuance
of common stock and warrants for cash
|
26,200
|
1,310
|
260,690
|
-
|
262,000
|
||||||||||
|
Issuance
of stock in exchange for services
|
10,000
|
500
|
9,500
|
-
|
10,000
|
||||||||||
|
Issuance
of options to non-employees for services
|
-
|
-
|
15,400
|
-
|
15,400
|
||||||||||
|
Net
(loss) for the year ended December 31, 1994
|
-
|
-
|
-
|
(639,861
|
)
|
(639,861
|
)
|
||||||||
|
Balance
- January 1, 1995
|
1,551,700
|
77,585
|
940,120
|
(781,387
|
)
|
236,318
|
|||||||||
|
Issuance
of common stock and warrants for cash
|
41,500
|
2,075
|
412,925
|
-
|
415,000
|
||||||||||
|
Issuance
of stock in exchange for services
|
7,800
|
390
|
7,410
|
-
|
7,800
|
||||||||||
|
Exercise
of stock options and warrants
|
10,000
|
500
|
9,500
|
-
|
10,000
|
||||||||||
|
Net
(loss) for the year ended December 31, 1995
|
-
|
-
|
-
|
(1,088,082
|
)
|
(1,088,082
|
)
|
||||||||
|
Balance
- January 1, 1996
|
1,611,000
|
80,550
|
1,369,955
|
(1,869,469
|
)
|
(418,964
|
)
|
||||||||
|
Issuance
of common stock for cash
|
30,300
|
1,515
|
301,485
|
-
|
303,000
|
||||||||||
|
Issuance
of common stock for services
|
8,000
|
400
|
7,600
|
-
|
8,000
|
||||||||||
|
Exercise
of stock options and warrants
|
34,000
|
1,700
|
32,300
|
-
|
34,000
|
||||||||||
|
Issuance
of options to non-employees for services
|
-
|
-
|
7,950
|
-
|
7,950
|
||||||||||
|
Net
(loss) for the year ended December 31, 1996
|
-
|
-
|
-
|
(763,179
|
)
|
(763,179
|
)
|
||||||||
|
Balance
Forward
|
1,683,300
|
$
|
84,165
|
$
|
1,719,290
|
$
|
(2,632,648
|
)
|
$
|
(829,193
|
)
|
||||
F-66
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Statements
of Changes in Stockholders’ Equity
|
Common
Stock
|
Additional
|
Accumulated
|
Stockholders’
|
||||||||||||
|
Shares
|
Amount
|
Paid-in
Capital
|
(Deficit)
|
Equity
|
|||||||||||
|
Balance
- January 1, 1997
|
1,683,300
|
$
|
84,165
|
$
|
1,719,290
|
$
|
(2,632,648
|
)
|
$
|
(829,193
|
)
|
||||
|
Issuance
of common stock and warrants for cash
|
56,700
|
2,835
|
564,165
|
-
|
567,000
|
||||||||||
|
Exercise
of stock options and warrants
|
51,000
|
2,550
|
79,450
|
-
|
82,000
|
||||||||||
|
Issuance
of options to non-employees for services
|
-
|
-
|
15,960
|
-
|
15,960
|
||||||||||
|
Net
(loss) for the year ended December 31, 1997
|
-
|
-
|
-
|
(598,718
|
)
|
(598,718
|
)
|
||||||||
|
Balance
- January 1, 1998
|
1,791,000
|
89,550
|
2,378,865
|
(3,231,366
|
)
|
(762,951
|
)
|
||||||||
|
Issuance
of common stock and warrants for cash
|
66,536
|
3,327
|
662,033
|
-
|
665,360
|
||||||||||
|
Exercise
of stock options and warrants
|
280,000
|
14,000
|
456,000
|
-
|
470,000
|
||||||||||
|
Issuance
of options to non-employees for services
|
1,325
|
1,325
|
|||||||||||||
|
Net
(loss) for the year ended December 31, 1998
|
-
|
-
|
-
|
(792,185
|
)
|
(792,185
|
)
|
||||||||
|
Balance
- January 1, 1999
|
2,137,536
|
106,877
|
3,498,223
|
(4,023,551
|
)
|
(418,451
|
)
|
||||||||
|
Issuance
of common stock for cash
|
35,675
|
1,784
|
354,966
|
-
|
356,750
|
||||||||||
|
Exercise
of stock options and warrants
|
35,250
|
1,762
|
180,738
|
-
|
182,500
|
||||||||||
|
Net
(loss) for the year ended December 31, 1999
|
-
|
-
|
-
|
(822,803
|
)
|
(822,803
|
)
|
||||||||
|
Balance
- January 1, 2000
|
2,208,461
|
110,423
|
4,033,927
|
(4,846,354
|
)
|
(702,004
|
)
|
||||||||
|
Issuance
of common stock for cash
|
284,600
|
14,230
|
2,831,770
|
-
|
2,846,000
|
||||||||||
|
Issuance
of common stock for services
|
102,000
|
5,100
|
449,900
|
-
|
455,000
|
||||||||||
|
Net
(loss) for the year ended December 31, 2000
|
-
|
-
|
-
|
(1,487,354
|
)
|
(1,487,354
|
)
|
||||||||
|
Balance
- January 1, 2001
|
2,595,061
|
129,753
|
7,315,597
|
(6,333,708
|
)
|
1,111,642
|
|||||||||
|
Issuance
of common stock and warrants for cash
|
350,000
|
17,500
|
3,468,031
|
-
|
3,485,531
|
||||||||||
|
Issuance
of common stock for settlement
|
10,000
|
500
|
36,100
|
-
|
36,600
|
||||||||||
|
Exercise
of stock options and warrants
|
28,600
|
1,430
|
139,570
|
-
|
141,000
|
||||||||||
|
Modification
of options
|
-
|
-
|
28,500
|
-
|
28,500
|
||||||||||
|
Net
(loss) for the year ended December 31, 2001
|
-
|
-
|
-
|
(2,606,466
|
)
|
(2,606,466
|
)
|
||||||||
|
Balance
Forward
|
2,983,661
|
$
|
149,183
|
$
|
10,987,798
|
$
|
(8,940,174
|
)
|
$
|
2,196,807
|
|||||
F-67
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Statements
of Changes in Stockholders’ Equity
|
Common
Stock
|
Additional
|
Accumulated
|
Stockholders’
|
|||||||||||||
|
Shares
|
Amount
|
Paid-in
Capital
|
(Deficit)
|
Equity
|
||||||||||||
|
Balance
- January 1, 2002
|
2,983,661
|
149,183
|
10,987,798
|
(8,940,174
|
)
|
2,196,807
|
||||||||||
|
Issuance
of common stock and warrants for cash
|
5,000
|
250
|
49,750
|
-
|
50,000
|
|||||||||||
|
Exercise
of stock options and warrants
|
5,000
|
250
|
22,750
|
-
|
23,000
|
|||||||||||
|
Issuance
of common stock not previously recognized
|
1,000
|
50
|
(50
|
)
|
-
|
-
|
||||||||||
|
Net
(loss) for the year ended December 31, 2002
|
-
|
-
|
-
|
(2,224,775
|
)
|
(2,224,775
|
)
|
|||||||||
|
Balance
- January 1, 2003
|
2,994,661
|
149,733
|
11,060,248
|
(11,164,949
|
)
|
45,032
|
||||||||||
|
Issuance
of common stock and warrants for cash
|
115,000
|
5,750
|
604,250
|
610,000
|
||||||||||||
|
Exercise
of stock options and warrants
|
106,300
|
5,315
|
157,685
|
163,000
|
||||||||||||
|
Modifications
of options and warrants
|
-
|
-
|
1,506,427
|
1,506,427
|
||||||||||||
|
Issuance
of common stock not previously recognized
|
5,000
|
250
|
(250
|
)
|
-
|
|||||||||||
|
Net
(loss) for the year ended December 31, 2003
|
-
|
-
|
-
|
(2,569,534
|
)
|
(2,569,534
|
)
|
|||||||||
|
Balance
- January 1, 2004
|
3,220,961
|
$
|
161,048
|
$
|
13,328,360
|
$
|
(13,734,483
|
)
|
$
|
(245,075
|
)
|
|||||
|
Issuance
of common stock and warrants for cash
|
63,500
|
3,175
|
254,576
|
257,751
|
||||||||||||
|
Loan
conversion into stock
|
1,750
|
88
|
6,913
|
7,000
|
||||||||||||
|
Issuance
of options to non-employees for services
|
-
|
-
|
351,253
|
-
|
351,253
|
|||||||||||
|
Net
(loss) for the year ended December 31, 2004
|
-
|
-
|
-
|
(974,674
|
)
|
(974,674
|
)
|
|||||||||
|
Balance
- January 1, 2005
|
3,286,211
|
$
|
164,311
|
$
|
13,941,101
|
$
|
(14,709,158
|
)
|
$
|
(603,746
|
)
|
|||||
|
Issuance
of common stock and warrants for cash
|
65,998
|
3,300
|
257,692
|
260,992
|
||||||||||||
|
Loan
conversion into stock
|
10,775
|
539
|
42,561
|
43,100
|
||||||||||||
|
Issuance
of options to non-employees for services
|
-
|
-
|
303,055
|
-
|
303,055
|
|||||||||||
|
Net
(loss) for the year ended December 31, 2005
|
-
|
-
|
-
|
(760,504
|
)
|
(760,504
|
)
|
|||||||||
|
Balance
Forward
|
3,362,984
|
$
|
168,149
|
$
|
14,544,410
|
$
|
(15,469,662
|
)
|
$
|
(757,103
|
)
|
|||||
F-68
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Statements
of Cash Flows
|
Cumulative
|
||||||||||
|
From
|
||||||||||
|
January
8, 1992
|
||||||||||
|
For
the years ended December 31
|
Through
December 31
|
|||||||||
|
2005
|
2004
|
2005
|
||||||||
|
Cash
flows from operating activities:
|
||||||||||
|
Net
loss
|
$
|
(760,504
|
)
|
$
|
(974,674
|
)
|
$
|
(15,469,662
|
)
|
|
|
Adjustments
to reconcile net (loss) to net cash
|
||||||||||
|
provided
by (used by) operating activities:
|
||||||||||
|
Write-off
of foreign patent, including amortization
|
-
|
-
|
75,000
|
|||||||
|
Depreciation
and amortization
|
22,704
|
40,700
|
271,325
|
|||||||
|
(Gain)
loss on disposition of fixed assets
|
3,710
|
80,227
|
86,855
|
|||||||
|
Issuance
of stock in exchange for technology and services
|
-
|
-
|
88,250
|
|||||||
|
Stock
based compensation
|
303,055
|
351,253
|
2,229,870
|
|||||||
|
(Increase)
decrease in prepaid and other expenses
|
525
|
38,651
|
(6,280
|
)
|
||||||
|
Increase
(decrease) in accrued and other expenses
|
142,913
|
198,279
|
938,777
|
|||||||
|
Net
cash used by operating activities
|
(287,597
|
)
|
(265,564
|
)
|
(11,785,865
|
)
|
||||
|
Cash
flows from investing activities:
|
||||||||||
|
Patent
costs
|
(4,523
|
)
|
(40,238
|
)
|
(405,005
|
)
|
||||
|
Security
deposits
|
(154
|
)
|
(1,520
|
)
|
(7,567
|
)
|
||||
|
Purchase
of equipment
|
(22,217
|
)
|
-
|
(274,184
|
)
|
|||||
|
Loans
granted - related parties
|
-
|
-
|
(160,365
|
)
|
||||||
|
Repayment
of loans - related parties
|
-
|
-
|
160,365
|
|||||||
|
Proceeds
from sale of property and equipment
|
937
|
12,596
|
13,583
|
|||||||
|
Net
cash used by investing activities
|
(25,957
|
)
|
(29,162
|
)
|
(673,173
|
)
|
||||
|
Cash
flows from financing activities:
|
||||||||||
|
Proceeds
from issuance of stock
|
260,992
|
257,750
|
12,295,338
|
|||||||
|
Proceeds
from loans - related parties
|
85,227
|
26,750
|
384,690
|
|||||||
|
Repayment
of loans - related parties
|
(51,796
|
)
|
(15,550
|
)
|
(239,659
|
)
|
||||
|
Proceeds
from loan from payroll service
|
-
|
-
|
42,663
|
|||||||
|
Repayment
of loan from payroll service
|
-
|
-
|
(42,663
|
)
|
||||||
|
Net
changes in current portion of long-term debt
|
4,135
|
-
|
4,135
|
|||||||
|
Proceeds
from issuance of long-term debt
|
18,082
|
-
|
18,082
|
|||||||
|
Principal
repayments of long-term debt
|
(3,265
|
)
|
-
|
(3,265
|
)
|
|||||
|
Net
cash provided by financing activities
|
313,375
|
268,950
|
12,459,321
|
|||||||
|
Net
increase (decrease) in cash and cash equivalents
|
(179
|
)
|
(25,776
|
)
|
283
|
|||||
F-69
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Statements
of Cash Flows
|
Cumulative
|
||||||||||
|
From
|
||||||||||
|
January
8, 1992
|
||||||||||
|
For
the years ended December 31
|
Through
DEcember 31
|
|||||||||
|
2005
|
2004
|
2005
|
||||||||
|
Cash
and cash equivalents - beginning
|
462
|
26,238
|
-
|
|||||||
|
Cash
and cash equivalents - end
|
$
|
283
|
$
|
462
|
$
|
283
|
||||
|
Supplemental
disclosures
|
||||||||||
|
Cash
paid - interest
|
$
|
2,621
|
$
|
-
|
$
|
4,810
|
||||
|
Non-Cash
Transactions:
|
||||||||||
|
Conversion
of debt to equity
|
43,100
|
7,000
|
99,100
|
|||||||
F-70
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
| 1. |
The
Company and Business Operations
|
Radkowsky
Thorium Power Corp., incorporated in the state of Delaware on January
8, 1992,
changed its name to Thorium Power, Inc. in Apri1 2001. Thorium Power,
Inc. (the
“Company”) is engaged in the development, promotion and marketing of its three
patented nuclear fuel designs: (1) Thorium/weapons-grade plutonium
disposing
fuel, (2) Thorium/reactor-grade plutonium disposing fuel, and (3)
Thorium/uranium nuclear fuel. These fuels are designed to be used in
existing
light water reactors. Presently, the Company is focusing most of its
efforts on
demonstrating and testing its thorium/weapons-grade plutonium disposing
fuel for
the Russian VVER-1000 reactors.
The
Company’s future customers may include nuclear fuel fabricators and/or nuclear
power plants, and/or U.S. or foreign governments.
Substantially
all of the Company’s present research activities are in Russia. The Company’s
research operations are subject to various political, economic, and
other risks
and uncertainties inherent in the country of Russia.
The
Company’s nuclear fuel process is dependent on the ability of suppliers of
the
mineral Thorium, to provide it to the Company’s future customers on a timely
basis and also on favorable pricing terms. The loss of certain principal
suppliers of Thorium or a significant reduction in Thorium availability
from
principal suppliers could have a material adverse effect on the future
operations of the Company being able to license its patent.
The
Company participates in a highly regulated industry that is characterized
by
governmental regulation. The Company’s results of operations are affected by a
wide variety of factors including general economic conditions, decreases
in the
use or public favor of nuclear power, the ability of its technology,
the ability
to safeguard the production of nuclear power and safeguarding its patents
and
intellectual property from competitors. Due to these factors, the Company
may
experience substantial period-to-period fluctuations in future operating
results.
The
Company in the future may be designated as a potentially responsible
party (PRP)
by federal and state agencies with respect to certain sites with which
the
Company may have direct or indirect future involvement. Such designations
can be
made regardless of the extent of the Company’s involvement.
Operations
to date have been devoted primarily to filing for patents, developing
strategic
relationships within the industry, securing political and financial
support from
the United States and Russian governments, continued development of
the fuel
designs and administrative functions. The Company, therefore, prepares
its
financial statements as a Development Stage Enterprise.
F-71
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
|
2.
|
Summary
of Significant Accounting
policies
|
A
summary
of significant accounting policies follows:
a. Revenue
Recognition
-
All
of
the Company’s prior revenue had been derived from licensing fees from nuclear
industry commercial partners.
Once
the
company’s technology has advanced to the level when it is funded by the US
Government on an ongoing basis as part of the plutonium disposition
program, the
company will seek to license its technology to major government contractors
or
nuclear companies, working for the US and other governments. We expect
that our
revenue from license fees will be recognized on a straight-line basis
over the
expected period of the related license term.
The
Company may receive employment and research grants from various U.S.
governmental agencies, and these grants will be recognized in earnings
in the
period in which the related expenditures are incurred. Capital grants
for the
acquisition of equipment will be recorded as reductions of the related
equipment
cost and reduce future depreciation expense.
Total
subsidies and grants from the US government totaled $5.45 million cumulative
from inception to December 31, 2005. These amounts were paid directly
from the
US government to third party research and development companies and
were not
recognized in income because of the direct payment from the US Government
to
third party researchers on the Thorium project.
| b. |
Patent
Costs - Patent
costs represent legal fees and filing costs capitalized and
amortized over
their estimated useful lives of 20 years. Amortization expense
for Patents
was $17,270 and $17,044 for the years ended December 31, 2005
and 2004 and
$193,794 for the cumulative period from Inception to December
31,
2005.
|
| c. |
Cash
Equivalents - Cash
equivalents consist of cash and cash investments with maturities
of three
months or less at the time of purchase.
|
| d. |
Start-Up
Costs -
The Company, in accordance with the provisions of the American
Institute
of Certified Public Accountants' Statement of Position (SOP)
98-5,
"Reporting on the Costs of Start-up Activities”, expenses all start-up and
organizational costs as they are
incurred.
|
F-72
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
| e. |
Property,
Plant and Equipment - Property,
Plant and Equipment is comprised of leasehold improvements,
an automobile,
and office equipment and is stated at cost less accumulated
depreciation.
Depreciation of furniture, computer and office equipment is
computed over
the estimated useful life of the asset, generally five and
seven years
respectively, utilizing the double declining balance methodology.
Depreciation for the leasehold improvements is computed using
the
straight-line method over the 5 year term of the lease. Upon
disposition
of assets, the related cost and accumulated depreciation are
eliminated
and any gain or loss is included in the statement of income.
Expenditures
for major improvements are capitalized. Maintenance and repairs
are
expensed as incurred.
|
| f. |
Long-Lived
Assets -
Long-lived assets are reviewed for impairment whenever events
or changes
in circumstances indicate that the carrying amount of the assets
might not
be recoverable. Conditions that would necessitate an impairment
assessment
include a significant decline in the observable market value
of an asset,
a significant change in the extent or manner in which an asset
is used, or
any other significant adverse change that would indicate that
the carrying
amount of an asset or group of assets is not
recoverable.
|
For
long-lived assets used in operations, impairment losses are only recorded
if the
asset’s carrying amount is not recoverable through its undiscounted,
probability-weighted cash flows. We measure the impairment loss based
on the
difference between the carrying amount and estimated fair value.
| g. |
Estimates
and Assumptions - The
preparation of financial statements in conformity with generally
accepted
accounting principles requires management to make estimates
and
assumptions that affect the reported amounts of assets and
liabilities and
disclosure of contingent
assets and liabilities at the date of the financial statements
and
reported amounts of revenue and expenses during the reporting
period.
Actual results could differ from those
estimates.
|
The
financial statements include some amounts that are based on management’s best
estimates and judgments. The most significant estimates relate to contingencies,
and the valuation of stock options, stock warrants and stock issued
for
services. These estimates may be adjusted as more current information
becomes
available, and any adjustment could be significant.
| h. |
Stock-based
Compensation - Employees.
When stock based compensation is issued to employees and directors,
in
connection with their services as directors, the revised Statement
of
Financial Accounting Standards No. 123 ‘Accounting for Stock Based
Compensation’ (“SFAS 123(R)”) requires companies to record compensation
cost for stock based employee compensation plans at fair value.
From
inception through 2003, the Company accounted for stock based
compensation
using the intrinsic value method prescribed in Accounting Principles
Board
Opinion No. 25, ‘Accounting for Stock Issued to Employees’ (“APB No. 25”).
APB No. 25 requires no recognition of compensation expense
for the stock
based compensation arrangements provided by the Company where
the exercise
price is equal to the market price at the date of the grants.
|
F-73
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
Non-Employees
- When stock based compensation is issued to non-employees, the Company
records
these transactions at the fair market value of the equity instruments
issued or
the goods or services received whichever is more reliably
measurable.
In
December 2004, the Financial Accounting Standards Board issued Statement
of
Financial Accounting Standards No. 123 (Revised 2004), Share-Based
Payment,
(FAS-123R). This statement replaces FAS-123, Accounting for Stock-Based
Compensation
,
supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees
,
and
amends FAS-95, Statement of Cash Flows
.
FAS-123R
requires companies to apply a fair-value-based measurement method
in accounting
for shared-based payment transactions with employees and to record
compensation
cost for all stock awards granted after the required effective date
and for
awards modified, repurchased, or cancelled after that date. The scope
of
FAS-123R encompasses a wide range of share-based compensation arrangements,
including share options, restricted share plans, performance-based
awards, share
appreciation rights, and employee share purchase plans.
FAS-123R
is effective for our Company January 1, 2006, however the Company
has decided to
adopt FAS-123R in 2004 as reflected in its financial position at
December 31,
2005 and 2004 for its results of operations for the years then ended.
Companies
are permitted to apply the modified retrospective method either (a)
to all prior
periods presented for which FAS-123 was effective or (b) to prior
interim
periods of the year in which FAS-123R is adopted. Under the modified
retrospective method, the recognition of compensation cost under
FAS-123R is
generally the same as the accounting under the modified prospective
method
discussed previously for (a) awards granted, modified, or settled
subsequent to
the adoption of FAS-123R, and (b) awards granted prior to the date
of adoption
of FAS-123R for which the requisite service period has not been completed
(i.e.,
unvested awards). There were no restatements or transition adjustments
recorded.
| i. |
Income
Taxes - Deferred
tax assets and liabilities are recognized for the future tax
consequences
attributable to differences between the financial statement
carrying
amounts of existing assets and liabilities and their respective
tax bases.
Deferred tax assets, including tax loss and credit carryforwards,
and
liabilities are measured using enacted tax rates expected to
apply to
taxable income in the years in which those temporary differences
are
expected to be recovered or settled. The effect on deferred
tax assets and
liabilities of a change in tax rates is recognized in income
in the period
that includes the enactment date. Deferred income tax expense
represents
the change during the period in the deferred tax assets and
deferred tax
liabilities. The components of the deferred tax assets and
liabilities are
individually classified as current and non-current based on
their
characteristics. Deferred tax assets are reduced by a valuation
allowance
when, in the opinion of management, it is more likely than
not that some
portion or all of the deferred tax assets will not be
realized.
|
F-74
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
| j. |
Earnings
per Share - Basic
net earnings (loss) per common share is computed by dividing
net earnings
(loss) applicable to common shareholders by the weighted-average
number of
common shares outstanding during the period. Diluted net earnings
(loss)
per common share is determined using the weighted-average number
of common
shares outstanding during the period, adjusted for the dilutive
effect of
common stock equivalents, consisting of shares that might be
issued upon
exercise of common stock options. In periods where losses are
reported,
the weighted-average number of common shares outstanding excludes
common
stock equivalents, because their inclusion would be
anti-dilutive.
|
| k. |
New
Accounting Pronouncements - In
December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29”. SFAS
153 is effective for nonmonetary asset exchanges occurring
in fiscal
periods beginning after June 15, 2005, with earlier application
permitted.
The adoption of SFAS 153 is not expected to have a material
impact on our
results of operations or financial
position.
|
In
March
2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional
Asset Retirement Obligations,” (FIN 47). 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 our company. The Company
is
currently evaluating the impact of the adoption of FIN 47 on its financial
statements.
F-75
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
| 3. |
Status
of the Company
|
The
accompanying financial statements have been prepared on a going concern
basis,
which contemplates the realization of assets and the satisfaction of
liabilities
in the normal course of business. The Company has sustained operating
losses
while not generating steady revenues. However, the Company’s business plan
anticipates the Company’s products will become ready for market and revenue
generating sometime between 2010 and 2012. Therefore, the Company makes
use of
issuances of stock to provide funds for operations.
Until
such time as the Company’s products become ready for market and revenue
generating, the Company’s ability to operate is dependent upon receiving
additional corporate funding in the form of issuances of stock, new
debt, or
government funding.
The
financial statements do not include any adjustments relating to the
recovery and
classification of recorded asset amounts and classifications of liabilities
that
might be necessary should the Company be unable to meet its current
obligations
and, therefore, be unable to continue as a going concern.
| 4. |
Research
and Development Costs
|
Research
and development costs amounted to $17,500 and nil for the years ended
December
31, 2005 and 2004 respectively and $3,892,158 cumulative from inception
date
through December 31, 2005.
| 5. |
Property
Plant and Equipment
|
The
following represents the detail of Thorium Power’s property, plant and equipment
at December 31, 2005 and 2004:
|
|
Original
|
Accumulated
|
Net
Book
|
|||||
|
December
31, 2005
|
Costs
|
Depreciation
|
Value
|
|||||
|
Furniture,
computer and office equipment
|
13,879
|
11,821
|
2,058
|
|||||
|
Automobile
|
22,217
|
3,060
|
19,157
|
|||||
|
$
|
36,096
|
$
|
14,881
|
$
|
21,215
|
F-76
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
|
December
31, 2004
|
Original
Costs
|
Accumulated
Depreciation
|
Net
Book Value
|
|||||
|
Furniture,
computer and office equipment
|
31,235
|
22,156
|
9,079
|
|||||
|
$
|
31,235
|
$
|
22,156
|
$
|
9,079
|
| 6. |
Stock
Options and Warrants
|
The
Company maintains no formal plan for stock options and warrants. Options
are
issued to employees, directors and others for services provided to
the Company.
Warrants are issued in connection with sales of stock. Since the Company’s stock
is not publicly traded, there is insufficient historical information
about the
past volatility of the Company’s stock, and there are no similar public entities
for which stock information is available. We have estimated the expected
volatility of the Company’s stock using a fair value method, as shown below. As
a result, options granted to both employees and non-employees for services
are
accounted for under the calculated value method, as described in paragraphs
A43-A48 of SFAS 123(R), using a Black-Scholes option-pricing model
with the
following weighted average assumptions:
|
2002
and prior
|
2003
|
2004-2005
|
|||
|
Expected
life of options
|
Actual
life
|
Actual
life
|
Actual
life
|
||
|
Risk-free
interest rate
|
5%
|
4%
|
4%
|
||
|
Volatility
of stock
|
100%
|
100%
|
32%
|
||
|
Expected
dividend yield
|
-
|
-
|
-
|
The
calculated value method under SFAS 123(R) permits for non-public companies
substitution of the historical volatility of an appropriate industry
sector
index for the expected volatility of the Company’s stock price as an assumption
in the valuation model. The Company identified and selected the Standard
&
Poor’s 600 small-cap index for the U.S. energy sector as the one most closely
reflecting the present size of the Company and the industry in which
the Company
operates. The volatility in the Black-Scholes valuation model used
by the
Company is calculated based on the historical volatility of the above
industry
sector index, as measured by the standard deviation of daily historical
closing
values for the period of time prior to the grant date of stock options
that is
equal in length to the expected term of the granted stock options.
If historical
closing values of the above index are not available for the entire
expected
term, then the Company uses the closing values for the longest period
of time
available.
F-77
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
Presented
below is a summary of the options and warrants activity since January
1, 1993:
|
In
Connection
|
Issued
|
Converted
|
||||||||||||||
|
Beginning
|
In
Exchange
|
with
purchase
|
as
|
to
stock/
|
Ending
|
|||||||||||
|
|
Balance
|
for
Services
|
of
stock
|
Incentive
|
Exercised
|
Expired
|
Repriced
|
Balance
|
||||||||
|
1/1/1993
|
12/31/1993
|
|||||||||||||||
|
$1
per share
|
0
|
1,040,000
|
35,000
|
15,000
|
(10,000)
|
1,080,000
|
||||||||||
|
$5
per share
|
0
|
220,000
|
220,000
|
|||||||||||||
|
$10
per share
|
0
|
0
|
||||||||||||||
|
|
1,300,000
|
|||||||||||||||
|
1/1/1994
|
12/31/1994
|
|||||||||||||||
|
$1
per share
|
1,080,000
|
95,000
|
1,175,000
|
|||||||||||||
|
$5
per share
|
220,000
|
50,000
|
25,000
|
295,000
|
||||||||||||
|
$10
per share
|
0
|
55,000
|
36,100
|
91,100
|
||||||||||||
|
1,561,100
|
||||||||||||||||
|
1/1/1995
|
12/31/1995
|
|||||||||||||||
|
$1
per share
|
1,175,000
|
(10,000)
|
25,000
|
1,190,000
|
||||||||||||
|
$5
per share
|
295,000
|
155,000
|
(25,000)
|
425,000
|
||||||||||||
|
$10
per share
|
91,100
|
30,000
|
41,500
|
5,000
|
167,600
|
|||||||||||
|
|
1,782,600
|
|||||||||||||||
|
1/1/1996
|
12/31/1996
|
|||||||||||||||
|
$1
per share
|
1,190,000
|
(34,000)
|
100,000
|
1,256,000
|
||||||||||||
|
$5
per share
|
425,000
|
60,000
|
(82,500)
|
402,500
|
||||||||||||
|
$10
per share
|
167,600
|
25,000
|
30,300
|
14,000
|
(17,500)
|
219,400
|
||||||||||
|
1,877,900
|
||||||||||||||||
|
1/1/1997
|
12/31/1997
|
|||||||||||||||
|
$1
per share
|
1,256,000
|
(47,500)
|
81,000
|
1,289,500
|
||||||||||||
|
$5
per share
|
402,500
|
(42,500)
|
360,000
|
|||||||||||||
|
$10
per share
|
219,400
|
118,000
|
56,700
|
(3,500)
|
(38,500)
|
352,100
|
||||||||||
|
2,001,600
|
F-78
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
|
In
Connection
|
Issued
|
Converted
|
||||||||||||||
|
Beginning
|
In
Exchange
|
with
purchase
|
as
|
to
stock/
|
Ending
|
|||||||||||
|
Balance
|
for
Services
|
of
stock
|
Incentive
|
Exercised
|
Expired
|
Repriced
|
Balance
|
|||||||||
|
01/01/1998
|
12/31/1998
|
|||||||||||||||
|
$1
per share
|
1,289,500
|
(232,500)
|
(95,000)
|
55,000
|
1,017,000
|
|||||||||||
|
$5
per share
|
360,000
|
(47,500)
|
(172,500)
|
(50,000)
|
90,000
|
|||||||||||
|
$10
per share
|
352,100
|
2,500
|
9,500
|
(5,000)
|
359,100
|
|||||||||||
|
1,466,100
|
||||||||||||||||
|
01/01/1999
|
12/31/1999
|
|||||||||||||||
|
$1
per share
|
1,017,000
|
(5,000)
|
(20,000)
|
992,000
|
||||||||||||
|
$5
per share
|
90,000
|
(25,000)
|
65,000
|
|||||||||||||
|
$10
per share
|
359,100
|
(5,250)
|
(26,850)
|
327,000
|
||||||||||||
|
1,384,000
|
||||||||||||||||
|
|
||||||||||||||||
|
01/01/2000
|
12/31/2000
|
|||||||||||||||
|
$1
per share
|
992,000
|
(60,000)
|
932,000
|
|||||||||||||
|
$5
per share
|
65,000
|
600,000
|
(5,000)
|
660,000
|
||||||||||||
|
$10
per share
|
327,000
|
(37,000)
|
(13,500)
|
276,500
|
||||||||||||
|
1,868,500
|
||||||||||||||||
|
01/01/2001
|
12/31/2001
|
|||||||||||||||
|
$1
per share
|
932,000
|
(5,000)
|
927,000
|
|||||||||||||
|
$5
per share
|
660,000
|
(20,000)
|
640,000
|
|||||||||||||
|
$10
per share
|
276,500
|
223,000
|
700,000
|
625,000
|
(3,600)
|
(51,200)
|
1,769,700
|
|||||||||
|
3,336,700
|
||||||||||||||||
|
01/01/2002
|
12/31/2002
|
|||||||||||||||
|
$1
per share
|
927,000
|
-
|
-
|
-
|
(3,000)
|
(7,000)
|
-
|
917,000
|
||||||||
|
$5
per share
|
640,000
|
-
|
-
|
-
|
-
|
-
|
-
|
640,000
|
||||||||
|
$10
per share
|
1,769,700
|
-
|
10,000
|
(625,000)
|
(2,000)
|
(97,700)
|
-
|
1,055,000
|
||||||||
|
2,612,000
|
F-79
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
|
In
Connection
|
Issued
|
Converted
|
||||||||||||||
|
Beginning
|
In
Exchange
|
with
purchase
|
as
|
to
stock/
|
Ending
|
|||||||||||
|
Balance
|
for
Services
|
of
stock
|
Incentive
|
Exercised
|
Expired
|
Repriced
|
Balance
|
|||||||||
|
01/01/2004
|
12/31/2004
|
|||||||||||||||
|
$1
per share
|
2,017,000
|
-
|
-
|
-
|
-
|
-
|
-
|
2,017,000
|
||||||||
|
$4
per share
|
0
|
250,000
|
-
|
-
|
-
|
-
|
-
|
250,000
|
||||||||
|
$5
per share
|
80,000
|
-
|
-
|
-
|
-
|
-
|
-
|
80,000
|
||||||||
|
$9.73-$10
per share
|
412,495
|
-
|
-
|
600
|
-
|
-
|
-
|
413,095
|
||||||||
|
2,760,095
|
||||||||||||||||
|
01/01/2005
|
12/31/2005
|
|||||||||||||||
|
$1
per share
|
2,017,000
|
-
|
-
|
-
|
(1,000)
|
-
|
-
|
2,016,000
|
||||||||
|
$4
per share
|
250,000
|
225,000
|
-
|
-
|
-
|
-
|
-
|
475,000
|
||||||||
|
$5
per share
|
80,000
|
-
|
-
|
-
|
-
|
-
|
-
|
80,000
|
||||||||
|
$9.60-$10
per share
|
413,095
|
-
|
-
|
705
|
-
|
-
|
-
|
413,800
|
||||||||
|
2,984,800
|
F-80
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
The
625,000 incentive warrants issued in 2001 were contingent upon achieving
certain
goals, including raising private capital. By December 31, 2002, these
goals had
not been met and, therefore, the warrants were voided. In addition,
included in
the 223,000 options issued in 2001, 100,000 are to a director of which
all
100,000 have vested at December 31, 2004.
In
September 2003, the Company reached an agreement with certain shareholders
whereby, in exchange for certain concessions and a release of claim
against the
company, 1,200,000 warrants at $5 and $10 exercise price were repriced
to $1. In
addition, 300,000 of those warrants had their expiration date extended
three
years from December 2004 to 2007. In connection with this repricing,
the Company
recorded a non-cash expense in the amount of $1,506,427 in 2003. The
Company
also acknowledged certain prior obligations in connection with government
negotiation and raising of capital totalling approximately $130,000.
The Company
also gave antidilution rights to these shareholders for a period of
three years
from September 2003.
Also
in
2003, pursuant to an antidilutive agreement with a shareholder, 50,000
options
were repriced from $10 to $9.84 and 1,590 stock options were issued.
795 of
these stock options expired in 2003. In 2004 and 2005, the price of
those
warrants was further reduced from $9.84 to $9.73 and from $9.73 to
$9.60 and an
additional 600 and 705 stock options were issued respectively.
The
following summarizes information for options and warrants currently
outstanding
and exercisable at December 31, 2005 and 2004:
|
December
31, 2005
|
Number
|
Weighted
average Remaining Life
|
Weighted-
average exercise price
|
||||||
|
Range
of Prices
|
|||||||||
|
$1.00
|
2,016,000
|
1.8
years
|
$1.00
|
||||||
|
$4.00
|
475,000
|
4.3
years
|
$4.00
|
||||||
|
$5.00
|
80,000
|
1.7
years
|
$5.00
|
||||||
|
$9.60-10.00
|
413,800
|
1.1
years
|
$9.95
|
||||||
|
2,984,800
|
$2.83
|
F-81
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
|
December
31, 2004
|
Number
|
Weighted
average Remaining Life
|
Weighted-
average exercise price
|
||||||
|
Range
of Prices
|
|||||||||
|
$1.00
|
2,017,000
|
2.8
years
|
$1.00
|
||||||
|
$4.00
|
250,000
|
5.0
years
|
$4.00
|
||||||
|
$5.00
|
80,000
|
2.7
years
|
$5.00
|
||||||
|
$9.73-10.00
|
413,095
|
2.1
years
|
$9.97
|
||||||
|
2,760,095
|
$2.73
|
Of
the
total number of stock options and warrants outstanding at December
31, 2005,
1,662,700 were stock options and the remaining 1,322,100 were warrants.
All of
the stock options and warrants outstanding at December 31, 2005 have
vested.
| 7. |
Income
Taxes
|
Deferred
income taxes reflect the net tax effects of temporary differences between
the
carrying amounts of assets and liabilities recognized for financial
reporting
and the amounts recognized for income tax purposes. The significant
components
of deferred tax assets as of December 31, 2005 are as follows:
|
Assets
|
||
|
Net
operating loss
|
12,850,000
|
|
|
Less:
Valuation allowance
|
(12,850,000)
|
|
|
$
|
-
|
Management
believes that it is more likely than not that forecasted taxable income
will not
be sufficient to utilize the tax carryforwards before their expiration
in 2012
and 2025 to fully recover the asset. As a result, the amount of the
deferred tax
assets considered realizable was reduced 100% by a valuation allowance.
In the
near term, if estimates of future taxable income are increased, such
an increase
will change the valuation allowance. The Company has no other deferred
tax
assets or liabilities.
| 8. |
Profit
Sharing Plan
|
The
Company established and maintained until the end of 2003 a profit-sharing
plan
that covered all employees who had attained twenty-one years of age
and
satisfied a one-year service requirement. Contributions to the plan
were at the
discretion of the board of directors; however, the contribution could
not exceed
15% of compensation for the eligible employees in any single tax year.
Since
inception through the end of 2003, profit sharing expense amounted
to $51,000.
This plan was dissolved in 2003, and all contributions were distributed
to the
plans participants.
F-82
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
| 9. |
Research
Agreement
|
The
Company is party to an agreement whereby certain research is being
performed by
the Russian Research Centre, known as the Kurchatov Institute (“RRC”), on the
Company’s fuel designs. All the funding under this agreement is supplied by
the
Company. The Company is also a party to another agreement whereby research
relating only to thermal-hydraulic testing is performed by the Brookhaven
National Laboratory in cooperation with the RRC. The funding is supplied
by the
United States Department of Energy Initiatives for Proliferation Prevention
Program (DOE-IPP) and the Company directly to Brookhaven National Laboratory.
At
December 31, 2005, the Company fulfilled its funding obligation in
full with
respect to this agreement.
| 10. |
Commitments
and Contingencies
|
The
Company leases office space. Future estimated rental payments under
these
operating leases are as follows:
|
|
Dollars
|
|
Year
ending December 31, 2006
|
6,000
|
| 11. |
Related
Parties
|
The
Company has both made loans to and received loans from related parties
since its
inception. In 2001, Thorium Power made a $50,000 loan, which was repaid
during
the year, to a related party. Thorium Power received $1,361 in interest
income
from the related party associated with this loan. Since inception,
Thorium Power
has made approximately $285,000 in loans to related parties. Of this
amount,
$125,000 was a note received from a related party in exchange for the
purchase
of the Company’s stock. These loans, which generated $1,648 of interest income
from related parties, were repaid, with the exception of approximately
$1,000
written off in 1998.
Since
inception, Thorium Power has received approximately $385,000 in loans
from
related parties. Of this amount, $240,000 has been repaid, $99,100
was converted
into capital and $45,930 remains outstanding at December 31, 2005.
F-83
Thorium
Power, Inc.
(A
Development Stage Enterprise)
| 12. |
Subsequent
Events
|
| a. |
Merger
Agreement
|
On
February 14, 2006, Novastar Resources Ltd. (“Novastar Resources”) entered into
an Agreement and Plan of Merger (the “Merger Agreement”) with the Company and TP
Acquisition Corp., a direct wholly-owned subsidiary of Novastar Resources
formed
in connection with the transactions contemplated by the Merger Agreement.
Concurrently therewith, Novastar Resources (1) adopted its 2006 Stock
Plan, (2)
entered into an employment agreement with Seth Grae, President and
Chief
Executive Officer of Thorium Power, (3) granted certain nonqualified
stock
options to Mr. Grae and (4) entered into a subscription agreement with
Thorium
Power for the purchase of 150,000 shares of common stock of Thorium
Power for
$4.00 per share.
Under
the
Merger Agreement, each common share of Thorium Power will be converted
into
securities of Novastar Resources such that Thorium Power’s current stockholders
will own approximately 54.5% of the combined company, and each share
of Novastar
Resources common stock will remain outstanding. In addition, Novastar
Resources
anticipates the appointment of new directors and officers following
the merger.
The combined company will be headquartered in the Washington D.C. area,
where
Thorium Power is presently based.
The
merger is conditioned upon, among other things, approvals by stockholders
of
Novastar Resources and Thorium Power of certain corporate matters,
no legal
impediment to the merger, the absence of any material adverse effect
on Novastar
Resources or Thorium Power, completion of due diligence reviews by
both
companies, the declaration of effectiveness of a registration statement
by the
Securities and Exchange Commission and any other necessary regulatory
approvals.
| b. |
Firm
Price Commitments
|
The
Company entered into a firm price commitment agreement in connection
with its
participation in the pre-conceptual design phase for the construction
of a
high-temperature test and research reactor in Texas. The agreement
has created a
firm commitment by the Company for a minimum of $1.25 million financial
contribution toward the project. A minimum payment of $50,000 on the
agreement
was due and paid on February 22, 2006, with 10 additional payments
totaling $1.2
million due by December 31, 2006.
The
Company also executed an amendment to its cooperative research agreement
with
Kurchatov Institute, expanding the scope of work and committing $65,000
toward
those research and development activities. The work to be performed
under this
amendment is to be completed by July 31, 2006.
F-84
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
| c. |
Private
equity financing
|
Subsequently
to December 31, 2005, the Company has raised a total of $1.54 million
in private
equity investments. Of the $1.54 million, $550,000 was invested by
Novastar
Resources Ltd. and the remaining approximately $990,000 came from a
private
equity placement that was conducted in January 2006.
F-85
NOVASTAR
RESOURCES, LTD.
UNAUDITED
PRO FORMA FINANCIAL STATEMENTS
Basis
of Presentation
On
February 14, 2006, Novastar Resources Ltd., entered into a Share Exchange
Agreement with Thorium Power, Inc. and its stockholders, pursuant to
which
Novastar Resources Ltd. acquired all of the issued and outstanding capital
stock
of Thorium Power, Inc. in exchange for a total of 117,249,321shares of
our
common stock, constituting 54.5% shares of Novastar Resources Ltd. issued
and
outstanding common stock at the time of the merger agreement, $0.001
par value
per share.
Novastar
Resources Ltd expects to complete the acquisition of Thorium Power, Inc.,
pursuant to the Merger Agreement, sometime in 2006. The acquisition will
be
accounted for as a reverse merger effected by a share exchange, wherein
Thorium
Power, Inc. is considered the acquirer for accounting and financial reporting
purposes.
The
unaudited pro forma consolidated financial statements of Novastar Resources
Ltd
in the opinion of management include all material adjustments directly
attributable to the share exchange contemplated by the Agreement. The
unaudited
pro forma consolidated balance sheet reflects the financial position
of the
company had the merger occurred on March 31, 2006. The pro forma consolidated
statements of operations were prepared as if the transactions were consummated
on March 31, 2006. These pro forma consolidated financial statements
have been
prepared for comparative purposes only and do not purport to be indicative
of
the results of operations which actually would have resulted had the
transaction
occurred on the date indicated and are not necessarily indicative of
the results
that may be expected in the future.
F-86
Novastar
Resources Ltd.
Unaudited
Pro Forma Condensed Consolidated Balance Sheet
March
31, 2006
Note:
This merger will be accounted for as a recapitalization of Thorium Power,
Inc.
|
Pro
Forma
|
|
PPM
|
|||||||||||||||||
|
Novastar
|
Thorium
|
|
|
|
|
|
Adjustment
|
|
|
Equity
Raise
|
|
|
Pro
Forma
|
||||||
|
ASSETS
|
|||||||||||||||||||
|
Currrent
Assets
|
|||||||||||||||||||
|
Cash
|
66,516
|
673,653
|
1
|
0
|
15,580,434
|
16,320,603
|
|||||||||||||
|
Prepaid
Expenses
|
258,444
|
3,293
|
0
|
261,737
|
|||||||||||||||
|
Total
Current Assets
|
324,960
|
676,946
|
0
|
15,580,434
|
16,582,340
|
||||||||||||||
|
Property
Plant and Equipment -net
|
55,290
|
19,968
|
75,258
|
||||||||||||||||
|
Other
Assets
|
|||||||||||||||||||
|
Investment
in Thorium Power
|
700,000
|
0
|
2
|
(700,000
|
)
|
0
|
|||||||||||||
|
Patent
Costs - net
|
0
|
207,251
|
207,251
|
||||||||||||||||
|
Security
Deposits
|
0
|
7,567
|
7,567
|
||||||||||||||||
|
Total
Other Assets
|
700,000
|
214,818
|
(700,000
|
)
|
0
|
214,818
|
|||||||||||||
|
Total
Assets
|
1,080,250
|
911,732
|
-700,000
|
15,580,434
|
16,872,416
|
||||||||||||||
|
Liabilities
and Stockholdes Equity
|
|||||||||||||||||||
|
Current
Liabilities
|
|||||||||||||||||||
|
Current
portion long term debt
|
0
|
4,196
|
4,196
|
||||||||||||||||
|
Accounts
Payable
|
306,581
|
85,631
|
392,212
|
||||||||||||||||
|
Accrued
Liabilities
|
378,061
|
329,945
|
708,006
|
||||||||||||||||
|
Due
to related party
|
6,863
|
17,500
|
24,363
|
||||||||||||||||
|
Other
current liabilities
|
0
|
5,882
|
5,882
|
||||||||||||||||
|
Total
Current Liabilities
|
691,505
|
443,154
|
0
|
1,134,659
|
|||||||||||||||
|
Notes
Payable - long term
|
0
|
13,746
|
0
|
13,746
|
|||||||||||||||
|
Total
Liabilites
|
691,505
|
456,900
|
0
|
1,148,405
|
|||||||||||||||
|
Stockholders
Equity
|
|||||||||||||||||||
|
Common
Stock
|
112,015
|
184,501
|
1
|
36,660
|
284,313
|
||||||||||||||
|
2
|
(8,750
|
)
|
|||||||||||||||||
|
3
|
135,638
|
||||||||||||||||||
|
5
|
(175,751
|
)
|
|||||||||||||||||
|
Additional
Paid in Capital - Stock and Warrants
|
11,612,261
|
16,071,832
|
1
|
15,543,774
|
27,538,811
|
||||||||||||||
|
2
|
(691,250
|
)
|
|||||||||||||||||
|
3
|
(135,638
|
)
|
|||||||||||||||||
|
4
|
(15,037,919
|
)
|
|||||||||||||||||
|
5
|
175,751
|
||||||||||||||||||
|
Common
stock subscribed
|
250,000
|
0
|
250,000
|
||||||||||||||||
|
Common
stock reserved for issuance
|
4,150,000
|
0
|
4,150,000
|
||||||||||||||||
|
Accumulated
deficit - development stage
|
(15,037,919
|
)
|
(15,801,501
|
)
|
4
|
15,037,919
|
(15,801,501
|
)
|
|||||||||||
|
Deferred
stock compensation
|
(697,612
|
)
|
0
|
(697,612
|
)
|
||||||||||||||
|
Total
Stockholders Equity
|
388,745
|
454,832
|
-700,000
|
15,580,434
|
15,724,011
|
||||||||||||||
|
Total
Liabilities and Stockholders Equity
|
1,080,250
|
911,732
|
-700,000
|
15,580,434
|
16,872,416
|
||||||||||||||
|
Pro-Forma
Adjustments
|
|||||||||||||||||||
F-87
|
Pro-Forma
Adjustment - 1
|
Debit
|
Credit
|
|||||
|
Cash
|
15,580,434
|
||||||
|
Common
Stock
|
36,660
|
||||||
|
Additional
Paid In Capital
|
15,543,774
|
||||||
|
Pro-Forma
Adjustment - 2
|
|||||||
|
Common
Stock - Thorium
|
8,750
|
||||||
|
Additonal
Paid in Capital - Thorium
|
691,250
|
||||||
|
Investment
- Thorium Power
|
700,000
|
||||||
|
To
eliminate Novastar's investment in Thorium
|
|||||||
|
175,000
shares at $4 per share
|
|||||||
|
Pro-Forma
Adjustment - 3
|
|||||||
|
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
(Adjustment 1) above. 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
|
Pro-Forma
Adjustment - 4
|
|||||||
|
Additional
Paid in Captial - Novastar
|
15,037,919
|
||||||
|
Retained
Earnings - Novastar
|
15,037,919
|
||||||
|
To
eliminate Novastar's retained earnings
|
|||||||
|
Pro-Forma
Adjustment - 5
|
|||||||
|
Common
Stock - Thorium
|
175,751
|
||||||
|
Additonal
Paid In Capital
|
175,751
|
||||||
|
To
eliminate Thorium's capital stock - recapitalization
|
|||||||
|
March
31, 2006 Balance 184,501
|
|||||||
|
Elimin.
Of Novastar Invest (8,750)
|
F-88
|
Pro
Forma
|
||||||||||||||||
|
Novastar
|
Thorium
|
Adjustment
|
Pro
Forma
|
|||||||||||||
|
Revenue
|
0
|
0
|
0
|
|||||||||||||
|
Operating
Expenses
|
2,691,516
|
540,515
|
3,232,031
|
|||||||||||||
|
Other
Income and Expense
|
-
|
327,129
|
327,129
|
|||||||||||||
|
Net
Loss
|
2,691,516
|
867,644
|
3,559,160
|
|||||||||||||
|
Basic
and Dilluted Loss Per Share
|
0.05
|
0.26
|
0.02
|
|||||||||||||
|
Weighted
Avg. Shares Outstanding
|
57,188,970
|
3,282,142
|
1
|
135,638,023
|
192,826,993
|
|||||||||||
Proforma
Adjustment - 1
Novastar
outstanding shares are restated to reflect the shares to be issued
in the
reverse merger, 135,638,023
Novastar
Resources Ltd.
Unaudited
Pro Forma Condensed Consolidated Statement of Operations
For
The Nine Months Ended March 31, 2006
|
Pro
Forma
|
|||||||||||||
|
Novastar
|
Thorium
|
|
Adjustment
|
|
Pro
Forma
|
||||||||
|
Revenue
|
-
|
||||||||||||
|
Operating
Expenses
|
10,899,554
|
675,204
|
11,574,758
|
||||||||||
|
Other
Income and Expense
|
0
|
303,867
|
303,867
|
||||||||||
|
Net
Loss
|
10,899,554
|
979,071
|
11,878,625
|
||||||||||
|
Basic
and Dilluted Loss Per Share
|
0.11
|
0.28
|
0.05
|
||||||||||
|
Weighted
Avg. Shares Outstanding
|
103,148,271
|
3,436,629
|
135,638,023
|
238,786,294
|
|||||||||
Proforma
Adjustment - 1
Novastar
outstanding shares are restated to reflect the shares to be issued
in the
reverse merger, 135,638,023
See
outstanding shares on 3/31/06 pro forma balance sheet
F-89
NOVASTAR
RESOURCES LTD.
113,648,406 shares
of common stock
PROSPECTUS
_______,
2006
Dealer
Prospectus delivery obligation
----------------------------------------------
Until
90
days from the date of this prospectus, all dealers that effect transactions
in
these securities, whether or not participating in this offering, may be required
to deliver a prospectus. This is in addition to the dealers’ obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
PART II
INFORMATION
NOT REQUIRED IN THE PROSPECTUS
Item
24. Indemnification of Directors and Officers
Limitation
of Liability of Directors, Officers and Others
Section
78.7502 of the Nevada Revised Statutes provides:
Discretionary
and mandatory indemnification of officers, directors, employees and agents:
General provisions.
1. A
corporation may indemnify any person who was or is a party or is threatened
to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, except
an
action by or in the right of the corporation, by reason of the fact that he
is
or was a director, officer, employee or agent of the corporation, or is or
was
serving at the request of the corporation as a director, officer, employee
or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with the action, suit or proceeding if he acted in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests
of
the corporation, and, with respect to any criminal action or proceeding, had
no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon
a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he
reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding, he
had
reasonable cause to believe that his conduct was unlawful.
2. A
corporation may indemnify any person who was or is a party or is threatened
to
be made a party to any threatened, pending or completed action or suit by or
in
the right of the corporation to procure a judgment in its favor by reason of
the
fact that he is or was a director, officer, employee or agent of the
corporation, or is serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture
trust or other enterprise against expenses, including amounts paid in settlement
and attorneys' fees actually and reasonably incurred by him in connection with
the defense or settlement of the action or suit if he acted in good faith and
in
a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation. Indemnification may not be made for any claim,
issue or matter as to which such a person has been adjudged by a court of
competent jurisdiction after exhaustion of all appeals therefrom, to be liable
to the corporation or for amounts paid in settlement to the corporation unless
and only to the extent that the court in which the action or suit was brought
or
other court of competent jurisdiction determines upon application that in view
of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
3. To
the
extent that a director, officer, employee or agent of a corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections 1 and 2, or in defense of any claim,
issue
or matter therein, the corporation shall indemnify him against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense.
II-1
Pursuant
to Novastar’s Certificate of Incorporation and Bylaws, Novastar shall indemnify,
to the full extent and in the manner permitted under the laws of Nevada and
any
other applicable laws, any person made or threatened to be made a party to
an
action or proceeding, whether criminal, civil, administrative or investigative,
by reason of the fact that he is or was a director or officer of this
corporation or served any other enterprise as a director or officer at the
request of this corporation; such right of indemnification shall also be
applicable to the executors, administrators and other similar legal
representative of any such director of officer, but the foregoing rights of
indemnification shall not be deemed exclusive of any other rights to which
any
director or officer or his legal representative may be entitled apart from
the
provisions of the Certificate of Incorporation and Bylaws.
Item
25. Other Expenses of Issuance and Distribution
The
following table sets forth the costs and expenses, other than underwriting
discounts and commissions, payable by us in connection with the sale of
common
stock
being registered. All amounts, other than the SEC registration fee and the
NASD
fee, are estimates. We will pay all these expenses.
|
Amount to be
Paid
|
|||||||
|
SEC
Registration Fee
|
$
|
5,472.17
|
|||||
|
Printing
Fees and Expenses
|
|
1,000
|
|||||
|
Legal
Fees and Expenses
|
|
150,000
|
|||||
|
Accounting
Fees and Expenses
|
|
30,000
|
|||||
|
Miscellaneous
|
|
3,000
|
|||||
|
Total
|
$
|
189,472.17
|
|||||
Item
26. Recent Sales of Unregistered Securities
During
the last three years, we have issued the below listed unregistered securities.
None of these transactions involved any underwriters, underwriting discounts
or
commissions, except as specified below, or any public offering, and we believe
that each transaction was exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof and/or Regulation D promulgated
thereunder. The Company believes that the various issuances described below
were
to "accredited investors". The Company valued all shares issued to consultants
using quoted exchange amounts of the Company’s common stock as of the
measurement date.
During
the three month period ended March 31, 2005, the Company issued 20,000,000
common shares upon the conversion of $1,000,000 in debt owed by the Company
to
such person. These stock issuances were exempt from registration pursuant to
Section 4(2) of the Securities Exchange Act of 1933.
During
the three month period ended June 30, 2005, the Company issued 16,100,000 common
shares to consultants for consulting services provided to the Company with
value
of $1,144,000. These stock issuances were exempt from registration pursuant
to
Section 4(2) of the Securities Exchange Act of 1933.
II-2
During
the three month period ended June 30, 2005 the Company issued 11,600,000 common
shares to consultants for consulting services provided to the Company with
a
value of $1,595,500. These stock issuances were exempt from registration
pursuant to Section 4(2) of the Securities Exchange Act of 1933.
On
August
3, 2005, the Company issued 800,000 restricted shares of common stock to its
advisory board as compensation for consulting services performed. The value
attributed to these shares was $128,000 ($0.16 per share). These stock issuances
were exempt from registration pursuant to Section 4(2) of the Securities
Exchange Act of 1933.
On
September 22, 2005, the Company issued a total of 4,187,500 shares of common
stock to outside consultants as payment for services rendered. 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 was $462,828 ($0.11 per share).
These
stock issuances were exempt from registration pursuant to Section 4(2) of the
Securities Exchange Act of 1933.
On
September 30, 2005, the Company issued 300,000 shares of common stock to an
outside consultant as payment for services rendered. These shares were issued
pursuant to the August 2005 Augmented Compensation Plan and the value attributed
was $51,000 ($0.17 per share). These stock issuances were exempt from
registration pursuant to Section 4(2) of the Securities Exchange Act of
1933.
On
October 21, 2005, the Company issued 1,000,000 restricted common shares with
value of $160,000 ($0.16 per share) for mineral property acquisition costs.
These stock issuances were exempt from registration pursuant to Section 4(2)
of
the Securities Exchange Act of 1933.
On
November 1, 2005, the Company issued 300,000 shares of common stock to an
outside consultant as payment for his services rendered. 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). These stock issuances
were exempt from registration pursuant to Section 4(2) of the Securities
Exchange Act of 1933.
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 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. 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. As a result of the foregoing, Novastar Resources
relied on the provisions of Rule 506 of Regulation D promulgated under the
Securities Act of 1933, as amended, for the issuance of the
securities.
On
December 1, 2005, the Company issued 4,158,333 shares of common stock to various
outside consultants as payment for services rendered. The total issuance was
pursuant to the August 2005 Augmented Compensation Plan. The value attributed
to
these shares was $706,916 ($0.17 per share). These stock issuances were exempt
from registration pursuant to Section 4(2) of the Securities Exchange Act of
1933.
II-3
On
December 1, 2005, the Company issued 1,000,000 shares of common stock to an
outside consultant as payment for his services rendered. The value attributable
to these shares was $150,000 ($0.15 per share). These stock issuances were
exempt from registration pursuant to Section 4(2) of the Securities Exchange
Act
of 1933.
On
December 1, 2005, the Company issued 300,000 shares of common stock to an
outside consultant as payment for his services rendered. These shares were
issued pursuant to the August 2005 Augmented Compensation Plan and the value
contributed to these shares was $51,000 ($0.17 per share). These stock issuances
were exempt from registration pursuant to Section 4(2) of the Securities
Exchange Act of 1933.
On
January 9, 2006 the Company issued 355,714 shares of 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 $0.293 per share for total
consideration of $104,173. These stock issuances were exempt from registration
pursuant to Section 4(2) of the Securities Exchange Act of 1933.
On
January 11, 2006 the Company issued 3,100,000 shares of common stock to various
outside consultants as payment for services rendered. 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). These stock issuances were exempt
from registration pursuant to Section 4(2) of the Securities Exchange Act of
1933.
On
January 24, 2006 the Company issued 181,428 shares of 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 $0.293 per share for total
consideration of $53,132. These stock issuances were exempt from registration
pursuant to Section 4(2) of the Securities Exchange Act of 1933.
On
January 27, 2006 the Company issued 150,000 shares of 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). These stock issuances were exempt from
registration pursuant to Section 4(2) of the Securities Exchange Act of
1933.
On
February 2, 2006 the Company issued 135,545 shares of 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 $0.293 per share for total
consideration of $39,695. These stock issuances were exempt from registration
pursuant to Section 4(2) of the Securities Exchange Act of 1933.
On
February 13, 2006 the Company issued 2,389,558 shares of 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). These stock issuances were exempt from registration pursuant to Section
4(2) of the Securities Exchange Act of 1933.
On
February 14, 2006, we completed a private placement with a number of
institutional and accredited investors. The aggregate number of units purchased
by all investors in connection with this private placement was 4,208,331 units
at a price of $0.30 per unit, to 13 accredited investors for total proceeds
of
$1,262,500. Each unit consists of one share of our common stock and one-half
of
one share of common stock purchase warrant. Each whole warrant is non
transferable and entitles the holder to purchase one additional share of common
stock of the Company for a period of 12 months after the closing date of the
offering at a price per warrant share of $0.50.
II-4
On
June
6, 2006, the Company granted an incentive option for the purchase of
525,000 shares of common stock of the Company to an officer pursuant to the
Company’s Amended and Restated 2006 Stock Option Plan (the “Plan”). The Company
also agreed to issue by June 12, 2006, 75,000 shares of the Company’s common
stock, subject to the restrictions in the Employment Agreement. These stock
issuances were exempt from registration pursuant to Section 4(2) of the
Securities Exchange Act of 1933.
On
June
13, 2006, the Company granted to an officer, pursuant to the Plan, a
non-qualified option for the purchase of 350,000 shares of common stock of
the
Company. The Company also agreed to issue 75,000 shares of the Company’s common
stock by June 20, 2006, subject to the restrictions in the Consulting Agreement.
These stock issuances were exempt from registration pursuant to Section 4(2)
of
the Securities Exchange Act of 1933.
On
June
12, 2006, the Company issued 3,000,000 shares of common stock of the Company
to
Green Eagle Capital Corp., for services provided to the Company, for Strategic
Planning, pursuant to a verbal agreement between Green Eagle Capital Corp.
and
the Company. These stock issuances were exempt from registration pursuant to
Section 4(2) of the Securities Exchange Act of 1933.
Pursuant
to the agreements with Mr. Gelband, we issued to Mr. Gelband 2,389,558
restricted shares of common stock on February 13, 2006. Mr. Gelband confirmed
that he is an accredited investor and represented his intention to acquire
the
securities for investment purposes and not with a view to distribution. Mr.
Gelband acknowledged that the sale of the securities was not registered under
the Securities Act of 1933, as amended, and that the securities could not be
resold unless the securities were registered or an exemption from registration
was available. As a result of the foregoing, we relied on the provisions of
Rule
506 of Regulation D promulgated under the Securities Act of 1933, as amended,
for the issuance of the securities.
Pursuant
to the terms of the employment agreement with Seth Grae, we agreed to issue
5,000,000 restricted shares of common stock to Mr. Grae, and grant to Mr. Grae
7,200,000 non-qualified stock options, with a term of ten years at an exercise
price of $0.795 per share. The stock options shall be granted under the newly
adopted 2006 Stock Plan. As a result of the relationship with Mr. Grae, we
relied on the provisions of Rule 506 of Regulation D promulgated under the
Securities Act of 1933, as amended, for the issuance of the
securities.
On
May 4,
2006, we completed a private placement of 36,659,837 Units at a price of $0.425
per Unit with a number of institutional investors, including Magnetar Capital
Master Fund, Ltd., clients of Wellington Management Company, LLP, clients of
Highfields Capital Management LP, clients of Cumberland Associates LLC, SF
Capital Partners Ltd., Sunrise Equity Partners, L.P., and several other
institutional investors as well as several accredited individual investors
for
total proceeds of $15,580,434.20. Each Unit consists of one share of our common
stock and one-half of one purchase warrant. Each whole purchase warrant is
non
transferable and entitles the holder to purchase one additional share of our
common stock for a period of 12 months at a price per share of
$0.65.
II-5
Each
investor confirmed in writing that it is an accredited investor and represented
its intention to acquire the securities for investment purposes and not with
a
view to distribution. We did not use, and no person acting on its behalf used,
any form of general solicitation or general advertising in connection with
this
offering. Appropriate legends shall be affixed to the stock certificates to
be
issued to each investor. Each investor acknowledged that the sale of the
securities was not registered under the Securities Act of 1933, as amended,
and
that the securities could not
be
resold unless the securities were registered or an exemption from registration
was available. As a result of the foregoing, we relied on the provisions of
Rule
506 of Regulation D promulgated under the Securities Act of 1933, as amended,
for the issuance of the securities.
Item
27. Exhibits and Financial Statement Schedules
The
following exhibits are included as part of this Form SB-2.
|
Exhibit
Number
|
Description
|
|
3.1
|
Articles
of Incorporation
|
|
3.2
|
By-laws
|
|
5*
|
Opinion
of Gary Henrie, as to the validity under Nevada law of the Securities
being registered hereunder
|
|
4.1
|
2005
Compensation Plan for Outside Consultants of Custom Brand Networks,
Inc.
dated March 1, 2005
|
|
4.2
|
2005
Augmented Compensation Plan for Outside Consultants of Novastar
Resources
Ltd. dated August 15, 2005
|
|
4.3
|
2006
Stock Plan
|
|
4.4
|
Amended
and Restated 2006 Stock Plan
|
|
10.1
|
Consulting
Agreement dated October 15, 2004 between Custom Branded Networks,
Inc. and
Walter Doyle
|
|
10.2
|
Consulting
Agreement dated October 15, 2004 between Custom Branded Networks,
Inc. and
Adam Harrison
|
|
10.3
|
Consulting
Agreement dated October 15, 2004 between Custom Branded Networks,
Inc. and
Tim Lelek
|
|
10.4
|
Consulting
Agreement dated October 15, 2004 between Custom Branded Networks,
Inc. and
Bruce Fearn
|
|
10.5
|
Compensation
Agreement dated October 15, 2004 between Custom Branded Networks,
Inc. and
Paul G. Carter
|
|
10.6
|
Consulting
Agreement dated January 24, 2005 between Custom Branded Networks,
Inc. and
Walter Doyle
|
|
10.7
|
Consulting
Agreement dated January 24, 2005 between Custom Branded Networks,
Inc. and
Sanjeev Pamnani
|
II-6
|
10.8
|
Consulting
Agreement dated January 24, 2005 between Custom Branded Networks,
Inc. and
Seth Shaw
|
|
10.9
|
Assignment
of Specific Mineral Rights dated September 14, 2005 between American
Graphite Holdings and Novastar Resources Ltd.
|
|
10.10
|
Amendment
No. 1, dated March 5, 2006, to Assignment of Specific Mineral Rights
between American Graphite Holdings and Novastar Resources Ltd.
|
|
10.11
|
Mining
Acquisition Agreement dated September 30, 2005 between Walter Doyle
and
Novastar Resources Ltd.
|
|
10.12
|
Amendment
No. 1, dated March 5, 2006, to Mining Acquisition Agreement between
Walter
Doyle and Novastar Resources Ltd.
|
|
10.13
|
Agreement
and Plan of Merger dated as of February 14, 2006, between Novastar
Resources Ltd., TP Acquisition Corp. and Thorium Power, Inc.
|
|
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.
|
|
10.15
|
Employment
Agreement, dated as of February 14, 2006, between Novastar and
Seth Grae
|
|
10.16
|
Stock
Option Agreement, dated as of February 14, 2006, between Novastar
and Seth
Grae
|
|
10.17
|
Subscription
Agreement, dated as of February 14, 2006, between Novastar and
Thorium
Power
|
|
10.18
|
Amended
and Restated Consulting Agreement, dated February 6, 2006, between
Novastar and Alan Gelband
|
|
10.19
|
Form
of Subscription Agreement between Novastar and the investors in
the
private placement closed on February 14, 2006
|
|
10.20
|
Assignment
of Minerals Lease, dated December 31, 2005, between CM Properties
and
Novastar Resources Ltd.
|
|
10.21
|
Amendment
No. 1 to Assignment of Minerals Lease, dated March 5, 2006 between
CM
Properties and Novastar Resources Ltd.
|
|
10.22
|
Office
Service Renewal Agreement, dated September 21, 2005, between Tysons
Business Center, LLC and Thorium Power
|
|
10.23
|
Sublease
Agreement, dated May 28, 2004, between Thorium Power and Carmen
&
Muss, P.L.L.C.
|
|
10.24
|
Office
Building Lease, dated August 14, 2001, between Washington Real
Estate
Investment Trust and Thorium Power
|
II-7
|
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
|
|
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.
|
|
10.27
|
Employment
Agreement, dated June 6, 2006, between Novastar Resources, Ltd.
and
Cornelius J. Milmoe
|
|
10.28
|
Stock
Option Agreement, dated June 6, 2006, between Novastar Resources,
Ltd. and
Cornelius J. Milmoe
|
|
10.29
|
Consulting
Agreement, dated June 12, 2006, between Novastar Resources, Ltd.
and Larry
Goldman
|
|
10.30
|
Stock
Option Agreement, dated June 12, 2006, between Novastar Resources,
Ltd.
and Larry Goldman
|
|
10.31
|
Office
Service Agreement, dated April 19, 2006, between Tysons Business
Center
LLC and Novastar Resources Ltd.
|
|
10.32
|
Form
of Subscription Agreement between Novastar and the investors in
the
private placement closed on May 4, 2006
|
|
10.33
|
Form
of Registration Rights Letter Agreement between Novastar and the
investors
in the private placement closed on May 4, 2006
|
|
10.34
|
Form
of Warrants between Novastar and the investors in the private placement
closed on May 4, 2006
|
|
10.35
|
Stock
Option Agreement, dated April 26, 2006, between Novastar Resources,
Ltd.
and George Crowley
|
|
10.36
|
Employment
Agreement, dated July 27, 2006, between Novastar Resources, Ltd.
and
Andrey Mushakov
|
|
10.37
|
Stock
Option Agreement, dated July 27, 2006, between Novastar Resources,
Ltd.
and Andrey Mushakov
|
|
10.38
|
Employment
Agreement, dated July 27, 2006, between Novastar Resources, Ltd.
and
Thomas Graham, Jr.
|
|
10.39
|
Stock
Option Agreement, dated July 27, 2006, between Novastar Resources,
Ltd.
and Thomas Graham, Jr.
|
|
10.40
|
Amendment
No. 2, dated August 8, 2006, to Agreement and Plan of Merger between
Novastar Resources Ltd., TP Acquisition Corp. and Thorium Power,
Inc.
|
|
14.1
|
Code
of Ethics
|
|
16.1
|
Letter
from Morgan and Company dated September 14, 2005 regarding change
in
independent accountant
|
|
23.1*
|
Consent
of Gary Henrie, Esq. (included
in Exhibit 5)
|
|
23.2*
|
Consent
of Telford Sadovnick, P.L.L.C.
|
|
23.3*
|
Consent
of Morgan and Company, Chartered Accountants
|
|
23.4*
|
Consent
of Child, Van Wagoner & Bradshaw, PLLC
|
|
24*
|
Power
of Attorney (included on the signature page to this registration
statement)
|
____________
*
Incorporated by reference. See Exhibit List.
II-8
Item
28. Undertakings
The
undersigned registrant
hereby
undertakes to:
File,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement to:
(a) Include
any prospectus required by Section 10(a)(3) of the Securities Act,
and
(b) Reflect
in the prospectus any facts or events which, individually or together, represent
a fundamental change in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of the securities offered would not exceed
that which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) under the Securities Act
if,
in the aggregate, the changes in volume and price represent no more than a
20%
change in the maximum aggregate offering price set forth in the “Calculation of
Registration Fee” table in the effective registration statement,
and
(c) Include
any additional or changed material information on the plan of
distribution.
For
determining liability under
the
Securities Act, treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the securities at
that
time to be the initial bona fide offering.
File
a
post-effective amendment
to
remove from registration any of the securities that remain unsold at the end
of
the offering.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant
to the foregoing provisions, or otherwise, the registrant has been advised
that
in the opinion of the Securities and Exchange Commission such indemnification
is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In
the
event that a claim for indemnification against such liabilities (other than
the
payment by the registrant of expenses incurred or paid by a director, officer
or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-9
Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7)
(§230.424(b)(2), (b)(5), or (b)(7) under the Securities Act) as part of a
registration statement in reliance on Rule 430B relating to an offering made
pursuant to Rule 415(a)(1)(i), (vii), or (x) (§230.415(a)(1)(i), (vii), or (x)
under the Securities Act) for the purpose of providing the information required
by section 10(a) of the Securities Act shall be deemed to be part of and
included in the registration statement as of the earlier of the date such form
of prospectus is first used after effectiveness or the date of the first
contract of sale of securities in the offering described in the prospectus.
As
provided in Rule 430B, for liability purposes of the registrant and any person
that is at that date an underwriter, such date shall be deemed to be a new
effective date of the registration statement relating to the securities in
the
registration statement to which that prospectus relates, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or made
in a
document incorporated or deemed incorporated by reference into the registration
statement or prospectus that is part of the registration statement will, as
to a
purchaser with a time of contract of sale prior to such effective date,
supersede or modify any statement that was made in the registration statement
or
prospectus that was part of the registration statement or made in any such
document immediately prior to such effective date.
II-10
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets
all the
requirements for filing on Form SB-2 and authorized this registration statement
to be signed on its behalf by the undersigned, in the City of McLean,
State
of
Virginia,
on
the 9th day
of August 2006.
|
|
NOVASTAR
RESOURCES LTD.
|
|
|
|
By:
|
/s/
Seth Grae
|
|
|
|
Seth
Grae,
President
and Chief Executive Officer
|
|
|
|
|
|
|
||
|
|
By:
|
/s/
Larry Goldman
|
|
|
|
Larry
Goldman
Treasurer
and Chief Financial Officer
|
In
accordance with the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities and on the date stated.
|
|
By:
|
/s/
Seth Grae
|
|
|
|
Seth
Grae
President,
Chief Executive Officer and
Director
|
|
|
By:
|
/s/
Larry Goldman
|
|
|
|
Larry
Goldman
Treasurer
and Acting Chief Financial Officer
|
|
|
By:
|
/s/
Thomas Graham, Jr.
|
|
|
|
Thomas
Graham, Jr.
Interim
Secretary and Director
|
|
|
By:
|
/s/
Cornelius J. Milmoe
|
|
|
|
Cornelius
J. Milmoe
Chief
Operating Officer and Director
|
|
|
By:
|
/s/
Andrey Mushakov
|
|
|
|
Andrey
Mushakov
Executive
Vice President - International Nuclear
Operations
|
S-1
EXHIBIT
INDEX
|
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 Registration Statement on Form
10-SB filed on December 17, 1999).
|
|
5*
|
Opinion
of Gary Henrie, as to the validity under Nevada law of the Securities
being registered hereunder
|
|
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)
|
|
4.4
|
Amended
and Restated 2006 Stock Plan (incorporated by reference to Exhibit
10.1 of
the current report of Novastar on Form 8-K filed May 10,
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).
|
1
|
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 Novastar’s Registration Statement on Form
S-4 filed on 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
Novastar’s Registration Statement on Form S-4 filed on 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)
|
2
|
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
Novastar’s Registration Statement on Form S-4 filed on 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
Novastar’s Registration Statement on Form S-4 filed on 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 Novastar’s Registration
Statement on Form S-4 filed on 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
Novastar’s Registration Statement on Form S-4 filed on 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 Novastar’s Registration Statement on Form S-4 filed on
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).
|
3
|
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 Novastar’s
Registration Statement on Form S-4 filed on June 14,
2006).
|
|
10.32
|
Form
of Subscription Agreement between Novastar and the investors
in the
private placement closed on May 4, 2006 (incorporated by reference
to
Exhibit 10.1 of the current report of Novastar on Form 8-K
filed May 8,
2006)
|
|
10.33
|
Form
of Registration Rights Letter Agreement between Novastar and
the investors
in the private placement closed on May 4, 2006 (incorporated
by reference
to Exhibit 10.2 of the current report of Novastar on Form 8-K
filed May 8,
2006)
|
|
10.34
|
Form
of Warrants between Novastar and the investors in the private
placement
closed on May 4, 2006 (incorporated by reference to Exhibit
10.3 of the
current report of Novastar on Form 8-K filed May 8,
2006)
|
|
10.35
|
Stock
Option Agreement, dated April 26, 2006, between Novastar Resources,
Ltd.
And George Crowley (incorporated by reference to Exhibit 10.2
of the
current report of Novastar on Form 8-K filed May 10,
2006).
|
|
10.36
|
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).
|
|
10.37
|
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).
|
|
10.38
|
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).
|
4
|
10.39
|
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).
|
|
10.40
|
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).
|
|
14.1
|
Code
of Ethics (incorporated by reference from Novastar’s Annual Report on Form
10-KSB filed on October 13, 2004).
|
|
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 Gary Henrie, Esq. (included in Exhibit 5)
|
|
23.2*
|
Consent
of Telford Sadovnick, P.L.L.C.
|
|
23.3*
|
Consent
of Morgan and Company, Chartered Accountants
|
|
23.4*
|
Consent
of Child, Van Wagoner & Bradshaw, PLLC
|
|
24*
|
Power
of Attorney (included on the signature page to this registration
statement)
|
____________
*
filed
herewith
5
Attorney
at Law
8275
S.
Eastern Ave., Suite 200 Telephone:
702-616-3093
Las
Vegas, NV 89123 Facsimile:
435-753-1775
E-mail:
gary@grhlaw.net
August
9,
2006
Board
of
Directors
Novastar
Resources Ltd.
8300
Greensboro Drive
Suite
800
McLean,
VA 22102
Re:
113,648,406 Shares
Common Stock $0.001 Par Value
|
Form
SB-2 Registration Statement
|
Ladies
and Gentlemen:
As
special securities counsel for Novastar Resources Ltd., a Nevada corporation
(the “Company”),
you
have requested my opinion in connection with the preparation and filing with
the
United States Securities and Exchange Commission of a Registration Statement
on
Form SB-2 (the “Registration
Statement”)
registering up to 113,648,406 shares
of
the Company’s common stock, $0.001 par value per share, which may be resold from
time to time by the selling stockholders. Of such shares,
(i) 91,001,827 are
outstanding upon the effective date of the Registration Statement, and
(ii) up to 22,646,579 shares are issuable upon the exercise of warrants
held by certain of the selling stockholders. The contents of the Registration
Statement, including the exhibits thereto, are incorporated by reference
herein.
I
have
examined such records and documents and made such examination of law as I
have
deemed relevant in connection with this opinion. Based on the foregoing,
and
subject to the caveats identified below, I am of the opinion that upon the
effective date of the Registration Statement, the 91,001,827 shares
referenced in the preceding paragraph, will be legally issued, fully-paid
and
non-assessable. Moreover, I am of the opinion that the 22,646,579 shares
referenced in the preceding paragraph will be legally issued, fully-paid
and
non-assessable upon the exercise of the applicable warrants in accordance
with
the terms thereof and upon payment of the exercise price to the Company.
My
opinion is limited to the due issuance of the shares by the board of directors
of the Company and is based upon Nevada corporate law and the judicial decisions
interpreting that law.
I
hereby
consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
/s/
Gary
R. Henrie
Gary
R.
Henrie
The
Board
of Directors
Novastar
Resources Ltd.
(An
Exploration Stage Company)
We
consent to the incorporation by reference in the Registration Statement of
Novastar Resources Ltd. (An Exploration Stage Company) on Form SB-2, pertaining
to 113,648,406 shares of its common stock, or our Report of Independent
Registered Public Accounting Firm, dated October 11, 2005, with respect to
the
financial statements of Novastar Resources Ltd. included in the annual report
on
Form 10-KSB, comprising the consolidated balance sheet as at June 30, 2005,
the
related consolidated statements of operations, stockholders’ deficiency and cash
flows for the year ended June 30, 2005 and for the cumulative period from
June
28, 1999 (inception) to June 30, 2005, as filed with the Securities and Exchange
Commission.
In
addition, we consent to the reference to us under the heading “Experts” in the
Registration Statement.
/s/
Telford Sadovnick, P.L.L.C.
TELFORD
SADOVNICK, P.L.L.C.
CERTIFIED
PUBLIC ACCOUNTANTS
Bellingham,
Washington
August
9,
2006
A
Professional Limited Liability Company of CERTIFIED PUBLIC
ACCOUNTANTS
[Missing
Graphic Reference]
5296
S. Commerce Dr., Suite 300, Salt Lake City, UT 84107 PHONE: (801) 281-4700
FAX:
(801) 281-4701
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the reference to our firm under the caption “Experts”, in the
Registration Statement (Form SB-2/A2) and related Prospectus of Novastar
Resources Ltd. and to the incorporation by reference therein of our report
dated April
5,
2006 on the financial statements of Thorium Power, Inc. appearing in this
Prospectus, which is part of this Registration Statement.
Child,
Van Wagoner & Bradshaw, PLLC
Salt
Lake
City, Utah
August
9,
2006